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Note 5 - Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2022
Notes to Financial Statements |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | 5. Derivative Instruments and Hedging Activities: The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign exchange rate risk and interest rate risk. 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. 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 Second Amended 2019 Credit Facility. The notional value of the interest rate swap was $70 million. The Company does not use hedging forward contracts for trading or speculative purposes. The foreign exchange contracts typically mature between one and twelve months, and the interest rate swap matures in June 2023. The Company has designated certain of these foreign exchange transactions as cash flow hedges of forecasted transactions under ASU 2017-12, Derivatives and Hedging (Topic 815) (“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. The Company has also designated the interest rate swap as a cash flow hedge of expected future interest payments. Accordingly, for the foreign exchange, unrealized gains or losses on the effective portion of these contracts have been included within other comprehensive income and reclassified to earnings when the hedged transaction is recognized in earnings. Cash flows from hedging activities are classified under the same category as the cash flows from the hedged items in the consolidated statements of cash flows. The fair value of the contracts, as of September 30, 2022 and December 31, 2021, 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. During the third quarter of fiscal year 2022, the Company elected to discontinue its application of hedge accounting to its interest rate swaps prospectively. The derivatives continue to be carried at fair value in the accompanying Consolidated Balance Sheets with changes in their fair value from the date of discontinuance recognized in current period earnings in Interest expense, net in the Consolidated Statements of Operations and Comprehensive Income. Amounts previously accumulated in Accumulated other comprehensive income prior to discontinuance will continue to be realized over the remaining term of the underlying forecasted interest payments as a component of Accumulated other comprehensive income in Stockholders’ equity and the amounts in AOCI as of the date of the hedge discontinuance will be recorded into interest expense over the original term of the hedged debt. Prior to the discontinuance, for the interest rate swap contracts, unrealized gains or losses on the effective portion of these contracts had been included within other comprehensive income and reclassified to earnings when the hedged transaction is recognized in earnings. As of September 30, 2022, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $64.6 million, of which $64.6 million met the requirements of ASC Topic 815 and were designated as hedges. 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 September 30, 2022, 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 Asset |
October - December 2022 |  | $ | 14,897 |  |  |  | 1.2906 |  |  | $ | (971 | )
January - March 2023 |  |  | 15,132 |  |  |  | 1.3283 |  |  |  | (552 | )
April - June 2023 |  |  | 13,074 |  |  |  | 1.3385 |  |  |  | (364 | )
July - September 2023 |  |  | 11,332 |  |  |  | 1.3633 |  |  |  | (102 | )
October - December 2023 |  |  | 10,150 |  |  |  | 1.3744 |  |  |  | - |
|  | $ | 64,585 |  |  |  | 1.3351 |  |  | $ | (1,989 | )
Fair value of derivative instruments and effect of derivative instruments on financial performance The effect of these derivative instruments on our consolidated financial statements were as follows (amounts presented do not include any income tax effects). Fair value of derivative instruments in the consolidated balance sheets
Derivatives (Dollar amounts in thousands of U.S. dollars) |  | Balance Sheet Location |  | As of September 30, 2022 Fair Value Asset |  |  | As of December 31, 2021 Fair Value Asset |
Foreign Currency forward contracts designated as cash flow hedges (net) |  | Derivative instruments |  | $ | (1,989 | ) |  | $ | 62 |
Interest rate swap contract discontinued as a cash flow hedge (net) |  | Derivative instruments |  |  | 2,015 |  |  | $ | 390 |
Total foreign currency and interest swap forward contracts (net) |  | Derivative instruments |  | $ | 26 |  |  | $ | 452 |
Movement in accumulated other comprehensive income (AOCI) balance for the three months ended September 30, 2022 (Dollar amounts in thousands of U.S. dollars)
|  | Gains and losses on cash flow hedges |  |  | Tax impact |  |  | Total AOCI |
Opening AOCI balance - June 30, 2022 |  | $ | 1,974 |  |  | $ | (476 | ) |  | $ | 1,498 |
Other comprehensive income (loss) before reclassifications |  |  | (2,209 | ) |  |  | 535 |  |  |  | (1,674 | )
Amount reclassified from AOCI |  |  | 123 |  |  |  | (30 | ) |  |  | 93 |
Amortization of discontinued cash flow hedge |  |  | (254 | ) |  |  | 61 |  |  |  | (193 | )
Other comprehensive income (loss) for the three months ended September 30, 2022 |  |  | (2,340 | ) |  |  | 566 |  |  |  | (1,774 | )
Ending AOCI Balance - September 30, 2022 |  | $ | (366 | ) |  | $ | 90 |  |  | $ | (276 | )
Movement in accumulated other comprehensive income (AOCI) balance for the nine months ended September 30, 2022 (Dollar amounts in thousands of U.S. dollars)
|  | Gains and losses on cash flow hedges |  |  | Tax impact |  |  | Total AOCI |
Opening AOCI balance - December 31, 2021 |  | $ | 450 |  |  | $ | (107 | ) |  | $ | 343 |
Other comprehensive income (loss) before reclassifications |  |  | (673 | ) |  |  | 163 |  |  |  | (510 | )
Amount reclassified from AOCI |  |  | 111 |  |  |  | (27 | ) |  |  | 84 |
Amortization of discontinued cash flow hedge |  |  | (254 | ) |  |  | 61 |  |  |  | (193 | )
Other comprehensive income (loss) for the nine months ended September 30, 2022 |  |  | (816 | ) |  |  | 197 |  |  |  | (619 | )
Ending AOCI Balance - September 30, 2022 |  | $ | (366 | ) |  | $ | 90 |  |  | $ | (276 | )
Effects of derivative instruments on income and other comprehensive income (OCI) for the three months ended September 30, 2022 and 2021 are as follows (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 |  | $ | (97 | )
Foreign currency forward contracts for the three months ended September 30, 2022 |  | $ | (1,666 | ) | Cost of revenues |  | $ | (26 | )
Interest rate swap contract for the three months ended September 30, 2022 |  | $ | (8 | ) | Interest expense, net |  | $ | 254 |
|  |  |  |  | Operating expenses |  | $ | 967 |
Foreign currency forward contracts for the three months ended September 30, 2021 |  | $ | (466 | ) | Cost of revenues |  | $ | 219 |
Interest rate swap contract for the three months ended September 30, 2021 |  | $ | (35 | ) | Interest expense, net |  | $ | (36 | )
Effects of derivative instruments on income and other comprehensive income (OCI) for the nine months ended September 30, 2022 and 2021 are as follows (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 |  | $ | (145 | )
Foreign currency forward contracts for the nine months ended September 30, 2022 |  | $ | (1,941 | ) | Cost of revenues |  | $ | (35 | )
Interest rate swap contract for the nine months ended September 30, 2022 |  | $ | 1,431 |  | Interest expense, net |  | $ | 323 |
|  |  |  |  | Operating expenses |  | $ | 3,004 |
Foreign currency forward contracts for the nine months ended September 30, 2021 |  | $ | 42 |  | Cost of revenues |  | $ | 643 |
Interest rate swap contract for the nine months ended September 30, 2021 |  | $ | 73 |  | Interest expense, net |  | $ | (81 | )
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):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
Forward currency contracts not designated as hedges: |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Gain (loss) on settlement |  | $ | - |  |  | $ | 336 |  |  | $ | - |  |  | $ | 883 |
Gain (loss) on change in fair value |  | $ | - |  |  | $ | (249 | ) |  | $ | - |  |  | $ | (606 | )
|  | - |  |  | 87 |  |  | - |  |  | 277 |
For those interest rate swap 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):
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Interest rate swap contracts not designated as hedges: |  | 2022 |  | 2021 |  | 2022 |  | 2021
Gain (loss) on matured swaps | $ | 254 | $ | - | $ | 254 | $ | -
Gain (loss) on change in fair value on unsettled swaps | $ | 136 | $ | - | $ | 136 | $ | -
|  | 390 |  | - |  | 390 |  | -

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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