Debt

12 Months Ended

Dec. 31, 2022

In December 2018, the Company entered into a term loan agreement with SVB (the “SVB Term Loan”). The SVB Term Loan was subsequently amended, and on May 31, 2022, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to SVB Term Loan. The Fourth Amendment, among other things, amended the SVB Term Loan to: (i) increase the term loan agreement principal amount from $58.0 million to $60.0 million, (ii) revise the maturity date to October 1, 2027, and (iii) revise the payment schedule for the outstanding principal balance to 37 equal payments of principal to begin on October 1, 2024. The amendment was treated as a debt modification.

On November 14, 2022, the Company entered into a new five-year loan facility agreement with MidCap and SVB (the “Credit Agreement”). The Credit Agreement consists of a term loan of up to $100 million and a Revolving Credit Facility of up to $25 million.

Term Loan

The key elements of the term loan include (i) a term loan commitment up to $100 million, of which $25 million may be accessed upon achievement of a gross margin target for the 2023 fiscal year; (ii) an annual interest rate of the Wall Street Journal (“WSJ”) Prime rate plus 3.5% with a floor of 9.25%; (iii) an exit fee payment of 4.00% of the aggregate principal amount, and (iv) a maturity date of November 1, 2027, with three years of interest only payments, with the option to extend the interest only period for one additional year at the election of the Company. At inception of the term loan, the Company evaluated this option as an embedded derivative and determined it to be clearly and closely related to the host contract. As such, no bifurcation of the embedded derivative from the host contract was required.

At close, the Company drew $75 million, of which $60.0 million was used to retire its existing SVB Term Loan. The Company accounted for the term loan portion of the Credit Agreement as a debt modification. However, given the large disproportion between the amount repaid to SVB under the existing term loan and the amount received from SVB under the new Agreement, the Company wrote off a pro-rata portion of the unamortized deferred fees and costs for a total of $0.5 million.

The Company received net proceeds of approximately $14.0 million after related bank and legal fees of approximately $1.0 million. Such fees are accounted for as debt discount and issuance costs and presented as a direct deduction from the carrying amount of debt on the Company’s consolidated balance sheets. Debt discount, issuance costs and the final payment are amortized or accreted as interest expense over the term of the loan using the effective interest method.

Revolving Credit Facility

The key elements of the revolving line of credit under the Credit Agreement include (i) a revolving line of credit of up to $25 million, comprised of an initial $15 million commitment, with the option to increase the line by an additional $10 million, subject to lender approval and borrowing base availability; (ii) an annual interest rate of the WSJ Prime rate plus 0.5% with a floor of 6.25%; (iii) a maturity date of November 1, 2027. At close, the Company drew $5 million.

The Credit Agreement is secured by substantially all assets of the Company, except that the collateral does not include any intellectual property held by the Company, provided, however, the collateral does include all accounts and proceeds of such intellectual property.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, dividends and other distributions and transactions with affiliates. The Credit Agreement also contains financial covenants that require the Company to maintain a minimum net revenue threshold and a minimum backlog balance.

The Credit Agreement includes standard events of default, including, among other things, subject in certain cases to customary grace periods, thresholds and notice requirements, the Company’s failure to fulfill its obligations under the Agreement or the occurrence of a material adverse change in the Company's business, operations, or condition (financial or otherwise). In the event of default by the Company under the Credit Agreement, MidCap and SVB would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the Agreement, which could harm the Company's financial condition.

The Company’s scheduled future payments on the term loan at December 31, 2022 are as follows (in thousands):


Year Ended December 31,
2023	$	—
2024	—
2025	6,250
2026	37,500
2027	31,250
Total future principal payments	75,000
Less: unamortized debt discount	(1,661)
Carrying value of long-term debt	73,339
Less: current portion	—
Long-term portion	$	73,339