Good morning and welcome to NeuroPace’s First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. We'll be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I’ll now like to turn the call over to Matt Bacso from Gilmartin Group for a few introductory comments.

Thanks, Operator. Good morning and thank you for participating in today's call. Joining me from NeuroPace are Mike Favet, CEO and Rebecca Kuhn, CFO. Earlier today, NeuroPace released financial results for the quarter ended March 31, 2021, a copy of the press releases available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements including those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, revenue guidance, commercial expansion and product pipeline developments are based upon our current estimates in various assumptions. These statements involve material risks, 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 a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the Securities Exchange Commission, including the final prospectus filed with the SEC pursuant to Rule 424(b)(4) on April 23, 2021 in connection with our initial public offering. The conference call contains time sensitive information and is accurate only as of the live broadcast on June 3, 2021. 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. With that, I will now turn the call over to Mike.

Thanks, Matt. Good morning and thank you for joining us. Before we get into the details, I would like to take a moment to acknowledge that this is our first earnings call since we completed our IPO and listed on NASDAQ in April. I would like to take this opportunity to say thank you to all who participated in the offering, which raised approximately $105 million in net proceeds, and to those who have invested in the company since. I would also like to again thank the entire NeuroPace team, our Board of Directors and most of all our patients and the clinicians who care for them. With all of your support, we are well positioned to take the next steps toward our goal of making RNS Therapy the standard of care for drug-resistant epilepsy patients. While many of you had a chance to hear our story during our IPO process, I'll start today's call with an introduction to NeuroPace, before moving on to cover recent updates and our vision for the future. Lastly, Rebecca will provide an update on the financial results before we open the lines for questions. NeuroPace is a commercial-stage medical device company focused on transforming the lives of people suffering from epilepsy by reducing or eliminating the occurrence of debilitating seizures. Roughly, 3.4 million people in the United States are living with epilepsy. While anti-epileptic drugs are available as a first line treatment, approximately 1/3 of people with epilepsy are considered drug-resistant, since medications are unable to control their seizures. As a result, there are approximately 1.2 million people living with drug-resistant epilepsy in the United States. Many of these individuals have been struggling with the effects of epilepsy for years, often decades moving from one failed drug therapy to another, struggling with the medication…

Thanks Mike. NeuroPace’s revenue for the first quarter of 2021 was $11.2 million, compared to $10 million for the first quarter of 2020, an increase of 12%. The increase was primarily driven by an increase in unit sales of our RNS System to Comprehensive Epilepsy Centers for initial implant procedures. In the first quarter, revenue from initial implants was $8.1 million, an increase of 23% over the first quarter of 2020. Revenue from replacement implants was $3.1 million, a decrease of 8% compared to the first quarter of 2020. The decrease in revenue from replacement implants was expected. It is the result of the longer replacement cycle of our newer device with an eight year battery life, which is double the battery life of our previous device, as Mike described. Gross margin for the first quarter of 2021 was 75.7% compared to 70.7% in the first quarter of 2020. Our gross margin improved in the first quarter of 2021, primarily due to lower fixed costs per unit as our production volume increased, and from our ongoing efforts to reduce our product cost. In the first quarter of 2020, our gross margin was negatively impacted by a reduction in production volume as a result of the COVID-19 pandemic. Total operating expenses in the first quarter of 2021 were $12.4 million, compared with $12.5 million in the same period of the prior year. R&D expense in the first quarter was $4.1 million, compared with $4.8 million in the same period of 2020. The decrease in R&D expense was primarily driven by a reduction in payroll and personnel-related expenses due to our COVID-19 expense reduction efforts. SG&A expense in the first quarter of 2021 was $8.3 million, compared with $7.7 million in the prior year period. The increase in SG&A was primarily driven…

Thank you. [Operator Instructions] Our first question comes from Robbie Marcus with JPMorgan. Your line is open.

Great, good morning and congratulations on the first call as a public company.

Thanks, Robbie.

Maybe just to start, I know first quarter, it seems like a million years ago and everybody's focused on the future, I'd love to see if you'd be able to comment. You gave guidance for second quarter that was coming in a little better than I was thinking up low single digits versus first quarter. So we'd love to get a sense of what you're seeing out in the field today. Our operations getting back to normal, close to normal above normal and there's potentially a lot of patients building up in the pipeline would love your thoughts. I'll just give you both my questions upfront; on the potential backlog of patients hear, that could should – would be treated in 2021 and 2022. Thanks.

Thanks, Robbie. We are seeing as we put in the forecast, sequential growth from Q1 to Q2. And that's really driven by increased adoption and utilization within the centers not really driven by COVID recovery. As we stated a little bit earlier, the patients that are coming through the diagnostic process that the hospitals go through and inpatient stay in the Epilepsy Monitoring Unit, has a precursor to becoming a candidate and then ultimately being scheduled for an RNS implant procedure. We are seeing and hearing from our customers that those number, the number of patients coming through that process is increasing. But on average, it's about a six month delay from the time that they first come in for that inpatient Epilepsy Monitoring Unit stay until they get the RNS device implanted. And so that's giving us confidence that I will continue to see growth through the second half of the year and really get that COVID recovery. With growth that, we're seeing today again, just coming from increased adoption and utilization at without the benefit of that COVID recovery. There is a backlog of patients that we hear from our customers that are waiting to get into this Epilepsy Monitoring Unit. So as those centers get up to full capacity, that really primes the pipeline for us in the future. And you're excited about what that means for the business as we go forward.

Great. And maybe just a quick follow up. It was really helpful. You gave guidance for initial implants and replacements. I know there's a bit of dynamic with replacement. Just how do we think about the cadence of those two going through the rest of the year? And anything to point to that stands out in second, third or fourth quarter. Thanks.

The general trends for replacement revenue is going to be declining replacement revenue over the course of the next few years as we go through that transition from the four year average battery life to the newer eight year battery life that we started implanting in 2018. What we will expect to see a little bit of unevenness from quarter-to-quarter depending on the timing of when certain devices or when individual devices reach that end of battery life replacement, but the general trend is going to be declining revenue over the course of the next few years.

Great, thanks a lot and congrats.

Thanks, Robbie.

Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open.

Hi, Mike. And Rebecca, thanks for taking the questions and congrats on your first quarter as a public company, just to maybe start on new accounts for a moment. I think you ended 2020 around 130 active accounts and Mike, correct me if I'm wrong, but I think I heard 148 by year end. I think you've noted before that there might be another 40 that have been going through the committee process, but can you give us a better sense of timing on those accounts of when they could become active? Could you see even better account onboarding beyond the 148 in 2021 or is kind of this year more of a focus on driving prescriber adoption at your current active accounts?

Thanks Drew. Yes, we had 132 centers that implanted in 2020 and expect that will increase to 148, here through 2021. So by the end of 2021, will have had 148 centers, we're on pace to that. And so continue to feel confident and the ability to add additional centers throughout the course of the year. That's driven by the comment that you made, that we do have accounts that we've already identified, that have gone through the contracting process that have identified interests and implanting the RNS System in their patients. And it takes a different amount of time for centers to be able to come up on line with that, and that number of centers at 40 centers compared to last year, that have contracts in place that gives us confidence not only in the ability to get into those 148 centers this year, but it's also the pipeline as we expand through 2022. So we'll focus on continuing to do that the bulk of our growth, as you mentioned, is really coming from additional utilization, increased utilization at the centers that are already using the product. But that's the new centers are an important catalyst for us as we continue to move forward and are doing the – putting in the effort and having the results around expanding those number of accounts through 2021.

Thank you. And the question for Rebecca, just on the gross margin side, you posted 75.7% gross margins in the quarter? Just maybe how are you thinking about gross margins progressing throughout the year with new implants? Having a higher gross margin? It sounds like there's going to be a better second half those more patients come on board. But is there any reason why gross margin should dip below the first quarter level throughout the rest of the year?

Thanks Drew. We were pleased with how the first quarter turned out. Our gross margin has been trending up sequentially, having said that, we expect that it will remain in the mid-70s for the balance of this year. We do expect that over time with increasing volume, that we'll see some modest improvements in future years. But for the remainder of this year, we're expecting to be in the mid-70s.

Thanks. And just one last one on the nSight Platform. Mike, you touched on it in your prepared remarks. I think you said you're at 60 centers today. But could you go into a little bit more detail about the rollout? Would you expect to get to all 148 centers by the year end? And just how has the feedback been from your current prescribers? Thanks so much for taking the question.

Thanks Drew. Yes, the rollout of the nSight Platform is going really well for us at this point, we're in about approximately half of the accounts have started using, I've already started using a for their patients, and the adoption continues to grow over time. We expect that over the course of the next quarters, that there's going to be utilization, there'll be standard utilization across all of our accounts. Not something that we're specifically tracking to say that it'll be 100% by the end of the year, but it's trending in that direction. And we've been really pleased by the uptake. As we've talked before, the importance of that nSight Platform, just continuing to bring the power of the diagnostic data that's provided the brain data that's provided from the device to the physicians in a way that makes it really easy for them to make clinical decisions based on the data coming from the device. And the nSight Platform is a really important tool to be able to do that offering some new reports and nSight report and a patient outcome report that really make it easy for the physicians and we've been very pleased by the feedback coming back from the centers that have started using it.

Thanks for taking the questions.

Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Your line is open.

Good morning, guys, and I’ll echo my congratulations on a good start to the year. So a couple from me, Mike, one, what’s the strategy to expand utilization in active prescribers per account, and capture the patients within the CECs that are appropriate for RNS, but don’t get treated today. And secondly – well, I’ll stop there, Mike, and then I had a follow-up.

Thanks, Larry. The focus – the primary focus is, as you just hit on for the expansion growth for the business is that it’s coming through increased utilization at the Comprehensive Epilepsy Centers. The way that we’re doing that is broken into, step one, within the center is to expand the number of epileptologist within that center that are prescribing the RNS system for their patients. Today, we’re at FSPA, where most of these centers, most of the 132 centers that prescribed an implanted devices last year, we’re doing that with a relatively small number of the staff, of the epileptologist within those centers. So that expansion to more of those epileptologist is coming through education of those physicians, training of those physicians, helping them identify appropriate patients and feel confident in the therapy and the results of the clinical data getting that to them is really important. We talked to some in previous discussions about the outcomes from the real world study. They were published last year getting all of that information out to the physicians. I mean, then for those physicians that start to use the device within their patients is about turning that initial evaluation and trial and a few patients to routine utilization. And so again, that’s coming through education, awareness of the clinical data, supporting the efficacy across a broad range of patients within our indication, feeling competent in the system, and then that ease of use component is really important for that as well. So it’s getting that experience with the advancements we’re making, like the nSight Platform, that make it really simple for the physicians to take that data from the device and apply it back to know how to make the adjustments to the programming, how to get the optimal outcomes for their patients. And so that’s really the focus and the way that we’re driving the growth at those centers.

That’s helpful. And Mike, you mentioned earlier, the majority, 1.1 million to 1.2 million patients are outside the level for CECs. What steps are you taking today to drive more referrals?

Yes. Thanks, Larry. There are approximately 80% of the 1.2 million drug-resistant epilepsy patients that are today being managed by physicians outside of Comprehensive Epilepsy Centers. We’re today in the early stages of piloting two specific efforts. One of them is around referring physician awareness education. So it’s identifying the physicians in the community that are managing those patients and providing information to them about the benefits of therapies that are offered at the Comprehensive Epilepsy Centers. We’re piloting some activities around that starting to do some work with our field team around creating that education and awareness and creating those referral channels. And then the other that we’re doing, which is also in the early stages of piloting, is evaluating and developing some tools for direct to patient awareness. So digital marketing programs to identify patients in the community that are looking for additional treatment options. And then helping create that referral pathway that those interested patients can get seen by physicians at the Comprehensive Epilepsy Centers, again, we’re in the early stages of piloting, we just started that really in 2021. We’re going to learn from that I’m sure that there’s a number of things that we’ll learn and make adoption and adaptations to the way that we’re approaching that and then be able to expand as we identify the mechanisms to do that successfully and will be able to expand that in the future.

Perfect. Thanks so much for taking the questions, guys.

Thank you. Our next question comes from Danielle Antalffy with SVB Leerink. Your line is open.

Hey, good morning, everyone. Thanks so much for taking the question. I echo, Rebecca, congrats on your first quarterly earnings call as public company, very early for you guys over there. Hopefully, we appreciate it. Just a first question is a follow-up actually to Larry’s question, I guess like when you think about, where are the points of pushback are, I guess, from my seat looking at the clinical data, looking at the benefits of the device versus other resection or VNS, or DBS? What is – what are the points of pushback? Why want the physician starts using it, don’t say use this in a lot more patients right away? Just trying to understand where the barriers are to getting that physician using it in all the appropriate patients? Is it patient – understanding patient selection? Is the epileptologist, that’s the barrier? Just love a little more color there.

Yes. Thanks, Danielle. The barrier varies as you would expect from physician to physician. But I would say, in general, it starts with the first thing that we need to overcome is the awareness of the clinical data. So I agree with you, I think we have outstanding clinical data and it’s getting that information about how well this therapy works to reduce seizures and to improve the quality of life and cognition and mood. Getting that information in those published studies to these physicians so that they understand what those benefits are. That’s really important because it’s about changing the way that they’re thinking of managing these patients. So it’s moving from a mindset of drug therapy and that being the primary treatment mode to moving on to additional therapies that are proven effective for those patients that aren’t able to get a response from drug therapy and adequate response from drug therapy. For those patients that started for those physicians, I’m sorry, that started prescribing the device within their patient, it’s about building their confidence and the way the system works, that they’re able to fit it into their clinical practice, that ease of use component is really important. So that it can just become a standard part of their routine follow-up for these patients that are coming in. The nSight Platform is a really important tool to be able to do that. And then it’s patient selection. So it’s helping them feel confident that they can identify the patients that are appropriate candidates, they can take that to their case conference for the review that’s done within these centers, and be able to identify the appropriate treatment for them. So there’s a number of step. But a lot of it, Danielle, has to do with getting them confident that this is going to be a standard part of their therapy that they’re just presenting routinely to patients as an option for those that aren’t able to get a response from medication.

Got it. Okay. And then thank you for that, Mike. And then one more follow-up for me and that is on the refilling of the referral funnel or the refilling at the diagnostic centers that you talked about? Should we be thinking about these diagnostic centers as they work through this backlog of patients is operating above 100% capacity. And so you have sort of unusually high patient numbers coming into the CECs maybe in the back half of the year into 2022? Or do you see it as more of a streamline like work through this backlog, but the way it’s going to funnel through there shouldn’t be much of an air pocket of growth once the backlog has worked through. Just about I tried to make sure I understand the cadence here.

Yes, that’s a great question, Danielle, and one that I’m very anxious to get the answer to as well. What we know is that, there are a backlog of patients that are available and interested in coming into these Comprehensive Epilepsy Centers for the diagnostic evaluation, it’s yet to be determined whether the centers are going to be able to create surge capacity, and increase efficiencies to be able to bring more of those patients through their centers more quickly. So I don’t know – we don’t know the answer to that we’re very anxious to find out. We’re hopeful that the centers will be able to improve their efficiency and have more patients coming through the centers. We do know that historically, the capacity of these centers has been going up, there’s more epileptologist that are coming out of fellowship and going into practice. A number of these centers are expanding, the number of epilepsy monitoring unit beds and the number of patients that they’re seeing within those centers that’s a longer term trend, that’s been positive and we expect to continue to be positive. Are they going to be able to surge and have a bubble capacity? Don’t know the answer to that yet.

Totally, fair. Thanks, guys.

Thanks, Danielle.

Thank you. And I’m currently showing no further questions at this time. I’ll turn the call back to Mike Favet for closing remarks.

Thank you again for your time today. Rebecca and I look forward to meeting with many of you in the future at investor and industry conferences as well as individual meetings. And I hope you have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect.