Carlsmed, Inc. ($CARL)

Can you can just take the opportunity to go through maybe an introduction of the company and what are some key long-term growth drivers.

Yes, I would love to. So co-founded Carlsmed in 2018, really with the mission to improve clinical outcomes and reduce the cost of health care for spine surgery and beyond. And so we built this technology platform that allows us to take preoperative data about patients, data about surgeons, create a 3-dimensional digital model, the patient's pathology, the optimal surgical plan and then 3D-print all the devices that are needed for that surgery. And it's a really different business model for a med tech company. We have an AI-enabled platform that allows us to do everything digitally for the surgery first and then custom make 3D-printed devices for that surgery. And we've developed this platform now for lumbar spine surgery and most recently, cervical spine surgery.

So what do you think that maybe the market is still underappreciating because obviously, it's a very clearly differentiated story.

Well, it's super early days, and we recently published our 2-year outcome data on the lumbar platform showing that by using the aprevo platform, surgeons can reduce the revision rate for patients for lumbar spine fusion surgery by 74% at a 2-year time point. And it's really phenomenal because it's the first technology for this patient population that's meaningfully improved outcomes. And we talk about our mission of improving outcomes, reducing the cost of care, we're able to really achieve both of those because these are typically patients that are expensive for the health care system to treat. And by eliminating revisions, we're saving significantly dollars to the health care system. And one of the key drivers for us is to continue to broaden access to this technology. So really pleased about the preliminary inpatient rule that CMS put out that allows for us to broaden access and ultimately provide a very simple way for hospitals to get reimbursed for this technology.

And just since you are about 2 months out from the anniversary of your IPO, what do you -- what has been the most positively surprised you? And maybe over the next 12 to 24 months, how would you rank maybe surgeon adds utilization, hospital access, mix, product attachment and how to think about those key growth drivers for you?

Well, one of the things that going public allowed us to do, we raised just over $100 million in the IPO. It really allows us to reinvest in our core growth drivers and get us to a near-term path to profitability. And so with that, we think about our core growth drivers in operational excellence, commercial execution, education and clinical data. And we have a lot of exciting things that we've done just in the past few months since we've been public. For instance, we recently announced with our technology that we've built, we've been able to reduce the turnaround time down now to 6 days from initially when we went to market at 8 weeks. And what that really allows us to do for surgeons that are trained is to deeply integrate into their practice so that they can provide this to the broadest set of patients possible.

And then you're broadening out with corra and your cervical platform in 2026. So what's changed most over the last year? And where do you see the biggest opportunity and gives you confidence in that scaling those products as well?

Yes. Thanks for bringing up corra. We're really excited about this. Our core technology platform, aprevo has really been focused on taking patient data, surgeon data, turning that into 3-dimensional surgical plans as well as the custom 3D-printed interbody fusion devices. We've now been able to expand that to corra, where we've just done the first-in-man procedures. We're on track to launch in Q4 of this year. And this is our first foray into personalized fixation. So with this, we're moving outside of the space and have created a really robust platform where we can not only design the surgical correction and the interbody fusion devices, but also fixation, which, in this case, is single-level and multilevel cervical plates in order to provide a stable construct for that patient through their fusion process.

And then maybe also just beyond the current cervical rollout, how should we think about maybe the next wave of products and platform that you can also expand your ecosystem with?

So we've really broadened the ecosystem since we started. We started very narrowly focused with adult spinal deformity, focused on teaching institutions. And we've created a very great solution for that for these long construct procedures. With our recent additions to the platform, we're really able to expand this to short construct procedures, which are typically degenerative disease procedures. And we announced our first-in-man procedure with the posterior bilateral, which we can focus a minimally invasive procedure to actually increase the surface area of perfusion from the posterior in a bilateral approach and we're on track to launch that in the fourth quarter. And so we see meaningful upside adoption for personalized surgery in 2027 and beyond with these growth catalysts. And it coincides really well with this preliminary ruling that Medicare put out that would make reimbursement simpler for this procedure and really allow us to accelerate account access to this technology.

Yes. Maybe to double-click on the reimbursement, got a big bump with the proposed DRG 523 to 525. So can you just sort of maybe walk us through the incremental benefit to either adoption and also pricing? And then maybe a little bit on what percentage of your patients are inpatient procedures and all that?

Would love to. So this is really for the aprevo lumbar procedure. And as we think about this procedure today, again, the majority of the value being done preoperatively where we can create the 3-dimensional plan and then create the devices. What the new DRG allows us to do is to expand access to this technology and provide a reasonable -- a very favorable reimbursement to hospitals for inpatient use. When we look at our patient population for lumbar, it is predominantly inpatient, and that is where we are focused as well as for cervical. So with cervical, we're in a very favorable position. We received breakthrough technology designation for that from the FDA and currently have a new technology add-on payment for inpatient procedures. And that's where we really see the predominance of the patient population for the cervical procedure, particularly for the Medicare age population that has softer bone that a personalized fusion device and procedure can really eliminate a lot of the common causes of revision like subsidence.

And maybe how much of that benefit or potential upside could we see in 2026 and in 2027 if that goes through as proposed?

We believe -- yes. So for the IPPS ruling for the new DRG, we see this as beneficial to hospitals that don't yet have access to this technology to make it very simple to understand not just the clinical benefits of adopting this technology, but also how this plays into the economics of the hospital, which we anticipate to be very favorable and most importantly, to expand access to patients to this technology.

And maybe just since you reported Q1 earnings had a very strong quarter, raised the guide by more than the beat. So what did Q1 tell you about your underlying demand? And then what gives you confidence to maybe sustain that demand?

We feel really good about our performance for the prior 3 quarters since we've been a public company and particularly in Q1. This is our first full quarter of the cervical launch. And we saw much more rapid adoption of the platform, particularly for surgeon users that are already trained on the lumbar platform. So we outpaced our own expectation for new surgeon adds, and that really gives us a lot of confidence in our guide that we gave and our ability to continue to drive well above-market growth with our technology.

And you talked about the inpatient procedure with corra and cervical launch ramping. So what has just been early adopter feedback? And how is that driving deeper utilization within the accounts as well?

Early feedback has been really phenomenal and really proud of the team for how we pulled this together. The cervical utilization, what we've really found is that with this personalized fusion technology that surgeons are able to achieve very predictable alignment. And this novel design that we came up with, which has wider implants that provide a very large surface area, have a very simple procedure intraoperatively because the devices themselves are tapered and fit anatomically and self-center and really give an alignment inside the disc space to the cervical spine that's not typical for this procedure. And so as we see this continue to roll out, some of the micro trends in the early days that we've seen is the ability to use this in a single level as well as a multilevel approach to deliver a very predictable alignment and continuing to work with some of the thought leaders on how this can be used to improve alignment algorithms for a broad patient population that suffers with cervical disc disease.

Maybe just last couple of minutes. Switching over to margins and path to profitability. So where do you think the biggest incremental margin upside could come from you? And obviously, you have a very asset-light model, so very attractive. But I think you've sort of on your recent combos to the public have seemed more constructive on a path to cash flow breakeven as well. So anything to signal there and key assumptions?

Yes. As we previously reported, we made a lot of investments in our technology, in our infrastructure, in our supply chain in order to drive the scale that we're really building as a company. And with that, with those technology advancements, we've seen year-over-year more than a 200 basis point improvement in gross margin. And as we continue to roll out next generation of our technology platform, we'll continue to see opportunities to maintain very high gross margins, which allow us to get to near-term profitability on the capital on hand. And so when we look at our core capital deployments today across R&D and operations, and our professional education, we're seeing sustainable growth that we anticipate will get us to be able to be cash flow breakeven in the near term.

Very exciting. Well, thank you for joining us, and thanks for a nice chat.

Thank you Gracia.