Carlsmed, Inc. (CARL) August 12, 2026 Conference Transcript

Hi, everyone. Thanks for joining. Just wanted to come on to say welcome. Thanks for joining one of the sessions at day two of our small and mid-cap virtual event. Great opportunity to hear from corporates across the small and mid-cap space where our analysts have really great breadth of coverage, about a thousand small and mid-caps that they cover in the U.S. So, you know, feel free to reach out for if you need the schedule for the rest of the day, any additional questions you want to join, but wanted to pass it over to Travis.

Hi, everybody. Travis D, the MedTech analyst here at B of A. We'll welcome Carl's Met up next. We've got the full team, Mike, Leo, and Stephanie recently joined as Investor Relations. So maybe I'll turn it over to you, Mike, and maybe start with an introduction. and, you know, the business for those kind of unfamiliar with the story here.

Thanks, Travis, and thanks, Jill, for having us today. You know, really thrilled to be here. So just a little bit about Carl's Med. You know, we are a AI-enabled med tech company and really founded on a mission to improve outcomes, decrease the cost of health care for spine surgery and beyond. And we developed this breakthrough technology that allows us to take imaging from patients, data from surgeons, create a 3D virtual model of the patient's spinal pathology, the optimal 3D surgical plan for that patient. and then the perfect fit three-dimensional devices that are 3D printed that go into the disk space of the patient and create three-dimensional alignment. And so we received this breakthrough technology for lumbar spine fusion as well as cervical spine fusion. And with our platform technology, we've been able to meaningfully improve outcomes in this patient population. So what's really unique about our business in the med tech space is that we are digital first. We actually have no inventory. And so we're able to model the surgery digitally, build on demand the devices specifically for the surgery, and collect post-op data for every surgeon, every patient that continues to improve the platform.

Maybe to lay the groundwork, What's some of the biggest challenges with traditional spine surgery today and whether for patients, surgeons, hospitals, payers, kind of all the different customers, if you will, and how you're kind of uniquely positioned to solve those problems?

Yeah, so when we started the company, we were narrowly focused on this really big problem with spine surgery in that particularly for complex spinal deformity surgery, it's really difficult to create a three-dimensional surgical plan that the surgeon can implement in surgery and the patient can maintain that correction postoperatively. And so traditionally for that patient population, there's a really high revision rate. And so this is a challenge for patients, it's a challenge for surgeons, and ultimately it's a challenge for payers because these are really expensive procedures. And so what we've been able to do is to build a different kind of business where we're deeply focused on delivering the right surgical plan for the patient and the surgeon and build those devices specifically for that patient, for that surgeon. And what we've been able to prove is that we've improved outcomes and ultimately lowered the cost of treating that patient population.

And one of the things that helped validate the approach here is the clinical data you've published and generated, you know, maybe for the, especially those newer to the story, walk through some of the clinical findings and, you know, how surgeons have responded to the evidence that you've built.

One of the, you know, when we talked about, you know, our deep focus on patient population, we've done most of the clinical data studies on the most complex patients. And so we look at adult spinal deformity. These are patients that have a complex curvature of the spine, very degenerative disc spaces. And so with our technology, we're able to restore alignment and actually deliver the alignment in the disc space. And so most recent data that was published in the Global Spine Journal showed for patients that received our technology with a 3D surgical plan, the 3D fusion devices versus traditional spine fusion, that there was a 74% reduction in reoperations in that patient population. So that's really significant tool that's now available for surgeons to deliver to their patients.

How should we think about the market opportunity that you're addressing today and like, you know, whether procedure volumes and kind of growth, et cetera?

So when we look at the market, we play today in two distinct but similar markets, lumbar spine fusion, cervical spine fusion. We look at both of these markets right around 400,000 addressable procedures, which takes us north of a $10 billion market opportunity in the U.S. With our early stage, we're growing very rapidly and continuing to train surgeons, accelerate hospital access so that we can make this available to all patients.

When you think about kind of the difference between lumbar and cervical, anything kind of different to call it from a commercial perspective or kind of clinical perspective? Absolutely.

So, the great thing about the market itself is there's a really large overlap, hospitals, surgeons that perform both lumbar and cervical fusion procedures. For the markets themselves and the clinical benefit, there's a lot of overlap in our technology. And so we started with Lumbar. We just launched Cervical in December of last year. With Lumbar, our Lumbar platform, using the AI-enabled medical device to automate the surgical plan, the patient-specific model, we're able to actually precisely deliver three-dimensional alignment, which is really important for giving a stable construct that maintains durability postoperatively. For the platform for cervical, we really engineered it focused on patients with poor bone quality, which is a really big challenge with the ACDF procedure that a large percentage of patients have poor bone quality, and we're able to not only personalize the alignment, but engineer each individual device in a way that supports the fusion with a very high surface area that puts it in a great position for fusion, even if the patient has compromised bone quality. And so early clinical experience with that's been really phenomenal because surgeons now have a tool for this more challenging patient population and cervical.

Okay. When you think about just like accounts and percent of accounts you're in and cover and tell into, how do we think about it from like the bottoms up account basis, your business today?

So we still say that we're in early stages. And so, you know, as we as we started our deep focus on teaching institutions, where we're able to get on contract and teaching institutions, you know, train faculty, where they are training the next generation of surgeons, We've seen really great adoption with early and mid-career surgeons for this technology where they can implement this in their practice and really embed digital workflow. And so, you know, we reported our last quarter, you know, we grew our surge and raise 60% year over year, and we're rapidly adding new surgeons and new accounts to the Apprivo platform. okay that's that's helpful um and maybe just before we get into a little bit more of the details like it's been a little more than a year since the ipo just like thinking about like what you've accomplished and and kind of what you're excited about and where where you kind of think you need to improve from here you know maybe just think about you know what the next year has in store you know from from here it's been it's really been a phenomenal year since our ipo And, you know, we've hit a number of significant company milestones. And so kind of talk about operationally, you know, when we started the company, we were about eight weeks ordered to delivery. And that really allowed us to treat the most complex patients that are scheduled months out. You know, we've invested a lot into the platform, into the technology, really to get to where we can treat every patient in a practice. And since the IPO, we've been able to advance our underlying technology that allows us to do this in about a week. So from when a patient has consult to go to surgery in about a week for these scheduled procedures allows us to not only see the most complex procedures, but also where the majority of our procedure growth has been in the one and two level procedures for degenerative disc disease for both lumbar and cervical. And so that was a huge enabler of us accelerating account access, accelerating our new surgeon training, accelerating our utilization since IPO. We've also launched the cervical platform, which, as we talked about, you know, really engineered for that patient population with soft bone to deliver personalized alignment and the best bet of fusion. We've also most recently received our permanent MSDRG reimbursement for the lumbar procedure, which really allows us to broaden access for the approval procedure and simplifies coding from where it was about 11 different MSDRGs for hospital reimbursement to three. that cover every patient that could get in a Prevo procedure. And so these are all material tailwinds over the first year, you know, that give us a lot of confidence, not only in our guide that we put out, but also, you know, 27 and beyond as continued accelerators of our business.

The, I mean, the launch for cervical, honestly, I think it's gone a lot better than than I was expecting. I think a lot of people were expecting 30% of revenues despite just being in the second quarter and launching in December. Maybe, I don't know if it's kind of exceeded your expectations or not, but like, how should we kind of think about cervical opportunity versus lumbar? Is cervical just going to move a lot faster or is there just something that's kind of, there's been an unlock here?

Yeah. So we've definitely very happy with the launch of cervical, You know, surgeon response to has been phenomenal. You know, where we've had, you know, just like with the lumbar procedure, you know, one of the gating items for growth is getting on contract new hospital approvals. And those have outpaced our own expectation in getting access to this technology, which I think really underpins the strong clinical need for this procedure. And as we think about cervical going forward, we're really excited about the CORA cervical launch that'll be in Q4 this year. And that allows us really to complete the personalized cervical fusion procedure because with the Aprivo platform, we can do the 3D patient model, the 3D surgical plan, the soft bone friendly 3D implants for inner body fusion. And with Quora, we can now make a personalized fixation plate to ensure that the fusion that takes place in the operating room is maintained and that alignment is maintained. So we see that as an accelerator to cervical and 27 and beyond as we launch. And I think, as we mentioned on our most recent earnings call, you know, we expect, you know, you know, full year, you know, low double digit revenue contribution from cervical as this continues to ramp, you know, very quickly, not just with existing approval lumbar users, but also pulling, you know, those those surgeon users that specialize in cervical procedures. You said that comes in Q4 of this year, the accelerator for cervical? Yeah, so we'll launch the Quora platform in the fourth quarter for cervical. And so exiting the year, we'll have full commercial launch with the Aprivo cervical, which is the 3D planning, 3D inner bodies, as well as the Cora cervical, which will have the personalized segmental plates and personalized multi-level plates. We, you know, we announced we did the first in-man for Cora in the first quarter. We've had really great surge in feedback in the limited market evaluation. And so we're accelerating the launch into Q4 of this year. And, you know, we see this as another great growth factor in 27 and beyond.

And is the, do you think the accelerator for the growth is like, you know, getting higher utilization out of the existing? Is it deepening utilization or is it kind of bringing new surgeons? Like how, how is it going to change on the ground when you have this broader portfolio? Yeah.

So how we think about this is, you know, we have we we anticipate about half of the procedures will be interfixated without plates, half with plates. And with the plates, we see this as deepening utilization inside the current user base, as well as allowing us to accelerate new surgeon adoption with the cervical platform. okay sounds like 27 sets up as a pretty good year for you guys versus we're we're really excited about you know the opportunity to capitalize on a lot of the tailwinds that we've developed in 26. i've like you're already kind of sharing some of this stuff with with investors i assume like you can you know surgeons probably know some of this stuff's coming as well is that helping kind of drive some adoption earlier on and see that you're invested in this platform and new stuff

Absolutely. Absolutely.

And I think one of the, you know, as we've talked about, we've invested very heavily in medical education, you know, our world class medical education team, you know, continues to bring, you know, top faculty to, you know, early and mid career surgeons. We had our largest medical event, really our marquee medical event this past weekend, which is the Prevo Power Forum, and the enthusiasm for the clinical data and really the advancements in the technology platform is really strong in, you know, in the, you know, emerging surgeon user base.

Once they start using a pre-well, what's the kind of the typical adoption and utilization ramp look like?

So we typically get a trial approval where surgeons will collect, you know, anywhere from five to 10 cases. And that typically takes a few quarters to get through the cases. Again, it depends on their practice, predominantly deformity, predominantly degen, a mix of lumbar and cervical, collect the clinical data. The hospital typically does an economic analysis and then we move on to contract. And then beyond that, it continues to ramp. And so how we see a lot of surgeons adopt the technology, again, it depends on their practice where they may adopt a specific approach first for lumbar, be it anterior, lateral, posterior, bilateral, really perfect the technique, the planning, and start to expand through their practice to go to long constructs, short constructs, lumbar, and then cervical. And so as we see, You know, the surgeons move through the process. You know, we see them continue to increase utilization. And we've been adding new surgeons at such a rapid pace. You know, the majority of our surgeon cohort is still in the early adoption phase of the technology, which again gives us a lot of confidence in, you know, our ability to continue to accelerate growth. where where where do you see like the the early adopters where are they at on utilization for some of these these more recent adopters like how much gap is there between and is the kind of the early adopters still moving higher or they've kind of found the kind of the the sustainable rate i guess yeah so what so what we typically see again it depends on the institution in their particular practice, you know, that it takes several quarters for them to get to steady state utilization. And depending on the practice, you know, that can be, you know, that will be a significant portion of their overall spine fusions. Okay.

I guess, is there, you know, is there still a lot of room between like where those adopters are today and you know like the early adopters can move up i don't know how much how much capacity and the utilization with your existing surgeons like if they all move to the high end how much upside could there be i guess is one way to phrase it and maybe you don't want to give me numbers but yeah you know it's a you know just just as we talked about it and you know growing our surgeon user base 60 year over year you know uh many of those uh you know in the first year of adoption or somewhere in the trial phase.

So they'll have the opportunity to expand utilization. And it's really the snowball effect that we're getting in adding new surgeon users really now across two platforms with the lumbar and cervical platform. How long does it usually take to get to steady state? It depends on the institution. And so it's multiple quarters that can be, you know, somewhere between, you know, four and eight quarters, depending on the particular institution and their practice.

Okay. And then now they've got a kind of more of a full offering, you know, can you cover and get more procedures, higher utilization or more revenue per procedure here?

Yeah, so I guess talking about revenue per procedure first, you know, one of the things that's been really unique about our business is we do look at this as a procedural offering. And so, you know, we look at a Prevo procedure as a procedure where, you know, we have, you know, average number of levels per procedure that includes the plan. And so our average revenue per procedure for lumbar has been fairly stable and has actually increased a little bit as, you know, we've moved to, you know, a little higher mix of multi-level procedures. For cervical, we do see some opportunities for increase in average revenue per procedure as we add the Quora platform with the Aprivo platform for cervical.

Okay. Maybe we'll spend a little more time on the reimbursement. You know, the new Lombard DOGs took place October 1st.

Pretty meaningful improvement in facility economics. like how how impactful is this going to be on on growth um you know maybe in 27 once that goes into effect here yeah i'll just give a little bit more background on the reimbursement you know kind of how we got there so um you know we developed a prevo lumbar platform we received breakthrough technology designation for that um and when we launched we had a new technology add-on payment which gave incremental reimbursement to the platform. As that sunset, Medicare issued new codes, which that got to the 11 different reimbursement codes that we have today, that ultimately net net have an incremental reimbursement to the approval procedure over the traditional. Now what goes into place two years later from when the NTAP expired October 1 is three new codes for a Prevo lumbar procedure that independent of access anterior lateral posterior independent of the number of levels treated or the patient condition all a Prevo procedures will go into one of these three new codes. So this actually makes it much simpler for the hospitals from a hospital economic perspective. And we look at the national average for reimbursement. We anticipate that this on average is around 30,000 incremental reimbursement for the approval procedure versus a non-approval procedure. And so we see this as an opportunity to expand access, accelerate hospital contracting with this procedure so that hospitals can provide this to the surgeons that want to provide this to their patients.

Is it changing your ASP in any way? Have you thought about pricing differently because of it?

We anticipate keeping a similar average revenue per procedure and ultimately expanding access and even the opportunity to expand utilization inside of accounts. So we see this as a opportunity to accelerate volume and continue to be good partners with our hospitals on the economics of providing this to their to their surgeons, ultimately to provide to their patients.

Have you seen it already impact the conversation with hospitals, like when you're going through back approvals or hospitals adopting or thinking about adoption?

Yeah. The great thing is we really invested ahead of this with our strategic national accounts team so that we can have those conversations. Hospitals really get it because this makes it very straightforward for how to assess the economics of providing this procedure to their surgeons and patients. And so, you know, we anticipate this will continue to drive momentum with our hospital partnerships.

The, maybe help people understand, like, how differentiated these codes are for you versus other, you know, I think you have one other peer, maybe they can use these codes. Like, is this a kind of a competitive differentiator for you? And do you expect more competition in these codes?

So when Medicare issued these codes and, you know, we've been working with them for the past two years since the NTAP expired. They specifically wrote these codes for complex fusion or extensive fusions. Extensive fusions are for fusions that are eight or more levels and complex fusions they defined as procedures that use the Aprivo technology or procedures that use the SI bone bedrock technology. And so we anticipate, you know, hospitals to use this appropriately as it has been intended.

Okay. Maybe going back, like you said, you kind of spent time preparing for the reimbursement change. Maybe just expand a little bit more, you know, kind of what the team's been doing and kind of what you're seeing on the ground.

So, you know, we have a really great, you know, reimbursement team as well as strategic national accounts team that's working with hospitals to train on coding and reimbursement, build awareness, prepping them for all the changes for how coding and reimbursement works today for lumbar pre-vote procedures and how it will work starting October 1. And so with that, hospitals will be prepared to appropriately code for the procedures.

Anything else? I was going to get into some margins and profitability stuff, but if you think there's anything else that we should cover on kind of the build or reimbursement or revenue per procedure or utilization.

Yeah, I think ultimately we feel really good about where we're at. you know, we're, you know, we continue to drive incremental margin expansion, you know, where our investments in medical education, commercial, you know, patient specific technology, you know, continues to drive the engine that allows us to build scale. And, you know, some of the key investments that we've made in commercial and our technology are really designed for us to build 10x capacity to really accelerate the business and so you know we feel really good about the investments we've made there prepping for our continued long-term growth in this area you basically are building enough capacity now to 10x your revenue base is that what i heard We're building enough capacity to 10x our production capability and invest in our ability, obviously, to, you know, 10x scale our business.

Okay. And when does that investment or capacity come online?

And so we continue to, you know, we continue to add to it. The great thing is that we have a very predictable business in that we get every patient, every surgeon pre-planned so that we can continue to build that capacity. And so much of what we're doing is the underlying technology platform is to continue to advance and re-engineer that for scale. And, you know, we'll continue to, you know, update on our advancements in the underlying technology platform that allow us to continue to add more automation in our surgeon in the loop process that really makes it very surgeon specific, patient specific, and can take the capacity of demand that we're seeing.

Is there ways to kind of speed up the turnaround from here?

So what we really look at is, you know, a week is really a great time point for us from a order to delivery standpoint that allows us to really see essentially every scheduled patient. And so technology that we're working on now continues to drive that automation around the surgeon so that we can continue to use more of the surgeon-specific data and patient-specific data to provide more value in that preoperative planning aspect so that it becomes easier and easier for surgeons to adopt this across their entire patient. platform.

Sounds like there's more investment in the digital side or can you get like, what are the benefits longer term? Can you get even better outcomes or more specific patient products?

Yeah, absolutely. So continuing to add more procedures to the platform and also, you know, provide more intelligence to the surgeon about their patients, about their procedures, and ultimately, you know, provide, you know, useful data preoperatively. And as we really think about our platform advancing, it's continuing to move decisions that were typically made in the OR preoperatively with the data that we collect about the surgeon, about the patients.

What kind of procedures could you add?

Is it adding different levels or is it, you know, know more complexity or deformity or like i don't know where you would naturally go next yeah so so we can talk about what we what we've already talked about you know as we continue to expand the platform we've got the bilateral procedure uh posteriorly for lumbar um you know we're you know advancing our technology um so that we have uh you know uh quora personalized plating And, you know, I think the other area that we talked about that we're really excited about with our development in cervical is to look at taking this technology into cervical arthroplasty. arthroplasty. All the data that we collect, the technology about the personalization of the fusion continues to add to our data that's going to allow us to develop our next generation platform that we see as application for cervical arthroplasty as well.

Is there anything there where it doesn't make sense, like that would be a typical adjacency for you guys, but it doesn't make sense to go there with the technology?

So, where we're super focused is in deploying this technology at scale, where we can meaningfully improve clinical outcomes. And so, as we think about areas, we're probably not going to go into large joints. Hard to improve over the standard of care for, you know, knee replacement, hip replacement that generate great outcomes. You know, we'll continue to look at those procedures where deep patient and surgeon personalization can improve, improve workflow, as well as improved outcomes for patients.

So would you consider like getting out of spine over time or are you still focused on spine?

We're still focused on spine in the near term. But as you pointed out, Travis, as you know, you know, our mission statement is to improve outcomes, decrease the cost of healthcare for spine and beyond. And, you know, we're continuing to look at areas where, you know, this platform can, you know, have applications beyond spine fusion, spine arthroplasty. But as we look at, you know, the next three to five years, we have a huge market opportunity inside of spine. You know, we have still a lot of opportunity to expand momentum and truly change the standard of care for spine. And so that is our deep near term focus. So it sounds like the the and beyond piece is more of a five plus year idea. Yeah, that's what we think about is, you know, and beyond five plus years out and, you know, continuing to evolve, you know, the underlying technology platform where we can look at this, you know, perhaps as additional market expansion. But where we're focused now, lumbar fusion, cervical fusion, cervical arthroplasty, and then continue to look at as the platform expands, where we can meaningfully improve outcomes by deployment of this platform. Okay.

And maybe in the last few minutes here, we'll talk a little bit about, you know, path to profitability and how you're thinking about what level of revenue do you need to get to kind of break even and go beyond on the margin side.

Yeah. So Travis, you know, really everything starts with the Aprivo platform, helping surgeons achieve superior outcomes for their patients versus legacy standard of care. As Mike well covered, we are very pleased with the surgeon receptivity to the extension of that platform with the cervical indication, and that continues to pave the way for helping surgeons, again, achieve that superior result. We also have a superior way in which we operate our business. We have a personalized pure play spine company that is fundamentally different than how a legacy ortho or spine player typically operates. We have no inventory. All of our cases are built on demand. We have ARP right now in lumbar for Q2 of 31K per case. We have 18K for cervical. We've reported Q2 gross margins of 77%. That was consistent with Q1. So as we continue to scale, we're able to continuously improve our efficiency, even with the product mix of cervical taking a greater proportion. And we see that trend continuing both with the continued growth in our business and the stability of our gross margins. So that gives us ultimately the foundation upon which to continue to scale and grow our business and leverage the operating expenses. So we see a steady decline as a percent of revenue of sales and marketing and of G&A. We'll make investments within purposeful investments within R&D to further advance the Prevo platform and potentially for the and beyond, as Mike covered. But all of the OPEX told, we will see a steady decline over 27% of revenue relative to 26%. So it's really a convergence of continued revenue growth, the stability of our gross margins, and the ongoing decline of operating expenses. So we see, as we've publicly stated in the past, this profitability measure being achieved in under a $200 million annual run rate. And as perspective here in terms of our current cash position and what that really means, we ended Q2 with almost $90 million in cash. We burned in Q2 under $3 million a month. So as we continue to grow the business and have that stability of gross margins and that steady decline of operating expenses, that path of profitability is well within achievement with our current cash on hand with sufficient buffer for operating flexibility and being able to further invest in growth and innovation.

That's helpful. I had several follow-ups, but you already asked them all. So it was a very thorough answer.

Well, I figured there was a question behind the question there. So I wanted to make sure holistically, you know, for those new to the story, they fully understand it's more than just a revenue measure. It's really fundamental to our business in terms of how we grow and how we continue to operate the business in a highly capital efficient manner.

Yeah, of course. um um mike maybe you help us understand like one question that comes up is kind of the competitive mode um um for the company um and you know like the is is the mode around the competitive advantage more of the ecosystem you build around personalized surgery or like how hard is it to replicate what you're doing if you're a larger company yeah so so i think in and this is i think one really important way to think about our business.

You know, we are highly differentiated as a business and our business model is very different. We have no inventory. And so we do everything digitally and our closed loop ecosystem continues to evolve. And when you talk about our closed loop ecosystem, It's the data collection. It's a 3D modeling of a patient's pathology, three-dimensional surgical plans. It's our, you know, built-on-demand personalized devices, single-use instruments, and post-op data collection. Because we run a pure play personalized surgery company, we don't have the challenges of the logistics of a traditional med tech company that has a very high capital deployment and instruments, implants, moving case trays. We have no trays. And that really allows us to continue to focus on this closed loop ecosystem around the patient, around the surgeon to develop better outcomes. So we're going to continue to put out more clinical data. I talked about our landmark data in adult spinal deformity. We have a lot of data collection on what's the much bigger part of the market and what's actually the majority of our procedures in one and two level fusions, showing, you know, the ability for our platform to very predictably achieve alignment outcomes and, you know, reduce reoperation rates in this patient population. And so this, you know, closed loop system continues to drive the great clinical outcomes and really becomes very sticky with our surgeon users once they get onto the platform.

Makes sense. That covers the questions for me. If anybody else on the call has questions, just put them in the chat or ping me to Bloomberg or Mike or even Stephanie, if there's anything that you think we need to cover, let me know.

You know, Travis, like really appreciate the time. you know, I think just to kind of reiterate, you know, we've created this really breakthrough technology platform that is scaling very rapidly. And what makes me really proud about it is ultimately what we're doing for patients. You know, we continue to really move the needle on patient outcomes, where we publish, like I said, a lot of data on the adult spinal deformity, for lumbar patient population, and we'll continue to publish data on the Aprivo platform's ability to generate better patient outcomes across a large patient population. And so we see this as the ongoing flywheel effect of surgeon adoption, hospital adoption of this technology platform.

Great. Well, thanks for the conversation. It was helpful. and good to see you again yeah great to see you again travis thanks a lot thanks for the time thanks joe all right bye okay bye