Good afternoon, and welcome to NeuroPace’s Fourth Quarter and Year-End 2023 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeremy Feffer from LifeSci Advisors for a few introductory comments.

Good afternoon. Thank you for joining us for NeuroPace’s fourth quarter and year-end 2023 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 fourth quarter and year-ended December 31, 2023. A copy of the press release is available on the company’s website at neuropace.com. 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 or performance 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 forecasted market and revenue growth are based on current estimates and various assumptions. 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 quarterly reports on Form 10-Q, annual report on Form 10-K for the year ended December 31, 2023, 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 March 5, 2024. 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 NeuroPace’s Chief Executive Officer, Joel Becker. Joel?

Thank you, Jeremy, and good afternoon, everyone. As you saw in the fourth quarter press release issued earlier today, the NeuroPace team has continued to execute on our strategy and delivered another strong quarter to cap off what has been an outstanding year. Revenue for the fourth quarter was $18 million, a 41% increase compared to the same period last year. For the full year 2023, we reported total revenue of $65.4 million, a 44% increase over 2022. As we look back to where the company was just a year ago, we’ve continually raised the bar and exceeded expectations. I am proud of everyone on the team and all that was accomplished in 2023 and look forward to capitalizing on this momentum in 2024. With that, let me step back and provide some additional color around what drove our top line results in the fourth quarter and full year 2023. I will then review our key business priorities for 2024 before turning the call over to our CFO, Rebecca Kuhn, to present the details of financial performance for the quarter and year ended December 31, 2023, which will be followed by a Q&A session. In 2023, we developed and worked to execute our three-part strategy to expand access to and increase adoption and utilization of RNS therapy for drug-resistant epilepsy patients that support our current near-term and medium-term growth plans, across existing and new groups of clinicians as well as patients. These plans are aligned with the International League Against Epilepsy or ILAE, which published new guidelines in 2022, stating that once a patient has tried and failed to medications, they should be referred for additional treatment even if surgical intervention is not appropriate. We believe RNS fits exactly in that category. Turning to our three-part strategy for expanding access…

Thank you, Joel. NeuroPace revenue for the fourth quarter of 2023 was $18 million, representing growth of 41% compared to $12.8 million for the fourth quarter of 2022 and approximately 10% compared to $16.4 million in the third quarter of 2023. This growth was primarily driven by increased sales of our RNS System. We also generated meaningful revenue from sales of DIXI Medical products in our first full year of serving DIXI Medical's exclusive U.S. distributor. DIXI contributed a small amount of revenue to the fourth quarter of 2022. The placement implant revenue continued to decline compared to the same period last year and represented approximately 4% of total revenue. Gross margin for the fourth quarter of 2023 was 75.2% compared to 68.8% in the fourth quarter of 2022 and 74.5% in the third quarter of 2023. Our gross margin for the quarter increased primarily due to the increase in RNS products produced and sold as our fixed manufacturing overhead costs were spread over more units. The increase in RNS gross margin was partially offset by the lower gross margin from distribution of DIXI Medical products. R&D expense in the fourth quarter of 2023 was $5.4 million compared with $5.1 million in the same period of 2022. This increase was primarily driven by an increase in personnel-related expenses. SG&A expense in the fourth quarter of 2023 was $13.2 million compared with $13.6 million in the prior year period. The decrease in SG&A was primarily due to a decrease in insurance and outside services expense, partially offset by an increase in personnel-related expenses. Total operating expenses in the fourth quarter of 2023 were $18.6 million, compared with $18.7 million in the same period of the prior year. This decrease reflects our focus on finding the appropriate resource allocation to effectively manage…

Thank you, Rebecca. We are very excited by the progress we've been making over the past year at NeuroPace. We believe that our strategy is clear and that our opportunities are compelling. Consistent with our 2024 guidance we believe we are positioned to achieve 2024 revenue of between $73 million to $77 million, and are also positioned to accelerate our growth in the future as these opportunities develop. 2024 will be a year focused on the execution of the strategy, and the entire NeuroPace team is committed to advancing each of its elements to deliver on their potential and to drive long-term growth and profitability. This concludes our prepared remarks. I would now like to turn the call over to the operator, who will open the call for questions. Operator?

Thank you. [Operator Instructions] Your first question comes from Frank Takkinen from Lake Street Capital Markets. Your line is now open.

Great. Thanks for taking the question. Congrats on all the progress. I was hoping to start with one on the guide for the year. Obviously, you guys had a very nice year in 2023 with 44% growth, did a nice job of keeping expectations in check throughout the year. Looking forward, looking at 12% to 18% growth, looks like pretty solid growth. But I was curious if there's an element of conservatism baked into that just as we're early in the year and understanding the market dynamics for 2024 and what are some of the elements that are assumed in the low end of the guidance range and some of the elements assumed on the high end of the guidance range?

Hello, Frank. Thank you and thanks for that question. So our guidance, as you said for 2024 is $73 million to $77 million, which implies the double-digit growth for the business, the midpoint there of 75%, 15% growth, and we're comfortable with that guidance. We are obviously at the beginning of the year with our guidance, and there are a number of opportunities. I talked about them in my comments here in front of us. We feel like we've got a clear and compelling strategy with the modern RNS story. We're excited about Project CARE. We're underway with our incremental sales force expansion. So we think those are all opportunities in front of us. We've also – there are also challenges in the year but we're excited about 2024. We sit here in March. We're excited about 2024 in the strategies and plans that we've got for the year. Some considerations when we think about the growth in the year and some things within the range there, but kind of some things as we think about, as you mentioned, 2023 versus 2024. In 2023, our growth was primarily driven by sales of the RNS System. It was also bolstered by having a full year of distribution of DIXI medical products there compared to we only had one quarter with DIXI Q4 in 2022, where that only contributed $1.6 million in revenue. And so that bolstered 2023 and then we obviously had the replacement volume dynamic that we've talked about really more in the first half of 2023 than the second half of 2023. But that being a factor as well and then some of the implants associated with the NAUTILUS trial as well. Those factors were all considered in setting our guidance for 2024. And despite a number of those…

Got it. That's great color. I appreciate all of that. Maybe just as a follow-up on the sales organization, I heard the comments a couple of times in response as well as the prepared remarks about adding a few incremental sales reps. Can you level set us where that sales organization stands today and how you're thinking about adding? Is it new territories? Are you splitting territories or any other color you can provide about the incremental sales rep additions? Thank you.

That's a great question. Thank you, Frank. So I think we've talked about previously, there's really a couple of phases here to the commercial organization expansion. We've talked about – that I'd want to highlight here. We've talked about in the past that we actually had previously invested in our commercial organization as well. So actually in 2022, we had done some hiring and some commercial organization expansion for which those folks have been going through training and are now getting out into the field and beginning to hit their stride. So we've got that kind of that first wave of commercial investment that we had done previously. And now we are underway the hiring here that we're talking about today, the incremental expansion of the sales organization. And it's really focused both on to support the ongoing growth that we've seen in the core business as well as to support in anticipation of the initiation of our activities for Project CARE and the sites that will be outside of Level 4 centers.

Got it. That's great color. Thanks for taking the questions.

Thank you, Frank.

Your next question comes from Vik Chopra from Wells Fargo. Your line is now open.

Hey. Good afternoon and thanks for taking the questions, and congrats to a solid end to the year. So I had two, I'll start the first one. You described some of the initial activities with regards to Project CARE; can you maybe describe them in a little bit more detail and what's planned for the rest of the year? And then I have a follow-up.

You bet. Hello, Vik and thank you for that question. So with regard to Project CARE, while we're early here in the process, we have begun to initiate some pilot program activities, including initial outreach to targeted centers. Some of the contracting and various approval activities as well as some of the professional education as well as more sitespecific initial training activities, it is still early but a number of those types of activities are underway with some of these centers.

Got it. Will keep add the details, I guess. And for my follow-up question, congrats on the cash burn for Q4. I'm just wondering how we should think about that for 2024? Thank you.

Rebecca, would you like to start out there and then I can add some commentary as well.

Sure. So with regard to our cash burn, as Joel mentioned, we reduced it to $3.4 million in the fourth quarter. We've shared previously that we do see some fluctuations quarter-to-quarter. But generally we've reduced it considerably throughout the year. We're not going to specifically give you numbers for next year, but you can go through our guidance and come up with a pretty good idea – pretty good idea of expectations. And so I think we'll leave it at that. Anything you would add, Joel.

No.

Okay. Great.

Anything further there, Vik?

Your next question comes from Mike Kratky from Leerink Partners. Your line is now open.

Hi everyone. Thanks very much for taking our questions. Another one on your initial revenue guidance for 2024. Can you just provide some additional color on how much of the RNS revenue growth is coming from overall epilepsy market growth for neuromodulation systems versus growth from incremental market share you're expecting to gain this year?

Thank you, Mike. That's a great question. 1 think from what we've seen – the way I'll address that maybe is talk a little bit about pipeline and what we're seeing from a market dynamics perspective. So we have seen – we've discussed previously, and we have seen where we do think that the patient pipeline and the market availability associated with patients in that pipeline has been strengthening. And we feel like it's a pipeline – if the pipeline isn't all the way back, it's mostly all of the way back and we maybe aren't seeing quite the level of expansion in some of the EMU capacity that we had been seeing pre-pandemic, harken back all the way to those days but those market dynamics. But we do feel like the patient pipeline is solid and has been demonstrating good consistency there. So we feel like market conditions for patient pipeline have been good. With regard to competitive dynamics, I think we feel like we're in a very good competitive position. It's a little bit hard to get into the specifics of the details of the market share calculations because our main competitors don't specifically break out their epilepsy numbers in a way that we could make an apples-to-apples comparison. But I think with regard to market dynamics we feel like we're in a strong position as it relates to both clinical data as well as the technology differentiation and feel like we're in a good position from a competitive dynamic perspective there.

Got it. Yes. I appreciate the color there. And then maybe just a separate one, another one on Project CARE. I mean I realize it's early innings, but what metrics are you going to be paying attention to internally that will help give you a sense of how meaningful this initiative is going to be for driving additional revenue growth over the next few years?

That's a great question, Mike. Thank you. And it really gets to the point of the approach that we're taking from a market development perspective, and that's really taking that targeted approach to the initiation of activities allows us to evaluate and really learn from how we interact with and the way that we start and scale these centers. I think we have a pretty good idea, but I think we're also going to learn a lot in scaling up these centers, that will give us some of those leading indicator metrics for the types of things to watch for, everything from what are the targeting criteria that we think have resulted in centers that are particularly responsive pardon the pun. What are the underlying referral networks and patient populations that we should be looking for that translate into a pipeline of patients? What are some of the indicators from a contracting and economic committee approval that we can look to see what the health of the process looks like. And so really the pilot is intended to allow us to do some of that diligence, confirm or correct some of our targeting assumptions and then develop that kind of a dashboard, just as you say, from a metrics perspective, for which centers have the profile that are the ones that we want to be targeting and spending time with. I would mention of note while it is early innings, one of the things that we have learned and we've begun to see is that as some of the early centers have been out, we've been engaged with them, and they've been going through the contracting process and beginning to go through the training and onboarding process and have begun to identify patients that might be treated well locally. We've also begun to see in a number of these centers in addition to those patients, the identification of patients, the kind of uncovering of patients that were outside of Level 4 centers that are patients who could be referred back for further evaluation in Level 4 centers as well. So we've begun to see centers identify patients that can be treated locally as well as uncovered patients that can be referred back in and so both of those things really go to our strategy of increasing access to RNS therapy through the CARE program. So that's been an interesting and welcome dynamic to watch and see start to take shape in some of those centers there. But hopefully, that gives you a little bit of color on process and metrics for how we're thinking about approaching these centers and what we hope to take from the initial pilot phase here.

Understood. Really appreciate all the color.

Thanks Mike.

Your next question comes from Robbie Marcus from JPMorgan. Your line is now open.

This is actually Lilly [ph] on for Robbie. Thanks for taking the question. Is there anything you can share on how we should be thinking about cadence for 2024? Do you expect seasonality to be similar to what we saw in 2023? And looking at first quarter specifically, I think the Street was at $17.2 million. So is that a fair place to start? Thanks so much.

Thank you, Ashley. Rebecca, if you maybe want to start out here and I’ll follow on with anything.

Sure. Thanks, Lilly. We’re providing guidance for the year. We’re not going to provide guidance for the quarters. But as you mentioned, we have seen some seasonality in our business in the past, in particular, over the summer months as people take vacations, I think that’s pretty common. We have kind of interesting dynamics in the fourth quarter where, in addition to holidays and everybody experiences. We also have our major medical meeting, the AES annual meeting that takes people out of physicians away from their offices for a number of days, a nice long weekend. From our perspective, of course, we spend – we have expenses associated with our attendance there. But – so I think that gives you some sense of seasonal trends. And at this point, no reason related things that they are different from the prior year.

Yes. I’d support all of that. Actually, the only thing I might add there would be a little bit of commentary around patient dynamic seasonality. A lot of times, when we talk seasonality, we’ve got a number of different factors that can come into play there. You can have clinician seasonality you can have kind of health plan and insurance seasonality as well as then you can have kind of patient dynamics of seasonality. We have not traditionally really seen kind of a health plan dynamic and/or a patient kind of beta around seasonality. Most of these patients have been under evaluation and been on their journey of epilepsy therapy for a number of years. And so kind of a monthly variation one way or the other, hasn’t been something that at least traditionally we’ve seen. As Rebecca said, the seasonality that she called out there tends to be mostly clinician-based seasonality with some dynamics, of course, that you traditionally see around people having surgery around the holidays and those kinds of things. But those tend to be pretty consistent year-to-year as well. So that’s maybe just a little additional color around some seasonality. Hopefully, that helps.

Great. Thank you. And then just another follow-up on guidance. Is there any color you can share on what’s really driving the growth in 2024, is it new center adds from Project CARE, growing utilization, ASP, some mix of those dynamics. So how would you break that down?

That’s a great question. And we considered all of that as we put the guide together. We do anticipate both RNS as well as DIXI growth to really drive the growth in the business in 2024. And while it is early with regard to Project CARE, and we’re not calling out specific units and implants and growth associated with care. I would say that we’re just getting started here with the initiation of activities at the beginning of 2024, and we do expect that as we move through the year, we would see those activities expand in scope as well as potential impact as we move through 2024. If there’s anything else there, Ashley, operator, next question.

Your next question comes from Michael Polark from Wolfe Research. Your line is now open.

Good evening. Thank you. One topic, multiparter. This pharma collaboration, I’m interested in learning a bit more. I think, three sub-questions. One, what’s the revenue from this considered in 2024 guidance? Two, are there more things like this out there to do? Or is this kind of a one-off that seems interesting. I suspect where there’s one, there’s multiple. What does that longer-term opportunity look like? And then three, I guess, another financial part – do you consider this pretty high-margin revenue. I would think so. It sounds like kind of a fee-for-service, and I suspect you’re also getting paid for the implant. So just curious the financial profile of this type of revenue. That’s it for me. Thank you so much.

Thank you, Mike. Great question. We considered really all the different pieces in the business as we thought about guidance for 2024 including report. And when we think about the opportunities that are out there, we do think that, so we’re excited about this. I’m sure we’ll learn a lot here in the collaboration with them. We’re really pleased with how that has gone and how that is going. But we think that it really highlights a key part of the RNS system, which we take every chance we can to talk about. And I think sometimes doesn’t get quite the billing that it should, from a differentiation perspective is we are uniquely able to monitor record and then analyze data, brain activity and increasingly, our ability to analyze that information we feel like has the potential to provide insights, both for our core business as well as in other areas here potentially like report. So we do think that we have a fundamental point of differentiation here in capability in that monitoring, reporting and analyzing of data that really can open up a number of different opportunities for us here, whether that’s increased insights and efficiency in our core RNS business or other ways that we can leverage it outside of the RNS business that – that have a potential to be interesting and important to us. We think that’s a fundamental point of differentiation. With regard to margin Rebecca, do you want to chime in there?

Sure. Absolutely. So Mike, as you mentioned, we derive essentially service revenue from the agreement. As we’ve shared, we expect that it will be approximately $3.7 million over the course of the agreement, which started in the fourth quarter of 2023 and is expected to continue through 2025. The patients that enroll in the study are patients that already have the RNS system implanted. So our revenue is really the service revenue that we derive from that arrangement. And so it’s data from the implanted devices, analysis and support by our team here. There is some incremental expense, yes, associated with it. But I think that kind of gives you a general flavor for the economics of the deal.

Thank you.

Thanks, Mike.

Your next question comes from Drew Ranieri from Morgan Stanley. Your line now open.

Hi, Joel. Hi, Rebecca. Thanks for taking the questions. Maybe just to go back to guidance, I know it’s been touched on a few times, but I was just hoping that you could help put a finer point on what your building in for underlying a new implant growth for 2024 because when I look back at 2023, some of the numbers that you gave, new implant growth was probably close to 50% year-over-year. You also kind of talked about that you’re absorbing some of the RNS implants from the NAUTILUS trial there. So just to help us kind of parse out like what’s being built in from an underlying utilization or new account metric perspective for your 2024 guide for RNS?

Thanks, Drew. That’s a great question. We do see underlying growth here from RNS implants and really being driven off of the modern RNS story strategy that we had talked about. We see growth coming from initial implant sales from RNS as well as growth from DIXI. So we see growth across both of the product lines. And as I mentioned, when you see the growth that’s in the guidance, that growth has to overcome the impact of the NAUTILUS implants in 2023, the net change of the further diminishment of the replacement units and then that DIXI impact of full year distribution. So we do see growth across both product lines. We see growth across both those product lines that results in the double digits that we’ve got here in the guide. We’re not breaking it out product line by product line. But we do see strong growth from both of the product lines making up the point here in the guidance and needing to overcome some of those dynamics from 2023. I know that’s not a fulminant answer to the specifics of maybe you want me to do a calculation for you for how we get there. But those are some of the ins and the outs, the underlying organic growth rate associated with adoption and utilization in our core centers and then the activities that we have underway to both expand adoption and utilization as well as initiate activities for project here and expansion of DIXI revenue then kind of being offset by some of those other dynamics that I mentioned.

Okay. But bottom line, you’re feeling good about growing off like around the $52 million you did in initial implants for 2023.

We see initial implant revenue from RNS systems as an area of growth for us in 2024.

Okay. Great. And then just on DIXI and I appreciate you’re not going to give us like all the refinery detail that we all desire. But just as you are thinking about 2024, just give us a sense of are you expanding DIXI with existing customers? Have you kind of really spread that out around all the accounts that you had just for RNS. And I guess I’m just trying to get a sense of like where you are in the commercial progress, distribution progress for the product line. Thanks for taking the questions, Joel.

Thank you, Drew. And it’s another great question. And with regard to DIXI, I think we see opportunities really across the product line with DIXI. And by that, I mean I think we see opportunities to – through service and support and through talking with centers about the modern approach to managing epilepsy patients and the use of RNS, Phase 2 monitoring being an important part of that. And so deepening the growth of SEEG electrode use in Level 4 centers is an opportunity for us to grow that part of our business even with current customers, one. Two, we absolutely see the opportunity for us to expand the base of our customer footprint. One of the opportunities associated with the distribution deal like this one is, of course, to leverage our commercial organization, and we do feel like there is an opportunity to both competitively as well as then in introducing SEEG electrodes into Level 4 centers, an opportunity for us to expand the footprint of the technology as well. And so we’ve been really pleased with the progress that we’ve made with DIXI, but I also see opportunities in a number of different kind of vectors there to leverage the distribution relationship in our organization to broaden the adoption and utilization of DIXI as well as with RNS.

Thanks, Joel.

Thank you.

[Operator Instructions] There are no further questions at this time. Speaker, please continue.

Thank you. And thank you, everyone, for joining the call tonight. Thank you for the time and for your interest in and support of NeuroPace. We look forward to and are excited about 2024. And continuing NeuroPace’s mission of transforming the lives of patients living with debilitating seizures. Thanks to all.

Ladies and gentlemen, this concludes today’s conference call. Thank you for joining. You may now disconnect.