CARL 10-K & 10-Q changes, risk factors and insider trading

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this discussion and analysis in conjunction with our unaudited financialCondensed statementsFinancial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financialFinancial statementsStatements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2025 included in our Annual Report on Form 10-K. Unless the context otherwise requires, references to “Carlsmed,” the “Company,” “we,” “us,” and “our” refer to Carlsmed, Inc., a Delaware corporation. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions, and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of the Annual Report on Form 10-K. See the section titled “Special Note Regarding Forward-Looking Statements.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Our technology is powered by AI-enabled,AI-enabled technologies and outcome-based algorithms that provide personalized surgical plans for spine fusion. The surgical kit delivered to customers includes aprevo interbody implants for a custom vertebral fit forand personalized alignment to address each patient’s unique pathology and vertebral bone topography,needs, and single-use surgical instruments. The aprevo Technology Platform supports surgeons in achieving proper spinal alignment as they seek to improve surgical outcomes for patients with degenerative disc disease (“DDD”), including spinal deformity conditions.

We market the aprevo Technology Platform to surgeons, hospitals and ambulatory surgical centers in the United States through a combination of our direct sales team and independent sales agents. Our direct sales team consists of Area Vice Presidents, Sales Directors, Account Managers, and Strategic and National Account leadership, who are primarily responsible for promoting our platform to surgeons, supporting digital file exchange and other connectivity between our Company and hospitals, and working with customershospitals to secure required approvals for our products. Our direct sales team is also responsible for recruiting independent sales agents who cover each aprevo surgery in the operating room.

Since we began commercializing the aprevo Technology Platform in 2021, we have experienced sequential quarterly and annual revenue growth from its rapid commercial adoption. For the three months ended MarchJune 31,30, 2026 and 2025, we recognized revenue of $16.1$18.9 million and $10.2$12.1 million, respectively, representing period-over-period growth of 58.2%.57%. For the six months ended June 30, 2026 and 2025, we recognized revenue of $35.1 million and $22.3 million, respectively, representing period-over-period growth of 57%.

Our business model depends on our ability to timely deliver the aprevo Technology Platform to allow surgeons to maintain surgical schedules for their patients. In November 2024, we launched our enhancedOur digital production system (“DPS”) that enabledenables a reduction in ourshort manufacturing lead time of 10six business days from surgeons'surgeon approvalsapproval of the digital surgical plans.plan Beginningto inaprevo Februarykit 2026,delivery to the hospital. We believe that this lead time wastypically furtherfits reducedwell towithin sixour businesscustomers’ days.requirements. Our medical devices are manufactured to our specifications by contract manufacturing organizations (“CMOs”) who meet our manufacturer qualification standards.

Since its full commercial launch in October 2021, the aprevo Technology Platform for spine fusion surgery has been used to treat more than 3,7004,400 patients through MarchJune 31,30, 2026. We estimate there are approximately 4,000 spine surgeons across the United States whose patients could benefit from using our platform. As of MarchJune 31,30, 2026, we had an increase of over 60%67% of trained surgeon users on the aprevo Technology Platform thatwho have completed one or more aprevo procedures as compared to MarchJune 31,30, 2025.

We are also committed to building upon our strong foundation of clinical evidence demonstrating the efficacy of our aprevo Technology Platform.Platform for DDD and ASD lumbar fusions and anterior cervical discectomy and fusion ("ACDF") cervical fusions. Clinical data publications are important tools for surgeon education and patient awareness of the potential significant benefits of our personalized solution as compared to stock implants.

aprevo® Lumbar

Procedures using our aprevo Technology Platform are coveredeligible for reimbursement by Medicare, Medicare Advantage, and commercial payors. For the three and six months ended MarchJune 31,30, 2026, we estimate that our hospital customers’ payor mix consisted of approximately 44% for commercial insurance and 56% for both Medicare and Medicare Advantage insurance.insurance, Effective October 2024, CMS adopted a new MS-DRG coding system which reassigns MS-DRG codes for certain lumbar spine fusion procedures when “custom-made anatomically designed interbody fusion devices” (such as our aprevo Technology Platform) are utilized. This provides additional reimbursement for our hospital customers, compared to the reimbursement for fusion procedures that use stock implants.combined. We believe this,the amongclinical otherbenefit factors,of aprevo, which has been shown to significantly reduce long-term reoperations due to mechanical complications, will continue to support our customers' continued demand for use of our technology in lumbar spine fusion surgeries.

aprevo® Cervical

We believe Medicare-aged patients receiving multi-level anterior cervical discectomy and fusion (ACDF) surgeries are uniquely addressed by aprevo cervical. Based on our internal data, a majority of these procedures are performed in an inpatient setting. Effective October 1, 2025, qualifying cervical fusion procedures utilizing aprevo personalized interbody implants for traditional Medicare beneficiaries are eligible for New Technology Add-on Payments ("NTAP") from CMS. The NTAP program provides additional reimbursement to hospitals that use designated new medical technologies in the first few years of market introduction. These new technologies must demonstrate significant clinical improvement in the diagnosis or treatment of Medicare beneficiaries compared to existing alternatives or be designated by the FDA as Breakthrough technology. CMS created unique ICD-10-PCS codes to identify cervical fusion procedures using "“custom made anatomically designed interbody fusion devices"” such as our aprevo Technology Platform. Reimbursement claims submitted with these unique ICD-10-PCS procedure codes may qualify hospitals for up to an additional $21,125 in NTAP reimbursement for eligible inpatient procedures.

Outpatient Procedures aprevo cervical currently has the same payor reimbursement methodology as stock interbody implants for hospital outpatient departments and ambulatory surgery centers. Our requested Transitional Pass-Through (“TPT”) payment for aprevo cervical in outpatient settings was not approved by CMS in its November 2025 Outpatient Prospective Payment System (OPPS) Final Rule, despite our analysis and documentation for its qualification. We will continue to explore opportunities with CMS for various pathways including TPT and New Technology Ambulatory Payment Classification (APCNT-APC) to appropriately reimburse our customers' costs of providing the aprevo Technology Platform in outpatient cervical fusion procedures.

General and administrative expenses consist primarily of personnel costs (i.e., salaries, bonuses, stock-based compensation expense, and benefits) for executive, legal, finance, corporate information technology and human resources roles. Other significant costs include legal fees relating to intellectual property and corporate matters, consultant and professional fees, insurance, badexpected debtcredit expenses,losses on customer accounts , and facility-related costs. We recognize general and administrative expenses in the periods in which they are incurred. We anticipate that our general and administrative expenses will increase in the future to support our anticipated business growth as a publicly traded company. These increased costs include accounting, audit, legal, facility, regulatory, tax, insurance, investor relations, and compliance with exchange listing and SEC requirements. While we expect general and administrative expenses to continue to increase in absolute value, we expect that these costs will decrease as a percentage of revenue over time.

Interest income is attributable to bank interest on our cash and cash equivalents andequivalents, interest earned on our short-term investments in certificates of deposit.deposit, and interest earned on our marketable securities, including available for sale debt securities.

Prior to the closing of the IPO on July 24, 2025, we had issued warrants for the purchase of our convertible preferred stock in conjunction with the loan and security agreement with Customers Bank (the “Customers Loan Agreement”). On the closing of the IPO, all warrants issued to Customers Bank under the Customers Loan Agreement became exercisable into common stock, with certain warrants continuing to be classified as liabilities. Upon the execution of the Fifth Amendment to the Customers Loan Agreement on October 29, 2025, there were no warrants that remained classified as liabilities as a result of the cancellation of 15,831 shares of common stock that were exercisable contingent on loan draw milestones. We accounted for these liability-classified warrants, initially measured at fair value, in accordance with ASC Topic 480. Changes in fair value of warrant liabilities have been recognized in the statements of operations and comprehensive loss. During the three months ended March 31, 2026, Customers Bank exercised the warrants on a cashless basis, resulting in the issuance of 30,366 shares of common stock. As a result of the exercise, the warrants are no longer outstanding. See Note 2—Summary of Significant Accounting Policies in the notes to our unaudited condensed financial statements for information regarding the Series B Warrant and the Series C Warrant in connection with the Customers Loan Agreement.

Comparison of the Three and Six Months Ended MarchJune 31,30, 2026 and 2025

Revenue was $16.1$18.9 million and $10.2$12.1 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase of $5.9$6.9 million, or 58.2%,56.7%, was primarily driven by increased volume of surgical procedures with the aprevo Technology Platform lumbar and cervical surgical procedures in the current quarter, with our average revenue per procedure substantially constant between these periods.

Cost of sales was $3.7$4.4 million and $2.6$3.2 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase of $1.1$1.2 million, or 44.6%,36.8%, was primarily driven by increased unit sales of the aprevo Technology Platform for both lumbar and cervical procedures, for the three months ended MarchJune 31,30, 2026 , as compared to the three months ended MarchJune 31,30, 2025.

Gross margin was 77.1%76.8% for the three months ended MarchJune 31,30, 2026, as compared to 74.9%73.4% for the three months ended MarchJune 31,30, 2025 with cost improvements primarily from lower per unit primarily due to production fees charged by our contract manufacturer.manufacturer in the current period and other efficiencies in our digital production system.

Research and development expenses were $5.2$6.0 million and $3.2$4.2 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase of $2.0$1.9 million, or 64.4%,45.2%, was primarily due to higher personnel costs to support product development and surgical planning AI initiatives.

Sales and marketing expenses were $10.3$11.9 million and $6.7$7.9 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase of $3.6$4.1 million, or 52.8%,51.5%, was primarily driven by a $1.5 million increase in personnel-related costs (including increased headcount, sales compensation and bonuses, and stock-based compensation), a $0.9 million increase in commissions to independent sales agents asand part$0.8 ofmillion increase in generic surgical instruments provided to independent sales growth,representatives to support increased case volumes, and a $0.6$0.9 million increase in various marketing costs.

General and administrative expenses were $6.2$7.6 million and $3.5$3.3 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase of $2.8$4.3 million, or 79.6%,127.9%, was primarily driven by a $1.6$1.8 million increase in personnel-related costs to support business growth and compliance and operational requirements as a public company, a $0.4 million increase in provision for credit losses, and a $0.3$1.4 million increase in professional service and legal fees forto support corporate operations, compliance programs, and intellectual property matters.and other ordinary course legal matters, and a $0.5 million increase in the provision for estimated uncollectible customer accounts.

Interest expense was $0.3 million and $0.4 million as offor the three months ended MarchJune 31,30, 2026 and 2025, respectively, as part of our credit facility with $15.6 million principal outstanding.outstanding at each date. Interest expense was $0.6 million and $0.7 million for the six months ended June 30, 2026 and 2025, respectively.

Interest income was $0.9$0.8 million and $0.4$0.3 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase of $0.5 million, or 134.5%,149.7%, was due to an increase in bank interest earned on our higher daily average cash and cash equivalent balances resulting from the proceeds from our IPO in July 20252025, and from increased yields from purchases of short-term investments.investments and marketable securities in the current period.

There was no change in fair value of warrant liabilities during the three months ended MarchJune 31,30, 2026 compared to a less than $0.1$0.2 million increase during the three months ended MarchJune 31,30, 2025, as the Company had no warrant liabilities outstanding during the current period.

We define “EBITDA” as net income (loss), adjusted to exclude: (i) net interest income, (ii) income tax expense (benefit), (iii) depreciation expense from property and equipment, and (iv) amortization expense from long-lived assetsassets. We define “Adjusted EBITDA” as EBITDA adjusted to exclude stock-based compensation expense and change in fair value of warrant liabilities.

We have incurred net losses and negative cash flows from operations since our inception. We have historically financed operations primarily through the net proceeds that we have received from the sale of shares of our convertible preferred stock, borrowings under our debt facilities, and cash generated from the sales of aprevo interbody implants. On July 24, 2025, we completed our IPO and received $93.5 million in net proceeds, after deducting underwriting discounts and commissions and before additional offering expenses of $5.4 million paid by us. As of MarchJune 31,30, 2026, we had $97.1$89.3 million of cash, cash equivalents, restricted cashcash, short-term investments and short-termmarketable investments,securities, $15.6 million of principal outstanding under our credit facility, and an accumulated deficit of $109.5$120.0 million.

Our losses primarilyhave resulted from theaggregate costsrevenues incurredthat inhave thenot developmentyet andexceeded our aggregate cost of sales and marketingoperating of our products and providing general and administrative support for our operations.expenses. We may continue to incur losses and expend significant amounts of cash in the foreseeable future as we continue to scale our business, invest in research and development activities, increase sales and marketing expenses to support commercial expansion, and increase general and administrative expenses associated with operating as a publicly traded company.

The maturity date of the Term LoanLoan, as amended, is October 15, 2030, with an interest-only period through October 15, 2027, followed by principal repayment over 36 months thereafter. Upon achievement of a certain revenue milestone,milestone in June 2026, the interest-only period and repayment terms of the Term Loan may bewere extended through April 15, 2028 followed by principal repayment over 30 months,months. and uponUpon achievement of an additional revenue milestone, the interest-only period and repayment terms of the Term Loan may be further extended through October 15, 2028, followed by principal repayment over 24 months thereafter. The Non-Formula Revolving Line will mature on October 15, 2028. The applicable per annum interest rate is the greater of (a) WSJ Prime Rate + 0.25% or (b) 5.25%, which resulted in its 7.0% interest rate as of MarchJune 31,30, 2026.

As of MarchJune 31,30, 2026, $15.6 million of principal was outstanding under the Term Loan that will mature on October 15, 2030 and there were no borrowings outstanding under the Non-Formula Revolving Line. As of MarchJune 31,30, 2026, an aggregate $26.9$34.4 million remainedis available for additional borrowing underbetween the Term Loan and Non-Formula Revolving Line,Line net(with our achievement of amountsrequisite outstanding.revenue milestone as of June 30, 2026). See Note 4—Debt in the accompanying notes to our unaudited condensedCondensed financialFinancial statementsStatements for additional information regarding this credit facility.

Based on our current operating plan, we believe our existing cash, cash equivalents andequivalents, short-term investments, and marketable securities, and the expected cash generated from sales of our aprevo Technology Platform, and amounts currently available for future borrowings under our Customers Loan Agreement will be sufficient to fund our planned operating expenses and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Our quarterly and annual financial results may fluctuate as a result of a variety of factors, many of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly and annual results may decrease the value of our common stock.

For the threesix months ended MarchJune 31,30, 2026, net cash used in operating activities was $13.0$20.4 million. We received $14.8$31.5 million from our customers for sales of the aprevo Technologyinterbody Platformimplants in the threesix months ended MarchJune 31,30, 2026 and recognized $16.1$35.1 million of revenue, based on the timingperiod of aprevo interbody implants use inperformed surgical procedures inwith thisour period.devices. Cash payments to vendors during the threesix months ended MarchJune 31,30, 2026 totaled $15.5$30.6 million and payroll-related cash payments totaled $12.3$21.3 million.

For the threesix months ended MarchJune 31,30, 2025, net cash used in operating activities was $8.2$15.2 million. We received $8.8$19.0 million from our customers for sales of the aprevo Technologyinterbody Platformimplants in the threesix months ended MarchJune 31,30, 20252025, and recognized $10.2$22.3 million of revenue based on the timingperiod of aprevo interbody implants use inperformed surgical procedures inwith thisour period.devices. Cash payments to vendors during the threesix months ended MarchJune 31,30, 2025 totaled $9.9$21.2 million and payroll-related cash payments totaled $7.0$13.0 million.

For the threesix months ended MarchJune 31,30, 2025,2026, net cash used in investing activities was $0.1$19.9 millionmillion, and consistedconsisting primarily of purchases of marketable securities of $18.9 million, purchases of short-term investments of $12.0 million, and purchases of property and equipment and capitalized internal use software costs.costs of $1.0 million. This was partially offset by the maturity and sale of short-term investments of $12.0 million.