Senseonics(SENS) - 2024 Q1 - Quarterly Report

PART I: Financial Information ITEM 1: Financial Statements This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity changes, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets Total assets and stockholders' equity decreased, while total liabilities increased, driven by a significant rise in current liabilities due to new notes payable Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :------------------ | | Total assets | $126,516 | $138,220 | | Total liabilities | $69,898 | $64,768 | | Total stockholders' equity | $18,962 | $35,796 | | Cash and cash equivalents | $90,544 | $75,709 | | Short term investments, net | $8,169 | $33,747 | | Note payable, current portion, net | $17,937 | — | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net loss of $18.9 million in Q1 2024, a decline from net income of $1.3 million in Q1 2023, mainly due to the absence of prior year's exchange-related and derivative fair value gains Unaudited Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $5,047 | $4,137 | | Cost of sales | $4,712 | $3,723 | | Gross profit | $335 | $414 | | Operating loss | $(18,232) | $(19,709) | | Total other (expense) income, net | $(645) | $21,033 | | Net (Loss) Income | $(18,877) | $1,324 | | Basic net (loss) income per common share | $(0.03) | $0.00 | | Diluted net (loss) income per common share | $(0.03) | $0.00 | - Exchange related gain, net decreased significantly from $18,776k in Q1 2023 to $0k in Q1 2024[11] - Gain on change in fair value of derivatives decreased significantly from $5,778k in Q1 2023 to $0k in Q1 2024[11] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) Total stockholders' equity decreased from $35.8 million to $19.0 million, primarily due to a net loss of $18.9 million, partially offset by stock-based compensation and common stock issuances Changes in Stockholders' Equity (in thousands) | Metric | Balance, December 31, 2023 | Net Loss (Q1 2024) | Stock-based compensation expense (Q1 2024) | Balance, March 31, 2024 | | :-------------------------------- | :------------------------- | :----------------- | :----------------------------------------- | :------------------------ | | Total Stockholders' Equity (Deficit) | $35,796 | $(18,877) | $1,801 | $18,962 | - Issued common stock for vested RSUs and ESPP purchase contributed $96k to additional paid-in capital in Q1 2024[14] Unaudited Condensed Consolidated Statements of Cash Flows Net cash, cash equivalents, and restricted cash increased by $15.2 million in Q1 2024, driven by investing and financing activities, offsetting cash used in operations Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(20,262) | $(19,848) | | Net cash provided by investing activities | $25,379 | $29,947 | | Net cash provided by (used in) financing activities | $10,034 | $(807) | | Net increase in cash, cash equivalents | $15,151 | $9,292 | | Cash, cash equivalents, and restricted cash at ending of period | $90,860 | $45,085 | - Financing activities shifted from using $0.8 million cash in Q1 2023 to providing $10.0 million in Q1 2024, primarily due to proceeds from the issuance of term loans[178][179] Notes to Unaudited Condensed Consolidated Financial Statements These notes detail financial statements, covering operations, liquidity, accounting policies, revenue, debt, equity, and related party transactions, emphasizing going concern uncertainty and funding strategies 1. Organization and Nature of Operations Senseonics Holdings, Inc. is a medical technology company developing and manufacturing long-term, implantable continuous glucose monitoring (CGM) systems - The company specializes in long-term, implantable continuous glucose monitoring (CGM) systems[17] 2. Liquidity and Capital Resources The company has an accumulated deficit of $888.1 million, raising substantial doubt about its ability to continue as a going concern, relying on a $50.0 million Term Loan Facility and equity offerings for funding - Accumulated deficit of $888.1 million as of March 31, 2024[19] - Unrestricted cash, cash equivalents, and marketable securities totaled $98.7 million as of March 31, 2024[19] - Substantial doubt exists regarding the company's ability to continue as a going concern for the one-year period following the financial statements issuance date, necessitating additional funding[21] - Secured a $50.0 million Term Loan Facility, with Tranche 1 ($25.0 million) funded in September 2023 and Tranche 2 ($10.0 million) funded in January 2024[23] - Exchanged up to $30.8 million of 2025 Notes for $7.5 million cash and 35.1 million common shares in August 2023[24] 3. Summary of Significant Accounting Policies Financial statements are prepared under U.S. GAAP, with management estimates, operating as a single segment for glucose monitoring products, and evaluating new accounting pronouncements - Financial statements are prepared in accordance with U.S. GAAP for interim financial information[31] - The company operates in one segment: glucose monitoring products[33] - Evaluating the impact of new accounting standards ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Tax Disclosures)[34][35] 4. Revenue Recognition Revenue primarily comes from Eversense system sales to Ascensia and other distributors, recognized upon customer control or patient consumption, with Ascensia being a key customer and U.S. revenue share increasing in Q1 2024 - Revenue is derived from sales of Eversense systems to Ascensia, third-party distributors, and strategic fulfillment partners[38] - 88% of total revenue for Q1 2024 (92% for Q1 2023) was from Ascensia[41] Revenue by Geographic Region (in thousands) | Geographic Region | Three Months Ended March 31, 2024 (Amount) | % of Total (2024) | Three Months Ended March 31, 2023 (Amount) | % of Total (2023) | | :---------------- | :----------------------------------------- | :---------------- | :----------------------------------------- | :---------------- | | United States | $3,677 | 72.8% | $2,162 | 52.3% | | Outside of the United States | $1,370 | 27.2% | $1,975 | 47.7% | | Total | $5,047 | 100.0% | $4,137 | 100.0% | 5. Net (Loss) Income per Share The company reported a basic and diluted net loss per common share of $(0.03) for Q1 2024, compared to $0.00 net income per share in Q1 2023, excluding dilutive shares during net loss periods Net (Loss) Income per Share | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Basic net (loss) income per common share | $(0.03) | $0.00 | | Diluted net (loss) income per common share | $(0.03) | $0.00 | | Basic weighted-average shares outstanding | 614,588,546 | 497,473,222 | - 77,850,384 anti-dilutive shares were outstanding in Q1 2024, excluded from diluted EPS due to net loss[45] 6. Marketable Securities Marketable securities decreased from $33.7 million to $8.2 million, primarily commercial paper and government securities maturing within nine months of 2024, with minor unrealized losses Marketable Securities (in thousands) | Type | March 31, 2024 (Estimated Market Value) | December 31, 2023 (Estimated Market Value) | | :-------------------------- | :-------------------------------------- | :----------------------------------------- | | Commercial Paper | $4,669 | $7,598 | | Corporate debt securities | — | $7,981 | | Government and agency securities | $3,500 | $18,168 | | Total | $8,169 | $33,747 | - All marketable securities are scheduled to mature within the remaining nine months of 2024[46] 7. Inventory, net Net inventory decreased from $8.8 million to $8.0 million, with work-in-process as the largest component and minimal obsolescence provisions Inventory, net (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Finished goods | $2,092 | $2,160 | | Work-in-process | $4,602 | $5,332 | | Raw materials | $1,269 | $1,284 | | Total | $7,963 | $8,776 | - Less than $0.1 million was recorded for inventory obsolescence in cost of sales for both Q1 2024 and Q1 2023[48] 8. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets slightly increased to $7.4 million, with contract manufacturing deposits remaining the largest component Prepaid Expenses and Other Current Assets (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Contract manufacturing | $3,891 | $4,244 | | Tax credits receivable | $1,793 | $1,793 | | Insurance | $745 | $73 | | Total prepaid expenses and other current assets | $7,434 | $7,266 | 9. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities decreased to $11.1 million, primarily due to a reduction in compensation and benefits Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Research and development | $4,213 | $3,846 | | Professional and administrative services | $2,123 | $673 | | Compensation and benefits | $1,399 | $4,799 | | Total accrued expenses and other current liabilities | $11,105 | $12,689 | 10. Leases The corporate headquarters operating lease was extended through May 31, 2033, with consistent $0.2 million operating lease expense in Q1 2024 and Q1 2023 - Lease term for corporate headquarters extended through May 31, 2033, with one five-year extension option[52] - Operating lease expense was $0.2 million for both Q1 2024 and Q1 2023[53] Operating Lease Assets and Liabilities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Operating lease ROU assets | $5,097 | $5,180 | | Total operating lease liabilities | $6,497 | $6,582 | 11. Product Warranty Obligations The company provides a one-year warranty on smart transmitters; the warranty reserve remained stable at approximately $0.5 million in Q1 2024 Product Warranty Liabilities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Balance at beginning of the period | $514 | $781 | | Provision for warranties during the period | $66 | $242 | | Settlements made during the period | $(95) | $(509) | | Balance at end of the period | $485 | $514 | 12. Notes Payable, Preferred Stock and Stock Purchase Warrants Debt includes a $50.0 million Term Loan Facility ($35.0 million drawn) and $20.4 million in 2025 Convertible Senior Notes, with warrants issued and total interest expense decreasing due to debt settlements - Entered into a Loan and Security Agreement for up to $50.0 million in senior secured term loans, with $25.0 million (Tranche 1) funded in September 2023 and $10.0 million (Tranche 2) funded in January 2024[56] - The Loan and Security Agreement includes a minimum cash covenant (30% of outstanding loan) and a performance covenant (net product revenue on a trailing six-month basis, commencing July 1, 2024)[59][61] - Issued warrants to Lenders for 832,362 common shares with Tranche 1 and 347,887 shares with Tranche 2 of the Term Loan Facility[63] - Outstanding 2025 Notes totaled $20.4 million aggregate principal amount as of March 31, 2024, maturing January 15, 2025, with a 5.25% coupon[97][170] Interest Expense Related to Notes Payable (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | 2025 Notes Interest Expense | $947 | $2,233 | | Loan and Security Agreement Interest Expense | $1,100 | — | | 2023 Notes Interest Expense | — | $189 | | PHC Notes Interest Expense | — | $2,230 | | Total Interest Expense | $2,047 | $4,652 | 13. Stockholders' Equity The company uses 'at the market' offerings for capital; the 2021 Sales Agreement was terminated, and a new Equity Distribution Agreement with Goldman Sachs yielded minimal net proceeds - Entered into an Equity Distribution Agreement with Goldman Sachs for up to $106.6 million in 'at the market' offerings; received approximately $0.1 million in net proceeds from 108,026 shares as of March 31, 2024[100] - The 2021 Sales Agreement with Jefferies was terminated in August 2023, with $106.6 million remaining available for issuance at termination[99] 14. Stock-Based Compensation The company maintains several equity incentive plans (2015, Inducement, 2023 Commercial, ESPP) for employees and partners, with significant shares remaining available for grant or issuance - 46,186,700 shares remained available for grant under the Amended and Restated 2015 Plan as of March 31, 2024[102] - 7,675,000 shares remained available for grant under the 2023 Commercial Equity Plan as of March 31, 2024, for non-employees including Ascensia staff[106] - 22,729,158 shares of common stock were available for issuance under the 2016 ESPP as of March 31, 2024, with 199,066 shares purchased in Q1 2024[107] 15. Fair Value Measurements Financial assets and liabilities are categorized into a three-level fair value hierarchy, with money market funds, commercial paper, and government securities as Level 1/2 assets, and 2025 Notes embedded features as Level 3 liabilities Fair Value Hierarchy of Financial Assets and Liabilities (in thousands, as of March 31, 2024) | Category | Total | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :---- | :------ | :------ | :------ | | Assets | | | | | | Money market funds | $87,866 | $87,866 | — | — | | Commercial paper | $4,670 | — | $4,670 | — | | Government and agency securities | $3,500 | $3,500 | — | — | | Liabilities | | | | | | Embedded features of the 2025 Notes | $102 | — | — | $102 | - Significant unobservable inputs for Level 3 liabilities (2025 Notes embedded features) include stock price volatility (45.0%), probabilities of conversion provisions (5.0-95.0%), and credit spread (8.80%)[112] 16. Income Taxes No tax provision or benefit was recorded for Q1 2024 or Q1 2023, with a full valuation allowance applied to net deferred tax assets due to benefit uncertainty - No tax provision or benefit recorded for the three months ended March 31, 2024, or 2023[113] - A full valuation allowance is provided for net deferred tax assets due to uncertainty of future benefit realization[113] 17. Related Party Transactions PHC Holdings Corporation and its subsidiary Ascensia Diabetes Care Holdings AG are related parties, with Ascensia being the primary customer, contributing $4.5 million in revenue in Q1 2024 - PHC Holdings Corporation and its subsidiary Ascensia Diabetes Care Holdings AG are related parties[114] - Revenue from Ascensia was $4.5 million for Q1 2024, an increase from $3.8 million in Q1 2023[115] - Amount due from Ascensia was $2.8 million as of March 31, 2024, and amount due to Ascensia was $1.1 million[116] 18. Subsequent Events No subsequent events requiring recognition or disclosure were identified through the filing date of this Form 10-Q - No subsequent events requiring recognition or disclosure were identified through the filing date of the Form 10-Q[117] ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition, operations, and liquidity, focusing on implantable CGM systems, commercialization challenges, funding, and reiterating substantial doubt about its ability to continue as a going concern Overview Senseonics is a medical technology company developing and manufacturing long-term implantable continuous glucose monitoring (CGM) systems (Eversense, Eversense XL, E3) with extended sensor life, focusing on early commercialization and strategic partnerships - The company develops and manufactures long-term, implantable CGM systems (Eversense, Eversense XL, Eversense E3) for diabetes management[121] - Eversense E3 offers up to six months of continuous glucose monitoring, significantly longer than non-implantable systems (7-14 days)[121] - Commercialization efforts focus on driving awareness among intensively managed patients and healthcare providers through strategic partnerships and distribution agreements[126] United States Development and Commercialization of Eversense The company achieved U.S. milestones including FDA approvals for 90-day Eversense, 180-day Eversense E3, and a non-adjunctive indication, with expanded Medicare coverage and a 365-day system FDA 510(k) submission - FDA approved the 90-day Eversense CGM system in June 2018 and the 180-day Eversense E3 CGM system in February 2022[121][135] - Received FDA approval for non-adjunctive indication (dosing claim) for Eversense in June 2019, allowing its use for treatment decisions[121][131] - Medicare coverage for Eversense E3 was expanded in February 2024 to include all insulin users and non-insulin users with problematic hypoglycemia[124] - Completed the ENHANCE pivotal study for the Eversense 365-day system, supporting a May 2024 FDA 510(k) submission for a new 365-day product with once-per-week calibration[125][136] European Commercialization of Eversense The company secured CE marks for Eversense XL (180-day sensor life) and Eversense E3, enabling European commercialization, with Ascensia launching Eversense E3 in H2 2022 - Affixed CE mark for Eversense XL in September 2017, indicated for up to 180-day sensor life, with commercialization starting in Q4 2017[137] - Affixed CE mark to Eversense E3 CGM system in June 2022, with Ascensia commencing commercialization in European markets during the second half of 2022[138] Financial Overview Product revenue comes from Eversense system sales to Ascensia and other partners, recognized upon customer control or patient consumption, with Ascensia as a concentrated customer and U.S. revenue share increasing in Q1 2024 - Product revenue is generated from sales of Eversense systems and components to Ascensia, third-party distributors, and strategic fulfillment partners[139] - Consignment sales represented approximately 10% of net sales for Q1 2024, with revenue recognized upon patient consumption[142] - Ascensia accounted for 88% of total revenue in Q1 2024 (92% in Q1 2023), indicating high customer concentration[146] Revenue by Geographic Region (in thousands) | Geographic Region | Three Months Ended March 31, 2024 (Amount) | % of Total (2024) | Three Months Ended March 31, 2023 (Amount) | % of Total (2023) | | :---------------- | :----------------------------------------- | :---------------- | :----------------------------------------- | :---------------- | | United States | $3,677 | 72.8% | $2,162 | 52.3% | | Outside of the United States | $1,370 | 27.2% | $1,975 | 47.7% | | Total | $5,047 | 100.0% | $4,137 | 100.0% | Results of Operations for the Three Months Ended March 31, 2024 and 2023 In Q1 2024, total revenue increased by $0.9 million to $5.0 million, but gross profit decreased due to higher manufacturing costs and increased revenue share to Ascensia, resulting in a net loss of $18.9 million due to the absence of prior year's significant gains - Total revenue increased by $0.9 million to $5.0 million in Q1 2024, primarily due to increased commercial activities and new patients in the United States[151] - Gross profit decreased by $0.079 million to $0.3 million in Q1 2024, with gross margin falling from 10.0% to 6.6%, mainly due to higher fixed manufacturing costs and an increased revenue share percentage to Ascensia[152] - Research and development expenses decreased by $2.0 million to $10.4 million in Q1 2024, driven by a $2.8 million reduction in clinical studies spend[153] - Total other income (expense), net, decreased by $21.7 million, shifting from $21.0 million income in Q1 2023 to $(0.6) million expense in Q1 2024, primarily due to a $50.0 million reduction in gains on derivative fair value and debt settlements[156] Key Financial Results (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Period-to-Period Change | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :---------------------- | | Total revenue | $5,047 | $4,137 | $910 | | Gross profit | $335 | $414 | $(79) | | Research and development expenses | $10,438 | $12,405 | $(1,967) | | Selling, general and administrative expenses | $8,129 | $7,718 | $411 | | Operating loss | $(18,232) | $(19,709) | $1,477 | | Net (Loss) Income | $(18,877) | $1,324 | $(20,201) | Liquidity and Capital Resources With an accumulated deficit of $888.1 million and $98.7 million in unrestricted cash, substantial doubt exists regarding the company's ability to continue as a going concern through Q2 2025, necessitating debt and equity financings like the $50.0 million Term Loan Facility - Accumulated deficit of $888.1 million as of March 31, 2024[157] - Unrestricted cash, cash equivalents, and marketable securities totaled $98.7 million as of March 31, 2024[157] - Substantial doubt exists regarding the company's ability to continue as a going concern for the one-year period following the financial statements issuance date, requiring additional funding[167][172] - Secured a $50.0 million Term Loan Facility, with $35.0 million drawn as of January 2, 2024[158][169] - Existing cash and cash equivalents are not expected to be sufficient to fund operations and meet debt covenants through the second quarter of 2025[167] Cash Flows In Q1 2024, $20.3 million was used in operating activities, offset by $25.4 million from investing and $10.0 million from financing, leading to a net increase of $15.2 million in cash and cash equivalents Summary of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(20,262) | $(19,848) | | Net cash provided by investing activities | $25,379 | $29,947 | | Net cash provided by (used in) financing activities | $10,034 | $(807) | | Net increase in cash and cash equivalents | $15,151 | $9,292 | - Net cash provided by financing activities significantly increased to $10.0 million in Q1 2024, primarily from the issuance of term loans, compared to cash used in Q1 2023[178] Contractual Obligations No material changes to contractual obligations and commitments were reported as of March 31, 2024, compared to the Annual Report on Form 10-K - No material changes in contractual obligations and commitments as of March 31, 2024, compared to the Annual Report on Form 10-K filed March 1, 2024[180] ITEM 3: Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' Senseonics is exempt from detailed quantitative and qualitative market risk disclosures in this Form 10-Q - The company is exempt from providing detailed market risk disclosures as it is classified as a 'smaller reporting company'[181] ITEM 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting identified Evaluation of Disclosure Controls and Procedures Management, with executive officers, evaluated and concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024 - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of March 31, 2024[182] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting were identified during Q1 2024 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[183] PART II: Other Information ITEM 1: Legal Proceedings The company faces ordinary course litigation, including a dismissed False Claims Act lawsuit and a new patent infringement lawsuit filed in May 2024, which it intends to vigorously defend - A False Claims Act lawsuit was dismissed by the District Court, and the dismissal was affirmed by the Fifth Circuit on February 28, 2024[187] - A new patent infringement lawsuit was filed against the company by Cellspin Soft, Inc. in May 2024, which the company intends to vigorously defend[188] ITEM 1A: Risk Factors The company faces significant risks, including costly patent litigation and substantial doubt about its ability to maintain sufficient liquidity to continue as a going concern, necessitating additional capital - The medical device industry is characterized by patent litigation, which could be costly, divert management time, and harm the company's reputation[191][197] - Substantial doubt exists regarding the company's ability to maintain liquidity sufficient to operate effectively, raising concerns about its ability to continue as a going concern[198][201] - A new patent infringement lawsuit was filed in May 2024, adding to the litigation risk[194] ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the company for this reporting period - Not applicable[202] ITEM 3: Defaults Upon Senior Securities This item is not applicable to the company for this reporting period - Not applicable[203] ITEM 4: Mine Safety Disclosures This item is not applicable to the company for this reporting period - Not applicable[204] ITEM 5: Other Information No officers or directors adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangement changes by officers or directors in Q1 2024[205] ITEM 6: Exhibits This section lists all exhibits filed or incorporated by reference as part of the Form 10-Q, including corporate documents, Sarbanes-Oxley certifications, and Inline XBRL documents - Includes certifications under Sections 302 and 906 of the Sarbanes-Oxley Act and Inline XBRL documents[208] SIGNATURES The Quarterly Report on Form 10-Q was duly signed by Rick Sullivan, Chief Financial Officer, on May 13, 2024 - Signed by Rick Sullivan, Chief Financial Officer, on May 13, 2024[212]