Fair Value Disclosure

9 Months Ended

Mar. 31, 2020

The financial instruments of the Company measured at fair value on a recurring basis are included in cash equivalents, other assets and accrued liabilities. The Company classifies its financial instruments, except for its investment in an auction rate security, within Level 1 or Level 2 in the fair value hierarchy because the Company uses quoted prices in active markets or alternative pricing sources and models using market observable inputs to determine their fair value. The Company’s investment in an auction rate security is classified within Level 3 of the fair value hierarchy as the determination of its fair value was not based on observable inputs as of March 31, 2020 and June 30, 2019. The Company used discounted cash flows to estimate the fair value of the auction rate security as of March 31, 2020 and June 30, 2019. The material factors used in preparing the discounted cash flows are (i) the discount rate utilized to present value the cash flows, (ii) the time period until redemption and (iii) the estimated rate of return.

Financial Assets and Liabilities Measured on a Recurring Basis

The following table sets forth the Company’s cash equivalents, certificates of deposit, investment in an auction rate security and performance awards liability as of March 31, 2020 and June 30, 2019, which are measured at fair value on a recurring basis by level within the fair value hierarchy. These are classified based on the lowest level of input that is significant to the fair value measurement (in thousands):



March 31, 2020	Level 1		Level 2		Level 3		Asset at Fair Value
Assets
Money market funds (1)	$	1,164	$	—	$	—	$	1,164
Certificates of deposit (2)	—		577		—		577
Auction rate security	—		—		1,571		1,571
Total assets measured at fair value	$	1,164	$	577	$	1,571	$	3,312

Liabilities
Performance awards liability (3)	$	—	$	2,344	$	—	$	2,344
Total liabilities measured at fair value	$	—	$	2,344	$	—	$	2,344

June 30, 2019	Level 1		Level 2		Level 3		Asset at Fair Value
Assets
Money market funds (1)	$	1,162	$	—	$	—	$	1,162
Certificates of deposit (2)	—		1,285		—		1,285
Auction rate security	—		—		1,571		1,571
Total assets measured at fair value	$	1,162	$	1,285	$	1,571	$	4,018

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(1) $0.4 million and $0.4 million in money market funds are included in cash and cash equivalents and $0.8 million and $0.8 million in money market funds are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of March 31, 2020 and June 30, 2019, respectively.

(2) $0.2 million and $0.2 million in certificates of deposit are included in cash and cash equivalents and $0.4 million and $1.1 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of March 31, 2020 and June 30, 2019, respectively.

(3) As of March 31, 2020, the current portion of the performance awards liability of $2.2 million is included in accrued liabilities and the noncurrent portion of $0.1 million is included in other long-term liabilities in the condensed consolidated balance sheets. There was no such liability outstanding as of June 30, 2019.

The performance awards liability consists of one-time employee performance bonuses for the Company's Chief Executive Officer, a senior executive, two members of the Board, and other employees that are payable when specified market and performance conditions are achieved. The Company estimated the fair value of these performance awards using the Monte-Carlo simulation model and classified them within Level 2 of the fair value hierarchy as estimates are based on the observable inputs. The significant inputs used in estimating the fair value of the awards as of March 31, 2020 are as follows:



Stock Price as of Period End	Performance Period	Risk-free Rate	Volatility	Dividend Yield

$21.28	1.5 - 2.5 years	0.26%	53.8%	—%

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and nine months ended March 31, 2020 and 2019.

There was no movement in the balances of the Company's financial assets measured at fair value on a recurring basis, consisting of investment in an auction rate security, using significant unobservable inputs (Level 3) for the three and nine months ended March 31, 2020 and 2019.

The following is a summary of the Company’s investment in an auction rate security as of March 31, 2020 and June 30, 2019 (in thousands):



	March 31, 2020 and June 30, 2019
	Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value
Auction rate security	$	1,750	$	—	$	(179	)	$	1,571

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of March 31, 2020 and June 30, 2019, total debt of $33.2 million and $23.6 million, respectively, is reported at amortized cost. This outstanding debt is classified as Level 2 as it is not actively traded. The amortized cost of the outstanding debt approximates the fair value.

Other Financial Assets - Investments into Non-Marketable Equity Securities

The Company's non-marketable equity securities are investments in privately held companies without readily determinable fair values. The Company accounts for these investments at cost minus impairment, if any, plus or minus changes from observable price changes in orderly transactions for the identical or similar investments by the same issuer. During the three and nine months ended March 31, 2020 and 2019, the Company did not record any upward or downward adjustments to the carrying values of the non-marketable equity securities related to observable price changes. The Company also did not record any impairment to the carrying values of the non-marketable equity securities during the three and nine months ended March 31, 2020. During the three and nine months ended March 31, 2019, the Company recorded impairment charges of $0.7 million for its non-marketable equity securities which had an initial cost basis of $0.7 million as it was determined the carrying value of the investments were not recoverable.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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