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Senseonics(SENS) - 2023 Q2 - Quarterly Report

markdown [PART I: Financial Information](index=2&type=section&id=PART%20I%3A%20Financial%20Information) This section presents the company's unaudited condensed consolidated financial information [ITEM 1: Financial Statements](index=3&type=section&id=ITEM%201%3A%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the Balance Sheets, Statements of Operations and Comprehensive Income (Loss), Statements of Changes in Stockholders' Equity (Deficit), and Statements of Cash Flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended June 30, 2023, and December 31, 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section details the company's financial position, including assets, liabilities, and equity Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2023 (Unaudited) | December 31, 2022 | | :-------------------------------- | :------------------------ | :------------------ | | **Assets** | | | | Cash and cash equivalents | $28,551 | $35,793 | | Short term investments, net | $89,067 | $108,222 | | Total current assets | $138,229 | $161,200 | | Total assets | $153,362 | $177,673 | | **Liabilities and Stockholders' Equity (Deficit)** | | | | Total current liabilities | $15,861 | $31,471 | | Long-term debt and notes payables, net | $39,108 | $56,383 | | Derivative liabilities | $1,792 | $52,050 | | Total liabilities | $63,169 | $142,593 | | Total stockholders' equity (deficit) | $52,537 | $(2,576) | | Total liabilities and stockholders' equity | $153,362 | $177,673 | - **Total assets decreased by** **$24.3 million** from **$177.7 million** at December 31, 2022, to **$153.4 million** at June 30, 2023, **primarily due to** decreases in cash, cash equivalents, and short-term investments[8](index=8&type=chunk) - **Total liabilities significantly decreased by** **$79.4 million** from **$142.6 million** at December 31, 2022, to **$63.2 million** at June 30, 2023, **largely driven by** reductions in derivative liabilities and long-term debt[8](index=8&type=chunk) - **Stockholders' equity shifted from** a deficit of **$(2.6) million** at December 31, 2022, to a **positive equity** of **$52.5 million** at June 30, 2023[8](index=8&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This section presents the company's financial performance, including revenue, expenses, and net income or loss Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $4,126 | $3,714 | $8,263 | $6,196 | | Cost of sales | $3,709 | $2,890 | $7,433 | $4,845 | | Gross profit | $417 | $824 | $830 | $1,351 | | Research and development expenses | $12,830 | $9,299 | $25,235 | $17,103 | | Selling, general and administrative expenses | $7,455 | $8,561 | $15,173 | $16,445 | | Operating loss | $(19,868) | $(17,036) | $(39,578) | $(32,197) | | Total other (expense) income, net | $(555) | $121,267 | $20,479 | $223,146 | | Net (Loss) Income | $(20,423) | $104,231 | $(19,099) | $190,949 | | Basic net (loss) income per common share | $(0.04) | $0.22 | $(0.04) | $0.42 | | Diluted net loss per common share | $(0.04) | $(0.03) | $(0.04) | $(0.06) | - **Total revenue increased by** **$0.4 million** (**11.1%**) for the three months ended June 30, 2023, and by **$2.1 million** (**33.4%**) for the six months ended June 30, 2023, **primarily due to the launch of Eversense E3 outside the United States**[11](index=11&type=chunk)[142](index=142&type=chunk)[149](index=149&type=chunk) - **Gross profit decreased by** **$0.4 million** (**49.4%**) for the three months and **$0.5 million** (**38.6%**) for the six months ended June 30, 2023, with **gross margin falling to 10.1% and 10.0% respectively**, mainly due to increased revenue share percentage to Ascensia, sales channel mix, and higher manufacturing/logistics costs[11](index=11&type=chunk)[143](index=143&type=chunk)[150](index=150&type=chunk) - The company reported a **net loss of** **$(20.4) million** for the three months and **$(19.1) million** for the six months ended June 30, 2023, a **significant decrease** from net income in the prior year periods, **largely due to** changes in fair value adjustments of options and derivatives[11](index=11&type=chunk)[147](index=147&type=chunk)[153](index=153&type=chunk) [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit)](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20(Deficit)) This section outlines changes in the company's equity, reflecting transactions affecting capital and retained earnings - **Total stockholders' equity (deficit) improved from** **$(2.6) million** at December 31, 2022, to **$52.5 million** at June 30, 2023[13](index=13&type=chunk) - **Key drivers for the change in equity include issuance of common stock** (net of costs) for **$7.4 million**, **issuance of warrants** (net of costs) for **$63.3 million**, and **stock-based compensation expense** of **$4.7 million** for the six months ended June 30, 2023[13](index=13&type=chunk) - The company recorded a **net loss of** **$(19.1) million** for the six months ended June 30, 2023, which **reduced accumulated deficit**[13](index=13&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes cash inflows and outflows from operating, investing, and financing activities Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(37,832) | $(34,341) | | Net cash provided by investing activities | $25,871 | $42,108 | | Net cash provided by financing activities | $4,719 | $4,197 | | Net (decrease) increase in cash and cash equivalents | $(7,242) | $11,964 | | Cash and cash equivalents, at ending of period | $28,551 | $45,425 | - **Net cash used in operating activities increased to** **$(37.8) million** for the six months ended June 30, 2023, from **$(34.3) million** in the prior year, driven by a **net loss** and changes in operating assets and liabilities, partially offset by non-cash adjustments[14](index=14&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - **Net cash provided by investing activities decreased to** **$25.9 million** in 2023 from **$42.1 million** in 2022, **primarily due to a higher volume of marketable securities purchases** in the current period[14](index=14&type=chunk)[179](index=179&type=chunk) - **Net cash provided by financing activities remained relatively stable at** **$4.7 million** in 2023, compared to **$4.2 million** in 2022, with **proceeds from common stock and warrant issuances offsetting debt repayments**[14](index=14&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements [1. Organization and Nature of Operations](index=8&type=section&id=1.%20Organization%20and%20Nature%20of%20Operations) This section describes the company's business, its primary activities, and its organizational structure - **Senseonics Holdings, Inc. is a medical technology company focused on developing and manufacturing long-term, implantable continuous glucose monitoring (CGM) systems for diabetes management**[15](index=15&type=chunk) [2. Liquidity and Capital Resources](index=8&type=section&id=2.%20Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet short-term and long-term obligations and its sources of funding - The Company has **incurred substantial losses and cumulative negative cash flows from operations** since its inception and **expects additional losses in the near future**[17](index=17&type=chunk) - As of June 30, 2023, the Company had **cash, cash equivalents, and marketable securities totaling** **$125.1 million**[17](index=17&type=chunk) - **Subsequent to June 30, 2023, the Company entered into exchange agreements for up to $30.8 million of 2025 Notes for cash and common stock, and a new 'at the market' offering program with Goldman Sachs for up to $106.6 million in common stock**[18](index=18&type=chunk)[19](index=19&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) [3. Summary of Significant Accounting Policies](index=12&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and methods used in preparing the financial statements - The **unaudited consolidated financial statements are prepared in accordance with U.S. GAAP** for interim financial information, with certain disclosures condensed or omitted as permitted by SEC rules[28](index=28&type=chunk) - The Company operates and manages its business as a **single segment: glucose monitoring products**[29](index=29&type=chunk) - The adoption of ASU 2016-13 (Credit Losses) as of January 1, 2023, **did not have a material impact** on the consolidated financial statements[30](index=30&type=chunk) [4. Revenue Recognition](index=14&type=section&id=4.%20Revenue%20Recognition) This section details how and when the company recognizes revenue from its various sales channels and products - **Revenue is generated from sales** of the Eversense system and components to Ascensia, third-party distributors, and strategic fulfillment partners, **recognized when customers obtain control** of the product[34](index=34&type=chunk) Revenue by Geographic Region (in thousands) | Geographic Region | Three Months Ended June 30, 2023 | % of Total (3M 2023) | Six Months Ended June 30, 2023 | % of Total (6M 2023) | | :------------------ | :------------------------------- | :------------------- | :----------------------------- | :------------------- | | United States | $1,793 | 43.5% | $3,955 | 47.9% | | Outside of the US | $2,333 | 56.5% | $4,308 | 52.1% | | **Total** | **$4,126** | **100.0%** | **$8,263** | **100.0%** | | | Three Months Ended June 30, 2022 | % of Total (3M 2022) | Six Months Ended June 30, 2022 | % of Total (6M 2022) | | United States | $1,207 | 32.5% | $1,974 | 31.9% | | Outside of the US | $2,507 | 67.5% | $4,222 | 68.1% | | **Total** | **$3,714** | **100.0%** | **$6,196** | **100.0%** | - Ascensia **accounted for** **89%** and **91%** of total revenue for the three and six months ended June 30, 2023, respectively, indicating **high customer concentration**[37](index=37&type=chunk) [5. Net Income (Loss) per Share](index=15&type=section&id=5.%20Net%20Income%20(Loss)%20per%20Share) This section presents the calculation and impact of net income or loss on a per-share basis for common stockholders - **Basic net loss per common share was** **$(0.04)** for both the three and six months ended June 30, 2023[11](index=11&type=chunk)[42](index=42&type=chunk) - **Diluted net loss per common share was also** **$(0.04)** for both periods ended June 30, 2023, as **all potentially dilutive common shares were excluded due to the net loss making their effect anti-dilutive**[11](index=11&type=chunk)[40](index=40&type=chunk)[42](index=42&type=chunk) - The calculation of basic EPS for June 30, 2023, **included 83,951,061 shares from the Exchange Warrant and Purchase Warrant held by PHC, treated as outstanding due to their 'penny warrant' nature**[38](index=38&type=chunk) [6. Marketable Securities](index=17&type=section&id=6.%20Marketable%20Securities) This section provides details on the company's short-term investments, including their composition and fair value Marketable Securities Available for Sale (in thousands) | Type | June 30, 2023 (Estimated Market Value) | December 31, 2022 (Estimated Market Value) | | :-------------------------- | :------------------------------------- | :--------------------------------------- | | Commercial Paper | $43,242 | $41,503 | | Corporate debt securities | $11,836 | $32,142 | | Asset backed securities | $7,453 | $8,260 | | Government and agency securities | $33,989 | $38,570 | | **Total** | **$96,520** | **$120,475** | - **Total marketable securities decreased** from **$120.5 million** at December 31, 2022, to **$96.5 million** at June 30, 2023[43](index=43&type=chunk) - **Unrealized losses on available-for-sale securities** at June 30, 2023, were **not significant and primarily attributed to changes in interest rates, not increased credit risk**[43](index=43&type=chunk) [7. Inventory, net](index=18&type=section&id=7.%20Inventory%2C%20net) This section details the composition and valuation of the company's inventory, including finished goods and raw materials Inventory, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--------------- | :------------ | :---------------- | | Finished goods | $2,379 | $1,697 | | Work-in-process | $5,408 | $4,057 | | Raw materials | $1,407 | $1,552 | | **Total** | **$9,194** | **$7,306** | - **Total inventory, net, increased by** **$1.9 million** from **$7.3 million** at December 31, 2022, to **$9.2 million** at June 30, 2023, primarily in finished goods and work-in-process[45](index=45&type=chunk) - The Company **charged less than $0.1 million to cost of sales for inventory obsolescence** for the three and six months ended June 30, 2023, a decrease from **$0.6 million** in the prior year period[45](index=45&type=chunk) [8. Prepaid Expenses and Other Current Assets](index=18&type=section&id=8.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) This section outlines the company's short-term assets that represent future economic benefits Prepaid Expenses and Other Current Assets (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Contract manufacturing | $4,026 | $4,097 | | Tax credits receivable | $1,793 | — | | Insurance | $625 | $1,243 | | Unsettled stock issuance proceeds | $369 | — | | Clinical and Preclinical | $255 | $924 | | Interest receivable | $241 | $336 | | Rent and utilities | $150 | $132 | | Accounting and Audit | $48 | $270 | | Other | $235 | $426 | | **Total** | **$7,742** | **$7,428** | - **Total prepaid expenses and other current assets increased by** **$0.3 million** to **$7.7 million** at June 30, 2023, **primarily due to the recognition of $1.8 million in refundable employee retention tax credits**[46](index=46&type=chunk)[47](index=47&type=chunk) [9. Accrued Expenses and Other Current Liabilities](index=18&type=section&id=9.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) This section details the company's short-term obligations for expenses incurred but not yet paid Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Research and development | $5,367 | $3,502 | | Compensation and benefits | $2,558 | $4,699 | | Professional and administration services | $2,381 | $1,053 | | Contract manufacturing | $2,105 | $2,480 | | Interest on notes payable | $1,232 | $2,050 | | Product warranty and replacement obligations | $494 | $781 | | Operating lease | $483 | $725 | | Sales and marketing services | $266 | $149 | | Other | — | $14 | | **Total** | **$14,886** | **$15,453** | - **Total accrued expenses and other current liabilities decreased by** **$0.6 million** to **$14.9 million** at June 30, 2023, **primarily due to decreases in compensation and benefits and interest on notes payable, partially offset by an increase in research and development accruals**[48](index=48&type=chunk) [10. Leases](index=19&type=section&id=10.%20Leases) This section describes the company's lease agreements, including right-of-use assets and lease liabilities - The Company **amended its operating lease for corporate headquarters** in May 2023, **extending the term through May 31, 2033, and increasing the ROU asset by $2.5 million and lease liability by $3.8 million**[49](index=49&type=chunk) Operating Lease Assets and Liabilities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Operating lease ROU assets | $5,340 | $3,032 | | Tenant improvement allowance receivable | $1,312 | — | | Current operating lease liabilities | $483 | $725 | | Non-current operating lease liabilities | $6,408 | $2,689 | | **Total operating lease liabilities** | **$6,891** | **$3,414** | - **Operating lease expense for the six months ended June 30, 2023, was $0.4 million, an increase from $0.3 million in the prior year**[50](index=50&type=chunk) [11. Product Warranty Obligations](index=20&type=section&id=11.%20Product%20Warranty%20Obligations) This section details the company's liabilities related to product warranties and replacement commitments - The Company **provides a one-year warranty on smart transmitters and may replace non-functioning Eversense system components**[51](index=51&type=chunk) Change in Estimated Warranty Liabilities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Balance at beginning of the period | $781 | $723 | | Provision for warranties during the period | $62 | $166 | | Settlements made during the period | $(349) | $(108) | | **Balance at end of the period** | **$494** | **$781** | - The **warranty reserve decreased** from **$0.8 million** at December 31, 2022, to **$0.5 million** at June 30, 2023, **primarily due to settlements made during the period**[52](index=52&type=chunk) [12. Notes Payable, Preferred Stock and Stock Purchase Warrants](index=20&type=section&id=12.%20Notes%20Payable%2C%20Preferred%20Stock%20and%20Stock%20Purchase%20Warrants) This section provides details on the company's debt instruments, preferred stock, and outstanding warrants [Term Loans](index=20&type=section&id=Term%20Loans) This section details the company's term loan obligations and their repayment status - The **PPP Loan of $5.8 million, received in April 2020, was fully repaid in April 2022**[53](index=53&type=chunk)[54](index=54&type=chunk) [Convertible Preferred Stock and Warrants](index=20&type=section&id=Convertible%20Preferred%20Stock%20and%20Warrants) This section describes the company's convertible preferred stock and equity warrants, including their issuance and impact - **Energy Capital exercised its right to purchase $12.0 million of Series B Preferred Stock in November 2022, with the excess of purchase price and fair value of the option ($37.6 million) recorded as additional paid-in-capital**[23](index=23&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) - In March 2023, the Company **issued a Purchase Warrant to PHC for 15,425,750 common shares, generating $15.0 million in gross proceeds, classified as equity**[25](index=25&type=chunk)[27](index=27&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) - Also in March 2023, **PHC exchanged its $35.0 million PHC Notes for an Exchange Warrant to purchase 68,525,311 common shares, resulting in a net gain on exchange of $18.8 million**[24](index=24&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[78](index=78&type=chunk) [Convertible Notes](index=24&type=section&id=Convertible%20Notes) This section details the company's convertible debt instruments, their terms, and related financial impacts - The **PHC Notes, with an aggregate principal of $35.0 million, were exchanged for an Exchange Warrant in March 2023, extinguishing the debt and resulting in an $18.8 million net gain on exchange**[24](index=24&type=chunk)[76](index=76&type=chunk)[78](index=78&type=chunk) - The **2025 Notes had an aggregate principal of $51.2 million outstanding as of June 30, 2023, with an embedded conversion option classified as a derivative liability**[80](index=80&type=chunk)[87](index=87&type=chunk) - The **2023 Notes, with an aggregate principal of $15.7 million, were fully repaid on January 31, 2023, resulting in an extinguishment gain of $0.02 million**[86](index=86&type=chunk)[87](index=87&type=chunk) Interest Expense Related to Notes Payable (in thousands) | Note Type | Six Months Ended June 30, 2023 (Total Interest Expense) | Six Months Ended June 30, 2022 (Total Interest Expense) | | :---------- | :-------------------------------------- | :-------------------------------------- | | 2023 Notes | $189 | $1,085 | | 2025 Notes | $4,543 | $3,999 | | PHC Notes | $2,230 | $3,914 | | PPP Loan | — | $6 | | **Total** | **$6,962** | **$9,005** | [13. Stockholders' Equity (Deficit)](index=29&type=section&id=13.%20Stockholders%27%20Equity%20(Deficit)) This section outlines the components of stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit - During the six months ended June 30, 2023, the Company **received $7.4 million in net proceeds from the sale of 9,944,663 common shares under the 2021 Sales Agreement with Jefferies**[89](index=89&type=chunk) [14. Stock-Based Compensation](index=29&type=section&id=14.%20Stock-Based%20Compensation) This section details the company's equity incentive plans and the accounting for stock-based compensation expenses - As of June 30, 2023, **28,775,002 shares remained available for grant under the Amended and Restated 2015 Equity Incentive Plan**[91](index=91&type=chunk) - The Company **adopted the 2023 Commercial Equity Plan, reserving 10,000,000 shares for non-employees, including Ascensia employees, with 7,475,000 shares remaining available as of June 30, 2023**[93](index=93&type=chunk) - The **2016 Employee Stock Purchase Plan (ESPP) had 17,760,078 shares available for issuance as of June 30, 2023, with 86,816 shares purchased during the six months ended June 30, 2023**[94](index=94&type=chunk) [15. Fair Value Measurements](index=33&type=section&id=15.%20Fair%20Value%20Measurements) This section describes the valuation methods and hierarchy used for financial assets and liabilities measured at fair value Fair Value Hierarchy of Financial Assets and Liabilities (in thousands) | Category | June 30, 2023 (Total) | December 31, 2022 (Total) | | :-------------------------------- | :-------------------- | :---------------------- | | **Assets** | | | | Money market funds | $25,007 | $34,658 | | Commercial paper | $43,242 | $41,503 | | Corporate debt securities | $11,836 | $32,142 | | Asset backed securities | $7,453 | $8,260 | | Government and agency securities | $33,989 | $38,570 | | **Liabilities** | | | | Embedded features of the 2025 Notes | $1,792 | $7,859 | | Embedded features of the 2023 Notes | — | $20 | | Embedded features of the PHC Notes | — | $44,191 | - **Level 3 liabilities, primarily embedded features of convertible notes, decreased significantly from $52.1 million at December 31, 2022, to $1.8 million at June 30, 2023, mainly due to gains on changes in fair value of PHC Notes and 2025 Notes embedded features**[100](index=100&type=chunk) [16. Income Taxes](index=34&type=section&id=16.%20Income%20Taxes) This section outlines the company's income tax position, including deferred tax assets and liabilities, and valuation allowances - The Company has **not recorded any tax provision or benefit** for the six months ended June 30, 2023 or 2022[102](index=102&type=chunk) - A **full valuation allowance has been provided for net deferred tax assets, as realization of future benefits is not considered more-likely-than-not**[102](index=102&type=chunk) [17. Related Party Transactions](index=34&type=section&id=17.%20Related%20Party%20Transactions) This section discloses transactions and relationships with parties that have the ability to influence the company's operations - **PHC has a noncontrolling ownership interest and board representation in the Company, and Ascensia (PHC's parent company) is a related party**[103](index=103&type=chunk) - **Revenue from Ascensia was $7.5 million for the six months ended June 30, 2023, compared to $5.7 million in the prior year**[103](index=103&type=chunk) - **Amounts due from Ascensia were $3.0 million at June 30, 2023, and amounts due to Ascensia were $0.6 million**[104](index=104&type=chunk) [18. Subsequent Events](index=34&type=section&id=18.%20Subsequent%20Events) This section reports significant events that occurred after the balance sheet date but before the financial statements were issued - On August 10, 2023, the Company **entered into exchange agreements to exchange up to $30.8 million of 2025 Notes for $7.5 million cash and newly issued common stock, expected to close around September 5, 2023**[106](index=106&type=chunk)[107](index=107&type=chunk) - The Company **terminated its 'at the market' offering program with Jefferies on August 7, 2023, with $106.6 million remaining available**[108](index=108&type=chunk) - A **new 'at the market' offering program was established with Goldman Sachs on August 10, 2023, for up to $106.6 million in common stock, pending SEC registration statement effectiveness**[109](index=109&type=chunk)[110](index=110&type=chunk) [ITEM 2: Management Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=ITEM%202%3A%20Management%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, including an overview of its business, product development and commercialization efforts, detailed analysis of revenue, cost of sales, operating expenses, and other income/expense for the three and six months ended June 30, 2023 and 2022, and a discussion of liquidity and capital resources [Overview](index=37&type=section&id=Overview) This section provides a general description of the company's business, products, and strategic initiatives - **Senseonics is a medical technology company focused on long-term implantable continuous glucose monitoring (CGM) systems, including Eversense, Eversense XL, and Eversense E3, offering up to six months of glucose monitoring**[114](index=114&type=chunk) - The **Eversense E3 CGM system received FDA approval in February 2022 and CE mark in June 2022, with commercialization by Ascensia in the US and Europe**[114](index=114&type=chunk)[127](index=127&type=chunk)[132](index=132&type=chunk) - The **ENHANCE pivotal study for the Eversense 365-day system completed enrollment in Q3 2022, with data expected in H2 2023, and pediatric patient enrollment began in Q2 2023**[118](index=118&type=chunk)[128](index=128&type=chunk) - The Company has **achieved approximately 300 million covered lives in the United States through positive insurance payor coverage decisions, including UnitedHealthcare effective July 1, 2023**[117](index=117&type=chunk) [United States Development and Commercialization of Eversense](index=39&type=section&id=United%20States%20Development%20and%20Commercialization%20of%20Eversense) This section details the development and commercialization efforts for the Eversense system in the United States - The **90-day Eversense CGM system received FDA PMA approval in June 2018 and non-adjunctive indication (dosing claim) approval in June 2019, allowing it to replace fingerstick blood glucose measurements**[120](index=120&type=chunk)[122](index=122&type=chunk) - The **180-day extended life Eversense E3 CGM system was approved by the FDA in February 2022 and commercialized by Ascensia in the US during Q2 2022**[114](index=114&type=chunk)[127](index=127&type=chunk) - The **ENHANCE clinical study, evaluating the Eversense 365 System, completed enrollment in September 2022 and began enrolling pediatric patients in Q2 2023**[128](index=128&type=chunk) [European Commercialization of Eversense](index=41&type=section&id=European%20Commercialization%20of%20Eversense) This section outlines the commercialization strategy and progress for the Eversense system in European markets - The **Eversense XL, with a 180-day sensor life, received CE mark in September 2017 and began commercialization in Europe in Q4 2017**[129](index=129&type=chunk) - The **Eversense E3 CGM system received CE mark in June 2022, with Ascensia commencing commercialization in European markets in the second half of 2022**[132](index=132&type=chunk) - The **Company's distribution agreement with Roche concluded on January 31, 2021, transitioning distribution to Ascensia**[130](index=130&type=chunk) [Financial Overview](index=43&type=section&id=Financial%20Overview) This section provides a summary of the company's financial performance and key financial metrics - **Revenue is primarily generated from sales of Eversense systems to Ascensia and other distributors, recognized upon transfer of control, with variable consideration like revenue share treated as an addition to revenue**[133](index=133&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk) - **Ascensia remains the primary customer, contributing 89% and 91% of total revenue for the three and six months ended June 30, 2023, respectively**[138](index=138&type=chunk) Revenue by Geographic Region (in thousands) | Geographic Region | Three Months Ended June 30, 2023 | % of Total (3M 2023) | Six Months Ended June 30, 2023 | % of Total (6M 2023) | | :------------------ | :------------------------------- | :------------------- | :----------------------------- | :------------------- | | United States | $1,793 | 43.5% | $3,955 | 47.9% | | Outside of the US | $2,333 | 56.5% | $4,308 | 52.1% | | **Total** | **$4,126** | **100.0%** | **$8,263** | **100.0%** | | | Three Months Ended June 30, 2022 | % of Total (3M 2022) | Six Months Ended June 30, 2022 | % of Total (6M 2022) | | United States | $1,207 | 32.5% | $1,974 | 31.9% | | Outside of the US | $2,507 | 67.5% | $4,222 | 68.1% | | **Total** | **$3,714** | **100.0%** | **$6,196** | **100.0%** | [Results of Operations for the Three Months Ended June 30, 2023 and 2022](index=45&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section analyzes the company's financial results for the three-month periods ended June 30, 2023 and 2022 Key Financial Results (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Period-to-Period Change | | :--------------------------------------- | :----- | :----- | :---------------------- | | Total revenue | $4,126 | $3,714 | $412 | | Gross profit | $417 | $824 | $(407) | | Research and development expenses | $12,830 | $9,299 | $3,531 | | Selling, general and administrative expenses | $7,455 | $8,561 | $(1,106) | | Operating loss | $(19,868) | $(17,036) | $(2,832) | | Total other income (expense), net | $(555) | $121,267 | $(121,822) | | Net (Loss) Income | $(20,423) | $104,231 | $(124,654) | - **Total revenue increased by** **$0.4 million**, **primarily driven by the launch of Eversense E3 outside the United States**[142](index=142&type=chunk) - **Gross profit decreased by** **$0.4 million**, with **gross margin falling from 22.2% to 10.1%**, due to increased revenue share to Ascensia, sales channel mix, and higher manufacturing/logistics costs[143](index=143&type=chunk) - **Research and development expenses increased by** **$3.5 million**, mainly due to **investments in next-generation technologies and clinical studies activities**[144](index=144&type=chunk) - **Selling, general and administrative expenses decreased by $1.1 million, primarily from reduced personnel spend and insurance premiums**[145](index=145&type=chunk)[146](index=146&type=chunk) - **Net loss was $(20.4) million, a significant decrease from net income of $104.2 million in the prior year, largely due to a $121.8 million decrease in total other income (expense), net, driven by changes in fair value adjustments of options and derivatives**[140](index=140&type=chunk)[147](index=147&type=chunk) [Results of Operations for the Six Months Ended June 30, 2023 and 2022](index=47&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section analyzes the company's financial results for the six-month periods ended June 30, 2023 and 2022 Key Financial Results (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Period-to-Period Change | | :--------------------------------------- | :----- | :----- | :---------------------- | | Total revenue | $8,263 | $6,196 | $2,067 | | Gross profit | $830 | $1,351 | $(521) | | Research and development expenses | $25,235 | $17,103 | $8,132 | | Selling, general and administrative expenses | $15,173 | $16,445 | $(1,272) | | Operating loss | $(39,578) | $(32,197) | $(7,381) | | Total other (expense) income, net | $20,479 | $223,146 | $(202,667) | | Net (Loss) Income | $(19,099) | $190,949 | $(210,048) | - **Total revenue increased by** **$2.1 million**, **primarily due to the launch of Eversense E3 outside the United States**[149](index=149&type=chunk) - **Gross profit decreased by** **$0.5 million**, with **gross margin falling from 21.8% to 10.0%**, due to increased revenue share to Ascensia, sales channel mix, and higher manufacturing/logistics costs[150](index=150&type=chunk) - **Research and development expenses increased by** **$8.1 million**, driven by **investments in next-generation technologies, clinical studies, and personnel costs**[151](index=151&type=chunk) - **Selling, general and administrative expenses decreased by $1.3 million, mainly due to reductions in personnel costs, recruiting, and other general and administrative expenses**[152](index=152&type=chunk) - **Net loss was $(19.1) million, a significant decrease from net income of $190.9 million in the prior year, largely due to a $202.7 million decrease in total other income (expense), net, primarily from changes in fair value of derivatives and options, partially offset by a net gain on extinguishment of PHC notes**[148](index=148&type=chunk)[153](index=153&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, funding sources, and ability to meet its financial obligations - The Company has **historically incurred substantial losses and negative operating cash flows, funding operations through equity, warrants, convertible notes, and debt**[154](index=154&type=chunk) - As of June 30, 2023, **cash, cash equivalents, and marketable securities totaled $125.1 million**[154](index=154&type=chunk) - **Subsequent to the quarter, the Company initiated an exchange of up to $30.8 million of 2025 Notes for cash and common stock, and established a new 'at the market' offering program with Goldman Sachs for up to $106.6 million**[155](index=155&type=chunk)[158](index=158&type=chunk) - **Management believes existing cash, cash equivalents, and future operations cash flows will be sufficient to meet operating plans into 2025**[172](index=172&type=chunk) Summary of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :-------------------------------- | :------- | :------- | | Net cash used in operating activities | $(37,832) | $(34,341) | | Net cash provided by investing activities | $25,871 | $42,108 | | Net cash provided by financing activities | $4,719 | $4,197 | | Net (decrease) increase in cash and cash equivalents | $(7,242) | $11,964 | [ITEM 3: Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=ITEM%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Senseonics Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this Quarterly Report on Form 10-Q - The Company is **exempt from providing detailed market risk disclosures due to its status as a 'smaller reporting company'**[183](index=183&type=chunk) [ITEM 4: Controls and Procedures](index=56&type=section&id=ITEM%204%3A%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting during the quarter ended June 30, 2023 [Evaluation of Disclosure Controls and Procedures](index=56&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section assesses the effectiveness of the company's disclosure controls and procedures - Management, with the assistance of the CEO and CFO, concluded that the Company's **disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023**[184](index=184&type=chunk) [Changes in Internal Control over Financial Reporting](index=58&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in the company's internal control over financial reporting - There were **no changes in internal control over financial reporting during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting**[186](index=186&type=chunk) [PART II: Other Information](index=59&type=section&id=PART%20II%3A%20Other%20Information) This section provides additional information not covered in the financial statements [ITEM 1: Legal Proceedings](index=59&type=section&id=ITEM%201%3A%20Legal%20Proceedings) This section outlines the Company's involvement in legal proceedings, including a specific civil complaint under the federal False Claims Act, and generally states that the Company does not expect ordinary course matters to have a material adverse effect - The Company is **currently involved in an appeal to the United States Court of Appeals for the Fifth Circuit regarding a civil complaint alleging False Claims Act violations related to marketing practices, which was previously dismissed by the district court**[190](index=190&type=chunk) - **Management believes that the final outcome of ordinary course litigation and claims will not have a material adverse effect on the business**[189](index=189&type=chunk) [ITEM 1A: Risk Factors](index=59&type=section&id=ITEM%201A%3A%20Risk%20Factors) This section highlights specific risks that could adversely affect the Company's financial condition and stock price, particularly focusing on the potential dilution and market impact from recent exchange agreements involving the 2025 Notes - The **recent exchange agreements for 2025 Notes will result in additional dilution to common stockholders, as the number of shares issued will exceed those currently underlying the exchanged notes**[192](index=192&type=chunk) - The **immediate resale eligibility of newly issued shares could increase market supply and potentially cause the Company's stock price to decline**[192](index=192&type=chunk) - If the total amount of 2025 Notes repurchased is less than anticipated due to stock price declines, the Company may **not fully realize the expected benefits, including debt reduction and elimination of restrictive covenants**[192](index=192&type=chunk) [ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=ITEM%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for this quarterly report [ITEM 3: Defaults Upon Senior Securities](index=59&type=section&id=ITEM%203%3A%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for this quarterly report [ITEM 4: Mine Safety Disclosures](index=59&type=section&id=ITEM%204%3A%20Mine%20Safety%20Disclosures) This item is not applicable for this quarterly report [ITEM 5: Other Information](index=61&type=section&id=ITEM%205%3A%20Other%20Information) This section provides additional disclosures regarding significant events occurring after the reporting period, specifically detailing the 2025 Notes Exchange Agreements and the new 'at the market' offering program - On August 10, 2023, the Company **entered into exchange agreements to exchange up to $30.8 million in 2025 Notes for $7.5 million cash and newly issued common stock, with the number of shares determined by a 15-day volume-weighted average price, capped at 10% of outstanding common stock**[196](index=196&type=chunk) - The Company **terminated its previous 'at the market' offering program with Jefferies on August 7, 2023, with approximately $106.6 million remaining available**[199](index=199&type=chunk) - A **new 'at the market' offering program was established with Goldman Sachs on August 10, 2023, allowing the issuance and sale of common stock for up to $106.6 million, pending SEC registration statement effectiveness**[200](index=200&type=chunk)[201](index=201&type=chunk) [ITEM 6: Exhibits](index=62&type=section&id=ITEM%206%3A%20Exhibits) This section lists all exhibits filed or incorporated by reference as part of this Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and XBRL data files - The **exhibits include corporate documents (e.g., Certificate of Incorporation, Bylaws), the Form of Exchange Agreement dated August 10, 2023, and certifications under the Sarbanes-Oxley Act**[202](index=202&type=chunk)[203](index=203&type=chunk) [SIGNATURES](index=63&type=section&id=SIGNATURES) This section contains the required signatures, certifying the filing of the Quarterly Report on Form 10-Q on behalf of Senseonics Holdings, Inc. by its Chief Financial Officer - The **report was signed by Rick Sullivan, Chief Financial Officer, on August 10, 2023**[207](index=207&type=chunk)