Convertible Senior Notes and Capped Call Transactions

3 Months Ended

Mar. 31, 2025

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. Accrued interest will be payable at maturity, at an annual rate of 1.25%.

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 were 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. On February 14, 2025, the Company provided notice to the Trustee, the Conversion Agent, and the Holders of the 2025 Notes that the Company elected to change the “Default Settlement Method” (as defined in the 2025 Indenture) for conversions of the 2025 Notes to be settled by delivery of shares of the Company’s common stock. During the three months ended March 31, 2025, the Company received and settled an immaterial amount of conversion notices from the holders. As of March 31, 2025, the 2025 Notes mature in less than one year, as such, the 2025 Notes were classified as short-term in the Company's condensed consolidated balance sheets.

2029 Notes

The Company issued the 2029 Notes pursuant to an Indenture dated September 10, 2024 (the “2029 Indenture”). The offering totaled $460,000 aggregate principal amount. The net proceeds to the Company after issuance costs were approximately $449,649. The Company used $55,522 of the net proceeds from the offering to pay the cost of the capped call transactions 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, at the option of holder, prior to the close of business on the business day immediately preceding March 15, 2029, under certain conditions.

In addition, on or after March 15, 2029, 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 March 31, 2025, the 2029 Notes were classified as long-term in the Company's condensed consolidated balance sheets.

Effective September 20, 2027, the Company may redeem the 2029 Notes for cash, at its option, subject to the terms and conditions provided in the 2029 Indenture.

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

	March 31, 2025						December 31, 2024
	(unaudited)
	2025 Notes		2029 Notes		Total		2025 Notes		2029 Notes		Total
Principal	$	251,493	$	460,000	$	711,493	$	251,494	$	460,000	$	711,494
Unamortized issuance costs	(581)		(9,254)		(9,835)		(965)		(9,757)		(10,722)
Net carrying amount	$	250,912	$	450,746	$	701,658	$	250,529	$	450,243	$	700,772

The effective interest rate for the three months ended March 31, 2025 was 1.86% and 1.46% for the 2025 and 2029 Notes, respectively. The interest expense recognized related to the Notes for the three months ended March 31, 2025 and 2024 were as follows (in thousands):

	Three Months Ended March 31,
	2025						2024
	2025 Notes		2029 Notes		Total		2025 Notes		2029 Notes		Total
	(unaudited)
Contractual interest expense	$	786	$	1,150	$	1,936	$	791	$	—	$	791
Amortization of debt issuance costs	384		503		887		383		—		383
Total	$	1,170	$	1,653	$	2,823	$	1,174	$	—	$	1,174

As of March 31, 2025, the total estimated fair value of the 2025 and 2029 Notes were approximately $337,881 and $426,675, respectively. As of December 31, 2024, the total estimated fair value of the 2025 and 2029 Notes were approximately $374,412 and $431,851, respectively. 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 the Company's common stock and market interest rates. The fair values of the Notes are considered 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.

Capped Call Transactions

In May 2020 and September 2024, in connection with the pricing of the 2025 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 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 Notes and since the conversion or redemption of the Notes does not automatically result in the exercise of the Capped Call Transactions. As the Capped Call Transactions are considered indexed to the Company's stock and are considered equity classified, they are recorded in stockholders’ equity in the condensed consolidated balance sheets 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.