NeuroPace, Inc. (NPCE) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the NeuroPace Q2 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Scott Schaper, Head of Investor Relations. Scott, please go ahead.

Thank you, operator, and welcome to NeuroPace's Second Quarter 2026 Earnings Conference Call. Our agenda begins with Joel Becker, NeuroPace's Chief Executive Officer, who will summarize our recent performance and strategic progress. Followed by a detailed financial review and outlook from Patrick Williams, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Before we begin, I would like to remind you that certain statements made on today's call may constitute forward-looking statements within the meaning of federal securities laws. These statements include, among others, comments regarding our financial outlook for 2026, our commercial strategy, clinical and product development initiatives, regulatory matters, including our PMA supplement for expanded indication into idiopathic generalized epilepsy, or IGE, and our expectations regarding operating performance and profitability. Forward-looking statements are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. A discussion of these risks and uncertainties can be found in today's press release and in our filings with the Securities and Exchange Commission, including our most recent Form 10-K and Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, except as required by law. As of June 30, 2026, the company is now reporting its former distribution arrangement with DIXI Medical as discontinued operations. In accordance with U.S. GAAP and unless otherwise noted, the financial results discussed in this call reflect continuing operations. Prior period amounts have been recast to exclude the results from the distribution arrangement with DIXI Medical for the 2026 reporting periods and applicable comparable periods presented. The accompanying financial statements for the GAAP presentation of continuing and discontinuing operations. In addition, we will discuss certain non-GAAP financial measures on today's call, including adjusted EBITDA. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which is available on the Investor Relations section of our website. With that, I will now turn the call over to NeuroPace's Chief Executive Officer, Joel Becker.

Thanks, Scott, and good afternoon, everyone. I will begin with an overview of our second quarter results and the continued execution of our commercial strategy. I will then provide updates on our ongoing IGE regulatory process and product development initiatives. After that, Patrick will walk through our financial results and updated outlook before we open the line for questions. To start, our second quarter performance reflects continued momentum in the core RNS business and disciplined execution across the organization. Total revenue was $22.8 million, including RNS System revenue of $22.5 million, representing 21% RNS system growth compared with the prior year period. Throughout the first half of 2026, RNS revenue grew in excess of 20%, consistent with the underlying long-term growth framework we have established for our current indication. During the quarter, we again reached new all-time highs in active prescribers, active accounts and our patient pipeline. We view these as important indicators of the breadth and durability of adoption across the business. The majority of our growth continues to be generated within Level 4 comprehensive epilepsy centers, driven by increased adoption and utilization among existing and new prescribers. At the same time, our community access initiatives continue to contribute by expanding referral pathways and helping more patients move toward appropriate evaluation and treatment. Patrick will provide more details on the quarter and our full financial guidance, including our increased revenue guidance to $99.5 million to $101.5 million, with underlying RNS revenue growth still on track at 21% to 23% year-over-year. Additionally, we continue to demonstrate strong gross margin performance and disciplined allocation of resources and operating expense management. Let me now turn to clinical development and our IgE PMA supplement. As we communicated on July 28, the FDA informed us that the PMA supplement was not approvable in its current form due to requests for additional information regarding the clinical evidence supporting the submission. Given how recently we held that call, I will not repeat every detail today. For a more detailed discussion, please refer to a replay of our IGE PMA supplement call, which is available on our website. However, I did want to highlight a few key points. For clarity, this was not the outcome we expected, and we were disappointed not to receive an initial approval. At the same time, there are several important elements of the agency's communication and our subsequent interactions that inform our view that there is a path towards approval. First and foremost, in our communications, the FDA made clear that the agency's response was not a disapproval, and the process has remained highly interactive. The agency strongly recommended that we use the submission issue request or SIR process, which we are now pursuing to align on the content of an amendment response. The agency's additional questions are not related to safety. Rather, the FDA is seeking additional information and context around the clinical benefit observed across certain patient subgroups, including by baseline GTC seizure frequency as well as the clinical meaningfulness of reducing GTC seizures. Our planned amendment will present the totality of the evidence, including additional subgroup analysis, patient and physician-reported outcomes relevant published and real-world evidence and the 24-month data, which showed a 100% median reduction in GTC seizures among evaluable patients. On timing, we continue to expect the amendment may be reviewed without resetting the full 180-day clock, though the agency has discretion. Preparation of our data analysis needed before requesting an SIR meeting with the FDA remains on track, and we expect to schedule the SIR meeting over the next few weeks. This meeting will allow us to discuss our planned approach with the agency before submitting our amendment response. Consistent with our previous commentary, we continue to see a path forward towards approval and we'll provide an update as we gain greater clarity on the regulatory time line and future interactions. Moving now to product development. During the quarter, we launched [ ECOG Assistant ], the first AI algorithm-based tool in our planned suite of NeuroPace AI products. [ ECOG Assistant ] is the world's first AI algorithm-based tool in the neuromodulation space designed to help clinicians identify [ ECOGS ] of interest, review trends over time and assess circadian patterns. It is made possible by the RNS System's unique ability to continuously monitor, record and analyze each patient's intracranial [ EEG ] data over time, creating a capability unique to the RNS platform. By applying AI developed from our proprietary physician label data set, [ ECOG Assistant ] is intended to make review more efficient while providing clearer, more accessible insights to support individualized treatment decisions. The early feedback from the field has been encouraging, both in terms of workflow efficiency and the clinical usefulness of the information. Physicians are already finding new ways to use these insights to inform treatment decisions, including medication timing, therapy adjustments and longer-term patient management. At one epilepsy center, a physician used the circadian pattern data alongside the patient's clinical report to provide additional context for treatment planning. Prior to reviewing the information, the physician had been considering an increase in stimulation settings. The [ ECOG Assistant ] insights helped inform the physician's independent clinical decision-making and the physician ultimately chose to adjust the timing of the patient's medication instead. We have also seen clinicians use event timing information to identify periods when medication coverage may be inadequate and adjust patients to longer-acting medication formulations. More broadly, clinicians are reporting that the updated tool simplifies review and provides meaningful time savings across a full RNS clinic. The launch is also giving our commercial team a new way to expand the scope of the discussions within existing accounts. By demonstrating how [ ECOG Assistant ] can simplify data review and support clinical decision-making, the team is engaging a broader group of physicians and reinforcing the differentiated value of the long-term data generated by the RNS system. These early examples illustrate why ECOG Assistant is strategically important. Beyond delivering meaningful efficiency in routine patient review, ECOG Assistant demonstrates how our unique device capabilities and associated proprietary data assets can be translated into practical capabilities that support more informed treatment decisions and improve the experience of managing RNS patients with capabilities that uniquely differentiate the RNS system. The remainder of our product development road map also continues to progress, including additional AI-enabled tools, development of our multimodal foundational model, remote care capabilities, automated detection and our next-generation system. During the quarter, related to our multimodal foundational model, we completed a key phase of model training and continued testing its ability to interpret increasingly complex patterns in intracranial EEG data. Encouragingly, the model is learning clinically relevant patterns in brain activity, suggesting the potential to uncover individualized patterns and relationships that are difficult to detect using traditional approaches. We believe this is an important step toward generating new insights. And as the model continues to train and refine, see meaningful opportunity to further personalize therapy, optimize treatment and improve patient outcomes over time. Importantly, all of this is made possible by NeuroPace's proprietary data asset. which now includes more than 27 million intracranial EEG recordings generated from recordings within the RNS system. We also continue to make strong development progress on remote care, which is designed to allow physicians to program RNS patients through telehealth and enable patients to prepare their device for an MRI without requiring the physician to be physically present. By reducing the need for certain in-person visits, remote care has the potential to lessen the travel burden for patients, expand access for those who live farther from epilepsy centers and allow physicians to manage patients more efficiently. During the quarter, we further advanced usability testing and validation activities, and we expect to submit Remote care to the FDA by the end of 2026. We continue to allocate resources toward programs that can improve patient care, increase physician efficiency and expand the long-term value of the RNS platform. With that, I will turn the call over to Patrick for a detailed review of the quarter's financials and outlook. Patrick?

Thank you, Joel. I will review our second quarter 2026 financial performance in more detail and then discuss our updated full year guidance. As Scott mentioned, beginning this quarter, results from our distribution agreement with DIXI Medical are being reported as discontinued operations. Accordingly, unless otherwise noted, the financial results discussed today reflect continuing operations and exclude the impact of DIXI Medical in both the current and applicable prior year periods. As we have previously prepared, you can reference the additional tables in today's earnings release to help with modeling historical financials. In addition, gross margin and operating expenses are discussed on an adjusted non-GAAP basis, excluding stock-based compensation. Reconciliations to the most directly comparable GAAP measures are also included in today's press release. Total revenue in the second quarter was $22.8 million, an increase of 17% compared with $19.5 million in the prior year period. Service revenue was $302,000 compared with $937,000 a year ago, representing an expected headwind of more than 300 basis points to total company revenue growth. Our net system revenue was $22.5 million, representing growth of 21.3% compared with $18.6 million in the second quarter of 2025. Growth was supported by continued adoption and utilization and favorable pricing compared to the prior year. For the first half of 2026, RNS revenue was $44.2 million, representing growth of 20.4% compared to the first half of 2025. As we have previously discussed, we believe evaluation over 6-month periods provides an informative view of underlying performance in a procedure-based business. First half growth was consistent with our long-term framework for the current adult focal epilepsy indication. Adjusted gross margin was 83.4% in the second quarter compared with 84.0% in the prior year period. The slight year-over-year decline is driven by modestly higher material costs, partially offset by favorable pricing. GAAP gross margin was 82.8%. Total adjusted operating expense was $21.9 million compared to $21.3 million in the second quarter of 2025. Operating expense increased approximately 3%, meaningfully below our revenue growth of 17%, reflecting continued operating leverage while we invest in the business. Adjusted sales and marketing expense was $11.5 million compared with $10.7 million in the prior year period. The increase was primarily related to sales and field support personnel and other sales-related expenses associated with the continued scaling of our commercial activities. Adjusted research and development expense was $6.3 million compared with $6.0 million in the prior year period. The increase primarily reflects product development-related investments supporting our next-generation platform and AI-enabled tools. Adjusted general and administrative expense was $4.1 million compared with $4.6 million in the prior year period. The year-over-year decline primarily reflects onetime executive transition expenses incurred in the prior year quarter, partially offset by higher personnel-related expenses in the current period. Adjusted loss from operations was $2.8 million compared with a loss of $5.0 million in the second quarter of 2025. Adjusted net loss was $3.9 million compared with a net loss of $6.8 million in the prior year period. Adjusted EBITDA loss was $2.8 million compared with an adjusted EBITDA loss of $4.9 million in the second quarter of 2025. GAAP net loss from continuing operations was $6.2 million compared with a net loss of $10 million in the prior year period. We ended the quarter with $51.9 million in cash, cash equivalents, short-term investments and restricted cash compared with $54.8 million at the end of the first quarter 2026. Long-term borrowings totaled $59.0 million as of June 30, 2026. Turning now to our outlook for 2026. We are increasing full year total revenue guidance to a range of $99.5 million to $101.5 million compared to our previous range of $99 million to $101 million. The increase in total revenue guidance reflects improved visibility into service revenue, which we now expect to be approximately $1 million for the full year, up from previous guidance of $500,000. Underlying RNS revenue outlook is unchanged at $98.5 million to $100.5 million or growth of 21% to 23% from our current adult focal indication. We expect our third quarter RNS revenue growth to be similar to our first half RNS growth rate of approximately 20% year-over-year. Consistent with our prior guidance, the revenue range does not include any contribution from the expanded IgE indication. We are increasing full year adjusted gross margin to a guidance range of 82% to 83% compared to our previous range of 81.5% to 82.5%. The updated outlook reflects our first half performance, favorable pricing and continued management of manufacturing costs and product mix. We continue to expect full year adjusted operating expenses to range from $90 million to $92 million as we continue to invest in our business to drive increased physician and patient adoption. This range excludes approximately $10 million of stock-based compensation, which is a noncash expense. Within operating expenses, we continue to expect adjusted sales and marketing expense of $46 million to $48 million. These investments support targeted commercial expansion, market development, patient pathway resources and the continued scaling of our field organization. We continue to expect adjusted research and development expense of approximately $27 million. Our R&D investment is focused on the next-generation RNS platform, the NeuroPace AI suite, remote care, clinical and regulatory programs and other capabilities that strengthen the long-term differentiation of the platform. We continue to expect adjusted general and administrative expense of approximately $17 million, reflecting the systems and infrastructure needed to support a growing organization while maintaining disciplined management of corporate overhead. We now expect full year adjusted EBITDA loss to be between $7.5 million and $8.5 million, improved from our previous expectation of a loss between $8.5 million and $9.5 million. We remain focused on balancing investment in the company's long-term growth opportunities with continued financial discipline and progress towards sustainable profitability. With that, I will turn the call back to Joel.

Thank you, Patrick. To close, our second quarter results demonstrate continued execution in the areas that we control. The core RNS business delivered in excess of 20% growth during the first half, consistent with our long-term framework for the current adult focal epilepsy indication. We continue to expand adoption, increase utilization and build referral pathways, while maintaining strong financial discipline and investing in the long-term growth of the company. We remain laser-focused on advancing the IgE opportunity and bringing this therapy to patients. At the same time, our other strategic initiatives remain on track. Our clinical evidence base continues to strengthen as demonstrated by the NAUTILUS study publication in epilepsia. Our product development process is working as evidenced by the launch of ECOG Assistant and the initial examples of its demonstration of unique device platform technology capability and its translation into value in clinical practice. And our broader product development programs continue to progress. We remain focused on executing across the core business, advancing the IgE regulatory process and developing the differentiated capabilities that can expand the impact and value of the RNS platform over time. Thank you for your time and continued interest in NeuroPace. Operator, we will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Anthony Petrone with Mizuho.

Maybe, Joel, to start here, you mentioned the submission issue request meeting, the SIR meeting. I think I may have missed it, but is the specific date set yet in September? And then what should we be thinking just after that meeting? How will it play out in terms of milestones? Is there a potential for some Q&A back and forth ahead of a formal submission? And do you still -- are you still in the camp that a resubmission could happen before the end of the year? And I'll have one quick follow-up.

Thank you, Anthony. Excellent questions. So a specific date for the SIR is not yet set. The specifics that I would offer to you there were in my prepared comments, which is that our -- the preparation of the analysis and development of the data that will go into the SIR request and be the basis for the majority for the discussion is on track. So we're in good shape there and things continue to progress. We expect to be submitting for the SIR and having that meeting then over the next few weeks, as I think I had commented previously. And so again, things continue to move and develop in the direction that we had previously discussed and are on track as well. I'll just put in here, you didn't specifically ask it, but ongoing -- the periodic ongoing discussions with the agency and interactive engagement has also remained on track. With regard to next steps, you should -- you laid it out there. But in general, you could think about it as we expect to have that meeting over the next few weeks based on our current understanding, as I had mentioned on the 28th of July when we first talked about it. Our expectation is that we would not require a full restarting of the 180-day clock. Our current expectation based on the way that the agency has interacted with us when we have amended this submission a couple of other times during the review is to stay interactive. As you know and others know who are listening, it's within the agency's purview to go ahead and restart a clock and take the full 180 days. But with the way that they've been acting with us, we wouldn't think that would be the case. So I'm going to leave you one thing a little bit on specific dates, Anthony, but you can think about it as we're on track for the SIR. We expect the SIR to be happening here over the next few weeks. The majority of what's going to go into the SIR, we expect to be what's going to go into the amendment. So we think that can happen relatively in a timely fashion following the SIR. And then we would expect the agency to work with us interactively and expeditiously following the submission of the amendment. They can take out to the 180 days, but we don't expect that they will.

Very helpful. And then the quick follow-up here is actually on the U.S. market push. And I think the plan here called for expansion into community centers beyond [ CECs ] to coincide with the IGE label expansion. But certainly, the core business on the focal side continues to outperform. So just wondering, would you make a push into community ahead of IGE label expansion? Or is it still let's get that label expansion and then make that broader push in terms of site expansion?

It's a really good question, Anthony. And the short answer is yes. We have the advantage here of having the adult focal indication, obviously, already today. And so that gives us the opportunity to be in the community, be talking with referring physicians as well as establishing relationships with community-based programs as well as Level 3 programs such that they can either refer to Level 4 centers, refer to Level 4 centers for implant, get the patients back and program themselves or in some cases, Level 3 and community centers have both the patient populations as well as the professional staff services and complementary infrastructure to be able to diagnose, manage and treat patients within those sites. So we absolutely are and have been increasing our footprint from a community perspective, which has the advantage of laying a bunch of track, if you will, in anticipation of an indication expansion as well. But we can do that in support of our current business, and it's been beneficial with our current business while then also preparing for what we plan for in terms of indication expansion.

Your next question comes from the line of Lawrence Biegelsen with Wells Fargo.

This is Ralph Osborne on for Larry. So starting off, would you provide some color on how the clinical community reacted to the FDA letter regarding your application for IgE? Were physicians surprised, concern about your viability to get approval or understand the FDA's caution and wanting more data?

It's a great question, Ross. And we actually had conference call follow-ups not long after we talked with you on the week of the 28th there. And I personally as well as Dr. [ Moral ] spoke with a vast majority of the investigators that were there. I'd say there are really kind of 3 points of feedback. One, thanks for letting us know and for keeping everybody up to date here real time. Two, just as we do, they remain very confident in the clinical data that was generated from the study. And three, let us know how we can help. And because people see the need that this patient population has today, as we all know, drug-resistant idiopathic generalized population doesn't have options with regard to neurostimulation, and they're not surgical candidates by the nature of the disease. And so the clinical community really sees the nature of the unmet need and the gap in what's available to them today. They have been impressed with and only supported by the publication of the NAUTILUS data in epilepsy that came out. And in particular, the investigators that we're close to are obviously very close to what they saw in their own patient populations and again, remain confident in the data and want to know what they can do to help.

Okay. Great. And then your next-generation platform came up a couple of times in your prepared remarks. Could you provide a finer point on where you stand in the development time line and remind us of some of the improvements?

You bet. So the next-generation platform is our next -- to be specific, that's our next-generation hardware platform, our next-generation implantable device. And another -- there'll be a number of aspects about that. But it will expand the capability and capacity of the system from the management of the potential for additional lead configurations is one. Bluetooth low-energy communication is another. And so you can imagine being able to have the device seamlessly communicate from a Bluetooth perspective is also something that would be particularly helpful. And then a number of other things the platform will do to position further product development that's further down our pipeline. We haven't fully talked about yet, but it will be the chassis that we need for that. And so those are really the keys. We haven't provided specific time lines outside of the most -- the thing you could look at to give you the best feeling for timing and time line that we've communicated publicly would be the Investor Day materials that are on the website. And so you can get a feeling for that there. But development work is very active. We're not -- we're no longer in R. We're in D and the D is going to fit very nicely with everything that we're doing now from an AI and remote care perspective will just be buttressed by and further supported by that next-generation platform. So we can do the things we're doing now on the [ 320 ] and then it will be just an opportunity for us to do even more of it and even better when we think about the next-generation hardware platform.

Think about it as faster processing, especially with the AI suite of tools that we'll begin to launch and obviously, with ECOG being the first one that we did. But it's -- we're looking forward to it.

Your next question comes from the line of Priya Sajdeva with UBS.

Maybe if we could just touch back on the SIR meeting. Joel, I know you mentioned that the current expectation is to stay interactive with the agency. So maybe you could help us frame what the potential outcomes could be and how equipped you are to handle any feedback or additional data that's requested? And then one follow-up.

It's a great question. We expect to go into the -- the purpose of the meeting is really to provide a forum for us to align with the agency on the specifics of what they're looking for and our plans for data and the reporting of that data with them. So we feel like we've got a good road map today based on the feedback that we've gotten from the agency, both by way of their letter as well as our interactions with them. And so we think we're going to go into the meeting with a good direction and approach for what we believe they're looking for. And then, of course, the timing and the amount of additional analysis or work coming out of that will be based on how well, in fact, are we aligned and have we gotten the development correct and aligned with what they're interested in. Again, we expect that we do have a pretty good line of sight on that. And so we'll work to turn those conversations and any updates and iteration from that into an amendment and then submit that amendment in as fast as possible time frame as we can coming out of the meeting. So a lot of the work is going on now, which is why I provided the update in my prepared comments, specifically that our data analysis and preparation remains on track, and we're getting ready to submit that SIR request, and we'll be prepared to go into the SIR meeting. And so we -- to just specifically answer your question, we expect to be able to turn feedback, unless there's something that just comes that we haven't anticipated, we expect to be able to turn feedback in a pretty timely fashion after the SIR meeting.

Okay. That's super helpful. I guess maybe just one more. Really nice to hear the all-time high in active prescribers, accounts and the patient pipeline. So I would just love to maybe understand a little bit more what you saw on the ground as it relates to utilization amongst existing centers this quarter and how you're thinking about that when contemplating the guide?

Thank you, Priya. And I know you've been -- somebody who's followed this particularly closely. So we appreciate you paying attention to the operating parts of the business. It's fun for an operator to get to talk about that. So really, there's 2 pieces here that form the basis for the expansion in the business. If you think about our field presence, we have a presence in the vast majority of the Level 4 centers today. We have a penetration rate into those centers. And so the way that we're really working on expanding our footprint is increasing adoption within those centers. So if you think about a Level 4 center on average, it will add something like 5 or 6 epileptologists. And there's maybe 1 or 2 or 3 epileptologists in the center that does the majority of the RNS work. And so one step for us to expand the envelope is to increase adoption of additional epileptologists with RNS neurostimulation as a tool within their practice. Then within that adoption, we have what we call the modern RNS story to increase utilization. And in particular, we have talked about here on recent calls, number one, the advent of network stimulation where people are stimulating both focal regions of the brain as well as stimulating in the thalamus -- and that has really been an area of expansion for the RNS system as well as in hybrids to surgical therapy. Stand-alone surgical therapy volumes actually are going down vis-a-vis neuromodulation. And one of the reasons why we think that's going down vis-a-vis neuromodulation is the expanded capability that neuromodulation can provide. And in particular, with RNS, you can monitor the brain's activity to inform where you might want to resect or if you know you have an area where you want to resect, but there's also areas you want to treat from a focal perspective that you can't resect, it can be used as a complement to that. So when we think about expanding our footprint, we've got increasing adoption as well as increasing utilization within the Level 4 centers as our fundamental baseline. Then in addition to that, the question was asked earlier, Anthony asked earlier about expansion into the community and into the referral community, and that's been a big area of focus for us. And the last thing I'd talk about here is just our increased both investment as well as sophistication in direct-to-consumer and direct-to-patient and direct-to-patient caregiver as well as direct-to-referral community, digital marketing and patient educational efforts are things that are beginning to contribute more and more for us. And so we feel like we've got multiple shots on goal here for developing the market, and that will become even more important as we work through indication expansion.

Your next question comes from the line of Frank Takkinen with Lake Street Capital Markets.

At the risk of getting a little over our [indiscernible], I was hoping to ask about 2027. I think where consensus sits today is about 23% top line growth, and I've previously tagged the RNS business about 20% in line with you guys' commentary. Do you feel right now, maybe there's some inclusion of IgE that might not be included in 2027 at this point in time? Or do you think that, that $123 million is a reasonable estimation at this point in time?