Long-term Debt

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Long-term Debt

Note 6. Long-term debt

Convertible Senior Notes

The following table presents the outstanding principal amount and carrying value of the Notes as of the dates indicated (in thousands):

	March 31, 2022							December 31, 2021
	Principal Amount		Unamortized debt issuance costs			Net Carrying Amount		Principal Amount		Unamortized debt issuance costs			Net Carrying Amount
2019 Notes (1)	$	9,850	$	(207	)	$	9,643	$	9,850	$	(217	)	$	9,633
2021 Notes		287,500		(8,446	)		279,054		287,500		(8,839	)		278,661
Total Debt		297,350		(8,653	)		288,697		297,350		(9,056	)		288,294
Short-term Debt		9,850		(207	)		9,643		9,850		(217	)		9,633
Long-term Debt	$	287,500	$	(8,446	)	$	279,054	$	287,500	$	(8,839	)	$	278,661
(1) In November 2021, we completed a privately negotiated repurchase of $76.4 million principal amount of the 2019 Notes (“2019 Note Repurchase”) which we accounted for as an induced conversion in accordance with Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20). As a result of this transaction, we recorded unamortized debt issuance costs of $1.8 million in additional paid-in capital for the year ended December 31, 2021. Please refer to section "Partial Repurchase of the Convertible Senior Notes – 2019".

In December 2019, we issued $86.3 million aggregate principal amount of the 2019 Notes due December 15, 2026, and in November 2021, we issued $287.5 million aggregate principal amount of the 2021 Notes due May 15, 2027. 

Further details of the Notes are as follows:

Issuance	Maturity Date	Interest Rate	First Interest Payment Date	Effective Interest Rate	Semi-Annual Interest Payment Dates	Initial Conversion Rate per $1,000 Principal	Initial Conversion Price		Number of Shares (in millions) (1)
2019 Notes	December 15, 2026	2%	June 15, 2020	2.47%	June 15; December 15	28.9415	$	34.55	0.3
2021 Notes	May 15, 2027	1.125%	May 15, 2022	1.72%	May 15; November 15	9.0061	$	111.04	2.6
(1) Amount for 2019 Notes represents amount after repurchasing a portion of the 2019 Notes.

The Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures for both (the Indentures). The total net proceeds from the Notes, after deducting initial debt issuance costs, fees and expenses, were $83.5 million and $278.4 million, respectively. We used a portion of the proceeds from the 2019 Notes to pay the cost of the capped call transactions described in the section “Capped Calls” and to repay our senior credit facility. We used approximately $183.6 million of the net proceeds of the 2021 Notes, excluding accrued interest, to repurchase approximately $76.4 million aggregate principal amount of the 2019 Notes through individual privately negotiated transactions concurrent with us offering the 2021 Notes, as described in the section “Partial Repurchase of the Convertible Senior Notes – 2019”. We will use the remainder of the net proceeds from the 2021 Notes for general corporate purposes.

Terms of the Notes

The Notes holders may convert their respective Notes at their option at any time prior to the close of business on the business day immediately preceding the respective conversion dates under the following circumstances:

• during any fiscal quarter commencing after the fiscal quarter ended on March 31, 2020 for the 2019 Notes and the fiscal quarter ended on March 31, 2022 for the 2021 Notes (and only during such fiscal quarter), if the last reported sale price of

our common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; 

• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

• prior to the close of business on the second scheduled trading day immediately preceding the redemption date if we call the Notes for redemption; or

• upon the occurrence of specified corporate events, as described in the indenture.

Regardless of the foregoing circumstances, holders may convert all or any portion of the Notes, in increments of $1,000 principal amount, on or after September 15, 2026 (2019 Notes) and on or after February 15, 2027 (2021 Notes), until the close of business on the second scheduled trading day immediately preceding the maturity date.

We may redeem all, or a portion of the Notes for cash, at our option, on or after December 20, 2023 (2019 Notes) or on or after November 20, 2024 (2021 Notes), if the last reported sale price of our common stock has been at least 130% of the conversion price at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period at a redemption price equal to 100% of the principal amount of the Notes being redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

Notes holders who convert their Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally in the event of a corporate event constituting a fundamental change (as defined in the Indenture), Notes holders may require us to repurchase all or a portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

Accounting for the Notes

Prior to January 1, 2021, we separated the 2019 Notes into liability and equity components. 

We determined the fair value of the liability component to be $52.5 million calculated as the present value of future cash flows discounted at the borrowing rate for a similar nonconvertible debt instrument based on the expected term. We determined the borrowing rate to be 9.90% based on the market rates for nonconvertible debt instruments issued by other companies with publicly available credit ratings considered to be comparable to us. We recognized the excess of the principal amount of the 2019 Notes over the initial carrying amount of the liability component as a debt discount of $33.8 million and amortized it to interest expense over the expected term of the 2019 Notes using the effective interest rate method. We recorded the equity component of $33.8 million as additional paid-in capital, calculated as the difference between the total proceeds of $86.3 million and the initial carrying amount of the liability component. 

We allocated the 2019 Notes total issuance costs of $2.8 million between liability and equity in the same proportion as the allocation of our total proceeds to liability and equity components. We amortized the issuance costs attributable to the liability component of $1.7 million to interest expense over the respective term of the 2019 Notes using the effective interest rate method. We netted the issuance costs attributable to the equity component of $1.1 million against the respective equity component in additional paid-in capital.

Effective January 1, 2021, we early adopted ASU 2020-06 using the modified retrospective approach. As a result, we accounted for the 2019 Notes as a single liability measured at amortized cost, as no other embedded features require bifurcation and recognition as derivatives. Upon adoption, we recorded a $29.3 million increase to long-term debt, a $32.7 million decrease to additional paid-in capital and a $3.4 million decrease to accumulated deficit. We had no changes to net deferred tax liabilities with a decrease in deferred tax liability offset by a corresponding increase in valuation allowance upon adoption.

We accounted for the 2021 Notes issuance as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives. We presented the 2021 Notes total issuance costs of $9.1 million as a direct deduction from the face amount of the 2021 Notes. We amortized the issuance costs to interest expense over the respective term of the 2021 Notes using the effective interest rate method.

Interest expense related to the Notes was as follows (in thousands):

	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
	2019 Notes		2021 Notes		Total		2019 Notes		Total
Amortization of debt issuance costs		10		393		403		94		94
Cash interest expense		49		809		858		431		431
Total interest expense	$	59	$	1,202	$	1,261	$	525	$	525

Accrued interest related to the 2019 Notes as of March 31, 2022 was not material. Accrued interest related to the 2019 Notes as of March 31, 2021 was $508,000. Accrued interest related to the 2021 Notes as of March 31, 2022 was $1.3 million. We record accrued interest in accrued liabilities in our consolidated balance sheet.

Our estimated fair value of the 2021 Notes was $272.1 million and $314.3 million as of March 31, 2022 and December 31, 2021, respectively, which we determined through consideration of quoted market prices. Our estimated fair value of the 2019 Notes was $19.7 million and $26.2 million as of March 31, 2022 and December 31, 2021, respectively, which we determined through consideration of quoted market prices. The fair value for both Notes is classified as Level 2, as defined in Note 2.

Capped Calls

In connection with issuing the 2019 Notes, we entered into privately negotiated capped-call transactions with certain financial counterparties. The capped-call transactions are generally designed to reduce the potential dilution to our common stock upon any conversion or settlement of the 2019 Notes, or to offset any cash payments we are required to make in excess of the principal amount upon conversion of the 2019 Notes, as the case may be, with such reduction or offset subject to a cap based on the cap price. If, however, the market price per share of our common stock exceeds the cap price of the capped-call transactions, then our stock would experience some dilution and/or the capped call would not fully offset the potential cash payments, in each case, to the extent the then-market price per share of our common stock exceeds the cap price. The initial cap price of the capped call transactions is $54.20 per share, which represents a 100% premium over the last reported sale price of our common stock of $27.10 per share on December 11, 2019 subject to certain adjustments under the terms of the capped call transactions. The capped call transactions expire over 40 consecutive scheduled trading days ending on December 11, 2026.

The capped-call transactions meet the criteria for classification in equity, are not accounted for as derivatives, and are not remeasured each reporting period. We paid $10.1 million for the capped-call transactions, which we recorded as a reduction to additional paid-in-capital within shareholders’ equity.

Partial Repurchase of the Convertible Senior Notes – 2019

In November 2021, we completed a privately negotiated induced conversion of $76.4 million principal amount of the 2019 Notes. We accounted for the 2019 Notes Repurchase transaction as an induced conversion in accordance with Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20). In connection with the induced conversion, we paid approximately $183.6 million in cash, and also paid accrued and unpaid interest thereon. As a result of the induced conversion, we recorded $11.3 million in induced conversion expense which is included in the Condensed Consolidated Statements of Operations for the year ended December 31, 2021. The induced conversion expense represents the fair value of the consideration issued upon conversion in excess of the fair value of the securities issuable under the original terms of the 2019 Notes. We accounted for the remaining cash consideration under the original terms of the 2019 Notes under the general conversion accounting guidance, where the difference between the carrying amount of the 2019 Notes retired, including unamortized debt issuance costs of $1.8 million, and the cash consideration paid, was recorded in additional paid-in capital.