Borrowing Arrangements

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Borrowing Arrangements

(12) Borrowing Arrangements

Convertible Notes

2022 Notes

In 2018, the Company issued an aggregate of $25.5 million in convertible promissory notes to various investors (the “2022 Notes”). The 2022 Notes were secured by a security agreement and matured in March 2022, unless earlier converted at the option of the investors.

The principal amount accrued interest at 1.5% per annum, payable biannually, with additional interest at 8.0% per annum, which was added to the principal and compounded on each payment date. Prior to maturity, the investors could elect to convert all or a portion of the outstanding principal and accrued and unpaid interest on the 2022 Notes to equity based on various conversion events.

The 2022 Notes contained an embedded derivative representing the debt conversion features and the fair value of the derivative was recorded as a liability with an offsetting amount recorded as a debt discount against the carrying value of the 2022 Notes. The debt discount was amortized to interest expense using the effective interest method over the term of the 2022 Notes. The derivative liability was re-valued at the end of each reporting period using a probability-weighted discounted cash flow model.

Changes in the estimated fair value of the debt derivative were recorded in other income (expense), net, on the accompanying condensed consolidated statements of operations. The 2022 Notes were paid off at the Closing Date. The debt derivative on the 2022 Notes was remeasured at Closing Date, then derecognized upon payoff of the 2022 Notes. The Company recognized a $0.3 million loss on extinguishment of the 2022 Notes to interest expense, net on the condensed consolidated statements of operations. 

The estimated fair value of the 2022 Notes embedded derivative is as follows (in thousands):

	Embedded Derivative Liability
Fair value as of December 31, 2021	$	172
Change in fair value		141
Fair value prior to Closing		313
Payoff of 2022 Notes		(313	)
Fair value as of March 31, 2022	$	—

The Company incurred approximately $0.9 million of fees related to issuance of the 2022 Notes in the form of advisor fees, legal fees and other related expenses. These costs were recorded as debt discount and were amortized to interest expense using the effective interest method over the term of the 2022 Notes.

2023 Notes

In 2020, the Company issued an aggregate of $16.1 million in convertible promissory notes to various investors, which matured in March 2023 (the “2023 Initial Notes”). In 2021, the Company issued additional convertible promissory notes of $48.7 million to various investors, which also matured in March 2023 (the “Extension Notes”). The Company issued common stock warrants in conjunction with the 2023 Initial Notes and Extension Notes (together, the “2023 Notes”). See “Note 10 – Common Stock” for additional details.

The principal amount of the outstanding balance on the 2023 Notes accrued interest at 10.0% per annum, payable at maturity in March 2023. Prior to maturity, the 2023 Notes could be redeemed for an amount equal to 200% of the principal amount of the outstanding balance and the unpaid accrued interest in the event of a change in control, or converted, either voluntarily at the option of the investor or automatically to equity based on various conversion events.

In accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components, consisting of embedded derivatives representing the redemption and conversion features, and common stock warrants, respectively. The fair value of the derivatives were calculated using the “with and without” method. The key valuation assumptions used consisting of the discount rate and the probability of the occurrence of various conversion events. The fair value of the liability and equity components exceeded the 2023 Initial Notes gross proceeds therefore, the fair value of the components were allocated on a relative fair value basis.

At issuance of the 2023 Initial Notes, the derivative liability and common stock warrants received relative fair value allocations of $5.2 million and $7.2 million, respectively, with the offset to debt discount, and the remaining immaterial balance was recorded as a loss in other income (expense), net on the condensed consolidated statements of operations. At issuance of the Extension Notes, the fair value of the liability and equity components were $17.5 million and $22.0 million respectively. The equity component was included in additional paid-in capital on the condensed consolidated balance sheets. The equity component was not remeasured.

The derivative liabilities were re-valued at the end of each reporting period. Changes in the estimated fair value of the derivatives were recorded in other income (expense), net, on the accompanying condensed consolidated statements of operations. The 2023 Notes were converted into shares of the Company at the Closing Date. The debt derivative on the 2023 Notes was remeasured at Closing Date, then derecognized upon conversion into equity. Upon conversion of the 2023 Notes, the Company recognized $36.7 million loss on settlement of the 2023 Notes to interest expense, net in the condensed consolidated statement of operations. 

The estimated fair value of the 2023 Notes embedded derivative is as follows (in thousands):

	Embedded Derivative Liability
Fair value as of December 31, 2021	$	26,017
Change in fair value		3,636
Fair value prior to Closing		29,653
Conversion of 2023 Notes		(29,653	)
Fair value as of March 31, 2022	$	—

The 2023 Notes debt issuance costs were approximately $0.4 million, consisting of advisor fees, legal fees and other related expenses. The Company allocated the total amount incurred to the liability and equity components on a relative fair value basis, resulting in $0.3 million allocated to the liability component and recorded as debt discount and approximately $0.1 million to the equity component. The residual amount was immaterial and was allocated to loss on issuance of the 2023 Notes. As such, the total loss recorded on the 2023 Notes was immaterial.

The following table represents the total amount of interest expense recognized on the 2022 Notes and 2023 Notes for the three months ended March 31, 2022 and 2021 (in thousands):

	Three Months Ended March 31,
	2022		2021
Contractual interest expense	$	1,052	$	1,755
Accretion of debt discount		38,757		1,857
Accretion of debt issuance costs		223		73
	$	40,032	$	3,685