CARLSMED, INC. Q2 FY2026 earnings call

• Clinical and Commercial Progress

  • Published peer-reviewed clinical data shows a 74% reduction in reoperations for adult spinal deformity patients treated with Aprivo personalized lumbar implants, one of the most significant clinical advancements in lumbar fusion in 25 years.
  • Total surgeon user base grew more than 60% year-over-year, with growth driven by both new surgeon adoption and deeper utilization at existing customers, concentrated in higher-acuity inpatient lumbar and cervical fusion procedures.
  • The limited market evaluation of the Aprivo bilateral lumbar system has received strong early surgeon feedback, confirming clinical benefits and alignment with existing surgical techniques. The product remains on track for a Q4 2026 full commercial launch.
  • Aprivo Cervical has received strong surgeon reception, with observed benefits including precise implant fit for patients with low bone density. The IRB-approved multicenter ACE registry for Aprivo Cervical is on track to begin enrollment of 300+ patients across 12+ sites in Q4 2026.
  • The CORA personalized cervical plating system, which integrates seamlessly with the Aprivo platform, has completed limited market evaluation with strong early feedback and remains on track for a Q4 2026 full commercial launch.

• Medical Education Expansion

  • The company is expanding its medical education programs for 3D preoperative planning, including resident and fellow programs at leading teaching institutions to build adoption among early and mid-career surgeons.
  • The upcoming 2026 Aprivo Power Forum is expected to draw more than double the surgeon attendees of the 2025 program, covering advanced techniques for complex spine conditions.

• Operational and Financial Performance

  • Q2 2026 total revenue was $18.9 million, representing 57% year-over-year growth, driven by volume growth as ARP for both segments remained stable.
  • Gross margin expanded 340 basis points year-over-year to 76.8%, driven by lower per-unit contract manufacturing costs and efficiency improvements in the digital production system that offset product mix impacts.
  • The capital-light, digital-first business model eliminates the need for large capital investments in stocked implants and surgical trays required by traditional medtech firms, enabling efficient scaling. Aprivo kits are consistently delivered to hospitals within one week of surgeon plan approval.
  • GAAP net loss for Q2 2026 was $10.5 million, compared to a $6.8 million net loss in Q2 2025. Adjusted EBITDA was negative $8.6 million, compared to negative $6.2 million in Q2 2025. As of June 30, 2026, cash and investments totaled $89.3 million.

• Reimbursement Update

  • The CMS FY27 Inpatient Prospective Payment System final rule, effective October 1, 2026, created three new MS-DRG codes for Aprivo lumbar procedures, replacing 11 existing codes. The new structure simplifies coding and increases hospital reimbursement for Aprivo lumbar procedures, which is expected to expand patient and hospital access to the procedure.

Carlsmed operates two core product segments, both under the Aprivo personalized spine surgery platform:

1. Aprivo Lumbar Fusion: Generated approximately 90% of total Q2 2026 revenue. Average revenue per procedure (ARP) was roughly $29,000, and the segment drove the majority of the company's 57% year-over-year total revenue growth. The total addressable market for lumbar fusion in the U.S. is an estimated 445,000 annual procedures, with an additional 30,000 annual procedures addressed by the upcoming Aprivo bilateral system launch.
2. Aprivo Cervical Fusion: Generated approximately 10% of total Q2 2026 revenue, in its second full quarter of commercialization. Average revenue per procedure was roughly $18,000. The total addressable market for cervical fusion in the U.S. is an estimated 370,000 annual procedures, with approximately 60% of cervical ACDF procedures utilizing fixation plates that will be addressed by the upcoming CORA cervical plating system launch.

• Full year 2026 revenue guidance was raised to a range of $74 million to $78 million, representing over 50% year-over-year growth at the midpoint, up from prior lower ranges, reflecting stronger than expected first half 2026 volume growth.
• The updated guidance reflects management's expectation for continued growth for both Aprivo lumbar and cervical in the second half of 2026. Management intentionally built prudence into the guidance range as a newer public company, and the midpoint of the updated guidance implies 45% year-over-year growth in the second half of 2026.
• No incremental revenue from the new CMS IPPS reimbursement rule was baked into the 2026 guidance, with most of the benefit from the rule expected to accrue in 2027 and beyond as hospital systems update their coverage policies.
• Management expects gross margins to sustain in the high 70% range through the second half of 2026, supported by prior efficiency investments and fixed cost absorption from growing production volume. Over the next 24 months, management expects gross margins could rise to the high 70% range and even into the low 80% range with additional optimization of the digital production system.
• The company's current capital resources are sufficient to reach cash flow breakeven, with contribution margin expected to grow meaningfully faster than the fixed cost base as revenue scales.

• Forward-looking statements, including financial and growth projections, are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in the company's SEC filings, particularly the 2025 Form 10-K.
• Third quarter procedure volume has a history of some variability, which could impact sequential quarterly performance.
• Increased competition from other medtech firms entering the custom implant market could impact market share growth, though management remains confident in Carlsmed's first-mover and technology advantage.
• Hospital system coverage approval processes for new procedures take time, which could delay the volume growth impact of the new CMS reimbursement structure.
• The company is still in a growth phase, reporting GAAP net losses and negative adjusted EBITDA, and there is no guarantee that the company will reach profitability or cash flow breakeven within the expected timeframe.

Q: The raised full-year guidance still implies a slight growth deceleration in the second half of 2026 compared to the first half. Is this deceleration due to concerns about general surgical volume slowdown from U.S. healthcare policy debates, or just intentional conservative guidance as a newer public company? Also, recent new surgeon adoption is near an all-time high – is this growth driven by the new cervical platform, and how will the new reimbursement rules affect adoption going forward? / A: Management remains highly confident in the company's near and long-term growth. The lower implied second half growth rate reflects the company's continued approach of providing prudent guidance, and management is bullish on the catalysts for growth coming in the second half of 2026 that will drive adoption into 2027. New surgeon acceleration is driven in part by the cervical platform: many new surgeons are adopting both lumbar and cervical at the same time, rather than just one segment, supporting stronger long-term growth for both franchises.\n\nQ: How much benefit from the new CMS DRG reimbursement change is baked into 2026 guidance, could there be procedural shifting into Q4 to take advantage of the new higher reimbursement, and will this change drive pricing growth, volume growth, or both? / A: Management sees the new DRG structure as materially beneficial long-term, but does not expect it to have a material impact on 2026 second half results, with most benefits accruing to 2027 and beyond as hospitals expand access. The company expects to maintain current average revenue per procedure, and will focus on growing procedure volume by expanding hospital partnerships and access, rather than raising prices.\n\nQ: The top of the guidance range – does it already include any benefit from the new reimbursement rule, what would drive results to the top end, and can gross margin approach 80% by 2028? / A: The guidance range reflects the current state of business and does not include incremental revenue from the IPPS rule, which is expected to be a 2027 tailwind as hospital systems update their coverage processes. Over the next 24 months, management sees a path to gross margins in the high 70s and even low 80s, as ongoing optimization of the digital production system delivers sustainable efficiency gains.\n\nQ: What is the rollout plan for the upcoming CORA cervical plating launch, and how does management view the market as more competitors enter the custom implant space? / A: CORA will have a full commercial launch in Q4 2026 following a successful limited market evaluation, and will deliver a modest uplift to average cervical procedure revenue. Management is confident in its position as the only pure-play AI-enabled personalized surgery company with an established commercial product, and views growing industry investment in personalized spine innovation as a sign the space is ripe for disruption, which supports Carlsmed's first-mover position.