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Debt
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Debt Debt
Revolving Credit Facility
On December 30, 2020, the Company entered into a three-year, $50.0 million, revolving loan and standby letter of credit facility agreement, which was amended and restated on December 3, 2021 in connection with the closing of the Business Combination, further amended and restated on December 15, 2022, and amended on each of June 29, 2023 and September 26, 2023 (i.e., the Revolving Credit Facility). Among other things, the Revolving Credit Facility provided for the issuance of up to $15.5 million of standby letters of credit, which were issued during the three months ended March 31, 2021 in favor of certain of the Company’s landlords. The Company had outstanding letters of credit of $15.5 million under the Revolving Credit Facility at December 31, 2023 (none at September 30, 2024, as described below).
On February 21, 2024, in connection with the Disposition discussed within Note 19 herein, the Company terminated the Revolving Credit Facility, except for the $15.5 million in letters of credit outstanding. However, during the second quarter of 2024, the Company terminated the $15.5 million in letters of credit outstanding under the Revolving Credit Facility, resulting in the full termination of the Revolving Credit Facility.
Standby Letters of Credit
During the second quarter of 2024, the Company entered into an agreement with a financial institution for standby letters of credit in the amount of $15.5 million, which were issued during the second quarter of 2024 in favor of certain of the Company’s landlords and remain outstanding as of September 30, 2024.
Convertible Notes
In June 2021, in connection with the entry into the merger agreement pursuant to which the Business Combination was consummated, the Company entered into subscription agreements with certain investors to sell $150.0 million aggregate principal amount of unsecured convertible notes due 2026 (i.e., the Notes). In connection with the closing of the Business Combination, the Company issued, and those investors purchased, the Notes, which are governed by an indenture, dated December 3, 2021, which was amended on each of July 10, 2023, February 28, 2024, and October 28, 2024. The Notes are convertible into shares of our Class A common stock at a conversion price of approximately $50.00 and bear interest at a rate of 8.50% per annum, payable semi-annually. The Notes mature on December 3, 2026. As of September 30, 2024, the Notes were convertible into approximately 2,375,347 shares of our Class A common stock.
Each holder of a Note has the right under the indenture governing the Notes to require the Company to repurchase, for cash, all or a portion of the Notes held by such holder (i) at any time on or after December 3, 2024 (i.e., the third anniversary of the issuance of the Notes), at a repurchase price equal to the principal amount plus accrued and unpaid interest, or (ii) upon the occurrence of a fundamental change (as defined in the indenture) before the maturity date (i.e., December 3, 2026), at a repurchase price equal to 101% of the principal amount plus accrued and unpaid interest. Pursuant to the third amendment of the indenture on October 28, 2024, the period of advance notice to the Company required for an optional redemption was amended so that (i) if such notice (the “Put Notice”) is given on November 22, 2024, such holder shall have the right to require the Company to repurchase such holder’s Notes on December 3, 2024, and (ii) if such notice is after November 22, 2024, such holder shall have the right to require the Company to repurchase such holder's Notes on the fifth business day following such notice. The Company expects the holders of the Notes to each deliver a Put Notice on November 22, 2024 (or soon thereafter), upon which $118.8 million of outstanding principal amount and approximately $4.7 million of accrued interest thereon will become due and payable. Prior to such payment date, the Company will be required to renegotiate the terms of the indenture governing the Notes with the holders of the Notes and / or seek alternative financing to repay the Notes. There is no assurance that the Company will be successful in either case, which would trigger an Event of Default under the indenture governing the Notes and allow the holders of the Notes to accelerate the maturity of the Notes and require repayment. The Company currently does not have sufficient cash on hand or projected cash flows to fund the repayment of the Notes. Uncertainty concerning the repayment of the Notes could cause significant volatility in the trading of our Class A common stock.
In addition, a failure to comply with the other provisions of the indenture governing our Notes could trigger an event of default under the indenture, which would also allow the holders of the Notes to accelerate the maturity of the Notes and require the Company to repay the Notes prior to their maturity. Moreover, the Company will be required to repay the Notes, in cash, at their maturity, unless earlier converted, redeemed, or repurchased.
The Company may, at its election, force conversion of the Notes after December 3, 2024 (i.e., after the third anniversary of the issuance of the Notes), subject to a holder’s prior right to convert and the satisfaction of certain other conditions, if the volume-weighted average trading price of our Class A common stock is greater than or equal to 130% of the conversion price for more than 20 trading days during a period of 30 consecutive trading days, which has yet to occur. In the event that a holder of the Notes elects to convert its Notes prior to December 3, 2024, the Company will be obligated to pay an amount in cash equal to 12 month’s interest declining ratably on a monthly basis to zero month’s interest, in each case, on the aggregate principal amount of the Notes so converted. Without limiting a holder’s right to convert the Notes at its option, interest will cease to accrue on the Notes during any period in which the Company would otherwise be entitled to force conversion of the Notes, but is not permitted to do so solely due to the failure of a trading volume condition specified in the indenture governing the Notes.
The indenture governing the Notes includes restrictive covenants that, among other things, limit the Company’s ability to incur additional debt or liens, make restricted payments or investments, dispose of significant assets, transfer specified intellectual property, or enter into transactions with affiliates. Additionally, pursuant to the second amendment of the indenture on February 28, 2024, done in connection with the Disposition, 95% of the net proceeds of future asset sales must be used to repay the Notes.
On March 7, 2024, in connection with the Disposition, the Company repaid approximately $30.9 million of the Notes. In connection with the repayment, the Company determined the modified debt terms were not substantially different from the original terms and applied modification accounting. The Company derecognized approximately 20.6% of the unamortized debt discount and issuance costs, which resulted in an approximately $4.9 million loss on partial debt extinguishment that was attributed to the discontinued operation. Additionally, on June 21, 2024, the Company repaid approximately $0.3 million of the Notes in connection with an asset sale (refer to Note 19 herein for additional details). As of September 30, 2024, there was approximately $118.8 million aggregate principal amount of Notes outstanding.
In accounting for the Notes, the Company bifurcated a derivative liability representing the conversion option, with a fair value at issuance of $31.6 million. To measure the fair value of the derivative liability, the Company compared the calculated value of the Notes with the indicated value of the host instrument, defined as the straight-debt component of the Notes. The difference between the value of the straight-debt host instrument and the fair value of the Notes resulted in the value of the derivative liability. The value of the straight-debt host instrument was estimated based on a binomial lattice model, excluding the conversion option and the make-whole payment upon conversion. The derivative liability is remeasured at each reporting date with the resulting gain or loss recorded in change in fair value of derivative liability within the condensed consolidated statements of operations. As of December 31, 2023, the Company determined the fair value of the derivative liability was immaterial as (i) the closing share price of our Class A common stock was $1.00 as of December 29, 2023, and (ii) each holder of a Note has the right to require the Company to repurchase, for cash, all or a portion of the Notes held by such holder at any time on or after December 3, 2024 (i.e., the third anniversary of the issuance of the Notes), at a repurchase price equal the principal amount plus accrued and unpaid interest. The fair value of the embedded derivative continues to be immaterial as of September 30, 2024.
Interest expense on the Notes is recognized at an effective interest rate of 16% and totaled $4.0 million and $3.8 million for the three months ended September 30, 2024 and 2023, respectively, and $11.5 million and $11.2 million for the nine months ended September 30, 2024 and 2023, respectively, of which amortization of the debt discount and issuance costs comprised $1.5 million and $1.3 million for the three months ended September 30, 2024 and 2023, respectively, and $4.0 million and $3.6 million for the nine months ended September 30, 2024 and 2023, respectively. The effective interest rate of 16% was remeasured in connection with the aforementioned modification accounting and assumes a maturity date of December 3, 2026.
The net carrying amount of the Notes as of September 30, 2024 and December 31, 2023 was:
September 30, 2024December 31, 2023
Principal outstanding$118,767 $150,000 
Unamortized debt discount and issuance costs(15,838)(25,023)
Net carrying value$102,929 $124,977 
The fair value of the Notes was approximately $99.2 million and $112.8 million as of September 30, 2024 and December 31, 2023, respectively. The fair value of the Notes was estimated using Level 3 inputs.