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Convertible Senior Notes | 3 Months Ended
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Mar. 31, 2021
Debt Disclosure [Abstract] |
Convertible Senior Notes | Convertible Senior Notes Adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. Under ASU 2020-06, convertible instruments with embedded conversion features, that are not required to be accounted for as a derivative or that do not result in a substantial premium, are no longer required to be separated from the host contract thereby eliminating the cash conversion feature model. Instead, these convertible debt instruments will be accounted for as a single liability measured at amortized cost under the traditional convertible debt accounting model. 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 2025 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 (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 three months ended March 31, 2021, in connection with our securities repurchase program, we extinguished $100.0 million aggregate principal amount of the 2025 notes in privately-negotiated transactions for aggregate consideration of $184.9 million, which was paid in cash. Upon execution, we concluded that the 2025 notes embedded conversion features no longer met the derivative scope exception and, as a result, initially recorded a derivative liability of $176.5 million, related to the fair value of extinguished 2025 notes. We settled the derivative liability for aggregate consideration of $184.9 million resulting in a $8.4 million loss on change in fair value. The carrying amount of the 2025 notes subject to the extinguishment was $98.3 million resulting in a $78.2 million loss on early extinguishment of debt. Additionally, during the three months ended March 31, 2021, we entered into 2025 notes capped call privately-negotiated transactions which terminated capped call transactions underlying 1,939,560 shares of our common stock and received aggregate cash proceeds of $23.9 million. Upon execution, we concluded that the capped call transactions no longer met the derivative scope exception and, as a result recorded a derivative liability of $22.6 million related to the fair value of terminated 2025 notes capped call transactions. We settled the capped call transactions for aggregate consideration of $23.9 million resulting in a $1.3 million gain on change in fair value. 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. During the three months ended March 31, 2021, we elected our option to redeem the remaining outstanding principal amount of 2023 notes, and therefore the 2023 notes continue to be convertible until May 18, 2021. We intend to settle the 2023 notes converted pursuant to our election of our option to redeem such 2023 notes through a combination of cash and shares on May 20, 2021. As a result, we have classified the remaining net carrying amount of 2023 notes as a current liability. Additionally, we entered into 2023 notes capped call privately negotiated transactions underlying the remaining outstanding principal amount of 2023 notes. 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 were not met and therefore the 2026 notes are not convertible. The first circumstance noted above allowing holders of the 2025 notes to convert was met during the three months ended March 31, 2021, December 31, 2020 and September 30, 2020 and therefore, the 2025 notes were and are convertible starting October 1, 2020 through June 30, 2021. Aside from the extinguishment of $100.0 million aggregate principal amount of the 2025 notes discussed above, we received immaterial requests for conversion of the 2025 notes which we settled in cash during the three months ended March 31, 2021 or intend to settle during the three months ending June 30, 2021. The 2023 notes were and are convertible starting April 1, 2019 through September 30, 2019 and from January 1, 2020 through May 18, 2021. During the three months ended March 31, 2021, we received $24.7 million aggregate principal amount of requests for conversion of the 2023 notes. $4.7 million aggregate principal amount was settled during the three months ended March 31, 2021 for aggregate consideration of $15.9 million, consisting of $4.7 million in cash and 126,003 shares of our common stock with a value of $11.2 million. $20.0 million aggregate principal amount was settled in April 2021 for aggregate consideration of $67.1 million, consisting of $20.0 million in cash and 529,611 shares of our common stock with a value of $47.1 million. During the three months ended March 31, 2021, we terminated 2023 notes capped call transactions underlying 86,826 shares of our common stock and received cash proceeds of $0.9 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. The net carrying amount of the notes is as follows (in thousands):
| March 31, 2021 |  | December 31, 2020 (1)
| 2026 Notes |  | 2025 Notes |  | 2023 Notes(2) |  | 2026 Notes |  | 2025 Notes |  | 2023 Notes
Principal | $ | 1,000,000 |  |  | $ | 699,995 |  |  | $ | 110,896 |  |  | $ | 1,000,000 |  |  | $ | 800,000 |  |  | $ | 115,576 |
Unamortized debt discount | — |  |  | — |  |  | — |  |  | (226,732) |  |  | (149,138) |  |  | (9,953) |
Unamortized issuance costs | (14,294) |  |  | (11,755) |  |  | (1,402) |  |  | (11,338) |  |  | (10,248) |  |  | (1,245) |
Net carrying amount | $ | 985,706 |  |  | $ | 688,240 |  |  | $ | 109,494 |  |  | $ | 761,930 |  |  | $ | 640,614 |  |  | $ | 104,378 |
(1) As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method. (2) As noted above, during the three months ended March 31, 2021, we elected our option to redeem the remaining outstanding principal amount of 2023 notes and we have classified the remaining net carrying amount of 2023 notes as a current liability. The following table sets forth the total interest expense recognized related to the notes (in thousands):
| Three Months Ended March 31,
| 2021 |  | 2020 (1)
| 2026 Notes |  | 2025 Notes |  | 2023 Notes |  | 2025 Notes |  | 2023 Notes
Contractual interest expense | $ | — |  |  | $ | 237 |  |  | $ | 66 |  |  | $ | 249 |  |  | $ | 215 |
Amortization of debt discount | — |  |  | — |  |  | — |  |  | 8,841 |  |  | 3,125 |
Amortization of issuance costs | 650 |  |  | 808 |  |  | 168 |  |  | 608 |  |  | 372 |
Total interest expense | $ | 650 |  |  | $ | 1,045 |  |  | $ | 234 |  |  | $ | 9,698 |  |  | $ | 3,712 |
(1) As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method. 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, and as of March 31, 2021, cover 9,297,800, 13,576,823 and 4,201,633 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 condensed 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.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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