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CASTLE BIOSCIENCES INC (CSTL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered strong growth: revenue $86.3M (+31% y/y), diluted EPS $0.32, adjusted EBITDA $21.3M; full-year revenue reached $332.1M (+51% y/y) and operating cash flow turned positive ($64.9M) .
  • 2025 revenue guidance was set at $280–$295M; management flagged expected gross margin compression tied to anticipated Medicare non-coverage for DecisionDx-SCC effective April 24, 2025, while still guiding to positive adjusted EBITDA and positive operating cash flow for 2025 .
  • TissueCypher adoption accelerated (Q4 test reports +94% y/y; FY +130%) and dermatology volumes expanded (DecisionDx-Melanoma +8% FY; DecisionDx-SCC +43% FY), offset by IDgenetix headwinds and planned promo pullback late 2024 .
  • S&P Global consensus estimates were unavailable at the time of analysis; beat/miss vs Street cannot be determined. Values would be retrieved from S&P Global, but were not accessible due to request limits.

What Went Well and What Went Wrong

What Went Well

  • Broad-based volume and revenue growth: Q4 revenues $86.3M (+31% y/y), FY revenues $332.1M (+51% y/y), with adjusted EBITDA of $21.3M in Q4 and $75.0M FY, demonstrating operating leverage .
  • TissueCypher momentum and clinical validation: Q4 TissueCypher test reports 6,672 (+94% y/y); FY 20,956 (+130% y/y). NYSDOH assay approval broadened market accessibility; AGA guidelines recognized tissue-based biomarkers including TissueCypher .
  • Management execution and cash strength: FY operating cash flow $64.9M and year-end cash, cash equivalents and marketable securities $293.1M, supporting continued investment and strategic opportunities .
    • CEO: “Castle delivered an outstanding fourth quarter that rounded out an exceptional 2024, including 51% revenue growth and 36% test report volume growth compared to 2023.”

What Went Wrong

  • Medicare coverage risk for DecisionDx-SCC: Novitas finalized an LCD signifying non-coverage, effective April 24, 2025; management expects revenue/margin impact and will shift dermatology salesforce incentives predominantly to melanoma .
  • Gross margin declined sequentially: Q4 GAAP gross margin 76.2% (Q3 79.2%), with management guiding 2025 GM to low–mid 70% and adjusted GM to mid–high 70% given SCC coverage changes .
  • IDgenetix headwinds: Q4 reports fell to 3,125 (vs. 3,299 y/y); late-2024 promo reallocation to inside sales and non-personal promotion; 2025 volumes and net revenues expected to decline with uncertain long-term performance .

Financial Results

Core Financials vs Prior Periods

MetricQ2 2024Q3 2024Q4 2024
Revenue ($M)$87.0 $85.8 $86.3
Adjusted Revenue ($M)$86.6 $86.3 $85.8
Diluted EPS ($)$0.31 $0.08 $0.32
Net Income ($M)$8.9 $2.3 $9.6
Gross Margin % (GAAP)80.7% 79.2% 76.2%
Adjusted Gross Margin %83.2% 81.9% 81.1%
Adjusted EBITDA ($M)$21.5 $21.6 $21.3
Operating Cash Flow ($M)$24.0 $23.3 $24.4

Test Report Volumes by Product (Quarterly)

Test ReportsQ2 2024Q3 2024Q4 2024
DecisionDx-Melanoma9,585 9,367 8,672
DecisionDx-SCC4,277 4,195 4,299
MyPath Melanoma1,099 933 879
TissueCypher (BE)4,782 6,073 6,672
IDgenetix4,903 5,045 3,125
DecisionDx-UM456 397 424
Total Test Reports25,102 26,010 24,071

Full-Year Highlights (for context)

MetricFY 2023FY 2024
Revenue ($M)$219.8 $332.1
Adjusted Revenue ($M)$224.3 $333.8
Gross Margin % (GAAP)75.4% 78.5%
Adjusted Gross Margin %79.9% 82.0%
Net Income (Loss) ($M)$(57.5) $18.2
Adjusted EBITDA ($M)$(4.4) $75.0
Operating Cash Flow ($M)$(5.6) $64.9
Year-End Cash & Investments ($M)$243.1 $293.1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueFY 2025—$280–$295M Initial
Gross Margin (GAAP)FY 2025—Low–mid 70% Initial
Adjusted Gross MarginFY 2025—Mid–high 70% Initial
Adjusted EBITDAFY 2025—Positive (no magnitude) Initial
Net Operating Cash FlowFY 2025—Positive full-year Initial
Medicare Coverage (DecisionDx-SCC)Effective Apr 24, 2025Covered since Q2’22 Novitas LCD signifying non-coverage Lowered

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
Dermatology (DecisionDx-Melanoma, SCC)SCC evidence for ART utility; melanoma clinical validation (ASCO CNS risk) Raised FY guidance; SCC publications (Arron, Ruiz) reinforce ART selection; melanoma penetration ~30% SCC Medicare non-coverage risk; salesforce incentives shifting to melanoma; melanoma mid- to high-single-digit FY25 volume growth From growth focus to payer-driven mix shift
TissueCypher adoption+230% y/y Q2 volumes; AGA guideline recognition +115% y/y Q3; GI salesforce expansion underway +94% y/y Q4; NYSDOH assay approval; GI team to 60–80 at maturity Strong, scaling capacity & coverage
Reimbursement dynamicsSCC ADLT ASP tailwind; stable coverage Palmetto non-coverage not impacting business; pursuing MolDX engagement Novitas LCD signifying SCC non-coverage; reconsideration/MolDX pathways; potential legal environment Heightened risk
IDgenetix strategyStrong y/y growth Continued growth; caution on payer landscape Promo pullback; expected 2025 declines and uncertainty Deprioritized
Capital allocation & M&AInvesting to scale TissueCypher; R&D programs Leveraging P&L; prudent SG&A; EBITDA positive Discipline; focus on existing verticals with selective opportunities Balanced, disciplined
AD pipeline (atopic dermatitis)Discovery ongoing; launch target before end 2025 Update timing; validation path; late 2025 launch intact Launch late 2025; reimbursement strategy to be clarified; material revenue not expected until ’28–’29 Progressing; long-dated revenue

Management Commentary

  • CEO on 2024 execution: “I am incredibly proud of our team's hard work in achieving these results, including achieving our previously provided 2025 revenue guidance range one year ahead of expectations.”
  • CFO on 2025 margins: “With the anticipated loss of DecisionDx-SCC coverage in late April, we currently expect gross margins in the low to mid-70% range and adjusted gross margin in the mid- to high 70% range for all 2025.”
  • CEO on SCC patient impact: “It will be hugely disappointing to have Medicare beneficiaries be referred to and undergo adjuvant radiation therapy… roughly 60% of them will not respond… we believe [DecisionDx-SCC] extracts over $900 million a year in excess of spend because you're removing ART from the patient.”
  • CEO on TissueCypher market: “We believe… the addressable market… is approximately 415,000 patients per year in the U.S., meaning that we exited 2024 with roughly 5% market penetration.”

Q&A Highlights

  • SCC reimbursement and commercial approach: Management will likely keep SCC available near term while pursuing reconsideration/MolDX paths; anticipate switching dermatology salesforce incentives ~100% toward melanoma beginning May 1 absent near-term reimbursement visibility .
  • TissueCypher salesforce sizing: Target low-60s reps near term; mature state likely 60–80, pacing expansion to avoid disruption as territories mature .
  • Seasonality and weather impacts: Q4 dermatology volumes affected by holidays/hurricanes with limited ability to “make up” visits; expect typical Q1 seasonality (deductibles reset, major conferences) .
  • AD pipeline timing and reimbursement: Launch still targeted for late 2025; reimbursement model to be clarified post-validation; minimal revenue contribution expected until 2028–2029 .
  • 2025 profitability: Company reiterated full-year adjusted EBITDA positive and positive net operating cash flow .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 revenue and EPS were unavailable due to request limits at the time of analysis. Values would normally be retrieved from S&P Global to benchmark beats/misses and inform estimate revisions. Without consensus, we cannot state whether Q4 results beat or missed Street expectations.

Key Takeaways for Investors

  • 2024 inflection confirmed: scale benefits are evident with sustained adjusted EBITDA and cash generation; balance sheet supports continued growth and selective M&A .
  • 2025 mix shift risk: anticipated SCC Medicare non-coverage is the primary headwind driving lower revenue guidance and margin compression; watch policy reconsideration/MolDX developments and any legal outcomes .
  • Dermatology resilience: reallocating the salesforce to melanoma should underpin continued share gains; monitor clinician adoption metrics and guideline developments .
  • TissueCypher is the growth engine: accelerating adoption plus NYSDOH approval expands access; GI salesforce capacity and AGA recognition position the asset for multi-year growth .
  • IDgenetix de-emphasis reduces near-term volatility: expect 2025 declines; focus pivots to higher-ROI franchises .
  • Pipeline optionality: atopic dermatitis test remains a late-2025 launch with long-dated revenue; reimbursement strategy will be critical to eventual monetization .
  • Trading implications: near-term stock moves likely driven by reimbursement headlines and 2025 margin trajectory; positive catalysts include TissueCypher adoption updates, SCC coverage progress, and evidence publications reinforcing clinical utility .