NeuroPace Q2 2025 Earnings Report

NeuroPace EPS Results

• Actual EPS: -$0.26
• Consensus EPS: -$0.24
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

NeuroPace Revenue Results

• Actual Revenue: $23.52 million
• Expected Revenue: $23.08 million
• Beat/Miss: Beat by +$436.00 thousand
• YoY Revenue Growth: N/A

NeuroPace Announcement Details

• Quarter: Q2 2025
• Date: 8/12/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, August 12, 2025
• Conference Call Time: 4:30PM ET

NeuroPace (NASDAQ:NPCE) operates as a medical device company in the United States. The company develops RNS system, a brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source for treating medically refractory focal epilepsy. It also records continuous brain activity data and enables clinicians to monitor patients in person and remotely. Its RNS System includes RNS neurostimulator, cortical strip and depth leads, and Patient Remote Monitor, as well as other implantable and non-implantable accessories. The company sells its products to hospital facilities for initial RNS system implant procedures and for replacement procedures. NeuroPace, Inc. was incorporated in 1997 and is headquartered in Mountain View, California.

NeuroPace Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q2 the company delivered record revenue of $23.5 million, up 22% year-over-year, with total gross margin above 77% and RNS System margin above 80%, and raised full-year 2025 revenue guidance to $94 million–$98 million and gross margin to 75%–76%.
• Positive Sentiment: Post-Approval Study data showed a median 100% reduction in generalized tonic-clonic seizures at 24 and 36 months and nearly 87% of patients were GTC-free for six months, while the NAUGHTLIST IGE trial’s secondary endpoints demonstrated statistically significant, clinically meaningful >80% median GTC reduction at 18–24 months and 45.2% seizure freedom at 12 months.
• Positive Sentiment: R&D is advancing with AI-powered workflow tools, a next-generation seizure classifier, and platform enhancements backed by over 22 million recorded events, with the first AI tools expected to launch in 2025.
• Positive Sentiment: CMS retained the current DRG for RNS procedures, avoiding reimbursement risk, and a recent debt refinancing removed near-term maturities, improving annual interest expense by ~$2 million and leaving $62.1 million in cash plus a $15 million undrawn revolver.
• Positive Sentiment: Project CARE continued to scale, with sequential increases in community-based site engagement and implant volumes, further expanding RNS access in both Level 4 centers and community settings.

Presentation

[Operator]

As a reminder, this conference is being recorded.

[Operator]

It is now my pleasure to introduce your host, Scott Shaver, Head of Investor Relations at Neuropace Inc. Please go ahead.

[Scott Schaper, Head - IR at NeuroPace]

Good afternoon. Thank you for joining us for Neuropace's second quarter twenty twenty five 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 06/30/2025. A copy of the press release is available on the company's website at neuropace.com.

[Scott Schaper, Head - IR at NeuroPace]

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, those around Neuropaces 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.

[Scott Schaper, Head - IR at NeuroPace]

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 06/30/2025, filed with the SEC on 08/12/2025, 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 08/12/2025. 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 Neuro Pace's Chief Executive Officer, Joel Becker. Joel?

[Joel Becker, CEO & Board Member at NeuroPace]

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 and 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 into the right.

[Joel Becker, CEO & Board Member at NeuroPace]

We delivered another record revenue quarter with strong revenue of $23,500,000 representing 22% growth compared to $19,300,000 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 one time non recurring 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 four centers and in the community.

[Joel Becker, CEO & Board Member at NeuroPace]

RNS System revenue grew 16% in the quarter and 21% in the 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 four centers. Care activity continues to scale, and we saw sequential increases in both site engagement and implant volumes in the quarter.

[Joel Becker, CEO & Board Member at NeuroPace]

Given this performance, we are raising both our full year revenue and gross margin guidance ranges. For revenue, we now expect a range of 94,000,000 to $98,000,000 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 three twenty four 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 dataset to deepen our understanding of RNS efficacy and uncover new insights.

[Joel Becker, CEO & Board Member at NeuroPace]

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 NAUGHTLIST trial. One hundred and thirty three 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 fifty percent or more of the patient population, was one hundred percent at twenty four and thirty six months post implant, and nearly eighty seven percent of these patients with medically intractable focal epilepsy with at least six months of follow-up were free of GTCs for six months or more. These results speak directly to the broad efficacy and real world impact of the RNS system across seizure types.

[Joel Becker, CEO & Board Member at NeuroPace]

These GTC results from the PAS study will be presented at the AES meeting in December. Turning to NAUGHTLIST, 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 forty five day window, which we view as a positive reflection of our ongoing engagement and collaborative relationship with the FDA.

[Joel Becker, CEO & Board Member at NeuroPace]

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 2025, in line with previous expectations. We believe the totality of the NAUGHTLIST 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 pre specified safety and effectiveness endpoints that provides level one evidence, which is the highest standard and is required for label expansion, and was recognized by the FDA when granting breakthrough device status.

[Joel Becker, CEO & Board Member at NeuroPace]

As we have progressed in our analysis, the data continue 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 pre specified 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 point zero zero one at twelve months.

[Joel Becker, CEO & Board Member at NeuroPace]

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 twelve months is not complete. Well, I will not cite additional specific median DTC 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 eighteen and twenty four months. As importantly, with regard to seizure freedom from GTCs, the most dangerous type of seizure, as of the twelve month data lock for the forty two patients that had received stimulation for at least nine months, forty five point two percent were seizure three.

[Joel Becker, CEO & Board Member at NeuroPace]

With excellent safety experience in this 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 and 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 22,000,000 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 twenty twenty six IPPS rule and elected not to finalize its proposal to reassign RNS cases into three new DRGs. As a result, RNS procedures will remain in its current DRG, thus preserving current reimbursement structure.

[Joel Becker, CEO & Board Member at NeuroPace]

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 rulemaking 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 Williams, CFO at NeuroPace]

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.

[Patrick Williams, CFO at NeuroPace]

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 and 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 twenty twenty five financial results.

[Patrick Williams, CFO at NeuroPace]

We reported record second quarter twenty twenty five revenue of $23,500,000 representing 22% year over year growth compared to $19,300,000 in the 2024. Revenue dollar growth was primarily driven by continued strength in our core RNS system, supported in both implant volumes and broader prescriber activity. We also recognize an uptick in research service revenue tied to milestones related to our ongoing collaboration with Report 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.

[Patrick Williams, CFO at NeuroPace]

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. Dixie Medical product sales continue to contribute to growth in the quarter and as a reminder will phase out by the end of the 2026 or sooner, consistent with our previously communicated wind down timeline. We are raising our full year revenue guidance to a range of $94,000,000 to $98,000,000 up from our previous guidance range of $93,000,000 to $97,000,000 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.

[Patrick Williams, CFO at NeuroPace]

As mentioned last quarter, we are in the process of winding down our distribution agreement with Dixie Medical and our revised guidance incorporates contribution in line with previous expectations. Gross margin in the second quarter twenty twenty five was 77.1% compared to 73.4% in 2024 and seventy seven percent 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 Dixie 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.

[Patrick Williams, CFO at NeuroPace]

Looking ahead, we expect total company gross margin to trend towards 80% over time as we scale RNS volumes and the lower margin Dixie 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 25,000,000 in the second quarter twenty twenty five compared with $20,400,000 in the 2024. Operating expense was impacted in the quarter by one time items totaling $1,900,000 in personnel expense, including severance and recruiting related to executive transition. Stock based compensation in the quarter totaled $3,200,000 which reflected a portion of these expenses.

[Patrick Williams, CFO at NeuroPace]

Excluding non recurring 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 $92,000,000 and $95,000,000 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.

[Patrick Williams, CFO at NeuroPace]

Included in our total operating expenses is approximately 11,000,000 in stock based based compensation, a non cash 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 administrative components rather than referring to SG and A as a single line item. Sales and marketing expense totaled $12,000,000 in the second quarter twenty twenty five compared to $9,800,000 in the second quarter twenty twenty four. The increase was largely due to ongoing scaling of our commercial activities and investment in direct to consumer advertising and other sales resources.

[Patrick Williams, CFO at NeuroPace]

We expect sales and marketing expense to total $46,000,000 to $47,000,000 for the full year 2025, driven by continued investment in our sales organization and direct to consumer marketing initiatives. R and D expense was $6,800,000 in the second quarter twenty twenty five, up from $6,100,000 in the 2024 and down from $7,400,000 in the 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 and D expense to total approximately $27,000,000 to $28,000,000 for the full year 2025 as investment in next generation products continues. General and administrative expense was $6,100,000 in the second quarter twenty twenty five compared to $4,500,000 in the 2024.

[Patrick Williams, CFO at NeuroPace]

This year over year increase was again primarily driven by the previously mentioned non recurring costs incurred in the second quarter of approximately $1,600,000 We expect G and A expense to range between $19,000,000 and $20,000,000 for the full year 2025. Loss from operations was $6,800,000 in the second quarter twenty twenty five compared with $6,200,000 in the 2024. We recorded $2,100,000 of interest expense in the second quarter twenty twenty five compared to $2,200,000 in the 2024. Following the successful refinancing of our debt on improved terms, we now expect interest expense of approximately $8,000,000 for the full year 2025. On an annualized basis, we anticipate interest expense will improve by approximately $2,000,000 due to improved terms on our new debt.

[Patrick Williams, CFO at NeuroPace]

Regarding interest income, we expect approximately $2,500,000 in income for the full year 2025. Net loss was $8,700,000 for the 2025 compared to a net loss of $7,500,000 in the 2024. Our free cash flow or what has historically been described as cash burn was negative $2,300,000 in the second quarter twenty twenty five compared to negative $4,000,000 in the 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 06/30/2025 was $62,100,000 In addition, our recently refinanced debt provides access to an undrawn $15,000,000 revolver.

[Patrick Williams, CFO at NeuroPace]

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 Becker, CEO & Board Member at NeuroPace]

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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 Dixie 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.

[Operator]

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. Our first question comes from Rohan Patel with JPMorgan. Please go ahead.

[Rohin Patel, Vice President at JP Morgan]

Hi, thanks so much for taking the question. 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 multi pronged 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 just, could you just talk a bit more about your submission strategy?

[Rohin Patel, Vice President at JP Morgan]

Are you still going for a broad indication approval or something a little bit more segmented? And then I had a follow-up.

[Joel Becker, CEO & Board Member at NeuroPace]

Hi, Rohan. 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 pre specified secondary endpoints points clearly to the entire population demonstrating benefit. That's our plan is to pursue an indication across the population.

[Rohin Patel, Vice President at JP Morgan]

Thank you. 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.

[Rohin Patel, Vice President at JP Morgan]

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? Thanks.

[Joel Becker, CEO & Board Member at NeuroPace]

I'll ask Patrick to comment here, Rohan. 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 as strong performance here in the quarter, I point to the R and S 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 R and S gross margin performance.

[Joel Becker, CEO & Board Member at NeuroPace]

Patrick, what would you want Rohan and everybody on the line to

[Patrick Williams, CFO at NeuroPace]

No, we're really pleased with it. And I think, Rohan, 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 in more to 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.

[Patrick Williams, CFO at NeuroPace]

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 Dixie 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 resurfacing and the refinancing of the debt is saving us about $2,000,000 of cash interest expense annually.

[Patrick Williams, CFO at NeuroPace]

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.

[Rohin Patel, Vice President at JP Morgan]

Great. Thank you so much.

[Joel Becker, CEO & Board Member at NeuroPace]

You're welcome.

[Operator]

Thank you. Our next question comes from Priya Sachdeva with UBS. Please go ahead.

[Priya Sachdeva, Director - Equity Research at UBS Group]

Hi, guys. Thanks for the question and congrats on a great quarter. I guess the 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 with Project Care? Any color there would be super helpful. Then one follow-up.

[Joel Becker, CEO & Board Member at NeuroPace]

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, Director - Equity Research at UBS Group]

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?

[Priya Sachdeva, Director - Equity Research at UBS Group]

We're inclined to think that this momentum should continue, but any color would be helpful.

[Patrick Williams, CFO at NeuroPace]

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 a Q3 a year ago in 2024.

[Patrick Williams, CFO at NeuroPace]

But what I would say once again is that's 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 $1,000,000 To be fair, DCSI revenue is in there. And so we wanted to be thoughtful about what it may look like. We do finish that contract at the end of Q3, and there is a six month wind down. And so there could be a little bumpiness there.

[Patrick Williams, CFO at NeuroPace]

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 ninety days.

[Priya Sachdeva, Director - Equity Research at UBS Group]

Great. Thank you so much. Thank

[Operator]

you. Our next question comes from Vik Chopra with Wells Fargo. Please go ahead.

[Vik Chopra, Equity Research Analyst at Wells Fargo]

Hey, good afternoon and thanks for taking the questions and 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 DOCSIS view of the product and any impact to focal growth? And then I a quick follow-up please.

[Joel Becker, CEO & Board Member at NeuroPace]

Thanks for the question, Vic. I would say absolutely no. And again to my earlier comments, we think the NAUGHTLIST data is among some of the strongest we've ever seen with RNS. And if you think about 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 significant of those pre specified 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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.

[Vik Chopra, Equity Research Analyst at Wells Fargo]

That's great to hear. And my follow-up question is for Patrick. Patrick, 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 gauge of your confidence in these goals. Thank you.

[Patrick Williams, CFO at NeuroPace]

Yeah, fair question. And I think we addressed some of it during the prepared comments. But look, I'm in this 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.

[Patrick Williams, CFO at NeuroPace]

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 Dixie, 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 Becker, CEO & Board Member at NeuroPace]

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 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.

[Patrick Williams, CFO at NeuroPace]

Next question.

[Operator]

Thank you. The next question comes from Mike Kratky with Leerink Partners. Please go ahead.

[Analyst]

Hey, everyone. This is Sam on for Mike. Thanks for taking our questions. 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 Becker, CEO & Board Member at NeuroPace]

You bet. Thanks, Mike, and congratulations. Nautilus the 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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. We are our team works closely with the agency and I think they recognize the quality of the company in 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 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.

[Joel Becker, CEO & Board Member at NeuroPace]

And then, again, the really encouraging data that we're seeing with the pre specified 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.

[Analyst]

Got it. It's very clear. Thanks for the color there. And then just as a follow-up, 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?

[Analyst]

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 Becker, CEO & Board Member at NeuroPace]

It's a really good question. And I've talked about this a little bit previously, but I think we see really kind of three 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.

[Joel Becker, CEO & Board Member at NeuroPace]

And so that's really 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 they're 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, etcetera. So that can take a little bit longer to get those folks up and implanting.

[Joel Becker, CEO & Board Member at NeuroPace]

And then the third segment is 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 they want to be able to get those patients back and manage them, but they're happy to have a relationship established with the level four center for the implants to take place. And so that's one way around towards saying that there's variability in terms of how long it takes based on the segment of the center and 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.

[Analyst]

That's very helpful. Thanks guys.

[Joel Becker, CEO & Board Member at NeuroPace]

Yes, thank you and sorry about that Sam. Please pass along our congratulations to Mike.

[Operator]

Thank you. Our next question comes from Frank with Lake Street Capital Markets. Please go ahead.

[Frank Takkinen, Senior Research Analyst - Medical Device at Lake Street Capital Markets]

Great. Thanks for taking the questions. 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 DIGCSI, which is, I think if I'm remembering correctly, $14,000,000 of revenue in 2024, just below that level, 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.

[Frank Takkinen, Senior Research Analyst - Medical Device at Lake Street Capital Markets]

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 Dixie? And what can you do to drive stronger core growth to kind of fulfill that?

[Joel Becker, CEO & Board Member at NeuroPace]

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 fulminant view of 2025. And so I won't try to specifically update those numbers here today until we get to that point.

[Joel Becker, CEO & Board Member at NeuroPace]

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. And 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 capacity that we have in the organization to continue to do so.

[Joel Becker, CEO & Board Member at NeuroPace]

And I think we can 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 plan 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 longer term.

[Joel Becker, CEO & Board Member at NeuroPace]

And I'll ask Patrick to add any of his commentary as well.

[Patrick Williams, CFO at NeuroPace]

Yeah, think to be crystal clear here, when the Investor Day happened in January, Dixie revenue was clearly in there. And Frank, you stated as a percentage of what it was in 2024. And those percentages are pretty consistent. We're kind of in that mid teen revenue as a percent contribution even through 25%. So clearly, are divesting away from that.

[Patrick Williams, CFO at NeuroPace]

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 in other such programs, including making this easier for physicians and indication expansion, etcetera, then we'll come back and look to update. But I want to be clear that Dixie 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 Takkinen, Senior Research Analyst - Medical Device at Lake Street Capital Markets]

Yep, that's perfect. I appreciate the color. Then maybe just one follow-up on Project CARE. I think last quarter it came up that there's increased success to be 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 Becker, CEO & Board Member at NeuroPace]

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 four 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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.

[Frank Takkinen, Senior Research Analyst - Medical Device at Lake Street Capital Markets]

Perfect. That's helpful. Thanks for taking the questions.

[Joel Becker, CEO & Board Member at NeuroPace]

Thank you.

[Operator]

Thank you. Our next question comes from Ross Austin with Cantor Fitzgerald. Please go ahead.

[Ross Osborn, Director & Lead Research Analyst - MedTech & Diagnostics at Cantor Fitzgerald]

Hey, guys. Congrats on the progress and thanks for taking our questions. So starting off on the R and 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're focused on?

[Joel Becker, CEO & Board Member at NeuroPace]

So we talked about in January, Ross, the next generation platform, that platform providing a number of enhancements, including 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.

[Joel Becker, CEO & Board Member at NeuroPace]

But that's all going real well. We're just a little bit more detail maybe we're in the stage now where you know, 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 generation platform.

[Rohin Patel, Vice President at JP Morgan]

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 Becker, CEO & Board Member at NeuroPace]

I necessarily comment on materiality, Ross, but I will say that we see the collaboration opportunity as more than rapport. 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 rapports 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 Williams, CFO at NeuroPace]

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 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 because with we essentially have the people here that are already here.

[Patrick Williams, CFO at NeuroPace]

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. 22,000,000 records continuing to build. As we could 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.

[Ross Osborn, Director & Lead Research Analyst - MedTech & Diagnostics at Cantor Fitzgerald]

Sounds great. Thanks for taking our questions.

[Joel Becker, CEO & Board Member at NeuroPace]

Thank you, Ross.

[Operator]

Thank you. Our next question comes from Yi Chen with H. C. Wainwright. Please go ahead.

[Yi Chen, MD - Equity Research at H.C. Wainwright & Co., LLC]

Thank you for taking my questions. My first question is now that you plan to target the entire NOSTAL study population, the submission, how likely is it do you think the FDA will ask you to conduct an additional clinical trial?

[Joel Becker, CEO & Board Member at NeuroPace]

It's a great question. We believe that the data associated with the NAUGHTLIST 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, MD - Equity Research at H.C. Wainwright & Co., LLC]

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 Becker, CEO & Board Member at NeuroPace]

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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 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.

[Joel Becker, CEO & Board Member at NeuroPace]

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 epilepsy in many cases is an early onset disorder.

[Joel Becker, CEO & Board Member at NeuroPace]

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, MD - Equity Research at H.C. Wainwright & Co., LLC]

Can you provide a timeline?

[Joel Becker, CEO & Board Member at NeuroPace]

Oh, yes. So I'm sorry. Thank you. Thanks for reminding me that. Yes.

[Joel Becker, CEO & Board Member at NeuroPace]

So what we said previously is our focus is on a submission in the '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.

[Yi Chen, MD - Equity Research at H.C. Wainwright & Co., LLC]

Got it. Thank you.

[Operator]

Thank you. Thank you. 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 Becker, CEO & Board Member at NeuroPace]

Thanks everybody. We really appreciate it. We had another strong quarter here, an increased revenue guide and increased gross margin guide, operating discipline, good progress on a number of fronts including key initiatives in the leadership team and debt refinance and all of reimbursement outcomes and there's just a lot of good, good momentum going here. I appreciate everybody's ongoing interest and and all of your engagement with NeuroPace. As I mentioned in my earlier comments, couple of different times, I've never felt more confident in our plans and our position and in the team.

[Joel Becker, CEO & Board Member at NeuroPace]

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.

Participants

Executives

• Scott Schaper, Head - IR
• Joel Becker, CEO & Board Member
• Patrick Williams, CFO

Analysts

• Rohin Patel, Vice President at JP Morgan
• Priya Sachdeva, Director - Equity Research at UBS Group
• Vik Chopra, Equity Research Analyst at Wells Fargo
• Analyst
• Frank Takkinen, Senior Research Analyst - Medical Device at Lake Street Capital Markets
• Ross Osborn, Director & Lead Research Analyst - MedTech & Diagnostics at Cantor Fitzgerald
• Yi Chen, MD - Equity Research at H.C. Wainwright & Co., LLC