Tempus Ai,Inc.(TEM) - 2025 Q1 - Quarterly Report

Part I – Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the period, including balance sheets, operations, cash flows, and equity Item 1. Condensed Consolidated Quarterly Financial Statements (Unaudited) This section presents Tempus AI's unaudited Q1 2025 financial statements, including balance sheets, operations, cash flows, equity, and detailed notes Condensed Consolidated Balance Sheets This section presents the company's financial position, highlighting significant increases in total assets and stockholders' equity | Metric | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $1,543.1 | $926.1 | | Total Liabilities | $1,216.9 | $869.8 | | Total Stockholders' Equity | $326.2 | $56.3 | - Total assets increased significantly from $926.1 million at December 31, 2024, to $1,543.1 million at March 31, 2025, primarily driven by increases in goodwill and intangible assets due to business combinations[9] - Total stockholders' equity saw a substantial increase from $56.3 million at December 31, 2024, to $326.2 million at March 31, 2025[11] Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance, including revenue growth and net loss per share improvement | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Total net revenue | $255.7 | $145.8 | | Loss from operations | $(68.7) | $(53.3) | | Net Loss | $(68.0) | $(64.7) | | Net loss per share, basic and diluted | $(0.40) | $(1.47) | - Total net revenue increased by 75% year-over-year, from $145.8 million in Q1 2024 to $255.7 million in Q1 2025[13] - Net loss per share significantly improved from $(1.47) in Q1 2024 to $(0.40) in Q1 2025, despite a slight increase in total net loss[13] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | $(105.6) | $(101.4) | | Net cash (used in) provided by investing activities | $(375.8) | $17.0 | | Net cash provided by (used in) financing activities | $293.0 | $(1.4) | | Net decrease in Cash, Cash Equivalents and Restricted Cash | $(188.5) | $(85.8) | | Cash, cash equivalents and restricted cash, end of period | $153.3 | $80.8 | - Investing activities shifted from providing $17.0 million in Q1 2024 to using $375.8 million in Q1 2025, primarily due to business combinations[16] - Financing activities provided $293.0 million in Q1 2025, a significant increase from using $1.4 million in Q1 2024, mainly from new credit facilities[18] Condensed Consolidated Statements of Redeemable Convertible Preferred Stock, Common Stock and Stockholders' Equity (Deficit) This section details changes in the company's equity structure, including common stock issuances and accumulated deficit | Metric | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Class A Voting Common Stock (shares) | 167,989,074 | 157,076,972 | | Additional Paid-In Capital | $2,544.0 | $2,210.7 | | Accumulated deficit | $(2,218.9) | $(2,150.8) | | Total Stockholders' equity | $326.2 | $56.3 | - Total stockholders' equity increased substantially from $56.3 million at December 31, 2024, to $326.2 million at March 31, 2025, driven by increased additional paid-in capital and common stock issuances[21] - The accumulated deficit increased to $(2,218.9) million as of March 31, 2025, from $(2,150.8) million at December 31, 2024, reflecting ongoing net losses[21] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, business operations, and financial statement components 1. Description of Business Tempus AI, Inc. is a healthcare technology company leveraging AI and machine learning to improve patient care across multiple diseases - Tempus AI, Inc. is a healthcare technology company focused on applying AI and machine learning to improve patient care, combining lab test results with multimodal datasets[24] - The company primarily derives revenue from selling comprehensive genetic testing, licensing data to third parties, matching patients to clinical trials, and related services[24] - Tempus operates as one operating and reportable segment, with its CEO reviewing financial information on a consolidated basis for decision-making[26] 2. Summary of Significant Accounting Policies This section outlines the company's accounting policies, including consolidation, presentation, estimates, and emerging growth status - The condensed consolidated financial statements are prepared in accordance with GAAP and include all wholly-owned subsidiaries, with intercompany transactions eliminated[31] - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards[36][37] - Significant estimates are made for revenue, accounts receivable, stock-based compensation, operating lease liabilities, useful lives of assets, and fair value of acquired intangible assets[38] - New accounting pronouncements ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement Expenses) are effective for fiscal years beginning after December 15, 2024, and 2026, respectively, with the company evaluating their impact[39][40] 3. Revenue Recognition Tempus AI recognizes revenue from Genomics (lab services) and Data and services (data licensing, clinical trial support) - Revenue is primarily derived from Genomics (lab services) and Data and services (commercialization of lab-generated data, clinical trial support)[44] | Revenue Stream | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :--------------- | :-------------------------------------------- | :-------------------------------------------- | | Genomics | $193.8 | $102.6 | | Data and services| $61.9 | $43.3 | - Genomics revenue for clinical orders is determined by reducing standard charges by estimated variable consideration based on historical collections and reimbursement trends[48] - Data and services contracts often span multiple years but generally include customer opt-in or early termination clauses, making the contract period typically less than one year for revenue recognition purposes[50] - Remaining performance obligations related to multi-year contracts totaled $194.3 million as of March 31, 2025, with 59% expected to be recognized in the next year[60] 4. Business Combinations Tempus AI completed two significant acquisitions in Q1 2025: Ambry Genetics and Deep 6 AI, expanding capabilities - On February 3, 2025, Tempus acquired Ambry Genetics Corporation for $375.0 million in cash and 4,843,136 shares of Class A common stock (valued at $298.0 million), totaling $695.3 million[66][67][70] - The Ambry acquisition expands testing capabilities into inherited cancer risk, pediatrics, rare disease, immunology, women's reproductive health, and cardiology[68] - Ambry contributed $63.5 million in net revenue (Genomics) and $5.5 million in net income to Tempus's consolidated results for the three months ended March 31, 2025[75] - On March 11, 2025, Tempus acquired Deep 6 AI, Inc. for $4.3 million in cash and $13.1 million in Class A common stock, resulting in $21.1 million in goodwill[77][78] 5. Balance Sheet Components This section details the composition of property and equipment, net, and accrued expenses on the balance sheet | Property and Equipment (in millions) | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Total property and equipment, gross | $206.8 | $163.5 | | Property and equipment, net | $93.5 | $58.1 | - Depreciation expense for property and equipment increased to $7.9 million in Q1 2025 from $6.3 million in Q1 2024[83] | Accrued Expenses (in millions) | March 31, 2025 | December 31, 2024 | | :------------------------------ | :------------- | :---------------- | | Accrued compensation and employee benefits | $35.0 | $24.8 | | Accrued employer payroll tax related to stock-based compensation | $7.4 | $24.4 | | Total accrued expenses | $129.2 | $130.4 | 6. Goodwill and Intangibles Goodwill and intangible assets significantly increased in Q1 2025 due to the Ambry and Deep 6 acquisitions - Goodwill increased by $252.3 million during Q1 2025, primarily from the Ambry and Deep 6 acquisitions[85] - The company recorded significant additions to intangible assets in Q1 2025, including $234.0 million in customer relationships, $114.0 million in developed technology - biotech, $33.0 million in trade names, and $18.0 million in developed technology - software[87] | Intangible Assets (in millions) | March 31, 2025 (Net) | December 31, 2024 (Net) | | :------------------------------- | :------------------- | :---------------------- | | Customer relationships | $232.8 | $4.9 | | Developed technology - biotech | $110.2 | $0.0 | | Trade names | $36.5 | $4.6 | | Total Intangible Assets, Net | $399.5 | $11.7 | - Amortization expense for intangible assets was $12.5 million in Q1 2025, up from $2.9 million in Q1 2024, with a weighted average life of approximately six years[89] 7. Joint Venture Tempus AI formed SB Tempus Corp., a 50/50 joint venture with SoftBank Group Corporation in Japan, in July 2024 - Tempus AI formed SB Tempus Corp., a 50/50 joint venture with SoftBank Group Corporation, in Japan on July 18, 2024, with each party contributing ¥15 billion ($95.2 million)[91] - The joint venture is accounted for under the equity method, and Tempus's maximum exposure to loss is its $94.2 million investment carrying value as of March 31, 2025[92][93] - Tempus recognized $6.2 million in Data and services revenue from a Data License Agreement and $4.0 million in other (expense) income, net from an IP License Agreement with SB Tempus for the three months ended March 31, 2025[94][95] 8. Commitments and Contingencies Tempus AI has non-cancelable purchase obligations and is involved in various legal matters, including government inquiries - Future payments under non-cancelable purchase obligations, primarily for data licenses and cloud computing services, totaled $220.8 million as of March 31, 2025[96][97] | Year | Purchase Obligations (in millions) | | :--- | :-------------------------------- | | 2025 | $57.7 | | 2026 | $51.6 | | 2027 | $43.9 | | 2028 | $43.5 | | 2029 and thereafter | $24.1 | | Total | $220.8 | - The company is subject to various legal matters, including a Civil Investigative Demand from the U.S. Attorney's Office regarding False Claims Act and Anti-Kickback statute compliance, and patent infringement lawsuits with Guardant Health Inc[278][280] 9. Leases Tempus AI has non-cancelable operating lease agreements for office and lab space, with total lease costs of $4.1 million for Q1 2025 | Lease Cost Component (in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $2.1 | $1.7 | | Variable lease cost | $1.6 | $1.4 | | Total lease costs | $4.1 | $3.2 | - The weighted-average remaining lease term for operating leases is 5.8 years, with a weighted-average discount rate of 6.0% as of March 31, 2025[100] - Total minimum lease payments for operating leases are $67.6 million, with a present value of $57.0 million as of March 31, 2025[100] 10. Stockholders' Equity Tempus AI's stockholders' equity structure includes Class A and Class B common stock with differing voting rights - The company has Class A common stock (one vote per share) and Class B common stock (thirty votes per share), with Class B convertible to Class A under specific circumstances[104][105][106] - A warrant granted to AstraZeneca to purchase $100 million in Class A common stock was automatically cancelled and terminated for no consideration as AstraZeneca declined to extend its financial commitment[109][110] - In January 2023, the company repurchased 145,466 shares of non-voting common stock, accounted for as treasury stock[112] 11. Redeemable Convertible Preferred Stock Tempus AI issued Series G-4 and G-5 convertible preferred stock, which converted to common stock upon IPO - In October 2023, Tempus issued 785,245 shares of Series G-4 convertible preferred stock for $45.0 million[113] - In April 2024, the company issued 3,489,981 shares of Series G-5 convertible preferred stock for $200.0 million[114] - Upon the IPO in June 2024, all outstanding redeemable convertible preferred stock and accrued dividends automatically converted into 71,976,178 shares of Class A voting common stock and 5,043,789 shares of Class B voting common stock[115] 12. Stock-Based Compensation Tempus AI recognized $23.0 million in stock-based compensation expense in Q1 2025, primarily due to IPO-related vesting - Stock-based compensation expense totaled $22.974 million for the three months ended March 31, 2025, compared to zero in the same period of 2024[122] - The increase in stock-based compensation is primarily due to the full impact of RSU expiration extensions and the satisfaction of performance-based vesting conditions upon the IPO[117][122] - The 2024 Equity Incentive Plan, effective post-IPO, authorizes 7,430,000 shares of Class A common stock and includes an annual evergreen increase provision[119] 13. Debt Tempus AI amended its Credit Agreement in February 2025, securing new credit facilities and amending its Google convertible note - On February 3, 2025, Tempus entered into an Amendment Agreement for its Credit Agreement, providing an additional $200.0 million Term Loan Facility and a $100.0 million Revolving Credit Facility[123] - Proceeds from the new credit facilities were used to fund the cash consideration for the Ambry Acquisition and related fees[123] - Interest expense related to Term Loans was $12.5 million (effective rate 3.1%) and Revolving Credit Facility was $1.3 million (effective rate 1.3%) for Q1 2025[132] - The convertible promissory note with Google was amended on February 22, 2025, extending its maturity to December 31, 2030, and resetting the principal balance to $238.8 million[133][134] 14. Net Loss Per Share Attributable to Common Stockholders Tempus AI reported a basic and diluted net loss per share of $(0.40) for Q1 2025, an improvement from Q1 2024 | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stockholders | $(68.0) million | $(93.1) million | | Weighted-average common shares outstanding | 170,506 | 63,430 | | Net loss per share, basic and diluted | $(0.40) | $(1.47) | - Potentially dilutive shares, including unvested RSUs and RSAs, totaled 5,805,292 as of March 31, 2025, but were excluded from diluted EPS due to the net loss[138] 15. Income Taxes Tempus AI recorded an income tax benefit of $46.2 million for Q1 2025, primarily from a valuation allowance release due to the Ambry Acquisition - For Q1 2025, Tempus recorded an income tax benefit of $46.2 million, resulting from the release of a valuation allowance due to deferred tax liabilities from the Ambry Acquisition[142][143] - The company maintains a full valuation allowance on its U.S. federal and state deferred tax assets due to a history of losses[143] 16. Fair Value Measurements and Marketable Equity Securities Tempus AI measures marketable equity securities and holdback liabilities at fair value, recognizing a net loss in Q1 2025 - Marketable equity securities and holdback liabilities are classified as Level 1 fair value measurements, while contingent consideration is Level 1 post-IPO[146][149][150] | Fair Value Measurement (in millions) | March 31, 2025 | | :------------------------------------ | :------------- | | Marketable equity securities | $67.2 | | Holdback liability | $0.8 | - The company recognized a net loss of $31.8 million on marketable equity securities in Q1 2025, compared to a gain of $6.2 million in Q1 2024[159] - Unrealized losses on marketable equity securities still held at March 31, 2025, amounted to $35.1 million[159] 17. Related Parties Tempus AI has ongoing related party arrangements, including a strategic investment in Pathos AI, Inc. and various service agreements - Tempus has a strategic investment in Pathos AI, Inc., holding a warrant to purchase approximately 15% of Pathos's outstanding equity[161] - Revenue recognized from Pathos for Q1 2025 was $0.6 million, an increase from $0.1 million in Q1 2024[162] - As of March 31, 2025, $0.7 million was due from related parties, a decrease from $4.3 million at December 31, 2024[163] 18. Subsequent Events Subsequent to Q1 2025, Tempus AI entered new agreements with AstraZeneca and Pathos for oncology model development and data licensing - On April 17, 2025, Tempus entered into agreements with AstraZeneca and Pathos for the development of a foundational large multimodal model in oncology[164][165] - AstraZeneca will pay Tempus a fee of $35 million for the Foundational Model[165] - Pathos will pay Tempus data license fees of $200 million over a three-year period, including an upfront payment of $50 million, for a comprehensive de-identified multi-modal dataset[166] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Tempus AI's Q1 2025 financial condition and operational results Overview Tempus is a healthcare technology company focused on Intelligent Diagnostics, combining deep healthcare expertise with AI and data analytics - Tempus is a healthcare technology company focused on Intelligent Diagnostics, combining deep healthcare expertise with AI and data analytics to personalize medicine[176] - The company offers three product lines: Genomics (NGS diagnostics), Data (licensing de-identified data, clinical trial matching), and AI Applications (algorithmic diagnostics, clinical decision support tools)[178] | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :---------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenue | $255.7 | $145.8 | | Net loss | $(68.0) | $(64.7) | | Adjusted EBITDA | $(16.2) | $(43.9) | Acquisition of Ambry Genetics Corporation Tempus completed the acquisition of Ambry Genetics Corporation on February 3, 2025, funded by new credit facilities - Tempus completed the acquisition of Ambry Genetics Corporation on February 3, 2025, for $375.0 million in cash and 4,843,136 shares of Class A common stock[180] - The acquisition was funded by borrowings under an additional $200.0 million Term Loan Facility and a $100.0 million Revolving Credit Facility[181] Strategic Collaborations Tempus entered agreements with AstraZeneca and Pathos for an oncology model and data licensing, and has ongoing GSK and Recursion agreements - In April 2025, Tempus entered agreements with AstraZeneca and Pathos to develop a foundational large multimodal oncology model, with AstraZeneca paying Tempus $35 million and Pathos licensing data for $200 million over three years[182][183][184] - The warrant issued to AstraZeneca in November 2021, allowing purchase of up to $100 million in Class A common stock, was automatically cancelled and terminated for no consideration as AstraZeneca declined to extend its financial commitment[185][186] - Tempus has a Strategic Collaboration Agreement with GlaxoSmithKline (GSK) for a minimum commitment of $180 million for products and services through December 31, 2027[187] - Under the Recursion Agreement, Recursion Pharmaceuticals, Inc. will pay an initial license fee of $22 million and annual fees totaling up to $160 million for data and services, payable in cash, Class A common stock, or a combination[188][189] Factors Affecting Our Performance Key factors affecting performance include R&D investments, customer acquisition, technology investments, and payer coverage - Tempus expects to maintain high investments in R&D for new assays, algorithms, and expansion into new disease areas, with R&D expenses increasing by 47% YoY to $35.9 million in Q1 2025[191] - Customer acquisition and expansion are key, with offerings used by over 7,500 physicians and partnerships with 19 of the 20 largest public pharmaceutical companies[192][193] - Significant investments in technology are ongoing to improve user experience and data processing, with technology R&D expenses increasing by 23% YoY to $33.4 million in Q1 2025[194] - Payer coverage and reimbursement are critical, with an average reimbursement of approximately $1,590 per Oncology test in Q1 2025, up from $1,450 in Q1 2024, driven by increased Medicare rates[195][216] Components of Results of Operations Revenue is primarily from Genomics and Data and Services, with operating expenses including R&D and SG&A - Revenue is primarily derived from Genomics (Oncology and Hereditary testing) and Data and Services (data licensing, clinical trial matching, analytical services)[197][198][199] - Cost of revenues for Genomics is a higher percentage of revenue than for Data and Services[200] - Operating expenses include Cost of Revenues (Genomics, Data and Services), Technology Research and Development, Research and Development, and Selling, General and Administrative[201][202][203][204][205] - Interest income is from cash and cash equivalents, while interest expense is from the Second Amended Note and Credit Facilities[207][208] - Other (expense) income, net includes foreign currency gains/losses, marketable equity securities gains/losses, income from IP License Agreement, and changes in fair value of warrant assets/liabilities[209] Results of Operations This section details the company's Q1 2025 financial performance, including revenue, expenses, and net loss, with year-over-year comparisons | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | Change ($ in millions) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------- | | Total net revenue | $255.7 | $145.8 | $109.9 | 75% | | Genomics revenue | $193.8 | $102.6 | $91.2 | 89% | | Data and services revenue | $61.9 | $43.3 | $18.7 | 43% | | Total cost and operating expenses | $324.4 | $199.1 | $125.3 | 63% | | Loss from operations | $(68.7) | $(53.3) | $(15.4) | 29% | | Net Loss | $(68.0) | $(64.7) | $(3.3) | 5% | - Genomics revenue increased by 89% YoY, driven by a rise in Oncology tests (from 62,700 to 75,000) and the addition of 78,000 Hereditary tests from the Ambry acquisition, contributing $63.5 million[215][216][217] - Data and services revenue increased by 43% YoY, primarily due to increased demand for Insights products ($18.2 million) and growth from existing and new customers[218] - Selling, general and administrative expenses increased by 94% YoY to $154.6 million, mainly due to personnel costs ($23.7 million, including $14.8 million from Ambry), stock-based compensation ($16.0 million), and amortization of intangibles ($11.2 million from Ambry)[225] - Other (expense) income, net changed from a $0.7 million income in Q1 2024 to a $(27.5) million expense in Q1 2025, primarily due to a $38.1 million increase in unrealized losses on marketable equity securities[229] - A $46.2 million income tax benefit was recorded in Q1 2025, resulting from the release of a valuation allowance due to deferred tax liabilities from the Ambry Acquisition[230] Non-GAAP Financial Measure Adjusted EBITDA is used as a non-GAAP measure to assess operating performance, showing significant improvement in Q1 2025 - Adjusted EBITDA is used as a non-GAAP financial measure to assess operating performance, excluding interest, taxes, depreciation, amortization, equity method losses, fair value changes, stock-based compensation, acquisition-related expenses, and amortization of deferred other income[233] | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net loss | $(68.0) | $(64.7) | | EBITDA | $(77.7) | $(43.3) | | Adjusted EBITDA | $(16.2) | $(43.9) | - Adjusted EBITDA improved significantly from $(43.9) million in Q1 2024 to $(16.2) million in Q1 2025, indicating improved operating leverage[236] Liquidity and Capital Resources Tempus has incurred significant losses but believes current cash and anticipated cash flows will be sufficient for over twelve months - Tempus has incurred significant losses and negative cash flows, with an accumulated deficit of $2.2 billion as of March 31, 2025[237] - As of March 31, 2025, cash, cash equivalents, and restricted cash totaled $153.3 million[239] - The company believes its current cash, equivalents, marketable equity securities, and anticipated cash flows will be sufficient for over twelve months[240] - Net cash used in operating activities was $(105.6) million in Q1 2025, primarily due to net loss and increases in accounts receivable[253] - Net cash used in investing activities was $(375.8) million in Q1 2025, mainly due to $380.8 million cash paid for the Ambry and Deep 6 acquisitions[255] - Net cash provided by financing activities was $293.0 million in Q1 2025, from $196.0 million in Additional Term Loan Facility proceeds and $98.0 million from the Revolving Credit Facility[257] Off-Balance Sheet Arrangements Tempus AI did not have any off-balance sheet financing arrangements or relationships during the period presented - Tempus AI did not have any off-balance sheet financing arrangements or relationships with unconsolidated entities or financial partnerships during the period presented[259] Critical Accounting Policies and Estimates No material changes to critical accounting policies and estimates occurred during Q1 2025 - There have been no material changes to critical accounting policies and estimates during Q1 2025, as described in the Form 10-K for the year ended December 31, 2024[261] - Business combinations are accounted for using the acquisition method, allocating purchase price to acquired assets and liabilities based on estimated fair values, with any excess recorded as goodwill[262] Recent Accounting Pronouncements This section refers to the relevant note for information on recently issued accounting standards - Refer to Note 2 for information on recently issued accounting pronouncements[263] Emerging Growth Company Status Tempus AI is an 'emerging growth company' under the JOBS Act, allowing certain exemptions from reporting requirements - Tempus AI is an 'emerging growth company' under the JOBS Act, allowing it to take advantage of certain exemptions from reporting requirements, such as auditor attestation and executive compensation disclosures[264][265] - The company has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards, which may affect comparability with non-emerging growth companies[266] Item 3. Quantitative and Qualitative Disclosures About Market Risk Tempus AI is exposed to market risks primarily from fluctuations in interest rates and foreign currency exchange rates - Market risk exposure is primarily due to fluctuations in interest rates and foreign currency exchange rates[267] - As of March 31, 2025, $575.7 million was outstanding under Term Loan Facilities and Revolving Credit Facility, subject to variable interest rates; a hypothetical 100 basis point change would not be material[268] - Foreign currency risk is currently insignificant, but is expected to increase with international market expansion, though a hypothetical 10% change would not be material as of March 31, 2025[269] - The company is also exposed to inflation risk, which could impact gross margin and operating expenses[270] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of March 31, 2025, concluding they were effective - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of March 31, 2025[271] - No material changes in internal control over financial reporting occurred during the period covered by the report[272] - Management acknowledges that internal controls have inherent limitations and cannot provide absolute assurance against misstatements or fraud[273] Part II – Other Information This section covers additional disclosures, including legal proceedings, risk factors, equity sales, and other corporate information Item 1. Legal Proceedings Tempus AI is involved in various legal proceedings, including a Civil Investigative Demand and patent infringement lawsuits - Tempus received a Civil Investigative Demand (CID) from the U.S. Attorney's Office regarding compliance with the False Claims Act and Anti-Kickback statute, specifically the Medicare 14-Day Rule[278] - Guardant Health Inc. filed a complaint alleging Tempus's liquid biopsy products infringe five U.S. patents, seeking injunctive relief and monetary damages[280] - Tempus filed counterclaims against Guardant under the Lanham Act for false and misleading advertisements and a separate patent infringement complaint against Guardant[280] Item 1A. Risk Factors No material changes to previously disclosed risk factors were identified during the first quarter of fiscal 2025 - No material changes to the previously disclosed risk factors were identified during the first quarter of fiscal 2025[283] - Investors should consider the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as they could materially adversely affect the business[282] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Tempus AI issued Class A common stock for an acquisition and used IPO proceeds for tax withholding and working capital - Tempus issued 269,280 shares of Class A common stock to former stockholders of Deep 6 AI, Inc. on March 11, 2025, under Section 4(a)(2) and/or Rule 506 of Regulation D[285] - The company received net proceeds of $382.0 million from its IPO on June 17, 2024[286] - A portion of IPO proceeds was used for tax withholding and remittance obligations related to RSU Net Settlement and for working capital in Q1 2025, with no material change in expected use[287] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[288] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[289] Item 5. Other Information This section discloses Rule 10b5-1 trading arrangements adopted or modified by directors and officers during Q1 2025 | Name and Position | Action | Date | Rule 10b5-1* | Total Shares of Class A common stock to be Sold | | :------------------------------------------ | :------- | :----------- | :----------- | :---------------------------------------------- | | Nadja West, Director | Adoption | Dec 3, 2024 | X | 8,443 | | Eric Lefkofsky, CEO, Founder and Director | Adoption | Feb 27, 2025 | X | 1,995,000 | | Eric Lefkofsky, CEO, Founder and Director | Modification | Mar 4, 2025 | X | 3,990,000 | | Ryan Bartolucci, Chief Accounting Officer | Adoption | Mar 14, 2025 | X | To Be Determined | - Eric Lefkofsky, CEO, adopted a Rule 10b5-1 trading plan on February 27, 2025, for 1,995,000 shares, which was modified on March 4, 2025, to 3,990,000 shares[292][295] - Ryan Bartolucci, Chief Accounting Officer, adopted a Rule 10b5-1 trading plan on March 14, 2025, for up to 100% of net shares received upon RSU vesting, with the exact number indeterminable[292][295] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, debt agreements, and officer certifications - Key exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, filed on June 17, 2024[296] - The Third Amendment to Credit Agreement and First Amendment to Guarantee and Collateral Agreement, dated February 3, 2025, is also listed[296] - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[296] Signatures The report is signed by Eric Lefkofsky, CEO, Founder and Chairman, and James Rogers, CFO, on May 6, 2025, certifying its submission - The report is signed by Eric Lefkofsky, CEO, Founder and Chairman, and James Rogers, CFO, on May 6, 2025[301]