Carlsmed Q2 2026 Earnings Report

Carlsmed EPS Results

• Actual EPS: -$0.39
• Consensus EPS: -$0.40
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

Carlsmed Revenue Results

• Actual Revenue: $18.94 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Carlsmed Announcement Details

• Quarter: Q2 2026
• Date: 8/5/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, August 5, 2026
• Conference Call Time: 4:30PM ET

We are a commercial-stage medical technology company pioneering AI-enabled personalized spine surgery solutions with a mission to improve outcomes and decrease the cost of healthcare for spine surgery and beyond. We are focused on becoming the standard of care for spine fusion surgery. The aprevo Technology Platform consists of artificial intelligence (“AI”)-enabled software solutions, and interbody implants that we custom design for each patient’s unique pathology and vertebral bone topography, and single-use surgical instruments (the “aprevo Technology Platform”). The aprevo Technology Platform was designed to address the limitations of traditional spine fusion surgery and aims to optimize patient outcomes and reduce the need for revision surgeries. By providing personalized surgical plans and interbody implants for custom vertebral fit that are powered by AI-enabled, outcomes-based algorithms, the aprevo Technology Platform supports surgeons in achieving proper spinal alignment for patients with degenerative disc disease (“DDD”), which can improve clinical outcomes and reduce the likelihood of revision surgeries. We currently market the aprevo Technology Platform for lumbar spine fusion surgery, and we are further developing the aprevo Technology Platform for use in cervical spine fusion surgeries, which we expect to commercialize in 2026. DDD is the progressive breakdown of spinal discs that are interposed between vertebrae to provide mobility and shock absorption. The disease occurs naturally with age and can be accelerated by factors such as injury, repetitive loading, obesity, or genetic predisposition. Adult spinal deformity (“ASD”) is a more severe form of DDD and is a condition where the spine has systematic structural abnormalities and/or abnormal curvature often affecting multiple levels of the spine. These conditions often cause a loss of disc height and spine function, and lead to chronic pain, disability, and other chronic spinal pathologies, significantly impacting patients’ lives. As the conditions progress and patients experience debilitating pain or disabilities, surgical intervention may become necessary. One study estimated that the overall prevalence of diagnosed DDD was 27.3% for individuals over the age of 65, and increased with age (Parenteau et al., 2021). Non-surgical interventions are typically the first line of treatment for DDD and are aimed at managing symptoms and slowing disease progression without invasive procedures. When non-surgical treatments fail to alleviate debilitating symptoms or disabilities, surgical interventions may become necessary. The most common surgical intervention and current standard of care is traditional spine fusion, which we define as a spine fusion procedure with stock implants that are fixed in size and shape. According to the SmartTRAK Report, there will be approximately 445,200 lumbar fusion surgeries and approximately 372,600 cervical fusion surgeries performed in the United States in 2025. Despite its wide adoption, we believe traditional spine fusion surgery has several limitations and can lead to poor clinical outcomes. First, traditional spine fusion often lacks robust pre-operative planning, relying on two-dimensional (“2D”) imaging without advanced tools, such as three-dimensional (“3D”) modeling. This limits the surgeon’s ability to plan for optimal correction. Second, the stock implants that are used during surgery are largely symmetric in shape and only come in pre-defined dimensions, which often fail to match the unique anatomy of each patient and can lead to unpredictable alignment. During the surgery, the surgeon must visually choose the correct stock implant from dozens of options, which involves a prolonged trialing process, and which we believe elevates the risk of secondary complications. Finally, post-operatively, there is no integrated means for reconciling achieved outcomes against surgical objectives and utilizing these insights systematically to improve future surgical plans. As a result of these limitations, traditional spine fusion surgery can fail to achieve proper alignment, leading to post-operative complications and increasing the likelihood of revision surgery. Recent publications on traditional spine fusion report rates of revision surgery for mechanical complications between 14% and 32% over a mean postoperative period of one to two years in ASD patients (Kent et al., 2024). We believe that these limitations and poor clinical outcomes not only impair patients’ health and quality of life but also impose a significant economic burden on the healthcare system with the direct and indirect costs of a revision surgery frequently exceeding $100,000 (Raman et al., 2018). The aprevo Technology Platform represents an end-to-end, integrated digital technology platform designed to deliver better surgical results, reduce the need for revision surgery, and improve long-term outcomes. The aprevo Technology Platform is the first available solution to provide personalized digital surgical plans and the accompanying aprevo interbody implants that are tailored to each patient’s unique pathology and vertebral bone topography. Our pre-operative planning software utilizes standard-of-care diagnostic imaging in combination with our AI-enabled algorithms to develop personalized digital surgical plans, allowing us to design aprevo interbody implants for each patient’s unique pathology and anatomy. Additionally, the aprevo Technology Platform supports the collection of post-operative data to inform our digital surgical planning process. The aprevo Technology Platform is 510(k) cleared by the U.S. Food and Drug Administration (“FDA”) and commercially available in the United States for lumbar interbody fusion surgeries. Procedures using our aprevo interbody implants are covered by Medicare, Medicare Advantage, and commercial payors; these are generally mapped to MS-DRG codes that provide for premium reimbursement for most spine fusion surgeries that utilize aprevo interbody implants relative to those that use stock implants. We believe this also helps drive surgeon adoption while also supporting patient access to our patient-centric technology. While our current commercial focus is on the U.S. market, we plan to engage in market access initiatives for strategic international regions. We are also developing our aprevo Technology Platform for use in cervical spine fusion surgeries, and in July 2025 successfully completed the first in-human personalized cervical procedure in the United States using our aprevo Technology Platform. In November 2024, we received FDA 510(k) clearance for our aprevo interbody implants for cervical interbody fusion surgeries after previously receiving FDA Breakthrough Device Designation for this technology. In 2025, we plan to continue to build our aprevo Technology Platform for cervical fusion procedures by pursuing additional clearances for advancements to our cervical software platform and our personalized plating solutions. However, there is no guarantee that our cervical software platform and our personalized plating solutions will obtain FDA clearance on the expected timeline, or at all. Assuming we get the necessary additional clearances, we expect to commercialize the aprevo Technology Platform for cervical fusion surgery in 2026. In April 2025, the Centers for Medicare and Medicaid Services (“CMS”) announced proposed ICD-10-PCS (“X-codes”) for the use of custom-made anatomically designed fusion devices for cervical spine fusion surgeries. While there is no guarantee that this proposal will be approved in its current form, if approved in the CMS Final Rule, these X-codes will identify claims that are eligible for hospitals to receive NTAP of up to $21,125 per cervical spine fusion procedure. We estimate there is a total addressable market of approximately $13.4 billion for our aprevo Technology Platform in the United States, based on our current average selling price and the approximately 445,200 lumbar fusion surgeries that are expected to be performed in the United States in 2025, according to the SmartTRAK Report. Our total addressable market is the total overall revenue opportunity that we believe is available for the aprevo Technology Platform in the United States if we achieve 100% market share for lumbar fusion surgeries and is not a representation that we will achieve such market share. We estimate there are approximately 4,000 surgeons across the United States whose patients could benefit from using the aprevo Technology Platform (Moore et al., 2021). As of March 31, 2025, 177 surgeon users had completed one or more procedures using the aprevo Technology Platform, compared to 103 surgeon users as of March 31, 2024. As of June 30, 2025, 199 surgeon users had completed one or more procedures using the aprevo Technology Platform, compared to 116 surgeon users as of June 30, 2024. We believe this suggests ample opportunity to grow our surgeon user base and further penetrate the market by capturing more surgeons across the United States. --- We market and sell the aprevo Technology Platform to hospitals through a combination of our direct sales team and independent sales agents. Our direct sales team consists of Area Business Directors, Regional Sales Directors, Account Managers, and Strategic and National Account leadership, who are primarily responsible for selling the aprevo Technology Platform to surgeons and working with hospitals to secure product approval. They are also responsible for recruiting independent sales agents that cover each surgery, generating leads, and training clinics. We plan to grow our commercial infrastructure, including both our direct sales team and our number of independent sales agents, and expand various market access initiatives, including utilizing medical education programs and surgeon training at top academic institutions. A large body of evidence supports the clinical benefits of the aprevo Technology Platform for spine fusion, including seven peer-reviewed clinical data publications and 12 peer-reviewed clinical data abstracts. Across the various studies and publications, the aprevo Technology Platform has shown favorable results in two of the most critical success measures in spine fusion surgery: (1) achieving proper post-operative alignment and (2) obviating the need for revision surgery due to implant related complications. We continue to develop our growing base of clinical and patient reported outcomes to serve as evidence of the aprevo Technology Platform’s value to all key stakeholders, including patients, clinicians, hospitals, and payors. For example, we are currently conducting a 338-patient study, our COMPASS Registry, to track clinical outcomes from procedures using the aprevo Technology Platform in both DDD and ASD patients. Based on interim data from the first 67 ASD patients in our COMPASS Registry, these patients demonstrated improved alignment and reduced mechanical complications post-operatively, with a revision rate of 1.5% at one-year follow-up that were attributable to mechanical complications unrelated to the aprevo interbody implant (Kent et al., 2024). We have experienced sequential quarterly and annual revenue growth driven primarily by growth in our surgeon user base and increased utilization by our existing surgeon users. Our principal executive offices are located in Carlsbad, CA.

Carlsmed Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 revenue increased 57% year over year to $18.9 million, driven by new surgeon additions, higher utilization among existing users, and contributions from the aprevo Cervical platform. Surgeon users grew more than 60% year over year.
• Positive Sentiment: Carlsmed raised its full-year 2026 revenue guidance to $74 million–$78 million, implying more than 50% growth at the midpoint. Management cited continued volume growth, cervical expansion, and upcoming product launches as key drivers.
• Positive Sentiment: CMS’s FY 2027 IPPS final rule creates three new MS-DRG codes for aprevo lumbar procedures, simplifying coding and improving hospital reimbursement beginning October 1, 2026. Management expects the change to expand hospital access and provide a larger growth tailwind in 2027 and beyond.
• Positive Sentiment: Gross margin expanded 340 basis points year over year to 76.8%, supported by lower manufacturing costs and digital production efficiencies. Management believes margins can reach the high-70% to low-80% range over the next 24 months, supporting a path toward adjusted EBITDA breakeven.
• Neutral Sentiment: New product initiatives remain on schedule, including Q4 commercial launches for the aprevo bilateral lumbar system and corra personalized cervical plating system, while the ACE cervical registry is expected to begin enrolling more than 300 patients across over a dozen sites in Q4.

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Carlsmed second quarter 2026 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, Stephanie Zhadkevich, Investor Relations. Please go ahead, Stephanie.

[Speaker 1]

Thank you, operator. 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.

[Speaker 1]

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.

[Speaker 1]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

I'm enthusiastic about our progress towards making aprevo 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.

[Speaker 3]

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 aprevo lumbar platform with our expanding surgeon user base, as well as strong contributions from our newly launched aprevo 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 2026, 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 aprevo digital production system more than offset the impact of product sales mix.

[Speaker 3]

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 aprevo 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 surgeon user base, and variable commissions to our sales team and independent sales agents as part of our revenue growth. General and administrative expenses were $7.6 million this quarter, compared with $3.3 million in Q2 2025.

[Speaker 3]

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 GAAP 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 modeled 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.

[Speaker 3]

Turning to our balance sheet, as of June 30th, 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, in plant, 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 aprevo platform technology and continued product innovation, revenue ramp initiatives, and digital production processes that will support highly efficient business scale.

[Speaker 3]

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 aprevo lumbar and aprevo Cervical. Our expected catalysts in the second half include the FY 2027 IPPS final rule going into effect on October 1st, an anticipated uplift for our overall aprevo lumbar volumes and the planned fourth quarter commercial launches of our aprevo bi-lateral system and corra Cervical Plating System.

[Speaker 3]

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.

[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 one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Please note we're allowing one question and one follow-up. Our first question comes from Matthew O'Brien at Piper Sandler.

[Speaker 4]

Great. Thanks for taking the questions. Maybe Leo, just talking about the guide in the back half, it's good to see you bumping it up by more than a beat here in Q2, but it does still imply a little bit of a decel second half versus first half. I'm just wondering, is there anything that you're building in there? I don't know if just there's a little bit of concern that maybe surgical volumes could slow in the back half just with some of this ACA and Medicaid discussion, or if there's anything specific to call out there, or if you're just trying to be conservative as a newer public company. I do have a follow-up.

[Speaker 3]

Hey, Matt. Thanks for the question. We remain highly confident in our growth, both in the near and long term. 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 2026 relative to the first half of 2025. The midpoint of our guidance implies a 45% level of growth over the second half of 2025. We remain increasingly bullish on the prospects of our business and the catalysts that we see here coming up in the second half of 2026 that will drive continued growth and adoption of the aprevo platform in 2027.

[Speaker 4]

Got it. Appreciate that. Mike, I could ask a million questions, reimbursement, the new products, et cetera, but the new surgeon number, obviously we don't get it anymore, but it looks like it's pretty close to an all-time high for Carlsmed, and I'm just curious if you're seeing any because of the cervical platform. What potentially could happen to that interest as you layer in these reimbursement benefits? Thank you.

[Speaker 2]

Yeah. Thanks, Matt. We had a really great quarter and really great year with new surgeon adds. As mentioned, we developed a cervical platform really on the heels of strong interest from existing aprevo lumbar users. 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. We have seen an acceleration in new surgeon users, and that gives us a lot of confidence in our ongoing growth as we grow both the lumbar franchise and the cervical franchise.

[Speaker 4]

Got it. Thank you.

[Speaker 2]

Thanks, Matt.

[Operator]

Our next question comes from Travis Steed at Bank of America.

[Speaker 5]

Hi, this is Aiden on for Travis. I know you mentioned, the DRG being a catalyst in the second half, I guess to zoom in, how much are you baking in as a benefit, and how should we think about the cadence in the second half? Is there potential that they push procedures in the 4Q, just waiting for that DRG bump? What do you think about that, and what do you think you're going to see in the second half?

[Speaker 2]

Aiden, thanks for the question. As we think about this, we do see this new CMS ruling as materially beneficial to hospitals for the long term. 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, being really beneficial in 2027 and beyond as we continue to scale our business, as we continue to increase our hospital access to this procedure.

[Speaker 5]

Got it. I guess when we think about 2027 beyond, when you approach this in terms of driving growth, is this more of a pricing opportunity, a volume opportunity, or are you going to approach both of those?

[Speaker 2]

Yeah. We anticipate maintaining our average revenue per procedure largely where it's at, and really looking at this opportunity to increase our partnerships with hospitals and accelerating access to the hospitals. Net-net, procedure volume growth, versus growth through ARP.

[Speaker 5]

Great. Thank you.

[Operator]

Our next question comes from Richard Newitter at Truist Securities.

[Speaker 6]

Hi. Thanks for taking the question. Maybe just to follow up on the cadence question. I'm sorry if you may have mentioned this and I missed it. The consensus as it was standing today in 3Q heading in would imply a sequential down tick versus 2Q. I guess you didn't see that last year. In fact, it stepped up. Is that the right way to think about it? With respect to what may or may not be reflected in terms of any kind of volume pickup or any kind of tailwind later this year from the reimbursement, how should we think of the top end of the range? Does the top end of your guidance range assume anything there, or would that be in addition to that? Maybe just talk to us about what would get you to the top end of the range. Thanks.

[Speaker 3]

Hey, Rich. This is Leo. When we think about guidance, as I covered, we want to make sure that we have the ability here to continue to achieve the parameters that we've set out and certainly to overachieve in terms of hitting the higher end of that guidance. 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. It eventually will accelerate as we see at the VAC committee process to give us expanded coverage within new hospital systems and certainly deepened penetration within our existing surgeon base.

[Speaker 6]

That's helpful. Just on gross margin, you've been beating our gross margin assumptions pretty consistently and by a decent margin, pretty much since you've been public. I guess, where could we be headed if we just think a year or two out? Is this something that could be approaching 80% as we move closer to 2028?

[Speaker 3]

Yeah. 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 of quarters ago that have proven out to be sustainable with regards to keeping our gross margin level, in the high 70s. Q1 of this quarter or this year and Q2 both at the 77% level, even with the product mix including cervical. We continue to build from that as we further enhance the DPS system. I think we'll have ongoing opportunities into the future to further tick up.

[Speaker 3]

Certainly at the high 70s, we have a very scalable model upon which to accelerate our growth and ultimately to hit that adjusted EBITDA breakeven mark as we think about, more importantly, the operating expenses continuing to decline as a % of revenue.

[Speaker 2]

Thank you.

[Operator]

Our next question comes from Ryan Zimmerman at U.S. Bancorp.

[Speaker 7]

Hi, this is Izzy on for Ryan. Thanks for taking the question. I just wanted to start with the upcoming launch of corra, I was curious what plans have been in place in terms of how you're planning to roll it out, whether we should expect to see broad availability or if this will be more of a targeted initial rollout to a smaller subset of users.

[Speaker 2]

Yeah, great question. We're really excited about the corra Cervical launch. As previously stated, we're in the process of a limited market evaluation. We've got great feedback, in the fourth quarter, we'll be moving towards a full commercial launch in conjunction with one of the fall society meetings, really looking forward to that. As we've talked about corra before, this gives us the ability to have a fully personalized ACDF that can provide enhanced clinical outcomes. 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.

[Speaker 7]

Got it. Thank you. We've heard from some competitors about plans to introduce their own custom implants. I was curious what your outlook on the market is as we start to see more competition entering. Thanks for taking the questions.

[Speaker 2]

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 aprevo procedure. We do, however, see this as really a tipping point in innovation in the industry, and we're really glad to see the investment in innovation that's really going into this space, as it's really ripe for innovation.

[Operator]

Our next question comes from David Saxon at Needham & Company.

[Speaker 8]

Great. Good afternoon, Mike and Leo. Congrats on the quarter, thanks for taking my questions. Maybe just on cervical, really strong here coming out at 10% of the mix. Can you give an update on how you're thinking about the full-year mix? I think prior it was high singles to low doubles. An update there would be great. Then by category, how are you thinking about pricing in lumbar and cervical for the back half?

[Speaker 3]

Yeah. We're certainly pleased with the surgeon receptivity to aprevo Cervical, given it's going to the largely same call point of surgeon. A very effective way in which we can have another indication in the bag for our longer-term leverage in achieving those decreasing operating expenses as a % of revenue. With regard to our expectations for the second half of the year for cervical versus lumbar, 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 11, 12 percentage points or so of cervical on a revenue dollar basis as compared to lumbar. As we think about the average revenue per procedure. In Q2, our average revenue per procedure in lumbar was roughly $29,000. For cervical, it was around $18,000.

[Speaker 3]

We see those levels persisting over the coming quarters. We'll certainly have an ability here with the launch of corra plating for cervical to provide an additional modest uplift in average revenue per procedure for cervical as well.

[Speaker 8]

Okay. That was helpful. Thanks for that, Leo. Maybe for Mike, just regarding the DRG changes. Is that something you could start to see a benefit from in terms of just starting those conversations and getting access into those centers even before it goes live? Or do you think October 1 is kind of when those conversations start, and then the real benefit is more like a 2027 event? Thanks so much.

[Speaker 2]

Thanks, David. Yeah. Like I stated, we're really appreciative of the partnership with CMS and appropriately reimbursing this procedure. 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. While the product approval time still does take some time, we'll start to see the impact of that here in the near term and the long-term durability of our growth in 2027 and beyond.

[Speaker 8]

Great. Thanks so much.

[Operator]

This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.