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Convertible Senior Notes | 9 Months Ended
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Sep. 30, 2022
Convertible Senior Notes | 7. Convertible Senior Notes 0.375% Convertible Senior Notes due 2024 On July 19, 2019, the Company issued $287.5 million aggregate principal pursuant to the 2019 Notes, which includes the underwriters’ exercise in full of an option to purchase an additional $37.5 million aggregate principal amount of 2019 Notes (the “Notes Offering”). The net proceeds of the Notes Offering, after deducting underwriting discounts and commissions and other related offering expenses payable by the Company, were approximately $278.5 million. The 2019 Notes are senior, unsecured obligations of the Company, and bear interest at a rate of 0.375% per year. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2019 Notes will mature on July 15, 2024, unless earlier repurchased or converted in accordance with their terms. During the third quarter of 2022, the closing price of the Company’s common stock exceeded 130% of the conversion price of the 2019 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the 2019 Notes are convertible at the option of the holders of the 2019 Notes during the fourth quarter of 2022, the quarter immediately following the quarter when the conditions are met, as stated in the terms of the 2019 Notes. These conditions have been met each quarter since the third quarter of 2020. As a result, $25,000 aggregate principal amount of the 2019 Notes have been converted by the note holders since the issuance of the 2019 Notes, including $14,000 in 2022. The conversions resulted in the issuance of a nominal number of shares of the Company’s common stock to the note holders. The Company continues to classify the carrying value of the 2019 Notes as current liabilities on the Company’s consolidated balance sheets at September 30, 2022. Prior to the adoption of ASU 2020-06, the Company accounted for the 2019 Notes as a liability and equity component where the carrying value of the liability component was valued based on a similar debt instrument. In accounting for the issuance of the 2019 Notes, the Company separated the 2019 Notes into liability and equity components. The carrying value of the liability component was calculated as the present value of its cash flows using a discount rate of 4.5% based on comparative convertible transactions for similar companies. The carrying value of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2019 Notes as a whole. The excess of the principal amount of the liability component over its carrying value amount, referred to as the debt discount, was amortized to interest expense on our consolidated statements of comprehensive income over the five-year term of the 2019 Notes. The equity component was not re-measured as long as it continued to meet the conditions for equity classification. The equity component related to the 2019 Notes recorded at issuance was $52.1 million, which was recorded in additional paid-in capital on the Company's consolidated balance sheets. In accounting for the transaction costs related to the issuance of the 2019 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2019 Notes using the same proportions as the initial carrying value of the 2019 Notes. Transaction costs related to the liability component were $7.4 million and are amortized to interest expense using the effective interest method over the five-year term of the 2019 Notes. Transaction costs attributable to the equity component were $1.6 million and are netted with the equity component of the 2019 Notes in stockholders' equity of the Company's consolidated balance sheets. Additionally, the Company recorded a net deferred tax liability of $11.4 million. Effective January 1, 2022, the Company adopted ASU 2020-06. After adoption, the Company now accounts for the 2019 Notes as a single liability measured at amortized cost. As the equity component is no longer required to be split into a separate component, the Company recorded a net adjustment for the initial $50.4 million that was allocated to additional paid-in capital and $22.9 million of life-to-date interest expense recorded as amortization of debt discount. Additionally, the net deferred tax liability recorded for the 2019 Notes was reversed. The principal amount of the liability over its carrying amount is amortized to interest expense over the five-year term of the 2019 Notes. Since the 2019 Notes are classified as a single liability, there is no debt discount required to be amortized for the three and nine months ended September 30, 2022. The net carrying value of the liability component of the 2019 Notes is as follows:
|  | September 30, 2022 |  |  | December 31, 2021 |
|  | (Amounts in thousands) |
0.375% Convertible Senior Notes due 2024: |  |  |  |  |  |
Principal amount |  | $ | 287,475 |  |  | $ | 287,489 |
Unamortized debt discount |  |  | — |  |  |  | (28,220 | )
Unamortized debt issuance costs |  |  | (3,310 | ) |  |  | (4,011 | )
Net carrying amount |  | $ | 284,165 |  |  | $ | 255,258 |
The following table sets forth total interest expense recognized related to the 2019 Notes:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
|  | (Amounts in thousands) |
Contractual interest expense |  | $ | 270 |  |  | $ | 270 |  |  | $ | 809 |  |  | $ | 809 |
Amortization of debt issuance costs |  |  | 455 |  |  |  | 361 |  |  |  | 1,360 |  |  |  | 1,070 |
Amortization of debt discount |  |  | — |  |  |  | 2,540 |  |  |  | — |  |  |  | 7,526 |
Total |  | $ | 725 |  |  | $ | 3,171 |  |  | $ | 2,169 |  |  | $ | 9,405 |
Effective interest rate of the liability component |  |  | 1.0 | % |  |  | 5.1 | % |  |  | 1.0 | % |  |  | 5.1 | %
At September 30, 2022 and December 31, 2021, the carrying value of the 2019 Notes was $284.2 million and $255.3 million, respectively, net of unamortized discount, and the fair value of the 2019 Notes was $494.6 million and $678.5 million, respectively. The fair value of the 2019 Notes was determined based on the most recent trade activity of the 2019 Notes at September 30, 2022 and December 31, 2021.

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- Definition The entire disclosure for long-term debt. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI https://asc.fasb.org/topic&trid=2208564 + Details
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