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Earnings Per Share | 3 Months Ended
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Mar. 31, 2022
Earnings Per Share | 12. Earnings Per Share The Company reports earnings per share ("EPS") in accordance with ASC 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Potential common share equivalents consist of RSUs, performance stock units and the incremental common shares issuable upon the exercise of stock options. In periods when the Company has a net loss, stock awards are excluded from the calculation of earnings per share as their inclusion would have an antidilutive effect. A reconciliation of basic and diluted weighted average shares outstanding is as follows:
|  | Three Months Ended March 31, |
|  | 2022 |  |  | 2021 |
|  | (Amounts in thousands, except per share data) |
Numerator: |  |  |  |  |  |
Net income |  | $ | 46,964 |  |  | $ | 29,450 |
Effect of dilutive securities: |  |  |  |  |  |
Charges associated with convertible debt instruments, net of tax |  |  | 387 |  |  |  | — |
Numerator for diluted earnings per share - net income available to common stockholders after the effect of dilutive securities |  | $ | 47,351 |  |  | $ | 29,450 |
Denominator: |  |  |  |  |  |
Weighted average shares used in computing net income per share - basic |  |  | 55,353 |  |  |  | 54,805 |
Effect of dilutive shares: |  |  |  |  |  |
Options and stock units |  |  | 726 |  |  |  | 964 |
Convertible Senior Notes |  |  | 2,726 |  |  |  | 1,092 |
Dilutive effect of unvested performance stock units |  |  | 11 |  |  |  | 8 |
Dilutive potential common shares |  |  | 3,463 |  |  |  | 2,064 |
Denominator for diluted earnings per share - adjusted weighted average shares used in computing net income per share - diluted |  |  | 58,816 |  |  |  | 56,869 |
Earnings per share: |  |  |  |  |  |
Basic |  | $ | 0.85 |  |  | $ | 0.54 |
Diluted |  | $ | 0.81 |  |  | $ | 0.52 |
At March 31, 2022, there were outstanding options to purchase 650,059 shares of the Company’s common stock at a weighted average exercise price of $61.65 per share and 591,377 shares of common stock issuable upon the vesting of stock units, which include RSUs and performance stock units. For the three months ended March 31, 2022, 137,247 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares and were therefore anti-dilutive. In July 2019, the Company issued $287.5 million aggregate principal amount of the 2019 Notes. As provided by the terms of the indenture underlying the 2019 Notes, prior to March 4, 2022, conversion of the 2019 Notes could have been settled in cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. On March 4, 2022, we entered into the Second Supplemental Indenture for the 2019 Notes, which irrevocably elected to settle the conversion of the 2019 Notes using a combination of cash and shares of the Company's common stock, settling the par value of the 2019 Notes in cash and any excess conversion premium in shares. As provided by the terms of the Second Supplemental Indenture underlying the 2019 Notes, the Company irrevocably elected to settle the conversion obligation for the 2019 Notes in a combination of cash and shares of the Company's common stock. This means the Company will settle the par value of the 2019 Notes in cash and any excess conversion premium in shares. As mentioned in Note 7, "Convertible Senior Notes," the Company adopted ASU 2020-06 effective January 1, 2022. Under ASU 2020-06, the Company is required to reflect the dilutive effect of the convertible securities by application of the "if-converted" method, which means the denominator of the EPS calculation would include the total number of shares assuming the 2019 Notes had been fully converted at the beginning of the period. Prior to March 4, 2022, the Company had the choice to settle the conversion of the 2019 Notes in cash, stock or a combination of the two. Therefore, from January 1, 2022 (the date the Company adopted ASU 2020-06) to March 4, 2022, the Company included 3,474,429 shares in the denominator of the EPS calculation, applying the if converted method. Subsequent to March 4, 2022, after the Second Supplemental Indenture became effective, the Company irrevocably elected to settle the conversion obligation for the 2019 Notes in a combination of cash and shares of the Company's common stock, and from March 5, 2022 forward, only the excess premium will be settled with shares. Under the if-converted method of calculating dilutive shares, the Company was also required to exclude amortization of debt issuance costs and interest charges applicable to the convertible debt from the numerator of the dilutive EPS calculation for the period from January 1, 2022 to March 4, 2022, as if the interest on convertible debt was never recognized for that period. For the three months ended March 31, 2022, the Company excluded interest charges of $0.4 million (net of tax) from the numerator. Prior to the adoption of ASU 2020-06, the Company applied the provisions of ASC 260, “Earnings Per Share”, Subsection 10-45-44, to determine the diluted weighted average shares outstanding as it related to the conversion spread on its convertible notes. Accordingly, the par value of the 2019 Notes was not included in the calculation of diluted income per share, but the dilutive effect of the conversion premium was considered in the calculation of diluted net income per share using the treasury stock method. The dilutive impact of the 2019 Notes was based on the difference between the Company’s current period average stock price and the conversion price of the 2019 Notes, provided there was a premium. Pursuant to this accounting standard, there was no dilution from the accreted principal of the 2019 Notes. For the three months ended March 31, 2021, the dilutive effect of the conversion premium included in the calculation of diluted earnings was 1,091,776 shares.

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