Castle Biosciences ((CSTL)) has held its Q2 earnings call. Read on for the main highlights of the call.

Claim 55% Off TipRanks

• Unlock powerful investing tools with TipRanks Premium to make smarter, more confident investment decisions
• Subscribe to TipRanks Smart Investor Newsletter, and discover new investing opportunities with data-backed stock picks

Castle Biosciences’ latest earnings call struck a cautiously upbeat tone, as management highlighted strong revenue and test‑volume gains alongside a guidance raise for 2026. Executives acknowledged margin pressure and a small GAAP loss but argued that accelerating demand, expanding product adoption and a sizable cash cushion position the company well for long‑term growth.

Revenue Growth and Guidance Raise

Castle Biosciences reported Q2 2026 revenue of $103.5 million, a 20% increase from a year earlier, underscoring solid demand across its portfolio. On the back of this performance, management lifted full‑year 2026 revenue guidance to a range of $365 million to $375 million, roughly $20 million above prior expectations.

Core Volume Growth

The company’s core test portfolio remained a major growth driver, with report volumes climbing 32% year over year in the quarter. This broad‑based volume expansion suggests deeper penetration in existing accounts and adds credibility to the raised sales outlook for the rest of the year.

TissueCypher Strong Expansion

TissueCypher continued to emerge as a standout product, delivering 14,988 reports in Q2 2026, up 63% from the prior year. Management now expects full‑year 2026 TissueCypher volumes to grow about 50% to 52% versus 2025, signaling sustained momentum in this high‑growth segment.

DecisionDx‑Melanoma Stability

DecisionDx‑Melanoma showed steady rather than explosive growth, with 10,280 reports in Q2, a 3% year‑over‑year and sequential increase. The company remains on track for mid‑ to high single‑digit volume growth in 2026, even as sales resources are shared across more products.

AdvanceAD‑Tx Early Commercial Momentum

AdvanceAD‑Tx displayed encouraging early traction, booking more than 1,000 orders in Q2 and earning a Genomics Innovation Award that boosts its profile. A real‑world study showed concordant systemic therapy initiation jumping from 54.3% to 97.8% after testing, and a CMS crosswalk panel unanimously recommended a rate near $3,675, strengthening reimbursement prospects.

Clinical Evidence and Publications

Castle emphasized growing clinical evidence for its melanoma test, citing a prospective multicenter study where DecisionDx‑Melanoma outperformed the MIA nomogram. In particular, the test’s low‑risk group showed sentinel lymph node positivity of 2.6%, below the NCCN 5% threshold, reinforcing its utility in guiding surgical decisions.

Adjusted EBITDA and Cash Position

Profitability metrics moved in the right direction on an adjusted basis, with Q2 2026 adjusted EBITDA rising to $12.4 million from $10.4 million a year ago. The company closed the quarter with $266.8 million in cash, cash equivalents and marketable securities and generated positive operating cash flow of $15.2 million.

Strategic Investments to Support Growth

Management underscored ongoing investments in sales coverage, evidence generation, pipeline development, lab capacity and staffing aimed at scaling the business. Despite this higher spending, Castle expects to deliver positive adjusted EBITDA in Q3, Q4 and for full‑year 2026, and to extend that profitability into 2027.

Pipeline and Regulatory Progress

The company highlighted pipeline work on programs such as Previse and Esopredict, as well as improvements to cell collection device protocols, with further updates slated for next year. A recent Breakthrough Device designation could shorten the regulatory path, with potential FDA clearance or approval targeted for late 2026 to early 2027.

GAAP and Adjusted Gross Margin Compression

Margins came under pressure as Castle scaled its operations, with GAAP gross margin sliding to 74.9% in Q2 2026 from 77.3% a year earlier. Adjusted gross margin dipped to 76.3% from 79.5%, and management now projects full‑year 2026 adjusted gross margin in the low‑ to mid‑70s range.

Net Loss and EPS Decline

Despite adjusted profitability, the company posted a GAAP net loss of $2.1 million for Q2 2026, versus net income of $4.5 million in the prior‑year period. Diluted earnings per share moved to a loss of $0.07, compared with diluted EPS of $0.15 a year ago, reflecting higher costs and margin headwinds.

Operating Expense Growth

Total operating expenses, including cost of sales, rose to $106.6 million in Q2 2026 from $90.4 million a year earlier, an increase of about 17.9%. Cost of sales grew 34.7% year over year, while sales and marketing, R&D and G&A expenses climbed double digits, driven by added headcount, lab supplies and increased travel.

Margins and ASP Pressure

Management cautioned that adjusted gross margin will remain under strain due to product mix shifts, accrual changes and cost inflation. While TissueCypher saw some average selling price improvement in the first half, the company does not anticipate another stepwise ASP increase in the second half of 2026.

Coverage Uncertainty for DecisionDx‑SCC

A key risk highlighted on the call is uncertainty around Medicare coverage for DecisionDx‑SCC, which currently weighs on commercialization. Management suggested a possible recovery timeline of around a year from any positive draft decision, implying potential resumption of payment around mid‑2027, although both timing and outcome remain uncertain.

Seasonality and Sales Force Tradeoffs

DecisionDx‑Melanoma’s Q2 sequential growth came in below historical seasonal patterns, which management partly traced to sales teams now promoting multiple products per visit. This multi‑product focus may slow melanoma growth in the short term but is intended to build broader, more efficient customer relationships across Castle’s portfolio.

Investing Cash Use

Castle continued to deploy cash aggressively to fund its strategy, using $41.8 million in investing activities in the first half of 2026, including $109.6 million of marketable security purchases. Net cash used in operating activities over six months was $6.9 million, underscoring a willingness to invest ahead of future revenue.

Forward‑Looking Guidance and Outlook

Looking ahead, Castle expects 2026 revenue between $365 million and $375 million, with adjusted gross margins in the low‑ to mid‑70s as growth investments weigh on profitability. Management reiterated mid‑ to high single‑digit DecisionDx‑Melanoma volume growth, projected TissueCypher volume expansion of about 50% to 52% for 2026, and forecast positive adjusted EBITDA through 2026 and 2027, supported by its $266.8 million cash position.

Castle Biosciences’ earnings call painted a picture of a diagnostics company trading near‑term margin compression for longer‑term scale and product breadth. For investors, the key takeaway is that revenue and volume trends are accelerating, guidance is moving higher and the balance sheet remains strong, even as reimbursement and cost challenges demand careful monitoring.