Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial condition due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency rates, although we also have exposure due to potential changes in interest rates. We do not hold financial instruments for trading purposes.
Foreign Currency Exchange Risk
Our revenues, earnings, cash flows, receivables, and payables are subject to fluctuations due to changes in foreign currency exchange rates. We regularly evaluate our foreign currency positions in the context of the natural hedging of revenues and expenses and corresponding exposure. We have concluded that our naturally hedged positions support our strategy and no incremental hedging strategies have been deployed. The primary currencies for which we have exchange rate exposure are the U.S. dollar versus euros, British pounds, Canadian dollars, Australian dollars, Chinese yuan renminbi, and New Zealand dollars. For the year ended December 31, 2025, approximately 59% of our total revenues are derived from outside of the U.S. and approximately 33% of our revenues are denominated in a currency other than the U.S. dollar. In 2025, 67%, 11%, 6%, 3%, and 13% of our total revenues were denominated in U.S. dollars, euros, British pounds, Canadian dollars, and other currencies, respectively, and 55%, 13%, 8%, 7%, and 17% of our aggregate cost of revenues and operating expenses were denominated in U.S. dollars, euros, British pounds, Canadian dollars, and other currencies, respectively. Financial results therefore are affected by changes in foreign currency rates. We estimate that a 10% strengthening of the U.S. dollar versus our other currencies would have increased our 2025 annual operating income by approximately $2.4 million.
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Table of C ontents
Interest Rate Risk
The interest rates on our Credit Facility fluctuate based on various market conditions that affect the Secured Overnight Financing Rate (“SOFR”), the prime rate, or the overnight bank funding effective rate. The cost of borrowing thereunder may be impacted as a result of our interest rate risk exposure. Effective on April 2, 2020, we entered into an interest rate swap with a notional amount of $200.0 million and a ten‑year term to reduce the interest rate risk associated with a portion of our floating rate debt. Under the terms of the interest rate swap, we pay a fixed interest rate of 72.9 basis points (“bps”), and will receive a floating interest rate equal to daily SOFR plus an Alternative Reference Rates Committee (“ARRC”) spread adjustment of 11.448 bps. We do not enter into investments or derivative instruments for trading or speculative purposes. The fair value of our 2026 Notes and 2027 Notes is subject to interest rate risk, market risk, and other factors due to the conversion feature. The capped call options that were entered into concurrently with the issuance of our 2026 Notes and 2027 Notes were completed to reduce the potential dilution from the conversion of the 2026 Notes and 2027 Notes. The fair value of the 2026 Notes and 2027 Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the 2026 Notes and 2027 Notes will generally increase as our Class B common stock price increases and will generally decrease as the common stock price declines. The interest and market value changes affect the fair value of the 2026 Notes and 2027 Notes, but do not impact our financial condition, results of operations, or cash flows due to the fixed nature of the debt obligation. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. We had cash and cash equivalents of $123.3 million and $64.0 million as of December 31, 2025 and 2024, respectively, which consisted of bank deposits and money market funds maintained at various financial institutions. The cash and cash equivalents are held primarily for working capital purposes. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included at the end of this report beginning on page F‑1.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.