Carlsmed, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Carlsmed Second Quarter 2026 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, Stephanie Zhadkevich, Investor Relations.

Please go ahead, Stephanie. Thank you, operator.

Welcome to Carlsmed's second quarter 2026 earnings call. Joining me today are Mike Cordonnier, Chairman and Chief Executive Officer, 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 Carlsmed operates, trends, expectations, and demand for Carlsmed's products, expectations with respect to reimbursement, statements about the company's clinical data, surgeon adoption and utilization, and Carlsmed's expected financial performance, growth prospects, and position in the market. Any forward-looking statements made during this call, including projections for future performance, is based on management's expectations as of today. Carlsmed 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 Carlsmed's filings with the SEC particularly the risk factors described in Carls Med's annual report on Form 10-K for the year ended December 31st, 2025. I encourage you to review all Carls Med's filings with the SEC concerning these and other matters. These filings along with Carls Med's press release for the second quarter of 2026 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. Additionally, during today's call, management will discuss certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in today's earnings press release. A recording of today's call will be available on Carls Med's website by 5 p.m. Pacific time today. Now, I would like to turn the call over to Mike to go over Carls Med's business highlights.

Thank you, Stephanie, and welcome, everyone. At CarlsMed, our mission is to improve outcomes and decrease the cost of healthcare for spine surgery and beyond. We accomplish this through our proprietary data and AI-enabled surgeon-in-the-loop personalized surgery platform. The published clinical evidence behind Aprivo, which demonstrates meaningful reductions in reoperations, continues to drive strong surgeon adoption, procedure volume, and revenue growth, while our inventory-light, digital-first model lets us scale that growth efficiently. We believe CarlsMed represents the future standard in medical technology, one that is better for patients, surgeons, hospitals, and payers. In the second quarter, we delivered strong revenue of $18.9 million, representing 57% growth over the prior year. driven by rapidly onboarding new surgeons, deepening utilization within our existing customer base, and building upon our recent launch of Aprivo Cervical. In the second quarter, our surgeon user base grew by more than 60% year-over-year compared to the second quarter of 2025. We saw an increase in new surgeon users and utilization driven especially by demand for Aprivo within higher acuity procedures that are predominantly inpatient procedures for lumbar fusion and cervical fusion. Reflective of this strong growth in the first half of 2026 and our expectations for the second half of the year, we are raising our full year 2026 revenue range to between $74 million and $78 million revenue, representing over 50% growth at the midpoint over full year 2025. In a meaningful recent development, CMS issued the FY27 Inpatient Prospective Payment System, or IPPPS, final rule on July 31, 2026. The final rule creates three new MS-DRG codes applicable to Aprivo lumbar procedures. 523, 524, and 525, replacing the 11 MS-DRG codes that are currently applicable to Aprivo lumbar procedures. This new reimbursement structure, which will go into effect on October 1, 2026, simplifies coding and enhances reimbursement for hospitals for the Aprivo lumbar procedure. We appreciate CMS's continued partnership to implement this important policy, which we believe will expand hospital and patient access to the Aprivo procedure. We are committed to training the next generation of surgeons through expansion of our world-class medical education program for 3D preoperative planning. Our residents and fellows program continue to expand as we partner with leading teaching institutions to provide hands-on experience with the PREVO. We have seen strong traction from early and mid-career surgeons who are eager to adopt 3D planning and personalized surgery in their practice to drive predictable outcomes. Our marquee medical education program, the Aprivo Power Forum, will take place this weekend and we anticipate more than double the surgeon attendees compared to our 2025 program. Our faculty will be providing the latest data and advanced preoperative planning techniques for our Aprivo cervical and lumbar procedures optimized for minimally invasive or open surgical techniques for patients with complex deformity and degenerative disc disease conditions. Operationally, we continue to demonstrate the efficiencies of our Capital Light digital-first business model. Our proprietary digital platform enables us to provide patient-specific and surgeon-specific preoperative 3D plans Personalized implants and single-use instruments directly to the hospital. Without the significant capital investments required by traditional medtech companies like surgical trays and stock implants, we can focus on patient-centric innovation in partnership with surgeons and hospitals and execute on our mission to improve patient outcomes. With our deep focus on technology and operational excellence, we can consistently deliver Aprivo surgical kits to the hospital in about a week after surgeon approval of the plan. With our continued advancements in technology process and supply chain, we have achieved approximately 340 basis points of gross margin expansion year over year. In the second quarter, lumbar fusion procedures represented approximately 90% of our revenue and cervical fusion procedures represented approximately 10%. While we continue to grow the lumbar franchise rapidly, we believe that we are still in the early innings with an estimated 445,000 lumbar fusion procedures performed every year in the U.S. Our growing base of surgeon users and hospital customers continue to gain experience with the Aprivo platform and have responded very positively to the growing body of clinical and economic benefits showing reduced re-operation rates when using Aprivo. Most recently, peer-reviewed data from a retrospective cohort study published in the Global Spine Journal showed a 74% reduction in reoperations in adult spinal deformity patients treated with the Prevo personalized lumbar implants. This represents one of the most significant clinically supportive advancements in patient outcomes in lumbar fusion technology in the past 25 years. We continue to expand the lumbar franchise with the limited market evaluation of the Aprivo bilateral system. Early feedback from surgeon users suggests that this procedure can achieve targeted disc and regional alignment with double the graft area contact. Adoption has been strong so far with surgeon users highlighting the benefits of preoperative 3D digital planning and visualization and the seamless integration into their posterior bilateral intraoperative technique. This expansion of the lumbar procedure addresses an estimated 30,000 procedures in the U.S. annually. We remain on track for a Q4 commercial launch. In our Aprivo cervical business, we're excited to have completed our second full quarter of commercialization to excellent reception in the surgeon community from existing Aprivo surgeon users and those new to Aprivo. With an estimated 370,000 cervical fusion procedures performed annually in the U.S., we're already driving impressive momentum of Aprivo cervical within this market as a further extension of the Aprivo platform. Early feedback from surgeons indicate that a prevocervical procedure provides precise implant fit with maximized implant coverage, which we believe has the potential to benefit patients with low vertebral bone density, such as osteoporosis and osteopenia, conditions that impact nearly 80% of patients. With our commitment to ongoing clinical data collection and publications, we're pleased to announce that we have recently received IRB Aprivo for Aprivo Cervical Effectiveness, or ACE, multicenter registry. Our multicenter ACE registry will collect real-world evidence from patients treated with Aprivo Cervical at six months, one year, and two year time points. We're on track to commence enrollment in Q4 and anticipate more than a dozen sites with 300 plus total patients enrolled. To expand our cervical franchise, we're progressing on track for our Cora Cervical Plating System commercial launch, which is expected to occur by the end of this year. This CORA cervical plating platform is engineered to work seamlessly with the Aprivo 3D planning and 3D inner body fusion implants to maintain a personalized, precise cervical alignment through the fusion process. With the full launch of CORA personalized ACDF plates, surgeons will have the flexibility to perform a personalized cervical procedure with standalone fixation, personalized multi-level fixation and segmental fixation. With approximately 60% of cervical ACDF procedures in the U.S. utilizing fixation plates, there's a significant potential for strong adoption of the Aprivo plus Cora personalized cervical procedure. Early feedback from our limited market evaluation suggests that CORA personalized plating system may better preserve a Prevo planned alignment than off-the-shelf stock cervical plates. We remain on track for the launch of the CORA cervical personalized plating system in Q4. Charles Med's long-term strategy remains focused on the same pillars that have driven durable, high-quality growth to date. Patient-centric innovation remains at the core of our platform. We continue to advance our proprietary, personalized surgery technology through AI-enabled, surgeon-in-the-loop 3D surgical planning Seamless workflow integration and devices specifically built for each patient and surgeon. Our clinical data collection and world-class medical education continue to drive the engine behind everything we do. On the commercial side, we're relentlessly executing new surgeon onboarding, Deepening utilization among existing surgeons and broadening access across hospital systems. Demand for a Prevo personalized surgery is growing fast, so we're continuing to expand our medical education programs, including new courses for residents and fellows in leading academic institutions, as well as advanced courses for key opinion leaders. Winning over early and mid-career surgeons, the ones actively looking to modernize their practice with digital planning, remains central to our long-term growth story. We continue to educate and grow our partner network to expand access to hospitals and surgeons nationwide. Central to these activities is strong clinical evidence generation. Everything we do is grounded in data because credibility with surgeons, health systems, payers, and patients is earned with proof. We believe our AI-enabled personalized surgery platform has the potential to become the new standard of care for spine fusion and beyond. I'm enthusiastic about our progress towards making a Prevo personalized surgery the new standard of care as we work tirelessly to expand access to hospitals, surgeons, and most importantly, patients in need of this procedure at a rapid pace. With that, I'll turn it over to Leo, who will review our financial performance.

Thank you, Mike, and good afternoon, everyone. Revenue for the second quarter of 2026 was $18.9 million compared to $12.1 million in Q2 2025, representing 57% growth year-over-year. This growth was driven by continued market share gains of the Aprivo lumbar platform with our expanding surgeon user base as well as strong contributions from our newly launched Aprivo cervical platform. Average revenue per procedure in lumbar and Cervical has remained consistent over the past few quarters. So unit volume growth continues to drive results. Gross margins were 76.8% in the second quarter of 2026 compared to 73.4% in the second quarter of 2025. Gross margin expanded 340 basis points year over year as decreased contract manufacturer costs on a per unit basis and continued efficiency improvements in our Prevost Digital Production System more than offset the impact of product sales mix. Total operating expenses were $25.6 million in the second quarter of 2026 compared to $15.4 million in the second quarter of 2025. R&D expenses were $6 million this quarter compared with $4.2 million in Q2 2025. This increase was primarily due to higher personnel costs for the advancement of our patient-centric product development priorities and AI initiatives within the Aprivo platform. Sales and marketing expenses were $11.9 million this quarter, compared with $7.9 million in Q2 2025. This was driven by increased sales headcount to drive our commercial execution strategy, increased targeted marketing investments for the ongoing expansion of our surgeon user base, and variable commissions to our sales team and independent sales agents as part of our revenue growth. General and administrative expenses were $7.6 million this quarter, compared with $3.3 million in Q2 2025. The increase was primarily driven by personnel additions and professional services costs and legal fees to support corporate operations, company compliance programs, and intellectual property and other ordinary course legal matters. Our GAAP net loss was $10.5 million this quarter compared to net loss of $6.8 million in the second quarter of 2025. Adjusted EBITDA was negative 8.6 million this quarter compared to negative 6.2 million during the second quarter of 2025. Over the coming quarters, we anticipate that our capital light digital first business model will enable contribution margin dollars to grow meaningfully faster than our fixed cost base. Our modeled ramp of revenue growth Gross margins in the high 70s and operating expense leverage underpins future improvement in adjusted EBITDA and provides a visible pathway towards cash flow breakeven with our current capital resources. Turning to our balance sheet, as of June 30, 2026, cash and investments totaled $89.3 million. Total liabilities were $34 million, with $15.6 million relating to outstanding principal under our $50 million debt facility that matures in October 2030 and provides non-dilutive standby capital to support general corporate flexibility. Our cash used in operating activities was $7.4 million during the quarter, compared to $8.2 million in the second quarter of 2025. Unlike traditional medtech businesses that require heavy capital investments in stock implant and instrument sets, our business can scale efficiently and effectively without it. As an AI-enabled personalized surgery company, the focus of our capital deployment is for the advancements in our Fribo platform technology and continued product innovation revenue ramp initiatives, and digital production processes that will support highly efficient business scale. Turning the guidance, we are raising our full year 2026 revenue range to between 74 million and 78 million revenue, representing over 50% growth at the midpoint over full year 2025. This is reflective of the strong volume growth that we've seen in the first half of 2026. and our expectations for the second half of the year for both aprivo lumbar and cervical. Our expected catalysts in the second half include the FY27 IPPS final rule going into effect on October 1st and anticipated uplift for our overall aprivo lumbar volumes and the planned fourth quarter commercial launches of our aprivo lumbar bilateral system and CORA cervical plating system. During the second half of 2026, we anticipate sustaining gross margins in the high 70s with durable efficiencies in our digital production system from earlier investments, as well as fixed cost absorption over an increasing production base with our sales growth. With that, I'll turn the call over to the operator for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Also, please note we're allowing one question and one follow-up. Our first question comes from Matthew O'Brien at Piper Sandler.

Great, thanks for taking the questions. Maybe Leo, just talking about the guide in the back half. It's good to see you bumping it up by more than a beat here in Q2, but it does still imply a little bit of a decel second half versus first half.

So I'm just wondering, is there anything that you're building in there? I don't know if just there's a little bit of, Concern that maybe surgical volumes could slow in the back half just with some of this ACA and Medicaid discussion or if there's anything specific to call out there or if you're just trying to be conservative as a newer public company.

And then I do have a follow-up.

Hey, Matt. Thanks for the question. We remain highly confident in our growth both in the near and long term. And as you suggested, this does reflect our continued approach of providing prudent guidance As Mike pointed out, you know, we had 57% revenue growth in the first half of 26 relative to the first half of 25. And the midpoint of our guidance implies a 45% level of growth over the second half of 25. So, you know, we remain increasingly bullish on the prospects of our business and the catalyst that we see, you know, here coming up in the second half of 26 that will drive continued growth and adoption of the approval platform in 2027. Got it. Appreciate that. And then Mike, I mean, I could ask a million questions, reimbursement, the new price, et cetera, but the new surgeon number, obviously we don't get it anymore, but it looks like it's pretty close to an all-time high for Carlsmed. And I'm just curious if you're seeing it because of the cervical platform and then what potentially could happen to that interest, you know, as you layer in these reimbursement benefits.

Thank you.

Yeah, thanks, Matt. We've seen, we had a really great quarter and really great year with new surgeon ads. And as mentioned, you know, we developed a cervical platform really on the heels of strong interest from existing Prevo lumbar users. And what we've seen trend and year-to-date as well as played out in this quarter is we're getting new surgeon users that are not just adopting lumbar but also adopting cervical for the first time. And so we have seen an acceleration in new surgeon users, and that gives us a lot of confidence in, you know, our ongoing growth as we grow both the lumbar franchise and the cervical franchise.

Got it. Thank you.

Thanks, Matt.

Our next question comes from Travis Steed at Bank of America.

Hi, this is Aiden on for Travis. I know you mentioned the DRG being a catalyst in the second half, but I guess to zoom in, you know, how much are you baking in as a benefit and how should we think about the cadence in the second half? Is there potential that, you know, they push procedures in the 4Q just waiting for that DRG bump? What do you think about that and what do you think we're going to see in the second half?

Aiden, thanks for the question. As we think about this, we do see this new CMS ruling as materially beneficial to hospitals for the long term. As you know, Q3 tends to be a bit of variability in procedure volume. While we don't anticipate this recent ruling from Medicare to have any material impact on our strong business, in the second half of the year. We see that this new rolling as well as the catalysts and the product pipeline that we have being really beneficial in 27 and beyond as we continue to scale our business, as we continue to increase our hospital access to this procedure.

And I guess when we think about 27 and beyond, When you approach this in terms of driving growth, is this more of a pricing opportunity, a volume opportunity, or are you going to approach both of those?

Yeah, we anticipate maintaining our average revenue per procedure largely where it's at and really looking at this opportunity to increase our partnerships with hospitals and accelerating access to the hospitals. NetNet procedure volume growth versus growth through ARP. Thank you.

Our next question comes from Richard Newlitter at Truist Securities.

Hi. Thanks for taking the question. Maybe just to follow up on the cadence question. I'm sorry if you may have answered this and I missed it. The consensus standing today in 3Q heading in would imply a sequential downtick versus 2Q. I guess, you know, you didn't see that last year. In fact, it stepped up. Is that the right way to think about it? And then with respect to what may or may not be reflected in terms of any kind of volume pickup or any kind of tailwind later this year from the reimbursement, how should we think of, you know, The top end of the range, does the top end of your guidance range assume anything there? Or would that be in addition to that? And then maybe just talk to us about what would get you to the top end of the range. Thanks.

Hey, Rich. This is Leo. So when we think about guidance, as I covered, we want to make sure that we have the ability here to continue to achieve the parameters that we've set out and certainly to overachieve in terms of hitting the higher end of that guidance. The model guidance that most recently that we've provided here is reflective of current state. We are not necessarily baking in incremental revenue from the IPPS ruling that we see largely being a tailwind into 2027 as our hospital customers absorb this latest rule. And it eventually will accelerate as we see it the VAC committee process to give us expanded coverage within new hospital systems and certainly deepened penetration within our existing surgeon base.

That's helpful. And then just on gross margin, you've been beating our gross margin assumptions pretty consistently and by a decent margin pretty much since you've been public. I guess where could we be headed if we just think a year or two out at Is this something that could be approaching 80% as we move closer to 2028?

Yes, if you look out maybe over the next 24 months, we do see opportunities that we can get potentially into the higher end of the 70s and even into the lower end of the 80s. We'll certainly make ongoing priority thoughtful investments in how we further optimize our digital production system. as we did a couple quarters ago that have proven out to be sustainable with regards to keeping our gross margin level in the high 70s. So Q1 of this year and Q2 both at the 77% level, even with the product mix including cervical. So we can continue to build from that as we further enhance the DPS system, and I think we'll have ongoing opportunities into the future to further tick up But certainly at the high 70s, we have a very scalable model upon which to accelerate our growth and ultimately to hit that adjusted EBITDA break-even mark as we think about, more importantly, the operating expenses continuing to decline as a percent of revenue.

Thank you.

Our next question comes from Ryan Zimmerman at U.S. Bancorp.

Hi, this is Izzy Onforay and thanks for taking the questions. So I just wanted to start with the upcoming launch of CORA and I'm curious what plans have been in place in terms of how you're planning to roll it out, whether we should expect to see broad availability or if this will be more of a targeted initial rollout to a smaller subset of users.

Yeah, great question. We're really excited about the CORA cervical launch. As previously stated, we're in the process of a limited market evaluation. We've got great feedback. And in the fourth quarter, we'll be moving towards a full commercial launch in conjunction with one of the fall society meetings. And so really looking forward to that. And as we've talked about CORA before, this gives us the ability to have a fully personalized ACDF that can provide enhanced clinical outcomes. And it also has the benefit of giving us a slight uptick in our ARP that will be meaningfully beneficial to us on the cervical franchise.

Got it. Thank you. And we've heard from some competitors about plans to introduce their own custom implants. I was curious what your outlook on the market is as we start to see more competition entering. Thanks for taking the questions.

Yeah, we feel really confident in our growth and our growth profile as we continue to be the only pure play AI-enabled personalized surgery company with the very novel pre-vote procedure. We do, however, see this as really a tipping point in innovation in the industry, and we're really glad to see You know, the investment in innovation that's really going into this space as it's really ripe for innovation.

Our next question comes from David Saxon at Needham & Company.

Great. Good afternoon, Mike and Leo. Congrats on the quarter, and thanks for taking my questions. Maybe just on cervical, I mean, really strong here coming out at 10% of the mix. So can you give an update on how you're thinking about the four-year mix? I think prior it was high singles to low doubles, so an update there would be great. And then by category, how are you thinking about pricing in lumbar and cervical for the back half?

Yeah, so we were certainly pleased with the surgeon receptivity to Aprivo Cervical given, you know, it's going to the largely same call point of surgeons. So, you know, very effective way in which we can have another indication in the bag for our longer term leverage and achieving, you know, those decreasing operating expenses as percent of revenue. With regard to, you know, our expectations for the second half of the year for cervical versus lumbar, You know, we definitely see an ongoing uptick in cervical volumes while we continue to grow lumbar. I'd anticipate that for the second half of the year, we're probably in the low double digits. So, you know, 11, 12 percentage points or so of cervical on a revenue dollar basis as compared to lumbar. As we think about the average revenue per procedure, So in Q2, our average revenue per procedure in lumbar was roughly $29,000. For cervical, it was around $18,000. We see those levels persisting over the coming quarters. We'll certainly have an ability here with the launch of CORA plating for cervical to provide an additional modest uplift in average revenue per procedure for cervical as well.

Okay, that was helpful. Thanks for that, Leo. And then maybe for Mike, just regarding the DRG changes, I mean, is that something you could start to see a benefit from in terms of just starting those conversations and getting access into those centers even before it goes live? Or do you think, you know, October 1 is kind of when those conversations start and then, you know, the real benefit is more like a 27 event? Thanks so much. Thanks, David.

Like I stated, we're really appreciative of the partnership with CMS in appropriately reimbursing this procedure, and certainly our current hospital partners are Very enthusiastic about this and we're continuing to have those conversations with new hospitals that are looking at offering this to their surgeons and patients. And so while the product approval time still does take some time, we'll start to see the impact of that here in the near term and the long-term durability of our growth in 27 and beyond. Great. Thanks so much.

This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.