Debt

6 Months Ended

Jun. 30, 2020

Convertible Senior Notes

In December 2014, the Company issued $172.5 million aggregate principal amount of its 3.25% Convertible Senior Notes. Debt issuance costs of approximately $5.1 million were primarily comprised of underwriters fees, legal, accounting and other professional fees, of which $4.2 million were recorded as a reduction to long-term debt and are being amortized using the effective interest method to interest expense over the six-year term of the Convertible Senior Notes. The remaining $0.9 million of debt issuance costs were allocated as a component of equity in additional paid-in capital. The implied interest rate of the Convertible Senior Notes was 6.9%, assuming no conversion option. The Convertible Senior Notes mature on December 15, 2020.

The Convertible Senior Notes are convertible into cash, shares of common stock, or a combination of cash and shares of common stock based on an initial conversion rate, subject to adjustment, of 31.1891 shares per $1,000 principal amount of the

Convertible Senior Notes (which represents an initial conversion price of approximately 32.06 per share) in the following circumstances and to the following extent: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2015, if the last reported sales price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the notes in effect on each applicable trading day; (2) during the five consecutive business day period following any five consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Senior Notes for each such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; or (3) upon the occurrence of specified events described in the indenture for the Convertible Senior Notes. On or after September 15, 2020 until the close of business on the second scheduled trading day immediately preceding the stated maturity date, holders may surrender their notes for conversion at any time, regardless of the foregoing circumstances. If a fundamental change, as defined in the indenture for the Convertible Senior Notes, such as an acquisition, merger or liquidation of the Company, occurs prior to the maturity date, subject to certain limitations, holders of the Convertible Senior Notes may require the Company to repurchase all or a portion of their Convertible Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

During the second quarter of 2020, the Company received notices to convert $5.9 million in principal which the Company elected to settle in cash. The settlement amount is determined based on the volume-weighted average stock price during the 25 consecutive trading days beginning on, and including, the third trading day after the conversion date notice is received. The election to settle the notes in cash is irrevocable and the settlement amount is variable based on the stock price. As of June 30, 2020, this 25-day period had not been completed. Therefore, the Company reclassified the conversion feature from equity at fair value and recorded a derivative liability of $26.2 million, measured as of the respective conversion dates. As of June 30, 2020, the derivative liability for the unsettled conversions were revalued, resulting in a loss of $1.1 million included in other expense, net on the Consolidated Statements of Income. The derivative liability was valued using the Company’s volume-weighted average stock price for a 25-day trading period preceding the measurement dates.

During the second quarter of 2020, the last reported sales price of the Company’s common stock was greater than 130% of the Convertible Senior Notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end. Consequently, the Convertible Senior Notes were convertible as of June 30, 2020. The Convertible Senior Notes outstanding as of June 30, 2020 other than the conversions elected to be settled in cash during the second quarter of 2020 may be settled at the Company’s option in cash or a combination of cash and shares of common stock. If such Convertible Senior Notes were converted as of June 30, 2020, the if-converted amount would exceed the principal by $27.3 million.

The Company pays 3.25% interest per annum on the principal amount of the Convertible Senior Notes semi-annually in arrears in cash on June 15 and December 15 of each year. During the six months ended June 30, 2020, the Company recorded total interest expense of $0.4 million related to the Convertible Senior Notes, of which $0.2 million related to the amortization of the debt discount and issuance costs and $0.2 million related to the coupon due semi-annually. During the six months ended June 30, 2019, the Company recorded total interest expense of $1.8 million related to the Convertible Senior Notes of which $0.9 million related to the amortization of the debt discount and issuance costs and $0.9 million related to the coupon due semi-annually.

The following table summarizes information about the equity and liability components of the Convertible Senior Notes (dollars in thousands). The fair values of the respective notes outstanding were measured based on quoted market prices and is a Level 2 measurement.


	June 30, 2020		December 31, 2019
Principal amount outstanding	$	13,082	$	13,131
Unamortized discount of liability component	(210)		(415)
Unamortized debt issuance costs	(28)		(55)
Net carrying amount of liability component	$	12,844	$	12,661
Carrying value of equity component, net of issuance costs	$	1,247	$	2,265
Fair value of outstanding Convertible Senior Notes	$	90,363	$	30,991
Remaining amortization period of discount on the liability component	0.5 years		1.0 year

Credit Agreement

On August 31, 2018, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) which provides the Company with a $175.0 million Revolving Credit Facility. There is no balance outstanding as of June 30, 2020. The Credit Agreement has a term of five years and matures on August 31, 2023.

Loans will bear interest at a rate equal to (i) the London Interbank Offered Rate (“LIBOR”) plus the “applicable rate” or (ii) the “base rate” (defined as the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus one-half of one percent and (c) LIBOR plus one percent) plus the “applicable rate.” The initial applicable rate was 1.00% per annum for base rate loans and 2.00% per annum for LIBOR rate loans, and thereafter is determined in accordance with a pricing grid based on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) ranging from 1.75% to 2.50% per annum for LIBOR rate loans and from 0.75% to 1.50% per annum for base rate loans. In addition, the Company pays a commitment fee on the unused portion of the Credit Agreement based on the Company’s Consolidated Leverage Ratio ranging from 0.15% to 0.30% per annum.

The Credit Agreement is guaranteed by certain material domestic subsidiaries of the Company (the “Guarantors”) and is secured by liens on substantially all of the assets of the Company and the Guarantors, excluding real property and certain other types of excluded assets, and contains affirmative and negative covenants that are customary for credit agreements of this nature. The negative covenants include, among other things, limitations on asset sales, mergers, indebtedness, liens, dividends and other distributions, investments and transactions with affiliates. The Credit Agreement contains two financial covenants: (i) maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) as of the last day of each fiscal quarter of 3.50 to 1.00, which ratio may be increased to 4.50 to 1.00 in case of certain qualifying acquisitions; and (ii) a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.25 to 1.00 as of the end of any fiscal quarter for the most recently completed four fiscal quarters. The Company was in compliance with all financial covenants as of June 30, 2020.

Interest expense recognized under the Credit Agreement, including amortization of deferred issuance cost, was $0.2 million and $0.4 million, respectively for the three and six months ended June 30, 2020 and $0.5 million and $1.1 million, respectively, for the three and six months ended June 30, 2019.