Here's a TL;DR summary of the short-seller report by Spruce Point Capital targeting Tempus AI (Nasdaq: TEM).
🔍 Spruce Point’s Main Claims Against Tempus AI
1. Leadership History of Failures and Restatements
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CEO Eric Lefkofsky and associates have a history of hyped ventures (Starbelly, Groupon, InnerWorkings) that ended in financial restatements, SEC scrutiny, or value destruction.
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Board and audit members have also been linked to companies that restated financials or were involved in SEC fraud charges.
2. Questionable AI Hype
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Only 1.8% of revenue ($12.4M) in 2024 came from "AI" products despite a recent rebranding as Tempus AI.
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Demonstrations show basic software errors (e.g., patient age mismatches, illogical sample collection dates), undermining claims of robust AI capability.
3. Aggressive Accounting & Related-Party Dealings
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Allegations of $250M EBITDA inflation through cloud credit accounting tricks with Google Cloud.
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Total Contract Value (TCV) inflated by ~$600M, including non-binding options and deals with affiliated firms (e.g., Pathos AI).
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Pathos is funded by insiders and boards tied to Tempus and is contractually obligated to funnel money back, suggesting round-tripped revenue.
4. Questionable Billing Practices
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Ambry Genetics (recently acquired) and Tempus allegedly exploit code-splitting (e.g., DNA/RNA billed separately) and use of unlisted codes (81479) to inflate reimbursement.
5. Deteriorating Core Operations
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Deferred revenue is collapsing.
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AstraZeneca partnership was not expanded; a $100M warrant was forfeited.
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Google Cloud terms were quietly revised, and cost growth has slowed.
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Heavy insider selling (e.g., Lefkofsky sold ~$360M of shares).
🎯 Spruce Point Conclusion
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Tempus is a "Strong Sell" with 50–60% downside risk.
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They claim the company relies on hype, accounting maneuvers, and financial engineering rather than sustainable growth or real AI product-market fit.
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High stock-based compensation (~77% of revenue) and debt covenants requiring $1B+ in revenue add pressure to maintain inflated numbers.
🧠 Head Start for Your Commentary
If clients ask for your take:
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This is a heavily critical short report built on past behavioral patterns of the Tempus team.
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Evaluate how much actual payer traction exists for the AI products, the sustainability of billing practices, and whether revenue quality holds up under payor audits or public scrutiny.
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Consider if the Pathos-Tempus-AstraZeneca triangle raises Sarbanes–Oxley or accounting risk flags.
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Look at SEC filings yourself to validate the non-cash items in EBITDA, and scrutinize cash flow vs. headline revenue.
Let me know if you want a rebuttal checklist or commentary language.
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Certainly. Below is a structured executive report for Tempus AI’s Board of Directors, critically responding to the Spruce Point Capital short-seller report. This version integrates a seasoned financial lens on genomics, AI/healthtech, and diagnostics business models.
Executive Briefing: Response to Spruce Point Capital Report on Tempus AI
Prepared for: Tempus AI Board of Directors
Prepared by: [Your Expert Name], PhD MBA
Date: [Today’s Date]
I. Executive Summary
The recent Spruce Point Capital report levies serious allegations regarding Tempus AI’s financial integrity, business model, and leadership history. While it includes some valid concerns around disclosure clarity and revenue quality, it is also heavily biased, strategically timed, and intellectually inconsistent in parts of its critique. Most notably, the report fails to distinguish between fair use of startup financial engineering and actual malfeasance, conflates AI R&D economics with SaaS models, and displays limited understanding of modern clinical genomics monetization pathways.
We recommend targeted internal governance reviews, a board-led financial transparency initiative, and an externally visible operational sharpening strategy focused on customer value, clinical utility, and payer acceptance.
II. Summary of Key Flaws in the Spruce Point Analysis
1. Mischaracterization of AI Revenue and Business Maturity
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The report criticizes Tempus for generating only ~2% of revenue from its AI application line, implying the rebrand to "Tempus AI" is misleading.
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Rebuttal: In genomics and diagnostics, AI is not a standalone product line like in B2B SaaS. AI is increasingly a feature set that enhances broader platform value—e.g., in test ordering, clinical decision support, or trial matching. The marginal revenue attribution to “AI” is thus a financial categorization choice, not a business deception.
2. Accusation of Aggressive Revenue Recognition
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Claims of inflated TCV, dubious related-party flows (Pathos), and cookie-jar accounting (Google credit amortization).
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Rebuttal: Pathos, AstraZeneca, and SoftBank partnerships reflect a modern strategy of blended service/platform deals, sometimes with non-cash or milestone-tied components. These are industry-normative in high-CAPEX, data-rich ventures like Tempus. However, governance can be improved by greater separation of related-party influence and clearer disclosure on TCV methodology.
3. Historical Leadership Allegations
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Spruce Point recycles old history from Groupon, Starbelly, InnerWorkings to question leadership integrity.
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Rebuttal: Past failures do not disqualify founders, particularly in venture markets where iterative learning is core. Lefkofsky’s founding of Tempus, one of the few scaled players in clinical-genomic data fusion, represents a pivot to healthcare infrastructure building, not short-term hype cycles.
4. Misunderstanding of Billing Practices
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Accusations that Tempus and Ambry use unlisted codes (81479) or DNA/RNA splitting to inflate claims.
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Rebuttal: While overuse of 81479 can be flagged, many precision oncology tests genuinely require both DNA and RNA panels for variant detection, fusions, and therapy guidance. The strategy aligns with coverage frameworks under MolDx and MCIT in certain states. Tempus should audit its utilization policies and publish peer-reviewed validation studies that justify the medical necessity of these test structures.
III. Areas Where Spruce Point Raises Fair Warnings
While many claims are exaggerated, certain concerns deserve independent validation and business response:
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Disclosure of Related-Party Transactions: The Pathos arrangement risks perception of circular revenue. Better delineation of arm’s-length terms, board oversight, and internal valuation treatment is warranted.
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EBITDA Accounting of Google Cloud Credits: The netting of debt forgiveness into SG&A, rather than “other income,” is defensible only if clearly disclosed and consistently applied.
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Deferred Revenue Collapse: The sharp fall in long-term deferred revenue may reflect contractual fragility or a lack of multi-year confidence from clients. Rebuilding this trust is a strategic priority.
IV. Strategic Business Response (Not Just PR)
1. Governance and Transparency
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Commission an independent audit of key revenue recognition practices, TCV methodology, and related-party transactions.
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Commit to a board-level disclosure charter for related-party deals exceeding $10M.
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Expand board expertise with a seasoned public genomics CFO or former payor exec to signal maturity and long-term compliance.
2. Operational Fortification
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Launch a "Precision Insights" product suite that transparently packages AI-driven results (e.g., recurrence risk, response prediction) with full validation data and payer evidence dossiers.
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Shift AI metrics from pure revenue to impact KPIs: time-to-result improvements, decision concordance, etc.
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Publicly announce a Utilization Review Task Force for billing practices, including external experts in MolDx policy and medical necessity.
3. Capital Markets Repositioning
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Host a deep-dive investor day on revenue sources: separate cash vs. non-cash revenue, show waterfall of TCV, detail related-party safeguards.
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Issue an adjusted EBITDA reconciliation with and without Google Cloud adjustments to re-establish accounting credibility.
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Offer a “forward guidance bridge” that shows how FY25 growth is allocated across core genomics, AI services, pharma data, and M&A.
4. Clinical and Scientific Repositioning
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Prioritize peer-reviewed publications of AI-driven decision models and genomics pipelines.
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Fund real-world evidence studies showing how Tempus-informed decisions alter treatment or reduce utilization, which helps with CMS and payer negotiations.
V. Conclusion
Tempus is building an integrated platform at the intersection of AI, diagnostics, and clinical data—an enormously complex task. While Spruce Point raises pointed questions, many reflect a hedge fund’s trading agenda, not a long-term operator's view. Still, perception risks are real and governance missteps can compound valuation harm.
The business response must blend financial transparency, clinical credibility, and operational maturation—well beyond a PR rebuttal.
Let me know if you’d like a slide version, talking points for investor calls, or draft language for earnings Q&A.
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ChatGPT said:
Certainly. Here's a draft Q&A script for Tempus AI’s upcoming earnings call, tailored to likely analyst questions following the Spruce Point short report. The tone is firm, transparent, and operationally grounded, with key themes around financial integrity, product functionality, and growth strategy.
Tempus AI – Earnings Call Q&A Draft (Response to Short Report)
Prepared for CEO Eric Lefkofsky, CFO, and General Counsel
Q1: Can you address the recent short-seller report that alleges inflated revenue, related-party conflicts, and weak AI performance?
CEO Response (Eric Lefkofsky):
We’re aware of the Spruce Point report and take concerns about financial reporting and business practices seriously. However, we believe the report contains significant inaccuracies, speculative assertions, and misunderstandings about how a platform like Tempus operates in a highly regulated space.
To be specific:
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Our contracted revenue is transparently disclosed, and we clearly distinguish between committed revenue and optional extensions or milestones.
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We follow GAAP and industry norms in recognizing revenue and non-cash incentives, and we regularly engage with our auditors to validate these practices.
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Related-party transactions, including Pathos, are disclosed, arm’s-length, and governed by internal controls. We’ll continue to improve transparency here.
As for AI performance, we welcome the scrutiny. We’ve already begun rolling out new QA and product validation layers in our clinical systems. Errors flagged in public materials were from demo environments, not live clinical use. Still, we’re investing in product reliability, because our clients—physicians and pharma partners—expect precision.
Q2: Why does Tempus report such a small share of revenue from AI if it has rebranded as an “AI” company?
CFO Response:
Great question. We view AI as an enabling capability embedded across our diagnostic, clinical, and pharma product lines—not as a standalone business unit. While only ~2% of 2024 revenue is tagged under “AI applications,” AI underpins our molecular interpretation, therapy recommendation engines, and trial matching tools.
This is a classic example of the difference between revenue categorization and value contribution. Just as you don’t break out a CRM company’s revenue from its analytics module separately, we integrate AI across workflows to deliver value.
Q3: What is your response to claims that Tempus is inflating EBITDA using cloud credits and unusual accounting treatments?
CFO Response:
We have a multi-year cloud usage agreement with Google that includes both credits and deferred obligations, which are standard in large-scale compute-intensive businesses. Our treatment of these benefits has been reviewed and confirmed with our external auditors.
That said, we recognize the importance of clarity. We’ll include in today’s supplemental materials:
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A reconciliation of reported and adjusted EBITDA with and without cloud-related impacts.
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Clear footnotes on non-cash offsets to operating expenses.
Q4: The report alleges that partnerships with AstraZeneca and Pathos may lack economic substance or transparency. How do you respond?
CEO Response:
Let me be clear: our partnership with AstraZeneca remains strong. It began with a $200M multi-year MSA and has evolved into deeper collaboration across data, algorithms, and model development. The Pathos agreement builds on this, adding new oncology-focused AI development.
As to economic substance: every dollar of recognized revenue reflects real services delivered. The strategic warrant forfeiture by AZ was a choice on their end—we’ve never relied on equity-linked clauses as drivers of core growth.
We’ve also added new controls around related-party governance, and we welcome further dialogue with investors to improve our transparency here.
Q5: Analysts are asking about the sustainability of your revenue growth given the decline in long-term deferred revenue.
CFO Response:
That’s a reasonable concern. The decline reflects a transition from upfront pharma licensing deals to more usage-based and outcome-tied agreements. We're shifting toward deeper client integration versus one-time contracts.
Still, we recognize that visibility matters, and in upcoming quarters you’ll see:
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More disclosure on pharma customer renewal rates
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Metrics on AI-based model adoption and clinical utility
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Growth in core diagnostic test volumes and companion diagnostics integrations
Q6: There’s also concern about billing practices—particularly with Ambry and unlisted codes. How are you addressing this?
Chief Legal Officer or VP Clinical Affairs:
We are deeply committed to compliance with all coding, billing, and payer policies. Unlisted codes like 81479 are industry standard when no specific CPT exists. However, we are:
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Conducting an internal utilization review
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Strengthening payer education on the medical necessity of dual DNA/RNA sequencing
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Expanding peer-reviewed publications to support clinical utility
We expect higher scrutiny from payors and welcome that dialogue—it leads to stronger standards for everyone in the space.
Q7: Several insiders have sold shares—should investors be concerned?
CEO Response:
We disclosed all sales in our SEC filings. My recent sales represent a small fraction of my holdings and were pre-planned under 10b5-1 programs. We remain heavily invested—financially and operationally—in Tempus’s long-term success.
Let me know if you'd like a revised version with shorter soundbites for media use, or slides to accompany this Q&A for your IR team.
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Tempus AI: The Glorious Meltdown of Modern Medicine (As Told by Lewis Black's Angriest Cortex)
Let me tell you something. I read the Spruce Point Capital short-seller report on Tempus AI, and I haven’t been this worked up since someone tried to explain how NFTs are not a scam but actually “fractional digital trust instruments.” Whatever the hell that means. But back to Tempus. This thing? THIS? This isn’t just a short report. This is a goddamn opera of managerial delusion, investor hypnosis, and financial origami with the structural integrity of a soggy paper straw.
Tempus AI—oh, excuse me, formerly Tempus Labs—decided that if they stapled “AI” to their name, suddenly they’d be the lovechild of Tesla and Watson. Because when your software can’t tell if a patient is 54 or 65, naturally, what you need is branding! Let’s slap some “Generative AI” lipstick on this pig and call it a unicorn. Ladies and gentlemen, the pig is still squealing.
Now, let’s start with the CEO, Eric Lefkofsky. This guy has a résumé that reads like a LinkedIn profile curated by Satan’s junior associate. He took a company called Starbelly—yes, like some rejected Dr. Seuss character—and sold it to HA-LO Industries, which then promptly imploded so hard it left a crater of bankruptcy filings and regret. According to court records, Eric was caught saying, “Let’s announce everything! Let’s be wildly positive! We have nothing to lose!” That’s not a CEO. That’s a frat boy chugging Red Bulls before an earnings call.
And then there’s Groupon. Remember Groupon? You used to get two-for-one foot massages and $6 sushi dinners that came with a 30% chance of botulism. Under Eric’s guidance, Groupon restated its revenues and shed shareholder value like a molting bird on meth. And then he was like, You know what? Let’s do health tech. Because what could go wrong when the guy who discounted Thai massages by 90% is now in charge of genomics?
Oh, and then there’s Ambry Genetics, the new sidekick in this circus. Apparently, they bill insurance with a code that means, essentially, “we’re making this test up as we go.” The code is 81479. That’s not a medical code—that’s a cry for help. And Tempus? They’re allegedly splitting DNA and RNA tests into separate bills like some kind of genomics tapas menu. “Here’s your DNA… would you like RNA as a side dish? It pairs well with fraud.”
Let’s talk about the Pathos AI partnership, which is so incestuous it could only be diagrammed using a family tree and a flowchart. Tempus owns a chunk of Pathos. Pathos pays Tempus. Tempus books the revenue. Then Pathos gets funded by the same people who sold Tempus stock at the top. This isn’t a business model—it’s a washing machine with stock certificates jammed in the detergent tray.
And AstraZeneca—oh, poor AstraZeneca—they had a warrant to buy $100 million of Tempus stock and just… didn’t. Didn’t even extend the commitment. That’s like being offered a Tesla at half price and deciding, “Nah, I’ll just walk through this tar pit in Crocs.”
But wait! The pièce de résistance: the Google Cloud Debt Cookie Jar. Yes, ladies and gentlemen, Tempus struck a deal where Google gives them cloud credits, and they net it against expenses and call it EBITDA. That’s right. They took a coupon and turned it into a profit! I’ve seen financial engineering before, but this isn’t a balance sheet—it’s a Hall of Mirrors designed by Escher and audited by Dali.
And the AI! OH, THE AI! They’re bragging about software that can't tell what year someone was born, or what day their test was collected, or even if the patient is male or female. If the AI at Tempus were responsible for flight bookings, you’d end up in Cleveland with a goat named “Susan” as your travel companion.
And while all this is going on, insiders are selling shares like the Titanic has already hit the iceberg. Lefkofsky, Leonsis, Keywell… they’re offloading stock like they’re unloading beef jerky in a blackout. "It's just estate planning!" they shout, as they rappel out the back of the plane with bags full of cash.
Conclusion? If this short report is even half true—and dear God, I hope it’s not, because I actually like living in a world where cancer genomics isn’t a confidence trick—then Tempus AI is not a misunderstood innovator. It’s a damn cautionary tale. A health-tech hustle with the soul of a Las Vegas lounge act and the financial discipline of a raccoon in a vending machine.
And if you still want to buy the stock? Well, may your AI assistant one day figure out your real birthday… before your insurance company does.
Thank you. Goodnight. Somebody get me a drink.
