Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Debt

v3.20.4
Debt
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Debt Debt
The following table summarizes long-term debt, net, at December 31, 2020 and 2019 (in thousands):
 
  2020 2019
1.25% Convertible Senior Notes due 2025
Principal $ 201,250  $ — 
Unamortized debt discount (32,592) — 
Unamortized debt issuance costs (538) — 
Total 1.25% Convertible Senior Notes due 2025, net
168,120  — 
Term loan
Principal $ —  $ 97,500 
Unamortized debt issuance costs —  (671)
Total term loan, net $ —  $ 96,829 
Equipment financing obligations $ 3,808  $ 8,631 
Total debt $ 171,928  $ 105,460 
Less: Current portion of long-term debt —  (5,000)
Less: Current portion of equipment financing obligations (2,841) (5,432)
Total long-term debt, net $ 169,087  $ 95,028 

At December 31, 2020, the estimated fair value (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $320.9 million. At December 31, 2020 and 2019, the carrying value of the Company’s equipment financing obligations approximated fair value based on the current market conditions for similar instruments. At December 31, 2019, the carrying value of the Company’s term loan approximated fair value based on the current market conditions for similar instruments. 
2025 Convertible Senior Notes
On May 4, 2020 (the “Closing Date”), the Company completed the sale of $201.3 million of convertible senior notes with a stated interest rate of 1.25% and a maturity date of May 1, 2025 (the “2025 Convertible Notes”), unless earlier converted, redeemed, or repurchased. The 2025 Convertible Notes were issued at a discounted price of 97% of their principal amount. The total net proceeds from the issuance of the 2025 Convertible Notes and exercise of the Over-allotment Option were approximately $194.5 million, which includes approximately $6.9 million of discounts, commissions and offering expenses paid by the Company. On May 4, 2020, the Company entered into an indenture (the “Indenture”), with U.S. Bank National Association, as trustee (the “Trustee”), governing the 2025 Convertible Notes.
Prior to February 1, 2025, noteholders may convert their 2025 Convertible Notes at their option, only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the 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 conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2025 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after February 1, 2025 until the close of business on the business day immediately preceding the maturity date, noteholders may convert their 2025 Convertible Notes at any time, regardless of the foregoing circumstances.
Upon conversion, the Company will pay or deliver, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at its election. The initial conversion rate for the 2025 Convertible Notes is 27.5198 shares of common stock per $1,000 in principal amounts of 2025 Convertible Notes, equivalent to an initial conversion price of approximately $36.34 per share of common stock. The conversion rate is subject to adjustment as described in the Indenture. In addition, following certain corporate events that occur prior to the maturity date as described in the Indenture, the Company will pay a make-whole premium by increasing the conversion rate for a holder who elects to convert its 2025 Convertible Notes in
connection with such a corporate event in certain circumstances. The value of the 2025 Convertible Notes, if-converted, exceeds its principal amount by $96.9 million based on a closing stock price of $53.84 on December 31, 2020. For the year ended December 31, 2020 the Company excluded 3,722,504 shares in diluted weighted average common shares outstanding for the if-converted impact of the 2025 Convertible Notes from the diluted net income per share calculation as the shares would have an anti-dilutive effect. See Note 16. Net Income Per Share, for further details on the impact of the 2025 Convertible Notes on net income per share.
The Company may not redeem the 2025 Convertible Notes prior to May 6, 2023. The Company may redeem for cash all or any portion of the 2025 Convertible Notes, at its option, on or after May 6, 2023 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date of notice by the Company of redemption at a redemption price equal to 100% of the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Convertible Notes.
If an event involving bankruptcy, insolvency or reorganization events with respect to the Company occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2025 Convertible Notes then outstanding will immediately become due and payable. If any other default event occurs and is continuing, then noteholders of at least 25% of the aggregate principal amount of the 2025 Convertible Notes then outstanding, by notice to the Company, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2025 Convertible Notes then outstanding to become due and payable immediately. If the Company undergoes a “fundamental change” as defined in the Indenture, then noteholders may require the Company to repurchase their 2025 Convertible Notes at a cash repurchase price equal to the principal amount of the 2025 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.
The 2025 Convertible Notes are the Company’s senior, unsecured obligations and will be equal in right of payment with its existing and future senior, unsecured indebtedness, senior in right of payment to its existing and future indebtedness that is expressly subordinated to the 2025 Convertible Notes and effectively junior to its existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The 2025 Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of its subsidiaries.
For the year ended December 31, 2020, the interest expense recognized on the 2025 Convertible Notes for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs includes $1.7 million, $4.4 million and $0.07 million, respectively. The effective interest rate on the 2025 Convertible Notes is 5.5%, which includes the interest on the 2025 Convertible Notes and amortization of the debt discount and debt issuance costs. Interest on the 2025 Convertible Notes began accruing upon issuance and is payable semi-annually.
The 2025 Convertible Notes are accounted for as separate liability and equity components. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The equity component of the 2025 Convertible Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2025 Convertible Notes and the fair value of the liability of the 2025 Convertible Notes on the date of issuance. At December 31, 2020 the equity component of the conversion option was $30.9 million and the associated tax liability was $7.5 million for a net equity component of $23.4 million. The excess of the principal amount of the 2025 Convertible Notes over the carrying amount of the liability component represents a debt discount that is amortized to interest expense over the term of the 2025 Convertible Notes under the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.
Prior Senior Secured Credit Agreement
On May 4, 2020, the Company used $97.5 million of the net proceeds from the 2025 Convertible Notes to repay all outstanding amounts owed thereunder and terminated its Senior Secured Credit Agreement (the “Prior Senior Secured Credit Agreement”).
On June 27, 2019 (the “Prior Closing Date”), the Company entered into the Prior Senior Secured Credit Agreement with PNC Bank National Association (“PNC”), as administrative agent, and the lenders party thereto. The Prior Senior Secured Credit Agreement provided for a $100 million revolving credit facility (the “ Prior Revolving Credit Facility”), a $100 million term loan facility (the “Prior Term Loan Facility”), and a $50 million delayed draw term loan (the “ Prior Delayed Draw Term Loan”).
Borrowings under the Prior Senior Secured Credit Agreement bore interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either (1) the Adjusted LIBOR rate for the relevant interest period, as defined within the agreement (2) an alternate base rate determined by reference to the greatest of (a) the federal funds rate for the relevant interest period plus 0.5% per annum, (b) the prime lending rate of PNC and (c) the daily LIBOR rate plus 1% per annum, or (3) a combination of (1) and (2). The applicable margin ranged from 1.25% to 2.25% for LIBOR loans and 0.25% to 1.25% for base rate loans, in each case based on NeoGenomics’ Consolidated Leverage Ratio, (as defined in the Prior Senior Secured Credit
Agreement). Interest on borrowings under the Prior Senior Secured Credit Agreement was payable on the last day of each month, in the case of each base rate loan, and on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans. The Company previously entered into interest rate swap agreements to hedge against changes in the variable rate for a portion of its debt. See Note 10. Derivative Instruments and Hedging Activities, for more information on these instruments.
The Prior Revolving Credit Facility included a $10 million swing loan sublimit, with swing loans bearing interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Prior Revolving Credit Facility was due and payable on June 27, 2024 or such earlier date as the obligations under the Prior Senior Secured Credit Agreement was due and payable pursuant to the terms of the Prior Senior Secured Credit Agreement. No amounts were outstanding under the Prior Revolving Credit Facility as of December 31, 2019.
On December 31, 2019, the Company had current outstanding borrowings under the Prior Term Loan Facility of approximately $5 million, and long-term outstanding borrowings of approximately $91.8 million, net of unamortized debt issuance costs of $0.7 million. In association with the early termination of the Prior Senior Secured Credit Agreement, the Company incurred a loss on the extinguishment of debt of $1.4 million.
In addition to paying interest on outstanding principal under the Prior Senior Secured Credit Agreement, the Company was required to pay a commitment fee in respect of the unutilized portion of the commitments under the Prior Revolving Credit Facility and the Prior Delayed Draw Term Loan. The commitment fee rate ranged from 0.15% to 0.35% depending on NeoGenomics’ Consolidated Leverage Ratio. The Company also paid customary letter of credit and agency fees.
The Prior Term Loan Facility contained various covenants including entering into certain indebtedness; ability to incur liens and encumbrances; make certain restricted payments, including paying dividends on its equity securities or payments to redeem, repurchase or retire its equity securities; enter into certain burdensome agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into certain sale and leaseback transactions; engage in transactions with its affiliates, and materially alter the business it conducts. In addition, the Company was required to meet certain maximum leverage ratios and fixed charge coverage ratios as of the end of each fiscal quarter.
Equipment Financing Obligations
The Company has entered into loans with various banks to finance the purchase of laboratory equipment, office equipment and leasehold improvements. The obligations mature at various dates through 2022 and the weighted average interest rate under such loans was approximately 4.91% as of December 31, 2020 and 4.64% as of December 31, 2019.
Maturities of Long-Term Debt
Maturities of long-term debt at December 31, 2020 are summarized as follows (in thousands):
 
 
1.25% Convertible Senior Notes
Equipment Financing Obligations Total Long-Term Debt
2021 $ —  $ 2,841  $ 2,841 
2022 —  916  916 
2023 —  51  51 
2024 —  —  — 
2025 168,658  —  168,658 
Total Debt 168,658  3,808  172,466 
Less: Debt issuance costs (538) —  (538)
Less: Current portion of long-term debt —  (2,841) (2,841)
Long-term debt, net $ 168,120  $ 967  $ 169,087