What changed in this filing

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Item 1. Financial Statements

2021-11-08 compared with 2021-08-09 · 131 added, 80 removed, 401 unchanged (34% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

ASSETS (unaudited)

23 unchanged sentences

Preferred stock, $ 0.001 par value;

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.

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

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

Common stock, $ 0.001 par value;

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.

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

25,286,546 and 24,812,487 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.

Additional paid-in capital 499,046 478,162

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

NET REVENUES $ 23,475 $ 15,217 $ 69,046 $ 45,350

OPERATING EXPENSES AND OTHER OPERATING INCOME

OPERATING EXPENSES AND OTHER OPERATING LOSS

Cost of sales (exclusive of amortization of acquired intangible asset) 4,500 2,475 11,225 7,012

2 unchanged sentences

Amortization of acquired intangible asset 694 — 950 —

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

Other operating loss — 1,882 — —

Total operating expenses 35,289 19,118 93,954 48,860

Operating loss ( 11,814 ) ( 3,901 ) ( 24,908 ) ( 3,510 )

Interest income 23 18 51 354

30 unchanged sentences

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

Stock compensation expense — — — — 2,118 — 2,118

Exercise of common stock options — — 129,090 1 291 — 292

Issuance of common stock under the employee stock purchase plan — — 41,467 — 693 — 693

Public offering of common stock, net of underwriting discounts, commissions and offering costs — — 300,000 — 10,423 — 10,423

Net loss — — — — — ( 4,589 ) ( 4,589 )

BALANCE, SEPTEMBER 30, 2020 — $ — 19,844,426 $ 20 $ 224,146 $ ( 57,607 ) $ 166,559

CASTLE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Preferred Stock Common Stock Additional

Capital Accumulated

Deficit Total

Stockholders’

Shares Amount Shares Amount

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

10 unchanged sentences

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

Stock compensation expense — — — — 5,210 — 5,210

Exercise of common stock options — — 82,756 — 1,523 — 1,523

Issuance of common stock under the employee stock purchase plan

— — 39,737 — 855 — 855

Net loss — — — — — ( 11,791 ) ( 11,791 )

BALANCE, SEPTEMBER 30, 2021 — $ — 25,286,546 $ 25 $ 499,046 $ ( 87,358 ) $ 411,713

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

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

OPERATING ACTIVITIES

4 unchanged sentences

Amortization of debt discounts and issuance costs — 666

Other ( 99 ) 3

Change in operating assets and liabilities:

27 unchanged sentences

Property and equipment acquired with tenant improvement allowance $ 54 $ 714

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

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

5 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 essentially all of our laboratory operations are conducted at our facilities located in Phoenix, Arizona.

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

Impact of COVID-19 Pandemic

9 unchanged sentences

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.

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

Unaudited Interim Financial Information

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 accompanying condensed consolidated balance sheet as of September 30, 2021;

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

and the condensed consolidated statements of cash flows for the nine months ended September 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 September 30, 2021 and the results of our consolidated operations and our consolidated cash flows for the three and nine months ended September 30, 2021 and 2020.

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

The results for the three and nine months ended September 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.

4 unchanged sentences

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 long-lived assets, the valuation of

Significant items subject to such estimates include revenue recognition, the valuation of stock-based compensation, assessing future tax

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

acquired intangible assets and contingent liabilities.

exposure and the realization of deferred tax assets, the useful lives and recoverability of long-lived assets, the valuation of 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.

25 unchanged sentences

Historically, our bad debt expense has not been significant.

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

The allowance for doubtful accounts was zero as of September 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.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Operating Loss

On April 10, 2020, we received an automatic payment of $ 1.9 million 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.

This automatic payment was calculated by HHS in proportion to the providers’ share of Medicare fee-for-service reimbursements in 2019 and was applicable to all facilities and providers that received Medicare fee-for-service reimbursements in 2019.

In the second quarter of 2020, based on guidance issued by HHS at the time that stated any reasonable method could be used to calculate lost revenues attributable to COVID-19, we concluded it would qualify to retain the relief funds and recognized the funds received as other operating income during the three months ended June 30, 2020.

On September 19, 2020, HHS issued a notice of reporting requirements that changed the methodology for determining lost revenues to be based on a patient care operating income metric, as defined by HHS.

Due to this change in methodology and uncertainty in its application, we determined that it was no longer reasonably assured of keeping the funds.

Therefore, in the three months ended September 30, 2020, we reversed the previously recognized income.

However, in the fourth quarter of 2020, a legislative change was enacted affecting the program, under which we concluded it is reasonably assured we will qualify to retain the funds.

Accordingly, we recognized the income again in the fourth quarter of 2020.

Intangible Asset

1 unchanged sentence

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

As of September 30, 2021 and December 31, 2020, we accrued $ 8,999,000 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.

13 unchanged sentences

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.

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

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

11 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,

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Early adoption is permitted.

4 unchanged sentences

We also provide a test for uveal melanoma, DecisionDx®-UM.

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 launched a test for patients with cutaneous 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.

10 unchanged sentences

A successful appeal at any of these levels results in payment.

In the absence of LCD coverage or contractually established reimbursements rates, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

less than our standard rates or not paid at all, with such differences considered implicit price concessions.

Variable consideration attributable to these price concessions is measured at the expected value using the ‘‘most likely amount’’ method under ASC 606.

5 unchanged sentences

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 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.

Included in revenues for the three months ended September 30, 2021 and 2020 were $( 92,000 ) and $ 1,450,000 , 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 nine months ended September 30, 2021 and 2020 were $ 4,130,000 and $ 223,000 , 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 June 30, 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 September 30, 2021 and December 31, 2020.

Medicare Advance Payment

4 unchanged sentences

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

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.

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

Through September 30, 2021, $ 5,351,000 has been applied against the balance of the Advance Payment.

DecisionDx-Melanoma Claims Consolidation

8 unchanged sentences

We rely upon reimbursements from third-party government payors (primarily Medicare) and private-payor insurance companies to collect accounts receivable related to sales of our diagnostic tests.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our significant third-party payors and their related revenues as a percentage of total revenues and accounts receivable balances are as follows:

Percentage of Revenues

Six Months Ended

June 30, Percentage of

Nine Months Ended

September 30, Percentage of

Accounts Receivable

2 unchanged sentences

(non-current)

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

2021 2020 September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

Medicare 57 % 54 % 26 % 15 % — % — %

1 unchanged sentence

BlueCross BlueShield plans 7 % 8 % 22 % 26 % 49 % 44 %

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Loss Per Share

4 unchanged sentences

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):

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 nine months ended September 30, 2021 and 2020 because to do so would be antidilutive (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

11 unchanged sentences

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

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and Equipment, Net

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Leasehold improvements $ 4,419 $ 1,388

6 unchanged sentences

Property and equipment, net $ 8,866 $ 7,102

CASTLE BIOSCIENCES, INC.

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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

5 unchanged sentences

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

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

Developed technology $ 33,054 $ ( 950 ) $ 32,104 $ — $ — $ —

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):

The remaining useful life of the intangible asset was 11.7 years as of September 30, 2021.

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

Years Ending December 31,

2 unchanged sentences

Total $ 32,104

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Accrued Liabilities

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Accrued service fees $ 1,678 $ 1,543

Payroll tax liabilities 617 276

Clinical studies 431 348

Employee stock purchase plan contributions 211 536

Deferred employer payroll tax liability 277 276

Accrued royalties 116 151

Accrued state income taxes 10 62

Other 278 139

Total $ 3,108 $ 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 June 30, 2021 and December 31, 2020 (in thousands):

As of June 30, 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 September 30, 2021 and December 31, 2020 (in thousands):

As of September 30, 2021

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

15 unchanged sentences

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).

We received $ 69,079,000 in net proceeds, after deducting underwriting discounts, commissions and offering costs.

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.

On December 18, 2020, we issued and sold

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Stock Incentive Plans and Stock-Based Compensation

1 unchanged sentence

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

As of September 30, 2021, 1,441,394 shares remained available for grant under the 2019 Plan.

Stock Options

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

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

Weighted-Average

5 unchanged sentences

Forfeited/Cancelled ( 137,873 ) $ 30.97

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

Exercisable at June 30, 2021 (1)

Balance as of September 30, 2021 3,110,731 $ 33.11 8.20 $ 104,585

Exercisable at September 30, 2021 (1)

1,068,457 $ 17.58 7.38 $ 52,271

(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.

(1) In addition, 24,729 unvested options outstanding at September 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.

1 unchanged sentence

Restricted Stock Units

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

The following table summarizes our RSU activity for the nine months ended September 30, 2021:

Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

3 unchanged sentences

Forfeited/Cancelled ( 6,267 ) 63.56

Balance as of June 30, 2021

Balance as of September 30, 2021

223,418 $ 61.66

1 unchanged sentence

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 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.

During the nine months ended September 30, 2021, we issued 110,448 of common stock pursuant to scheduled purchases under the ESPP.

As of September 30, 2021, 639,466 shares remained available for issuance under the ESPP.

CASTLE BIOSCIENCES, INC.

3 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Average expected term (years) 6 6

5 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Average expected term (years) 1.2 1.2

7 unchanged sentences

The fair value of our common stock is the closing selling price per share of as reported on the Nasdaq Global Market on the date of grant or other relevant determination date.

Previously, because of the limited period of time our stock had been traded in an active market, we calculated expected volatility by using the historical stock prices of a group of similar companies looking back over the estimated life of the option or the ESPP purchase right and averaging the volatilities of these companies.

In the third quarter of 2021, we adjusted this calculation to include our own stock price on a relative basis to the peer group in the calculation of expected volatility, as our common stock has now been traded in an active market for more than two years.

We use the closing price of our common stock on the date of grant to determine the fair value of RSUs.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

3 unchanged sentences

Total stock-based compensation expense $ 5,210 $ 2,118 $ 14,889 $ 5,348

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.

For the nine months ended September 30, 2021 and 2020, the weighted-average grant date fair value of options granted was $ 40.76 and $ 22.07 per option, respectively, and the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 28.23 and $ 17.43 per share, respectively.

As of September 30, 2021, the total unrecognized compensation cost related to outstanding awards was $ 56,308,000 , which is expected to be recognized on a straight-line basis over a weighted-

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

average period of 2.9 years.

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

Subsequent Event

On October 18, 2021, we signed a definitive agreement to acquire Cernostics, Inc (“Cernostics”).

Under the terms of the definitive agreement, Cernostics will become our wholly owned subsidiary.

At closing, we will pay upfront consideration of approximately $ 30 million, which may consist entirely of cash or a combination of $ 20 million in cash and $ 10 million in shares of our common stock, at our sole discretion.

A portion of the upfront cash consideration will be held in escrow for a specified period following the closing to secure post-closing adjustments and indemnification claims, if any.

If we choose to pay the $ 10 million in our common stock, the number of shares issued at the closing will be based on a price per share equal to $ 65.03 .

The upfront cash portion of the consideration is subject to a customary post-closing purchase price adjustment mechanism for, among other things, cash, unpaid indebtedness, unpaid transaction expenses and working capital.

Under the definitive agreement, we have also agreed to pay up to an additional $ 50 million in cash or our common stock, at our sole discretion, based on the achievement of certain commercial milestones relating to the year ending December 31, 2022.

The closing is subject to delivery of certain financial statements to us by Cernostics, the continued of employment of certain Cernostics personnel and satisfaction of other customary conditions.

Among other termination provisions, we and Cernostics each have the right to terminate the definitive agreement, subject to certain conditions and limitations, if the closing has not occurred prior to November 30, 2021, which may be extended for up to 60 days if necessary for Cernostics to provide certain financial statements and/or if more than 5 % of the aggregate number of shares of Cernostics capital stock have not waived their appraisal rights.

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