NeuroPace (NPCE 2.08%), a medical technology company known for its brain-responsive neuromodulation device for drug-resistant epilepsy, published its second quarter results on August 12, 2025. NeuroPace reported record GAAP revenue of $23.5 million, exceeding the analyst consensus of $23.09 million (GAAP). Year-over-year GAAP revenue growth reached 22.0%, while gross margin improved to 77.1%, up from 73.4% in Q2 2024. The period also saw operating expenses rise 22.5% year-over-year and continued net losses, tempered by management’s announcement of increased full-year 2025 revenue and gross margin guidance. Overall, the results highlighted solid commercial momentum, but increasing costs and one-time charges remain important to monitor.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP) | $(0.26) | $(0.22) | $(0.26) | 0.0 % |
| Revenue (GAAP) | $23.5 million | $23.09 million | $19.3 million | 22.0 % |
| Gross Margin | 77.1 % | 73.4 % | 3.7 pp | |
| Operating Expenses | $25.0 million | $20.4 million | 22.5% | |
| Free Cash Flow | $(2.3 million) | $(4.0 million) | -42.5 % |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Understanding NeuroPace’s Business Model and Recent Focuses
NeuroPace is a commercial-stage medical device company that developed the RNS (Responsive Neurostimulation) System, a brain-implanted device for people with drug-resistant epilepsy. The RNS System is designed to deliver targeted electrical pulses directly to the seizure source in the brain, continuously monitoring and responding to abnormal electrical activity to prevent seizures. This real-time, personalized approach makes the system a distinctive alternative to more conventional epilepsy treatments.
The company’s main goal has been to broaden adoption of the RNS System, targeting adults in the United States with drug-resistant focal epilepsy—a sizeable group with limited effective options. Recent efforts focus on increasing prescriber reach beyond top academic epilepsy centers, pursuing clinical studies to expand the system’s use to new patient populations, and supporting commercial execution in community settings through initiatives like Project CARE. Clinical success, provider education, payer reimbursement, and regulatory progress are key drivers for the business.
Quarter in Review: Revenue, Growth Drivers, and Margin Expansion
NeuroPace delivered GAAP revenue growth of 22% versus the prior year, reaching a new record. This sales boost was mainly credited to higher volumes of the RNS System, supported by efforts to broaden the base of active prescribers and accounts. The company reported record highs in both active prescribers and treatment centers, indicating increasing clinical adoption. RNS System revenue specifically was up 16% compared to Q2 2024, and up 21% for the first half of 2025 versus the first half of 2024.
Performance from SEEG products, which support diagnostic mapping in epilepsy but carry lower margins, remained meaningful but is set to diminish as NeuroPace begins phasing out that product line. Refocusing on its core RNS System, which generates gross margins over 78% (as stated by management in Q1 2025 earnings communications), positions the company for longer-term margin improvement. Project CARE, an initiative designed to expand access and referrals beyond major epilepsy centers, contributed to the increased implants and new prescriber activity in the period.
Gross margin improved to 77.1%, up 3.7 percentage points from the prior year quarter, a result of increased manufacturing efficiencies and a more profitable product mix. The higher margin profile was buoyed by stronger RNS System sales. Management raised its full-year gross margin forecast to 75–76% for 2025, up from 73–75%, based on these results, reflecting optimism about continued manufacturing and operational gains.
Operating expenses (GAAP) rose sharply to $25.0 million, compared with $20.4 million in Q2 2024. This increase was attributed to higher personnel costs and one-time expenses related to severance and recruiting totaling $1.9 million, as well as $1.6 million in one-time costs associated with an executive transition. Sales and marketing costs climbed to $12.0 million, while research and development expense (GAAP) was $6.8 million, and general and administrative expenses hit $6.1 million (GAAP). Despite these rising costs, free cash flow loss improved to negative $2.3 million, compared with negative $4.0 million in Q2 2024, signaling some progress in controlling operational cash usage.
Clinical, Regulatory, and Strategic Progress
The period was notable for strong advances in clinical and regulatory initiatives, which are central to NeuroPace’s efforts to expand the eligible patient base. Preliminary one-year data from the NAUTILUS study, evaluating use of the RNS System in idiopathic generalized epilepsy (IGE), met key safety benchmarks. However, it failed to achieve statistical significance for the primary effectiveness measure, marking a clinical setback. Secondary outcomes were positive, with a median 79% reduction in certain severe seizures at 12 months—considerably higher than previous trial results in focal epilepsy. The company aims to submit this data to the U.S. Food and Drug Administration (FDA) in the second half of 2025 for a potential new indication.
NeuroPace received confirmation from the Centers for Medicare & Medicaid Services (CMS) that reimbursement for RNS System procedures will remain stable under the current payment system, a detail important for broad patient access among Medicare beneficiaries. The company also continued progress on a planned submission to the FDA for pediatric epilepsy use, targeting late 2025. These milestones reflect a persistent strategic effort to expand the clinical use and reimbursement appeal of its product portfolio.
The company will begin winding down its SEEG product distribution in the fourth quarter of 2025 and continue through the first quarter of 2026. SEEG carries a lower gross margin profile of about 50%, compared to the higher gross margins realized by the RNS System, so the managed exit is expected to improve margin quality over time. The impact to revenue for 2025 is expected to be minimal as sales of existing SEEG inventory continue during the transition. NeuroPace also advanced its work on AI-powered software to enable more streamlined device management and remote monitoring, aiming to drive further physician engagement and patient management improvements.
Financially, the period included a refinancing of long-term debt, culminating in a new $75 million credit facility on more favorable terms. As of June 30, 2025, the balance of cash, cash equivalents, and short-term investments stood at $62.1 million, with long-term debt at $58.6 million. The company maintained a disciplined approach to operating expense increases, despite higher costs in the period.
Looking Ahead: Outlook and Key Watching Points
Management raised its full-year 2025 revenue guidance to a range of $94–98 million, representing growth of 18–23% over FY2024, and increased its gross margin guidance to 75–76% for FY2025. The company maintained its prior outlook for full-year 2025 operating expenses of $92–95 million, which includes stock-based compensation of $11 million.
Investors and stakeholders will want to keep a close watch on the company’s progress toward regulatory approvals for new patient populations, particularly the outcomes of pending FDA submissions following the NAUTILUS and pediatric studies. Continued monitoring of operating expense trends, cash usage, and the pace of RNS System adoption will also be important in determining the speed and sustainability of a move toward profitability. NPCE does not currently pay a dividend.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
