What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-08-02 · 115 added, 86 removed, 565 unchanged (26% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

ASSETS (unaudited)

26 unchanged sentences

Preferred stock, $ 0.001 par value per share;

10,000,000 shares authorized as of June 30, 2023 and December 31, 2022;

no shares issued and outstanding as of June 30, 2023 and December 31, 2022

10,000,000 shares authorized as of September 30, 2023 and December 31, 2022;

no shares issued and outstanding as of September 30, 2023 and December 31, 2022

Common stock, $ 0.001 par value per share;

200,000,000 shares authorized as of June 30, 2023 and December 31, 2022;

26,784,008 and 26,553,681 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

200,000,000 shares authorized as of September 30, 2023 and December 31, 2022;

26,890,488 and 26,553,681 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 601,618 560,409

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

21 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net loss $ ( 6,905 ) $ ( 20,249 ) $ ( 54,886 ) $ ( 46,520 )

Other comprehensive (loss) income:

Net unrealized (loss) gain on marketable investment securities

Other comprehensive income (loss):

Net unrealized gain (loss) on marketable investment securities

73 ( 189 ) 310 ( 189 )

26 unchanged sentences

— $ — 26,292,299 $ 26 $ 541,672 $ ( 120,038 ) $ — $ 421,660

Stock-based compensation expense — — — — 9,196 — — 9,196

Exercise of common stock options — — 17,093 — 166 — — 166

Issuance of common stock from vested restricted stock units and payment of employees’ taxes — — 4,818 — ( 46 ) — — ( 46 )

Issuance of common stock under the employee stock purchase plan — — 36,320 — 895 — — 895

Net unrealized loss on marketable investment securities — — — — — — ( 189 ) ( 189 )

Net loss — — — — — ( 20,249 ) — ( 20,249 )

BALANCE, SEPTEMBER 30, 2022

— $ — 26,350,530 $ 26 $ 551,883 $ ( 140,287 ) $ ( 189 ) $ 411,433

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

15 unchanged sentences

Net unrealized gain on marketable investment securities — — — — — — 245 245

— — — — — — 245 245

Net loss — — — — — ( 29,204 ) — ( 29,204 )

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Net unrealized loss on marketable investment securities — — — — — — ( 8 ) ( 8 )

— — — — — ( 8 ) ( 8 )

Net loss — — — — — ( 18,777 ) — ( 18,777 )

1 unchanged sentence

— $ — 26,784,008 $ 27 $ 587,771 $ ( 208,886 ) $ ( 144 ) $ 378,768

Stock-based compensation expense — — — — 13,043 — — 13,043

Exercise of common stock options — — 3,656 — 13 — — 13

Issuance of common stock from vested restricted stock units and payment of employees’ taxes — — 40,142 — ( 271 ) — — ( 271 )

Issuance of common stock under the employee stock purchase plan — — 62,682 — 1,062 — — 1,062

Net unrealized gain on marketable investment securities

— — — — — — 73 73

Net loss — — — — — ( 6,905 ) — ( 6,905 )

BALANCE, SEPTEMBER 30, 2023

— $ — 26,890,488 $ 27 $ 601,618 $ ( 215,791 ) $ ( 71 ) $ 385,783

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

6 unchanged sentences

Accretion of discounts on marketable investment securities ( 3,851 ) ( 184 )

Other 284 186

Change in operating assets and liabilities:

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Proceeds from maturities of marketable investment securities 138,000 —

Net cash provided by (used in) investing activities

Net cash used in investing activities

( 8,511 ) ( 162,063 )

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(in thousands)

Six Months Ended

Nine Months Ended

September 30,

DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

2 unchanged sentences

Contingent consideration in acquisition of business $ — $ 1,528

Consideration payable in acquisition of business $ — $ 313

Operating lease assets obtained in exchange for lease obligations $ 499 $ 5,912

8 unchanged sentences

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

We have a history of recurring net losses and negative cash flows and as of June 30, 2023, we had an accumulated deficit of $ 208.9 million.

We believe our $ 95.9 million of cash and cash equivalents and $ 129.6 million of marketable investment securities as of June 30, 2023, and anticipated revenue from our test reports, will be sufficient to meet our cash requirements through at least the 12-month period following the date that these unaudited condensed consolidated financial statements were issued.

We have a history of recurring net losses and negative cash flows and as of September 30, 2023, we had an accumulated deficit of $ 215.8 million.

We believe our $ 91.2 million of cash and cash equivalents and $ 138.5 million of marketable investment securities as of September 30, 2023, and anticipated revenue from our test reports, will be sufficient to meet our cash requirements through at least the 12-month period following the date that these unaudited condensed consolidated financial statements were issued.

Summary of Significant Accounting Policies

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Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of June 30, 2023;

the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss and the condensed consolidated statements of stockholders’ equity, each for the three and six months ended June 30, 2023 and 2022;

and the condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 are unaudited.

The unaudited interim condensed 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, 2023, the results of our consolidated operations for the three and six months ended June 30, 2023 and 2022 and our consolidated cash flows for the six months ended June 30, 2023 and 2022.

The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2023 and 2022 are also unaudited.

The results for the three and six months ended June 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period.

The accompanying condensed consolidated balance sheet as of September 30, 2023;

and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 are unaudited.

The unaudited interim condensed 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, 2023, the results of our consolidated operations for the three and nine months ended September 30, 2023 and 2022 and our consolidated cash flows for the nine months ended September 30, 2023 and 2022.

The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2023 and 2022 are also unaudited.

The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period.

The balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date.

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Historically, our credit losses have not been significant.

The allowance for credit losses was zero as of June 30, 2023 and December 31, 2022.

The allowance for credit losses was zero as of September 30, 2023 and December 31, 2022.

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

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In July 2023, the MAC suspended the LCD and then posted a new draft LCD for comment that is substantially the same as the LCD that was to become effective.

Factors that could result in a future impairment of goodwill include declines in the price of our common stock, increased competition, changes in macroeconomic developments, unfavorable government or regulatory developments and changes in coverage or reimbursement conditions.

During the third quarter of 2023, we continued to monitor our market capitalization against the carrying value of our reporting unit and did not observe any significant changes since our impairment test at June 30, 2023.

We are currently performing our annual impairment test, as of October 1, 2023, and we have not identified any additional indicators of impairment to date.

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, 2023 and December 31, 2022, we accrued approximately $ 10,350,000 and $ 18,209,000 , respectively, for liabilities associated with these bonus plans.

As of September 30, 2023 and December 31, 2022, we accrued approximately $ 15,535,000 and $ 18,209,000 , respectively, for liabilities associated with these bonus plans.

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

41 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, 2023 and 2022 were $ 88,000 of net negative revenue adjustments and $ 578,000 of net positive revenue adjustments, respectively, 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, 2023 and 2022 were $ 1,705,000 and $ 300,000 of net negative revenue adjustments, respectively.

Included in revenues for the three months ended September 30, 2023 and 2022 were $ 883,000 of net positive revenue adjustments and $ 277,000 of net negative revenue adjustments, respectively, 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, 2023 and 2022 were $ 3,085,000 and $ 1,850,000 of net negative revenue adjustments, 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.

3 unchanged sentences

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

Contract balances consisted solely of accounts receivable (both current and noncurrent) as of June 30, 2023 and December 31, 2022.

Contract balances consisted solely of accounts receivable (both current and noncurrent) as of September 30, 2023 and December 31, 2022.

Disaggregation of Revenues

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Percentage of Revenues

Six Months Ended

June 30, Percentage of

Nine Months Ended

September 30, Percentage of

Accounts Receivable

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(noncurrent) as of

2023 2022 June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

2023 2022 September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

Medicare 49 % 52 % 23 % 28 % * *

12 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in our calculation of diluted loss per share for the three and six months ended June 30, 2023 and 2022 because to do so would be antidilutive or, in the case of PSUs, the applicable performance conditions have not yet been met (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 per share for the three and nine months ended September 30, 2023 and 2022 because to do so would be antidilutive or, in the case of PSUs, the applicable performance conditions have not yet been met (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

9 unchanged sentences

The following tables present our available-for-sale debt securities (in thousands):

June 30, 2023

September 30, 2023

Amortized Cost Unrealized Estimated Fair Value

8 unchanged sentences

The cost of securities sold is determined based on the specific identification method for purposes of recording gains and losses.

There were no realized gains or losses on sales of investments for the three and six months ended June 30, 2023 and 2022.

There were no realized gains or losses on sales of investments for the three and nine months ended September 30, 2023 and 2022.

We evaluated our investment portfolio under the available-for-sale debt securities impairment model guidance and determined our investment portfolio is comprised of low-risk, investment grade securities.

As of June 30, 2023, unrealized losses on our available-for-sale investments are not attributed to credit risk.

As of September 30, 2023, unrealized losses on our available-for-sale investments are not attributed to credit risk.

We believe that an allowance for credit losses is unnecessary because the unrealized losses on certain of our marketable investment securities are due to market factors.

No credit-related or noncredit-related impairment losses were recorded for the three and six months ended June 30, 2023 and 2022.

The allowance for credit losses was zero as of June 30, 2023 and December 31, 2022.

As of June 30, 2023, all of our available-for-sale debt securities had contractual maturities of one year or less.

No credit-related or noncredit-related impairment losses were recorded for the three and nine months ended September 30, 2023 and 2022.

The allowance for credit losses was zero as of September 30, 2023 and December 31, 2022.

As of September 30, 2023, all of our available-for-sale debt securities had contractual maturities of one year or less.

Accrued interest receivable is included in prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022 the accrued interest receivable balance was immaterial.

As of September 30, 2023 and December 31, 2022 the accrued interest receivable balance was immaterial .

CASTLE BIOSCIENCES, INC.

6 unchanged sentences

The financial results of AltheaDx have been included in our unaudited condensed consolidated financial statements since the date of the acquisition.

For further details refer to our consolidated financial statements included in our 2022 From 10-K .

The amount of revenue attributable to AltheaDx included in the unaudited consolidated statements of operations from the acquisition date was not material for the three and six months ended June 30, 2022.

The loss attributable to AltheaDx included in the unaudited consolidated statements of operations from the acquisition date was approximately $ 3,383,000 for the three and six months ended June 30, 2022.

For further details refer to our consolidated financial statements included in our 2022 Form 10-K .

The amount of revenue attributable to AltheaDx included in the unaudited consolidated statements of operations from the acquisition date was not material for the three and nine months ended September 30, 2022.

The loss attributable to AltheaDx included in the unaudited consolidated statements of operations from the acquisition date was approximately $ 8,199,000 for the nine months ended September 30, 2022.

This amount does not reflect transaction costs from the acquisition or the effects of the valuation allowance reduction discussed in Note 13.

Transaction costs associated with the acquisition were $ 1,711,000 for both the three and six months ended June 30, 2022 and were recognized as expenses in the unaudited condensed consolidated statements of operations.

Transaction costs associated with the acquisition were $ 1,711,000 for the nine months ended September 30, 2022 and were recognized as expenses in the unaudited condensed consolidated statements of operations.

During the three months ended September 30, 2022, we recognized an immaterial measurement period adjustment to cash consideration transferred, with a corresponding adjustment to goodwill.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information for the three and six months ended June 30, 2022 combines our historical financial results and the results of AltheaDx, assuming that the companies were combined as of January 1, 2021, and includes adjustments for amortization expense from the acquired intangible assets and additional stock-based compensation expense.

Non-recurring pro forma adjustments consist of acquisition-related transaction costs of $ 1,711,000 and an income tax benefit of $ 1,769,000 , both assumed to have been recognized during the year ended December 31, 2021 and therefore removed from the three and six months ended June 30, 2022.

The following unaudited pro forma financial information for the three and nine months ended September 30, 2022 combines our historical financial results and the results of AltheaDx, assuming that the companies were combined as of January 1, 2021, and includes adjustments for amortization expense from the acquired intangible assets and additional stock-based compensation expense.

The following unaudited pro forma financial information (in thousands) is for informational purposes only and is not necessarily indicative of (i) the results of operations that would have been achieved if the acquisition had taken place as of January 1, 2021 or (ii) the results of operations that are expected in future periods:

1 unchanged sentence

Three Months Ended

June 30, 2022 Six Months Ended

June 30, 2022

September 30, 2022 Nine Months Ended

September 30, 2022

Net revenues $ 37,011 $ 99,253

9 unchanged sentences

These individuals may receive additional contingent consideration based on the achievement of certain commercial milestones relating to the 2022, 2023 and 2024 commercial milestones (“AltheaDx Earnout Payments”) if the relevant commercial and regulatory milestone events occur.

As of June 30, 2023 and December 31, 2022, our contingent consideration liability for the AltheaDx Earnout Payments was zero.

As of September 30, 2023 and December 31, 2022, our contingent consideration liability for the AltheaDx Earnout Payments was zero .

See Note 10 for additional information.

4 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Lab equipment (1)

8 unchanged sentences

Property and equipment, net $ 22,273 $ 14,315

(1) As of June 30, 2023 and December 31, 2022, includes lab equipment under finance lease of $ 369 thousand and $ 369 thousand, respectively, and accumulated depreciation of $ 207 thousand and $ 137 thousand, respectively.

(1) As of September 30, 2023 and December 31, 2022, includes lab equipment under finance lease of $ 369 thousand and $ 369 thousand, respectively, and accumulated depreciation of $ 243 thousand and $ 137 thousand, respectively.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Goodwill and Other Intangible Assets, Net

The balance of our goodwill was $ 10.7 million as of June 30, 2023 and December 31, 2022.

There were no accumulated impairments of goodwill as of June 30, 2023 or December 31, 2022.

The balance of our goodwill was $ 10.7 million as of September 30, 2023 and December 31, 2022.

There were no accumulated impairments of goodwill as of September 30, 2023 or December 31, 2022.

Other Intangible Assets, Net

Our other intangible assets, net consist of the following (in thousands):

June 30, 2023

September 30, 2023

Gross carrying value Accumulated amortization Net Weighted-Average Remaining Life (in years)

9 unchanged sentences

Total other intangible assets, net $ 125,880 $ ( 10,224 ) $ 115,656

Amortization expense of intangible assets was $ 2.2 million and $ 4.5 million for the three and six months ended June 30, 2023, respectively, and $ 2.1 million and $ 3.7 million for the three and six months ended June 30, 2022, respectively.

Amortization expense of intangible assets was $ 2.3 million and $ 6.7 million for the three and nine months ended September 30, 2023, respectively, and $ 2.3 million and $ 6.1 million for the three and nine months ended September 30, 2022, respectively.

Other Accrued and Current Liabilities

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Clinical studies $ 3,020 $ 1,822

16 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below provides information, by level within the fair value hierarchy, of our financial assets and liabilities that are accounted for at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 (in thousands):

As of June 30, 2023

The table below provides information, by level within the fair value hierarchy, of our financial assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands):

As of September 30, 2023

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

25 unchanged sentences

There were no Cernostics Earnout Payments that became payable because the commercial milestones were not achieved during the earnout period and the final valuation of the contingent consideration was assessed to be zero as of December 31, 2022.

The fair value of the contingent consideration associated with our acquisition of Cernostics decreased by $ 20.8 million and $ 18.2 million for the three and six months ended June 30, 2022, respectively, with no similar activity for the same periods in 2023 .

The fair value of the contingent consideration associated with our acquisition of Cernostics did no t change for the three months ended September 30, 2022 and decreased by $ 18.3 million for the nine months ended September 30, 2022 with no similar activity for the same periods in 2023 .

In connection with our acquisition of AltheaDx, we agreed to pay contingent consideration of up to $ 75.0 million relating to the AltheaDx Earnout Payments.

1 unchanged sentence

This portion represented $ 35.0 million of the $ 75.0 million total potential payment obligation, exclusive of the catch-up payment in 2023 of $ 17.5 million, which will become payable if all 2023 commercial milestones are fully met.

Therefore, as of June 30, 2023, we have a potential payment obligation of up to $ 57.5 million with respect to the remaining commercial milestones for 2023 and 2024.

If the settlement of the remaining portion of the AltheaDx Earnout Payments would have occurred on June 30, 2023, no amounts would have been due because no commercial milestones had been achieved as of such date.

Therefore, as of September 30, 2023, we have a potential payment obligation of up to $ 57.5 million with respect to the remaining commercial milestones for 2023 and 2024.

If the settlement of the remaining portion of the AltheaDx Earnout Payments would have occurred on September 30, 2023, no amounts would have been due because no commercial milestones had been achieved as of such date.

CASTLE BIOSCIENCES, INC.

2 unchanged sentences

The Monte Carlo simulation uses projections of the commercial milestones for the applicable period as well as the corresponding targets and approximate timing of payment based on the terms of the arrangement.

We recognized a loss of $ 0.4 million during the three and six months ended June 30, 2022 associated with the change in fair value of the preliminary AltheaDx contingent consideration.

The valuation of the AltheaDx contingent consideration was zero as of June 30, 2023 and December 31, 2022, and no gains or losses were recorded associated with changes in fair value during the three and six months ended June 30, 2023.

We recognized a gain of $ 0.2 million and a loss of $ 0.3 million during the three and nine months ended September 30, 2022, respectively, associated with the change in fair value of the preliminary AltheaDx contingent consideration.

The valuation of the AltheaDx contingent consideration was zero as of September 30, 2023 and December 31, 2022, and no gains or losses were recorded associated with changes in fair value during the three and nine months ended September 30, 2023.

The contingent consideration liability is remeasured at fair value at each reporting period taking into account any updated assumptions or changes in circumstances.

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The 2019 Plan provides for automatic annual increases to the number of shares authorized for issuance, equal to 5 % of our common shares outstanding as of the immediately preceding year end, through January 1, 2029.

As of June 30, 2023, we have granted awards with an aggregate of 9,930 shares of underlying common stock in excess of the number of shares authorized for issuance under the 2019 Plan.

As of September 30, 2023, 124,383 shares remained available for grant under the 2019 Plan.

On December 22, 2022, our board of directors approved the 2022 Inducement Plan (the “Inducement Plan”).

Our Inducement Plan provides for the grant of RSU awards and other stock awards made as an inducement material to the grantee’s entering into employment with us to the extent such grantee was not previously an employee of ours or is entering into employment following a bona fide period of non-employment with us.

As of June 30, 2023, there were 161,264 shares available for grant under the Inducement Plan.

As of September 30, 2023, there were 164,306 shares available for grant under the Inducement Plan.

Stock Options

Stock option activity under our stock plans for the six months ended June 30, 2023 is set forth below:

Stock option activity under our stock plans for the nine months ended September 30, 2023 is set forth below:

Weighted-Average

8 unchanged sentences

Forfeited/Cancelled ( 93,819 ) $ 45.24

Balance as of June 30, 2023 3,310,239 $ 35.34 7.0 $ 5,450

Exercisable at June 30, 2023

Balance as of September 30, 2023 3,276,434 $ 35.29 6.8 $ 7,087

Exercisable at September 30, 2023

2,537,555 $ 32.21 6.5 $ 7,087

5 unchanged sentences

We issue new shares of common stock upon the vesting of RSUs.

The following table summarizes our RSU activity for the six months ended June 30, 2023:

The following table summarizes our RSU activity for the nine months ended September 30, 2023:

Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

4 unchanged sentences

Forfeited/Cancelled ( 253,548 ) $ 26.45

Balance as of June 30, 2023

Balance as of September 30, 2023

3,339,500 $ 26.67

(1) The aggregate number of shares withheld upon vesting for employee tax obligations was 37,556 for the six months ended June 30, 2023.

(1) The aggregate number of shares withheld upon vesting for employee tax obligations was 53,646 for the nine months ended September 30, 2023.

Performance-Based Restricted Stock Units

1 unchanged sentence

We issue new shares of common stock upon the vesting of PSUs.

The following table summarizes our PSU activity for the six months ended June 30, 2023:

The following table summarizes our PSU activity for the nine months ended September 30, 2023:

Performance-Based Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

3 unchanged sentences

Forfeited/Cancelled — $ —

Balance as of June 30, 2023

Balance as of September 30, 2023

196,033 $ 23.23

4 unchanged sentences

However, the adoption of the of the policy resulted in a new estimate of the requisite service period for certain awards, which we reassess at each balance sheet date.

In connection with the Retirement Policy, we accelerated the recognition of compensation expense of $ 0.4 million and $ 1.1 million during the three and six months ended June 30, 2023, respectively.

In connection with the Retirement Policy, we accelerated the recognition of compensation expense of $ 0.5 million and $ 1.6 million during the three and nine months ended September 30, 2023, respectively.

Employee Stock Purchase Plan

The ESPP provides for certain automatic increases in the number of shares of common stock reserved for issuance, which resulted in an additional 265,536 shares becoming available under the ESPP effective January 1, 2023.

During the six months ended June 30, 2023, we issued 77,190 of common stock pursuant to scheduled purchases under the ESPP.

As of June 30, 2023, 1,002,945 shares remained available for issuance under the ESPP.

During the nine months ended September 30, 2023, we issued 139,872 shares of common stock pursuant to scheduled purchases under the ESPP.

As of September 30, 2023, 940,263 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) 5.0 5.9

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) 1.3 1.2

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

Total stock-based compensation expense $ 13,043 $ 9,196 $ 39,417 $ 26,398

For the six months ended June 30, 2023 and 2022, the weighted-average grant date fair value of stock options was $ 15.99 and $ 14.07 per option, respectively, and the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 11.00 and $ 19.91 per share, respectively.

As of June 30, 2023, the total unrecognized stock-based compensation cost related to outstanding awards was $ 108,870,000 , which is expected to be recognized over a weighted-average period of 2.6 years.

For the nine months ended September 30, 2023 and 2022, the weighted-average grant date fair value of stock options was $ 15.99 and $ 14.34 per option, respectively, and the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 11.51 and $ 16.79 per share, respectively.

As of September 30, 2023, the total unrecognized stock-based compensation cost related to outstanding awards was $ 96,424,000 , which is expected to be recognized over a weighted-average period of 2.4 years.

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

In connection with our acquisition of AltheaDx in 2022, we recorded deferred tax liabilities based on our allocation of the fair values of assets acquired and liabilities assumed.

As a result of these additional deferred tax liabilities , we recorded a $ 1,769,000 reduction to our existing valuation allowance on deferred tax assets, which was reflected in our income tax benefit on the condensed consolidated statements of operations for the three and six months ended June 30, 2022 as a discrete item.

As a result of these additional deferred tax liabilities , we recorded a $ 1,769,000 reduction to our existing valuation allowance on deferred tax assets, which was reflected in our income tax benefit on the condensed consolidated statements of operations for the nine months ended September 30, 2022 as a discrete item.

CASTLE BIOSCIENCES, INC.

2 unchanged sentences

On July 10, 2023, following approval by our board of directors, we entered into a definitive agreement to purchase a plot of land located in Friendswood, Texas for a purchase price of $ 7.6 million, subject to certain adjustments.

We have the option to terminate the contract within 90 days, for any reason, and will use this time to complete initial suitability diligence.

Under the agreement, we had the option to terminate the contract within 90 days, for any reason.

On October 4, 2023, we amended the definitive agreement to extend the option period by an additional 30 days.

The option period is being used to complete initial suitability diligence.

Closing, if it should occur, is expected in late 2023.

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