Derivative Instruments and Hedging

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

5. Derivative Instruments and Hedging

The Company enters into foreign currency forward contracts with certain financial institutions to mitigate the impact of foreign currency fluctuations on future cash flows and earnings. Derivative instruments that hedge the exposure to variability in expected future cash flows are designated as cash flow hedges. The Company records changes in the fair value of these derivatives as a component of accumulated other comprehensive income (loss) (“AOCI”) and subsequently reclassifies the related gains or losses into cost of revenue or operating expense in the same period, or periods, during which the hedged transaction affects earnings. The Company classifies cash flows related to its cash flow hedges as operating activities in its condensed consolidated statements of cash flows.

Derivative instruments that hedge the exposure to variability in the fair value of assets or liabilities or hedge monetary assets and liabilities denominated in certain non-USD currencies are not designated as hedges for financial reporting purposes. The Company records changes in the fair value of these derivatives in other income (expense), net in the condensed consolidated statements of operations. The Company classifies cash flows related to these derivatives as operating activities in its condensed consolidated statements of cash flows.

The following table summarizes the notional amounts of the Company’s derivative instruments (in thousands):


	June 30, 2024		December 31, 2023
Foreign currency forward contracts designated as hedging instruments	$	112,867	$	125,617
Foreign currency forward contracts not designated as hedging instruments		84,359		99,918
Total derivative instruments	$	197,226	$	225,535

The Company has master netting agreements with each of its counterparties, which permit net settlement of multiple, separate derivative contracts with a single payment. The Company does not have collateral requirements with any of its counterparties. Although the Company is allowed to present the fair value of derivative instruments on a net basis according to master netting arrangements, the Company has elected to present its derivative instruments on a gross basis in its condensed consolidated financial statements. The Company’s derivative instruments generally have maturities of 18 months or less. The Company does not use derivative instruments for trading or speculative purposes. The following table summarizes the fair value of the Company’s derivative instruments on the condensed consolidated balance sheets (in thousands):


	Balance Sheet Location	June 30, 2024		December 31, 2023
Derivative Assets:
Foreign currency forward contracts designated as hedging instruments	Prepaid expenses and other current assets	$	1,109	$	1,789
Foreign currency forward contracts not designated as hedging instruments	Prepaid expenses and other current assets		385		906
Foreign currency forward contracts designated as hedging instruments	Other assets, non-current		165		524
Total derivative assets		$	1,659	$	3,219
Derivative Liabilities:
Foreign currency forward contracts designated as hedging instruments	Accrued expenses and other liabilities	$	225	$	18
Foreign currency forward contracts not designated as hedging instruments	Accrued expenses and other liabilities		617		1,239
Foreign currency forward contracts designated as hedging instruments	Other liabilities, non-current		-		15
Total derivative liabilities		$	842	$	1,272

The following table presents the activity of foreign currency forward contracts designated as hedging instruments and the impact of these derivatives on AOCI (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Beginning balance	$	543		$	1,024		$	2,280		$	653
Net gain (loss) recognized in other comprehensive income (loss)		675			222			(937	)		1,065
Net gain reclassified from AOCI to earnings		(169	)		(706	)		(294	)		(1,178	)
Ending balance	$	1,049		$	540		$	1,049		$	540

As of June 30, 2024, net unrealized gains included in the balance of accumulated other comprehensive (loss) income related to foreign currency forward contracts designated as hedging instruments was $1.0 million, $0.9 million of which the Company expects to reclassify from accumulated other comprehensive (loss) income into earnings over the next 12 months.

The following table summarizes the effect of foreign currency forward contracts on the condensed consolidated statements of operations (in thousands):


	Derivatives Designated as Hedging Instruments								Derivatives Not Designated as Hedging Instruments
	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023		2024		2023		2024			2023		2024			2023
Cost of revenue - subscription	$	30	$	89	$	54	$	133	$	-		$	-	$	-		$	-
Cost of revenue - services		11		60		19		108		-			-		-			-
Research and development		33		140		64		199		-			-		-			-
Sales and marketing		66		318		99		581		-			-		-			-
General and administrative		29		99		58		157		-			-		-			-
Other (expense) income, net		-		-		-		-		(242	)		11		(1,049	)		87
Total gains (losses) recognized in earnings	$	169	$	706	$	294	$	1,178	$	(242	)	$	11	$	(1,049	)	$	87