Carlsmed, Inc. Common Stock 2026 Q2 Earnings Call

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 Carlsmed's annual report on Form 10-K for the year ended December 31st, 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 for 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's website by 5:00 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 aprevo, 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 aprevo 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 aprevo 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 FY 2027 Inpatient Prospective Payment System, or IPPS, final rule on July 31, 2026.

The final rule creates 3 new MS-DRG codes applicable to aprevo lumbar procedures, 523, 524, and 525, replacing the 11 MS-DRG codes that are currently applicable to aprevo lumbar procedures. This new reimbursement structure, which will go into effect on October 1, 2026, simplifies coding and enhances reimbursement for hospitals for the aprevo lumbar procedure. We appreciate CMS's continued partnership to implement this important policy, which we believe will expand hospital and patient access to the aprevo 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 aprevo. 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 aprevo 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 aprevo 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 med tech 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 aprevo 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 aprevo platform and have responded very positively to the growing body of clinical and economic benefits, showing reduced reoperation rates when using aprevo.

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 aprevo 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 aprevo bi-lateral 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 aprevo Cervical business, we're excited to have completed our second full quarter of commercialization to excellent reception in the surgeon community from existing aprevo surgeon users and those new to aprevo. With an estimated 370,000 cervical fusion procedures performed annually in the U.S., we're already driving impressive momentum of aprevo Cervical within this market as a further extension of the aprevo platform. Early feedback from surgeons indicates that aprevo Cervical procedure provides precise implant fit with maximized end plate 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 approval for our aprevo Cervical Effectiveness, or ACE, Multicenter Registry.

Our multicenter ACE registry will collect real-world evidence from patients treated with aprevo 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 corra Cervical Plating System commercial launch, which is expected to occur by the end of this year. The corra cervical plating platform is engineered to work seamlessly with the aprevo 3D planning and 3D interbody fusion implants to maintain a personalized, precise cervical alignment through the fusion process. With the full launch of corra personalized ACDF plates, surgeons will have the flexibility to perform a personalized cervical procedure with standalone fixation, personalized multilevel 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 aprevo plus corra Personalized Cervical Procedure. Early feedback from our limited market evaluation suggests that corra Personalized Plating System may better preserve aprevo planned alignment than off-the-shelf stock cervical plates. We remain on track for the launch of the corra 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 aprevo 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.