Convertible bonds are bonds that convert into equity after the stock price reaches the conversion price. If the stock price never reaches as high as the conversion price, then the convertible bonds will continue to be debt.
If the convertible bonds are “in-the-money”, meaning that the stock price is higher than the conversion price, then they are converted into equity and will be added to the enterprise value as equity.
If the convertible bonds are “out-of-the-money,” meaning that the stock price is lower than the conversion price, then they remain as debt and will be added to the enterprise value as debt.