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Note 4 - Derivative Instruments and Hedging Activities
 9 Months Ended
Sep. 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 Condensed Consolidated Statements of Cash Flows. The fair value of the foreign exchange contract, as of  September 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 September 30, 2025, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $40.1 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 September 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)

  
                         

October - December 2025

     12,958       1.3609       (230 )

January - March 2026

     14,248       1.3609       (200 )

April - June 2026

     12,933       1.3609       (138 )
    $ 40,139       1.3609     $ (568 )

 

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 Condensed Consolidated Balance Sheets 

 

Derivatives (Dollar amounts in thousands of U.S. dollars)

  

Balance Sheet Location

   As of September 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

   $ (568 )   $ (1,270 )

Total foreign currency forward contracts (net)

  

Derivative instruments

   $ (568 )   $ (1,270 )

 

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

 

   

Gains and losses on cash flow hedges

    

Tax impact

    

Total AOCI

  

Opening AOCI Balance - June 30, 2025

   $ 478     $ (116 )   $ 362  

Other comprehensive income (loss) before reclassifications

     (1,208 )     292       (916 )

Amount reclassified from AOCI

     162       (39 )     123  

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

     (1,046 )     253       (793 )
                         

Ending AOCI Balance - September 30, 2025

   $ (568 )   $ 137     $ (431 )

 

Movement in AOCI balance for the nine months ended September 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

     (310 )     71       (239 )

Amount reclassified from AOCI

     1,017       (245 )     772  

Other comprehensive income (loss) for the nine months ended September 30, 2025

     707       (174 )     533  
                         

Ending AOCI Balance - September 30, 2025

   $ (568 )   $ 137     $ (431 )

 

Effects of derivative instruments on income and AOCI for the three months ended September 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

   $ (129 )

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

   $ (916 )

Cost of revenues

   $ (33 )
                   
         

Operating expenses

   $ 7  

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

   $ 415  

Cost of revenues

   $ 2  
                   

 

Effects of derivative instruments on income and AOCI for the nine months ended September 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

   $ (815 )

Foreign currency forward contracts for the nine months ended September 30, 2025

   $ (239 )

Cost of revenues

   $ (202 )
                   
         

Operating expenses

   $ 190  

Foreign currency forward contracts for the nine months ended September 30, 2024

   $ (1,015 )

Cost of revenues

   $ 41