Operating Segment, Geographic Information and Significant Customers

6 Months Ended

Dec. 31, 2015

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 utilizes the management approach for determining reportable segments in accordance with the authoritative guidance. 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 designs, develops and builds open sensor processing products and subsystems that include embedded processing modules and subsystems, RF and microwave multi-function assemblies as well as subsystems, and RF and microwave components. MCE also provides technology building blocks to Mercury Defense Systems on key classified and unclassified programs.

• Mercury Defense Systems (“MDS”): this operating segment provides significant capabilities relating to pre-integrated, open, affordable EW, EA and ECM subsystems, significant capabilities in signals intelligence, EO/IR processing technologies, and radar environment test and simulation systems, leveraging commercially available technologies and solutions (or “building blocks”) from the MCE business and other commercial suppliers. Recently, MDS has added advanced security technology and development services related to secure embedded processing applications.

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 determined that both MCE and MDS met the quantitative thresholds for reporting.

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 income from continuing operations before interest income and expense, income taxes, depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition and financing costs, fair value adjustments from purchase accounting, litigation and settlement expenses, and stock-based compensation expense. 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		MDS			Eliminations			Total
THREE MONTHS ENDED DECEMBER 31, 2015
Net revenues to unaffiliated customers	$	53,015	$	7,947		$	(545	)	$	60,417
Intersegment revenues	1,344		77			(1,421		)	—
Net revenues	$	54,359	$	8,024		$	(1,966	)	$	60,417
Adjusted EBITDA	$	12,873	$	(418	)	$	124		$	12,579
THREE MONTHS ENDED DECEMBER 31, 2014
Net revenues to unaffiliated customers	$	51,806	$	4,767		$	516		$	57,089
Intersegment revenues	923		72			(995		)	—
Net revenues	$	52,729	$	4,839		$	(479	)	$	57,089
Adjusted EBITDA	$	10,510	$	284		$	(87	)	$	10,707
SIX MONTHS ENDED DECEMBER 31, 2015
Net revenues to unaffiliated customers	$	103,021	$	15,964		$	(159	)	$	118,826
Intersegment revenues	4,360		105			(4,465		)	—
Net revenues	$	107,381	$	16,069		$	(4,624	)	$	118,826
Adjusted EBITDA	$	24,329	$	64		$	27		$	24,420
SIX MONTHS ENDED DECEMBER 31, 2014
Net revenues to unaffiliated customers	$	100,362	$	10,147		$	641		$	111,150
Intersegment revenues	1,425		211			(1,636		)	—
Net revenues	$	101,787	$	10,358		$	(995	)	$	111,150
Adjusted EBITDA	$	17,799	$	770		$	141		$	18,710

The following table reconciles the Company’s income from continuing operations, the most directly comparable GAAP financial measure, to its adjusted EBITDA:

	Three Months Ended December 31,					Six Months Ended December 31,
	2015			2014		2015			2014
Income from continuing operations	$	4,793		$	2,886	$	6,753		$	3,603
Interest (income) expense, net	(21		)	4		(43		)	9
Income taxes	1,680			1,047		2,944			1,047
Depreciation	1,620			1,590		3,208			3,290
Amortization of intangible assets	1,638			1,762		3,351			3,524
Restructuring and other charges	221			1,162		559			2,430
Impairment of long-lived assets	231			—		231			—
Acquisition and financing costs	25			—		2,323			—
Fair value adjustments from purchase accounting	—			—		—			—
Litigation and settlement expenses	—			—		—			—
Stock-based compensation expense	2,392			2,256		5,094			4,807
Adjusted EBITDA	$	12,579		$	10,707	$	24,420		$	18,710

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

	US		Europe		Asia Pacific		Eliminations			Total
THREE MONTHS ENDED DECEMBER 31, 2015
Net revenues to unaffiliated customers	$	58,211	$	653	$	1,553	$	—		$	60,417
Inter-geographic revenues	1,949		371		—		(2,320		)	—
Net revenues	$	60,160	$	1,024	$	1,553	$	(2,320	)	$	60,417
THREE MONTHS ENDED DECEMBER 31, 2014
Net revenues to unaffiliated customers	$	55,625	$	355	$	1,109	$	—		$	57,089
Inter-geographic revenues	964		179		—		(1,143		)	—
Net revenues	$	56,589	$	534	$	1,109	$	(1,143	)	$	57,089
SIX MONTHS ENDED DECEMBER 31, 2015
Net revenues to unaffiliated customers	$	115,573	$	1,111	$	2,142	$	—		$	118,826
Inter-geographic revenues	3,203		402		—		(3,605		)	—
Net revenues	$	118,776	$	1,513	$	2,142	$	(3,605	)	$	118,826
SIX MONTHS ENDED DECEMBER 31, 2014
Net revenues to unaffiliated customers	$	108,710	$	701	$	1,739	$	—		$	111,150
Inter-geographic revenues	1,547		179		—		(1,726		)	—
Net revenues	$	110,257	$	880	$	1,739	$	(1,726	)	$	111,150

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:

	US		Europe		Asia Pacific		Eliminations		Total
December 31, 2015	$	13,215	$	83	$	26	$	—	$	13,324
June 30, 2015	$	13,127	$	68	$	31	$	—	$	13,226

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 December 31,				Six Months Ended December 31,
	2015		2014		2015		2014
Raytheon Company	29	%	36	%	33	%	35	%
Lockheed Martin Corporation	26	%	18	%	21	%	24	%
	55	%	54	%	54	%	59	%

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2015		2014		2015		2014
SEWIP	16	%	*		12	%	13	%
F-35	13	%	11	%	*		11	%
Patriot	11	%	18	%	14	%	18	%
Aegis	*		10	%	*		10	%
	40	%	39	%	26	%	52	%

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