Castle Biosciences, Inc. (CSTL) Earnings

Management highlights

- Core Business Execution and Growth * The company delivered strong above-expectation top-line growth in Q2 2026, driven by volume expansion across core test offerings, particularly TissueCypher. * A new prospective multicenter study published in Q2 confirmed DecisionDx Melanoma outperforms the MIA Nomogram for risk stratification: low-risk patients predicted by the test had an actual 2.6% sentinel lymph node positivity rate, well below the 5% NCCN threshold for avoiding unnecessary surgery. * TissueCypher 2026 full-year volume growth is now projected to hit 50% to 52% year-over-year, up from prior projections. * DecisionDx Melanoma remains on track to deliver mid-to-high single-digit full-year 2026 volume growth, despite Q2 sequential growth coming in below typical historical seasonality due to sales force adaptation to supporting three dermatology products per customer call. - New Product Progress * Advanced ADTX, which guides systemic treatment selection for moderate-severe atopic dermatitis, received the 2026 Genomics Innovation Award from the MedTech Breakthrough Awards Program. * A new independent real-world study for Advanced ADTX found only 54.3% of patients were on pathway-concordant baseline therapy, which increased to 97.8% after testing, confirming the test's clinical utility to align treatment with patient biology. * The Detect AD at-home flare detection study for atopic dermatitis is on track to release preliminary data in fall 2026, with early clinical feedback indicating strong patient and clinician demand for a tool to proactively manage flares and adjust therapy duration/dosing. * The PROVISE GI cell collection sponge pipeline program is on track for an expected update in the first half of 2027, with the SO-PREDICT reflex backup test already launched for cases where TissueCypher cannot generate a result. - Operational and Financial Updates * The company continues to invest in commercial expansion, clinical evidence development, pipeline advancement, laboratory capacity, and personnel to support future growth, with a disciplined approach to capital allocation backed by a robust balance sheet. * As of June 30, 2026, the company held $266.8 million in cash, cash equivalents, and marketable securities, providing full financial flexibility for planned growth investments. * Sales and marketing, R&D, and administrative expenses increased year-over-year primarily due to headcount expansion to support growth and annual inflationary wage adjustments.

Guidance

- Full-year 2026 total revenue guidance was raised to $365 to $375 million, up from the prior guidance range of $345 to $355 million, driven by better-than-expected performance to date across core revenue drivers. - Full-year 2026 adjusted gross margin is maintained at a low-to-mid 70% range, in line with prior guidance. - Management expects positive adjusted EBITDA for Q3 2026, Q4 2026, and full-year 2026, and maintains guidance for positive adjusted EBITDA for full-year 2027 absent a strategic direction shift. - TissueCypher 2026 full-year volume growth guidance is updated to 50% to 52% year-over-year, raised from prior projections based on first-half 2026 trends. - DecisionDx Melanoma 2026 full-year volume growth guidance is maintained at mid-to-high single-digit year-over-year growth, consistent with prior outlooks.

Segment performance

CASEL Biosciences reported total Q2 2026 revenue of $103.5 million, representing 20% year-over-year growth. Excluding DecisionDx SCC and IDGenX revenue from both periods, core revenue grew 40% year-over-year, and total test report volume for core revenue drivers grew 32% year-over-year. Breakdown by product segment: 1. DecisionDx Melanoma: Delivered 10,280 test reports in Q2 2026, 3% year-over-year growth and 3% sequential growth from Q1 2026. It is the foundation of the dermatology portfolio, contributing ~30% of total Q2 2026 test volume. 2. TissueCypher: Delivered 14,988 test reports in Q2 2026, 63% year-over-year growth. It is the fastest growing core segment, contributing ~43% of total Q2 2026 test volume, with some moderate ASP improvement in the quarter from accrual process adjustments. 3. Advanced ADTX: Delivered over 1,000 orders in Q2 2026, in early phased commercial launch with strong early clinical validation results. 4. DecisionDx SCC: Volume saw a modest resurgence in Q2 2026 after the company resumed limited promotional effort from the sales force, following a period of paused marketing after lost coverage. Other financial segment metrics: Gross margin was 74.9% (76.3% adjusted) in Q2 2026, down from 77.3% (79.5% adjusted) in Q2 2025. Adjusted EBITDA was $12.4 million, up from $10.4 million year-over-year. Net loss was $2.1 million, compared to net income of $4.5 million in Q2 2025, driven by planned growth investments.

Risks & headwinds

- Forward-looking statements are inherently uncertain, and actual results may differ materially from projections due to a range of market, regulatory, payer, and competitive factors, as detailed in the company's most recent SEC filings. - Moderate Q2 sequential growth for DecisionDx Melanoma was lower than historical seasonal trends, driven by the sales force transition to supporting three products in the same customer call, which creates near-term execution risk for near-term volume growth. - Payer coverage and reimbursement rate outcomes for new products (including Advanced ADTX) and for DecisionDx SCC remain uncertain, as final coverage decisions from CMS and commercial payers are still pending. - The ongoing reconsideration process for Medicare coverage of DecisionDx SCC has no fixed public timeline, and there is no guarantee of a favorable outcome or return to coverage. - As TissueCypher penetration of the addressable market increases, future volume growth may require higher incremental selling expenses than early-stage growth, as easier-to-convert provider accounts have already been adopted.

Analyst Q&A

• Q: What are your thoughts on the recent unanimous panel approval of the crosswalk code for Advanced ADTX, and what does this mean for the full commercial launch? /

  A: CASEL viewed the psoriasis drug response crosswalk code as appropriate for Advanced ADTX, which predicts atopic dermatitis systemic treatment response, and the panel voted 21-0-0 to approve the crosswalk. The approved $36.75 rate is very strong, and it provides a clear benchmark to set pricing and reimbursement discussions with commercial payers, putting the company in a strong position for a full future launch. (392 chars)

• Q: What is the current state of Salesforce capacity for TissueCypher, and how much more expansion is needed to sustain growth? /

  A: CASEL currently has roughly 100 sales territories split between gastroenterology and dermatology, which management believes is very close to the appropriate size to support current TissueCypher growth. The most recent sales force expansion completed in late Q2 2026 has not yet fully impacted volumes, and the current footprint supports the projected 50-52% 2026 year-over-year growth, which is very positive. (371 chars)

• Q: What is the timeline for regaining Medicare coverage for DecisionDx SCC after the recent LCD decisions, and have there been any positive updates? /

  A: There is no public fixed timeline for Medicare contractor review of the coverage reconsideration request, and management has received no negative updates. The original model projected a 12-15 month review period, which puts potential visibility on a positive draft decision in the second half of 2026. If a favorable draft is released in H2 2026, full coverage would likely be restored roughly a year later, in mid-2027. (405 chars)

• Q: How durable is TissueCypher's current high growth rate, and how much penetration remains in the addressable market? /

  A: Management clarified that prior penetration figures were misstated: as of the end of 2025, TissueCypher penetration of the addressable patient market was only 10-12%, and is on track to reach ~15% by the end of 2026. While the earliest adopter providers are already converted, there are still many thousands of providers who have not yet been educated on TissueCypher's clinical benefits, so there remains substantial long-term runway for continued growth. (418 chars)

• Q: What is the rollout plan for Advanced ADTX for the rest of 2026, and when will the company broaden access? /

  A: The dermatology sales force will remain 80-85% focused on DecisionDx Melanoma for the remainder of 2026, with only ~15% of focus allocated to Advanced ADTX (and a small allocation to DecisionDx SCC) to balance near-term core growth with early new product demand building. The company will open broader access in 2027 once it collects enough volume and reimbursement data to refine collection models and build sufficient payer demand. (409 chars)