NeuroPace, Inc. Q2 FY2025 earnings call

Key Points

• Second quarter revenue was $23.5 million, a 22% growth year-over-year, driven by strength in RNS System sales.
• Gross margin was above 77% with RNS gross margin above 80%.
• Project CARE continued to contribute to growth, with sequential increases in site engagement and implant volumes.
• Clinical development: Post-Approval Study data on GTCs in focal epilepsy showed compelling results. NAUTILUS trial in IGE had strong secondary endpoints.
• R&D progress: AI-powered workflow tool, seizure classifier, and enhancements to core RNS System in development.
• Reimbursement: CMS final FY 2026 IPPS rule preserved RNS reimbursement structure.
• Organizational development: Appointments of new CFO and Head of Sales, and commitment to scaling the organization.

The core product segment is the RNS System. In the second quarter, RNS System revenue grew 16% to $23.5 million, representing 22% growth compared to the prior year period. The RNS System contributed significantly to the overall revenue growth. DIXI Medical product sales continue to contribute but are phasing out by the end of the first quarter of 2026 or sooner. Revenue contribution from RNS System was strong, with a total gross margin above 77% and RNS gross margin above 80%.

Guidance

• Raised full-year revenue guidance to a range of $94 million to $98 million, up from previous $93 million to $97 million.
• Raised gross margin guidance to between 75% to 76%, up from previous 73% to 75%.
• Refinanced debt to enhance financial flexibility, expecting interest expense to improve by approximately $2 million annually due to better terms on new debt.

Risks

• Material risks and uncertainties associated with forward-looking statements, including those related to market conditions, clinical trials, and operating trends.
• Regulatory risks, such as potential challenges in clinical trial approvals or reimbursement changes.
• Risks related to the wind-down of DIXI Medical product sales and potential impact on revenue mix.

Q: On NeuroPace's FDA submission strategy for IGE, could you talk about whether you're going for a broad indication approval?

A: Our strategy is to pursue an indication across the entire population with the clinically meaningful and statistically significant treatment effect seen in prespecified secondary endpoints.

Q: Regarding gross margin outlook for the second half, why does the new guide imply a bit of a decline in gross margin?

A: It's due to being thoughtful and prudent in guidance, considering factors like DIXI revenue wind-down and mix dynamics, but RNS gross margin remains strong with over 80%.

Q: Has the NAUTILUS data impacted commercial momentum for focal growth?

A: Absolutely not; clinicians recognize the clinical meaningfulness and statistical significance of prespecified secondary endpoints in NAUTILUS data.

Q: How long does it typically take to transition a community center to be a meaningful contributor of implant volumes in Project CARE?

A: Varies by center segment; some can ramp quickly with contracting and training, others may take longer depending on infrastructure and capacity setup.

Q: Where is NeuroPace in the development of the next-gen RNS offering?

A: Making good progress, testing key componentry for the second-generation platform, on track with timelines laid out earlier.