Q2 2025 Castle Biosciences Inc Earnings Call

Walk you through the business highlights from the second quarter, and then Frank will provide additional financial highlights before we return to your questions.

On to our quarterly highlights for decision DX melanoma. We delivered, 9,981 test reports during the quarter which resulted in a sequential increase of approximately 16% compared to the first quarter of 2025 and a year-over-year increase of approximately 4% compared to the second quarter of 2024.

On an absolute number basis, this is the largest second quarter over first quarter sequential increase in volume for DecisionDx-Melanoma that we have seen since our IPO in 2019.

Derek Maetzold: Let's go through the business highlights from the second quarter. Then Frank Stokes will provide additional financial highlights before we turn to your questions. On to our quarterly highlights. For DecisionDX Melanoma, we delivered 9,981 test reports during the quarter, which resulted in a sequential increase of approximately 16% compared to the first quarter of 2025 and a year-over-year increase of approximately 4% compared to the second quarter of 2024. On an absolute number basis, this is the largest second quarter over first quarter sequential increase in volume for DecisionDX Melanoma we have seen since our IPO in 2019. We expect continued solid growth in the second half of the year. As a result, we are reiterating our expectations for high single-digit volume growth for DecisionDX Melanoma for the full year 2025 compared to the full year 2024.

A full year 2025 compared to the full year 2024.

Castle has invested in generating a substantial body of evidence to support the clinical performance and use of our decision to expel enoma test.

Particularly proud of our ongoing collaboration with the National Cancer Institute, surveillance, epidemiology and end results program, Registries or NCI Seer, for short, which was initiated back in 2021 and continues to evolve.

Prior Studies have shown that clinicians, use decision, the xmla to inform both avoiding Sentinal lift of biopsy. Surgical procedures in low-risk patients and initiation of surveillance Imaging and referrals to medical oncology in high-risk patients, which enables early detection of recurrences and earlier initiation of therapy.

Derek Maetzold: CASTLE has invested in generating a substantial body of evidence to support the clinical performance and use of our DecisionDX Melanoma tests. We're particularly proud of our ongoing collaboration with the National Cancer Institute's Surveillance Epidemiology and End Results Program registries, or NCICR for short, which was initiated back in 2021 and continues to evolve. Prior studies have shown that clinicians use DecisionDX Melanoma to inform both avoiding sentinel lymph node biopsy surgical procedures in low-risk patients and initiation of surveillance imaging and referrals to medical oncology in high-risk patients, which enables early detection of recurrences and earlier initiation of therapy. Early detection has been shown to improve outcomes to a greater extent when therapy is initiated with a smaller metastatic tumor burden, which improves net health outcomes.

early detection, has been shown to improve outcomes to a greater extent when therapy is initiated with a smaller metastatic tumor burden, which improves net Health outcomes,

in fact, during the second quarter, we presented a novel research aimed at enhancing the clinical management of patients with cutaneous melanoma at the 2025 American Society of clinical oncology annual meeting this ncic or study presented. An updated matching of patients, who received decision X melanoma as part of their clinical care to those who did not

It's large real world. Cohort, included 13,560 patients with cutaneous melanoma, whose treatment plan was managed with the results of our decision DX melanoma test.

This represents the largest real world study of gene expression, profile. Testing today.

The clinical use of DecisionDX-Melanoma was associated with a 32% reduction in mortality risk compared to untested patients.

Derek Maetzold: In fact, during the second quarter, we presented novel research aimed at enhancing the clinical management of patients with cutaneous melanoma at the 2025 American Society of Clinical Oncology annual meeting. This NCICR study presented an updated matching of patients who received DecisionDX Melanoma as part of their clinical care to those who did not. This large real-world cohort included 13,560 patients with cutaneous melanoma whose treatment plan was managed with the results of our DecisionDX Melanoma test. This represents the largest real-world study of gene expression profile testing to date. The clinical use of DecisionDX Melanoma was associated with a 32% reduction in mortality risk compared to untested patients, meaning patients whose treatment plan did not include the use of our DecisionDX Melanoma test. These results provide further evidence of our test association with improved patient survival.

meaning patients whose treatment plan did not include the use of our DecisionDX-Melanoma test.

These results provide further evidence of our tests association with improved patient, survival.

Moving on to our Decision DX's CC tests, we are very pleased with our volume performance, delivering 4,762 test reports in the second quarter of 2025. As a reminder, Decision DX FCC reimbursement for the second quarter reflects a Novitas local coverage determination policy (LCD) that went into effect for dates of service on or after April 24, 2025, and included non-coverage language for our Decision DX FCC test.

that said early in the third quarter, we submitted our decision, e, xsec reconsideration requests,

For both the Nova toss and moldex LCDs.

Under CMS guidelines, Max has up to 60 days to accept or reject a reconsideration request.

Derek Maetzold: Moving on to our DecisionDX SCC test, we are very pleased with our volume performance, delivering 4,762 test reports in the second quarter of 2025. As a reminder, DecisionDX SCC reimbursement for the second quarter reflects a NovoTalk Local Coverage Determination Policy, or LCD, that went into effect for dates of service on or after April 24, 2025, and included non-coverage language for our DecisionDX SCC test. That said, early in the third quarter, we submitted our DecisionDX SCC reconsideration request for both the NovoTalk and MOLDIX LCDs. Under CMS guidelines, MACs have up to 60 days to accept or reject a reconsideration request. Importantly, we have already received notification from NovoTalk that, based upon CMS guidelines, our reconsideration request was determined to be a valid request and was accepted as such. We are still awaiting notification from MOLDIX.

Importantly, we have already received notification from Novatos that, based on CMS guidelines, our reconsideration request was determined to be a valid request and was accepted as such.

We are still awaiting notification, from moldy X.

Well, this is not an indication of the likelihood of coverage. It is a step forward in the process. It's important to note that, as is the case for the development of a new LCD, there is no specified timeline for a final reconsideration decision.

We expect to keep you informed of updates as appropriate.

Now, let's turn to our gasty franchise.

Tissue Cipher continued, its strong momentum in the second quarter, delivering 9,170 test reports compared to 4,782 in the same period of 2024. This represents a 92% year-over-year growth compared to the second quarter of 2024.

we continue to believe the growth drivers for tissue, Cypher in 2025 and Beyond include first, and foremost, a recognition of the unmet clinical need

Derek Maetzold: While this is not an indication of the likelihood of coverage, it is a step forward in the process. It is important to note that, as is the case for development of a new LCD, there is no specified timeline for a final reconsideration decision. We expect to keep you informed of updates as appropriate. Now, let's turn to our gastroenterology franchise. TissueCypher continued its strong momentum in the second quarter, delivering 9,170 test reports compared to 4,782 in the same period of 2024. This represents a 92% year-over-year growth compared to the second quarter of 2024. We continue to believe the growth drivers for TissueCypher in 2025 and beyond include, first and foremost, a recognition of the unmet clinical need and, two, continued commercial optimization, which includes a strong focus on education and awareness. Lastly, moving on to our pipeline initiatives.

And continued commercial optimization, which includes a strong focus on education and awareness.

Lastly, moving on to our pipeline initiatives. In June, we entered into an exciting collaboration and license agreement with Sidebase, a Swedish-based public company that focuses on advanced electrical impedance spectroscopy (EIS) technology, which includes both desktop and point-of-care instruments. The initial goal of the collaboration is to advance the development of a diagnostic test that predicts flares in patients diagnosed with atopic dermatitis.

A US market with an estimated patient population of up to 24 million people.

We expect that should our development program be successful. This test will enable us to meet another significant unmet clinical need. For many of the clinicians who have already adopted our decision to expel melanoma and FCC tests for use of skin cancers.

Staying with this 8 topic dermatitis theme.

Derek Maetzold: In June, we entered into an exciting collaboration and license agreement with SideBase, a Swedish-based public company that focuses on advanced electrical impedance spectroscopy, or EIS technology, which includes both desktop and point-of-care instruments. The initial goal of the collaboration is to advance the development of a diagnostic test that predicts flares in patients diagnosed with atopic dermatitis, a U.S. market with an estimated patient population of up to 24 million people. We expect that, should our development program be successful, this test will enable us to meet another significant unmet clinical need for many of the clinicians who have already adopted our DecisionDX Melanoma and SCC test for use in skin cancers. Staying with this atopic dermatitis theme, I am pleased to provide an update regarding our internally developed pipeline test.

Update regarding our internally developed pipeline test as we've talked about in the past. We have a program underway to see if our novel specimen collection technique, coupled with gene expression, profiling would be successful and identifying a genomic signature that could predict treatment responses to patients who are diagnosed with, moderate to severe atopic dermatitis and eligible for or seeking systemic therapy, be it an injectable biologic or an oral therapy.

Based upon our analysis today, we believe that our development program has been successful.

We have identified a signature which has been validated in an independent patient cohort, identifies patients, who are elected to have strong relief from the atopic dermatitis symptoms specifically in their response as measured by 3 cor. Indexes first is an improvement in their eczema area and severity index for easy score as is known

Derek Maetzold: As we have talked about in the past, we have a program underway to see if our novel specimen collection technique, coupled with gene expression profiling, would be successful in identifying a genomic signature that could predict treatment responses to patients who are diagnosed with moderate to severe atopic dermatitis and eligible for or seeking systemic therapy, be it an injectable biologic or an oral therapy. Based upon our analysis to date, we believe that our development program has been successful. Specifically, we identified a signature, which has been validated in an independent patient cohort, that identifies patients who are likely to have strong relief from the atopic dermatitis symptoms, specifically in their responses measured by three core indexes. First is an improvement in their eczema area and severity index, or EASI score, as it is known. Second is improvement in itch symptoms, and third is a reduction in flares.

Second is improvement in itch symptoms, and third is the reduction in flares.

Assuming continued success, with our validation assessments, we expect to launch this pipeline test by the end of 2025.

Lastly, our provides Acquisitions brings a robust technology pipeline, which has the potential to increase our current GI offerings.

Specifically, we believe there's an opportunity to create a multi-omics approach for improved test value in various esophagus, as well as a non endoscopic, sample collection device for pipeline opportunities, to potentially, expand screening. And diagnostic support for patients with bear TOs and other GI diseases.

And with that, I will now turn the call over to Frank.

Thank you, Derek and good afternoon. Everyone reiterating Eric sentiment we are pleased to report. Strong second quarter Financial results.

Derek Maetzold: Assuming continued success with our validation assessment, we expect to launch this pipeline test by the end of 2025. Lastly, our PROVISE acquisition brings a robust technology pipeline, which has the potential to increase our current GI offerings. Specifically, we believe there is an opportunity to create a multi-omics approach for improved test value in Barrett's esophagus, as well as a non-endoscopic sample collection device for pipeline opportunities to potentially expand screening and diagnostic support for patients with Barrett's esophagus and other GI diseases. With that, I will now turn the call over to Frank.

Net revenue for the 3 months, into June 30 2025, decreased by 0.8 million or 1% to 86.2 million. Compared to the 3 months, ended June 30 2024 due to a 12 and a half million dollar. Decrease in revenue from our Dermatological, tests offset by an 11.7 million, increase in revenue from our non-germ tests.

The 12 and a half million dollar. Decrease in net revenue for our dermal. Dermatological tests was primarily attributable to our decision DX FCC Test.

And the $11.7 million increase in net revenues from our non-germ tests was largely attributable to our tissue site for tests.

Frank Stokes: Thank you, Derek, and good afternoon, everyone. Reiterating Derek's sentiment, we are pleased to report strong second quarter financial results. Net revenues for the three months ended June 30, 2025, decreased by $0.8 million, or 1%, to $86.2 million compared to the three months ended June 30, 2024, due to a $12.5 million decrease in revenue from our dermatological tests, offset by an $11.7 million increase in revenue from our non-derm tests. The $12.5 million decrease in net revenue for our dermatological tests was primarily attributable to our DecisionDX SCC test. The $11.7 million increase in net revenues from our non-derm tests was largely attributable to our TissueCypher test. While we do not typically disclose revenue by test, we estimate that revenue from DecisionDX SCC for the second quarter of 2025 was just above $15 million.

While we do not typically disclose revenue by tests, we estimate that revenue from DecisionDx® FCC for the second quarter of 2025 was just above $15 million. If you exclude DecisionDx® FCC revenue from both the second quarter of 2025 and 2024, our normalized revenue growth for the second quarter of 2025 would be approximately ...

23%.

You're providing this information for this quarter due to the specific circumstances regarding the decision, DX FCC, non-coverage decision, which went into effect during the second quarter of 2025.

Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $86.2 million for the second quarter of 2025, a decrease of 1% compared to the second quarter of 2024.

Frank Stokes: If you exclude DecisionDX SCC revenue from both the second quarter of 2025 and 2024, our normalized revenue growth for the second quarter of 2025 would be approximately 23%. We are providing this information for this quarter due to the specific circumstances regarding DecisionDX SCC non-coverage decision, which went into effect during the second quarter of 2025. Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $86.2 million for the second quarter of 2025, a decrease of 1% compared to the second quarter of 2024. For total revenue for 2025, we are raising our revenue guidance to $310 to $320 million, up from the previously provided range of $287 to $297 million, which reflects the DecisionDX SCC LCD with a date of service effective date of April 24, 2025.

For total revenue for 2025. We are raising our Revenue guidance, to 30010 to 3220 million up from the previously provided range of 287 to 297 million. Which reflects the decision DX FCC LCD with a date of service effective date of April 2420,

Again, we do not disclose revenue by tests, but for an apples-to-apples comparison for 2025 revenue growth, if you exclude decision Dxx revenue from both our 2024 and 2025 totals, our normalized revenue growth range in 2025 would be approximately 21% to 26%.

Our gross margin during the second quarter of 2025 was 77.3% compared to 80.7% in the second quarter of 2024. 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 79.5% for the quarter compared to 83.2% for the same period in 2024.

Frank Stokes: Again, we do not disclose revenue by test, but for an apples-to-apples comparison for 2025 revenue growth, if you exclude DecisionDX SCC revenue from both our 2024 and 2025 totals, our normalized revenue growth range in 2025 would be approximately 21% to 26%. Our gross margin during the second quarter of 2025 was 77.3% compared to 80.7% in the second quarter of 2024. 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 79.5% for the quarter compared to 83.2% for the same period in 2024. Turning to expenses, our total operating expenses, including cost of sales for the second quarter of 2025, were $90.4 million compared to $82 million for the second quarter of 2024.

Turning too expensive, our total operating expenses, including cost of sales, for the second quarter of 2025 were $90.4 million, compared to $82 million for the second quarter of 2024.

Sales and marketing expenses for the quarter were $35.1 million, compared to $32.7 million for the same period in 2024.

The increase is mainly due to higher organizational and business development activity costs and higher sales-related travel expenses.

Costs reflect headcount expansions and our administrative support functions as well as Merit and annual inflationary wage adjustment, for existing employees.

Frank Stokes: Sales and marketing expenses for the quarter were $35.1 million compared to $32.7 million for the same period in 2024. The increase is mainly due to higher organizational and business development activities costs and higher sales-related travel expenses. General and administrative expenses were $22.9 million for the quarter compared to $18.4 million for the same period in 2024. The increase is primarily attributable to higher personnel costs and higher information technology-related costs. Higher personnel costs reflect headcount expansions in our administrative support functions, as well as merit and annual inflationary wage adjustment for existing employees. Cost of sales expenses were $17.6 million in the second quarter of 2025 compared to $14.5 million in the second quarter of 2024, primarily due to higher personnel costs, higher lab services costs, and higher expenses for lab supplies.

Cost of sales. Expenses were 17.6 million in the second quarter of 2025 compared to 14.5 million. In the second quarter of 2024, primarily due to higher Personnel, costs higher Lab Services costs and higher expenses for lab supplies.

Increases in Personnel costs. Reflect a higher headcount, due additions made to support business growth in response to Growing test report volumes, as well as mayor annual inflationary wage adjustments for existing employees, higher expenses, for lab services, and lab supplies. Also reflects higher test report volumes.

R&D expenses were $12.8 million for the quarter compared to $14.1 million for the same period in 2024, primarily due to lower expenses for clinical trials.

Total non-cash, stock based compensation expense, which is allocated among cost of sales R&D and sg&a was 11.2 million for the second quarter of 2025 down from 13.2 million in the second quarter of 2024.

Frank Stokes: 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. Higher expenses for lab services and lab supplies also reflect higher test report volumes. R&D expenses were $12.8 million for the quarter compared to $14.1 million for the same period in 2024, primarily due to lower expenses for clinical trials. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D, and SG&A, was $11.2 million for the second quarter of 2025, down from $13.2 million in the second quarter of 2024. Our net income for the second quarter of 2025 was $4.5 million compared to a net income of $8.9 million for the second quarter of 2024.

Our net income for the second quarter of 2025 was 4.5 million compared to net income of 8.9 million. For the second quarter of 2024 diluted earnings per share was 15 cents compared to diluted earnings per share of 31 cents in the second quarter of 2024.

Adjusted ebit do for the second quarter was 10.4 million compared to 21.5 million for the comparable period in 2025.

Net cash provided by operating activities was $20.8 million for the second quarter of 2025 and $14.8 million for the six months ended June 30, 2020.

We continue to expect to deliver positive net cash flow from operations for 2025.

Frank Stokes: Diluted earnings per share was $0.15 compared to diluted earnings per share of $0.31 in the second quarter of 2024. Adjusted EBITDA for the second quarter was $10.4 million compared to $21.5 million for the comparable period in 2025. Net cash provided by operating activities was $20.8 million for the second quarter of 2025 and $14.8 million for the six months ended June 30, 2025. We continue to expect to deliver positive net cash flow from operations for 2025. Net cash used in investing activities was $50.8 million for the six months ended June 30, 2025, and consisted primarily of purchases of marketable investment securities of $92.8 million, our asset acquisition of PROVISE, purchases of property and equipment, and purchases of debt securities classified as held to market, partially offset by the maturity of marketable investment securities.

Net cash used in investing activities. Was 50.8 Million for the 6 months in its June 3020 2025 and consisted primarily of purchases of marketable investment Securities of 92.8 million. Our asset acquisition of provides purchases of property and equipment and purchases of debt Securities classified as held to Market. Partially offset by the maturity of marketable investment securities.

As of June 30, 2025, we had cash, cash equivalents, and marketable securities of $275.9 million.

As we look Beyond preise in the license agreement of the cyb, we look to put the strength of our balance sheet to work through a disciplined and strategic approach to Capital deployment, focusing on investing our capital for stockholder value as it relates to m&a. Our strategy is centered on complimenting, our existing portfolio to drive mid to long-term value creation.

In today's Dynamic reimbursement. Environment we consider diversification expanding both our test portfolio and payer mix while also maintaining a disciplined approach with an aim to ensure any transaction supports near and Midterm profitable growth.

Frank Stokes: As of June 30, 2025, we had cash, cash equivalents, and marketable securities of $275.9 million. As we look beyond PROVISE and the license agreement with SideBase, we look to put the strength of our balance sheet to work through a disciplined and strategic approach to capital deployment, focusing on investing our capital for stockholder value. As it relates to M&A, our strategy is centered on complementing our existing portfolio to drive mid-to-long-term value creation. In today's dynamic reimbursement environment, we consider diversification, expanding both our test portfolio and payer mix while also maintaining a disciplined approach with an aim to ensure any transaction supports near and mid-term profitable growth.

Our key M&A priorities at this time include: 1. pursuing opportunities where a test is already on the market and has established reimbursement; 2. favoring tests that complement our current portfolio and/or offer high clinical value in adjacent therapeutic areas; and finally, exploring areas where we can develop pipeline tests that enhance the value we deliver to existing customers.

In conclusion, I'm pleased with our excellent Financial results. In the second quarter continuing our long-standing history of strong, execution and performance Excellence. I'll now turn the call back over to their

Thank you, Frank.

In summary, we delivered another strong quarter and further solidified our position as a leader in both our dermatologic and gastrointestinal testing franchises. We are excited about our performance for the first half of the year. I believe our ability to create value for our stockholders in the near and long term remains intact.

Frank Stokes: Our key M&A priorities at this time include: one, pursuing opportunities where a test is already on the market and has established reimbursement; two, favoring tests that complement our current portfolio and/or offer high clinical value in adjacent therapeutic areas; finally, exploring areas where we can develop pipeline tests that enhance the value we deliver to existing customers. In conclusion, I'm pleased with our excellent financial results in the second quarter, continuing our longstanding history of strong execution and performance excellence. I'll now turn the call back over to Derek Maetzold.

Thank you for your continued interest in Castle Biosciences.

Now, we will be happy to take your questions.

Operator.

Thank you very much. We don't have to start the Q&A session. If you'd like to ask a question, signal by pressing star 1 on your telephone keypad to remove yourself from the line of questioning. Will staff follow by pressing 2?

Our first question comes from Thomas Flattened from Lake Street. Thomas, your line is now open.

Derek Maetzold: Thank you, Frank. In summary, we delivered another strong quarter and furthered our position as a leader in both our dermatologic and gastrointestinal testing franchises. We are excited about our performance in the first half of the year and believe our ability to create value for our stockholders in the near and long term remains intact. Thank you for your continued interest in CASTLE BIOSCIENCES. Now, we will be happy to take your questions. Operator?

Good afternoon. Uh, thanks for taking the questions and congrats on a great quarter. Uh, just a first with the Breakthrough, designations out for DX melanoma um just a few weeks ago anything you can share with us on your plans to seek FDA approval studies Etc. Just lay out kind of the bigger strategic thinking that

Operator: Thank you very much. We now like to start the Q&A session. If you would like to ask a question, signal the refreshing star followed by 1 on your telephone keypad. If you would like to remove yourself from the line of questioning, it will be star followed by 2. Our first question comes from Thomas Flatten from Lake Street. Thomas, your line is now open.

Thanks, Thomas. Derek here. Um, yes, with the, uh, right designation device status, um, approved or authorized, we are um marching our efforts to go ahead and and push forward towards.

A FDA submission of timing of that. I don't think we need to have a public at this point in time, but that's part of our expected outcome.

Uh, for that for for CBDD in the first place.

Thomas Flaten: Good afternoon. Thanks for taking the questions and congrats on a great quarter. First, with the breakthrough designation you got for DX Melanoma just a few weeks ago, anything you can share with us on your plans to seek FDA approval studies, et cetera, just lay out the bigger strategic thinking there?

Uh, it seems that kind of on an asp basis. You might, you may have gotten more than just a kind of a 2/3. 1/3 split throughout the quarter. Are you getting paid on any of the volumes that isn't MediCare at this point?

Derek Maetzold: Thanks, Thomas. Derek here. Yes. With the breakthrough designation device status approved or authorized, we are marching our efforts to go ahead and push forward towards an FDA submission. Talking about that, I don't think we need to make public at this point in time, but that's part of our expected outcome for CKDD in the first place.

We get paid episodically on commercial claims, yes. Not, um, uh, not insignificant percentages, but we do, um, we do get some payments.

But, but remove that from our thinking going forward as it's consistent with prior guidance.

Uh, there will be some it it. Um, 1 of the challenges you have is just timing Thomas A lot of times that comes out of period.

Thomas Flaten: Got it. Frank, with the numbers that you kindly shared around SCC, it seems that on an ASP basis, you may have gotten more than just a two-thirds, one-third split throughout the quarter. Are you getting paid on any of the volume that isn't Medicare at this point?

Um, so sometimes you'll see that show up in Prior period Revenue, but but yeah, we'll have some some modest payments but again, it's not it's not a significant percentage.

Got it. Thank you.

Thank you very much. Our next question comes from Mason karisha from Stevens. Mason, your line is now open.

Frank Stokes: We get paid episodically on commercial claims, yes. Not in significant percentages, but we do get some payments.

Thomas Flaten: Remove that from our thinking going forward as consistent with prior guidance?

Hey guys, uh, thanks for the questions here. Um, I think he's historically talked about 6 months for a sales rep to reach average productivity, could you give us some insight into how many GI reps had reached that level of 10 year, maybe at the start of Q2, as well as how many have now hit that threshold as of today?

Frank Stokes: There will be some. One of the challenges you have is just timing, Thomas. A lot of times that comes out of period. So sometimes you will see that show up in prior period revenue. But yeah, we will have some modest payments. But again, it is not a significant percentage.

Thomas Flaten: Got it. Thank you.

Operator: Thank you very much. Our next question comes from Mason Karisha from Stephens. Mason, your line is now open.

I think we um, we scaled to the current level of territories, I think, just before year end, so they would have been certainly in training in the first quarter. Um so I would think as we're exiting into the third quarter, now you would assume that if our modeling was correct about 6 months to have people be up to full speed, we should be hitting that with a um with a fully maturing as we call that sales team in a third and fourth quarter this year.

Mason Karicha: Hey, guys. Thanks for the questions here. I think you've historically talked about six months for a sales rep to reach average productivity. Could you give us some insight into how many GI reps had reached that level of tenure maybe at the start of Q2, as well as how many have now hit that threshold as of today?

Okay.

Um, and now that that I well I guess I'm assuming

On melanoma. Could you just give us some insight into kind of what you saw in terms of utilization Trends, once that shift happened and, and how that's progressed since

um,

Derek Maetzold: I think we scaled to the current level of territories just before year-end. They would have been certainly in training in the first quarter. I would think as we are exiting into the third quarter now, you would assume if our modeling was correct about six months to be happy, we will be up to full speed. We should be hitting that with a fully mature, I guess you would call that, sales team in the third and fourth quarter of this year.

I actually don't think I can from a, a, a data standpoint. Um, as you know, with the um,

With the LCD being effective April 24th. However, there are some um

Mason Karicha: Okay. Now that I, well, I guess I am assuming that the derm sales force is refocused on melanoma. Could you just give us some insight into what you saw in terms of utilization trends once that shift happened and how that has progressed since?

There are some laboratory orders coming in and reports that were going out with the digital service before April 24th. So we didn't really make a hard shift so the end of the quarter anyways from sort of a compensation Focus standpoint and also uh the SEC test is important to our clinicians as well. So I I think going forward we can go ahead and see what the third and fourth quarter looks like from sort of a future modeling standpoint. Uh if they're solely focused,

Focused on the Alabama test.

Got it. Okay, thank you.

Thank you very much. Our next question comes from Mark, mesero from BTIG.

Derek Maetzold: I actually don't think I can from a data standpoint. As you know, with the LCD being effective April 24th, however, there were some laboratory orders coming in and reports that were going out with the data service before April 24th. We didn't really make hardships for the end of the quarter anyways from sort of a compensation-focused standpoint. Also, the SCC test is important to our clinicians as well. I think going forward, we can go ahead and see what the third and fourth quarter looks like from sort of a future modeling standpoint if they're solely focused on the melanoma test.

Mark, your Line's not open.

Hey guys, uh, congrats on the good quarter, the beaten, the raids. Um, I wanted to start with your internal developed products for um, at topic dermatitis. Uh, it's nice to see that the program has reached sort of your internal hurdles. Um, so, you know, now that you're planning or still on track to launch it by year. End 2025, can you just give us a sense for, um, what the, uh, reimbursement Outlook is for atopic dermatitis? Is this something where you're going to pursue an LCD, or are there reimbursement, mechanisms in place that you could benefit from?

Mason Karicha: Got it. Okay. Thank you.

Operator: Thank you very much. Our next question comes from Mark Musser from BTIG. Mark, your line's now open.

Um, so we are on track still. I believe you'll have this test available clinically.

Mark Massaro: Hey, guys. Congrats on a good quarter, the beat and the raise. I wanted to start with your internal developed product for atopic dermatitis. It is nice to see that the program has reached your internal hurdles. You know now that you are planning or still on track to launch it by year-end 2025. Can you just give us a sense for what the reimbursement outlook is for atopic dermatitis? Is this something where you are going to pursue an LCD, or are there reimbursement mechanisms in place that you could benefit from?

As appropriate on a limited launch basis by the end of the year. So that so that, um,

I guess when we set that expectation of September 2122, we are on track for that aspect. Um, from reimbursement perspectives, we have three or four areas we’re pursuing in parallel. I’m not sure which will end up being the ones that will be the largest revenue drivers in reality. I’d rather not go into detail right now until we...

See how a couple of those mature out, but suffice it to say we think there is substantial clinical value to a patient going from sort of a.

Derek Maetzold: One is we are on track still. I believe we will have this test available clinically as appropriate on a limited launch basis by the end of the year. When did we set that expectation? September 2021, 2022? We are on track for that aspect. From reimbursement perspectives, we have three or four areas we are pursuing in parallel. Not sure which will end up being the ones that will be the largest revenue drivers in reality. I would rather not go into detail right now until we see a couple of those mature out.

Standard of care approach, which is trial and error sounds negative. It's basically trial and trial, um, to saying, hey, if you if your symptoms are severe enough, where you um are looking at going from topicals only and taking that step across the transom to systemic therapies. Um,

In the case of depiction, the need for injection versus oral. Um why would you want to understand when you make that significant upstep in terms of therapeutic efficacy as well as side effects, as well as cost.

Derek Maetzold: But suffice it to say, we think there is substantial clinical value to a patient going from a standard of care approach, which is trial and error sounds negative. It is basically trial and trial to saying, "Hey, if your symptoms are severe enough where you are looking at going from topicals only and taking that step across the transit to systemic therapies, why wouldn't you want to, given the cost of those therapies in the case of Dupixent, the need for injection versus oral?

Want to have your patients understand that they can select test. Uh they can use our test to go and figure out. If this patient is more likely to be a a very, very strong responder to Jak Inhibitors versus not. So that's quite exciting, um, from our standpoint. Um,

But, because of that, I think reimbursement has a couple of options there to go forward. From a modeling standpoint, I would say, you know, starting out the end of this year, I think, um.

The revenue driving impact is new and is immaterial for 2026 because it's just launching. So this is more about smoothing the 2720 and 229 as we see how 2026 matures.

Derek Maetzold: Why wouldn't you want to understand when you make that significant upstep in terms of therapeutic efficacy, as well as side effects, as well as cost, want to have your patients understand that they can select tests, they can use our tests to go ahead and figure out this patient is more likely to be a very, very strong responder to JAK inhibitors versus not?" I think that is quite exciting from our standpoint. Because of that, I think reimbursement has a couple of options there to go forward. From a modeling standpoint, I would say, starting out the end of this year, I think revenue-driving impact is immaterial for 2026 because it is just launching. This would more, I think, smoothen the 2027, 2028, 2029 as we see how 2026 matures.

Okay, great. And my second question, um, you know, your agreement cell, carcinoma and volumes certainly exceeded my expectations

And I, you know, I recognize that the um,

Non- coverage decision, went live in April. Um, so I think on the last earnings call, you talked about how you plan to continue to offer the test. Um, and so, uh, recognizing that you've, um, submitted your reconsideration request, um, for, uh, Nova toss and moldex.

Should we continue to expect you to continue to offer it? Um perhaps until a time that you hear back from the reconsideration request. Is that the right way to think about it?

Mark Massaro: Okay, great. My second question, your squamous cell carcinoma volume certainly exceeded my expectations. I recognize that the non-coverage decision went live in April. On the last earnings call, you talked about how you plan to continue to offer the test. Recognizing that you've submitted your reconsideration request for NovoTalk and MOLDIX, should we continue to expect you to continue to offer it perhaps until a time that you hear back from the reconsideration request? Is that the right way to think about it?

Yeah, so we are, um, we certainly expect over the next couple of quarters to have volume moderate down as we aren't.

Derek Maetzold: Yeah. So we are, we certainly expect over the next couple of quarters to have volume moderate down as we are not focusing educational sales efforts on that test specifically. We are not looking to remove the test from the marketplace. I think we built CASTLE Biosciences to be first and foremost focused on developing innovative tests that make a significant clinical difference in the lives of our patients or the patients that our doctors are treating. This is no exception. I think this LCD process we have talked about in the past is quite disappointing from a patient care perspective, given that NovoTalk was quite quick in their turnaround as accepting our reconsideration submission as valid. I think that gives us expectations here to move forward, even though, of course, that is a beginning of the reconsideration process.

Focusing educational sales efforts on that test specifically um, we aren't looking to remove the test from the marketplace. I think we we built Council. A lot of Sciences to be first and foremost focused on developing Innovative tests that make a significant clinical difference in the lives of our patients, are the patients that are doctors are treating. And this is no exception. I think this, um, this, um, LCD process that we've talked about in the past is quite disappointing for patient care perspective. Given that that uh, Nova toss was quite, um, quick in their in, their turnaround is accepting. Our reach consideration. Submission is valid. I think that gives us expectations here to move forward. Even though, of course, that's a beginning of a wreck consideration process. So, uh, I wouldn't see us, removing FCC from Marketplace and anytime the short term. I think it's the right, patient, care decision to keep it available. Um, that will have some moderating impact on cogs, I guess you would say, gross margin perhaps. But that's I think at the end of the day um, the position that we think is, right,

For patients, which means it's right for Castle.

Okay, great. If I can sneak 1 last 1 in um 1 For You, Frank. Um, looks like you beat consensus by about 15 million in Q2 on Revenue. Uh, you raised, uh, I think the midpoint of the guide by 23 million, can you just give me a sense for, um, you know, the drivers in the back half of the year and, and, and perhaps remind us about any, uh, seasonality between Q3 and, and the Q4

Derek Maetzold: So I would not see us removing SCC to the marketplace in any time in the short term. I think it is the right patient care decision to keep it available. That will have some moderating impact on COGS, I guess you would say, gross margin perhaps, but that is, I think, at the end of the day, the position that we think is right for patients, which means it is right for CASTLE.

Um, yes. So on melanoma, as we've said, you know, each quarter um

We see seasonal flatness typically from Q2 to Q3 and Q3 to Q4. Um, and and so that's been the historical Trend. And that data is in our in DNA, um,

Mark Massaro: Okay, great. If I can sneak one last one in, one for you, Frank. Looks like you beat consensus by about $15 million in Q2 on revenue. You raised, I think, the midpoint of the guide by $23 million. Can you just give me a sense for the drivers in the back half of the year and perhaps remind us about any seasonality between Q3 and Q4?

That you can see there but other other than that we're seeing good, strong good, uh, good strong drivers across the business. And, um,

Um, accordingly raised our guidance accordingly.

Okay, thanks for the time.

Yep.

Thank you very much.

As a reminder, to raise a question, press "B Star" followed by "1."

Our next question comes from Pony Suda from Leering Partners. Your line is now open.

Frank Stokes: On melanoma, as we have said, each quarter, we see seasonal flatness typically from Q2 to Q3 and Q3 to Q4. That has been the historical trend, and that data is in our MDNA that you can see there. Other than that, we are seeing good, strong drivers across the business and accordingly raise our guidance accordingly.

Yeah, hi guys. Um, thanks for the questions here. Um, first 1 on tissue Cipher, um, a strong growth there in the quarter, just wondering how we ought to think about the Cadence of volume growth here at third quarter, fourth quarter and wondering, if you're willing to provide anything in terms of uh, 2026 for that.

Mark Massaro: Okay. Thanks for the time.

We're not going to maybe last first. Um, not yet. We we haven't provided any insight into 26 yet. Um, but yes, we agreed. Good, good good. Good continued growth in that test, test volume, uh, trends.

Derek Maetzold: Yeah.

Operator: Thank you very much. As a reminder, to raise a question, be star followed by 1. Our next question comes from Puneet Suda from Leerink Partners. Puneet, your line is now open.

Okay. Just um

Puneet Souda: Yeah, hi, guys. Thanks for the questions here. The first one on TissueCypher, strong growth there in the quarter. Just wondering how we ought to think about the cadence of volume growth here at Q3, Q4, and wondering if you are willing to provide anything in terms of 2026 for that.

Um, I'll I'll give it a try. We um, our our guy does assume continued growth in volumes in in TC. We, we expect, at some point to hit seasonality with that test, but right now we're still just very underpenetrated and so we don't yet, um, we don't yet see seasonality in it.

Frank Stokes: We're not going to maybe last first. Not yet. We haven't provided any insight into 2026 yet, but yes, we agree. Good, good, good continued growth in that test volume trends.

Puneet Souda: Okay. But in terms of the overall guide for this year, any context you can provide there in terms of the volume growth we ought to think about for TissueCypher?

Frank Stokes: will give it a try, Puneet. Our guide does assume continued growth in volumes in TC. We expect at some point to hit seasonality with that test, but right now we are still just very underpenetrated, so we do not yet see seasonality in it.

Got it. Okay. And then, um, um, appreciate the, the details on the reconsideration request the 60 days. Um, could you elaborate, uh, when do you expect exactly to hear back from maldi X? And, um, you know, what was submitted this time around in the reconsideration request package, um, it seems that you have, um, you know, you have a expectation of positive outcome. Please remind me if I mean, if I'm incorrect on that. Um, um, but and and tell us, you know, how are you thinking about the sort of the overall timing from all the X? And then if it was um again uh the reconsideration request was turned down uh, what would be the other avenues at this point in time?

Puneet Souda: Got it. Okay. I appreciate the details on the reconsideration request, the 60 days. Could you elaborate when do you expect exactly to hear back from MOLDIX? What was submitted this time around in the reconsideration request package? It seems that you have an expectation of positive outcome. Please remind me if I am incorrect on that. But tell us how are you thinking about the overall timing for MOLDIX? If the reconsideration request was turned down, what would be the other avenues at this point in time?

So, um, I'm gonna be take a step up and answer the question here. So, 1 is that um, we submitted reconsideration requests to both novatos.

And the moldex, um, group.

Derek Maetzold: I will maybe take a step up with the answer to the question here. One is that we submitted a reconsideration request to both Novitas and the MOLDIX group. Novitas was quite speedy in terms of turning around an acknowledgment or a statement that they accepted the reconsideration submission as valid under CMS guidelines, which we expected, by the way. The Palmetto request went in at the same time, I think, maybe the same day, the next day, or the day before, something like that, earlier in July. Under CMS guidelines, MACs have up to 60 days to acknowledge a receipt as being valid or not valid. We haven't heard back anything yet, which is, I think, what we think will be on the script. I would expect to hear back towards, within what my Labor Day time period, I think, would be the right timing of that.

Um, novatos was quite Speedy in terms of turning around a acknowledgement or statement that they that they, they accepted the reconsideration submission as valid under CMS guidelines. Um, which we expected by the way. Um, the, um, tomedo, uh, request when, in the same time, I think maybe the same day the next day the day before someone like that. Earlier earlier in July, um, under CMS guidelines, Max have a for 60 days to take to acknowledge the receipt as being valid or not. Valid, we haven't heard back anything yet. Which is I think what we think if they be on the, on the script. Um, so I'd expect to hear back toward sort of, you know, within by by Labor Day time period, I think would be the right timing of that. Um,

So that's my expectation. In terms of the package that went in, we certainly aren't going to post it. I don't think the actual package but um uh, if you go ahead and dial back, you you may recall that when those draft LCDs posted in the summer of 2023,

Derek Maetzold: That is my expectation. In terms of the package that went in, we certainly are not going to post the actual package. But if you dial back, you may recall that when those draft LCDs posted in the summer of 2023, once the open comment period closed for both Novitas and for Palmetto, neither one of them were under any obligation to cite any published evidence or literature that had a publication date after the close of this open comment period, which I think was maybe August and then maybe early September of 2023, respectively. Since that time period, we had, I think, eight or nine or seven or eight peer-reviewed publications come to fruition. I think one set or a couple of them essentially dealt directly with questions or comments that MOLDIX had asked us about in the draft LCDs. Those were published in the interim.

Um, once the open comment period closed for both novatos and for Palmetto neither 1 of them were under any obligation to cite any published evidence or literature that had a publication date after the closest open common periods. I think was maybe August and then maybe early September 2023 respectively. So since that time period, we had, I think 8, or 9, or 7 or 8 peer-reviewed Publications, come to fruition, I think, um, 1 set or a couple of them, essentially, dealt directly with questions or comments that moldy X had asked us about in the draft LCD. So those are those 4 published in the interim. We did send those to moldy X but they were not reviewed because they don't have to review things after the close of comment period. Um, we also uh, published 2 studies that were multi-center in nature demonstrating that our decision DX, FCC tests can predict responses to patients, who are receiving admin radiation therapy. Um, and, and to our knowledge, there was no other

Derek Maetzold: We did send those to MOLDIX, but they were not reviewed because they do not have to review things after the close of the comment period. We also published two studies that were multicenter in nature, demonstrating that our DecisionDX SCC test can predict responses to patients who are receiving adjuvant radiation therapy. To our knowledge, there was no other biomarker that has been demonstrated in squamous cell carcinoma to predict adjuvant radiation therapy response. Those two publications represented the largest single study ever performed in the SCC population, and the other one was the second largest study ever performed.

biomarker that has been demonstrated in scrum cell, carcinoma to predict agent, radiation therapy response. Those 2 Publications represented, the largest single study ever performed in the FCC population and the other 1 was the second largest study ever performed. So we think with the robustness of that data and the use of our tests that was demonstrated after the common periods were closed to actually identify patients. That will get a response from radiation therapy versus those that will not

Is a important and significant clinical use, which is the I guess you can call the verbal. I see that we've got not only from clinicians but also from our Medicare contractors. So um I I think within that back of the basket of 8 or 9 Publications, there are significant new evidence. Uh, that goes beyond the LCD and by um, by the ca by the CMS Department, Integrity manual uh both that should go ahead and accept our our submissions as valid. I think it covers it maybe. Um,

Derek Maetzold: So, we think with the robustness of that data and the use of our test that was demonstrated after the common periods were closed to actually identify patients that will get a response from radiation therapy versus those that will not, is an important and significant clinical use, which is the, I guess you'd call it, the verbalized feedback we've gotten, not only from clinicians, but also from our Medicare contractors. I think within that basket of eight or nine publications, there is significant new evidence that goes beyond the LCD and by the CMS personal integrity manual. Both of that should go ahead and accept our submissions as valid. I think that covers it, maybe.

And just yeah I just wanted to clarify if again if if we if you I mean um if if there's a decision that was negative what are the Avenues that are that are left at this point?

For us. Well, we already have a positive system that with us.

No, I think he means the reconsideration. Oh,

That's a good question, I guess if if moldy ex comes back and says, you know, we don't think your submission is valid. We would request in

I don't think you have to post that information but we would certainly want to understand exactly why they believe that's the case. I I would have a very hard time to understand how made medical regulatory sample. They could make such a case. But we would work with work with both moldy X, as well as with, um, potential CMS to understand what we would believe would be a incorrect conclusion.

Puneet Souda: Yeah. I just wanted to clarify if, again, if you, I mean, if there's a decision that was negative, what are the avenues that are left at this point?

I don't know if that timing Etc but that's but that's just the multi X Avenue. They know what toss Avenue is moving forward.

Okay. Okay, all right. Thanks, sir.

Yep.

Derek Maetzold: Or if we already have a positive decision from NovoTalk?

Unknown: No, I think you meant the reconsideration.

Thank you very much. Our next question comes from Coal Nixon from Canoe Code Jennetty. Coal, your line is now open.

Derek Maetzold: Oh.

Puneet Souda: Reconsideration, yeah.

Derek Maetzold: is a good question. I guess if MOLDIX comes back and says, "You know, we do not think your submission is valid," we would request and I do not think you have to post that information, but we would certainly want to understand exactly why they believe that is the case. I would have a very hard time to understand how, from a medical regulatory standpoint, they could make such a case, but we would work with MOLDIX as well as with Central CMS to understand what we would believe would be an incorrect conclusion. I do not know about timing, et cetera, but that is just the MOLDIX avenue. The NovoTalk avenue is moving forward.

Hey guys, thanks for the questions. Uh great quarter. So just on the gross margin in the quarter. Uh you know, Peter model will be the street, could you talk about the impact from, you know the SEC reimbursement kind of roll off in the quarter? Seems like that. Um, you know, it was much better than we had feared. So could you talk about that and maybe going forward what that looks like um you know, kind of the next few quarters into 26.

Puneet Souda: Okay. Okay. All right. Thanks, Derek.

Derek Maetzold: Yep.

Operator: Thank you very much. Our next question comes from Carl Nixon from Kennecord University. Carl, your line is now open.

Yeah, we did. It wasn't as as low as a normalized. Gross margin will be because we did have payments for part of the quarter. Um, so I would expect the back half of the year, uh, adjusted gross margin. Uh doesn't look quite as as good as it did Q2 having said that it's still 1 of the 1 of the better gross margins in the sector and and we work hard to maintain that through discipline spending and Facilities, Etc.

Carl Nichen: Hey, guys. Thanks for the questions. Great quarter. On the gross margin in the quarter, you know, beat or not, beat the street, could you talk about the impact from the SCC reimbursement kind of rolloff in the quarter? It seems like that, you know, it was much better than we had feared. Could you talk about that and maybe going forward what that looks like, you know, kind of the next few quarters into 2026?

It would be frank with the mid, uh, mid-70s makes sense for Jessica. Chris margin, um, you know, for like a Q4, for example.

Yeah, I think we we said load them at 70 scale. I think that's what we what we said in the past. Okay. And then yeah, yeah.

Frank Stokes: Yeah, we did. It wasn't as low as a normalized gross margin will be because we did have payments for part of the quarter. So I would expect the back half of the year adjusted gross margin does not look quite as good as it did Q2. Having said that, it is still one of the better gross margins in the sector, and we work hard to maintain that through disciplined spending and facilities, et cetera.

Yeah, of course. And then Frank. Um, you know, the the cash flow from operations positive for um the full year. But you know, when you think about the first half of the year, I think it was like 15 million or so, for from opiates.

If you take out a sec, I mean, it seems like it would be just a little bit better than break even maybe.

When you look at, look at the 2026 Outlook, just excluding SEC from the from the top line, of course, you know, what's the kind of cash flow? Um, you know, progression as you think about, you know, tissue Cipher kind of ramping down on the returning. Rebounding, how do you know, could you be positive next year as well?

Carl Nichen: Frankly, the mid-70s makes sense for adjusted gross margin, for like a Q4, for example?

Frank Stokes: Yeah, I think we said low to mid-70s, Carl. I think that's what we said in the past.

Carl Nichen: Okay.

Um, we have not guided, uh, for uh, operating cash flow for 26. But um, you know, those Trends are I, I concur with your view of those Trends and, and, um, we don't have significant. Um,

Frank Stokes: Sorry. Adjust your word. Yeah, yeah.

Carl Nichen: Yeah, of course. Frank, the cash flow from operations positive for the full year, but when you think about the first half of the year, I think it was like $15 million or so from ops. If you take out SCC, it seems like it would be just a little bit better than break-even. Maybe when you look at the 2026 outlook, just excluding SCC from the top line, of course, what is the kind of cash flow progression as you think about TissueCypher kind of ramping, melanoma returning, rebounding? Could you be positive next year as well?

We don't have significant spending increases, that might might change that. So, I think we would be on Trend. If that, from the fourth quarter in the 26,

All right, and then and then Derek last 1 for you, on the, on the GI business, is there any um, you know, there's no cross selling going on today with the 2 with the acquired test entities ciper. But do you anticipate that like the conversations with with Gis for example is going to be a little more streamlined and could accelerate the growth of that you know that segment let's say or is it just like a you know not the most complimentary at this point.

Mr. Cypher and just these are predicted. These are predicted. Yeah. Um

Frank Stokes: We have not guided for operating cash flow for 2026, but you know, those trends are, I concur with your view of those trends, and we don't have significant spending increases that might change that. So I think we would be on trend from the fourth quarter into 2026.

I think um I I think we see the the most significant value out of the profi acquisition.

Isn't that sort of saying you can pick one of the other doctors? Our tissue cycle tests work with the systems that did.

Carl Nichen: All right. Derek, last one for you. On the kind of the GI business, is there any, there's no cross-selling going on today with the two with the acquired test and TissueCypher, but do you anticipate that the conversations with GIs, for example, is going to be a little bit more streamlined and could accelerate the growth of that segment, let's say, or is it just like not the most complimentary at this point?

Is is clearly the most validated test that's available today, and the accuracy metrics are extremely good. Although everything can be better.

Um so it it would be a complimentary test. I guess you would say is probably the way to position that today but the but the exciting part of what we see,

Derek Maetzold: TissueCypher and.

Frank Stokes: You said Predict?

Derek Maetzold: You said Predict, yeah. I think we see the most significant value out of the PROVISE acquisition is not sort of saying you can pick one or the other. Our TissueCypher test, with the work that the systems did, is clearly the most validated test that is available today, and the accuracy metrics are extremely good, although everything could be better. So it would be a complimentary test, I guess you would say, is probably the way to position that today. But the exciting part of what we see is the potential ability to combine spatial omics with genomics, either be it methylation islands like we have from the PROVISE acquisition or if it is going to be next-gen sequencing.

Is the potential ability to combine spatial elements with genomics to either be methylation. Um islands like we got a path from the provis acquisition or if it's going to be next gen sequencing but if we can get to sort of a spatial elements plus something which could be methylation technology or sequencing add-ons, we believe that we will be able to get to a more accurate test by using um, more than 1 modality or platform versus 1 alone. So that's the sort of first large Focus, we have and clearly the work coming out of Hopkins, coming out of providers will assist us and accelerating how to get there. And then the, and then the next opportunity that we see here is to really take the capsule and response work that they've spent few years working on and see how we can accelerate that development as a as a potential future tests, again, mainly, for use in Gastrology offices.

Okay, just to clarify. You're not, you're not expecting any material revenue from me so predict

No, no not discrete rather than no.

Derek Maetzold: If we can get to sort of a spatial omics plus something, which could be methylation technology or sequencing add-ons, we believe that we will be able to get to a more accurate test by using more than one modality or platform versus one alone. That is the sort of first large focus we have. Clearly, the work coming out of Hopkins, coming out of PROVISE, will assist us in accelerating how to get there. The next opportunity that we see here is to really take the capsule and sponge work that they have spent two years working on and see how we can accelerate that development as a potential future test, again, mainly for use in gastroenterology offices.

okay, got

It, thank you very much. Uh, next question comes from Zuzu nemen from Guggenheim Susie. Your line is now open.

Okay, so this is um for decision DX melanoma, will you need any further studies to support every year? So

More data for FDA approval.

Carl Nichen: Okay. Just to clarify, you're not expecting any material revenue from use of Predict?

We don't we don't believe that will be the case. I think the the the the the easy conversation that was had with the FDA Regulators regarding our bdd application. I would think that we have plenty of data that would that would support that approval as is, um, we won't know that, of course, till we go into that process, but we would have taken it through the

Derek Maetzold: No.

Frank Stokes: No, not discrete revenue, no.

Carl Nichen: Okay. Got it.

Operator: Thank you very much. Our next question comes from Suzu Neman from Guggenheim. Suzu, your line is now open.

Break your designation device status if we hadn't felt comfortable with that. So I think we're we feel confident that the level of data that we have out there now would support FDA authorization clearance approval depending on the approach. They would take

Subbu Nambi: Hey, guys. This is Subhu Nandi from Guggenheim. For DecisionDX Melanoma, will you need any further studies to support FDA approval?

Frank Stokes: We need more data for FDA approval.

thank you for that dedicated. Um, and then Derek, how are you prioritizing internal resources between the assets? Required in the free voice acquisition, the fee based collaboration, and the atopic dermatitis asset that you are developing internally.

Derek Maetzold: We don't believe that'll be the case. I think the easy conversation that was had with the FDA regulators regarding our BDG application, I would think that we have plenty of data that would support that approval as is. We won't know that, of course, until we go into that process, but we wouldn't have taken it through the breakthrough designation device status if we hadn't felt comfortable with that. So I think we feel confident that the level of data that we have out there now would support FDA authorization, clearance, or approval, depending on the approach they would take.

How are we prioritizing them?

Yes, yes, prioritizing internal Resources with all of our initiatives.

So the the um,

So I guess starting with provides first, and maybe repeating a bit talked about with Kyle there. Um,

um we believe that the ability to go from a single platform spatial omics test to a multi-platform multi-omics approach will yield a more

Subbu Nambi: Thank you for that, Derek. Derek, how are you prioritizing internal resources between the assets acquired in the PROVISE acquisition, the SideBase collaboration, and the atopic dermatitis assets that you're developing internally?

Frank Stokes: How are we prioritizing them?

Subbu Nambi: Yes, we are prioritizing internal resources with all of our initiatives.

Derek Maetzold: Starting with PROVISE first and maybe repeating a bit talked about with Carl there, we believe that the ability to go from a single platform spatial omics test to a multi-platform, multi-omics approach will yield a more clinically valuable test at the end of the day. To be quite frank, we have ongoing R&D investments in TissueCypher, and folding in an extra platform is actually not adding much resources. It is just expanding the protocols slightly to capture both opportunities. That is not really a prioritization issue or that. I think we have been looking for opportunities to look down the road to expand in the future are valued to our gastroenterology customers. We believe that the capsule sponge technology that PROVISE had developed will be one of those sources to get there. That is an additional R&D project.

Clinically valuable test of the end of the day. So uh to be quite Frank, we have ongoing R&D Investments and tissue Cipher and folding in. Um, and extra platform is actually not having much resources, it just expanding the protocol slightly, the Caps are both opportunities. So, um, that's not really a prioritization issue or that I think the we've been looking for opportunities to, um, to look down the road to expand in the future, our value to our gas neurology customers. We believe that the that the um, that the uh, capsule sponge technology that provides um had developed will be 1 of those sources to get there. So that is a additional R&D project. But again, it fits in within the current tissue cycle budget. Anyways, largely speaking today, and tomorrow on the, on the side base opportunity,

Derek Maetzold: But again, it fits in within the current TissueCypher budget anyways, largely speaking, today and tomorrow. On the SideBase opportunity, as we have talked about, I think we on the earnings call plus added a slide to our corporate presentation deck on the data that we see today, our internal test really was focused on or is currently being focused on patients who are taking that step from topicals only, most likely have moderate to severe atopic dermatitis. They are taking the step over the transom to get to a systemic therapy. That is really where that test is focused.

Um, as we've talked about, I think we on the earnings call plus out of the slide to our corporate presentation deck on the data that we see today. Um, our internal tests really was focused on, or is currently being focused on patients who are taking that step from topicals, only most likely have moderate to severe atopic dermatitis and are taking the step over the transom to get to a systemic therapy. That's really where that test is focused. Whereas the initial, um, studies that were focusing on for Side based technology are really taking people across the Spectrum, who are being medically, treated with topicals. And with uh, systemic therapies to be able to say, if you have a

A, a topic of dermatitis condition.

You're on a therapy of some sort, but you continue to have flares, which are you could call it as breakthroughs, I guess and and symptoms. Um, we we hope that our technology will be able to demonstrate that you can use our test or our tool, um, every couple of days every day, every 3 to 4 days and predict,

Derek Maetzold: Whereas the initial studies that we are focusing on for SideBase technology are really taking people across the spectrum who are being medically treated with topicals and with systemic therapies to be able to say, "If you have an atopic dermatitis condition, you are on a therapy of some sort, but you continue to have flares," which are you could call it breakthroughs, I guess, in symptoms. We hope that our technology will be able to demonstrate that you can use our test or our tool every couple of days, every day, every three to four days, and predict a flare in the near-term future, adjust your therapy so that you hopefully either reduce the severity of that flare-up, which is a significant burden on patients. That also translates to reduced itch flare-ups as well. Or you may be able to avoid it altogether.

A flare in the future near-term future, adjust your therapy. So that you hopefully either reduce the severity of that flare up, which is a significant burden on patients, but also translates to reduce it. Itch flare ups as well. Or you may be able to avoid that all together. And so to me, they're they're quite complimentary to the exact same medical dermatologist who is interested in in

In eczema skin management, it turns out that the majority of those physicians or dermatologists...

Are the same customers treating skin cancer? So we have another opportunity for really a strong overlap on the same customer who hopefully knows about cash flow, skin cancer tests, and uses them. Um, and then we introduced both our internal Atopic Dermatitis test for predicting therapy response, as well as later on the, um, the um.

Is that kind of get to the question?

Derek Maetzold: To me, they are quite complementary to the exact same medical dermatologist who is interested in eczema skin management. It turns out that the majority of those physicians or dermatologists are the same customers treating skin cancer. We have another opportunity for really a strong overlap, and the same customer locally knows about CASTLE skin cancer tests, uses them. Then we introduce both our internal atopic dermatitis test for predicting therapy response, as well as later on the probe that we have from SideBase. It is a very, very nice way to kind of walk into the same offices that are medically oriented and help them solve more patient problems from the same one company. Does that kind of get to the question?

Um, quick question as a follow-up to Kyle's question on the margins. Um, based on the current Tissue Cypher trajectory, do you expect a makeshift to pull downward on your margins this year? Just because Tissue Cypher is a lower margin test, or have you made some improvements to not really affect that?

Yeah, we we we haven't approved uh the cost structure on tissue Cipher a good bit. It is still a lower gross margin than GP testing though. So um depending on how uh volumes grow their, it could be a bit of a a bit of a dilute or to gross margin but again it it it would be we saw 1 of the better gross margins in the second.

Still Still Still hit those targets.

We ought to hit.

Subbu Nambi: One quick one, a follow-up to Carl's question on the margins. Based on the current TissueCypher trajectory, do you expect a mixed shift to pull downward on your margins this year just because TissueCypher is a lower margin test, or have you made some improvements to not really affect that?

Thank you very much.

Uh, next question. Comes from Catherine schutel from beds. Katherine, your line is now open.

Frank Stokes: Yeah, we have improved the cost structure on TissueCypher a good bit. It is still a lower gross margin than GEP testing, though. So depending on how volumes grow there, it could be a bit of a deluder to gross margin. But again, it would be we would still have one of the better gross margins in the sector. Still hit those targets we ought to hit.

Hey, thanks for the questions. Uh, maybe first just as we think about your guide for high single digit decision, DX, melanoma, volume growth for the year and that would imply low double digit growth in the back half. So as we think about going forward, is that back half growth rate, the right, go forward. Assumption or do you think High single digit would be a better Baseline

Um we've reached at high single digits for the full Year Katherine. So, um,

We continue to have that expectation, right?

Yeah, as a jumping-off point for next year, what's the question?

Operator: Thank you very much. Our next question comes from Catherine Schuetzel from Baird. Catherine, your line is now open.

Uh, is it jumping off point for next year? Um, I don't have guidance yet for next year, on, on the product but um, as we said before, we still think that the test has plenty of room to grow uh, and continue to penetrate that patient base.

Catherine Schulte: Hey, thanks for the questions. Maybe first, as we think about your guide for high single-digit DecisionDX Melanoma volume growth for the year, that would imply low double-digit growth in the back half. As we think about going forward, is that back half growth rate the right go-forward assumption, or do you think high single-digit would be a better baseline?

Okay, and then maybe on tissue safe.

About how much.

Adding new Clinic.

Nurses, for their penetrating, your ordering base, and maybe just talk to what kind of trends do you see in terms of ordering ramp as providers mature?

Frank Stokes: We've said high single-digit for the full year, Catherine. So we continue to have that expectation.

Well, as we disclose that information publicly, yet, Katherine, um, although somebody couldn't have in the future, um,

Catherine Schulte: Right. Yeah, as a jumping-off point for next year was the question.

Frank Stokes: As a jumping-off point for next year, I do not have guidance yet for next year on the product. But as we said before, we still think that the test has plenty of room to grow and continue to penetrate that patient base.

we are um, so early on and penetration I can't off the top of my head to be honest and give you a. Are we seeing more growth from existing customers who are seeing better?

Catherine Schulte: Okay. Then maybe on TissueCypher, how should we think about how much growth is being driven by adding new clinicians versus further penetrating your ordering base? Maybe just talk to what kind of trend do you see in terms of order rate ramps as providers mature.

Penetration in their practice. Are we seeing more from new customers? Both as soon as they happen. Um, I think in the past we sort of talked about potential. Um, the GI office practice brings to me some different.

Derek Maetzold: Well, hopefully, this flows that information probably at Catherine, although it's something we can add in the future. We are so early on in penetration. I cannot, off the top of my head, to be honest, give you a, are we seeing more growth from existing customers who are seeing better penetration in the practice? Are we seeing more from new customers? Both are clearly happening. I think in the past, we've sort of talked about the potential that the GI office practice brings some different challenges compared to dermatology, where in dermatology, the biopsy for a melanoma or squamous cell carcinoma is being done in the office setting. So you've got the same staff, the same dermatologist or NPPA in the same facility. Whereas in gastroenterology, the actual endoscopy is being done in an ambulatory care center, which is typically not brick-and-mortar associated with the actual GI clinic.

Challenges compared to dermatology, where a biopsy for melanoma or squamous cell carcinoma is being done in the office setting. So you've got the same staff, the same dermatologist or NPA, in the same facility. In contrast, in gastroenterology, the actual endoscopy is being done in the Ambulatory Care Center, which is typically not.

uh,

brick and mortar associated with the actual GI clinics. So there's the different Personnel swap over. So, my, my sense is that what we're seeing here is that we are getting, uh, solid growth from new first time, ordering customers because we're so so early in the game and once we get somebody on board who buys in the tissue Cipher, then, you know, after the first couple orders of the question really becomes, how do you make sure that the endoscopy work going on in the Ambulatory Care Center gets transferred to the right Personnel in the actual GI clinics? So that the test is ordered appropriately at the right time. Um, so both of these both will be ongoing strong for a while as my expectation.

Derek Maetzold: So there's a different personnel swap over. My sense is that what we're seeing here is that we are getting solid growth from new first-time ordering customers because we're still just so early in the game. Once we get somebody on board who buys into TissueCypher, then after the first couple of orders, the question really becomes, how do you make sure that the endoscopy work going on in the ambulatory care center gets transferred to the right personnel in the actual GI clinic so that the test is ordered appropriately at the right time? So both will be ongoing strong for a while, is my expectation.

Thank you very much. Our next question comes from Sanji naam, from Scotia Bank Sanji. Your line is now open.

Thank you so much. Uh, thank you for taking the questions. Um, maybe on the uh decision DX melanoma, um was curious. If you could uh, talk about the progress, you're making with the private payers.

There, um, and given the NCI, the Real World, um, study, the largest of such kind, do you think that's a big enough impetus for you to gain further traction with the commercial payers going forward?

Operator: Thank you very much. Our next question comes from Sanji Nam from Scotiabank. Sanji, your line is now open.

Sung Ji Nam: Thank you so much. Thank you for taking the questions. Maybe on the DecisionDX Melanoma, I was curious if you could talk about the progress you are making with the private payers there. Given the NCI, the real-world study, the largest of such kind, do you think that is a big enough impetus for you to gain further traction with the commercial payers going forward?

Frank Stokes: Yeah, Sanji, thanks. I think, like most high-value molecular diagnostic tests, we see a lot of resistance from the payer community on the private side. That resistance is driven less from data or lack of data and more just from self-interest, frankly. We continue to generate data. We continue to generate impressive data. You know, more than half the physicians are using our melanoma test. I think the payer community is kind of getting to the point of having a red face test problem. How do they go and say this test is experimental and investigational when 55% to 60% of the doctors are using it regularly in their practice? That does not sound investigational or experimental to me, unless you think two-thirds of the physicians are unqualified to practice medicine. If they want to make that assertion, we would be happy to have that debate with them as well.

Ventress, frankly, and so, um, we continue to generate data; we continue to generate impressive data. You know, more than half the physicians are using our melanoma test. And so, you know, I think the payer community is kind of getting to the point of having a, uh, a red face test problem. I mean, how do they go and say this test is experimental and investigational when, you know, 55% to 60% of the doctors are using it regularly in their practice? That doesn't sound investigational or experimental to me, unless you think two-thirds of the physicians are unqualified to practice medicine. And if they want to make that assertion, we would be happy to have that debate with them as well. So, um, I think we continue to see penetration there, very, very slow progress.

Um, the other, the other challenge we've talked with you about before is, is the, uh, the the need to work through the, the lab benefit managers, the third-party lab benefit managers and, and Technical assessment groups, um, and their Cycles. Their their, um, their Cycles tend to be. Well, they tend to be long and drawn out, but they ALS tend to be somewhat regular. And so even when you, uh, when you, uh, accomplish a change in policy, you know, that policy may not be rolled out until next year. And then each of the member plans, they have their own timelines. And so there's sort of a, a long kind of a Cascade if you will of seeing a policy change, actually be uh, result in in, in changing, in, in coverage policy. So,

Frank Stokes: I think we continue to see penetration there, very, very slow progress. The other challenge we have talked with you about before is the need to work through the lab benefit managers, the third-party lab benefit managers and technical assessment groups, and their cycles. Their cycles tend to be, well, they tend to be long and drawn out, but they also tend to be somewhat regular. Even when you accomplish a change in policy, that policy may not be rolled out until next year. Then each of the member plans, they have their own timelines. There is sort of a long kind of a cascade, if you will, of seeing a policy change actually result in change in coverage policy. We think we have got more than ample evidence. It is sort of, you know, beyond clear.

We think we've got more than ample uh, evidence. Uh, it's it's sort of, you know, beyond clear. Um, but there's just a there's a self-interest in a resistance on the part of the commercial payers um uh, across the board. As you've seen in, all all categories of testing, and, and your University.

Got it. Uh, that's super helpful. And then just on sbase, uh, the sbase collaboration, um, and apologies. If you guys have discussed this previously, but they seem to have a product, uh, for melanoma as well. Um, and was curious if their opportunities for collaboration for melanoma going forward or if that's part of the, the, you know, the partnership that you you guys have announced, uh, uh, earlier in the quarter. Thank you.

No.

Okay, thank you Sanji. Um,

Frank Stokes: There is just a self-interest and a resistance on the part of the commercial payers across the board, as you have seen in all categories of testing in your universe.

I think we discussed back when we announced the cyb collaboration, was that a month ago? A month ago, um, a couple of areas 1, is that is that cyb developed 2?

Sung Ji Nam: Got it. That is super helpful. Just on SideBase, the SideBase collaboration, and apologies if you guys have discussed this previously, they seem to have a product for melanoma as well. I was curious if there are opportunities for collaboration for melanoma going forward, or if that is part of the partnership that you guys have announced earlier in the quarter. Thank you.

I guess platforms or boxes, you could call it for the electrical impedance strategy. Technology 1 of them is a is a sort of a desktop based unit with a with a probe with this attached to a, to a flexible wand. Um, the other 1 is a small 10 device. Our focus is really on developing the small portable 10 device that would be used by a patient for example as opposed to being an office where that where that desktop unit exists. Um,

Derek Maetzold: Okay. Thank you, Sanji. I think we discussed back when we announced the SideBase collaboration, or was that a month ago? That's a couple of areas. One is that SideBase develops two, I guess, platforms or boxes, you could call it, for the electrical impedance spectroscopy technology. One of them is a sort of a desktop-based unit with a probe that's attached to a flexible wand. The other one is a small pen device. Our focus is really on developing the small portable pen device that would be used by a patient, for example, as opposed to being in an office where that desktop unit sits. Focusing more on newer indications like atopic dermatitis flare, et cetera.

And focusing more on newer indications like atopic dermatitis flare, etc. Um, so we cannot fold in the current desktop melanoma test into this initial collaboration, but it's certainly something as we go forward that we will be jointly evaluating and saying if there's a right time for that to have Castle collaborate with that in the U.S., that's great. Uh, if not, we can let it go along from a parallel structure standpoint.

Got it. Thank you so much.

You're welcome. Thank you very much. We currently have no further questions, so I will hand it back to Derek for any further remarks.

This concludes our second quarter, 2025 earnings call. Thank you again for joining us today and for your continued interest in Castle biosciences.

As we conclude today's call, we'd like to thank everyone for joining.

You have disconnect your lines.

Derek Maetzold: We did not fold in the current desktop melanoma test into this initial collaboration, but it's certainly something as we go forward that we'll be jointly evaluating and saying if there's a right time for that to have CASTLE collaborate with that in the U.S., that's great. If not, we can let it go along from a parallel structure standpoint.

Sung Ji Nam: Got it. Thank you so much.

Derek Maetzold: You're welcome.

Operator: Thank you very much. We currently have no further questions, so I would just like to hand back to Derek Maetzold for any further remarks.

Mark Massaro: This concludes our second quarter 2025 earnings call. Thank you again for joining us today and for your continued interest in Castle Biosciences.

Operator: As we conclude today's call, we would like to thank everyone for joining. You may disconnect your lines.