What changed in this filing

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Item 1. Financial Statements

2024-11-04 compared with 2024-08-05 · 161 added, 113 removed, 584 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

ASSETS (unaudited)

27 unchanged sentences

Preferred stock, $ 0.001 par value per share;

10,000,000 shares authorized as of June 30, 2024 and December 31, 2023;

no shares issued and outstanding as of June 30, 2024 and December 31, 2023

10,000,000 shares authorized as of September 30, 2024 and December 31, 2023;

no shares issued and outstanding as of September 30, 2024 and December 31, 2023

Common stock, $ 0.001 par value per share;

200,000,000 shares authorized as of June 30, 2024 and December 31, 2023;

27,711,024 and 27,410,532 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

200,000,000 shares authorized as of September 30, 2024 and December 31, 2023;

27,975,808 and 27,410,532 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 650,270 609,477

Accumulated deficit ( 209,716 ) ( 218,371 )

Accumulated other comprehensive (loss) income ( 172 ) 136

Accumulated other comprehensive income 473 136

Total stockholders’ equity 441,055 391,269

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

10 unchanged sentences

Income (loss) before income taxes 8,282 ( 6,873 ) 13,679 ( 54,824 )

Income tax (benefit) expense ( 1,034 ) 16 ( 989 ) 30

Income tax expense 6,013 32 5,024 62

Net income (loss) $ 2,269 $ ( 6,905 ) $ 8,655 $ ( 54,886 )

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Net income (loss) $ 2,269 $ ( 6,905 ) $ 8,655 $ ( 54,886 )

Other comprehensive (loss) income:

Net unrealized (loss) gain on marketable investment securities ( 61 ) ( 8 ) ( 308 ) 237

Other comprehensive income:

Net unrealized gain on marketable investment securities 645 73 337 310

Comprehensive income (loss) $ 2,914 $ ( 6,832 ) $ 8,992 $ ( 54,576 )

3 unchanged sentences

(in thousands, except share data)

Preferred Stock Common Stock Additional

Common Stock Additional

Capital Accumulated

2 unchanged sentences

Stockholders’

Shares Amount Shares Amount

Shares Amount

BALANCE, JANUARY 1, 2023

15 unchanged sentences

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, except share data)

Preferred Stock Common Stock Additional

Common Stock Additional

Capital Accumulated

2 unchanged sentences

Stockholders’

Shares Amount Shares Amount

Shares Amount

BALANCE, JANUARY 1, 2024

15 unchanged sentences

27,711,024 $ 28 $ 636,022 $ ( 211,985 ) $ ( 172 ) $ 423,893

Stock-based compensation expense — — 13,027 — — 13,027

Exercise of common stock options 90,378 — 1,571 — — 1,571

Issuance of common stock from vested restricted stock units and payment of employees’ taxes 117,959 — ( 1,294 ) — — ( 1,294 )

Issuance of common stock under the employee stock purchase plan 56,447 — 944 — — 944

Net unrealized gain on marketable investment securities — — — — 645 645

Net income — — — 2,269 — 2,269

BALANCE, SEPTEMBER 30, 2024

27,975,808 $ 28 $ 650,270 $ ( 209,716 ) $ 473 $ 441,055

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

5 unchanged sentences

Accretion of discounts on marketable investment securities ( 5,072 ) ( 3,851 )

Other 208 284

Change in operating assets and liabilities:

15 unchanged sentences

Proceeds from maturities of marketable investment securities 123,250 138,000

Net cash (used in) provided by investing activities

Net cash used in investing activities

( 55,907 ) ( 8,511 )

13 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

17 unchanged sentences

All intercompany accounts and transactions have been eliminated in consolidation.

We have a history of recurring net losses and negative cash flows and as of June 30, 2024, we had an accumulated deficit of $ 212.0 million.

We believe our $ 85.6 million of cash and cash equivalents and $ 174.1 million of marketable investment securities as of June 30, 2024, 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, 2024, we had an accumulated deficit of $ 209.7 million.

We believe our $ 95.0 million of cash and cash equivalents and $ 184.8 million of marketable investment securities as of September 30, 2024, 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.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of June 30, 2024;

the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive income (loss) and the condensed consolidated statements of stockholders’ equity, each for the three and six months ended June 30, 2024 and 2023;

and the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023 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, 2024, the results of our consolidated operations for the three and six months ended June 30, 2024 and 2023 and our consolidated cash flows for the six months ended June 30, 2024 and 2023.

The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2024 and 2023 are also unaudited.

The results for the three and six months ended June 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period.

The accompanying condensed consolidated balance sheet as of September 30, 2024;

and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 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, 2024, the results of our consolidated operations for the three and nine months ended September 30, 2024 and 2023 and our consolidated cash flows for the nine months ended September 30, 2024 and 2023.

The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2024 and 2023 are also unaudited.

The results for the three and nine months ended September 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period.

The balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date.

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

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2024 (the “2023 Form 10-K”).

Use of Estimates

36 unchanged sentences

Historically, our credit losses have not been significant given our application of the constraint to variable consideration.

The allowance for credit losses was zero as of June 30, 2024 and December 31, 2023.

The allowance for credit losses was zero as of September 30, 2024 and December 31, 2023.

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.

25 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, 2024 and December 31, 2023, we accrued approximately $ 12,573,000 and $ 21,706,000 , respectively, for liabilities associated with these bonus plans.

As of September 30, 2024 and December 31, 2023, we accrued approximately $ 17.9 million and $ 21.7 million, 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.

27 unchanged sentences

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosure, which require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

The guidance is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

29 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, 2024 and 2023 were $ 363,000 of net positive revenue adjustments and $ 88,000 of net negative revenue adjustments, respectively, associated with changes in estimated variable consideration.

Included in revenues for the six months ended June 30, 2024 and 2023 were $ 959,000 of net positive and $ 1,705,000 of net negative revenue adjustments, respectively, associated with changes in estimated variable consideration.

Included in revenues for the three months ended September 30, 2024 and 2023 were $ 0.6 million of net negative revenue adjustments and $ 0.9 million of net positive revenue adjustments, respectively, associated with changes in estimated variable consideration.

Included in revenues for the nine months ended September 30, 2024 and 2023 were $ 1.3 million and $ 3.1 million of net negative revenue adjustments, respectively, associated with changes in estimated variable consideration.

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.

1 unchanged sentence

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, 2024 and December 31, 2023.

Contract balances consisted solely of accounts receivable (both current and noncurrent) as of September 30, 2024 and December 31, 2023.

Disaggregation of Revenues

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

12 unchanged sentences

Percentage of Revenues

Six Months Ended

June 30, Percentage of

Nine Months Ended

September 30, Percentage of

Accounts Receivable

3 unchanged sentences

(noncurrent) as of

2024 2023 June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023

2024 2023 September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023

Medicare 47 % 49 % 21 % 20 % * *

11 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table shows the computation of basic and diluted earnings (loss) per share for the following three and six months ended June 30, 2024 and 2023 (in thousands, except per share data):

The following table shows the computation of basic and diluted earnings (loss) per share for the following three and nine months ended September 30, 2024 and 2023 (in thousands, except per share data):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

9 unchanged sentences

Diluted $ 0.08 $ ( 0.26 ) $ 0.30 $ ( 2.05 )

Due to the Company reporting a net loss attributable to common stockholders for the three and six months ended June 30, 2023, all potentially dilutive securities are antidilutive and are excluded from the computations of diluted loss per share.

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in our calculation of diluted earnings (loss) per share for the three and six months ended June 30, 2024 and 2023 because to do so would be antidilutive.

Due to the Company reporting a net loss attributable to common stockholders for the three and nine months ended September 30, 2023, all potentially dilutive securities are antidilutive and are excluded from the computations of diluted loss per share.

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in our calculation of diluted earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 because to do so would be antidilutive.

With regard to the PSUs, we assume that the associated performance targets will be met at the target level of performance for purposes of calculating diluted net income per common share until such time that it is probable that actual performance will be above or below target (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

11 unchanged sentences

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

June 30, 2024

September 30, 2024

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, 2024 and 2023.

There were no realized gains or losses on sales of investments for the three and nine months ended September 30, 2024 and 2023.

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, 2024, unrealized losses on our available-for-sale investments are not attributed to credit risk.

As of September 30, 2024, 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, 2024 and 2023.

The allowance for credit losses was zero as of June 30, 2024 and December 31, 2023.

As of June 30, 2024, 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, 2024 and 2023.

The allowance for credit losses was zero as of September 30, 2024 and December 31, 2023.

As of September 30, 2024, 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, 2024 and December 31, 2023, the accrued interest receivable balance was immaterial.

As of September 30, 2024 and December 31, 2023, the accrued interest receivable balance was immaterial.

Additional information relating to the fair value of marketable investment securities can be found in Note 11.

1 unchanged sentence

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Lab equipment 22,201 16,472

19,364 16,472

Leasehold improvements 14,438 9,990

4 unchanged sentences

Less accumulated depreciation ( 11,475 ) ( 8,111 )

( 10,270 ) ( 8,111 )

Property and equipment, net $ 44,383 $ 25,433

2 unchanged sentences

(1) On February 9, 2024, we purchased approximately 23 acres of land in Friendswood, Texas for purpose of developing a commercial office building to be used as our future corporate headquarters.

(2) As of June 30, 2024 and December 31, 2023, includes lab equipment under finance lease of $ 369 thousand and accumulated depreciation of $ 323 thousand and $ 278 thousand, respectively.

(3) As of June 30, 2024, includes computer equipment under finance lease of $ 166 thousand and accumulated depreciation of $ 3 thousand.

As of December 31, 2023, includes no computer equipment under finance lease.

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,

2024 2023 2024 2023

4 unchanged sentences

Goodwill and Other Intangible Assets, Net

The balance of our goodwill was $ 10.7 million as of June 30, 2024 and December 31, 2023.

There were no accumulated impairments of goodwill as of June 30, 2024 or December 31, 2023.

The balance of our goodwill was $ 10.7 million as of September 30, 2024 and December 31, 2023.

There were no accumulated impairments of goodwill as of September 30, 2024 or December 31, 2023.

Other Intangible Assets, Net

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

June 30, 2024

September 30, 2024

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

7 unchanged sentences

Total other intangible assets, net $ 125,880 $ ( 19,237 ) $ 106,643

Amortization expense of intangible assets was $ 2.2 million and $ 4.5 million for the three and six months ended June 30, 2024, respectively, and $ 2.2 million and $ 4.5 million for the three and six months ended June 30, 2023, respectively .

Amortization expense of intangible assets was $ 2.3 million and $ 6.8 million for the three and nine months ended September 30, 2024, respectively, and $ 2.3 million and $ 6.7 million for the three and nine months ended September 30, 2023, respectively.

CASTLE BIOSCIENCES, INC.

2 unchanged sentences

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Clinical studies $ 3,023 $ 3,475

1 unchanged sentence

ESPP contributions 577 896

Accrued benefits 418 199

Other 640 650

2 unchanged sentences

We had no debt as of December 31, 2023.

Our long-term debt as of June 30, 2024 is presented in the table below (in thousands):

June 30, 2024

Our long-term debt as of September 30, 2024 is presented in the table below (in thousands):

September 30, 2024

Term debt $ 10,200

4 unchanged sentences

Borrowings under our 2024 LSA approximate their fair value as the interest rate is variable and reflects market rates (Level 2 instrument).

As of June 30, 2024, the carrying amount of borrowings under our 2024 LSA, exclusive of unamortized discount, and their estimated fair value were $ 10.2 million.

Future maturities of principal amounts on long-term debt as of June 30, 2024 are as follows (in thousands):

As of September 30, 2024, the carrying amount of borrowings under our 2024 LSA, exclusive of unamortized discount, and their estimated fair value were $ 10.2 million.

Future maturities of principal amounts on long-term debt as of September 30, 2024 are as follows (in thousands):

Years Ending December 31,

7 unchanged sentences

In addition, the 2024 LSA contains customary conditions of borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of our capital stock.

Should an event of default occur, including the occurrence of a material adverse change, we could be liable for immediate repayment of all obligations under the 2024 LSA.

Should an event of default occur, including the occurrence of a

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

we seek to amend the terms of the 2024 LSA, the consent of the Lender would be required.

As of June 30, 2024, we were in compliance with all of the covenants.

material adverse change, we could be liable for immediate repayment of all obligations under the 2024 LSA.

Should we seek to amend the terms of the 2024 LSA, the consent of the Lender would be required.

As of September 30, 2024, we were in compliance with all of the covenants.

The 2024 LSA bears interest at a floating rate equal to the greater of (a) the WSJ Prime Rate plus 0.25 % or (b) 6.00 % per annum.

4 unchanged sentences

On March 26, 2024, we drew $ 10.0 million in Term Loans under the terms and provisions of the 2024 LSA.

We are obligated to make a final payment of $ 200,000 under the terms of the 2024 LSA final payment provisions.

We are obligated to make a final payment of $ 0.2 million under the terms of the 2024 LSA final payment provisions.

A discount on debt equal to this obligation was recorded on the draw date and is being amortized as additional interest expense using the effective interest method over the term of the debt.

As of June 30, 2024, no payment on principal has been made.

As of June 30, 2024, the effective interest rate for all outstanding debt under the 2024 Term Loan was 9.03 %.

As of September 30, 2024, no payment on principal has been made.

As of September 30, 2024, the weighted average effective interest rate for all outstanding debt under the 2024 Term Loan was 8.60 %.

2024 Credit Line

1 unchanged sentence

Amounts repaid under the 2024 Credit Line may not be reborrowed.

As of June 30, 2024, no draws had been made on the line of credit.

As of September 30, 2024, no draws had been made on the line of credit.

Interest Expense on Long-Term Debt

The table below shows the components of interest expense for the three and six months ended June 30, 2024 (in thousands):

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

The table below shows the components of interest expense for the three and nine months ended September 30, 2024 (in thousands):

Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024

Interest expense on long term debt $ 229 $ 470

1 unchanged sentence

Total $ 192 $ 421

There was no interest expense on long term debt or capitalized interest for the three and six months ended June 30, 2023.

There was no interest expense on long term debt or capitalized interest for the three and nine months ended September 30, 2023.

Lease Amendment

On August 1, 2024 (“the Modification Date”) we amended our lease agreement for our Pittsburgh facilities to take early possession of additional square footage under an expansion provision in the original contract at an earlier date than provided for under the original agreement.

The expansion option provided us with 23,821 additional square feet, most of which will be dedicated laboratory space, in exchange for an incremental increase in our fixed monthly payments.

The amendment did not change the end date under the original lease term, or provide any additional options not already provided for under the original agreement.

We evaluated the amendment under ASC Topic 842, Leases, and determined that it constituted a modification to an existing contract and assessed the classification remained an operating lease.

Following the modification, our obligations for the remaining lease term increased and we used $ 1.3 million of lease incentives for leasehold improvements.

As of September 30, 2024, we had no remaining credits for leasehold improvements under this contract.

In our remeasurement, we recognized an additional $ 0.6 million in operating lease assets in exchange for an equal amount of additional lease liabilities.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Discount Rate

We remeasured our lease obligations using our incremental borrowing rate as of the Modification Date.

The incremental borrowing rate is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

As of the Modification Date, we had outstanding borrowings under the “2024 LSA” and referred to the interest rate of such debt for use as our incremental borrowing rate.

Fair Value Measurements

9 unchanged sentences

Accordingly, the fair value estimates disclosed, or amounts recorded, may not be indicative of the amount that we or holders of the instruments could realize in a current market exchange.

CASTLE BIOSCIENCES, INC.

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, 2024 and December 31, 2023 (in thousands):

As of June 30, 2024

The tables below provide 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, 2024 and December 31, 2023 (in thousands):

As of September 30, 2024

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

7 unchanged sentences

$ — $ — $ — $ —

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2023

15 unchanged sentences

The AltheaDx Earnout Payments included a 2022 catch-up provision for additional payment of up to $ 17.5 million that expired in 2023.

Therefore, as of June 30, 2024, we have a potential payment obligation of up to $ 20.0 million with respect to the remaining commercial milestones for 2024.

If the settlement of the remaining portion of the AltheaDx Earnout Payments would have occurred on June 30, 2024, no amounts would have been due because no commercial milestones had been achieved as of such date.

Therefore, as of September 30, 2024, we have a potential payment obligation of up to $ 20.0 million with respect to the remaining commercial milestones for 2024.

If the settlement of the remaining portion of the AltheaDx Earnout Payments would have occurred on September 30, 2024, no amounts would have been due because no commercial milestones had been achieved as of such date.

The contingent consideration was classified as a Level 3 fair value measurement due to the use of significant unobservable inputs and a Monte Carlo simulation to determine its fair value.

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.

The valuation of the AltheaDx contingent consideration was zero as of June 30, 2024 and December 31, 2023, and no gains or losses were recorded associated with changes in fair value during the three and six months ended June 30, 2024 and 2023.

The valuation of the AltheaDx contingent consideration was zero as of September 30, 2024 and December 31, 2023, and no gains or losses were recorded associated with changes in fair value during the three and nine months ended September 30, 2024 and 2023.

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

Any changes in the fair value are recorded as gains or losses in our unaudited condensed consolidated statement of operations.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitments and Contingencies

10 unchanged sentences

We are unable to predict the outcome and are unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Incentive Plans and Stock-Based Compensation

2 unchanged sentences

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, 2024, 353,485 shares remained available for grant under the 2019 Plan.

As of September 30, 2024, 556,925 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, 2024, there were 292,473 shares available for grant under the Inducement Plan.

As of September 30, 2024, there were 348,917 shares available for grant under the Inducement Plan.

Stock Options

Stock option activity under our stock plans for the six months ended June 30, 2024 is set forth below:

Stock option activity under our stock plans for the nine months ended September 30, 2024 is set forth below:

Weighted-Average

8 unchanged sentences

Forfeited/Cancelled ( 61,197 ) $ 39.96

Balance as of June 30, 2024 3,162,376 $ 35.55 6.0 $ 9,011

Exercisable at June 30, 2024

Balance as of September 30, 2024 3,039,938 $ 36.09 5.8 $ 13,365

Exercisable at September 30, 2024

2,789,681 $ 35.29 5.7 $ 13,310

3 unchanged sentences

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

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes our RSU activity for the six months ended June 30, 2024:

The following table summarizes our RSU activity for the nine months ended September 30, 2024:

Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

4 unchanged sentences

Forfeited/Cancelled ( 299,980 ) $ 21.78

Balance as of June 30, 2024

Balance as of September 30, 2024

3,730,724 $ 24.16

(1) The aggregate number of shares withheld upon vesting for employee tax obligations was 51,519 for the six months ended June 30, 2024.

(1) The aggregate number of shares withheld upon vesting for employee tax obligations was 71,944 for the nine months ended September 30, 2024.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, 2024:

On August 9, 2024 (the “Initial Vesting Date”), the Board certified that the revenue goal for the PSUs granted on December 23, 2022 (“2022 PSUs”) was achieved.

Therefore, 50 % of the 2022 PSUs were vested and we immediately recognized $ 0.1 million of stock-based compensation related to this performance metric.

The remaining 50 % of the 2022 PSUs are all subject to time-based vesting and will vest in full on the one-year anniversary of the Initial Vesting Date.

The following table summarizes our PSU activity for the nine months ended September 30, 2024:

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

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Granted 177,513 $ 21.23

( 98,018 ) $ 23.23

Forfeited/Cancelled — $ —

Balance as of June 30, 2024

Balance as of September 30, 2024

275,528 $ 21.94

(1) The aggregate number of shares withheld upon vesting for employee tax obligations was 30,046 for the nine months ended September 30, 2024.

Retirement Policy

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However, the adoption 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 $ 0.4 million during the three months ended June 30, 2024 and 2023, respectively, and accelerated the recognition of compensation expense of $ 0.6 million and $ 1.1 million for the six months ended June 30, 2024 and 2023, respectively.

In connection with the Retirement Policy, we accelerated the recognition of compensation expense of $ 0.4 million and $ 0.5 million during the three months ended September 30, 2024 and 2023, respectively, and accelerated the recognition of compensation expense of $ 0.8 million and $ 1.6 million for the nine months ended September 30, 2024 and 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 274,105 shares becoming available under the ESPP effective January 1, 2024.

During the six months ended June 30, 2024, we issued 111,241 shares of common stock pursuant to scheduled purchases under the ESPP.

As of June 30, 2024, 1,103,127 shares remained available for issuance under the ESPP.

During the nine months ended September 30, 2024, we issued 167,688 shares of common stock pursuant to scheduled purchases under the ESPP.

As of September 30, 2024, 1,046,680 shares remained available for issuance under the ESPP.

CASTLE BIOSCIENCES, INC.

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

Six Months Ended

Average expected term (years) N/A 5.0

Expected stock price volatility N/A 75.75 % - 76.01 %

Risk-free interest rate N/A 3.57 % - 3.57 %

Dividend yield N/A — %

Nine Months Ended

September 30,

Average expected term (years) 5.0 5.0

Expected stock price volatility 80.20 % - 80.20 %

75.57 % - 76.01 %

Risk-free interest rate 4.39 % - 4.39 %

3.57 % - 3.57 %

Dividend yield — % — %

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 1.3

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Total stock-based compensation expense $ 13,027 $ 13,043 $ 38,881 $ 39,417

For the six months ended June 30, 2023, the weighted-average grant date fair value of stock options granted was $ 15.99 per option.

There were no stock options granted for the same period in 2024.

For the six months ended June 30, 2024 and 2023, the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 11.17 and $ 11.00 per share, respectively.

As of June 30, 2024, the total unrecognized stock-based compensation cost related to outstanding awards was $ 94,633,000 , which is expected to be recognized over a weighted-average period of 2.4 years.

For the nine months ended September 30, 2024 and 2023 the weighted-average grant date fair value of stock options granted was $ 9.23 and $ 15.99 per option, respectively.

For the nine months ended September 30, 2024 and 2023, the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 12.28 and $ 11.51 per share, respectively.

As of September 30, 2024, the total unrecognized stock-based compensation cost related to outstanding awards was $ 77.6 million, which is expected to be recognized over a weighted-average period of 2.2 years.

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

Our effective income tax rate was ( 13.1 )% and ( 18.3 )% for the three and six months ended June 30, 2024, respectively.

Our effective income tax rate was immaterial for the three and six months ended June 30, 2023, respectively.

The effective rate for the three and six months ended June 30, 2024 and 2023 differed from our federal statutory rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three and nine months ended September 30, 2024, our effective income tax rate was 72.6 % and 36.7 %, respectively.

For the three months ended September 30, 2024, differences in our effective rate and the federal statutory rate of 21% was due to revisions in estimated pre-tax income, reflecting uncertainty in continued Medicare coverage for our DecisionDx-SCC test and updated information, as well as stock-based compensation, permanent differences, changes in valuation allowance, research and development tax credit and state income taxes.

For the nine months ended September 30, 2024, differences in our effective rate and the federal statutory rate of 21% was due to stock-based compensation, permanent differences, changes in valuation allowance, research and development tax credit and state income taxes.

For the three and nine months ended September 30, 2023, our effective income tax rate was immaterial .

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