NeuroPace's Q3 2025: Contradictions Emerge on FDA Strategy, Growth Plans, Margins, and Market Expansion

Date of Call: November 4, 2025

Financials Results

• Revenue: $27.4M in Q3 2025, up 30% YOY (prior Q3 2024 $21.1M)
• Gross Margin: 77.4% in Q3 2025, compared to 73.2% in Q3 2024 and 77.1% in Q2 2025
• Operating Margin: Loss from operations of $2.6M in Q3 2025, improved vs loss of $4.2M YOY and loss of $6.8M sequentially

Guidance:

• Full-year revenue raised to $97M–$98M (21%–23% YoY; prior $94M–$98M)
• Full-year gross margin raised to 76%–77% (prior 75%–76%)
• Q4 RNS revenue expected $20M–$21M; DIXI contribution ~ $3M in Q4 and company expects to be substantially done with DIXI by end‑2025 (wind‑down extends to Q1 2026)
• Service revenue ~ $750k in Q4
• Full-year operating expenses revised to $94M–$95M; sales & marketing $47M–$48M; R&D ≈ $28M; G&A ≈ $19M
• Interest expense ≈ $8M and interest income ≈ $2.5M for FY2025; cash & short-term investments $60M as of 9/30/25

Business Commentary:

* Record Revenue and Growth in RNS System: - NeuroPace reported record revenue of $27.4 million for Q3, representing 30% year-over-year growth compared to $21.1 million in the prior year quarter. - The growth was primarily driven by a 31% year-over-year increase in RNS revenue, broad-based adoption across geographies, and enhanced commercial leadership.

• Positive EBITDA and Operating Leverage:
• NeuroPace achieved positive adjusted EBITDA for the first time in its history, marking a significant milestone.

• This improvement was due to disciplined expense management, consistent mix improvement, and increased efficiency in both commercial and manufacturing operations.

• Clinical and Product Development Initiatives:

• The company had a productive pre-submission meeting with the FDA regarding the NAUTILUS study, which supports the safety and effectiveness profile for a favorable benefit-risk assessment in the highly underserved population.

• Progress in pediatric indication development, leveraging real-world evidence, is aimed at expanding into the pediatric patient population, aligning the data set and protocol with FDA requirements.

• Enhanced Partnerships and Data Utilization:

• NeuroPace is leveraging its proprietary iEEG data and AI development efforts to improve clinical outcomes with tools such as Seizure iEEG AI software.
• The company is partnering with organizations like Rapport to support drug development and biomarker identification efforts, positioning the RNS system as a foundation for future personalized medicine.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 'one of record results' with record revenue of $27.4M (+30% YoY), RNS revenue up 31% YoY, first-ever positive adjusted EBITDA ($0.1M), and raised full-year revenue and gross margin guidance, indicating constructive performance and outlook.

Q&A:

• Question from Rohin Patel (JPMorgan Chase & Co, Research Division): Can you help us understand preliminary thoughts on 2026 growth outlook—specifically RNS growth given DIXI revenues will be coming off—and assumptions for new indications, AI applications, and Project CARE in community settings?
  Response: No formal 2026 guidance; core RNS business expected to grow ≥20% as a baseline, with new indications, AI tools and Project CARE viewed as incremental upside; DIXI will be wound down and should be removed from 2026 models.

• Question from Rohin Patel (JPMorgan Chase & Co, Research Division): Any preliminary feedback from partners on how the platform supports drug discovery/personalized medicine and milestones to watch (given early ~$0.7M in research service revenue)?
  Response: Partners (e.g., Rapport, UCB) see strong value in the RNS EEG data for biomarker and drug‑development work; data services are nascent (~$0.7M) with more partnerships and monetization opportunities expected.

• Question from Priya Sachdeva (UBS Investment Bank, Research Division): The full‑year midpoint implies a softer Q4 despite strong YTD growth—what's driving Q4 dynamics and what are you seeing on the ground?
  Response: RNS momentum is solid (October off to a good start) but total Q4 is impacted by the planned wind‑down and lower DIXI sales; RNS second‑half growth accelerates (~23% at midpoint), while DIXI mix explains the softer total-company step.

• Question from Priya Sachdeva (UBS Investment Bank, Research Division): With clarity on potential expansion, remind us plan/timeline into potential approval—how quickly could incremental growth be seen?
  Response: PMA supplement for NAUTILUS to be submitted before year‑end 2025; a standard 180‑day review would target mid‑2026 for a decision (timing subject to FDA review variability).

• Question from Michael Kratky (Leerink Partners LLC, Research Division): Implied Q4 gross margin looks lower despite RNS strength—how reconcile RNS margin strength with any step down and what should we model?
  Response: RNS gross margin is north of 80% (80% a minimum); any near‑term drag on total margin is a mix effect from residual lower‑margin DIXI (~$3M); model RNS ≥80% going into 2026.

• Question from Michael Kratky (Leerink Partners LLC, Research Division): How does Seizure ID fit in the portfolio—revenue generator or clinician support tool?
  Response: Seizure ID is an AI clinician tool to improve EEG‑review efficiency and patient‑specific programming, intended to increase access and RNS utilization; value accrues via improved outcomes and broader adoption with potential monetization as part of a software/services suite.

• Question from Vik Chopra (Wells Fargo): Should we model 80% gross margin as a baseline for 2026 and what puts/takes remain on margins going forward?
  Response: Yes—80% is a fair baseline to model for 2026; main caveat is any residual DIXI sales in early 2026, otherwise margins should reflect an RNS‑only business above 80%.

• Question from Vik Chopra (Wells Fargo): When will the full NAUTILUS data be publicly available?
  Response: NAUTILUS data will be shared in staged venues: a poster abstract at AES and a submission for AAN next spring.

• Question from Frank Takkinen (Lake Street Capital Markets, LLC, Research Division): Has NAUTILUS industry awareness or off‑label use contributed to the quarter—are physicians using data off‑label and did that affect results?
  Response: No evidence that off‑label use materially drove Q3 performance; investigators reacted positively to NAUTILUS safety and secondary endpoints, but quarter showed nothing unusual attributable to practice‑of‑medicine variation.

• Question from Frank Takkinen (Lake Street Capital Markets, LLC, Research Division): Is growth driven more by market expansion or market share gains?
  Response: Both—growth reflects expanded adoption and utilization within existing practices (market expansion) and share gains for device‑appropriate patients driven by differentiated data and outcomes.

• Question from Ross Osborn (Cantor Fitzgerald & Co., Research Division): Any color on how you expect the IGE label to shake out based on recent interactions?
  Response: Plan is to seek a label aligned with the full NAUTILUS study population—label expectations will mirror the enrolled trial population.

• Question from Ross Osborn (Cantor Fitzgerald & Co., Research Division): What level/type of data will be needed to support a pediatric approval?
  Response: Pediatric pathway will rely on retrospective real‑world evidence; the focus is aligning a fit‑for‑purpose protocol and existing data with FDA/NEST requirements rather than generating new prospective data.

• Question from Yi Chen (H.C. Wainwright): For Project CARE, will Level‑4 centers remain the main growth source or will IGE change sales tactics; and are you on track to double CARE implants/referrals in 2025?
  Response: Level‑4 centers remain the primary growth engine; Project CARE is complementary—enabling community treatment and expanding reach—and CARE is on track versus the 2024 baseline with sequential and YOY gains, though penetration of the 1,800‑epileptologist target is still early.

• Question from Yi Chen (H.C. Wainwright): Any updates on investigator‑initiated trials for other indications (depression, PTSD, etc.)?
  Response: IITs and alternative‑disease work are progressing conceptually; the platform's data and personalized therapy capabilities make it applicable beyond epilepsy, with formal updates to come as programs advance.

• Question from Paige Chamberlain (Wolfe Research, LLC): For Project CARE targets (1,800 epileptologists) where are you in penetration and are you on track to more than double CARE implants/referrals in 2025?
  Response: CARE is on track to exceed 2024 implants/referrals in 2025 and penetration into the targeted epileptologist base has begun but remains early with a long runway; internal metrics are tracked though not yet disclosed quarterly.

• Question from Paige Chamberlain (Wolfe Research, LLC): Directional update on replacement revenue—should we expect replacement revenue to rise from current trough?
  Response: Replacement revenue is currently a small mid‑single‑digit share (<10%); initial implants remain the primary revenue driver and replacements will scale over time—model initial implants until replacements become materially larger.

Contradiction Point 1

FDA Submission Strategy for NAUTILUS

It involves the company's approach to obtaining FDA approval for the NAUTILUS trial, which could significantly impact the product's market potential and regulatory timeline.

Could you clarify your FDA submission strategy for NAUTILUS, given better outcomes in patients with lower baseline seizure frequency? Are you pursuing a broad indication approval or a more segmented approach? - Rohin Kirit Patel (JPMorgan)

2025Q3: Our strategy remains to go for an indication involving the totality of the NAUTILUS data and the totality of the population, with clinically meaningful and statistically significant treatment effect seen in prespecified secondary endpoints. We plan to pursue an indication across the entire population. - Joel D. Becker(CEO)

Given the improved data in patients with lower baseline seizure frequency, will you pursue a broad or segmented FDA approval for NAUTILUS? - Rohin Kirit Patel (JPMorgan)

2025Q2: We are considering regulatory pathways, including potential for a PMA supplement, or a 510(k) submission, which would seek regulatory clearance based on demonstrating substantial equivalence to a predicate device. - Joel D. Becker(CEO)

Contradiction Point 2

Growth and Market Expansion

It involves the company's expectations for growth and market expansion, which are crucial for investor expectations and strategic planning.

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2025Q3: We are guiding for 2025 but not providing formal guidance for 2026. We are confident in the core of our focal epilepsy indicated business growing at 20% plus. - Joel Becker(CEO)

Has NAUTILUS data impacted commercial momentum, and has focal growth been affected? - Vikramjeet Singh Chopra (Wells Fargo)

2025Q2: Our long-term strategy rests on a core RNS business growth of 20% CAGR for each of the next 3 years without expansion of our indications. - Joel D. Becker(CEO)

Contradiction Point 3

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

How does the Q4 gross margin guidance step-down reconcile with RNS strength? - Michael Kratky(Leerink Partners LLC, Research Division)

2025Q3: RNS is expected to be 80% or above in Q4. The guidance is more of a mix issue with DIXI, which could impact overall gross margin. In 2026, we expect RNS gross margin to be above 80%. - Patrick Williams(CFO)

Will you project the gross margin decline for the rest of the year considering RNS growth and declining DIXI revenue? - Priya Sachdev(UBS Investment Bank, Research Division)

2025Q1: Gross margins for Q3 are expected around 75%, with full-year guidance in the mid-70s. - Rebecca Kuhn(CFO)

Contradiction Point 4

Impact of Project CARE on Market Expansion

It involves differing views on the effectiveness of Project CARE in impacting referral volumes and market expansion, which is crucial for company growth strategy.

How is Project CARE impacting market expansion goals? - Paige Chamberlain(Wolfe Research, LLC)

2025Q3: Project CARE has been successful in increasing prescriber numbers and utilization, complementing primary growth in Level 4 centers. We are on track to meet our 2025 goals. - Joel Becker(CEO)

How has Project CARE affected referral volumes and implant numbers in Level 4 centers and regions? - Nelson Cox(Lake Street Capital Markets, LLC, Research Division)

2025Q1: Project CARE has increased referral volumes and implants. Referrals from Level 3 and community centers have grown, and centers are more connected to RNS technology, which helps patients access RNS therapy. - Joel Becker(CEO)

Contradiction Point 5

Project CARE Impact on Market Expansion

It involves the expectations and impact of Project CARE on market expansion, which is a key growth strategy for the company.

How is Project CARE affecting market expansion goals? - Paige Chamberlain(Wolfe Research, LLC)

2025Q3: Project CARE has been successful in increasing prescriber numbers and utilization, complementing primary growth in Level 4 centers. We are on track to meet our 2025 goals. - Joel Becker(CEO)

What are the details of Project CARE’s 2025 market expansion? - Vik Chopra (Wells Fargo)

2024Q4: We aim to double implants and referrals from CARE accounts in 2025. We are expanding educational and awareness programs for clinicians, targeting centers for referrals and implants, and increasing programming centers. The focus is on increasing center numbers and program execution. - Joel Becker(CEO)