Castle Biosciences Lifts 2026 Guidance Amid Test Surge

Castle Biosciences ((CSTL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Castle Biosciences’ latest earnings call struck an overall optimistic tone, with management emphasizing accelerating test demand, upgraded revenue guidance and improving loss metrics. Investors were reminded that profitability remains elusive and reimbursement risks linger, yet the company’s expanding portfolio and solid cash reserves underpin a constructive outlook on its growth trajectory.

Revenue Beat and Upgraded 2026 Outlook

Castle Biosciences reported Q1 2026 revenue of $83.7 million and simultaneously lifted its full‑year revenue outlook to a range of $345 million to $355 million. This new guide suggests high‑teens to low‑20s growth versus 2025 when excluding DecisionDx‑SCC and ID Genetics, signaling confidence in the core business despite ongoing reimbursement uncertainty.

Core Test Volumes Drive Top-Line Expansion

Core test report volumes jumped 36% year over year in the first quarter, underpinning the stronger revenue profile. On an ex‑DecisionDx‑SCC and ID Genetics basis, management framed 2026 revenue growth at roughly 42% versus 2025, underscoring how volume momentum is translating into robust organic expansion.

DecisionDx‑Melanoma Remains a Workhorse

DecisionDx‑Melanoma volumes climbed to 10,021 test reports in Q1, marking 16% year‑over‑year growth and a record month in March 2026. The company kept its full‑year expectation for mid‑ to high‑single‑digit volume growth and highlighted continued progress toward an FDA submission in 2026 following the test’s prior Breakthrough designation.

TissueCypher Continues Rapid Scaling

TissueCypher delivered one of the quarter’s standout performances, with test reports rising to 11,745 from 7,432 a year earlier, a 58% increase. Management expects to add a similar absolute number of tests in 2026 as in 2025, implying near‑50% year‑over‑year growth and reinforcing the platform’s role as a key growth engine.

Advanced ADTx Shows Early Promise

Advanced ADTx, still in limited launch, saw about 650 orders during the quarter, supported by newly published multicenter validation data demonstrating its ability to stratify responders to JAK inhibitors versus TH2 biologics. While commercial access remains constrained, management views the test as a longer‑dated revenue driver once reimbursement visibility improves.

Profitability Metrics Move in the Right Direction

On a GAAP basis, gross margin improved to 72.8% from 49.2% in the year‑ago period, which had included a sizable one‑time amortization charge. Adjusted EBITDA loss narrowed to $5.1 million from $13.0 million, while net loss tightened to $14.5 million and diluted loss per share improved to $0.49 from $0.90.

Balance Sheet Strength Supports Strategic Flexibility

Castle ended the quarter with $261.7 million in cash, cash equivalents and marketable securities, providing a substantial cushion to fund operations and growth investments. Management reiterated that it remains open to strategic M&A where there is a strong fit but does not feel pressured to pursue deals, signaling discipline in capital deployment.

Adjusted Gross Margin Under Pressure

Despite GAAP margin expansion, adjusted gross margin slipped to 75.6% from 81.2% year over year, a decline of about 5.6 percentage points. The company attributed this to product mix and period‑specific adjustments, highlighting that scaling newer tests and capacity expansions can temporarily weigh on profitability metrics.

Losses and Cash Burn Remain Key Risks

Castle is still operating in the red, with adjusted EBITDA negative $5.1 million and a net loss of $14.5 million in the quarter. Operating cash outflows totaled $22.1 million, partly reflecting nonrecurring items such as annual bonus and health payments, but underscoring that the business is not yet self‑funding.

Operating Costs Climb with Growth Investments

Spending rose across the board, with sales and marketing, general and administrative, and R&D all posting mid‑ to low‑teens percentage increases. Cost of sales jumped 25% to $20.5 million on higher lab supplies, services, personnel and depreciation linked to capacity build‑outs, reinforcing that the company is investing aggressively to support rising volumes.

Reimbursement Uncertainty for DecisionDx‑SCC

Management reported no new updates from Medicare contractors regarding reconsiderations for DecisionDx‑SCC, leaving local coverage determination timing unresolved. With expectations for potential movement in the second half but no formal commitments, investors must contend with continued reimbursement and timing risk around this assay.

Advanced ADTx Faces a Long Commercial Runway

While the Advanced ADTx test is generating initial orders, it remains in limited access and tied to a lengthy revenue cycle until reimbursement is established. Management does not anticipate material revenue contributions until 2027 or 2028 under current assumptions, meaning near‑term growth will be driven primarily by existing core tests.

TissueCypher Growth Shows Seasonal Volatility

Despite its strong year‑over‑year growth, TissueCypher experienced a modest quarter‑over‑quarter decline, which management linked to seasonal patterns in gastrointestinal procedures. The commentary suggests investors should expect some quarterly variability in reported volumes even as the long‑term trajectory remains steeply positive.

Investment Spending and Capacity Build-Outs

Net cash used in investing activities totaled $25.8 million in Q1, reflecting purchases of marketable securities and increased property and equipment spending. Ongoing lab expansions are boosting depreciation and contributing to higher cost of sales, which may continue to weigh on near‑term adjusted gross margins as the company builds infrastructure ahead of demand.

Guidance Underscores Confidence in Growth Trajectory

Management’s revised 2026 revenue guidance of $345 million to $355 million underscores strong conviction in sustained demand, with implied high‑teens to low‑20s growth excluding DecisionDx‑SCC and ID Genetics. The company reaffirmed mid‑ to high‑single‑digit volume growth for DecisionDx‑Melanoma, projected nearly 50% growth for TissueCypher, targeted an FDA melanoma submission in 2026 and signaled expectations for Advanced ADTx reimbursement clarity by the end of the third quarter.

Castle Biosciences’ earnings call painted a picture of a high‑growth diagnostics company balancing rapid expansion with the realities of negative earnings and reimbursement risk. For investors, the story hinges on whether strong momentum in DecisionDx‑Melanoma and TissueCypher, coupled with a fortified balance sheet, can ultimately translate into sustainable profitability as newer assays like Advanced ADTx come online.