XML 37 R21.htm IDEA: XBRL DOCUMENT v3.24.0.1
Convertible Notes
 12 Months Ended
Dec. 31, 2023
Debt Disclosure [Abstract]  
Convertible Notes Convertible Notes
The Company’s convertible notes are shown in the following table:
As of December 31,
(In thousands)2022
2023 Notes(1)
$10,381 
Unamortized debt issuance costs — 2023 Notes(3)
Total convertible notes10,378 
Less current portion10,378 
Total long-term convertible notes$— 
(1)    As of December 31, 2023, none of the 2023 Notes remained outstanding.
1.375% Convertible Senior Notes due 2023. On November 17, 2017, the Company issued $172.5 million aggregate principal amount of 1.375% convertible senior notes pursuant to an indenture (the “2023 Indenture”), by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”). In accounting for the 2023 Notes at issuance and prior to the adoption of ASU No. 2020-06, the Company had separated the 2023 Notes into liability and equity components pursuant to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion. As of the date of issuance, the Company determined that the liability component of the 2023 Notes was $137.3 million and the equity component of the 2023 Notes was $35.2 million. The fair value of the liability component was estimated using an interest rate for a similar instrument without a conversion feature. The unamortized discount related to the 2023 Notes was being amortized to interest expense using the effective interest method over approximately five years. As a result of the adoption of ASU No. 2020-06 on January 1, 2022, the Company reversed approximately $35.2 million of debt discount related to the 2023 Notes from additional paid-in capital, reversed approximately $8.3 million representing the unamortized debt discount from liabilities and recorded the net impact of $26.9 million to accumulated deficit.
The 2023 Notes bore interest at a rate of 1.375% per year, payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2018. Contractually, the 2023 Notes would mature on February 1, 2023, unless earlier repurchased by the Company or converted pursuant to their terms.
The Company incurred transaction costs of approximately $3.3 million related to the issuance of the 2023 Notes. In accounting for these costs and prior to the adoption of ASU No. 2020-06, the Company had allocated the costs to the liability and equity components in proportion to the allocation of proceeds from the issuance of the 2023 Notes to such components. Transaction costs allocated to the liability component of $2.6 million were netted against the carrying amount of the liability in the Consolidated Balance Sheets and were amortized to interest expense using the effective interest method over the term of the 2023 Notes. The transaction costs allocated to the equity component of $0.7 million were recorded as additional paid-in capital. As a result of the adoption of ASU No. 2020-06 on January 1, 2022, the Company removed approximately $0.7 million of debt issuance costs related to the 2023 Notes from additional paid-in capital and recorded approximately $0.5 million to accumulated deficit related to the amortization of debt issuance costs that were historically allocated to equity.
The initial conversion rate of the 2023 Notes was 52.8318 shares of the Company’s common stock per $1,000 principal amount of 2023 Notes (which was equivalent to an initial conversion price of approximately $18.93 per share). The conversion rate was subject to adjustment upon the occurrence of certain specified events but would not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the 2023 Indenture), the Company would have, in certain circumstances, increased the conversion rate by a number of additional shares for a holder that could have elected to convert its 2023 Notes in connection with such make-whole fundamental change.
Prior to the close of business on the business day immediately preceding November 1, 2022, the 2023 Notes would have been convertible only under the following circumstances: (1) during any calendar quarter commencing after March 31, 2018, and only during such calendar quarter, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2023 Notes for such trading day was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; (3) upon the occurrence of specified distributions to holders of
our common stock; or (4) upon the occurrence of specified corporate transactions. On or after November 1, 2022, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2023 Notes would have been able to convert all or a portion of their 2023 Notes regardless of the foregoing conditions. Upon conversion, the Company would have paid cash up to the aggregate principal amount of the 2023 Notes to be converted and pay or deliver, as the case may have been, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the 2023 Notes being converted.
The Company could not have redeemed the 2023 Notes prior to the maturity date and no sinking fund was provided for the 2023 Notes. Upon the occurrence of a fundamental change (as defined in the 2023 Indenture) prior to the maturity date, holders may have required the Company to repurchase all or a portion of the 2023 Notes for cash at a price equal to 100% of the principal amount of the 2023 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The 2023 Notes were the Company’s senior unsecured obligations and ranked senior in right of payment to any of the Company’s indebtedness that was expressly subordinated in right of payment to the notes; equal in right of payment with the Company’s existing and future liabilities that were not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to any existing and future indebtedness and other liabilities (including trade payables, but excluding intercompany obligations and liabilities) and any preferred stock of subsidiaries of the Company.
The following events were considered “events of default” with respect to the 2023 Notes, which may have resulted in the acceleration of the maturity of the 2023 Notes:
(1) the Company defaulted on the payment when due of any principal of any of the 2023 Notes at maturity or upon exercise of a repurchase right or otherwise;
(2) the Company defaulted on the payment of any interest, including additional interest, if any, on any of the 2023 Notes, when the interest became due and payable, and continuance of such default for a period of 30 days;
(3) failure by the Company to comply with its obligation to convert the 2023 Notes in accordance with the 2023 Indenture upon exercise of a holder’s conversion right;
(4) failure by the Company to give a fundamental change notice or notice of a specified corporate transaction when due with respect to the Notes;
(5) failure by the Company to comply with any of its other agreements contained in the 2023 Notes or the 2023 Indenture for a period of 60 days after written notice from the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding had been received;
(6) failure by the Company to have paid when due the principal of, or acceleration of, any indebtedness for money borrowed by the Company or any of its Material Subsidiaries (as defined in the 2023 Indenture) in excess of $40.0 million principal amount, if such indebtedness was not discharged, or such acceleration was not annulled, for a period of 30 days after written notice to the Company by the Trustee or to the Company and the Trustee by holders of 25% or more in aggregate principal amount of the 2023 Notes then outstanding in accordance with the 2023 Indenture; and
(7) certain events of bankruptcy, insolvency or reorganization of the Company or any of its Material Subsidiaries (as defined in the Indenture).
If such an event of default, other than an event of default described in clause (7) above with respect to the Company, had occurred, the Trustee by written notice to the Company, or the holders of at least 25% in aggregate principal amount of the outstanding Notes by notice to the Company and the Trustee, may have, and the Trustee at the request of such holders should have, declared 100% of the principal of and accrued and unpaid interest, if any, on all the Notes then outstanding to be due and payable. If an event of default described in clause (7) above occurred, 100% of the principal of and accrued and unpaid interest on the Notes then outstanding would have automatically become due and payable.
On March 2, 2022, the Company entered into individual, privately negotiated transactions with certain holders of its outstanding 2023 Notes, pursuant to which the Company paid an aggregate of approximately $199.1 million in cash for the repurchase of approximately $123.1 million aggregate principal amount of its 2023 Notes (“Q1 2022 Partial Notes Repurchase”). The cash consideration was based on a volume-weighted average price of $29.6789 for the 19-trading day
measurement period ending March 29, 2022. Of the $123.1 million aggregate principal amount, approximately $107.9 million was settled on March 31, 2022 for $174.5 million in cash. The remaining $15.2 million aggregate principal amount was settled on April 1, 2022 for $24.6 million in cash. In addition, this transaction resulted in a loss on extinguishment of debt of $66.5 million and a loss on fair value adjustment of derivatives, net of $8.3 million.
On August 11, 2022, the Company entered into individual, privately negotiated transactions with certain holders of its outstanding 2023 Notes, pursuant to which the Company paid an aggregate of approximately $58.9 million in cash for the repurchase of approximately $39.0 million aggregate principal amount of its 2023 Notes (“Q3 2022 Partial Notes Repurchase”). The cash consideration was based on a volume-weighted average price of $27.8456 for the 10-trading day measurement period ending August 25, 2022. In addition, this transaction resulted in a loss on extinguishment of debt of $17.1 million and a loss on fair value adjustment of derivatives, net of $2.3 million.
Upon entering into the Q1 2022 and Q3 2022 Partial Notes Repurchase agreements, the conversion feature related to the 2023 Notes repurchased, as well as the settlements of the convertible senior note hedges and warrants, were subject to derivative accounting. As described in the preceding paragraphs above, the combination of these two transactions resulted in $10.6 million in losses on fair value adjustment of derivatives, net, for the year ended December 31, 2022.
During the first quarter of 2023, the holders of the remaining $10.4 million aggregate principal amount of the 2023 Notes elected to convert the notes pursuant to the original terms of the conversion feature. Accordingly, upon maturity, the Company paid $10.4 million in cash to settle the aggregate principal amount of the 2023 Notes and delivered approximately 0.3 million shares of the Company's common stock to settle the conversion spread.
Note Hedges and Warrants. On November 14, 2017 and November 16, 2017, in connection with the 2023 Notes, the Company entered into privately negotiated convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with respect to the Company’s common stock, par value $0.001 per share (the “Common Stock”), with certain bank counterparties (the “Counterparties”). The Company paid an aggregate amount of approximately $33.5 million to the Counterparties for the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions covered, subject to anti-dilution adjustments substantially similar to those in the 2023 Notes, approximately 9.1 million shares of Common Stock, the same number of shares underlying the 2023 Notes, at a strike price that corresponded to the initial conversion price of the 2023 Notes, and were exercisable upon conversion of the 2023 Notes. Contractually, the Convertible Note Hedge Transactions would have expired upon the maturity of the 2023 Notes. The Convertible Note Hedge Transactions were intended to reduce the potential economic dilution upon conversion of the 2023 Notes. The Convertible Note Hedge Transactions were separate transactions and were not part of the terms of the 2023 Notes. Holders of the 2023 Notes did not have any rights with respect to the Convertible Note Hedge Transactions.
In addition, concurrently with entering into the Convertible Note Hedge Transactions, the Company separately entered into privately negotiated warrant transactions, whereby the Company sold to the Counterparties warrants (the “Warrants”) to acquire, collectively, subject to anti-dilution adjustments, approximately 9.1 million shares of the Common Stock at an initial strike price of approximately $23.30 per share, which represented a premium of 60% over the last reported sale price of the Common Stock of $14.56 on November 14, 2017. The Company received aggregate proceeds of approximately $23.2 million from the sale of the Warrants to the Counterparties. The Warrants were separate transactions and were not part of the 2023 Notes or Convertible Note Hedge Transactions. Holders of the 2023 Notes and Convertible Note Hedge Transactions did not have any rights with respect to the Warrants.
The amounts paid and received for the Convertible Note Hedge Transactions and Warrants were recorded in additional paid-in capital in the Consolidated Balance Sheets. The fair value of the Convertible Note Hedge Transactions and Warrants were not re-measured through earnings each reporting period. The amounts paid for the Convertible Note Hedge Transactions were tax deductible expenses, while the proceeds received from the Warrants were not taxable.
In connection with the Q1 2022 Partial Notes Repurchase, the Company entered into agreements with certain financial institutions to retire the corresponding portions of convertible senior note hedges and warrants the Company had previously entered into with the counterparties in connection with the issuance of the 2023 Notes. Upon settlement, the Company received $72.4 million in cash for the retirement of the proportionate amount of convertible senior note hedges and paid $55.1 million in cash for the retirement of the proportionate amount of warrants during the first quarter of 2022.
In connection with the Q3 2022 Partial Notes Repurchase, the Company entered into agreements with certain financial institutions to retire the corresponding portions of convertible senior note hedges and warrants the Company had previously entered into with the counterparties in connection with the issuance of the 2023 Notes. Upon settlement, the Company received $19.3 million in cash for the retirement of the proportionate amount of convertible senior note hedges and paid $14.4 million in cash for the retirement of the proportionate amount of warrants during the third quarter of 2022.
In connection with the settlement of the conversion of the remaining 2023 Notes, the Company received 0.3 million shares of the Company’s common stock for the retirement of the remaining convertible senior note hedges and paid $10.7 million in cash for the retirement of the remaining warrants during the first quarter of 2023. Additionally, the retirement of the remaining warrants was subject to derivative accounting, resulting in a loss on fair value adjustment of derivatives of $0.2 million for the year ended December 31, 2023.
As of December 31, 2023, none of the note hedges and warrants remained outstanding.
Interest expense related to the convertible notes for the years ended December 31, 2022 and 2021 was as follows:
Years Ended December 31,
(In thousands)20222021
2023 Notes coupon interest at a rate of 1.375%
$610 $2,372 
2023 Notes amortization of discount and debt issuance cost194 7,656 
Total interest expense on convertible notes
$804 $10,028 
For the year ended December 31, 2023, interest expense related to the convertible notes was deemed immaterial.