CHEESECAKE FACTORY INC [CAKE] Filings

10-Q 1 cake-20231003x10q.htm FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20574

THE CHEESECAKE FACTORY INCORPORATED

(Exact name of registrant as specified in its charter)


Delaware		51-0340466
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)



26901 Malibu Hills Road
Calabasas Hills, California		91301
(Address of principal executive offices)		(Zip Code)

(818) 871-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of Each Class	Trading Symbol	Name of Each Exchange on which Registered
Common Stock, par value $.01 per share	CAKE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 30, 2023, 50,773,123 shares of the registrant’s Common Stock, $.01 par value per share, were outstanding.

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THE CHEESECAKE FACTORY INCORPORATED

INDEX

			Page Number

PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheets (Unaudited)	1
		Condensed Consolidated Statements of Income/(Loss) (Unaudited)	2
		Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited)	3
		Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	4
		Condensed Consolidated Statements of Cash Flows (Unaudited)	6
		Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4.	Controls and Procedures	29

PART II	OTHER INFORMATION		29
	Item 1.	Legal Proceedings	29
	Item 1A.	Risk Factors	29
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 5.	Other Items	30
	Item 6.	Exhibits	31

Signatures			32

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	October 3,		January 3,
	2023		2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	63,987	$	114,777
Accounts and other receivables		70,236		105,511
Income taxes receivable		23,923		21,522
Inventories		58,672		55,559
Prepaid expenses		55,558		48,399
Total current assets		272,376		345,768
Property and equipment, net		777,669		746,051
Other assets:
Intangible assets, net		251,529		251,524
Operating lease assets		1,307,345		1,268,986
Other		167,971		162,891
Total other assets		1,726,845		1,683,401
Total assets	$	2,776,890	$	2,775,220

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	53,392	$	66,638
Gift card liabilities		180,200		219,808
Operating lease liabilities		144,488		139,099
Other accrued expenses		240,440		231,133
Total current liabilities		618,520		656,678

Long-term debt		469,543		468,032
Operating lease liabilities		1,246,819		1,233,497
Other noncurrent liabilities		120,364		125,010
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued and outstanding		—		—
Common stock, $.01 par value, 250,000,000 shares authorized; 107,097,507 shares issued and 50,872,707 shares outstanding at October 3, 2023 and 106,323,117 shares issued and 51,173,597 shares outstanding at January 3, 2023		1,071		1,063
Additional paid-in capital		906,458		887,485
Retained earnings		1,217,271		1,170,078
Treasury stock inclusive of excise tax, 56,224,800 and 55,149,520 shares at cost at October 3, 2023 and January 3, 2023, respectively		(1,802,090)		(1,765,641)
Accumulated other comprehensive loss		(1,066)		(982)
Total stockholders’ equity		321,644		292,003
Total liabilities and stockholders’ equity	$	2,776,890	$	2,775,220

See the accompanying notes to the condensed consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

(In thousands, except per share data)

(Unaudited)


	Thirteen		Thirteen		Thirty-Nine		Thirty-Nine
	Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
	October 3, 2023		September 27, 2022		October 3, 2023		September 27, 2022

Revenues	$	830,210	$	784,001	$	2,562,494	$	2,410,354

Costs and expenses:
Food and beverage costs		194,733		197,774		602,051		590,457
Labor expenses		301,663		293,040		919,340		893,322
Other operating costs and expenses		229,534		217,009		687,459		643,844
General and administrative expenses		54,209		50,324		162,766		149,638
Depreciation and amortization expenses		22,837		22,651		69,124		66,764
Impairment of assets and lease termination expenses		48		—		1,637		313
Acquisition-related contingent consideration, compensation and amortization expenses		1,414		1,081		3,890		2,920
Preopening costs		6,742		4,327		15,800		9,038
Total costs and expenses		811,180		786,206		2,462,067		2,356,296
Income/(loss) from operations		19,030		(2,205)		100,427		54,058
Interest and other expense, net		(2,027)		(1,315)		(6,069)		(3,906)
Income/(loss) before income taxes		17,003		(3,520)		94,358		50,152
Income tax (benefit)/provision		(942)		(1,122)		5,688		3,731
Net income/(loss)	$	17,945	$	(2,398)	$	88,670	$	46,421

Net income/(loss) per share:
Basic	$	0.37	$	(0.05)	$	1.83	$	0.93
Diluted (Note 10)	$	0.37	$	(0.05)	$	1.80	$	0.92

Weighted-average shares outstanding:
Basic		48,281		49,653		48,489		50,124
Diluted		48,985		49,653		49,197		50,708

See the accompanying notes to the condensed consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)


	Thirteen		Thirteen		Thirty-Nine		Thirty-Nine
	Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
	October 3, 2023		September 27, 2022		October 3, 2023		September 27, 2022

Net income/(loss)	$	17,945	$	(2,398)	$	88,670	$	46,421
Other comprehensive loss:
Foreign currency translation adjustment		(411)		(724)		(84)		(769)
Other comprehensive loss		(411)		(724)		(84)		(769)
Total comprehensive income/(loss)	$	17,534	$	(3,122)	$	88,586	$	45,652

See the accompanying notes to the condensed consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

For the thirty-nine weeks ended October 3, 2023:


										Accumulated
				Additional						Other
	Common Stock			Paid-in		Retained		Treasury		Comprehensive
	Shares	Amount		Capital		Earnings		Stock		Loss/(Income)		Total
Balance, January 3, 2023	106,323	$	1,063	$	887,485	$	1,170,078	$	(1,765,641)	$	(982)	$	292,003
Net income	—		—		—		28,050		—		—		28,050
Foreign currency translation adjustment	—		—		—		—		—		147		147
Cash dividends declared common stock, net of forfeitures, $0.27 per share	—		—		—		(13,929)		—		—		(13,929)
Stock-based compensation	628		6		5,938		—		—		—		5,944
Treasury stock purchases	—		—		—		—		(12,376)		—		(12,376)
Balance, April 4, 2023	106,951	$	1,069	$	893,423	$	1,184,199	$	(1,778,017)	$	(835)	$	299,839
Net income	—		—		—		42,675		—		—		42,675
Foreign currency translation adjustment	—		—		—		—		—		180		180
Cash dividends declared common stock, net of forfeitures, $0.27 per share	—		—		—		(13,759)		—		—		(13,759)
Stock-based compensation	92		1		6,369		—		—		—		6,370
Treasury stock purchases, inclusive of excise tax	—		—		—		—		(9,402)		—		(9,402)
Balance, July 4, 2023	107,043	$	1,070	$	899,792	$	1,213,115	$	(1,787,419)	$	(655)	$	325,903
Net income	—		—		—		17,945		—		—		17,945
Foreign currency translation adjustment	—		—		—		—		—		(411)		(411)
Cash dividends declared common stock, net of forfeitures, $0.27 per share	—		—		—		(13,789)		—		—		(13,789)
Stock-based compensation	55		1		6,666		—		—		—		6,667
Treasury stock purchases, inclusive of excise tax	—		—		—		—		(14,671)		—		(14,671)
Balance, October 3, 2023	107,098	$	1,071	$	906,458	$	1,217,271	$	(1,802,090)	$	(1,066)	$	(321,644)

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For the thirty-nine weeks ended September 27, 2022:


										Accumulated
				Additional						Other
	Common Stock			Paid-in		Retained		Treasury		Comprehensive
	Shares	Amount		Capital		Earnings		Stock		(Loss)/Income		Total
Balance, December 28, 2021	105,366	$	1,054	$	862,758	$	1,169,150	$	(1,702,509)	$	(287)	$	330,166
Net income	—		—		—		23,163		—		—		23,163
Foreign currency translation adjustment	—		—		—		—		—		255		255
Cash dividends declared common stock, net of forfeitures	—		—		—		22		—		—		22
Stock-based compensation	608		6		5,569		—		—		—		5,575
Common stock issued under stock-based compensation plans	55		—		83		—		—		—		83
Treasury stock purchases	—		—		—		—		(3,938)		—		(3,938)
Balance, March 29, 2022	106,029	$	1,060	$	868,410	$	1,192,335	$	(1,706,447)	$	(32)	$	355,326
Net income	—		—		—		25,656		—		—		25,656
Foreign currency translation adjustment	—		—		—		—		—		(300)		(300)
Cash dividends declared common stock, net of forfeitures, $0.27 per share	—		—		—		(14,260)		—		—		(14,260)
Stock-based compensation	(40)		—		6,141		—		—		—		6,141
Common stock issued under stock-based compensation plans	41		—		—		—		—		—		—
Treasury stock purchases	—		—		—		—		(10,879)		—		(10,879)
Balance, June 28, 2022	106,030	$	1,060	$	874,551	$	1,203,731	$	(1,717,326)	$	(332)	$	361,684
Net loss	—		—		—		(2,398)		—		—		(2,398)
Foreign currency translation adjustment	—		—		—		—		—		(724)		(724)
Cash dividends declared common stock, net of forfeitures, $0.27 per share	—		—		—		(14,053)		—		—		(14,053)
Stock-based compensation	94		1		5,664		—		—		—		5,665
Common stock issued under stock-based compensation plans	32		1		—		—		—		—		1
Treasury stock purchases	—		—		—		—		(26,679)		—		(26,679)
Balance, September 27, 2022	106,156	$	1,062	$	880,215	$	1,187,280	$	(1,744,005)	$	(1,056)	$	323,496

See the accompanying notes to the condensed consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Thirty-Nine		Thirty-Nine
	Weeks Ended		Weeks Ended
	October 3, 2023		September 27, 2022
Cash flows from operating activities:
Net income	$	88,670	$	46,421
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization expenses		69,124		66,764
Impairment of assets and lease termination (income)/expense		(753)		250
Deferred income taxes		1,613		(2,633)
Stock-based compensation		18,850		17,220
Changes in assets and liabilities:
Accounts and other receivables		32,107		23,835
Income taxes receivable/payable		(2,401)		12,481
Inventories		(3,113)		(19,442)
Prepaid expenses		(7,159)		5,487
Operating lease assets/liabilities		(18,572)		(13,758)
Other assets		(6,086)		18,447
Accounts payable		(10,985)		11,177
Gift card liabilities		(39,608)		(36,448)
Other accrued expenses		28,859		(30,904)
Cash provided by operating activities		150,546		98,897
Cash flows from investing activities:
Additions to property and equipment		(99,923)		(78,053)
Additions to intangible assets		(567)		(489)
Other		(158)		485
Cash used in investing activities		(100,648)		(78,057)
Cash flows from financing activities:
Acquisition-related deferred consideration and compensation		(24,243)		(7,187)
Proceeds from exercise of stock options		—		84
Common stock dividends paid		(40,126)		(28,350)
Treasury stock purchases		(36,260)		(41,496)
Cash used in financing activities		(100,629)		(76,949)
Foreign currency translation adjustment		(59)		(361)
Net change in cash and cash equivalents		(50,790)		(56,470)
Cash and cash equivalents at beginning of period		114,777		189,627
Cash and cash equivalents at end of period	$	63,987	$	133,157

Supplemental disclosures:
Interest paid	$	6,386	$	4,706
Income taxes paid	$	7,068	$	13,603
Construction payable	$	7,086	$	10,545

See the accompanying notes to the condensed consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of The Cheesecake Factory Incorporated and its wholly owned subsidiaries (referred to herein collectively as the “Company,” “we,” “us” and “our”) and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions for the periods presented have been eliminated in consolidation. The unaudited financial statements presented herein include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for the fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results that may be achieved for any other interim period or for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2023 filed with the SEC on February 27, 2023.

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal year 2023 consists of 52 weeks and will end on January 2, 2024. Fiscal year 2022, which ended on January 3, 2023 was a 53-week year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from these estimates.

COVID-19 Pandemic and Other Impacts to our Operating Environment

During fiscal 2022, the COVID-19 pandemic continued to affect our business during periods of accelerated case counts in which we experienced increased restaurant staff absenteeism and temporary shifts in consumer behavior, such as changes in customer traffic or the mix between on-premise and off-premise channels. Along with the COVID-19 pandemic, our operating results were impacted by geopolitical and macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation. Some of these factors have continued to impact our operating results in fiscal 2023, contributing to significantly increased commodity and other costs. We have also encountered delays in opening new restaurants primarily due to delays in permitting and landlord readiness, as well as supply chain challenges.

The ongoing impact of geopolitical and macroeconomic events could lead to further shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation, disruptions in the supply chain and delays in new restaurant openings. For more information regarding the risks to our business relating to the COVID-19 pandemic and other geopolitical and macroeconomic events, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 3, 2023.

Recent Accounting Pronouncements

We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the consolidated financial statements.

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2. Fair Value Measurements

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

●

Level 1: Quoted prices in active markets for identical assets or liabilities

●

Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities

●

Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the Company to develop its own assumptions

The following tables present the components and classification of our assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	October 3, 2023
	Level 1		Level 2		Level 3
Assets/(Liabilities)
Non-qualified deferred compensation assets	$	84,960	$	—	$	—
Non-qualified deferred compensation liabilities		(84,786)		—		—
Acquisition-related deferred consideration		—		—		—
Acquisition-related contingent consideration and compensation liabilities		—		—		(18,015)


	January 3, 2023
	Level 1		Level 2		Level 3
Assets/(Liabilities)
Non-qualified deferred compensation assets	$	78,542	$	—	$	—
Non-qualified deferred compensation liabilities		(78,286)		—		—
Acquisition-related deferred consideration		—		(10,751)		—
Acquisition-related contingent consideration and compensation liabilities		—		—		(28,565)

The following table presents a reconciliation of the beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation liabilities categorized as Level 3 (in thousands):


	Thirty-Nine		Thirty-Nine
	Weeks Ended		Weeks Ended
	October 3, 2023		September 27, 2022

Beginning balance	$	28,565	$	23,894
Payment		(12,994)		(7,187)
Change in fair value		2,444		1,707
Ending balance	$	18,015	$	18,414

The fair value of the acquisition-related contingent consideration and compensation liabilities was determined utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables and estimates and has no minimum or maximum payment. The undiscounted range of outcomes per the Monte Carlo model utilized to determine the fair value of the acquisition-related contingent consideration and compensation liabilities at October 3, 2023 was $0 to $276.0 million. Results could change materially if different estimates and assumptions were used. During the first nine months of fiscal 2023 and fiscal 2022, we made payments of $13.0 million and $7.2 million, respectively, per the Fox Restaurant Concept LLC (“FRC”) acquisition agreement.

The fair values of our cash and cash equivalents, accounts and other receivables, income taxes receivable, prepaid expenses, accounts payable, income taxes payable and other accrued liabilities approximate their carrying amounts due to their short duration.

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As of October 3, 2023, we had $345.0 million aggregate principal amount of Notes outstanding. The estimated fair value of the Notes based on a market approach as of October 3, 2023 was $279.8 million and was determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the reporting period. The decrease in the fair value of the Notes was primarily due to a decline in our stock price from the date of the issuance of the Notes. See Note 5 for further discussion of the Notes.

3. Inventories

Inventories consisted of (in thousands):


	October 3, 2023		January 3, 2023
Restaurant food and supplies	$	30,567	$	30,783
Bakery finished goods and work in progress		18,883		17,250
Bakery raw materials and supplies		9,222		7,526
Total	$	58,672	$	55,559

4. Gift Cards

The following tables present information related to gift cards (in thousands):


	Thirteen		Thirteen		Thirty-Nine		Thirty-Nine
	Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
	October 3, 2023		September 27, 2022		October 3, 2023		September 27, 2022
Gift card liabilities:
Beginning balance	$	187,483	$	182,295	$	219,808	$	211,182
Activations		17,968		20,650		63,284		69,847
Redemptions and breakage		(25,251)		(28,220)		(102,892)		(106,304)
Ending balance	$	180,200	$	174,725	$	180,200	$	174,725


	Thirteen		Thirteen		Thirty-Nine		Thirty-Nine
	Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
	October 3, 2023		September 27, 2022		October 3, 2023		September 27, 2022
Gift card contract assets:
Beginning balance	$	17,369	$	17,061	$	19,886	$	18,468
Deferrals		2,509		2,268		7,823		8,159
Amortization		(3,914)		(3,674)		(11,745)		(10,972)
Ending balance	$	15,964	$	15,655	$	15,964	$	15,655

5. Long-Term Debt

Revolving Credit Facility

On October 6, 2022, we entered into a Fourth Amended and Restated Loan Agreement (the “Loan Agreement” and the revolving credit facility provided thereunder, the “Revolver Facility”). The Loan Agreement amends and restates in its entirety our prior credit agreement. The Revolver Facility, which terminates on October 6, 2027, provides us with revolving loan commitments that total $400 million, of which $50 million may be used for issuances of letters of credit. The Revolver Facility contains a commitment increase feature that, subject to certain conditions precedent, could provide for an additional $200 million in revolving loan commitments. Our obligations under the Revolver Facility are unsecured. Certain of our material subsidiaries have guaranteed our obligations under the Revolver Facility.

On October 6, 2022, we repaid the outstanding balance under the then-existing credit agreement and borrowed the same amount on the Revolver Facility. As of October 3, 2023, we had net availability for borrowings of $236.5 million, based on a $130.0 million outstanding debt balance and $33.5 million in standby letters of credit under the Revolver Facility.

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Under the Revolver Facility, we are subject to the following financial covenants as of the last day of each fiscal quarter: (i) a maximum ratio of net adjusted debt to EBITDAR (the “Amended Net Adjusted Leverage Ratio”) of 4.25 and (ii) a minimum ratio of EBITDAR to interest and rent expense (“EBITDAR Ratio”) of 1.90. The Amended Net Adjusted Leverage Ratio includes a rental expense multiplier of six. As of October 3, 2023, we were in compliance with all the foregoing covenants in effect at that date.

Borrowings under the Loan Agreement bear interest, at the Company’s election, at a rate equal to either: (i) the sum of (A) adjusted term SOFR (as defined in the Loan Agreement, the “Term SOFR Rate”) plus (B) a rate variable based on the Amended Net Adjusted Leverage Ratio, ranging from 1.00% to 1.75%, or (ii) the sum of (A) the highest of (x) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (y) the greater of the rate calculated by the Federal Reserve Bank of New York as the federal funds effective rate or the rate that is published by the Federal Reserve Bank of New York as the overnight bank funding rate, in either case, plus 0.50%, and (z) the one-month Term SOFR Rate plus 1.00%, plus (B) a rate variable based on the Net Adjusted Leverage Ratio, ranging from 0.00% to 0.75%. The Company will also pay a fee variable based on the Net Adjusted Leverage Ratio, ranging from 0.125% to 0.25%, on the daily amount of unused commitments under the Loan Agreement. Letters of credit bear fees that are equivalent to the interest rate margin that is applicable to revolving loans that bear interest at the adjusted SOFR plus other customary fees charged by the issuing bank. We paid certain customary loan origination fees in conjunction with the Loan Agreement.

We are also subject to customary events of default that, if triggered, could result in acceleration of the maturity of the Revolver Facility. Subject to certain exceptions, the Revolver Facility also limits distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

Convertible Senior Notes

On June 15, 2021, we issued $345.0 million aggregate principal amount of convertible senior notes due 2026 (“Notes”). The net proceeds from the sale of the Notes were approximately $334.9 million after deducting issuance costs related to the Notes.

The Notes are senior, unsecured obligations and are (i) equal in right of payment with our existing and future senior, unsecured indebtedness; (ii) senior in right of payment to our existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to our existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The Notes were issued pursuant to, and are governed by, an indenture (the “Base Indenture”) between us and a trustee (“Trustee”), dated as of June 15, 2021, as supplemented by a first supplemental indenture (the “Supplemental Indenture,” and the Base Indenture, as supplemented by the Supplemental Indenture, the “Indenture”), dated as of June 15, 2021, between the Company and the Trustee.

The Notes accrue interest at a rate of 0.375% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The Notes will mature on June 15, 2026, unless earlier repurchased, redeemed or converted. Before February 17, 2026, noteholders will have the right to convert their Notes only upon the occurrence of certain events. From and after February 17, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will have the right to elect to settle conversions either entirely in cash or in a combination of cash and shares of our common stock. However, upon conversion of any Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted. The initial conversion rate is 12.7551 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $78.40 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. As of October 3, 2023, the conversion rate for the Notes was 13.3775 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $74.75 per share of common stock. In connection with the cash dividend that was declared by our Board on October 26, 2023, on November 14, 2023 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

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The Notes are redeemable, in whole or in part (subject to certain limitations described below), at our option at any time, and from time to time, on or after June 20, 2024 and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. However, we may not redeem less than all of the outstanding Notes unless at least $150.0 million aggregate principal amount of Notes are outstanding and not called for redemption as of the time we send the related redemption notice. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require us to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving us and certain de-listing events with respect to our common stock.

The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, will be subject to a 30-day cure period); (ii) our failure to send certain notices under the Indenture within specified periods of time; (iii) our failure to comply with certain covenants in the Indenture relating to our ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of our assets and our subsidiaries, taken as a whole, to another person; (iv) a default by us in our other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (v) certain defaults by us or any of our significant subsidiaries with respect to indebtedness for borrowed money of at least $20,000,000; (vi) the rendering of certain judgments against us or any of our significant subsidiaries for the payment of at least $25,000,000, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; and (vii) certain events of bankruptcy, insolvency and reorganization involving us or any of our significant subsidiaries.

If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us (and not solely with respect to a significant subsidiary of ours) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to us, or noteholders of at least 25% of the aggregate principal amount of Notes then outstanding, by notice to us and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Notes.