On May 3, 2023 Castle Biosciences, Inc. (Nasdaq: CSTL), a company improving health through innovative tests that guide patient care, reported its financial results for the first quarter ended March 31, 2023 (Press release, Castle Biosciences, MAY 3, 2023, View Source [SID1234630906]).

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"Castle delivered a strong start to the year," said Derek Maetzold, president and chief executive officer of Castle Biosciences. "Building on our strength and momentum from 2022, we delivered significant test report volume and revenue growth in the first quarter, which was driven by continued execution on our short- and long-term strategies. We remain confident in our business and are reaffirming our 2023 revenue guidance.

"Investments in our growth initiatives across our entire test portfolio, coupled with the team’s performance, continue to support the adoption of our proprietary tests. In particular, the evolution of our dermatology facing commercial team in the third quarter of 2022 helped drive first quarter test report volume for DecisionDx-Melanoma and DecisionDx-SCC combined, which grew nearly 40% year-over-year and nearly 10% sequentially.

Additionally, we acquired two companies over the last eighteen months that we believe will contribute to long-term value creation. We were pleased to see the continued momentum in test report volumes we expected in these newer gastroenterology and mental health franchises, which we believe are on track to be important contributors to delivering on our financial targets.

First Quarter Ended March 31, 2023, Financial and Operational Highlights
•Revenues were $42.0 million, a 57% increase compared to $26.9 million during the same period in 2022. Included in revenue for the period were revenue adjustments related to tests delivered in prior periods. These prior period revenue adjustments for the quarter ended March 31, 2023, were $1.3 million of net negative revenue adjustments, compared to $0.6 million of net positive revenue adjustments for the same period in 2022.
•Adjusted revenues, which exclude the effects of revenue adjustments related to tests delivered in prior periods, were $43.4 million, a 65% increase compared to $26.3 million for the same period in 2022.
•Delivered 14,916 total test reports in the first quarter of 2023, an increase of 73% compared to 8,627 in the same period of 2022:
◦DecisionDx-Melanoma test reports delivered in the quarter were 7,583, compared to 6,023 in the first quarter of 2022, an increase of 26%. DecisionDx-Melanoma test reports delivered in the fourth quarter of 2022 were 7,301.
◦DecisionDx-SCC test reports delivered in the quarter were 2,411, compared to 1,142 in the first quarter of 2022, an increase of 111%. DecisionDx-SCC test reports delivered in the fourth quarter of 2022 were 1,845.
◦MyPath Melanoma test reports delivered in the quarter were 980, compared to 950 MyPath-Melanoma and DiffDx-Melanoma aggregate test reports in the first quarter of 2022, an increase of 3%. MyPath and DiffDx-Melanoma aggregate test reports delivered in the fourth quarter of 2022 were 822.
◦DecisionDx-UM test reports delivered in the quarter were 409, compared to 456 in the first quarter of 2022, a decrease of 10%. DecisionDx-UM test reports delivered in the fourth quarter of 2022 were 432.

◦TissueCypher Barrett’s Esophagus test reports delivered in the quarter were 1,383, compared to 56 in the first quarter of 2022, following our initial offering of the test beginning in December 2021. TissueCypher Barrett’s Esophagus test reports delivered in the fourth quarter of 2022 were 1,030.
◦IDgenetix test reports delivered in the quarter were 2,150. We began offering the IDgenetix test in April 2022, and thus no test reports were delivered by Castle in the first quarter of 2022. IDgenetix test reports delivered in the fourth quarter of 2022 were 1,214.
•Gross margin for the quarter ended March 31, 2023, was 70.5%, and adjusted gross margin was 76.5%.
•Net cash used in operations was $25.4 million, compared to $21.4 million for the same period in 2022. First quarter 2023 cash use reflects payout of employee annual cash bonuses as well as certain health care benefit payments, totaling $17.7 million, that are not expected to recur during the remainder of 2023.
•Net loss for the first quarter, which includes non-cash stock-based compensation expense of $13.5 million, was $(29.2) million, compared to $(24.6) million for the same period in 2022.
•Adjusted EBITDA for the first quarter was $(15.1) million, compared to $(11.4) million for the same period in 2022.
Cash, Cash Equivalents and Marketable Investment Securities
As of March 31, 2023, the Company’s cash, cash equivalents and marketable investment securities totaled $232.1 million.
2023 Outlook
The Company reaffirms its previously provided 2023 total revenue guidance of $170-180 million.
First Quarter and Recent Accomplishments and Highlights
Dermatology
•Earlier today, the Company announced the publication of an independent, retrospective multi-center study in the Archives of Dermatological Research providing a direct chain of evidence that use of DecisionDx-Melanoma test results to guide radiological surveillance could lead to improved patient outcomes. The study, authored by Dhillon et al., can be found here. See the Company’s news release from May 3, 2023, for more information.
•In February, the Company announced the publication of data from a prospective, multicenter study, called DECIDE. In the study, DecisionDx-Melanoma test results influenced 85% of clinicians’ decisions regarding the sentinel lymph node biopsy (SLNB) surgical procedure. Additionally, use of the tests’ results within current guideline recommendations led to a significant reduction in SLNB procedures performed, demonstrating the clinical value of the test to guide risk-aligned patient care. The publication can be found here.
•In March, the Company announced the publication of a consensus panel report from the National Society for Cutaneous Medicine recommending use of gene expression profile (GEP) testing in the clinical assessment and management of cutaneous melanoma (CM). The report provides usage guidelines and a framework for clinicians to integrate GEP testing into their CM patient management. Additionally, the consensus report endorses Castle’s DecisionDx-Melanoma GEP risk stratification test as offering more utility than other existing CM GEP assays or nomograms, supported by extensive, evidence-driven data in current literature. See the Company’s news release from March 8, 2023, for more information.
•In March, the Company shared new performance data from a novel, multi-center, independent cohort demonstrating how the independent risk-stratification of DecisionDx-SCC can significantly improve metastatic risk predictions by complementing current staging systems, American Joint Committee on Cancer 8th edition staging system (AJCC8) and Brigham and Women’s Hospital staging system (BWH). Additionally, consistent with previous studies, DecisionDx-SCC independently and significantly stratified a novel cohort according to patients’ biologic metastatic risk (p<0.0001). This study analyzed the performance of the DecisionDx-SCC test in a novel, independent performance cohort of 534 patients with primary SCC and one or more risk factors from 45 contributing centers. The data from the

study consistently demonstrated the performance of DecisionDx-SCC to classify risk for metastasis in SCC patients with one or more risk factors (p<0.0001), and multivariate models showed the metastatic risk prediction of AJCC8 and BWH staging systems were significantly improved when DecisionDx-SCC test results were included. See the Company’s news release from March 18, 2023, for more information.
Corporate
•In February, the Company announced that it received a 2023 Top Workplaces USA award from Energage. This is the second year in a row that Castle has received this national award, recognizing the Company for its exceptional workplace culture. Recipients of the Top Workplaces USA award are chosen solely on employee feedback gathered through an anonymous employee engagement survey, issued by Energage. See the Company’s news release from Feb. 1, 2023, for more information.
•In February, the Company announced that its chief financial officer, Frank Stokes, was named to Finance & Investing’s Top 25 CFOs of Houston list for 2023. This year’s awardees are financial executives at the forefront of the rapid technological development occurring throughout Houston across key global industries, including energy, life sciences, manufacturing, logistics and aerospace. See the Company’s news release from Feb. 24, 2023, for more information.
Conference Call and Webcast Details
Castle Biosciences will hold a conference call on Wednesday, May 3, 2023, at 4:30 p.m. Eastern time to discuss its first quarter 2023 results and provide a corporate update.

A live webcast of the conference call can be accessed here: View Source or via the webcast link on the Investor Relations page of the Company’s website, View Source Please access the webcast at least 10 minutes before the conference call start time. An archive of the webcast will be available on the Company’s website until May 24, 2023.

To access the live conference call via phone, please dial 833 470 1428 from the United States, or +1 404 975 4839 internationally, at least 10 minutes prior to the start of the call, using the conference ID 083848.

There will be a brief Question & Answer session following management commentary.
Use of Non-GAAP Financial Measures (UNAUDITED)
In this release, we use the metrics of Adjusted Revenues, Adjusted Gross Margin and Adjusted EBITDA, which are non-GAAP financial measures and are not calculated in accordance with generally accepted accounting principles in the United States (GAAP). Adjusted Revenues and Adjusted Gross Margin reflect adjustments to GAAP net revenues to exclude net positive and/or net negative revenue adjustments recorded in the current period associated with changes in estimated variable consideration related to test reports delivered in previous periods. Adjusted Gross Margin further excludes acquisition-related intangible asset amortization. Adjusted EBITDA excludes from net loss interest income, interest expense, income tax expense (benefit), depreciation and amortization expense, stock-based compensation expense and change in fair value of contingent consideration.

We use Adjusted Revenues, Adjusted Gross Margin and Adjusted EBITDA internally because we believe these metrics provide useful supplemental information in assessing our revenue and operating performance reported in accordance with GAAP, respectively. We believe that Adjusted Revenues, when used in conjunction with our test report volume information, facilitates investors’ analysis of our current-period revenue performance and average selling price performance by excluding the effects of revenue adjustments related to test reports delivered in prior periods, since these adjustments may not be indicative of the current or future performance of our business. We believe that providing Adjusted Revenues may also help facilitate comparisons to our historical periods. Adjusted Gross Margin is calculated using Adjusted Revenues and therefore excludes the impact of revenue adjustments related to test reports delivered in prior periods, which we believe is useful to investors as described above. We further exclude acquisition-related intangible asset amortization in the calculation of Adjusted Gross Margin. We believe that excluding acquisition-related intangible asset amortization may facilitate gross margin comparisons to historical periods and may be useful in assessing current-period performance without regard to the historical accounting valuations of intangible assets, which

are applicable only to tests we acquired rather than internally developed. We believe Adjusted EBITDA may enhance an evaluation of our operating performance because it excludes the impact of prior decisions made about capital investment, financing, investing and certain expenses we believe are not indicative of our ongoing performance. However, these non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, even when the same or similarly titled terms are used to identify such measures, limiting their usefulness for comparative purposes.

These non-GAAP financial measures are not meant to be considered in isolation or used as substitutes for net revenues, gross margin, or net loss reported in accordance with GAAP; should be considered in conjunction with our financial information presented in accordance with GAAP; have no standardized meaning prescribed by GAAP; are unaudited; and are not prepared under any comprehensive set of accounting rules or principles. In addition, from time to time in the future, there may be other items that we may exclude for purposes of these non-GAAP financial measures, and we may in the future cease to exclude items that we have historically excluded for purposes of these non-GAAP financial measures. Likewise, we may determine to modify the nature of adjustments to arrive at these non-GAAP financial measures. Because of the non-standardized definitions of non-GAAP financial measures, the non-GAAP financial measure as used by us in this press release and the accompanying reconciliation tables have limits in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. Accordingly, investors should not place undue reliance on non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of this release.