CASTLE BIOSCIENCES INCCSTL
CASTLE BIOSCIENCES INC Fair Value Disclosure
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 830. 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 (in thousands):
As of December 31, 2025 | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
Money market funds(1) | $ | 108,914 | $ | — | $ | — | $ | 108,914 | |||||||||||||||
U.S. government securities - AFS(2) | $ | 171,631 | $ | — | $ | — | $ | 171,631 | |||||||||||||||
Equity securities(2) | $ | 5,555 | $ | — | $ | — | $ | 5,555 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
Term Debt(3)(4) | $ | — | $ | 10,057 | $ | — | $ | 10,057 | |||||||||||||||
As of December 31, 2024 | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
Money market funds(1) | $ | 114,091 | $ | — | $ | — | $ | 114,091 | |||||||||||||||
U.S. government securities - AFS(2) | $ | 169,866 | $ | — | $ | — | $ | 169,866 | |||||||||||||||
Equity securities(2) | $ | 3,555 | $ | — | $ | — | $ | 3,555 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
Term Debt(3)(4) | $ | — | $ | 10,023 | $ | — | $ | 10,023 | |||||||||||||||
(1)Classified as “Cash and cash equivalents” in the consolidated balance sheets.
(2)Classified as “Marketable investment securities” in the consolidated balance sheets.
(3)Classified as “Current portion of long-term debt” and “Long-term debt” in the 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.
The Convertible Loan Receivable with SciBase is carried at amortized cost which approximates fair value due to the variable interest rate and market-based terms of the instrument. Fair value is estimated using a discounted cash flow model. The inputs used to fair value the Convertible Loan Receivable are classified as Level 2 in the fair value hierarchy and include three-month STIBOR and a market credit spread. For additional information on the carrying amount and estimated fair value of our Convertible Loan Receivable, see Note 2.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.