Tempus AI (TEM) Q4 2025 earnings review
Operating Leverage Reached, But Hyper-Growth Normalizes Post-M&A
Tempus AI achieved a major milestone in Q4 by accelerating its Adjusted EBITDA to $12.9 million, proving the underlying operating leverage of its platform. Top-line results were impressive at first glance, with revenue surging 83% YoY to $367.2 million. However, this headline number masks a normalizing organic trajectory. Excluding the Ambry acquisition, organic growth was 33.5%. Looking ahead, management's FY26 guidance projects ~25% revenue growth—a sharp deceleration from FY25's acquisition-fueled run. While the company's $1.1B+ total contract value and 126% net revenue retention provide strong visibility, investors must now value Tempus on its 25% organic growth rate and weigh its non-GAAP profitability against heavy stock-based compensation.
🐂 Bull Case
The company generated positive Adjusted EBITDA for the second consecutive quarter ($12.9M), demonstrating that its massive investments in data and sequencing infrastructure are finally yielding operating leverage.
The Data and Applications segment boasts over $1.1B in Total Remaining Contract Value with 126% Net Revenue Retention, effectively locking in recurring revenue from top pharma companies to build AI foundation models.
🐻 Bear Case
FY26 revenue guidance of ~25% represents a drastic slowdown from the 83.4% posted in FY25, indicating that the Ambry acquisition 'sugar high' is over and baseline organic growth is moderating.
While Adjusted EBITDA is positive, Q4 GAAP Net Loss was ($54.2M). The profitability narrative is heavily subsidized by $48.7M in stock-based compensation, diluting shareholders to fund operations.
⚖️ Verdict: ⚪
Neutral. Management successfully proved the business model can scale to positive Adjusted EBITDA. However, the drastic deceleration in guided FY26 revenue growth and persistent GAAP net losses due to SBC limit further multiple expansion.
Key Themes
Operating Leverage and Gross Margin Expansion
Accelerating. Tempus is successfully driving economies of scale across its testing network. Gross profit increased 94.7% YoY in Q4, outpacing revenue growth (83.0%). Q4 gross margin expanded to 64.7% (up from 60.8% in 24Q4). This leverage directly fueled the positive $12.9M Adjusted EBITDA print, proving unit economics are fundamentally sound.
Quality of Earnings Contradicts Profitability Narrative
Stable but problematic. Management heavily touts the achievement of positive Adjusted EBITDA ($12.9M). However, this directly contradicts the bottom-line reality: GAAP Net Loss was $54.2M in Q4. The bridge between these two numbers is heavily built on $48.7M of stock-based compensation and related taxes in a single quarter. Until SBC is reined in, the 'profitability' narrative remains artificial and highly dilutive.
MRD Volume Ramping Quickly
Accelerating. Minimal Residual Disease (MRD) test volume hit ~4,700 in Q4, up a massive 56% sequentially from Q3. In previous quarters, management noted they were 'metering' this volume due to lack of Medicare (MolDx) reimbursement. This sequential explosion suggests either Tempus has removed the governor on testing to capture market share, or they are anticipating imminent reimbursement catalysts.
Reimbursement Infrastructure for AI (Macro Risk)
Stable. The broader U.S. healthcare payment system currently lacks a defined mechanism for reimbursing 'dry lab' algorithms and software insights independent of physical testing. While Tempus has a vast portfolio of AI tools, monetizing them at the clinical level remains gated by a systemic macro roadblock. CEO Lefkofsky has previously called this a required 'NVIDIA moment' shift in healthcare that has not yet materialized.
Data Licensing Momentum & Pharma Buy-In
Stable. Data and Applications revenue grew 25.1% in Q4, but 'Insights' (data licensing) specifically grew 69.5% when excluding a one-time AstraZeneca warrant impact from the prior year. Ending the year with a staggering 126% Net Revenue Retention proves that large pharma partners are deeply embedded in Tempus's multimodal datasets for R&D.
Revenue Growth Normalizing Post-M&A
Decelerating. FY25 total revenue grew 83.4%, but this was heavily skewed by the February 2025 Ambry Genetics acquisition. Q4 organic growth (excluding Ambry) was 33.5%. With Ambry now fully integrated into the baseline, the FY26 guidance projects ~25% growth. Investors pricing Tempus as an 80%+ hyper-growth asset must urgently recalibrate their models to this new, lower organic reality.
Other KPIs
Grew 121.6% YoY, representing 72% of total revenue. Volume growth was balanced between Oncology (+29%) and Hereditary testing (+23%). This remains the core cash engine of the company, feeding the data flywheel.
Stable. Represents immense forward-looking revenue visibility, primarily driven by long-term strategic collaborations with 19 of the top 20 large pharma companies. This insulates Tempus from broader biotech funding volatility.
Reversing trajectory from burn to stability. Benefiting from the Q2 issuance of $750M in convertible senior notes, the balance sheet is fortified. Operating cash flow burn should narrow drastically in FY26 given the Adjusted EBITDA guidance.
Guidance
Decelerating. Implies ~25% YoY growth compared to the 83.4% growth generated in FY25. This reflects the organic baseline of the company now that the inorganic bump from the Ambry Genetics acquisition has been annualized.
Accelerating. Implies a massive improvement from FY25's result of ($7.4 million). Reaching an implied 4% margin run-rate proves out the operating leverage model, though it relies heavily on excluding stock-based compensation.
Key Questions
SBC Normalization Timeline
Given the massive $136 million in stock-based compensation dragging down GAAP profitability in FY25, what is the trajectory for SBC as a percentage of revenue in FY26 and beyond? When will GAAP Net Income reflect the operating leverage seen in Adjusted EBITDA?
MRD Reimbursement Status
With MRD volume surging 56% sequentially to 4,700 tests in Q4, are these volumes still being 'metered,' or are you aggressively pursuing market share ahead of a formal MolDx coverage decision?
Data Segment Deceleration
Data and Applications revenue grew 25.1% in Q4, down from 43.2% in Q1. While Insights licensing remains strong, what is driving the broader segment deceleration, and how does the Paige AI acquisition fit into reigniting growth here?