NeuroPace, Inc. (NASDAQ:NPCE) Q2 2025 Earnings Call Transcript

NeuroPace, Inc. (NASDAQ:NPCE) Q2 2025 Earnings Call Transcript August 12, 2025

NeuroPace, Inc. misses on earnings expectations. Reported EPS is $-0.26 EPS, expectations were $-0.24.

Operator: Ladies and gentlemen, greetings, and welcome to the NeuroPace, Inc. Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Schaper, Head of Investor Relations at NeuroPace, Inc. Please go ahead.

Unidentified Company Representative: Good afternoon. Thank you for joining us for NeuroPace’s Second Quarter 2025 Financial and Operating Results Conference Call. On today’s call, we will hear from Joel Becker, Chief Executive Officer; and Patrick Williams, Chief Financial Officer. Earlier today, NeuroPace released financial results for the second quarter ended June 30, 2025. A copy of the press release is available on the company’s website at neuropace.com. Before we begin, I would like to remind you that throughout this call, we will make statements that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements made during this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including those around NeuroPace’s projections, business opportunities, commercial expansion, market conditions, clinical trials and those relating to our operating trends and future financial performance, expense management, estimates of market opportunity, and forecast of market and revenue growth are based on current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For more detailed descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended June 30, 2025, filed with the SEC on August 12, 2025, and any other reports that we may file with the SEC in the future. This conference call contains time-sensitive information, which we believe is accurate only as of this live broadcast on August 12, 2025. NeuroPace disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I will now turn the call over to NeuroPace’s Chief Executive Officer, Joel Becker.

Joel?

Joel D. Becker: Thank you, Scott, and good afternoon, everyone. On today’s call, I will provide a high-level overview of our second quarter results and share updates across our key strategic pillars, including market, clinical and product development. I will then turn the call over to our CFO, Patrick Williams, to walk you through the details of our financial performance and our updated outlook before opening the line for Q&A. Second quarter was another strong quarter that reinforces the momentum we are seeing in the business and the consistency of the strategy we have been executing, deepening adoption and utilization within our current indication and customer base, while expanding access to RNS therapy through new sites of service and clinical indication expansion.

These efforts are working, and the trends continue to move up and to the right. We delivered another record revenue quarter with strong revenue of $23.5 million, representing 22% growth compared to $19.3 million in the prior year period. Growth was driven by continued strength in sales of our core RNS System, supported by increased commercial activity and broader prescriber engagement. Importantly, this growth was achieved with a total gross margin above 77% and RNS gross margin above 80%, along with continued operating discipline. Operating expenses, excluding certain onetime nonrecurring items related to executive transition, grew 13% in the quarter and significantly below our sales growth rate. Our base business continues to perform well with another quarter of record high prescribers and active accounts as we further expand access in both Level 4 centers and in the community.

RNS System revenue grew 16% in the quarter and 21% in the first half of 2025. We are pleased with the demonstrated disciplined growth and remain confident in the durability and trajectory of our growth profile. Project CARE contributed to growth again this quarter. As a reminder, CARE is focused on expanding access to RNS by enabling referrals and implants to occur in the community setting, often in partnership with existing Level 4 centers. CARE activity continues to scale, and we saw sequential increases in both site engagement and implant volumes in the quarter. Given this performance, we are raising both our full year revenue and gross margin guidance ranges. For revenue, we now expect a range of $94 million to $98 million. Gross margin is now expected to be between 75% to 76%.

Additionally, during the quarter, we also completed a refinancing of our existing debt. This transaction gives us enhanced financial flexibility to fund our strategic initiatives and removes the near-term debt maturity overhang. We were pleased to secure more favorable terms, reflecting the increasing confidence from our financial partners and the improving fundamentals of our business. Let me now turn to our clinical development programs. Our Post-Approval Study continues to resonate strongly with clinicians. Presented in April at the American Academy of Neurology meeting, it remains the largest prospectively enrolled FDA-reviewed neuromodulation study ever conducted with 324 patients and monitored using uniform and robust protocols in a focal patient population.

It is high-quality evidence, and we are continuing to analyze the data set to deepen our understanding of RNS efficacy and uncover new insights. An analysis of this Post-Approval Study data focused on generalized tonic-clonic seizures, or GTCs, within this focal epilepsy population. Generalized tonic-clonic seizures occur in focal epilepsy, as well as in idiopathic generalized epilepsy, or IGE, which we are studying with our NAUTILUS trial. 133 patients in our RNS System trials of focal epilepsy had GTCs at baseline, and the response to treatment was compelling. The median percent seizure reduction in GTCs, meaning the rate of GTC seizure reduction experienced by 50% or more of the patient population, was 100% at 24 and 36 months post implant.

And nearly 87% of these patients with medically intractable focal epilepsy with at least 6 months of follow-up were free of GTCs for 6 months or more. These results speak directly to the broad efficacy and real-world impact of the RNS System across seizure types. These GTC results from the PAS study will be presented at the AES meeting in December. Turning to NAUTILUS, our trial in patients with IGE. We continue to be highly encouraged by the data and increasingly confident in the clinical impact of the RNS System as analysis of the data progresses in this underserved population who have a high unmet clinical need. Our pre-submission documents were received and accepted by the FDA, and our submission was both thoughtful and robust and articulated how compelling and meaningful the data are for this patient population.

Following submission, the FDA will meet with us on an accelerated timeline ahead of the mandated 45-day window, which we view as a positive reflection of our ongoing engagement and collaborative relationship with the FDA. We look forward to a constructive and forward-looking discussion in the coming weeks. Based on current timelines, we continue to expect to submit our PMA supplement in the second half of 2025, in line with previous expectations. We believe the totality of the NAUTILUS data set remains among the most compelling RNS data ever generated and reinforces our confidence in the therapy’s potential in IGE. NAUTILUS was designed specifically for an IGE patient population and represents the first and only neuromodulation study, both for RNS and any other neuromodulation device for this underserved and severely impacted patient population.

The study was prospective, randomized, controlled and blinded with prespecified safety and effectiveness endpoints that provides Level 1 evidence, which is the highest standard and is required for label expansion and was recognized by the FDA when granting Breakthrough Device status. As we have progressed in our analysis, the data continued to mature in a positive direction. As a reminder, the trial met its primary safety endpoint with strong safety data. It did not meet its primary effectiveness endpoint using the time-to-event design, largely due to a prespecified analysis method that was not able to account for a small subset of patients with highly variable and extremely frequent GTCs. Secondary endpoints indicate that the patient population in total experienced highly statistically significant and clinically meaningful reductions in seizure frequency.

Our prespecified secondary endpoints, median percent GTC seizure reduction, responder rate and seizure-free days, were all highly statistically significant with a p-value of less than 0.001 at 12 months. Median GTC seizure reduction is a highly clinically meaningful and historically important clinical trial endpoint. It is important to note that the trial is ongoing and data monitoring past 12 months is not complete. While I will not cite additional specific median GTC seizure reduction percentages and follow-up time points today, respecting contemporaneous data review discussions that we are having with the regulatory agency, what I can tell you is that the median IGE/GTC seizure reduction data we have today is signaling better than 80% reduction at both 18 and 24 months.

As importantly, with regard to seizure freedom from GTCs, the most dangerous type of seizure, as of the 12-month data lock for the 42 patients that had received stimulation for at least 9 months, 45.2% were seizure-free. With excellent safety experience in the study and prior studies of focal epilepsy, as well as the statistically significant and clinically meaningful reduction in seizure frequency and progressive improvements in seizure control, we believe there is substantial data upon which to base a benefit-risk determination. These data reinforce our belief in the differentiated impact of the RNS System in generalized epilepsy and speak to the durability and depth of treatment response in this difficult-to-treat population. Let me now touch on our R&D progress, which remains a central part of our long-term value creation strategy.

We continue to make progress in innovations designed to expand access, simplify therapy delivery and further differentiate the RNS platform. That includes progress on our first AI-powered workflow tool, our next-generation seizure classifier, and enhancements to our core RNS System. These are technologies built to improve clinical outcomes and enhance physician workflow, including more precise seizure onset detection, automated therapy setting proposals and predictive analytics to support proactive patient management. Our seizure classifier continues to learn from more than 22 million recorded events in our database, which is a unique data asset that belongs to NeuroPace and is powered by the unparalleled data capture and monitoring, made possible only by the unique monitoring and recording capabilities of the RNS System.

As we continue to expand access to RNS, every additional patient placed on therapy strengthens our data set and extends our lead in this area. This creates a self-reinforcing data moat that is difficult to replicate and continues to be a core driver in delivering best-in-class outcomes that improve over time. Our long-term vision is to deliver a fully optimized AI-driven therapy experience, one that not only detects seizures, but more importantly, helps clinicians proactively manage them through data-driven insights and adaptive therapy settings. We believe this will increase efficiency and productivity for the clinicians and ultimately result in helping more patients achieve our current strong clinical outcomes faster. We continue to progress with development and regulatory efforts to launch our first AI-powered tools in 2025 and remain excited about the impact that the AI portfolio will have.

Moving on to reimbursement. In late July, CMS issued the final FY 2026 IPPS rule and elected not to finalize its proposal to reassign RNS cases into 3 new DRGs. As a result, RNS procedures will remain in its current DRG, thus preserving current reimbursement structure. We view this as a positive outcome relative to the proposed rule as it avoids a reimbursement uncertainty and potential challenges for hospitals treating Medicare patients. We plan to remain actively engaged with CMS to advocate for improvements to the current DRG and payment in future rule-making cycles. Finally, we are developing our organization to ensure that we are positioned to both execute the current business at a high level and capitalize on future opportunities across product innovation, clinical advancement and market expansion.

The appointments during the quarter of Patrick as our CFO and Chris Reese as our new Head of Sales reflect that commitment, bringing world-class leadership to the organization and strengthening our ability to scale. These are intentional and strategic choices. And both judging by the caliber of the individuals we have been able to attract, as well as the impact that we’re already seeing, I am both confident in and excited about the direction we are headed, both as a leadership team, as well as a business. Both Patrick and Chris bring strong industry backgrounds and are already evaluating and improving processes and leading in ways that are paying dividends. We look forward to their increasing contributions moving forward. RNS is a world-class technology, and we believe our opportunities are equally world- class.

We are building the team to match, focused on empowering top talent to unlock the full potential of our platform. Before turning to our financial results, I would like to take a moment to thank Rebecca Kuhn for her enormous contributions to NeuroPace over her career. Her leadership has been instrumental in guiding the company through pivotal moments, and her steadfast advocacy, both for our business and its mission and for the patients we serve, has left a lasting impact. We are grateful for her partnership and dedication, and I know the entire team joins me in saying thank you and wishing her continued success. With that, I will now turn the call over to Patrick Williams, our CFO, to walk through the financial results and guidance.

Patrick F. Williams: Thank you, Joel. Before I begin, let me start by saying how excited I am to be here at NeuroPace. I joined the company because I believe strongly in the mission, the strength of the data and technology, and the opportunity ahead. NeuroPace is committed to patients and high-quality evidence generation in a way that is unique in medical technology. What attracted me most was the potential to help scale a platform that both improves lives and has a clear path to sustainable long-term growth and profitability. I am thrilled to be part of the team and look forward to helping the company deliver on its strategy. I also want to thank the broader NeuroPace team, including the finance organization and operational leaders, for the work that has been done to lay a strong foundation.

The discipline in execution across the business gives us a solid base to build from, and I am energized by the momentum that is already underway. We are well positioned to continue building robust processes and tools that will support and enable NeuroPace’s growth today and into the future. Let me now walk you through our second quarter 2025 financial results. We reported record second quarter 2025 revenue of $23.5 million, representing 22% year-over-year growth compared to $19.3 million in the second quarter of 2024. Revenue dollar growth was primarily driven by continued strength in our core RNS System, [ supporting ] both implant volumes and broader prescriber activity. We also recognized an uptick in research service revenue tied to milestones related to our ongoing collaboration with Rapport Therapeutics.

That collaboration has been extended and may continue to contribute small amounts of revenue in future quarters. We continue to be encouraged by the growing recognition of the value of our long-term high-quality brain activity data, which remains highly differentiated. We believe this is a strategic asset that not only supports innovation, but is also increasingly relevant to pharmaceutical and research partners seeking better insight into neurophysiology and treatment outcomes. We will continue to be opportunistic about monetizing this data with future partners. DIXI Medical product sales continued to contribute to growth in the quarter, and as a reminder, will phase out by the end of the first quarter of 2026 or sooner, consistent with our previously communicated wind-down timeline.

We are raising our full year revenue guidance to a range of $94 million to $98 million, up from our previous guidance range of $93 million to $97 million. This updated guidance reflects an increase of approximately 18% to 23% over our reported revenue for 2024. Growth continues to be primarily driven by our RNS System. As mentioned last quarter, we are in the process of winding down our distribution agreement with DIXI Medical, and our revised guidance incorporates contribution in line with previous expectations. Gross margin in the second quarter 2025 was 77.1% compared to 73.4% in second quarter of 2024 and 77% last quarter. Gross margin performance remains strong and reflects manufacturing efficiencies in our core RNS System with fixed overhead absorbed across higher volumes, slightly higher average selling price, as well as overall product mix.

That strength was partially offset by the expected impact of lower-margin DIXI sales. Based on our strong first half gross margins, we are raising our gross margin guidance to a range of 75% to 76%, up from our previous guidance range of 73% to 75% and expect continued favorable mix shift towards RNS sales. Looking ahead, we expect total company gross margin to trend towards 80% over time as we scale RNS volumes and the lower- margin DIXI sales are phased out of our product mix. We believe this type of gross margin profile serves as a strong foundation for our business to continue to invest in growth, while driving towards cash flow breakeven. Total operating expenses were $25 million in the second quarter of 2025 compared to $20.4 million in the second quarter of 2024.

Operating expense was impacted in the quarter by onetime items totaling $1.9 million in personnel expense, including severance and recruiting related to executive transition. Stock-based compensation in the quarter totaled $3.2 million, which reflected a portion of these expenses. Excluding nonrecurring items, operating expenses grew 13% year-over-year, significantly below our revenue growth in the quarter of 22%. We continue to demonstrate underlying operating leverage resulting from our focus on driving revenue growth, while also effectively managing our operating expenses and gross margin. We plan to continue to focus on balancing these objectives as we drive towards cash flow breakeven. In total, we continue to expect total operating expenses for 2025 to range between $92 million and $95 million, consistent with our previous guidance range.

This range reflects 14% to 18% growth on a year-over-year basis and again, below our revenue growth rate. Included in our total operating expenses is approximately $11 million in stock-based compensation, a noncash expense. Moving to the components of operating expense. As part of an ongoing effort and commitment to provide increased transparency and support the ability to model our business, I will break out and provide commentary on sales and marketing and general and administrative components rather than referring to SG&A as a single line item. Sales and marketing expense totaled $12 million in the second quarter 2025 compared to $9.8 million in the second quarter 2024. The increase was largely due to ongoing scaling of our commercial activities and investment in direct-to-consumer advertising and other sales resources.

We expect sales and marketing expense to total $46 million to $47 million for the full year 2025, driven by continued investment in our sales organization and direct- to-consumer marketing initiatives. R&D expense was $6.8 million in the second quarter of ’25, up from $6.1 million in the second quarter of 2024 and down from $7.4 million in the first quarter of 2025. This year-over-year increase reflects increased personnel costs and continued investment in our next-generation platform, AI-powered software development, ongoing clinical trials, as well as lower grant funding compared to the prior year. We expect R&D expense to total approximately $27 million to $28 million for the full year 2025 as investment in next- generation products continues.

General and administrative expense was $6.1 million in the second quarter of 2025 compared to $4.5 million in the second quarter of 2024. This year-over-year increase was again primarily driven by the previously mentioned nonrecurring costs incurred in the second quarter of approximately $1.6 million. We expect G&A expense to range between $19 million and $20 million for the full year 2025. Loss from operations was $6.8 million in the second quarter of 2025 compared with $6.2 million in the second quarter of 2024. We recorded $2.1 million of interest expense in the second quarter of 2025 compared to $2.2 million in the second quarter of 2024. Following the successful refinancing of our debt on improved terms, we now expect interest expense of approximately $8 million for the full year 2025.

On an annualized basis, we anticipate interest expense will improve by approximately $2 million due to improved terms on our new debt. Regarding interest income, we expect approximately $2.5 million in income for the full year 2025. Net loss was $8.7 million for the second quarter of 2025 compared to a net loss of $7.5 million in the second quarter of 2024. Our free cash flow, or what has historically been described as cash burn, was negative $2.3 million in the second quarter of 2025 compared to negative $4 million in the second quarter of 2024. This year-over-year improvement was primarily driven by higher revenue and gross margins as the business continues to show leverage. Finally, ending with our balance sheet, our cash and short-term investments balance as of June 30, 2025 was $62.1 million.

In addition, our recently refinanced debt provides access to an undrawn $15 million revolver. Combined, we believe this gives us sufficient capacity to fund operations through cash flow breakeven. With that, I would now like to turn the call back over to Joel for closing remarks.

Joel D. Becker: Thank you, Patrick. To close, I’ll reiterate a few key themes. First, our strategy is working. We continue to see meaningful progress across market development, clinical development and product development, all of which we view as world-class opportunities. These opportunities strengthen our position to deliver outsized impact for patients, physicians and the business. The investments we’ve made in the base business and disciplined execution is delivering consistent results today, and we believe that momentum will continue to build in the second half of 2025 and into 2026 and beyond. Second, we continue to take steps to strengthen the organization. We added strong new leadership in finance and commercial, and we are investing in organizational development to ensure we’re positioned to both execute the current business at a high level and capitalize on future opportunities.

Third, we remain committed to innovation. Through data-driven enhancements to the RNS platform, advancing new indications like IGE and pediatrics or AI-enabled features to enhance the product and workflow, we are pushing forward and leading the field on multiple fronts with patient outcomes at the center of everything we do. I have never felt more confident in our plans, the execution of those plans, and the current and future growth of the RNS System than I do right now. We expect to update our long-range outlook, inclusive of the divestiture of DIXI once we have full visibility into 2025, but the long-range strategic direction that we articulated in January at our Investor Day remains in place and on track. Our strategy focused on RNS is clear.

It is correct, and we are focused on executing it to the significant benefit of patients, clinicians who care for them and shareholders. Thanks again for your time today and for your continued interest in NeuroPace. Operator, we’ll now open the line for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Rohin Patel with JPMorgan.

Rohin Kirit Patel: I have one just to start off on IGE. I just wanted to ask on your FDA submission strategy. Last we talked, I believe, you were considering kind of a multipronged approach to the submission, just given the data looked a little bit better in the subset of patients that had a lower baseline seizure frequency. So maybe just the first question for me is, could you just talk a bit more about your submission strategy? Are you still going for a broad indication approval or something a little bit more segmented? And then, I had a follow-up.

Joel D. Becker: Rohin, thank you for the question. So our strategy remains the same, where our plan is to go for an indication involving the totality of the data and the totality of the population, with the clinically meaningful and statistically significant treatment effect that we see in the prespecified secondary endpoints points clearly to the entire population demonstrating benefit, and that’s our plan is to pursue an indication across the population.

Rohin Kirit Patel: And then, I guess just a follow-up on gross margin. I mean, it came in a bit higher than I think people were expecting, and you obviously had some good leverage in the quarter. So can you just talk a little bit about kind of the outlook for second half? I believe kind of the new guide still implies a bit of a decline in gross margin. Is that just due to conservatism? Or is there anything specific to call out? And how are you thinking about kind of this higher run rate or higher gross margin translating into potential earlier cash flow breakeven beyond 2025?

Joel D. Becker: I’ll ask Patrick to comment here, Rohin, but what I’ll offer as a starting point is, we’re obviously pleased with the gross margin performance. And you’ve heard us talk about the key drivers there in the past in terms of absorption and consistent contracting and pricing. And in addition to what we see a strong performance here in the quarter, I’d point to the RNS gross margin number, that north of 80% number. And as you think about the mix of the business and where we’re headed with it, particularly pleasing to me was seeing that RNS gross margin performance. Patrick, what would you want Rohin and everybody on the line to know?

Patrick F. Williams: No, we’re really pleased with it. And I think, Rohin, you hit the nail on the head. Our guidance, although we did increase it quite a bit, it would imply potentially a deceleration, and I would not read more of that other than us being very thoughtful and not wanting to get ahead of ourselves. There could be a little bit of a mix issue. We continue to see very strong margins on the service side. But I think the most pleasing thing is related to what Joel just said, which is, I’ve always looked at 80% as sort of a benchmark for medical device companies to strive towards. And as we divest the DIXI revenue moving into 2026, we see no reason why we can’t start pushing at that 80% or even a little bit higher than that.

In terms of cash flow, just to hit that real quick, yes, gross margins are certainly going to help us, as well as the fact that our revenue continues to grow, which, of course, is compelling. At the same time, the reservicing and the refinancing of the debt is saving us about $2 million of cash interest expense annually. And so, that’s just another tailwind that we have that continues to push us towards our longer-term strategy of getting to cash flow breakeven as we move out of 2027.

Operator: Our next question comes from Priya Sachdeva with UBS.

Priya Sachdeva: Congrats on a great quarter. I guess, my first one is, you talked about the contribution from Project CARE. But I’d love to hear some of the dynamics with the existing base and particularly those more adept centers and what you’ve seen in terms of implant volume shifts, whether it’s growth or kind of stabilization and the contributions from an expanding funnel of Project CARE. Any color there would be super helpful. And then, one follow-up.

Joel D. Becker: Thank you, Priya. Yes, we were pleased with what we saw from CARE here in the quarter. And in particular, we were pleased with the implant growth rate that we saw, so strong implant contribution from CARE in the quarter, and I think really kind of rounding into form there as a number of centers begin to contribute more fully on implants as well as referrals. So you’re exactly right. We did see more from the existing base of CARE accounts, and in particular, I’d point to implant volumes from CARE in the quarter.

Priya Sachdeva: Okay. Awesome. And Patrick, congrats on your first call with the team. Looking forward to working with you. Would love to hear just some of the puts and takes to the guidance. The midpoint does imply a modest step-down in second half growth versus the first half. So any dynamics exiting the second quarter that we should be considering? We’re inclined to think that this momentum should continue, but any color would be helpful.

Patrick F. Williams: Yes. No, thank you, and I’m very happy to be here. I think what you’re looking at when you think about those numbers are percentages. And so, we had some tough comps from the Q3 a year ago in 2024. But what I would say once again is us just being very thoughtful and prudent as we think about guidance. We did raise both the low end of guidance and the high end by $1 million. To be fair, DIXI revenue is in there. And so, we wanted to be thoughtful about what they may look like. We do finish that contract at the end of Q3, and there is a 6-month wind-down. And so, there could be a little bumpiness there. So we just wanted to make sure that we were being thoughtful around that. But I would say, overall, we feel very good with the RNS strategy, off to a great start in Q3, and we look forward to reporting another strong quarter in the next 90 days.

Operator: Our next question comes from Vik Chopra with Wells Fargo.

Vikramjeet Singh Chopra: Congrats on a nice quarter as well. I guess, my first question is, the data that we saw from NAUTILUS, I’m just curious if you have seen any impact to your commercial momentum since you released that preliminary data. Has this [ tainted doctor’s ] view of the product and any impact to focal growth? And then, I had a quick follow-up, please.

Joel D. Becker: Thanks for the question, Vik. And what — I would say, absolutely no. And again, to my earlier comments, we think the NAUTILUS data is among some of the strongest we’ve ever seen with RNS. And if you think about the level of median seizure reduction, the level of seizure freedom that we’re seeing across a never-before studied with this kind of a controlled approach patient population, the level of seizure freedom, again, that we’re seeing, in particular, from investigators that are close to it as we’ve done our investigator review calls, seeing just, in fact, the opposite, a lot of enthusiasm from people about what they’re seeing here with regard to the IGE data. In the end, it’s a time-to-event primary efficacy and variability in a small subgroup of patient issue associated with the primary effectiveness endpoint.

And I think clinicians — certainly, investigators and clinicians that we hear from recognize that clinical trial design and patient population inclusion dynamic and quickly read through that to the clinical meaningfulness and the statistical significance of those prespecified secondary endpoints. When people think about what are they looking for from a treatment, they’re not looking for sitting down and talking with a patient about impacting the time to their second GTC. They’re looking to talk to patients about the median — the level of seizure frequency reduction, the level of seizure-free days, the amount of seizure freedom they may experience. Those are the real clinical impactors from the treatment, and that’s what we’re seeing, such strong and highly statistically significant as well as clinically meaningful results.

And so, I would say no, absolutely not. And in particular, it’s been gratifying to see the responses from the investigators who are really close to the individual patients and the data.

Vikramjeet Singh Chopra: That’s great to hear. And my follow-up question is for Patrick. Patrick, the LRP targets that were put out this year, they were put in place before you started. You’ve been in the CFO seat for, I guess, not that long now, but would love to get your thoughts on whether you see these targets as achievable and a gauge of your confidence in these goals.

Patrick F. Williams: Yes, fair question, and I think we addressed some of it during the prepared comments. But look, I’m in the seat now for a couple of months. And as I dive into the business and better understand the opportunity that we have with our core RNS System, I have a lot of conviction around that. I believe that the 20% CAGRs that we talked about when it comes to RNS are achievable. And I believe we can hit those numbers without necessarily getting expanded indications. And so, as Joel said, we will continue to go through this year and provide some updates because, obviously, we are going to divest from DIXI, which was a decent percentage of our revenue for 2025. And from that point forward, we will align the numbers with everyone, but we’re feeling very good about where we’re at with RNS.

And of course, as we look to go with general indication and then eventually pediatrics, I think that’s an increased tailwind behind us, but certainly would turn it over to Joel to see if he has any parting comments on that.

Joel D. Becker: I would just emphasize, the business we’ve got today with the customers we’ve got today, the indications we’ve got today is delivering us a consistently growing business at 20% plus. And we’re — we think we can do better and do more than that. I’m not guiding, but we think we can do better and do more than that with what we’ve got today. And then, we start adding on clinical indication expansion, we start adding on product development pipeline. We start adding on execution and focus from the team that we’re developing. And I think our — my own confidence is building.

Operator: The next question comes from Mike Kratky with Leerink Partners.

Unidentified Analyst: This is Sam on for Mike. Just in terms of NAUTILUS, can you kind of just provide a little bit more color on your ongoing dialogue with the FDA today, what the specific feedback from them has been so far and kind of what you hope to accomplish in your upcoming discussions with them in the coming weeks? And then, I have a follow-up.

Joel D. Becker: You bet. Thanks, Mike, and congratulations. So the NAUTILUS State of the Union is that we have been in contact with the agency and our Q-Sub documents have been submitted. They have been accepted by the FDA. We have gotten a response from them, a very timely response from them in terms of meeting dates and options. We have settled on a date, and we’ve been really pleased with the level of engagement from the agency and the level of collaboration that, frankly, has developed over years. Our team works closely with the agency. I think they recognize the quality of the company and the quality of the way that we’ve worked to build a relationship with them. And so, that’s been very pleasing to us. We plan to cover just to the things that we’re talking about here with the agency.

We spent a lot of time doing analysis, as well as generating thoughtful insights in terms of what we’re seeing in the data, both as it relates to the primary efficacy endpoint with the safety results, the primary efficacy endpoint results, and the statistical analysis around that, and then, again, the really encouraging data that we’re seeing with the prespecified secondary endpoints of median GTC seizure reduction responder rate and seizure-free days. So we’ll be working our way through all of those things and then listening for and hearing any feedback and questions that they have.

Unidentified Analyst: Got it. That’s very clear. And then, just as a follow-up, I wanted to turn to Project CARE. How long does it typically take to transition a community center, kind of a meaningful contributor of implant volumes? What does that ramp and learning curve typically look like? And what kind of things need to get put in place before that meaningful ramp can happen?

Joel D. Becker: It’s a really good question, and I’ve talked about this a little bit previously. But I think we see really kind of 3 segments of care centers: one, centers that are really pretty much ready to go. They’ve got what they need in terms of infrastructure, clinicians and patient populations, and it’s really kind of a contracting and training exercise, which is the same as the training we do whenever we start centers. And so, that’s really a pretty standard process. We know how to do that, and customers are well equipped to do so. That segment can occur pretty quickly and is really just dependent on, again, the contracting and training logistics in detail. The second group that we see is a group that takes a little bit longer but — and they’re going to be ready, but it maybe is a group that has to put in place a specific level of functionality or is waiting to bring in another neurosurgeon and expand capacity, et cetera.

So, that can take a little bit longer to get those folks up and implanting. And then, the third segment has been an interesting one where we actually see centers who — really what they want to do is, they want to be programming centers. They’ve got the patient population. They want those patients to get RNS therapy, and they want to be able to get those patients back and manage them, but they’re happy to have a relationship established with a Level 4 center for the implants to take place. And so, that’s a long way around, Sam, towards saying that there’s variability in terms of how long it takes based on the segment of the center and that — and where they fall individually. But I think we’ve learned a lot here over the past number of months, and we’re in position to be able to respond to any of those.

And sorry about that, Sam. Please pass along our congratulations to Mike.

Operator: Our next question comes from Frank Takkinen with Lake Street Capital Markets.

Frank James Takkinen: [ No long-range ] plan has come up a few times on the call. So I just wanted to come back to it once more. I mean, with the exiting of DIXI, which is, I think if I’m remembering correctly, about $14 million of revenue in 2024, just below that level, it kind of implies you got to accelerate that RNS growth to right closer to the 30% range if you want to start to be more in line with the long-range plan that has been outlined. I understand you kind of said you’re going to update those metrics, but help us with the puts and takes. And is that 20% target you put out there over kind of a longer period of time? Or is that kind of consistent year-to-year? And how is that going to be impacted by DIXI? And what can you do to drive stronger core growth to kind of fulfill that?

Joel D. Becker: Thank you, Frank. It’s a great question. It’s exactly what we were addressing there in our comments. We do plan to update all of that as we get a more [indiscernible] view of 2025. And so, I won’t try to specifically update those numbers here today until we get to that point. But to your point of the puts and takes associated with that and the 20% growth rate that we’ve articulated in terms of our long- range plan targets, we’re absolutely convinced that we can grow the RNS business that we have at north of 20% with what we’ve got today. We’re doing it. That business is growing like that. We’ve demonstrated that, and we’ve got plenty of market opportunity and potential for the team to execute with the capacity that we have in the organization to continue to do so.

And I think we can then build on that growth rate with everything that we talked about at the Investor Day that we went through together. That is all still exactly the plan. And we think that, that plan can result in increasing growth rates over the planned period. And that’s our plan. So we will do all of that. My answer here today won’t be fully satisfying, but that’s our plan, and we’re very bullish about both the baseline 20% growth rate, as well as accelerating growth over the longer term. And I’ll ask Patrick to add any his commentary as well.

Patrick F. Williams: Yes. I think to be crystal clear here, when the Investor Day happened in January, DIXI revenue was clearly in there. And Frank, you stated as a percentage of what it was in ’24, and those percentages are pretty consistent. We’re kind of in that mid-teen revenue as a percent of contribution even through ’25. So clearly, we are divesting away from that. We will be losing that revenue as we exit ’25 and going into ’26. And so, what you’re hearing from us is a conviction that RNS at a minimum has the ability to grow at 20%, and we are continuing to stick with that as we did during the Investor Day in January. And as we get better insight into finishing out this year with some of the stuff that we’ve already addressed, as we get a better understanding of how CARE can help out and other such programs, including making this easier for physicians and indication expansion, et cetera, then we’ll come back and look to update.

But I want to be clear that DIXI was part of the LRP before, and we do need to address that as we move forward, but we feel very confident at 20% plus for RNS. Is that clear, Frank?

Frank James Takkinen: Yes. That’s perfect. I appreciate the color. And then, maybe just one follow-up on Project CARE. I think last quarter, it came up that there’s increased success in kind of overlay direct-to-patient in Project CARE geographies. Maybe update us on this concept. How has that trended more recently? And maybe what would cause you to maybe kind of double down on Project CARE and DTP in later this year or maybe 2026?

Joel D. Becker: Great question. And we absolutely continue to pursue that strategy, Frank. I think we’re getting dialed in on those algorithms and our ability to really target and engage patients on a very geographic-specific basis. And so, we do see direct-to-patient, as well as direct- to-patient in a community setting, having the potential to drive volume toward care centers, as well as drive referral volume through Level 4 centers as well. So we have previously commented that in some of the elasticity testing that we’ve done around direct-to- patient, we thought we had seen a response there. And I continue to be encouraged that we are seeing that kind of a response. And so, we view direct-to-patient as an important element of continuing to build our patient pipeline.

Operator: Our next question comes from Ross Osborn with Cantor Fitzgerald.

Ross Everett Osborn: Congrats on the progress. So starting off on the R&D side of the house, would you remind us on where you stand in the development side of things for your next-gen RNS offering? And what areas of improvement you are focused on?

Joel D. Becker: So we talked about in January, Ross, the next-generation platform, that platform providing a number of enhancements, including some increased capacity, as well as then flexibility with Bluetooth communications and ease of use in particular. And all of that is on track. We continue to make good progress there, and we’re on the timelines that we had laid out at that point. It’s a longer-term hardware and implant development project, as we had discussed. But that’s all going real well. We’re — just a little bit more detail maybe. We’re in the stage now where we’re really testing and characterizing a lot of the key componentry that goes into the system. And that’s been coming back at or above our expectations. And so, I feel really good about where we’re at with the development of the second-generation platform.

Ross Everett Osborn: Great. And then, turning to potential therapeutic partnerships. Based upon your conversations, is this an area we should expect to come into the model next year in a material manner or more so in the out years?

Joel D. Becker: I won’t necessarily comment on materiality, Ross, but I will say that we see the collaboration opportunity as more than report. In fact, we have signed an agreement with UCB — some of you may be familiar with UCB, one of the largest pharmaceutical companies in the space — for another collaboration arrangement here. And there’s more on the way. We’ve got a pipeline of folks that we’re talking to and working on these types of collaborations with, along with extending Rapport’s arrangement. And so, for the part of your question where you talk about the future state, we see the future state as being now in expanding those partnerships and see this as something that we think can — has potential for us going forward as well.

Patrick F. Williams: And I think from a materiality standpoint, I’ll take that one. Clearly, it’s not overly material at this point. If it gets to the point where we need to start breaking it out as a segment, we’ll cross that path, and we’ll probably have big smiles on our face if we get there. But what I would say is that it’s good revenue. It’s got good margins associated with it because we essentially have the people here that are already here. And so, as I said in my prepared comments and one of the reasons why I came here, and I think the exciting part here is the data, 22 million records, continuing to build. As we can become the demonstrated leaders in this field, I think we’re going to see a lot more people approach us to try to access that data to help guide them in their decision-making and ultimately to help patients.

Operator: Our next question comes from Yi Chen with H.C. Wainwright.

Yi Chen: My first question is, now that you plan to target the entire NAUTILUS study population in the submission, how likely is it do you think the FDA will ask you to conduct an additional clinical trial?

Joel D. Becker: It’s a great question. We believe that the data associated with the NAUTILUS trial is compelling standing on its own. And we think that we’ve got, from a totality of evidence perspective, more than enough information to have a substantial discussion and for a benefit-risk decision to be made. So we don’t believe that an additional trial is necessary, and we think that the data is compelling and both statistically significant as well as clinically very meaningful coming from the trial here. And those are the discussions that we plan on having with the agency here shortly.

Yi Chen: Got it. And my follow-up question is, how significant is the pediatric market opportunity for you? And can you provide an estimated timeline for submission and potential approval?

Joel D. Becker: It’s a great question. We think the pediatric market has significant opportunity associated with it. And there’s a couple of dynamics there. One, the segment is large. And two, we think the adoption dynamics are very positive. I’ve spoken about previously that everybody has a sense of urgency when they’re not feeling well. The sense of urgency is entirely different when a child isn’t feeling well, and we see that in epilepsy therapy, too. So we think there’s a strong level of interest among patients and patient support networks around those patients, their families. We know there’s a strong level of interest from pediatric epileptologists and pediatric functional neurosurgeons. And frankly, we have a real commitment to the pediatric segment when we think about the mission of this business to help patients who suffer from seizures.

Pediatric patients should have access to RNS therapy. When you think about untreated seizures, those are bad, and they’re bad for people’s brain function and they’re even worse when you’re talking about developmental brain function. And so, we feel very strongly and are very committed to this for missional reasons. And additionally, there’s a significant unmet need with a significant number of patients. Pediatric — or epilepsy, in many cases, is an early onset disorder. And again, it’s during a developmental phase where neuromodulation can make a particularly big impact. So we’re very committed to the pediatric segment.

Yi Chen: Can you provide a timeline?

Joel D. Becker: Yes. So I’m sorry, thank you. Thanks for reminding me of that. Yes. So what we said previously is, our focus is on a submission in the second half of ’25. We’re making progress from a regulatory and project perspective. And if there’s any updates, we’ll give them to you, but that’s what we’ve talked about.

Operator: Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Joel Becker for closing comments.

Joel D. Becker: Thanks, everybody. We really appreciate it. We had another strong quarter here, an increased revenue guide, increased gross margin guide, operating discipline, good progress on a number of fronts, including key initiatives in the leadership team and debt refinance and solid reimbursement outcomes, and there’s just a lot of good momentum going here. I appreciate everybody’s ongoing interest and all of your engagement with NeuroPace. As I mentioned in my earlier comments a couple of different times, I’ve never felt more confident in our plans and our position and in the team. And we’re focused on executing here to the benefit of patients, clinicians and shareholders. Thanks again.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.