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Convertible Notes
 9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]  
Convertible Notes
NOTE 10. CONVERTIBLE NOTES

The Notes are the Company's senior unsecured obligations and mature on March 15, 2023 (the “Maturity Date”), unless earlier repurchased or converted into shares of common stock under certain circumstances described below. Upon conversion of the Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company’s election. The initial conversion rate of the Notes is 32.3428 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $30.92 per share of common stock, subject to adjustment. The Company pays interest on the Notes semi-annually in arrears on March 15 and September 15 of each year.

The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the aggregate face value of the Notes. The liability component will be accreted up to the face value of the Notes, which will result in additional non-cash interest expense being recognized through the Maturity Date. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

The Company incurred issuance costs related to the issuance of the Notes, which were recorded to long-term debt and contributed capital, respectively. The issuance costs recorded as long-term debt on the condensed consolidated balance sheet are being amortized over the five-year contractual term of the Notes using the effective interest method. The effective interest rate on the Notes, including accretion of the Notes to par and debt issuance cost amortization, is 11.52%.

The Notes include customary terms and covenants, including certain events of default upon which the Notes may be due and payable immediately. Holders have the option to convert the Notes in multiples of $1,000 principal amount at any time prior to December 15, 2022, but only in the following circumstances:

•if the Company’s stock price exceeds 130% of the conversion price for 20 of the last 30 trading days of any calendar quarter after June 30, 2018;

•during the 5 business day period after any 5 consecutive trading day period in which the Notes’ trading price is less than 98% of the product of the common stock price times the conversion rate; or
•the occurrence of certain corporate events, such as a change of control, merger or liquidation.

At any time on or after December 15, 2022, a holder may convert its Notes in multiples of $1,000 principal amount. Holders of the Notes who convert their Notes in connection with a make-whole fundamental change (as defined in the Indenture pursuant to which the Notes were issued) are, under certain circumstances, entitled to an increase in the conversion rate. In addition, in the event of a fundamental change or event of default prior to the Maturity Date, holders will, subject to certain conditions, have the right, at their option, to require the Company to repurchase for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the repurchase date.

The Notes at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30,December 31,
20212020
Outstanding principal$125,500 $171,500 
Unamortized debt discount(14,524)(28,524)
Unamortized debt issuance(898)(1,765)
Net carrying amount of the liability component$110,078 $141,211 

Interest expense for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Contractual coupon interest
$1,024 $1,072 $3,168 $3,216 
Amortization of the debt discount
2,987 2,666 8,711 7,775 
Amortization of debt issuance costs
185 165 539 481 
Total interest expense on convertible notes$4,196 $3,903 $12,418 $11,472 

As of September 30, 2021 and December 31, 2020, no Notes were convertible pursuant to the original terms.

During the three months ended September 30, 2021, the Company entered into separate exchange agreements with certain holders of the Notes. Under the terms of the exchange agreements, such holders agreed to exchange Notes held by them for shares of the Company’s common stock (the “Exchange Transactions”). During the three months ended September 30, 2021, certain holders of the Notes exchanged $46.0 million (the “Exchanged Principle”) in aggregate principal amount of Notes held by them for 5,945,718 shares of the Company's common stock pursuant to their respective exchange agreement. See Note 17, Stockholders’ Equity for additional information.

The Company accounted for the Exchange Transactions as an extinguishment of debt. During the three months ended September 30, 2021 the Company repurchased the Exchanged Principle for $34.5 million of common stock. This exchange transaction resulted in a net gain of $5.8 million reflected in other income (expense), net in our condensed consolidated statement of operations for the three and nine months ended September 30, 2021. The Extinguishment Transactions resulted in a reduction of $5.6 million of unamortized debt discount and issuance cost for the three months ended September 30, 2021. The Company incurred $0.8 million of reacquisition costs, which was determined to be a component of liability and was recorded as an offset to gain on extinguishment of debt during the three and nine months ended September 30, 2021. After giving effect to such exchanges, the total principal amount of the Notes outstanding as of September 30, 2021 was $125.5 million.

On October 15, 2021, a holder of the Notes exchanged $5.0 million in aggregate principal amount of Notes held by it for 657,256 shares of the Company's common stock pursuant to its respective exchange agreement, see Note 20, Subsequent Events.
In connection with the Notes issuance, the Company entered into a prepaid forward stock repurchase transaction (“Prepaid Forward”) with a financial institution (“Forward Counterparty”). Pursuant to the Prepaid Forward, the Company used approximately $45.1 million of the net proceeds from its issuance of the Notes to fund the Prepaid Forward. The aggregate number of shares of the Company’s common stock underlying the Prepaid Forward was approximately 1,858,500. The expiration date for the Prepaid Forward is March 15, 2023, although it may be settled earlier in whole or in part. Upon settlement of the Prepaid Forward, at expiration or upon any early settlement, the Forward Counterparty will deliver to the Company the number of shares of common stock underlying the Prepaid Forward or the portion thereof being settled early. The shares purchased under the Prepaid Forward are treated as treasury stock and not outstanding for purposes of the calculation of basic and diluted earnings per share, but will remain outstanding for corporate law purposes, including for purposes of any future stockholders’ votes, until the Forward Counterparty delivers the shares underlying the Prepaid Forward to the Company. The Company’s Prepaid Forward hedge transaction exposes the Company to credit risk to the extent that its counterparty may be unable to meet the terms of the transaction. The Company mitigates this risk by limiting its counterparty to a major financial institution. The Prepaid Forward was not impacted by the exchange of Notes described.