Operating Segment, Geographic Information and Significant Customers

9 Months Ended

Mar. 31, 2016

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 provides affordable, innovative, commercially designed and developed, specialized processing subsystems for critical defense and intelligence applications. MCE’s technologies and capabilities include secure embedded processing modules and subsystems, RF and microwave multi-function assemblies and subsystems, as well as RF and microwave components. MCE utilizes leading edge, high performance computing technologies and open standards and open architectures to address highly data-intensive applications that include data signal, sensor and image processing, while simultaneously addressing the packaging challenges, often referred to as “SWaP” (size, weight, and power) that are common in military applications. In addition, MCE designs and builds RF and microwave components and subsystems to meet the needs of the EW, SIGINT and other high bandwidth communications requirements and applications.

• Mercury Defense Systems (“MDS”): this operating segment provides significant capabilities relating to pre-integrated, open and affordable EW, EA and ECM subsystems, SIGINT, EO/IR and secure processing technologies, and radar environment test and simulation systems. Recently, MDS gained additional advanced security technology and development services capabilities related to secure embedded processing applications. MDS deploys these solutions on behalf of defense prime contractors and the Department of Defense (“DoD”), leveraging commercially available technologies and solutions (or “building blocks”) from the MCE business and other commercial suppliers. MDS leverages this technology to design and build 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 brings significant domain expertise to customers, drawing on over 25 years of experience in EW, SIGINT, and radar environment test and simulation.

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 MARCH 31, 2016
Net revenues to unaffiliated customers	$	57,499	$	8,608	$	(209	)	$	65,898
Intersegment revenues	1,652		40		(1,692		)	—
Net revenues	$	59,151	$	8,648	$	(1,901	)	$	65,898
Adjusted EBITDA	$	13,948	$	768	$	(150	)	$	14,566
THREE MONTHS ENDED MARCH 31, 2015
Net revenues to unaffiliated customers	$	52,748	$	6,714	$	116		$	59,578
Intersegment revenues	2,325		32		(2,357		)	—
Net revenues	$	55,073	$	6,746	$	(2,241	)	$	59,578
Adjusted EBITDA	$	12,073	$	614	$	(1,172	)	$	11,515
NINE MONTHS ENDED MARCH 31, 2016
Net revenues to unaffiliated customers	$	160,520	$	24,572	$	(368	)	$	184,724
Intersegment revenues	6,012		145		(6,157		)	—
Net revenues	$	166,532	$	24,717	$	(6,525	)	$	184,724
Adjusted EBITDA	$	38,278	$	831	$	(123	)	$	38,986
NINE MONTHS ENDED MARCH 31, 2015
Net revenues to unaffiliated customers	$	153,110	$	16,860	$	758		$	170,728
Intersegment revenues	3,750		244		(3,994		)	—
Net revenues	$	156,860	$	17,104	$	(3,236	)	$	170,728
Adjusted EBITDA	$	29,872	$	1,384	$	(1,032	)	$	30,224

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 March 31,					Nine Months Ended March 31,
	2016			2015		2016			2015
Income from continuing operations	$	4,526		$	4,694	$	11,279		$	8,297
Interest (income) expense, net	(36		)	1		(79		)	10
Income taxes	2,473			1,469		5,417			2,516
Depreciation	1,565			1,510		4,773			4,800
Amortization of intangible assets	1,754			1,744		5,105			5,268
Restructuring and other charges	409			27		968			2,457
Impairment of long-lived assets	—			—		231			—
Acquisition and financing costs	1,725			200		4,048			200
Fair value adjustments from purchase accounting	—			—		—			—
Litigation and settlement expenses	—			—		—			—
Stock-based compensation expense	2,150			1,870		7,244			6,676
Adjusted EBITDA	$	14,566		$	11,515	$	38,986		$	30,224

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

	US		Europe		Asia Pacific		Eliminations			Total
THREE MONTHS ENDED MARCH 31, 2016
Net revenues to unaffiliated customers	$	62,675	$	1,742	$	1,481	$	—		$	65,898
Inter-geographic revenues	1,598		18		—		(1,616		)	—
Net revenues	$	64,273	$	1,760	$	1,481	$	(1,616	)	$	65,898
THREE MONTHS ENDED MARCH 31, 2015
Net revenues to unaffiliated customers	$	58,307	$	439	$	832	$	—		$	59,578
Inter-geographic revenues	1,200		54		—		(1,254		)	—
Net revenues	$	59,507	$	493	$	832	$	(1,254	)	$	59,578
NINE MONTHS ENDED MARCH 31, 2016
Net revenues to unaffiliated customers	$	178,249	$	2,852	$	3,623	$	—		$	184,724
Inter-geographic revenues	4,800		420		—		(5,220		)	—
Net revenues	$	183,049	$	3,272	$	3,623	$	(5,220	)	$	184,724
NINE MONTHS ENDED MARCH 31, 2015
Net revenues to unaffiliated customers	$	167,017	$	1,140	$	2,571	$	—		$	170,728
Inter-geographic revenues	2,747		233		—		(2,980		)	—
Net revenues	$	169,764	$	1,373	$	2,571	$	(2,980	)	$	170,728

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
March 31, 2016	$	13,422	$	66	$	24	$	—	$	13,512
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 March 31,				Nine Months Ended March 31,
	2016		2015		2016		2015
Raytheon Company	17	%	37	%	28	%	36	%
Lockheed Martin Corporation	26	%	19	%	23	%	22	%
Northrop Grumman Corporation	14	%	*		*		*
	57	%	56	%	51	%	58	%

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 March 31,				Nine Months Ended March 31,
	2016		2015		2016		2015
SEWIP	12	%	*		12	%	*
F-35	*		16	%	*		13	%
Patriot	*		20	%	11	%	19	%
Aegis	*		13	%	*		11	%
	12	%	49	%	23	%	43	%

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