NeuroPace Inc Q3 FY2024 earnings call

• Revenue for Q3 2024 was $21.1 million, up 28% year-over-year. - Gross margin for Q3 2024 was 73.2%, on track with the target range of 72% to 74%. - Cash burn reduced to $1.8 million in Q3 2024, with cash balance increasing to $56.8 million from $55.5 million at the end of Q2. - Hired new senior leaders: Katie Keller (Marketing), Brett Wingeier (Research and Development), and Amy Treadwell (Human Resources). - Progress on RNS System indications: NAUTILUS study implants complete, in patient follow-up phase; submitted positive three-year safety and effectiveness data from the ongoing five-year prospective post-approval study for adults with drug-resistant focal epilepsy.

For the third quarter of 2024, NeuroPace reported total revenue of $21.1 million, an increase of 28% compared to the same period last year. The majority of the year-over-year growth came from sales of the RNS System. DIXI Medical products also contributed to revenue growth in Q3. The RNS System was the primary driver of revenue growth, with DIXI Medical making a meaningful but lesser contribution.

• Total revenue for 2024 is expected to be in the range of $78 million to $80 million, a 19%-22% increase over 2023, primarily driven by RNS System sales with DIXI Medical also contributing. - Gross margin for 2024 is expected to be in the range of 72% to 74%. - Operating expenses for 2024 are expected to range between $80 million and $84 million, including approximately $10 million in stock-based compensation and non-cash expense.

Forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by the forward-looking statements. Detailed risks are described in the company's SEC filings, including the latest annual report on Form 10-K and quarterly report on Form 10-Q.

Q: Great. Thanks for taking the questions. Congrats on the really solid results. Maybe I’ll start with just a bigger picture one, Joel, you’ve been on board obviously for a number of quarters now and execution has been really solid. But as you look back at the previous quarters, maybe just parse out where you feel the primary growth is coming from in the core RNS growth. Is it the Project CARE initiative? Is it market share taking? Is it expanding the market? And then maybe touch on kind of the durability of where that primary growth is coming from.

A: Great. Thanks for the question, Frank. Nice to hear from you. So yes, if we look back over the past number of quarters and frankly, if we look at this quarter, it’s really a matter of executing the strategy that we’ve laid out. So as you know, three key planks in our strategy. One, increasing adoption and utilization within our core Level 4 centers, two, expanding site of service beyond the Level 4 centers and increasing access to RNS for people who are site of Level 4 centers, and then three, expanding indications. And if we look at where we’re seeing growth, it’s both adoption as well as utilization within the Level 4 centers. So as I mentioned in my prepared comments, they’re continuing to increase the number of prescribers. It has been great to see. We continue to increase that number and so we’re seeing broader adoption of the RNS System and then also driving utilization within that group of customers. So I think there’s some expansion of RNS from a market development perspective as well as share. And then starting – as I also mentioned, starting to see some meaningful contributions from site of service in the work that we’re doing on the CARE side. So I think we’ve got a good diversification of some of those growth drivers that’s now starting to come to fruition and really we’ve been working on over the past number of quarters.

Q: Hi, everyone. Thanks very much for taking our questions. Can you help unpack some of your comments on the Project CARE pilot program and how that’s impacting your contribution to growth? Just between the traction you’re seeing among the 1,800 epileptologists outside of Level 4 centers versus any kind of uptick you’re seeing in patient referrals. Where’s that growth really coming from?

A: Thanks, Mike, appreciate the question. And so, as you know, from a CARE program perspective, we’ve really been in the pilot phase and have started to expand that pilot in the second half here of 2024. And it’s been gratifying here in the third quarter to begin to see a meaningful contribution from that program. And we’re really seeing contribution both from implants within these centers as well as then referrals back into Level 4 centers and referrals that then further kind of bifurcate, I think, in two directions. One, we’d kind of expected where when you’re out in the community, we found that we were uncovering patients that needed Phase 2 testing rather and then potentially further CARE and would get referred back to the Level 4 centers. And we are seeing that. But we’re also seeing that CARE centers who either aren’t quite ready to do implants yet or in some cases want to be programming centers will refer patients to a Level 4 center to be implanted and then get the patient back and manage them either while the program is getting spun up, or they want to do the patient management rather than necessarily the implants as well. So we’re seeing both implants as well as referrals. And again, it’s really been encouraging here to see that begin to inflect in Q3.