Segment Reporting

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

Operating segments are components of an enterprise about which separate financial information is available. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. Prior to the acquisition of Inventus in January 2016, the Company’s Chief Executive Officer reviewed financial information presented on a consolidated basis and, as a result, the Company concluded that there was only one operating and reportable segment. Subsequent to the acquisition of Inventus (see Note 7, Business Combinations), the Company's Chief Executive Officer reviews separate financial information for the patent risk management and discovery services businesses. Therefore as of January 2016, the Company has two reportable segments: 1) Patent risk management which generates its revenues primarily from membership subscriptions, premiums earned from insurance policies, and management fees for marketing, underwriting, and claim management and 2) Discovery services which generates its revenues primarily from fees generated for data collection, hosting and processing, project management, and document review services. There are no significant internal revenue transactions between these two reportable segments.

Although Adjusted EBITDA is not a measure of financial performance determined in accordance with GAAP, the Company's chief operating decision maker evaluates segment financial performance by utilizing the segment's Adjusted EBITDA because the Company believes it is a useful supplemental measure that reflects core operating performance and provides an indicator of the segment's ability to generate cash. The Company defines Adjusted EBITDA as net income exclusive of provision for income taxes, interest and other income (expense), net, stock-based compensation and related employer payroll taxes, depreciation, and amortization. There are limitations in using the Company's measures of financial performance that are not determined in accordance with GAAP and these may be different from other financial measures not determined in accordance with GAAP used by other companies. These financial measures are limited in value because they exclude certain items that may have a material impact on the Company's reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by the Company about which items are adjusted to calculate its financial measures not determined in accordance with GAAP. The presentation of financial measures not determined in accordance with GAAP should not be considered in isolation or as a substitute for or superior to financial results determined in accordance with GAAP.

Summarized financial information by segment for the three and six months ended June 30, 2016 utilized by the Company's chief operating decision maker is as follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2016		2016
Patent Risk Management
Revenue	$	63,851	$	133,008
Cost of revenue	39,150		81,782
Selling, general and administrative expenses	19,603		41,537
Operating income	5,098		9,689
Stock-based compensation, including related taxes	4,835		9,769
Depreciation and amortization	38,519		81,176
Adjusted EBTIDA	$	48,452	$	100,634
Discovery Services
Revenue	$	19,258	$	29,836
Cost of revenue	9,920		14,954
Selling, general and administrative expenses	6,301		11,262
Operating income	3,037		3,620
Stock-based compensation, including related taxes	141		229
Depreciation and amortization	2,511		4,409
Adjusted EBTIDA	$	5,689	$	8,258
Consolidated
Revenue	$	83,109	$	162,844
Cost of revenue	49,070		96,736
Selling, general and administrative expenses	25,904		52,799
Operating income	$	8,135	$	13,309

The Company markets its solutions to companies around the world. Revenue is generally attributed to geographic areas based on the country in which the client is domiciled. The following table presents revenue by location and revenue generated by country as a percentage of total revenue for the applicable period, for countries representing 10% or more of revenues for one or more of the periods presented (dollars in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2016				2015				2016				2015
United States	$	47,127	57	%	$	41,949	62	%	$	94,652	58	%	$	96,995	65	%
Japan	8,908		11		9,153		13		17,913		11		18,485		12
Korea	6,895		8		7,282		11		14,339		9		13,969		9
Rest of world	20,179		24		9,167		14		35,940		22		21,389		14
Total revenue	$	83,109	100	%	$	67,551	100	%	$	162,844	100	%	$	150,838	100	%

The following table reconciles the Company's subtotal segment Adjusted EBITDA to consolidated net income:

	Three Months Ended June 30,			Six Months Ended June 30,
	2016			2016
Subtotal segment adjusted EBITDA	$	54,141		$	108,892
Depreciation and amortization	(41,030		)	(85,585		)
Stock-based compensation, including related taxes	(4,976		)	(9,998		)
Interest and other income (expense), net	(1,549		)	256
Provision for income taxes	(2,436		)	(5,178		)
Net income	$	4,150		$	8,387