XML 26 R16.htm IDEA: XBRL DOCUMENT v3.24.3
LONG TERM DEBT
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
LONG TERM DEBT
NOTE 9. LONG TERM DEBT

16.00% Notes

On August 8, 2024, the Company entered into the Note Purchase Agreement with certain investors named therein pursuant to which the Company issued $15.0 million aggregate principal amount of the 16.00% Notes.

The carrying value of the 16.00% Notes consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024December 31, 2023
Principal$15,347 $— 
Accretion of exit premium380 — 
Unamortized debt issuance costs(732)— 
Net carrying amount$14,995 $— 

The 16.00% Notes will mature on December 31, 2025, and bear interest at a rate of 16.00% per annum, payable in kind. Interest on the 16.00% Notes is payable in kind by the Company quarterly in arrears on the last business day of each March, June, September and December, beginning on September 30, 2024.

Interest expense related to the Company’s 16.00% Note obligation consisted of the following for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Contractual coupon interest$348 $— $348 $— 
Amortization of premium, discount and issuance costs, net416 — 416 — 
Total interest expense$764 $— $764 $— 

The effective interest rate on the 16.00% Notes is 80.9%. The Company may at any time redeem the 16.00% Notes, in whole or in part, at a redemption price equal to the sum of the outstanding principal, all accrued and unpaid interest, and an applicable Exit Premium (as defined below).

Contemporaneously with the Note Purchase Agreement, the Company also entered into an indenture,
dated August 8, 2024 (the “16.00% Notes Indenture”), with a trustee that provides that the 16.00% Notes will be secured by a super-priority security interest in the same collateral that secures the Company’s outstanding 5.00% Notes. See Note 10, Convertible Notes fro additional detail.

The 16.00% Notes Indenture contains customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the trustee, by notice to the Company, or the holders of the 16.00% Notes representing at least a majority in aggregate principal amount of the outstanding 16.00% Notes, by notice to the Company and the trustee, may declare 100% of the principal of, the premium (including the Exit Premium) and all accrued and unpaid interest on, all of the then outstanding 16.00% Notes to be due and payable immediately.

Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal, the premium (including the Exit Premium (as defined below)), and all accrued and unpaid interest on, all of the then outstanding 16.00% Notes will automatically become immediately due and payable.

Upon the occurrence of a change of control, the Company will be required to make an offer to repurchase all or any portion of the outstanding 16.00% Notes at a price in cash equal to 100% of the aggregate principal amount of the 16.00% Notes repurchased, plus the premium (including the Exit Premium), and all accrued and unpaid interest to, but excluding, the date of repurchase.

Upon the occurrence of any repayment (including at maturity or in connection with a change of control or an asset sale) or redemption or acceleration upon any event of default, the Company is required to pay the investors a fee equal to a certain percentage of the aggregate principal amount of the 16.00% Notes then outstanding plus accrued and unpaid interest thereon, which fee shall be equal to 30.00% if any such event occurs on or prior to June 30, 2025 and equal to 42.50% if any such event occurs on July 1, 2025 and thereafter (the “Exit Premium”). The Company also contemporaneously entered into other customary ancillary agreements in connection with the issuance of the 16.00% Notes.

The 16.00% Notes Indenture also contains various affirmative, negative and financial covenants that, among other things, may restrict the ability of the Company and its subsidiaries to incur additional indebtedness, create certain liens, merge or consolidate with another entity, pay dividends or repurchase stock, and sell all or substantially all of their assets.The 16.00% Notes Indenture also contains various affirmative, negative and financial covenants that, among other things, may restrict the ability of the Company and its subsidiaries to incur additional indebtedness, create certain liens, merge or consolidate with another entity, pay dividends or repurchase stock, and sell all or substantially all of their assets.

Repayment of the 16.00% Notes inclusive of the Exit Premium resulted in the Notes being issued at a substantial discount. Accordingly, the associated prepayment contingencies were evaluated as an embedded feature of the Notes that requires bifurcation as a derivative liability. The fair value of the prepayment derivative liability was calculated using the “with and without” methodology at loan issuance. The “with and without” methodology involves valuing the term loan on an as-is basis and then valuing the term loan without the embedded derivative. As the Exit Premium is due on repayment regardless of contingency, there is nominal difference in the value of the term loan using the “with and without” methodology, and the derivative liability was determined to have no value as of issuance and as of September 30, 2024.
NOTE 10. CONVERTIBLE NOTES

The Company’s outstanding convertible notes consisted of the 5.00% Notes as of September 30, 2024, and the 2.50% Notes and the 5.00% Notes as of December 31, 2023.

As of September 30, 2024 and December 31, 2023, the convertible note obligations were classified as follows in the condensed consolidated balance sheets (in thousands):
September 30, 2024December 31, 2023
2.50% Notes
$— $726 
5.00% Notes
$43,010 $36,102 
Total convertible notes$43,010 $36,828 
Current portion of convertible notes$— $726 
Convertible notes, non-current$43,010 $36,102 

Interest expense related to the Company’s convertible note obligations consisted of the following for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Contractual coupon interest$865 $838 $2,564 $1,730 
Amortization of premium, discount and issuance costs, net1,947 1,367 5,262 2,060 
Total interest expense on convertible notes$2,812 $2,205 $7,826 $3,790 

2.50% Notes

The carrying value of the 2.50% Notes was included in current portion of convertible notes and consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024December 31, 2023
Outstanding principal$— $726 
Unamortized debt issuance— — 
Net carrying amount$— $726 

In March 2018, the Company issued $150.0 million aggregate principal amount of 2.50% Notes. In connection with the offering of the 2.50% Notes, the Company granted the initial purchasers of the notes a 13-day option to purchase up to an additional $22.5 million aggregate principal amount of the 2.50% Notes on the same terms and conditions. In April 2018, the option was partially exercised, which resulted in $21.5 million of additional proceeds, for total proceeds of $171.5 million. The Company incurred issuance costs related to the issuance of the 2.50% Notes which were amortized over the five-year contractual term of the 2.50% Notes using the effective interest method until the maturity date of the 2.50% Notes. The 2.50% Notes matured on March 15, 2023 and became due and payable.

In August 2022, the Company entered into an exchange agreement (the “August 2022 Exchange Agreement”) with the Schuler Trust. Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of 2.50% Notes held by it for (a) the Secured Note with an aggregate principal amount of $34.9 million and (b) a warrant to acquire the Company’s common stock (the “2022 Warrant”) at an exercise price of $21.20 per share (the “Exercise Price”). See Note 11, Related-Party Transactions for additional information.
In March 2023, the Company entered into the Forbearance Agreement with the Ad Hoc Noteholder Group holding approximately 85% of the Company’s outstanding 2.50% Notes, the Trustee and any other owner of the 2.50% Notes who executed and delivered to the Company a joinder to the Forbearance Agreement (collectively with the Trustee and Ad Hoc Noteholder Group, the “Counterparties”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the 2.50% Notes Indenture in connection with certain events of default under the 2.50% Notes Indenture, such as (i) failure to timely pay in full the principal of any 2.50% Note when due and payable on March 15, 2023, (ii) failure to pay any interest on any 2.50% Note when due and payable, (iii) failure to convert any 2.50% Notes, (iv) default under any agreement with outstanding indebtedness for money borrowed in excess of $15.0 million and (v) any other breach, default or event of default under the 2.50% Notes Indenture arising from the failure of the Company to timely pay in full the principal of any 2.50% Note when due and payable on the maturity date for the 2.50% Notes. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on April 21, 2023, the date of the Restructuring Support Agreement.

The holders of the 2.50% Notes that joined the Forbearance Agreement received a fee (the “Forbearance Premium”) equal to $5.00 per $1,000 principal amount of the 2.50% Notes held by such party, by executing and delivering a joinder to the Forbearance Agreement to the Company. During the year ended December 31, 2023, the Ad Hoc Noteholder Group received $0.2 million in Forbearance Premiums, which were capitalized and amortized as interest expense during the period commencing on March 13, 2023 through March 31, 2023.

Restructuring Support Agreement and June 2023 Restructuring Transactions

In April 2023, the Company entered into the Restructuring Support Agreement with certain holders of the 2.50% Notes, the holder of the Secured Note and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure. In June 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement whereby the Company:
•Exchanged approximately $55.9 million aggregate principal amount of the 2.50% Notes for approximately $56.9 million aggregate principal amount of newly issued 5.00% Notes, which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022, of $1.0 million;
•Issued and sold an additional $10.0 million aggregate principal amount of 5.00% Notes;
•Amended and repurchased the Secured Note, plus accrued interest, by issuing approximately 3.4 million shares of the Company’s common stock;
•Issued approximately 0.4 million shares of the Company’s common stock upon conversion of all of the Company’s outstanding Series A Preferred Stock;
•Amended the securities purchase agreement that the Company entered into with the Schuler Trust in March 2022 (the “March 2022 Securities Purchase Agreement”) and issued and sold approximately 0.5 million shares of the Company’s common stock for proceeds of $4.0 million; and
•Entered into a purchase agreement with the Schuler Trust (the “Schuler Purchase Obligation”) pursuant to which the Schuler Trust was required, prior to December 15, 2023 (which was subsequently amended and extended to February 15, 2024), to either purchase an aggregate $10.0 million of the Company’s common stock from the Company or to backstop an underwritten public offering by the Company of its common stock for aggregate proceeds of $10.0 million, at the Company’s option.
Further details regarding the Secured Note, March 2022 Securities Purchase Agreement, Series A Preferred Stock, and Schuler Purchase Obligation are included in Note 11, Related-Party Transactions.

The exchange of the 2.50% Notes for the 5.00% Notes, as described above, and associated accrued interest was accounted for as an extinguishment of debt under ASC 470-50-40. Under extinguishment accounting, the 2.50% Notes were derecognized and the new instruments, which included the 5.00% Notes and a bifurcated Conversion Option were recorded at their respective fair values. The extinguishment of the 2.50% Notes resulted in a loss of $6.6 million for the year ended December 31, 2023. See further discussion of the 5.00% Notes below.

On April 2, 2024, the Company settled the outstanding balance of its 2.50% Notes. The payment of approximately $0.8 million satisfied all outstanding principal and accrued interest remaining on the 2.50% Notes.
5.00% Notes

The carrying value of the 5.00% Notes consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024December 31, 2023
Outstanding principal at par$69,243 $67,634 
Unamortized debt premium4,500 5,408 
Unamortized debt discount(28,509)(34,267)
Unamortized debt issuance costs(2,224)(2,673)
Net carrying amount$43,010 $36,102 

Upon issuance of the 5.00% Notes in June 2023, the Company recorded approximately $56.9 million aggregate principal in its condensed consolidated balance sheets. In addition, the Company issued an additional $10.0 million aggregate principal amount of 5.00% Notes, for cash proceeds with certain existing note holders as part of the Restructuring Transactions. On the December 15, 2026 maturity date, outstanding principal will be due for all remaining outstanding 5.00% Notes.

The 5.00% Notes bear interest at a rate of 5.00% per annum. The Company pays interest on the 5.00% Notes by payment-in-kind (“PIK”), through the issuance of additional 5.00% Notes (“5.00% PIK Notes”). The amount is paid to holders by increasing the principal amount of each outstanding 5.00% Note by an amount equal to the interest payable for the applicable interest period. The Company calculates PIK interest semi-annually on June 15 and December 15, on a compound basis based on the stated rate of 5.00%.

The 5.00% Notes are secured by substantially all of the assets of the Company and its subsidiaries.

Redeeming the 5.00% Notes before June 15, 2025 could trigger a “Make-Whole Fundamental Change” as defined in the indenture governing the 5.00% Notes (the “5.00% Notes Indenture”). On or after June 15, 2025, the Company may, at its option, redeem for cash all or a portion of the 5.00% Notes.

Upon issuance of the 5.00% Notes, each holder has a Conversion Option, which represented the right at their option, to convert any portion of their notes at an initial conversion rate of 138.88889 shares of common stock per $1,000 of principal amount (the “Initial Conversion Rate”). Effective October 18, 2023, the Initial Conversion Rate was to be adjusted to a conversion rate calculated based on a conversion price of $7.20 per share of common stock plus 50% of the difference between the Post-Closing VWAP (as defined in the 5.00% Notes Indenture) and $7.20 (if such difference is a positive number), provided that in no event will the adjusted conversion rate be lower than 120.48193 per $1,000 principal amount of the 5.00% Notes, based on a conversion price of $8.30 per share of common stock. The Company evaluated the conversion rate per the terms outlined above and determined the Initial Conversion Rate of 138.88889 shares of common stock per $1,000 principal amount will continue to be the conversion rate through the remaining term of the 5.00% Notes (the “Fixed Conversion Rate”). The Company cannot require the holders of the 5.00% Notes to convert at any time but when a holder exercises their Conversion Option, the Company can settle in cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election.

Management determined the Conversion Option met the derivative bifurcation criteria under ASC 815 at inception through October 17, 2023, the date at which the conversion rate became fixed. During that period the derivative instrument was bifurcated and adjusted to fair value through earnings, using Level 3 inputs, at each reporting date with a final mark-to-market adjustment once the Conversion Option became fixed at the end of the day on October 17, 2023 and no longer met the bifurcation criteria. The fair value of the Conversion Option and a derivative liability of $38.2 million as of the transaction date was recorded as a debt issuance discount at inception. The Company also incurred issuance costs of $3.0 million. The debt premium, debt discount and debt issuance costs are being amortized using the effective interest method over the 3.5 year contractual term of the 5.00% Notes. The effective interest rate on the 5.00% Notes is 27.6%. As of September 30, 2024, the number of shares of common stock issuable upon conversion of the 5.00% Notes was 9.6 million shares, based on the Fixed Conversion Rate.
Holders of the 5.00% Notes who convert their notes in connection with a Make-Whole Fundamental Change are, under certain circumstances, entitled to an increase in the conversion rate. If a fundamental change occurs at any time prior to the maturity date of the 5.00% Notes, each holder will have the right, at such holder’s option, to require the Company to repurchase for cash all of such holder’s 5.00% Notes, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.
In August 2023, certain holders of the 5.00% Notes opted to convert approximately $0.7 million aggregate principal amount of 5.00% Notes for approximately 94,000 shares of the Company’s common stock at the Initial Conversion Rate (the “Initial Conversion Rate Conversions”).

Subsequent Conversion Option transactions were at the Fixed Conversion Rate (the “Fixed Conversion Rate Conversions”) and include $0.3 million aggregate principal amount of 5.00% Notes converted for approximately 39,000 shares of the Company’s common stock for the year ended December 31, 2023 and $0.1 million aggregate principal amount of 5.00% Notes converted for approximately 11,000 shares of the Company’s common stock for the nine months ended September 30, 2024.

Under ASC 470-50-40, the Initial Conversion Rate Conversions qualified as an extinguishment. These conversions of 5.00% Notes were included within the bifurcated Conversion Option classified as a derivative liability. Upon the Initial Conversion Rate Conversions, the 5.00% Notes and the derivative liability were derecognized at their carrying amounts and the common stock was measured at its then-current fair value, with the difference recorded as a gain on the extinguishment of the applicable liability. For the nine months ended September 30, 2023, the Company reported no gain (loss) on extinguishment of exchanged convertible notes. The value of the shares of common stock issued in connection Fixed Conversion Rate Conversions was recorded to contributed capital.

The net carrying value of the 5.00% Notes derecognized as part of the Initial Conversion Rate Conversions, the 2023 Fixed Conversion Rate Conversions and 2024 Fixed Conversion Rate Conversions was $0.3 million, $0.1 million, and $0.1 million, respectively. The carrying amount of the derivative liability, which was carried at fair value, derecognized as part of the Initial Conversion Rate Conversions was $0.4 million. The Initial Conversion Rate Conversions resulted in a gain on extinguishment of debt of $0.1 million for the year ended December 31, 2023.

The 5.00% Notes represent an instrument measured at fair value on a non-recurring basis using Level 3 inputs. The estimated fair value of the 5.00% Notes on June 9, 2023, the initial measurement date, was $38.2 million, which included a $6.0 million debt premium.

As of September 30, 2024 and December 31, 2023, the 5.00% Notes are carried at amortized cost with an estimated fair value of $51.6 million and $50.8 million, respectively. The table below summarizes the significant inputs used to estimate the fair value of the 5.00% Notes as of September 30, 2024 and December 31, 2023:

September 30, 2024December 31, 2023
Coupon rate5.00 %5.00 %
Term (years)2.33
Volatility53.00 %55.00 %
Risk-free rate3.69 %4.02 %
Discount yield24.70 %25.00 %

The volatility used to estimate the fair value of the 5.00% Notes is an unobservable input. As volatility is an estimate, there is a range of values that could be considered appropriate. Changes to this input could impact the fair value reported.

As of September 30, 2024 and December 31, 2023, $1.0 million and $0.1 million of accrued interest, respectively, related to the 5.00% Notes is included on the condensed consolidated balance sheets.