Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
Our consolidated results of operations, financial position and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Historically, the majority of our revenue contracts are denominated in U.S. Dollars, with the most significant exception being Japan where we invoice primarily in Japanese Yen. Our costs and expenses are generally denominated in the currencies where our operations are located, which is primarily in the Americas, EMEA and, to a lesser extent, the Asia Pacific region, including Japan. We have a hedging program with respect to foreign currency risk. Revenue resulting from selling in local currencies and costs and expenses incurred in local currencies are exposed to foreign currency exchange rate fluctuations, which can affect our revenue and operating income. As exchange rates vary, operating income may differ from expectations.
The functional currency of our foreign subsidiaries is the U.S. Dollar. At the end of each reporting period, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses related to remeasurement are recorded in interest and other income, net in the consolidated statements of operations. A significant fluctuation in the exchange rates between our subsidiaries’ local currencies, especially the Japanese Yen, British Pound and Euro, and the U.S. Dollar could have an adverse impact on our consolidated financial position and results of operations.
We recorded $2.1 million and $0.1 million of net foreign exchange gains in the years ended December 31, 2024 and 2023, respectively. We recorded $0.5 million of net foreign exchange losses during the year ended December 31, 2022.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our marketable securities. Our marketable securities are comprised of certificates of deposit, corporate securities, U.S. Treasury and agency securities, commercial paper and asset-backed securities and equity securities of publicly traded companies. We do not enter into investments for trading or speculative purposes. At December 31, 2024, our investment portfolio included marketable securities with an aggregate fair market value and amortized cost basis of $100.4 million and $100.2 million, respectively. Due to the current nature of our investment portfolio, the effect of a hypothetical 10% increase or decrease in interest rates would not have had a material impact on the fair value of our investment portfolio. Therefore, we do not expect our operating results or cash flows to be materially affected by a sudden change in interest rates.
The following table presents the hypothetical fair values of our marketable securities assuming immediate parallel shifts in the yield curve of 50 basis points (“BPS”), 100 BPS and 150 BPS as of December 31, 2024 (in thousands):
Fair Value as of
(150 BPS) (100 BPS) (50 BPS) 12/31/2024 50 BPS 100 BPS 150 BPS
Marketable securities $ 101,233 $ 100,965 $ 100,697 $ 100,429 $ 100,161 $ 99,893 $ 99,625
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