Fair Value Measurement

3 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurement

NOTE 4 – 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 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):

	September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	1,704,202	$	—	$	—	$	1,704,202
U.S. treasury securities		74,998		—		—		74,998
		1,779,200		—		—		1,779,200
Short-term investments:
Corporate bonds		—		580,485		—		580,485
U.S. treasury securities		198,481		—		—		198,481
Asset-backed securities		—		32,019		—		32,019
Certificates of deposit		—		10,569		—		10,569
		198,481		623,073		—		821,554
Funds held for customers:
Restricted cash equivalents		5,150		52,814		—		57,964
Corporate bonds		—		575,327		—		575,327
Certificates of deposit		—		385,097		—		385,097
Municipal bonds		—		14,726		—		14,726
Asset-backed securities		—		35,712		—		35,712
U.S. treasury securities		6,113		—		—		6,113
		11,263		1,063,676		—		1,074,939
Beneficial interest derivative on    card receivables sold		—		—		2,693		2,693
Total assets measured at fair value	$	1,988,944	$	1,686,749	$	2,693	$	3,678,386

	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		6,887		79,435		—		86,322
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
		9,896		990,754		—		1,000,650
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 fair value of the beneficial interest derivative on card receivables sold is estimated using a discounted cash flow model, which uses Level 3 inputs. Significant input used includes a discount rate of 13.8% and loss rate estimate of 2.5% as of September 30, 2021, which is based upon the expected rate of the transferred card receivables’ payment in default. The loss rate is calculated using historical trends and ages of the outstanding card receivable balances. Other inputs, such as the expected repayments, are generally considered but had no material impact in the estimation of fair value of the beneficial interest derivative as of September 30, 2021. A change in inputs used to a different amount could result in a significantly higher or lower fair value measurement.

The Company has $575.0 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 September 30, 2021. The Company carries the Notes at par value, less the unamortized debt discount and 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 $603.7 million and $2.0 billion, respectively, as of September 30, 2021. 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.