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DATE

Thursday, July 30, 2026 at 3:00 p.m. ET

CALL PARTICIPANTS

• Vice President, Investor Relations and Corporate Affairs - Camilla Zuckero
• Founder, President and Chief Executive Officer - Derek Maetzold
• Chief Financial Officer - Frank Stokes

TAKEAWAYS

• Total Revenue -- $103.5 million, an increase of 20.1% compared to $86.2 million in the second quarter of 2025, primarily driven by TissueCypher volume growth and average selling price (ASP) improvements.
• Core Revenue Growth -- 40% when excluding revenue from DecisionDx-SCC and IDgenetix, reflecting the underlying expansion of the company's dermatology and gastroenterology portfolios.
• DecisionDx-Melanoma Volume -- 10,280 test reports, representing 3% growth compared to 9,981 reports in the second quarter of 2025.
• TissueCypher Volume -- 14,988 test reports, an increase of 63.4% compared to 9,170 reports in the prior year period, driven by increased market penetration.
• 2026 Revenue Guidance -- $365 million to $375 million, raised from the previously provided range of $345 million to $355 million based on first-half performance momentum.
• Adjusted Gross Margin -- 76.3%, compared to 79.5% in the second quarter of 2025, reflecting shifts in product mix and increased laboratory investments.
• Gross Margin -- 74.9%, compared to 77.3% in the prior year quarter, influenced by higher costs for laboratory supplies and services.
• Total Operating Expenses -- $106.6 million, an increase from $90.4 million in 2025, driven by headcount expansion in administrative and laboratory functions.
• Sales and Marketing Expense -- $40.9 million, reflecting higher personnel costs, travel expenses, and business administration costs associated with test adoption efforts.
• Research and Development Expense -- $14.5 million, a 13.7% increase year over year to support pipeline opportunities in dermatology and gastroenterology.
• General and Administrative Expense -- $25.2 million, primarily attributable to merit-based wage adjustments and headcount growth in administrative functions.
• Cost of Sales -- $23.7 million, an increase from $17.6 million in 2025 due to higher test report volumes and merit-based inflationary wage adjustments.
• Adjusted EBITDA -- $12.4 million, an increase from $10.4 million in the second quarter of 2025, with management expecting positive results for the full year 2026.
• Net Loss -- $2.1 million, or $0.07 per diluted share, compared to net income of $4.5 million, or $0.15 per diluted share, in the prior year period.
• Cash and Marketable Securities -- $266.8 million as of June 30, 2026, which management indicated provides financial flexibility for growth initiatives.
• AdvanceAD-Tx Orders -- More than 1,000 orders delivered during the quarter, with 97.8% of patients initiated on molecularly concordant systemic therapy following testing.
• TissueCypher Volume Outlook -- 50% to 52% growth expected for the full year 2026 based on trends observed in the first half of the year.
• AdvanceAD-Tx Medicare Crosswalk -- A proposed rate of $3,675 per test based on a unanimous 21-to-0 panel vote to crosswalk the test to an existing drug response code.
• Sales Force Infrastructure -- Approximately 100 sales territories established for each of the gastroenterology and dermatology divisions to drive adoption.
• DecisionDx-Melanoma Clinical Performance -- A multicenter study found the test identified low-risk patients with a sentinel lymph node positivity rate of 2.6%, which is below the NCCN 5% threshold for surgical intervention.
• DecisionDx-SCC Volume -- 4,011 test reports, a decrease from 4,762 reports in 2025 following a change in Medicare coverage effective April 24, 2025.
• MyPath Melanoma Volume -- 1,061 test reports, compared to 1,166 reports in the prior year quarter.
• DecisionDx-UM Volume -- 482 test reports, representing a 3% increase over the 468 reports delivered in the second quarter of 2025.

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RISKS

• Maetzold stated, "this moderate sequential growth was due in part to our commercial team adapting its customer engagement model to support 3 products within the same customer call," noting that DecisionDx-Melanoma sequential volume growth was below historical seasonality.
• Maetzold stated, "we've heard nothing, by the way, negative... from a standpoint of a return to coverage," regarding DecisionDx-SCC, but acknowledged there is no set timeline for Medicare contractors to respond to reconsideration requests.

SUMMARY

Management reported that second quarter performance was driven by the company's core diagnostic tests while focusing on strategic investments in laboratory capacity and personnel to support anticipated growth. The company stated that it raised its annual revenue outlook based on first-half results and expects to achieve positive adjusted EBITDA for the remainder of the fiscal year. Strategic initiatives during the period included progress in the dermatological atopic dermatitis market and ongoing evidence development for established melanoma tests. The company indicated that it remains focused on expanding its commercial reach across dermatology and gastroenterology divisions while managing regulatory and reimbursement pathways for its pipeline and existing portfolio.

• Management attributed moderate sequential growth in DecisionDx-Melanoma to a deliberate investment in the commercial model, with Maetzold stating, "this moderate sequential growth was due in part to our commercial team adapting its customer engagement model to support 3 products within the same customer call."
• Regarding the potential return of Medicare coverage for DecisionDx-SCC, Maetzold stated, "expecting to see daylight in the second half of 2026, I think, is a reasonable expectation," based on typical timelines for draft LCD reconsiderations.
• The company initiated the DETECT-AD study in collaboration with SciBase to investigate whether electrical impedance spectroscopy can predict atopic dermatitis flares before they become symptomatic.
• Management noted that the FDA Breakthrough Device Designation for a pipeline test allows for priority review and more frequent interactions with regulatory authorities during the approval process.
• Frank Stokes indicated that while TissueCypher market penetration is currently in the middle teens, the test may eventually face "headwinds of big numbers" as it matures toward higher adoption levels.
• In the gastroenterology pipeline, Maetzold noted that for the Previse cell collection device, "we have protocols for cell collection devices that are in design and sort of ready to go," with a potential update expected in the first half of 2027.

INDUSTRY GLOSSARY

• AdvanceAD-Tx: A gene expression profile test designed to guide systemic treatment decision-making for patients with moderate-to-severe atopic dermatitis.
• DecisionDx-Melanoma: A gene expression profile test that assesses the risk of metastasis in patients with invasive cutaneous melanoma.
• DecisionDx-SCC: A 40-gene expression profile test used to predict the risk of metastasis for patients with high-risk squamous cell carcinoma.
• GEP: Gene Expression Profile, a laboratory test that measures the activity of multiple genes to provide diagnostic or prognostic information.
• i31-SLNB: An integrated test result that combines tumor biology with clinical-pathologic factors to assess the risk of sentinel lymph node positivity.
• NCCN: National Comprehensive Cancer Network, an alliance of cancer centers that develops clinical practice guidelines.
• TissueCypher: A spatialomics test used to predict the five-year risk of progression from Barrett's esophagus to esophageal cancer.

Full Conference Call Transcript

Operator: Good afternoon, and welcome to the Castle Biosciences Second Quarter 2026 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question-and-answer session. I would like to turn the call over to Camilla Zuckero, Vice President, Investor Relations and Corporate Affairs. Please go ahead.

Camilla Zuckero: Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences Second Quarter 2026 Results Conference Call. Joining me today are Castle's Founder, President and Chief Executive Officer, Derek Maetzold; and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, July 30, 2026. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the Investor Relations page of the company's website for approximately 3 weeks following the conclusion of the call.

Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements, including statements about expected addressable markets, statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2026 total revenue and the impact of our investments in growth initiatives, including our ability to achieve long-term growth and drive stockholder value. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements.

Please refer to the risk factors in our most recent SEC filings for more information. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin and adjusted EBITDA that have not been calculated in accordance with U.S. GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website.

I will now turn the call over to Derek.

Derek Maetzold: Thank you, Camilla, and good afternoon, everyone. What a great quarter. Our team across all areas of Castle did a phenomenal job in executing on our growth plans and pulling it through the business, including revenue on the top line in evidence development and clinical research. Thanks to the efforts by our team and the clinical value that our clinicians see in the actionability of our tests. We delivered revenue of $103.5 million, 20% growth compared to the second quarter of 2025. Furthermore, if we exclude DecisionDx-SCC and IDgenetix revenue for both 2026 and 2025, our revenue growth for the second quarter of 2026 was 40% compared to the second quarter of 2025.

Test report volume for our core revenue drivers grew 32% compared to the second quarter of 2025. Our strong second quarter results reflect the continued execution of our growth strategy and that we remain focused on investing thoughtfully in the future growth of Castle. We continue to invest in commercial resources to drive adoption of our tests, generate the clinical evidence needed to support reimbursement and expand adoption, advance pipeline opportunities across our dermatology and gastroenterology offerings and add the laboratory capacity, technology and personnel needed to support future growth.

Supported by our robust balance sheet, we believe these investments position us to capitalize on the opportunities across our current portfolio and pipeline while maintaining a disciplined approach to capital allocation. We believe we will continue this positive momentum in the second half of 2026, and our strong second quarter performance gives us the confidence to raise our 2026 total revenue guidance to $365 million to $375 million compared to the previously provided guidance of $345 million to $355 million. Now I will walk you through the business highlights from the second quarter, and then Frank will provide additional financial highlights before we turn to your questions. Let's start with our core revenue drivers for 2026, DecisionDx-Melanoma and TissueCypher.

For DecisionDx-Melanoma, we delivered 10,280 test reports in the second quarter, representing 3% growth compared to the second quarter of 2025. We are on track to meet our expectations of mid- to high single-digit volume growth for the full year 2026 over 2025. DecisionDx-Melanoma test volume also increased approximately 3% in the second quarter of 2026 compared with the first quarter of 2026, representing moderate sequential growth, though below the sequential increase we typically see based upon historical seasonality. We believe this moderate sequential growth was due in part to our commercial team adapting its customer engagement model to support 3 products within the same customer call. This is a deliberate investment in the growth of our business.

DecisionDx-Melanoma remains the established foundation of our dermatological commercial portfolio, while the additional products, DecisionDx-SCC and AdvanceAD-Tx expand the value we can provide the same customer base and support growth over the medium and long term. Additionally, we continue to generate a substantial body of evidence to support the clinical performance and use of our DecisionDx-Melanoma test. In fact, during the second quarter, we were pleased to announce the publication of a prospective multicenter study demonstrating DecisionDx-Melanoma outperformed the Melanoma Institute Australia Nomogram, or MIA, in identifying patients at low and high risk of sentinel lymph node (biopsy) positivity.

Importantly, patients predicted to be low risk DecisionDx-Melanoma that is they were predicted to have a sentinel lymph node positivity rate of less than 5% at an actual observed sentinel lymph node positivity rate of just 2.6%, well below the National Comprehensive Cancer Network, or NCCN, 5% threshold used to consider avoiding a sentinel lymph node (biopsy) surgical procedure. These findings further demonstrate the value of integrating tumor biology with clinical pathologic factors to improve risk assessment, support more informed risk-aligned care and help identify patients who may safely forgo the sentinel lymph node (biopsy) surgical procedure. Now let's turn to our TissueCypher test.

During the quarter, we delivered 14,988 TissueCypher test reports, representing 63% growth compared to the second quarter of 2025. Based upon trends for the first half of the year, we believe our 2026 test report volume for TissueCypher will trend toward 50% to 52% growth compared to 2025. Now let's move on to our AdvanceAD-Tx test. During the second quarter, we delivered more than 1,000 orders. Given the test's ability to guide systemic treatment selection for patients ages 12 and up with moderate to severe atopic dermatitis, we were particularly pleased that the AdvanceAD-Tx was recently recognized with the Genomics Innovation Award in the 10th annual MedTech Breakthrough Awards program.

In addition, we are encouraged by a new independent real-world clinical utility study for AdvanceAD-Tx presented in June at the revolutionizing atopic dermatitis meeting. In this multicenter study, only 54.3% or just over half of patients receiving baseline systemic therapy were initially on pathway concordant treatment. However, following testing with our AdvanceAD-Tx, 97.8% of patients were initiated on molecularly concordant systemic therapy. The impact of AdvanceAD-Tx on assisting clinicians and patients with making molecularly aligned therapy decisions overlaps the market research we conducted in the summer and fall of 2025.

That is: clinicians are searching for tools, in this case, our AdvanceAD-Tx test to assist them in making more informed, better therapy selections that align with an individual patient's underlying disease biology. And with that, I will now turn the call over to Frank.

Frank Stokes: Thank you, Derek, and good afternoon, everyone. Reiterating Derek's statement, we're proud to report excellent financial results for the second quarter of 2026. Revenue was $103.5 million for the quarter, driven by continued strength in our core revenue drivers, primarily TissueCypher test volume growth and some improvement in ASP due in part to modifications in our accrual processes that were implemented earlier this year. The total revenue for 2026, we are raising our revenue guidance to $365 million to $375 million, up from the previously provided range of $345 million to $355 million. Our gross margin during the second quarter of 2026 was 74.9% compared to 77.3% in the second quarter of 2025.

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 76.3% for the quarter compared to 79.5% for the same period in 2025. For the full year 2026, we continue to expect our adjusted gross margin to be in the low to mid-70s range. Turning to expenses. Our total operating expenses, including cost of sales for the second quarter of 2026 were $106.6 million compared to $90.4 million for the second quarter of 2025.

Sales and marketing expenses for the quarter were $40.9 million compared to $35.1 million for the same period in 2025, primarily driven by higher personnel costs, higher expenses associated with travel and higher business administration costs. General and administrative expenses were $25.2 million for the quarter compared to $22.9 million for the same period in 2025, primarily attributable to higher personnel costs. Higher personnel costs reflect headcount expansions in our administrative functions as well as merit and annual inflationary wage adjustments for existing employees.

Cost of sales expenses were $23.7 million in the second quarter of 2026 compared to $17.6 million in the second quarter of 2025, primarily due to higher expenses for lab supplies, higher personnel costs and higher lab services costs. The increase in lab supplies and lab services costs reflects higher test report volumes. 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.

R&D expenses were $14.5 million for the quarter compared to $12.8 million for the same period in 2025, primarily due to higher personnel costs driven by increased headcount to support continued business growth as well as increased advisory board, clinical trial and travel costs related to our pipeline initiatives. Total noncash stock-based compensation expense, which is allocated among cost of sales, R&D and SG&A expense, was $11.6 million for the second quarter of 2026 compared to $11.2 million in the second quarter of 2025. Interest income was $2.4 million for the second quarter of 2026 compared to $2.9 million in the second quarter of 2025.

Our net loss for the second quarter of 2026 was $2.1 million compared to net income of $4.5 million for the second quarter of 2025. Diluted loss per share for the second quarter was $0.07 compared to diluted earnings per share of $0.15 for the same period in 2025. Adjusted EBITDA for the second quarter was $12.4 million compared to $10.4 million for the comparable period in 2025. We continue to support and invest in growth initiatives while focusing on thoughtful expense control. We expect to achieve positive adjusted EBITDA for the third quarter, the fourth quarter and the full year 2026, and absent any strategic direction shift as well as for the full year 2027.

Net cash provided by operating activities was $15.2 million for the second quarter of 2026, and net cash used in operating activities was $6.9 million for the 6 months ended June 30, 2026. Net cash used in investing activities was $41.8 million for the 6 months ended June 30, 2026, and consisted primarily of purchases of marketable investment securities of $109.6 million, purchases of property and equipment, partially offset by the maturities of marketable investment and debt securities, along with the sale of equity securities. As of June 30, 2026, we had cash, cash equivalents and marketable investment securities of $266.8 million. Our strong balance sheet continues to provide financial flexibility to invest in our growth priorities.

In closing, we delivered strong financial results through the first half of the year, continuing our long-standing history of consistent execution and performance excellence. I'll now turn the call back over to Derek.

Derek Maetzold: Thank you, Frank. In summary, we continue to execute at a high level, and I'm encouraged by the momentum we're carrying into the remainder of the year. None of this will be possible without the dedication of the entire Castle team, and I'm proud of what they have accomplished through their unwavering commitment to improving patient care. Thank you for your continued interest in Castle. Now we will be happy to take your questions. Operator?

Operator: [Operator Instructions] Our first question comes from Max Masucci with ROTH Capital Partners.

Max Masucci: Congrats on a great quarter. So first question on AdvanceAD-Tx. Nice to see the unanimous panel vote for the crosswalk. And I would love to get your initial thoughts on the rate associated with the crosswalk, whether the decision matched your expectations? And just any updated expectations around the transition to a full commercial launch?

Derek Maetzold: Yes. Good question, Max. Derek here. So first of all, we -- in our analysis and before we submitted our request to be crosswalked to that code, we believe that Castle, that was the most appropriate code. The crosswalk code is for a test that predicts drug response to patients with psoriasis. The AdvanceAD-Tx, as you know, predicts -- systemic drug response to people with atopic dermatitis, similar kind of technology approaches, et cetera. So we thought that was the appropriate crosswalk to take care of that. Obviously, the panel did 2, I think it was a 21 to 0 vote in favor of crosswalking.

The rate of [ $3,675 ], I think, is a very, very strong rate for our test. So we are quite pleased with the panel's recommendation or at least voting outcome there. And as you know, CMS will go ahead and take that input. And I think we see preliminary draft 2026 CLFS rate schedules in late September. So we're looking forward to seeing that affirm going forward. I think from an overall perspective, as that goes on with the clinical laboratory fee schedule effective January 1, 2026, that gives us a good benchmark in order to go ahead and set conversations with commercial payers as well regarding reimbursement rates, et cetera.

So I think it's a very nice consistent plotting launch going forward here, which lets us get in a better position to open up a full launch in the future.

Max Masucci: That's great. Second question, can you just give a bit more detail around the TissueCypher ASP trends in the second quarter? Any one-timers? And just looking at the $20 million guidance raise, is that mostly captured by the improved TissueCypher volume growth outlook? Or is there any expectation or improved expectation on the ASP side for TissueCypher?

Derek Maetzold: Frank?

Frank Stokes: Yes, we did have some pickup in ASP, Max. We've been selling the test for long enough now that we've got a bit more experience in terms of expected rates and actual collective rates. And so we were able to increase the ASP a bit in the first half of this year. Now having said that, I wouldn't expect to see the same stepwise increase in the back half. I think we will -- we are evaluating our payer experience and comparing that to our expectations, but I would not expect to see it again.

So most of the raise in our guide here is based on performance to date and continued performance of our 2 primary revenue drivers, DecisionDx-Melanoma and TissueCypher.

Operator: Our next question comes from Thomas Flaten with Lake Street Capital.

Thomas Flaten: Congrats on the quarter. Two questions. Given the volume growth on TissueCypher, anything you can share with us with respect to sales force expansion to really keep maximizing on this opportunity?

Derek Maetzold: We have continued to sort of expand as we see territories hitting a forward-looking $2.5 million, $3 million in revenue, Thomas. We don't necessarily give out specific numbers, but we're kind of floating around 100 sales representative sales territories for both our gastroenterology division and our dermatology division. We think that's probably pretty close to where it needs to be from a TissueCypher standpoint and dermatology standpoint for that matter. So I think we're kind of there. That being said, we had expansions last year and we had expansions late second quarter of this year here.

So we aren't even seeing the full fruits, I guess, of those expansion opportunities, but we feel pretty comfortable with a coming in from a volume year-over-year of 50%, 52% is what we believe we're on track for. So that's very quite positive.

Thomas Flaten: Got it. And then in the DETECT-AD study that you're doing with SciBase, how much of a window -- how much of a window do you need to have a clinical effect from a preventative perspective? Like how early does the test need to detect potential flares?

Derek Maetzold: I think that's -- that's to be determined, I think, maybe based upon our market research, interactions with our investigators and also interactions with our medical dermatologists who are skin cancer doctors. But of course, the majority of what they see in their practice is basically atopic dermatitis in terms of diseases like this. The commentary there is that we have high-dose steroids. We can start those up in a couple of days in advance. You've got a topical JAK inhibitor that works pretty quick as well. So one could say you could go as short as 1.5 days, 2 days in advance. We'd like to see if we can get earlier than that.

So it gives patients the time to maybe use less high-powered topical therapies to kind of keep control and keep their symptoms depressed or suppressed. So I think we'll kind of look at -- see if the data unwinds this fall preliminarily and get a good positive sense of what that looks like.

That being said, the patient research that we have done recently in the second quarter of this year, there is such an acute need to be able to say, so you're telling me I could use a disposable -- I mean not a disposable, a pen that will be able to help me kind of understand my disease, control my disease as if I was a diabetic, wanting to really appreciate how do I stay dialed into being as normal as possible. So that's a very, very positive feedback set there. So I think we have a range of what we could detect in advance of an actual flare to be extremely clinically meaningful to both patients and their clinicians.

The other end of the equation that we are getting commentary on, which I think is quite positive as well, is that once my flare has resolved, if I can't get ahead of it, that is, how long do I stay on my sort of rescue medications before I could begin tapering those medications off. And again, we should be able to predict the front end. And if they can't suppress their flare completely and it actually become symptomatic, hopefully, it's much more mild if they didn't know that.

And at the back end rather than sort of having their sort of rescue medication treatment plan be sort of -- well, once the symptoms resolve themselves, stay on your high-dose steroids for what, 5 days, 4 days, 3 days, we believe that one of the uses of this device will be able to go ahead and help patients taper off of their rescue medications quicker or stay on longer if they still have this underlying heavy biological disease pattern going on.

And then the final thing, which is quite exciting is that we also have seen broad trends in the marketplace where patients would desire to sort of lengthen out their injection rates, lengthen out their use of oral therapies. So rather than kind of following what's on the label is to say, well, I've got co-pay exposure potentially. I don't like the idea of taking injections every 2 weeks. Can I sort of take fewer injections to kind of lengthen out the frequency, but also still be controlled. And right now, when we talk to our dermatological colleagues, they're telling us that's all, of course, basically empirical.

The last patient I had here there was able to go from sort of 2-week injections of 1 drug to 3 and then to 4. But when they got to 5 weeks, they all of a sudden had a heavy flare [ liminality ] up. So we said, we'll go back to 4. This device should be able to help a patient who wants to take that as a pathway of choice and let them potentially sort of lengthen out therapy dosage once they're well controlled to go ahead and just be on less medication over time, I think most people would appreciate.

Operator: Our next question comes from Mason Carrico with Stephens Inc.

Benjamin Mee: This is Ben on for Mason. On the Q1 call, you guys noted that you started to see some quarterly seasonality beginning to emerge for TissueCypher. In your view, do you see any of that seasonality continue to play out in Q2? How should we think about the quarterly pacing for that test in the balance of the year? And then I guess, as we look ahead to next year, should we think of that seasonality similar to 2026? Or will that become, I guess, even more pronounced?

Derek Maetzold: Frank, do you want to take it or do you take that?

Frank Stokes: Ben, I think that we -- as tempting as it is to look sequentially in these tests, I think we really need to look on a trend line. And if you look at the trend on TissueCypher, it's pretty steady growth. We had a little bit lower Q1, a little higher Q2. If you kind of smooth that over 4 quarters, you get closer to a pretty consistent trend. And so I would say in the first place, I would look sort of at that multi-quarter pathway. But secondly, yes, we -- the seasonality we saw in Q1 did seem to be driven by fewer patient encounters.

And just as we see on the derm side, we will probably continue to see that on TissueCypher. But when we get to Q1, we'll look year-over-year and look at the multi-quarter trend rather than just sequentially quarter-to-quarter.

Benjamin Mee: Got it. That makes sense. And then among the AdvanceAD-Tx orders that you've received to date, are you seeing any signs of repeat ordering there, increasing utilization among the initial cohort of accounts? Or is that still mostly first-time trial orders?

Derek Maetzold: I don't have the raw data in front of me to answer that quantitatively, Ben. But my recollection last time we reviewed that last month was that we are seeing both new ordering customers as we sort of release this to additional customers, get their staff trained up or the clinician trained up on how to do this noninvasive scraping technique, get kits in the offices, et cetera, that we are seeing the sort of new ordering adoption we expect to see based upon the emphasis we're putting it on from a sales force standpoint. And we have, I think, very few clinicians who have sort of been one and done.

So we do see heavy repeat users going on right now.

Operator: Our next question comes from Subbu Nambi with Guggenheim Securities.

Unknown Analyst: This is Ethan on for Subbu. So what are your top priorities for R&D investments this year? And how much do you expect R&D to increase year-over-year? My question was...

Frank Stokes: I'm sorry, I cut you off. Yes, the -- I think we'll continue to see some increase in R&D as we continue to focus on newly internally developed programs. I think you've heard us say before, we're very excited about the pipeline we have and the way the story at Castle has evolved from the IPO days when we really had one kind of primary product to now 2 therapeutic areas and multiple products in each opportunity in the pipeline. So we will see some increase. It's a deliberate investment, and it's -- we are running Castle for not only near-term quarter-to-quarter growth, but also mid- and long-term growth to ensure long-term value creation well past 2030, 2035.

So some increase. But I think in terms of priority, it will continue to be those programs within our existing therapeutic areas that line up so well with our commercial footprint.

Operator: Our next question comes from Matthew Parisi with KeyBanc Capital Markets.

Matthew Parisi: This is Matthew Parisi on for Paul Knight at KeyBanc Capital Markets. Congrats on the great quarter. You guys had a pickup in SCC volumes for the first time since it lost coverage and you stopped marketing the test. Could you provide some color on what is driving the resurgence?

Camilla Zuckero: SCC volume.

Derek Maetzold: I think the #1 driver of SCC volumes is the clinical value existing customers see in the test and how they use it to manage their patients' high-risk squamous cell carcinomas. We did -- I think we talked about our first quarter earnings, allow, it sounds like a funny word, encourage, I guess, our sales force to say, hey, our predominant focus is and will remain in the short-term cutaneous melanoma, but you have this atopic dermatitis test, you have the squamous cell carcinoma test that add great clinical value. We need to make sure that we are spending some time on those elements, a small amount of time, but some time.

So I think it's a combination of existing users, more working days in the second quarter, certainly, and some return to some promotional time with our sales force.

Matthew Parisi: And then if you could provide an update on the Previse GI pipeline test.

Derek Maetzold: Sure. So we have -- as you know, when we acquired Previse, we had a portfolio of IP that was -- that came out of Hopkins was licensed into Previse. They had a tissue-based assay, Esopredict that we made available in the first -- I guess, early first quarter of this year as a reflex test or backstop test in those few cases that we couldn't get a TissueCypher result to a physician under the expectation that, hey, the most well documented, the most valuable test that predicts progression of Barrett's disease to high-grade dysplasia or cancer is the TissueCypher test.

But if we're unable for features of the way the biopsy was taken, et cetera, not to get a spatialomics test to work, they would offer up Esopredict as a backup in those few cases. Regarding the cell collection device provides it also worked out a sponge, which would fit into a capsule attached to a string that went through the capsule. And the expectation was that we would swallow that, let it go down into your lower esophagus, maybe upper stomach or lower esophagus. The capsule resolves, the sponge pops out and you pull the sponge back out with that string. We have protocols for cell collection devices that are in design and sort of ready to go here.

So I would say probably an update on that probably maybe first half of next year for the right timing.

Operator: Our next question comes from Kyle Mikson with Canaccord Genuity.

Alexander Vukasin: This is Alex on for Kyle Mikson. Congrats again on the strong quarter. Just following up on something that previously asked, we're about halfway through the year now. On TissueCypher, you exited 2023 at about 26% patient penetration with about 2% to 3% incremental penetration each of the next 2 years, about 31% exiting '25, and you followed that up with a really strong first half and particularly 2Q. Just understand there's a lot of runway here, but could you qualify the opportunity ahead for this test? Does any low-hanging fruit remain? Or could we perhaps have to see some step-up in expenses to reach the rest of this opportunity over time?

Just trying to get a sense of how durable this level of growth is going forward.

Frank Stokes: Yes. Just clarifying there. We think we exited '25 at about 10% to maybe 11% or 12% patient penetration on the addressable patient market. And the numbers we provided earlier today would get us to maybe 15%, middle teens. We are certainly going to begin to face the headwinds of big numbers. And by definition, the easier physicians to convert are the first ones and the ones that come later are perhaps take a bit more work. So at some point, we'll begin to see that.

But I think importantly, at this juncture in the life of that test and the marketing of that test, we still have maybe way too many, you might think, physicians who haven't yet had the chance to be educated on the clinical benefit of using TissueCypher for the Barrett's esophagus patients. And so lots of runway ahead as we convert those physicians that don't yet have the opportunity. So we will begin to get into those big numbers and begin to get into that more mature phase, but that test has a long way to go yet.

Alexander Vukasin: Got it. And just on the Novitas LCD, which impacts the [ Pittsburgh ] lab and the MolDX LCD, which impacts the Phoenix lab, does mid-'27 kind of remain a reasonable time frame for potential return of payment for SCC? And importantly, have there been any recent chats or review of new data that perhaps invokes incremental confidence in the ability to flip one of these decisions specifically?

Derek Maetzold: So we have no, I guess, public commentary about data discussions with either Medicare contractor. As you may know, there is no time line for their response. We've heard something -- we've heard nothing, by the way, negative, so don't take that commentary as negative from a standpoint of a return to coverage. We did model out based upon a very, very limited database that maybe would take 1 year, 1.25 years to have those medicare contractors work through the reconsideration request. That would be sort of in the second half of this year. So I don't -- so I think expecting to see [ daylight ] in the second half of 2026, I think, is a reasonable expectation.

Once a draft was posted, we don't really have any sense right now is would they work quicker to go from draft to final or would the -- would they follow the currently path, which is roughly taking the entire year to finalize the draft LCD to final.

So our -- I think guidance has been pretty consistent, which is to say, if we see a positive draft coverage LCD coming out from either one of the Medicare contractors in the latter half of this year or the second half of this year, I should say, then we should anticipate roughly a year later of regaining coverage for Medicare beneficiaries, which would be a fantastic opportunity to really advance their care. So that's how I would kind of view that per se. We, of course, always are generating additional publications, additional evidence development to support the correct decision to enable Medicare beneficiaries to benefit from those tests on a broad basis. But that's being worked through right now.

Operator: The next question comes from Mark Massaro with BTIG.

Unknown Analyst: This is Megan on for Mark. Curious about the FDA breakthrough device designation. Can you just give maybe a ballpark range or any additional color for when you're thinking about the timing of the FDA approval?

Derek Maetzold: What was the last part?

Camilla Zuckero: FDA approval.

Derek Maetzold: Approval. So I would separate those 2 things here, Megan. So the breakthrough device designation enables us to sort of go to the front line, get other special features, I guess, you would say, in terms of the review of that -- of a submission. I don't know if we've talked publicly about our timing of that. I would think we might expect to have FDA clearance/approval maybe later on this year, early next year. [indiscernible] gives you an opportunity to really have a more powder in your gun, I guess, you would say, in addressing the FDA. There are certain expectations on both sides of the table.

Unknown Analyst: Awesome. And you continue to deliver strong unit growth in melanoma volumes this quarter. We're just curious if you've seen any changes in the competitive environment in melanoma over the recent months.

Derek Maetzold: Yes. We had talked through, I guess, the first quarter earnings was a high year-over-year growth rate, we hopefully tried to speak intuitively, which is to say we think at the end of the year, we're going to come in with between kind of mid- to high single-digit growth. And I think we're right on track to achieve what our internal goals are. So we're seeing the promotional responsiveness, the value of our test in the marketplace hasn't really changed a whole lot. That's fantastic, of course.

Operator: The next question comes from Puneet Souda with Leerink.

Philip Seunghwa Song: This is Philip on for Puneet. Congrats on a great quarter. I know there were a lot of questions on TissueCypher already, but all right, I just want to double-click more on volume growth this quarter. A big step-up, obviously, both year-over-year and sequentially after the seasonal dip in the first quarter. So I just wanted to ask, can you talk a bit more about what drove that reacceleration? Was it mostly seasonal combined with execution? Or is there anything else you could call out in terms of growth mix or depth of use that may have played a role?

Derek Maetzold: Frank?

Frank Stokes: Yes, sure. So we don't yet have the procedures data for the second quarter. And as we noted in our last call, first quarter was lower in terms of upper endoscopy procedures than we've seen in prior quarters. But again, I think that the important focus here is on that multi-quarter trend, maybe trailing 4, you draw a nice trend line, we see that TissueCypher is fairly steady, fairly in line with where it's been through those maybe trailing 3 or 4 quarters. So we believe we probably -- I don't know it yet. I don't know if we did, we probably saw more procedures in the quarter than we saw in Q1.

But when you trend that out, it's just good solid increased penetration on the volume side for TissueCypher through the last year.

Philip Seunghwa Song: Got it. That makes sense. And then I also wanted to ask, did you see any impact from ACA disenrollment on your test volumes this quarter just with enhanced marketplace subsidies now lapsed and coverage down in 2026? Are you seeing it in either ordering volumes or shift towards self-pay that pressures collections? And is a younger, more commercially insured franchise like AdvanceAD-Tx more exposed than melanoma and TissueCypher, I know is more Medicare skewed.

Derek Maetzold: So I don't think we have any visibility to be able to comment on that question, I guess, I would say. I don't think -- I was trying to get about our test report data for second quarter. I don't recall our reimbursement team saying there was a change in the mix of insured patients commercially, Medicare patients commercially, Medicare Advantage patients commercially or Medicaid. Medicaid, we've always had a very low exposure, a couple of points as all.

So I guess you would say, well, if there are less people ordering tests or going to doctors because they chose to back out of their insurance, we're not -- we have no way to see that, I guess, you would say.

Operator: Our last question comes from Robbie Bamberger with Baird.

Unknown Analyst: This is [ Josh ] on for Robbie. First, I guess, just again on kind of the lower-than-expected seasonal volumes there for DecisionDx-Melanoma in 2Q, given some of the sales force items you mentioned. I guess kind of what informs confidence in that mid- to high single-digit growth for the year? And I guess, how should we think about year-over-year volume growth in 3Q and 4Q for that test as well, too?

Derek Maetzold: So I guess confidence is we have an enterprise model I guess, similar to what you do on the outside and we're on the inside. And based upon what we see in our model against actuals, we believe we're still tracking towards what we thought we would do, which is kind of mid- to high single digits for the year. In terms of third and fourth quarter, second half expectations, I guess I would sort of take our first half and get a range and see how you get to the second half from a full year-end volume growth is the way I would approach that.

Unknown Analyst: Great. And then I was just wondering to how you're kind of thinking about the progression of AdvanceAD-Tx rollout here. Any plans to kind of further broaden this out for the rest of the year? And maybe by the end of the year, how many clinician offices are you maybe trying to target here as part of your phased approach?

Derek Maetzold: So we are still managing sort of, I guess, field-based expectations. So maybe the best way to go ahead and say it is that our field force in dermatology, I believe, for the remainder of the year, at least certainly third quarter is we're relatively 80% to 85% or 85% focused on cutaneous melanoma from a sort of a call focused commission bonus perspective with the remaining 15% being, I guess, more heavier weighted to atopic derm -- AdvanceAD-Tx test and some on SCC from a bonus standpoint, just to make sure that we're balancing out both near-term needs, midterm needs and long-term needs.

So that will certainly, I think, change a bit of the acceleration in a positive manner for AdvanceAD-Tx without having us hopefully see a sacrifice in melanoma focus. We are still trying to manage volume. So we don't get too far ahead of ourselves. But as you would know, if you don't create demand, then there isn't much of a reason to have Medicare or commercial payers to really step up and pay attention.

And as we sort of create volume, we can also model collections against our internal collection model as we get more confident with that towards the end of this year or latter half of the third quarter, that will let us go ahead and say, now we should plan on opening up a bit more in 2027.

Operator: We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Derek Maetzold for closing comments.

Derek Maetzold: Thank you, operator. This concludes our second quarter 2026 earnings call. We thank you again for joining us today and for your continued interest in Castle Biosciences.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.