v3.25.2
Derivative Instruments
 6 Months Ended
Jun. 30, 2025
Derivative Instruments [Abstract]  
Derivative Instruments

Note 5. Derivative Instruments

 

The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates.

 

ASC 815, “Derivatives and Hedging” (“ASC 815”), requires the Company to recognize all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, an entity must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

 

Gains and losses on derivatives instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that are attributable to a particular risk), are recorded in other comprehensive income and reclassified into statement of comprehensive income (loss) in the same accounting period in which the designated forecasted transaction or hedged item affects earnings.

 

The Company entered into option and forward contracts to hedge a portion of anticipated New Israeli Shekel (“NIS”) payroll and benefit payments. These derivative instruments are designated as cash flow hedges, as defined by ASC 815 and accordingly are measured at fair value. These transactions are effective and, as a result, gain or loss on the derivative instruments are reported as a component of accumulated other comprehensive income and reclassified as Cost of revenues and Operating expenses, at the time that the hedged income/expense is recorded.

 

   Net Notional amount   Fair value 
   June 30,
2025		   December 31,
2024		   June 30,
2025		   December 31,
2024		 
   (Unaudited)       (Unaudited)     
Option contracts to hedge payroll                
expenses NIS  $34,352   $24,580   $2,130   $346 
Forward contracts to hedge payroll                    
expenses NIS   11,267    3,495    824    96 
   $45,619   $28,075   $2,954   $442 

 

The Company currently hedges its exposure to the variability in future cash flows for a maximum period of one year. As of June 30, 2025, the Company expects to reclassify all of its unrealized gains and losses from other comprehensive income to earnings during the next twelve months. The fair value of the Company’s outstanding derivative instruments on June 30, 2025 and December 31, 2024 is summarized below:

 

      Fair value of derivative
instruments		 
      June 30,   December 31, 
      2025   2024 
   Balance Sheet line item  (Unaudited)     
Derivative assets and liabilities:           
Foreign exchange option contracts  Prepaid expenses and other current assets  $2,217   $457 
Foreign exchange forward contracts  Prepaid expenses and other current assets   824    96 
Foreign exchange option contracts  Other account payable  $(87)  $(111)

The effect of derivative instruments in cash flow hedging relationship on other comprehensive income for the six months ended June 30, 2025 and 2024, is summarized below:

 

   Amount of gain (loss)
recognized in other
comprehensive income on
derivative, net of tax		 
   Six months ended June 30, 
   2025   2024 
   (Unaudited)   (Unaudited) 
Derivatives in foreign exchange cash flow hedging relationships:        
Forward contracts  $727   $
—
 
Option contracts   2,130    (652)
   $2,857   $(652)

 

Derivatives in foreign exchange cash flow hedging relationships for the six months ended June 30, 2025 and 2024, is summarized below:

 

      Amount of gain reclassified from other
comprehensive income into expenses, net of tax		 
      Six months ended June 30, 
      2025   2024 
   Statements of income line  (Unaudited)   (Unaudited) 
Option contracts to hedge payroll  Cost of revenues and operating expenses  $(614)  $(198)
Forward contracts to hedge payroll  Cost of revenues and operating expenses   (86)   
—
 
      $(700)  $(198)