Castle Biosciences 2026 Q2 Earnings Call

Good afternoon, everyone. Welcome to Castle Biosciences second quarter 2026 results conference call. Joining me today are Castle's Founder, President, and Chief Executive Officer, Derek Maetzold, and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, July 30, 2026. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the investor relations page of the company's website for approximately three weeks following the conclusion of the call.

Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements, including statements about expected addressable markets, statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2026 total revenue and the impact of our investments in growth initiatives, including our ability to achieve long-term growth and drive stockholder value. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. Please refer to the risk factors in our most recent SEC filings for more information.

These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, and adjusted EBITDA that have not been calculated in accordance with U.S. GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the investor relations page of the company's website. I will now turn the call over to Derek.

Thank you, Camilla, and good afternoon, everyone. What a great quarter. Our team across all areas at Castle did a phenomenal job in executing on our growth plans and pulling it through the business, including revenue on the top line in evidence development and clinical research. Thanks to the efforts by our team and the clinical value that our clinicians see in the actionability of our tests, we delivered revenue of $103.5 million, 20% growth compared to the second quarter of 2025. Furthermore, if we exclude DecisionDx-SCC and IDgenetix revenue for both 2026 and 2025, our revenue growth for second quarter of 2026 was 40% compared to the second quarter of 2025. Test report volume for our core revenue drivers grew 32% compared to the second quarter of 2025.

Our strong second quarter results reflect the continued execution of our growth strategy and that we remain focused on investing thoughtfully in the future growth of Castle. We continue to invest in commercial resources to drive adoption of our tests, generate the clinical evidence needed to support reimbursement and expand adoption, advance pipeline opportunities across our dermatology and gastroenterology offerings, and add the laboratory capacity, technology, and personnel needed to support future growth. Supported by our robust balance sheet, we believe these investments position us to capitalize on the opportunities across our current portfolio and pipeline while maintaining a disciplined approach to capital allocation.

We believe we will continue this positive momentum in the second half of 2026 and our strong second quarter performance gives us the confidence to raise our 2026 total revenue guidance to $365 million-$375 million, compared to the previously provided guidance of $345 million-$355 million. I will walk you through the business highlights from the second quarter, and then Frank will provide additional financial highlights before we turn to your questions. Let's start with our four revenue drivers for 2026: DecisionDx-Melanoma and TissueCypher. For DecisionDx-Melanoma, we delivered 10,280 test reports in the second quarter, representing 3% growth compared to the second quarter of 2025. We are on track to meet our expectations of mid to high single-digit volume growth for the full year 2026 over 2025.

DecisionDx-Melanoma test volume also increased approximately 3% in the second quarter of 2026 compared with the first quarter of 2026, representing moderate sequential growth, though below the sequential increase we typically see based upon historical seasonality. We believe this moderate sequential growth was due in part to our commercial team adapting its customer engagement model to support three products within the same customer call. This is a deliberate investment in the growth of our business. DecisionDx-Melanoma remains the established foundation of our dermatological commercial portfolio, while the additional products, DecisionDx-SCC and AdvanceAD-Tx, expand the value we can provide the same customer base and support growth over the medium and long term. Additionally, we continue to generate a substantial body of evidence to support the clinical performance and use of our DecisionDx-Melanoma test.

In fact, during the second quarter, we were pleased to announce the publication of a prospective multicenter study demonstrating DecisionDx-Melanoma outperformed the Melanoma Institute Australia Nomogram or MIA in identifying patients at low and high risk of sentinel lymph node biopsy positivity. Importantly, patients predicted to be low risk by DecisionDx-Melanoma, that is, they were predicted to have a sentinel lymph node positivity rate of less than 5% had an actual observed sentinel lymph node positivity rate of just 2.6%, well below the National Comprehensive Cancer Network, or NCCN, 5% threshold used to consider avoiding a sentinel lymph node biopsy surgical procedure. These findings further demonstrate the value of integrating tumor biology with clinical pathologic factors to improve risk assessment, support more informed risk-aligned care, and help identify patients who may safely forego the sentinel lymph node biopsy surgical procedure. Now, let's turn to our TissueCypher test.

During the quarter, we delivered 14,988 TissueCypher test reports, representing 63% growth compared to the second quarter of 2025. Based upon trends for the first half of the year, we believe our 2026 test report volume for TissueCypher will trend toward 50%-52% growth compared to 2025. Now, let's move on to our AdvanceAD-Tx test. During the second quarter, we delivered more than 1,000 orders. Given the test ability to guide systemic treatment selection for patients ages 12 and up with moderate to severe atopic dermatitis, we were particularly pleased that the AdvanceAD-Tx test was recently recognized with the Genomics Innovation Award in the 10th annual MedTech Breakthrough Awards program. In addition, we were encouraged by a new independent real-world clinical utility study for AdvanceAD-Tx presented in June at the Revolutionizing Atopic Dermatitis meeting.

In this multi-center study, only 54.3%, or just over half, of patients receiving baseline systemic therapy were initially on pathway concordant treatment. However, following testing with our AdvanceAD-Tx test, 97.8% of patients were initiated on molecularly concordant systemic therapy. The impact of AdvanceAD-Tx on assisting clinicians and patients with making molecularly aligned therapy decisions overlaps the market research we conducted in the summer and fall of 2025. That is, clinicians are searching for tools, in this case, our AdvanceAD-Tx test, to assist them in making more informed, better therapy selections that align with an individual patient's underlying disease biology. With that, I would now turn the call over to Frank.

Thank you, Derek, and good afternoon, everyone. Reiterating Derek's sentiment, we're proud to report excellent financial results for the second quarter of 2026. Revenue was $103.5 million for the quarter, driven by continued strength in our core revenue drivers, primarily TissueCypher test volume growth and some improvement in ASP, due in part to modifications in our accrual processes that were implemented earlier this year. For total revenue for 2026, we are raising our revenue guidance to $365 million-$375 million, up from the previously provided range of $345 million-$355 million. Our gross margin during the second quarter of 2026 was 74.9%, compared to 77.3% in the second quarter of 2025.

Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 76.3% for the quarter, compared to 79.5% for the same period in 2025. For the full year 2026, we continue to expect our adjusted gross margin to be in the low to mid-70s range. Turning to expenses, our total operating expenses, including cost of sales for the second quarter of 2026, were $106.6 million, compared to $90.4 million for the second quarter of 2025. Sales and marketing expenses for the quarter were $40.9 million, compared to $35.1 million for the same period in 2025, primarily driven by higher personnel costs, higher expenses associated with travel, and higher business administration costs.

General and administrative expenses were $25.2 million for the quarter, compared to $22.9 million for the same period in 2025, primarily attributable to higher personnel costs. Higher personnel costs reflect headcount expansions in our administrative functions, as well as merit and annual inflationary wage adjustments for existing employees. Cost of sales expenses were $23.7 million in the second quarter of 2026, compared to $17.6 million in the second quarter of 2025, primarily due to higher expenses for lab supplies, higher personnel costs, and higher lab services costs. The increase in lab supplies and lab services costs reflects higher test report volumes. Increases in personnel costs reflect a higher headcount due to additions made to support business growth in response to growing test report volumes, as well as merit and annual inflationary wage adjustments for existing employees.