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CASTLE BIOSCIENCES INC (CSTL)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue of $86.188M and diluted EPS of $0.15 delivered a significant beat versus Wall Street consensus; management raised FY2025 revenue guidance to $310–$320M, up from $287–$297M, on strength in core tests and GI momentum . Results compared to consensus: Revenue $86.188M vs $71.409M* and EPS $0.15 vs -$0.53*, a material beat on both top-line and earnings (see Estimates Context).
  • TissueCypher test volumes grew 92% YoY; DecisionDx-Melanoma delivered the largest Q2-over-Q1 sequential volume increase since the IPO, underscoring demand resilience and commercial execution .
  • SCC reimbursement headwind persists (Novitas LCD non-coverage effective April 24), but Novitas accepted Castle’s reconsideration request; management continues offering the test while reallocating sales emphasis and expects moderation in SCC volumes near term .
  • Catalysts: FDA Breakthrough Device designation for DecisionDx-Melanoma, GI expansion with Previse acquisition, and SciBase collaboration for AD flare prediction support medium-term pipeline and potential payer traction .

What Went Well and What Went Wrong

What Went Well

  • GI momentum: TissueCypher volumes reached 9,170 (+92% YoY), driving non-derm revenue mix and supporting the guide raise .
  • DecisionDx-Melanoma execution: 9,981 tests, with the largest Q2-over-Q1 sequential increase in volume since 2019; FDA Breakthrough Device designation enhances clinical and regulatory positioning .
  • Raised FY2025 revenue guidance to $310–$320M on strength in core revenue drivers and GI; management reiterated expectations for positive operating cash flow in 2025 .
    • Quote: “Following a strong first quarter, our team closed out a very successful second quarter…driving our top-line performance.” — CEO Derek Maetzold .

What Went Wrong

  • SCC reimbursement headwind: Novitas LCD non-coverage reduced dermatology revenues and will pressure adjusted gross margin in 2H; SCC revenue in Q2 was “just above” $15M, with only episodic commercial payments .
  • Margin compression: GAAP gross margin fell to 77.3% (vs. 80.7% in Q2 2024); adjusted EBITDA dropped to $10.371M (vs. $21.539M YoY) .
  • Cash generation slightly lower YoY for the quarter: Net cash from operations $20.8M (vs. $24.0M in Q2 2024), partly reflecting SCC dynamics and broader OpEx growth .

Financial Results

Core Metrics vs Prior Periods and Prior Year

MetricQ2 2024 (oldest)Q1 2025Q2 2025 (newest)
Revenue ($USD Millions)$87.002 $87.988 $86.188
Diluted EPS ($USD)$0.31 $(0.90) $0.15
Gross Margin % (GAAP)80.7% 49.2% 77.3%
Adjusted Gross Margin %83.2% 81.2% 79.5%
Adjusted EBITDA ($USD Millions)$21.539 $13.015$10.371
Net Cash from Operations ($USD Millions)$24.0 $(6.0) $20.8

Segment Breakdown (Revenue)

Segment Revenue ($USD Millions)Q2 2024 (oldest)Q1 2025Q2 2025 (newest)
Dermatologic$68.8 $63.0 $56.3
Non-Dermatologic$18.2 $25.0 $29.9

KPIs: Test Volumes

Test ReportsQ2 2024 (oldest)Q1 2025Q2 2025 (newest)
Total25,102 24,402 26,574
DecisionDx-Melanoma9,585 8,621 9,981
TissueCypher (Barrett’s)4,782 7,432 9,170
DecisionDx-SCC4,277 4,375 4,762
MyPath Melanoma1,099 926 1,166
IDgenetix (discontinued in May 2025)4,903 2,578 1,027
DecisionDx-UM456 470 468

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD Millions)FY 2025$287–$297 $310–$320 Raised
Operating Cash FlowFY 2025Goal to be operating cash flow positive by end of 2025 Continue to expect positive net cash flow from operations for 2025 Maintained/affirmed
Adjusted Gross Margin (directional)2H 2025n/aLow to mid-70s (adjusted GM) commentary New commentary

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
DecisionDx-Melanoma adoption and outcomesMeta-analysis and prospective data validating risk stratification and SLNB decision-making 200k orders milestone, multiple prospective publications reinforcing SLNB decisions and survival association Largest Q2/Q1 sequential volume increase since IPO; FDA Breakthrough Device designation Strengthening clinical and regulatory profile
GI (TissueCypher) growth and seasonalityNYSDOH assay approval; strong growth exiting 2024 7,432 tests (+>100% YoY) momentum 9,170 tests (+92% YoY); management still “underpenetrated,” limited seasonality observed Continued acceleration
SCC reimbursement (Novitas/MolDX)Preliminary LCD concerns noted IDgenetix discontinued; LCD effective starting late April cited as risk Novitas LCD non-coverage impacting revenue; reconsideration accepted by Novitas; awaiting MolDX Near-term headwind; process progressing
Margin outlookHigh GM and adj. GM exiting 2024 Q1 GAAP GM depressed by one-time amortization; adj. GM ~81% Adjusted GM expected low-to-mid 70s in 2H due to SCC dynamics Downward bias near term
Pipeline: Atopic Dermatitis (AD)n/aTest development updates, targeted launch timing by YE2025 SciBase collaboration (EIS tech) for AD flare prediction; limited initial revenue impact; launch remains targeted Building for 2026–2029 impact
M&A / Strategicn/aAnnounced Previse acquisition Closed Previse; multi-omics roadmap for GI; disciplined capital allocation Portfolio diversification

Management Commentary

  • Pipeline/payers: “We are marching…towards an FDA submission [for DecisionDx‑Melanoma].” — CEO Derek Maetzold .
  • SCC reimbursement: “Novitas…accepted the reconsideration…we expect to keep you informed,” noting MolDX response pending within CMS’s 60-day window .
  • AD test launch and reimbursement: “We believe…substantial clinical value…launch by the end of 2025; revenue impact immaterial for 2026…matures in ‘27–‘29.” — CEO .
  • Margin outlook: “Back half of the year adjusted gross margin [will] not look quite as good as Q2…low to mid-70s.” — CFO .
  • Cash generation and capital allocation: “We continue to expect to deliver positive net cash flow from operations for 2025…disciplined M&A focused on reimbursed, complementary tests.” — CFO .

Q&A Highlights

  • FDA pathway: With Breakthrough Device designation, Castle plans to pursue FDA submission for DecisionDx-Melanoma; management believes existing data are sufficient for authorization/clearance .
  • SCC reimbursement cadence: Novitas accepted reconsideration request; MolDX decision expected around Labor Day timing per CMS protocol; Castle to keep test available but expects moderated volumes .
  • TissueCypher trajectory: Strong growth with underpenetration; seasonality not yet observable; GI sales force maturation expected through 2H 2025 .
  • Margin expectations: Adjusted gross margin trending low–mid 70s in 2H due to SCC non-coverage; still among better margins in the sector per management .
  • AD pipeline and reimbursement: AD test targeted limited launch by YE2025; multiple reimbursement pathways under evaluation; initial revenue immaterial in 2026 .

Estimates Context

Metric (Q2 2025)Wall St. Consensus*Actual
Revenue ($USD)$71.409M*$86.188M
Primary EPS ($USD)-$0.531*$0.15
EBITDA ($USD)-$0.331M*-$0.837M* (Note: Adjusted EBITDA $10.371M reported)
  • Number of estimates: Revenue (9); EPS (9). Target Price consensus: $37.25* (8 estimates)*.
  • Results imply a material beat on revenue and EPS, with non-GAAP adjusted EBITDA positive despite negative EBITDA basis.
  • Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Top-line resilience with GI strength: TissueCypher volumes and non-derm revenue mix offset SCC reimbursement pressure; guidance raise reflects this momentum .
  • SCC LCD remains the primary overhang: Novitas accepted reconsideration; timing is uncertain, but continued availability mitigates physician disruption while pressuring margin in 2H .
  • Melanoma franchise fortified: FDA Breakthrough Device designation and largest Q2/Q1 sequential volume increase since IPO enhance medium-term payer and adoption narrative .
  • Margin trajectory: Expect adjusted GM low–mid 70s in 2H; mix shift to GI and SCC dynamics weigh on margins, but disciplined OpEx and strong gross margin relative to peers remain positives .
  • Cash generation intact: $20.8M Q2 operating cash flow and management’s 2025 positive OCF expectation underpin capital deployment and pipeline investments .
  • Pipeline optionality: AD test (limited launch YE2025) and SciBase collaboration create incremental catalysts in dermatology; Previse supports multi-omics GI roadmap .
  • Near-term trading: Strong beat/raise and FDA Breakthrough designation are positive catalysts; watch for MolDX decision updates and 2H margin prints as key swing factors .

Notes on Non-GAAP and Disclosures

  • Adjusted metrics definitions and reconciliations provided: Adjusted Revenues, Adjusted Gross Margin, Adjusted EBITDA, and Adjusted Net Income/Loss per Share .
  • Q1 2025 one-time amortization acceleration ($20.099M) impacted GAAP margins and earnings; non-GAAP adjustments remove this to aid comparability .

Appendix References

  • Q2 2025 press release and 8-K financials: revenues, EPS, cash flows, and test volumes .
  • Earnings call transcript: operational highlights, reimbursement updates, margin outlook, pipeline timing .
  • Prior quarters: Q1 2025 and Q4 2024 press releases for trend analysis .
  • FDA Breakthrough Device designation (DecisionDx‑Melanoma): July 23 press release .