Operating Segment, Geographic Information and Significant Customers

3 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Operating Segment, Geographic Information and Significant Customers

Operating Segment, Geographic Information and Significant Customers

Operating segments are defined as components of an enterprise evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company is presently organized in three operating segments. The following operating segments were determined based upon the nature of the products offered to customers, the market characteristics of each operating segment and the Company’s management structure:

• Mercury Commercial Electronics (“MCE”): this operating segment delivers innovative, commercially developed, open sensor and Big Data processing systems, software and services for critical commercial, defense and intelligence applications. MCE delivers solutions that are secure and based upon open architectures and widely adopted industry standards. MCE's products include, but are not limited to, embedded processing boards, digital receiver boards, chassis-based systems using air, conduction, and proprietary cooling technologies and RF and microwave technologies, including tuners, converters, transceivers, switch filters, and power amplifiers and limiters. MCE delivers rapid time-to-value and world-class service and support to our commercial and defense prime contractor customers.

• Mercury Defense Systems (“MDS”): this operating segment delivers innovative, open sensor processing solutions to key defense prime contractors leveraging commercially available technologies and solutions from our MCE business. MDS leverages this technology to develop integrated sensor processing subsystems, often including classified application-specific software and intellectual property (“IP”) for the C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance), EW, and ECM markets. MDS's products include, but are not limited to, Digital Radio Frequency Memory ("DRFM") jammers and radar environment simulators.

• Mercury Intelligence Systems (“MIS”): this operating segment delivers technologically advanced hardware and software data processing solutions and predictive analytics capabilities to address the intelligence community and Department of Defense mission needs.

The Company’s operating segments were evaluated in accordance with FASB ASC 280- “Segment Reporting” in order to determine which operating segments qualified as reportable segments. The Company considered qualitative factors, including the economic characteristics of each operating segment to determine if any of its three operating segments qualified for aggregation into fewer reportable segments.

The Company’s evaluation of the economic characteristics of its operating segments included comparisons of revenues and applicable growth rates, gross margins, operating margins, future projections, and additional non-GAAP financial measurements which indicate that MDS and MIS have similar economic characteristics. The Company also evaluated the following qualitative factors in accordance with FASB ASC 280 paragraph 10-50-11: the nature of products and services, the corresponding production processes, the types of customers, distribution methods for products and services and the nature of the corresponding regulatory environment associated with its operating segments. The Company determined each of these factors are similar for both the MDS and MIS operating segments and supports the aggregation of MDS and MIS into one reportable segment, Mercury Defense and Intelligence Systems (“MDIS”).

The Company analyzed quantitative thresholds of each reportable segment including but not limited to reported revenues, including sales to external customers and intersegment sales or transfers, reported profits or losses, and total assets of each operating segment. The Company determined that both MCE and MDIS met the quantitative thresholds for reporting.

During fiscal 2013, the Company redefined its operating and reportable segments. The Company reclassified the segment data for the prior periods presented below to conform to the current year’s presentation.

The accounting policies of the reportable segments are the same as those described in “Note B: Summary of Significant Accounting Policies.” The profitability measure employed by the Company and its CODM as the basis for allocating resources to segments and assessing segment performance is adjusted EBITDA. The Company believes the adjusted EBITDA financial measure assists in providing an enhanced understanding of its underlying operational measures to manage its business, to evaluate its performance compared to prior periods and the marketplace, and to establish operational goals.

Adjusted EBITDA is defined as net income (loss) before interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring, impairment of long-lived assets, acquisition costs and other related expenses, fair value adjustments from purchase accounting and stock-based compensation costs. Prior year’s amounts have been presented to reflect the current profitability measures for comparative purposes. Additionally, asset information by reportable segment is not reported because the Company and its CODM utilize consolidated asset information when making business decisions. The following is a summary of the performance of the Company’s operations by reportable segment:

	MCE			MDIS		Eliminations			Total
THREE MONTHS ENDED SEPTEMBER 30, 2013
Net revenues to unaffiliated customers	$	43,488		$	11,130	$	(678	)	$	53,940
Intersegment revenues	1,114			—		(1,114		)	—
Net revenues	$	44,602		$	11,130	$	(1,792	)	$	53,940
Adjusted EBITDA	$	2,343		$	1,358	$	(82	)	$	3,619
THREE MONTHS ENDED SEPTEMBER 30, 2012
Net revenues to unaffiliated customers	$	31,897		$	15,827	$	1,704		$	49,428
Intersegment revenues	4,908			8		(4,916		)	—
Net revenues	$	36,805		$	15,835	$	(3,212	)	$	49,428
Adjusted EBITDA	$	(2,209	)	$	3,223	$	624		$	1,638

The following table reconciles the Company’s net loss, the most directly comparable GAAP financial measure, to its adjusted EBITDA:

	Three Months Ended September 30,
	2013			2012
Net loss	$	(2,256	)	$	(7,200	)
Interest expense, net	14			6
Tax benefit	(1,279		)	(3,651		)
Depreciation	2,012			2,211
Amortization of intangible assets	2,108			1,788
Restructuring and other charges	(15		)	4,984
Acquisition costs and other related expenses	—			230
Fair value adjustments from purchase accounting	—			925
Stock-based compensation expense	3,035			2,345
Adjusted EBITDA	$	3,619		$	1,638

The geographic distribution of the Company’s revenues is summarized as follows:

	US		Europe		Asia Pacific		Eliminations			Total
THREE MONTHS ENDED SEPTEMBER 30, 2013
Net revenues to unaffiliated customers	$	52,670	$	508	$	762	$	—		$	53,940
Inter-geographic revenues	819		157		140		(1,116		)	—
Net revenues	$	53,489	$	665	$	902	$	(1,116	)	$	53,940
THREE MONTHS ENDED SEPTEMBER 30, 2012
Net revenues to unaffiliated customers	$	47,635	$	345	$	1,448	$	—		$	49,428
Inter-geographic revenues	1,177		49		26		(1,252		)	—
Net revenues	$	48,812	$	394	$	1,474	$	(1,252	)	$	49,428

Foreign revenue is based on the country in which the Company’s legal subsidiary is domiciled.

The geographic distribution of the Company’s long-lived assets is summarized as follows:

	U.S.		Europe		Asia Pacific		Eliminations		Total
September 30, 2013	$	14,528	$	37	$	—	$	—	$	14,565
June 30, 2013	$	14,986	$	33	$	—	$	—	$	15,019

Identifiable long-lived assets exclude goodwill and intangible assets.

Customers comprising 10% or more of the Company’s revenues for the periods shown below are as follows:

	Three Months Ended September 30,
	2013		2012
Northrop Grumman Corporation	15	%	12	%
Raytheon Company	13	%	12	%
Lockheed Martin Corporation	11	%	*
BAE Systems PLC	10	%	*
Sierra Nevada Corporation	*		14	%
	49	%	38	%

* Indicates that the amount is less than 10% of the Company’s revenues for the respective period.

While the Company typically has customers from which it derives 10% or more of its revenue, the sales to each of these customers are spread across multiple programs and platforms. For the three months ended September 30, 2013, no single program comprised 10% or more of the Company's revenue. For the three months ended September 30, 2012, the Gorgon Stare program individually comprised 14% of the Company's revenues.