Castle Biosciences, Inc.

Good afternoon and welcome to Castle Biosciences' fourth quarter and full year 2023 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question and answer session. I would now like to turn the call over to Camilla Zuccaro, Vice President, Investor Relations and Corporate Affairs. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to CASEL Biosciences' fourth quarter and full year 2023 financial results conference call. Joining me today is CASEL's founder, president, and chief executive officer, Derek Massold, and chief financial officer, Frank Stokes. Information recorded on this call speaks only as of today, February 28, 2024. Therefore, if you are listening to the replay or reading the transcript of this call, Any time-sensitive information may no longer be accurate. A recording of today's call will be available on the investor relations page of the company's website for approximately three weeks following the conclusion of the call. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our financial outlook, TAM, and similar items referenced in our earnings release issued today, and statements containing projections regarding future events or our future financial or operational performance, including our anticipated 2024 total revenue and our 2025 outlook, our expectations regarding reimbursement for our products, and the impact of our investments in growth initiatives and expanded commercial teams. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties. There can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's annual report on Form 10-K for the year ended December 31, 2023, under the heading Risk Factors, and in the company's other documents and reports filed or to be filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. I will now turn the call over to Derek.

Thank you, Carmela, and good afternoon, everyone. I'm happy to report that we closed an outstanding fourth quarter, achieving very strong results for 2023. With fourth quarter revenue of $66.1 million, we grew revenue 60% year-over-year for the full year to $219.8 million, nearly $45 million above the midpoint of our expectations at the beginning of 2023. We've now grown revenue at a 43% CAGR rate over the last five years, continuing our track record of consistent execution. 429 total test reports in 2023, representing 59% growth compared to 2022. Furthermore, the fourth quarter marked the second consecutive quarter in which we achieved positive cash flow from operations and positive adjusted EBITDA. In 2023, we achieved numerous accomplishments, and I would like to take this opportunity to highlight some of them. We opened our new state of the art laboratory in Pittsburgh, Pennsylvania, received advanced diagnostic laboratory tests, or ADLT, status for our decision ESFCC test, bringing our total to five tests that have been designated as ADLTs, expanded our significant body of evidence across our entire test portfolio, made progress across our pipeline initiatives, and won multiple awards for being a top workplace. None of our accomplishments would be possible without the hard work and strong execution of the entire CASEL team, and I can't thank them enough. As I just mentioned, we expanded our significant body of evidence across our entire test portfolio in 2023. I want to touch base on data specifically on decision DX melanoma. We have demonstrated clinical validity, utility, and patient impact in 50 peer-reviewed publications. and studied the test in more than 10,000 patients, including two 2023 publications demonstrating an association with the clinical use of our test and improved patient outcomes. The first publication is from our collaboration with the National Cancer Institute's SEER program in an unselected, prospectively tested, real-world patient population, which showed that testing with decision DX melanoma was associated with lower melanoma-specific and overall mortality relative to untested patients. That is, patients who received DecisionDx melanoma as part of their clinical care lived longer. Specifically, DecisionDx melanoma testing was associated with a 29% lower melanoma-specific mortality and a 17% lower overall mortality relative to patients who did not receive DecisionDx melanoma as part of their clinical care. The second publication is from an independent multi-center study of symptomatic lymph node negative patients, showing that patients who received routine imaging after high-risk decision DX melanoma test scores had an earlier recurrence diagnosis with lower tumor burden, leading to better clinical outcomes, including improved overall survival. We believe these studies demonstrate the clear positive impact testing with decision DX melanoma has on patient outcomes. And further, DecisionDx melanoma is the only melanoma prognostic test shown to be associated with improved patient survival. Now let me take you through execution strategy highlights from the fourth quarter and the fiscal year, and then Frank will provide additional financial highlights before we turn to your questions. Let's start with our core dermatology business, which continues to perform extremely well. For DecisionDx melanoma and DecisionDx SCC combined, Test volume was 44,772 in 2023, a 33% increase over 2022. We are very pleased with our volume performance and believe these two core dermatology offerings continue to represent a significant growth opportunity. We continue to see overlap between clinicians who order a DecisionDx melanoma test and those who adopt DecisionDx SCC. In fact, during the year ended December 31st, 2023, approximately 78% of all clinicians ordering DecisionDx SCC had also ordered our DecisionDx melanoma test during the same period. We believe this is evidence of a high unmet clinical need that our tests are designed to address, coupled with the fact that clinicians who diagnose and manage early stage cutaneous melanoma skin cancer also diagnose other skin cancers, like cutaneous squamous cell carcinoma. For DecisionDx melanoma, we delivered 33,330 test reports in 2023, a 20% year-over-year increase. Consistent with prior years, our third and fourth quarter test volume reflected normal seasonality. We believe the documented clinical impact our test has on improving outcomes in patients diagnosed with cutaneous melanoma, including improved survival, coupled with our prior commercial expansion investments, have been and continue to be significant drivers of growth. Moving on to our DecisionDx SCC test. We continue to see a very strong test report volume momentum with 11,442 test reports delivered in 2023, an increase of 92% compared to 2022. As with our growth in DecisionDx melanoma, we believe that our strong growth for DecisionDx SCC is due in large part to the combination of the high clinical need in the high risk patient population coupled with the value that our test provides. We continue to expand on the body of evidence surrounding the test. For instance, a study published just last month in the Journal of Clinical and Aesthetic Dermatology found that using Decision DX-SDC to guide decisions surrounding adjuvant radiation therapy, or ART, could result in significant Medicare healthcare savings of up to approximately $972 million annually. Data show that integrating the objective DecisionEX SCC test into the management of patients diagnosed with high-risk SCC who are ART eligible can identify those who may safely avoid ART, leading to an improvement not only in health outcomes, but also a reduction in the cost in the Medicare population. I would now like to turn to our tissue cycle test. I'll remind you that as part of our strategic growth plans, We acquired seronostics in the tissue cipher test in December of 2021. The adoption of a tissue cipher Barrett's esophagus test has exceeded our expectations to date. As you may recall, this test expanded our estimated in-market commercial U.S. time by $1 billion, and we believe that it contributes to long-term value creation and also positions us to make a meaningful impact on patient care in other areas with unmet clinical needs. We delivered 9,100 tissue cipher test reports in 2023 compared to 2,128 test reports in 2022, which is more than 300% growth. We continue to be extremely pleased with the reception of tissue cipher by the gastroenterology clinical community. And based on current volume growth trends, we plan to expand this commercial team modestly in the second quarter of 2024. As you may recall, we had multiple data announcements during 2023, bringing our total to 14 peer-reviewed publications, demonstrating the ability and performance of our tissue cipher tests in risk-stratifying patients with Barrett's esophagus disease to guide risk-appropriate treatment plan decisions. Turning to our mental health business, we delivered 10,921 idigenic test reports in 2023 compared to 3,249 test reports in 2022 which is more than 200% growth. We believe a significant driver of growth is our differentiated test for the treatment of mental health conditions, including identifying drug-drug, drug gene, and lifestyle factors to improve medication response or emission rates in a large, under-penetrated mental health market. In fact, real-world evidence confirms the consistent impact of idigenics on medication response and emission rates in patients with major depressive disorder, or MDD. Specifically, the study found that real-world patient outcomes were strongly aligned to the results of a previously published randomized controlled trial, which showed that patients whose medication management was guided by IGNX were 2.65 times more likely to achieve remission of depressive symptoms compared to patients whose medication was not guided by our test. Moving on to our inflammatory disease pipeline initiative to develop a genomic test or series of tests aimed at predicting response to systemic therapy in patients with moderate to severe atopic dermatitis, psoriasis, and related conditions. Last quarter, we shared some early yet promising discovery data. The data demonstrated that in patients with moderate to severe atopic dermatitis, we're able to show that using our non-invasive method of tissue sampling coupled with gene expression profiling can separate out responders and non-responders. Furthermore, our inflammatory skin disease pipeline test could help distinguish atopic dermatitis, psoriasis, and mitosis fungoides skin lesions to help ensure proper therapy selection based upon an individual patient's molecular profile. We expect to provide you with additional development updates in the second half of 2024 with a test target for launch by the end of 2025, assuming a positive outcome of our discovery, development, and validation efforts. I'll now turn the call over to Frank, who will provide details relating to our financial results and outlook. Thank you, Derek, and good afternoon, everyone.