Fair Value Measurements

3 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

6. Fair Value Measurements

A three-tier fair value hierarchy is utilized to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are defined as follows:

• Level 1 Inputs - unadjusted quoted prices in active markets for identical assets or liabilities;

• Level 2 Inputs - quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and

• Level 3 Inputs - unobservable inputs reflecting the Company’s own assumptions in measuring the asset or liability at fair value.

The following table presents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis (in thousands):

September 30, 2018	Level 1		Level 2		Level 3		Total
Assets
Investments:
Marketable securities	$	887	$	—	$	—	$	887
Total assets measured at fair value	$	887	$	—	$	—	$	887
Liabilities
Acquisition-related contingent consideration obligations	$	—	$	—	$	11,233	$	11,233
Total liabilities measured at fair value	$	—	$	—	$	11,233	$	11,233

June 30, 2018	Level 1		Level 2		Level 3		Total
Assets
Investments:
Marketable securities	$	1,459	$	—	$	—	$	1,459
Total assets measured at fair value	$	1,459	$	—	$	—	$	1,459
Liabilities
Acquisition-related contingent consideration obligations	$	—	$	—	$	12,749	$	12,749
Total liabilities measured at fair value	$	—	$	—	$	12,749	$	12,749

Level 1 investments:    

The Company holds an investment in marketable equity securities which is classified as available-for-sale marketable securities at Level 1 as the investments have readily determinable fair value (see below, Level 3 investments). An unrealized holding gain on the investments was $0.5 million as of June 30, 2018.   

Level 2 assets and liabilities:    

The Company includes U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, and state, municipal and provincial obligations for which quoted prices are available as Level 2. There were no transfers of assets or liabilities between Level 1 and Level 2 for the periods presented.

The fair value of the borrowings under the Credit Agreement is estimated based on valuations provided by alternative pricing sources supported by observable inputs which is considered Level 2.  Due to the short duration until maturity of the Credit Agreement, the fair value approximates the face amount of the Company’s indebtedness of $187.6 million and $200.0 million as of September 30, 2018 and June 30, 2018, respectively. Such differences are immaterial for all periods presented.

Level 3 assets and liabilities: 

Certain of the Company’s assets, including intangible assets and goodwill are measured at fair value on a non-recurring basis if impairment is indicated.  

At June 30, 2018, the Company reflected a liability for contingent consideration related to a certain acquisition completed in Fiscal 2018. The fair value measurement of the contingent consideration obligation is determined using Level 3 inputs. The fair value of contingent consideration obligations is based on a discounted cash flow model.  These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.  Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period.  Changes in the value of the contingent consideration obligations would be recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations.

The change in the acquisition-related contingent consideration obligations is as follows (in thousands):

	Three Months Ended
	September 30, 2018			September 30, 2017
Beginning balance	$	12,749		$	—
Payments		(1,577	)		—
Accretion on discount		61			—
Ending balance	$	11,233		$	—

There were no transfers of assets or liabilities between Level 2 and Level 3 during the three months ended September 30, 2018 or 2017. There were no impairments recorded for the three months ended September 30, 2018 or 2017.