Castle Biosciences (NASDAQ:CSTL) raised its full-year revenue outlook after reporting 24% third-quarter revenue growth, driven primarily by demand for its TissueCypher test.
The company reported revenue of $102.9 million for the quarter and now expects 2026 revenue of $385 million to $395 million, up from its prior forecast of $365 million to $375 million. Chief Financial Officer Frank Stokes said the increase primarily reflects anticipated TissueCypher volume growth and, to a lesser extent, improved average selling prices.
Castle’s net loss widened to $4.1 million, or $0.13 per diluted share, from $0.5 million, or $0.02 per share, a year earlier. Adjusted EBITDA rose to $12.7 million from $9.2 million.
The company continues to expect positive adjusted EBITDA in the fourth quarter and for full-year 2026. Stokes said Castle also expects positive adjusted EBITDA in 2027, absent a change in strategic direction.
TissueCypher Leads Volume Growth
Castle delivered 15,574 TissueCypher test reports during the third quarter, up 47% from a year earlier. Founder and CEO Derek Maetzold attributed the growth primarily to greater use by existing clinicians and, to a lesser extent, new ordering clinicians.
The company reiterated its forecast for TissueCypher test report volume growth of 50% to 52% for 2026. Stokes estimated that the test had reached about 15% of eligible annual Barrett’s surveillance endoscopy procedures on a run-rate basis, leaving room for further growth.
Castle delivered 10,177 DecisionDx-Melanoma test reports in the quarter, its fifth consecutive quarter above 10,000. Volume for the first nine months of 2026 rose 5% from the same period a year earlier. The company refined its full-year outlook for the test to mid-single-digit volume growth.
Asked about possible competitive or other structural pressures on the melanoma business, Maetzold said he saw nothing structural and that the company remained on target to meet the volume guidance it provided at the start of the year.
Stokes said higher average selling prices for Castle’s two leading products were the primary drivers of the quarter’s revenue upside. DecisionDx-SCC revenue also exceeded the company’s expectations, while collections related to prior periods were not a major factor, he said.
Margins Steady as Expenses Rise
Gross margin was 75%, unchanged from a year earlier, while adjusted gross margin held at 77%. Stokes said lab efficiencies had improved and that he expected adjusted gross margin to remain relatively consistent through the year, with the proportion of unpaid tests also staying consistent.
Total operating expenses, including cost of sales, rose to $105.6 million from $89.8 million. Castle cited higher personnel costs across several functions, along with increased lab supplies and services associated with higher test volumes.
The company generated $19.7 million in operating cash flow during the quarter and ended September with approximately $278 million in cash equivalents and marketable investment securities.
Stokes said lab staffing would continue to grow with test volumes, though not on a one-for-one basis, as the company gains efficiencies. He also noted that the fourth quarter can be seasonally lighter because medical practices handle December holidays differently.
Coverage and Pricing Remain in Focus
Castle delivered 1,109 AdvanceAD-Tx test reports in the third quarter. Maetzold said the company had submitted additional crosswalk test information after the Centers for Medicare and Medicaid Services proposed a gapfill pricing approach rather than the advisory panel’s recommended crosswalk approach. He said the final decision could come in early December.
Stokes said Castle was not putting substantial commercial force behind AdvanceAD-Tx while it worked through pricing. The dermatology team remains primarily focused on DecisionDx-Melanoma, he said.
For DecisionDx-SCC, which lost Medicare coverage, Maetzold said Castle’s 2027 revenue plans do not assume coverage will be restored that year; the company has placed that assumption in its 2028 plan. He said a draft local coverage determination in the next quarter or two was not an unreasonable expectation, though there was nothing formal to provide.
Castle expanded its TissueCypher sales force in the second quarter. Maetzold said the company expects some impact from those additions in the fourth quarter and a greater effect in 2027, based on its typical ramp-up period for new representatives.
About Castle Biosciences (NASDAQ:CSTL)
Castle Biosciences, Inc is a molecular diagnostics company that develops and commercializes tests designed to help physicians diagnose cancer, assess disease risk and guide treatment decisions. The company focuses on conditions in which additional biological information can complement traditional pathology and clinical assessment.
Its portfolio includes DecisionDx-Melanoma, which helps evaluate the risk of metastatic recurrence in patients with cutaneous melanoma; DecisionDx-SCC, which assesses metastatic risk in cutaneous squamous cell carcinoma; and DecisionDx-UM, a test for determining metastatic risk in uveal melanoma.
