Carlsmed, Inc.: Form 10-Q for the period ended Jun 30, 2025

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 financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements 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, 2024 included in the IPO Prospectus. 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 IPO Prospectus. 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.

Overview

Company Summary

We are a commercial-stage medical technology company pioneering artificial intelligence (“AI”)-enabled personalized spine surgery solutions with a mission to improve outcomes and decrease the cost of healthcare for spine surgery and beyond. We are focused on becoming the standard of care for spine fusion surgery. The aprevo Technology Platform consists of AI-enabled software solutions, and interbody implants that we custom design for each patient’s unique pathology and vertebral bone topography, and single-use surgical instruments. The aprevo Technology Platform was designed to address the limitations of traditional spine fusion surgery and aims to optimize patient outcomes and reduce the need for revision surgeries. By providing personalized surgical plans and interbody implants for custom vertebral fit that are powered by AI-enabled, outcomes-based algorithms, the aprevo Technology Platform supports surgeons in achieving proper spinal alignment for patients with degenerative disc disease (“DDD”), which can improve clinical outcomes and reduce the likelihood of revision surgeries. We currently market the aprevo Technology Platform for lumbar spine fusion surgery, and we are further developing the aprevo Technology Platform for use in cervical spine fusion surgeries, which we expect to commercialize in 2026.

We market and sell the aprevo Technology Platform to hospitals in the United States through a combination of our direct sales team and independent sales agents. Our direct sales team consists of Area Business Directors, Regional Sales Directors, Account Managers, and Strategic and National Account leadership, who are primarily responsible for selling the aprevo Technology Platform to surgeons and working with hospitals to secure product approval. They are also responsible for recruiting indirect sales agents that cover each surgery, generating leads, and training clinics. Our direct sales team is supported by a team of independent sales agents, who are responsible for generating leads, providing surgical instruments, and covering cases. While our current commercial focus is on the United States, in the future, we plan to engage in market access initiatives to evaluate strategic international regions.

Since we began commercializing the aprevo Technology Platform in 2021, we have experienced sequential quarterly and annual revenue growth from the rapid commercial adoption of the aprevo Technology Platform. For the three months ended June 30, 2025 and 2024, we recognized revenue of $12.1 million and $6.1 million, respectively, representing period-over-period growth of 98.7%. For the six months ended June 30, 2025 and 2024, we recognized revenue of $22.3 million and $11.2 million, respectively, representing period-over-period growth of 99.4%.

Our business model depends on our ability to timely deliver aprevo interbody implants in order to allow surgeons to maintain their surgical schedule. In November 2024, we launched our digital production system (“DPS”), which we developed to enable us to deliver our aprevo interbody implants to hospitals within 10 business days of surgical plan approval. Our aprevo interbody implants are manufactured to our specifications by contract manufacturing organizations (“CMOs”) who meet our manufacturer qualification standards. Our streamlined DPS manages both the upstream and downstream processes involved in producing our aprevo interbody implants.

Regulatory and Reimbursement

In July 2020, the U.S. Food and Drug Administration (“FDA”) awarded us a Breakthrough Device Designation, indicating that aprevo interbody implants are likely to provide a more effective treatment than the current standard of care in lumbar fusion with the use of stock implants. In December 2020, the FDA cleared our aprevo interbody implants through its 510(k) regulatory clearance pathway for lumbar fusions performed for correction of adult spinal deformity (“ASD”). After FDA clearance, we commenced the limited clinical release of the aprevo Technology Platform, with the first U.S. patient implant in February 2021. In October 2021, the Centers for Medicare and Medicaid Services (“CMS”) awarded our aprevo interbody implants the New Technology Add-On Payments (“NTAP”). This provided supplemental reimbursement to hospitals for each qualifying aprevo lumbar procedure through October 2024. In that same month, we commenced our U.S. commercial launch of the aprevo Technology Platform for lumbar spine fusion surgery. In August 2022, the FDA cleared the aprevo Technology Platform through its 510(k) regulatory clearance pathway for the treatment of patients with DDD of the lumbar spine.

As of October 2024, CMS adopted new Medicare Severity-Diagnosis Related Groups (“MS-DRGs”) that cover most lumbar spine fusion procedures involving a “custom-made anatomically designed” (“CMAD”) interbody fusion device, such as our aprevo interbody implants. These new MS-DRGs provide premium reimbursement rates for our hospital customers, relative to lumbar fusion procedures using stock implants. We believe this classification will support our customers' continued access to our technology.

In September 2023, the FDA granted us our second Breakthrough Device Designation for aprevo in cervical spine fusion. In November 2024, we received FDA 510(k) clearance for our aprevo Technology Platform for cervical spine fusion surgery. In July 2025, CMS provided a NTAP for the aprevo interbody implant for this cervical indication that results in supplemental reimbursement to hospitals for each qualifying aprevo cervical procedure, effective October 1, 2025. In July 2025, the first aprevo cervical procedure was successfully completed at UC San Diego Health. Assuming we get the necessary remaining regulatory clearances, we expect to commercialize the aprevo Technology Platform for cervical fusion surgery in 2026.

Initial Public Offering

On July 24, 2025, we completed our initial public offering of 6,700,000 shares of our common stock, at a price to the public of $15.00 per share (the “IPO”). We received net proceeds of $93.5 million from the IPO, after deducting underwriting discounts and commissions and before additional offering expenses payable by us.

Key Factors Affecting Our Results of Operations and Performance

Our financial performance has been driven by the following key factors that we believe will persist for the foreseeable future. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address the factors below is subject to various risks and uncertainties.

Market Adoption

Since the full commercial launch of the aprevo Technology Platform for lumbar spine fusion surgery in October 2021, the aprevo Technology Platform has been used to treat more than 1,500 patients. We estimate there are approximately 4,000 surgeons across the United States whose patients could benefit from using the aprevo Technology Platform (Moore et al., 2021). As of June 30, 2025, 199 surgeon users have completed one or more procedures using the aprevo Technology Platform, compared to 116 surgeon users as of June 30, 2024. Over time, we expect to not only grow the base of surgeons using the aprevo Technology Platform but to also increase the number of procedures using the aprevo Technology Platform that are performed by existing surgeons. To achieve this, we plan to grow our commercial infrastructure and expand various market access initiatives, including utilizing medical education programs and surgeon training at top academic institutions.

We are also committed to building upon our strong foundation of clinical evidence demonstrating the efficacy of our aprevo Technology Platform. Clinical data publications are important tools for surgeon education and patient awareness of the benefits of the aprevo Technology Platform versus stock implants. For example, our COMPASS Registry is generating real-world evidence of patient outcomes from lumbar spine surgery with the aprevo Technology Platform. We anticipate that this registry will support a robust cadence of publications.

Expansion of Our Product Portfolio and Investments in Research and Development

Our research and development initiatives are focused on introducing enhancements and new capabilities aimed at increasing the value provided by our aprevo Technology Platform to patients, surgeons, and payors. We have introduced multiple iterations of our algorithm and software platform to drive further improvements of our predictive analytics and diagnostics. We believe that these improvements will strengthen our ability to leverage the post-operative data we collect to build a clinical decision model to further help physicians make better decisions earlier on in the treatment process.

Additionally, we are at an advanced stage of development of our aprevo Technology Platform for cervical spine fusion surgery. In November 2024, we received FDA 510(k) clearance for our aprevo Technology Platform for cervical spine fusion surgery. In 2025, we plan to continue to build out our aprevo Technology Platform for cervical fusion procedures by pursuing additional clearances for advancements to our cervical software platform and our personalized plating solutions. There is, however, no guarantee that our cervical software platform and our personalized plating solutions will obtain FDA clearance on the expected timeline, or at all.

Assuming we obtain the necessary additional 510(k) clearances, we anticipate that we will fully commercialize the aprevo Technology Platform for cervical spine fusion surgeries in early 2026 and intend to drive adoption of the Platform for cervical fusion surgery among our existing base of surgeons who are actively using aprevo interbody implants for lumbar spine fusion surgeries. We also believe that our aprevo Technology Platform can be utilized across various indications and disease states within the spine that are beyond those that we are currently cleared for, such as cervical corpectomy and cervical disc arthroplasty.

Reimbursement

Procedures using our aprevo Technology Platform are covered by Medicare, Medicare Advantage, and commercial payors. For the three and six months ended June 30, 2025, we estimate that our hospital customers’ payor mix consisted of approximately 40% and 41% for commercial insurance, respectively, and 60% and 59% for Medicare and Medicare Advantage insurance, respectively. The MS-DRG codes to which procedures using the aprevo Technology Platform are assigned, provide premium reimbursement to hospitals for lumbar fusion procedures relative to those that use stock implants. This level of hospital reimbursement has a substantial impact on how widely our aprevo Technology Platform is accepted.

CMS has assigned new technology X-codes for use of our aprevo Technology Platform in cervical spine procedures. In July 2025, CMS announced X-codes for the use of CMAD interbody fusion devices for cervical spine fusion surgeries which will be critical to the commercial success of our cervical implants. Future changes in the level of reimbursement, however, could have a significant impact on our results of operations, either positively or negatively. The level at which reimbursement is set by payors for procedures using our aprevo Technology Platform, and any increase in reimbursement for procedures using our aprevo Technology Platform, depends substantially on our continued ability to generate clinical evidence, gain advocacy in the respective physician societies, and work with CMS and commercial payors.

Key Components of Our Results of Operations

Revenue

We sell our aprevo interbody implants and accompanying inserter instruments to hospitals in the United States under standard pricing schedules. We recognize revenue in the period of its use within a spine fusion surgical procedure.

Cost of Sales

Cost of sales includes the costs of creating patient-specific digital surgical plans and the manufacturing costs of our aprevo interbody implants and the accompanying inserter instruments. These costs of sales include allocations for personnel, software, contract manufacturing and other third-party services, packaging, shipping, and overhead cost allocations. We expect that our cost of sales will continue to increase in proportion to recognized revenue.

Gross Profit and Gross Margin

Gross profit (i.e., revenue less cost of sales) and gross margin (i.e., gross profit as a percentage of revenue) have been, and will continue to be, affected by various factors. These include potential changes to our average revenue per procedure, sales volumes, third-party manufacturing costs, direct labor costs, and software costs. We expect our gross margin to remain relatively constant over the short term and to modestly increase over the medium and long term with economies of production scale, increased leverage of our AI technologies, and other manufacturing efficiencies.

Operating Expenses

Research and Development Expenses

Research and development expenses include personnel costs (i.e., salaries, bonuses, stock-based compensation expense, and benefits), allocated facility costs, product prototype materials, clinical studies aimed at potential new products, allocated software license amortization expenses, and consulting and other service fees. We recognize research and development expenses in the periods in which they are incurred. We expect our research and development expenses to increase as we continue to accelerate product and software innovation, develop additional clinical data, and expand manufacturing capabilities.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel costs (i.e., salaries, commissions, bonuses, stock-based compensation expense, benefits, and travel), independent sales agent commissions, costs associated with generic surgical instruments we may provide to our independent sales agents, various digital and print initiatives to increase market awareness of our product and technology, conference and trade show fees, consulting fees, and medical education expenses.

We expect our sales and marketing expenses to increase in the foreseeable future as we continue to increase the size of our sales organization and scope of our marketing efforts in the United States and into other geographies, expand the indications for our aprevo Technology Platform, and seek to establish international sales channels. While we expect sales and marketing expenses to continue to increase in absolute value, we expect that these costs will decrease as a percentage of revenue over time.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs (i.e., salaries, bonuses, stock-based compensation expense, and benefits) for executive, legal, finance, and human resources roles. Other significant costs include legal fees relating to intellectual property and corporate matters, consultant and professional fees, insurance, 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, 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 Expense

Interest expense consists of interest coupon payments and non-cash amortization of debt issuance costs as part of the Customers Loan Agreement.

Interest Income

Interest income is attributable to bank interest on our cash and cash equivalents.

Change in Fair Value of Warrant Liabilities

We have 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"). We account for these liability-classified warrants, initially measured at fair value, in accordance with ASC Topic 480. Changes in fair value of warrant liabilities are recognized in the Statements of Operations and Comprehensive Loss.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

The following tables set forth our results of operations, variances versus the prior period, and percentage of revenue for each presented caption. The period-to-period comparison is not necessarily indicative of financial results to be achieved in future periods.

(in thousands, except percentages)

(in thousands, except percentages)

Revenue

Revenue was $12.1 million and $6.1 million for the three months ended June 30, 2025 and 2024, respectively. The increase of $6.0 million, or 98.7%, was primarily driven by increased volume of surgical procedures with the aprevo Technology Platform in the current quarter, with our average revenue per procedure substantially flat between these periods.

Revenue was $22.3 million and $11.2 million for the six months ended June 30, 2025 and 2024, respectively. The increase of $11.1 million, or 99.4%, was primarily driven by increased volume of surgical procedures with the aprevo Technology Platform in the current six month period, with our average revenue per procedure substantially flat between these periods.

Cost of Sales and Gross Margin

Cost of sales was $3.2 million and $1.5 million for three months ended June 30, 2025 and 2024, respectively. The increase of $1.7 million, or 111.6%, was primarily driven by increased sales of aprevo interbody implants in the current quarter and the associated increase in contract manufacturing materials and costs for the three months ended June 30, 2025 with this sales volume, as compared to the three months ended June 30, 2024. Gross margin was 73.4% for the three months ended June 30, 2025, as compared to 75.0% for the three months ended June 30, 2024. This modest decrease was primarily driven by expedite production fees charged by our contract manufacturer in the current quarter to meet customer timing requirements and other material costs.

Cost of sales was $5.8 million and $2.9 million for the six months ended June 30, 2025 and 2024, respectively. The increase of $2.8 million, or 96.1%, was primarily driven by increased sales of aprevo interbody implants in the current six month period and the associated increase in contract manufacturing materials and costs for the six months ended June 30, 2025 with this sales volume, as compared to the six months ended June 30, 2024. Gross margin was 74.1% for the six months ended June 30, 2025, as compared to 73.7% for the six months ended June 30, 2024 with the slight improvement due to material costs.

Research and Development Expenses

Research and development expenses were $4.2 million and $4.0 million for the three months ended June 30, 2025 and 2024, respectively. The increase of $0.2 million, or 4.1%, was primarily due to higher personnel costs to support product development and artificial intelligence initiatives, partially offset by decreased prototype and materials costs and reduced COMPASS registry costs following enrollment completion in the second half of 2024.

Research and development expenses remained consistent at $7.3 million for both the six months ended June 30, 2025 and 2024. Personnel-related costs increased by $1.1 million primarily due to headcount additions to support our product development initiatives and artificial intelligence initiatives, and were substantially offset by decreased costs for external services and prototype parts and materials and reduced COMPASS registry costs following enrollment completion in second half of 2024.

Sales and Marketing Expenses

Sales and marketing expenses were $7.9 million and $4.9 million for the three months ended June 30, 2025 and 2024, respectively. The increase of $3.0 million, or 61.5%, was primarily driven by a $1.5 million increase in personnel-related costs primarily due to increased headcount and sales compensation for employees, a $1.3 million increase in commissions to independent sales agents, a $0.5 million increase in various marketing costs, and a $0.1 million increase in employee travel costs. These increases were partially offset by a decrease in professional service fees of $0.6 million.

Sales and marketing expenses were $14.6 million and $8.5 million for the six months ended June 30, 2025 and 2024, respectively. The increase of $6.1 million, or 72.5%, was primarily driven by a $2.8 million increase in personnel-related costs primarily due to increased headcount and sales compensation for employees, a $2.4 million increase in commissions to independent sales agents, a $1.1 million increase in various marketing costs, and a $0.3 million increase in employee travel costs. These increases were partially offset by a decrease in professional service fees of $0.6 million.

General and Administrative Expenses

General and administrative expenses were $3.3 million and $2.0 million for the three months ended June 30, 2025 and 2024, respectively. The increase of $1.3 million, or 66.3%, was primarily driven by a $0.5 million increase in professional service and legal fees for corporate and intellectual property matters, a $0.5 million increase in costs for personnel additions to support business growth and public company readiness, and a $0.2 million increase in the provision for credit losses from accounts receivable.

General and administrative expenses were $6.8 million and $4.2 million for the six months ended June 30, 2025 and 2024, respectively. The increase of $2.7 million, or 64.0%, was primarily driven by a $1.4 million increase in professional service and legal fees for corporate and intellectual property matters, a $0.7 million increase in costs for personnel additions to support business growth and public company readiness, and a $0.6 million increase in other administrative expenses.

Interest Expense

Interest expense was $0.4 million and $0.3 million for the three months ended June 30, 2025 and 2024, respectively. The increase of less than $0.1 million, or 11.7%, was primarily driven by an increased amount of borrowings outstanding under the Customers Loan Agreement.

Interest expense was $0.7 million and $0.5 million for the six months ended June 30, 2025 and 2024, respectively. The increase of $0.2 million, or 33.1%, was primarily driven by an increased amount of borrowings outstanding under the Customers Loan Agreement.

Interest Income

Interest income was $0.3 million and $0.4 million for the three months ended June 30, 2025 and 2024, respectively. The decrease of $0.1 million, or 21.5%, was due to a decrease in bank interest on our lower daily average cash and cash equivalent balances.

Interest income was $0.7 million and $0.5 million for the six months ended June 30, 2025 and 2024, respectively. The increase of $0.2 million, or 36.1%, was due to an increase in bank interest on our higher daily average cash and cash equivalent balances.

Change in Fair Value of Warrant Liabilities

The fair value of warrant liabilities increased by $0.2 million during both the three and six months ended June 30, 2025 compared to both the three and six months ended June 30, 2024.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we utilize and present financial measures that are not calculated and presented in accordance with GAAP. Our non-GAAP financial measures include EBITDA and Adjusted EBITDA, each of which is described below. We use our non-GAAP financial measures in evaluating our operating performance and for internal planning purposes. We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. We believe that the presentation of our GAAP and non-GAAP financial measures, in combination, is helpful to investors in assessing our trending business performance in the currently reported period and versus prior periods. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management as a supplemental measure in evaluating our operating performance. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net loss or any other measure as determined in accordance with GAAP. Our computation of EBITDA and Adjusted EBITDA may not be comparable to EBITDA and Adjusted EBITDA of other companies.

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

The following tables present a reconciliation of EBITDA and Adjusted EBITDA to the GAAP financial measure of net loss for each of the periods indicated:

(in thousands, except percentages)

26

(in thousands, except percentages)

Liquidity and Capital Resources

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. Since inception through June 30, 2025, we had raised aggregate gross equity proceeds of $105.1 million primarily from the issuance of convertible preferred stock. As of June 30, 2025, we had $33.5 million of cash and cash equivalents, $15.6 million of principal outstanding under the Customers Loan Agreement, and an accumulated deficit of $83.7 million. As of June 30, 2025, an aggregate principal amount of $7.5 million was available for future borrowings under the Customers Loan Agreement with an additional $4.4 million available upon future achievement of a requisite revenue milestone.

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 payable by us.

Our losses primarily resulted from the costs incurred in the development and sales and marketing of our products and providing general and administrative support for our operations. 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 to support being a publicly traded company.

Customers Loan Agreement

In December 2022, we entered the Customers Loan Agreement. The Customers Loan Agreement had an initial maturity date of December 2026 and provided up to $12.5 million in principal funding, and in October 2023, we drew $3.1 million under the Customers Loan Agreement.

On March 7, 2024, we executed a Third Amendment to the Customers Loan Agreement (the “Third Amendment”), increasing the credit facility size from $12.5 million to $18.8 million and extending the maturity date to December 31, 2027, then subject to achievement of certain revenue and other milestones, and in May 2024, we drew $6.3 million under the Customers Loan Agreement.

On December 30, 2024, we entered into a Fourth Amendment to the Customers Loan Agreement (the “Fourth Amendment”), expanding the facility to $27.5 million through the addition of two tranches, one of which is a revenue milestone-based tranche. The Fourth Amendment also extended the maturity date to October 31, 2029. The Fourth Amendment provides for an interest-only period through July 31, 2026, followed by principal repayment over 39 months thereafter. Upon achievement of certain revenue milestones, the interest-only period may be extended through July 31, 2027, followed by principal repayment over 27 months thereafter. As of June 30, 2025, the requisite revenue milestones for this extension were not yet met.

The applicable interest rate on the Customers Loan Agreement, as of June 30, 2025, was 7.75%, reflecting the greater of (a) the WSJ Prime Rate + 0.25% or (b) 5.25%, and the Customers Loan Agreement contains an interest-only period, with repayment terms that may adjust based on meeting additional milestones as discussed above.

In connection with each of the Third Amendment and the Fourth Amendment, we issued the Series B Warrant to Customers Bank to purchase up to 58,420 shares of our Series B convertible preferred stock at an exercise price of $6.93 and issued the Series C Warrant to Customers Bank to purchase up to 20,375 shares of our Series C convertible preferred stock with an exercise price of $10.74 per share. See Note 4—Debt in the notes to our unaudited condensed financial for additional information regarding our Series B Warrant and Series C Warrant.

As of June 30, 2025, we were in compliance with all covenants contained in the Customers Loan Agreement. See Note 4—Debt in the notes to our unaudited condensed financial statements for additional information regarding the Customers Loan Agreement.

Future Funding Requirements

Based on our current operating plan, we believe the net proceeds from the IPO, together with our existing cash and cash equivalents, the expected cash generated from sales of our aprevo interbody implants, 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.

Our future capital requirements will depend on many factors, including, but not limited to:

• market acceptance of the aprevo Technology Platform and other products and solutions we may develop in the future;
• our ability to obtain marketing approval for the aprevo Technology Platform in international markets that we enter in the future or for other products and solutions we may develop in the future, and the timing and scope of any such approvals we may receive;
• the availability of reimbursement for aprevo interbody implants at acceptable reimbursement rates;
• the cost of manufacturing of aprevo interbody implants, which may vary depending on the quantity of production and the terms of our agreements with manufacturers and other vendors;
• our ability to attract, hire, train, and retain qualified personnel;
• the amount and timing of costs and expenses related to the maintenance and expansion of our business and operations;
• changes in our future pricing policies or those of our competitors;
• the level of demand for aprevo interbody implants that receive necessary marketing and other regulatory approvals, which may vary significantly;
• general economic, industry, and market conditions or extraordinary external events, such as a recession;
• changes in our regulatory environment;
• expenses associated with unforeseen product quality issues;
• the timing and success or failure of clinical trials or post-approval studies for the aprevo Technology Platform or competing product candidates;
• any other change in the competitive landscape of our industry, including consolidation amongst our competitors or partners;
• litigation or other claims against us for intellectual property infringement or otherwise;
• expenses associated with indemnification obligations to third parties that are subject to litigation or claims, including in relation to intellectual property infringement, or incur other losses as a result of their use of our products;
• our ability to obtain additional financing as necessary; and
• advances and trends in new technologies and industry standard.

If these sources of cash are insufficient to satisfy our liquidity requirements, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity or convertible debt securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. In addition, the incurrence of indebtedness would increase our fixed obligations and include covenants or other restrictions that would impede our ability to manage our operations.

Our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the United States and fluctuations in interest rates. If additional financing is needed, we may not be able to obtain additional financing on terms favorable to us, or at all. Our inability to obtain adequate financing or financing on terms satisfactory to us, when we require it, could significantly limit our ability to continue supporting our business growth and responding to business challenges and opportunities.

Cash Flows

The following table summarizes our cash flows for each of the periods presented:

(in thousands)

Operating activities

For the six months ended June 30, 2025, net cash used in operating activities was $15.2 million. Cash payments to vendors during the six months ended June 30, 2025 totaled $21.2 million and payroll-related cash payments totaled $13.0 million. We received $19.0 million from our customers for sales of aprevo interbody implants in the six months ended June 30, 2025, though we recognized $22.3 million of revenue based on the timing of aprevo interbody implants use in surgical procedures in this period.

For the six months ended June 30, 2024, net cash used in operating activities was $13.7 million. Cash payments to vendors during the six months ended June 30, 2024 totaled $14.3 million, and payroll-related cash payments totaled $8.3 million. We received $8.9 million from our customers for sales of aprevo interbody implants in the six months ended June 30, 2024, though we recognized $11.2 million of revenue based on the timing of aprevo interbody implants use in surgical procedures in this period.

Investing activities

For the six months ended June 30, 2025, net cash used in investing activities was $0.9 million and consisted primarily of purchases of property and equipment of $0.4 million, capitalized internal use software costs of $0.4 million, and payment of initial direct costs of $0.1 million for the new operating lease entered into in May 2025.

For the six months ended June 30, 2024, net cash used in investing activities was $0.1 million and consisted primarily of purchases of property and equipment.

Financing activities

For the six months ended June 30, 2025, net cash provided by financing activities was $9.5 million, consisted primarily of net proceeds from the issuance of Series C convertible preferred stock of $11.9 million and proceeds from the exercise of stock options of $0.2 million. This was partially offset by payments for deferred offering costs of $2.6 million in connection with the IPO.

For the six months ended June 30, 2024, net cash provided by financing activities was $44.6 million, consisted primarily of net proceeds from the issuance of Series C convertible preferred stock of $38.4 million and borrowings under the Customers Loan Agreement of $6.2 million.

Contractual Obligations and Other Material Cash Commitments

Our contractual obligations as of June 30, 2025, include:

Debt

Total principal amount outstanding as of June 30, 2025, was $15.6 million. The Customers Loan Agreement matures on October 31, 2029, with an interest-only period through July 31, 2026, followed by principal repayment over 39 months thereafter. Upon achievement of certain revenue milestones, the interest-only period may be extended through July 31, 2027, and principal repayment over 27 months thereafter. As of June 30, 2025, the requisite revenue milestones for this extension were not yet met.

Operating leases

As of June 30, 2025, contractual obligations for operating lease payments (substantially related to our Carlsbad, California office leases with lease terms to July 1, 2028), that totaled $2.6 million and are due over 36 months after June 30, 2025.

Critical Accounting Policies and Significant Judgments and Estimates

In our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section within the IPO Prospectus, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our financial statements. There have been no material changes to our critical accounting policies from those previously disclosed in the IPO Prospectus.

Recently Issued and Adopted Accounting Pronouncements

See “Note 2 – Summary of Significant Accounting Policies” in the accompanying notes to our unaudited Condensed Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for information about recent accounting pronouncements, the timing of their adoption, and our assessment, if any, of their potential impact on our financial condition and results of operations.

Emerging Growth Company and Smaller Reporting Company Status

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

• being permitted to present only two years of audited financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
• reduced disclosure about our executive compensation arrangements;
• not being required to hold advisory votes on executive compensation or to obtain stockholder approval of any golden parachute arrangements not previously approved;
• an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”); and
• an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of the IPO; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this Quarterly Report on Form 10-Q. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. In addition, the JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to “opt out” of this provision, and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period is irrevocable.

We are also a “smaller reporting company,” because the market value of our shares held by non-affiliates plus the proposed aggregate amount of gross proceeds to us is less than $700.0 million, and our annual revenue was less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time that we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K, and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosures controls were effective at a reasonable assurance level as of June 30, 2025.

Changes in Internal Control

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management team, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, the effectiveness of any internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to completely eliminate all potential for misconduct. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in any cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Our business is subject to a variety of risks and uncertainties that are difficult to predict and many of which are outside of our control. For a detailed discussion of the risks that affect our business, refer to the section entitled “Risk Factors” included in the IPO Prospectus. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors previously described in the IPO Prospectus. The matters specifically identified are not the only risks and uncertainties facing our company, and risks and uncertainties not known to us or not specifically identified also may impair our business operations. If any of these risks and uncertainties occur, our business, financial condition, results of operations and cash flows could be negatively affected, which could negatively impact the value of an investment in our company.