Q2 2024 NeuroPace Inc Earnings Call

Good afternoon and welcome to Neuropace's second quarter 2024 earnings call. At this time all participants are in lesson only mode. A question and answer session will follow the formal presentation.

Operator: At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jeremy Feffer, from Lifesci Advisors. Please go ahead, sir.

Speaker Change: If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: I would now like to turn the conference over to your host, Jeremy Feffer from Lifestyle Advisors. Please go ahead, sir.

Jeremy Feffer: Good afternoon. Thank you for joining us for Neuropace's second quarter 2024 Financial and Operating Results Conference. On today's call, we will hear from Joel Becker, Chief Executive Officer, and Rebecca Kuhn, Chief Financial Officer. Earlier today, Neuropace released financial results for the second quarter and June 30, 2020. A copy of the press release is available on the company's website at neuropace.com.

Speaker Change: Good afternoon. Thank you for joining us for Neuropace's second quarter 2024 Financial and Operating Results conference call. On today's call, we will hear from Joel Becker, Chief Executive Officer, and Rebecca Kuhn, Chief Financial Officer.

Speaker Change: Earlier today, Neuropace released financial results for the second quarter ended June 30th, 2024. A copy of the press release is available on the company's website at Neuropace.com

Jeremy Feffer: Before we begin, I would like to remind you that throughout this call, we will make statements that are forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that relate to expectations or predictions of future events, results, or performance or are forward-looking statements. All forward-looking statements, including those around Neuropace's projections, business opportunities, commercial expansion, market conditions, clinical trials, and those relating to our operating trends and future financial performance, expense management, estimates of market opportunity, and forecasts of market and revenue growth are based on current estimates and various assumptions. These statements involve material risks Accordingly, you should not place undue reliance on them.

Jeremy Feffer: For more detailed descriptions of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the SEC, including our recent annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 5, 2024, and our quarterly report on Form 10-Q for the quarter ended June 30, 2024, to be filed with the SEC, and any other reports that we may file with the SEC in the future This conference call contains time-sensitive information, which we believe is accurate only as of this live broadcast on August 13, 2020.

Speaker Change: Before we begin, I would like to remind you that throughout this call, we will make statements that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Thank you.

Speaker Change: Any statements made during this call that relate to expectations or predictions of future events, results or performance, or forward-looking statements.

Speaker Change: All forward-looking statements, including those around Neuropace's projections, business opportunities, commercial expansion, market conditions, clinical trials, and those relating to our operating trends and future financial performance, expense management, estimates of market opportunity, and forecasts of market and revenue growth, are based on current estimates and various assumptions.

Speaker Change: These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

Speaker Change: For more detailed descriptions of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the SEC, including our recent annual report on Form 10-K for the year ended December 31st, 2023, filed with the SEC on March 5th, 2024.

Speaker Change: and our quarterly report on Form 10-Q for the quarter ended June 30, 2024 to be filed with the SEC and any other reports that we may file with the SEC in the future.

Speaker Change: This conference call contains time-sensitive information which we believe is accurate only as of this live broadcast on August 13th, 2024.

Jeremy Feffer: Neuropace disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or other. With that, I will now turn the call over to Neuropace's Chief Executive Officer, Joel Becker. Thank you, Jeremy, and good afternoon, everyone.

Speaker Change: Neuropace disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise.

Speaker Change: And with that, I will now turn the call over to NeuroPACE's Chief Executive Officer, Joel Becker. Joel? Joel Becker, Chief Executive Officer, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE, NeuroPACE Thank you, Jeremy.

Joel Becker: I will start out today's call by reviewing our performance in the second quarter, as well as offering additional insights around our key business priorities for the second half of 2021, before turning the call over to our CFO, Rebecca Kuhn, who will present the details of our financial performance for the quarter ended June 30th, 2024, which will be followed by a Q&A session. Let's get started.

Speaker Change: I will start out today's call by reviewing our performance in the second quarter, as well as offering additional insights around our key business priorities for the second half of 2024, before turning the call over to our CFO, Rebecca Kuhn.

Rebecca Kuhn: to present the details of our financial performance for the quarter ended June 30th, 2024, which will be followed by a Q&A session. Let's get started.

Joel Becker: We are pleased with the team's performance in the second quarter of 2024, demonstrating revenue growth, gross margin expansion, and operating expense management as we continue to execute against our multi-phase growth strategy. For the second quarter of 2024, we reported total revenue of $19.3 million, up 17% compared to the same period last year. Revenue growth for the quarter included sales of the RNS System and Dixie Medical S&T products, and a small contribution from our Strategic Biotechnology Collaboration, with the majority of the year-over-year growth coming from sales of the R&S. R&S sales growth was even more impressive on a year-over-year basis. [inaudible] benefited from enrollment in the Nautilus. Luring Cut [inaudible] Michael Kuhn, Units from the Nautilus Study.

Speaker Change: We are pleased with the team's performance in the second quarter of 2024, demonstrating revenue growth, gross margin expansion, and operating expense management as we continue to execute against our multi-phase growth strategy.

Speaker Change: For the second quarter of 2024, we reported total revenue of $19.3 million, up 17% compared to the same period last year.

Speaker Change: Revenue growth for the quarter included contributions from sales of the RNS system and Dixie Medical SEEG products and a small contribution from our strategic biotechnology collaboration with the majority of the year-over-year growth coming from sales of the RNS system.

Speaker Change: R&S sales growth was even more impressive on a year-over-year basis if we considered that the sales results in the second quarter of 2023 benefited from enrollment in the Nautilus study.

Joel Becker: Unknown Attendee, Michael Kratky, Vikramjeet Chopra, Ross Osborn, Rebecca Kuhn, Neuropace Unknown Attendee, Irina Ridley, Frank Takkinen, Michael Kratky, Vikramjeet Chopra, Ross Osborn, rns sales growth in 2024 was 21. [inaudible] Our focus as we look ahead is to expand access to Our Q2 performance was primarily driven by our focus on the first part of this strategy, Increasing Adoption and Utilization of RNS in Level 4.

Speaker Change: Excluding contributions from units from the Nautilus study in Q2 of last year, R&S sales growth in Q2 of 2024 was 21%.

Speaker Change: Our focus as we look ahead is to expand access to the RNS system by executing our three-part growth strategy of expanding adoption and utilization.

Speaker Change: Our Q2 performance was primarily driven by our focus on the first part of this strategy.

Speaker Change: Increasing Adoption and Utilization of RNS Systems in Level 4 Centers.

Joel Becker: This includes working with and training a greater number of epileptologists at existing... Drive Adopt. And we continued to expand the number of new RNS prescribers to record levels during the second quarter of 2020. As a reminder, the Annual Market Opportunity for Drug-Resistant Epilepsy within level four centers is estimated to be over two billion dollars.

Speaker Change: This includes working with and training a greater number of epileptologists at existing centers to drive adoption.

Speaker Change: and we continued to expand the number of new RNS prescribers to record levels during the second quarter of 2024.

Speaker Change: As a reminder, the annual market opportunity for drug-resistant epilepsy patients within Level 4 centers is estimated to be over $2 billion, and as such, we have significant opportunities to grow within these centers.

Joel Becker: And as such, we have significant opportunities to grow within these. We also continue to make progress on the second phase of our long-term growth strategy, expanding access to RNS therapy outside the local area, which we call the Project CARE Program. We are currently in the pilot phase of the program, and an encouraging early metric that we are tracking is the number of patient referrals associated with the program. We have begun to see an increasing number of referrals from the program into Level 4 centers for RNS implants.

Speaker Change: We also continued to make progress on the second phase of our long-term growth strategy of expanding access to RNS therapy outside Level 4 centers, which we call the Project CARE Program.

Speaker Change: We are currently in the pilot phase of the program, and an encouraging early metric that we are tracking is the number of patient referrals associated with the program.

Speaker Change: We have begun to see an increasing number of referrals from the program into level 4 centers for RNS implants.

Joel Becker: We consider these referrals to be a positive sign as they show the impact we are having, generating broader awareness of RNS therapy and educating physicians and centers on which patients are good candidates. Activities around the expansion of the pilot care program include professional education activities such as webinars, symposia, and peer-to-peer programs.

Speaker Change: We consider these referrals to be a positive sign as they show the impact we are having in generating broader awareness of RNS therapy and educating physicians and centers on which patients are good candidates.

Speaker Change: Activities around the expansion of the pilot care program include professional education activities such as webinars, symposia, and peer-to-peer programs.

Joel Becker: This is accompanied by additional commercial activity, such as the initiation of digital social media awareness programs, center contracting, and the placement of sales representatives in target geographies. With regard to our commercial organization, I'm also pleased to announce that our newly hired sales representatives have completed their training and will now begin independent activities in their sales territory, more fully contributing to our commercial efforts. These new sales representatives are primarily focused on the geographies where we have identified expansion opportunities outside of level 4 centers, along with Supporting Geographies where we have been experiencing higher revenue growth in our RNS and Dixie product lines.

Speaker Change: This is accompanied by additional commercial activities, such as the initiation of digital social media awareness programs, center contracting, and the placement of sales representatives in target geographies.

Speaker Change: With regard to our commercial organization, I'm also pleased to announce that our newly hired sales representatives have completed their training and will now begin independent activities in their sales territories and more fully contributing to our commercial efforts.

Speaker Change: These new sales representatives are primarily focused on the geographies where we have identified expansion opportunities outside of Level 4 centers, along with supporting geographies where we have been experiencing higher revenue growth in our RNS and Dixie product lines.

Joel Becker: We are excited about the contributions they will make to our business going forward. Finally, the third phase of our RNS growth strategy is based on expanding the approved indications for RNS. This effort is currently focused on the pivotal Nautilus study, in which all implants and the trial are in patient follow-up. We believe that the strong interest in this study is further evidence of the significant unmet need that exists for patients with drug-resistant idiopathic generalized epilepsy.

Speaker Change: We are excited about the contributions they will make to our business going forward.

Speaker Change: Finally, the third phase of our RNS growth strategy is based on expanding the approved indications for the RNS system.

Speaker Change: This effort is currently focused on the pivotal nautilus study in which all implants are complete and the trial is in the patient follow-up phase.

Speaker Change: We believe that the strong interest in this study is further evidence of the significant unmet need that exists for patients with drug-resistant idiopathic generalized epilepsy.

Joel Becker: As a reminder, the Nautilus trial requires evaluation of a primary safety endpoint and an effectiveness evaluation 12 months post-employment. If approved, our RNS system would be the first device with an FDA-approved indication. Unknown Attendee, Michael Kratky, Vikramjeet Chopra, Ross Osborn, Rebecca Kuhn, Jeremy Feffer, Neuropace. This study has the potential to represent a highly meaningful market expansion opportunity and is on track to complete the one-year follow-up in the first quarter of 2021.

Speaker Change: As a reminder, the Nautilus trial requires evaluation of a primary safety endpoint and an effectiveness evaluation 12 months post-implant.

Speaker Change: If approved, our RNS system would be the first device with an FDA-approved indication for generalized epilepsy.

Speaker Change: This study has the potential to represent a highly meaningful market expansion opportunity and is on track to complete the one-year follow-up in the first quarter of 2025.

Joel Becker: In addition to the success our commercial team has had with our R&S, we also continue to see revenue growth from our exclusive partnership with Dixie Medical to market and sell their diagnostic electrodes and related products for epilepsy. This is a highly complementary offering to our RNS, and provides our sales team with an additional opportunity to call in physicians at. Lastly, we remain pleased with the strategic collaboration we entered into with a biotechnology company in the fourth quarter of 2023, through which we are providing services related to their phase two, a clinical trial, including, among other things. Clinical Trial Readiness Support, Identification of Potential Patients Satisfying the Enrollment Criteria, and RNS system data reporting and analysis.

Speaker Change: In addition to the success our commercial team has had with our RNS system, we also continue to see revenue growth from our exclusive partnership with Dixie Medical to market and sell their diagnostic electrodes and related products for epilepsy.

Speaker Change: This is a highly complimentary offering to our RNS system.

Speaker Change: which provides our sales team with an additional opportunity to call in physicians at the CECs.

Speaker Change: Lastly, we remain pleased with the strategic collaboration we entered into with a biotechnology company in the fourth quarter of 2023, through which we are providing services related to their Phase IIa clinical trial, including, among other things,

Speaker Change: Clinical Trial Readiness Support, Identification of Potential Patients Satisfying the Enrollment Criteria, and RNS System Data Reporting and Analysis.

Joel Becker: We believe this groundbreaking collaboration is another example of the value that our RNS provides through its proven ability to collect and analyze data, which is then used to generate insights that can help inform treatment strategies. So, if that is an overview of our operational progress, let me now turn the call over to Rebecca to review our financial results for the second quarter of 2024.

Speaker Change: We believe this groundbreaking collaboration is another example of the value that our RNS system can provide through its proven ability to collect and analyze data, which is then used to generate insights that can help inform treatment strategies.

Speaker Change: With that as an overview of our operational progress, let me now turn the call over to Rebecca to review our financial results for the second quarter of 2024.

Rebecca Kuhn: Thank you, Joel. Neuropace's revenue for the second quarter of 2024 was $19.3 million, representing growth of 17% compared to $16.5 million for the second quarter of 2023. This growth was primarily driven by increased sales of our R&F system, but we also generated meaningful revenue growth from sales of Dixie medical products. Gross margin for the second quarter of 2024 was 73.4% compared to 72.5% in the second quarter of 2023. The improvement in gross margin was due to an increase in R&S growth margin, largely due to the increase in volume, as our fixed manufacturing overhead costs were spread over more years. This increase was partially offset by the lower growth margin from the distribution of Dixie medical products.

Rebecca Kuhn: The R&D expense in the second quarter of 2024 was $6.1 million, compared with $5.3 million in the same period of 2023. This increase was primarily driven by an increase in personnel-related expenses and an increase in expenses for product development and clinical studies, partially offset by an increase in grant funding. SG&A expense in the second quarter of 2024 was $14.3 million compared with $14.5 million in the prior year period. This decrease was primarily due to an overall decrease in personnel-related expenses as a result of personnel changes, partially offset by an increase in sales and marketing expense.

Rebecca Kuhn: Thank you, Joel.

Rebecca Kuhn: Neuropace's revenue for the second quarter of 2024 was $19.3 million, representing growth of 17% compared to $16.5 million for the second quarter of 2023.

Rebecca Kuhn: This growth was primarily driven by increased sales of our RNS system. We also generated meaningful revenue growth from sales of Dixie Medical products.

Rebecca Kuhn: Gross margin for the second quarter of 2024 was 73.4% compared to 72.5% in the second quarter of 2023.

Speaker Change: The improvement in gross margin was due to an increase in R&S gross margin, largely due to the increase in volume, as our fixed manufacturing overhead costs were spread over more units.

Speaker Change: This increase was partially offset by the lower growth margin from distribution of Dixie medical products.

Speaker Change: R&D expense in the second quarter of 2024 was $6.1 million compared with $5.3 million in the same period of 2023.

Speaker Change: This increase was primarily driven by an increase in personnel-related expenses and an increase in expenses for product development and clinical studies, partially offset by an increase in grant funding.

Speaker Change: SG&A expense in the second quarter of 2024 was $14.3 million compared with $14.5 million in the prior year period.

Speaker Change: This decrease was primarily due to an overall decrease in personnel related expenses as a result of personnel changes.

Speaker Change: partially offset by an increase in sales and marketing expenses.

Rebecca Kuhn: The total operating expenses in the second quarter of 2024 were $20.4 million, compared with $19.8 million in the same period of the prior year, representing growth of only 3%. With revenue growing by 17% for the quarter, we've demonstrated strong operating leverage resulting from our focus on driving revenue growth while also effectively managing our operating expenses and cash. We continue to focus on balancing these objectives, which we expect to continue through the remainder of 2024.

Speaker Change: Total operating expenses in the second quarter of 2024 were $20.4 million, compared with $19.8 million in the same period of the prior year, representing growth of only 3%.

Speaker Change: With revenue growing by 17% for the quarter, we've demonstrated strong operating leverage resulting from our focus on driving revenue growth while also effectively managing our operating expenses and cash.

Speaker Change: We continue to focus on balancing these objectives, which we expect to continue through the remainder of 2024.

Rebecca Kuhn: Loss from operations was $6.2 million in the second quarter of 2024, compared to $7.9 million in the prior year period. We recorded $2.2 million of interest expense in the second quarter of 2024 compared to $2.1 million in the prior year period.

Speaker Change: Lost from operations was $6.2 million in the second quarter of 2024 compared with $7.9 million in the prior year period.

Speaker Change: We recorded 2.2 million dollars of interest expense in the second quarter of 2024 compared to 2.1 million dollars in the prior year period.

Rebecca Kuhn: The net loss was $7.5 million for the second quarter of 2024 compared with $9.1 million in the second quarter of 2023. As discussed previously, we have maintained a disciplined expense management strategy, resulting in a cash burn in the second quarter of 2024 of $4 million, compared to $4.4 million in the second quarter of 2023. Our cash and short-term investments balance as of June 30, 2024 was $55.5 million. Our long-term borrowings totaled $59 million as of June 30, 2024.

Speaker Change: Net loss was $7.5 million for the second quarter of 2024 compared with $9.1 million in the second quarter of 2023.

Speaker Change: As discussed previously, we have maintained a disciplined expense management strategy resulting in cash burn in the second quarter of 2024 of $4 million compared to $4.4 million in the second quarter of 2023.

Speaker Change: Our cash and short-term investments balance as of June 30, 2024 was $55.5 million.

Speaker Change: Our long-term borrowings totaled $59 million as of June 30, 2024. As a reminder, the final maturity of our debt is September 30, 2026.

Rebecca Kuhn: As a reminder, the final maturity of our debt is September 30th, 2026. Regarding annual guidance for 2024, we now expect our total revenue to be in a range of 76 to 78 million dollars, an increase of approximately 13-19%. This growth is expected to be mostly driven by an increase in sales of our RNS system, with growth from sales of Dixie Medical Products continuing to make a meaningful contribution. Placement Implant revenue is expected to be relatively consistent in 2024 compared with 2020.

Speaker Change: Regarding annual guidance for 2024, we now expect our total revenue to be in a range of 76 to 78 million dollars, an increase of approximately 16 to 19 percent.

Speaker Change: This growth is expected to be mostly driven by an increase in sales of our RNS system, with growth from sales of Dixie Medical Products continuing to make a meaningful contribution.

Speaker Change: Replacement implant revenue is expected to be relatively consistent in 2024 compared with 2023.

Rebecca Kuhn: We expect our gross margin to be in a range of 72 to 74% for 2024, although we may see small variability due to fluctuations in the proportion of Dixie Medical revenue to overall revenue and other factors. We expect operating expenses for 2024 to range between $80 million and $84 million, including approximately $12 million in stock-based compensation, a non-cash expense. I would now like to turn the call back over to Joel for closing remarks. Okay, Joel?

Speaker Change: We expect our gross margin to be in a range of 72 to 74% for 2024, although we may see small variability due to fluctuations in the proportion of Dixie medical revenue to overall revenue and other factors.

Speaker Change: We expect operating expenses for 2024 to range between $80 million and $84 million, including approximately $12 million in stock-based compensation, a non-cash expense.

Speaker Change: I would now like to turn the call back over to Joel for closing remarks.

Joel Becker: Thank you, Rebecca. We are excited to announce another solid quarter of revenue growth, coupled with meaningful gross margin expansion and the Demonstration of Operating Expense Discipline, all contributing to strong cash management in the second quarter. Additionally, we are continuing to make progress on the execution of our strategy of expanding access to RNS therapy to help close the treatment gap for drug-resistant epilepsy, and I look forward to updating you on our progress through the second half. This concludes our prepared remarks. I would now like to turn the call over to the... will open the call for questions. Thank you so much.

Joel Becker: Joel? Thank you, Rebecca.

Joel Becker: We are excited to announce another solid quarter of revenue growth, coupled with meaningful gross margin expansion and the demonstration of operating expense discipline, all contributing to strong cash management in the second quarter.

Speaker Change: Additionally, we are continuing to make progress on the execution of our strategy of expanding access to RNS therapy to help close the treatment gap for drug-resistant epilepsy patients, and I look forward to updating you on our progress through the second half of 2024.

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

Speaker Change: Operator.

Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. Your confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question.

Speaker Change: Thank you, sir.

Speaker Change: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Again, if you would like to ask a question, please press star and then 1. The first question we have comes from Vik Chopra of World Fargo. Please go ahead.

Speaker Change: Again, if you would like to ask a question, please press star and then 1 now.

Speaker Change: The first question we have comes from Vik Chopra of World Fargo. Please go ahead.

Vikramjeet Chopra: Hey, good afternoon, and congratulations on a nice quarter. A couple of questions for me. So, just on this project care, you referred to an increasing number of referrals. Maybe just talk about who these are coming from and if you can share some more color on the number or the cadence of the referrals or any other information you can share, and then I had a follow-up, please. Hi, Vik. Excuse me.

Vik Chopra: Hey, good afternoon and congratulations on a nice quarter. A couple of questions for me. So just on this project here, you referred to an increasing number of referrals, maybe just talk about who these are coming from. And if you can share some more color on the number or the cadence of the referrals or any other information you can share, and then I had a follow up, please.

Joel Becker: Hi Vik. Good afternoon. Thank you for your question. Yeah, we have seen, you know, increasing activity and interest in care, both on the implant side as well as the referral side, and interestingly, also, the beginning of the development of a pipeline of these patients as well in targeted centers. So, you know, what we've seen is that as centers get up and running, specifically on the referral side, they may identify patients who eventually might be able to be treated well in a community setting, but because they're just getting started, they may feel comfortable referring those initial patients in while they go to a level four center, while they get underway with their training and education and get their program set up, et cetera.

Vic: Hi, Vic. Excuse me. Hi, Vic. Good afternoon. Thank you for your question. Yeah, we have seen, you know, increasing activity and interest in care, both on the implants as well as the referral side, and interestingly as well, really now the beginning of the development of a pipeline of these patients as well in targeted centers.

Vic: So...

Vic: You know what we've what we've seen is that as centers get up and running specifically on the referral side

Vic: They may identify patients who eventually might be able to be treated well in a community setting, but because they're just getting started, they may feel comfortable referring those initial patients in to a level 4 center while they get underway with their training and education and get their programs set up, etc. And then secondly, as well, as we generate more awareness out in the community setting,

Joel Becker: And then secondly, as well, as we generate more awareness out in the community setting, as people look at their patient populations and evaluate different patients for potential RNS therapy, we see that there are patients who are uncovered, who may be good candidates for referral into a level four center for phase two testing, a more traditional patient that either previously couldn't have or wouldn't have been referred back in, and so our training and education and awareness efforts there around the technology as well as the role RNS therapy can play in somebody's practice, and a focus on identification of patients that might be good candidates, has led us to have both implants as well as referrals as I've described here, with an increasing level of activity here in the recent quarter. Okay, thank you.

Vic: As people look at their patient populations and evaluate different patients for

Vic: potential RNS therapy, we see that there are patients who are uncovered, who may be good candidates for referral into a Level 4 center for Phase 2 testing, a more traditional patient that either previously couldn't have or wouldn't have been referred back in. And so our training and education and awareness efforts there around the technology as well as the role RNS therapy can play in somebody's practice.

Vic: And a focus on identification of patients that might be good candidates has led us to have both, you know, implants as well as referrals as I've as I've described here.

Vic: With an increasing level of activity here in the in the in the recent in the recent quarter

Vikramjeet Chopra: And then, you know, you raised the top line guidance, held the line on gross margins and OPEX. Maybe just help us understand how we should think about the margin cadence and the OPEX cadence for the back half of the year. Thank you very much.

Speaker Change: Okay, thank you. And then, you know, you raised the top line guidance, held the line on gross margins and OPEX. Maybe just help us understand how we should think about the margin cadence and the OPEX cadence for the back half of the year. Thank you very much.

Rebecca Kuhn: Do you maybe want to start us out here on margin and OPEX, Rebecca, and I'll chime in. Sure, absolutely. Yes, Vic, as you noted, we kept our gross margin in OPEX consistent. However, our gross margin can fluctuate due to a variety of factors. Generally, gross margin improves with RNS volume, and um... We expect that over time, we expect to see improvements, but of course, it's not unexpected to see small variations quarter to quarter. With regard to operating expenses, our OPEX for the first half of the year was a little over $41 million, which puts us squarely within our guidance. Unknown Attendee.

Rebecca Kuhn: Do you maybe want to start us out here on margin and OPEX, Rebecca, and I'll chime in? Sure, absolutely. Yes, Vic, as you noted, we kept our gross margin and OPEX guidance consistent.

Speaker Change: Our gross margin can fluctuate due to a variety of factors. Generally, gross margin improves with RNS volume.

Speaker Change: We expect that over time we expect to see improvements, but of course, it's not unexpected to see small variation quarter to quarter

Speaker Change: With regard to operating expenses, our OPEX for the first half of the year was a little over $41 million, which puts us squarely within our guidance.

Ross Osborn: If you annualize that, throughout the rest of the year, we don't expect to see significant fluctuations in OPEX, although I will say sometimes we see some increases in the fourth quarter as a result of our major medical meeting, the AES annual meeting in December. The next question we have comes from Ross Osborn of Council Fitzgerald. Please go ahead.

Speaker Change: Thank you.

Speaker Change: If you annualize that

Speaker Change: Throughout the rest of the year, we don't expect to see significant fluctuations in OPEX.

Speaker Change: Although I will say sometimes we see some increases in the fourth quarter as a result of our major medical meeting the AES annual meeting in December

Speaker Change: [inaudible]

Speaker Change: Thank you.

Speaker Change: The next question we have comes from Ross Osborne of Council of Fitzgerald. Please go ahead.

Joel Becker: Guys, congrats on the strong quarter and thanks for taking our questions. So maybe on your revised revenue guidance, it looks like most of it's driven by the strong QQ. So kind of diving in there, would you walk through growth between utilization by existing users versus new ones coming on board, especially with the CARE program? And then, you know, why you, I guess, wouldn't expect that to continue throughout the back half? Hi Ross.

Ross Osborne: Hey guys, congrats on the strong quarter and thanks for taking our questions.

Ross Osborne: So maybe on your revised revenue guidance, it looks like most of it's driven by the strong 2Q.

Ross Osborne: So, kind of diving in there, would you walk through growth between utilization by existing users versus new ones coming on board, especially with the CARE program, and then, you know, why you, I guess, wouldn't expect that to continue throughout the back half?

Joel Becker: Thanks for the question. And it's good to hear from you. So as we look at, you know, guidance, as we take it to the starting point, here, you know, Q1 at 18 million, Q2 at 19.3 million. So we've got 37.4 through the first half, and we increased our guidance range from 73 to 77 to 76 to 78, raising the top end, as you mentioned. So truly, what we've got is we've got 37.4 through the first half, and our guidance range implies 38.6 to 46 in the second half. Now we don't break that out by quarters, but with that given as a range, and I think we've talked about previously, we do have a little bit of seasonality in the summer months.

Ross Osborne: Hi Ross, thanks for the question and good to hear from you. So as we look at, you know, guidance as we take it to starting point.

Speaker Change: Here, you know, Q1 at $18 million, Q2 at $19.3 million, so we've got $37.4 through the first half.

Speaker Change: and...

Speaker Change: We increased our guidance range from 73 to 77 to 76 to 78, raising the top end as you mentioned. So, truly what we've got is we've got 37.4 through the first half, and our guidance range implies 38.6 to 46 in the second half. Now, we don't break that out by quarters, but with that given as a range, and I think we've talked about previously, we do have...

Joel Becker: We do expect growth, obviously, in the back half of the year and growth each quarter. So we recognize that you know the growth rate doesn't hold through the full calendar, but if you look at the second half of the year guidance, it implies 40 million or so in the second half of the year versus 37 million in the first half of the year, recognizing comps do get a little tougher from a growth rate perspective.

Speaker Change: A little bit of seasonality in the summer months, we do expect growth obviously in the back half of the year and growth each quarter.

Speaker Change: So we recognize that the growth rate doesn't hold through the full calendar, but if you look at the second half of the year, guidance implies

Speaker Change: Unknown Attendee, Michael Kratky, Joel Becker, Rebecca Kuhn, Jeremy Feffer, Frank Takkinen,

Joel Becker: We do see good growth and are looking to signal that in the increased guidance as well. Okay, understood. And then it's nice to see or hear that Novus is progressing well, you know, ahead of the expected expanded generalized indication and 26 launch. What are some key initiatives that are on deck for next year? Yeah, so it's a great question, and you're right, Nautilus is on track and proceeding well, and we're excited about the progress that we continue to make there.

Speaker Change: in the increased guidance as well.

Speaker Change: Okay, understood. And then it's nice to see or hear that Novus is progressing well. You know, it's ahead of the expected, expanded, generalized indication and 26th launch. You know, what are some key initiatives that are on deck for next year?

Joel Becker: You know, some things I point to here, Ross, is we've talked about at length the pilot and expansion associated with the Project CARE program, and we think that's a meaningful opportunity for us and is a significant area of focus for us as well, number one. So the ability for us to expand outside of level four centers and both set ourselves up for potential direct R&S therapy as well as increased referrals. So one, Project CARE and that associated program.

Joel Becker: Two, the investments that we've been making and have continued to make, and we just announced here this quarter the completion of the incremental hiring and training and now the implementation of our expanded commercial organization. And so really, we're going to take advantage of both the investments we've made previously as well as these most recent investments in our commercial organization to amplify growth in strong areas where we have it, and then there is good overlap with the Project CARE programs as well to further support that.

Joel Becker: So that's a second key area of focus for us. And then, you know, we've also talked about its three-phase strategy, right? It's increasing adoption and utilization within level four centers. It's expanding site of service care delivery with Project CARE, and then it's expanding indications. So you hit on Nautilus.

Speaker Change: We've we've also talked about it's the three phase strategy right, it's increasing adoption and utilization within level four centers.

Speaker Change: It's expanding site of service care delivery with project here and then it's expanding indications. So you hit on Nautilus I talked about projects care already.

Joel Becker: I talked about Project CARE already. And then the third piece of it is expanding adoption and utilization within level four centers, and a big area of focus for us there is what we talk about as the modern R&S story. And that's increasing both adoption, so broadening the scope of how people can use R&S therapy within currently indicated patients as well as utilization, which is, you know, additional and expanded patient populations. You've asked in the past about the hybrid use of the technology along with surgical applications, and there are other patient populations as well, including network stimulation for the treatment of drug-resistant focal epilepsy patients.

Speaker Change: And then the third piece of it is expanding adoption and utilization within the level four centers and a big area of focus for US. There is what we talk about it as the modern rns story and that's increasing both adoption. So broadening the scope of how people can use rns therapy within currently indicated patients as well as.

Operator: at this time all participants are in lesson only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero when your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: <unk>, which is.

Jeremy Feffer: I would now like to turn the conference over to your host, Jeremy Feffer, from Lifestyle Advisors. Please go ahead, self. Good afternoon. Thank you for joining us for Neuropace's second quarter, 2024 financial and operating results conference call. On today's call, we will hear from Joel Becker, Chief Executive Officer, and Rebecca Kuhn, Chief Financial Officer. Earlier today, Neuropace released financial results for the second quarter and to June 30th, 2024. A copy of the press release is available on the company's website at Neuropace.com.

Speaker Change: Additional and expanded patient populations, you've asked in the past about the hybrid use of the technology, along with surgical applications in and there are other patient populations as well, including network stimulation for the treatment of focal epilepsy drug resistant focal epilepsy patients as well so it's really.

Joel Becker: So it's really... Project CARE and executing on that. It's then the expansion of the commercial organization and then the telling of the modern R&S story to increase adoption and utilization within the Level 4 centers. And as may be clear to folks and may not be, those things also set us up well for the potential for expanding indications as Nautilus and, assuming a successful trial expands and develops our approved patient indications. This work that we're doing now both with Project CARE as well as investing in our commercial organization and expanding how people can use R&S therapy into different patient populations all support then our eventual indication and expansion of both patients to be treated and where So these things all work together between here and there. Got it?

Speaker Change: <unk>.

Speaker Change: Pratchett care and executing on that.

Speaker Change: And then the.

Speaker Change: The expansion of the commercial organization and then.

Speaker Change: Telling you the modern and rns story to increase adoption and utilization within the level four centers.

Unknown Attendee: Before we begin, I would like to remind you that throughout this call, we will make statements that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. Any statements made during this call that relate to expectations or predictions of future events results are performance or forward-looking statements. All forward-looking statements, including those around Neuropace's projections, business opportunities, commercial expansion, market conditions, clinical trials, and those relating to our operating trends in future financial performance, expense management, estimates of market opportunity, and forecasts of market and revenue growth are based on current estimates and various assumptions.

Speaker Change: And this is maybe clear to folks in and may not be.

Speaker Change: Those things also set us up well for the potential for expanding indications as as Nautilus and assuming a successful trial expands and develops our approved or approved patient indications. This work that we're doing now both with project K.

Speaker Change: Error as well as investing in our commercial organization and expanding how people can use our in this therapy into different patient populations.

Support than our eventual indication and expansion of both patients to be treated and where they can be treated. So these things all work together between here and there.

Unknown Attendee: These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For more detailed descriptions of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the SEC, including our recent annual report on Form 10K for the year ended December 31st, 2023, filed with the SEC on March 5th, 2024, and our quarterly report on Form 10Q for the quarter-ended June 30th, 2024, to be filed with the SEC and any other reports that we may file with the SEC in the future.

Ross Osborn: Thanks for your questions and congratulations again on the strong quarter. Thank you, Ross. Thank you. The next question that we have comes from Mike Kratky of Lyrinc Partners. Please go ahead.

Speaker Change: Got it thanks for taking our questions and congrats again on the strong quarter.

Speaker Change: Ross.

Speaker Change: Thank you.

Speaker Change: Next question that we have comes from Mike Crawford of Leerink Partners. Please go ahead.

Michael Kratky: Hi everyone, thanks for taking our questions. One clarifying question to start: did you quantify how much you benefited from Nautilus enrollment in 2Q23 that you backed out to get that 21% year-over-year growth for RNS sales this quarter? We didn't, we didn't quantify that, Mike. And, and, and we're not going to start breaking things out by program and by product line. But, the reason that we broke it out, as a bullet point, the way that we did, is just to note, and obviously, we can't comment on any off-label usage of the products and don't have any commentary around the trial outside of what we've said about Nautilus.

Mike Crawford: Hi, everyone. Thanks for taking our questions. One clarifying question to start did you quantify how much you benefited from Nautilus enrollment in two key twenty-three that you're back out to you at that 21% year over year growth for rns sales this quarter.

Speaker Change: We didn't we didn't quantify that Mike and and and where we're not going to start breaking things out by program and by product line.

Unknown Attendee: This conference called contains time-sensitive information, which we believe is accurate only as of this live broadcast on August 13th, 2024. Neuropace disclaims any intention or obligation, except is required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

Speaker Change: But the reason that we broke it out.

Speaker Change: As a bullet point the way that we did is just to note and obviously, we can't comment on any off label usage.

Speaker Change: The products.

Speaker Change: And don't have don't have any commentary around around the trial outside of what we said about nautilus, but we just wanted to provide that as a point excluding nautilus as a reminder to folks that there was a benefit in clinical trial revenue in 'twenty three that we don't have an 24 that we think is an indicator of the AR.

Joel Becker: With that, I will now turn the call over to Neuropace's Chief Executive Officer, Joel Becker. Thank you, Jeremy, and good afternoon, everyone. I will start out today's call by reviewing our performance in the second quarter, as well as offering additional insights around our key business priorities for the second half of 2024, before turning the call over to our CFO, Rebecca Coon, to present the details of our financial performance for the quarter and to June 30th, 2024, which will be followed by a Q&A session.

Joel Becker: But we just wanted to provide that as a point, excluding Nautilus, as a reminder to folks that there was a benefit in clinical trial revenue in 2023 that we don't have in 2024 that we think is an indicator of the, a good indication of the strength of the underlying strength of the business. So we haven't broken it out. It's really included as a point of reminder to people that that was a benefit that we had in 23.

Speaker Change: Good indication of the strength underlying strength of the business. So we haven't broken it out. It's really included as a point of a reminder to people that that was a benefit that we had in 'twenty three and as you look at the growth in 24 that was something that we had to make up. In addition to then demonstrates the current period growth.

Joel Becker: And as you look at the growth in 24, that was something that we had to make up in addition to then demonstrate the current period growth. Got it, super helpful. Maybe just a question on that last point: is there anything we should be building in for the third and fourth quarters of this year on that side? And then, separately, I recognize it's early days, but really just curious how any of the preliminary learnings from the pilot part of the Project CARES program have shaped your overall thinking on the commercial strategy from here and, you know, your efforts in the second half. Yeah, thanks, Mike.

Speaker Change: Got it Super helpful. Maybe just a yeah.

Joel Becker: Let's get started. We are pleased with the team's performance in the second quarter of 2024, demonstrating revenue growth, gross margin expansion, and operating expense management, as we continue to execute against our multi-phase gross strategy, for the second quarter of 2024, we reported total revenue of $19.3 million, up 17% compared to the same period last year. Revenue growth for the quarter included contributions from sales of the R&S system and Dixie Medical SEEG products and a small contribution from our strategic biotechnology collaboration with the majority of the year over year growth coming from sales of the R&S system.

Speaker Change: Yeah on that last point is there anything we should keep the building in for the third and fourth quarter of this year on that side and then maybe separately you know I recognize it's early days, but really just curious on how any of the preliminary learnings from the pilot part of the project cares program have shaped your overall thinking on the commercial strategy from here.

Speaker Change: Your efforts in the second half.

Joel Becker: And I guess what I would tee up there is just, you know, what we've learned is that, you know, there are important things for us here with regard to targeting, with regard to the training and education that we do, with regard to the benefits that people can see for both identifying patients to be potentially treated in their own centers, as well as the potential to treat patients or refer patients rather, as well. And so that's all, It's all been very helpful as we think about the go-forward strategy for care, and we continue to see a significant opportunity there both, as I mentioned, in the current focal drug-resistant population as well as when we think about that, the potential, again, pending a successful Nautilus trial for an indication expansion with that population. Obviously, there isn't a requirement to refer those patients for phase 2 testing So even more opportunities associated with presence in the community, and we think our learnings here during this process are going to be helpful as we think about that as well. understood. Thanks very much.

Speaker Change: Yes.

Speaker Change: Thanks, Mike and I guess, what I would what I would tee up there is just.

Speaker Change: What we've learned is that.

Speaker Change: There are important things for us here with regard to.

Speaker Change: Targeting with regard to the training and education that we do with regard to the benefits that people can see for both are identifying patients to be potentially treated in their own centers as well as the potential to treat patients are referred patients rather.

Joel Becker: R&S sales growth was even more impressive on a year over year basis if we considered that the sales results in the second quarter of 2023 benefited from enrollment in the Nautilus study. Excluding contributions from units from the Nautilus study in Q2 of last year, R&S sales growth in Q2 of 2024 was 21%. Our focus, as we look ahead, is to expand access to the R&S system by executing our three-part growth strategy of expanding adoption and utilization.

Speaker Change: Well and so that's all.

Speaker Change: That's all been very helpful. As we think about the go forward strategy.

Speaker Change: For care and we continue to see a significant opportunity there both as I mentioned in the current.

Speaker Change: Vocal drug resistant population as well as then we think about that.

Speaker Change: The potential again pending a successful novelist trial for.

Joel Becker: Our Q2 performance was primarily driven by our focus on the first part of this strategy, increasing adoption and utilization of R&S systems in level four centers. This includes working with and training a greater number of epilepsy colleges at existing centers to drive adoption and we continued to expand the number of new R&S prescribers to record levels during the second quarter of 2024. As a reminder, the annual market opportunity for drug resistant epilepsy patients within level four centers is estimated to be over $2 billion and as such we have significant opportunities to grow within these centers.

And indication expansion was that population, obviously, there isn't a requirement to refer those patients for a phase II testing. So you know even more opportunity associated with the presence in the in the community and we think our learnings here. During this process are going to be going to be helpful. As we think about that as well.

Speaker Change: Understood Thanks very much.

Mike Crawford: Thanks, Mike.

Mike Crawford: Yeah.

Michael Kratky: Thanks, Mike. Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then 1.

Speaker Change: Thank you ladies and gentlemen, just a reminder, if you would like to ask a question. Please press star and then one now.

Frank Takkinen: The next question we have comes from Frank Takkinen of Lake Street Capital Markets; please go ahead. Great, thanks for taking my questions and congratulations on all the progress. Also wanted to follow up on kind of the commentary around a lot of growth coming from Prong One really and growing deep in the established level four center network. Anything you can provide us that can help us understand that growth a little bit better from a utilization at a per center level versus a new prescriber? Any color on which of those two drove more of the growth in the quarter? Hi Frank, thanks for your question. It's a great question.

Speaker Change: The next question we have comes from Frank.

Speaker Change: Lake Street capital markets. Please go ahead.

Joel Becker: We also continued to make progress on the second phase of our long-term growth strategy of expanding access to R&S therapy outside level four centers, which we call the Project Care Program. We are currently in the pilot phase of the program and an encouraging early metric that we are tracking is the number of patient referrals associated with the program. We have begun to see an increasing number of referrals from the program into level four centers for R&S implants.

Frank Takkinen: Great. Thanks for taking my questions and congrats on all the progress also wanted to follow up on kind of the commentary around a lot of growth coming from pronghorn really going deep in the.

Speaker Change: Established level, so level four center network anything you can provide us that can help us understand that growth a little bit better from a utilization at a per center level versus a new prescriber any color on which of those two drove more of the growth in the quarter.

Joel Becker: We consider these referrals to be a positive sign as they show the impact we are having in generating broader awareness of R&S therapy and educating physicians and centers on which patients are good candidates. Activities are on the expansion of the pilot care program include professional education activities such as webinars, symposia, and peer-to-peer programs. This is accompanied by additional commercial activities such as the initiation of digital social media awareness programs, center contracting, and the placement of sales representatives in target geographies.

Joel Becker: As you say, really kind of focused here on the first plank of the strategy of growing both adoption and utilization in level four centers is really where the focus has been. And given our established, you know, kind of our footprint, our basis inside of level four centers, we really have been focused on driving both that adoption, you know, the number of prescribers using the RNS system as well as utilization. So what is the rate at which they're using it?

Speaker Change: Hi, Frank Thanks for your question, Yes, it's a great question and.

Speaker Change: As you say really kind of focused here on the first plank of the strategy of of growing both adoption and utilization in level four centers is really where the focus has been and.

Speaker Change: Given our established you know kind of our footprint or our basis inside of level four centers.

Speaker Change: We really we really have been focused on driving both that adoption Nino the number of prescribers using the rns system as well as utilization.

Speaker Change: So what is the rate at which they're using it and there's two different pieces here for US you know in in expanding adoption, that's where we're really focused on.

Joel Becker: And there are two different pieces here for us, you know, in expanding adoption, that's where we're really focused on, as we highlighted here in our prepared comments, the increasing number of prescribers. And then with regard to utilization, it's the modern RNS story, which is how do we expand the patients that people are thinking about the utilization of RNS therapy for. And so we have seen success in expanding the number of prescribers.

Joel Becker: With regard to our commercial organization, I'm also pleased to announce that our newly hired sales representatives have completed their training and will now begin independent activities in their sales territories and more fully contributing to our commercial efforts. These new sales representatives are primarily focused on the geographies where we have identified expansion opportunities outside of level four centers. Partners, along with supporting geographies where we have been experiencing higher revenue growth in our RNF and Dixie product lines. We are excited about the contributions they will make to our business going forward.

Speaker Change: As we've as we highlighted here in our prepared comments the increasing number of of our prescribers and then with regard to utilization. It's the modern earn a story, which is how do we expand the.

Speaker Change: The patients that people are.

Speaker Change: Thinking about utilization of rns therapy for it and so we have seen success in expanding the number of prescribers and so that that's been a key area of focus for us and we've seen good contributions to growth there and then with regard to utilization.

Joel Becker: And so that's been a key area of focus for us, and we've seen good contributions to growth there. And then with regard to utilization, we've also seen good progress there. And in particular, I guess I'd call out the use of the RNS system for network stimulation applications as something that, you know, for treating focal populations, but treating those focal populations and treating the network have been, or have both been things that we've seen as impactful. And they really obviously work together.

Joel Becker: Finally, the third phase of all where RNF's growth strategy is based on expanding the approved indications for the RNF system. This effort is currently focused on the pivotal not only study in which all implants are complete and the trials and the patient follow-up phase. We believe that the strong interest in the study is further evidence of the significant unmet need that exists for patients with drug resistant idiopathic generalized epilepsy. As a reminder, the Nautilus trial requires evaluation of a primary safety endpoint and an effectiveness evaluation 12 months post implant.

Speaker Change: <unk>, we've also seen.

Speaker Change: Good progress there and in particular, I guess I'd call out their use of the iron. This system for network stimulation applications is something that.

Speaker Change: You know for treating focal populations, but treating those fulfilled populations in treating the network have been have both been things that we've seen is as impactful.

Speaker Change: And they really obviously worked together you know expanding the number of users. We then move quickly from getting a new prescriber to working to deepen utilization for that prescribers as well. So the two pieces of it really work worked closely together.

Joel Becker: If approved, our RNF system would be the first device with an FDA approved indication for generalized epilepsy. This study has the potential to represent a highly meaningful market expansion opportunity and is on track to complete the one-year follow-up in the first quarter of 2025. In addition to the success our commercial team has had with our RNF system, we also continue to see revenue growth from our exclusive partnership with Dixie Medical to market and sell their diagnostic electrodes and related products for epilepsy.

Joel Becker: You know, expanding the number of users, we then move quickly from getting a new prescriber to working to deepen utilization for that prescriber as well. So the two pieces of it really work closely together. But that's where our focus has been. Okay, that makes sense. And then, maybe just for my second question, I was hoping to ask about Dixie.

Speaker Change: But that's where our focus has been.

Joel Becker: When the partnership was established, there was obviously some benefit to understanding the patient funnel, any quantifiable learnings you've taken from now having that app for some time, and I don't know if there's anything related to time from first EEG to RNS implant, if that's improved at all, or any other broader learnings from having Dixie in the bag. Nothing that we're going to specifically quantify at this point, Frank, in terms of a metric, but I would say that we have seen places, accounts where we get better visibility into where patients are in the diagnostic process and can, as a result, have conversations earlier and sooner and about a broader group of patients than we would have if we hadn't had visibility to that.

Speaker Change: Okay that makes sense and then maybe just for my second one was hoping to ask about Dixie.

Speaker Change: When the partnership was established there was obviously some some benefit to understanding the patient funnel any quantifiable learnings you've taken from now having had that asset for some time and I don't know if theres anything related to time from first E. G. Two rns implant if that's improved at all or.

Joel Becker: This is a highly complementary offering to our RNF system which provides our sales team with an additional opportunity to call on physicians at the CECs. Lastly, we remain pleased with the strategic collaboration we entered into with a biotechnology company in the fourth quarter of 2023 through which we are providing services related to their phase to a clinical trial, including among other things. Clinical trial readiness support, identification of potential patients satisfying the enrollment criteria, and RNF system data reporting and analysis.

Speaker Change: Any other broader learnings from having Dixie and the bank.

Speaker Change: Nothing that we're going to specifically quantify it at this point Frank in terms of a metric, but I would say.

Speaker Change:

Speaker Change: We have seen where.

Speaker Change: They're absolutely places accounts, where we get better visibility to where patients are at in the diagnostic process and can.

Joel Becker: We believe this groundbreaking collaboration is another example of the value that our RNF system can provide through its proven ability to collect and analyze data, which is then used to generate insights that can help inform treatment strategies.

Speaker Change: As a result have conversations earlier and sooner than about a broader group of patients than we would have if we hadn't had visibility to that so.

Joel Becker: It has helped broaden visibility upstream and has helped, in a number of ways, give us visibility we maybe wouldn't have had, especially in places where we may have people who aren't quite as tenured. And that's given them a good opportunity to be part of those conversations and look further upstream. Perfect, sounds good. Thanks for taking the questions. Thanks, Frank. The next question we have comes from Robbie Marcus of J.P. Morgan. Please go ahead.

Speaker Change: It has helped broaden the visibility upstream and has helped in a number of accounts.

Rebecca Kuhn: With that as an overview of our operational progress, let me now turn the call over to Rebecca to review our financial results for the second quarter of 2024. Rebecca? Thank you, Joel. Neuropaces revenue for the second quarter of 2024 was 19.3 million dollars, representing growth of 17 percent compared to 16.5 million dollars for the second quarter of 2023. This growth was primarily driven by increased sales of our RNF system. We also generated meaningful revenue growth from sales of Dixie medical products.

Speaker Change: Gives us visibility we may be wouldn't have had especially in places where we may have people who aren't quite as tenured.

Speaker Change: And and that's giving them a good opportunity to be part of those conversations and look further upstream.

Speaker Change: Perfect sounds good thanks for taking the questions.

Frank Takkinen: Thanks Frank.

Frank Takkinen: The next question we have comes from Robbie Marcus of Jpmorgan. Please go ahead.

Robbie Marcus: Oh, great. Thank you. Thanks for taking the questions. A couple for me.

Robbie Marcus: Oh, great. Thank you. Thanks for taking the questions. A couple for me I wanted to circle back to a previous question on the implied second half growth rate.

Robbie Marcus: I wanted to circle back to a previous question on the implied second half growth rate. You know, obviously, I hear you're doing more in the second half dollar-wise versus the first half, but that's normal seasonality, and that's sort of how most mid-tech businesses work. So I was hoping you could just revisit the decelerating growth rate and walk us through the reasons. Is it, you know, is it due to the personnel cuts? Is it due to a slowing in the market? Is it conservatism?

Rebecca Kuhn: Growth margin for the second quarter of 2024 was 73.4 percent compared to 72.5 percent in the second quarter of 2023. The improvement in growth margin was due to an increase in RNF growth margin, largely due to the increase in volume, as our sixth manufacturing overhead cost was spread over more years. This increase was partially offset by the lower growth margin from distribution of diximedical products. R&D expense in the second quarter of 2024 was $6.1 million compared with $5.3 million in the same period of 2023.

Obviously, I I hear you're doing more in the second half of dollar wise versus the first half, but that's normal seasonality and that that's sort of how most med tech businesses work.

Speaker Change: So I was hoping you could just revisit the decelerating growth rate in and walk us through the reasons is that.

Speaker Change: You know is it due to the personnel cod is it due to a slowing in the market is it conservatism just just help us think about the slowing growth rates you know more ignoring the dollar amount.

Joel Becker: Just help us think about the slowing growth rates, you know, more ignoring the dollar amount. That'd be helpful. Thanks. Thanks for the question, Robbie. And so I would just go back to the point that I made earlier, and we really don't see it as a result of any cuts internally, and we don't see it as any slowing in the market. We have seen good, what we consider to be good and healthy patient populations in our pipeline, and we continue to work to invest in them. We're on the top line, as well as then, you know, demonstrating good operating expense discipline, but we're absolutely investing in the business. So we don't, we don't see anything associated with that impact.

Speaker Change: That'd be helpful. Thanks.

Speaker Change: Thanks for the question Robbie.

Speaker Change: I would I would just go back to.

Speaker Change:

Speaker Change:

Speaker Change: The point that I made that I made earlier and we really don't we really don't see it as a result of any cuts internally and we don't see it as any.

Rebecca Kuhn: This increase was primarily driven by an increase in personnel related expenses and an increase in expenses for product development and clinical studies, partially offset by an increase in grant funding. SGNA expense in the second quarter of 2024 was $14.3 million compared with $14.5 million in the prior year period. This decrease was primarily due to an overall decrease in personnel related expenses as a result of personnel changes, partially offset by an increase in sales and marketing expenses.

Speaker Change: Hum slowing in the market, we have seen good what we consider to be good and healthy patient populations in our pipeline and we continue to.

Speaker Change: Work to invest in.

Speaker Change: Growing the top line as well as then demonstrating good operating expense discipline, but we're absolutely investing in the business. So we don't we don't see it.

Robbie Marcus: We do see that there is some, some seasonality that we expect in the summer months. And we've seen that previously. And we also do expect that when you look forward, the comps from the prior year do get tougher in the back half of the year. So again, we do see where we're going to continue to grow the business in the second half of the year. We're excited about how we're positioned to grow the business and have been.

Anything associated with that impact we do see that there are there is some some seasonality that we expect in the summer months and.

Rebecca Kuhn: Total operating expenses in the second quarter of 2024 were $20.4 million compared with $19.8 million in the same period of the prior year, representing growth of only 3%. With revenue growing by 17% for the quarter, we demonstrated strong operating leverage resulting from our focus on driving revenue growth while also effectively managing our operating expenses and cash. We continue to focus on balancing these objectives, which we expect to continue through the remainder of 2024.

Speaker Change: We've seen that previously and we also do expect that you know when you look forward the comps from prior year do get tougher in the back half of the year. So again.

Speaker Change: Again, we do see where we're going to continue to grow the business in the second half of the year. We're excited about how we're positioned to grow the business.

Speaker Change: And have been but we also recognize that some of those comps from from last year do get harder in the second half of the year and affect us from a growth rate perspective.

Speaker Change: Yeah.

Rebecca Kuhn: Lost from operations was $6.2 million in the second quarter of 2024 compared with $7.9 million in the prior year period. We have recorded $2.2 million of interest expense in the second quarter of 2024 compared to $2.1 million in the prior year period. Net loss was $7.5 million for the second quarter of 2024 compared with $9.1 million in the second quarter of 2023. As discussed previously, we have maintained a disciplined expense management strategy resulting in cash burn in the second quarter of 2024 of $4 million compared to $4.4 million in the second quarter of 2023.

Robbie Marcus: But we also recognize that some of those comps from last year do get harder in the second half of the year and affect us from a growth rate perspective. Okay, the reason I'm focused on the second half versus the first half is because the street, you know, it's sitting well above that second half growth rate in 2025. So I'm trying to get a better sense. Is that the new normal?

Speaker Change: Okay. So the reason the reason I'm focused on the second half versus first half is because the street.

Speaker Change: It was sitting well above that second half growth rate in 2025, so I'm trying to get a better sense is that the new normal is that a very conservative approach gone out to 'twenty five but.

Joel Becker: Is that a very conservative approach going out to 25? But... I can move on. Just two quick ones from me. I'll ask you both. We talked a lot about Dixie and the contribution and revenue and the impact on gross margin, but I don't remember you giving us a revenue number for that or even a percent of sales for a while. So I was hoping you could just sync us up on Dixie and then also maybe if you could give us your thoughts on how you'll be handling the debt when it comes due in two years. Thanks. I'll start us off there, Robbie.

Speaker Change: I can move on I, just two quick ones from me.

Speaker Change: I'll ask you both.

Speaker Change: You talked a lot about Dixie and the contribution in revenue and the impact on gross margin, but I don't remember you, giving us a revenue number for that or even a percent of sales for a while so I was hoping you could just think that's up on Dixie and then also maybe if you could give us your thoughts on how you'll be handling.

Speaker Change: The the debt when it comes due in two years. Thanks.

Rebecca Kuhn: Our cash and short-term investments balance as of June 30, 2024 was $55.5 million. Our long-term borrowings totaled $59 million as of June 30, 2024. As a reminder, the final maturity of our debt is September 30, 2026.

Joel Becker: And then I'll ask Rebecca to chime in. With regard to Dixie, you're right; we don't break the revenue up by product line. But at the end of 2023, we did provide the waypoint, the handhold of Dixie revenue being approximately 15% of our total sales. So I think that would be an update from when we, as you referenced, from when we initiated the relationship, we had given that revenue number; I believe it was $1.6 million at that time.

Speaker Change: I'll start us off there Robbie and then I'll ask Rebecca to chime in with regard to Dixie you're right. We don't break the revenue by product line, but at the end of 2023, we did provide.

Speaker Change: The the way point are the handful of Dixie revenue being approximately 15% of our total sales. So I think that that would be an update from from when we as you referenced from when we initiated the relationship we had given we had given that revenue number at a I believe it was $1 6 million.

Rebecca Kuhn: Regarding annual guidance for 2024, we now expect our total revenue to be in a range of $76 to $78 million, an increase of approximately 16 to 19%. This growth is expected to be mostly driven by an increase in sales of our R&S system with growth from sales of Dixie medical products continuing to make a meaningful contribution. Replacement Implant Revenue is expected to be relatively consistent in 2024, compared with 2023. We expect our gross margin to be in a range of 72 to 74% for 2024, although we may see small variability due to fluctuations in the proportion of Dixie Medical Revenue to overall revenue and other factors. We expect operating expenses for 2024 to range between $80 million and $84 million, including approximately $12 million in stock-based compensation in non-cash expense.

Joel Becker: And we gave an update at the end of 2023, so a couple quarters ago, that the Dixie revenue percentage was about 15% of our total revenue. So hopefully that gives you a little bit of help. With regard to the debt, obviously, we recently announced the extension of the maturity of the debt by a year out through September of 2026. That additional flexibility, we believe, gives us just that. It gives us the flexibility to continue to be able to manage the debt in a way that we think is going to be beneficial as well as potentially take advantage of should a lower interest rate environment develop. It gives us some flexibility there as well.

Speaker Change: At that time, and we've given the update at the end of 'twenty three so.

Speaker Change: A couple of quarters ago, the Dixie revenue percentage was about 15% of our of our total revenue. So hopefully that gives you a little bit of help with regard to the debt. Obviously, we recently announced the extension of the maturity of the debt by a year.

Speaker Change: Out through.

Speaker Change: September of of 226.

Speaker Change: The that additional flexibility we believe gives us just that it gives us the flexibility to continue to be able to.

Speaker Change: Manage the debt in a way that we think is going to be beneficial as well as potentially take advantage should have showed a lower interest rate environment develop.

Speaker Change: It gives us some flexibility there as well so I'll I'll ask Rebecca if theres anything you want to comment on either one of those.

Rebecca Kuhn: So I'll ask Rebecca if there's anything you want to comment on, on either one of those. I think you've covered it pretty well. We haven't specifically discussed plans for our debt.

Rebecca Kuhn: I think you've covered it pretty well we havent.

Joel Becker: I would now like to turn the call back over to Joel for closing remarks. Joel. Thank you, Rebecca.

Rebecca Kuhn: Specifically discussed plans for our guests we continue to evaluate options.

Rebecca Kuhn: We continue to evaluate options, and we will continue to do that, considering what would be in the company's best interest and our shareholders' best interest, and we have additional flexibility as a result, stretching out the final maturity for a year, as Joel mentioned. I think Joel covered it all pretty well. Great, thanks for taking the question. You bet. Thank you, Robbie. Thank you. Our final question comes from Michael Polark of Wolf Research. Please go ahead. Thank you. Good afternoon. Two quick ones.

Joel Becker: We are excited to announce another solid quarter of revenue growth coupled with meaningful gross margin expansion and the demonstration of operating expense discipline, all contributing to strong cash management in the second quarter. Additionally, we are continuing to make progress on the execution of our strategy of expanding access to R&S therapy to help close the treatment gap for drug-resistant epilepsy patients, and I look forward to updating you on our progress through the second half of 2024.

Rebecca Kuhn: And we will continue to do that considering.

Rebecca Kuhn: Would be in the company's best interest and our shareholders' best interest.

Joe: We have additional flexibility as a result of stretching it out for stretching out to finally surety for Yaron, It's Joe as Joe mentioned.

Joe: We think actually Joel covered it off pretty well.

Speaker Change: Great. Thanks for taking my questions.

Robby: You bet. Thank you Robby.

Speaker Change: Thank you final question comes from Michael Pollack of Wolfe Research. Please go ahead.

Operator: This concludes our prepared remarks. I would not like to turn the call over to the operator who will open the call for questions. Operator. Thank you, so at this time we will be conducting a question and oxygen. If you would like to ask a question, please press star then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, if you would like to ask a question, please press star and then one now.

Michael Polark: Rebecca, in your prepared remark, I heard you made a comment about Dixie's revenue contribution or mix across the quarters. I didn't quite catch what you said. Can you remind me what you said and what it means for modeling on Dixie, if anything? We commented, or I commented, that Dixie made a meaningful contribution to our revenue growth. That's really about it, you know, with regard to our gross margin. Of course, our gross margin is impacted by many factors.

Michael Pollack: Thank you good afternoon, two quick ones Rebecca in your prepared remarks, I heard you made a comment about Dixie revenue contribution or mix across the quarters I didn't quite catch.

Michael Pollack: What you said can you remind me what you said and what it means for modeling on Dixie if anything.

Michael Pollack:

Michael Pollack: Yeah.

Rebecca Kuhn: We commented or I commented that at Dixie.

Speaker Change: <unk> made a meaningful contribution to our revenue growth.

Speaker Change: <unk>.

Speaker Change: Yeah.

Speaker Change: That's really about it with regard to our gross margin a question on gross margin is impacted by many factors.

Vikramjeet Chopra: The first question we have comes from Vic Chopra of Wells Fargo. Please go ahead. Hey, good afternoon and congratulations on a nice quarter. A couple of questions for me. So just on this project care, you referred to an increasing number of referrals. Maybe just talk about who these are coming from, and if you can share some more color on the number or the cadence of the referrals or any other information you can share, then I had a follow-up, please.

Speaker Change:

Rebecca Kuhn: And as you know, and as we've said before, RNS has a... Grader, Grossmargin, Dixie Weef, stated before that Dixie, we believe, has... Unknown Attendee, Irina Ridley, Michael Kratky, Vikramjeet Chopra, Ross Osborn, Rebecca Kuhn, Yeah, the only other thing might be just that we offered that in the context of, Dixie may have some variability due to small fluctuations relative to overall revenue from period to period, but nothing much.

Speaker Change: And as you know and as we've said before rns Jose.

Speaker Change:

Speaker Change: Great Okay.

Speaker Change: <unk>.

Speaker Change: Stated before I think Dixie, we believe has a favorable.

Speaker Change: This margin for distributed products that we really didn't say anything beyond that.

Mike Crawford: Yeah, the only the only other thing Mike maybe just that we offered that in the context of the as Rebecca mentioned in the context of the gross margin discussion.

Vikramjeet Chopra: Hi, Vic. Excuse me. Hi, Vic. Good afternoon. Thank you for your question. Yeah, we have seen increasing activity and interest in care, both on the implants as well as the referral side and interestingly as well, really now the beginning of the development of a pipeline of these patients as well in targeted centers. So what we've seen is that as centers get up and running specifically on the referral side, they may identify patients who eventually might be able to be treated well in a community setting, but because they're just getting started, they may they may feel comfortable referring those initial patients in while they to a level 4 center while they while they get underway with their training and education and get their program set up, etc.

Vikramjeet Chopra: And then secondly, as well as we generate more awareness out in the community setting, as people look at their patient populations and evaluate different patients for, or potential RNS therapy. We see that there are patients who are uncovered who may be good candidates for referral into Level 4 Center for Phase 2 testing. A more traditional patient that either previously couldn't have or wouldn't have been referred back in. And so our training and education and awareness efforts there around the technology as well as the role, RNS therapy can play in somebody's practice and a focus on identification of patients that might be good candidates. It has led us to have both, you know, implants as well as referrals as I've described here with an increasing level of activity here in the recent quarter.

Speaker Change:

Mike Crawford: Dixie may have some variability due to small fluctuations relative to overall revenue from period to period, but nothing.

Mike Crawford:

Joel Becker: Nothing outside of that. Okay, okay. All right. Can you remind me, have you quantified the scale of that, like in terms of territory expansion or headcounts, quota-carrying reps? Clinical Resources. I just, I don't recall a, "It was this, we've expanded it this much" comment. If there's any color there, I'd appreciate it.

Speaker Change: Nothing outside of that yeah, okay. Okay, alright, the follow up was on just the incremental hiring and training.

Speaker Change: Can you remind me have you quantified the scale of that like in terms of territory expansion or head count quota carrying reps or clinical resources I, just I don't recall a it was this we've expanded it this much comment if theres any color there I'd appreciate it. Thank you so much.

Michael Polark: Thank you so much. Mike, what we've talked about there is that we've characterized the expansion as an incremental expansion. We chose that word carefully to just indicate that we consider it big enough and it is commercially focused. So just to your question of clinical support or commercial, it is commercially focused resources, and we've characterized it as an incremental expansion. So, you know, it's big enough that we'd want to be talking about it, but we haven't given it any specific headcount, necessarily quantified at this point.

Speaker Change: Mike what we what we've talked about there is we've characterized the expansion as an incremental expansion. We chose we chose that word carefully to.

Mike Crawford: Indicate that it's we can say, we're big enough and it is commercially focused so just to your question of.

Mike Crawford: Clinical support or commercial that is commercially focused our resources and we've characterized it as an incremental expansion. So it's big enough that we would want to be talking about it but we haven't given it up.

Speaker Change: Any specific head count necessarily quantified at this point.

Speaker Change: Okay. Thank you so much.

Speaker Change: Thank you.

Speaker Change: Yeah.

Joel Becker: Okay, thank you so much. Yeah, thank you. Thank you. Ladies and gentlemen, we have reached the end of our question and answer session, and I would like to turn the call back to Joel Becker for closing remarks. Please go ahead, sir.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, we have reached the end of our question and answer session and I would like to turn the call back to Joe.

Joe: Closing remarks. Please go ahead Sir.

Speaker Change: Yeah.

Joel Becker: Thank you. Thank you to everyone for your time and attention today. We're excited about the past quarter that the team has delivered and want to express our appreciation to everybody here at Neuropace for all of the hard work. We're also excited about our strategy, the progress both in this quarter as well as our plans going forward for the remainder of the year and beyond. We are really very well positioned to continue to execute on all three phases of it, and the growth in our strategy and what that means for the business now and into the future is even more exciting to us. We look forward to updating you on all of that in future calls. Thanks again. Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines. (inaudible)

Joe: Thank you. Thank you for everyone for your time and attention today.

Joe: We're excited about the past quarter that the team has delivered and want to express our appreciation to everybody here at neuro pace for all of the hard work. We're also excited about our strategy the progress both in this quarter as well as our plans going forward for the remainder of the year and beyond.

Rebecca Kuhn: Okay, thank you. And then, you know, you raised the top line guidance, held the line on gross margins and op-ex. Maybe just help us understand how we should think about the margin cadence and the op-ex cadence for the back half of the year. Thank you very much. Do you mean we want to start us out here on margin and op-ex, Rebecca and all chime in? Sure, absolutely. Yes, because you noted we kept our gross margin and op-ex guidance consistent.

Joe: We are really very well positioned to continue to execute on all three phases of it.

And the growth in our strategy and for what that means for the business now and into the future.

Joe: As further exciting to us we look forward to updating you on all of that in future calls. Thanks again.

Speaker Change: Thank you.

Rebecca Kuhn: Our gross margin can fluctuate due to a variety of factors generally, gross margin improves with RNS volume. And we expect that over time, we expect to see improvement, but of course it's not unexpected to see small variation quarter to quarter. With regard to operating expenses, our op-ex for the top of the year was a little over $41 million, which puts us squarely within our guidance. If you annualize that, throughout the rest of the year, we don't expect to see significant fluctuations in op-ex. Although I will say sometimes we see some increases in the fourth quarter as a result of our major medical meeting, the AES Annual Meeting in December.

Ladies and gentlemen that concludes today's conference. Thank you for joining US you may now disconnect your lines.

Unknown Attendee: Thank you.

Ross Osborn: The next question we have comes from Ross Osmond of Council Fitzgerald. Please go ahead. Yes, congrats on the strong quarter and thanks for taking our questions. So maybe on your revised revenue guidance, it looks like most of it's driven by the strong QQ.

Joel Becker: So kind of diving in there, would you walk your growth between utilization by existing users versus new ones coming on board, especially with a care program, and then why you wouldn't expect that to continue throughout the back half? Hi Ross, thanks for the question and good to hear from you. As we look at guidance, as we take it to starting point. Here, you know, Q1 at 18 million, Q2 at 19.3 million.

Joel Becker: So we've got 37.4 through the first half. And we increased our guidance range from 73 to 77 to 76 to 78, raising the top end, as you mentioned. So, surely what we've got is we've got 37.4 through the first half. And our guidance range implies 38.6 to 46 in the second half. Now we're not, we don't break that out. Not by quarters, but with that given as a range. And I think we've talked about previously.

Joel Becker: We do have a little bit of seasonality in the summer months. We do expect growth, obviously in the back half of the year and growth each quarter. So we recognize that, you know, the growth rate. It doesn't hold through the full calendar, but if you look at the second half of the year, guidance implies, you know, 40 million or so in the second half of the year versus 37 million in the first half of the year recognizing comps do get a little tougher from a growth rate perspective. We do see good growth and are looking to signal that there in the increased guidance as well.

Joel Becker: Okay, understood. And then I see here that novel is progressing well. You know, so ahead of the expected expanded generalized indication and 26 launch, you know, where some key initiatives that are on deck for next year. Yeah, so it's a great question and and you're right. Not a list is is on track and proceeding well and when we're excited about the progress that that we continue to make there. You know, some things that point to hear Ross is we've talked about at length the pilot and expansion associated with the project care program and we think that's a meaningful opportunity for us and and is a significant area of focus for us as well.

Joel Becker: So the ability for us to expand outside level four centers and both set ourselves up for potential direct RNS therapy as well as increasing referrals. So one project care and that associated program to the investments that we've been making and continued to make and just just announced here this quarter, the completion of the incremental hiring and training and now. The implementation of our expanded commercial organization and so really we're going to take advantage of both the investments we've made previously as well as these most recent investments in our commercial organization to amplify growth in in strong areas where we've got it and then and then good overlap with the project care programs as well to further support that.

Joel Becker: So that's a second key area of focus for us and then you know we we've we've also talked about its three phase strategy right it's increasing adoption and utilization within level four centers. It's expanding site of service care delivery with project care and then it's expanding indications. So you hit on Nautilus I talked about project care already and then the third piece of it is expanding adoption and utilization within the level four centers and a big area of focus for us there is what we talk about is the modern RNS story and that's increasing both adoption so broadening the scope of how people can use RNS therapy with and currently indicated patients as well as utilization.

Joel Becker: Which is you know additional and expanded patient populations you've asked in the past about the hybrid use of the technology along with surgical applications and and there are other patient populations as well including network stimulation for the treatment of focal epilepsy drug resistant focal epilepsy patients as well so it's really. Project Care, and executing on that, it's then the expansion of the commercial organization and then the telling of the modern R&S story to increase adoption and utilization within the level four centers and as maybe clear to folks and may not be, those things also set us up well for the potential for expanding indications as as Nautilus and assuming a successful trial expands and develops our approved our approved patient indications.

Joel Becker: This work that we're doing now, both with project care as well as investing in our commercial organization and expanding how people can use R&S therapy into different patient populations, all support than our eventual indication and expansion of both patients to be treated and where they can be treated. So these things all work together between here and there.

Ross Osborn: Got it. Thanks for having a question. I think you're grasp again on the strong quarter. Thank you Ross.

Unknown Attendee: Thank you.

Michael Kratky: It's the next question that we have comes from Mike Kratky of Learing Partners. Please go ahead. Hi everyone. Thanks for taking our questions. One clarifying question to start. Did you quantify how much you benefited from Nautilus enrollment in 2003 that you backed out to get that 21% year-over-year growth for R&S sales with quarter? We didn't quantify that Mike and we're not going to start breaking things out by program and by product line.

Michael Kratky: But the reason that we broke it out as a bullet point the way that we did is just to note, obviously we can't comment on any off label usage of the products and don't have any commentary around the trial outside of what we've said about Nautilus. But we just wanted to provide that as a point excluding Nautilus as a reminder to folks that there was a benefit in clinical trial revenue in 23 that we don't have in 24 that we think is an indicator of a good indication of the underlying strength of the business.

Michael Kratky: So we haven't broken it out. It's really included as a point of reminder to people that that was a benefit that we had in 23 and as you look at the growth in 24 that was something that we had to make up in addition to then demonstrate the current period growth.

Joel Becker: I've got it super helpful. Maybe just a, you know, on that last point, is there anything we should be building in for the third and fourth quarter of this year on that side and maybe separately, you know, I recognize it's early days, but really just curious on how any of the preliminary learnings from the pilot part of the project care program have shaped your overall thinking on the commercial strategy from here and your efforts in a second half.

Joel Becker: Yeah, thanks, Mike. And I guess what I would, what I would tee up there is just, you know, what we've, what we've learned is that, you know, there are important things for us here with regard to targeting with regard to the training and education that we do with regard to the benefits that people can see for both identifying patients to be potentially treated in their own centers as well as the potential to treat patients or refer patients rather as well.

Joel Becker: And so that's all. That's all been very helpful is we think about the go-forward strategy for care and we continue to see a significant opportunity there both as I mentioned in the current focal drug-resistant population as well as then we think about that the potential again pending and successful notals trial for an indication expansion with that population obviously there isn't a requirement to refer those patients for phase two testing so you know even more opportunity associated with the presence in the in the community and we think our learnings here during this process are going to be going to be helpful as we think about that as well. I understand thanks very much. Thanks Mike.

Operator: Thank you ladies and gentlemen just a reminder if you would like to ask a question please for star and then one now.

Frank Takkinen: The next question we have comes from Frank Takkinen of Lake Street capital markets please go ahead. Great thanks taking my questions and congrats on all the progress. Also wanted to follow up on kind of the commentary around a lot of growth coming from Prongwan really and growing deep in the established level level four center network. Anything you can provide us that you can help us understand that growth a little bit better from a utilization at a per center level versus a new prescriber any color on which of those two to grow tomorrow the growth in the quarter.

Frank Takkinen: Hi Frank thanks for your question it's a great question and as you say it really kind of focused here on the first plank of the strategy of of growing both adoption and utilization in in level four centers is really where the focus has been and given our established you know kind of our footprint our basis inside of level four centers you know we really we really have been focused on driving both that adoption the you know the number of prescribers using the R&S system as well as utilization so what is the rate at which they're using it and there's two different pieces here for us you know in in expanding adoption that's where we're really focused on as we as we highlighted here in our prepared comments the increasing number of prescribers and then with regard to utilization it's the modern R&S story which is how do we expand the the patients that people are thinking about utilization of R&S therapy for and and so we have seen success in expanding the number of prescribers and so that that's been a key area of focus for us and we've seen good contributions to growth there and then with regard to utilization we've also seen good progress there and in particular I guess I'd call out the use of the R&S system for network stimulation applications as something that you know for treating focal populations but treating those focal populations and treating the network have been or have both been things that we've seen as impactful and they really obviously work together you know expanding the number of users we then move quickly from getting a new prescriber to working to deepen utilization for that prescriber as well so the two pieces of it really work work closely together but that's where our focus is going Okay, that makes sense.

Joel Becker: And maybe just for my second one was hoping to ask about Dixie. When the partnership was established, there was obviously some benefit to understanding the patient tunnel. Any quantifiable learnings you've taken from now having had that after for some time and I don't know if there's anything related to time from first EEG to RNS implant if that's improved at all or any other broader learnings from having Dixie in the bag. Nothing that we're going to specifically quantify at this point Frank in terms of a metric but I would say that we have seen where there are absolutely places accounts where we get better visibility to where patients are at in the diagnostic process and can as a result have conversations earlier and sooner and about a broader group of patients than we would have if we hadn't had visibility to that.

Joel Becker: So it has helped broaden the visibility upstream and has helped in a number of accounts. Give us visibility we maybe wouldn't have had especially in places where we may have people who aren't quite as tenured and that's given them a good opportunity to be part of those conversations and look for their upstream.

Unknown Attendee: Perfect. Sounds good. Thanks. Thank you for questions. Thanks Frank.

Robbie Mawis: The next question we have comes from Robbie Mawis of JP Morgan. Please go ahead. Okay. Thank you. Thanks for taking the questions. A couple from me. I wanted to circle back to a previous question on the implied second half growth rate. Obviously I hear you're doing more in the second half a dollar-wise versus the first half but that's normal seasonality and that's sort of how most mid-tech businesses work. So I was hoping you could just revisit the accelerating growth rate and walk us through the reasons.

Robbie Mawis: Is it, you know, is it due to the personnel cut? Is it due to a slowing in the market? Is it conservatism? Just just help us think about the slowing growth rates, you know, more ignoring the dollar amount that'd be helpful. Thanks. Thanks for the question, Robbie. And so I would just go back to a point that I made earlier and we really don't see it as a result of any cuts internally and we don't see it as any slowing in the market.

Robbie Mawis: We have seen what we consider to be good and healthy patient populations in our pipeline and we continue to work to invest and grow on the top line as well as then, you know, demonstrating good operating expense discipline but we're absolutely investing in the business so we don't see anything associated with that impact. We do see that there is some seasonality that we expect in the summer months and we've seen that previously and we also do expect that, you know, when you look forward the comps from prior year do get tougher in the back half of the year.

Robbie Mawis: So again, we do see where we're going to continue to grow the business in the second half of the year. We're excited about how we're positioned to grow the business and have been but we also recognize that some of those comps from last year do get harder in the second half of the year and effect is from a growth rate perspective. Doom. The reason I'm focused on the second half of this first half is because the street is sitting well above that second half growth rate in 2025.

Robbie Mawis: I'm trying to get a better sense is that the new normal is that a very conservative approach going out to 25 but I can move on. I just two quick ones from me. I'll ask you both. You talked a lot about Dixie and the contribution in revenue and the impact and growth margin but I don't remember you giving us a revenue number for that or even a percent of sales for a while so I was hoping you could just sync us up on Dixie and then also maybe give us your thoughts on how you'll be handling the debt when it comes to in two years.

Robbie Mawis: Thanks. I'll start us off there. Robbie and then I'll ask Rebecca to chime in. With regard to Dixie, you're right. We don't break the revenue up by product line but at the end of 2023 we did provide the waypoint, the handhold of Dixie revenue being approximately 15% of our total sales. So I think that would be an update from when we, as your reference from when we initiated the relationship, we had given that revenue number.

Robbie Mawis: I believe it was 1.6 million at that time and we've given the update at the end of 23 so a couple of quarters ago that the Dixie revenue percentage was about 15% of our total revenue so hopefully that gives you a little bit of help with regard to the debt. Obviously we recently announced the extension of the maturity of the debt by a year out out through September of of 2026. That additional flexibility we believe gives us just that.

Robbie Mawis: It gives us the flexibility to continue to be able to manage the debt in a way that we think is going to be beneficial as well as potentially take advantage should a lower interest rate environment develop. It gives us some flexibility there as well. So I'll ask Rebecca if there's anything you want to comment on on either one of those. I think you've covered it pretty well. We haven't specifically discussed plans for our debt.

Robbie Mawis: We continue to evaluate options and we will continue to do that considering what would be in the company's best interest and our shareholder's best interest and we have additional flexibility as a result of stretching it out for stretching at the final maturity for a year as Joel mentioned. So I think actually Joel covered it all pretty well.

Joel Becker: Great. Thanks for taking the questions. You bet. Thank you Robbie.

Michael Pollock: Thank you. Our final question comes from Michael Pollock of all three such. Please go ahead. Thank you. Good afternoon. Two quick ones. Rebecca in your prepared remark. I heard you made a comment about Dixie revenue contribution or mix across the quarters. I didn't quite catch what you said. Can you remind me what you said and what it means for modeling on Dixie if anything? We commented, or I commented, that Dixie made a meaningful contribution to our revenue growth and that's really about it, you know, with regard to our growth margin, of course our growth margin is impacted by many factors.

Michael Pollock: And as you know, and as we've said before, R&S has a greater growth margin than Dixie, we've stated before that Dixie, we believe, has a favorable growth margin for distributed products, but we really didn't say anything beyond that. Yeah, the only other thing might be just that we offered that in the context of the, as Rebecca mentioned, the context of the growth margin discussion, Dixie may have some variability due to small fluctuations relative to overall revenue from period to period, but nothing outside of that.

Michael Pollock: Yeah, OK, OK, all right, the follow up was on just the incremental hiring and training. Can you remind me of you quantified the scale of that, like in terms of territory expansion or headcount, code of carrying reps or clinical resources, I don't recall it was this, we've expanded it this much comment. If there's any color there, I'd appreciate it. Thank you so much. Mike, what we've talked about there is we've characterized the expansion as an incremental expansion, we chose that word carefully to just indicate that it's, we consider big enough and it is commercially focused.

Michael Pollock: So just your question of clinical supporter commercial, it is commercially focused resources and we've characterized it as an incremental expansion. So, you know, it's big enough that we'd want to be talking about it, but we haven't given it any specific headcount necessarily quantified at this point. OK, thank you so much. Yeah, thank you.

Unknown Attendee: Thank you.

Joel Becker: Ladies and gentlemen, we have reached the end of our question and answer session and I would like to turn the call back to Joel Becker for closing remarks. Please go ahead, sir. Thank you. Thank you for everyone for your time and attention today. We're excited about the past quarter that the team has delivered and want to express our appreciation to everybody here at Neural Pace for all of the hard work. We're also excited about our strategy, the progress both in this quarter as well as our plans going forward for the remainder of the year and beyond.

Joel Becker: We are really very well positioned to continue to execute on all three phases of it and the growth and our strategy and for what that means for the business now and into the future is further exciting to us. We look forward to updating you on all of that in future calls. Thanks again. Thank you.

Operator: Ladies and gentlemen, that then concludes today's conference. Thank you for joining us.

Operator: You may now disconnect your lines.