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Note 6 - Convertible Senior Notes

12 Months Ended

Dec. 31, 2023

Note 6—Convertible Senior Notes

On January 1, 2021, we adopted ASU 2020-06, Debt—Debt with Conversion Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) on a modified retrospective basis. ASU 2020-06 removes the separate liability and equity accounting for our convertible senior notes. Consequently, we now account for our convertible senior notes wholly as debt. Upon adoption, we removed the equity component allocated to debt issuance costs increasing convertible senior notes and shareholders’ equity by $75.5 million.

In December 2023, we repurchased $9.1 million par value of our 2026 Notes realizing a non-cash gain on debt extinguishment of $4.1 million to our consolidated statement of operations and comprehensive loss in the current year. On November 15, 2023, we also extinguished at par the $95.0 million outstanding principal amount on our 2023 Notes.

Convertible senior notes outstanding at December 31, 2023 and 2022, respectively, are as follows:

	*Balance as of December 31, 2023*
	*2023 Notes*		*2026 Notes*			*Total*
	(In thousands)
Principal amount	$	—	$	215,924		$	215,924
Unamortized debt issuance costs		—		(2,769	)		(2,769	)
Total convertible senior notes, net	$	—	$	213,155		$	213,155

Fair value of outstanding convertible senior notes ⁽¹⁾	$	—	$	131,444

	*Balance as of December 31, 2022*
	*2023 Notes*			*2026 Notes*			*Total*
	(In thousands)
Principal amount	$	95,000		$	225,030		$	320,030
Unamortized debt issuance costs		(619	)		(4,124	)		(4,743	)
Total convertible senior notes, net	$	94,381		$	220,906		$	315,287

Fair value of outstanding convertible senior notes ⁽¹⁾	$	92,031		$	118,141

(1) The fair value is classified as Level 3 due to the limited trading activity for the convertible senior notes.

2023 Convertible Senior Notes

The 2023 Notes accrued interest at an annual rate of 6.25% per annum. The 2023 Notes matured on November 15, 2023, and the $95.0 million outstanding principal and related accrued interest were paid at that time.

The following table sets forth total interest expense recognized in connection with the 2023 Notes:

	*Year Ended December 31,*
	*2023*		*2022*		*2021*
	(In thousands)
Contractual interest expense	$	5,195	$	5,938	$	5,938
Amortization of debt issuance costs		619		663		618
Total interest expense	$	5,814	$	6,601	$	6,556

2026 Convertible Senior Notes

The 2026 Notes are unsecured and accrue interest at an annual rate of 5.25% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes mature on February 15, 2026, unless earlier purchased, redeemed or converted in accordance with their terms.

The initial conversion rate is 54.0906 shares of our common stock per $1,000 of note principal (equivalent to an initial conversion price of approximately $18.4875 per share of common stock), which equals approximately 12.2 million shares issuable upon conversion, subject to adjustment in certain circumstances.

The 2026 Notes are convertible at the option of the holders on or after November 15, 2025 at any time prior to the close of business on February 12, 2026, the second scheduled trading day immediately before the stated maturity date of February 15, 2026. Additionally, holders may convert their 2026 Notes at their option at specified times prior to the maturity date only if:

(1) during any calendar quarter, beginning after September 30, 2020, that the last reported sale price per share of our common stock exceeds 130% of the conversion price of the 2026 Notes for each of at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2) during the five consecutive business days immediately after any five-consecutive-trading-day period (such five-consecutive-trading-day period, the “measurement period”) in which the trading price per $1,000 principal amount of 2026 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;

(3) there is an occurrence of one or more certain corporate events or distributions of our common stock; or

(4) we call the 2026 Notes for redemption.

We will settle any conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate(s).

Subject to the satisfaction of certain conditions, we may redeem in whole or in part the 2026 Notes at our option beginning August 15, 2023 through the 50th scheduled trading day immediately before the maturity date at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date. The 2026 Notes are subject to redemption only if certain requirements are satisfied, including that the last reported sale price per share of our common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice and (ii) the trading day immediately before the date we send such notice.

In order to reduce the dilutive impact or potential cash expenditure associated with the conversion of the 2026 Notes, we entered into capped call transactions in connection with the issuances of the 2026 Notes (the "2026 Capped Call"). The 2026 Capped Call will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes, the number of shares of common stock underlying the 2026 Notes when our common stock is trading within the range of approximately $18.49 and $26.10. However, should the market price of our common stock exceed the $26.10 cap, then the conversion of the 2026 Notes would have an additional dilutive impact or may require a cash expenditure to the extent the market price exceeds the cap price. The 2026 Capped Call will expire on various dates over the 50-trading-day period ranging from December 2, 2025 to February 12, 2026, if not exercised earlier. The 2026 Capped Call is a separate transaction and not part of the terms of the 2026 Notes and was executed separately from the issuance of the 2026 Notes. The amount paid for the 2026 Capped Call was recorded as a reduction to additional paid-in capital in the consolidated balance sheet. As of December 31, 2023, approximately 12.2 million shares remained outstanding under the 2026 Capped Call.

Further, we concluded the 2026 Capped Call qualifies for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its balance sheet. Consequently, the fair value of the 2026 Capped Call of $23.2 million is classified as equity, not accounted for as derivatives, and will not be subsequently remeasured.

The unamortized debt issuance costs of $2.8 million as of December 31, 2023 will be amortized to interest expense at an effective interest rate of 5.9% over the remaining term.

The following table sets forth interest expense recognized related to the 2026 Notes:

	*Year Ended December 31,*
	*2023*		*2022*		*2021*
	(In thousands)
Contractual interest expense	$	11,774	$	11,814	$	11,814
Amortization of debt issuance costs		1,355		1,167		1,078
Total interest expense	$	13,129	$	12,981	$	12,892