SelectQuote, Inc.SLQT
SelectQuote, Inc. Fair Value Disclosure
Fair Value Measurements
The Company determines the fair value of its financial instruments in accordance with the provisions of ASC 820, which establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
•Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability
•Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability.
The carrying amounts of the Company’s cash, cash equivalents and restricted cash, accounts receivable, accounts payable, accrued compensation, and accrued liabilities approximate their fair values due to the short-term nature of these instruments. The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2025 and June 30, 2024 and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
As of June 30, 2025 | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Assets: | |||||||||||||||||||||||
Cash equivalents | |||||||||||||||||||||||
Money market funds | $ | 322 | $ | — | $ | — | $ | 322 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Other long-term liabilities | |||||||||||||||||||||||
| Warrant liability | $ | — | $ | — | $ | 78,657 | $ | 78,657 | |||||||||||||||
As of June 30, 2024 | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Assets: | |||||||||||||||||||||||
Cash equivalents | |||||||||||||||||||||||
Money market funds | $ | 307 | $ | — | $ | — | $ | 307 | |||||||||||||||
Other current assets | |||||||||||||||||||||||
Cash flow hedge | $ | — | $ | 5,027 | $ | — | $ | 5,027 | |||||||||||||||
Money market funds—Represents short-term, highly liquid investments with maturities of three months or less at the time of purchase. Cash equivalents include a money market account primarily invested in cash and U.S. Government securities. These investments are generally classified as Level 1 fair value measurements, which represent unadjusted quoted market prices in active markets for identical assets or liabilities.
Cash flow hedge—Represents derivative financial instruments that the Company uses to hedge against its exposure to fluctuations in interest rates associated with the Term Loans. Refer to Note 7 to the consolidated financial statements for further details on the Company’s cash flow hedge. The Company classifies its Amended Interest Rate Swap as a Level 2 on the fair value hierarchy as the majority of the inputs used to value it primarily includes other than quoted prices that are observable and it uses standard calculations and models that use readily observable market data as their basis.
Warrant liability—The Company utilizes the Black-Scholes-Merton option pricing model for the liability classified warrants each reporting period, with changes in fair value recognized in the consolidated statements of comprehensive income (loss). The estimated fair value of the liability classified warrants is determined using Level 3 inputs. Inherent in an option pricing model are estimates and assumptions related to expected share-price volatility, risk-free interest rate, expected dividend yield, and expected life. These estimates and assumptions could vary significantly, which could result in material differences in the fair values assigned to the assets and liabilities.
The expected life of the Eleventh Amendment Warrants is assumed to be equivalent to their remaining contractual term based upon the vesting date assumed for each tranche. The Company assumed all four tranches will vest on the consecutive anniversaries of the original issue date. The Company estimates the expected volatility of its common stock based on the Company’s historical volatility. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the valuation date for a maturity similar to the expected remaining life of the
Eleventh Amendment Warrants. The Company does not plan to pay a dividend during the Eleventh Amendment Warrant term, nor have they historically, thus the dividend rate will remain at zero.
The fair value of the Eleventh Amendment Warrants has been estimated with the following assumptions:
| June 30, 2025 | ||||||||||||||
Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | |||||||||||
Stock price(1) | $ | 2.38 | $ | 2.38 | $ | 2.38 | $ | 2.38 | ||||||
| Exercise price | $ | 3.00 | $ | 3.00 | $ | 3.00 | $ | 3.00 | ||||||
Expected volatility | 109.98 | % | 103.31 | % | 103.31 | % | 103.31 | % | ||||||
Risk-free interest rate | 3.68 | % | 3.75 | % | 3.85 | % | 3.95 | % | ||||||
Expected dividend-yield | — | % | — | % | — | % | — | % | ||||||
Expected life | 4.29 years | 5.29 years | 6.29 years | 7.29 years | ||||||||||
Fair value per warrant | $ | 1.75 | $ | 1.81 | $ | 1.92 | $ | 2.00 | ||||||
(1) The stock price is based on the closing stock price as of June 30, 2025.
The expected life of the Senior Non-Convertible Preferred Stock Warrants is assumed to be equivalent to their remaining contractual term. This includes the assumption that there will be no Early Redemption Amount paid and as a result the Senior Non-Convertible Preferred Stock Warrants will have an expected life equal to ten years from issuance. The exercise prices of each tranche are based upon the terms established in the Senior Non-Convertible Preferred Stock Purchase Agreements. The Company used a ten-year term matched zero-coupon interest rate and a ten-year look back term. The Company estimates the expected volatility of its common stock based on the Company’s historical volatility. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the valuation date for a maturity similar to the expected remaining life of the Senior Non-Convertible Preferred
Stock Warrants. The Company does not plan to pay a dividend during the Senior Non-Convertible Preferred Stock Warrants term, nor have they historically, thus the dividend rate will remain at zero.
The fair value of the Senior Non-Convertible Preferred Stock Warrants has been estimated with the following assumptions:
| June 30, 2025 | |||||||||||
| Tranche A | Tranche B | Tranche C | |||||||||
Stock price(1) | $ | 2.38 | $ | 2.38 | $ | 2.38 | |||||
| Exercise price | $ | 0.01 | $ | 3.92 | $ | 5.50 | |||||
Expected volatility | 103.31 | % | 103.31 | % | 103.31 | % | |||||
Risk-free interest rate | 4.18 | % | 4.18 | % | 4.18 | % | |||||
Expected dividend-yield | — | % | — | % | — | % | |||||
Expected life | 9.62 years | 9.62 years | 9.62 years | ||||||||
Fair value per warrant | $ | 2.38 | $ | 2.11 | $ | 2.06 | |||||
(1) The stock price is based on the closing stock price as of June 30, 2025.
Changes in Level 3 fair value measurements during the period ended June 30, 2025 were as follows:
| (in thousands) | Warrant Liability | ||||
Balance as of June 30, 2024 | $ | — | |||
| Issuance of Eleventh Amendment Warrants | 8,628 | ||||
| Issuance of Senior Non-Convertible Preferred Stock Warrants | 128,953 | ||||
| Change in fair value | (58,924) | ||||
Balance as of June 30, 2025 | $ | 78,657 | |||
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.