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Note 4 - Derivative Instruments and Hedging Activities
 6 Months Ended
Jun. 30, 2025
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

4. 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 formerly 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. The Company does not use hedging forward contracts for trading or speculative purposes. The foreign exchange contracts typically mature between one and twelve months. 

 

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): Targeted Improvements to Accounting for Hedging Activities (“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 being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, for the foreign exchange, unrealized gains or losses on the effective portion of these contracts were included within other comprehensive income and reclassified to earnings when the hedged transaction is settled. Cash flows from hedging activities were 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 foreign exchange contract, as of  June 30, 2025 and December 31, 2024, 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 June 30, 2025, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $55.6 million, all of which met the requirements of ASC Topic 815 and were designated as hedges.

 

As of December 31, 2024, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $29.4 million, all of which met the requirements of ASC Topic 815 and were designated as hedges.

 

As of June 30, 2025, 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 (Liability)

 
             

July - September 2025

  15,468   1.3609   52 

October - December 2025

  12,958   1.3609   97 

January - March 2026

  14,248   1.3609   154 

April - June 2026

  12,933   1.3609   175 
  $55,607   1.3609  $478 

 

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

 

The effect of these derivative instruments on our condensed 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 June 30, 2025 Fair Value Asset (Liability)  As of December 31, 2024 Fair Value Asset (Liability) 

Foreign Currency forward contracts designated as cash flow hedges (net)

 

Derivative instruments

 $478  $(1,270)

Total foreign currency forward contracts (net)

 

Derivative instruments

 $478  $(1,270)

 

Movement in Accumulated other comprehensive income (AOCI) balance for the three months ended June 30, 2025 (Dollar amounts in thousands of U.S. dollars)

 

  

Gains and losses on cash flow hedges

  

Tax impact

  

Total AOCI

 

Opening AOCI Balance - March 31, 2025

 $(479) $115  $(364)

Other comprehensive income (loss) before reclassifications

  837   (202)  635 

Amount reclassified from AOCI

  120   (29)  91 

Other comprehensive income (loss) for the three months ended June 30, 2025

  957   (231)  726 
             

Ending AOCI Balance - June 30, 2025

 $478  $(116) $362 

 

Movement in AOCI balance for the six months ended June 30, 2025 (Dollar amounts in thousands of U.S. dollars)

 

  

Gains and losses on cash flow hedges

  

Tax impact

  

Total AOCI

 

Opening AOCI balance - December 31, 2024

 $(1,275) $311  $(964)

Other comprehensive income (loss) before reclassifications

  897   (220)  677 

Amount reclassified from AOCI

  856   (207)  649 

Other comprehensive income (loss) for the six months ended June 30, 2025

  1,753   (427)  1,326 
             

Ending AOCI Balance - June 30, 2025

 $478  $(116) $362 

 

Effects of derivative instruments on income and AOCI for the three months ended June 30, 2025 and 2024 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

 $(94)

Foreign currency forward contracts for the three months ended June 30, 2025

 $635 

Cost of revenues

 $(26)
          
     

Operating expenses

 $- 

Foreign currency forward contracts for the three months ended June 30, 2024

 $(304)

Cost of revenues

 $- 
          

 

Effects of derivative instruments on income and AOCI for the six months ended June 30, 2025 and 2024 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

 $(686)

Foreign currency forward contracts for the six months ended June 30, 2025

 $677 

Cost of revenues

 $(170)
          
     

Operating expenses

 $184 

Foreign currency forward contracts for the six months ended June 30, 2024

 $(1,430)

Cost of revenues

 $39