Fair Value Measurement

12 Months Ended

Jun. 30, 2022

FAIR VALUE MEASUREMENT

The Company measures and reports its cash equivalents, short-term investments, funds held for customers that are invested in money market funds and marketable debt securities, and beneficial interest derivative on card receivables sold at fair value. Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices 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 related assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity for the related assets or liabilities and typically reflect management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.

In determining fair value, the Company utilizes quoted market prices, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value.

The following tables set forth the fair value of assets that were measured at fair value on a recurring basis based on the three-tier fair value hierarchy as of the dates presented (in thousands):


	June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	1,424,259	$	—	$	—	$	1,424,259
Corporate bonds	—		11,430		—		11,430
	1,424,259		11,430		—		1,435,689
Short-term investments:
Corporate bonds	—		597,204		—		597,204
U.S. treasury securities	421,728		—		—		421,728
Asset-backed securities	—		51,406		—		51,406
Certificates of deposit	—		38,155		—		38,155
	421,728		686,765		—		1,108,493
Funds held for customers:
Restricted cash equivalents
Money market funds	34,703		—		—		34,703
Corporate bonds	—		133,557		—		133,557
	34,703		133,557		—		168,260
Short-term investments
Corporate bonds	—		807,685		—		807,685
Certificates of deposit	—		397,533		—		397,533
Municipal bonds	—		6,516		—		6,516
Asset-backed securities	—		69,912		—		69,912
U.S. treasury securities	3,072		—		—		3,072
	3,072		1,281,646		—		1,284,718
Beneficial interest derivative on card receivables sold	—		—		398		398
Total assets measured at fair value	$	1,883,762	$	2,113,398	$	398	$	3,997,558


	June 30, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	365,550	$	—	$	—	$	365,550
Corporate bonds	—		15,499		—		15,499
	365,550		15,499		—		381,049
Short-term investments:
Corporate bonds	—		466,459		—		466,459
U.S. treasury securities	155,674		—		—		155,674
Asset-backed securities	—		26,406		—		26,406
Certificates of deposit	—		6,775		—		6,775
	155,674		499,640		—		655,314
Funds held for customers:
Restricted cash equivalents
Money market funds	6,887		—		—		6,887
Corporate bonds	—		79,435		—		79,435
	6,887		79,435		—		86,322
Short-term investments
Corporate bonds	—		516,350		—		516,350
Certificates of deposit	—		326,927		—		326,927
Municipal bonds	—		42,957		—		42,957
Asset-backed securities	—		25,085		—		25,085
U.S. treasury securities	3,009		—		—		3,009
	3,009		911,319		—		914,328
Beneficial interest derivative on card receivables sold	—		—		2,252		2,252
Total assets measured at fair value	$	531,120	$	1,505,893	$	2,252	$	2,039,265

There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the periods presented.

The fair values of the Company’s Level 1 instruments were derived from quoted market prices and active markets for these specific instruments.

The valuation techniques used to measure the fair values of Level 2 instruments were derived from non-binding market consensus prices that were corroborated with observable market data, quoted market prices for similar instruments, or pricing models.

The initial and recurring fair value of the beneficial interest derivative on card receivables sold is estimated using a discounted cash flow model, which uses Level 3 inputs including a discount rate and a default rate. The default rate estimate is based upon the expected transferred card receivables that will ultimately default. The default rate is calculated using historical trends and ages of the outstanding card receivable balances. The default rate did not have a material impact in the estimation of fair value of the beneficial interest derivative as of June 30, 2022 and 2021. Other inputs, such as the discount rate and expected repayments, are generally considered but had no material impact in the estimation of fair value of the beneficial interest derivative as of June 30, 2022 and 2021. A ten percent increase or decrease in the discount rate or default rate used would not result in a significantly higher or lower fair value measurement.

The Company has $575 million and $1.15 billion in aggregate principal amount of its 0% convertible senior notes due in 2027 (2027 Notes) and in 2025 (2025 Notes, together with the 2027 Notes, the Notes), respectively, outstanding as of June 30, 2022. The Company carries the Notes at par value, less the unamortized debt discount and issuance costs in the accompanying consolidated balance sheets. The estimated fair value of the 2027 Notes and 2025 Notes, which is presented for disclosure purposes only, was approximately $446.4 million and $1.19 billion, respectively, as of June 30, 2022. The fair value was based on a market approach, which represents a Level 2 valuation estimate. The market approach was determined based on the actual bids and offers of the Notes in an over-the-counter market as of the last day of trading prior to the end of the period.

- 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.

+ References + Details