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Item 2. Management’s Discussion and Analysis

2025-11-03 compared with 2025-08-04 · 176 added, 149 removed, 362 unchanged (47% of the section changed)

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You should read the following discussion and analysis of financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q with our audited financial statements and notes thereto as of and for the years ended December 31, 2024, and 2023 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, including the section entitled “Critical Accounting Estimates,” included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2025.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Castle,” “we,” “us” and “our” refer to Castle Biosciences, Inc.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Castle Biosciences, Inc.

Forward-Looking Statements

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The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, except as may be required by law.

Castle Biosciences is a molecular diagnostics company offering innovative test solutions to aid clinicians in the diagnosis and treatment of dermatologic cancers, Barrett’s esophagus (“BE”), uveal melanoma (“UM”), and in the treatment of mental health conditions.

Castle Biosciences, Inc.

is a molecular diagnostics company offering innovative test solutions to aid clinicians in the diagnosis and treatment of dermatologic cancers, Barrett’s esophagus (“BE”), uveal melanoma (“UM”), and in the treatment of mental health conditions.

Our Test Portfolio

We currently offer five commercially available proprietary multi-analyte assays with algorithmic analysis (“MAAA”) tests for use in the fields of dermatology, gastroenterology and ophthalmology.

We also offer a proprietary pharmacogenomic (“PGx”) test to guide optimal drug treatment for patients diagnosed with depression, anxiety and other mental health conditions.

Our revenue is primarily generated by our DecisionDx-Melanoma risk stratification test for cutaneous melanoma (“CM”) and our DecisionDx-SCC risk stratification test for cutaneous squamous cell carcinoma (“SCC”), which is supplemented by revenue generated from our TissueCypher risk stratification test for BE and our DecisionDx-UM risk stratification test for UM.

As of April 24, 2025, Novitas reached a decision not to cover SCC, resulting in the discontinuance of Medicare reimbursement for DecisionDx-SCC.

We plan to launch a sixth MAAA test in November 2025.

We also previously offered a proprietary pharmacogenomic (“PGx”) test to guide optimal drug treatment for patients diagnosed with depression, anxiety and other mental health conditions.

Our revenue is primarily generated by our DecisionDx-Melanoma risk stratification test for cutaneous melanoma (“CM”) and our TissueCypher risk stratification test for BE which is supplemented by revenue generated from our DecisionDx-SCC risk stratification test for cutaneous squamous cell carcinoma (“SCC”), and our DecisionDx-UM risk stratification test for UM.

All five of our MAAA tests have been granted Advanced Diagnostic Laboratory Test (“ADLT”) status by the Centers for Medicare and Medicaid (“CMS”) which means each test has demonstrated that (i) when combined with an empirically derived algorithm, it yields a result that predicts the probability a specific individual patient will develop a certain condition or conditions, or will respond to a particular therapy or therapies;

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DecisionDx-SCC is our proprietary GEP test for use in patients with SCC, with one or more risk factors (also referred to as “high-risk” SCC) that both predicts the risk of metastasis as well as response to adjuvant radiation therapy.

We estimate 20% of SCC, or 200,000 annually in the United States, are classified as high risk, representing an estimated U.S.

We estimate 20% of SCC patients, or approximately 200,000 annually in the United States, are classified as high risk, representing an estimated U.S.

TAM of approximately $820 million.

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We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory in May 2021.

AdvanceAD-Tx is a non-invasive GEP test designed to guide systemic treatment selection for patients aged 12 years and older with moderate-to-severe atopic dermatitis (“AD”).

The test evaluates the expression of 487 genes across 12 known immune, inflammatory and skin-related pathways associated with inflammatory skin conditions to identify the underlying biology driving an individual patient’s disease.

Results classify patients into one of two molecular profiles:

Janus Kinase (“JAK”) Inhibitor Responder Profile or T helper 2 (“Th2”) Molecular Profile.

Using multiple data sources focused on one-year prevalence, we estimate there are approximately 13.2 million individuals ages 12 and older in the United States with moderate-to-severe AD, representing an estimated U.S.

TAM of approximately $33 billion.

We plan a limited access launch of AdvanceAD-Tx in November 2025.

Our Gastroenterology Test

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DecisionDx-Melanoma

DecisionDx-Melanoma tests are processed from our Phoenix laboratory and since the second quarter of 2022, have been covered under “foundational” local coverage determinations (“LCD” of “LCDs”) finalized by Medicare Administrative Contractors (“MACs”) Palmetto and Noridian.

DecisionDx-Melanoma tests are processed from our Phoenix laboratory and since the second quarter of 2022, have been covered under “foundational” local coverage determinations (“LCD” or “LCDs”) finalized by Medicare Administrative Contractors (“MACs”) Palmetto and Noridian.

DecisionDx-Melanoma has met ADLT status, as determined by the CMS, since 2019.

ADLT status determines the process by which the rate is set and is not an indication of Medicare coverage.

Since 2022, the rate for DecisionDx-Melanoma is set annually based upon the median private payor rate for the first half of the second preceding

calendar year.

Since 2022, the rate for DecisionDx-Melanoma is set annually based upon the median private payor rate for the first half of the second preceding calendar year.

For example, the rate for 2024 was set using median private payor rate data from January 1, 2022 to June 30, 2022.

Our rate for 2024 was $7,193 per test and is $7,193 for 2025.

Our rate for 2024 was $7,193 per test and remains at $7,193 for 2025.

DecisionDx‑SCC

We issue our DecisionDx-SCC tests from our Pittsburgh and Phoenix labs, with a majority of tests being issued from our Pittsburgh lab.

Palmetto’s MolDX program oversees MAAA tests that are reported from our Phoenix laboratory and Noridian is the MAC responsible for administering claims for test reports issued by our Phoenix laboratory.

We issue our DecisionDx-SCC tests from our Pittsburgh and Phoenix laboratories.

Palmetto’s MolDX (“MolDX”) program oversees MAAA tests that are reported from our Phoenix laboratory and Noridian is the MAC responsible for administering Medicare claims for test reports issued by our Phoenix laboratory.

Novitas is the MAC responsible for administering Medicare claims for test reports issued by our Pittsburgh laboratory.

DecisionDx-SCC has met “new ADLT” status since 2022.

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that LCD became effective on April 24, 2025.

Most of our TissueCypher tests are processed in our Pittsburgh laboratory under the Medicare jurisdiction managed by Novitas.

In July 2025, we submitted reconsideration requests for both the Novitas and MolDX LCDs.

Novitas subsequently confirmed that our request for DecisionDx-SCC was valid.

MolDX also subsequently confirmed that our request for DecisionDx-SCC was valid and that the test has been placed on its waiting list, with an Open Meeting date to be determined.

These confirmations represent another procedural step in the reconsideration process, but it does not indicate coverage or a favorable review outcome.

Most of our TissueCypher tests are processed in our Pittsburgh and Phoenix laboratories.

Novitas is the MAC responsible for administering Medicare claims for test reports issued by our Pittsburgh laboratory.

Palmetto’s MolDX program oversees MAAA tests that are reported from our Phoenix laboratory and Noridian is the MAC responsible for administering Medicare claims for test reports issued by our Phoenix laboratory.

On March 24, 2022, CMS determined that TissueCypher meets the criteria for “new ADLT” status.

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In November 2023, CMS posted its final CLFS determination which crosswalks our PLA CPT code to an existing PLA code at a rate of $1,336 per test effective January 1, 2024.

Our reimbursement rate for 2024 was $1,336 per test and remains at $1,336 per test in the first quarter of 2025.

Our reimbursement rate for 2024 was $1,336 per test and remained at $1,336 per test in the first quarter of 2025.

Our IDgenetix test was discontinued in May 2025.

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On May 6, 2024, the U.S.

Food and Drug Administration (“FDA”) published a final rule on the regulation of Laboratory Developed Tests (“LDTs”) which amends the FDA's regulations to make explicit that LDT's are devices under the Federal Food, Drug and Cosmetic Act (“FD&C Act”).

The FDA issued a policy to phaseout, over the course of four years, its general enforcement discretion approach to LDTs and also issued targeted enforcement discretion policies for certain categories of LDTs.

The FDA is continuing enforcement discretion for currently marketed tests offered as LDTs (that were first marketed before May 6, 2024) that are approved by New York State Department of Health (“NYSDOH”).

Our proprietary tests, outlined above, are all NYSDOH approved.

We believe this final ruling will have no material impact on our existing test offerings given all of our tests were marketed before May 6, 2024.

In addition, on March 31, 2025, the United States District Court for the Eastern District of Texas vacated the FDA’s LDT final rule.

government did not appeal the ruling, and the deadline to do so has passed;

therefore, the court’s decision stands.

Food and Drug Administration (“FDA”) published a final rule on the regulation of Laboratory Developed Tests (“LDTs”) which amended the FDA's regulations to make explicit that LDT’s are devices under the Federal Food, Drug and Cosmetic Act (“FD&C Act”).

However, on March 31, 2025, the United States District Court for the Eastern District of Texas vacated the FDA’s LDT final rule.

government did not appeal the decision, and the FDA rescinded the rule on September 19, 2025.

Accordingly, the FDA’s phased enforcement approach and related requirements are no longer in effect.

Our proprietary tests, which were first marketed prior to May 6, 2024, remain approved by and under the oversight of the New York State Department of Health (“NYSDOH”), and we continue to believe that changes in FDA’s regulatory approach to LDTs will have no material impact on our existing test offerings.

In July 2025, the FDA granted Breakthrough Device designation to our DecisionDx-Melanoma test.

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Q2 2025 9,981 4,762 1,166 15,909 468 9,170 1,027 26,574

For the six months ended June 30, 2025 18,602 9,137 2,092 29,831 938 16,602 3,605 50,976

Q3 2025 10,459 4,186 1,151 15,796 436 10,609 — 26,841

For the nine months ended September 30, 2025 29,061 13,323 3,243 45,627 1,374 27,211 3,605 77,817

Q1 2024 8,384 3,577 998 12,959 422 3,429 4,078 20,888

For the six months ended June 30, 2024 17,969 7,854 2,097 27,920 878 8,211 8,981 45,990

Q2 2024 9,585 4,277 1,099 14,961 456 4,782 4,903 25,102

Q3 2024 9,367 4,195 933 14,495 397 6,073 5,045 26,010

For the nine months ended September 30, 2024 27,336 12,049 3,030 42,415 1,275 14,284 14,026 72,000

Q4 2024 8,672 4,299 879 13,850 424 6,672 3,125 24,071

For year ended December 31, 2024 36,008 16,348 3,909 56,265 1,699 20,956 17,151 96,071

(1) The IDgenetix test was discontinued effective May 2025.

For the three and six months ended June 30, 2025, our test report volume increased by 5.9% and 10.8%, respectively, compared to the same period in 2024.

Our dermatologic test report volume increased by 6.3% and 6.8% for the three and six months ended June 30, 2025, respectively, compared to the prior period in 2024, largely driven by continued growth from DecisionDx-Melanoma and DecisionDx-SCC tests.

TissueCypher increased by 91.8% and 102.2%, respectively, for the three and six months ended June 30, 2025, compared to the prior period in 2024, further contributing to the overall volume increase.

For the three and nine months ended September 30, 2025, our test report volume increased by 3.2% and 8.1%, respectively, compared to the same period in 2024.

Our dermatologic test report volume increased by 9.0% and 7.6% for the three and nine months ended September 30, 2025, respectively, compared to the prior period in 2024, largely driven by continued growth from DecisionDx-Melanoma and DecisionDx-SCC tests.

TissueCypher increased by 74.7% and 90.5%, respectively, for the three and nine months ended September 30, 2025, compared to the prior period in 2024, further contributing to the overall volume increase.

For a discussion of how we recognize revenue derived from our tests, refer to “Components of Results of Operations—Net Revenues” below.

For our DecisionDx-SCC product line, we continue to see opportunities for leverage, where many of the clinicians ordering our DecisionDx-Melanoma are the same clinicians who order our DecisionDx-SCC test.

During the six months ended June 30, 2025, approximately 67% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period.

During the nine months ended September 30, 2025, approximately 74% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period.

Information About Certain Metrics

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Impact of Macroeconomic Conditions

Macroeconomic conditions, including uncertainties associated with the ongoing conflicts in the Middle East, the ongoing conflict between Ukraine and Russia, economic slowdowns, public health crises, labor shortages, recessions or market corrections, supply chain disruptions, inflation and monetary policy shifts, international tariffs, liquidity concerns at, and failures of, banks and other financial institutions or other disruptions in the banking system or financing markets, higher interest rates and financial and credit market fluctuations, volatility in the capital markets and other evolving macroeconomic developments, continue to have direct and indirect impacts on our business and could in the future materially impact our results of operations and financial condition.

Macroeconomic conditions, including uncertainties associated with the ongoing conflicts in the Middle East, the ongoing conflict between Ukraine and Russia, economic slowdowns, the ongoing shutdown of the federal government including regulatory agencies, public health crises, labor shortages, recessions or market corrections, supply chain disruptions, inflation and monetary policy shifts, international tariffs, liquidity concerns at, and failures of, banks and other financial institutions or other disruptions in the banking system or financing markets, higher interest rates and financial and credit market fluctuations, volatility in the capital markets and other evolving macroeconomic developments, continue to have direct and indirect impacts on our business and could in the future materially impact our results of operations and financial condition.

We continue to actively monitor the impact of these macroeconomic factors on our results of operations, financial condition and cash flows.

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Our Financial Results

Our net income (loss) may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.

Our net (loss) income may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.

We expect our expenses will increase substantially over time as we:

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• seek to discover and develop additional product candidates;

• hire additional scientific and research and development staff;

• hire additional scientific and research and development (“R&D”) staff;

• add additional operational, financial and management information systems and personnel;

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• New product development.

A significant aspect of our business is our investment in research and development activities, including activities related to the development of new products.

A significant aspect of our business is our investment in R&D activities, including activities related to the development of new products.

In addition to the development of new product candidates, we believe these studies are critical to gaining clinician adoption of new products and driving favorable coverage decisions by payors for such products.

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For tests with limited reimbursement experience or no coverage, we recognize revenues on the basis of actual cash collections.

products, develop and commercialize additional tests, including through acquisitions, obtain reimbursement from additional third-party payors and increase our reimbursement rate for tests performed.

Our ability to increase our revenues will depend on our ability to further penetrate our target markets, and, in particular, generate sales through our direct sales force, maintain Medicare coverage for our currently marketed products, develop and commercialize additional tests, including through acquisitions, obtain reimbursement from additional third-party payors and increase our reimbursement rate for tests performed.

Cost of Sales (exclusive of amortization of acquired intangible assets)

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Gross margin and gross margin percentage are key indicators we use to assess our business.

See the table in “—Results of Operations—Comparison of the Three Months Ended June 30, 2025 and 2024” and “Results of Operations—Comparison of the Six Months Ended June 30, 2025 and 2024” for details.

See the table in “Results of Operations—Comparison of the Three Months Ended September 30, 2025 and 2024” and “Results of Operations—Comparison of the Nine Months Ended September 30, 2025 and 2024” for details.

Research and Development

Research and development expenses include costs incurred to develop our tests, collect clinical samples and conduct clinical studies to develop and support our products.

R&D expenses include costs incurred to develop our tests, collect clinical samples and conduct clinical studies to develop and support our products.

These costs consist of personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), prototype materials, laboratory supplies, consulting costs, regulatory costs, electronic medical records set up costs, costs associated with setting up and conducting clinical studies and allocated overhead, including rent, information technology, equipment depreciation and utilities.

We expense all research and development costs in the periods in which they are incurred.

We expect our research and development expenses to increase in absolute dollars as we continue to invest in research and development activities related to developing enhanced and new products.

We expense all R&D costs in the periods in which they are incurred.

We expect our R&D expenses to increase in absolute dollars as we continue to invest in R&D activities related to developing enhanced and new products.

We expect to use a portion of our cash and cash equivalents and marketable investment securities to further support and accelerate our ongoing and future clinical studies and pipeline initiatives.

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government obligations are a component of our marketable investment securities.

Change in Fair Value of Trading Securities

Change in fair value of trading securities is primarily attributable to unrealized gains and losses on our equity securities which we present as marketable investment securities.

Change in Fair Value of Equity Securities

Change in fair value of equity securities is primarily attributable to unrealized gains and losses on our equity securities which we present as marketable investment securities.

Interest Expense

Interest expense is primarily attributable to long-term debt and finance leases.

Income Tax Benefit

Income Tax Expense (Benefit)

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law.

The legislation includes a number of significant changes to U.S.

federal tax law that affect both current and deferred income taxes.

Key provisions of the OBBBA include, among other items, changes to certain business deductions, modifications to bonus depreciation rules, and revisions to the treatment of R&D expenditures.

As a result of enactment, changes in current taxes are reflected through the revised average effective tax rate, and deferred taxes, including valuation allowance effects, have been recorded as a discrete item in the period.

The OBBBA did not have a material impact on our condensed consolidated statement of operations for the three and nine months ended September 30, 2025.

Income tax benefit is primarily due to the reduction of the valuation allowance previously recorded against our federal deferred tax assets.

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Income tax expense consists primarily of income taxes related to federal and state jurisdictions in which we conduct business.

We maintain a full valuation allowance for deferred tax assets including operating loss carryforwards and research and development credits and other tax credits.

We maintain a full valuation allowance for deferred tax assets including operating loss carryforwards and R&D credits and other tax credits.

As of December 31, 2024, we had federal NOL carryforwards of $129.4 million, of which $52.9 million will begin to expire in 2031 if not utilized to offset federal taxable income, and $76.5 million may be carried forward indefinitely.

Also, as of December 31, 2024, we also had state NOL carryforwards of $86.5 million, which begin to expire in 2028 if not utilized to offset state taxable income.

As of December 31, 2024, we also had state NOL carryforwards of $86.5 million, which begin to expire in 2028 if not utilized to offset state taxable income.

Results of Operations

Comparison of the Three Months Ended June 30, 2025 and 2024

Comparison of the Three Months Ended September 30, 2025 and 2024

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

Three Months Ended

June 30, Change

September 30, Change

NET REVENUES $ 83,043 $ 85,782 $ (2,739) (3.2) %

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Interest income 2,833 3,404 (571) (16.8) %

Changes in fair value of trading securities 1,185 — 1,185 NA

Changes in fair value of equity securities 3,561 — 3,561 NA

Interest expense (24) (201) 177 88.1 %

Other expense 48 — 48 NA

(Loss) income before income taxes (386) 8,282 (8,668) (104.7) %

Income tax benefit (4,666) (1,034) (3,632) (351.3) %

Net income $ 4,523 $ 8,920 $ (4,397) (49.3) %

Income tax expense 115 6,013 (5,898) (98.1) %

Net (loss) income $ (501) $ 2,269 $ (2,770) (122.1) %

NA = Not applicable

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Three Months Ended

September 30,

2025 2024 Change

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Three Months Ended

September 30,

2025 2024 Change

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Three Months Ended

September 30,

2025 2024 Change

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Gross margin percentage 74.7 % 79.2 % (4.5) %

Net revenues for the three months ended June 30, 2025 decreased by $0.8 million, or 0.9%, to $86.2 million compared to the three months ended June 30, 2024, due to a $12.5 million decrease in revenue from our dermatologic tests offset by a $11.7 million increase in revenue from our non-dermatologic tests.

The $12.5 million decrease in net revenues for our dermatologic tests was primarily attributable to our DecisionDx-SCC test, which was due to lower realized average selling price (“ASP”) and, to a lesser extent offset by higher test report volumes.

Net revenues for the three months ended September 30, 2025 decreased by $2.7 million, or 3.2%, to $83.0 million compared to the three months ended September 30, 2024, due to a $16.5 million decrease in revenue from our dermatologic tests offset by a $13.8 million increase in revenue from our non-dermatologic tests.

The $16.5 million decrease in net revenues for our dermatologic tests was primarily attributable to our DecisionDx-SCC test, which was due to lower realized average selling price (“ASP”).

The reduction in ASP was primarily driven by the loss of Medicare LCD coverage in April 2025.

For the three months ended June 30, 2025 compared to the three months ended June 30, 2024, test report volumes for our DecisionDx-SCC test increased by 11%.

For the three months ended September 30, 2025 compared to the three months ended September 30, 2024, test report volumes for our DecisionDx-SCC test remained consistent.

The $13.8 million increase in net revenues from our non-dermatologic tests was largely attributable to an increase in test report volumes for our TissueCypher Barrett’s Esophagus test.

Increases in our TissueCypher Barrett’s Esophagus test report volumes reflect growth through our sales force efforts.

Net revenue from our non-dermatologic tests as a percentage of total net revenue increased from 20.9% for the three months ended June 30, 2024 to 34.7% for the three months ended June 30, 2025.

Net revenue from our non-dermatologic tests as a percentage of total net revenue increased from 24.2% for the three months ended September 30, 2024 to 41.6% for the three months ended September 30, 2025.

Cost of Sales (exclusive of amortization of acquired intangible assets)

Cost of sales (exclusive of amortization of acquired intangible assets) for the three months ended June 30, 2025 increased by $3.1 million, or 21.4%, compared to the three months ended June 30, 2024, primarily due to higher personnel costs, higher lab services cost, and higher expenses for lab supplies.

Cost of sales (exclusive of amortization of acquired intangible assets) for the three months ended September 30, 2025 increased by $3.1 million, or 19.8%, compared to the three months ended September 30, 2024, primarily due to higher personnel costs, higher expenses for lab supplies, and higher lab services expense.

Increases in personnel costs reflect a higher headcount, due to additions made to support business growth in response to growing test report volumes, as well as merit and annual inflationary wage adjustment for existing employees.

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We expect our cost of sales expenses (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support expected operational growth and higher test volumes.

Our gross margin percentage was 77.3% for the three months ended June 30, 2025, compared to 80.7% for the same period in 2024.

The decrease was primarily due to lower ASP relating to our DecisionDx-SCC test and higher personnel costs and higher lab services expense.

Our gross margin percentage was 74.7% for the three months ended September 30, 2025, compared to 79.2% for the same period in 2024.

The decrease was primarily due to lower ASP relating to our DecisionDx-SCC test and higher personnel costs, higher expenses for lab supplies, and higher lab services expense.

Research and Development

Research and development expenses decreased by $1.3 million, or 9.5%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, and primarily reflects lower expense for clinical trials and slightly lower personnel costs.

We expect to continue incurring research and development expenses through our continued investments in our ongoing pipeline initiatives and as we seek opportunities to build evidentiary support and new tests where commercial opportunities exist.

R&D expenses increased by $0.6 million, or 5.2%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, and primarily due to higher personnel costs driven by increased headcount to support continued business growth.

We expect to continue incurring R&D expenses through our continued investments in our ongoing pipeline initiatives and as we seek opportunities to build evidentiary support and new tests where commercial opportunities exist.

Selling, General and Administrative

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Three Months Ended

September 30,

2025 2024 Change

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Total selling, general and administrative expense $ 55,907 $ 50,499 $ 5,408

Sales and marketing expenses increased by $2.4 million, or 7.5%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to higher organizational and business development activities cost and higher sales related travel expense.

Stock-based compensation expense included in sales and marketing was $3.9 million for the three months ended June 30, 2025, compared to $4.8 million for the three months ended June 30, 2024.

General and administrative expenses increased by $4.5 million, or 24.6%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, and was primarily due to higher personnel costs and higher information technology related costs.

Sales and marketing expenses increased by $2.9 million, or 9.9%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, primarily due to higher personnel costs, higher expenses associated with travel, and higher marketing expense.

Stock-based compensation expense included in sales and marketing was $3.9 million for the three months ended September 30, 2025, compared to $4.0 million for the three months ended September 30, 2024.

General and administrative expenses increased by $2.5 million, or 11.9%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, and was primarily due to higher personnel costs and higher information technology related costs.

Higher personnel cost reflects headcount expansions in our administrative support functions as well as merit and annual inflationary wage adjustment for existing employees.

Stock-based compensation expense included in general and administrative expense was $3.5 million for the three months ended June 30, 2025, compared to $4.4 million for the three months ended June 30, 2024.

Amortization of Acquired Intangible Assets

Amortization expense decreased by approximately $0.3 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to our decision to discontinue the IDgenetix test, which resulted in full amortization of its remaining carrying value as of March 31, 2025.

Changes in Fair Value of Trading Securities

The change in fair value of trading securities increased by $1.2 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, and was entirely associated with our investments in equity securities where we had no such investments during the comparative period.

Income Tax Benefit

Our income tax benefit increased by approximately $3.6 million for the three months ended June 30, 2025 , primarily due to the reduction of the valuation allowance previously recorded against our federal deferred tax assets.

This release resulted in a credit to income tax expense and was based on new deferred tax liabilities recognized upon consolidating Capsulomics.

Stock-based compensation expense included in general and administrative expense was $4.8 million for the three months ended September 30, 2025, compared to $5.2 million for the three months ended September 30, 2024.

Changes in Fair Value of Equity Securities

The change in fair value of equity securities increased by $3.6 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, and was entirely associated with our investments in equity securities where we had no such investments during the comparative period.

Income Tax Expense

Our income tax expense decreased by approximately $5.9 million for the three months ended September 30, 2025 , primarily du e to revised estimates of pre-tax income, reflecting uncertainty regarding continued Medicare coverage for our DecisionDx-SCC test and updated financial information, as well as stock-based compensation, permanent differences, changes in valuation allowance, research and development tax credit and state income taxes in the prior period.

The prior-year period reflected a net income position compared to a net loss position in the current period.

No comparable event occurred in the current period.

Stock-Based Compensation Expense

Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense totaled $11.2 million and $13.2 million for the three months ended June 30, 2025 and 2024, respectively.

We expect stock-based compensation expense will continue to be material in future periods,

attributable to both existing awards outstanding and anticipated additional grants to our current and future employees.

As of June 30, 2025, we had 798 employees, compared to 703 as of June 30, 2024.

As of June 30, 2025, the total unrecognized stock-based compensation cost related to outstanding awards was $80.5 million, which is expected to be recognized over a weighted-average period of 2.5 years.

Comparison of the Six Months Ended June 30, 2025 and 2024

Stock-based compensation expense, which is allocated among cost of sales, R&D expense and SG&A expense totaled $12.1 million and $13.0 million for the three months ended September 30, 2025 and 2024, respectively.

We expect stock-based compensation expense will continue to be material in future periods, attributable to both existing awards outstanding and anticipated additional grants to our current and future employees.

As of September 30, 2025, we had 823 employees, compared to 710 as of September 30, 2024.

As of September 30, 2025, the total unrecognized stock-based compensation cost related to outstanding awards was $69.6 million, which is expected to be recognized over a weighted-average period of 2.3 years.

Comparison of the Nine Months Ended September 30, 2025 and 2024

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

NET REVENUES $ 257,219 $ 245,758 $ 11,461 4.7 %

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Total operating expenses, net 296,202 241,138 55,064 22.8 %

Operating loss (32,179) (459) (31,720) NM

Operating (loss) income (38,983) 4,620 (43,603) (943.8) %

Interest income 8,876 9,544 (668) (7.0) %

Changes in fair value of trading securities (240) — (240) NA

Changes in fair value of equity securities 3,321 — 3,321 NA

Interest expense (62) (485) 423 87.2 %

Other expense 48 — 48 NA

(Loss) income before income taxes (26,800) 13,679 (40,479) (295.9) %

Income tax benefit (5,089) (989) (4,100) (414.6) %

Income tax (benefit) expense (4,974) 5,024 (9,998) (199.0) %

Net (loss) income $ (21,826) $ 8,655 $ (30,481) (352.2) %

NA = Not applicable

NM = Not meaningful

The following table indicates the amount of stock-based compensation expense (non-cash) reflected in the line items above (in thousands):

Six Months Ended

Nine Months Ended

September 30,

2025 2024 Change

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The following table provides a disaggregation of net revenues by type (in thousands):

Six Months Ended

Nine Months Ended

September 30,

2025 2024 Change

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The following table presents the calculation of gross margin (in thousands, except percentages):

Six Months Ended

Nine Months Ended

September 30,

2025 2024 Change

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Gross margin percentage 66.8 % 79.3 % (12.5) %

Net revenues for the six months ended June 30, 2025 increased by $14.2 million, or 8.9%, to $174.2 million compared to the six months ended June 30, 2024, due to a $23.1 million increase in revenue from our non-dermatologic tests and a $8.9 million decrease in revenue from our dermatologic tests.

Net revenues for the nine months ended September 30, 2025 increased by $11.5 million, or 4.7%, to $257.2 million compared to the nine months ended September 30, 2024, due to a $36.9 million increase in revenue from our non-dermatologic tests and a $25.4 million decrease in revenue from our dermatologic tests.

The $36.9 million increase in revenue from our non-dermatologic tests was largely attributable to a 90.5% increase in tests report volumes for our TissueCypher test, and, to a much lesser extent, a higher realized ASP.

Increases in our TissueCypher test report volumes reflect growth through our sales force efforts.

Net revenue from our non-dermatologic tests as a percentage of total net revenue increased from 19.9% for the six months ended June 30, 2024 to 31.5% for the six months ended June 30, 2025.

Net revenue from our non-dermatologic tests as a percentage of total net revenue increased from 21.4% for the nine months ended September 30, 2024 to 34.8% for the nine months ended September 30, 2025.

The $25.4 million decrease from our dermatologic tests was primarily due to a lower ASP for DecisionDx-SCC test, where we stopped receiving Medicare coverage as of April 24, 2025, offset by 10.6% increase in DecisionDx-SCC test report volumes, and a 6.3% increase in DecisionDx-Melanoma test report volumes.

Cost of Sales (exclusive of amortization of acquired intangible assets)

Cost of sales (exclusive of amortization of acquired intangible assets) for the six months ended June 30, 2025 increased by $5.6 million, or 19.7%, compared to the six months ended June 30, 2024, primarily due to higher personnel costs, higher lab services cost, and higher depreciation expense.

Cost of sales (exclusive of amortization of acquired intangible assets) for the nine months ended September 30, 2025 increased by $8.7 million, or 19.7%, compared to the nine months ended September 30, 2024, primarily due to higher personnel costs, higher lab services cost, higher expenses for lab supplies, and higher depreciation expense.

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We expect our cost of sales expenses (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support our expected operational growth and higher test volumes.

Our gross margin percentage was 63.1% for the six months ended June 30, 2025, compared to 79.4% for the six months ended June 30, 2024.

The decrease was primarily due to higher amortization from accelerating our IDgenetix test, higher personnel costs and higher depreciation expense.

Our gross margin percentage was 66.8% for the nine months ended September 30, 2025, compared to 79.3% for the nine months ended September 30, 2024.

The decrease was primarily due to lower ASP relating to our DecisionDx-SCC test and higher amortization from accelerating our IDgenetix test, higher personnel costs, higher expenses for lab supplies, higher lab services expense, and higher depreciation expense.

Research and Development

Research and development expenses decreased by $2.6 million, or 9.2%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily reflecting lower clinical studies costs and slightly lower personnel costs.

R&D expenses decreased by $1.9 million, or 4.8%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily reflecting lower clinical studies costs.

Selling, General and Administrative

The following table provides a breakdown of SG&A expenses (in thousands):

Six Months Ended

Nine Months Ended

September 30,

2025 2024 Change

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Total selling, general and administrative expense $ 172,592 $ 150,082 $ 22,510

Sales and marketing expenses increased by $8.7 million, or 13.8%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

The increase is primarily due to higher expense incurred through organizational and business development activities, higher personnel costs, and higher sales related travel expenses.

Sales and marketing expenses increased by $11.7 million, or 12.5%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

The increase is primarily due to higher personnel costs, higher expenses associated with travel, training events and speaker conferences, and higher sales related travel expenses.

Increases in personnel costs reflect a higher headcount as well as merit and annual inflationary wage adjustment for existing employees.

Higher test report volumes is a result of our continued investments in human capital for our sales organization.

Stock-based compensation expense included in sales and marketing expense was $7.9 million for the six months ended June 30, 2025, compared to $9.5 million for the six months ended June 30, 2024.

General and administrative expenses increased by $8.4 million, or 23.1%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

Stock-based compensation expense included in sales and marketing expense was $11.7 million for the nine months ended September 30, 2025, compared to $13.5 million for the nine months ended September 30, 2024.

General and administrative expenses increased by $10.8 million, or 19.0%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

The increase is primarily due to higher personnel costs and higher information technology-related costs.

Increases in personnel costs reflect headcount expansions in our administrative support functions as well as merit and annual inflationary wage adjustment for existing employees.

Stock-based compensation expense included in general and administrative expense was $7.0 million for the six months ended June 30, 2025, compared to $8.4 million for the six months ended June 30, 2024.

Stock-based compensation expense included in general and administrative expense was $12.6 million for the nine months ended September 30, 2025, compared to $13.6 million for the nine months ended September 30, 2024.

Amortization of Acquired Intangible Assets

Amortization increased by approximately $25.8 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to our decision to discontinue the IDgenetix test offering beginning in May 2025.

As a result of this decision, the Company revised the estimated useful life of the related developed technology intangible asset and fully amortized the remaining carrying value as of March 31, 2025.

Amortization increased by approximately $25.8 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily due to our decision to discontinue the IDgenetix test offering beginning in May 2025.

As a result of this decision, we revised the estimated useful life of the related developed technology intangible asset and fully amortized the remaining carrying value as of March 31, 2025.

To a lesser extent, the increase is also attributable to amortization of the developed technology intangible asset recognized in association with the Esopredict test following our acquisition of Capsulomics in May 2025.

Income Tax Benefit

Income tax benefit increased by approximately $4.1 million for the six months ended June 30, 2025 and was primarily due to a released portion of the valuation allowance previously recorded against our federal deferred tax assets.

This release resulted in a credit to income tax expense and was based on new deferred tax liabilities recognized upon consolidating Capsulomics.

Income tax benefit increased by approximately $10.0 million for the nine months ended September 30, 2025, primarily due to the partial release of the valuation allowance on our federal deferred tax assets resulting from new deferred tax liabilities recognized upon consolidating Capsulomics in the current period.

The increase also reflected revised estimates of pre-tax income due to uncertainty regarding Medicare coverage for our DecisionDx-SCC test and updated financial information, along with changes in stock-based compensation, permanent differences, valuation allowance adjustments, research and development tax credits, and state income taxes.

The prior-year period reflected net income compared to a net loss in the current period.

Stock-Based Compensation Expense

Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense, totaled $22.4 million for the six months ended June 30, 2025, compared to $25.9 million for the six months ended June 30, 2024.

We expect material increases in stock-based compensation expense in future periods, attributable to both existing awards outstanding and anticipated additional grants to our current and future

As of June 30, 2025, we had 798 employees compared to 703 as of June 30, 2024.

Stock-based compensation expense, which is allocated among cost of sales, R&D expense and SG&A expense, totaled $34.5 million for the nine months ended September 30, 2025, compared to $38.9 million for the nine months ended September 30, 2024.

As of September 30, 2025, we had 823 employees compared to 710 as of September 30, 2024.

Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity are our cash and cash equivalents, marketable investment securities, cash generated from the sale of our products and our line-of-credit under the 2024 Loan and Security Agreement, as amended (the “2024 LSA”).

All of our marketable investment securities are considered investment grade, are readily available for use in current operations.

As of June 30, 2025 and December 31, 2024, we had marketable investment securities of $193.7 million and $173.4 million, respectively.

Additionally, as of June 30, 2025 and December 31, 2024, we had cash and cash equivalents of $82.2 million and $119.7 million, respectively.

Furthermore, on April 4, 2025, we amended the 2024 LSA to modify certain terms, including the extension of the draw period from March 31, 2025 to September 30, 2025 for our line of credit.

As of June 30, 2025, we had a $25.0 million credit-line available under the 2024 LSA.

Our principal sources of liquidity are our cash and cash equivalents, marketable investment securities and cash generated from the sale of our products.

All of our marketable investment securities are considered investment grade and are readily available for use in current operations.

As of September 30, 2025 and December 31, 2024, we had marketable investment securities of $202.0 million and $173.4 million, respectively.

Additionally, as of September 30, 2025 and December 31, 2024, we had cash and cash equivalents of $85.6 million and $119.7 million, respectively.

On April 4, 2025, we amended the 2024 Loan and Security Agreement (the “2024 LSA”) to modify certain terms, including the extension of the draw period for our line of credit from March 31, 2025 to September 30, 2025.

In August 2025, we exercised the interest-only milestone provision under the 2024 LSA to extend the interest-only period on the term loan from November 30, 2025 to December 1, 2026.

As of September 30, 2025, we had not made any draws on the line of credit.

The line of credit under the 2024 LSA expired on September 30, 2025 and was no longer available as a source of liquidity thereafter.

Our liquidity has been primarily derived from the revenue generated from the sale of our products.

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However, we have based these estimates on assumptions that may prove to be wrong, and could result in us depleting our capital resources sooner than expected.

As mentioned above, we expect to use a portion of our cash and cash equivalents and marketable investment securities to further support and accelerate our research and development activities, including the clinical studies noted above in “—Components of the Results of Operations—Research and Development.”

As mentioned above, we expect to use a portion of our cash and cash equivalents and marketable investment securities to further support and accelerate our R&D activities, including the clinical studies noted above in “—Components of the Results of Operations—Research and Development.”

Material Cash Requirements

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical research and development services, laboratory operations, equipment and related supplies, legal and other regulatory expenses, general administrative costs and, from time to time, expansion of our laboratory and office facilities in support of our growth, such as the construction of our future corporate headquarters.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical R&D services, laboratory operations, equipment and related supplies, legal and other regulatory expenses, general administrative costs and, from time to time, expansion of our laboratory and office facilities in support of our growth, such as the construction of our future corporate headquarters.

We anticipate that a substantial portion of our cash requirements in the foreseeable future will relate to the further commercialization of our currently marketed products, the development of our future product candidates in our pipeline and the potential commercialization of these pipeline products, should their development be successful, and the construction of our future corporate headquarters.

In July 2023, 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, for the purpose of developing a commercial office building where our future corporate headquarters will be located.

In February 2024, we closed on the purchase of the land for cash consideration of $7.2 million.

In February 2024, we purchased a plot of land located in Friendswood, Texas, for cash consideration of $7.2 million, for the purpose of developing a commercial office building where our future corporate headquarters will be located.

The development project will include a four-story building, which will encompass approximately 80,000 square feet of Class A office space.

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Over the duration of this project, we expect to make significant capital expenditures in the form of payments to the developer under a percentage of completion basis.

As of June 30, 2025, the development project is expected to cost a total of approximately $44.2 million.

During the three and six months ended June 30, 2025, we incurred total capital spent of $8.8 million and $14.0 million, respectively, related to this development project.

We intend to use the proceeds from the 2024 Term Loan, (as defined below), the 2024 Credit Line and our existing cash and cash equivalents to pay for this project.

As of September 30, 2025, the development project is expected to cost a total of approximately $44.2 million.

During the three and nine months ended September 30, 2025, we incurred total capital spend of $6.8 million and $20.8 million, respectively, related to this development project.

We intend to use the proceeds from the 2024 Term Loan (as defined below) and our existing cash and cash equivalents to pay for this project.

Since our inception, we have generally incurred significant losses and negative operating cash flows, and we have relied heavily on proceeds from our financing activities to fund capital expenditures, business expansion campaigns, and to offset operating deficits.

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Collections on Medicare claims for our DecisionDx-SCC test represented a significant portion of our 2024 operating cash flows.

We lost Medicare coverage for our DecisionDx-SCC test in April 2025 and decreases in revenues and cash inflows from this test are expected to follow.

We lost Medicare coverage for our DecisionDx-SCC test in April 2025 and decreases in revenues and cash inflows from this test have occurred and are expected to continue if our reconsideration requests for both the MolDX and Novitas LCDs are not approved.

Our ability to maintain profitability will heavily depend on us maintaining Medicare coverage for our currently marketed products, on the successful commercialization of the products we plan to launch in the future, and our ability to manage operating expenses.

We expect to incur additional expenses in the future as we invest in the commercialization of our existing products and the development and commercialization of our current pipeline products and future product candidates.

believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from the sale of our commercial products will be sufficient to fund our operations for at least the next 12 months.

We believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from the sale of our commercial products will be sufficient to fund our operations for at least the next 12 months.

We believe we will meet longer-term expected cash requirements and obligations through a combination of existing cash and cash equivalents, marketable investment securities and anticipated cash generated from sales of our products and issuances of equity securities or debt offerings.

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Our long-term debt is presented in the table below (in thousands):

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Term debt $ 10,200 $ 10,200

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2024 Loan and Security Agreement

On March 26, 2024 (the ‘‘Closing Date’’), we entered into the ‘2024 LSA, as amended on April 4, 2025, by and between the Company, its wholly owned subsidiary, Castle Narnia Real Estate Holding 1, LLC and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (the “Lender’’).

The 2024 LSA provides for (i) on the Closing Date, $10.0 million aggregate principal amount of Term Loans (the “2024 Term Loan,” as more fully discussed in the “2024 Term Loan” section below), and (ii) from the Closing Date until September 30, 2025, an additional line of credit of $25.0 million with the same interest rate and maturity as the term debt available (the “2024 Credit Line,” as more fully discussed in ‘‘2024 Credit Line’’ below) at our option.

The obligations under the 2024 LSA are secured by substantially all of our assets, excluding intellectual property, the real property held by the Company, and are subject to certain other exceptions and limitations.

On March 26, 2024 (the “Closing Date”), we entered into the 2024 LSA, as amended in April 2025, by and between us, our wholly owned subsidiary, Castle Narnia Real Estate Holding 1, LLC and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (the “Lender”).

The 2024 LSA provides for (i) a term loan in the principal amount of $10.0 million, which was drawn on the Closing Date (the “2024 Term Loan”), and (ii) a $25.0 million line of credit that was available at our option from the Closing Date through September 30, 2025, with the same interest rate and maturity as the 2024 Term Loan (the “2024 Credit Line”).

The Consent and First Amendment executed on April 4, 2025, modified certain terms of the 2024 LSA, including the extension of the draw period for the line of credit from March 31, 2025 to September 30, 2025.

The obligations under the 2024 LSA are secured by substantially all of our assets, excluding intellectual property, the real property held by us, and are subject to certain other exceptions and limitations.

We have the right to prepay the 2024 LSA in whole, subject to a prepayment fee of approximately 1.50% if paid prior to March 26, 2026.

Amounts repaid under the 2024 LSA may not be reborrowed.

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.

Amounts repaid may not be reborrowed.

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

As of June 30, 2025, we were in compliance with these covenants.

As of September 30, 2025, 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.

The Term Loans are interest only from the Closing Date through November 30, 2025, which may be extended at our option through November 30, 2026 as long as no event of default under the 2024 LSA has occurred.

After the end of the interest only period, we are required to pay equal monthly installments of principal through the maturity date of November 1, 2028.

We are also obligated to make an additional final payment of 2.00% of the aggregate original principal amounts of Term Loans advanced by the Lender, due at the earlier of the maturity date or date the Term Loans are repaid in full.

On April 4, 2025, the Company entered into a Consent and First Amendment (the “Amendment”) with the

The Amendment modified certain terms of the 2024 LSA, including the extension of the draw period from March 31, 2025 to September 30, 2025 for our line of credit.

The 2024 Term Loan is interest-only from the Closing Date through November 30, 2025, subject to extension under the Interest-Only Extension Milestone (as defined in the 2024 LSA) provision.

On August 26, 2025, we elected to extend the interest-only period to December 1, 2026.

Beginning in December 2026, the principal payments will be made in equal monthly installments through the maturity date of November 1, 2028.

In addition, we are required to make a final payment equal to 2.00% of the aggregate original principal amounts of the 2024 Term Loan, due at maturity or upon full repayment.

2024 Term Loan

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

On the Closing Date, we drew $10.0 million under the 2024 Term Loan.

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, 2025, the effective interest rate for all outstanding debt under the 2024 Term Loan was 8.19%.

As of September 30, 2025, no payment on principal has been made and the weighted-average effective interest rate for all outstanding debt under the 2024 Term Loan was 7.99%.

2024 Credit Line

We have a $25.0 million line of credit under the terms and provisions of the 2024 LSA and the Amendment available from the Closing Date until September 30, 2025.

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

As of June 30, 2025, no draws had been made on the 2024 Credit Line.

We had a $25.0 million line of credit under the terms and provisions of the 2024 LSA, from the Closing Date through September 30, 2025.

As of September 30, 2025, no draws had been made on the 2024 Credit Line and the 2024 Credit Line expired on September 30, 2025.

We have entered into various operating and finance leases, which are primarily associated with our laboratory facilities and office space.

Total undiscounted future minimum payment obligations under our operating leases and finance leases as of June 30, 2025 totaled approximately $41.5 million, of which $1.6 million is payable through the remainder of 2025 and $39.9 million is payable through early 2037.

Total undiscounted future minimum payment obligations under our operating leases and finance leases as of September 30, 2025 totaled approximately $40.7 million, of which $0.8 million is payable through the remainder of 2025 and $39.9 million is payable through early 2037.

The leases expire on various dates through 2037 and provide certain options to renew for additional periods.

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The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities $ 37,416 $ 40,501

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Operating Activities

Net cash provided by operating activities was $14.8 million for the six months ended June 30, 2025, and was primarily attributable to depreciation and amortization of $33.2 million, non-cash stock-based compensation expense of $22.4 million, and increases in accounts payable of $1.7 million, partially offset by net loss of $21.3 million, decreases in accrued compensation of $7.6 million, deferred income taxes of $5.4 million, increases in prepaid expenses and other current assets of $4.7 million, accretion of discounts on marketable investment securities of $2.6 million, and increases in accounts receivable of $1.3 million.

Net cash provided by operating activities was $17.2 million for the six months ended June 30, 2024, and was primarily attributable to non-cash stock-based compensation expense of $25.9 million, depreciation and amortization of $6.7 million, and net income of $6.4 million, partially offset by decreases in accrued compensation of $7.7 million, increases in accounts receivable of $7.6 million, accretion of discounts on marketable investment securities of $3.4 million, decreases in accounts payable of $1.7 million and deferred income taxes of $1.5 million.

The $2.4 million decrease in cash provided by operating activities for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, was primarily due to increases in operating expenditures, partially offset by increases in collections from customers attributable to higher net revenues.

The cash provided during the six months ended June 30, 2025 also reflects the payment of annual cash bonuses to our employees and certain health care benefit payments totaling $22.5 million, which are not expected to recur in the remainder of 2025.

By comparison, we paid $20.8 million for similar items during the first half of 2024.

Net cash provided by operating activities was $37.4 million for the nine months ended September 30, 2025, and was primarily attributable to depreciation and amortization of $37.0 million, non-cash stock-based compensation expense of $34.5 million, and increases in accounts payable of $3.1 million, partially offset by net loss of $21.8 million, increases in deferred income taxes of $5.3 million, prepaid expenses and other current assets of $4.5 million, accretion of discounts on marketable investment securities of $3.5 million, and change in fair value of equity securities of $3.3 million.

Net cash provided by operating activities was $40.5 million for the nine months ended September 30, 2024, and was primarily attributable to non-cash stock-based compensation expense of $38.9 million, depreciation and amortization of $10.2 million, net income of $8.7 million, deferred income taxes of $3.7 million and decreases in inventory of $1.4 million, partially offset by increases in accounts receivable of $11.9 million, increases in accretion of discounts on marketable investment securities of $5.1 million, decreases in accounts payable of $3.8 million, increases in prepaid expenses and other current assets of $1.7 million and decreases in accrued compensation of $1.3 million.

The $3.1 million decrease in cash provided by operating activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, was primarily due to increases in operating expenditures, and decrease in collections from customers attributable to a lower accounts receivable balance.

The cash provided during the nine months ended September 30, 2025 also reflects the payment of annual cash bonuses to our employees and certain health care benefit payments totaling $22.5 million, which are not expected to recur in the remainder of 2025.

By comparison, we paid $20.8 million for similar items during the nine months ended September 30, 2024.

Investing Activities

Net cash used in investing activities was $50.8 million for the six months ended June 30, 2025 and consisted primarily of purchases of marketable investment securities of $92.8 million, our asset acquisition of Capsulomics for $18.7 million, purchases of property and equipment of $14.0 million and purchases of debt securities classified as held-to-market of $5.6 million, partially offset by the maturity of marketable investment securities of $80.3 million.

Net cash used in investing activities was $41.1 million for the six months ended June 30, 2024 and consisted primarily of purchases of marketable investment securities of $113.2 million and purchases of property and equipment of $14.4 million, partially offset by the maturity of marketable investment securities of $86.5 million.

The $9.7 million increase in cash used in investing activities for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, was primarily due to our acquisition of Capsulomics for $18.7 million, which includes both the cash consideration and direct transaction costs, $6.2 million fewer proceeds from maturing marketable investment securities, partially offset by $14.8 million fewer purchases of such securities.

Net cash used in investing activities was $69.2 million for the nine months ended September 30, 2025 and consisted primarily of purchases of marketable investment securities of $151.3 million, purchases of property and equipment of $28.8 million, our asset acquisition of Capsulomics for $18.7 million and purchases of debt securities classified as held-to-market of $5.6 million, partially offset by the maturity of marketable investment securities of $135.2 million.

Net cash used in investing activities was $55.9 million for the nine months ended September 30, 2024 and consisted primarily of purchases of marketable investment securities of $158.4 million and purchases of property and equipment of $20.8 million, partially offset by the maturity of marketable investment securities of $123.3 million.

The $13.3 million increase in cash used in investing activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, was primarily due to our acquisition of Capsulomics for $18.7 million, which includes both the cash consideration and direct transaction costs and $8.1 million in increased purchases of property and equipment, partially offset by an increase of $12.0 million in proceeds from maturing marketable investment securities and $7.1 million fewer purchases of such securities.

Financing Activities

Net cash used in financing activities was $1.5 million for the six months ended June 30, 2025, and consisted primarily of the $3.1 million payment of employee taxes attributable to the vesting of Restricted Stock Units (“RSUs”), partially offset by the $1.5 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan (the “ESPP”) and $0.2 million of proceeds from lease incentives received .

Net cash provided by financing activities was $10.7 million for the six months ended June 30, 2024, and consisted primarily of $10.0 million of proceeds from issuance of long-term debt and $1.7 million of proceeds from contributions to our ESPP, partially offset by the $1.1 million payment of employee taxes attributable to the vesting of RSUs.

Net cash used in financing activities was $2.4 million for the nine months ended September 30, 2025, and consisted primarily of the $4.3 million payment of employee taxes attributable to the vesting of Restricted Stock Units (“RSUs”), partially offset by the $1.7 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan (the “ESPP”).

Net cash provided by financing activities was $11.5 million for the nine months ended September 30, 2024, and consisted primarily of $10.0 million of proceeds from issuance of long-term debt and $2.3 million of proceeds from contributions to our ESPP and $1.6 million of proceeds from the exercise of stock options, partially offset by the $2.4 million payment of employee taxes attributable to the vesting of RSUs.

Critical Accounting Estimates

During the six months ended June 30, 2025, there were no significant changes to the information discussed under “Critical Accounting Estimates” included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2024 10-K.

During the nine months ended September 30, 2025, there were no significant changes to the information discussed under “Critical Accounting Estimates” included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2024 10-K.

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 2. Management’s Discussion and Analysis