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NeuroPace (NasdaqGM:NPCE) Q3 2025 Earnings Call November 04, 2025 04:30 PM ET Speaker2Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the NeuroPace Q3 earnings call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, please press star then the number one on y ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number 001-40337 NEUROPACE, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or or ...

NeuroPace Reports Third Quarter 2025 Financial Results and Increases 2025 Revenue Guidance Reported record quarterly revenue of $27.4 million in Q3 2025 representing 30% growth Increased full-year 2025 revenue guidance to between $97 million and $98 million and gross margin guidance to between 76% and 77% Remains on track to submit NAUTILUS PMA Supplement to FDA for IGE indication expansion by year-end 2025 Mountain View, Calif. – November 4, 2025 – NeuroPace, Inc. (Nasdaq: NPCE), a medical device company f ...

This presentation may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified by words such as "aims," "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goal," "intends," "may," "plans," "possible," "potential," "seeks," "will" and variations of these words or similar expressions that are intended to identify forward-looking statements, although not all forward-looking s ...

Summary of NeuroPace Conference Call Company Overview - **Company**: NeuroPace (NPCE) - **Focus**: Development of implantable devices for treating drug-resistant epilepsy patients - **Key Product**: Responsive Neurostimulation (RNS) system, which monitors and tailors neurostimulation for individual patients [3][4] Market Size and Patient Demographics - **Epilepsy Patients in the U.S.**: Approximately 3.6 million diagnosed with epilepsy - **Drug-Resistant Patients**: About 1.2 million patients (one-third) do not respond satisfactorily to anti-seizure medications [5][6] - **Comprehensive Epilepsy Centers (CECs)**: 75,000 patients per year treated at level four CECs, with recent regulatory approval allowing RNS implantation in level three community settings [8][9] Competitive Landscape - **Focal Drug-Resistant Epilepsy**: 60% of drug-resistant patients have focal epilepsy; RNS is currently indicated for this group - **Generalized Drug-Resistant Epilepsy**: 40% of patients are generalized; NeuroPace is conducting the NAUTILUS trial to gain indications for this population [11][12] RNS Technology - **Unique Features**: RNS monitors seizure activity and provides stimulation only when needed, leading to better patient outcomes compared to other devices that operate on a fixed duty cycle [14][15] - **Clinical Data**: Median seizure reduction rates improved from 50-60% to over 80% post-approval, with low adverse event rates [17][21] Data Utilization and Partnerships - **Data Asset**: NeuroPace has 22 million individualized seizure records, which can be used for algorithm development and insights into brain physiology [19][20] - **Collaborations**: Partnerships with Rapport Therapeutics and UCB to utilize RNS data in clinical trials for new therapies [24] Project Care Initiative - **Objective**: Increase access to RNS by moving into community settings and educating healthcare professionals and patients [27][34] - **Progress**: High referral rates and total implants reported, with ongoing efforts to raise awareness about RNS [27][28] NAUTILUS Trial Update - **Trial Focus**: Evaluating RNS for idiopathic generalized epilepsy (IGE) patients, specifically those experiencing generalized tonic-clonic seizures (GTC) [37][38] - **Results**: Met primary safety endpoint; secondary endpoints showed nearly 80% reduction in GTC seizures at one year [40][41] - **Regulatory Engagement**: Ongoing discussions with the FDA regarding trial results and potential approval [44][49] Financial Outlook - **Growth Projections**: Anticipated growth of at least 20% over the next few years, with gross margins approaching 80% by 2026 [52][54] - **Cash Flow Breakeven**: Expected in 2027, with additional growth from expanded indications [53][54] Conclusion - **Overall Sentiment**: NeuroPace is optimistic about its growth trajectory, product pipeline, and the potential impact of its RNS technology on the epilepsy treatment landscape [55][56]

Company Performance - NeuroPace, Inc. reported a quarterly loss of $0.26 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.24, marking an earnings surprise of -8.33% [1] - The company posted revenues of $23.52 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 0.75% and showing an increase from $19.26 million in the same quarter last year [2] - Over the last four quarters, NeuroPace has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times as well [2] Stock Performance - NeuroPace shares have declined approximately 20.6% since the beginning of the year, contrasting with the S&P 500's gain of 8.4% [3] - The current consensus EPS estimate for the upcoming quarter is -$0.20 on revenues of $24.32 million, and for the current fiscal year, it is -$0.85 on revenues of $95.36 million [7] Industry Outlook - The Medical - Instruments industry, to which NeuroPace belongs, is currently ranked in the bottom 41% of over 250 Zacks industries, indicating potential challenges for stock performance [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact NeuroPace's stock performance [5]

Financial Data and Key Metrics Changes - The company reported record revenue of $23.5 million for Q2 2025, representing a 22% increase compared to $19.3 million in the prior year period [6][25]. - Gross margin was above 77%, with RNS gross margin exceeding 80%, reflecting strong operational discipline [6][9]. - Operating expenses, excluding one-time items, grew 13% year-over-year, significantly below the revenue growth rate [6][29]. Business Line Data and Key Metrics Changes - Revenue from the RNS System grew 16% in the quarter and 21% year-to-date in 2025, driven by increased sales and prescriber engagement [7][25]. - The company is winding down its distribution agreement with Dixie Medical, which is expected to phase out by the end of 2026 [26][29]. Market Data and Key Metrics Changes - The company is expanding access to RNS Therapy through new service sites and clinical indication expansion, contributing to the growth in prescribers and active accounts [5][6]. - Project CARE continues to drive growth by enabling referrals and implants in community settings, with sequential increases in site engagement and implant volumes [8][25]. Company Strategy and Development Direction - The company is focused on deepening adoption of RNS Therapy while expanding access through new clinical indications and service sites [5][6]. - The strategic direction includes enhancing the RNS platform with AI-powered tools and advancing clinical development programs [17][19]. - The company plans to continue engaging with CMS to advocate for improvements in reimbursement structures [20]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durability and trajectory of growth, raising full-year revenue guidance to a range of $94 million to $98 million [9][26]. - The company anticipates total gross margin to trend towards 80% over time as RNS volumes scale and lower-margin sales phase out [27][28]. - Management remains optimistic about the long-term growth potential of the RNS system, expecting to achieve cash flow breakeven by 2027 [34][47]. Other Important Information - The company completed a refinancing of its existing debt, enhancing financial flexibility and removing near-term debt maturity concerns [9][34]. - The post-approval study of the RNS system has shown compelling results, particularly in reducing generalized tonic-clonic seizures [11][12]. Q&A Session Summary Question: FDA submission strategy for IgE - The company plans to pursue an indication involving the totality of data across the entire population, demonstrating clinically meaningful treatment effects [40][41]. Question: Outlook for gross margin - Management indicated that the higher gross margin performance was encouraging, and while guidance implies a potential decline, it reflects a conservative approach [42][45]. Question: Dynamics with existing base and Project CARE - The company reported strong implant growth from Project CARE, with existing accounts contributing positively to implant volumes [51][53]. Question: Long-range plan and RNS growth - Management remains confident in achieving a 20% growth rate for the RNS business, even with the divestiture of Dixie revenue [84][89]. Question: Development of next-gen RNS offering - The next-generation platform is on track, with ongoing testing and characterization of key components meeting or exceeding expectations [96][98]. Question: Therapeutic partnerships - The company is actively pursuing collaborations, including a recent agreement with UCB, and sees potential for future partnerships to expand [99][100].

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements about the Company's future results, financial condition, and operations, identifiable by specific forward-looking terminology - This report contains forward-looking statements about the Company's future results, financial condition, and operations, identifiable by words such as "anticipate," "expect," "plan," and "will."[9](index=9&type=chunk) - These statements are based on current expectations and projections, but are subject to substantial risks and uncertainties detailed in the "Risk Factors" section"[10](index=10&type=chunk) - Key forward-looking statements cover areas like expected future growth, market potential, demand forecasting, market acceptance, reimbursement, third-party performance, regulatory developments, cash flow breakeven, R&D, product performance, sales and marketing impact, organizational culture, competition, economic conditions, and intellectual property"[11](index=11&type=chunk)[14](index=14&type=chunk) [Part I. Financial Information](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited interim condensed financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, prepared under GAAP and SEC rules for interim reporting, providing a snapshot of the company's financial position and performance for periods ended June 30, 2025 and 2024 [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $22,857 | $13,430 | $9,427 | 70.2% | | Short-term investments | $39,284 | $39,325 | $(41) | -0.1% | | Accounts receivable | $13,554 | $12,851 | $703 | 5.5% | | Inventory | $16,346 | $13,381 | $2,965 | 22.2% | | Total current assets | $93,742 | $81,339 | $12,403 | 15.2% | | Total assets | $106,114 | $94,647 | $11,467 | 12.1% | | Accounts payable | $4,721 | $2,954 | $1,767 | 59.8% | | Accrued liabilities | $9,740 | $9,787 | $(47) | -0.5% | | Total current liabilities | $17,143 | $15,156 | $1,987 | 13.1% | | Long-term debt | $58,616 | $59,525 | $(909) | -1.5% | | Total liabilities | $86,676 | $86,634 | $42 | 0.05% | | Total stockholders' equity | $19,438 | $8,013 | $11,425 | 142.6% | | Accumulated deficit | $(546,190) | $(530,950) | $(15,240) | 2.9% | [Condensed Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change | % Change | | :------------------------------------------------ | :----- | :----- | :----- | :------- | | Revenue | $23,520 | $19,256 | $4,264 | 22.1% | | Cost of goods sold | $5,388 | $5,122 | $266 | 5.2% | | Gross profit | $18,132 | $14,134 | $3,998 | 28.3% | | Sales and marketing expenses | $12,043 | $9,756 | $2,287 | 23.4% | | Research and development expenses | $6,845 | $6,065 | $780 | 12.9% | | General and administrative expenses | $6,068 | $4,543 | $1,525 | 33.6% | | Total operating expenses | $24,956 | $20,364 | $4,592 | 22.5% | | Loss from operations | $(6,824) | $(6,230) | $(594) | 9.5% | | Net loss and comprehensive loss | $(8,651) | $(7,514) | $(1,137) | 15.1% | | Net loss per share, basic and diluted | $(0.26) | $(0.26) | $0.00 | 0.0% | Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change | % Change | | :------------------------------------------------ | :----- | :----- | :----- | :------- | | Revenue | $46,044 | $37,380 | $8,664 | 23.2% | | Cost of goods sold | $10,570 | $9,903 | $667 | 6.7% | | Gross profit | $35,474 | $27,477 | $7,997 | 29.1% | | Sales and marketing expenses | $23,046 | $19,789 | $3,257 | 16.5% | | Research and development expenses | $14,285 | $11,849 | $2,436 | 20.6% | | General and administrative expenses | $10,114 | $9,614 | $500 | 5.2% | | Total operating expenses | $47,445 | $41,252 | $6,193 | 15.0% | | Loss from operations | $(11,971) | $(13,775) | $1,804 | -13.1% | | Net loss and comprehensive loss | $(15,240) | $(16,439) | $1,199 | -7.3% | | Net loss per share, basic and diluted | $(0.47) | $(0.58) | $0.11 | -19.0% | [Condensed Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders%27%20Equity) - Total Stockholders' Equity increased from **$8,013 thousand** as of January 1, 2025, to **$19,438 thousand** as of June 30, 2025[22](index=22&type=chunk) - Key changes in H1 2025 included a net loss of **$(15,240) thousand**, **$69,384 thousand** from a follow-on offering, a **$(49,546) thousand** repurchase of common stock, and **$5,854 thousand** in stock-based compensation[22](index=22&type=chunk) - Total Stockholders' Equity decreased from **$20,654 thousand** as of January 1, 2024, to **$9,885 thousand** as of June 30, 2024, primarily due to net losses[24](index=24&type=chunk) [Condensed Statements of Cash Flows](index=9&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change | % Change | | :------------------------------------ | :----- | :----- | :----- | :------- | | Net cash used in operating activities | $(9,568) | $(11,428) | $1,860 | -16.3% | | Net cash (used in) provided by investing activities | $(205) | $5,633 | $(5,838) | -103.6% | | Net cash provided by financing activities | $19,200 | $581 | $18,619 | 3204.7% | | Net increase (decrease) in cash and cash equivalents | $9,427 | $(5,214) | $14,641 | -280.8% | | Cash, cash equivalents and restricted cash, end of period | $22,979 | $12,966 | $10,013 | 77.2% | - Net cash provided by financing activities significantly increased in H1 2025, driven by **$69.7 million** from a follow-on offering and **$58.6 million** from the MidCap Term Loan, partially offset by a **$49.5 million** stock repurchase and **$60.5 million** CRG Term Loan repayment[27](index=27&type=chunk) [Notes to Unaudited Interim Condensed Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Interim%20Condensed%20Financial%20Statements) [1. The Company](index=11&type=section&id=1.%20The%20Company) - NeuroPace, Inc. is a medical device company focused on treating drug-resistant focal epilepsy with its RNS System, commercialized in the U.S. since **2014**[32](index=32&type=chunk) - The At-the-Market (ATM) equity offering program was terminated in February 2025, with **$38.3 million** remaining unused[33](index=33&type=chunk) - A follow-on offering in February 2025 generated **$69.7 million** in net proceeds, with **$49.5 million** used to repurchase shares from KCK Ltd[34](index=34&type=chunk) - As of June 30, 2025, the Company had an accumulated deficit of **$546.2 million** and **$62.1 million** in cash, cash equivalents, and short-term investments[35](index=35&type=chunk) - Management believes current liquidity will fund operations for at least the next **12 months**, and the Company was in compliance with all MidCap Credit Agreement covenants as of June 30, 2025, with trailing 12-month RNS System revenue of **$71.6 million**[36](index=36&type=chunk)[37](index=37&type=chunk)[39](index=39&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - The unaudited interim condensed financial statements conform to GAAP and SEC rules for interim reporting, with certain disclosures condensed or omitted[40](index=40&type=chunk)[41](index=41&type=chunk) - Estimates, particularly for inventory provisions, require significant judgment, and actual results may materially differ[42](index=42&type=chunk) - The Company's contract liabilities (deferred revenue) were **$0.7 million** as of June 30, 2025, with **$1.6 million** in remaining performance obligations expected to be recognized by March 2026[49](index=49&type=chunk)[50](index=50&type=chunk) - NIH grant funding for Lennox-Gastaut Syndrome research provided **$0.1 million** in H1 2025, a decrease from **$1.0 million** in H1 2024[51](index=51&type=chunk)[53](index=53&type=chunk) - The Company is evaluating the impact of new accounting pronouncements, including ASU 2023-09 (Income Tax Disclosures), ASU 2024-03 (Expense Disaggregation), and ASU 2025-05 (Credit Losses for Accounts Receivable)[57](index=57&type=chunk)[58](index=58&type=chunk)[61](index=61&type=chunk) [3. Fair Value Measurements](index=15&type=section&id=3.%20Fair%20Value%20Measurements) Financial Assets at Fair Value (in thousands) | Asset Type | June 30, 2025 | December 31, 2024 | | :------------------------------------------------ | :-------------- | :---------------- | | Money market funds, included in cash and cash equivalents | $21,660 | $13,349 | | Fixed income mutual fund, included in short-term investments | $39,284 | $39,325 | | Total | $60,944 | $52,674 | - All financial assets measured at fair value are classified as **Level 1**, based on quoted prices in active markets[64](index=64&type=chunk)[67](index=67&type=chunk) - The Company recognized less than **$0.1 million** in unrealized losses from short-term investments in H1 2025, compared to **$0.1 million** in unrealized gains in H1 2024[69](index=69&type=chunk) [4. Balance Sheet Components](index=16&type=section&id=4.%20Balance%20Sheet%20Components) Inventory (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :--------------- | :-------------- | :---------------- | :----- | :------- | | Raw materials | $6,314 | $4,248 | $2,066 | 48.6% | | Work-in-process | $1,501 | $1,778 | $(277) | -15.6% | | Finished goods | $8,531 | $7,355 | $1,176 | 16.0% | | Total | $16,346 | $13,381 | $2,965 | 22.2% | Property and Equipment, net (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :------------------------------------ | :-------------- | :---------------- | :----- | :------- | | Machinery, equipment, furniture and fixtures | $4,862 | $4,659 | $203 | 4.4% | | Computer equipment and software | $1,932 | $1,932 | $0 | 0.0% | | Leasehold improvements | $2,435 | $2,435 | $0 | 0.0% | | Less: Accumulated depreciation | $(8,073) | $(7,974) | $(99) | 1.2% | | Property and equipment, net | $1,156 | $1,052 | $104 | 9.9% | Accrued Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------- | :-------------- | :---------------- | :----- | :------- | | Payroll and related expenses | $7,082 | $8,178 | $(1,096) | -13.4% | | Inventory purchases | $665 | $575 | $90 | 15.6% | | Professional fees | $562 | $50 | $512 | 1024.0% | | Interest payable | $442 | $0 | $442 | N/A | | Other | $989 | $984 | $5 | 0.5% | | Total accrued liabilities | $9,740 | $9,787 | $(47) | -0.5% | [5. Commitments and Contingencies](index=17&type=section&id=5.%20Commitments%20and%20Contingencies) - The Company's non-cancelable operating lease for its Mountain View facilities was amended in August 2022 to extend through June 2030, with an option to extend to June 2035[75](index=75&type=chunk) Maturities of Operating Lease Liabilities as of June 30, 2025 (in thousands) | Year | Amount | | :------------------------ | :----- | | 2025 (remaining six months) | $1,471 | | 2026 | $3,031 | | 2027 | $3,122 | | 2028 | $3,215 | | 2029 | $3,312 | | Thereafter | $1,705 | | Total undiscounted lease payments | $15,856 | | Total operating lease liability | $12,903 | - The exclusive distribution agreement with DIXI Medical USA Corp. for Stereo EEG products expires on September 30, 2025, and the Company notified DIXI Medical of its intent not to renew[80](index=80&type=chunk) - The Company is not involved in any pending legal proceedings that are believed to have a material adverse effect on its business, financial condition, or cash flows[85](index=85&type=chunk) [6. Debt](index=19&type=section&id=6.%20Debt) - The CRG Term Loan, initially **$50.0 million** borrowed in September 2020, was fully repaid in June 2025 for **$61.9 million**, including principal, interest, and a reduced backend fee of **$4.5 million (8%)**[88](index=88&type=chunk)[96](index=96&type=chunk) - A **$0.5 million** loss on debt extinguishment was recorded due to the CRG Term Loan repayment[96](index=96&type=chunk) - In June 2025, the Company entered into the MidCap Credit Agreement, securing a **$60.0 million** term loan (MidCap Term Loan) and a **$15.0 million** revolving credit facility (Revolver), maturing June 4, 2030[97](index=97&type=chunk)[98](index=98&type=chunk) - The MidCap Term Loan bears interest at **30-day SOFR plus 5.5% (2.0% SOFR floor)** and is subject to prepayment premiums and a **2%** exit fee[98](index=98&type=chunk)[99](index=99&type=chunk) Future Minimum Payments for MidCap Term Loan as of June 30, 2025 (in thousands) | Year | Amount | | :------------------------ | :----- | | 2025 (remaining six months) | $2,945 | | 2026 | $6,124 | | 2027 | $6,124 | | 2028 | $6,140 | | 2029 | $6,124 | | Thereafter | $64,244 | | Total | $91,701 | [7. Common Stock](index=21&type=section&id=7.%20Common%20Stock) - The Company is authorized to issue **200,000,000 shares** of **$0.001** par value common stock[104](index=104&type=chunk) - No dividends were declared as of June 30, 2025, or December 31, 2024[104](index=104&type=chunk) Common Stock Reserved for Future Issuance (Shares) | Plan | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :-------------- | :---------------- | | Shares available for future grant (2021 Plan) | 2,690,819 | 2,201,012 | | Outstanding options (2021 Plan) | 2,284,737 | 1,987,784 | | Outstanding options (2023 Inducement Plan) | 380,424 | 380,424 | | Outstanding restricted stock units (2021 Plan) | 1,590,869 | 1,480,338 | | Common stock available for ESPP | 710,239 | 475,416 | | Total | 7,657,088 | 6,524,974 | [8. Stock-Based Incentive Compensation Plans](index=21&type=section&id=8.%20Stock-Based%20Incentive%20Compensation%20Plans) Stock Option Activity (Six Months Ended June 30, 2025) | Metric | Number of Shares | Weighted Average Exercise Price | | :-------------------------- | :--------------- | :------------------------------ | | Balances as of January 1, 2025 | 2,368,208 | $6.01 | | Granted | 474,472 | $11.16 | | Exercised | (122,972) | $4.32 | | Cancelled | (54,547) | $11.62 | | Balances at June 30, 2025 | 2,665,161 | $6.89 | | Vested and exercisable at June 30, 2025 | 1,680,932 | $5.18 | - The Employee Stock Purchase Plan (ESPP) had **710,239 shares** available for purchase as of June 30, 2025, and issued **66,627 shares** in H1 2025[110](index=110&type=chunk) Restricted Stock Units Activity (Six Months Ended June 30, 2025) | Metric | Number of Shares Underlying Outstanding Restricted Stock Units | Weighted Average Grant Date Fair Value | | :-------------------------- | :------------------------------------------------ | :------------------------------------- | | Unvested, January 1, 2025 | 1,480,338 | $8.92 | | Granted | 717,958 | $12.18 | | Vested | (515,459) | $9.48 | | Cancelled | (91,968) | $8.93 | | Unvested, June 30, 2025 | 1,590,869 | $10.21 | Total Stock-Based Compensation Expense (in thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total stock-based compensation | $3,228 | $2,548 | $5,854 | $5,088 | - Total unrecognized stock-based compensation expense was **$20.5 million** as of June 30, 2025, to be amortized over a weighted average remaining period of **2.6 years**[113](index=113&type=chunk) [9. Income Taxes](index=23&type=section&id=9.%20Income%20Taxes) - No federal or state income tax provision or benefit was recorded due to net losses incurred since inception, with net deferred tax assets fully offset by a valuation allowance[115](index=115&type=chunk) - The Company is evaluating the effects of the recently signed One Big Beautiful Bill Act (OBBBA) but does not expect a material impact on current year financial statements[117](index=117&type=chunk)[119](index=119&type=chunk) [10. Net Loss per Share Attributable to Common Stockholders](index=24&type=section&id=10.%20Net%20Loss%20per%20Share%20Attributable%20to%20Common%20Stockholders) Net Loss per Share Attributable to Common Stockholders (Basic and Diluted) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(0.26) | $(0.26) | | Six Months Ended June 30 | $(0.47) | $(0.58) | - Potentially dilutive securities were excluded from the diluted net loss per share calculation due to the Company's net loss, resulting in basic and diluted net loss per share being the same[120](index=120&type=chunk) [11. Segment Information](index=24&type=section&id=11.%20Segment%20Information) - The Company operates as one operating and reportable segment, with all long-lived assets based in the United States[121](index=121&type=chunk) - Nearly all revenue is generated from sales in the United States, with **$0.4 million** in non-U.S. revenue for the six months ended June 30, 2025[121](index=121&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis covers the Company's financial condition and results of operations, including revenue, expenses, liquidity, capital resources, accounting policies, JOBS Act impact, RNS System, R&D, and recent financing activities [Overview](index=25&type=section&id=Overview) - NeuroPace's RNS System is the only commercially available brain-responsive neuromodulation system for drug-resistant focal epilepsy, showing **82.0% median seizure reduction** at **36 months** post-implant[124](index=124&type=chunk)[125](index=125&type=chunk) - The NAUTILUS study for generalized epilepsy met its primary safety endpoint, and the Company plans to file for expanded FDA indication in H2 2025[126](index=126&type=chunk) - As of June 30, 2025, the Company had an accumulated deficit of **$546.2 million** and **$62.1 million** in cash, cash equivalents, and short-term investments, expecting continued net losses in the near term[129](index=129&type=chunk)[130](index=130&type=chunk) [Collaborations and Partnerships](index=26&type=section&id=Collaborations%20and%20Partnerships) - The exclusive distribution agreement with DIXI Medical for Stereo EEG products will expire on September 30, 2025, with the Company notifying its intent not to renew in March 2025[132](index=132&type=chunk) - The collaboration agreement with Rapport Therapeutics, Inc. to leverage RNS System data for biomarker monitoring in clinical trials was extended through the end of 2027[133](index=133&type=chunk)[134](index=134&type=chunk) [Factors Affecting Our Performance](index=27&type=section&id=Factors%20Affecting%20Our%20Performance) - Commercial success depends on increasing clinician, hospital, and patient awareness and acceptance of the RNS System, requiring significant investment in training, education, and marketing[135](index=135&type=chunk) - The Company aims to improve gross margin by leveraging manufacturing capacity to spread fixed costs over increased RNS System production volume and investing in efficiencies[138](index=138&type=chunk) - Continued investment in R&D, including clinical studies and AI-enabled software tools, is planned to improve the RNS System and expand its addressable market[139](index=139&type=chunk) - Gross margin variability is expected due to the extended replacement cycle of newer RNS devices and changes in the product mix between RNS System and DIXI Medical products[141](index=141&type=chunk) [Components of Our Results of Operations](index=28&type=section&id=Components%20of%20Our%20Results%20of%20Operations) - Revenue is primarily derived from RNS System sales to hospitals, fluctuating with procedure volume and mix, and also includes sales of DIXI Medical products (expiring Sept 2025) and services to Rapport[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - Cost of goods sold includes materials, personnel, manufacturing overhead, inventory adjustments, and DIXI product costs; gross margin is expected to increase long-term with production volume[146](index=146&type=chunk)[148](index=148&type=chunk) - Operating expenses (sales and marketing, R&D, general and administrative) are expected to increase in absolute dollars due to additional personnel, market penetration efforts, new product development, and public company compliance[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) [Comparison of the Three Months Ended June 30, 2025 and 2024](index=30&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) - Revenue increased by **$4.3 million (22%)** to **$23.5 million**, driven by higher RNS System unit sales and DIXI Medical product sales[156](index=156&type=chunk) - Gross margin improved from **73.4%** to **77.1%**, primarily due to lower fixed costs per RNS System unit from increased production volume[157](index=157&type=chunk) - Sales and marketing expenses rose by **$2.3 million (23%)** to **$12.0 million**, mainly due to increased personnel-related expenses and sales/marketing costs[158](index=158&type=chunk)[159](index=159&type=chunk) - Net loss increased by **$1.1 million (15%)** to **$(8.7) million**, partly due to a **$0.5 million** loss on extinguishment of the CRG Term Loan[155](index=155&type=chunk)[163](index=163&type=chunk) [Comparison of the Six Months Ended June 30, 2025 and 2024](index=31&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) - Revenue increased by **$8.7 million (23%)** to **$46.0 million**, driven by higher RNS System unit sales and DIXI Medical product sales[165](index=165&type=chunk) - Gross margin improved from **73.5%** to **77.0%**, primarily due to lower fixed costs per RNS System unit from increased production volume[166](index=166&type=chunk) - Sales and marketing expenses increased by **$3.3 million (16%)** to **$23.0 million**, mainly due to higher personnel-related expenses and increased sales/marketing costs[167](index=167&type=chunk) - Net loss decreased by **$1.2 million (-7%)** to **$(15.2) million**, despite increased R&D expenses due to higher personnel costs and reduced grant funds[164](index=164&type=chunk)[168](index=168&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2025, the Company had **$62.1 million** in cash, cash equivalents, and short-term investments, with **$58.6 million** outstanding under the MidCap Term Loan[172](index=172&type=chunk) - A February 2025 follow-on offering generated **$69.7 million** in net proceeds, with **$49.5 million** used to repurchase shares from KCK Ltd[173](index=173&type=chunk) - The At-the-Market (ATM) equity program was terminated in February 2025, after raising **$0.2 million** net proceeds in January 2025[174](index=174&type=chunk) - The CRG Term Loan was fully repaid in June 2025 using proceeds from the new MidCap Term Loan[178](index=178&type=chunk) - The MidCap Term Loan, a **$60.0 million** facility, was secured in June 2025, maturing June 4, 2030, and includes a **$15.0 million** revolving credit facility[179](index=179&type=chunk)[180](index=180&type=chunk) - Future minimum payments for the MidCap Term Loan total **$91.7 million**, with **$6.1 million** due within twelve months, and operating lease liabilities total **$15.9 million**[183](index=183&type=chunk) - The Company expects existing cash to fund operations for at least **12 months** but may require additional financing for continued growth and R&D[185](index=185&type=chunk)[186](index=186&type=chunk) Summary Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(9,568) | $(11,428) | | Net cash (used in) provided by investing activities | $(205) | $5,633 | | Net cash provided by financing activities | $19,200 | $581 | | Net increase (decrease) in cash and cash equivalents | $9,427 | $(5,214) | [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There were no material changes to the Company's critical accounting policies during the three months ended June 30, 2025[196](index=196&type=chunk) [JOBS Act Accounting Election](index=36&type=section&id=JOBS%20Act%20Accounting%20Election) - The Company is an "emerging growth company" and has elected to use the extended transition period for complying with new or revised accounting standards, which may affect comparability with other public companies[197](index=197&type=chunk) - The Company will cease to be an emerging growth company by December 31, 2026, or earlier if certain revenue or market capitalization thresholds are met[198](index=198&type=chunk) [Recent Accounting Pronouncements](index=37&type=section&id=Recent%20Accounting%20Pronouncements) - Refer to Note 2 of the unaudited interim condensed financial statements for additional information on recent accounting pronouncements[201](index=201&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's market risk exposure, primarily interest rate sensitivity, noting that short-term, low-risk financial instruments would not be materially affected by a 10% interest rate change, and inflation or exchange rate fluctuations have not significantly impacted operations - As of June 30, 2025, the Company held **$62.1 million** in cash, cash equivalents, and short-term investments[202](index=202&type=chunk) - An immediate **10%** change in interest rates would not materially affect the fair value of these financial instruments due to their short-term maturities and low-risk profile[202](index=202&type=chunk) - The Company does not believe that inflation, interest rate changes, or exchange rate fluctuations have had a significant impact on its results of operations for any periods presented[203](index=203&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[205](index=205&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[207](index=207&type=chunk) [Part II. Other Information](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not currently involved in any material legal proceedings expected to adversely affect its business, financial position, results of operations, or cash flows - The Company is not currently a party to any material legal proceedings that, if determined adversely, would have a material adverse effect on its business, financial position, results of operations, or cash flows[210](index=210&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks and uncertainties that could materially affect the Company's business, financial condition, and results of operations, covering RNS System reliance, market acceptance, supply chain, competition, regulatory compliance, data privacy, intellectual property, financial performance, and stock ownership [Summary Risk Factors](index=41&type=section&id=Summary%20Risk%20Factors) - The Company relies on its RNS System as its primary revenue source, and failure to market it effectively or expand market share would negatively impact sales and financial results[213](index=213&type=chunk) - Commercial success depends on significant market acceptance and increasing the number of patients treated, both within Level 4 comprehensive epilepsy centers (CECs) and in the community[213](index=213&type=chunk) - The Company is vulnerable to supply shortages and price fluctuations due to its dependence on a limited number of single-source suppliers for manufacturing its products[213](index=213&type=chunk) - Inadequate or unfavorable reimbursement for RNS System procedures and ongoing patient care could diminish sales or affect profitability[213](index=213&type=chunk) - The planned expiration of the exclusive distribution agreement with DIXI Medical will result in a loss of associated revenue, potentially affecting revenue growth and the ability to achieve cash flow breakeven[215](index=215&type=chunk) [Risks related to operational, commercial and manufacturing matters](index=42&type=section&id=Risks%20related%20to%20operational%2C%20commercial%20and%20manufacturing%20matters) - The Company's business primarily depends on successfully marketing its RNS System, currently indicated only for adults with drug-resistant focal epilepsy in the U.S., and expanding its adoption in CECs and community settings[214](index=214&type=chunk)[216](index=216&type=chunk) - Manufacturing operations are subject to FDA's Quality System Regulation (QSR); non-compliance or disruptions (e.g., supply chain issues, equipment malfunction) could harm the business[226](index=226&type=chunk)[227](index=227&type=chunk) - Reliance on a limited number of single-source suppliers for critical RNS System components makes the Company vulnerable to supply shortages, price fluctuations, and quality issues[230](index=230&type=chunk)[231](index=231&type=chunk) - Competition from other treatment options (ablative/resective surgery, VNS, DBS) and larger, well-capitalized companies poses a significant risk to sales and market share[240](index=240&type=chunk)[241](index=241&type=chunk) - Delays or inability to obtain expanded FDA labeling for generalized epilepsy and pediatric focal epilepsy, or delays in FDA reviews due to staffing changes, could harm growth potential[263](index=263&type=chunk)[265](index=265&type=chunk) [Risks related to government regulation and our industry](index=54&type=section&id=Risks%20related%20to%20government%20regulation%20and%20our%20industry) - Failure to comply with U.S. federal and state healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA) could lead to substantial criminal, civil, and administrative penalties, exclusion from federal programs, and reputational harm[270](index=270&type=chunk)[271](index=271&type=chunk)[274](index=274&type=chunk) - Regulatory compliance is expensive, complex, and uncertain; non-compliance with FDA regulations (e.g., QSR, PMA process) could result in enforcement actions, product recalls, and delays in approvals[279](index=279&type=chunk)[281](index=281&type=chunk)[287](index=287&type=chunk) - Modifications to products may require new FDA clearances or approvals; disagreement with the FDA on such requirements could lead to recalls or cessation of marketing[293](index=293&type=chunk)[295](index=295&type=chunk) - Healthcare reform initiatives (e.g., OBBBA, Inflation Reduction Act) and other legislative proposals could limit product pricing, coverage, and reimbursement, adversely affecting business and financial condition[301](index=301&type=chunk)[302](index=302&type=chunk) - Clinical studies for label expansion or new products may be delayed, suspended, or terminated due to various factors, increasing expenses and delaying market access[307](index=307&type=chunk)[308](index=308&type=chunk) [Risks related to privacy, information technology and cybersecurity](index=63&type=section&id=Risks%20related%20to%20privacy%2C%20information%20technology%20and%20cybersecurity) - The Company's processing of sensitive and personal information subjects it to stringent and evolving data privacy and security laws (e.g., CCPA, EU GDPR), contractual obligations, and industry standards[313](index=313&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) - Failure to comply with data privacy and security obligations could lead to significant costs, liabilities, investigations, fines, litigation, and reputational harm[313](index=313&type=chunk)[323](index=323&type=chunk) - Disruptions in IT systems or data (e.g., breaches, ransomware, unauthorized access) could result in unauthorized use/disclosure of sensitive information, fraudulent activity, and adverse consequences including regulatory actions and reputational damage[324](index=324&type=chunk)[327](index=327&type=chunk)[330](index=330&type=chunk) - The use of AI/ML technologies in product development and future iterations presents privacy and security risks, subject to increasing regulation and scrutiny, potentially leading to biased decisions or competitive disadvantages[319](index=319&type=chunk)[343](index=343&type=chunk) [Risks related to our intellectual property](index=68&type=section&id=Risks%20related%20to%20our%20intellectual%20property) - The Company's success depends on obtaining, maintaining, protecting, enforcing, and defending patent and other intellectual property (IP) protection for its RNS System and other products[348](index=348&type=chunk) - Changes in patent laws or their interpretation, or failure to successfully prosecute patent applications, could diminish IP protection, allowing competitors to commercialize similar products[349](index=349&type=chunk)[352](index=352&type=chunk) - Patents could be found invalid or unenforceable if challenged in court or administrative bodies, leading to loss of exclusive rights or inability to commercialize products[358](index=358&type=chunk)[359](index=359&type=chunk) - Risk of patent or other IP litigation, which can be costly, divert management attention, require payment of damages, or prevent marketing of products[360](index=360&type=chunk)[361](index=361&type=chunk) - The inability to protect the confidentiality of trade secrets and other proprietary information could harm the business and competitive position[395](index=395&type=chunk)[397](index=397&type=chunk)[399](index=399&type=chunk) [Risks related to financial matters](index=82&type=section&id=Risks%20related%20to%20financial%20matters) - The Company has a history of net losses and expects to continue incurring losses; inability to achieve or sustain profitability could negatively impact stock value[404](index=404&type=chunk) - Future capital requirements are significant, and additional funding may be needed but might not be available on acceptable terms, leading to dilution or restrictive debt covenants[405](index=405&type=chunk)[416](index=416&type=chunk) - The MidCap Term Loan contains restrictive and financial maintenance covenants; non-compliance could lead to an event of default, requiring immediate repayment and harming the business[406](index=406&type=chunk) - The planned expiration of the DIXI Medical distribution agreement will result in a loss of associated revenue, potentially affecting revenue growth, cash flow breakeven, and long-range revenue growth[407](index=407&type=chunk) - The Company's ability to use its net operating losses (NOLs) to offset future taxable income may be subject to limitations due to ownership changes or statutory/regulatory changes[417](index=417&type=chunk) [Risks related to ownership of our common stock](index=89&type=section&id=Risks%20related%20to%20ownership%20of%20our%20common%20stock) - Future equity or debt financings could lead to immediate dilution for existing stockholders and a decline in stock price[434](index=434&type=chunk) - Sales of a substantial number of common stock shares in the public market or the perception of such sales could depress the market price[435](index=435&type=chunk) - Concentration of ownership among executive officers, directors, and principal stockholders (approximately **57.5%**) may prevent new investors from influencing significant corporate decisions[438](index=438&type=chunk) - The Company's stock price has been volatile and may continue to fluctuate due to various factors, including financial performance, regulatory changes, and general economic conditions[439](index=439&type=chunk)[440](index=440&type=chunk) - Provisions in corporate charter documents and Delaware law could make an acquisition more difficult and prevent attempts by stockholders to replace or remove current management[447](index=447&type=chunk)[449](index=449&type=chunk) [General risk factors](index=93&type=section&id=General%20risk%20factors) - Unstable market and economic conditions, including global volatility, inflation, interest rate changes, and geopolitical conflicts, may have serious adverse consequences on the Company's business, financial condition, and share price[456](index=456&type=chunk)[457](index=457&type=chunk) - Business disruptions from natural or man-made disasters, or public health crises, could seriously harm future revenue and financial condition and increase costs, especially given the single manufacturing facility in an earthquake-prone area[458](index=458&type=chunk) - Litigation and other legal proceedings are inherently unpredictable, costly, and could negatively impact the Company's reputation, financial condition, and divert management attention[459](index=459&type=chunk)[460](index=460&type=chunk)[461](index=461&type=chunk) - Failure to maintain proper and effective internal control over financial reporting could negatively impact investor confidence and the value of common stock[466](index=466&type=chunk)[467](index=467&type=chunk) - Partnering with or acquiring other businesses could require significant management attention, disrupt business, dilute stockholder value, and harm results of operations[469](index=469&type=chunk)[470](index=470&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=96&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the period, and net proceeds from the April 2021 IPO were used for general corporate purposes as planned - There were no unregistered sales of equity securities during the period[471](index=471&type=chunk) - The net proceeds of **$105.5 million** from the April 2021 initial public offering have been used for general corporate purposes, including cash used in operations and capital expenditures, with no material change in planned use[472](index=472&type=chunk)[473](index=473&type=chunk) [Item 3. Defaults Upon Senior Securities](index=97&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period - This item is not applicable[475](index=475&type=chunk) [Item 4. Mine Safety Disclosures](index=98&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period - This item is not applicable[476](index=476&type=chunk) [Item 5. Other Information](index=98&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, modified, or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans or "non-Rule 10b5-1 trading arrangement" during the quarter ended June 30, 2025[477](index=477&type=chunk) [Item 6. Exhibits](index=99&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including corporate governance documents, employment agreements, debt agreements, and certifications - The exhibits include corporate governance documents (Amended and Restated Certificate of Incorporation, Bylaws), employment agreements (Separation Agreement, Offer Letter), debt agreements (Credit, Security and Guaranty Agreement), and certifications (Principal Executive Officer, Principal Financial Officer)[479](index=479&type=chunk) - Schedules and exhibits to the Credit, Security and Guaranty Agreement have been omitted in accordance with Rule 601(a)(5) of Regulation S-K[480](index=480&type=chunk) [Signatures](index=100&type=section&id=Signatures) This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its submission by NeuroPace, Inc.'s President and CEO, and CFO - The report was duly signed on August 12, 2025, by Joel Becker, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer[483](index=483&type=chunk)[484](index=484&type=chunk)