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Convertible Senior Notes | 12 Months Ended
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Dec. 31, 2020
Debt Disclosure [Abstract] |
Convertible Senior Notes | Convertible Senior Notes In August 2020, we issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (2026 notes). The aggregate principal amount of the 2026 notes includes $100 million from the initial purchasers fully exercising their option to purchase additional notes. In March 2019, we issued $700 million in aggregate principal amount of 0.125% convertible senior notes due in 2025 (2025 notes) and in April 2019, the initial purchasers fully exercised their option to purchase $100 million of additional notes for aggregate total principal amount of $800 million. In April 2018, we issued $345 million in aggregate principal amount of 0.25% convertible senior notes due in 2023 (the 2023 notes and together with the 2026 notes and the 2025 notes, the notes). The aggregate principal amount of the 2023 notes includes $45 million from the initial purchasers fully exercising their option to purchase additional notes. The notes were issued in private placements to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The total net proceeds from the notes are as follows (in thousands):
| 2026 Notes |  | 2025 Notes |  | 2023 Notes
Principal amount | $ | 1,000,000 |  |  | $ | 800,000 |  |  | $ | 345,000 |
Less initial purchasers’ discount | (15,000) |  |  | (18,998) |  |  | (8,625) |
Less other issuance costs | (904) |  |  | (822) |  |  | (757) |
Net proceeds | $ | 984,096 |  |  | $ | 780,180 |  |  | $ | 335,618 |
During the year ended December 31, 2020, in connection with our securities repurchase program, we extinguished $57.4 million aggregate principal amount of the 2023 notes in privately-negotiated transactions for an aggregate consideration of $149.6 million, which was paid in cash. Of the $149.6 million consideration, we allocated $52.6 million and $97.0 million to the liability and equity components of the extinguished 2023 notes, respectively. The fair value of the liability component was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the liability component of the 2023 notes subject to the extinguishment was $51.6 million resulting in a $1.0 million loss on early extinguishment which was recorded in other income, net on our consolidated statements of operations. Additionally, we terminated 2023 notes capped call transactions underlying 2,131,354 shares of our common stock and received cash proceeds of $19.7 million. During the year ended December 31, 2020, in connection with our issuance of the 2026 notes, we exchanged $172.0 million aggregate principal amount of the 2023 notes in privately-negotiated transactions for an aggregate consideration of $501.7 million, consisting of $174.6 million in cash and 4,182,320 shares of our common stock with a value of $327.1 million. Of the $501.7 million consideration, we allocated $156.1 million and $345.6 million to the liability and equity components of the exchanged 2023 notes, respectively. The fair value of the liability component was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the liability component of the 2023 notes subject to the exchange was $152.8 million resulting in a $3.3 million loss on early extinguishment of debt which was recorded in other income, net on our consolidated statements of operations. Additionally, we terminated 2023 notes capped call transactions underlying 6,380,815 shares of our common stock and received cash proceeds of $57.4 million. As of December 31, 2020, $115.6 million of aggregate principal amount of the 2023 notes remain outstanding and 4,288,459 shares remain underlying the 2023 notes capped call transactions. The notes are our senior, unsecured obligations and are governed by indenture agreements by and between us and Wells Fargo Bank, National Association, as Trustee (the indentures). The 2026 notes bear no interest and will mature on September 1, 2026, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2025 notes bear interest of 0.125% per year which is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The 2025 notes will mature on March 15, 2025, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2023 notes bear interest of 0.25% per year which is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018. The 2023 notes will mature on May 15, 2023, unless repurchased, redeemed or converted in accordance with their terms prior to such date. Each $1,000 principal amount of the 2026 notes will initially be convertible into 9.2978 shares of our common stock. This is equivalent to an initial conversion price of approximately $107.55 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2025 notes will initially be convertible into 19.3956 shares of our common stock. This is equivalent to an initial conversion price of approximately $51.56 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2023 notes will initially be convertible into 37.1051 shares of our common stock. This is equivalent to an initial conversion price of approximately $26.95 per share, which is subject to adjustment in certain circumstances. Prior to the close of business on the business day immediately preceding June 1, 2026 for the 2026 notes, December 15, 2024 for the 2025 notes and February 15, 2023 for the 2023 notes, the notes are convertible at the option of holders only upon satisfaction of the following circumstances: •during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 for the 2026 notes, June 30, 2019 for the 2025 notes, and June 30, 2018 for the 2023 notes, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the respective conversion price for the notes on each applicable trading day; •during the five-business day period 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 of our common stock and the conversion rate on each such trading day; •if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or •upon the occurrence of certain specified corporate events described in the indentures. On or after June 1, 2026 for the 2026 notes, December 15, 2024 for the 2025 notes and February 15, 2023 for the 2023 notes until the close of business on the second scheduled trading day immediately preceding the respective maturity dates, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the notes may be settled in shares of our common stock, cash or a combination of cash and shares of our common stock, at our election. If we undergo a fundamental change, as defined in the indentures, prior to the respective maturity dates, subject to certain conditions, holders of the notes may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if specific corporate events, described in the indentures, occur prior to the respective maturity dates, we will also increase the conversion rate for a holder who elects to convert their notes in connection with such specified corporate events. The conditions allowing holders of the 2026 notes to convert have not been met and therefore the 2026 notes are not convertible. The first circumstance allowing holders of the 2025 notes to convert was met during the three months ended December 31, 2020 and September 30, 2020 and therefore, the 2025 notes are convertible starting October 1, 2020 through March 31, 2021. During the year ended December 31, 2020, we received an immaterial request for conversion of the 2025 notes which we intend to settle in cash during the three months ended March 31, 2021. The first circumstance allowing holders of the 2023 notes to convert was met during the three months ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, June 30, 2019, and March 31, 2019 and therefore, the 2023 notes were and are convertible starting April 1, 2019 through September 30, 2019 and from January 1, 2020 through March 31, 2021. During the year ended December 31, 2020, aside from the exchange of $172.0 million and extinguishments of $57.4 million aggregate principal amount of the 2023 notes discussed above, we received immaterial requests for conversion of the 2023 notes which we settled in cash during the year ended December 31, 2020 and intend to settle during the three months ended March 31, 2021. After December 31, 2020 and through the date of issuance of this Annual Report on Form 10-K, we received $24.7 million aggregate principal amount requests for conversion of the 2023 Notes, which we intend to settle through a combination of cash and shares of our common stock during the first half of 2021. In accounting for their issuance, we separated the notes into liability and equity components. The carrying amount of the liability components for the 2026 notes, 2025 notes and 2023 notes of approximately $758.7 million, $588.0 million and $280.8 million, respectively, was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity components for the 2026 notes, 2025 notes and 2023 notes of approximately $241.3 million, $212.0 million and $64.2 million, respectively, representing the conversion option, was determined by deducting the carrying amount of the liability components from the principal amount of the notes. This difference between the principal amount of the notes and the liability components represents the debt discount, presented as a reduction to the notes on our consolidated balance sheets, and is amortized to interest expense using the effective interest method over the remaining term of the notes. The equity components of the notes are included in additional paid-in capital on our consolidated balance sheets and are not remeasured as long as they continue to meet the conditions for equity classification. We incurred issuance costs related to the 2026 notes, 2025 notes and 2023 notes of approximately $15.9 million, $19.8 million, and $9.4 million, respectively. In accounting for the issuance costs, we allocated the total amount incurred to the liability and equity components using the same proportions determined above for the notes. Issuance costs attributable to the liability components for the 2026 notes, 2025 notes and 2023 notes of approximately $12.1 million, $14.6 million and $7.6 million, respectively, were recorded as debt issuance cost, presented as a reduction to the notes on our consolidated balance sheets, and are amortized to interest expense using the effective interest method over the term of the notes. The issuance costs attributable to the equity components for the 2026 notes, 2025 notes and 2023 notes were approximately $3.8 million, $5.3 million and $1.7 million, respectively, and were recorded as a reduction to the equity component included in additional paid-in capital. The net carrying amount of the liability component of the notes is as follows (in thousands):
| December 31, 2020 |  |  |  | December 31, 2019
| 2026 Notes |  | 2025 Notes |  | 2023 Notes |  |  |  | 2025 Notes |  | 2023 Notes
Principal amount | $ | 1,000,000 |  |  | $ | 800,000 |  |  | $ | 115,576 |  |  |  |  | $ | 800,000 |  |  | $ | 345,000 |
Unamortized debt discount | (226,732) |  |  | (149,138) |  |  | (9,953) |  |  |  |  | (184,698) |  |  | (42,280) |
Unamortized issuance costs | (11,338) |  |  | (10,248) |  |  | (1,245) |  |  |  |  | (12,691) |  |  | (5,028) |
Net carrying amount (liability) | $ | 761,930 |  |  | $ | 640,614 |  |  | $ | 104,378 |  |  |  |  | $ | 602,611 |  |  | $ | 297,692 |
The net carrying amount of the equity component of the notes is as follows (in thousands):
| December 31, 2020 |  |  |  | December 31, 2019
| 2026 Notes |  | 2025 Notes |  | 2023 Notes |  |  |  | 2025 Notes |  | 2023 Notes
Debt discount for conversion option | $ | 241,300 |  |  | $ | 212,000 |  |  | $ | 21,505 |  |  |  |  | $ | 212,000 |  |  | $ | 64,193 |
Issuance costs | (3,838) |  |  | (5,253) |  |  | (586) |  |  |  |  | (5,253) |  |  | (1,749) |
Net carrying amount (equity) | $ | 237,462 |  |  | $ | 206,747 |  |  | $ | 20,919 |  |  |  |  | $ | 206,747 |  |  | $ | 62,444 |
As of December 31, 2020, the remaining lives of the 2026 notes, 2025 notes and 2023 notes were approximately 5.7 years, 4.2 years and 2.4 years, respectively. Based on the closing price of our common stock of $90.33 on December 31, 2020, the if-converted value of the 2026 notes was approximately $839.9 million, which was less than the principal amount of $1.0 billion by approximately $160.1 million, the if-converted value of the 2025 notes was approximately $1,401.6 million, which exceeds the principal amount of $800 million by approximately $601.6 million, and the if-converted value of the 2023 notes was approximately $387.4 million, which exceeds the principal amount of $115.6 million by approximately $271.8 million. The effective interest rates of the liability components for the 2026 notes, 2025 notes and 2023 notes are 4.63%, 5.40% and 4.34%, respectively, and each is based on the interest rate of similar debt instruments, at the time of our offering, that do not have associated convertible features. The following table sets forth the total interest expense recognized related to the notes (in thousands):
| Years Ended December 31,
| 2020 |  |  |  | 2019
| 2026 Notes |  | 2025 Notes |  | 2023 Notes |  |  |  | 2025 Notes |  | 2023 Notes
Contractual interest expense | $ | — |  |  | $ | 1,001 |  |  | $ | 691 |  |  |  |  | $ | 769 |  |  | $ | 862 |
Amortization of debt discount | 14,568 |  |  | 35,561 |  |  | 10,073 |  |  |  |  | 27,302 |  |  | 12,536 |
Amortization of issuance costs | 728 |  |  | 2,443 |  |  | 1,200 |  |  |  |  | 1,876 |  |  | 1,488 |
Total interest expense | $ | 15,296 |  |  | $ | 39,005 |  |  | $ | 11,964 |  |  |  |  | $ | 29,947 |  |  | $ | 14,886 |
Capped Call Transactions Concurrently with the offering of the 2026 notes, 2025 notes and 2023 notes, we used $103.4 million, $97.2 million and $39.2 million, respectively, of the net proceeds to enter into privately negotiated capped call transactions which are expected to generally reduce or offset potential dilution to holders of our common stock upon conversion of the notes and/or offset the potential cash payments we would be required to make in excess of the principal amount of any converted notes. The capped call transactions automatically exercise upon conversion of the notes and cover 9,297,800, 15,516,480 and 4,288,459 shares of our common stock for the 2026 notes, 2025 notes and 2023 notes, respectively, and are intended to effectively increase the overall conversion price from $107.55 to $156.44 per share for the 2026 notes, $51.56 to $79.32 per share for the 2025 notes and $26.95 to $40.68 per share for the 2023 notes. The effective increase in conversion price as a result of the capped call transactions serves to reduce potential dilution to holders of our common stock and/or offset the cash payments we are required to make in excess of the principal amount of any converted notes. As these transactions meet certain accounting criteria, they are recorded in stockholders’ equity as a reduction of additional paid-in capital on our consolidated balance sheets and are not accounted for as derivatives. The fair value of the capped call instrument is not remeasured each reporting period. The cost of the capped call is not expected to be deductible for tax purposes. Impact to Earnings per Share The shares underlying the notes have no impact to diluted earnings per share until the average price of our common stock during the period exceeds the conversion price for the 2026 notes, 2025 notes and 2023 notes of $107.55, $51.56 and $26.95 per share, respectively, and the conversion circumstances have been met. Under the treasury stock method, in periods we report net income, we are required to include the effect of additional shares that may be issued under the notes when the average price of our common stock exceeds each respective conversion price. However, as a result of the capped call transactions described above, there will be no economic dilution from the 2026 notes, 2025 notes and 2023 notes up to $156.44, $79.32 and $40.68, respectively, as exercise of the capped call instruments will reduce any dilution from the notes that would have otherwise occurred when the average price of our common stock exceeds the conversion price.

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