Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks primarily related to changes in interest rates. A 100 basis point change in interest rates would result in an annual change in the results of operations of $0.8 million pre‑tax. We do not enter into investments for trading or speculative purposes.
Interest Rate Risk
As of December 31, 2023, the Company had $79.2 million in total debt principal outstanding. Note 12 — Financing Arrangements and Long-Term Debt in the Notes to Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations.
All of the Company’s total debt outstanding as of December 31, 2023 was based on a floating base rate (SOFR – Secured Overnight Financing Rate) of interest, which potentially exposes the Company to increases in interest rates. However, due to our debt to EBITDA ratio of 2.4 times and forecasted rates from external banks, we believe that our total exposure is limited and is considered in our forecasted cash uses.
Foreign Currency Risk
A significant portion o f our revenues are typically derived from sales outside of the United States. Among the major foreign currencies in which we conduct business are the Euro, the British Pound and the Australian dollar. The reporting currency of our consolidated financial statements is the U.S. dollar. As the values of the foreign currencies in which we operate fluctuate over time relative to the U.S. dollar, the Company is exposed to both foreign currency translation and transaction risk.
Translation risk arises as our foreign currency assets and liabilities are translated into U.S. dollars because the functional currencies of our foreign operations are generally denominated in the local currency. Adjustments resulting from the translation of these assets and
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liabilities are deferred and recorded as a component of stockholders’ equity. In 2023, the impact of foreign currency translation on our Statement of Stockholders’ Equity was $0.7 million. The translation of our foreign currency revenues and expenses historically has not had a material impact on our consolidated earnings because movements in and among the major currencies in which we operate tend to impact our revenues and expenses fairly equally. However, our earnings could be impacted during periods of significant exchange rate volatility, or when some or all of the major currencies in which we operate move in the same direction against the U.S. dollar.
Transaction risk arises when we enter into a transaction that is denominated in a currency that may differ from the local functional currency. As these transactions are translated into the local functional currency, a gain or loss may result, which is recorded in current period earnings. In 2023, the impact on revenues from foreign currency transactions was not material to our condensed consolidated financial statements.
Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of short-term, highly liquid investments classified as cash equivalents and accounts receivable and contract assets. The majority of the Company’s cash and cash equivalents are with large investment-grade commercial banks. Accounts receivable and contract assets balances deemed to be collectible from customers have limited concentration of credit risk due to our diverse customer base and geographies.
Item 8. Financial Statements and Supplementary Data
Reference is made to our financial statements beginning on page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.