Castle Biosciences (CSTL) Q2 2026 earnings review
TissueCypher Hyper-Growth Drives Massive Guidance Raise
Castle Biosciences delivered a blowout Q2, with revenue accelerating 20% YoY to $103.5 million. GAAP EPS printed a $0.07 loss, but Adjusted EBITDA reversed from a Q1 loss to a robust $12.4 million profit. Management raised full-year revenue guidance by $20 million at the midpoint to $365-$375 million. The defining story is the staggering 63% volume surge in the TissueCypher test, which has now completely overtaken the legacy DecisionDx-Melanoma business in total units. Despite lingering Medicare reimbursement headwinds for the SCC test, the volume leverage from GI testing is driving the company back to sustained operating profitability.
🐂 Bull Case
With 63% YoY volume growth, the Barrett's Esophagus test proves there is massive clinical demand and highly effective sales execution in the GI vertical.
Management's commitment to positive Adjusted EBITDA for Q3, Q4, and FY26 showcases strong operating leverage and effectively eliminates near-term dilution risk.
🐻 Bear Case
DecisionDx-Melanoma volume grew just 3% YoY, severely trailing management's historical mid-to-high single-digit targets and signaling potential market saturation.
DecisionDx-SCC test volumes fell 16% YoY as the Novitas LCD non-coverage impact continues to drag on the dermatology portfolio's blended margins.
⚖️ Verdict: 🟢
Bullish. The explosive volume growth and successful commercialization of TissueCypher are more than offsetting the SCC reimbursement headwinds and the slowdown in legacy melanoma testing.
Key Themes
TissueCypher Takes the Crown
Castle's expansion into gastroenterology is paying off massively. TissueCypher volumes are accelerating, surging 63% YoY to 14,988 reports. In a major milestone, the Barrett's esophagus test has comfortably surpassed the legacy DecisionDx-Melanoma test (10,280 reports) as the company's undisputed volume leader. This fundamentally shifts the company's growth engine from dermatology to GI.
AdvanceAD-Tx Momentum Building
Castle's product innovation engine is firing on all cylinders. The AdvanceAD-Tx test for atopic dermatitis secured NYSDOH assay approval and won a MedTech Breakthrough Award. Crucially, new multi-center data demonstrated that 97.8% of patients were initiated on molecularly concordant systemic therapy post-testing, proving its clinical utility in guiding treatment selection.
Adjusted EBITDA Reverses to Positive
Operating leverage is reversing back to profitability. After a cash-burning Q1 (-$5.1M Adj EBITDA) weighed down by seasonal expenses, Q2 printed a robust $12.4M Adj EBITDA. The volume surge in TissueCypher allowed the company to comfortably absorb $66.1M in SG&A expenses while narrowing GAAP net losses to just $2.1M.
DecisionDx-Melanoma Growth Hits a Wall
Management's narrative has consistently promised 'mid-to-high single-digit' volume growth for its legacy cash cow. The actual data contradicts this optimism: volume growth is decelerating sharply, coming in at just 3% YoY (10,280 vs 9,981 reports) in Q2. This represents a significant break in trend from the 16% YoY growth seen in Q1 and suggests the core dermatology market may be saturating.
Medicare Reimbursement Macro Overhang
The broader macro reimbursement environment for oncology genetics remains challenging. The Novitas local coverage determination (LCD) continues to severely pressure the SCC franchise, with volumes decelerating 16% YoY to 4,011 reports. With no specific timeline for a successful reconsideration, this Medicare headwind represents a persistent structural barrier to margin expansion.
Stock-Based Compensation Masks True Burn
While Adjusted EBITDA paints a rosy picture of $12.4M, the GAAP Net Loss was $2.1M. The bridge between the two is heavily paved with $11.6M in non-cash stock-based compensation (SBC). SBC remains stable but high, consuming 11.2% of total Q2 revenue, representing a real dilution cost to shareholders that adjusted metrics ignore.
Other KPIs
Net cash provided by operations decelerated YoY from $20.8M, but reversed massively from the $22.1M cash burn seen in 26Q1. This rapid sequential recovery reinforces management's expectation of delivering positive cash flow for the full year and bolsters an already fortress-like balance sheet of $266.8M.
Decelerating YoY from 79.5% in 25Q2, reflecting the ongoing mix shift toward the lower-margin TissueCypher test and the loss of high-margin SCC Medicare revenue. However, margins stabilized and accelerated slightly on a sequential basis from 75.6% in 26Q1.
Guidance
Accelerating significantly from prior guidance of $345-$355M. However, with H1 revenue already at $187.2M, the midpoint implies H2 revenue of roughly $182.8M (averaging ~$91.4M per quarter). This suggests that the Q2 print of $103.5M is decelerating sequentially into H2, indicating Q2 likely benefited from a one-time peak or catch-up revenue realization.
Stable outlook. Management explicitly committed to positive Adjusted EBITDA for the remaining quarters of 2026. Given the massive Q2 beat, this sets a firm floor for profitability expectations and severely reduces the risk of near-term capital raises.
Key Questions
Implied Sequential Deceleration
Given the massive $103.5M revenue print in Q2, your implied H2 guidance suggests a sequential decline to roughly $91M per quarter. Is this purely conservatism, or did Q2 benefit from a one-time catch-up effect in prior period collections?
Melanoma Volume Stagnation
DecisionDx-Melanoma volume growth decelerated sharply to just 3% YoY. Is this an indicator of market saturation, increased competitor traction, or simply sales force distraction as they pivot focus to newer products?
SCC Reconsideration Timeline
With SCC volumes continuing to decline double-digits YoY due to the Novitas LCD, what is your most realistic read on the timeline and statistical probability of a successful coverage reconsideration from MolDX/Novitas?