8X8 INC DE
For the period ended Sep 30, 2024. Filed Nov 6, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 6, 2024
EGHT$2.13-5.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001023731-24-000073
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-06.
0001023731-24-000120
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 82 previous paragraphs and 96 current paragraphs.
54 unchanged; 22 reworded; 17 added; 6 removed; 0 previous and 3 current paragraphs rearranged.
Tables are not compared: 12 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (17)
Current report
Interest Expense
Current report
Provision for (Benefit from) Income Taxes
Current report
Service revenue decreased by $5.1 million, or 1.5%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023. This change was driven by a decrease in revenue from subscriptions of $9.6 million primarily due to a decline in revenue from customers on the Fuze platform offset by an increase of $4.5 million in platform usage revenue.
Current report
Other revenue decreased by $4.0 million, or 26.2%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, due to lower professional service and product revenue of $2.6 million and $1.4 million, respectively.
Current report
Cost of other revenue decreased by $1.1 million, or 6.7%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, primarily due to $0.4 million decreased salaries, benefits, and consulting costs to deliver our professional services coupled with $0.7 million lower product costs associated with IP telephone hardware.
Current report
Research and development expenses decreased by $6.1 million, or 8.7%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, primarily due to a decrease of $4.6 million in stock-based compensation and $1.5 million in combined salaries, benefits, consulting and other costs necessary for us to conduct our product, platform development and engineering efforts.
Current report
Sales and marketing expenses decreased by $5.2 million, or 3.8%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, primarily due to decreases of $3.7 million in stock-based compensation expense, $2.8 million in channel commissions and amortization of deferred commissions, and $1.1 million in paid media and other marketing services costs. These decreases were partially offset by an increase of $2.4 million in salaries, benefits, and consulting costs.
Current report
General and administrative expenses decreased by $7.7 million, or 28.1%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to a $7.2 million decrease associated with Fuze, Inc. legal, regulatory and tax matters. During the three months ended September 30, 2024, we adjusted accruals related to USF and other Fuze, Inc. legal, regulatory and tax matters and recognized a benefit of $3.2 million, compared to $4.3 million of expenses recognized during the three months ended September 30, 2023. The decrease was also due to decreases of $1.0 million in stock-based compensation expense and $0.6 million in salaries, benefits, and consulting costs. These decreases were partially offset by an increase of $1.1 million in other general corporate costs.
Current report
General and administrative expenses decreased by $10.9 million, or 20.2%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, primarily due to a $8.2 million decrease associated with Fuze, Inc regulatory and tax matters. During the six months ended September 30, 2024, we adjusted accruals related to USF and other Fuze, Inc. legal, regulatory and tax matters and recognized a benefit of $3.2 million, compared to $5.5 million of expenses recognized during the six months ended September 30, 2023. The decrease was also due to decreases of $2.4 million in salaries, benefits, and consulting costs and $1.4 million in stock-based compensation expense. These decreases were partially offset by an increase of $1.1 million in other general corporate costs.
Current report
Interest expense
Current report
Interest expense decreased by $2.2 million, or 21.4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the 2022 Term Loan debt extinguishment and decreased interest rate and principal on the 2024 Term Loan. See Note 8, Convertible Senior Notes and Term Loan, for further details.
Current report
Interest expense decreased by $2.3 million, or 11.3%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, primarily due to the 2022 Term Loan debt extinguishment and decreased interest rate and principal on the 2024 Term Loan. See Note 8, Convertible Senior Notes and Term Loan, for further details.
Current report
Other expense, net
Current report
We recognized $11.0 million of other expense, net during the six months ended September 30, 2024 compared to $2.4 million of other expense, net during the six months ended September 30, 2023 primarily due to a $10.2 million increase on loss of debt extinguishment due to the payoff of the 2022 Term Loan, a $3.4 million increase in loss on foreign exchange and other expenses, and a $0.5 million gain on the remeasurement of warrants issued in connection with the term loan. These expense increases were offset by a $0.7 million increase in interest income earned on highly liquid investments.
Current report
On August 5, 2024, we drew upon the entire facility of $200.0 million under the delayed draw term loan facility (the "2024 Term Loan") and used the proceeds of the 2024 Term Loan and cash on hand of approximately $29.0 million to repay in full the $225.0 million of outstanding principal amount and accrued interest of the 2022 Term Loan and the fees incurred in connection with the repayment (the "Repayment").
Current report
2022 Term Loan Extinguishment
Current report
On August 5, 2024, we repaid in full the outstanding principal amount and accrued interest of the 2022 Term Loan using the proceeds of the 2024 Term Loan and cash on hand. The Repayment was accounted for as a debt extinguishment. The carrying value of the 2022 Term Loan, including the unamortized debt discount and issuance costs, was derecognized. The difference of $12.0 million between the cash consideration paid to extinguish the 2022 Term Loan and the carrying value of the 2022 Term Loan was recognized as a loss on debt extinguishment included in the loss on debt extinguishment line item recorded in other expense in the condensed consolidated statement of operations. The Warrants continued to be outstanding with no change in terms in connection with the Repayment or issuance of the 2024 Term Loan.
Removed paragraphs (6)
Previous report
KEY BUSINESS METRICS
Previous report
In the past we have analyzed trends in annualized recurring and usage revenue, or ARR. Our product offering is evolving to address trends in our industry, which include increased use of self-service chat bots, automated digital communications, and messaging. These solutions are often unrelated user-based subscriptions and are typically sold based on consumption. We expect usage revenue to increase in the future, making our previously disclosed Annual Recurring Subscriptions and Usage Revenue (ARR) metric less relevant. Based on our expectation of higher usage revenue, and following an evaluation of key business metrics disclosed by our peers in the UCaaS, CCaaS and CPaaS markets, we are discontinuing the use of ARR, as previously defined, as a key business metric. We intend to continue to review our key business metrics as our markets and business model evolves.
Previous report
General and administrative expenses decreased by $3.1 million, or 12.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to decreases of $1.7 million in personnel-related and consulting costs, $1.0 million in regulatory and other legal costs, and $0.4 million in stock-based compensation expense.
Previous report
Provision for income taxes
Previous report
Delayed Draw Term Loan
Previous report
Delayed Draw Term Loan Drawdown and 2022 Term Loan Extinguishment
Reworded paragraphs (22)
Previous wording
Our customers range from small businesses to large enterprises across all vertical markets, with users in more than 160 countries. In recent years, we have increased our focus on mid-market, enterprise, and public sector customers because these organizations typically have more complex communication and contact center requirements compared to the needs of small business customers. Organizations in these sectors – typically with 500 to 10,000 employees -- are more likely to adopt multiple services and realize greater value from our unified, global communications platform and our growing product portfolio, including artificial intelligence-enabled solutions.
Current wording
Our customers range from small businesses to large enterprises across all vertical markets, with users in more than 150 countries. In recent years, we have increased our focus on mid-market, enterprise, and public sector customers because these organizations typically have more complex communication and contact center requirements compared to the needs of small business customers. Organizations in these sectors – typically with 500 to 10,000 employees – are more likely to adopt multiple services and realize greater value from our unified, global communications platform and our growing product portfolio, including artificial intelligence-enabled solutions.
Previous wording
We generate service revenue from subscriptions to our communications services, as well as from usage of our platform. Our service subscription plans are sold on a per user basis, and are structured with increasing levels of functionality (designated as X1, X2, etc., through X8), based on the specific communication needs and customer engagement profile of each user. Platform usage, including telephony minutes, messaging, SMS, and digital and voice chat bot interactions, encompasses committed usage, which may be bundled with our service subscription plans, and uncommitted usage, which is sold on an as-used basis. Uncommitted usage of our platform increased as a percentage of revenue in fiscal 2024 and is expected to continue to increase in the future with the introduction of new platform usage solutions.
Current wording
We generate service revenue from subscriptions to our communications services, as well as from usage of our platform. Our service subscription plans are sold on a per-user basis and are structured with increasing levels of functionality (designated as X1, X2, etc., through X8), based on the specific communication needs and customer engagement profile of each user. Platform usage, including telephony minutes, messaging, SMS, and digital and voice chat bot interactions, encompasses committed usage, which may be bundled with our service subscription plans, and uncommitted usage, which is sold on an as-used basis. Uncommitted usage of our platform increased as a percentage of revenue in fiscal year 2024 and is expected to continue to increase in the future with the introduction of new platform usage solutions.
Previous wording
Service revenue consists of communication services subscriptions, platform usage revenue, and related fees from our unified communications as-a-service, contact center as-a-service, and communications platform as-a-service offerings. We plan to increase service revenue through a combination of new customer acquisition, cross-sell of additional products to existing customers, including new products resulting from our increased investment in innovation, geographic expansion of our customer base outside the United States, sales initiatives with our Technology Partner Ecosystem partners, and through strategic acquisitions of technologies and businesses.
Current wording
Service revenue consists of communication services subscriptions, platform usage revenue, and related fees from our unified communications as-a-service, contact center as-a-service, and communications platform as-a-service offerings. We plan to increase service revenue through a combination of new customer acquisition, cross-sell of additional products to existing customers, including new products resulting from our increased investment in innovation, geographic expansion of our customer base outside the United States, and sales initiatives with our Technology Partner Ecosystem partners, and potential strategic acquisitions of technologies and businesses.
Previous wording
Other expense, net, consists primarily of interest expense related to our term loan and convertible notes, amortization of debt discount and issuance costs, offset by interest income, gain or loss on warrant remeasurement, gains on debt extinguishment, gains or losses on foreign exchange transactions, as well as other income.
Current wording
Other expense, net, consists primarily of gains or losses on debt extinguishment, gain or loss on warrant remeasurement, interest income, gains or losses on foreign exchange transactions, as well as other income.
Previous wording
Provision for income taxes consist primarily of foreign income taxes and state minimum taxes in the United States. As we expand the scale of our international business activities, any changes in the United States and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for our United States deferred tax assets, including federal and state non-operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.
Current wording
Provision for (benefit from) income taxes consist primarily of foreign income taxes and state minimum taxes in the United States. As we expand the scale of our international business activities, any changes in the United States and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for our United States deferred tax assets, including federal and state non-operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.
Previous wording
Service revenue decreased by $2.4 million, or 1.4%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This change was driven by a decrease in revenue from subscriptions of $5.8 million related to increased customer churn and down-sell partially offset by an increase of $3.4 million in platform usage revenue.
Current wording
Service revenue decreased by $2.7 million, or 1.5%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This change was driven by a decrease in revenue from subscriptions of $3.8 million primarily due to a decline in revenue from customers on the Fuze platform partially offset by an increase of $1.1 million in platform usage revenue.
Previous wording
Other revenue decreased by $2.7 million, or 33.6%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due to lower professional service and product revenue of $1.8 million and $0.9 million, respectively.
Current wording
Other revenue decreased by $1.3 million, or 17.9%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to lower professional service and product revenue of $0.9 million and $0.4 million, respectively.
Previous wording
Cost of service revenue increased by $3.2 million, or 7.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to an increase of $5.0 million in costs to deliver our subscription and platform usage services. This increase was partially offset by decreases of $1.2 million related to the amortization of capitalized software and $0.6 million in software costs.
Current wording
Cost of service revenue increased by $1.1 million, or 2.3%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an increase of $3.1 million in costs to deliver our subscription and platform usage services. This increase was partially offset by decreases of $1.1 million related to the amortization of capitalized software, $0.6 million in salaries, benefits, and consulting costs, and $0.3 million in software costs.
Previous wording
Cost of other revenue decreased by $0.7 million, or 8.4%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to $0.3 million decreased personnel-related costs to deliver our professional services coupled with $0.4 million lower product costs associated with IP telephone hardware.
Current wording
Cost of other revenue decreased by $0.4 million, or 4.9%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to $0.1 million decreased salaries, benefits, and consulting costs to deliver our professional services coupled with $0.3 million lower product costs associated with IP telephone hardware.
Previous wording
Research and development expenses decreased by $3.2 million, or 8.9%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to a decrease of $2.6 million in stock-based compensation and $0.6 million in combined employee, consulting and other costs.
Current wording
Research and development expenses decreased by $2.9 million, or 8.5%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to a decrease of $2.0 million in stock-based compensation and $0.9 million in combined salaries, benefits, consulting and other costs necessary for us to conduct our product, platform development and engineering efforts.
Previous wording
Sales and marketing expenses decreased by $1.4 million, or 2.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to decreases of $1.9 million in stock-based compensation expense, $0.6 million in paid media and other marketing services costs, and $0.6 million in channel commissions and amortization of deferred commissions. These decreases were partially offset by an increase of $1.7 million in personnel-related and consulting costs.
Current wording
Sales and marketing expenses decreased by $3.8 million, or 5.6%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to decreases of $2.3 million in channel commissions and amortization of deferred commissions, $1.9 million in stock-based compensation expense, and $0.5 million in paid media and other marketing services costs. These decreases were partially offset by an increase of $0.9 million in salaries, benefits, and consulting costs.
Previous wording
We recognized $8.2 million of other expense, net during the three months ended June 30, 2024 compared to $12.5 million of other expense, net during the three months ended June 30, 2023 primarily due to a $2.0 million gain on the remeasurement of warrants issued in connection with the term loan, a $1.8 million loss from debt extinguishment from the 2024 convertible notes recorded in the prior year comparable period, and a $0.4 million increase in interest income earned on highly-liquid investments.
Current wording
We recognized $12.7 million of other expense, net during the three months ended September 30, 2024 compared to $4.8 million of other expense, net during the three months ended September 30, 2023, primarily due to a $12.0 million loss of debt extinguishment due to the payoff of the 2022 Term Loan, a $3.3 million increase in loss on foreign exchange and other expenses, and a $2.5 million gain on the remeasurement of warrants issued in connection with the term loan. These expense increases were offset by a $0.3 million increase in interest income earned on highly liquid investments.
Previous wording
The provision for income taxes decreased by $0.8 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 driven by a decrease in forecasted foreign tax expense of $0.6 million, a decrease in our ASC 740-10 contingent liability of $0.3 million offset by an increase in forecasted state tax expense of $0.1 million.
Current wording
The provision for income taxes increased by $0.7 million for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, driven by an increase in forecasted state tax expense of $0.7 million, a decrease in our ASC 740-10 contingent liability of $0.2 million offset by a decrease in forecasted federal tax expense of $0.2 million.
Previous wording
We believe that our existing cash, cash equivalents and our anticipated cash flows from operations will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for a minimum of the next 12 months and the foreseeable future. Although we believe we have adequate sources of liquidity for at least the next 12 months and for the foreseeable future, the success of our operations, the global economic outlook, and the pace of growth in our markets could impact our business and liquidity.
Current wording
We believe that our existing cash, cash equivalents and our anticipated cash flows from operations will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for a minimum of the next twelve months and the foreseeable future. Although we believe we have adequate sources of liquidity for at least the next twelve months and for the foreseeable future, the success of our operations, the global economic outlook, and the pace of growth in our markets could impact our business and liquidity.
Previous wording
Our primary requirements for liquidity and capital are working capital needs due to delivery of our various products to customers, research and development, sales and marketing activities, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met from cash provided by operating activities and our cash and cash equivalents balances. Our current capital deployment strategy for fiscal 2025 is to use excess cash on hand to support our continued growth initiatives into select markets and planned software development activities and pay down our debt. As of June 30, 2024, we are not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. Significant cash requirements for the fiscal year include our operating lease obligations, interest payments related to our debt obligations, and operating and capital purchase commitments. For information regarding our expected cash requirements and timing of payments related to leases and noncancellable purchase commitments, see Note 6, Leases, and Note 7, Commitments and Contingencies, respectively, to the consolidated financial statements in our Form 10-K. Additionally, see Note 8, Convertible Senior Notes and Term Loan, to the consolidated financial statements in our Form 10-K for more information related to our debt obligations and applicable covenants.
Current wording
Our primary requirements for liquidity and capital are working capital needs due to delivery of our various products to customers, research and development, sales and marketing activities, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met from cash provided by operating activities and our cash and cash equivalents balances. Our current capital deployment strategy for fiscal year 2025 is to use excess cash on hand to support our continued growth initiatives into select markets and planned software development activities and pay down our debt. As of September 30, 2024, we are not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. Significant cash requirements for the fiscal year include our operating lease obligations, interest payments related to our debt obligations, and operating and capital purchase commitments. For information regarding our expected cash requirements and timing of payments related to leases and non-cancelable purchase commitments, see Note 6, Leases, and Note 7, Commitments and Contingencies, respectively, to the consolidated financial statements in our Form 10-K. Additionally, see Note 8, Convertible Senior Notes and Term Loan, to the consolidated financial statements in our Form 10-K for more information related to our debt obligations and applicable covenants.
Previous wording
We are aware that our outstanding debt securities are currently trading at substantial discounts to their respective principal amounts. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, seek to retire or purchase our outstanding debt through open-market purchases, privately negotiated transactions or otherwise. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, prevailing market conditions, and other factors. Whether or not we engage in any such transactions will be determined at our discretion. The amounts involved may be material.
Current wording
We are aware that our 2028 Notes are currently trading at a substantial discount to their respective principal amount. Furthermore, our outstanding 2024 Term Loan allows for voluntary prepayments. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, make prepayments on our 2024 Term Loan, and seek to retire or purchase our outstanding debt through open-market purchases, privately negotiated transactions or otherwise. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, prevailing market conditions, and other factors. Whether or not we engage in any such transactions will be determined at our discretion. The amounts involved may be material.
Previous wording
Cash provided by operating activities decreased by $8.3 million to $18.1 million for the three months ended June 30, 2024, mainly due to a decrease in cash received from customers, partially offset by a decrease in cash paid to suppliers and employees along with a decrease in cash paid for sales commission costs. Cash used in investing activities decreased $9.9 million to $3.1 million for the three months ended June 30, 2024, mainly due to decreases in the purchases, sales, and maturities of investments. Cash used in financing activities decreased by $24.6 million to $0.4 million for the three months ended June 30, 2024, due to principal repayments of $25.0 million on the term loan in the prior year comparable period.
Current wording
Cash provided by operating activities decreased by $13.5 million to $30.5 million for the six months ended September 30, 2024, mainly due to a decrease in cash received from customers and an increase in cash paid to suppliers and employees along with an increase in cash paid for sales commission costs. Cash used in investing activities decreased $19.9 million to $7.2 million for the six months ended September 30, 2024, mainly due to decreases in the purchases, sales, and maturities of investments. Cash used in financing activities increased by $2.5 million to $25.1 million for the six months ended September 30, 2024, due to payments for debt issuance costs and other financing activities.
Previous wording
On July 11, 2024, we entered into a new term loan credit agreement with Wells Fargo Bank, National Association, as administrative agent, and the lenders thereto (the “2024 Credit Agreement”). The 2024 Credit Agreement establishes a delayed draw term loan facility in an aggregate principal amount of up to $200 million maturing on August 15, 2027.
Current wording
On July 11, 2024, we entered into a new term loan credit agreement with Wells Fargo Bank, National Association, as administrative agent, and the lenders thereto (the “2024 Credit Agreement”). The 2024 Credit Agreement establishes a delayed draw term loan facility in an aggregate principal amount of up to $200.0 million maturing on August 15, 2027.
Previous wording
Loans made under the 2024 Credit Agreement will bear interest at an annual rate equal to term Standard Overnight Financing Rate ("Term SOFR"), plus a margin of either 2.50%, 2.75% or 3.00% based on the consolidated total net leverage ratio of the Company and its subsidiaries. The initial margin will be 3.00% for the fiscal quarter ending September 30, 2024. Once fully drawn upon, the annual principal repayments of $22.5 million in fiscal year 2025, $37.5 million in fiscal year 2026, and $47.5 million in fiscal year 2027 are required, and the remaining $92.5 million principal is due before or upon maturity in fiscal 2028. These annualized repayments will be made in quarterly installments.
Current wording
The 2024 Term Loan bears interest at an annual rate equal to Term SOFR, plus a margin of either 2.50%, 2.75% or 3.00% based on the consolidated total net leverage ratio of the Company and its subsidiaries. The initial margin will be 3.00% for the fiscal quarter ending September 30, 2024. We have the option to pay interest monthly, quarterly, or semi-annually. During the three months ended September 30, 2024, we elected monthly interest payment terms which resulted in cash payments of $2.9 million from August 5, 2024. During the three months ended December 31, 2024, we have elected quarterly interest payment terms, which will result in cash payments of $3.4 million. The scheduled principal repayments of $22.5 million in fiscal year 2025 ($7.5 million on October 31, 2024, December 31, 2024 and March 31, 2025, respectively), $37.5 million in fiscal year 2026 ($7.5 million on June 30, 2025 and $10.0 million on September 30, 2025, December 31, 2025 and March 31, 2026, respectively), and $47.5 million in fiscal year 2027 ($10.0 million on June 30, 2026, $12.5 million on September 30, 2026 and each quarter thereafter through maturity) are required, and the remaining $92.5 million principal is due before or upon maturity in fiscal year 2028. These annualized repayments will be made in quarterly installments. As of September 30, 2024, the debt issuance costs are amortized to interest expense over the term of the 2024 Term Loan at an effective interest rate of 8.76%.
Previous wording
The funding of loans under the 2024 Credit Agreement occurred on August 5, 2024. The Company used the proceeds, plus $29 million from existing cash balances, to fund the prepayment of the entire $225 million principal outstanding plus accrued interest and fees under the Term Loan Credit Agreement, dated as of August 3, 2022, by and among the Company, Wilmington Savings Fund Society, FSB, as administrative agent, and certain affiliates of Francisco Partners as lenders (the “2022 Credit Agreement”) and terminated the 2022 Credit Agreement. The Company previously used the proceeds from the 2022 Credit Agreement to fund the cash portion of an exchange of the Company's approximately $403.8 million principal amount of 0.50% convertible senior notes due 2024 for cash plus approximately $201.9 million of 4.00% convertible senior notes due 2028, and the concurrent repurchase of approximately $60.0 million of the Company's common stock with the counterparties to such exchange. Loans made under the 2022 Credit Agreement bore interest at an annual rate equal to the Term SOFR, subject to a floor of 1.00% and a credit spread adjustment of 0.10%), plus a margin of 6.50%. See Note 14, Subsequent Events and Note 8, Convertible Senior Notes and Term Loan to our condensed consolidated financial statements for details.
Current wording
We previously used the proceeds from the 2022 Credit Agreement to fund the cash portion of an exchange of the Company's approximately $403.8 million principal amount of 0.50% convertible senior notes due 2024 for cash plus approximately $201.9 million of 4.00% convertible senior notes due 2028, and the concurrent repurchase of approximately $60.0 million of our common stock with the counterparties to such exchange. Loans made under the 2022 Credit Agreement bore interest at an annual rate equal to the Term SOFR, subject to a floor of 1.00% and a credit spread adjustment of 0.10%, plus a margin of 6.50%. During the three months ended September 30, 2024, we paid $2.7 million of interest under the 2022 Term Loan. See Note 8, Convertible Senior Notes and Term Loan, to our condensed consolidated financial statements for details.
Previous wording
As of March 31, 2024, our material cash requirements and other obligations were $690.1 million. During the three months ended June 30, 2024, there have been no material changes to our material cash requirements outside of the normal course of our business. For information regarding our material cash requirements and other obligations, see Item 7, "Management's Discussion and Analysis", in our fiscal year 2024 Form 10-K.
Current wording
As of March 31, 2024, our material cash requirements and other obligations were $690.1 million. During the three months ended September 30, 2024, we entered into a $24.1 million noncancelable three-year hosting service contract. Under this agreement, $7.1 million remains due during fiscal year 2025, $8.5 million will be due during fiscal year 2026, $6.0 million will be due during fiscal year 2027 and $2.5 million will be due during fiscal year 2028. For information regarding our material cash requirements and other obligations, see Item 7, "Management's Discussion and Analysis", in our fiscal year 2024 Form 10-K.
Previous wording
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). See Note 1, The Company and Significant Accounting Policies, in the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report, which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. There have been no significant changes during the three months ended June 30, 2024 to our critical accounting policies and estimates previously disclosed in our Form 10-K.
Current wording
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). See Note 1, The Company and Significant Accounting Policies, in the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report, which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. There have been no significant changes during the six months ended September 30, 2024 to our critical accounting policies and estimates previously disclosed in our Form 10-K.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
Interest expense consists primarily of interest expense related to our term loan and convertible notes, and amortization of debt discount and issuance costs.
Current report — wording carried from elsewhere
Cost of service revenue increased by $4.3 million, or 4.5%, for the six months ended September 30, 2024 compared to the six months ended September 30, 2023, primarily due to an increase of $8.2 million in costs to deliver our subscription and platform usage services. This increase was partially offset by decreases of $2.3 million related to the amortization of capitalized software, $1.0 million in software costs, and $0.6 million in salaries, benefits, and consulting costs.
Current report — wording carried from elsewhere
The provision for income taxes increased by $1.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, driven by an increase in forecasted foreign tax expense of $0.6 million and an increase in forecasted state tax expense of $0.6 million, a decrease in our ASC 740-10 contingent liability of $0.5 million offset by a decrease in forecasted federal tax expense of $0.2 million.