Financial Analysis

"4. BUSINESS COMBINATIONS Paige.AI, Inc. On August 22, 2025, (the ""Paige Closing Date""), the Company completed its acquisition (the ""Paige Acquisition"") of Paige.AI, Inc. (""Paige""), a Delaware corporation, pursuant to an Agreement and Plan of Merger. Paige is an AI company specializing in digital pathology. The Paige Acquisition is expected to allow the Company to grow its dataset and establish a strong footprint in digital pathology with an industry leading technology portfolio. The Company acquired all of the issued and outstanding shares of Paige. The acquisition resulted in goodwill of $ 141.1 million. No goodwill is expected to be deductible for tax purposes. The aggregate acquisition date fair value of consideration for the Paige Acquisition totaled $ 101.5 million. Consideration consisted of $ 3.0 million of cash and the issuance of an aggregate of 1,256,977 shares of the Company's Class A common stock (the ""Paige Stock Consideration""), which was valued at $ 80.52 per share, the closing price of the Company's Class A common stock on the Paige Closing Date. A portion of the Paige Stock Consideration was paid to employees as consideration for transaction bonuses. Paige will pay approximately $ 3.2 million to fulfill employee tax obligations related to the issuance, of which $ 3.0 million has been paid as of December 2025. The equivalent was withheld from those employees in the Company's Class A common stock and included in treasury stock. In accordance with the t …

BusinessCombinationDisclosureTextBlock · excerpt; the full note is in the filing

8. COMMITMENTS AND CONTINGENCIES Purchase Obligations The Company has entered into non-cancelable arrangements with third parties, primarily related to data licenses and cloud computing services. Where applicable, the Company calculates its obligation based on termination fees that can be paid to exit the contract. The data license agreements include committed payments for access to the data and additional payments contingent on the commercialization of such data. For the three months ended June 30, 2026 and 2025, the Company recognized data licensing and cloud computing expenses of $ 12.1 million and $ 9.1 million, respectively, related to non-cancelable arrangements. For the six months ended June 30, 2026 and 2025, the Company recognized data licensing and cloud computing expenses of $ 24.1 million and $ 23.3 million, respectively, related to non-cancelable arrangements. As of June 30, 2026, future payments under these contractual obligations were as follows (in thousands): 7/1/2026 - 12/31/2026 25,710 2027 75,793 2028 29,517 2029 24,225 2030 2,667 2031 Total purchase obligations 157,912 Less: Current portion of purchase obligations 44,041 Total long-term purchase obligations $ 113,871 Legal Matters From time to time, the Company may be involved in various legal proceedings, including commercial claims from customers and vendors, potential lawsuits seeking damages and/or injunctive relief, employment disputes, subpoenas, government investigations, regulatory or administrati …

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"12. DEBT Convertible Senior Notes due 2032 On May 12, 2026, the Company completed a private offering (the 2026 Offering) of $ 460.0 million aggregate principal amount of 0.00 % Convertible Senior Notes due 2032 (the 2032 Notes). The Company's net proceeds from the 2026 Offering were $ 441.9 million, after deducting the initial purchasers' discount and commissions and offering expenses payable by the Company. The 2032 Notes are general unsecured obligations of the Company and will mature on May 15, 2032 . The 2032 Notes will not bear regular interest, and the principal amount of the 2032 Notes will not accrete. The 2032 Notes are convertible at the option of the holders prior to February 15, 2032, only upon satisfaction of one or more of the following conditions: (1) During any calendar quarter commencing after the calendar quarter ending on September 30, 2026, if the last reported sale price of the Companys Class A common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2032 Notes on each applicable trading day; (2) During the five business day period after any ten consecutive trading day period (the measurement period) in which the trading price per $ 1,000 principal amount of the 2032 Notes for each trading day of the measurement period was less than 98 % of the product …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

11. STOCK-BASED COMPENSATION 2015 Stock Plan In 2015, the Company adopted the Tempus AI, Inc. 2015 Stock Plan (the 2015 Plan), which has been amended and restated numerous times to increase the aggregate shares authorized to be issued to employees, consultants, and directors of the Company. As of December 31, 2023, there were 28,115,750 shares authorized under the 2015 Plan. After the IPO, no further grants will be made under the 2015 Plan. 2024 Equity Incentive Plan In February 2024, the Companys board of directors adopted, and in April 2024, the Companys stockholders approved, the 2024 Equity Incentive Plan (the 2024 Plan), which became effective in connection with the IPO in June 2024. The 2024 Plan provides for the grant of incentive stock options, (ISOs) nonstatutory stock options, stock appreciation rights, RSUs, restricted stock unit awards (RSAs), performance-based restricted stock awards (PSUs) and other awards. The original maximum number of shares of Class A common stock that may be issued under the 2024 Plan was 7,430,000 shares of the Companys Class A common stock and automatically increases on January 1 of each year, beginning on January 1, 2025 and continuing through and including January 1, 2034 in an amount equal to either (i) a number of shares of the Companys Class A common stock (the Evergreen Increase), such that the sum of (x) the remaining number of shares available under the 2024 Plan and (y) the Evergreen Increase is equal to 5 % of the total number o …

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"15. FAIR VALUE MEASUREMENTS AND MARKETABLE EQUITY SECURITIES Fair Value Measurements The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, minimum royalties, accounts payable, and accrued expenses approximate fair value due to the short maturity of these instruments. The carrying amounts of the related party receivable and minimum royalties approximate fair value because the interest rates used fluctuate with market interest rates or the fixed rates are based on current rates offered to the Company for debt with similar terms and maturities. The valuation methodologies used for the Companys assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below: Marketable equity securities The Company holds marketable equity securities, all of which are publicly traded shares of common stock, which have quoted prices in active markets and are classified as short-term. The securities are measured at fair value each reporting period. The Company classifies the marketable equity securities as Level 1 as they are valued using quoted market prices at each reporting period. Holdback liability The Company held back 13,614 shares in connection with the Deep 6 acquisition and 70,792 shares in connection with the Paige acquisition. See Note 4, Business Combinations for further discussion of those acquisitions. For all holdback liabilities, the number of shares are fixed at the acquisitio …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

14. INCOME TAXES Accounting for income taxes for interim periods generally requires the provision for income taxes to be determined by applying an estimate of the annual effective tax rate for the full fiscal year to income or loss before income taxes, adjusted for discrete items, if any, for the reporting period. The Company updates its estimate of the annual effective tax rate each quarter and makes a cumulative adjustment in such period. For the three and six months ended June 30, 2026, the Company recorded an income tax expense of $ 0.3 millio n and $ 0.2 million, respectively. The effective tax rate for the three and six months ended June 30, 2026 differs from the statutory federal income tax rate primarily due to the Company's full valuation allowance position in the US which prevents the Company from benefiting current year losses. Due to the Companys history of losses in the United States, a full valuation allowance on all other deferred tax assets, including net operating loss carryforwards and other book versus tax differences, was maintained. The Company will continue to evaluate the realizability of its deferred tax assets on a quarterly basis and adjust the valuation allowance as necessary based on the weight of available evidence. For the three and six months ended June 30, 2025, the Company recorded an income tax expense of $ 0.2 million and income tax benefit of $ 46.0 million. This benefit was the result of a discrete tax benefit of $ 46.2 million recorded fr …

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9. LEASES The Company has entered into various non-cancelable operating lease agreements, primarily for the rent of office and lab space, with expirations at various dates through 2036. Lease cost is recognized on a straight-line basis over the lease term. Variable lease costs, which include items such as real estate taxes, common area maintenance, utilities and storage are not included in the calculation of the right-of-use assets and are recognized as incurred. The components of total lease costs for the three and six months ended June 30, 2026 and 2025 are as follows (in thousands): For the Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Operating lease cost $ 3,394 $ 2,484 $ 6,896 $ 4,573 Variable lease cost 1,415 1,953 3,456 3,598 Short-term lease costs 170 219 364 644 Sublease income ( 375 ) ( 45 ) ( 754 ) ( 89 ) Total lease costs $ 4,604 $ 4,611 $ 9,962 $ 8,726 Lease term and discount rate as of June 30, 2026 and December 31, 2025 are as follows: June 30, 2026 December 31, 2025 Weighted-average remaining lease term (in years) Operating leases 6.7 7.0 Weighted-average discount rate Operating leases 6.1 % 6.1 % As of June 30, 2026, the future payments under operating leases for each of the next five years and thereafter are as follows (in thousands): Operating Leases 7/1/2026 - 12/31/2026 6,290 2027 17,953 2028 16,704 2029 15,015 2030 12,504 2031 12,743 Thereafter 22,146 Total minimum lease payments 103,355 Less: Amount representing interest 19, …

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"16. RELATED PARTIES Strategic Investment The Company's Founder and Chief Executive Officer is a co-founder and serves as Executive Chairman of the board of Pathos AI, Inc. (""Pathos""). On August 19, 2021, the Company entered into a Master Agreement with Pathos, which was subsequently amended on February 12, 2024 (as amended, the ""Amended and Restated Master Agreement""), for the purpose of furthering the commercialization efforts of drug development. In connection therewith, the Company received a warrant to purchase 23,456,790 shares, or approximately 15 % of the current outstanding equity in Pathos, for $ 0.0125 per share. The warrant will automatically exercise upon a change of control (as defined therein) or upon an IPO of Pathos securities. The Company also has an optional exercise election window during the last 10 days of the 20 year term of the warrant agreement. The Amended and Restated Master Agreement provides for an initial term of five years, measured from February 2024, with a subsequent five-year renewal provision unless the agreement is terminated. Either party may terminate the agreement after the initial five-year term by prior written notice to the other party. On April 17, 2025, the Company entered into an Order Form (the ""Order Form"") regarding both the development of a foundation large multimodal model in the field of oncology (the Foundation Model) and the licensing of certain de-identified multi-modal data to assist in the development of the Found …

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"3. REVENUE RECOGNITION The Company derives revenue from selling lab services (Diagnostics) to physicians, genetic counselors, academic research institutions, and other parties. The Company also derives revenue from the commercialization of data generated in the lab (Data and applications) through the licensing of de-identified datasets to third parties and by providing clinical trial support, such as matching patients to clinical trials enrolled in its clinical trial network, and related services. The majority of the Companys revenue is generated in North America. The Company accounts for revenue in accordance with Financial Accounting Standards Board (FASB) ASC 606 Revenue from Contracts with Customers (ASC 606). The Company commences revenue recognition when control of these products is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for such products. This principle is achieved by applying the five-step approach: (i) the Company accounts for a contract when it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance and (v) collectability of consideration is probable. Revenues and any contract assets are not recognized until such time that the required conditions are met. Disaggregation of Revenue The Company provides disaggregation of revenue based on Diagnostics and Data and applicatio …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing

"2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation The condensed consolidated financial statements include the accounts of Tempus AI, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the SEC) regarding interim financial information and include the assets, liabilities, revenue and expenses of all wholly owned subsidiaries. Investments in unconsolidated entities in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence, are accounted for under the equity method of accounting. Investments in unconsolidated entities in which the Company is not able to exercise significant influence are accounted for under the cost method of accounting. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been omitted. Accordingly, the unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Companys Form 10-K for the year ended December 31, 2025. The un …

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"10. STOCKHOLDERS EQUITY Common Stock Prior to the initial public offering of the Companys Class A common stock (IPO), the Company had authorized two classes of common stock, voting and non-voting. In March 2021, the Company amended its certificate of incorporation to bifurcate the voting common stock into two classes, Class A common stock and Class B common stock. In connection with the IPO, a further amendment to the Company's certificate of incorporation became effective, which authorized 1,000,000,000 shares of Class A common stock, 5,500,000 shares of Class B common stock, and 20,000,000 shares of preferred stock. In connection with the Company's reincorporation from Delaware to Nevada, the Company adopted amended and restated articles of incorporation under Nevada law (the ""Articles of Incorporation""), pursuant to which the Company's authorized capital stock remained unchanged. Class A common stock and Class B common stock are collectively referred to as Common Stock throughout the notes to these unaudited interim condensed consolidated financial statements unless otherwise noted. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to thirty votes per share. No shares of non-voting common stock are authorized or outstanding. Each share of Class B common stock is convertible at any t …

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17. SUBSEQUENT EVENTS On July 20, 2026, the Company announced that an Agreement and Plan of Merger (the Merger Agreement) was entered into with Personalis. Under the terms of the Merger Agreement, the Company will acquire all outstanding shares of Personalis not already owned by the Company (refer to Note 15) at a price of $ 16.25 per common share, representing a total enterprise value of $ 1.5 billion. The consideration is planned to consist entirely of the Company's common stock; however, the Company may elect to pay up to 50 % of the aggregate consideration in cash. The closing is expected in late 2026 or early 2027, and is subject to Personalis shareholder approval, as well as receipt of applicable regulatory approvals and other customary closing conditions. The Merger Agreement was approved by both companies board of directors. …

SubsequentEventsTextBlock · excerpt; the full note is in the filing