Operating Segment, Geographic Information and Significant Customers

6 Months Ended

Dec. 31, 2014

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 delivers affordable, innovative, commercially developed, specialized processing subsystems for critical commercial, defense and intelligence applications. MCE delivers secure solutions that are based upon open architectures and widely adopted industry standards. MCE delivers rapid time-to-value and service and support to prime defense contractors and commercial customers. MCE provides solutions to prime contractor customers on a variety of programs. MCE also provides technology building blocks to Mercury Defense Systems on key classified and unclassified programs. MCE has a legacy of embedded multi-computing and embedded sensor processing expertise. More recently, MCE has added substantial capabilities around radio frequency ("RF") and microwave technologies as well as emerging new manufacturing capabilities to bring design, production and test capabilities of its RF and microwave solutions to market on a more scalable basis.

• Mercury Defense Systems (“MDS”): this operating segment provides significant capabilities relating to pre-integrated, open, affordable electronic warfare ("EW"), electronic attack ("EA") and electronic counter measure ("ECM") subsystems, and signals intelligence ("SIGINT") and electro-optical/infrared ("EO/IR") processing technologies. 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 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 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.

Prior year results have been restated for the reclassification of the MIS operating segment as discontinued operations. MIS was previously aggregated with MDS into one reportable segment based on similar economic and qualitative factors in accordance with FASB ASC 280 (see Note C).

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 costs and other related expenses, fair value adjustments from purchase accounting and stock-based compensation costs. 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, 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
THREE MONTHS ENDED DECEMBER 31, 2013
Net revenues to unaffiliated customers	$	42,305	$	8,445	$	182		$	50,932
Intersegment revenues	2,733		—		(2,733		)	—
Net revenues	$	45,038	$	8,445	$	(2,551	)	$	50,932
Adjusted EBITDA	$	4,082	$	1,066	$	89		$	5,237
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
SIX MONTHS ENDED DECEMBER 31, 2013
Net revenues to unaffiliated customers	$	85,793	$	16,361	$	(496	)	$	101,658
Intersegment revenues	3,847		—		(3,847		)	—
Net revenues	$	89,640	$	16,361	$	(4,343	)	$	101,658
Adjusted EBITDA	$	6,425	$	2,128	$	7		$	8,560

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

	Three Months Ended December 31,					Six Months Ended December 31,
	2014		2013			2014		2013
Income (loss) from continuing operations	$	2,886	$	(787	)	$	3,603	$	(3,091	)
Interest expense, net	4		8			9		22
Tax provision (benefit)	1,047		(442		)	1,047		(1,761		)
Depreciation	1,590		1,942			3,290		3,916
Amortization of intangible assets	1,762		1,803			3,524		3,788
Restructuring and other charges	1,162		97			2,430		82
Stock-based compensation expense	2,256		2,616			4,807		5,604
Adjusted EBITDA	$	10,707	$	5,237		$	18,710	$	8,560

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

	US		Europe		Asia Pacific		Eliminations			Total
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
THREE MONTHS ENDED DECEMBER 31, 2013
Net revenues to unaffiliated customers	$	50,351	$	451	$	130	$	—		$	50,932
Inter-geographic revenues	679		47		—		(726		)	—
Net revenues	$	51,030	$	498	$	130	$	(726	)	$	50,932
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
SIX MONTHS ENDED DECEMBER 31, 2013
Net revenues to unaffiliated customers	$	99,806	$	959	$	893	$	—		$	101,658
Inter-geographic revenues	1,498		204		140		(1,842		)	—
Net revenues	$	101,304	$	1,163	$	1,033	$	(1,842	)	$	101,658

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
December 31, 2014	$	12,928	$	36	$	4	$	—	$	12,968
June 30, 2014	$	14,090	$	48	$	6	$	—	$	14,144

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,
	2014		2013		2014		2013
Raytheon Company	36	%	12	%	35	%	13	%
Lockheed Martin Corporation	18	%	31	%	24	%	21	%
Northrop Grumman Corporation	*		14	%	*		15	%
	54	%	57	%	59	%	49	%

* 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. 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,
	2014		2013		2014		2013
Patriot	18	%	*		18	%	*
SEWIP	*		*		13	%	*
F-35	11	%	*		11	%	*
Aegis	10	%	28	%	10	%	16	%
	39	%	28	%	52	%	16	%

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