Tempus AI, Inc. (NASDAQ: TEM) announced the successful pricing of $650 million in convertible senior notes, representing a significant increase from the initially proposed $400 million offering. The technology company, which specializes in advancing precision medicine through artificial intelligence applications in healthcare, completed the private placement to qualified institutional buyers under Rule 144A of the Securities Act.
The 0.75% convertible senior notes due 2030 will provide Tempus with substantial capital to advance its AI-driven precision medicine platform and expand its operations. The company granted initial purchasers an over-allotment option to purchase up to an additional $100 million in notes within 13 days of issuance, with the transaction expected to close on July 3, 2025.
Strategic Use of Proceeds
Tempus estimates net proceeds of approximately $625.3 million after deducting initial purchaser discounts and estimated offering expenses, potentially reaching $721.7 million if the over-allotment option is exercised in full. The company has outlined a specific allocation strategy for these funds.
The largest portion, $274.7 million, will be used to repay the principal amount of outstanding senior secured term loans, plus accrued and unpaid premium and interest. An additional $36.2 million will cover the cost of capped call transactions designed to reduce potential dilution upon note conversion.
Remaining proceeds will support general corporate purposes, including potential acquisitions or strategic investments in complementary businesses or technologies, working capital, operating expenses, capital expenditures, and additional debt repayment.
Conversion Terms and Features
The notes feature a conversion rate of 11.8778 shares of Class A common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $84.19 per share. This represents a conversion premium of approximately 32.5% above the last reported sale price of Class A common stock on the Nasdaq Global Select Market on June 30, 2025.
Prior to April 15, 2030, the notes will be convertible only under specific conditions. From April 15, 2030, until two scheduled trading days before maturity, noteholders may convert at any time regardless of conditions. Upon conversion, Tempus may deliver cash, shares of Class A common stock, or a combination of both at its discretion.
Redemption and Repurchase Provisions
Tempus cannot redeem the notes before July 20, 2028. After this date and prior to 21 scheduled trading days before maturity, the company may redeem all or part of the notes if Class A common stock trades at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period.
In the event of a "fundamental change," noteholders may require Tempus to repurchase their notes for cash at 100% of principal amount plus accrued interest. The company will also increase conversion rates under certain circumstances involving corporate events or redemption notices.
Risk Management Through Capped Call Transactions
Tempus entered into privately negotiated capped call transactions with initial purchasers and other financial institutions to manage potential dilution from note conversions. These transactions cover the number of shares initially underlying the notes and are designed to reduce dilution and offset cash payments exceeding the principal amount of converted notes.
The cap price for these transactions is initially set at $111.1950, representing a 75% premium over the Class A common stock's last reported sale price on June 30, 2025. The option counterparties may engage in various derivative transactions and stock purchases that could affect the market price of Tempus shares and the notes.
Company Background and Mission
Tempus operates as a technology company advancing precision medicine through practical AI applications in healthcare. The company maintains one of the world's largest libraries of multimodal data and provides an operating system to make this data accessible and useful for medical applications.
The company's AI-enabled precision medicine solutions help physicians deliver personalized patient care while facilitating the discovery, development, and delivery of optimal therapeutics. Tempus aims to ensure each patient benefits from the treatment experiences of previous patients by providing physicians with tools that continuously learn as more data is gathered.
The notes and any shares issuable upon conversion have not been registered under the Securities Act and may only be offered or sold through registration or applicable exemptions from registration requirements.
