CSTL — Q2 2026 Financial Report Analysis

Castle Biosciences grew second-quarter 2026 revenue 20.1% to $103.5 million, and for the first time more than half of it came from outside dermatology. TissueCypher, a test that estimates which patients with Barrett's esophagus (a pre-cancerous change in the lining of the food pipe) are likely to progress to cancer, delivered 14,988 reports, up 63% from a year earlier, and lifted non-dermatology revenue 83%. That more than offset a 13.5% drop in dermatology revenue, where the DecisionDx-SCC skin-cancer test is still feeling the loss of Medicare coverage in April 2025. The company still lost money: a GAAP net loss of $2.1 million, versus a $4.5 million profit a year ago that came almost entirely from a one-time tax benefit. Management raised full-year revenue guidance by $20 million.

At a glance

• $103.5 million revenue, +20.1% — but $3.7 million of it was catch-up money for tests delivered in earlier quarters; stripping that out, growth from this quarter's tests was about 15.9%.
• TissueCypher reports +63% (14,988 vs 9,170) — the Barrett's esophagus test is now the company's biggest volume line and the main reason revenue grew.
• 2026 revenue guidance raised to $365–375 million from $345–355 million — and management now expects positive adjusted EBITDA for Q3, Q4 and the full year.

Results versus a year ago

Operating margin is the share of revenue left after running the business (lab costs, research, sales and administration), before interest and tax; Castle is just below zero. Adjusted EBITDA is the company's own profit measure that adds back non-cash items, chiefly $11.6 million of stock-based pay and $4.1 million of depreciation and amortization.

Where the growth came from

The business is splitting into two very different halves.

Gastroenterology is carrying the company. Non-dermatologic revenue rose $25.0 million, which the 10-Q attributes "primarily" to higher TissueCypher volumes and, "to a lesser extent, a higher realized average selling price" (the amount actually collected per test). The prior-year figure also included IDgenetix, a test discontinued in May 2025, so TissueCypher's own growth is somewhat stronger than the 83% segment figure suggests. Non-dermatology went from 34.7% of revenue a year ago to 53.0% now. The company is expanding its Pittsburgh lab to add TissueCypher capacity and signed a new 11-year Pittsburgh lease in March.

Dermatology is shrinking, and it's one test. Dermatologic revenue fell $7.6 million. The filing pins this mainly on DecisionDx-SCC — a test for high-risk squamous cell skin cancer — "driven by lower realized ASP and lower test report volumes," with the price drop caused by Medicare ending coverage in April 2025. SCC reports fell 16%. The flagship DecisionDx-Melanoma test grew volume only 3% in the quarter (9% in the first half), which is slow next to TissueCypher. Castle has asked both Medicare contractors to reconsider the SCC decision; both confirmed the requests are valid, which the company itself notes "does not indicate coverage or a favorable review outcome."

Costs grew faster than sales in the lab. Cost of sales rose 34.5%, from more lab supplies, lab services and staff to handle higher volumes. Gross margin (revenue minus the cost of running the tests and amortizing acquired test technology, as a share of revenue) slipped from 77.3% to 74.9%, which the filing ties to "the shift in the mix of reports issued" — more lower-priced TissueCypher tests (Medicare pays $4,950 each) and fewer SCC tests (whose Medicare rate was $8,500 while it was covered). Sales and marketing rose 16.5% and R&D 13.7%, both below revenue growth, which is why the operating loss still narrowed.

What the headline numbers hide

• Some of the revenue belongs to earlier quarters. Labs like Castle book revenue when a test is delivered, using an estimate of what insurers will eventually pay, then correct it when payments arrive. In Q2 those corrections added $3.7 million; a year ago they were about zero. On the company's "adjusted revenues" basis, which removes them, Q2 revenue was $99.9 million, up 15.9% — still solid, but not 20%. The swing runs both ways: for the first half as a whole, prior-period corrections were a net $1.3 million drag (Q1 had a negative adjustment).
• Last year's profit was a tax item, not the business. Q2 2025's $4.5 million net income rested on a $4.7 million tax benefit from releasing part of a valuation allowance when Castle acquired Capsulomics (Previse); pre-tax, that quarter lost $0.1 million. This year Q2 had a $0.4 million tax expense. Pre-tax loss went from $0.1 million to $1.7 million even though the operating loss improved, because investment results swung by $1.8 million (an unrealized loss on Castle's stake in SciBase versus prior-year gains) and interest income fell $0.6 million.
• GAAP vs adjusted is mostly stock pay. Adjusted EBITDA of $12.4 million versus a $3.1 million operating loss: the gap is $11.6 million of stock-based compensation plus $4.1 million of depreciation and amortization. Stock pay is a real cost to shareholders through dilution — share count rose about 5% year on year (30.4 million vs 28.9 million weighted basic shares).
• Cash flow was fine in the quarter, weak for the half. Operations produced $15.2 million of cash in Q2 (vs $20.8 million a year ago), well above the net loss. For the first half, operating cash flow was -$6.9 million, mainly because of $28.8 million of annual bonus and benefit payments that the company says will not recur in the rest of 2026. Capital spending of $21.1 million in the half (lab build-out and the finished Friendswood, Texas headquarters) means free cash flow was clearly negative year to date.
• Receivables are not a concern. Accounts receivable rose 11% since December to $48.3 million, slower than revenue growth.
• The balance sheet is a cushion. Cash and marketable securities totaled $266.8 million against $10.1 million of debt.

Takeaway: Castle has become a Barrett's esophagus company with a skin-cancer business attached: TissueCypher's 63% volume growth now outweighs the Medicare-driven decline in DecisionDx-SCC. But about $3.7 million of the reported 20% growth was a catch-up from earlier quarters, and the shift to lower-priced TissueCypher tests is already squeezing gross margin. Underlying growth is closer to 16%.

Outlook

Management raised 2026 revenue guidance to $365–375 million from $345–355 million and now expects positive adjusted EBITDA in Q3, Q4 and the full year (first-half adjusted EBITDA was $7.3 million, after -$5.1 million in Q1). With $187.2 million booked in the first half, the new range implies roughly $178–188 million in the second half — about flat to slightly higher than the first half's pace, which looks reachable if TissueCypher keeps growing near its current rate. The things to watch in the Q3 report (expected in early November): whether TissueCypher volume growth holds up as the Pittsburgh capacity expansion comes online; whether gross margin keeps sliding as the test mix shifts; any decision on the DecisionDx-SCC Medicare reconsiderations, which would be the single biggest upside for dermatology; and early order numbers for AdvanceAD-Tx, the new eczema treatment-selection test, which logged about 1,000 orders in Q2 while still in limited launch and does not yet have the Medicare pricing status the other tests have. Principal payments on the term loan start in December 2026 but are small next to the cash pile.