CASTLE BIOSCIENCES INC 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates fluctuations. We had cash and cash equivalents of $309.0 million as of March 31, 2022, which include bank deposits and money market funds. Due to the nature of these instruments, we believe that we have no material exposure to interest rate risk. Our liabilities for acquisition-related contingent consideration, which is adjusted to fair value each reporting period, is also impacted by changes in interest rates. The risk-free interest rate used to estimate our weighted average cost of capital is a component of the discount rate used to calculate the present value of future cash flows due under our Earnout Payments. As a result, any changes in the underlying risk-free interest rate could result in material changes to the fair value of such liabilities and could materially impact the amount of non-cash expense (or income) recorded each reporting period. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements. Inflation Risk Recently, the rate of inflation in the U.S. has risen to levels not experienced in decades. We have begun to see some inflationary pressures, primarily in personnel and related costs. The extent of any future impacts from inflation on our business and our results of operations will be dependent upon how long the elevated inflation levels persist and if the rate of inflation were to further increase, neither of which we are able to predict. If elevated levels of inflation were to persist or if the rate of inflation were to accelerate, the purchasing power of our cash and cash equivalents may be eroded, our expenses could increase faster than anticipated and we may utilize our capital resources sooner than expected. Further, given the complexities of the reimbursement landscape in which we operate, our payors may be unwilling or unable to increase reimbursement rates to compensate for inflationary impacts.