Carlsmed Q3 2025 Earnings Call - Near Doubling of Revenue and Surge in Surgeon Adoption Highlight Market Disruption

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

Caroline Corner, Investor Relations, Carlsmed: Thank you, operator. Welcome to Carlsmed’s Third Quarter 2025 Earnings Call. Joining me on today’s call are Mike Cordonnier, Chief Executive Officer and Chairman, and Leo Greenstein, Chief Financial Officer. Before we begin, I would like to caution that comments made during this call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the market in which Carlsmed operates, trends, expectations, and demand for Carlsmed’s products, and Carlsmed’s expected financial performance and position in the market. Any forward-looking statement provided during this call, including projections for future performance, is based on management’s expectations as of today. 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 statement. 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 Form S-1. 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 Third Quarter 2025 results, are available on Carlsmed’s website at www.carlsmed.com under the Investor section and include additional information about Carlsmed’s financial results. A recording of today’s call will also be available on Carlsmed’s website by 5:00 P.M. Pacific Time today.

Now I’d like to turn the call over to Mike to go over the Carlsmed third quarter 2025 business highlights.

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Thank you, Caroline, and welcome everyone to our Third Quarter 2025 Earnings Call. The Carlsmed team has continued to execute on our vision at an exceptionally high level, and I’m thrilled to report another phenomenal quarter with 98% revenue growth year over year. I’m also pleased to report that we achieved more than 70% growth in surge in users over last year’s Third Quarter, while expanding gross margins to 76% and reducing lead times from 20 business days in Q3 2024 to 10 business days in Q3 2025, and now down to 8 business days starting in October. Our performance underscores that we’re building something truly unique in healthcare, and I could not be prouder of the Carlsmed team and what we’ve accomplished so far. We’re growing with purpose, efficiency, and clear differentiation in a market hungry for transformation.

Let me be clear about our vision and what makes Carlsmed fundamentally different. We aim to establish a new architecture of surgery where patient outcomes are not only more predictable, but, as our initial data has demonstrated, are consistently superior. Our digital surgery platform continuously learns from real-world outcomes, improving its predictive accuracy and deepening the value we deliver to every stakeholder: patients, surgeons, and hospitals alike. Our market opportunity is substantial. There are nearly 500,000 patients who undergo lumbar spine fusion procedures annually, and our technology applies to almost all of them. At our current pricing, this equates to an estimated $13 billion addressable market. We believe that the current model of spine surgery with one-size-fits-all implants and trial-and-error outcomes is outdated and unsustainable. Revision rates remain high, and both surgeons and patients deserve better.

Real-world evidence suggests that our solution can drive better outcomes and sustain lower revisions because we are fundamentally changing how patients are treated. At Carlsmed, our business begins preoperatively, and that’s where we believe we are clearly differentiated from traditional spine surgery. Through our digital surgery platform, we model each patient and prepare surgeons for each patient’s specific surgery before they enter the OR. Our pre-op planning leverages AI with standard imaging modalities to create digital surgical plans and 3D-printed implants to deliver precise alignment in the disc space. This fundamental change in spine surgery has proven to reduce patient surgical complications and costly revision surgeries. We 3D-print patient-specific Aprivo interbody implants on demand with our technology-driven approach. As of October, we can deliver to the OR within 8 business days of surgical plan approval.

Our capital-light business approach with personalized implants and sterile pack single-use instruments eliminates the burdensome management of instrument trays and stock device trays. This provides a superior OR experience and financial profile that delivers highly advantageous operating leverage towards reaching positive cash flows. To summarize, we enable surgeons to efficiently and precisely execute the surgical plan with full confidence that they will achieve excellent patient outcomes. One of my favorite quotes from a top Aprivo surgeon user is, "Aprivo makes for a boring day in the OR." In the OR, boring means predictable, low stress, and optimal patient outcomes, and that is the value that we deliver every day. Our growth in the third quarter was fueled by accelerated surgeon adoption and increased utilization.

We grew our surgeon user base by more than 70% year over year, and we saw minimal seasonal utilization headwinds in Q3 despite the typical summer slowdown. We see this as a testament to the growing body of evidence showing the clinical superiority of Aprivo over traditional spine fusion surgery. As part of our patient-centric innovation initiative, in the third quarter, we made a strategic investment to further develop technologies and processes throughout our supply chain to reduce lead times and costs while increasing capacity for our rapidly scaling business. This underpins our ongoing commitment to optimize and scale patient-specific implant solutions as the new standard of care. Of course, it’s not just the streamlined planning and delivery of our kits that has built our surgeon and hospital base. It’s our data that gives them the confidence to adopt Aprivo in their practice.

Revisions impair patients’ health and quality and impose a significant economic burden on the healthcare system, with an estimated revision surgery cost frequently exceeding $100,000. At Carlsmed, we’ve built real patient evidence and demonstrated meaningful improvement in reducing reoperations. A recent study published by the International Journal of Spine Surgery comparing Aprivo to non-Aprivo procedures showed an 83% reduction in reoperation rates after one year for Aprivo. Our most recent published clinical data presented at the Scoliosis Research Society meeting in September shows that the Aprivo procedure has reduced revision surgery by more than 75% over two years. Data from our Compass Registry has resulted in multiple peer-reviewed publications, with more to come. The Compass Registry now has 329 patients with over one-year follow-up and 170 with greater than two-year follow-up, and we continue to see markedly improved outcomes with Aprivo procedures versus traditional spine procedures.

The data we have collected to date supports our thesis that Aprivo delivers predictable alignment. When it comes to spine fusion surgery, predictable alignment is highly meaningful for patients, surgeons, and health systems at large. Looking ahead, we have three key areas of strategic focus that drive our continued business progress and growth. First is commercial execution. To drive expanded market access, we’re making data-driven investments in sales and marketing, clinical outcome data, and healthcare economics data. We continue to leverage our compelling clinical outcome data and economic value proposition that is supported by the elevated hospital reimbursement with the Aprivo procedure. Second is surgeon education. We’re expanding surgeon-led education programs, including fellowship programs at academic institutions and peer-to-peer educational programs, to build awareness of the key advantages of three-dimensional preoperative planning for personalized spine surgery.

Our education programs are resonating with surgeons in academic centers and private practice alike, showing the importance of alignment and surgical planning in long-construct fusion and short-construct fusion procedures. We’re seeing growth in surgeon utilization in short-construct degenerative disc disease procedures and long-construct deformity fusion procedures in academic and private practice. Third is patient-centric innovation. Patients are at the center of everything we do, and we’re commencing launch of Aprivo for cervical fusion procedures in the coming months. Today, we’re making great progress with our cervical clinical evaluation, with over 50 cervical Aprivo procedures successfully completed. On October 1, the new technology add-on payment, or NTAP, from CMS for Aprivo cervical spine fusion went into effect. This NTAP provides up to $21,125 additional reimbursement per procedure to hospitals that utilize Aprivo cervical for inpatient procedures.

For the outpatient setting, we anticipate that the Medicare transitional pass-through payment will go into effect in early 2026 and expect that it will cover the differential of the facility’s cost of purchasing Aprivo personalized interbody implants and cervical fusions. With that strong reimbursement foundation in place and very positive initial clinical feedback, we’re tracking well towards our upcoming cervical launch. As we look ahead, we remain focused on maintaining our momentum and continuing the sustainable, high-quality growth we’ve demonstrated to date. We are dedicated to expanding access to Aprivo, deepening surgeon engagement, and executing on all key company strategic initiatives. I want to thank our employees, our surgeon partners, and our shareholders for supporting our mission to transform patient care. Thank you. With that, I’ll hand it over to Leo, who will walk through our financial results.

Leo Greenstein, Chief Financial Officer, Carlsmed: Thank you, Mike, and good afternoon, everyone. Revenue for the third quarter of 2025 was $13.1 million, compared with revenue of $6.6 million in Q3 2024. Our 98% year-over-year quarterly revenue growth was driven by the continued expansion of our total surgeon users and Aprivo utilization levels by our newly added and existing surgeons. Our average revenue per procedure was substantially constant between these periods, so our revenue performance remains driven by growth in procedure volume. Gross margins were 75.9% for the third quarter of 2025 and 72.8% in the third quarter of 2024. This year-over-year improvement was primarily driven by lower contract manufacturing costs and reduced inventory reserve expense. In the third quarter, we invested in supply chain productivity initiatives that achieved approximately 240 basis point margin expansion over the prior quarter. These new efficiencies will allow us to nearly eliminate production expedite fees in future quarters.

Total operating expenses were $19 million in the third quarter of 2025. This compared with $12.6 million in the third quarter of 2024. R&D expense was $4.4 million this quarter, compared with $4 million in Q3 2024. This slight increase was primarily due to higher personnel costs to support product development and AI initiatives, partially offset by decreased prototype and materials costs and reduced Compass Registry costs following enrollment completion in the second half of 2024. Sales and marketing expense was $9.6 million this quarter, compared with $6.6 million in Q3 2024. As part of our revenue growth, this increase was primarily driven by increased headcount, sales employee compensation, including stock-based compensation, and commissions to our independent sales agents. General and administrative expense was $4.9 million this quarter, compared with $1.9 million in Q3 2024.

The increase was driven by professional services for corporate legal, customary intellectual property expenses, and costs for personnel additions with our business growth, including compliance and operational requirements as a publicly traded company. Our GAAP net loss was $8.5 million this quarter and was $7.8 million net loss in Q3 2024. EBITDA adjusted for stock-based compensation was a negative $8.2 million this quarter and was a negative $7.7 million in Q3 2024. We expect improvements to these measures over the next few years as we gain operating leverage through our make-on-demand and digital-first business model. For the first nine months of 2025, our cash used in operating activities was $23.7 million. This compares to $21.3 million of cash used in operating activities for the first nine months of 2024.

Moving to our balance sheet, our cash at September 30, 2025, was $115.5 million and includes the proceeds from our July IPO. To provide further balance sheet flexibility, on October 29, we executed an expanded credit facility that provides $50 million of maximum borrowing from its previous $27.5 million and extends the maturity date to October 2030 and interest-only period to October 2028. The floating interest rate remains advantageous at Wall Street Journal Prime plus a quarter point. While we have no current plans to further draw on this upsized facility, it supports our objectives for capital optionality. Our total liabilities at September 30, 2025, were $28.2 million, of which $15.6 million corresponds to this expanded credit facility. With our highly differentiated digital-first and capital-light business model, our balance sheet is in excellent position to aggressively drive revenue growth and operating leverage and provide sufficient cushion for strategic optionality.

I’d now like to turn to our guidance for the remainder of 2025. With our $35.3 million sales performance in the first nine months of 2025, we are providing increased full-year revenue guidance of $49 million-$50 million, representing an annual growth range of 80%-84% over the full year 2024. With that, I’ll turn it back to Mike.

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Thank you, Leo, and thanks to everyone for your time today. We had a spectacular quarter by any measure. With our overwhelming surgeon enthusiasm and realization from key investments in product, technology, medical education, and commercial expansion, we are very optimistic about our ongoing durable growth for the years to come. We’ll continue to accelerate our patient-centric innovation to meaningfully improve patient outcomes. With that, I’ll turn the call over to the operator for questions. Thank you.

Conference Operator: 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 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Matthew O’Brien at Piper Sandler.

Matthew O’Brien, Analyst, Piper Sandler: Oh, afternoon. Thanks so much for taking the question. Mike, would love to, as I look at the model here, would love to just hear your commentary on surgeon additions and surgeon utilization, both of which look like they were well above what we were expecting here in Q3, which is typically a seasonally softer quarter. What are you seeing out in the field in terms of people coming to you, adopting, and how quickly they’re adopting? Because, again, the number of docs you’ve added is much higher than we were kind of expecting. I was kind of expecting utilization to be a little bit lower, but that was not the case. Just maybe talk about those two things coupled together and the momentum you’re seeing there. I do have a follow-up.

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Hey, Matt. Thanks for the question. Good to hear you. Happy to talk about Q3. It was a spectacular quarter, as we talked about. As noted, typically, there is a bit of a Q3 procedural slowdown. We had really strong surgeon enthusiasm in Q3 and really driven by a few key account access that we got in the quarter that drove an above-planned new surgeon add. We feel really good about how we ended the quarter and also really good about the guidance that we’re providing going forward.

Matthew O’Brien, Analyst, Piper Sandler: Okay. Appreciate that. Maybe for Leo, speaking of guidance, given all that momentum. As far as surgical ads plus utilization, the bump up at the midpoint is a nice little sequential increase, but far less than what you did this time last year. Are you just trying to be thoughtful around how you guide here early days? Is there something specific to call out there? Sorry to sneak in a third one here. That gross margin in the quarter was really, really good. How sustainable is that based on some of the investments in supply chain that you’ve made? Thanks.

Leo Greenstein, Chief Financial Officer, Carlsmed: Matt, to maybe address your first question, we’re still in early days, as you know. We’re very pleased with our Q3 performance and our surgeon additions. We have full plans to further accelerate that growth into 2026. We’ll provide more color on how we’re thinking about 2026 in the coming months. We’ll come back to that in just a bit in terms of thinking about the following year. As far as gross margins go, as we’ve been previously discussing, the expedite fees that we previously incurred have been eliminated in Q3. That was driven by a very purposeful investment in our proprietary digital production system. That investment allowed us to not just eliminate expedite fees in Q3, but for ongoing quarters, not to mention further reduce the lead time in our production from its previous 10 business days down to single-digit 8 business days.

That really speaks to our ongoing ability to further leverage our supply chain and to further expand our plans for growth and new surgeon adoptions.

Matthew O’Brien, Analyst, Piper Sandler: Just to be clear, though, Leo, is it sustainable, the gross margin that we saw in Q3 kind of going forward?

Leo Greenstein, Chief Financial Officer, Carlsmed: Yeah. So 76%, we closed Q3, and we see that very representative of how we are thinking about future quarter’s performance.

Matthew O’Brien, Analyst, Piper Sandler: Got it. Thanks so much.

Conference Operator: Our next question comes from Richard Newitter at Truist Securities.

Richard Newitter/Aiden Leahy, Analyst, Truist Securities: Hi. Thanks for taking the questions. Congrats on the quarter. Maybe just to start off on Cervical, I know that you guys are early in the launch there, but what can you tell us about the field, kind of the characteristics of accounts that are adopting initially, and any updated views and kind of the trajectory there just based on your experiences?

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Hey, Reg. Thanks for the question. Good to hear you. We’re really excited about Cervical. And as we reported, our early clinical evaluation, we’ve completed more than 50 procedures. These were highly targeted accounts of existing Aprivo users. The feedback’s been really, really positive. And coming up here in December. At the CSRS meeting, we’ll have a cohort of the early surgeons present their outcomes and early clinical experience. And that gives us a lot of confidence in our launch here commencing in the coming months.

Richard Newitter/Aiden Leahy, Analyst, Truist Securities: Got it. On the data that was just presented, I forgot the conference that it was at. Just remind us what was new there. I think you had your updated two-year revision data reported there. Just remind us what was new in that and how has that impacted, I don’t know, your discussions with physicians or those who were maybe reluctant to adopt. As you’ve kind of gone to them with that data or it’s been socialized. Thanks.

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Yeah. Really great question. We released the data initially at CNS and had a really great podium presentation with that data at SRS the prior quarter. Ultimately, this is from our long-term outcome data that shows a reduction in reoperation rate now at two-year for Aprivo patients versus a patient match cohort of non-Aprivo patients. The standard of care was 14.4% reoperation rate with the standard of care and 3.5% with Aprivo. That has really driven in total a 76% reduction over two years. That becomes really meaningful, not just for the patients, but ultimately for the healthcare system showing a significant reduction in the cost of treating patients.

Richard Newitter/Aiden Leahy, Analyst, Truist Securities: Thank you.

Conference Operator: Our next question comes from Ryan Zimmerman at BTIG.

Hi, everyone. This is Izzy on for Ryan. Thank you for taking the questions. Just to start out, Leo, I heard your commentary about the investments that led to the reduction in lead times down to eight days. It’s great to see the progress there. I’m curious what you’re thinking a sustainable level is going forward and whether or not we could see further reductions in the future.

Leo Greenstein, Chief Financial Officer, Carlsmed: Yeah. We’ll have ongoing opportunities for further margin expansion over time at significant scale. At 75% plus, we have a very leverageable business model to rapidly grow our business and onboard new surgeons. Again, that eight-day lead time now really provides additional ability to further execute our game plan.

Got it. That’s helpful. As we start to think about the upcoming launch of Cervical, I was curious how you guys are thinking about the size of your sales force and whether you feel like it’s sufficient to cover any additional need or increase in demand you might see upon the launch next year. Thanks for taking the questions.

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Yeah. As mentioned, we’re really excited about Cervical. The early clinical feedback has been really strong. One of the advantages of adding clinical into our technology, adding Cervical into our technology platform, is that we can leverage our existing sales force. While we’re going through the sales force training of clinical, of Cervical with the early clinical data, we’ll be well positioned for a very strong launch in the coming months.

Conference Operator: Our next question comes from David Roman at Goldman Sachs.

Hey, guys. Thanks for taking the question. This is Jenny on for David. I am wondering just about the Cervical ramp in 2026. Given you’re kind of targeting a similar surgeon base, are you kind of expecting a bolus once you go to full market release as your existing surgeons take up Cervical? My second question is just you mentioned the outpatient TBT in early 2026. How big of a driver do you expect this to be in 2026? Are you targeting a new strategy as you’re reaching outpatient as compared to inpatient currently? Thanks.

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Yeah. So we’re not currently providing guidance on cervical ramp right now. However, the early signs are very positive that we will have a very strong ramp there. When it comes to inpatient and outpatient, the inpatient enhanced reimbursement, the NTAP, went into effect October 1. The transitional pass-through payment for hospital outpatient is anticipated early next year. The CMS ruling has not come out yet, but we do anticipate CMS to stick to their commitments and have the final ruling out by year-end.

Conference Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from Travis Steed.

Richard Newitter/Aiden Leahy, Analyst, Truist Securities: Hi. This is Aiden Leahy on for Travis. Question on pipeline visibility. You talked about how you’ve kind of skirted some of the normal seasonality in the business this quarter. How do you, on a qualitative level, feel about your pipeline visibility going through year-end and early 2026?

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Yeah. Great question. As you know, it is a scheduled business. So we have good visibility into our scheduled procedure pipeline as well as to our new surgeons’ train pipeline. So that gives us really high confidence in our ability to deliver on the guidance that we delivered today.

Richard Newitter/Aiden Leahy, Analyst, Truist Securities: Thank you. On surgeon ads, I think you’ve said previously that it’s about a quarter of training to get surgeons up and running. With the new investments you’re making in education, do you think there’s a possibility that you can shorten that time as you get more experienced in these accounts? Thank you.

Mike Cordonnier, Chief Executive Officer and Chairman, Carlsmed: Yeah. Certainly, the demand for the digital surgery platform that we’ve developed is accelerating significantly. We’re continuing to make the investments in both surgeon training as well as in getting account access. As we expand our account access throughout the country with really a deep U.S. focus. We’re very optimistic about our ongoing growth that we’ve projected.

Conference Operator: I’m showing no further questions at this time. This does conclude the question-and-answer session. Thank you for your participation in today’s conference. This does conclude the program. You may now.