Carlsmed (CARL) Q2 2026 earnings call transcript

Thank you, operator. Welcome to CARLSMED's second quarter, 2026 earnings call. Joining me today are Mike Cordonier, 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 meeting 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, gross 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 CARLSMED's annual report on Form 10-K for the year ended December 31, 2025. I encourage you to review all CARLSMED's filings with the SEC concerning these and other matters.

These filings, along with CARLSMED's press release of the second quarter 2026 results, are available on CARLSMED's website at www. carlsmed. com under the Investors section and include additional information about CARLSMED'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 CarlsMED website by 5 p. m. Pacific time today. Now, I would like to turn the call over to Mike to go over CarlsMED'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 a PREVO, 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 a Prevo 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 a Prevo 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 MSDRG codes applicable to a Prevo lumbar procedures, 523, 524, and 525, replacing the 11 MSDRG codes that are currently applicable to a Prevo lumbar procedures. This new reimbursement structure, which will go into effect on October 1, 2026, simplifies coding and enhances reimbursement for hospitals for the Privo lumbar procedure.

We appreciate CMS's continued partnership to implement this important policy, which we believe will expand hospital and patient access to the Privo 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 Prebo. 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 PREVO cervical and lumbar procedures optimized for minimally invasive or open surgical techniques for patients with complex deformity and degenerative disc disease conditions. and the final questions. 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. With 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 a Prevo surgical kit 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 Apprevo platform and have responded very positively to the growing body of clinical and economic benefits showing reduced re 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 re-operations in adult spinal deformity patients treated with Aprivo 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 a 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 Prevo cervical business, we're excited to have completed our second full quarter of commercialization to excellent reception in the surgeon community from existing Prevo surgeon users and those new to Prevo. 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 PREVO cervical 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 our Aprivo Cervical Effectiveness, or ACE, multi-center registry.

Our multi-center 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 Quora 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 Aprivo 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.

CARLSMED'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 2023. 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 Primo 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 Apprivo 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 surge in user base, and variable commissions to our sales team and independent sales agents as part of our revenue growth. General and administrative expenses were million this quarter compared with 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 gap 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 model 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 break-even 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 Freevo platform technology and continued product innovation, revenue ramp initiatives, and digital production processes that will support highly efficient business scale.

Turning to 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 a pre-vo 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.

Hey, Matt. Thanks for the question. You know, 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, 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 we remain increasingly bullish on the prospects of our business and the catalysts that we see here coming up in the second half of 26 that will drive continued growth and adoption of the approval platform in 2027.

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.

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 ruling as well as the catalyst in the product pipeline that we have You know, being really beneficial, you know, in 27 and beyond as we continue to scale our business, as we continue to increase our hospital access to this procedure.

Yeah we see we anticipate maintaining our average revenue per procedure largely where it at and really looking at this opportunity to increase our partnerships with hospitals and accelerating access to the hospitals So net procedure volume growth versus growth through ARP Thank you Our next question comes from Richard Newlitter at Truist Securities Hi.

Hey, Rich. This is Leo. So, when we, you know, think about guidance, as I covered, we want to make sure that we have the ability here to continue to achieve, you know, the parameters that we've set out and certainly to overachieve in terms of hitting the higher end of that guidance. You know, 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, you know, eventually will, you know, 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.

Yes, as 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, they have proven out to be sustainable with regards to keeping our gross margin level in the high 70s. So Q1 of this quarter and 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, you know, 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.

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.

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 Prevo 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.

Yeah, so we're certainly pleased with the surgeon receptivity to Prevo cervical, given, you know, it's going to the largely same call point of surgeon. So, you know, a 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.

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 and average revenue per procedure for cervical as well.

Thanks, David. Yeah, like I stated, you know, we're really appreciative of the partnership with CMS and, you know, 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, you know, 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.