NPCE - Earnings call transcript Q2 2022

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Operator

Good afternoon, and welcome to NeuroPace's Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of today’s call.

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Bacso from the Gilmartin Group for a few introductory comments. ahead. go Please

Matt Bacso

Good today's operator. thank for you Thank afternoon, in call. participating you, and

from Favet, company's for Joining Kuhn, are is A NeuroPace me Mike press the today, ended XX, release released copy quarter of CFO. on CEO; NeuroPace financial second results the the available June XXXX. website. Earlier Rebecca and

Litigation statements are statements expectations call Securities will made development Private securities current operating cause the estimates forward-looking our events business market to outlook relating Reform conditions, events, future our opportunities, upon forward-looking during this market Act expansion call for of during including Before predictions on forward-looking I'd and our and trials to like Any COVID-XX statements should safe federal of revenue results to results the we business to made place of commercial remind performance, those are assumptions. and include and clinical pursuant and relate make All materially or expense within forward-looking harbor performance material by to actual management, NeuroPace's implied are from undue differ those XXXX. begin, or on of statements. statements. uncertainties opportunities, that Accordingly, based statements that laws, projections, the meaning these which future or this trends statements. you that management of or the that risks statements, around financial provisions these involve recovery, and prospects those various you reliance could not These impact

may filed SEC XX, section with SEC Form report with filed Form for except March conference XXXX, information, Securities as with to as the or our as SEC any is XXXX, of filings XX, we the turn as to broadcast This description accurate any to the in December the and any contains statements the time-sensitive that disclaims live of well quarterly Commission XX-Q of update the new whether XXXX, intention the to I'll business, on Factors NeuroPace future the future. SEC, August in year and reports or on on August on our Exchange over our of our or file XX, refer XXXX. otherwise. the please the that, or including XX-K annual be XX, on which public we revise more by associated financial required only uncertainties believe And law, Mike. forward-looking obligation, with Risk a information, events or ended detailed projections report with call with For risks because call

Mike Favet

you and Thanks, Good thank for afternoon, Matt. us. everyone, joining

business quarterly I before full For today's outlook comments followed and additional by the opening detail Rebecca, provide results and update, will will financial who regarding provide opening our to XXXX year call call, a Q&A.

sales Before process partnership SEEG distributor organization years results, I that recent SEEG States. Europe for position was some as CECs used $XX are procedure drug $XX line. pandemic, will cover EEG and NeuroPace earlier With increasing pioneered process. engage leverages same and the team recovery approach revenue a approximately States This prior required to United epilepsy has predominant is of Medical developed in want more team. million, The determine electrodes. million a monitoring and patient number originate. electrodes. in has procedures a epileptic to is electrodes already electrodes localization compared used become synergistic the studies DIXI this States the being million the in field number news. invasive to SEEG. the the of Prior where on as with centers and more being market exclusive in diagnostic with to of the has approach of XXXX, intracranial been approximately in has SPG to $X diagnostic to monitoring to the craniotomy seizures a sales increases the to that through company approach the direct growing NeuroPace go objective the United even that become in resistant patients per willingness patient less the We believe that SEEG that diagnostic therapy DIXI for are supports stereo Medical done $XX,XXX. monitoring small since comprehensive is of of selling the treated. in calling DIXI intracranial were using customers European the process. NeuroPace was I today procedures product and These was XXXX. monitoring of development DIXI intracranial intracranial Medicals been selection epilepsy created, exciting announced the generated more or to U.S. were the intracranial second the XXXX, share approximately quarter United small We We faster revenue SEEG faster believe in the

expect We which calling a existing field much sell organization. opens new market to through growing the customers and in than incremental DIXI's same electrodes. on our commercial these already revenue was drive This leverage to best our to organization larger class SEEG

implanted we strengthens the Prior with stream the device will through existing where provides RNS engage potential our believe we moving Additionally, whom is additional into the EMU also our EMUs education or visibility originate. earlier into electrodes for identify not process epilepsy that CCEs. monitoring to significant to of in seizures RNS two already improves patient an of process we rate patients part patients are partnership therapy we in therapy process. the thirds this decision visibility way working but patient units in This agreement, increase diagnostic selling and as of patient funnel. partnership order benefits opportunity as Approximately a believe CECs the patients. on that this access to for to provide highly within are adoption earlier the of to the our SEEG of of and monitoring provides RNS believe many were Overall, part selection pipeline therapy intracranial admitted of to improved RNS synergistic only revenue therapy a RNS the and

to of Total second 'XX second levels. on year prior We the in number EMUs that through Moving was was implant to the XXXX of Initial first significantly estimate patients XXXX the quarter quarterly below revenue of revenue in quarter in $XX.X half of was the coming the $X our revenue results. million million. XXXX, million, $X.X compared period. in

being volumes potential plan. RNS EMU a pre-pandemic the and patients the staffing through of shortages, in that decrease We As reminder, the for system EMU of in a impact reason XXXX is combination Fewer estimated EMUs evaluated patients believe a approximately volumes and the and levels. XXXX coming that to fewer EMU were of COVID-XX. XX% we XX% patient were for means

operating being higher diagnostic from trends improvement coming During the with the those in the will that EMUs a the third traction, a we was and EMU into those believe environment therapy, second volumes work are percentage patients build RNS through with treated as of positive patients of gradual in quarter. to process. quarter, quarters the increasing through We benefit believe continuing EMU future we there we continue

the revenue seen and have deferred now second recovery the treatment initial COVID In environment the million the volumes, EMU another meaningful the start XXXX. to pandemic, expect year number continue we diagnostic in epilepsy EMU a to full in incrementally been we operating quarter since is full implant just, and half growing to be normalize backlog adjustment of $XX patient in second who range believe of the necessary. expect the to we improve continues the going to of patients the process saw year have summary, through the believe outlook of our of we who what $XX patients to XXXX XXXX, in have We of Given but and gradual spike is there million.

expanding second field commercial in our expansion initiative. the size of in with goal exceeded sales quarter XX the the in our based of our team Turning We year, of team and sales total. based first half field to members the

to the year, on is For of at will and highest focus team operating the training ensure the the level. remainder integration we

CCS planning to provide This a available a larger team the epilepsy us to on specialists call utilization and who will order As adding implanting increase referrals in reminder, of to into therapy also referral needed within by RNS increase resources to prescribers sensors. will number the field in allow these Through development RNS of centers. CECs practice larger outside make can patients. we more efforts,

attractive Additionally, provide by also revenue can patients option to outside which specialists for followed expanded a of team. the patient electrodes business. team expect opportunity will sales, incremental an The which provides the care SEEG our both medical we DIXI support and practicing these growth field CECs, will nice epilepsy be

PMA to epilepsy. to indication expansion future Nautilus recent to our began to supplement clinical in indication expand trial We Moving and a our generalized primary pivotal enrollment update the opportunities. recently support include

enrollment of to online. increase We through remainder sites bringing additional expect study XXXX the by

While our for probations. on of in business generalized and epilepsy excited could mean indication and expansion our remain still track we our what early about pursuit this are

actively expires, Because June to on implant in is quarter-to-quarter primarily revenue. treated there our Revenue Next, devices. I which were second replacement be would replacement XX continued the of determined generation there first by $X.X XXXX, replacement transparency battery was can implants being as came patients provide neurostimulator XXXX, when expectations. to the timing million from like provide an above variations with of XXX update quarter from implant in

to We the first second are quarterly continue replacement as the expect generation replaced the year remaining generation longer declined lasting to devices sequentially throughout with devices. revenue

expect million of in of now revenue strength replacement the year. XXXX, of the revenue the $X.X the replacement approximately first Given we implant half for

taking have XXXX Lastly, deliver sales use expenses. leverage speak Nautilus our strategy assessment and is in market a spending business including and to our We've first commercial to penetration the on and drive line infrastructure I to completed productivity highest expand growth. would and the we half for efforts, to indication initiative across focused expansion priority our top study are to performed to the epilepsy. strategic of manage steps generalized our Having like our to

now a QX expenses forecasted the for QX to core As result, into and flat spend, be have our we and RNS operating reduced sequentially business. expect

second of providing while further evaluation the better pipeline access increase partnership DIXI which visibility for to to adoption Medical, RNS us announced We to and grants NeuroPace therapy patient new facilitate adjacent market, CECs Lastly, of with summary, our quarter expect completed We in operating trends our we into Medical $X faced we the expansion from in EMU to the quarter. patient which the In with the continuing approximately while improved fourth salesforce expenses quarter. environment the third a DIXI positive diagnostic strategic business. allow also partnership, incremental core the and association increase a million with in size opportunity. the referrals initiative, recognize into reduced volumes, headwinds will of market RNS

also enrollment opportunity path We on study, key our was into system milestone epilepsy. the to Nautilus began a RNS the in expand which generalized our market for

second we All of as financial year. the will us I positions over call that, move these chief to half With the NeuroPace's of turn Rebecca, well the officer. into

Rebecca Kuhn

decrease $XX.X second Thanks, quarter implant million, to of We year. in XXXX due to of second the Mike. revenue NeuroPace's of the from was of $XX.X second compared quarter million process to initial second a was implants In in million half compared the procedures the $X in $X.X for second quarter million the number initial compared reduced million through quarter, the for second million, to the the primarily the experienced from XXXX. in $X.X EMU implants patients of first of replacement quarter, Revenue XXXX. revenue was $X.X XXXX. for diagnostic quarter going the

quarter expect The the increased support clinical costs to million driven margin and to which has company XX% was XXXX of quarter an continue primarily the The expense expenses, period in the primarily to a XXXX replacement related compared product increase quarter was costs XXXX years We of model expenses due an with operations SG&A the million second was increase of quarter, of transition driven $X.X a expansion second by second second the in in million XXXX. the the was million of primarily We stock SG&A in in year decrease R&D were million $X.X labor indirect XXXX million of initiatives. was generally our compared the development of expense Net XXXX, to quarter and was in marketing compared quarter associated R&D $XX of increased next with compared XXXX. battery. year was from second in the period was as longer margin of by same XX% operating the second decline Total million gross $X.X recorded loss personnel the personnel, period. $XX.X prior second Loss $X.X to XXXX. $X.X in flat interest $XX.X the compensation. second compared commercial compared in quarter the of prior in expense period. in lasting public million in million, to year period. in prior study with XXXX prior million prior for which quarter Gross sales with expenses. the the due the compared in to in expense the increase to relative year. The and second year in implant in $X.X the quarter period to in device, revenue $XX to the $XX.X current based was couple for of to increase million same costs, including of operating

short million while was XX, long borrowings investments cash $XX and of as $XX.X term million. Our XXXX, balance our totaled term June

for We $XX and million. turning to $XX now This million expect $XX million. revenue $XX Now our revenue outlook XXXX. between and between initial total implant million assumes

strength for now we full $X.X to year, expect the approximately half the million in of year. replacement in Given the the revenue first generate

to our expect in $X.X Medical. approximately revenue of partnership DIXI the from quarter with generate million we Lastly, fourth new

range. gross low income the will in XX% down we margin the Moving expect statement, be

to Our be of of gross our non-cash gross $X $XX stock DIXI includes from which updated core margin approximately based range relative $XX is guidance total expenses revenue operating million now RNS We will XXXX million to $X contribution the carries business. expense. million compensation which Medical, lower expect in million a margin to

reduced we mentioned the expect to previously, our the on core in XXXX. Mike and for priority half be highest business third fourth quarters As second the operating we the sequentially will in are expenses given efforts roughly RNS and focus steps flat expenses of taking

million partnership the the recognize an in to DIXI to fourth quarter. of incremental close of the Medical expected the fourth at $X With expect we beginning quarter, expenses

the million XXXX NeuroPace quarter fourth quarter under payments $X.XX in Medical $X and and million agreement, distribution in the the Lastly, respectively. of pay each XXXX fourth will a XXXX DIXI payment cash two additional of of

months. recognized cash expect be XX over each We as will that payment expense the following

cash XXXX. turn the would I Given the prepared we expect positive deal by opportunity, back concludes first by flow our open attractive who the the questions. revenue this call XXXX operating will accretive to be early income operator will synergy of This to and to call the remarks. quarter for over like

Operator

line Thank you. [Operator Larry Instructions] Our first Fargo. question coming Wells Biegelsen from of the from

open. is line Your

Larry Biegelsen

for Thanks me you the afternoon. Good question. Mike, can hear okay? taking

Mike Favet

you. Yes, I can hear

Larry Biegelsen

then That’s good. on agreements. the first, me. questions Thanks. trends. just A I'll And Congrats of it's on Well the about for DIXI couple one DIXI business say the agreement.

cadence And you're I'm the more excluding for DIXI on like then on trends August. follow sounds to how color QX and the QX, give We're and QX are about had a QX, business and it So trends up can through you improving. quarter. think trends, Any DIXI. improving monthly sorry, I anything in through the July seeing underlying

Mike Favet

Thanks Thanks. for the good. Larry. Very question,

of a bit little additional So clarity.

Going patients us and new by needed worked the patients with because through second told didn't as an implanted in seen before recovering QX in were RNS the been plan first quarter. XXXX through of back customers device. COVID EMU us new in quarter that was our scheduled prior the dropped been Omicron. process be start quarter, RNS that the of the business and The diagnostic But QX that off operating And customers of the large patient the that workup most of the it for the the a a to as with were that really impact pandemic. significantly coming had recently, end than getting the And in up the through already impact was the telling more a EMUs implant more back we for for have significant are level. us of to has environment of QX process larger the in waves the numbers had impact our number

that specifically are of QX for of continuing being are including business, therapy, the trends, give interventional customers the the Talking heard patients our the year. and one this Those implantation. wanted quarter in visibility considered So the that's RNS ways you our we've planet future through improvements third ultimately operating environment to in we about case through addition. device into monitor from I and some that revenue, that and

the in couple the for a the a implant in that was We in happens. weeks have scheduled June, for patient device the up May RNS, we and to month when been drop a is saw scheduled patients case being that. implantation, RNS and that patients of would for May, through RNS December in the the schedule. a added have January. that would implant when patients reason have worked the these months in in is there of June, off are to in of is significant schedule couple The So to advance and procedure visibility an this get process been scheduled to diagnostic first actual added half Typically that of of late

seen as normalized, off second I the we and through More mentioned. impact is half starting of returned the as of as into back that the through to flow QX. recently, patients coming result levels, June, saw those So and July at expected case a August, drop we've of ads had in Omicron EMU

QX. into just the trends through QX EMU go that visibility volume us through we gives trends not of the better that trends, that but rest translating and and as implant confidence so to And are the improving

happening. gives So hopefully on them clarity that some what's additional

Larry Biegelsen

cadence I if on Mike? comment want mean, don't to you QX know QX, I

Mike Favet

volumes generally, improvements implants there QX initial and QX from expectation from to is QX. be QX will in just that to the incremental of So

So increases that work as general the process, sequential that we quarters of the of expecting through is the cadence that's year. through couple last we're

Larry Biegelsen

question, before What over was is think in more DIXI average. it I ask be you more DIXI one preliminary opportunity, one million at before throw what DIXI the below the we upfront, today, that the right outlook. thoughts the base? the questions $XX just margin? the opportunity And where on 'XX? million growth think do about can should to Any going on think lower thoughts Mike, Any about about talked And may I ad color corporate maybe capture more consensus on The And should XXXX? to time on there. question how I'll now. you preliminary all how that? margins. $XX to about the think the am just a rate we for the was you But for any Sorry but heard

Mike Favet

very right efficient. All

best will through I my jump to So the question. can margin each of in do then And go Rebecca on those.

expectations. growth term longer the about talking So

Given not this the that revenue Really, operating we're our XXXX about continue the environment, And for in that's driven business while changes updated good made the in overall. seeing growth improvements to providing the opera time, we believe the for we've we guidance fundamental XXXX prospects at guidance. in us the by feel we're business. that for

to specialists of of are allowing the So of we the this completed CECs. that team in epilepsy that our the us first outside field expansion half practicing call on year

toward its with creating DIXI earlier with to opportunity we're addition awareness be to to us to call also earlier patient point that of in making the in a The are through really addition progress utilization to patients partnership they're going within that process have good own for diagnostic revenue right. education that able a process. the the In helps CECs, that increase diagnostic work doing

the of going not again, time. us we fundamentals of the so where the specific over about takes term. this year very into of that And this feel and to out QX and business rest coming about the guidance longer together, good providing XXXX at But

Going estimate market revenue million $XX in of our was actual what that opportunity the to million DIXI your in question to $XX around that XXXX. market of

monitoring the years of electrodes of number being patients the ago, electrodes, types a of were for with revenue couple generated procedures intracranial that. different and from treated that So

XXXX, DIXI in about million $X revenue. of mentioned, I had As

And associated able share SEEG in be share a And product, having space. we're class, the product that of larger we coming that that our incrementally out would that. within so market significant to be that to forward best sales take take there's opportunity with through able organization looking to to

monitoring I static market on up. number centers market have addition The at for procedures comprehensive growing. evaluated of the that has as we mean, grown additional million up, patients who gone epilepsy epilepsy treated margin number number patients a growing being number, comprehensive SEEG of so has to opportunity time. that, XX going impact. about has Rebecca gone in to And me historically, or that to we a been through centers which diagnostic procedure intracranial the of can then being procedures, In the it's isn't going the to it has over million don't believe let turn talk but take share XX opportunity we the through

Rebecca Kuhn

Sure.

in products NeuroPace believe range. corner and distributor XXXX, of But that, lower be the believe make our assessment When XX% DIXI Having will that with sure technical the economics. this how a need the exclusive will we we we U.S. will be full of necessarily going range are up believe to the do DIXI combine their be DIXI will the that partnership that we So to XX% business be And in for margin low for shared for said gross what alignment result complete full our we the margin margins the accounting will is have of end year. combined deal. all new. margins on accounting to we gross the distributor since become low

Larry Biegelsen

all Okay, questions. thanks for the answering

so many. for Sorry

Operator

Thank you.

question. on next move our will to We

question the Robert Marcus line from Now, of our coming from next JPMorgan.

is Your open. line

Robert Marcus

it the utilization taking been and steady. looks pretty minus for account like planning thanks has Mike, plus per Hi, or questions.

stays your this your etc. about some on think higher year, the especially in volume past the of Maybe obviously centers accounts have For year metrics just the just very what of timeframes to an of top a and plus a how difficult, had sense overnight disruption, doing? improve? can any been get quartile with as has impact COVID time could Do are performing. to so like Versus trends these go some maybe we your you overall over is where

Mike Favet

last the Robbie. year Yes, by question, the say right half, the seen growth centers implants part thanks and stable. And impacted year, would the of center. per for number over of coming a that impacts we've you're for particular additional that been course in have the sensors. adding was that I And relatively active The significant of COVID in utilization

time, fact So of expand been successfully it's number times in various to over able with being units a patients of because a number COVID. where down through we've the rates at utilization centers smaller at in they of epilepsy And centers, by historically number the coming through monitoring utilization the rates been able within of we've patients those have been centers. keep EMUs. coming to of spite That's impacted the

of but don't of represent specific patients of share EMU about but the I median. net higher will, to flat, flat you or top And year portion significantly than top quarter what give centers, tell of can in terms have our what represents of the is centers per customers is top the volume that the result quartile top volumes, I bottom a you increasing numbers patients, volumes. if So for

more or one times and the centers multiple So performing the epileptologist the operating a is centers. are centers a relatively of prescribing just the rate two volume top within than time accounts at group with other of the typically performing that it's low median the multiple centers. But center be median still of and median utilization specific a in the volume the more the volume numbers, those times to able seen volume center. centers, without median prescribers are centers at top that to centers will the we these compared higher up centers get to represent

Robert Marcus

the Thanks. How should cash Great about to the sheet. and on your cadence your OpEx in help how you cutting preserve got are you for And appreciate need more we you'll of looks if of going million think like cashews cash your about $XXX thinking about year forward? balance runway future? when sort and

Mike Favet

Yes, Thanks Robbie question. for the

the comment that are again, focusing big that our includes That we process we a growth we assessment we specifically strategic for of did the are went a the that team, through, study epilepsy just allowing in centers call the Centers. those our first half the did and specifically, field call comprehensive drivers. us enrollment specialist that specifically Nautilus more on epilepsy including as level coming the of priorities the And outside of on key and conduct out drivers Nautilus for practicing the of So on the about in of to and to Epilepsy believe year spending key our well our business. business expansion the

continue to going business for forward. fund the support We those and

we the for business and spending areas extend of While be a preserve runway organization. we capital in continue other are the to support number company across those drivers, cash for the to reducing the able to the runway,

by made in support with for drive overall. down costs, having organization spending also areas number without decreasing still adding changes but other us to be actually into allows those of the expansion the the DIXI to we've a still business so that even And to able the

commented, about what needs. additional you the sheet. time this But as capital have of at very guidance provided is we balance strong haven't timing We a

organization an changes have allow these we As making today, runway the we're reductions spending spending business. us the in for the extend that capital that to

the for And prudent the in forward be stewards company. any the for to be to term And over so near to we capital as we'll needs go raising able spending we financial requirements continue year. have monitor don't next

Robert Marcus

lot. a Thanks it. Appreciate Great.

Operator

Thank coming of our form line Morgan next question Drew you. from And Ranieri the Stanley.

Your line is open.

Drew Ranieri

you're XXX or new Hi, Larry's on to guidance new about placement, XXX Mike, implants implants. thanks like patient for to taking implants. question question. Maybe for thinking of cuts kind the just back? new Looks And the be earlier cadence come patients channel? you half of kind assuming the improvement? sequential going will those for XXX and about back are the EMU year that Or implants the through the XXX, the these as

Mike Favet

When We ready and that expect RNS back worked that through that wave happened. completed to channel. they're the are implant. that the new Omicron The were EMU in coming for quarter. were were the up first predominantly Those patients that patients an

we And through seeing QX getting QX in so process. we've what really and move are are seen that monitoring the we're as intracranial what process, process, worked that including that EEG coming into patients new through

continues the so expect and the the with starting AMU device quarter that second And in into And schedules case QX as the translate in that recovery the is fourth translate that, and move of to the into as we're QX. seeing quarter. now into now we with for starting that that's half second we to volumes, RNS move

with patients I Larry improved patients from QX through as treated QX, build that continue initial EMU. To that so are QX, sequentially generally of the driven coming will organic implants of To QX volume expecting being volumes from to QX, And and stated that for by

Drew Ranieri

Got term at help study? would time kind least to for bolus DIXI Thank kind for to you're be of and we one of quarter? appreciated. ready then the of models business, and it provide the XXXX Just one in there Thank know a quarter new guidance thinking about the fourth you. of I fourth a Is kind or maybe think about holding it. Is orders our necessarily any as XXXX. revenue? not moment, you should on layer adding this But we're how

Mike Favet

thanks Drew. the for Yes, question

as the we United fourth we take the fourth third And don't the to quarter. They'll orders sell responsibility we products that been in through quarter. since the we'll has in a as continue into anticipate bolus over DIXI of then So enter quarter. XXXX. selling States

that that, with say I so businesses of the quarter we're going would continuation thinking a to revenue. it's be, for fourth about it the way And

this is XXXX. us for for , of to stated new is be this haven't for part going for that guidance, specifically We us. agreement new that provided QX, you point, and a market sorry as for At DIXI I'm

to we as end continue what we'll to we heard so better And evaluate then get up move the we to of clarity the able for States bullets. specifically in XXXX. taking quarter. the products will responsibility on provided QX through as that, and your selling isn't of over as that that, for provide sell a But question, based a It's fourth and pick any into those guidance year and us lot United for we continuation QX they continue to be to that revenue the

Mike Favet

All right. Mike. Thanks

Operator

Thank the remarks. I I would over back any now Mike to time. questions further no you. am to turn for like this showing call And closing at Mr.

Mike Favet

to today. for of at a you upcoming good Fargo forward you participation looking Stanley thank Wells and seeing I'm Great, the Morgan many your conferences. Have day.

Operator

and Ladies for conference your you today. that the participation. gentlemen does conclude Thank for

may You now disconnect.

NeuroPace (NPCE) 13 Aug 222022 Q2 Earnings call transcript