Carlsmed, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Carls Med Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to turn the conference over to your first speaker today, Caroline Corner, Investor Relations. Please go ahead, Caroline.

Thank you, operator. Welcome to Carl Smith's fourth quarter and full year 2025 earnings call. Joining me on today's call are Mike Cordonier, Chief Executive Officer and Chairman, and Leo Greenstein, Chief Financial Officer. Before we begin, I would like to caution that comments made during this call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements including statements regarding the market in which Carls Med operates, trends, expectations, and demands for Carls Med's products, and Carls Med's expected financial performance and position in the market. Any forward-looking statement provided during this call, including projections for future performance, is based on management's expectations as of today. Carls Med undertakes no obligation to update these statements except as required by applicable law. These statements are neither promises nor guarantees and are subject to known and unknown risks and uncertainties that could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements. For more detailed information, please review the cautionary notes on the earnings materials accompanying today's presentation, as well as CARLS-MED's filings with the SEC, particularly the risk factors described in CARLS-MED's annual report on Form 10-K for the year ending December 31st, 2025. I encourage you to review all Carls Med filings with the SEC concerning these and other matters. These filings, along with Carls Med's press release for fourth quarter and full year 2025 results, are available on Carls Med's website at www.carlsmed.com under the Investor section and include additional information about Carls Med's financial results. A recording of today's call will also be available on Carls Med's website by 5 p.m. Pacific time today. Now, I'd like to turn the call over to Mike to go over the Carls Med 2025 business highlights.

Thank you, Caroline, and welcome, everyone. 2025 was a rapid growth year for Carls Med, and I could not be prouder of what our team has accomplished to advance our mission of improving outcomes and decreasing the cost of healthcare for spine surgery. In July of 2025, we successfully completed our initial public offering, raising over $100 million, and we are efficiently deploying our resources towards patient-centric innovation, surgeon education, and commercial execution. In 2025, we delivered $50.5 million in revenue and 75.3% gross margins. This represents 86% year-over-year top line growth and 151 basis points of margin expansion. In the fourth quarter, we delivered a record 15.2 million of revenue with 61% year-over-year growth and 76.5% gross margins. With further advancements in our digital production system, we have driven increased productivity and reduced lead times for Prevo lumbar and our Prevo cervical patient-specific interbody portfolio. With these recent advancements, we are now at a lead time of six business days. Most importantly, we continue to see evidence of favorable patient outcomes. Two-year data from a retrospective cohort study published in the Global Spine Journal showed a 74% reduction in re-operation rates among adult spinal deformity patients receiving a Prevo lumbar implant as compared to a separately published patient cohort receiving conventional stock implants. These company highlights are the result of consistent operational excellence and commercial execution driven by our AI-enabled digital planning and patient-specific devices with a laser focus on what matters most, clinical outcomes. At Carls Med, we aim to improve spine surgery through our preoperative, intraoperative, and postoperative Aprivo digital surgery platform. We create AI-driven personalized surgical plans and 3D-printed, custom-made, anatomically designed spine fusion systems. Unlike traditional one-size-fits-all approaches, Real-world evidence suggests that our PREVO platform solution has the potential to improve outcomes and reduce the number of revision surgeries. We are fundamentally changing how spine surgery is planned and executed and how patients are treated. Our digital surgery and preoperative planning capabilities were designed to enhance operational efficiency and deliver more predictable and effective patient outcomes. And we believe we have substantial market opportunity ahead. In November, we launched our next generation MyAprevo ecosystem that seamlessly integrates mobile and web-based applications enabling deeper integration with surgeons' preoperative and postoperative clinical workflow. Our compelling clinical outcome data and economic value proposition has provided us a robust reimbursement foundation in lumbar surgery, where we have three MS-DRG codes that cover single-level and multi-level lumbar fusion surgeries for degenerative and deformity conditions. In October of last year, we were granted the new technology add-on payment, or NTAP, from CMS for a Prevo cervical spine fusion. This NTAP provides up to $21,125 of additional reimbursement per procedure to hospitals that utilize a Prevo patient-specific devices for inpatient cervical procedures. In 2025, we successfully added 101 new surgeon users on our platform, showcasing our rapid clinical adoption in a market hungry for innovation and improving outcomes. With the Prevo lumbar adoption tracking rapidly, we launched our technology into the cervical fusion market with the Prevo Cervical in December at the Cervical Scoliosis Research Society meeting. Cervical spine surgeries have historically been plagued by high variability in outcomes, and publications suggest these are prominent in patients with poor bone quality, long construct fusions, and deformity. About a third of cervical spine fusion patients have osteoporosis or osteopenia or soft bones. We're deeply focused on evaluating how Aprivo may benefit this patient population with osteoporosis and osteopenia, where it's challenging to deliver predictable outcomes. I'm deeply encouraged by the strong market traction in the early days of this launch. Operational excellence is the foundation of our rapidly scaling personalized surgery business. We've achieved another business milestone for our customers by reducing lead times by 25% with production timelines now at just six business days compared with eight business days in Q4 of last year and 20 days we saw a year prior. This milestone represents the final phase of our operational excellence initiative and positions us to scale meaningfully as we drive further market penetration. Also of note, our manufacturing is now a fully integrated process that spans both cervical and lumbar products on the same production line. The combination of positive patient outcome data, operational excellence, and expanding surgeon adoption across both lumbar and cervical indications reinforce our position as a true innovation leader in spine surgery. Now I'd like to walk you through our areas of strategic focus and some recent highlights and how our achievements position us to continue the durable, high-quality growth we've demonstrated today. Our first area of focus is patient-centric innovation. This month, we announced the first in human bilateral posterior aprivo procedure that was performed at the University of Colorado. This FDA-cleared breakthrough technology allows a surgeon to address degenerative disease conditions posteriorly with maximal bone-to-implant coverage through a minimally invasive surgical approach. The bilateral approach benefits from the same planning as the transferaminal approach while effectively doubling the bone-to-implant contact area. We have commenced the limited market evaluation of this new procedure on track for our launch in the second half of 2026. This month, we also announced the introduction of the CORA personalized fixation portfolio and the first in human personalized CORA cervical plate procedure performed at UCSF. The FDA 510 cleared CORA cervical plates are fully personalized to the patient's anatomy to provide harmonious plating fixation for the Aprivo cervical interbody. The CORA cervical plates are digitally designed using our proprietary AI-enabled planning system to optimize fixation to maintain the anatomical correction provided in the Aprivo planning platform. The CORA plates are available in a monoblock, multilevel plate configuration, as well as segmental plating configurations for short and long construct cervical fusions. We anticipate a second half of 2026 launch for the CORA cervical plating portfolio to further support the personalization of cervical spine surgery. Our second area of strategic focus is surgeon education. We've expanded our medical education team to meet the accelerating demand for a Prevo lumbar and a Prevo cervical. We continue to see strong interest in adoption from early to mid-career surgeons who are seeking to implement digital surgical workflows in their practice as they seek to increase predictability and improve patient outcomes. For example, our second annual Carls Med residents and fellows course, which will be held in Q2 at Columbia University, is fully enrolled months in advance of the course. We're really excited about our funnel of training, which gives us confidence that we're onboarding the next generation of Aprivo surgeon users who will support our efforts to drive adoption and increase procedure penetration. The third area is commercial execution. In the fourth quarter, we continued with our robust cadence of surgeon additions and ended the year with 101 new fully trained surgeons, each having performed one or more of Prevost procedures in 2025. During 2025, with further investments in our commercial footprint, we doubled our sales regions in the U.S. with our direct sales team partnering with more than 100 contracted sales agents to provide a high level of service to our customers. Looking forward to 2026, we're committed to continuing our momentum and delivering high-quality, sustainable growth for personalized spine surgery. I'm very excited about the year ahead of us. I'd like to express my personal gratitude to our shareholders, team members, and surgeon users for their unwavering support of our mission to revolutionize patient care. With that, I'll turn it over to Leo, who will review our financial performance.

Thank you, Mike, and good afternoon, everyone. I'll begin today with fourth quarter 2025 P&L highlights. Revenue for the fourth quarter of 2025 was $15.2 million, compared with revenue of $9.4 million in Q4 2024. Our 61% year-over-year quarterly revenue growth was driven by continued expansion of our total surgeon users and utilization rates. Our average revenue per procedure was consistent between these two periods as it was for the full year. So our revenue performance in the fourth quarter and for the full year 2025 remains driven by growth in approval procedure volumes. Gross margins were 76.5% for the fourth quarter of 2025 and 74.7% in the fourth quarter of 2024. This year-over-year improvement was primarily driven by lower contract manufacturing costs and various case design internal efficiencies. As we previously discussed, we made investments last quarter as part of our supply chain productivity initiatives. This yielded a production lead time reduction from eight business days in Q3 our current six business days as measured from the time of the surgeon's approval of the digital surgical plan to a pre-vote kit delivery to the OR. Total operating expenses were $20.9 million in the fourth quarter of 2025. This compared with $11.7 million in the fourth quarter of 2024. R&D expense was $5.3 million this quarter compared with $3 million in Q4 2024. This increase was primarily due to higher personnel costs to advance our patient-centric product development priorities and AI-enabled initiatives for our surgical planning processes. Sales and marketing expenses were $10.8 million this quarter, compared with $6.4 million in Q4 2024. This increase was substantially driven by increased sales headcount to drive our commercial execution strategy and stock-based compensation. And as part of our revenue growth, variable commissions to our sales team and independent sales agents, as well as other variable costs. General administrative expenses was 4.9 million this quarter, compared with 2.3 million in Q4 2024. The increase was driven by professional services for corporate legal, customary intellectual property matters, and personnel additions, as well as compliance and other costs as a publicly traded company. Our gap net loss was 8.6 million this quarter and was 4.7 million net loss in Q4 of 2024. EBITDA adjusted for stock-based compensation was a negative 8.4 million this quarter, compared to a negative 4.6 million in Q4, 2024. I'll now turn to our full year 2025 results. Revenue for 2025 was 50.5 million compared with the revenue of 27.2 million in 2024, representing 86% year-over-year growth. Gross margins were 75.3% for 2025 and 73.8% in 2024. Total operating expenses were $68.6 million for 2025 compared with $44.2 million in 2024. Our gap net loss was $29.6 million for 2025 and was a $24.3 million net loss in 2024. adjusted for stock-based compensation was a negative $28.4 million for 2025, compared to a negative $23.7 million in 2024. We anticipate continued improvement in adjusted EBITDA over the coming years, driven by revenue growth and increased operating leverage across our expense space. As we scale, expanding contribution margins, enabled by our capital light digital-first model, are expected to support our path toward cash flow break-even. Moving to our balance sheet, our cash and investments at December 31, 2025, totaled $109.9 million. Outstanding principal under our $50 million debt facility remains at $15.6 million. While we have no current plans to make additional draws ahead of its October 2030 maturity, this facility provides low-cost, non-dilutive standby capital and supports general corporate flexibility. Total liabilities as of December 31, 2025 were $31.3 million, of which $15.6 million relates to this debt facility. Our cash used in operating activities was $29 million in 2025. This compares to $25.5 million of cash used in operating activities in 2024. With our highly differentiated business model as the only pure play personalized surgery company, our balance sheet is in a solid position to drive revenue growth and expansion of our surgical planning and manufacturing capacities over the coming years. I'd now like to turn to our guidance for 2026. Our 2026 revenue range is expected to be $70 million to $75 million, representing an annual growth of 44% at the midpoint of the range over the full year 2025. I will now turn the call over to the operator for questions. Operator?

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, we ask that you please limit your questions to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question comes from David Roman of Goldman Sachs. Your line is open.

Hey, this is Jenny Rubino. It's on for David. Thanks so much for taking the question. I was hoping you guys could talk a little bit more about, like, the two new indications or platforms you announced in the quarter, the bilateral approach and CORA. How are you thinking about, like, the part of the market that this opens up for you? Is it new procedures, new surgeons? And how are you thinking about investment in these while you're also working on the cervical launch? Thanks so much.

Hey, Jenny, appreciate the question. So I'll address both of these. We're really excited about our expansion of our personalized surgery portfolio. So, first, for the bilateral aprivo lumbar, we see this as continuing to accelerate our adoption of the posterior surgery market. When we look at the totality of the lumbar fusion market, it's about 8% of the market, and This was really driven by our early surgeon adopters in the posterior surgery portion of the market. And early indications of this procedure are very positive. So now when we think about CORA, this is really our first foray outside of the disc space. And this was part of our original cervical portfolio plan. where we can now add a personalization to the cervical plate, which gives further personalization of the procedure. And so as we think about both of these early days, very positive. In the back half of the year, we'll have the full commercial launch.

Thank you. And our next question comes from Richard Newiter of Truist Securities. Your line is open.

Hi, this is Felipe. I'm from Rich. I guess on cervical, can you help us understand what the contribution was in the quarter and maybe how you're thinking about the ramp in 2026? And then I just have a follow-up question.

Yeah, so we're just weeks into the launch, and we've had really positive response to the cervical portfolio. As we did our clinical evaluation in the back half of last year and then commenced our full launch in December, you know, we've seen great adoption of the procedure both from a surgeon perspective as well as from a hospital adoption perspective. with the new technology add-on payment. And so we anticipate, you know, Cervical to continue to ramp per our plan, and particularly with the addition of the personalized Quora plates. We're very optimistic about this being a significant part of our portfolio on a go-forward basis.

Are you able to give any color on your, I guess, existing lumbar users and just adoption in cervical as far, I guess, like what is utilization looking like for cervical for those existing users?

Yeah, and we've been able to train about 10% of our total users on cervical in a very short period of time. And so this gives us a lot of confidence in, are existing Aprivo lumbar users continuing the adoption curve. And as we look at both the surgeon training as well as the, you know, hospital approval process, you know, we're getting really great traction with the cervical launch.

Thank you. And our next question comes from Travis Steed of Bank of America. Your line is open.

Hey, everybody. Congrats on all the progress. I guess I'll ask on the 26th guidance that kind of implies about $22 million of growth. You did like 23.5 and 25. I just want to make sure I understand kind of the building blocks in 26, what you're assuming for new surge in ads versus kind of utilization growth and Any more detail on kind of cervical would be helpful as well.

Hey, Travis. Good to hear from you. Thanks for the question. You know, ultimately when we think about our guidance for this year, you know, we want to make sure as a newly public company, you know, that we're prudent with our guidance. And as we think about our training program as well as, you know, continued training, adoption on both the lumbar and cervical platform here in the early days and even early days this year, you know, we're seeing, you know, good momentum and gives us a lot of confidence in the guidance that we put out.

That makes sense. Not as big of a deal, but, like, the lead time, like, you've made a lot of progress on lead time. You set down six days, and every quarter it gets shorter and just Like how is that impacting the business, do you think, in terms of willingness of new surgeons to adopt and maybe even, you know, reorder just because the lead time is getting less?

Yeah, it's been meaningful. And, you know, we really see six days as kind of the end-all, be-all. And so with this just hitting now in February – You know, it really gives, exactly like you said, new surgeon adoption some opportunities for acceleration there, as well as ensuring that, you know, if there are emergent cases inside of a trained surgeon's practice, that we have the opportunity to address those. And so that's been our magic target to get to, and, you know, really proud of the team that we were able to deliver on that in February. Great. Thanks a lot.

Thank you. And our next question comes from Ryan Zimmerman of BTIG. Your line is open.

Good afternoon, and congrats on your progress, guys. Just curious, Leo, on ASPs as we move into 26, I imagine there's some downward pressure on cervical or from ASPs the cervical launch on, you know, broader ASPs, but maybe the contribution is smaller, so it's, you know, maybe immaterial. I'm wondering if you could, you know, give us your thoughts on that. And then, you know, I'll just ask the second question up front. Your GNA is running a little lower than I think, you know, I expected at this point. Does that kind of carry into 2026? And, you know, any high-level thoughts you have on operating expense growth in 2026 is appreciated.

Hey, great. Hey, Ryan, this is Leo. So, maybe in order of your questions here, you know, with regard to ARP, we've seen, you know, fairly stable ARP in lumbar, and we foresee that to be the trend going forward. With respect to cervical, as we've discussed in the past, different reimbursement profile. So, we have our ARP and pricing adjusted accordingly. But the mix that we see in 2026 largely driven by lumbar will ultimately result in a slightly lower ARP in 2026 relative to 2025. But we certainly see it in the mid, the high 20K with regard to the procedural mix between cervical and lumbar. With regard to GNA, we clearly, want to maintain sufficient investment in the infrastructure to support a public company and ensure that we are providing necessary compliance and other support functions for the organization. But clearly, our focus will be investment within R&D and certainly within sales and marketing to drive ongoing revenue growth. In 2026, as I see this shaping up, continued operating leverage from the sales and marketing line, and that investment made in 25 that we will continue to invest in in 2026 will start to yield some improving benefits from those investments as a percent of revenue and ensuring that we are getting the leverage that we have intended for sales and marketing. And G&A will continue to decline as a percent of revenue by virtue of, you know, most of these costs being fixed that can support a growing organization. Thank you.

Thank you. And as a reminder, if you have a question, please press star 1-1. And our next question comes from Matthew O'Brien at Piper Sandler. Your line is open.

Hi, Mike. Hi, Leo. This is Anna here from Matt. Thanks for taking the questions. I wanted to ask a follow-up to Travis's question on the turnaround time and I'm just wondering if you could maybe elaborate a bit on how impactful that was to gross margin in the quarter and how we should think about margins in 26 based on this reduced lead time. Thanks.

Yeah. So, you know, the lead time reduction really is driving overall manufacturing capacity and our ability to support revenue growth as we see it over the next coming years. With regard to how that shaped up in the fourth quarter and the gross margin improvement that we've seen in the fourth quarter relative to Q3. As we talked about in the past, the investment within the DPS system, the digital production system, is continuing to yield ongoing efficiencies there that both drive efficiencies within the contract manufacturing and materials costs, as well as internal costs for case design. We see gross margins between lumbar and cervical being maintained in that mid-70s range into 2026 that can certainly provide that ongoing leverage and contribution margin to ultimately, in combination with the OPEX leverage that I just mentioned, converge to a clear pathway to profitability.

Excellent. And then just great to see the momentum on the new surgeons added in the quarter. seems to be a company record by our map in Q4. So just backing to the utilization, it seems like that might have been roughly flat sequentially. Just wondering when we should start to see a real meaningful uptick there and see, you know, deeper utilization within existing accounts.

Yeah, and I think that's a great question. We're really proud of our you know, surgeon education program that really accelerated the new surgeon users. And, you know, we continue to make strategic investments there in rolling out the programs, which with a, you know, a large portion of our surgeon user base, being relatively new to the platform, you know, we'll continue to invest in, you know, training and support of those accounts to see the incremental procedure volume utilization increase over the totality of our surgeon user base.

Great. Thanks for the color. Thank you. This concludes our question and answer session in today's conference call. Thank you for participating, and you may now disconnect.