Fair Value Measurement

9 Months Ended

Mar. 31, 2024

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 contingent consideration 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 and liabilities 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):


	March 31, 2024
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	352,954	$	—	$	—	$	352,954
Corporate bonds	—		10,913		—		10,913
Certificates of deposit	—		1,952		—		1,952
	352,954		12,865		—		365,819
Short-term investments:
Corporate bonds	—		394,497		—		394,497
U.S. treasury securities	—		271,941		—		271,941
Asset-backed securities	—		78,338		—		78,338
Certificates of deposit	—		61,607		—		61,607
U.S. agency securities	—		30,757		—		30,757
	—		837,140		—		837,140
Funds held for customers:
Restricted cash equivalents:
Money market funds	917,948		—		—		917,948
Corporate bonds	—		239,513		—		239,513
	917,948		239,513		—		1,157,461
Short-term investments:
Corporate bonds	—		964,256		—		964,256
U.S. treasury securities	—		187,654		—		187,654
Certificates of deposit	—		74,909		—		74,909
Asset-backed securities	—		51,264		—		51,264
	—		1,278,083		—		1,278,083
Total assets measured at fair value	$	1,270,902	$	2,367,601	$	—	$	3,638,503


	June 30, 2023
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	1,131,621	$	—	$	—	$	1,131,621
Corporate bonds	—		45,301		—		45,301
U.S. treasury securities	44,856		—		—		44,856
Certificates of deposit	—		2,578		—		2,578
	1,176,477		47,879		—		1,224,356
Short-term investments:
Corporate bonds	—		479,483		—		479,483
U.S. treasury securities	408,368		—		—		408,368
U.S. agency securities	—		57,967		—		57,967
Asset-backed securities	—		51,193		—		51,193
Certificates of deposit	—		46,099		—		46,099
	408,368		634,742		—		1,043,110
Funds held for customers:
Restricted cash equivalents:
Money market funds	713,469		—		—		713,469
	713,469		—		—		713,469
Short-term investments:
Corporate bonds	—		433,920		—		433,920
Certificates of deposit	—		233,291		—		233,291
U.S. treasury securities	81,074		—		—		81,074
Asset-backed securities	—		70,661		—		70,661
U.S. agency securities	—		27,458		—		27,458
	81,074		765,330		—		846,404
Total assets measured at fair value	$	2,379,388	$	1,447,951	$	—	$	3,827,339

Liabilities
Contingent consideration(1)	$	—	$	—	$	(12,035)	$	(12,035)
Total liabilities measured at fair value	$	—	$	—	$	(12,035)	$	(12,035)

(1) The Company used the probability-weighted discounted cash flow method to estimate the contingent consideration. The significant inputs used in the fair value measurement of the contingent consideration are the probability of payout and discount rate. As these inputs are not based on observable market data, the liability represents a Level 3 measurement within the fair value hierarchy.

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 Company had $575.0 million and $401.8 million 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 March 31, 2024. The Company carries the Notes at par value, less the unamortized issuance costs in the accompanying condensed consolidated balance sheets. The estimated fair value of the 2027 Notes and 2025 Notes, which is presented for disclosure purposes only, was approximately $495.9 million and $374.3 million, respectively, as of March 31, 2024. 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.

The Company's financial instruments not measured and recorded at fair value, includes cash, restricted cash, acquired cards receivables, interest receivable, incentive receivables and borrowings from revolving credit facility, are carried at amortized cost, which approximates their fair value. If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1; restricted cash, interest receivables, incentive receivables and borrowings from revolving credit facility would be classified as Level 2 and the acquired cards receivables would be classified as Level 3 in the fair value hierarchy.

- 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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