Carlsmed Third Quarter 2026 Earnings Conference Call - CARLSMED INC

Explicit Guidance:

• FY2026 Revenue: Raised to $78 million–$80 million (previously $74M–$78M), representing >56% year-over-year growth at the midpoint.
• FY2026 Gross Margin: Expected to remain in the high 70s for the full year.
• Q4 2026 Stock-Based Compensation: Projected between $2.75 million and $3.0 million.
• Q4 2026 Weighted Average Shares Outstanding: Expected to range between 27.3 million and 27.6 million shares.
• FY2027 Revenue Growth (4-Year Guidance): Raised to $78 million–$80 million total revenue run-rate target over the four-year horizon ending FY2027 (contextualized as a 4-year goal in Q3 2026 remarks).
• Q4 2026 Adjusted EBITDA: No specific numerical guidance provided, but management confirmed the inflection to positive operating leverage driven by Q3 performance.

Business-Segment Outlook:

• Lumbar Franchise: Represents 88% of Q3 revenue; driven by 60% YoY growth in surgeon users. New lumbar MS-DRGs (effective Oct 1, 2026) expected to broaden hospital access and drive volume into 2027.
• Cervical Franchise: Currently 12% of total revenue (up from low single digits previously); anticipated to see continued uptake and "ramp above plan" in 2027.
• New Product Launches (2027 Catalysts):
  • Aprivo Lumbar Bilateral Posterior System: Commercially launched October 2026; expected to be a meaningful catalyst in 2027, addressing ~7% (30,000 procedures) of annual U.S. lumbar fusions.
  • CORA Cervical Plating System: Full launch expected "within the coming weeks" (Q4 2026); anticipated to be a 2027 catalyst with potential to serve ~60% of cervical ACDF procedures involving fixation plates.
• Procedure Volumes: Total procedure volume grew 76% YoY in Q3; new surgeon user base grew >60% YoY.

Market and Competitive Outlook:

• Market Share Acquisition: Targeting early and mid-career surgeons; growth driven by medical education programs (MIS posterior, adult spinal deformity courses) and academic partnerships with residents/fellows.
• Competitive Position: Management asserts Carls Med is the "only pure play personalized surgery company"; claims uniqueness in proprietary data, AI-enabled planning, and closed-loop outcomes data (6% re-operation rate vs. industry averages).
• Demand Trends: Surgeon adoption and procedure volume expected to accelerate in 2027 due to reimbursement clarity and new procedure offerings.
• Pricing Strategy: ASPs remain stable with prior quarters; mix shift toward cervical (higher utilization) expected to drive mix improvements.

Macro / Industry Outlook:

• Reimbursement: CMS FY27 IPPPS final rule (effective Oct 1, 2026) consolidated 11 MS-DRGs into three codes (523, 524, 525), simplifying coding and enhancing reimbursement for inpatient Aprivo lumbar procedures.
• Clinical Evidence: Published 2-year data (378 patients) shows 6% re-operation rate for low bone density patients, representing an 80–85% reduction compared to literature; expected to validate value for ~80% of patients over age 50.
• Real-World Evidence: ACE Registry (Aprivo Cervical Effectiveness) enrollment commencing Q4 2026 to collect 6-month, 1-year, and 2-year outcomes.

Strategic Initiatives:

• Organizational Changes: Promoted Jeff Bertolini to COO (led by Operational Excellence); appointed Rich Heppenstall as CFO; onboarded Dr. Tony Jark as Chief Product and AI Officer (ex-Intuitive Surgical) to lead next-gen AI/UX platform.
• Capacity & Scalability: Digital-first, capital-light model enables delivery of surgical kits in ~1 week post-approval; operating leverage demonstrated in Q3 with positive EBITDA impact despite investments.
• Investment Focus: Continued investment in AI initiatives, patient-centric innovation, and sales headcount to broaden reach.

Risks and Headwinds to Outlook:

• Execution Risk: Reliance on successful scaling of new product launches (CORA, Bilateral System) and timely adoption by hospitals/surgeons.
• Adoption Velocity: Growth depends on continued rapid onboarding of surgeons and deepening utilization; any slowdown in new doc adds or hospital approvals could impact the outlook.
• Financial Hedges: Guidance is described as "prudent" with "modest sequential step up" for Q4, suggesting management is buffering against potential Q4 volatility despite strong Q3 momentum.
• Legal/Transition Costs: Q3 results included ~$2.3M legal/resolution costs; future results could be impacted if similar non-recurring items arise (though excluded from Adjusted EBITDA).

Management Tone on the Future:

• Confidence Level: High; explicitly states the company is reaching an "inflection point" in business execution and profitability.
• Sentiment: "Excited" about momentum carrying into year-end; "Encouraged" by personalized surgery gaining traction; describes the business as "prudent" regarding guidance but confident in long-term catalysts.
• Strategic Outlook: Views AI-enabled personalized surgery as the potential "new standard of care" for spine fusion; believes 2027 will feature accelerating growth due to multiple tailwinds (reimbursement, product expansion, scale efficiencies).

Miscellaneous:

• Capital Structure: Cash, restricted cash, and investments totaled $80.3 million as of Sept 30, 2026; net burn of $9M in Q3.
• Debt: $15.6 million outstanding under a $50 million term loan facility maturing in October 2030.
• Non-GAAP Measures: Management continues to report on Adjusted EBITDA and Adjusted Net Loss per share, excluding executive transition costs and legal resolutions.