Tempus AI (TEM) Q3 2026 earnings review
Tempus AI profit jumps, but its genetic screening growth stalls
Tempus AI, a medical testing and health-data company, grew faster in cancer testing and software while its inherited-disease screening business almost stalled. Total revenue rose 23% to $411.5 million as chief executive Eric Lefkofsky pointed to 32% unit growth in cancer tests and 33% revenue growth in Data and Applications. Adjusted EBITDA reached $25.6 million, above what the company's own plan pointed to, and management raised the bottom of its full-year sales outlook by $5 million.
| Revenue | $411.5M +23% from a year ago |
|---|---|
| Third-party Data revenue (by our math) | $86.0M +71% from a year ago |
| Adjusted EBITDA | $25.6M $15–20M planned |
| Full-year revenue outlook | Raised $2.5M middle of the range: 26% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because outside drugmakers drove the data growth and the big profit beat took the pressure off the fourth-quarter target. By our math, data sales to third-party customers jumped 71% as related-party revenue shrank, and the company now needs $34 million of fourth-quarter Adjusted EBITDA to meet its $65 million full-year plan. The bad news: hereditary testing revenue growth slowed to 3%, breaking management's promise of a second-half recovery.
The question now is whether the slowdown in hereditary screening is a temporary comparison issue after last year's buyout or a lasting loss of pricing power. If it is just a tough comparison, growth should rebound toward management's mid-teens target; if competitors are taking share, the drag on diagnostics will persist. Fourth-quarter hereditary revenue growth and the first 2027 outlook will settle it.
🐂 Bull Case
Third-Party Data Sales Grew 71% Without Related Parties
Data and Applications is the division that licenses patient records and analytic tools to drugmakers. Critics have worried that this business relies too heavily on Pathos AI, a company co-founded by Tempus chief executive Eric Lefkofsky, and on a joint venture called SB Tempus. In the third quarter, total division revenue grew 33% from a year ago, beating the company's 28% plan even as sales to both related parties fell.
- Data revenue from outside customers: $86.0 million, up 71% from $50.2 million a year ago by our math
- Pathos AI revenue: $22.1 million, down 11% from $24.9 million a year ago
- SB Tempus revenue: $0, down from $6.3 million a year ago after that contract ended in March
- New data licensing contracts signed: over $550 million so far in 2026, following an October deal with Bristol Myers Squibb
This matters because outside drugmakers more than replaced the lost joint-venture sales and the dip in Pathos billings. Without the ended SB Tempus contract, division revenue grew 44% by our math. In October, Bristol Myers Squibb signed a five-year cancer data deal worth up to $137.5 million and teamed up with Pathos on a $55 million Alzheimer's license, "extending Tempus’ data and modeling platform beyond oncology".
What to watch: the multi-year contract backlog in the third-quarter filing. A rise from the $395.3 million recorded in June will confirm that the new bookings are non-cancelable commitments rather than short-term options.
Lower Research and Data Costs Drove the Profit Beat
Adjusted EBITDA — earnings before interest, taxes, depreciation, amortization, and stock pay — is the profit measure management uses to run the business. Skeptics doubted the full-year target of $65 million because Tempus earned only $5.2 million in the first half and missed a similar back-half target last year. In the third quarter, the healthcare group delivered $25.6 million, beating the $17.5 million middle of its outlook range by 46%.
Two cost lines drove the improvement. First, the cost of delivering data and software fell by 3.0 percentage points of segment revenue, lifting Data and Applications gross margin to 71.5% from 68.5% a year ago and reversing a second-quarter dip. Second, combined research and development costs, excluding one-offs, dropped by 3.3 percentage points of total revenue to 18.8%, while sales and overhead expenses edged down 0.5 points to 43.6%.
Because third-quarter profit was so strong, the fourth quarter now needs $34.2 million of Adjusted EBITDA by our math to reach the unchanged $65 million full-year plan. That is a 7.4% margin on implied fourth-quarter sales, up only 1.2 percentage points from the 6.2% margin achieved this quarter. What to watch: fourth-quarter Data gross margin. Holding above 71% during the peak data-delivery season will make the full-year profit target achievable.
Cancer Testing Accelerated as Acquisition Cleared Review
Diagnostics, which runs genetic tests on patient tissue and blood samples, generates nearly three-quarters of company revenue. Critics have pointed out that its fastest-growing product — Minimal Residual Disease (MRD) testing, which checks blood for tiny traces of returning cancer — brings in almost no revenue until insurers cover it, and requires buying partner Personalis to capture the profit.
"Q3 was another record quarter, as we delivered $411.5 million of revenue, led by accelerating unit growth of 32% in our oncology business and increasing momentum of 33% revenue growth in Data & Applications," chief executive Eric Lefkofsky said. Cancer test volume growth picked up from 28% in the first quarter and 31% in the second. MRD volume reached about 12,000 tests, up 300% from a year ago and 33% from last quarter.
On the deal front, the pending buyout of Personalis cleared regulatory review, and Personalis shareholders will vote on the transaction on November 30, 2026. Clearing antitrust review removes the main legal hurdle to bringing MRD test economics in-house. What to watch: the final cash-and-stock split when the Personalis deal closes. Paying up to half the price in cash will limit share dilution.
🐻 Bear Case
Genetic Screening Slowed Further Against the Recovery Promise
Tempus entered hereditary testing — screening patients for inherited disease risks — when it bought Ambry Genetics in February 2025. For three straight quarters, executives told investors that hereditary revenue growth would speed up in the second half of 2026 and reach a mid-teens pace by the end of the year.
Instead, hereditary revenue growth slowed to 3% from a year ago in the third quarter, down from 5% in the second quarter. That dragged total Diagnostics revenue growth down to 20%, a 12-point gap below the 32% unit growth in cancer testing. The slowdown directly contradicts the company's prior outlook that hereditary growth would improve in the second half.
What to watch: fourth-quarter hereditary revenue growth against the 15% year-end target. A third straight quarter of single-digit growth will show that the inherited-risk screening market is facing tougher competition rather than just a tough comparison from last year.
Equity Gains and Stock Pay Still Dominate Bottom Line
While Adjusted EBITDA is positive, standard accounting profit tells a different story. Tempus reported a net loss of $14.9 million in the third quarter, which looked much smaller than the $80.0 million loss a year ago only because the company recorded $42.8 million in paper gains on stocks it holds.
- Operating loss: $56.9 million, compared with $61.0 million a year ago
- Stock-based pay and related taxes: $50.8 million, or 12.3% of revenue, up from $35.0 million a year ago
- Net loss without investment fair-value changes: $56.3 million by our math
- Related-party bills paid in stock: $17.5 million of Pathos receivables settled in preferred shares over nine months
Excluding investment gains, the business still loses more than $50 million a quarter after counting employee stock grants. In addition, collecting $17.5 million of Pathos bills in preferred stock rather than cash keeps related-party revenue from turning into operating cash flow. What to watch: fourth-quarter stock-based pay. Staying under $42 million is needed to keep full-year stock grants within the $200 million plan.
Risks this quarter didn't answer
Four standing questions about pricing and contract durability got no new numbers in the earnings release and await the conference call or quarterly filing.
- Cancer test pricing and migration: average revenue per oncology test and the share of volume moved to the FDA-approved xT CDx test were not in the release; both are needed to judge the planned $85 million price lift in 2027.
- MRD test pricing: the release gave test volume (~12,000) but no revenue or price per test; any figure showing when the test reaches break-even will clarify when sales-force coverage expands beyond 10%.
- Total contract value and retention: neither total remaining contract value nor net revenue retention was updated; the quarterly filing's footnote on non-cancelable obligations will show how much of the $550 million in bookings is locked in.
- AstraZeneca commitment: the release did not state whether AstraZeneca exercised its option to raise its minimum spending commitment from $220 million to $320 million before December 2026.
👓 Other Themes
New Drug and Heart Collaborations Expand the Platform
Tempus signed a deal with Merck and Moderna to "support the potential commercialization of intismeran autogene", a personalized cancer treatment tested with Merck's Keytruda. The US Food and Drug Administration also cleared two heart-monitoring algorithms, Tempus ECG-PH and ECG-MR, "expanding our non-invasive AI cardiology footprint". Finally, the group started a multi-year project to build a research database of 100,000 whole genomes linked to patient records.
💲 Other KPIs
Operating cash flow turned positive in the third quarter at $9.2 million by our math, reversing an $80.8 million cash burn across the first half of the year. After subtracting $14.8 million of equipment purchases and software development costs, free cash flow was negative $5.5 million, as interest expense fell 56% from a year ago to $6.7 million.
Total deferred revenue — cash customers have paid upfront for services not yet delivered — fell 5.8% from December to $106.4 million by our math, down for a second straight quarter. Over the same nine months, accounts receivable — bills sent to customers but not yet collected — rose 22.4% to $380.7 million, consuming $71.8 million of working capital.
The average share count rose 3.6% from a year ago and 0.8% from the second quarter to 181.3 million shares. The increase stems from ongoing employee stock grants and shares issued for acquisitions, before counting any new stock that will be issued when the Personalis purchase closes.
🔮 Guidance
Raised. The company lifted the bottom of its full-year sales range by $5 million, moving the middle of the range up $2.5 million to $1.6025 billion, or 26% growth. By our math, that leaves $460.4 million for the fourth quarter, up 25.4% from a year ago versus 23.1% this quarter. It is the third raise this year, and the smallest: +$5M, +$5M, +$2.5M.
Unchanged. Management kept its full-year Adjusted EBITDA plan at about $65 million, a $72.4 million improvement over 2025, even after beating its third-quarter target by $8.1 million at the middle of the range. By our math, that leaves $34.2 million for the fourth quarter, or a 7.4% margin on implied fourth-quarter sales, compared with $12.9 million in the fourth quarter of 2025.
❓ Key Questions
Why keep the $65 million profit plan after beating Q3?
Third-quarter Adjusted EBITDA beat the middle of the company's plan by $8.1 million, yet full-year target stayed at $65 million. Investors need to know whether fourth-quarter costs will step up or if management is simply holding back the extra profit.
Why did hereditary screening slow to 3% against your plan?
Executives promised for three quarters that hereditary revenue growth would speed up toward a mid-teens rate in the second half. Instead, growth slowed from 5% in the second quarter to 3% in the third, raising questions about pricing and competition.
What share of cancer tests moved to the FDA-approved version?
Management's plan for an $85 million revenue boost in 2027 depends on moving almost all solid-tumor DNA tests onto the FDA-approved xT CDx test by the end of 2026. The release did not disclose the current share or average test price.
Why did Tempus take $17.5 million of Pathos stock?
The cash flow statement shows Tempus settled $17.5 million of bills owed by related party Pathos AI in preferred stock rather than cash during the first nine months, up from $8.8 million through June. Cash collection terms on Pathos contracts need clarification.