Earnings call transcript Q2 2023

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Operator

Good afternoon and welcome to NeuroPace's Second Quarter 2023 Earnings Conference Call.

As a reminder, this conference is being recorded.

I would now like to turn the call over to Irina Ridley, Chief Legal Officer and Head of Investor Relations for a few introductory comments.

Irina Ridley

Good afternoon. Thank you for joining us for NeuroPace's second quarter 2023 financial and operating results conference call. will Kuhn, Joel Chief we Officer; Chief call Rebecca and Financial today's hear Becker, from Executive On Officer.

press A Earlier for today neuropace.com. of XXXX. website the results available the copy second quarter the NeuroPace ended June at released company's release is financial on XX,

call, Securities statements which begin, we within the of predictions Litigation made performance securities laws, Private Act events, this harbor the of that statements the made like safe statements. make pursuant statements provisions you or that to meaning Any Reform Before will remind during that relate XXXX. are of results forward-looking to are to would of call this throughout I expectations we include forward-looking or federal future

projections, clinical trends market market management, prospects All business of opportunities, market cause Accordingly, business assumptions. could undue the for These forward-looking financial these statements those trials opportunity statements. and material our by expense estimates not and and those operating our commercial of conditions, including and to future impact and recovery, relating should statements. performance, events that NeuroPace's around on involve and uncertainties of expansion, based COVID-XX various are implied risks estimates and reliance results materially revenue on differ forecasts statements or forward-looking to from current place these you actual those on growth

March for December the please in filed our SEC refer any the SEC, Risk XX, the filed quarter ended annual the file well descriptions XXXX detailed quarterly with with more March the we XX-K on our for the of the with our XXXX be risks on reports to XX, May the with XX-Q the ended with a SEC report filed report quarterly Form XX-Q X, the business, period report associated on XX, section For June public that including to SEC ended Form may uncertainties of and Factors XXXX X, on XXXX the SEC, for and filings our as on our year Form future. XXXX as with

which This events live conference law because only broadcast as projections otherwise. or whether any required revise time-sensitive disclaims intention is future call XXXX. accurate or information, obligation, contains or as or we any to forward-looking X, of by believe on information, except of NeuroPace August update this new financial statements,

I Joel? the over Becker. that, with to Chief will And NeuroPace's now turn Executive Officer, call Joel

Joel Becker

NeuroPace. is to epilepsy earnings you with here Thank quarterly Irina, It company's good about of lives my and mission committed advancing with to first everyone. call afternoon I'm with be my therapy. living pleasure transform today people excited on and you RNS the to with our

underlying our I'm and discipline on experienced and leading effective NeuroPace. lie what talented solid the cash opportunity to pleased management. of opportunities lead the I've consistent the growth, committed with fundamentals the ahead, by team am of thankful the commitments and that for to seen also excited at very deliver to NeuroPace revenue business, in I operating

quarter, will our year. Kuhn key present the from I priorities the to the of quarter to of the for business provide Q&A. of call, the and review Rebecca details today's On CFO, then call performance second over for highlights our opening I will financial remainder XXXX, call the to the turn before

in States; study. our or contribution comprehensive epilepsy within the SEEG RNS and XX% The of by compared XXXX. of of revenue the in system first with NAUTILUS and year electrodes report increased from total pleased our to am was their performance centers, RNS million, was system period compared prior the to to CECs; XX% the utilization Medical $XX.X primarily I to representing growth of strong driven United DIXI partnership revenue distribute quarter the implants

complete we previously expected to we with implant the is of As communicated, and to longer-lasting XXXX. to revenue It decline half as replacement our in X% represents continues a total now second-generation device approximately our further decline, battery. transition second revenue of

original the of year updating revenue expectations consistent $XX to million, you between I million and progress. to range from are repeatable up committed our to full fundamentals operating from on $XX of XXXX results Given the $XX our million to forward and million year. at $XX am of raising to guidance million, business, strong we and I million start the the delivering $XX look and $XX underlying

million quarter growth. quarter and $X on Through expense significantly without management, disciplined reduced XXXX the the burn focused from been of XXXX, effort second of has in cash first a in to million revenue $X.X compromising

was of a which improvement to and grow scale all we by of areas components; growth, management business. revenue continue burn primarily improvement will We with focus three to expense and driven management. committed as margin discipline expense ongoing Cash key allocation the appropriate focus and remain resource financial be gross on

on you as continue rationale our of business guidance the focused, on core that a I in the of comprise I initial change providing before dive the deeper some into I for now to be will elements update to thoughts want where business.

expanding the is therapy. Our treatment expanding centers patients, CECs, with clinicians patient RNS the closing drug-resistant access the on gap, treatment by for to expanding number indications access to therapy. RNS access and expanding and is and comprised RNS of epilepsy therapy for focused commercial to patient access Expanding within system of to strategy RNS

XXXX that our new EMUs system demonstrates, patient CECs to the to in indicated that providing funnel patients in quarter grow, the that continue features of will to or second an RNS even greater and and of volumes regard from and recognition believe benefit RNS Units benefits our of volumes implants We entirely With continues our systems currently rates. distinct that the number RNS to returned patients, corresponding belief yet growth improve, patient Monitoring could system. despite levels have Epilepsy not

field now through beginning RNS our this that The be training members to recently have field are are able of commercial as leadership expanded and more impact make of to to changes new team the our contribute commercial We organization. can made accelerated their have We fully moving our access and forward communicated, efforts. growth look therapy sales to cycle our previously overtime. to demonstrating the organization to expanding

partnership RNS earlier with we identifying Medical, our prospective in treatment DIXI additional patients journey. their Through educating are and

Additionally, benefits our navigators questions system. testify and to with to ambassadors address our into referral, come patient our patient campaigns nurse are our Medical through working through either to as RNS or funnel firsthand the of patients or that DIXI direct-to-consumer

clinician to the RNS benefit and system. lead will our believe as being well patient as are our programs more education patients from in able initial that We growth to implants our efforts contributing and marketing to

continued the results. durability have by to encouraged of be We our ongoing

outcomes As even reductions we the therapy studies, better in results in seizure years. trial, those seen three demonstrated have patients our than previously communicated not frequency at only clinical patient with achieving median has real-world regulatory RNS pivotal RNS XX% were exceptional

been reduction studies This not seen any has our seizure in from rate competitors. frequency published

In depression. published reinforced effects worse study patient had memory side patient substantially outcomes practice been fact, real-world and as concerns a recently of stimulation clinical clinical observed from routine that registry related in in and a populations trial and competitor's impairment such to non-responsive controlled demonstrated the

designed we efficiency RNS of management. therapy those also by data in third simplify launch working, improve our efforts, patient and enhancing are the updated delivery more efficient. excited to care, the to are line case quarter In software to make We of patient and tool with nSight

complete XXXX. important to population efforts epilepsy indicated remain generalized part track therapy, As to our NAUTILUS enrollment patients in into with the of to for quarter indication an our we of expect and plans our trial of expand systems expand on first RNS our the RNS in

also type cohort epilepsy. that or of feasibility We symptomatic generalized NIH-funded pleased of in we have are a to study completed implanting our our announce, patients LGS groundbreaking Lennox-Gastaut Syndrome in first

a have generalized XX% patients of drug-resistant approximately As epilepsy. reminder, epilepsy

Given for currently epilepsy. epilepsy easier are diagnosis that are this there is localization resection patients focal no approved cohort and appropriate patients generalized indication. ablation drug-resistant for neuromodulation options than therapies is for Few as of faster necessary with this exist not for and treatment not and typically

mission. into clinician business what a opportunity expanding part that our believe efforts therapy my an strategy and With development believe and forward. market epilepsy both our our first RNS that access I've expanding to be to important be site going to regard in weeks significant of meaningful, identified We be four will to and will our I generalized

has their As outside entire system target a to a patients. result RNS needed therapy provide approval NeuroPace functional that and option from of treatment them X population to much for expanded and site as opportunity epileptologist RNS of the will clinician CECs qualification requirements, a approximately neurosurgeons, FDA the PMA X,XXX of Level the the yes have the empowering now additional

have not for to referrals to Level therapy We who number been we believe X now community expansion, well Level of epilepsy to help enabling the have increased as that opportunity access CECs. with significant setting, patients potential the X would program this an as referred RNS in to a CECs qualification

developed and have process fully opportunity pilot this and take additional are strategy our working But the with begun A topic a number through the will we of efforts already around be commentary. market will targeting initial and future development sites. time accelerating of currently qualification

group RNS of our our to area significantly and close patient focus a a drug-resistant I'm doing functional be expect to expanded gap. epilepsy this for to opportunity part about this epileptologists through NeuroPace system and help in excited the offer core treatment neurosurgeons

want to going forward commercial and reiterate three-fold plans management. commitment on to on I and plan our to cash updated my growth, keep consistent strategy our of expansion you operating discipline revenue executing

I all solid contributions before his four quarter the team him ourselves would to past like many the over NeuroPace's performance over employees management brought review find from with the And our His efforts. we to execution I which the team, on detail, financial Board the of recognize Favet with for Mike rest along thank Finally, and the in the we NeuroPace of has footing, position years. of last the today.

strong turn I Rebecca? to Rebecca that, second results. review call quarter With over will financial our to now the

Rebecca Kuhn

you $XX.X $XX.X XX% compared of XXXX Thank in the of Mike. million for of Joel. to thank XXXX once second XXXX. XX% growth of to the NeuroPace's representing compared quarter million, you, quarter $XX.X million first second again revenue for was And the and sequentially quarter

Our by of RNS increased system our strong in patients. performance was primarily utilization driven physicians treating new by

X% quarter Medical had products, of approximately which we We from higher previously. to anticipated revenue anticipated and total continued revenue meaningful implant DIXI this revenue. than was Replacement was decline again as also

of first decline products. to primarily medical for which the period relative margin a of the second quarter The XXXX quarter than in and in gross mix products, with of inclusion XX.X% due XX.X% to our prior in core RNS year have the product in margin DIXI of was the lower to compared XXXX, was quarter margin second XX.X% Gross XXXX. gross the a change

units. more Total margin Over increase second expenses volumes period million time, will million, our and with $XX.X in of RNS the expect fixed the operating were we over XXXX prior as compared same increase is overhead of year. the gross generally quarter $XX.X in allocated

expenses second as Joel we our percentage both effectively SG&A. focusing the for appropriate quarter operating and to expenses revenue result management. of focus on a lower And the In were managing This XXXX, as cash forward. going allocation of R&D was our continue resource on of and said, plan continued operating

with focus the expense second the quarter these was compared increased projects outside services in reductions included from of in $X.X million period in studies, same XXXX largely our development product areas. prioritization R&D key of for The and R&D in decrease clinical of expense $X.X XXXX. in and resulting million,

$XX.X sales-based expenses, reduced year with was expenses, driven personnel products. with in Medical compared by the increase DIXI prior quarter general increases as our SG&A associated related The XXXX the insurance. were These in including in offset to SG&A was administrative CEO primarily second expense as in expenses well primarily million million period. compensation related outside by expenses an and services of increase distributing and and transition, partially $XX.X

XXXX compared in second Net XXXX, million the million from period. was second compared operations period. $XX XXXX. prior the the of the in quarter second year million second with $X.X year quarter in in expense We to $X.X the quarter recorded with the interest $X.X prior in was Loss million for of million quarter million $XX.X in loss $X.X compared of

short-term million. of as and cash was Our investments June XX, balance XXXX $XX.X

due borrowings on long-term principal $XX.X XXXX. full as XX, of totaled million June XXXX Our XX, September with the

Now our for the of remainder outlook turning XXXX. to

$XX our range from $XX $XX total are We expect and XXXX million, million increasing to up for million. and now guidance between $XX to revenue million revenue

implants products. We mainly and expect Medical growth in from sale of by that initial the driven will be revenue increases DIXI revenue

of of continue will generation devices substantially replacement expect We that to complete we the of by the all prior XXXX. the RNS end

sequentially decline growth XXXX the longer-lasting the in second implants devices life. newer battery expected a than at we the is anticipated reach a year. revenue implant introduced earlier With will quarter, Replacement become than their driver end when more replacement revenue anticipated rate replacement to begin to the faster of slightly in in

and increasing be XXXX between We gross now for XX% will XX% from are our gross XX% XX%. margin and our up guidance expect to margin

small may factors. Our experience proportion of revenue the revenue margins and variability due quarterly to fluctuations gross DIXI to overall other Medical in

We range non-cash to $X $XX expenses. million between XXXX continue to million to million operating for million including in expect expenses and $XX $XX

Our that cash quarter us to take we the from of our have second XXXX. our $X a Based was mid-XXXX. capital burn believe in burn million first burn of rate, XXXX reduction quarter current the of to in on $X.X sufficient cash cash million we substantial

Joel to would remarks. now to turn for Joel? closing I like call back over the

Joel Becker

sufficient the CECs Medical our partnership with of we in been year forward Cash group, very core to excited with momentum managed. is as to and us of to reserves an those to have epilepsy customer nicely updated and potential spending the initial contributing the about to look planned expand setting access you RNS Thank well clinical expanding horizon. that mid-XXXX. generalized of NAUTILUS on you, through the results remain development also and program drug-resistant our keeping believe epilepsy patient the take continuing implant in first the Overall, therapy to Building on and efforts. opportunity community on with prospect epileptologists CEC volume, expanded half strong with population those We efforts and have tremendous DIXI Rebecca. neurosurgeons with our strong capital I'm the group distribution advancing

of beyond. factors XXXX these remainder of XXXX All into position and well the NeuroPace for

questions. prepared would who I now operator our for will turn concludes Operator? the This call open the to like to the over remarks. call

Operator

comes ahead. Street Thank Instructions] from Please Markets. Your question first Capital Lake Frank you. with [Operator Takkinen go

Frank Takkinen

on extend Obviously, a Great. the out Thanks for quarter replacement. appointment we to back one the half backing even I'll X% was great I and the guys my after and taking questions feels guide. also had Congratulations contribution It gratitude hoping quarter. with start the Mike. like Joel could my great here from around you staying you and XXXX you be achieve out start conservative guys a with done have a of upside have talk what to forward second laid think half occur to bit the of nice and about little you guidance to prudent maybe But job about sources that guys outlook. could XXXX? the for as needs what

Joel Becker

raised rest question. and nearly the for Frank, the of Thanks we that for behalf on in I guidance that Thank guidance you, in – now about of guide nearly thanks QX the the the mentioning the first full guidance us by that position a of team. $X plus amount million it of we putting that beat were addition up that raising from which the by bears is rest in we're $X about year. we to for business year, having the the million, of us in again that's much quarter, think the the $X the talk puts When for by of And how year. again start thinking the million. And beat the at raised in $X plus million

second the implants consideration, mentioned the down mentioned, implants. in you of growth DIXI seen really replacement terms But it our as what mentioned the implants and takes that half in seen dynamics here that and that RNS, we of bears do in contribution somewhat account into I replacement year. rest growth the the do we've we we So in business as be to around expect year guidance the well as think from the the we've revenue for in good the initial of

that's driving So half it's of and really what are those the the on. we're second factors that year focused guidance,

Frank Takkinen

say some where I can in XX% and you my number out implant provide further probably performance helpful. source that plus trying goalpost I it's rather outperformance? you to just estimates That's break to any But DIXI? the you Maybe Okay. think at number quarter can can clarity on of initial looking the that that put not for some shifting understand one conservative you initial implants between just came intentionally but implants. a making out. initial breaking model the are and is around over realize to guys

Joel Becker

Yes.

product strength within think I by about we've different would in across centers. But the revenue different initial lines. is what was talked as The driven we're by we breaking performance utilization not had product implant out that contribution, existing primarily lines. I say revenue

contributions RNS it business was implants with initial And replacement implants. in strength as centers across that driving in accelerated good But mentioned. primarily increase really the some we've so existing

Frank Takkinen

Maybe And hoping we can then just call I one, maybe on just CEC. to downgrade how that to And Perfect. to that if last can that at four you've little some started requirement, it Okay. from Level change? epileptologist have a deeper be? see for my maybe – impact into bit not qualification take if us impactful was a already follow-up just a how

Joel Becker

Thanks Great. see that as for Frank. mission. opportunity well, we site for about expansion, it in here the We're NeuroPace's the question role advancing that excited playing for really

the of lives opportunity the focus sites as epilepsy are here we to patients our people to who transforming drug-resistant are epilepsy from and and in expand is treatment Our opportunity an see indicated gap patients help the close patients. for suffering who

an to XXX believe there States X,XXX centers. living here of and are then opportunity know and million to drug-resistant epileptologists is of X,XXX significant with trained expand You Level to we functional neurosurgeons. expanding people additional physicians are four the the would United population number XX,XXX those entire really associated to And stereotactically of from are About the centers of the that the and centers one approximately associated admitted X a Level that X.X with fraction but epilepsy. in of epileptologists

enlarged where build both So that stronger clinicians epilepsy opening as RNS the as gets well referral well, even CECs to community patients well. and as as broadly visible more as we an setting, therapy of the the ability we see in back community think group up the then pathways into

So ability be been clinicians who we've focused really opens to about it may those that that's limited eligible therapy had who two we to our X this have would the RNS CECs, think up out access and past And centers, Level really before. think in where to exciting. and – take when on patients you not

indications right more in of and in very so overall like patients are talk approval center that We'll for about requirements and then expand comprehensive that is CECs with see modeling through criteria patients here, we'll strategy. And – we're development access. the opportunity start lines NAUTILUS epilepsy RNS access we for But the expansion we at the that with therapy requirements site and think and the qualification market expand clinician lines that we're – our strategy third we commercial we again, doing nicely this of think with nicely very thirdly overall, and for to up, centers, future the work this with changing more that prong in this talk in the and how increase regulatory therapy calls. about clinician up trial all that see

Frank Takkinen

the half. a taking really strong congrats I’ll to questions. Thanks And start Great. first on stop the there. for

Joel Becker

Frank. you, Thank

Operator

Robbie with Your next question go Marcus Please JPMorgan. from comes ahead.

Unidentified Analyst

is Allen on for Robbie. [ph] this Hi,

okay? me hear you can check, to Just

Joel Becker

you. thank can We Allen,

Unidentified Analyst

quarter. Yes, factoring the sure, just good want moving Got those to this is back but to congrats on the it. Allen in issues make

the pre-pandemic quarter strong conservatism, talked how staffing, environment like looks procedure clearly, hadn't to it the I think continued due levels first improve returned some you of exactly look to to the when quarter. EMU, trends about back the but you have second after in to the had we

look we it quarter, strength? some quarter, was the when environment, out think basically So, fairly we up maybe really in one-time the operating should third drove normal that there as being to fourth quarter about catch a or

Joel Becker

the So, for I you on question think Alan, and the the team. of – thank for behalf congratulations

different we the well strengthened your strengthened. coming as seen we fully and going from when have patient don't So, through comprehensive we returned, saw epilepsy initial of monitoring the from again, across epilepsy as believe see do that volume strength And that Does DIXI. we yet, contributions really they've the volumes those implants from strength And answer centers pieces while business volumes, look We at really we have know the that consistently pipeline. believe our whether strengthening. has question? in units we that the

Unidentified Analyst

costs I you But criteria, for think additional do then, of need the know said your to the guess Thank you hold about for Yes, go that reiterating kind on the opportunity, the potential that will. see think really still when can target what's especially, mid-XXXX, you since to that's kind mid-XXXX to be if if you And to we needed opportunity? of the you're additional that you're so, guess When you cash target? potential after about spending you. able really yourself. I you will get I helpful. out one And going you through planning need expanded that

Joel Becker

It's great again, Allen. a Thanks, question.

we you this These the understand is of in really patient mean that this by team, team, that commercial patient trained while would procedure early these functional the commercial and the type stages technology. today. fully scope current within to and is state, are and are customers, I That It our neurosurgeons, are said, our and that of field functional interacting we specialties are on the with indicated sites remains our technology us our highly just that customer field here and expanded population. experienced remind epileptologists, currently call opportunity. As I and and in

and we and we'll we neurosurgeons, we're scope centers, education we customer focused additional education be and will be on more and so be opportunity so and really both potential the focus epileptologists And a as there. there we're be see that So the to and working into and it doing the we as see invest sure expanding working certainly But, discipline be investing that training on we'll how market expense the maintain sites with training make evaluating to on we and that will and expand and that will the management. while thoughtful doing needed responsibly, grow, operating targeting about, while develop grow. ability that so thoughtful we on

Operator

ahead. question comes next Your Chamberlain Wolfe Instructions] from go with Please Paige [Operator Research.

Paige Chamberlain

you We one my behind Hi, there's into strategic on I Thank questions. visibility taking DIXI. that understand being have for guys. more several patient reasons one the funnel. partnership

I you more the agreement So guess, and that into just been patient nine have this now end on any curious about what you're better? And manage I'm is learning? months this the identify partnership funnel helping patients you front

Joel Becker

for you question. thank It's Paige, question. great Hi, a your

process say, would as Let how base think this pleased few are say me as well as new collaboration we about our still that, we I months are early is integration it customer both a is with integrating relatively the current potential the into sales started. things how we but customers. have and with

pipeline. to get as the We our both ability current contributions as expansion work field as opportunities. both further positive as further DIXI with we're on well as continuing visibility revenue well up in opportunities team customer defining our have well to executing both and And closely those as with seen to

deeper, contribution well look but pipeline in the it's overall efforts. pleased we're as we've our we've as us that pleased We're early far. what so with current relatively the it's also to seen So still into seen with business, the how helping integration

Paige Chamberlain

off of jumping kind too. Thank one it. more Got that And then you.

changes there quarter. guys the some You force in to sales were the mentioned,

helpful if are And feeling the just just is overall and pull on about practice? for how behind how an all have field changes strategy? partnership of level, those team? like will the changing what lever could to guess share another you in looking you sales like field? I Obviously, what look but is kind the changes it's at any completeness motivations of Maybe the that then DIXI in some to So the

Rebecca Kuhn

Paige, Other quarter, in a of sales may had sales changes the we not in announced team. leadership with which our this confusion I'll this new the been have that, comment the about sales change team. we in months a of Rebecca. two had about There that. is VP have ago. bit We Sales, on than changes

XXXX. accelerated we recall, other our may there in in sales leadership than you changes earlier this not As teams But growth the were sales change quarter. in

commercial that organization remains size it year. been the same Our has the full field about for

Paige Chamberlain

Thank you. right. All

Operator

are this further proceed. questions no There at Please time.

Joel Becker

I'd in on drug the the who about of NeuroPace. the excited expand And we're our first on execution like thank of to you. We're generalized are call opportunities the NAUTILUS patient interest and your you two work progress study for and on and throughout year, clinical in pleased rest to We're to population the say and today, site future the recent with expansion Thank the all both indications with XXXX. focused study. the refractory epilepsy with quarters

conclude today's from you, operator. With focus of we'll epilepsy. call. to that, All people suffering with a on furthering mission that, NeuroPace transform the of lives Thank

Operator

this for you for and that We your call ask today. please disconnect your you participating conference gentlemen, concludes and Ladies thank lines.

NeuroPace (NPCE) 8 Aug 232023 Q2 Earnings call transcript