Castle (CSTL) Q2 Revenue Tops Estimates

Key Points

• Castle Biosciences (NASDAQ:CSTL) reported Q2 2025 GAAP earnings per share and non-GAAP revenue that both exceeded analyst estimates by wide margins.

• Net income (GAAP) and gross margin declined significantly year-over-year in Q2 2025 due to reimbursement setbacks for key tests.

• Management raised full-year 2025 revenue guidance, driven by strong core test volume growth, particularly from TissueCypher.

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Castle Biosciences (NASDAQ:CSTL), a developer of diagnostic tests supporting personalized treatment decisions in dermatology and gastroenterology, reported its second quarter 2025 results on August 4, 2025. The company significantly outperformed Wall Street expectations in Q2 2025, with GAAP EPS of $0.15 and non-GAAP revenue of $86.2 million, both exceeding analyst estimates. GAAP earnings per share reached $0.15, well above the consensus estimate of -$0.53. Non-GAAP revenue was $86.2 million, surpassing the anticipated $71.45 million. While Revenue was nearly flat year-over-year, with GAAP revenue of $86.2 million in Q2 2025 compared to $87.0 million in Q2 2024, and the company raised its full-year 2025 revenue guidance highlighting strong growth in core test volumes. Core revenue driver test reports increased 33% year-over-year in both Q1 and Q2 2025, though the definition of core revenue drivers differed between quarters. However, lower reimbursement for some products and A shrinking gross margin contributed to a mixed overall picture for the quarter.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Recent Focus

Castle Biosciences is a molecular diagnostics company specializing in tests that provide physicians with actionable information for managing skin, gastrointestinal, and mental health diseases. Its business centers on developing and commercializing tests that guide decisions such as treatment selection and patient monitoring.

The company’s recent strategic focus includes expanding its test portfolio through launches and acquisitions, while ensuring reimbursement coverage to support test adoption. High-quality clinical evidence backing each test and favorable insurance reimbursement are both crucial for its commercial success. Building credibility with clinicians and third-party payors remains central to its growth strategy.

Notable Developments in the Quarter

Total test volumes across all product families reached 26,574 in Q2 2025, a 6% increase from the prior-year period. Most notably, Most of this growth came from the company’s core offerings—DecisionDx-Melanoma and TissueCypher. DecisionDx-Melanoma, a gene expression profiling test used to guide skin cancer management, delivered 9,981 reports in Q2 2025, up from 9,585 in the second quarter of 2024. The test also received the U.S. Food and Drug Administration's Breakthrough Device designation in Q2 2025, signaling regulatory recognition for advanced technical innovation with potential patient benefit.

The recent rapid growth in this gastrointestinal-focused test is partly attributed to increased sales force coverage and rising clinical demand. Management noted a 117% year-over-year increase in TissueCypher test report volume in Q1 2025, driven by commercial team expansion and growing clinical acceptance. The company’s acquisition of Previse, which brings methylation-based and non-endoscopic diagnostic technologies for esophageal disorders, aims to broaden the gastrointestinal segment’s potential and was completed in Q2 2025. However, management noted that Previse is not expected to contribute meaningfully to 2025 financial results.

In contrast, DecisionDx-SCC, a skin cancer test for squamous cell carcinoma, delivered 4,762 reports in Q2 2025, up from 4,277 in the second quarter of 2024. However, the landscape for this test has fundamentally changed: Medicare, a major U.S. government insurer, stopped covering DecisionDx-SCC as of April 24, 2025, when the Novitas local coverage determination (LCD), Genetic Testing in Oncology: Specific Tests, which listed DecisionDx-SCC as noncovered, became effective. This has effectively closed off a significant revenue stream and prompted the company to refocus its commercial efforts elsewhere. While DecisionDx-SCC continues to be available, sales and marketing support have shifted toward melanoma, which management hopes will boost volume for that core test.

The quarter also saw the discontinuation of IDgenetix, a pharmacogenomics test used in mental health, due to ongoing reimbursement challenges. The test was discontinued effective May 2025. Test volume for IDgenetix fell sharply as a result. Management cited the discontinuation as a way to streamline operations and improve profitability, even if it meant a short-term hit to revenues.

Financially, Revenue was steady year-over-year in Q2 2025 but with Higher personnel costs and a decline in gross margin (GAAP), from 80.7% to 77.3% in Q2 2025, reflected both rising expenses and a less favorable sales mix. Net income (GAAP) nearly halved to $4.5 million in Q2 2025 compared to the previous year, and Adjusted EBITDA—a non-GAAP measure of profit excluding certain charges—also fell by over 50% in Q2 2025 versus Q2 2024. The loss of reimbursement for DecisionDx-SCC, effective April 24, 2025, along with higher fixed costs and continued investment in commercial resources, drove these declines. No dividend was declared or changed in the period. CSTL does not currently pay a dividend.

Looking Forward

Castle Biosciences management raised its FY2025 full-year revenue guidance to a range of $310 million to $320 million. The company cited stronger-than-expected adoption of key tests, particularly TissueCypher, as well as continued growth in DecisionDx-Melanoma. The company also referenced positive early results from initiatives and acquisitions, such as Previse, as supportive of future growth potential. The revised guidance is 8% higher at the low end and 7.7% higher at the high end compared to the previous full-year 2025 revenue forecast.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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