Long-Term Debt |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-Term Debt | Long-Term Debt Long-term debt consisted of the following:
As of September 30, 2023, the Company’s debt arrangements comprised the Initial Notes (as defined below) issued to the Investor pursuant to the Securities Purchase Agreement and the Company’s indenture dated as of August 14, 2023 (the “Base Indenture”) between the Company and U.S. Bank Trust Company, National Association, a national banking association, as trustee (the “Trustee”), as supplemented by a first supplemental indenture dated as of August 14, 2023, between the Company and the Trustee (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). See Senior Secured Convertible Notes section below for a full description of these debt arrangements. The Notes contain customary affirmative and negative covenants (including covenants that limit the Company’s ability to incur debt, make investments, transfer assets, engage in certain transactions with affiliates and merge with other companies, in each case, other than those permitted by the Notes) and events of default. Furthermore, the Company will be required to maintain a minimum of $30 million of unrestricted cash and cash equivalents and to maintain minimum levels of quarterly revenue through the quarter ended June 30, 2026 specified in the Notes. As described below, as of the issuance date of the unaudited condensed consolidated financial statements, the Company was not in compliance with the minimum revenue covenant for the quarter ended September 30, 2023.
On August 14, 2023, the Company used approximately $22 million of the net proceeds from the offering of the Initial Notes to repay all outstanding obligations under the Loan Agreement originally entered into with Silicon Valley Bank (“SVB”), which included the Company’s prior revolving credit line and equipment loans. With the payoff of the debt, the Loan Agreement was terminated and is no longer available to the Company. The Company recorded a loss on debt extinguishment of $0.3 million related to the termination of the Loan Agreement.
The Company amortizes deferred financing costs over the life of the applicable indebtedness. As of September 30, 2023 and December 31, 2022, the remaining unamortized balance of deferred financing costs was $3.9 million and $0.2 million, respectively, and was included in Debt — current portion on the balance sheets.
Senior Secured Convertible Notes — On August 10, 2023, the Company entered into the Securities Purchase Agreement with the Investor pursuant to which the Company agreed to issue and sell in an offering up to $105 million aggregate principal amount of Notes.
On August 14, 2023 (the “Initial Closing Date”), the Company issued $70 million aggregate principal amount of the Notes (the “Initial Notes”) to the Investor. In addition, the Company has granted the Investor the right to purchase up to an additional $35 million aggregate principal amount of the Notes (the “Additional Notes”) so long as the notice to exercise such option is provided no later than the first anniversary of the Initial Closing Date.
The Notes bear interest at 6.00% per annum, payable quarterly in cash on January 1, April 1, July 1 and October 1 of each year, commencing on October 1, 2023, and will mature on August 1, 2026. Beginning on January 1, 2024, the Investor may elect to require the Company to repay principal on the Notes quarterly pursuant to the terms of the Notes at a repayment price (the “Repayment Price”) equal to 115% of the Notes principal balance repaid plus accrued interest. The repayments are calculated at rate of 12.5% of 115% of the principal balance and will reduce the principal balance of the Notes by the amount repaid divided by a rate of 1.15. The end of term maturity balance is the principal balance of the Note multiplied by 115%. The effective interest rate was 39.9% for the three and nine months ended September 30, 2023.
The Notes include terms that provide the Investor seniority over other unsecured obligations in any settlement negotiations in the event of liquidation. Additionally, the Notes contain redemption features in the event of default or a fundamental change in control that would make the Notes immediately callable at a predetermined rate as described in the Notes. The redemption features are settled in cash. As of September 30, 2023, the Company has included the effect of an event of default in the valuation of the Notes and related debt derivatives. As of September 30, 2023, the Company has not included the effect of a fundamental change in control in the valuation of the Notes and related debt derivatives, as the Company believes the likelihood of this occurring is remote. The Company will continue to monitor the likelihood of these events in future reporting periods.
The Notes are convertible based on a conversion rate of 644.7453 shares of the Company’s common stock per $1,000 principal amount of Notes as of September 30, 2023 (equivalent to a conversion price of approximately $1.55 per share of the Company’s common stock).
The Company incurred deferred financing costs of $4.1 million related to the Initial Closing, which were capitalized upon issuance and are being accreted over the term of the indebtedness using the effective interest rate method and are included in “Interest expense” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Additionally, the Company is accreting discounts of $28.6 million and capitalizing to the carrying value of the Notes over the term of the indebtedness using the effective interest rate method. The $28.6 million discount includes $13.9 million related to its debt derivatives, $10.5 million related to the Repayment Price, $0.1 million related to lender fees paid, and $4.1 million in third-party fees. For further information on the valuation of the debt derivative discount, see Note 10, Equity Instruments below.
As of the issuance date of the unaudited condensed consolidated financial statements, the Company was not in compliance with the Notes’ minimum revenue covenant for the quarter ended September 30, 2023 and, as a result, the Investor has the right to declare the Notes due and payable in cash in an amount equal to the Event of Default Acceleration Amount (as defined in the Notes). The Company has been negotiating a proposed amendment to the Notes with the Investor, which the Company anticipates completing in November 2023; however, the Company may not be able to obtain a waiver or an amendment on favorable terms or at all. If a waiver or amendment is not agreed to by the Investor, the Company does not have sufficient capital to satisfy the outstanding principal and interest due.
Revolving Credit Line — For the three months ended September 30, 2023, the Company did not draw from the revolving credit facility and for the nine months ended September 30, 2023, the Company drew $14.0 million on the revolving credit facility. As of September 30, 2023, the Company had no outstanding balance or remaining revolving credit line availability due to the repayment and termination of the Loan Agreement in connection with the issuance of the Initial Notes.
Interest on the balance of the revolving credit line was payable monthly at an annual rate of the greater of (1) the Wall Street Journal Prime Rate plus 0.25% and (2) 5.0% when the Company’s Adjusted Quick Ratio (“AQR”) was at least 1.50 to 1.0, and at an annual rate of the greater of (1) the Wall Street Journal Prime Rate plus 0.75% and (2) 5.50% when the Company did not maintain such AQR. The effective interest rate was 12.0% and 5.8% for the three months ended September 30, 2023 and 2022, respectively. The effective interest rate was 15.8% and 5.2% for the nine months ended September 30, 2023 and 2022, respectively. Interest expense for the three months ended September 30, 2023 includes an additional $0.3 million for final payments made during the extinguishment of the SVB loans.
Equipment Loan — As of September 30, 2023, the Company had no outstanding balance or remaining equipment loan availability due to the repayment and termination of the Loan Agreement in connection with the issuance of the Initial Notes.
The effective interest rate was 18.1% and 5.5% for the three months ended September 30, 2023 and 2022, respectively. The effective interest rate was 12.6% and 4.1% for the nine months ended September 30, 2023 and 2022, respectively. Interest expense for the three months ended September 30, 2023 includes an additional $0.1 million for final payments made under the Loan Agreement.
The future minimum aggregate payments for the above borrowings are equal to the quarterly payments made using the Repayment Price, beginning are as follows as of September 30, 2023:
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