Carlsmed Inc(CARL) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents unaudited condensed financial statements and detailed notes on the company's financial position, performance, and cash flows Item 1. Financial Statements (Unaudited) Provides unaudited condensed financial statements and comprehensive notes detailing the company's financial position and accounting policies Condensed Balance Sheets Presents the company's financial position, including assets, liabilities, and stockholders' deficit, as of June 30, 2025, and December 31, 2024 Condensed Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $53,270 | $51,824 | | Total Liabilities | $27,614 | $26,228 | | Total Stockholders' Deficit | $(83,073) | $(70,630) | | Cash and Cash Equivalents | $33,472 | $40,125 | Condensed Statements of Operations and Comprehensive Loss Details the company's revenue, expenses, and net loss for the three and six months ended June 30, 2025, and 2024 Condensed Statements of Operations and Comprehensive Loss (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | $12,083 | $6,081 | $22,272 | $11,167 | | Cost of sales | $3,214 | $1,519 | $5,767 | $2,941 | | Gross profit | $8,869 | $4,562 | $16,505 | $8,226 | | Total operating expenses | $15,371 | $10,881 | $28,726 | $19,874 | | Loss from operations | $(6,502) | $(6,319) | $(12,221) | $(11,648) | | Net loss and comprehensive loss | $(6,766) | $(6,277) | $(12,495) | $(11,724) | | Net loss per share (basic and diluted) | $(1.47) | $(1.55) | $(2.94) | $(2.91) | Condensed Statements of Convertible Preferred Stock and Stockholders' Deficit Outlines changes in convertible preferred stock and stockholders' deficit for the periods ended June 30, 2025, and December 31, 2024 Condensed Statements of Convertible Preferred Stock and Stockholders' Deficit (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Series C Preferred Stock | $65,350 | $52,847 | | Additional Paid-In Capital | $593 | $541 | | Accumulated Deficit | $(83,666) | $(71,171) | | Total Stockholders' Deficit | $(83,073) | $(70,630) | Condensed Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024 Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(15,197) | $(13,683) | | Net cash used in investing activities | $(910) | $(67) | | Net cash provided by financing activities | $9,454 | $44,626 | | Cash, cash equivalents, and restricted cash at end of period | $33,572 | $38,248 | Notes to Condensed Financial Statements Provides detailed explanations of the company's accounting policies, financial accounts, and significant events 1. Organization Describes the company's business, recent corporate events, and assessment of liquidity and capital resources - Carlsmed, Inc. is a commercial-stage company in the surgical device sector, designing, manufacturing, and marketing aprevo®, an AI-enabled technology platform for spine fusion surgery[33][34] - The company effectuated a 1-for-5.58 reverse stock split on July 10, 2025, retroactively adjusting all stock and per share data[36] - Completed an Initial Public Offering (IPO) on July 24, 2025, issuing 6,700,000 shares at $15.00 per share, generating $93.5 million in net proceeds[38][40] - As of June 30, 2025, the company had $33.5 million in cash and cash equivalents and an accumulated deficit of $83.7 million. It expects existing cash and IPO proceeds to meet capital requirements for at least 12 months[39][41] 2. Summary of Significant Accounting Policies Outlines key accounting principles and policies applied in preparing the condensed financial statements - The unaudited condensed financial statements are prepared in accordance with GAAP for interim financial reporting[42] - Warrant liabilities are measured at fair value using the 'hybrid method' (combination of option-pricing and probability-weighted expected return methods) and are classified as Level 3 within the fair value hierarchy[58][59] - Deferred offering costs are capitalized and offset against IPO proceeds upon consummation; $3.8 million capitalized as of June 30, 2025[62][63] - The company is evaluating the impact of recently issued accounting standards ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Income Taxes)[65][66] 3. Balance Sheet Account Detail This note provides detailed breakdowns for specific balance sheet accounts, including property and equipment, net, and accrued liabilities Balance Sheet Account Detail (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Property and Equipment, Net | $972 | $260 | | Accrued Liabilities | $3,219 | $2,687 | | - Accrued sales agent commissions | $1,620 | $1,420 | | - Accrued legal and patent fees | $821 | $90 | 4. Debt This note details the Customers Bank Credit Facility, including its amendments, interest rates, warrant issuances, and outstanding principal, as well as future contractual principal payments - The Customers Loan Agreement was amended multiple times, expanding the credit facility from $12.5 million to $27.5 million, with the maturity date extended to October 31, 2029[69][70][73] - The applicable interest rate was 7.75% as of June 30, 2025. The company issued Series B and Series C warrants in connection with the amendments[70][71][75] Debt Metrics (in thousands) | Metric | Value (in thousands) | | :-------------------------------- | :------------------- | | Principal outstanding (June 30, 2025) | $15,625 | | Available to draw (June 30, 2025) | $7,500 | | Additional available upon milestone | $4,400 | | Interest expense (6 months ended June 30, 2025) | $720 | | Interest expense (6 months ended June 30, 2024) | $541 | 5. Common Stock This note describes the company's common stock structure, voting rights, and shares reserved for future issuance, including details on the Common Stock Warrant - The company is authorized to issue 23,679,694 shares of common stock and 15,324,538 shares of convertible preferred stock[81] Shares Reserved (as of June 30, 2025) | Category | Shares Reserved (as of June 30, 2025) | | :-------------------------------- | :------------------------------------ | | Preferred stock, convertible | 15,245,731 | | Common stock options outstanding | 2,211,144 | | Restricted stock units outstanding | 112,478 | | Shares available for 2019 Plan | 138,988 | | Series B Warrant | 58,420 | | Series C Warrant | 20,375 | | Common Stock Warrant | 25,863 | | Total | 17,812,999 | - A Common Stock Warrant for 25,863 shares was exercised on August 14, 2025, and is no longer outstanding[84][85] 6. Stock-Based Compensation This note details the company's stock incentive plans (2019 Plan and 2025 Plan), stock option activity, restricted stock units (RSUs), and stock-based compensation costs - The 2019 Plan authorized 4,055,427 shares for awards. The 2025 Equity Incentive Plan, adopted July 10, 2025, replaced the 2019 Plan for new grants, with 3,595,177 shares initially available[86][90] Stock-Based Compensation Metrics | Metric | June 30, 2025 | | :-------------------------------- | :------------ | | Stock Options Outstanding | 2,211,144 | | Weighted Average Exercise Price | $2.54 | | Restricted Stock Units (RSUs) Issued (H1 2025) | 112,478 | | Total Stock-based Compensation Cost (6 months ended June 30, 2025) | $433k | | Total Stock-based Compensation Cost (6 months ended June 30, 2024) | $87k | | Unrecognized Compensation for Unvested Options | $2.9 million | - RSUs' performance condition was met with the IPO on July 24, 2025, and expense recognition will begin in Q3 2025[99] 7. Convertible Preferred Stock This note provides information on the issuance of Series C convertible preferred stock and its conversion to common stock upon the IPO - The company issued Series C convertible preferred stock in March 2024 ($38.5 million), September 2024 ($14.0 million), and January 2025 ($12.0 million)[101][102] - A deemed dividend of $0.6 million was recorded due to Series C issuances below fair value[102] - All outstanding convertible preferred stock converted into 15,245,731 shares of common stock upon the IPO on July 24, 2025[103] 8. Net Loss Per Share This note explains the calculation of basic and diluted net loss per share, noting that all potentially dilutive common stock equivalents were anti-dilutive due to net losses - Basic and diluted net loss per share are the same due to the company reporting net losses, making all potentially dilutive common stock anti-dilutive[104] Anti-Dilutive Shares Excluded (as of June 30, 2025) | Anti-Dilutive Shares Excluded (as of June 30, 2025) | Count | | :------------------------------------------------- | :---- | | Stock options outstanding | 2,211,144 | | Preferred stock (common stock equivalent) | 15,245,731 | | Restricted stock units outstanding | 112,478 | | Series B Warrant (common stock equivalent) | 58,420 | | Series C Warrant (common stock equivalent) | 20,375 | | Common Stock Warrant | 25,863 | | Total | 17,674,011 | 9. Commitment and Contingencies This note discusses legal matters and operating lease commitments, including details of facility leases and associated expenses - Management believes there are no outstanding legal claims that would have a material adverse effect on the company's financial position, results of operations, or cash flows[108] - The company has two active operating leases for 23,000 square feet of space in Carlsbad, California, with terms extending to July 1, 2028[109][110][111] Lease Commitments (in thousands) | Metric | Value (in thousands) | | :-------------------------------- | :------------------- | | Total undiscounted lease payments (June 30, 2025) | $2,594 | | Total lease expenses (6 months ended June 30, 2025) | $300 | | Total lease expenses (6 months ended June 30, 2024) | $300 | 10. Segment Reporting This note states that the company operates as a single reportable segment and provides a breakdown of operating financial results by significant expense categories - The company operates as a single reportable segment[116] Operating Financial Results (in thousands) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | $22,272 | $11,167 | | Net loss | $(12,495) | $(11,724) | 11. Income Taxes This note explains the company's income tax provision, the maintenance of a full valuation allowance on deferred tax assets, and the evaluation of recent tax law changes - The company did not record income tax expense for the three and six months ended June 30, 2025 and 2024[118] - A full valuation allowance is maintained on net deferred tax assets, as it is more likely-than-not that they will not be monetized[118] - The company is evaluating the impact of the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, with expected impacts to be included in financial statements beginning Q3 2025[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of the company's financial condition, operational results, liquidity, and capital resources Overview Provides a high-level summary of the company's business, product platform, and recent financial and regulatory achievements - Carlsmed is a commercial-stage medical technology company pioneering AI-enabled personalized spine surgery solutions with its aprevo Technology Platform[123] - The aprevo platform includes AI-enabled software, custom-designed interbody implants, and single-use surgical instruments for lumbar spine fusion, with cervical spine fusion expected to commercialize in 2026[123] - The company achieved significant revenue growth: 98.7% for the three months ended June 30, 2025 ($12.1 million) and 99.4% for the six months ended June 30, 2025 ($22.3 million) compared to the prior year periods[125] - Key regulatory milestones include FDA Breakthrough Device Designations, 510(k) clearances for lumbar and cervical spine fusion, and CMS New Technology Add-On Payments (NTAP) for both indications[127][128][129] - The company completed its IPO on July 24, 2025, raising $93.5 million in net proceeds[130] Key Factors Affecting Our Results of Operations and Performance Discusses the primary drivers influencing the company's operational results and financial performance - Market adoption of the aprevo Technology Platform is a key driver, with over 1,500 patients treated and 199 surgeon users as of June 30, 2025, up from 116 in the prior year[132] - Expansion of the product portfolio, including the recently FDA-cleared aprevo Technology Platform for cervical spine fusion (commercialization expected 2026), is a focus for R&D investments[134][135] - Reimbursement policies, including new MS-DRG codes providing premium rates for custom-made anatomically designed (CMAD) interbody fusion devices and CMS X-codes for cervical spine procedures (effective October 1, 2025), significantly impact market acceptance[137][138] Key Components of Our Results of Operations Explains the significant elements contributing to the company's revenue, expenses, and overall financial outcomes - Revenue is recognized in the period of the aprevo interbody implant's use in a spine fusion surgical procedure[139] - Gross margin is expected to remain relatively constant in the short term and modestly increase over the medium and long term due to economies of production scale and increased leverage of AI technologies[141] - Operating expenses (R&D, Sales & Marketing, G&A) are expected to increase in absolute value to support growth and public company operations, but decrease as a percentage of revenue over time[142][144][145] - Other income (expense) includes interest expense from the Customers Loan Agreement, interest income from cash and cash equivalents, and changes in the fair value of warrant liabilities[146][147][148] Results of Operations Presents a detailed comparative analysis of the company's financial performance for the reported periods Results of Operations (Three Months Ended June 30, in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------- | :--------- | | Revenue | $12,083 | $6,081 | $6,002 | 98.7% | | Cost of sales | $3,214 | $1,519 | $1,695 | 111.6% | | Gross profit | $8,869 | $4,562 | $4,307 | 94.4% | | Research and development | $4,160 | $3,998 | $162 | 4.1% | | Sales and marketing | $7,869 | $4,873 | $2,996 | 61.5% | | General and administrative | $3,342 | $2,010 | $1,332 | 66.3% | | Net loss | $(6,766) | $(6,277) | $(489) | 7.8% | Results of Operations (Six Months Ended June 30, in thousands) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :--------- | :--------- | | Revenue | $22,272 | $11,167 | $11,105 | 99.4% | | Cost of sales | $5,767 | $2,941 | $2,826 | 96.1% | | Gross profit | $16,505 | $8,226 | $8,279 | 100.6% | | Research and development | $7,310 | $7,254 | $56 | 0.8% | | Sales and marketing | $14,608 | $8,470 | $6,138 | 72.5% | | General and administrative | $6,808 | $4,150 | $2,658 | 64.0% | | Net loss | $(12,495) | $(11,724) | $(771) | 6.6% | - Gross margin for the three months ended June 30, 2025, decreased to 73.4% from 75.0% due to expedite production fees and other material costs[153] - Interest income decreased by $0.1 million (21.5%) for the three months ended June 30, 2025, due to lower daily average cash balances[163] Non-GAAP Financial Measures Defines and reconciles non-GAAP financial measures, including EBITDA and Adjusted EBITDA - EBITDA is defined as net income (loss) adjusted for net interest, income tax, depreciation, and amortization[168] - Adjusted EBITDA is defined as EBITDA further adjusted to exclude stock-based compensation expense and change in fair value of warrant liabilities[168] Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (%) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------- | | Adjusted EBITDA | $(6,183) | $(6,232) | (0.8)% | | | | | | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (%) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :--------- | | Adjusted EBITDA | $(11,687) | $(11,486) | 1.7% | Liquidity and Capital Resources Assesses the company's ability to meet its short-term and long-term financial obligations and funding sources - The company has historically financed operations through convertible preferred stock sales, debt facilities, and product sales, incurring net losses and negative cash flows from operations since inception[171][173] - As of June 30, 2025, the company had $33.5 million in cash and cash equivalents, $15.6 million debt outstanding, and an accumulated deficit of $83.7 million[171] - The IPO on July 24, 2025, provided $93.5 million in net proceeds, which, combined with existing cash and available debt, is expected to fund operations for at least the next 12 months[172][180] - The Customers Loan Agreement provides $7.5 million available for immediate draw, with an additional $4.4 million contingent on revenue milestones[171] Cash Flow Activities (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(15,197) | $(13,683) | | Net cash used in investing activities | $(910) | $(67) | | Net cash provided by financing activities | $9,454 | $44,626 | Contractual Obligations and Other Material Cash Commitments Details the company's significant contractual obligations and future cash commitments - As of June 30, 2025, the total principal amount outstanding under the Customers Loan Agreement was $15.6 million, maturing on October 31, 2029[191] - Contractual obligations for operating lease payments totaled $2.6 million as of June 30, 2025, due over 36 months[192] Critical Accounting Policies and Significant Judgments and Estimates Highlights the accounting policies requiring significant management judgment and estimation - There have been no material changes to the critical accounting policies previously disclosed in the IPO Prospectus[193] Recently Issued and Adopted Accounting Pronouncements Discusses the impact of new and recently adopted accounting standards on the financial statements - Refer to Note 2 – Summary of Significant Accounting Policies for information about recent accounting pronouncements[194] Emerging Growth Company and Smaller Reporting Company Status Explains the company's status as an emerging growth and smaller reporting company and associated disclosure elections - The company qualifies as an emerging growth company under the JOBS Act, allowing for reduced disclosure requirements[195] - The company has elected to 'opt out' of the extended transition period for complying with new or revised financial accounting standards[195] - The company is also a smaller reporting company, which provides additional reduced disclosure obligations[197] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item states that there are no quantitative and qualitative disclosures about market risk applicable to the company - This item is not applicable[198] Item 4. Controls and Procedures Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective at a reasonable assurance level as of June 30, 2025. No material changes in internal control over financial reporting were reported - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[199] - There have been no material changes in internal control over financial reporting during the period covered by this report[200] - The effectiveness of any internal control system is subject to inherent limitations[201] PART II. OTHER INFORMATION Provides additional information not covered in the financial statements, including legal, equity, and other disclosures Item 1. Legal Proceedings This item refers to Note 9 – Commitments and Contingencies for discussion regarding legal proceedings - Refer to Note 9 – Commitments and Contingencies for discussion regarding legal proceedings[203] Item 1A. Risk Factors This item states that there have been no material changes to the risk factors previously described in the IPO Prospectus - There have been no material changes to the risk factors previously described in the IPO Prospectus[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item reports on unregistered sales of common stock from stock option exercises and details the use of proceeds from the recent IPO - During the quarter ended June 30, 2025, the company issued 446,617 shares of common stock upon the exercise of stock options for aggregate proceeds of $0.2 million[205] - The net proceeds from the IPO, completed on July 24, 2025, were approximately $88.3 million[206] - IPO proceeds are intended to support commercialization ($24.7 million for sales and marketing), fund R&D activities ($45.9 million), and for working capital and general corporate purposes[207] - There has been no material change in the intended use of proceeds from the IPO[208] Item 3. Defaults Upon Senior Securities This item states that there are no defaults upon senior securities - None[209] Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable - Not applicable[210] Item 5. Other Information This item reports that none of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended June 30, 2025 - None of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended June 30, 2025[211] Item 6. Exhibits This item lists the exhibits filed with the Form 10-Q, including corporate documents, various agreements, and certifications - The exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, various warrants, stock incentive plans, employment agreements, loan and security agreements, and certifications[212][214] Signatures This section contains the signatures of the Principal Executive Officer and Principal Financial Officer, certifying the report - The report was signed by Michael Cordonnier (Chief Executive Officer and President) and Leonard Greenstein (Chief Financial Officer) on August 28, 2025[218]