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Derivative Instruments
 12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Note 10. Derivative Instruments
The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates.
ASC 815, "Derivatives and Hedging" ("ASC 815"), requires the Company to recognize all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, an entity must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
Gains and losses on derivatives instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that are attributable to a particular risk), are recorded in accumulated other comprehensive income (loss) and reclassified into statement of income in the same accounting period in which the designated forecasted transaction or hedged item affects earnings.
The Company entered into option and forward contracts to hedge a portion of anticipated New Israeli Shekel ("NIS") payroll and benefit payments. These derivative instruments are designated as cash flow hedges, as defined by ASC 815 and accordingly are measured at fair value. These transactions are effective and, as a result, gain or loss on the derivative instruments are reported as a component of accumulated other comprehensive income and reclassified as payroll expenses or finance expenses, respectively, at the time that the hedged income/expense is recorded.

Net Notional amountFair value (Level 2 within the fair value hierarchy)
December 31December 31,
2022202120222021
Option contracts to hedge payroll
expenses NIS$31,833 $55,016 $173 $1,051 
Forward contracts to hedge payroll
expenses NIS5,598 16,077 (229)461 
$37,431 $71,093 $(56)$1,512 
The Company currently hedges its exposure to the variability in future cash flows for a maximum period of one year. As of December 31, 2022, the Company expects to reclassify all of its unrealized gains and losses from accumulated other comprehensive income to earnings during the next twelve months. The fair
value of the Company's outstanding derivative instruments at December 31, 2022 and 2021 is summarized below:


Fair value of derivative instruments
December 31,
Balance Sheet line item20222021
Derivative liabilities:
Foreign exchange option contractsPrepaid expenses and other current assets$173 $1,067 
Foreign exchange forward contractsPrepaid expenses and other current assets— 521 
Foreign exchange option contractsOther account payable(596)(563)
Foreign exchange forward contractsOther account payable$(229)$(61)



The effect of derivative instruments in cash flow hedging relationship on income and other comprehensive income for the year ended December 31, 2022, 2021 and 2020, is summarized below:

Amount of gain (loss) recognized in other comprehensive income on derivative, net of tax (effective portion)
Year ended December 31,
202220212020
Derivatives in foreign exchange cash flow hedging relationships:
Forward contracts$(643)$110 $2,082 
Option contracts(2,845)254935
$(3,488)$364 $3,017 

Derivatives in foreign exchange cash flow hedging relationships for the year ended December 31, 2022, 2021 and 2020 , is summarized below:
Amount of gain (loss) reclassified from other comprehensive income into income (expenses), net of tax (effective portion)
Year ended December 31,
Statements of income line item202220212020
Option contracts to hedge payrollCost of revenues and operating expenses$2,491 $(657)$(473)
Forward contracts to hedge payrollCost of revenues, operating expenses and financial expenses44 (651)(1,332)
$2,535 $(1,308)$(1,805)