Convertible debt (Notes)

6 Months Ended

Jun. 30, 2020

Convertible Senior Notes

The following is a summary of the Company's convertible senior notes as of June 30, 2020 (in thousands):


	Date of Issuance	Unpaid Principal Balance		Net Carrying Amount					Contractual Interest Rates
						Current		Noncurrent


1% Convertible Notes due in 2024 ("2024 Notes")	May 2019	$	143,750	$	—	$	114,131	1%

The 2024 Notes, along with the previously issued convertible notes with original due dates in 2019 and 2047 (the "2019 Notes" and "2047 Notes," and together with the 2024 Notes, collectively, the "Notes"), are general unsecured obligations and rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Notes, rank equally in right of payment with all of the Company's existing and future liabilities that are not so subordinated, are effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries (including trade payables but excluding intercompany obligations owed to the Company or its subsidiaries). The 2019 Notes and 2047 Notes were settled as of December 31, 2019 and no longer remain outstanding.

Interest related to the 2024 Notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2019. The 2024 Notes mature on May 15, 2024, unless redeemed or converted in accordance with their terms prior to such date.

Each $1,000 of principal of the 2024 Notes will initially be convertible into 15.1394 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $66.05 per share. The initial conversion price for the 2024 Notes is subject to adjustment upon the occurrence of certain specified events.

As of June 30, 2020, the 2024 Notes are not yet convertible and their remaining term is approximately 46 months.

As of June 30, 2020 and December 31, 2019, the fair value of the principal amount of the 2024 Notes was $138.1 million and $163.2 million, respectively. The estimated fair value was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the Company's stock price and interest rates, which represents level 2 in the fair value hierarchy.

In accounting for the transaction costs for the 2024 Notes issuance, the Company allocated the costs incurred to the liability and equity components in proportion to the allocation of the proceeds from issuance to the liability and equity components. Issuance costs attributable to the liability component, totaling $3.4 million for the 2024 Notes are being amortized to expense over the expected life of the notes using the effective interest method. Issuance costs attributable to the equity component related to the conversion option, totaling $1.1 million for the 2024 Notes were netted with the equity component in stockholders' equity.

The 2024 Notes consist of the following (in thousands):


	June 30, 2020		December 31, 2019
Liability component:
Principal	$	143,750	$	143,750
Less: debt discount and issuance cost, net of amortization	(29,619)		(33,046)
Net carrying amount	$	114,131	$	110,704

Equity component⁽¹⁾	$	32,883	$	32,883

(1) Recorded within additional paid-in capital in the unaudited condensed consolidated balance sheet. As of June 30, 2020 and December 31, 2019, it included $32.9 million related to the 2024 Notes, which was net of $1.1 million issuance cost in equity.

The following table sets forth total interest expense recognized related to the Notes (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Coupon interest	$	359	$	1,106	$	719	$	2,356
Amortization of debt issuance costs	158		341		314		706
Amortization of debt discount	1,568		2,827		3,114		5,568
Total	$	2,085	$	4,274	$	4,147	$	8,630

Note Hedge and Warrant Transactions

Concurrently with the offering of the 2019 Notes, the Company entered into separate convertible note hedge (the "Note Hedge") and warrant (the "Warrant") transactions. Taken together, the purchase of the Note Hedge and the sale of the Warrant were intended to offset any actual dilution from the conversion of the 2019 Notes and to effectively increase the overall conversion price of the 2019 Notes from $33.79 to $45.48 per share. The Warrant was not part of the 2019 Notes or Note Hedge. Both the Note Hedge and Warrant were recorded as part of additional paid-in capital.

As of December 31, 2019, the Note Hedge was settled through certain note hedge termination agreements and exercise of any remaining Note Hedge. In 2019, the Company entered into certain warrant termination agreements which terminated certain of the Warrants that were entered into by the Company in connection with the offering of the 2019 Notes. The remaining Warrants expire in August 2020 and, if exercised, will settle on a net share basis.

Capped Call Transactions

In May 2019, in connection with the offering of the 2024 Notes, the Company entered into privately negotiated capped call transactions (collectively, the "Capped Call") with certain option counterparties. The Capped Call transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock initially underlying the 2024 Notes, at a strike price that corresponds to the initial conversion price of the 2024 Notes, also subject to adjustment, and are exercisable upon conversion of the 2024 Notes. The Capped Call transactions are intended to reduce potential dilution of the Company's common stock and/or offset any cash payments the Company will be required to make in excess of the principal amount upon any conversion of 2024 Notes, and to effectively increase the overall conversion price of the 2024 Notes from $66.05 to $101.62 per share. As the Capped Call transactions meet certain accounting criteria, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of the Capped Call was $16.4 million and was recorded as part of additional paid-in capital.