Debt

3 Months Ended

May 07, 2023

Convertible Senior Notes

In April 2018, we issued $575.0 million in principal amount of 0.125% convertible senior notes (the Notes) due April 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act and received proceeds of $562.1 million, after deducting the underwriters’ discounts and commissions. The Notes were senior unsecured obligations and governed by an indenture (the Indenture) between us, as the issuer, and U.S. Bank National Association, as trustee. The Indenture did not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. Interest was payable semi-annually in arrears on April 15 and October 15 of each year.

In April 2023, we repaid the entire principal balance with approximately $575.0 million in cash and 1,065 shares of our common stock.

The Notes consisted of the following (in thousands):


	At the End of
	Fiscal 2023		First Quarter of Fiscal 2024
Liability:
Principal	$	575,000	$	—

Less: debt issuance costs, net of amortization	(494)		—
Net carrying amount of the Notes	$	574,506	$	—

The following table sets forth total interest expense recognized related to the Notes for the first quarter of fiscal 2023 and 2024 (in thousands):


	First Quarter of Fiscal
	2023			2024
Amortization of debt issuance costs	$	648		$	494
Contractual interest expense	179			136
Total interest expense related to the Notes	$	827		$	630

Effective interest rate of the liability component	0.6		%	0.6		%

In connection with the offering of the Notes, we paid $64.6 million to enter into capped call transactions with certain of the underwriters and their affiliates (the Capped Calls), which gave us the option to purchase up to a total of 21,884,155 shares of our common stock to offset the dilution and/or any cash payments in excess of the principal amount upon conversion of the Notes at maturity, with such offset subject to a cap of $39.66 per share (which represented a premium of 100% over the last reported sales price of our common stock on April 4, 2018), subject to certain adjustments. The cost of the Capped Calls was accounted for as a reduction to additional paid-in capital on the condensed consolidated balance sheet. The Capped Calls were not exercised and expired in April 2023.

Revolving Credit Facility

In August 2020, we entered into a Credit Agreement with a consortium of financial institutions and lenders that provides for a five-year, senior secured revolving credit facility of $300.0 million (Credit Facility). Proceeds from the Credit Facility may be used for general corporate purposes and working capital. The Credit Facility expires, absent default or early termination by us, on the earlier of (i) August 24, 2025 or (ii) 91 days prior to the stated maturity of the Notes unless, on such date and each subsequent day until the Notes are paid in full, the sum of our cash, cash equivalents and marketable securities and the aggregate unused commitments then available to us exceed $625.0 million.

In March 2023, we amended the Credit Facility to transition LIBOR to the Secured Overnight Financing Rate (SOFR) effective April 1 2023. The annual interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% or term SOFR (based on one, three or six-month interest periods), subject to a floor of 0%, plus a margin ranging from 1.50% to 2.25%. Interest on revolving loans is payable quarterly in arrears with respect to loans based on the base rate and at the end of an interest period in the case of loans based on term SOFR (or at each three-month interval if the interest period is longer than three months). We are also required to pay a commitment fee on the unused portion of the commitments ranging from 0.25% to 0.40% per annum, payable quarterly in arrears.

In February 2022, we repaid, in full, the $250.0 million outstanding under the Credit Facility. Prior to repayment, the outstanding loan bore weighted-average interest at an annual rate of 1.61% based on a one-month LIBOR period resulting in interest expense of $0.3 million during the first quarter of fiscal 2023.

In April 2023, we borrowed $100.0 million under the Credit Facility which remained outstanding at the end of the first quarter of fiscal 2024. The outstanding loan bore weighted-average interest at an annual rate of 6.38% based on a one-month term SOFR period resulting in interest expense of $0.4 million during the first quarter of fiscal 2024.

Loans under the Credit Facility are collateralized by substantially all of our assets and subject to certain restrictions and two financial ratios measured as of the last day of each fiscal quarter: a Consolidated Leverage Ratio not to exceed 4.5:1 and an Interest Coverage Ratio not to be less than 3:1. We were in compliance with all covenants under the Credit Facility at the end of the first quarter of fiscal 2024.