The challenge
Navigating currency volatility
U.S. based Identity Digital was established in 2010 to expand and connect the online world through top level domains (TLDs). The company currently owns and manages 275 TLDs including .IO, .live, and .info.
A key revenue stream for Identity Digital comes from a multi-year contract with the Australian Government to manage the .AU domain. This contract is paid in Australian dollars, exposing the company’s margins to currency fluctuation. In addition, Identity Digital maintains a large office and associated operating expense in Canada, with bi-monthly CAD purchases to fund that operation.
“Previously we exchanged AUD and CAD on the spot market, which meant we were exposed to fluctuating exchange rates throughout the year,” explains Donald McClure, Chief Financial Officer, Identity Digital. “We’d see movements in our financials that were unrelated to our operating performance. It was frustrating to have variances versus budget driven by FX volatility.”
“When our Australian contract was renewed for a multi-year period, we knew it was time to find a specialist that could help us manage currency risk and reduce the impact of FX volatility on our business.”
The solution
Locking in certainty with forward contracts
To help drive predictability in its financial performance, Identity Digital partnered with Convera to implement a tailored FX hedging program. This strategy is built around forward contracts, which allow Identity Digital to lock in the current AUD and CAD exchange rate for up to 12 months, creating certainty around the cost of future expenses and revenue.
“After assessing other providers, we chose Convera because they offered a credit facility tailored to our exposure and tenor, without the need for collateral or margin calls required by traditional players. This was our first time implementing a currency hedging strategy so getting the program up and running efficiently was important to us,” McClure explains.
Identity Digital now hedges 100% of its annual net AUD revenues using fixed date forward contracts maturing at the end of every month. The company also hedges most of its monthly CAD expenses using window forward contracts. This allows Identity Digital to easily manage its bi-monthly Canadian funding needs by drawing down from the forward contract using Convera’s GlobalPay platform, while purchasing additional CAD at spot if needed.
“The online payment platform is very intuitive, and Convera was also able to provide us with an average exchange rate for each currency across the entire year, making the whole process very simple,” says McClure.
The results
Budget confidence and clarity
Identity Digital is now managing currency exposures more effectively, operating with greater confidence and financial predictability. The company can rely on its budgeted rates for both revenue and expenses, enabling more strategic decision making and forecasting.
“The Convera team are very hands on and collaborative,” says McClure. “From trade execution and post trade settlement, through to reporting, Convera truly provides a white glove service. This has been invaluable as we rolled out a currency risk strategy for the first time.”
Convera’s tailored hedging program has positioned Identity Digital to pursue international opportunities more aggressively, knowing that currency fluctuations won’t affect their financial plans.
“Managing FX risk allows us to operate globally with confidence. Convera’s solutions have empowered us by eliminating FX volatility relative to our budget so we can focus on what we do best, providing unique digital identities to businesses, organizations, and individuals around the world,” affirms McClure.
Convera’s solutions have empowered us by eliminating FX volatility relative to our budget so we can focus on what we do best, providing unique digital identities to businesses, organizations, and individuals around the world.”
Donald McClure
Chief Financial Officer, Identity Digital
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