Good afternoon and welcome to Castle Biosciences First Quarter 2025 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 of Investor Relations and Corporate Affairs. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences first quarter 2025 results conference call. Joining me today are Castle's Founder, President and Chief Executive Officer, Derek Maetzold; Chief Financial Officer, Frank Stokes; and Senior Vice President, Medical, Dr. Matthew Goldberg, Board-certified dermatologist and dermatopathologist. Information recorded on this call speaks only as of today, May 5, 2025. Therefore, if you are listening to the replay or reading this 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 within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to, statements about our financial outlook, TAM, intended use populations and similar items referenced in our earnings release issued today and statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2025 total revenue, our expectations regarding reimbursement for our products, opportunities for growth, impacts of seasonality and other trends, the size and structure of our commercial teams, the timing of targeted milestones 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. These factors and other risks and uncertainties are described in detail…

Thank you, Camilla and good afternoon everyone. We are off to an exceptional start of the year, building on our track record of consistent execution and strong business fundamentals. Revenue grew by 21% to $88 million and total test report volume for our core revenue drivers grew by 33% compared to the first quarter of 2024. Additionally, we believe our strong balance sheet with $275 million in cash, cash equivalents and marketable investment securities gives us the flexibility to continue executing on our growth initiatives as we work to maintain financial discipline. This includes strategic opportunities as evidenced by our announcement earlier today that we signed a definitive agreement to acquire Previse which we believe can further benefit patients and providers alike, while strengthening our position in the gastrointestinal space. Today, I will walk you through business highlights from the quarter, discuss our expected acquisition of Previse and then Frank will provide additional financial highlights before we turn to your questions. Before diving into our business highlights, I'd like to introduce Dr. Matthew Goldberg. Matt joined Castle in August 2020 and currently serves as our Senior Vice President, Medical. He completed his dermatology residency at the University of California, San Francisco, followed by Dermatopathology Fellowship at the University of Texas, Southwestern. Board certified in both dermatology and in dermatopathology, Dr. Goldberg is the ideal person to discuss our DecisionDx-Melanoma test as we enter May, skin cancer awareness month. Matt?

Thank you, Derek. May is skin cancer awareness month. Our mission aligns with raising awareness about the importance of prevention, early detection, risk assessment and personalized treatment strategies designed to improve patient outcomes including for one of the most aggressive forms of skin cancer melanoma. As you think about the patient journey, our DecisionDx-Melanoma test is ordered by physicians after biopsies take place and a diagnosis of invasive melanoma is made. And our test is designed to answer 2 important clinical questions to guide subsequent treatment plan decisions at this point in the patient journey. First, what is the risk of sentinel lymph node positivity in order to inform decisions on the sentinel lymph node biopsy procedure. And second, what is the patient's risk of recurrence? And importantly, DecisionDx-Melanoma has been shown to be associated with improved patient survival as evidenced from real-world prospective data. Therefore, I'm especially pleased DecisionDx-Melanoma recently achieved a significant milestone, surpassing 200,000 test orders since we launched the test. This is a remarkable achievement and I'm extremely proud of my colleagues and their unwavering commitment to improving the lives of the patients we serve. With that, I'll turn it back to Derek.

Thanks, Matt. Now we will discuss our quarterly highlights. For DecisionDx-Melanoma, we delivered 8,621 test reports in the quarter, an increase of 3% compared to the first quarter of 2024 and roughly flat from the fourth quarter of 2024 as expected. As a reminder, historically, the second quarter sees growth sequentially over the first quarter. Importantly, we anticipate high single-digit volume growth for DecisionDx-Melanoma for the full year 2025 compared to 2024. We believe our compelling body of evidence reinforces continued adoption. We are especially pleased with the recent publication of 2 papers discussing data from a prospective multicenter study, demonstrating the significant impact of our DecisionDx-Melanoma test on sentinel lymph node biopsy or SLMB decision-making. The first publication reported data from our DECIDE study, supporting the performance of a low-risk DecisionDx-Melanoma test result to predict sentinel lymph node positivity rates of less than 5% who have elected to have an SLNB. In this prospective multicenter study, no patient with a DecisionDx-Melanoma predicted risk of less than 5% SLN positivity but who decided to have an SLNB procedure anyways had a positive node. That is the actual SLNB positivity rate was 0%. The second publication shared outcomes of patients with a low-risk DecisionDx-Melanoma test result, of which approximately half the patients decided to forego an SLNB and approximately half proceeded with an SLNB despite the low-risk DecisionDx-Melanoma test result. Of clinical significance, all patients with a low-risk DecisionDx-Melanoma test result were recurrence-free. Specifically, we saw a 100% recurrence-free survival rate with a median follow-up of 2 years. Additionally, during the quarter, we presented new study data at the National Comprehensive Cancer Network, or NCCN, 2025 Annual Conference, showing DecisionDx-Melanoma as a significant predictor of mortality in a real-world cohort of nearly 7,000 patients with early-stage cutaneous melanoma. Specifically, as part…

Thank you, Derek and good afternoon, everyone. As Derek highlighted, we delivered very good first quarter financial results. Revenue was $88 million for the first quarter of 2025, an increase of 21% over the first quarter of 2024. The increase was driven predominantly by test volume growth for our non-dermatologic test, that is 117% TissueCypher growth compared to the first quarter of 2024. Adjusted revenue which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $87.2 million for the first quarter of 2025, an increase of 22% over the first quarter of 2024. The total revenue for 2025, we are raising our revenue guidance to $287 million to $297 million, up from the previously provided range of $280 million to $295 million. Our revenue guide reflects DecisionDx-SCC reimbursement by Medicare through April 24th only. From apples-to-apples comparison for 2025 revenue growth, if you exclude DecisionDx-SCC revenue for both our 2024 and 2025 totals, our normalized revenue growth in 2025 would be high teens to low 20s percent. Our gross margin during the first quarter of 2025 was 49.2% compared to 77.9% in the first quarter of 2024. 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 81.2% for the quarter compared to 80.5% for the same period in 2024. The gross margin for the first quarter of 2025 was impacted in large part due to the one-time adjustment of an acceleration of amortization expense of approximately $20.1 million during the 3 months ended March 31, 2025, associated with the discontinuation of IDgenetix that Derek mentioned earlier. For each of the remaining quarters of 2025,…

Thank you, Frank. In summary, we had an excellent start to the year, building on our strength and momentum from 2024, underpinned by robust business fundamentals. We look forward to continuing to work to achieve the goals we set for 2025 as our focus remains on driving both near and long-term stockholder value. Thank you for your continued interest in Castle. We will now be happy to take your questions. Operator?

[Operator Instructions] The first question is from the line of Sung Ji Nam with Scotiabank.

Just, Frank, just a clarification, the mid-70% gross margin guidance, is that GAAP or non-GAAP? And also, does that include DecisionDx SCC contribution or impact?

That's adjusted gross margin, Sung Ji and it does include the fall-off of reimbursement for SCC.

Okay. Got it. And then just on Previse, sorry, just didn't have a chance to go through their website carefully. But do they offer the methylation technology they offer, is that mostly tissue-based? Do they offer liquid biopsy-based technology as well? And then do you anticipate immediate contribution in terms of sales from this acquisition? Or is it just largely complementary in terms of providing additional insight to your TissueCypher product?

So they have a, hi, Sung ji, they have a product that is available commercially today that is tissue based. So it's similar to TissueCypher but it uses a methylation platform or technology platform. They also have a non-endoscopic sponge-based technology. And from our perspective, we look forward to seeing if we could potentially combine both methodologies going forward into both tissue-based testing, as well as non-endoscopic or non-pinch biopsy tissue specimens. As you know, we have indicated in the last several quarters, we've been looking for other opportunities, both in dermatology and in gastroenterology to complement our current offerings and build the strength of both of those franchises. Previse happens to be one of the opportunities that we were able to pull the trigger on at this point in time but there are other ones out there that we will hopefully be able to discuss in the future. And regarding sales contribution.

And Sung ji, we wouldn't expect a meaningful impact on revenue or EBITDA this year but those impacts will be more downstream.

The next question is from the line of Kyle Mikson with Canaccord Genuity.

Congrats on the quarter and the acquisition. So just on Previse, maybe just walk through, Derek, where esophagus fits in the Barrett's workflow relative to TissueCypher. Just wondering if they compete at all? And then could you also talk about the test Medicare payment rate, the mix and the annual volume if possible?

So the Previse test eso predict is a methylation-based assay. The current use is for predicting progression of Barrett's Esophagus disease, so similar to Castle's test of TissueCypher, the TissueCypher data set is more robust. Our interest is to see, one, how can this enhance our TissueCypher franchise? Can the combination reporting of both TissueCypher from a spatialomic standpoint and DNA methylation from a Previse standpoint get us to a stronger clinical offering to our patients today and tomorrow. And then, of course, can we also use the non-endoscopic sponge-based technology to really push forward a little more upstream Castle offerings.

Got it. That's helpful. And then on the, I guess, the discontinuation of IDgenetix, can you talk about how you will reinvest the spending associated with the personnel and the marketing for that product? And maybe like how much that business was burning? And if there's any like run rate savings net of severance that you can talk about?

Yes, not a lot of severance or changes. We were -- as we said, we had changed the marketing support for that test. We continue to believe it is a very good test. And of course, it's just, unfortunately, incredibly unmet medical need. But while payers in our business are rarely rational, they've been especially difficult in that one. And so, that led us to sort of the changes we made over the last several -- last couple of quarters. I think that we will see some modest impact to revenue, Kyle but EBITDA will be benefited -- positively benefited from the change as well. So not big numbers there but there will be some revenue -- some lower revenue but at the end of the day, it will improve the EBITDA performance of the company.

The next question is from the line of Puneet Souda with Leerink Partners.

So first one, Derek, I just wanted to understand, I think you gave a high single-digit volume growth for DecisionDx-Melanoma. I'm just trying to understand, where some of the offsets are and what TissueCypher growth ought to be in 2Q and for the full year? Just trying to reconcile the growth that -- implied growth for TissueCypher as a result of DecisionDx-Melanoma.

So Frank, do you want to take that?

Yes, sure. What we said, Puneet, is volume growth on melanoma of mid to high single digits for the year-over-year, '25 over '24. And we reiterated or we provided an apples-to-apples number. So the rest of the growth is TC. It's -- we also think we'll see some continued benefit or improvement in ASP on melanoma. The team has done great work there and we continue to see very slow and very deliberate but some continued progress on the ASP side there which will benefit numbers as well. So good solid growth for TC, tough to keep it in the same kind of scale that we have but good consistent linear growth from here through the year.

Got it. And on the TissueCypher, correct me if I'm wrong but I think you're up to 65 sales reps. Can you remind us, what's the expectation for hiring for the rest of the year? And on the reimbursement side, can you just remind us where you stand with commercial reimbursement for -- and in terms of the priority for commercial reimbursement, where do you stand today for TissueCypher?

So I think we discussed that we're around 65 sales territories with, I guess, year-end earnings, Puneet. So we are having training being completed, getting people's feet wet, we'll sort of take certainly a breath and make sure that we can understand if there are gaps in the marketplace right now and a need or a benefit to expand more in 2025 versus a little bit later. So I don't think we've discussed any public plans about near-term expansion. I think we need to kind of get through the second quarter here and see how the expanded efforts are educating the marketplace and producing results and then kind of go from there. At the end of the day, if we are accurate in our assumption that we believe there's around 10,000 targetable clinicians or gastroenterologist and their associated support, then 65 still seems a little low but we aren't quite sure, to be honest, if the larger group practice models that gastroenterologists practice in makes that number adequate or if it still needs to go up a couple of regions.

The next question is from the line of Catherine Schulte with Baird.

This is Tom Peterson on for Catherine. Congrats on a solid quarter. First question, I kind of wanted to get the latest on sales and marketing efforts for DecisionDx-SCC and DecisionDx-Melanoma. You had talked about shifting the sales force incentives more towards melanoma once SEC coverage came out of the model. So I guess, can you just confirm that, that is the strategy going forward and your thoughts on sort of the volume outlook for '25?

Yes, that is still the intention, Tom, is to have the field forces go from roughly kind of 50-50, I guess, I would call it, splitting time between melanoma and squamous cell carcinoma to being very heavily weighted going forward in the second half of the year to melanoma. We haven't had a single test focus in this marketplace, I think, probably since COVID, right, nothing, COVID. So -- and we were much smaller there as a company. So it's hard to say what kind of, I guess, lift or acceleration one could see when we go back to a solely focused or predominantly solely focused field team in dermatology but our expectations is that we should see some lift as appropriate.

That's really helpful. And then you mentioned the reconsideration requests for both MolDX and Novitas. I guess what's your latest thoughts on timing here? Should we expect an outcome here in 2025? And just your latest thoughts there?

Sure. So I think, first of all, our recommendation or guidance, I guess, in the last 1.5 years of having people remove squamous cell carcinoma from revenue models was obviously a good straight forward approach. And certainly, for the remainder of 2025, I would not have anybody reinsert SCC revenue assumptions. I think on timing, it's difficult to project at this point in time. And I think as we see the year progress or the quarter progress or the quarters progress, we'll go and update the group as we have material knowledge. There is no real good benchmarking to kind of give you an evidence-based target there.

The next question is from the line of Paul Knight with KeyBanc.

On the -- can you talk about the distribution of your sales force by test type, so we have an idea of where you're doing most adds this year?

Yes, Paul. So as you said, the GI sales force is rough and top middle 60s and the derm sales force is high 60s, maybe around 70.

Could we expect that build and ramp to continue this year?

The derm sales force, there may be some growth here and there as we see territories get full, get -- you see territories become kind of full of business and we need more effort in the territory, may you take a territory and make it two or something like that. That will be more episodic, I think. And as Derek said earlier, I think on the TC side, we want to settle into where we are and watch how the territories progress to see if we need to add another handful of reps there.

The next question is from the line of Subbu Nambi with Guggenheim.

Regarding the acquisition of Previse and your positioning of this as a complementary asset to TissueCypher, this conceptually makes sense. That said, it does seem, at least on the surface, similar to what you did with the MyPath acquisition a few years ago which, as you know, came up light of targets. And I ask not to be heavy-handed but I want to hear, what is different here and what lessons were learned that increase the probability of success? Because on paper, this definitely looks interesting.

I missed the last part of, very last part of your question.

Yes. I think -- so we -- Subbu, we do quite like the MyPath acquisition. We were able to pull up reimbursement for the differential diagnostic test which was very important. We were able to add another offering to derms and derm path which increased our value to them. We don't expect MyPath to get to the scale of CM or SCC given the nature of that market. But we also like having an ability to point to prognostic test in melanoma when MyPath results in a positive diagnosis from a previously indeterminate lesion. Previse is a bit different, however and we are excited about the technology that comes along with it. As Derek said, there's going to be some work done and some interesting efforts to see if we can improve the prognostic offering, potentially with the multiomics approach at some point. But also Previse has a very interesting pipeline in GI. And as we've said before, it's our intent and goal to have multiple offerings to the GI community, particularly around the kind of the upper GI esophageal area. And this brings us several candidates there. So different motivations for the two but a nice expansion of our pipeline as well.

And maybe I missed this but how much is it getting reimbursed as in how does it compare to TissueCypher in terms of rate, Medicare rate? And will that play a role in decision-making for doctors?

Not -- I don't think it plays a role in decision-making. Their Medicare rate is lower than ours because ours is the ADLT. So that's a differential there. But not -- I don't think clinicians are making decisions that way. I think TC, we've been able to grow so quickly because of the robust body of evidence supporting the clinical utility and the high actionability of the test.

The next question comes from the line of Mason Carrico with Stephens Inc.

Frank, on the margin guide, could you give us a bit more color on that assumption? Specifically, what are your expectations for SCC volumes in the back half of this year? Are you expecting them to trend higher, flatten out, go down?

So the -- we would expect that as we shift promotion more fully to melanoma that we would see some certainly slowing of growth. At some point, I think that plateaus and we begin to see the demand ebb a bit. But on the other hand, Mason, it's a test that physicians are -- as you can see from volumes, physicians have really embraced it. It helps their practice. It helps their patients. It helps their patient management. And it saves Medicare almost $1 billion a year by appropriately directing patients to adju [ph] radiation therapy who will benefit from it and directing patients who won't benefit away. So we -- one way of saying that without promotion, most high-value diagnostic tests do not grow. But this is also a test that has great value to the users and to the health care system.

No, that makes sense. And then as a follow-up, how are you thinking about the growth algorithm of DecisionDx-Melanoma going forward? And I guess, in terms of same-store sales versus increasing the number of ordering clinicians, I mean, obviously, you probably benefit from both, both are important. But how do you have the reps, I guess, splitting their time between driving utilization or out hunting for new clinicians?

So historically, I guess, I would say that we looked at a combination of forward-looking revenue per territory, as well as number of actively ordering customers, I guess, you would say. And what we had found which I think is -- I don't know if there's a real industry standard here, Mason or not but when we have a territory get up around, what, Frank, $2 million, $2.5 million, $3 million forward-looking revenue, then that becomes a territory that usually, if you go back and look at sort of where the representatives are spending time, it's more on maintaining existing customers and less on hunting for new clinicians and that's kind of about the time we choose to go ahead and divide. And usually, success to get success, you probably have 2 successful territories adjacent to each other. So you might take 2 and make them into 3, for example. I think that rule of thumb still holds pretty well. So what that ends up doing is letting us spend hopefully roughly half our time nurturing and educating current clinicians about where they could appropriately expand the use of our test in our patient population and then roughly half their time moving people from an awareness or no awareness to awareness and hopefully usage and adoption.

The next question is from the line of Thomas Flaten with Lake Street.

Derek, probably a difficult question to answer but you said in your prepared remarks that you would continue offering SCC for now. Do you have a sense of how for now -- how long for now will last given that there's a bit of a black box around the reconsideration requests and the time line there?

No, I don't want to have more information or insight to go ahead and guide, unfortunately. I think for now is that, we need to understand how our interactions play out with Medicare and that will help make a determining factor of how we want to approach that. I think from a purely ethical perspective today, I guess you would say we have a test here which when used properly, can help a patient and their clinician care team from their dermatological or surgeon to their radiation oncologists identify people who may be considering adjuvant radiation therapy and probably take about 60% plus of them out of that therapy course because they will receive based upon our data, no clinical benefit but substantial side effects and at a great cost to Medicare. So for the time being, we feel obligated to make sure that those patients are benefiting. Now Medicare benefits to the tune of around $2.4 million per day and avoiding unnecessary radiation therapies and that's net of the cost of our test. So we're going to have to kind of wait and see how we work through the reconsideration process and make a call as those -- as that becomes clear.

And then any update on atopic dermatitis?

Not since the end of the year-end earnings. We are still moving through market research to appreciate both the interest in our clinicians regarding the product profile, as well as the reimbursement strategy and we believe we are still on track to achieving our milestone we set a couple of years ago which was commercial availability by year-end.

The next question is from the line of Mark Massaro with BTIG.

On the acquisition that you just announced, was there any stock included in the deal? Or was it cash? And if you're not willing to share the terms of the deal, is it safe to say that the -- any level of cash would be immaterial to your cash balance?

There was no stock, Mark and we've not disclosed the value of the transaction.

Okay. For investors on the line that might be thinking this question, the timing of the acquisition sort of coincides with your decision to shutdown the IDgenetix business which you admittedly did telegraph or I believe you did. And then it also coincides with the lapping of the SCC payments from your Medicare contractor for the time being. To what extent does the timing of this deal influence your probability of winning sort of SEC reimbursement back? Because optically, this almost could look like your ability to win in a Medicare reconsideration request might be smaller than it might have been a quarter ago? Or could you just speak to that? Because obviously, you announced a new deal, the timing of these other 2 going away.

Completely underwrite it.

Okay. And then last quick question. I know you were asked about what you acquired. What I don't understand is, how much revenue this asset was producing in 2024. And then for the Sponge technology, this does look similar to another test on the market called EsoGuard. Is it safe to say that the Sponge technology or the non-endoscopic technology and the EsoGuard test have some similarities in the marketplace? And then if you could, where does that stand in terms of data and Medicare coverage?

So revenue is not material to Castle for the year. This is a technology opportunity for us and a pipeline opportunity, first and foremost, as well as a nice way to potentially improve our prognostic offering for Barrett's. And the Medicare process for non-endoscopic diagnosis, there is -- there are policies, draft policies out there, I believe. But this technology is not at the point of seeking Medicare coverage yet. Although -- and just to note, Mark, there are, of course, more than just one other. There are a couple of non-endoscopic methods for diagnosis, not only for Barrett's, other conditions as well. So in that respect, there's some similarity to those other technologies.

Next question is from the line of Kyle Mikson with Canaccord Genuity.

Just want to ask about the acquisition and the pipeline and keep talking about it. Derek, can you talk about the timing of the pipeline launches and how large those opportunities are? And then just secondly, since you're getting access to the Johns Hopkins PCR-based methylation technology, have you ruled out using that tech to develop like an early detection or screening test for GI cancers?

Haven't ruled it out, Kyle, haven't ruled it in, to be clear but not -- certainly wouldn't have stopped any opportunities there. I think that the opportunity we have is to accelerate the development of the pipeline that the company had with additional resources but also our broader expertise in GI and our somewhat deeper history of R&D. So we're ways out on the pipeline technologies. I don't know that we're ready to put a pin in the ground on where -- what the time lines would be but we certainly think we can accelerate them from what they might otherwise have been.

There are no additional questions waiting at this time. So, I would like to pass the call back over to Derek for any closing remarks.

Thank you, operator. This concludes our first quarter 2025 earnings call. We thank you again for joining us today and for your continued interest in Castle Biosciences.

That concludes today's call. Thank you for your participation and enjoy the rest of your day.