Earnings per Share

9 Months Ended

Sep. 30, 2022

The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method of transition. ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share, whereas the Company previously calculated diluted earnings per share under the treasury stock method. Basic earnings per share (EPS) is calculated using the weighted average number of common shares outstanding. Diluted EPS is calculated using the weighted average number of common shares outstanding, including the dilutive effect of the Company’s stock option grants, SARs, RSUs, employee stock purchase plan (ESPP) awards, and the 2023 Notes, as determined per the if-converted method for the three and nine months ended September 30, 2022 in connection with the adoption of ASU 2020-06 and the treasury stock method for the three and nine months ended September 30, 2021.

Effect of Convertible Notes and Related Convertible Note Hedges and Warrants

In connection with the issuance of the 2023 Notes, the Company entered into Convertible Note Hedge and Warrant Transactions as described further in Note 9, Convertible Senior Notes Due 2023. The expected collective impact of the Convertible Note Hedge and Warrant Transactions is to reduce the potential dilution that would occur if the price of the Company's common stock was between the conversion price of $59.33 per share and the strike price of the warrants of $80.91 per share.

Diluted EPS related to the 2023 Notes in the current year is calculated using the if-converted method. The number of dilutive shares is based on the initial conversion rate associated with the 2023 Notes. The Convertible Note Hedge and Warrant Transactions are excluded in the calculation of diluted EPS because inclusion would be anti-dilutive. Specifically, the denominator of the diluted EPS calculation excludes the additional shares related to the warrants because the average price of the Company's common stock was less than the strike price of the warrants of $80.91 per share. Prior to actual conversion, the Convertible Note Hedge Transactions are not considered in calculating diluted earnings per share, as their impact would be anti-dilutive.

In addition to the above described effect of the 2023 Notes and the related Convertible Note Hedge and Warrant Transactions, the Company also excluded the common stock equivalents of the following outstanding stock-based awards and shares associated with the conversion of the 2023 Notes in the calculation of diluted EPS, because their inclusion would be anti-dilutive:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	(unaudited)		(unaudited)

2023 Notes	6,783,936	—	—	—

Stock options, RSUs, PSUs	792,904	1,654,816	470,822	1,397,424

As mentioned in Note 2, as a result of the adoption of ASU 2020-06 on January 1, 2022 the Company calculated diluted earnings per share using the if-converted method. The 6.8 million in dilutive shares associated with the conversion of the 2023 Notes are not included in diluted weighted average shares of common stock outstanding for the purposes of calculating diluted earnings per share for the three months ended September 30, 2022 because their inclusion would be anti-dilutive. The 6.8 million in dilutive shares associated with the conversion of the 2023 Notes are included in diluted weighted average shares of common stock outstanding for the purposes of calculating diluted earnings per share for the nine months ended September 30, 2022. For the three and nine months ended September 30, 2021, the Company calculated diluted earnings per share using the treasury stock method wherein the shares associated with the conversion of the 2023 Notes were excluded as the Company assumed the 2023 Notes would be settled entirely or partly in cash.The following table sets forth the computation of basic and diluted net earnings per share for the three and nine months ended September 30, 2022 under the if-converted method and for the three and nine months ended September 30, 2021 under the treasury stock method (dollars in thousands, except share and per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(unaudited)				(unaudited)
Numerator:
Net earnings	$	1,749	$	21,562	$	35,230	$	50,982
After-tax interest expense for 2023 Notes	—		—		2,664		—
Numerator for dilutive earnings per share	$	1,749	$	21,562	$	37,894	$	50,982
Denominator:
Weighted average shares outstanding, basic	53,789,674		53,187,764		53,517,838		53,053,441
Effect of dilutive securities:
Stock options, RSUs and SARs	1,245,164		1,147,030		1,241,347		1,248,020
Convertible notes	—		—		6,783,936		—
Weighted average shares outstanding, diluted	55,034,838		54,334,794		61,543,121		54,301,461

Earnings per share, basic	$	0.03	$	0.41	$	0.66	$	0.96
Earnings per share, diluted	$	0.03	$	0.40	$	0.62	$	0.94