CASTLE BIOSCIENCES INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Castle Biosciences, Inc. (the “Company,” “we,” “us” or “our”) was incorporated in the state of Delaware on September 12, 2007. We are a commercial-stage diagnostics company focused on providing clinicians and their patients with personalized, clinically actionable information to inform treatment decisions and improve health outcomes. We are based in Friendswood, Texas (a suburb of Houston, Texas) and our laboratory operations are conducted at our facilities located in Phoenix, Arizona and Pittsburgh, Pennsylvania.

2. Summary of Significant Accounting Policies

Basis of Presentation

Our unaudited condensed consolidated financial statements include the accounts of Castle Biosciences, Inc. and our wholly owned subsidiaries and have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP’’). 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 September 30, 2025, we had an accumulated deficit of $222.0 million. We believe our $85.6 million of cash and cash equivalents and $202.0 million of marketable investment securities as of September 30, 2025, 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 September 30, 2025; the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive (loss) income and the condensed consolidated statements of stockholders’ equity, each for the three and nine months ended September 30, 2025 and 2024; and the condensed consolidated statements of cash flows for the nine months ended September 30, 2025 and 2024 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, 2025, the results of our consolidated operations for the three and nine months ended September 30, 2025 and 2024 and our consolidated cash flows for the nine months ended September 30, 2025 and 2024. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2025 and 2024 are also unaudited. The results for the three and nine months ended September 30, 2025 are not necessarily indicative of results to be expected for the year ending December 31, 2025, any other interim periods, or any future year or period. The balance sheet as of December 31, 2024 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the unaudited condensed 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, 2024 filed with the Securities and Exchange Commission on February 27, 2025.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates include revenue recognition, the valuation of stock-based compensation, assessing future tax exposure and the realizability of deferred tax assets, the useful lives and recoverability of long-lived assets, the goodwill impairment test, the valuation of acquired intangible assets, the valuation of contingent consideration, and other contingent liabilities. We base these estimates on historical and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and assumptions.

Segment Reporting

Operating segments are components of an enterprise engaging in business activities from which it may recognize revenues and incur expenses, where discrete financial information is available, and where its operating results are regularly reviewed by the public entity’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and to assess its performance. A CODM may be an individual or a decision-making group. A reportable segment consists of one or more operating segments. For additional information on our segment reporting, see Note 15.

Cash and Cash Equivalents including Concentrations of Credit Risk

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. Our cash equivalents consist of money market funds, which are not insured by the Federal Deposit Insurance Corporation (“FDIC”), that are primarily invested in short-term U.S. government obligations. Cash deposits at financial institutions may exceed the amount of insurance provided by the FDIC. Management believes that we are not exposed to significant credit risk on our cash deposits due to the financial position of the financial institutions in which deposits are held.

Marketable Investment Securities

Our marketable investment securities are comprised of debt and equity securities. All debt securities are recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (‘‘ASC’’) Topic 320, Investments-Debt Securities(“ASC 320”). Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. Debt securities that are classified as available-for-sale (“AFS”) are recorded at fair value in accordance with ASC 320. We recognize the unrealized gains and losses related to changes in fair value as a separate component of accumulated other comprehensive income within total stockholders’ equity, net of any related deferred income tax effects, on the condensed consolidated balance sheets. Debt securities that are classified as held-to-maturity (“HTM”) are reported at amortized cost in accordance with ASC 320. Premiums or discounts from par value are amortized to interest income over the life of the underlying investment and are included in interest income in the condensed consolidated statements of operations. Realized gains and losses on AFS and HTM debt securities, if any, are calculated at the individual security level and included in interest income in the condensed consolidated statements of operations. Impairments of AFS or HTM debt securities, if any, are recorded in the condensed consolidated statements of operations. See Notes 5 and 11 for further details.

Our equity securities consist of investments in shares of common stock which are listed and traded on the Nasdaq Global Market and certain foreign exchanges. All equity securities are recognized in accordance with ASC Topic 321, Investments-Equity Securities (“ASC 321”) and reported at their readily determinable fair values based on quoted market prices where changes in fair value are included in changes in fair value of equity securities in the condensed consolidated statements of operations. For investments denominated in a foreign currency, the fair value is remeasured into U.S. dollars using exchange rates in effect at each balance sheet date in accordance with ASC Topic 830, Foreign Currency Matters. As a result, changes in fair value include the effects of both market price movements and foreign currency exchange rate fluctuations. All changes in a marketable security’s fair value are reported in earnings as they occur, and the sale of our equity securities does not necessarily give rise to a significant gain or loss. Investments in equity securities are classified as either current or long-term depending upon management’s intentions. We updated our terminology to refer to these investments as equity securities rather than trading securities to align with the terminology in ASC 321. See Notes 5 and 11 for further details.

Acquisitions

We assess acquisitions under ASC Topic 805, Business Combinations(“ASC 805”), to determine whether a transaction represents the acquisition of assets or a business combination. Under this guidance, we apply a two-step model. The first step involves a screening test where we evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single asset or a group of similar assets. If the screening test is met, we account for the set as an asset acquisition. If the screening test is not met, we apply the second step of the model to determine if the set meets the definition of a business based on the guidance in ASC 805. If so, the transaction is treated as a business combination. Otherwise, it is treated as an asset acquisition. Asset acquisitions are accounted for by allocating the cost of the acquisition, including transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis without recognition of goodwill. If the total consideration transferred is less than the aggregate fair value of the net assets acquired (i.e., a bargain purchase), the difference is not recognized as a gain. Instead, the difference is allocated to the cost of the acquired assets on a relative fair value basis. Business combinations are accounted for using the acquisition method. Under the acquisition method, goodwill is measured as a residual amount equal to the fair value of the consideration transferred less the net recognized fair value of the identifiable assets acquired and the liabilities assumed, as of the acquisition date, and transaction costs are expensed as incurred.

Contingent Consideration

Under the terms of business combinations or asset acquisitions, we may be required to pay additional consideration if specified future events occur or certain conditions are met. In May 2025, we acquired Capsulomics, Inc., d/b/a Previse (“Capsulomics”), which was recorded as an asset acquisition, and agreed to pay additional consideration of up to $2.5 million in cash based on the achievement of certain commercial milestones (the “Earnout Payments”). We account for the contingent consideration as a liability in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”) when it is both probable and reasonably estimable. In accordance with ASC 450-20, we recorded the contingent consideration at the amount required to settle the respective obligation, and subsequent changes are recognized as adjustments to the cost basis of the acquired assets. These changes are allocated to the acquired assets based on their relative fair values as of the date of acquisition.

Contingent consideration is classified as current or noncurrent in the condensed consolidated balance sheets based on the contractual timing of future settlement.

Revenue Recognition

In accordance with ASC Topic 606, Revenue from Contracts with Customers(“ASC 606”), we follow a five-step process to recognize revenues: (1) identify the contract with the customer, (2) identify the performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenues when the performance obligations are satisfied. We have determined that we have a contract with the patient when the treating clinician orders the test. Our contracts generally contain a single performance obligation, which is the delivery of the test report, and we satisfy our performance obligation at a point in time upon the delivery of the test report to the treating clinician, at which point we can bill for the report. The amount of revenue recognized reflects the amount of consideration to which we expect to be entitled, or the transaction price, and considers the effects of variable consideration. See Note 3 for further details.

Collaborative Arrangements

We assess whether our licensing and other agreements are collaborative arrangements based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. For arrangements that we determine are collaborations, we identify each unit of account and then determine whether a customer relationship exists for that unit of account. If we determine that a performance obligation within the collaborative arrangement is with a customer, we apply ASC 606.

If a portion of a distinct bundle of goods or services within the collaborative arrangement is not with a customer, we apply recognition and measurement based on an analogy to authoritative accounting literature or, if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election. To the extent the arrangement is within the scope of ASC Topic 808, Collaborative Arrangements(“ASC 808”), we assess whether aspects of the arrangement are within the scope of other accounting literature.

In June 2025, we entered into a Collaboration and License Agreement with SciBase Holding AB (“SciBase”). Following approval under the Swedish Screening of Foreign Direct Investments Act in the third quarter of 2025, subsequent to approval, we completed our investment in SciBase. The agreement aims to jointly develop diagnostic tests for dermatologic diseases, initially focused on atopic dermatitis, by combining SciBase’s Electrical Impedance Spectroscopy technology with our diagnostic and development expertise. Under the arrangement, we hold development and commercialization rights in North America, while SciBase retains rights in certain other territories. SciBase is entitled to royalties on our product sales, a mark-up on product sales to us, and a milestone payment upon achieving specified sales thresholds. Development costs are shared; however, SciBase deferred its initial clinical development costs for the initial indication and we will recover those costs through future royalty payments reductions.

We determined the agreement is a collaborative arrangement under ASC 808. Certain elements of the arrangement, including license rights and sales-based royalty provisions, represent transactions with a customer and are therefore accounted for under ASC 606. Other elements, such as shared development activities and cost reimbursements, are accounted for in accordance with ASC 808 and presented as reductions to research and development (“R&D”) expenses.

Accounts Receivable and Allowance for Credit Losses

We classify accounts receivable balances that are expected to be paid more than one year from the condensed consolidated balance sheet date as noncurrent assets. The estimated timing of payment utilized as a basis for classification as noncurrent is determined by analyses of historical payor-specific payment experience, adjusted for known factors that are expected to change the timing of future payments.

We accrue an allowance for credit losses against our accounts receivable based on management’s current estimate of amounts that will not be collected. Management’s estimates are typically based on historical loss information adjusted for current conditions. We generally do not perform evaluations of customers’ financial condition and generally do not require collateral. Historically, our credit losses have not been significant. The allowance for credit losses waszero as of September 30, 2025 and December 31, 2024. 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.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between five andten years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease. Our leasehold improvements primarily relate to our office and laboratory facilities located in Friendswood, Texas, Phoenix, Arizona and Pittsburgh, Pennsylvania, and are generally depreciated over the remaining lease terms, which end in 2026, 2034 and 2033, respectively. Maintenance and repairs are charged to expense as incurred, and material improvements are capitalized. Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the capitalized interest costs are amortized using the straight-line method over the estimated useful life of the underlying asset. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the condensed consolidated balance sheet and any resulting gain or loss is reflected in the condensed consolidated statements of operations in the period realized.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment. We test goodwill for impairment in the fourth quarter of each fiscal year and when events, or changes in circumstances, indicate that it may be impaired. Events and changes in circumstances indicating that goodwill may be impaired include sustained declines in the price of our common stock, increased competition, changes in macroeconomic developments, unfavorable government or regulatory developments and changes in coverage or reimbursement conditions.

Goodwill is tested for impairment at the reporting unit level where goodwill is held. Testing begins with completion of an optional qualitative assessment. If the qualitative assessment suggests that impairment is more likely than not, quantitative testing is conducted. If the qualitative assessment is bypassed, we proceed directly to quantitative testing. Quantitative testing consists of comparing the carrying value of goodwill to its estimated fair value. Impairment of goodwill is the condition that exists when the carrying value exceeds its fair value. Amounts by which carrying value exceed fair value, up to the total amount of goodwill allocated to the reporting unit, are recognized as an impairment loss in the condensed consolidated statements of operations.

Accrued Compensation

We accrue for liabilities under discretionary employee and executive bonus plans. Our estimated compensation liabilities are based on progress against corporate objectives approved by our board of directors, compensation levels of eligible individuals and target bonus percentage levels. Our board of directors reviews and evaluates the performance against these objectives and ultimately determines the actual achievement levels attained. 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 September 30, 2025 and December 31, 2024, we accrued approximately $21.8 million and $23.3 million, respectively, for liabilities associated with these bonus plans. These amounts are classified as current accrued liabilities in the condensed consolidated balance sheets based on the expected timing of payment.

Stock-Based Compensation

Stock-based compensation expense for equity instruments is measured based on the grant-date fair value of the awards. For stock option awards, and purchase rights made under the 2019 Employee Stock Purchase Plan (the “ESPP”), the fair value is estimated on the date of grant using the Black-Scholes option-pricing valuation model. For restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”), the fair value is equal to the closing price of our common stock on the date of grant. For awards with graded vesting and only service conditions, we recognize compensation costs on a straight-line basis over the requisite service period of the awards. For stock options and RSUs, the requisite service period is generally the award’s vesting period (typically four years). PSUs vest upon the achievement of certain performance conditions and the provision of service with us through a specified period. Accruals of compensation cost for PSUs are based on the probable outcome of the performance conditions and are reassessed each reporting period. We recognize compensation cost for PSUs separately for each vesting tranche on a ratable basis over the requisite service period. The requisite service period for PSUs is based on an analysis of vesting requirements and performance conditions for the particular award. Certain employees are entitled to acceleration of vesting of a portion of their awards upon retirement, subject to age, service and notice requirements. Stock-based awards falling into the scope of the Retirement Policy (as defined in Note 13) are accounted for as a modification of existing awards under ASC Topic 718, Compensation – Stock Compensation. The modifications do not result in the recognition of incremental compensation cost; however, they do result in a new estimate of the requisite service period, which we reassess at each balance sheet date. For the ESPP, the requisite service period is generally the period of time from the offering date to the purchase date. Forfeitures are accounted for as they occur.

Comprehensive (Loss) Income

Comprehensive (loss) income is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive (loss) income is made up of net (loss) income plus net unrealized gain or loss on marketable investment securities, which is our only other item of other comprehensive (loss) income.

Accounting Pronouncements Yet to be Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact this update will have on the consolidated financial statements and disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40)—Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses(“ASU 2024-03”), which specifies additional disclosure requirements. The amendments in ASU 2024-03 require disclosure about the composition of certain income expense line items, such as purchases of inventory, employee compensation, and other expenses, as well as disclosure about selling expenses. The ASU is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact this update will have on the consolidated financial statements and disclosures.

In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Practical Expedient for Certain Current Receivables (“ASU 2025-05”), which provides a practical expedient for estimating expected credit losses on current accounts receivable and contract assets arising from transactions under ASC 606. The practical expedient allows entities to assume that current conditions remain unchanged over the remaining life of the receivables. ASU 2025-05 is effective for annual periods beginning after December 15, 2025, including interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact this update will have on the consolidated financial statements and disclosures.

We have evaluated all other recently issued, but not yet effective, accounting pronouncements and do not believe that these accounting pronouncements will have any material impact on the consolidated financial statements or disclosures upon adoption.

3. Revenue

All of our revenues from contracts with customers are associated with the provision of testing services. Our revenues are primarily attributable to our DecisionDx®-Melanoma test for cutaneous melanoma, our TissueCypher® test for patients diagnosed with Barrett’s esophagus, and our DecisionDx®-SCC test for cutaneous squamous cell carcinoma. We also provide a test for patients with suspicious pigmented lesions, MyPath® Melanoma, a test for uveal melanoma, DecisionDx®-UM, and a pharmacogenomics testing service focused on mental health, IDgenetix®.

Once we satisfy our performance obligations and bill for the service, the timing of the collection of payments may vary based on the payment practices of the third-party payor and the existence of contractually established reimbursement rates. The payments for our services are primarily made by third-party payors, including Medicare and commercial health insurance carriers. Certain contracts contain a contractual commitment of a reimbursement rate that differs from our list prices. However, absent a positive coverage policy, with or without a contractually committed reimbursement rate, with a commercial carrier or governmental program, our diagnostic tests may or may not be paid by these entities. In addition, patients do not enter into direct agreements with us that commit them to pay any portion of the cost of the tests in the event that their insurance provider declines to reimburse us. We may pursue, on a case-by-case basis, reimbursement from such patients in the form of co-payments and co-insurance, in accordance with the contractual obligations that we have with the insurance carrier or health plan. These situations may result in a delay in the collection of payments.

The Medicare claims that are covered by Medicare are generally paid at a rate established on Medicare’s Clinical Laboratory Fee Schedule or by the respective Medicare contractor within 30 days from receipt. Medicare claims that were either submitted to Medicare prior to the local coverage determination or other coverage commencement date or are not covered but meet the definition of being medically reasonable and necessary pursuant to the controlling Section 1862(a)(1)(A) of the Social Security Act are generally appealed and may ultimately be paid at the first (termed “redetermination”), second (termed “reconsideration”) or third level of appeal (de novo hearing with an Administrative Law Judge). A successful appeal at any of these levels may result in prompt payment.

In the absence of Medicare coverage, contractually established reimbursements rates or other coverage, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions. Variable consideration attributable to these price concessions is measured at the expected value using the “most likely amount” method under ASC 606. The amounts are estimated using historical average collection rates by test type and payor category taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties. Such variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. Variable consideration may be constrained and excluded from the transaction price in situations where there is no contractually agreed upon reimbursement coverage or in the absence of a predictable pattern and history of collectability with a payor. Accordingly, in such situations revenues are recognized on the basis of actual cash collections. Variable consideration for Medicare claims that are not covered by Medicare, including those claims undergoing appeal, is deemed to be fully constrained due to factors outside our influence (e.g., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time. 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 September 30, 2025 and 2024 were $2.5 million of net positive revenue adjustments and $0.6 million of net negative revenue adjustments, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods. Included in revenues for the nine months ended September 30, 2025 and 2024 were $5.4 million and $1.3 million of net negative revenue adjustments, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

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.

Because our contracts with customers have an expected duration of one year or less, we have elected the practical expedient in ASC 606 to not disclose information about our remaining performance obligations. Any incremental costs to obtain contracts are recorded as selling, general and administrative expenses as incurred due to the short duration of our contracts. Contract balances consisted solely of accounts receivable (both current and noncurrent) as of September 30, 2025 and December 31, 2024.

Disaggregation of Revenues

The table below provides the disaggregation of revenue by type (in thousands):

(1)Consists of DecisionDx-Melanoma, DecisionDx-SCC and our Diagnostic Gene Expression Profile offering.

We have presented disaggregated net revenues included in our single reportable segment in the table above. The characteristics for each test in our single segment are similar, with each test having a single performance obligation. Our CODM is the single individual responsible for managing our segment and reviews consolidated results and budgets in assessing performance and in allocating resources. See Note 15 for additional information about our reportable segment.

Payor Concentration

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

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

• Less than 10%

There were no other third-party payors that individually accounted for more than 10% of our total revenue or accounts receivable for the periods shown in the table above.

4.(Loss) Earnings Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income for the period by the weighted-average number of common shares outstanding during the period. Diluted (loss) earnings per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options, vesting of RSUs and PSUs or purchases under the ESPP. The treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents. Contingently issuable PSU awards are included in the computation of diluted (loss) earnings per share when the applicable performance criteria would be met and the common shares would be issuable if the end of the reporting period were the end of the contingency period. However, potentially dilutive shares are excluded from the computation of diluted (loss) earnings per share when their effect is antidilutive.

The following table shows the computation of basic and diluted (loss) earnings per share (in thousands, except per share data):

Due to the Company reporting a net loss attributable to common stockholders for the three and nine months ended September 30, 2025, 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 (loss) earnings per share for the three and nine months ended September 30, 2025 and 2024 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 earnings per common share until such time that it is probable that actual performance will be above or below target (in thousands):

5. Marketable Investment Securities

Marketable investment securities consisted of the following (in thousands):

(1)We heldno debt securities - HTM as of December 31, 2024.

Equity Securities

We recognized unrealized gains of $3.6 million and $3.3 million in our equity securities for the three and nine months ended September 30, 2025, respectively. No gains or losses were recognized for the three and nine months ended September 30, 2024, as we did not hold any equity securities during those periods.

Debt Securities

The following tables present our debt securities (in thousands):

(1)We heldno debt securities - HTM as of December 31, 2024.

Our U.S. government securities includes both AFS and HTM securities. The AFS securities are available to be sold to meet operating needs or otherwise, but are generally held through maturity. We classify all AFS investments as current assets, as these are readily available for use in current operations. We classify our HTM investments as current assets, as we have the positive intent and ability to hold these investments to maturity, and all such maturities are less than one year from the balance sheet date.

We evaluated our U.S. government securities under the AFS and HTM impairment model guidance, respectively, and determined our investment portfolio is comprised of low-risk, investment grade securities.

As of September 30, 2025, unrealized losses on our AFS and HTM U.S. government securities 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. The allowance for credit losses waszero as of September 30, 2025 and December 31, 2024.

There wereno realized gains or losses on sales of debt securities for the three and nine months ended September 30, 2025 and 2024. No credit-related or noncredit-related impairment losses were recorded for the three and nine months ended September 30, 2025 and 2024.

Accrued interest receivable for our AFS and HTM U.S. government securities is included in prepaid expenses and other current assets in the condensed consolidated balance sheets. As of September 30, 2025 and December 31, 2024, the accrued interest receivable related to AFS securities was $1.2 million and $0.6 million, respectively. The balance related to HTM securities was immaterial as of September 30, 2025, and no amounts were accrued as of December 31, 2024, as no securities were classified as HTM at that time.

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

6. Property and Equipment, Net

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

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

7. Goodwill and Other Intangible Assets, Net

Goodwill

We had a single reporting unit where all goodwill was allocated for as of September 30, 2025 and December 31, 2024. The balance of our goodwill was $10.7 million as of September 30, 2025 and December 31, 2024. There wereno accumulated impairments of goodwill as of September 30, 2025 or December 31, 2024.

We had a single reportable segment consisting of a single operating segment where the operating segment and the single reporting unit were the same as of September 30, 2025 and December 31, 2024. See Note 15 for additional information on our reportable segment.

Other Intangible Assets, Net

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

During the first quarter of 2025, we made the decision to discontinue our IDgenetix test offering, effective May 2025. As a result of this decision, we further revised the estimated useful life of the asset and determined that the intangible asset should be fully amortized as of March 31, 2025. This change resulted in an acceleration of amortization expense of approximately $20.1 million.

In May 2025, in connection with the acquisition of Capsulomics, and in accordance with ASC 805, we determined that substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset; therefore, the transaction was accounted for as an asset acquisition. The acquired intangible asset consists of developed technology and is valued at $28.2 million with an estimated useful life of 12 years and is being amortized on a straight-line basis.

Amortization expense of intangible assets was $2.3 million and $32.6 million for the three and nine months ended September 30, 2025, respectively, and $2.3 million and $6.8 million for the three and nine months ended September 30, 2024, respectively.

8. Other Accrued and Current Liabilities

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

9. Long-Term Debt

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

Future maturities of principal amounts on long-term debt as of September 30, 2025 were as follows (in thousands):

2024 Loan and Security Agreement

On March 26, 2024 (the “Closing Date”), we entered into a Loan and Security Agreement, as amended in April 2025 (the “2024 LSA”), 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 2024 Credit Line 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 the Company, 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 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 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 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 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 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 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.

Interest Expense on Long-Term Debt

Interest expense on long-term debt consisted of the following (in thousands):

10. Leases

Scottsdale Lease

On May 14, 2025, we entered into a lease agreement (the “Commencement Date”) with Perimeter Gateway Portfolio, LLC (the “Lessor”) for the lease of approximately 55,573 square feet of office and laboratory space in Scottsdale, Arizona (the “Scottsdale Lease”). The Scottsdale Lease has a term of 143 months term that will expire in April 2037, and provides for right of refusal to lease any additional adjacent space that would/may become available in the future (the “ROFR Space”). The Scottsdale Lease provides ustwo optional five-year term extensions, and aone-time option to terminate the lease on the last day of the 96 th month following the Commencement Date, subject to certain conditions, in exchange for payment of an early termination fee equal to the following: the unamortized balance of the commissions paid to Lessor’s broker and our broker, plus the unamortized balance of the hard and soft costs incurred by the Lessor in connection with the tenant improvement allowance. The Scottsdale Lease contains provisions for $7.2 million in lease incentives in form of Lessor paid improvements. Rent for the first twelve months is abated, in the amount of $1.8 million, and any amount that is unamortized becomes payable if we default on the lease.

11. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used in measuring fair value. There are three levels to the fair value hierarchy based on the reliability of inputs, as follows:

Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions.

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. For equity securities traded on foreign exchanges, fair values are determined based on quoted market prices in the applicable foreign markets and are remeasured into U.S. dollars using exchange rates in effect at each balance sheet date in accordance with ASC Topic 830, Foreign Currency Matters. The use of different assumptions, exchange rates, and/or estimation methodologies may have a material effect on estimated fair values. 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.

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, 2025 and December 31, 2024 (in thousands):

(1)Classified as “Cash and cash equivalents” in the condensed consolidated balance sheets.

(2)Classified as “Marketable investment securities” in the condensed consolidated balance sheets.

(3)Classified as “Current portion of long-term debt” and “Long term debt” in the condensed consolidated balance sheets.

(4)Borrowings approximate their fair value as the interest rate is variable and reflects market rates.

We have U.S. government securities that are HTM investments and are carried at amortized costs. The fair value of our HTM investments is classified as Level 1 of the fair value hierarchy. For additional information on the carrying amount and fair value of our HTM investments, see Note 5.

12. Commitments and Contingencies

From time to time, we may be involved in legal proceedings arising in the ordinary course of business. We believe there is no threatened litigation or litigation pending that could have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows. On February 1, 2024, we received a subpoena from the Department of Health and Human Services, Office of Inspector General, seeking documents and information concerning claims submitted for payment under federal healthcare programs. The subpoena requested that we produce documents relating primarily to interactions with medical providers and billing to government-funded healthcare programs for our tests. The time period covered by the subpoena is January 1, 2015 through February 1, 2024. We are continuing to cooperate with the government’s request and are in the process of responding to the subpoena. We are unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General, or any other governmental authority as a result of the matters related to this subpoena. No claims have been made against us at this time. Any potential claims could subject us to significant liability for damages and harm our reputation. Our insurance and indemnities may not cover all claims that may be asserted against us. 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.

13. Stock Incentive Plans and Stock-Based Compensation

Equity Incentive Plan

On July 24, 2019, we adopted the 2019 Equity Incentive Plan (the “2019 Plan”). 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. Under this provision, effective January 1, 2025, an additional 1,424,159 shares became available under the 2019 Plan. As of September 30, 2025,1,082,161 shares remained available for grant under the 2019 Plan.

Inducement Plan

On December 22, 2022, our board of directors approved the 2022 Inducement Plan (the “Inducement Plan”). On August 5, 2025, our compensation committee amended the Inducement Plan to increase the number of shares issuable under the Inducement Plan by 700,000 shares. The Inducement Plan provides for the granting of awards as 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 September 30, 2025, there were 828,770 shares available for grant under the amended Inducement Plan.

Stock Options

Stock option activity under our stock plans for the nine months ended September 30, 2025 is set forth below:

Restricted Stock Units

The following table summarizes our RSU activity for the nine months ended September 30, 2025:

(1)The aggregate number of shares withheld upon vesting for employee tax obligations was 167,751 for the nine months ended September 30, 2025.

Performance-Based Restricted Stock Units

The following table summarizes our PSU activity for the nine months ended September 30, 2025:

(1)The aggregate number of shares withheld upon vesting for employee tax obligations was 35,426 for the nine months ended September 30, 2025.

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 284,831 shares becoming available under the ESPP effective January 1, 2025. During the nine months ended September 30, 2025, we issued 160,898 shares of common stock pursuant to scheduled purchases under the ESPP. As of September 30, 2025,1,170,613 shares remained available for issuance under the ESPP.

Determining Fair Value - Summary of Assumptions

We use the Black-Scholes option pricing model to estimate the fair value of each option grant on the date of grant or any other measurement date. The following table sets forth the assumptions used to determine the fair value of stock options:

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

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

Fair Value

There were no stock options granted for the nine months ended September 30, 2025. For the nine months ended September 30, 2024, the weighted-average grant date fair value of the stock options was $9.23 per share. For the nine months ended September 30, 2025 and 2024, the weighted-average grant date fair value of the purchase rights granted under the ESPP was $9.71 and $12.28 per share, respectively.

Stock-based compensation expense is included in the condensed consolidated statements of operations as follows (in thousands):

Retirement Policy

In January 2023, our board of directors approved a retirement policy (the “Retirement Policy”) that provides for acceleration of a portion of unvested awards granted to and held by certain eligible employees upon meeting age, service and notice requirements. Pursuant to the Retirement Policy, we accelerated the recognition of compensation expense of $0.2 million and $0.4 million during the three months ended September 30, 2025, and 2024, respectively, and accelerated the recognition of compensation expense of $0.6 million and $0.8 million for the nine months ended September 30, 2025 and 2024, respectively.

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

14. Income Taxes

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.

Our effective income tax rate was (29.8)% and 18.6% for the three and nine months ended September 30, 2025, respectively. The effective rate for the three and nine months ended September 30, 2025 differed from our federal statutory rate of 21% primarily due to the tax impact from the valuation allowance for current year activity including the acquisition of Capsulomics, state income taxes and the non-deductibility of other permanent items.

Our effective income tax rate was 72.6% and 36.7% for the three and nine months ended September 30, 2024, 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, R&D 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, R&D tax credit and state income taxes.

15. Segment and Related Information

The Company derives revenues through the delivery of test reports for our molecular diagnostic tests. All of our operations are located within the United States and our business is focused on the U.S. market.

We have a single reportable segment consisting of a single operating segment.

The measures of segment (loss) income for of our single reportable segment were as follows (in thousands):

(1)For information on disaggregation of segment revenue by type and information about payor concentration, see Note 3.

Other Segment Items

Other segment items include all other operating expenses types to included IT service and software licensing costs, fixed and variable expenses incurred for leasing of facilities and equipment, depreciation and amortization, gain or losses on disposal of fixed assets in the routine course of business, fair value adjustment for equity securities, realized gains or losses on investment securities, administrative costs, expense for use of prepaids to include insurance premiums and warranties for lab equipment, public company costs (less audit fees), interest and other non-operating income, and income tax expense or benefits. Our CODM does not individually review budgets or results for these activities.

Other amounts included in the measure of segment (loss) income were as follows (in thousands):

Total assets for our reportable segment were located in the United States and were $562.8 million and $531.2 million as of September 30, 2025 and December 31, 2024, respectively. Expenditures for additions to long-lived assets were $12.5 million and $5.8 million for the three months ended September 30, 2025 and 2024, respectively, $31.1 million and $21.1 million for the nine months ended September 30, 2025, and 2024, respectively.