Long-Term Debt

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Long-Term Debt And Revolving Credit Facility

Long-Term Debt

A schedule of long-term debt, excluding current portion, at December 31, 2019 and 2018 is as follows: 

	December 31, 2019		December 31, 2018
Term note - due 2023	$	—	$	95,000
Revolving credit facility - due 2023	220,500		425,000
Convertible senior notes - due 2024	345,000		—
Long-term debt including current maturities	$	565,500	$	520,000
Less current maturities	—		10,000
Less unamortized discount	61,234		—
Less debt issuance cost	7,108		772
Total long-term debt	$	497,158	$	509,228

As of December 31, 2019, future payments under long-term debt obligations over each of the next five years are as follows: 

	Long-term debt
2020	$	—
2021	—
2022	—
2023	220,500
2024	345,000
Minimum future payments of principal	$	565,500

Convertible Senior Notes

In June 2019, the Company issued $300.0 million aggregate principal amount of 1.75% convertible senior notes due 2024 in a private placement and an additional $45.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment option of the initial purchasers. The Convertible Senior Notes are the Company's senior unsecured obligations. The Convertible Senior Notes bear interest at a rate of 1.75% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2019. The Convertible Senior Notes will mature on June 1, 2024, unless earlier redeemed, repurchased or converted. We may not redeem the notes prior to June 5, 2022. On or after June 5, 2022, we may redeem for cash all or a portion of the notes if the last reported sale price of the Company's common stock has been at least 130% of the conversion price then in effect on (i) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date the Company provides notice of redemption and (ii) the trading day immediately preceding the date the Company provides such notice. The total net proceeds from the offering, after deducting initial purchase discounts and expenses payable by the Company, were $334.8 million.

Each $1,000 principal amount of the Convertible Senior Notes is initially convertible into 59.8256 shares of the Company's common stock, which is equivalent to an initial conversion price of approximately $16.72  per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change or a redemption period, each as defined in the indenture setting forth the terms of the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Convertible Senior Notes in connection with such make-whole fundamental change or during the relevant redemption period.

The Company used the net proceeds from the offering to (i) pay the cost of the capped call transactions described below, (ii) to repurchase approximately $10 million in shares of its common stock from purchasers of the Convertible Senior Notes in privately negotiated transactions effected through one of the initial purchasers or an affiliate thereof concurrently with the pricing of the Convertible Senior Notes described below, and (iii) to repay the outstanding principal balance under its credit facility.

Prior to December 1, 2023, the notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. We will satisfy any conversion election by paying or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock. The Convertible Senior Notes and shares of common stock issuable upon conversion, if any, have not been registered under the Securities Act, or under any U.S. state securities laws or other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

During the year ended December 31, 2019, the conditions allowing holders of the Convertible Senior Notes to convert were not met.

In accounting for the issuance of the Convertible Senior Notes, the Company separated the Convertible Senior Notes into liability and equity components.  The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The fair value was determined utilizing a discounted cash flow model that includes assumptions such as implied credit spread, expected volatility, and the risk-free rate for notes with a similar term. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Convertible Senior Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense at an effective interest rate of 6.4% over the contractual terms of the Convertible Senior Notes.

In accounting for the transaction costs related to the Convertible Senior Notes, the Company allocated the total amount incurred to the liability and equity components of the Convertible Senior Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component of $7,973 were recorded as additional debt discount and will be amortized to interest expense using the effective interest method over the contractual terms of the Convertible Senior Notes.  Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

The net carrying amount of the liability component of the Convertible Senior Notes was as follows:

	December 31, 2019
Principal	$	345,000
Unamortized discount	(61,234		)
Unamortized issuance cost	(7,108		)
Net carrying amount	$	276,658

The net carrying amount of the equity component of the Convertible Senior Notes was as follows:

	December 31, 2019
Proceeds allocated to the conversion option (debt discount)	$	67,664
Issuance cost	(1,944		)
Income tax expense	(15,597		)
Net carrying amount	$	50,123

The following table sets forth the interest expense recognized related to the Convertible Senior Notes:

	For the years ended December 31,
	2019
Contractual interest expense	$	3,304
Amortization of debt discount	6,430
Amortization of debt issuance costs	865
Total interest expense related to the Convertible Senior Notes	$	10,599

In connection with the pricing of the Convertible Senior Notes and subsequently in connection with the exercise of the initial purchasers option to purchase additional notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the "Capped Calls"). The Capped Calls each have a strike price of $16.72 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Senior Notes. The Capped Calls have initial cap prices of $23.46 per share, subject to certain adjustments. The Capped Calls are expected generally to reduce potential dilution to the Company's common stock upon any conversion of notes and/or offset any cash payments the Company is required to make in excess of the aggregate principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. The initial cap price of the Capped Call transactions was $23.46. The net cost of $28,325 incurred to purchase the Capped Calls and related income tax benefit of $6,772 was recorded as a reduction to additional paid-in capital on the Company's consolidated balance sheet and are not accounted for as derivatives.

Concurrently with the issuance of the Convertible Senior Notes, the Company’s board of directors approved the repurchase of an aggregate of 852,515, or $10,000 of, shares of the Company’s outstanding common stock in privately negotiated transactions at a price of $11.73 per share, which was equal to the closing price per share of the Company’s common stock on June 11, 2019, the date of the pricing of the offering of the Convertible Senior Notes. The share repurchase was recorded to treasury stock on the Company's consolidated balance sheet.

2018 Term Note and Revolving Credit Facility

On July 31, 2018, the Company replaced its 2016 Credit Facility previously consisting of a $125 million term loan and a $325 million revolving credit facility with the 2018 Credit Facility consisting of a $100 million senior secured term loan and a $500 million revolving credit facility. The co-borrowers under the 2018 Credit Facility are the Company and Vonage America Inc., the Company’s wholly owned subsidiary. Obligations under the 2018 Credit Facility are guaranteed, fully and unconditionally, by the Company’s other United States subsidiaries and are secured by substantially all of the assets of each borrower and each guarantor.

The company used $232,000 of the proceeds available under our 2018 Credit Facility plus cash on hand to retire all of the debt outstanding under our 2016 Credit Facility and to cover transaction fees and expenses. Total transaction fees and expenses incurred were $3,376, of which $474 was allocated to the term note and $2,813 was allocated to the revolving credit facility to be amortized over the term of 2018 Credit Facility. The remaining $89 of transaction fees and expenses were expensed during the year ended December 31, 2018. The Company recognized a loss on extinguishment of debt of $14 which primarily consisted of the write off of previously deferred financing costs partially offset by the realization of a portion of gains associated with the interest rate swaps included in accumulated other comprehensive income. Remaining proceeds available from the undrawn revolving credit facility under our 2018 Credit Facility will be used for general corporate purposes and to fund potential additional acquisitions.

2018 Credit Facility Terms

The following description summarizes the material terms of the 2018 Credit Facility:

The loans under the 2018 Credit Facility mature on July 31, 2023. The unused portion of the Company's revolving credit facility incurs a 0.30% per annum commitment fee.

Outstanding amounts under the 2018 Credit Facility, at the Company's option, will bear interest at:

• LIBOR (applicable to one-, two-, three-, six-, or twelve-month periods) plus an applicable margin equal to 2.00% up to 2.75% per annum payable on the last day of each relevant interest period or, if the interest period is longer than three months, each day that is three months after the first day of the interest period, or

• the base rate determined by reference to the highest of (a) the rate of interest last quoted by the Wall Street Journal as the “Prime Rate” in the U.S., (b) the federal funds effective rate from time to time plus 0.50%, and (c) the adjusted LIBO rate applicable to one month interest periods plus 1.00%, plus an applicable margin equal to 1.00% up to 1.75% per annum payable on the last business day of each March, June, September, and December and the maturity date of the 2018 Credit Facility.

In 2019, we made repayments of $95 million under the 2018 term loan and made discretionary repayments of $348.5 million under the 2018 revolving credit facility, and borrowed $144 million under the revolving credit facility. In addition, the effective interest rate was 4.56% as of December 31, 2019.

In 2018, we made mandatory repayments of $5 million under the 2018 term loan and made discretionary repayments of $42 million under the 2018 revolving credit facility.

As of December 31, 2019, we were in compliance with all covenants, including financial covenants, for the 2018 Credit Facility.

2016 Financing

In 2018, we made mandatory repayments of $9.4 million under the term note and made discretionary repayments of $35 million under the revolving credit facility and borrowed $40 million under the revolving credit facility.

Interest Rate Swap

On July 14, 2017, we executed on three interest rate swap agreements in order to hedge the variability of expected future cash interest payments related to the 2016 Credit Facility. The swaps have an aggregate notional amount of $150 million and were effective from July 31, 2017 through June 3, 2020 concurrent with the term of the 2016 Credit Facility. Under the swaps our interest rate is fixed at 4.7%. The interest rate swaps are accounted for as cash flow hedges in accordance with ASC 815, Derivatives and Hedging.

As of December 31, 2019 and 2018, the fair market value of the swaps was $18 and $1,859, respectively, which is included in other assets on our consolidated balance sheet. The following table summarizes the effects of ASC 815 on the Company's accumulated OCI balance attributable to cash flow derivatives:

	Years Ended December 31
	2019			2018
Accumulated OCI beginning balance	$	975		$	965
Reclassified from accumulated OCI to income:
Due to reclassification of previously deferred gain	(531		)	(469		)
Change in fair value of cash flow hedge accounting contracts, net of tax	(1,445		)	479
Accumulated OCI ending balance, net of tax (expense) benefit of ($4) and $393, respectively	$	(1,001	)	$	975
Gains expected to be realized from accumulated OCI during the next 12 months	$	531		$	—