Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
We
are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial
position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in
foreign currency exchange rates, customer concentrations, and interest rates. We do not hold or issue financial instruments for trading
purposes.
Foreign
Currency Exchange Risk
Approximately
68.2%, 60.1% and 54.3% of our revenues for the years ended December 31, 2023, 2022 and 2021, respectively, were earned in non-U.S. dollar
denominated currencies, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located,
primarily the U.S. dollar and New Israeli Shekel ("NIS"), Euro, and the South Korean Won ("KRW"). Our NIS denominated expenses consist
primarily of personnel and overhead costs. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations
due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.
A hypothetical 10% change in foreign currency exchange rates between the Euro and the U.S. dollar would increase or decrease our net income
by $194.7 million for the year ended December 31, 2023. A hypothetical 10% change in foreign currency exchange rates between the NIS and
the U.S. dollar would increase or decrease our net income by $39.3 million for the year ended December 31, 2023.
For
purposes of our consolidated financial statements, local currency assets and liabilities are translated at the rate of exchange to the
U.S. dollar on the balance sheet date and local currency revenues and expenses are translated at the exchange rate as of the date of the
transaction or at the average exchange rate to the U.S. dollar during the reporting period.
To
date, we have used derivative financial instruments, specifically foreign currency forward contracts and put and call options, to manage
exposure to foreign currency risks by hedging portions of the anticipated payroll payments denominated in NIS. Our foreign currency forward
contracts are expected to mitigate exchange rate changes related to the hedged assets. Those hedging contracts are designated as cash
flow hedges.
In
addition, from time to time we enter into derivative financial instruments to hedge the Company’s exposure to currencies other than
the U.S. dollar, mainly forward contracts or put and call options to sell Euro for U.S. dollars. These derivative instruments are not
designated as cash flow hedges.
We
had cash and cash equivalents of $338.5 million and $783.1 million as of December 31, 2023 and 2022, respectively, which was held for
working capital purposes. We had available-for-sale marketable securities with an estimated fair value of $929.4 million and $886.6 million
as of December 31, 2023 and 2022, respectively. In addition, we had restricted bank deposits of 0.3 million and $1.9 million as of December
31, 2023 and 2022, respectively.
Additionally,
our hedging activities may also contribute to increased losses as a result of volatility in foreign currency markets. If foreign exchange
currency markets continue to be volatile, such fluctuations in foreign currency exchange rates could materially and adversely affect our
profit margins and results of operations in future periods. Also, the volatility in the foreign currency markets may make it difficult
to hedge our foreign currency exposures effectively.
Concentrations
of Major Customers
Our
trade accounts receivables potentially expose us to a concentration of credit risk with our major customers. For the year ended December
31, 2023, two major customers accounted for 24.0% of our total revenues, and as of December 31, 2023, three major customers accounted
for approximately 46.8% of our consolidated trade receivables balance. For the year ended December 31, 2022, one major customers accounted
for 18.5% of total revenues, and as of December 31, 2022, two major customers accounted for approximately 42.2% of our consolidated trade
receivables balance. We currently do not foresee a credit risk associated with these receivables.
Commodity
Price Risk
We
are subject to risk from fluctuating market prices of certain commodity raw materials which are used in our products, including Copper,
Lithium, Nickel and Cobalt. Prices of these raw materials may be affected by supply restrictions or other market factors from time to
time, and we do not enter into hedging arrangements to mitigate commodity risk. Significant price changes for these raw materials could
reduce our operating margins if we are unable to recover such increases from our customers, and could harm our business, financial condition,
and results of operations.
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