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Forward Contracts and Fair Value Measurement

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Forward Contracts and Fair Value Measurement

Forward Contracts and Fair Value MeasurementThe Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency exchange rate risk. During 2023 and 2022, the Company entered into foreign currency exchange rate forward contracts, with two commercial banks as the counterparties, with maturities of generally 12 months or less, to reduce the volatility of cash flows primarily related to forecasted costs denominated in Philippine pesos. In addition, the Company utilizes foreign currency exchange rate contracts to mitigate foreign currency exchange rate risk associated with foreign currency-denominated assets and liabilities, primarily intercompany balances. The Company does not use foreign currency exchange rate contracts for trading purposes. The exchange rate forward contracts entered into by the Company are not designated as hedging instruments. Any gains or losses resulting from changes in the fair value of these contracts are recognized in other expense (income) in the consolidated statements of operations. The forward contract receivable (payable) resulting from changes in fair value was recorded under prepaid expenses and other current assets (accounts payable and accrued liabilities).

The following table presents the Company's settled forward contracts and realized and unrealized losses (gains) associated with derivative contracts:


	Three months ended March 31,
(in thousands)	2023		2022
Total notional amount of settled forward contracts	$	59,425	$	40,382
Realized losses from settlement of forward contracts	$	1,618	$	1,420
Unrealized losses (gains) on forward contracts	$	(6,336)	$	759

The following table presents the Company's outstanding forward contracts:


(in thousands)	March 31, 2023		December 31, 2022
Total notional amount of outstanding forward contracts	$	110,925	$	175,050

By entering into derivative contracts, the Company is exposed to counterparty credit risk, or the failure of the counterparty to perform under the terms of the derivative contract. For the periods presented, the non-performance risk of the Company and the counterparties did not have a material impact on the fair value of the derivative instruments.

The Company has implemented the fair value accounting standard for those assets and liabilities that are re-measured and reported at fair value at each reporting period. This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value based on inputs used, and requires additional disclosures about fair value measurements. This standard applies to fair value measurements already required or permitted by existing standards.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset and include situations where there is little, if any, market activity for the asset.

For financial statement presentation purposes, we offset assets and liabilities for forward contracts with the same counterparty that we intend to net settle upon maturity; however, we do not offset assets and liabilities under master netting arrangements that we do not intend to net settle. The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:


	March 31, 2023
	Fair value measurements using						Total Gross Fair Value		Effect of Counter-party Netting		Net Amounts on Balance Sheet		Effect of Master Netting Arrangements		Net Amounts
(in thousands)	Level 1 inputs		Level 2 inputs		Level 3 inputs
Assets
Money market funds	$	3,739	$	—	$	—	$	3,739	$	—	$	3,739	$	—	$	3,739
Forward contracts receivable	$	—	$	8,132	$	—	$	8,132	$	—	$	8,132	$	—	$	8,132


	December 31, 2022
	Fair value measurements using						Total Gross Fair Value		Effect of Counter-party Netting		Net Amounts on Balance Sheet		Effect of Master Netting Arrangements		Net Amounts
(in thousands)	Level 1 inputs		Level 2 inputs		Level 3 inputs
Assets
Money market funds	$	6,069	$	—	$	—	$	6,069	$	—	$	6,069	$	—	$	6,069
Forward contracts receivable	$	—	$	4,845	$	—	$	4,845	$	(518)	$	4,327	$	(1,778)	$	2,549
Liabilities
Forward contracts payable	$	—	$	3,049	$	—	$	3,049	$	(518)	$	2,531	$	(1,778)	$	753

The Company’s derivatives are carried at fair value using various pricing models that incorporate observable market inputs, such as interest rate yield curves and currency rates, which are Level 2 inputs. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or by the Company.