Convertible Senior Notes and Capped Call Transactions

9 Months Ended

Sep. 30, 2024

Debt Disclosure [Abstract]

Convertible Senior Notes and Capped Call Transactions

CONVERTIBLE SENIOR NOTES AND CAPPED CALL TRANSACTIONS

2025 Notes

The Company issued the 2025 Notes pursuant to an Indenture dated May 11, 2020 (the “2025 Indenture”). The offering totaled $253,000 aggregate principal amount. The net proceeds to the Company after issuance costs were approximately $245,158. The Company used $29,348 of the net proceeds from the offering to pay the cost of the capped call transactions described below.

The 2025 Notes will mature on August 15, 2025, unless earlier converted, redeemed or repurchased. Interest will be payable semi-annually in arrears on February 15 and August 15 of each year, at a rate of 1.25% per year.

The initial conversion rate for the 2025 Notes is 32.5668 shares of the Company’s common stock for each $1,000 principal amount of the 2025 Notes, which is equivalent to an initial conversion price of approximately $30.71 per share. The conversion rate is subject to adjustment in specified events. The 2025 Notes are convertible into shares of the Company’s common stock, at the option of a holder, prior to the close of business on the business day immediately preceding February 15, 2025, under certain conditions.

In addition, on or after February 15, 2025, a holder may convert all or any portion of its 2025 Notes at any time. As of September 30, 2024, the conversion feature of the 2025 Notes was triggered and therefore the 2025 Notes are currently convertible, in whole or in part, at the option of the holders from October 1, 2024 through December 31, 2024. Whether the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition. Since the issuance of the 2025 Notes, the Company has received and settled an immaterial amount of conversion notices from the holders. Upon conversion, the Company may elect to repay the 2025 Notes in cash, shares of common stock, or a combination of both. As of September 30, 2024, the 2025 Notes mature in less than one year, as such, the 2025 Notes were classified as short-term on the Company's condensed consolidated balance sheet.

Effective August 20, 2023, the Company may redeem the 2025 Notes for cash, at its option, subject to the terms and conditions provided in the 2025 Indenture.

2029 Notes

The Company issued $460,000 aggregate principal amount of 1.00% Convertible Senior Notes due September 2029 pursuant to an Indenture dated September 10, 2024 (the “2029 Indenture”), between the Company and U.S. Bank Trust Company, as trustee. The offering consisted of $400,000 aggregate principal amount plus the full exercise of the initial purchasers’ option to purchase up to an additional $60,000 aggregate principal amount. The net proceeds to the Company after issuance costs were approximately $449,649. Separately, the Company entered into privately negotiated capped call transactions and used $55,522 of the net proceeds from the offering to pay the cost of the capped call transactions as described below.

The 2029 Notes will mature on September 15, 2029, unless earlier converted, redeemed or repurchased. Interest will be payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2025, at a rate of 1.00% per year.

The initial conversion rate for the 2029 Notes is 14.7419 shares of the Company’s common stock for each $1,000 principal amount of the 2029 Notes which is equivalent to an initial conversion price of approximately $67.83 per share. The conversion rate is subject to adjustment in specified events. The 2029 Notes are convertible into shares of the Company’s common stock, par value $0.001 per share, at the option of a holder, prior to the close of business on the business day immediately preceding March 15, 2029, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2024 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(2) during the five consecutive business day period immediately after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the 2029 Indenture) per $1,000 principal amount of the 2029 Notes, as determined following a request by a holder of the 2029 Notes in the manner described in the 2029 Indenture, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

(3) if the Company calls any or all of the 2029 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

(4) upon the occurrence of certain corporate events specified in the 2029 Indenture.

In addition, regardless of the foregoing circumstances, on or after March 15, 2029 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2029 Notes at any time. Upon conversion, the Company may elect to repay the 2029 Notes in cash, shares of common stock, or a combination of both. As of September 30, 2024, the 2029 Notes were classified as long-term on the Company's condensed consolidated balance sheet.

The 2029 Notes are not redeemable at the Company’s option prior to September 20, 2027. The Company may redeem the 2029 Notes for cash, at its option, on a redemption date occurring on or after September 20, 2027, and on or prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a “fundamental change” (as defined in the 2029 Indenture), subject to certain conditions, holders may require the Company to repurchase for cash all or part of their 2029 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If the Company is required to repurchase the 2029 Notes due to a fundamental change, it remains at the Company’s discretion to determine whether the settlement is in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock.

The 2029 Indenture includes customary terms, including certain events of default after which the 2029 Notes may be due and payable immediately. The 2029 Notes are the Company’s unsecured obligations and rank senior in right of payment to all of the

Company’s indebtedness that is expressly subordinated in right of payment to the 2029 Notes, and equal in right of payment with all of the Company’s liabilities that are not so subordinated, including the Company’s 2025 Notes.

The Company accounts for the 2029 Notes as a single liability measured at it amortized cost. The carrying value of the liability is represented by the face amount of the 2029 Notes, less debt issuance costs. The total offering costs upon issuance of the 2029 Notes were $10,351 and are amortized as interest expense over the term of the 2029 Notes, using the effective interest rate method.

The net carrying amount of the Notes were as follows (in thousands):

	September 30, 2024						December 31, 2023
	(unaudited)
	2025 Notes		2029 Notes		Total		2025 Notes		2029 Notes		Total
Principal	$	252,994	$	460,000	$	712,994	$	253,000	$	—	$	253,000
Unamortized issuance costs	(1,369)		(10,241)		(11,610)		(2,523)		—		(2,523)
Net carrying amount	$	251,625	$	449,759	$	701,384	$	250,477	$	—	$	250,477

The effective interest rate for the three and nine months ended September 30, 2024 was 1.87% and 1.46% for the 2025 and 2029 Notes, respectively. The interest expense recognized related to the Notes for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands):

	Three Months Ended September 30,
	2024						2023
	2025 Notes		2029 Notes		Total		2025 Notes		2029 Notes		Total
	(unaudited)
Contractual interest expense	$	791	$	256	$	1,047	$	791	$	—	$	791
Amortization of debt issuance costs	386		110		496		379		—		379
Total	$	1,177	$	366	$	1,543	$	1,170	$	—	$	1,170

	Nine Months Ended September 30,
	2024						2023
	2025 Notes		2029 Notes		Total		2025 Notes		2029 Notes		Total
	(unaudited)
Contractual interest expense	$	2,372	$	256	$	2,628	$	2,372	$	—	$	2,372
Amortization of debt issuance costs	1,154		110		1,264		1,133		—		1,133
Total	$	3,526	$	366	$	3,892	$	3,505	$	—	$	3,505

As of September 30, 2024 and December 31, 2023, the total estimated fair value of the 2025 Notes was approximately $465,630 and $386,201, respectively. As of September 30, 2024, the total estimated fair value of the 2029 Notes was approximately $496,158. The fair values were determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The fair values of the Notes are primarily affected by the trading price of our common stock and market interest rates. The fair values of the Notes are considered a Level 2 within the fair value hierarchy and were determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, quoted price of the Notes in an over-the-counter market.

Capped Call Transactions

In May 2020 and September 2024, in connection with the pricing of the 2025 Notes and 2029 Notes, respectively, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”). The Capped Call Transactions are generally expected to reduce the potential dilution to the Company’s common stock upon any conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap initially equal to $47.24 and $104.36, for the 2025 and 2029 Notes, respectively (the "Cap Price").

The Capped Call Transactions are considered a freestanding instrument in accordance with ASC No. 480, "Distinguishing Liabilities from Equity", as they were entered into separately and apart from the convertible notes and since the conversion or redemption of the convertible notes does not automatically result in the exercise of the capped call. As the Capped Call Transactions are considered indexed to the Company's stock and are considered equity classified, they are recorded in stockholders’ equity on the condensed consolidated balance sheet and are not accounted for as derivatives. The cost of the Capped Call Transactions for the 2025 and 2029 Notes were approximately $29,348 and $55,522, respectively, and were recorded as a reduction to additional paid-in capital.