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Fair Value of Financial Assets and Liabilities
 9 Months Ended
Mar. 31, 2023
Fair Value Disclosures [Abstract]  
Fair Value of Financial Assets and Liabilities Fair Value of Financial Assets and Liabilities
ASC Topic 820, “Fair Value Measurement” (“ASC 820”) establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

•Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

•Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.

•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Financial Assets and Liabilities Recorded at Fair Value

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and June 30, 2022 (in thousands):
March 31, 2023
Level 1Level 2Level 3Total
Assets:
Cash and cash equivalents:
Money market funds$204,449 $— $— $204,449 
Commercial paper — 156,887 — 156,887 
Government bonds - U.S.— 193,175 — 193,175 
Securities available for sale:
Certificate of deposit — 145,528 — 145,528 
Corporate bonds — 292,726 — 292,726 
Commercial paper — 186,143 — 186,143 
Agency bonds— 35,194 — 35,194 
Government bonds:
Non-U.S.— 6,108 — 6,108 
U.S.— 367,081 — 367,081 
Securitization notes receivable and residual trust certificates— — 25,235 25,235 
Other— — 1,016 1,016 
Servicing assets— — 771 771 
Derivative instruments— 49,459 — 49,459 
Total assets$204,449 $1,432,301 $27,022 $1,663,772 
Liabilities:
Servicing liabilities$— $— $3,674 $3,674 
Performance fee liability— — 1,697 1,697 
Residual trust certificates, held by third-parties— — 178 178 
Contingent consideration— — 14,580 14,580 
Profit share liability— — 2,190 2,190 
Derivative instruments— 284 — 284 
Total liabilities$— $284 $22,319 $22,603 
June 30, 2022
Level 1Level 2Level 3Total
Assets:
Cash and cash equivalents:
Money market funds$162,483 $— $— $162,483 
Certificates of deposit— 16,026 — 16,026 
Commercial paper— 229,272 — 229,272 
Government bonds - U.S.— 58,541 — 58,541 
Securities available for sale:
Certificate of deposit— 300,390 — 300,390 
Corporate bonds— 368,671 — 368,671 
Commercial paper— 478,293 — 478,293 
Government bonds:
Non-U.S.— 17,955 — 17,955 
U.S.— 378,386 — 378,386 
Securitization notes receivable and residual trust certificates— — 51,678 51,678 
Servicing assets— — 1,192 1,192 
Derivative instruments— 49,983 — 49,983 
Total assets$162,483 $1,897,517 $52,870 $2,112,870 
Liabilities:
Servicing liabilities$— $— $2,673 $2,673 
Performance fee liability— — 1,710 1,710 
Residual trust certificates, held by third-parties— — 377 377 
Contingent consideration— — 23,348 23,348 
Profit share liability— — 1,987 1,987 
Total liabilities$— $— $30,095 $30,095 

There were no transfers between levels during the periods ended March 31, 2023 and June 30, 2022.

Assets and Liabilities Measured at Fair Value on a Recurring Basis (Level 2)

Securities Available for Sale

As of March 31, 2023, we held marketable securities classified as available for sale. Management obtains pricing from one or more third-party pricing services for the purpose of determining fair value. Whenever available, the fair value is based on quoted bid prices as of the end of the trading day. When quoted prices are not available, other methods may be utilized including evaluated prices provided by third-party pricing services.

Derivative Instruments

As of March 31, 2023 and June 30, 2022, our derivative instruments are classified as Level 2 within the fair value hierarchy, based on prices quoted for similar financial instruments in markets that are not active. Refer to Note 13. Derivative Financial Instruments in the notes to the interim condensed consolidated financial statements for further details on our derivative instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Unobservable Inputs (Level 3)

We evaluate our financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. Since our servicing assets and liabilities, performance fee liability, securitization notes and residual trust certificates, contingent consideration, and profit share liability do not trade in an active market with readily observable prices, we use significant unobservable inputs to measure fair value. This determination requires significant judgments to be made.

Servicing Assets and Liabilities

We sold loans with an unpaid balance of $1.7 billion and $5.8 billion for the three and nine months ended March 31, 2023, respectively, and $2.0 billion and $5.6 billion for the three and nine months ended March 31, 2022, respectively, for which we retained servicing rights.

As of March 31, 2023 and June 30, 2022, we serviced loans which we sold with a remaining unpaid principal balance of $4.2 billion and $4.5 billion, respectively.

We use discounted cash flow models to arrive at an estimate of fair value. Significant assumptions used in the valuation of our servicing rights are as follows:

Adequate Compensation

We estimate adequate compensation as the rate a willing market participant would require for servicing loans with similar characteristics as those in the serviced portfolio. 

Discount Rate

Estimated future payments to be received under servicing agreements are discounted as a part of determining the fair value of the servicing rights. For servicing rights on loans, the discount rate reflects the time value of money and a risk premium intended to reflect the amount of compensation market participants would require.

Net Default Rate

We estimate the timing and probability of early loan payoffs, loan defaults and write-offs, thus affecting the projected unpaid principal balance and expected term of the loan, which are used to project future servicing revenue and expenses.

We earned $21.4 million and $64.3 million of servicing income for the three and nine months ended March 31, 2023, respectively, and $23.5 million and $44.2 million for the three and nine months ended March 31, 2022, respectively.

As of March 31, 2023 and June 30, 2022, the aggregate fair value of the servicing assets was measured at $0.8 million and $1.2 million, respectively, and presented within other assets on the interim condensed consolidated balance sheets. As of March 31, 2023 and June 30, 2022, the aggregate fair value of the servicing liabilities was measured at $3.7 million and $2.7 million, respectively, and presented within accrued expenses and other liabilities on the interim condensed consolidated balance sheets.
The following table summarizes the activity related to the aggregate fair value of our servicing assets (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Fair value at beginning of period$1,093 $2,178 $1,192 $2,349 
Initial transfers of financial assets— 1,991 433 3,105 
Subsequent changes in fair value(322)451 (854)(834)
Fair value at end of period$771 $4,620 $771 $4,620 

The following table summarizes the activity related to the aggregate fair value of our servicing liabilities (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Fair value at beginning of period$3,680 $8,626 $2,673 $3,961 
Initial transfers of financial assets1,954 2,940 6,149 13,826 
Subsequent changes in fair value(1,960)(5,960)(5,148)(12,181)
Fair value at end of period$3,674 $5,606 $3,674 $5,606 

The following tables presents quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of servicing assets and liabilities as of March 31, 2023 and June 30, 2022:

March 31, 2023
Unobservable InputMinimumMaximumWeighted Average
Servicing assetsDiscount rate30.00 %30.00 %30.00 %
Adequate compensation (1)
0.75 %3.00 %0.97 %
Gross default rate (2)
1.90 %10.64 %3.73 %
Servicing liabilitiesDiscount rate30.00 %30.00 %30.00 %
Adequate compensation (1)
0.75 %3.00 %2.23 %
Gross default rate (2)
10.25 %27.14 %13.35 %
June 30, 2022
Unobservable InputMinimumMaximumWeighted Average
Servicing assetsDiscount rate30.00 %30.00 %30.00 %
Adequate compensation(1)
0.78 %1.85 %1.10 %
Gross default rate (2)
0.59 %50.59 %1.59 %
Servicing liabilitiesDiscount rate30.00 %30.00 %30.00 %
Adequate compensation(1)
2.13 %2.34 %2.21 %
Gross default rate (2)
9.03 %24.44 %13.81 %
(1)Estimated annual cost of servicing a loan as a percentage of unpaid principal balance 
(2)Annualized estimated gross charge-offs as a percentage of unpaid principal balance
The following table summarizes the effect that adverse changes in estimates would have on the fair value of the servicing assets and liabilities given hypothetical changes in significant unobservable inputs (in thousands):
March 31, 2023June 30, 2022
Servicing assets
Gross default rate assumption:
Gross default rate increase of 25%$— $11 
Gross default rate increase of 50%$(1)$22 
Adequate compensation assumption:
Adequate compensation increase of 10%$(578)$— 
Adequate compensation increase of 20%$(1,156)$— 
Adequate compensation increase of 25%$— $(3,513)
Adequate compensation increase of 50%$— $(7,026)
Discount rate assumption:
Discount rate increase of 25%$(26)$(57)
Discount rate increase of 50%$(51)$(109)
Servicing liabilities
Gross default rate assumption:
Gross default rate increase of 25%$(14)$(10)
Gross default rate increase of 50%$(28)$(21)
Adequate compensation assumption:
Adequate compensation increase of 10%$3,104 $— 
Adequate compensation increase of 20%$6,207 $— 
Adequate compensation increase of 25%$— $6,139 
Adequate compensation increase of 50%$— $12,278 
Discount rate assumption:
Discount rate increase of 25%$(77)$(50)
Discount rate increase of 50%$(149)$(98)

Performance Fee Liability

In accordance with our agreements with our originating bank partners, we pay a fee for each loan that is fully repaid by the consumer, due at the end of the period in which the loan is fully repaid. We recognize a liability upon the purchase of a loan for the expected future payment of the performance fee. This liability is measured using a discounted cash flow model and recorded at fair value and presented within accrued expenses and other liabilities on the interim condensed consolidated balance sheets. Any changes in the fair value of the liability are reflected in other income, net, on the interim condensed consolidated statements of operations and comprehensive loss. 

The following table summarizes the activity related to the fair value of the performance fee liability (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Fair value at beginning of period$1,876 $1,530 $1,710 $1,290 
Purchases of loans337 432 1,388 1,265 
Settlements Paid(997)(418)(1,498)(418)
Subsequent changes in fair value481 40 97 (553)
Fair value at end of period$1,697 $1,584 $1,697 $1,584 
Significant unobservable inputs used for our Level 3 fair value measurement of the performance fee liability are the discount rate, refund rate, and default rate. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement.

The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the performance fee liability as of March 31, 2023 and June 30, 2022:

March 31, 2023
Unobservable InputMinimumMaximumWeighted Average
Discount rate10.00%10.00%10.00%
Refund rate1.50%1.50%1.50%
Default rate1.78%3.34%2.77%
June 30, 2022
Unobservable InputMinimumMaximumWeighted Average
Discount rate10.00%10.00%10.00%
Refund rate4.50%4.50%4.50%
Default rate1.78%3.10%2.42%

Residual Trust Certificates Held by Third-Parties in Consolidated VIEs

Residual trust certificates held by third-party investor(s) are measured at fair value, using a discounted cash flow model, and presented within accrued expenses and other liabilities on the interim condensed consolidated balance sheets. Any changes in the fair value of the liability are reflected in other income, net, on the interim condensed consolidated statements of operations and comprehensive loss. 

The following table summarizes the activity related to the fair value of the residual trust certificates held by third-parties (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Fair value at beginning of period$242 $619 $377 $914 
Repayments(71)(146)(248)(549)
Subsequent changes in fair value7 16 49 124 
Fair value at end of period$178 $489 $178 $489 

Significant unobservable inputs used for our Level 3 fair value measurement of the residual trust certificates held by third-parties are the discount rate, loss rate, and prepayment rate. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement.
The following table present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the residual trust certificates held by third-parties as of March 31, 2023 and June 30, 2022:

March 31, 2023
Unobservable InputMinimumMaximumWeighted Average
Discount rate10.00%15.00%10.00%
Loss rate0.75%1.13%0.75%
Prepayment rate4.00%8.00%8.00%

June 30, 2022
Unobservable InputMinimumMaximumWeighted Average
Discount rate10.00%10.00%10.00%
Loss rate0.75%0.75%0.75%
Prepayment rate8.00%8.00%8.00%

Retained Beneficial Interests in Unconsolidated VIEs

As of March 31, 2023, the Company held notes receivable and residual trust certificates with an aggregate fair value of $25.2 million in connection with unconsolidated securitizations. The balances correspond to the 5% economic risk retention the Company is required to maintain as the securitization sponsor.

These assets are measured at fair value using a discounted cash flow model, and presented within securities available for sale at fair value on the interim condensed consolidated balance sheets. Changes in the fair value, other than declines in fair value due to credit recognized as an allowance, are reflected in other comprehensive income (loss) on the interim condensed consolidated statements of operations and comprehensive loss. Declines in fair value due to credit are reflected in other income, net on the interim condensed consolidated statements of operations and comprehensive loss.

The following table summarizes the activity related to the fair value of the notes and residual trust certificates (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Fair value at beginning of period$32,766 $25,319 $51,678 $16,170 
Additions— 22,067 — 35,762 
Cash received (due to payments or sales)(8,012)(4,414)(26,847)(8,798)
Change in unrealized gain (loss)374 (402)(136)(586)
Accrued interest249 215 997 285 
Reversal of (impairment on) securities available for sale(143)(78)(458)(126)
Fair value at end of period$25,235 $42,707 $25,235 $42,707 

Significant unobservable inputs used for our Level 3 fair value measurement of the notes and residual trust certificates are the discount rate, loss rate, and prepayment rate. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement.
The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the residual trust certificates as of March 31, 2023 and June 30, 2022:

March 31, 2023
Unobservable InputMinimumMaximumWeighted Average
Discount rate4.45%29.84%6.96%
Loss rate1.16%17.39%3.58%
Prepayment rate7.00%30.30%19.72%
June 30, 2022
Unobservable InputMinimumMaximumWeighted Average
Discount rate3.68%22.50%5.37%
Loss rate0.61%10.95%2.65%
Prepayment rate5.25%35.00%18.48%

The following table summarizes the effect that adverse changes in estimates would have on the fair value of the securitization residual trust certificates given hypothetical changes in significant unobservable inputs (in thousands):
March 31, 2023June 30, 2022
Discount rate assumption:
Discount rate increase of 25%$(288)$(1,410)
Discount rate increase of 50%$(566)$(2,295)
Loss rate assumption:
Loss rate increase of 25%$(243)$(729)
Loss rate increase of 50%$(368)$(964)
Prepayment rate assumption:
Prepayment rate decrease of 25%$(45)$(545)
Prepayment rate decrease of 50%$(91)$(519)

Contingent Consideration

Our acquisition of PayBright, Inc. (“PayBright”) on January 1, 2021 included consideration transferred and 2,587,362 shares of our common stock held in escrow, contingent upon the achievement of future milestones. At the acquisition date, we classified the contingent consideration as a liability and estimated its fair value using a Monte Carlo simulation utilizing assumptions of simulated revenue, equity volatility, and a discount rate. The liability is remeasured to its fair value at each reporting date, utilizing a Monte Carlo simulation for periods in which actual revenues are unknown, until the contingency is resolved. During the year ended June 30, 2022, one of these milestones was achieved and 1,293,681 shares of our Class A common stock were released from escrow, resulting in a reduction to the contingent liability. During the nine months ended March 31, 2023, an additional milestone was achieved and the fair value was estimated based on the shares expected to be released from escrow multiplied by the estimated share price. The fair value estimate represents a Level 3 measurement, as the revenue milestone represents a significant unobservable input. The change in fair value of the contingent consideration at each reporting date is recognized as a component of other income, net in the interim condensed consolidated statements of operations and comprehensive loss for the respective period.
The following table summarizes the activity related to the fair value of the PayBright contingent consideration (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Fair value at beginning of period$12,510 $253,750 $23,348 $153,447 
Subsequent changes in fair value2,109 (136,248)(7,193)(28,682)
Effect of foreign currency translation(39)1,506 (1,575)(5,757)
Fair value at end of period$14,580 $119,008 $14,580 $119,008 

Profit Share Liability

On January 1, 2021, we entered into a commercial agreement with an enterprise partner, in which we are obligated to share in the profitability of transactions facilitated by our platform. Upon capture of a loan under this program, we record a liability associated with the estimated future profit to be shared over the life of the loan based on estimated program profitability levels. This liability is measured using a discounted cash flow model and recorded at fair value and presented within accrued expenses and other liabilities on the interim condensed consolidated balance sheets.

The following table summarizes the activity related to the fair value of the profit share liability (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Fair value at beginning of period$3,697 $2,053 $1,987 $2,465 
Facilitation of loans1,045 1,098 4,520 4,672 
Actual performance(3,890)(2,918)(6,154)(3,929)
Subsequent changes in fair value1,338 1,645 1,837 (1,330)
Fair value at end of period$2,190 $1,878 $2,190 $1,878 

Significant unobservable inputs used for our Level 3 fair value measurement of the profit share liability are the discount rate and estimated program profitability. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement.

The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the profit sharing liability as of March 31, 2023 and June 30, 2022:

March 31, 2023
Unobservable InputMinimumMaximumWeighted Average
Discount rate30.00%30.00%30.00%
Program profitability0.07%1.81%1.30%
June 30, 2022
Unobservable InputMinimumMaximumWeighted Average
Discount rate30.00%30.00%30.00%
Program profitability1.25%3.54%1.28%
Financial Assets and Liabilities Not Recorded at Fair Value

The following tables present the fair value hierarchy for financial assets and liabilities not recorded at fair value as of March 31, 2023 and June 30, 2022 (in thousands):

March 31, 2023
Carrying AmountLevel 1Level 2Level 3Balance at Fair Value
Assets:
Loans held for sale$122 $— $122 $— $122 
Loans held for investment, net3,599,206 — — 3,816,941 3,816,941 
Other assets9,637 — 9,637 — 9,637 
Total assets$3,608,965 $— $9,759 $3,816,941 $3,826,700 
Liabilities:
Convertible senior notes, net (1)
$1,413,345 $— $923,270 $— $923,270 
Notes issued by securitization trusts1,788,853 — — 1,743,862 1,743,862 
Funding debt (2)
1,527,919 — — 1,527,869 1,527,869 
Total liabilities$4,730,117 $— $923,270 $3,271,731 $4,195,001 
June 30, 2022
Carrying AmountLevel 1Level 2Level 3Balance at Fair Value
Assets:
Loans held for sale$2,670 $— $2,670 $— $2,670 
Loans held for investment, net2,348,169 — — 2,412,871 2,412,871 
Other assets12,661 — 12,661 — 12,661 
Total assets$2,363,500 $— $15,331 $2,412,871 $2,428,202 
Liabilities:
Convertible senior notes, net (1)
$1,706,668 $— $984,285 $— $984,285 
Notes issued by securitization trusts1,627,580 — — 1,529,401 1,529,401 
Funding debt (2)
683,395 — — 683,388 683,388 
Total liabilities$4,017,643 $— $984,285 $2,212,789 $3,197,074 
(1)The estimated fair value of the convertible senior notes is determined based on a market approach, using the estimated or actual bids and offers of the notes in an over-the-counter market on the last business day of the period.
(2)As of March 31, 2023 and June 30, 2022, debt issuance costs in the amount of $13.8 million and $10.8 million, respectively, was included within funding debt.