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Derivatives and Hedging Activities
3 Months Ended
Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities
Note 7 - Derivatives and Hedging Activities
Interest Rate Hedges
We are exposed to risks from changes in interest rates related to the first lien term loan (See Note 6 - Financing Arrangements). The Company uses derivative financial instruments, specifically, interest rate swap contracts, in order to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Our primary objective in holding derivatives is to reduce the volatility of cash flows associated with changes in interest rates. The Company does not enter into derivative transactions for speculative or trading purposes.
As of March 31, 2024, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in millions):
Interest Rate Derivatives (Level 2)Number of InstrumentsNotional Aggregate Principal AmountInterest Cap / Swap RateMaturity Date
Interest rate cap contractOne$100.0 3.500 %April 30, 2024
Interest rate swap contractsTwo500.0 0.370 %January 30, 2026
The derivative interest rate swaps are designated and qualify as cash flow hedges. Consequently, the change in the estimated fair value of the effective portion of the derivative is recognized in Accumulated other comprehensive income on our Consolidated Balance Sheets and reclassified to Interest expense, net, when the underlying transaction has an impact on earnings. The Company expects to recognize approximately $22.5 million of net pre-tax gains from accumulated other comprehensive income as a reduction of interest expense in the next twelve months associated with its interest rate swap.
Refer to the Company’s Consolidated Statements of Comprehensive Income for amounts reclassified from Accumulated other comprehensive income into earnings related to the Company’s Derivative Instruments designated as cash flow hedging instruments for each of the reporting periods.
Foreign Currency Hedges
We are exposed to changes in currency exchange rates, primarily relating to changes in the Israeli shekel. Consequently, from time to time, we may use foreign exchange forward contracts or other financial instruments to manage our exposure to foreign exchange rate movements. Our primary objective in holding derivatives is to reduce the volatility of cash flows associated with changes in foreign exchange rates. We do not enter into derivative transactions for speculative or trading purposes.
The derivative foreign currency forward contracts are designated and qualify as cash flow hedges. Consequently, the change in the estimated fair value of the effective portion of the derivative is recognized in Accumulated other comprehensive income on our Consolidated Balance Sheets and reclassified to revenue or operating expenses depending on the nature of the underlying transaction, when the underlying transaction has an impact on earnings. Impacts on Cash and cash equivalents are presented as operating cash flows on our Consolidated Statements of Cash Flows in the period contracts are settled. During the three months ended March 31, 2024, the Company did not have any outstanding foreign currency derivatives designated as cash flow hedges.
The following table summarizes the fair value and presentation on our Consolidated Balance Sheets for derivatives as of March 31, 2024 and December 31, 2023 (in millions):
March 31, 2024December 31, 2023
InstrumentDerivative AssetsDerivative LiabilitiesDerivative AssetsDerivative Liabilities
Derivatives designated as hedging instruments:
Interest rate cap contract(1)
$0.1 $— $0.6 $— 
Interest rate swap contracts(1)
22.5 — 21.2 — 
Interest rate swap contracts(2)
14.3 — 15.0 — 
Total designated derivative fair value$36.9 $— $36.8 $— 
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(1)Included in Prepaid expenses and other current assets on our Consolidated Balance Sheets.
(2)Included in Deferred costs and other assets, net of current portion on our Consolidated Balance Sheets.
Refer to the Company’s Consolidated Statements of Comprehensive Income for amounts reclassified from Accumulated other comprehensive income into earnings related to the Company’s Derivative Instruments designated as cash flow hedging instruments for each of the reporting periods.