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Fair Value Measurements

3 Months Ended

Sep. 30, 2019

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:

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

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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

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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, 2019	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	8,647	$	—	$	—	$	8,647
U.S. Treasuries		—		9,329		—		9,329
Corporate debt securities		—		12,408		—		12,408
Commercial Paper		—		7,968		—		7,968
Total assets measured at fair value	$	8,647	$	29,705	$	—	$	38,352
Liabilities
Acquisition-related contingent consideration obligations	$	—	$	—	$	5,693	$	5,693
Total liabilities measured at fair value	$	—	$	—	$	5,693	$	5,693

The Company had one fair value item at June 30, 2019, a level 3 acquisition-related contingent consideration obligation or $6.3 million.

Level 1 investments:

The Company holds investment in highly liquid money market funds which are classified as cash equivalents. The Company classifies these investments within Level 1 of the fair value hierarchy because the Company values them based on quoted market prices in active markets.

Level 2 assets and liabilities:

The Company holds investment in U.S. treasuries, investment-grade corporate bonds, corporate securities and commercial paper which are classified within Level 2 of the fair value hierarchy because the Company values them based on pricing obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market data or inputs corroborated by observable market data. The Company classifies these instruments as short-term investments unless their maturities are three months or less when purchases, in which case the Company classifies them as cash equivalents. There were no transfers of assets or liabilities between Level 1 and Level 2 for the periods presented.

All of the Level 1 and Level 2 assets are classified as available for sale securities. The amortized cost of the short-term investments approximates their fair value. As of September 30, 2019, unrealized gains and losses from the Company’s short-term investments were not material. All short-term investments that the Company held as of September 30, 2019 contractually mature within one year.

The fair value of the borrowings under the 2019 Credit Agreements is estimated based on valuations provided by alternative pricing sources supported by observable inputs which is considered Level 2. Due to the recent establishment of the Credit agreement, the fair value approximates the face amount of the Company’s indebtedness of $380.0 million and $180.5 million as of September 30, 2019, and June 30, 2019, respectively.

Level 3 assets and liabilities:

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. 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 is 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, 2019
Beginning balance		6,298
Payments		(635	)
Accretion on discount		30
Ending balance	$	5,693

There were no transfers of assets or liabilities between Level 2 and Level 3 during the three months ended September 30, 2019, or 2018. There were no impairments recorded for the three months ended September 30, 2019, or 2018.

Short-term investments include available-for-sale investment-grade debt securities that the Company carries at fair value. The Company accumulates unrealized gains and losses on the Company's available-for-sale debt securities, net of tax, in accumulated other comprehensive income in the stockholders' equity section of its balance sheets. Such an unrealized gain or loss does not reduce net income for the applicable accounting period. If the fair value of an available-for-sale debt instrument is less than its amortized cost basis, an other-than-temporary impairment is triggered in circumstances where (1) the Company intends to sell the instrument, (2) it is more likely than not that the Company will be required to sell the instrument before recovery of its amortized cost basis, or (3) the Company does not expect to recover the entire amortized cost basis of the instrument (that is, a credit loss exists). If the Company intends to sell or it is more likely than not that the Company will be required to sell the available-for-sale debt instrument before recovery of its amortized cost basis, the Company recognizes an other-than-temporary impairment in earnings equal to the entire difference between the debt instruments' amortized cost basis and its fair value. For available-for-sale debt instruments that are considered other-than-temporarily impaired due to the existence of a credit loss, if the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the instrument before recovery of its remaining amortized cost basis (amortized cost basis less any current-period credit loss), the Company separates the amount of the impairment into the amount that is credit related and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the debt instrument's amortized cost basis and the present value of its expected future cash flows. The remaining difference between the debt instrument's fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income.

The Company determines the basis of the cost of a security sold or the amount reclassified out of accumulated other comprehensive income into earnings using the specific identification method. Realized gains or losses recognized on the sale of investment securities were not significant for the quarters ending September 30, 2019 or September 30, 2018

- 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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