QUALYS, INC. 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk   We have domestic and international operations and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and inflation risks, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. To reduce certain of these risks, we monitor the financial condition of our large customers and limit credit exposure by collecting subscription fees in advance.   Foreign Currency Risk   Our results of operations and cash flows have been and will continue to be subject to fluctuations because of changes in foreign currency exchange rates, particularly changes in exchange rates between the U.S. dollar and the Euro, GBP and INR, the currencies of countries where we currently have our most significant international operations. Our expenses in international locations are generally denominated in the currencies of the countries in which our operations are located.   The cash flow effects of our derivative contracts for the year ended December 31, 2020 and 2019 were included within net cash provided by operating activities on our consolidated statements of cash flows. At December 31, 2020, we had 39 open designated cash flow hedge forward contracts with notional amounts of €25.9 million, £8.7 million and Rs. 1,933.5 million. During the fiscal year ended December 31, 2020, we recorded $2.0 million of unrealized foreign exchange losses (net of realized gains and losses and tax) related to the designated cash flow hedge contracts in AOCI. At December 31, 2019, we had 26 open cash flow hedge contracts with notional amount of €24.2 million and £9.7 million. We recorded $0.4 million of unrealized foreign exchange gains (net of realized gains and losses and tax) related to the designated cash flow hedge contracts in AOCI.   For further details, see Part II, Item 8 of this Annual Report on Form10-K Note 2, Fair Value of Financial Instruments.   Interest Rate Sensitivity   We have $454.5 million in cash, cash equivalents and marketable securities at December 31, 2020. Cash and cash equivalents include cash held in banks, highly liquid money market funds and commercial paper. Marketable securities consist of fixed-income U.S. and foreign government agency securities, corporate bonds, asset-backed securities and commercial paper. We determine the appropriate balance sheet classification of our marketable securities at the time of purchase and reevaluate such designation at each balance sheet date. We classify our marketable securities as either short-term or long-term based on each instrument's underlying contractual maturity date.   The primary objectives of our investment activities are the preservation of principal and support of our liquidity requirements. We do not invest for trading or speculative purposes. Our marketable securities are subject to market risk due to changes in interest rates, which may affect the interest income we earn and the fair market value. We do not believe that a 10% increase or decrease in interest rates would have a material impact on our operating results or cash flows.   51 Table of Contents