Debt

9 Months Ended

Sep. 30, 2022

Debt

Debt

6. Debt

2019 Credit Facility

In August 2019, the Company executed an Amended and Restated Loan and Security Agreement (2019 Credit Facility), which amended and restated the Company’s prior loan and security agreement (2017 Credit Facility), providing for a formula revolving line of credit (Line of Credit) and a term loan (2019 Term Loan) with Silicon Valley Bank (SVB).

In July 2020, the Company executed the first amendment to the 2019 Credit Facility with SVB. The amendment, among other things, extended the initial 12-month interest-only period for the 2019 Term Loan to a 16-month interest-only period and lowered the floor interest rate. The floor interest rates for the 2019 Term Loan and the Line of Credit were reduced from 4.75% and 6.75% to 3.75% and 4.75%, respectively.

The Line of Credit required a commitment fee of 1.6% of the maximum availability of the Line of Credit, which was paid in August 2019 upon closing, and was accounted for as a debt discount. The Line of Credit also provides for a termination fee equal to 1% of the maximum availability under the Line of Credit, which is due in case of a termination of the Line of Credit prior to the scheduled maturity date, and an unused facility fee equal to 0.125% per annum of the average unused portion of the Line of Credit, which is expensed as incurred.

In July 2021, the Company executed the second amendment to the 2019 Credit Facility with SVB. The amended Line of Credit allows for a maximum draw of $5.0 million, subject to a formula borrowing base, and bears interest at a floating rate equal to the Wall Street Journal (WSJ) prime rate plus 1.5%, per annum, subject to a floor of 4.75%. As of September 30, 2022, the interest rate was 7.75%. Currently, $4.0 million remains available under the Line of Credit, subject to borrowing base availability. As of September 30, 2022, the effective interest rate under the Line of Credit was 8.03% and the outstanding balance was $1.0 million. The Line of Credit was set to mature on August 5, 2022. The third amendment, entered into on July 22, 2022, extended the maturity date of the Line of Credit to August 5, 2023.

The amended 2019 Term Loan provides for a $6.0 million term loan. The 2019 Term Loan has a term of 46 months, and a 16-month interest-only period followed by 30 months of equal principal payments of $200,000 per month, plus accrued interest. The 2019 Term Loan bears interest at a floating rate equal to the WSJ prime rate minus 0.75%, subject to a floor of 3.75%. As of September 30, 2022, the interest rate was 5.50%. A final payment of 7% of the original principal amount of the 2019 Term Loan must be made when the 2019 Term Loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise. The additional payment, which is accounted for as a debt discount, is being accreted using the effective interest method. The 2019 Term Loan has a prepayment fee equal to 2% of the total commitment, which is due only if the 2019 Term Loan is prepaid prior to the scheduled maturity date for any reason. As of September 30, 2022, the effective interest rate under the 2019 Term Loan was 5.64% and the outstanding balance was $2.2 million. The 2019 Term Loan matures on June 1, 2023.

In conjunction with entering into the 2019 Credit Facility, on August 5, 2019, the Company and SVB amended and restated the warrant issued to SVB in connection with the first amendment to the 2017 Credit Facility, which was a warrant to purchase 9,375 shares of the Company’s common stock at an exercise price of $8.91 per share, to add an option by SVB to put the warrant back to the Company for $50,000 upon expiration or a liquidity event, to be prorated if

SVB exercises a portion of the warrant. The warrant expires on July 6, 2023. The warrant is classified as a liability and recorded at fair value within other liabilities in the Company’s condensed balance sheet. Due to the put right, the warrant is subject to fair value remeasurement at each subsequent reporting date until the exercise or expiration of the warrant. Any resulting change in the fair value of the warrant will be recorded as other (expense) income, net in the Company’s statements of income and comprehensive income. The other (expense) income recognized for the three and nine months ended September 30, 2022 and 2021 related to the change in fair value of the warrant has been minimal and immaterial to the condensed financial statements.

Collateral for the 2019 Credit Facility includes all of the Company’s assets except for intellectual property. The Company is required to comply with certain covenants under the 2019 Credit Facility, including requirements to maintain a minimum cash balance and availability under the Line of Credit, and restrictions on certain actions without the consent of the lender, such as limitations on its ability to engage in mergers or acquisitions, sell assets, incur indebtedness, or grant liens or negative pledges on its assets, make loans or make other investments. Under these covenants, the Company is prohibited from paying cash dividends with respect to its capital stock. The Company was in compliance with all covenants as of September 30, 2022. The 2019 Credit Facility contains a material adverse effect clause which provides that an event of default will occur if, among other triggers, an event occurs that could reasonably be expected to result in a material adverse effect on the Company’s business, operations, or condition, or on the Company’s ability to perform its obligations under the 2019 Term Loan. As of September 30, 2022, management does not believe that it is probable that the clause will be triggered within the next 12 months.

The amortization of the debt issuance costs and accretion of the debt discount is included in interest expense within the statements of income and comprehensive income and included in non-cash interest expense within the statement of cash flows.

The carrying value of the Company’s 2019 Credit Facility at September 30, 2022, was as follows (in thousands):

	Current		Long-Term
	Portion		Debt		Total
Credit Facility	$	3,220	$	—	$	3,220
Unamortized debt discounts		(38)		—		(38)
Net carrying value	$	3,182	$	—	$	3,182

The carrying value of the Company’s 2019 Credit Facility as of December 31, 2021 was as follows (in thousands):

	Current		Long-Term
	Portion		Debt		Total
Credit Facility	$	3,400	$	1,620	$	5,020
Unamortized debt discounts		(30)		(91)		(121)
Net carrying value	$	3,370	$	1,529	$	4,899

The table below includes the principal repayments due under the 2019 Credit Facility (in thousands):

	Principal Repayment as of September 30, 2022
2022		600
2023		2,620
Total principal repayments	$	3,220

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