Fair Value Measurements

12 Months Ended

Mar. 31, 2020

The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:


•	Level 1—Quoted prices in active markets for identical assets or liabilities.


•	Level 2—Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.


•	Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis, excluding assets related to the Company's defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands):



	March 31, 2020						March 31, 2019
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	564,952	$	—	$	—	$	496,434	$	—	$	—
Trading investments for deferred compensation plan included in other assets:
Cash	$	846	$	—	$	—	$	—	$	—	$	—
Money market funds	$	7,147	$	—	$	—	$	4,080	$	—	$	—
Mutual funds	12,092		—		—		16,283		—		—
Total of trading investments for deferred compensation plan	$	20,085	$	—	$	—	$	20,363	$	—	$	—

Currency derivative assets included in other current assets	$	—	$	129	$	—	$	—	$	455	$	—

Liabilities:
Contingent consideration for business acquisition included in accrued and other current liabilities (Note3)	$	—	$	—	$	23,284	$	—	$	—	$	—
Currency derivative liabilities included in accrued and other current liabilities	$	—	$	719	$	—	$	—	$	36	$	—

The following table summarizes the change in the fair value of the Company's contingent consideration balance during fiscal year 2020 (in thousands):



	Year Ended March 31,
	2020
Acquisition-related contingent consideration, beginning of the year	$	—
Fair value of contingent consideration upon acquisition	37
Change in fair value of contingent consideration	23,247
Acquisition-related contingent consideration, end of the year	$	23,284

Trading Investments

The marketable securities for the Company's deferred compensation plan are recorded at a fair value of $20.1 million and $20.4 million as of March 31, 2020 and 2019, respectively, based on quoted market prices. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy. Unrealized trading gains related to trading securities for fiscal years 2020, 2019 and 2018 were not material and are included in other income (expense), net in the consolidated statements of operations.

Contingent Consideration for Business Acquisition

The contingent consideration for business acquisition arising from the Streamlabs Acquisition (see "Note 3 - Business Acquisition" to the consolidated financial statements for more information) represents the future potential earn-out payments of $29.0 million payable in stock only upon the achievement of certain net sales for the period beginning on January 1, 2020 and ending on June 30, 2020. The fair value of the earn-out as of the Streamlabs Acquisition Date was $0.04 million which was determined by using a Black-Scholes-Merton valuation model to calculate the probability of the earn-out threshold being met and times the value of the earn-out payment, and discounted at the risk-free rate. The valuation includes significant assumptions and unobservable inputs such as the projected sales of Streamlabs over the earn-out period, risk-free rate, and the net sales volatility. The fair value of the contingent consideration is remeasured at each reporting period based on the inputs on the date of re-measurement, with the change in fair value recognized as "change in fair value of contingent consideration for

business acquisition" in the operating expense section in the consolidated statements of operations. Projected sales are based on the Company's internal projections, including analysis of the target market and historical trend of active subscribers to the Streamlabs platform. The fair value of the contingent consideration was increased to $23.3 million as of March 31, 2020. The change in fair value of contingent consideration resulted from the growth in Streamlabs’ net sales since its acquisition and revised projected net sales in the remaining earn-out period.

Although these estimates are based on management’s best knowledge of current events, the estimates could change significantly from period to period. Actual results that differ from the assumptions used and any changes to the significant assumptions and unobservable inputs used could have a material impact on future results of operations.

Equity Method Investments

The Company has certain non-marketable investments included in other assets that are accounted for under the equity method of accounting, with a carrying value of $42.1 million and $6.6 million as of March 31, 2020 and 2019, respectively.

On March 2, 2020, the Company sold its $5.5 million investment in a privately held company for total proceeds of $45.3 million consisting of (i) $3.0 million in cash, of which $0.8 million is held in escrow, which is included in other current assets on the Company's consolidated balance sheet, (ii) a 6% subordinated note with a principal amount of $8.4 million due in 5 years together with the interest, at a fair value of $7.4 million, and (iii) 33.9 million Series A preferred units and 33.9 million Series B common units in Marlin-SL Topco, LP ("Marlin"), representing an ownership interest of approximately 11.8% in Marlin, with a face value of $33.9 million and a fair value of $35.0 million, respectively. As a result, the Company recorded a gain of $39.8 million in the fourth quarter of fiscal year 2020.

The fair value of the investment in the subordinated note and the Company's investment in preferred units of Marlin were determined using the discounted cash flow method ("DCF"), an income approach (Level 3) with an assumed yield of 10.3% and 12.5%, respectively. The fair value of the Company's investment in common units of Marlin was the residual between the calculated value of equity using market approach, and the fair value of the preferred units with a Discount for Lack of Marketability ("DLOM") of 19%.

The Company has evaluated whether Marlin qualifies as a variable interest entity ("VIE") pursuant to the accounting guidance of ASC 810, Consolidations. On the basis that the total equity investment in Marlin may not be sufficient to absorb its expected losses, the Company concluded that Marlin is currently a VIE. However, considering the Company's minority interest and limited involvement with the Marlin business, the Company concluded it is not required to consolidate Marlin. Rather, the Company accounts for this investment under the equity method as it represents an ownership interest in a limited partnership that is more than minor. The promissory note is accounted for as a loan receivable and is included in "Other assets" in the consolidated balance sheet.

Assets Measured at Fair Value on a Nonrecurring Basis

The Company’s non-financial assets, such as intangible assets and acquisition-related property, plant and equipment, are recorded at fair value only upon initial recognition or if an impairment is recognized. There was no impairment of long-lived assets during fiscal years 2020, 2019 and 2018.

Financial Assets. The Company has certain investments in equity securities of privately held entities without readily determinable fair values due to the absence of quoted market prices, the inherent lack of liquidity, and the fact that inputs used to measure fair value are unobservable and require management's judgment. When certain events or circumstances indicate that impairment may exist, the Company revalues the investments using various assumptions, including the financial metrics and ratios of comparable public companies. The carrying value is also adjusted for observable price changes with the same or similar security from the same issuer. The amount of these investments included in other assets as of March 31, 2020 and March 31, 2019 was $3.9 million and $9.5 million, respectively. There was no impairment of these assets during fiscal years 2020 and 2019.

Non-Financial Assets. Goodwill, intangible assets, and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur (or tested at least annually for goodwill) such that a non-financial instrument is required to be evaluated for impairment and an impairment is recorded to reduce the non-financial instrument's carrying value to the fair value as a result of such triggering events, the non-financial assets and liabilities are measured at fair value for the period such triggering events

occur. See Note 2 to the consolidated financial statements for additional information about how the Company tests various asset classes for impairment.