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Note 10 - Indebtedness
 12 Months Ended
Mar. 31, 2021
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 10. Indebtedness

 

Credit Facility

On March 5, 2021, we entered into a four-year senior secured credit agreement that includes 1) a revolving credit facility in an aggregate principal amount of up to $75,000, 2) a swingline loan in an aggregate principal amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500 at any time. The Credit Facility also provides for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender considerations (together, the available facilities are referred to as the "Credit Facility").

 

The Credit Facility bears interest at either a base rate or a Eurodollar rate, plus an applicable spread. We have recorded customary lender fees totaling $664 within prepaid expenses and other and other assets on the Consolidated Balance Sheets. The fees are being expensed on a straight line basis over the life of the agreement. 

 

The most restrictive financial covenants include a maximum leverage ratio of 5.50 to 1.00 for the first four testing dates on which the line of credit is outstanding; 5.0 to 1.0 on each of the fifth, sixth, seventh, and eighth testing dates; and 4.5 to 1.0 on each testing date following the eighth testing date, except that we may have a leverage ratio of 5.75 to 1.0 for a period of four consecutive quarters following a permitted acquisition. The Credit Agreement also stipulates a minimum fixed charge coverage ratio of 1.25 to 1.0. Other covenants include restrictions on our ability to incur debt, grant liens, make fundamental changes, engage in certain transactions with affiliates, or conduct asset sales. As of March 31, 2021, we were in compliance with all required covenants.

 

As of and throughout the year ended March 31, 2021, we had no outstanding balance under the Credit Agreement.

 

Convertible Notes

On August 12, 2019, we issued an aggregate principal amount of $172,500 of convertible senior notes (the “Notes). Net proceeds after deducting underwriting discounts and commissions and other related offering expenses payable approximated $167,070. The Notes mature on August 15, 2025, unless earlier repurchased or converted, and bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 of each year beginning February 15, 2020. 

 

The Notes are initially convertible at a rate of 3.5273 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $283.50 per share of common stock. Noteholders may convert their Notes at their option only in the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending December 31, 2019 (and only during such calendar quarter), if the last reported sale price per share of  our common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (ii) during the five consecutive business days immediately after any 10 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (iii) upon the occurrence of certain corporate events or distributions on our common stock, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the Notes) or a transaction resulting in the Company’s common stock converting into other securities or property or assets; and (iv) at any time from, and including, April 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. Our current intent is to settle conversions entirely in shares of common stock. We will reevaluate this policy from time to time as we receive conversion notices from noteholders.

 

If a fundamental change occurs prior to the maturity date, holders may require us to repurchase all or a portion of their Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased plus unpaid accrued interest. Noteholders who convert their Notes in connection with a notice of a redemption or a make-whole fundamental change may be entitled to a premium in the form of an increase in the conversion rate of the Notes.  

 

The circumstances required to allow noteholders to convert their Notes were met once during year ended March 31, 2021; however, none of the note holders exercised their option to convert. As of March 31, 2021, the Notes were not convertible as the circumstances for conversion were not satisfied on that date, thus classification of the Notes as a long-term liability on our Consolidated Balance Sheets as of March 31, 2021 remains appropriate. The if-converted value of the Notes did not exceed the principal balance as of March 31, 2021.

 

We accounted for the issuance of the Notes by bifurcating the Notes into liability and equity components. The carrying amount of the liability component was $141,427 upon issuance as calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature using the income approach. The implied interest rate (a Level 3 unobservable input) assuming no conversion option was estimated using the Tsiveriotis-Fernandez model; all other assumptions used in measuring the fair value represent factors market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The carrying amount of the equity component, representing the value of the conversion option, was $31,073 and was determined by deducting the fair value of the liability component from the par value of the Notes. The equity component is not remeasured provided it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (the debt discount) is being amortized to interest expense using the effective interest method over the six-year contractual term of the Notes.

 

Debt issuance costs related to the Notes include discounts and commissions payable to the initial purchasers of $5,175 and third party offering costs of $255. We allocated the total amount incurred to the liability and equity components of the Notes based on their relative values. Issuance costs attributable to the liability component were $4,452 and will be amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

 

The net carrying amount of the Notes was as follows:

 

  

March 31, 2021

  

March 31, 2020

 

Principal outstanding

 $172,500  $172,500 

Unamortized debt discount

  (23,497)  (28,205)

Unamortized debt issuance costs

  (3,328)  (4,017)

Net carrying value

 $145,675  $140,278 

 

The net carrying amount of the equity component of the Notes was as follows:

 

  

March 31, 2021

  

March 31, 2020

 

Amount allocated to conversion option

 $31,073  $31,073 

Less: allocated issuance costs and deferred taxes

  (8,338)  (8,338)

Equity component, net

 $22,735  $22,735 

 

We recognized interest expense on the Notes as follows:

 

  

Year Ended March 31,

 
  

2021

  

2020

 

Coupon interest expense at 1.375%

 $2,372  $1,502 

Amortization of debt discounts and issuance costs

  5,397   3,314 
Total $7,769  $4,816 

 

The effective interest rate of the liability component of the note is approximately 5.5%.

 

See "Recently Issued Accounting Pronouncements" in Note 1. "Description of Business and Summary of Significant Accounting Policies" for the impact our anticipated April 1, 2021 adoption of ASU 2020-06 is expected to have with respect to the Notes.