NeuroPace (NPCE) Q3 2025: RNS Revenue Jumps 31% as Platform Shift Accelerates Margin Expansion

2025-11-04 | By EarningsIQ Research

NeuroPace delivered record Q3 results with RNS system revenue up 31% YoY, demonstrating the compounding impact of platform adoption, operating leverage, and strategic focus on high-margin neuromodulation. The exit from Dixie distribution and new AI-driven tools set the stage for a business increasingly defined by scalable, data-driven epilepsy care. With expanded indications on the horizon and industry momentum for personalized neuromodulation, NeuroPace’s business model is entering a new phase of growth and margin profile.

Summary

• Platform Shift: RNS system now dominates revenue mix, pushing gross margin structurally higher as Dixie winds down.
• AI and Data Leverage: Proprietary EEG data and new AI tools are deepening clinical differentiation and opening pharma partnerships.
• Indication Expansion: Nautilus and pediatric submissions set up 2026 as an inflection year for addressable market growth.

Performance Analysis

NeuroPace posted record quarterly revenue of $27.4 million, up 30% YoY, with RNS system revenue accounting for $22.6 million and growing 31%. This momentum was broad-based, with all sales regions exceeding targets and utilization at all-time highs. RNS, or Responsive Neurostimulation System, is the company’s core closed-loop neuromodulation platform for epilepsy, and now represents the vast majority of company sales. Dixie, the legacy distributed product line, contributed $4 million (8% YoY growth) but is in contractual wind-down, with minimal revenue expected beyond Q4 2025.

Gross margin reached 77.4%, up over 400 basis points YoY, driven by mix shift toward high-margin RNS (above 80% margin) and improved manufacturing efficiency. Operating expenses increased 21% YoY, well below revenue growth, as commercial investment and variable compensation rose with sales outperformance. Adjusted EBITDA turned positive for the first time, a milestone reflecting the scalability of the RNS-centric model. Service revenue, tied to data collaborations, is ramping with $770,000 recognized in Q3, highlighting early monetization of proprietary EEG datasets.

• RNS System Drives Growth: RNS revenue now eclipses all other segments, establishing a new baseline for margin and growth modeling.
• Operating Leverage Materializes: Expense growth trailed revenue, with positive adjusted EBITDA achieved for the first time.
• Service Revenue Emerges: Data collaborations begin to contribute, validating the platform’s value for pharma and research partners.

With Dixie’s exit nearly complete, NeuroPace is positioned for further margin expansion and a cleaner, more scalable revenue base in 2026.

Executive Commentary

Strategic Positioning

1. RNS Platform as the Core Growth Engine

The business is now fundamentally anchored by RNS, a closed-loop neuromodulation device for epilepsy that uses real-time EEG data to tailor therapy. With Dixie distribution ending, RNS is set to comprise nearly all revenue, supporting >80% gross margins and clean operating leverage. Management is explicit that 20%+ annual growth in core RNS is sustainable, with adoption broadening across both level four epilepsy centers and community settings via Project CARE, a market expansion initiative targeting new prescribers and accounts.

2. Indication Expansion and Clinical Pipeline

Nautilus, the trial for idiopathic generalized epilepsy (IGE), is on track for PMA submission by year-end, with potential FDA approval in mid-2026. The pediatric indication, leveraging real-world evidence, is progressing but now expected to submit after 2025. Both represent substantial addressable market expansion, with the IGE label especially positioned to create a step-change in eligible patient pool and therapy adoption.

3. Data and AI-Driven Differentiation

NeuroPace’s proprietary EEG dataset is now a strategic asset, powering both clinical outcomes and new revenue streams. The recent FDA submission of the seizure ID AI tool marks the first in a suite of planned AI-enabled applications designed to automate detection and personalize therapy. Pharma partnerships, such as with Rapport and UCB, are leveraging this data for biomarker discovery and drug development, with early service revenue validating the platform’s broader potential.

4. Commercial Execution and Market Penetration

Commercial execution is robust, with all sales regions outperforming and prescriber engagement at record levels. Project CARE is expanding reach to community neurologists and level three centers, with a goal to double implants and referrals from these accounts in 2025. Management notes that while level four centers remain the primary growth engine, CARE is complementary and will be critical as indications expand.

5. Transition to a High-Margin, Scalable Model

The exit from Dixie and focus on RNS transforms NeuroPace into a pure-play, high-margin neuromodulation company. As Dixie revenue fades, margin volatility from product mix dissipates. The company’s cost structure is scaling efficiently, with operating expenses growing slower than revenue and positive EBITDA achieved ahead of schedule. This sets up a structurally more profitable and cash-generative business in 2026 and beyond.

Key Considerations

NeuroPace’s quarter marks a strategic inflection, as the company’s operational and financial foundation shifts decisively to the RNS platform and its data-driven extensions. Investors should weigh the following:

Key Considerations:

• RNS-Only Business Model: The transition away from Dixie and toward RNS-only revenue will simplify financials and boost margin visibility starting Q1 2026.
• Indication Expansion Timing: Nautilus PMA submission is on track, but pediatric timelines have slipped beyond 2025; both are pivotal for long-term growth rates.
• AI and Data Monetization: Early service revenue from pharma collaborations and FDA submission of seizure ID AI tool signal new, high-margin revenue streams.
• Commercial Leverage: Project CARE’s success in expanding prescriber base and utilization will be critical to sustaining outsized growth as the core market matures.
• Operating Discipline: Expense management and positive EBITDA signal scalable economics, but continued investment in R&D and commercial infrastructure will be needed as indications and geographies expand.

Risks

Execution risk remains around timely regulatory approval for Nautilus and pediatric indications, as delays could slow addressable market expansion. The transition off Dixie must be managed tightly to avoid revenue gaps, and while early AI and data monetization is promising, these are nascent and subject to adoption risk. Margin gains could be pressured if sales mix or manufacturing scale falters. Competitive threats from alternative neuromodulation or pharmaceutical therapies remain relevant as the epilepsy treatment landscape evolves.

Forward Outlook

For Q4 2025, NeuroPace guided to:

• RNS revenue of $20–$21 million
• Total revenue of $97–$98 million for the full year (21–23% YoY growth)

For full-year 2025, management raised gross margin guidance to 76–77%, reflecting the higher RNS mix. Operating expense guidance was nudged up to $94–$95 million, mainly due to variable compensation tied to sales outperformance. Management signaled that 2026 will be an RNS-dominated year, with gross margin modeled at a minimum of 80% and core growth of at least 20%.

• Service revenue and AI tool launches will be incremental contributors in 2026
• Nautilus PMA submission is expected by year-end, with a potential approval in mid-2026

Takeaways

NeuroPace has crossed into a new phase, with its RNS system now the undisputed economic engine and margin anchor. The company’s ability to deliver positive adjusted EBITDA while scaling RNS adoption and investing in next-gen AI tools underscores the platform’s leverage. Indication expansion and data monetization are the next major catalysts, but sustained commercial execution and regulatory progress are essential for unlocking their full impact.

• Platform Economics Improve: RNS-only model will drive higher, more predictable margins and cleaner financials starting in 2026, with growth underpinned by broad-based adoption.
• Indication Expansion Is Pivotal: Nautilus and pediatric submissions are critical for long-term TAM expansion, but timelines and regulatory outcomes remain key variables.
• Data/AI Monetization Watch: Early service revenue and AI tool launches validate the strategic value of proprietary EEG data, but scale and adoption will determine impact.

Conclusion

NeuroPace’s Q3 2025 marks a record-setting inflection as the business transitions to a high-margin, data-driven epilepsy platform. With RNS at the center, operating leverage and clinical differentiation are compounding. The next phase will be defined by execution on indication expansion, data monetization, and continued commercial scaling.

Industry Read-Through

NeuroPace’s performance underscores the accelerating shift in neuromodulation toward personalized, data-guided therapy and the strategic value of proprietary clinical datasets. The company’s ability to monetize EEG data and launch AI-powered clinical tools signals a broader trend in medtech toward platform economics and recurring revenue from data services. The rapid exit from low-margin distributed products (like Dixie) is a signal to peers: scale and differentiation in core platforms are essential for sustainable margin expansion. As regulatory and clinical momentum builds for indication expansion, competitors in neurostimulation, digital therapeutics, and pharma will need to adapt to a landscape where data, AI, and platform integration are the new sources of durable advantage.

NPCE Health Care Medical Devices Neuromodulation AI Epilepsy Platform Gross Margin