Fair value of financial instruments

6 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair value of financial instruments

Fair value of financial instruments

Cash equivalents and short-term investments

We measure certain financial instruments at fair value on a recurring basis. We utilize a hierarchy, which consists of three levels, for disclosure of the inputs used to determine the fair value of our financial instruments.

Level 1 valuations are based on quoted prices in active markets for identical assets or liabilities.

Level 2 valuations are based on inputs that are observable, either directly or indirectly, other than quoted prices included within Level 1. Such inputs used in determining fair value for Level 2 valuations include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 valuations are based upon information that is unobservable and significant to the overall fair value measurement.

Where applicable, we use quoted prices in active markets for similar assets to determine fair value of Level 2 short-term investments. If quoted prices in active markets for identical assets are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly. If quoted prices for identical or similar assets are not available, we use third-party valuations utilizing underlying assets assumptions.

All of our cash equivalents and short-term investments are classified within Level 1 or Level 2. As of December 31, 2019 and June 30, 2019, we did not have any short-term investments that require Level 3 valuations. The fair values of these financial instruments were determined using the following inputs at December 31, 2019 (in thousands):

	Fair Value Measurements at December 31, 2019 Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	4,274	$	4,274	$	—	$	—
Municipal securities	750		—		750		—
Commercial paper	499		—		499		—
Total cash equivalents	5,523		4,274		1,249		—
Short-term investments:
U.S. treasury securities	2,627		2,627		—		—
U.S. agency securities	3,819		—		3,819		—
Asset-backed securities	20,520		—		20,520		—
Municipal securities	8,957		—		8,957		—
Commercial paper	3,677		—		3,677		—
Corporate bonds	63,003		—		63,003		—
Total short-term investments	102,603		2,627		99,976		—
Cash equivalents and short-term investments	$	108,126	$	6,901	$	101,225	$	—

The fair values of our financial instruments were determined using the following inputs at June 30, 2019 (in thousands):

	Fair Value Measurements at June 30, 2019 Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	790	$	790	$	—	$	—
Commercial paper	498		—		498		—
Total cash equivalents	1,288		790		498		—
Short-term investments:
U.S. treasury securities	3,572		3,572		—		—
U.S. agency securities	3,009		—		3,009		—
Asset-backed securities	12,413		—		12,413		—
Municipal securities	4,140		—		4,140		—
Commercial paper	1,986		—		1,986		—
Corporate bonds	45,734		—		45,734		—
Total debt securities	70,854		3,572		67,282		—
Marketable equity securities	1,349		1,349		—		—
Total short-term investments	72,203		4,921		67,282		—
Cash equivalents and short-term investments	$	73,491	$	5,711	$	67,780	$	—

Accretion of net premium on short-term investments totaled $75,000 and zero in the six months ended December 31, 2019 and 2018, respectively.

There were no transfers between Level 1 and Level 2 financial instruments in the six months ended December 31, 2019 and 2018.

We did not have any financial liabilities measured at fair value on a recurring basis as of December 31, 2019 or June 30, 2019.

Non-marketable equity investments

Our non-marketable equity securities are investments in privately held companies without readily determinable market values.

The carrying value of our non-marketable equity securities is measured at cost and adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense), net. Non-marketable equity securities that we remeasure are classified within Level 3 in the fair value hierarchy because we estimate the value based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities we hold.

Our net unrealized gains from non-marketable equity securities were $62,000 and $1.3 million in the six months ended December 31, 2019 and 2018, respectively. Our net unrealized gain of $1.3 million in the six months ended December 31, 2018 was due to the remeasurement to fair value of non-marketable equity securities upon the adoption of the measurement alternative on July 1, 2018.

The carrying value of our non-marketable equity securities, none of which required remeasurement to fair value, was $458,000 and $458,000 at December 31, 2019 and June 30, 2019, respectively.

In August 2019, we completed the disposition of our Ads Business in exchange for a non-marketable equity investment in inMarket Media, LLC ("inMarket") valued at $15.6 million. See Note 12. In assessing the fair value of our investment in inMarket, we made assumptions regarding estimated future cash flows, weighted average cost of capital and timing over which the cash flows will occur, amongst other factors.

An investment in a limited liability company such as inMarket that maintains a specific ownership account for each investor is deemed to be similar to an investment in a limited partnership. Accordingly, because we hold more than a 3% to 5% ownership interest in inMarket, we are required to account for our inMarket investment under the equity method of accounting. Our proportionate share of inMarket earnings for the period from the date of closing of the inMarket Transaction, August 16, 2019, through September 30, 2019 was not material. We recognized income of $797,000 related to our proportionate share of inMarket equity for the three and six months ended December 31, 2019.

Non-marketable debt investment

In the three months ended December 31, 2019, we invested $1.5 million in the form of a convertible note receivable in a privately held company without a readily determinable market value. The note receivable matures on October 31, 2021 or upon request for payment by a majority of note holders, or otherwise upon a change of control, qualified financing event or event of default involving the privately held company. The note converts to preferred stock or common stock upon certain events as defined, including a qualified preferred stock financing round or a change in control of ownership. Interest accrues annually at 6.5% and is due in full upon maturity.

In the three months ended September 30, 2019, we invested $2.0 million in the form of a convertible note receivable in a privately held company without a readily determinable market value. The note receivable matures upon request for payment by a majority of note holders no sooner than October 31, 2021, or otherwise upon a change of control, qualified financing event or event of default involving the privately held company. The note converts to preferred stock or common stock upon certain events as defined, including a qualified preferred stock financing round or a change in control of ownership. Interest accrues annually at 6% and is due in full upon maturity.

The convertible notes are classified as available for sale and are carried at fair value within Level 3, with any unrealized gains and losses, net of tax, reported as accumulated other comprehensive income (loss) and included as a separate component of stockholders’ equity. Gains and losses are recognized when realized. We did not have any unrealized or realized gains or losses in the three and six months ended December 31, 2019. The carrying value of our non-marketable debt investments was $3.5 million at December 31, 2019. We did not hold any non-marketable debt investments at June 30, 2019.