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Note 7 - Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

7. Derivative Instruments and Hedging Activities:

Foreign currency forward contracts

Since October 2012, the Company has employed a hedging program with a Canadian chartered bank to limit the potential foreign exchange fluctuations incurred on its future cash flows related to a portion of payroll, taxes, rent and payments to Canadian domain name registry suppliers that are denominated in Canadian dollars and are expected to be paid by its Canadian operating subsidiary. As part of its risk management strategy, the Company uses derivative instruments to hedge a portion of the foreign exchange risk associated with these costs. The Company does not use these forward contracts for trading or speculative purposes. These forward contracts typically mature between one and eighteen months.

In May 2020, the Company entered into a pay-fixed, receive-variable interest rate swap with a Canadian chartered bank to limit the potential interest rate fluctuations incurred on its future cash flows related to variable interest payments on the Credit facility. The notional value of the interest rate swap was $70 million. The Company does not use these forward contracts for trading or speculative purposes. The contract is coterminous with the Credit facility, maturing in June 2023.

The Company has designated certain of these transactions as cash flow hedges of forecasted transactions under ASC Topic 815. For certain contracts, as the critical terms of the hedging instrument, and of the entire hedged forecasted transaction, are the same, in accordance with ASC Topic 815, the Company has been able to conclude that changes in fair value and cash flows attributable to the risk of being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, unrealized gains or losses on the effective portion of these contracts have been included within other comprehensive income. The fair value of the contracts, as of December 31, 2021 and December 31, 2020, is recorded as derivative instrument assets or liabilities. For certain contracts where the hedged transactions are no longer probable to occur, the loss on the associated forward contract is recognized in earnings.

As of December 31, 2021, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $25.2 million, of which $25.2 million met the requirements of ASC Topic 815 and were designated as hedges.

As of December 31, 2020 the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $31.8 million, of which $26.8 million met the requirements of ASC Topic 815 and were designated as hedges.

As of December 31, 2021, we had the following outstanding forward contracts to trade U.S. dollars in exchange for Canadian dollars:

Maturity date (Dollar amounts in thousands of U.S. dollars)		*Notional amount of U.S. dollars*				*Weighted average exchange rate of U.S. dollars*				*Fair value*

January - March 2022			11,518				1.2561				(82	)
April - June 2022			6,453				1.2801				73
July - September 2022			3,779				1.2801				39
October - December 2022			3,476				1.2801				32
		$	25,226				1.2691			$	62

Fair value of derivative instruments and effect of derivative instruments on financial performance

The effect of these derivative instruments on our consolidated financial statements as of, and for the years ended December 31, 2021 and 2020, were as follows (amounts presented do not include any income tax effects).

Fair value of derivative instruments in the consolidated balance sheets (see “Note 6 – Fair Value Measurement”)

Derivatives (Dollar amounts in thousands of U.S. dollars)	*Balance Sheet Location*		*As of December 31, 2021 Fair Value Asset*				*As of December 31, 2020 Fair Value Asset*
Foreign Currency forward contracts designated as cash flow hedges (net)	Derivative instruments		$	62			$	3,254
Interest rate swap contract designated as a cash flow hedge (net)	Derivative instruments			390				(213	)
Foreign Currency forward contracts not designated as cash flow hedges (net)	Derivative instruments			-				606
Total foreign currency forward contracts and interest rate swaps (net)	Derivative instruments		$	452			$	3,647

Movement in AOCI balance for the year ended December 31, 2021 (Dollar amounts in thousands of U.S. dollars)

		*Gains and losses on cash flow hedges*				*Tax impact*				*Total AOCI*
Opening AOCI balance - December 31, 2020		$	3,038			$	(702	)		$	2,336
Other comprehensive income (loss) before reclassifications			794				(222	)			572
Amount reclassified from AOCI			(3,382	)			817				(2,565	)
Other comprehensive income (loss) for the year ended December 31, 2021			(2,588	)			595				(1,993	)

Ending AOCI Balance - December 31, 2021		$	450			$	(107	)		$	343

Movement in AOCI balance for the year ended December 31, 2020 (Dollar amounts in thousands of U.S. dollars)

		*Gains and losses on cash flow hedges*				*Tax impact*				*Total AOCI*
Opening AOCI balance - December 31, 2019		$	625			$	(152	)		$	473
Other comprehensive income (loss) before reclassifications			2,142				(489	)			1,653
Amount reclassified from AOCI			271				(61	)			210
Other comprehensive income (loss) for the year ended December 31, 2020			2,413				(550	)			1,863

Ending AOCI Balance - December 31, 2020		$	3,038			$	(702	)		$	2,336

Movement in AOCI balance for the year ended December 31, 2019 (Dollar amounts in thousands of U.S. dollars)

		*Gains and losses on cash flow hedges*				*Tax impact*				*Total AOCI*
Opening AOCI balance - December 31, 2018		$	(1,069	)		$	259			$	(810	)
Other comprehensive income (loss) before reclassifications			1,454				(353	)			1,101
Amount reclassified from AOCI			240				(58	)			182
Other comprehensive income (loss) for the year ended December 31, 2019			1,694				(411	)			1,283

Ending AOCI Balance - December 31, 2019		$	625			$	(152	)		$	473

Effects of derivative instruments on income and other comprehensive income (OCI) (Dollar amounts in thousands of U.S. dollars)

Derivatives in Cash Flow Hedging Relationship		*Amount of Gain or (Loss) Recognized in OCI, net of tax, on Derivative*			*Location of Gain or (Loss) Reclassified from AOCI into Income*		*Amount of Gain or (Loss) Reclassified from AOCI into Income*
					Operating expenses		$	2,652
Foreign currency forward contracts for the year ended December 31, 2021		$	(2,203	)	Cost of revenues		$	615

Interest rate swap contract for the year ended December 31, 2021		$	210		Interest expense, net		$	115

					Operating expenses		$	(188	)
Foreign currency forward contracts for the year ended December 31, 2020		$	2,026		Cost of revenues		$	(66	)

Interest rate swap contract for the year ended December 31, 2020		$	(163	)	Interest expense, net		$	(17	)

					Operating expenses		$	(197	)
Foreign currency forward contracts for the year ended December 31, 2019		$	1,283		Cost of revenues		$	(43	)

Interest rate swap contract for the year ended December 31, 2019		$	-		Interest expense, net		$	-

In addition to the above, for those foreign currency forward contracts not designated as hedges, the Company recorded the following fair value adjustments on settled and outstanding contracts (Dollar amounts in thousands of U.S. dollars):

		*Year Ended December 31,*
Forward currency contracts not designated as hedges:		*2021*				*2020*				*2019*

Gain (loss) on settlement			883				(117	)			(115	)

Gain (loss) on change in fair value			(606	)			500				313