Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks. These risks, which include interest rate risk and foreign currency exchange risk, arise in the normal course of business rather than from trading activities.
Interest Rate Risk
Interest Expense and Restricted Cash
Our cash flow exposure due to changes in interest rates related to our 2032 Notes, IPv4 Notes, 2027 Mirror Notes and 2027 Notes is limited as these notes have fixed interest rates. Beginning in August 2021, we used a swap agreement to manage our interest rate
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risk on our 2026 Notes. Our Swap Agreement has the economic effect of modifying our fixed-interest rate obligation associated with our now extinguished 2026 Notes to a variable interest rate obligation based on SOFR. The Swap Agreement is recorded at its fair value at each reporting period and we incur gains and losses due to changes in market interest rates. The values that we report for the Swap Agreement as of each reporting date are recognized as an additional interest expense or a reduction to interest expense with the corresponding amount included in liabilities or assets, respectively, in our consolidated balance sheets. By entering into this Swap Agreement, we have assumed the risk associated with variable interest rates based upon SOFR related to our 2026 Notes. We have not entered into hedge agreements related to our 2032 Notes, IPv4 Notes, 2027 Mirror Notes or 2027 Notes, and we do not use derivative financial instruments for trading purposes. We have a $4.4 million interest-bearing deposit with the counterparty to our Swap Agreement. As of December 31, 2025, the fair value of the Swap Agreement was a liability of $4.1 million, and as a result, $4.1 million of the deposit was restricted and $0.3 million was unrestricted. A 1.0% change in interest rates as of December 31, 2025 would not materially impact the valuation of our Swap Agreement since it expired in February 2026.
Interest Income
Our interest income is sensitive to changes in the general level of interest rates. However, based upon the nature and current level of our investments, which consist of cash, cash equivalents and restricted cash, we believe that there is no material interest rate exposure related to our investments.
Foreign Currency Exchange Risk
Our operations outside of the United States expose us to potentially unfavorable adverse movements in foreign currency rate changes. We have not entered into forward exchange contracts related to our foreign currency exposure. While we record financial results and assets and liabilities from our international operations in the functional currency, which is generally the local currency, these results are reflected in our consolidated financial statements in US dollars. Therefore, our reported results are exposed to fluctuations in the exchange rates between the US dollar and the local currencies, in particular the Euro and the Canadian dollar. In addition, we may fund certain cash flow requirements of our international operations in US dollars. Accordingly, in the event that the local currencies strengthen versus the US dollar to a greater extent than planned, the revenues, expenses and cash flow requirements associated with our international operations may be significantly higher in US-dollar terms than planned. During the year ended December 31, 2025, our foreign activities accounted for 19.4% of our consolidated revenue. A 1.0% change in foreign exchange rates would impact our consolidated annual revenue by approximately $1.3 million. Changes in foreign currency rates could adversely and materially affect our operating results and cash flow.
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