We compute basic earnings per share ("Basic EPS") by dividing net income (loss) by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share ("Diluted EPS") by dividing net income (loss) by the sum of the weighted average number of common shares outstanding including the dilutive effect of stock-based awards as determined under the treasury stock method and of the 2026 Senior Notes using the if-converted method, as share settlement is presumed, under GAAP. In periods when we recognize a net loss, we exclude the impact of outstanding stock-based awards and the potential share settlement impact related to the 2026 Senior Notes from the Diluted EPS calculation as their inclusion would have an antidilutive effect. Accordingly, for periods in which we report a net loss, such as for the nine months ended September 30, 2023, Diluted EPS is the same as Basic EPS since dilutive common equivalent shares are not assumed to have been issued if their effect is antidilutive.

Additionally, in periods when the 2026 Senior Notes are dilutive, interest expense, net of tax, is added back to net income (loss) (the “numerator”) to calculate Diluted EPS. The Capped Calls are excluded from the calculation of Diluted EPS, as they would be antidilutive. However, upon conversion of the 2026 Senior Notes, unless the market price of our common stock exceeds the cap price, an exercise of the Capped Calls would generally offset any dilution from the 2026 Senior Notes from the conversion price up to the cap price. As of September 30, 2024 and 2023, the market price of a share of our common stock did not exceed the $107.36 cap price.

Below is a reconciliation of the weighted average number of shares of common stock outstanding used in calculating Diluted EPS for the periods presented:


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
	(shares in thousands and $ in millions, except per share amounts)
Numerator:
Net income (loss) used to compute Basic EPS	$	39	$	27	$	4	$	(22	)
Interest expense on 2026 Senior Notes, net of tax (1)		—		—		1		—
Net income (loss) used to compute Diluted EPS	$	39	$	27	$	5	$	(22	)
Denominator:
Weighted average shares used to compute Basic EPS		138,915		138,190		138,862		139,841
Weighted average effect of dilutive securities:
Stock-based awards (Note 10)		604		422		1,435		—
2026 Senior Notes (Note 6)		4,674		4,674		4,674		—
Weighted average shares used to compute Diluted EPS		144,193		143,286		144,971		139,841
Basic EPS	$	0.28	$	0.20	$	0.03	$	(0.16	)
Diluted EPS	$	0.27	$	0.19	$	0.03	$	(0.16	)

(1)

Interest expense, net of tax, related to the 2026 Senior Notes which was included in the Diluted EPS calculation for both the three months ended September 30, 2024 and 2023 was not material.

Potential common shares, consisting of outstanding stock options, RSUs, and those issuable under the 2026 Senior Notes, totaling approximately 13.3 million shares and 12.3 million shares for the three and nine months ended September 30, 2024, respectively, and approximately 14.2 million shares and 21.6 million shares for the three and nine months ended September 30, 2023, respectively, have been excluded from the Diluted EPS calculation because their effect would have been antidilutive. In addition, potential common shares from certain performance-based awards of approximately 1.5 million shares for both the three and nine months ended September 30, 2024, respectively, and approximately 1.1 million shares for both the three and nine months ended September 30, 2023, respectively, for which all targets required to trigger vesting had not been achieved, were also excluded from the calculation of weighted average shares used to compute Diluted EPS.