What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-05-10 · 187 added, 141 removed, 294 unchanged (53% of the section changed)

1 unchanged sentence

CASTLE BIOSCIENCES, INC.

CONDENSED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

ASSETS (unaudited)

7 unchanged sentences

Property and equipment, net 8,092 7,102

Intangible asset, net 32,798 —

Other assets – long-term 1,631 1,536

13 unchanged sentences

Preferred stock, $ 0.001 par value;

10,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

no shares issued and outstanding as of March 31, 2021 and December 31, 2020.

10,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

no shares issued and outstanding as of June 30, 2021 and December 31, 2020.

Common stock, $ 0.001 par value;

200,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

25,054,513 and 24,812,487 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.

200,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

25,164,053 and 24,812,487 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.

Additional paid-in capital 491,458 478,162

2 unchanged sentences

Total liabilities and stockholders’ equity $ 435,533 $ 439,328

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

NET REVENUES $ 22,758 $ 12,715 $ 45,571 $ 30,133

COST OF SALES 3,028 2,391

Gross margin 19,785 15,027

OPERATING EXPENSES

OPERATING EXPENSES AND OTHER OPERATING INCOME

Cost of sales (exclusive of amortization of acquired intangible asset) 3,697 2,146 6,725 4,537

Research and development 6,793 2,704 12,701 5,617

Selling, general and administrative 20,822 10,392 38,983 21,470

Total operating expenses 24,069 13,991

Amortization of acquired intangible asset 256 — 256 —

Other operating income — ( 1,882 ) — ( 1,882 )

Total operating expenses, net 31,568 13,360 58,665 29,742

Operating (loss) income ( 8,810 ) ( 645 ) ( 13,094 ) 391

1 unchanged sentence

Interest expense — ( 769 ) — ( 1,533 )

(Loss) income before income taxes ( 4,280 ) 570

Loss before income taxes ( 8,786 ) ( 1,376 ) ( 13,066 ) ( 806 )

Income tax expense 5 — 5 —

Net (loss) income and comprehensive (loss) income $ ( 4,280 ) $ 570

(Loss) earnings per share:

Net loss and comprehensive loss $ ( 8,791 ) $ ( 1,376 ) $ ( 13,071 ) $ ( 806 )

Loss per share:

$ ( 0.35 ) $ ( 0.08 ) $ ( 0.52 ) $ ( 0.05 )

3 unchanged sentences

Diluted 25,091 17,544 25,002 17,458

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

9 unchanged sentences

— — 39,987 — 603 — 603

Net loss — — — — — 570 570

Net income — — — — — 570 570

BALANCE, MARCH 31, 2020 — $ — 17,203,496 $ 17 $ 139,559 $ ( 51,642 ) $ 87,934

Stock compensation expense — — — — 1,653 — 1,653

Exercise of common stock options — — 170,373 — 330 — 330

Public offering of common stock, net of underwriting discounts, commissions and offering costs — — 2,000,000 2 69,079 — 69,081

Net loss — — — — — ( 1,376 ) ( 1,376 )

BALANCE, JUNE 30, 2020 — $ — 19,373,869 $ 19 $ 210,621 $ ( 53,018 ) $ 157,622

BALANCE, JANUARY 1, 2021 — $ — 24,812,487 $ 25 $ 478,162 $ ( 62,496 ) $ 415,691

6 unchanged sentences

BALANCE, MARCH 31, 2021 — $ — 25,054,513 $ 25 $ 485,338 $ ( 66,776 ) $ 418,587

The accompanying notes are an integral part of these unaudited condensed financial statements.

Stock compensation expense — — — — 4,766 — 4,766

Exercise of common stock options — — 109,540 — 1,354 — 1,354

Net loss — — — — — ( 8,791 ) ( 8,791 )

BALANCE, JUNE 30, 2021 — $ — 25,164,053 $ 25 $ 491,458 $ ( 75,567 ) $ 415,916

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended

Six Months Ended

OPERATING ACTIVITIES

Net (loss) income $ ( 4,280 ) $ 570

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Depreciation 233 91

Net loss $ ( 13,071 ) $ ( 806 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization 867 193

Stock compensation expense 9,679 3,230

7 unchanged sentences

Accrued compensation ( 523 ) ( 1,127 )

Medicare advance payment ( 2,173 ) 8,350

Other accrued liabilities ( 306 ) 263

Deferred rent and other liabilities ( 128 ) 172

Net cash used in operating activities ( 3,631 ) ( 251 )

Net cash (used in) provided by operating activities ( 10,069 ) 13,250

INVESTING ACTIVITIES

Purchases of property and equipment ( 1,663 ) ( 2,256 )

Asset acquisition ( 33,184 ) —

Proceeds from sale of property and equipment 2 —

Net cash used in investing activities ( 34,845 ) ( 2,256 )

FINANCING ACTIVITIES

Proceeds from public offering of common stock, net of underwriting discounts, commissions and offering costs — 69,530

Payment of common stock offering costs ( 336 ) —

Repayments on term debt — ( 833 )

Proceeds from exercise of common stock options 2,345 400

6 unchanged sentences

Accrued purchases of property and equipment $ 3 $ 194

The accompanying notes are an integral part of these unaudited condensed financial statements.

Property and equipment acquired with tenant improvement allowance $ — $ 714

Common stock offering costs incurred but not paid $ — $ 451

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Organization and Description of Business

2 unchanged sentences

We are a commercial-stage dermatological cancer company focused on providing physicians and their patients with personalized, clinically actionable genomic information to make more accurate treatment decisions.

We are based in Friendswood, Texas (a suburb of Houston, Texas) and our laboratory operations are conducted at our facilities located in Phoenix, Arizona.

We are based in Friendswood, Texas (a suburb of Houston, Texas) and essentially all of our laboratory operations are conducted at our facilities located in Phoenix, Arizona.

Impact of COVID-19 Pandemic

Since the COVID-19 pandemic began in March 2020, we have maintained uninterrupted business operations with normal turnaround times for delivery of test reports, but have experienced declines in test report volume, which we believe is linked to delays and/or cancellations in patient visits in response to COVID-19, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma.

The extent to which COVID-19 may further impact our business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

Since the COVID-19 pandemic began in March 2020, we have maintained uninterrupted business operations with normal turnaround times for delivery of test reports, but have experienced declines in test report volume in certain periods, which we believe is linked to delays and/or cancellations in patient visits in response to COVID-19, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma.

The extent to which COVID-19 may further impact our business, consolidated results of operations, consolidated financial condition and consolidated cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

Summary of Significant Accounting Policies

Basis of Presentation

Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (‘‘U.S.

We have no subsidiaries and all operations are conducted by us.

Our unaudited condensed consolidated financial statements include the accounts of Castle Biosciences, Inc.

and a wholly owned subsidiary and have been prepared in conformity with accounting principles generally accepted in the United States of America (‘‘U.S.

All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification

Certain prior year amounts in our condensed consolidated statements of operations and comprehensive loss have been reclassified to conform to the current year presentation.

Specifically, we no longer present gross margin and therefore the cost of sales line is now presented within the operating expenses section of the condensed consolidated statements of operations and comprehensive loss.

This reclassification had no impact on operating (loss) income, loss before income taxes, net loss, comprehensive loss or loss per share.

Unaudited Interim Financial Information

The accompanying condensed balance sheet as of March 31, 2021;

the condensed statements of operations and comprehensive (loss) income, the condensed statements of stockholders’ equity for the three months ended March 31, 2021 and 2020;

and the condensed statements of cash flows for the three months ended March 31, 2021 and 2020 are unaudited.

The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our financial position as of March 31, 2021 and the results of our operations and our cash flows for the three months ended March 31, 2021 and 2020.

The financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are also unaudited.

The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

The accompanying condensed consolidated balance sheet as of June 30, 2021;

the condensed consolidated statements of operations and comprehensive loss, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2021 and 2020;

and the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited.

The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our consolidated financial position as of June 30, 2021 and the results of our consolidated operations and our consolidated cash flows for the three and six months ended June 30, 2021 and 2020.

The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are also unaudited.

The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

The balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date.

Certain disclosures have been condensed or omitted from the interim financial statements.

These financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 11, 2021.

Certain disclosures have been condensed or omitted from the interim consolidated financial statements.

These consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 11, 2021.

Use of Estimates

1 unchanged sentence

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant items subject to such estimates include revenue recognition, the valuation of stock-based compensation, assessing future tax exposure and the realization of deferred tax assets, the useful lives and recoverability of property and equipment, and contingent liabilities.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

acquired intangible assets and contingent liabilities.

We base these estimates on historical and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events.

3 unchanged sentences

The extent to which the COVID-19 pandemic may impact our estimates in future periods is uncertain and subject to change.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Cash and Cash Equivalents including Concentrations of Credit Risk

20 unchanged sentences

Historically, our bad debt expense has not been significant.

The allowance for doubtful accounts was zero as of March 31, 2021, and December 31, 2020.

The allowance for doubtful accounts was zero as of June 30, 2021, and December 31, 2020.

Adjustments for implicit price concessions attributable to variable consideration, as discussed above, are incorporated into the measurement of the accounts receivable balances and are not part of the allowance for doubtful accounts.

Other Operating Income

Other operating income for the three and six months ended June 30, 2020 consists of an automatic payment of $ 1.9 million we received on April 10, 2020 from the U.S.

Department of Health and Human Services (“HHS”) pursuant to the Coronavirus Aid, Relief and Economic Security Act enacted on March 27, 2020, also known as the CARES Act, out of relief funds allocated by HHS to healthcare providers to reimburse healthcare related expenses or lost revenues attributable to COVID-19.

Intangible Asset

Our intangible asset consists of acquired developed technology.

The intangible asset is considered to be finite-lived and is being amortized on a straight-line basis over its estimated useful life.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accrued Compensation

3 unchanged sentences

We also accrue for liabilities under employee sales incentive bonus plans with accruals based on performance achieved to date compared to established targets.

As of March 31, 2021 and December 31, 2020, we accrued $ 2,664,000 and $ 7,175,000 , respectively, for liabilities associated with these bonus plans.

As of June 30, 2021 and December 31, 2020, we accrued $ 5,742,000 and $ 7,175,000 , respectively, for liabilities associated with these bonus plans.

These amounts are classified as current or noncurrent accrued liabilities in the balance sheets based on the expected timing of payment.

Comprehensive (Loss) Income

Comprehensive (loss) income is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources.

Our comprehensive (loss) income was the same as our reported net (loss) income for all periods presented.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources.

Our comprehensive loss was the same as our reported net loss for all periods presented.

Accounting Pronouncements Yet to be Adopted

We are currently an emerging growth company (“EGC”) within the meaning of the Jumpstart Our Business Startups Act, as amended, (the “JOBS Act”) and have elected to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, as permitted under the JOBS Act.

However, because the market value of our common stock held by non-affiliates exceeded $700.0 million as of June 30, 2021, we will cease to be an EGC effective December 31, 2021.

As such, upon our loss of status as an EGC, we will no longer be permitted to delay the adoption of new or revised accounting pronouncements, including the accounting pronouncements discussed below.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes FASB ASC Topic 840, Leases, and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.

The new standard requires lessees to apply a dual approach,

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine whether lease expense is recognized based on an effective interest method for finance leases or on a straight-line basis over the term of the lease for operating leases.

1 unchanged sentence

Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.

For companies that are not emerging growth companies (‘‘EGCs’’), ASU 2016-02 is effective for fiscal years beginning after December 15, 2018.

For EGCs, the ASU was to be effective for fiscal years beginning after December 15, 2019.

However, in November 2019, the FASB issued ASU No.

2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842):

Effective Dates (“ASU 2019-10”), which included a one-year deferral of the effective date of ASU 2016-02 for certain entities.

In June 2020, the FASB issued ASU No.

2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842):

Effective Dates for Certain Entities , which further defers the effective date for certain entities.

As a result, the ASU is now effective for EGCs for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

If we maintain EGC status, we will adopt the new standard in the fourth quarter of 2022 using the modified retrospective method, under which we will apply Topic 842 to existing and new leases as of January 1, 2022, but prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods.

We anticipate that the adoption will not have a material impact on our statements of operations and comprehensive (loss) income or our statements of cash flows but expect to recognize right-of-use assets and liabilities for lease obligations associated with our operating leases.

For companies that are not EGCs’, ASU 2016-02 was effective for fiscal years beginning after December 15, 2018.

For EGCs, the effective date of the ASU has been deferred to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

However, because we will no longer be an EGC effective December 31, 2021, we will adopt the new standard in the fourth quarter of 2021 using the modified retrospective method, under which we will apply Topic 842 to existing and new leases as of January 1, 2021, but prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods.

We do not expect the adoption of this standard to have a material impact on our consolidated statements of operations and comprehensive loss or our consolidated statements of cash flows but we expect to recognize right-of-use assets and liabilities for lease obligations associated with our operating leases.

In June 2016, the FASB issued ASU No.

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The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

In November 2018, the FASB issued ASU No.

2018-19, Codification Improvements to Topic 326, Financing Instruments—Credit Losses , which included an amendment of the effective date for nonpublic entities.

For non-EGCs, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019.

For EGCs, the standard was to be effective for fiscal years beginning after December 15, 2021.

However, in November 2019, the FASB issued ASU 2019-10, which included a one-year deferral of the effective date of ASU 2016-13 for certain entities.

As a result, ASU is now effective for EGCs for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We do not currently believe the adoption of this standard will have a significant impact on our financial statements, given our history of minimal bad debt expense relating to trade accounts receivable.

For non-EGCs, ASU 2016-13 was effective for fiscal years beginning after December 15, 2019.

For EGCs, the effective date of the ASU has been deferred to fiscal years beginning after December 15, 2022, including interim periods in those fiscal years.

However, because we will no longer be an EGC effective December 31, 2021, we will adopt the new standard in the fourth quarter of 2021 under the modified retrospective method.

We do not expect the adoption of this standard to have a material impact on our consolidated financial statements, given our history of minimal bad debt expense relating to trade accounts receivable.

In December 2019, the FASB issued ASU No.

2 unchanged sentences

For non-EGCs, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

For EGCs, the standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

For EGCs, the standard is effective for fiscal years beginning after December 15,

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted.

We are currently evaluating the impact of ASU 2019-12 on our financial statements.

If the market value of our common stock held by non-affiliates exceeds $700.0 million as of June 30, 2021, we will cease to be an emerging growth company effective December 31, 2021.

If that occurs, we will be required to apply the non-EGC effective dates in adopting accounting pronouncements that qualify for delayed adoption by EGCs, including the accounting pronouncements discussed above.

However, because we will no longer be an EGC effective December 31, 2021, we will adopt the standard in the fourth quarter of 2021.

We do not expect the adoption of ASU 2019-12 to have a material impact to our consolidated financial statements.

All of our revenues from contracts with customers are associated with the provision of diagnostic and prognostic cancer testing services.

2 unchanged sentences

We launched a test for patients with squamous cell carcinoma, DecisionDx®-SCC in August 2020 and launched a test for use in patients with suspicious pigmented lesions, DecisionDx® DiffDx™-Melanoma in November 2020.

We began offering a test for difficult-to-diagnose melanocytic lesions, myPath Melanoma, following an asset acquisition completed in May 2021.

Information on the disaggregation of revenues by our significant third-party payors is included under Payor Concentration below.

1 unchanged sentence

Most of the payments for our services are made by third-party payors, including Medicare and commercial health insurance carriers.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Certain contracts contain a contractual commitment of a reimbursement rate that differs from our list prices.

11 unchanged sentences

Variable consideration may be constrained and excluded from the transaction price in situations where there is no contractually agreed upon reimbursement coverage or in the absence of a predictable pattern and history of collectability with a payor.

Accordingly, in such situations revenues are recognized on the basis of actual cash collections.

Variable consideration for Medicare claims that are not covered by an LCD, including those claims subject to approval by an ALJ at an appeal hearing, is deemed to be fully constrained due to factors outside our influence (i.e., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.

Variable consideration is evaluated each reporting period and adjustments are recorded as increases or decreases in revenues.

Included in revenues for the three months ended March 31, 2021 and 2020 were $ 5,335,000 and $ 3,160,000 , respectively, of revenue increases associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

Included in revenues for the three months ended June 30, 2021 and 2020 were $( 166,000 ) and $ 2,291,000 , respectively, of net (negative) positive revenue adjustments associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

Such amounts of variable consideration for the six months ended June 30, 2021 and 2020 were $ 5,092,000 and $ 1,048,000 , respectively.

These amounts include (i) adjustments for actual collections versus estimated amounts and (ii) cash collections and the related recognition of revenue in current period for tests delivered in prior periods due to the release of the constraint on variable consideration.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Because our contracts with customers have an expected duration of one year or less, we have elected the practical expedient in ASC 606 to not disclose information about our remaining performance obligations.

Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of our contracts.

Contract balances consisted of accounts receivable (both current and noncurrent) and the Medicare advance payment (discussed further below) as of March 31, 2021 and December 31, 2020.

Contract balances consisted of accounts receivable (both current and noncurrent) and the Medicare advance payment (discussed further below) as of June 30, 2021 and December 31, 2020.

Medicare Advance Payment

On April 16, 2020, we received an advance payment of $ 8.3 million (the “Advance Payment”) from the Centers for Medicare & Medicaid Services (“CMS”) under its Accelerated and Advance Payment Program, which was expanded to provide increased cash flow to service providers during the COVID-19 pandemic.

We have recorded the Advance Payment as a liability, consisting of both a current and noncurrent portion, on our balance sheet as of March 31, 2021.

Recoupment will commence in April 2021 during which the first eleven months CMS will apply 25% of the Medicare payments otherwise owed to us against the balance of the Advance Payment.

After that eleven-month period, CMS will recoup at a rate of 50% of the Medicare payments otherwise owed to us for an additional six months.

Recoupment of the Advance Payment commenced in April 2021.

For the first eleven months of recoupment, CMS will apply 25% of the Medicare payments otherwise owed to us against the balance of the Advance Payment.

After this eleven-month period, CMS will recoup at a rate of 50% of the Medicare payments otherwise owed to us for an additional six months.

If the Advance Payment is not fully recovered by CMS after this recoupment period, we will be required to repay any remaining balance.

As of March 31, 2021, no revenue has been recognized related to any portion of the Advance Payment.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

The remaining balance of the Advance Payment is recorded as a current liability on our consolidated balance sheet as of June 30, 2021.

Through June 30, 2021, $ 2,173,000 has been applied against the balance of the Advance Payment.

DecisionDx-Melanoma Claims Consolidation

5 unchanged sentences

We have filed an appeal to the decision, although no ruling on such appeal has been issued to date.

In accordance with ASC 606 and consistent with prior periods, we have not recognized (fully constrained the variable consideration) any revenues attributable to these claims in our financial statements pending the outcome of this matter.

In accordance with ASC 606 and consistent with prior periods, we have not recognized (fully constrained the variable consideration) any revenues attributable to these claims in our consolidated financial statements pending the outcome of this matter.

Payor Concentration

2 unchanged sentences

Percentage of Revenues

Three Months Ended

March 31, Percentage of

Six Months Ended

June 30, Percentage of

Accounts Receivable

2 unchanged sentences

(non-current)

2021 2020 March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020

2021 2020 June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020

Medicare 57 % 58 % 27 % 15 % — % — %

1 unchanged sentence

BlueCross BlueShield plans 7 % 6 % 22 % 26 % 47 % 44 %

(Loss) Earnings Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income for the period by the weighted-average number of common shares outstanding during the period.

Diluted (loss) earnings per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or purchases under the 2019 Employee Stock Purchase Plan (“ESPP”).

The treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents.

However, potentially dilutive shares are excluded from the computation of diluted (loss) earnings per share when their effect is antidilutive.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

The following table shows the computation of basic and diluted (loss) earnings per share for the three months ended March 31, 2021 and 2020 (in thousands, except per share data):

Three Months Ended

Net (loss) income $ ( 4,280 ) $ 570

Weighted-average common shares outstanding, basic 24,912 17,372

Assumed exercise of common stock warrants — 27

Assumed exercise of stock options — 1,310

Assumed issuance of shares under the ESPP — 25

Weighted-average common shares outstanding, diluted 24,912 18,734

(Loss) earnings per share:

Basic $ ( 0.17 ) $ 0.03

Diluted $ ( 0.17 ) $ 0.03

Due to reporting a net loss for the three months ended March 31, 2021, all potentially dilutive securities are antidilutive and are excluded from the computation of diluted loss per share for such period.

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in our calculation of diluted (loss) earnings per share for the three months ended March 31, 2021 and 2020 because to do so would be antidilutive (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Loss Per Share

Basic loss per share is computed by dividing net loss for the period by the weighted-average number of common shares outstanding during the period.

Diluted loss per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or purchases under the 2019 Employee Stock Purchase Plan (“ESPP”).

The treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents.

However, potentially dilutive shares are excluded from the computation of diluted loss per share when their effect is antidilutive.

Due to us reporting a net loss for all periods presented, all potentially dilutive securities are antidilutive and are excluded from the computation of diluted loss per share for such periods.

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in our calculation of diluted loss earnings per share for the three and six months ended June 30, 2021 and 2020 because to do so would be antidilutive (in thousands):

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Stock options and restricted stock units (“RSUs”) 3,374 2,728 3,417 2,715

Common stock warrants — 35 — 35

Employee stock purchase plan 56 107 66 105

Total 3,430 2,870 3,483 2,855

Asset Acquisition

On May 28, 2021, we completed the acquisition of all of the equity of Myriad myPath, LLC, a laboratory in Salt Lake City where the myPath Melanoma test for difficult-to-diagnose melanocytic lesions was developed and offered, for a cash purchase price of $ 32,500,000 .

Following the completion of the acquisition, we became the sole provider of the myPath Melanoma test.

Based on the guidance in ASC 805, Business Combinations , we concluded that substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset and therefore the transaction represents an asset acquisition rather than a business combination.

Asset acquisitions are accounted for by allocating the cost of the acquisition, including transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis without recognition of goodwill.

We incurred $ 684,000 of direct transaction costs that were included in the cost of the acquisition.

The allocation of the acquisition to individual assets resulted in an intangible asset representing developed technology of $ 33,054,000 and inventory of $ 130,000 .

The intangible asset has an estimated useful life of 12 years and is being amortized on a straight-line basis.

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Leasehold improvements $ 4,419 $ 1,388

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CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Depreciation expense was recorded in the statements of operations and comprehensive (loss) income as follows (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Depreciation expense was recorded in the unaudited condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

Three Months Ended

Cost of sales $ 102 $ 66

June 30, Six Months Ended

2021 2020 2021 2020

Cost of sales (exclusive of amortization of acquired intangible asset) $ 111 $ 74 $ 213 $ 140

Research and development 64 3 108 5

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Total $ 378 $ 102 $ 611 $ 193

Intangible Asset, Net

Our intangible asset, net consists of the following (in thousands) :

June 30, 2021 December 31, 2020

Gross carrying value Accumulated amortization Net Gross carrying value Accumulated amortization Net

Developed technology $ 33,054 $ ( 256 ) $ 32,798 $ — $ — $ —

The remaining useful life of the intangible asset was 11.9 years as of June 30, 2021.

The estimated future aggregate amortization expense as of June 30, 2021 is as follows (in thousands):

Years Ending December 31,

2021 (remainder of year) $ 1,388

Thereafter 20,390

Total $ 32,798

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands) :

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Accrued service fees $ 1,054 $ 1,891

Deferred employer payroll tax liability 276 276

Employee stock purchase plan contributions 692 536

Deferred employer payroll tax liability 277 276

Accrued royalties 214 151

Accrued state income taxes 10 62

Other 278 139

Total $ 2,525 $ 3,055

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements

The table below provides information, by level within the fair value hierarchy, of our financial assets and financial liabilities that are accounted for at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (in thousands):

As of March 31, 2021

The table below provides information, by level within the fair value hierarchy, of our financial assets and financial liabilities that are accounted for at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (in thousands):

As of June 30, 2021

Quoted Prices in Active Markets for Identical Items (Level 1) Significant Other Observable Inputs

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$ 409,480 $ — $ — $ 409,480

(1) Classified as “Cash and cash equivalents” in the condensed balance sheets.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

(1) Classified as “Cash and cash equivalents” in the condensed consolidated balance sheets.

Commitments and Contingencies

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We believe there is no threatened litigation or litigation pending that could have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows.

Common Stock Offerings

On June 29, 2020, we issued and sold 2,000,000 shares of our common stock in a follow-on public offering at a price of $ 37.00 per share.

We received $ 69,079,000 in net proceeds, after deducting underwriting discounts, commissions and offering costs (including $ 451,000 in offering costs that were incurred but not paid as of June 30, 2020).

In connection with the offering, we granted the underwriters a 30-day option to purchase up to 300,000 additional shares of common stock at the public offering price, less underwriting discounts and commissions.

On July 2, 2020, we issued and sold an additional 300,000 shares of common stock pursuant to the underwriters’ exercise in full of their option to purchase additional shares, which resulted in an additional net proceeds to us of $ 10,425,000 .

On December 18, 2020, we issued and sold 4,600,000 shares of our common stock in a follow-on public offering, including 600,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 58.00 per share.

We received $ 250,201,000 in aggregate net proceeds, after deducting underwriting discounts and commissions and offering costs.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Incentive Plans and Stock-Based Compensation

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Effective January 1, 2021, an additional 1,240,624 shares became available under our 2019 Equity Incentive Plan (the “2019 Plan”) pursuant to an automatic annual increase.

As of March 31, 2021, 1,615,096 shares remained available for grant under the 2019 Plan.

As of June 30, 2021, 1,526,713 shares remained available for grant under the 2019 Plan.

Stock Options

Stock option activity under our stock plans for the three months ended March 31, 2021 is set forth below:

Stock option activity under our stock plans for the six months ended June 30, 2021 is set forth below:

Weighted-Average

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Forfeited/Cancelled ( 106,831 ) $ 31.16

Balance as of March 31, 2021 3,178,342 $ 30.20 8.56 $ 122,017

Exercisable at March 31, 2021 (1)

Balance as of June 30, 2021 3,129,823 $ 31.76 8.38 $ 130,366

Exercisable at June 30, 2021 (1)

932,684 $ 15.66 7.48 $ 53,790

(1) In addition, 53,676 unvested options outstanding at March 31, 2021 may be exercised prior to vesting under an early exercise provision in the stock option award agreement.

(1) In addition, 39,203 unvested options outstanding at June 30, 2021 may be exercised prior to vesting under an early exercise provision in the stock option award agreement.

In the event of such exercise, the shares obtained upon exercise would be restricted and subject to forfeiture prior to vesting.

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Restricted Stock Units

The following table summarizes the Company’s RSU activity for the three months ended March 31, 2021:

The following table summarizes the Company’s RSU activity for the six months ended June 30, 2021:

Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

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Forfeited/Cancelled ( 4,728 ) 62.46

Balance as of March 31, 2021

Balance as of June 30, 2021

198,820 $ 61.16

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The ESPP provides for certain automatic increases in the number of shares of common stock reserved for issuance, which resulted in an additional 248,124 shares becoming available under the ESPP effective January 1, 2021.

During the three months ended March 31, 2021, we issued 70,711 of common stock pursuant to scheduled purchases under the ESPP.

As of March 31, 2021, 679,203 shares remained available for issuance under the ESPP.

During the six months ended June 30, 2021, we issued 70,711 of common stock pursuant to scheduled purchases under the ESPP.

As of June 30, 2021, 679,203 shares remained available for issuance under the ESPP.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Determining Fair Value - Summary of Assumptions

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The following table sets forth the assumptions used to determine the fair value of stock options:

Three Months Ended

Six Months Ended

Average expected term (years) 6 6

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The following table sets forth assumptions used to determine the fair value of the purchase rights issued under the ESPP:

Three Months Ended

Six Months Ended

Average expected term (years) 1.2 1.2

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Stock-Based Compensation Expense

Stock-based compensation expense related to stock options, RSUs and the ESPP is included in the statements of operations and comprehensive (loss) income as follows (in thousands):

Stock-based compensation expense related to stock options, RSUs and the ESPP is included in the statements of operations and comprehensive loss as follows (in thousands):

Three Months Ended

Cost of sales $ 510 $ 206

June 30, Six Months Ended

2021 2020 2021 2020

Cost of sales (exclusive of amortization of acquired intangible asset) $ 415 $ 200 $ 925 $ 406

Research and development 1,073 231 2,131 465

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Total stock-based compensation expense $ 4,766 $ 1,653 $ 9,679 $ 3,230

For the three months ended March 31, 2021 and 2020, the weighted-average grant date fair value of options granted was $ 44.83 and $ 17.32 per option, respectively, and the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 39.26 and $ 12.70 per share, respectively.

As of March 31, 2021, the total unrecognized compensation cost related to outstanding awards was $ 55,441,000 , which is expected to be recognized on a straight-line basis over a weighted-average period of 3.3 years.

For the six months ended June 30, 2021 and 2020, the weighted-average grant date fair value of options granted was $ 41.35 and $ 18.69 per option, respectively, and the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 39.26 and $ 12.70 per share, respectively.

As of June 30, 2021, the total unrecognized compensation cost related to outstanding awards was $ 55,235,000 , which is expected to be recognized on a straight-line basis over a weighted-average period of 3.1 years.

The total unrecognized compensation cost will be adjusted for forfeitures in future periods as they occur.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Subsequent Event

On April 26, 2021, we signed a definitive agreement to acquire all of the equity of Myriad myPath, LLC (“Myriad myPath Laboratory”) from Myriad Genetics for $ 32.5 million.

Myriad myPath Laboratory is a Clinical Laboratory Improvement Amendments of 1988, or CLIA-certified laboratory in Salt Lake City, Utah, where the myPath Melanoma 23-gene expression profile test was developed and is currently offered.

We will finance the acquisition with cash and cash equivalents on hand.

The transaction is expected to close in late May 2021, subject to customary conditions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements