Good morning, everyone. Thanks for joining us on day one of the 25th Annual Needham Healthcare Conference. My name's David Saxon. I'm an analyst on the med tech research team here at Needham. With me today, we have the Carlsmed team, including CEO, Mike Cordonnier, and CFO, Leo Greenstein. In terms of the format, we'll start with a presentation and then transition into Q&A for the second half. For those on the conference portal, there should be a box where you can submit questions. Alternatively, you can feel free to email me any questions you might have, and I'll do my best to monitor that and fit them in if we have time. With that, happy to pass it over to Mike and Leo. Thanks so much.
Thank you, David, and really appreciate the opportunity to present today. First just a little bit about Carlsmed, who we are, what we do. We are really a mission-driven company, and our mission is to improve outcomes and lower the cost of healthcare for spine surgery. We're really going to talk about how we do that with our patient-specific digital surgery platform, that is Aprevo, that now has applications for lumbar spine fusion and cervical spine fusion.
We have really great clinical data showing a significant reduction in reoperations for patients that use this technology, and we have a very different business, as you'll see, as compared to a traditional medtech business, where we are indeed a digital-first company, where we can create a virtual model of the patient's anatomy, create a virtual surgical plan, and then 3D print and build on-demand the devices that are needed for that patient's surgery and deliver just in time for the surgery, and then also collect post-op data. This very different business has allowed us to operate at high growth, with very attractive margins, getting to near-term profitability, delivering great clinical data. Just a bit about the market for those that are new to the spine fusion market. This is a really large market.
When we look at the lumbar spine fusion market, we see this as north of a $10 billion market that we play in, with north of 400,000 addressable procedures every year. Just in the fourth quarter of last year, we launched our cervical platform, which adds about another $6 billion addressable market, where we look at, we can address in the U.S. more than 800,000 patients annually. When we look at our history of growth, founded the company in 2018 with our limited clinical evaluation starting in 2021, first full year of commercial in 2022, and we've grown stepwise since then, exiting last year at $50.5 million in revenue, north of 75% gross margins, and with a very healthy cash balance, having taken the company public in July of last year.
When we really look at our history of patient-centric innovation, we've done a lot of firsts, and that's allowed us to create this brand new market. First, we received FDA Breakthrough Device designation for our Aprevo lumbar technology in 2020, going to our early commercialization in late 2021, going into 2022, and have continued to add to this innovation pipeline. We'll go through in more detail where we've been, as well as where we're going with this technology platform. We call it a technology platform because it really is a digital platform, and it starts preoperatively. Preoperatively, we have the Aprevo digital planning platform, where we take imaging of the patient, we take data about the surgeon, create a virtual digital model of that patient's pathology, as well as the optimized surgical plan for that patient.
That data is then given to the surgeon. They review, approve it, and once they do that, it then goes into our operations where we can 3D print custom-made, anatomically designed fusion devices that achieve a very specific alignment, and ultimately deliver a very predictable intraoperative solution. And so we have a suite of intraoperative personalized spine fusion devices that every one is customized to the patient, as well as to the surgeon's surgical approach and technique. And then postoperatively, we collect post-op data on every single patient that compares what was planned and what was achieved, and this data is used to continuously train the algorithms that drive better hyper-personalization to the patient population as well as to that specific surgeon. And so all of this results in a very significant clinical outcome.
In December, the two-year data for our Aprevo lumbar technology was published in the Global Spine Journal, which showed a 74% reduction in reoperations at two years for procedures that use the Aprevo lumbar technology versus stock devices. The reason why this works so well is that we can actually program the specific correction of the spine into the interbody fusion device that will actually deliver a very predictable correction, which leads to a predictable operation and ultimately a durable procedure. This is what's really been the most significant benefit that we've provided to the patient population with this technology. Along with the great clinical outcomes, we also have a really great reimbursement structure. In 2024, CMS issued three new DRGs, MS-DRG 521, 522, and 523 , that provide elevated reimbursement to hospitals for inpatient procedures that utilize Aprevo.
This more than offsets the incremental cost of this technology to provide incentives to hospitals to provide this technology that provides a significant patient benefit, and ultimately can reduce the cost of healthcare for Medicare by eliminating revision procedures from this patient population. We talk about the lumbar platform and its ability to drive very specific correction. We've also recently launched the cervical platform, and it works very much the same way, that we're able to determine the optimal alignment for a patient, give this virtual 3D plan to the surgeon, and then create patient-specific devices that will achieve that alignment plan. The big challenge in cervical fusion today is really with patients with poor bone quality.
This is about one in three patients that undergo an ACDF procedure have osteopenia or osteoporosis, and this has a 4x greater rate of revision for adjacent segment disease. Our technology is deeply targeted to that patient population that ultimately has a high incidence of malalignment and leads to revision surgery. We've now expanded the platform from just lumbar fusion indications to cervical fusion indications. The great thing is surgeons that are already trained on the platform can adopt this technology into their practice, not just for their lumbar fusion patients, but also for their cervical fusion patients. It works very much the same way.
We take imaging data from the patient, we take surgical planning data from the surgeon, create a virtual patient-specific model of that patient's pathology, the optimal surgical plan. It's reviewed and approved by the surgeon, and then we 3D print the patient-specific devices that will deliver the precise alignment to that patient, as well as provide a very wide bed for the patients with soft bone to increase the surface area to allow for optimal fusion. We collect the post-op data via our Aprevo Intelligence platform. When we look at the early data, and I think this picture on the left really shows the drastic differentiation between the Aprevo technology and the prior standard of care. With stock devices, they're available essentially as wedges.
What we are able to do with our technology is to create the geometric shape that will match with the patient's vertebral bodies to be able to fit very precisely the anatomy, deliver a very predictable correction, and provide a large platform for spine fusion. We published our early clinical evaluation data at the CSRS, which showed that nearly 80% of personalized Aprevo levels achieve targeted sagittal alignment within three degrees, which is really spectacular, and more than 90% achieved coronal alignment within three degrees. That really shows that we're able to deliver a very predictable three-dimensional alignment and create a great bed for fusion. With this breakthrough technology, in October of last year, CMS issued a New Technology Add-on Payment for the Aprevo cervical platform that provides up to an additional $21,000 reimbursement for this technology, in addition to the current DRGs.
This, again, much like the lumbar platform, is a methodology that CMS can use to incentivize utilization of technologies that can improve clinical outcomes. All of this technology that we've talked about is really driven by our AI-driven planning and analytics that is embedded into our Aprevo digital planning as well as our Aprevo Intelligence. Now when we look at the actual devices that can be generated through our technology platform, we have our Aprevo lumbar platform with lateral transforaminal, anterior, and bilateral posterior. For our cervical platform, we have our ACDF with and without fixation. Between these two lumbar and cervical platforms, we're able to address all lumbar and cervical fusion procedures with the Aprevo platform. Brand new is the Aprevo bilateral.
We're really excited about this because this was a strong request from our surgeon users to be able to place more than one device posteriorly to be able to access in a minimally invasive nature, a bilateral correction to increase the surface area for the fusion posteriorly. We just started the limited market evaluation of this technology, this procedure, and look forward to full commercial launch in the back half of the year for this procedure. Another addition to the platform that we're really excited about is our Corra platform, and this is our personalized fixation. We've now developed, in addition to the ability to create personalized interbody fusion, personalized plating. For the Corra personalized plating, we can create a multilevel cervical ACDF plate that spans multiple levels as well as individual segmental plates.
What this does is it fully personalizes the procedures so that there's a harmonious correction between the Aprevo interbody and the Corra personalized plates. With our still very early days of launch, we announced that we exited last year with 253 trained surgeon users and more than 100 added in the prior year. We see this as the tip of the spear with a huge opportunity in front of us with about 4,000 active spine surgeons in the U.S. running our professional education program to continue to get in front of the leading surgeons that are adopting new technology and continuing to drive utilization for the Aprevo platform. As we look at how we exited the year, we have coverage through our direct sales team with U.S. sales territories. We ultimately have a hybrid sales model. Independent sales agents can cover every single case.
We have more than 100 independent agents contracted to cover the case. Our direct sales team does the new account acquisition. Ultimately we have our very robust Med Ed and training team that supports our more than 200 active trained users. As we look at how we exited last quarter, we had a really strong Q4. We look forward to reporting our Q1 results here in the coming weeks. We delivered $15.2 million in revenue in the fourth quarter, as we can see, continuous quarters of growth, and exited at nearly 77% gross margin. As we look at our full year as we started, we exited the year nearly $51 million in revenue and with significant cash on the balance sheet to invest in our core priorities of patient-centric innovation, professional education and commercial expansion.
We provided revenue guidance to the street as part of our Q4 earnings call of $70 million-$75 million, which puts us at 44% year-on-year growth. With that, I'll turn it back over to Dave for questions.
Great. Yeah, thanks for that, Mike. Maybe to start, I wanted to talk about ISASS, the conference last week. I would just love to hear kind of the thoughts coming out of the conference. What was the feedback you're getting from doctors and kind of the level of interest from doctors around adopting the Aprevo platform?
Thanks, David. Yeah, ISASS is a really great meeting for us. We held a medical education event that was led by Richard Menger, and we had about 100 surgeons attend the event that are not current users. The response has been really overwhelming, particularly with our new data that's out with lumbar showing the reduction in revisions, as well as excitement about the new cervical platform. We're able to reach a really large, dedicated surgeon audience there and look forward to converting them into surgeon users.
Okay. Just on your clinical data, you mentioned the two-year data just now and in the presentation. I would love to just understand the significance of that data. How is it being received by kind of all the key stakeholders?
Yeah, this is really significant data, and it's probably the single most important study that we've done, ultimately to show head-to-head how this technology compares to prior standard of care for spine fusion. The fact that we've been able to significantly reduce reoperations is received really well, certainly by the surgeons who want to be able to provide the best technology to their patients. It's received really well by the payers, starting with CMS, the largest payer, who's really looking at how to incentivize technologies that improve outcomes which ultimately reduce the cost of care. With that, we have private payers coming along as well on this technology platform, whereas we're about a 50/50% mix between commercial pay and Medicare today.
Okay. Just on the commercial payer coverage, I guess, what inning are we in at this point? Any kind of big ones that are left at this point?
We're at a really great spot in that we have existing DRGs, and so the commercial payers pay on the current CPT codes and the DRG. We're in a really favorable spot with commercial pay today.
Mm-hmm. Okay. Just in terms of AI, I mean, you guys obviously incorporate that into the platform. Maybe talk more about how it's deployed and what the impact is across the business.
The great thing about our company is we really build it digital first, and so have deployed AI across the organization to drive productivity and deeper personalization. Go through some of the great use cases of AI that's embedded into our company. First, everything starts with the patient. We get patient imaging, CT, and X-ray, and we're able to use our AI platform to convert all of that patient imaging into a direct patient-specific model that is a complete virtual reconstruction, three-dimensional reconstruction of the patient's pathology. When we look at where we started before we really advanced the AI platform, this would take hours of manual work. Now with the deployment of AI, which also shows in the reduction of our labor costs, we're able to do this in minutes.
It's really meaningful, and the tagging of the data is very useful in allowing us to analyze the pre-op, intra-op, and post-op data to continue to refine the algorithms that drive the surgical planning, which is really what drives the great outcomes that we continue to get.
Mm-hmm. Okay. I wanted to circle back to reimbursement. I got a question emailed in just about the fiscal 2025 IPPS DRGs 523, 525. I don't know if you've gone through that, but if so, I would love to hear your view on that and potential impact to the business.
Great question. We're really excited about the direction that Medicare is going with reimbursement for Aprevo. As I mentioned in the talk, our current reimbursement, we have MS-DRG elevation for Aprevo procedures that meet specific requirements that are paid out at the MCC, which is a higher reimbursement rate. With this proposed rule that CMS came out with, all Aprevo procedures will now map to 523, 524, or 525, depending on the level of complication and comorbidity, which is a significant increase in total dollar reimbursement for these procedures. We see this as opportunity to continue to expand access to patients to this truly life-changing technology.
Okay. That's great. I wanted to dig a little deeper on the fourth quarter. That was a really strong quarter in terms of active surgeons, or additions, I should say, to the active surgeon base. You just talked about ISASS, 100 doctors that aren't on the platform or at an event. I don't know if we'll model 100 additions in the first and second quarter, but I just would love to think or understand what drove the fourth quarter strength, how you're thinking about 2026 maybe on a quarterly or full year basis, especially just the ongoing lumbar launch and then now cervical just getting out of the gates here.
As we reported, we added north of 100 new surgeon users last year, with a big spike in the fourth quarter. That's really driven by the build-out of our commercial team, the build-out of our professional education med-ed team, to give us access to outreach to more surgeons, and the continued education of the surgeons on the clinical benefits of this technology. As we see, in the fourth quarter, we added 29 new surgeons to the platform. We see this as being very durable with the opportunity to outperform on a quarterly and annual basis as we go forward. We'll provide more color into that on our Q1 earnings call.
Mm-hmm.
The traction that we've seen early this year has been extremely strong, with the catalyst coming out with the full commercial launch in the second half of the Corra plating for driving additional procedures and utilization with the cervical platform, getting new surgeons on board the cervical platform in the back half of the year, as well as the full rollout of the posterior bilateral. We see these as meaningful catalysts in the back half of the year, not to mention the very favorable MS-DRG structure that's been proposed by Medicare that would go into place on October 1.
Mm-hmm
We're very excited about not just this year, but really the long-term vision of the company of truly being the new standard of care for spine fusion and transitioning from traditional spine surgery to personalized spine surgery in a very meaningful way.
Mm-hmm. Okay. Maybe just from a high level, you have cervical that's continuing to roll out. You'll add to that with Corra later in the year. You have the ongoing lumbar launch, which is the majority of the business at this point. When you think about new surgeon additions over the next 12, 18-24 months, which part of the business is going to be the biggest driver? Is it going to be more of a lumbar story, or how meaningful can the cervical launch be at this point?
We see both lumbar and cervical being very meaningful. With the three years of clinical behind us now on lumbar, we have a way head start with lumbar, and we're really seeing conversion and rapid adoption of lumbar surgeons bringing in cervical. We also see cervical as a door opener for those surgeons that have a predominantly cervical fusion practice, adopting the Aprevo technology platform in their practice.
Okay, cervical can increase the utilization you're seeing with lumbar docs as well as open up the door for new docs to come on. Okay. It looks like there was a handful of cervical cases in fourth quarter. I think that launched December, if I'm not mistaken. Maybe just looking at 2026, how would you frame the cervical launch from either percentage of sales or case volume at this point?
We see cervical as a meaningful part of our business this year in generating high single-digit to low double-digit revenue contribution in 2026, and that continuing to grow at a pace that's very significant compared to, in addition to our growth with lumbar.
Okay. Yeah, that seems pretty good for how early it is. Also, on the fourth quarter call, you talked about lead time going from, I think it was, eight or 10 days down to six days. Talk about how that kind of allows for the scalability. What does it mean to be kind of a pure play personalized surgery company?
The reduction down to six days is really our end state. That's been our target from the beginning with our surgeon customers, with our hospitals, really to be able to address not just the procedures that are scheduled well in advance, but also emergent procedures that get added. We're really excited about being at that state now, with a lot of the investments we made in our R&D line over the past 12-18 months, being able to see that put into fruition with our scaling operations to drive significant capability and continued productivity in our digital production system.
Mm-hmm. Okay. Switching gears to the commercial organization. You talked about having 12 direct territories and then a decent number of independent agents. What inning are we in terms of coverage in the U.S.? Are there any major regions you're not in at this point, and if so, what's the cadence of filling those gaps?
From where we're at with our hybrid structure, this gives us full coverage of the U.S. With our rapid growth in surgeon adds, we'll continue to split territories. We grew our sales territories about 50% year-over-year, and we anticipate this year growing our sales territories about 50% as well as we split territories to support the significant growth in accounts and utilization.
Okay.
Our hybrid model really allows our direct team to focus on developing the new surgeons, working with the accounts to get onto contract with our strategic accounts team, and training our independent reps that are in the case for every procedure.
Mm-hmm. Maybe just on that handoff from the direct rep opening the account to the agent covering the case, what level of communication is there at this point between the direct and agents? How do you kind of drive new account utilization?
It's really a team-based approach, and it starts very early, with the medical education, because everything starts with clinical training. Much of the secret to the success of the procedure is pre-op. As the plan goes is how the procedure goes. We spend a lot of time with our surgeons, with our independent agents, and with our direct team, really forming a team to deeply understand the preoperative clinical aspect of the procedure that makes the intraop portion of the procedure very straightforward.
All right. You talked about the bilateral rolling out, I think you said 8% of lumbar cases is addressed with that approach. What percent overall with your current portfolio of lumbar and cervical can you address currently?
With our current product offerings and with bilateral being launched in the second half of the year, we'll be able to address all patients that need spine fusion, lumbar and cervical.
Okay. All right. Leo, maybe we'll bring you into the conversation. Thanks for being patient here. Maybe we'll start on gross margins. I think for fourth quarter and full year 2025 was kind of in the mid to high, approaching high 70%s. How should we think about gross margins for 2026, particularly as kind of lumbar continues to ramp and cervical might be kind of subscale at this point?
Yeah. The big driver of gross margins durability was the work that we did in the third quarter of 2025 to improve in our digital production system, as Mike covered, that now allows us to deliver. Our average revenue per procedure will still largely be driven by Aprevo lumbar. We expect that to be in the high $20,000 range, and we think the continued scale and operational execution should support our continued gross margin staying in the mid to high 70%s.
Mm-hmm. Okay. Just in terms of level of capital intensity, you guys are pretty unique just given the kind of just-in-time inventory and amount of inventory you actually carry on the balance sheet. Like what about the platform is different relative to traditional spine companies, and kind of how are you thinking about that aspect as it relates to path to free cash flow and profitability?
Yeah. Look, our business model is fundamentally different from a traditional spine company because we built a personalized surgery platform that exclusively combines proprietary software and data, AI-enabled digital workflow and patient-specific manufacturing. That ultimately results in our capital needs looking very much different to our advantage from traditional spine. We don't require the same level of investment in made-to-stock implant trays and instrument sets that you typically see bedeviling conventional spine companies. We can stay focused on capital and resources towards our product innovation to significantly improve patient outcomes and our revenue growth, and we're able to do that as the only pure-play personalized surgery company.
Mm-hmm. Okay. Just looking at R&D, last year you spent like $17 million.
Mm-hmm.
I guess, what advancements have been made just across the technology platform to kind of improve the pre-op, intra-op, post-op? That's kind of question one. Question two is, Mike, you just talked about kind of being able to address all the needs for spine fusion. What's next in terms of R&D?
Yeah, look, our R&D expense supports continued long-term value creation across the business. We're talking about product development within lumbar and cervical software development, AI planning, expansion, clinical data collection, medical affairs, things that continue to drive the fundamentals in our business and what is important to surgeons and ultimately patients. We'll continue to make those investments in the coming years, and we're well capitalized to do that.
Mm-hmm.
Yeah. Just as we think about long-term, as we started with, we really believe that personalized spine surgery is the standard of care for spine fusion. We also believe that this has great application in arthroplasty, and so we're really excited about our long-term plans, future R&D investments into going into cervical arthroplasty as well. As we think about the coming years, being able to offer personalized spine surgery for fusion and non-fusion procedures is part of our long-term strategy. In the coming quarters, we'll be able to provide more color on that long-term strategy and how we really transition to true personalized surgery for both fusion and non-fusion applications.
Mm-hmm. Okay. Great. Well, with that, we're at time, so maybe we'll leave it there. Mike and Leo, thanks so much for joining and participating and hopefully you have a productive rest of the day.
Thank you.
Sounds great. Really appreciate it, David.