DIPLOMAT PHARMACY, INC., 10-Q filed on 11/4/2015
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2015
Nov. 3, 2015
Document and Entity Information
 
 
Entity Registrant Name
Diplomat Pharmacy, Inc. 
 
Entity Central Index Key
0001610092 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2015 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Non-accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
64,354,867 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q3 
 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and equivalents
$ 15,665 
$ 17,957 
Accounts receivable, net
258,158 
155,273 
Inventories
153,293 
110,683 
Deferred income taxes
2,503 
1,813 
Prepaid expenses and other current assets
7,551 
5,360 
Total current assets
437,170 
291,086 
Property and equipment, net
14,988 
13,150 
Capitalized software for internal use, net
35,904 
13,236 
Goodwill
253,426 
23,148 
Definite-lived intangible assets, net
233,677 
44,973 
Deferred debt issuance costs
5,312 
921 
Investment in non-consolidated entity
3,500 
3,500 
Other noncurrent assets
179 
72 
Total assets
984,156 
390,086 
Current liabilities:
 
 
Accounts payable
271,988 
202,495 
Borrowings on line of credit
21,756 
 
Short-term debt, including current portion of long-term debt
6,000 
 
Accrued expenses:
 
 
Contingent consideration
44,281 
6,282 
Compensation and benefits
6,126 
2,257 
Other
8,372 
4,394 
Total current liabilities
358,523 
215,428 
Long-term debt, less current portion
112,500 
 
Contingent consideration, less current portion
 
5,409 
Deferred income taxes
11,128 
518 
Other noncurrent liabilities
 
Total liabilities
482,151 
221,359 
Commitments and contingencies
   
   
Shareholders' equity:
 
 
Preferred stock (10,000,000 shares authorized; none issued and outstanding)
   
   
Common stock (no par value; 590,000,000 shares authorized; 64,253,037 and 51,457,023 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively)
448,736 
148,901 
Additional paid-in capital
21,868 
9,893 
Retained earnings
27,564 
5,354 
Total Diplomat Pharmacy shareholders' equity
498,168 
164,148 
Noncontrolling interests
3,837 
4,579 
Total shareholders' equity
502,005 
168,727 
Total liabilities and shareholders' equity
$ 984,156 
$ 390,086 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2015
Dec. 31, 2014
Condensed Consolidated Balance Sheets
 
 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common shares, par value (in dollars per share)
$ 0.00 
$ 0.00 
Common shares, authorized shares
590,000,000 
590,000,000 
Common shares, issued shares
64,253,037 
51,457,023 
Common shares, outstanding shares
64,253,037 
51,457,023 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Condensed Consolidated Statements of Operations
 
 
 
 
Net sales
$ 946,913 
$ 595,529 
$ 2,379,807 
$ 1,602,881 
Cost of products sold
(871,150)
(555,364)
(2,193,233)
(1,503,639)
Gross profit
75,763 
40,165 
186,574 
99,242 
Selling, general and administrative expenses
(48,860)
(34,306)
(147,637)
(85,330)
Income from operations
26,903 
5,859 
38,937 
13,912 
Other (expense) income:
 
 
 
 
Interest expense
(1,542)
(734)
(3,766)
(1,629)
Change in fair value of redeemable common shares
 
6,916 
 
7,873 
Termination of existing stock redemption agreement
 
(4,842)
 
(4,842)
Equity loss of non-consolidated entity
 
(377)
 
(1,087)
Other
90 
146 
270 
663 
Total other (expense) income
(1,452)
1,109 
(3,496)
978 
Income before income taxes
25,451 
6,968 
35,441 
14,890 
Income tax expense
(9,768)
(2,427)
(13,973)
(6,984)
Net income
15,683 
4,541 
21,468 
7,906 
Less net loss attributable to noncontrolling interest
(278)
 
(742)
 
Net income attributable to Diplomat Pharmacy, Inc.
15,961 
4,541 
22,210 
7,906 
Net income allocable to preferred shareholders
 
745 
 
1,062 
Net income allocable to common shareholders
$ 15,961 
$ 3,796 
$ 22,210 
$ 6,844 
Net income per common share:
 
 
 
 
Basic (in dollars per share)
$ 0.25 
$ 0.12 
$ 0.37 
$ 0.22 
Diluted (in dollars per share)
$ 0.24 
$ 0.11 
$ 0.36 
$ 0.20 
Weighted average common shares outstanding:
 
 
 
 
Basic (in shares)
63,890,060 
31,643,725 
59,507,347 
31,479,950 
Diluted (in shares)
65,513,055 
33,670,041 
61,758,979 
33,955,995 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Cash flows from operating activities:
 
 
Net income
$ 21,468 
$ 7,906 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
20,823 
5,331 
Change in fair value of contingent consideration
(1,660)
657 
Contingent consideration payment
(3,738)
 
Net provision for doubtful accounts
3,307 
3,257 
Share-based compensation expense
2,502 
1,828 
Excess tax benefits related to share-based awards
(14,348)
 
Deferred tax expense
1,185 
3,286 
Amortization of debt issuance costs
665 
276 
Impairment of capitalized software for internal use
150 
 
Loss (gain) on sale or disposal of property and equipment
60 
(11)
Change in fair value of redeemable common shares
 
(7,873)
Termination of existing stock redemption agreement
 
4,842 
Equity loss of non-consolidated entity
 
1,087 
Changes in operating assets and liabilities, net of business acquisitions:
 
 
Accounts receivable
(43,513)
(18,563)
Inventories
(28,379)
(6,913)
Accounts payable
18,644 
26,192 
Other assets and liabilities
25,366 
(1,998)
Net cash provided by operating activities
2,532 
19,304 
Cash flows from investing activities:
 
 
Payments to acquire business, net of cash acquired
(299,534)
(51,599)
Expenditures for capitalized software for internal use
(9,145)
(5,758)
Expenditures for property and equipment
(2,374)
(834)
Net proceeds from sales of property and equipment
21 
Loan to non-consolidated entity
 
(500)
Net repayment of related parties' notes receivable
 
150 
Net cash used in investing activities
(311,045)
(58,520)
Cash flows from financing activities:
 
 
Net borrowings from line of credit
21,756 
13,940 
Proceeds from long-term debt
120,000 
 
Payments on long-term debt
(1,500)
(5,693)
Proceeds from follow-on public offering, net of transaction costs
187,238 
 
Proceeds from sale of preferred stock, net of transaction costs
 
101,815 
Payments made to repurchase common stock
 
(53,400)
Payments made to repurchase stock options
(36,298)
(9,400)
Proceeds from issuance of stock upon stock option exercises
8,745 
 
Excess tax benefits related to share-based awards
14,348 
 
Payments of debt issuance costs
(5,056)
 
Contingent consideration payment
(3,012)
 
Payments of stock offering costs
 
(1,368)
Net cash provided by financing activities
306,221 
45,894 
Net (decrease) increase in cash and equivalents
(2,292)
6,678 
Cash and equivalents at beginning of period
17,957 
9,109 
Cash and equivalents at end of period
15,665 
15,787 
Supplemental disclosures of cash flow information:
 
 
Cash paid for interest
2,730 
1,411 
Cash paid for income taxes
$ 346 
$ 3,426 
Condensed Consolidated Statements of Changes in Stockholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
BioRx, LLC
Common stock
BioRx, LLC
Diplomat Pharmacy, Inc. Shareholders' Equity
BioRx, LLC
Burman's Apothecary, LLC
Common stock
Burman's Apothecary, LLC
Diplomat Pharmacy, Inc. Shareholders' Equity
Burman's Apothecary, LLC
Common stock
Additional Paid-in Capital
Retained Earnings
Diplomat Pharmacy, Inc. Shareholders' Equity
Noncontrolling Interest
Total
Balance at the beginning of the period at Dec. 31, 2014
 
 
 
 
 
 
$ 148,901 
$ 9,893 
$ 5,354 
$ 164,148 
$ 4,579 
$ 168,727 
Balance at the beginning of the period (in shares) at Dec. 31, 2014
 
 
 
 
 
 
51,457,023 
 
 
 
 
51,457,023 
Changes in shareholders' deficit
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
22,210 
22,210 
(742)
21,468 
Proceeds from public offering, net of issuance costs
 
 
 
 
 
 
187,238 
 
 
187,238 
 
187,238 
Proceeds from public offering, net of issuance costs (in shares)
 
 
 
 
 
 
6,821,125 
 
 
 
 
 
Repurchase of stock options
 
 
 
 
 
 
(34,194)
(2,104)
 
(36,298)
 
(36,298)
Stock issued upon stock option exercises
 
 
 
 
 
 
11,516 
(2,771)
 
8,745 
 
8,745 
Stock issued upon stock option exercises (in shares)
 
 
 
 
 
 
1,683,000 
 
 
 
 
 
Excess tax benefits related to share-based awards
 
 
 
 
 
 
 
14,348 
 
14,348 
 
14,348 
Issuance of common stock as partial consideration in acquisition
125,697 
125,697 
125,697 
9,578 
9,578 
9,578 
 
 
 
 
 
 
Issuance of common stock as partial consideration in acquisition (in shares)
4,038,853 
 
 
253,036 
 
 
 
 
 
 
 
 
Share-based compensation expense
 
 
 
 
 
 
 
2,502 
 
2,502 
 
2,502 
Balance at the end of the period at Sep. 30, 2015
 
 
 
 
 
 
$ 448,736 
$ 21,868 
$ 27,564 
$ 498,168 
$ 3,837 
$ 502,005 
Balance at the end of the period (in shares) at Sep. 30, 2015
 
 
 
 
 
 
64,253,037 
 
 
 
 
64,253,037 
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS

 

1.DESCRIPTION OF BUSINESS

 

Diplomat Pharmacy, Inc. and its consolidated subsidiaries (the “Company”) operate a specialty pharmacy business which stocks, dispenses and distributes prescriptions for various biotechnology and specialty pharmaceutical manufacturers. Its primary focus is on medication management programs for individuals with complex chronic diseases, including oncology, immunology, hepatitis, multiple sclerosis, specialized infusion therapy, HIV and many other serious or long-term conditions. The Company has its corporate headquarters and main distribution facility in Flint, Michigan and maintains 16 other pharmacy locations in Arizona, California, Connecticut, Florida, Illinois, Iowa, Massachusetts, Michigan, Minnesota, North Carolina, Ohio and Pennsylvania. The Company also has centralized call centers to effectively deliver services to customers located in all 50 states in the United States of America (“U.S.”) and U.S. territories. The Company operates as one reportable segment.

 

Initial Public Offering

 

In October 2014, the Company completed its initial public offering (“IPO”) in which 15,333,333 shares of common stock were sold at a public offering price of $13.00 per share. The Company sold 11,000,000 shares of common stock and certain shareholders sold 4,333,333 shares of common stock. The Company did not receive any proceeds from the sale of common stock by the shareholders. The Company received net proceeds of $130,440 after deducting underwriting discounts and commissions of $9,652, and other offering expenses of $2,908. Proceeds of $80,458 were used to repay existing indebtedness to certain current or former shareholders and employees ($19,824), and borrowings under the line of credit ($60,634). The remaining proceeds were used for working capital and other general corporate purposes.

 

Immediately prior to the closing of the IPO, each share of the Company’s then-outstanding capital stock converted into one share of its newly-authorized shares of no par value common stock.

 

Follow-On Public Offering

 

In March 2015, the Company completed a follow-on public offering in which 9,821,125 shares of common stock were sold at a public offering price of $29.00 per share. The Company sold 6,821,125 shares of common stock and certain shareholders sold 3,000,000 shares of common stock. The Company did not receive any proceeds from the sale of common stock by the shareholders. The Company received net proceeds of $187,238 after deducting underwriting discounts and commissions of $9,891, and other offering expenses of $685. The Company used $36,298 of the net proceeds to repurchase options to purchase common stock held by a number of current and former employees, including certain executive officers, with the remainder of the proceeds used to pay a portion of the cash consideration for the BioRx, LLC (“BioRx”) acquisition (Note 4). The purchase price for each stock option repurchased was based on the public offering price per share, net of the underwriting discount and exercise price.

 

BASIS OF PRESENTATION
BASIS OF PRESENTATION

 

2.BASIS OF PRESENTATION

 

Interim Unaudited Condensed Consolidated Financial Statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations, cash flows and changes in shareholders’ equity. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 3, 2015.

 

Stock Split

 

In October 2014, immediately prior to the completion of the IPO, the Board of Directors declared and approved a 8,500-for-one stock split, effected in the form of a stock dividend, on each share of common stock outstanding to the common shareholders of record. Accordingly, all share and per share amounts in these unaudited condensed consolidated financial statements and notes thereto, were adjusted, where applicable, to reflect the stock split on a retroactive basis.

 

Effect of Conversion from S Corporation to C Corporation

 

On January 23, 2014, the Company changed its income tax status from an S corporation to a C corporation. Accordingly, on that date, the Company recorded a net deferred income tax liability of $2,965 and a charge to income tax expense for the same amount. The Company reclassified its accumulated deficit, inclusive of the net deferred tax liability adjustment, into additional paid-in capital on the date of conversion.

 

Reclassifications

 

Certain items in the prior periods’ financial statements have been reclassified to conform to the current presentation.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Diplomat Pharmacy, Inc., its wholly-owned subsidiaries, and a 51%-owned subsidiary, formed in August 2014, which the Company controls (see Note 7). The Company also owns a 25% interest in a non-consolidated entity which is accounted for under the equity method of accounting since the Company does not control the entity but has the ability to exercise significant influence over its operating and financial policies. This equity method investment was fully impaired during the fourth quarter of 2014. An investment in an entity in which the Company owns less than 20% and does not have the ability to exercise significant influence is accounted for under the cost method.

 

Noncontrolling interest in a consolidated subsidiary in the condensed consolidated balance sheets represents the minority shareholders’ proportionate share of the equity in such subsidiary. Consolidated net income (loss) is allocated to the Company and noncontrolling interests (i.e., minority shareholders) in proportion to their percentage ownership.

 

All intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

 

Revenue Recognition

 

The Company recognizes revenue from prescription drug sales for home delivery at the time the drugs are shipped. At the time of shipment, the Company has performed substantially all of its obligations under its payor contracts and does not experience a significant level of returns or reshipments. If the Company administers a drug treatment regimen in a patient’s home, the Company recognizes revenue at the time of administration. Revenues from dispensing specialty prescriptions that are picked up by patients at an open door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drug sales were $941,533 and $592,410 for the three months ended September 30, 2015 and 2014, respectively, and $2,365,860 and $1,594,197 for the nine months ended September 30, 2015 and 2014, respectively.

 

The Company recognizes revenue from service, data and consulting services when the services have been performed and the earnings process is therefore complete. Revenues generated from service, data and consulting services were $5,380 and $3,119 for the three months ended September 30, 2015 and 2014, respectively, and $13,947 and $8,684 for the nine months ended September 30, 2015 and 2014, respectively.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which will supersede the existing revenue recognition guidance under U.S. GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017 for public entities. ASU 2014-09 may be applied either retrospectively or as a cumulative effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is currently assessing the method under which it will adopt and the potential impact of adopting ASU 2014-09 on its financial position, results of operations, cash flows and/or disclosures.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Targets Could Be Achieved after the Requisite Service Period, requiring that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period. The Company does not expect the adoption of this guidance to have a significant impact on its financial position, results of operations, cash flows or disclosures.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), and, in August 2015, the FASB issued ASU No. 2015-15, Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-15 then clarified that debt issuance costs related to a line-of-credit arrangement can be presented as an asset on the balance sheet, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These ASUs are effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. An entity should apply this new guidance on a retrospective basis and is required to comply with applicable disclosures for a change in an accounting principle. These standards will result in a balance sheet reclassification and require related disclosure revisions in the Company’s financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, requiring that inventory be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective within annual periods beginning on or after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

 

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, requiring that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU also requires an entity to present separately on the face of the income statement, or disclose in the notes to the financial statements, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period, and will be applied prospectively to measurement-period adjustments that occur after the effective date of this ASU.

 

BUSINESS ACQUISITIONS
BUSINESS ACQUISITIONS

 

4.BUSINESS ACQUISITIONS

 

The Company accounts for its business acquisitions using the acquisition method as required by FASB Accounting Standards Codification Topic 805, Business Combinations. The Company ascribes significant value to the synergies and other benefits that do not meet the recognition criteria of acquired identifiable intangible assets. Accordingly, the value of these components is included within goodwill. The Company’s business acquisitions described below were treated as stock purchases for accounting purposes, and — except for one subsidiary of BioRx — the acquisitions were treated as asset purchases for income tax purposes and the related goodwill resulting from these business acquisitions is deductible for tax purposes. The results of operations for acquired businesses are included in the Company’s consolidated financial statements from their respective acquisition dates.

 

Burman’s Apothecary, LLC

 

On June 19, 2015, the Company acquired all of the outstanding equity interests of Burman’s Apothecary, LLC (“Burman’s”). Burman’s, located in the greater Philadelphia, Pennsylvania area, is a provider of individualized patient care with a primary focus on hepatitis C. The Company acquired Burman’s to further expand its existing hepatitis business and to increase its national presence. The following table summarizes the consideration transferred to acquire Burman’s:

 

Cash at closing

 

$

84,296

 

253,036 restricted common shares

 

9,578

 

Receivable for post-closing adjustment

 

(6,880

)

 

 

 

 

 

 

$

86,994

 

 

 

 

 

 

 

The above share consideration is based on 253,036 shares, as computed in accordance with the purchase agreement, multiplied by the per share closing market price as of June 18, 2015 ($42.06) and multiplied by 90% to account for the restricted nature of the shares.

 

The Company incurred acquisition-related costs of $532 and $735 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2015, respectively.

 

The following table summarizes the preliminary amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

 

Accounts receivable

 

$

17,109

 

Inventories

 

8,668

 

Prepaid expenses and other current assets

 

7,514

 

Property and equipment

 

88

 

Capitalized software for internal use

 

17,000

 

Definite-lived intangible assets

 

23,400

 

Accounts payable

 

(25,761

)

Accrued expenses — compensation and benefits

 

(169

)

Accrued expenses — other

 

(6

)

 

 

 

 

Total identifiable net assets

 

47,843

 

Goodwill

 

39,151

 

 

 

 

 

 

 

$

86,994

 

 

 

 

 

 

 

Definite-lived intangible assets that were acquired and their respective useful lives are as follows:

 

 

 

Useful
Life

 

Amount

 

Physician relationships

 

10 years

 

$

15,000 

 

Non-compete employment agreements

 

5 years

 

5,700 

 

Favorable supply agreement

 

1 year

 

2,700 

 

 

 

 

 

 

 

 

 

 

 

$

23,400 

 

 

 

 

 

 

 

 

 

The Company has not finalized the purchase price allocation. Accordingly, the purchase price allocation described above could change materially as the Company finalizes its assessment of the allocation and the fair values of the net tangible and intangible assets it acquired. The Company determined the estimated fair values of the identifiable long-lived assets with assistance from an independent valuation firm.

 

BioRx

 

On February 26, 2015, the Company signed a definitive agreement to acquire BioRx. On April 1, 2015, the Company acquired BioRx, a highly specialized pharmacy and infusion services company based in Cincinnati, Ohio that provides treatments for patients with ultra-orphan and rare, chronic diseases. The Company acquired BioRx to further expand its existing specialty infusion business and to increase its national presence. The following table summarizes the consideration transferred to acquire BioRx:

 

Cash

 

$

217,024 

 

4,038,853 restricted common shares

 

125,697 

 

Contingent consideration at fair value

 

41,000 

 

 

 

 

 

 

 

$

383,721 

 

 

 

 

 

 

 

The above share consideration at closing is based on 4,038,853 shares, as computed in accordance with the purchase agreement, multiplied by the per share closing market price as of March 31, 2015 ($34.58) and multiplied by 90% to account for the restricted nature of the shares.

 

The purchase price includes a contingent consideration arrangement that requires the Company to issue up to 1,350,309 shares of its restricted common stock, as computed in accordance with the purchase agreement, to the former holders of BioRx’s equity interests based upon the achievement of a certain earnings before interest, taxes, depreciation and amortization target in the twelve month period ending March 31, 2016. Payment of the contingent consideration is subject to acceleration at the maximum contingent amount in the event of (i) a change in control of the Company or (ii) the termination without cause of either of two principals of BioRx that have continued employment with the Company following the closing, in each case during the 12-month period ending March 31, 2016.

 

The Company incurred acquisition-related costs of $40 and $1,394 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2015, respectively.

 

The following table summarizes the preliminary amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

 

Cash and cash equivalents

 

$

1,786

 

Accounts receivable

 

38,946

 

Inventories

 

5,546

 

Deferred income taxes

 

382

 

Prepaid expenses and other current assets

 

287

 

Property and equipment

 

494

 

Definite-lived intangible assets

 

181,700

 

Other noncurrent assets

 

163

 

Accounts payable

 

(25,088

)

Accrued expenses — compensation and benefits

 

(1,653

)

Accrued expenses — other

 

(852

)

Deferred income taxes

 

(9,117

)

 

 

 

 

Total identifiable net assets

 

192,594

 

Goodwill

 

191,127

 

 

 

 

 

 

 

$

383,721

 

 

 

 

 

 

 

Definite-lived intangible assets that were acquired and their respective useful lives are as follows:

 

 

 

Useful
Life

 

Amount

 

Patient relationships

 

10 years

 

$

130,000 

 

Non-compete employment agreements

 

5 years

 

39,700 

 

Trade names and trademarks

 

8 years

 

12,000 

 

 

 

 

 

 

 

 

 

 

 

$

181,700 

 

 

 

 

 

 

 

 

 

The Company has not finalized the purchase price allocation. Accordingly, the purchase price allocation described above could change materially as the Company finalizes its assessment of the allocation and the fair values of the net tangible and intangible assets it acquired. The Company determined the estimated fair values of the identifiable long-lived assets with assistance from an independent valuation firm. The valuation firm also assisted with the Company’s determination of the fair value of the contingent consideration utilizing a Monte Carlo simulation. Based on a decrease in the Company’s stock price since BioRx’s acquisition, the fair value of this contingent consideration liability decreased to $38,000 as of September 30, 2015.

 

MedPro Rx, Inc.

 

On June 27, 2014, the Company acquired all of the authorized, issued and outstanding shares of capital stock of MedPro Rx, Inc. (“MedPro”). MedPro, based in Raleigh, North Carolina, is a specialty pharmacy focused on specialty infusion therapies including hemophilia and immune globulin. The Company acquired MedPro to expand its existing specialty infusion business and to increase its presence in the mid-Atlantic and Southern regions of the U.S.

 

The Company did not acquire MedPro’s affiliate from which MedPro leased certain operating and other facilities. Instead, the Company, commensurate with the acquisition, entered into a five-year external lease agreement for the facilities on similar terms. As the Company does not direct the significant activities of the lessor, it is not consolidated into the Company’s financial statements.

 

The Company incurred acquisition-related costs of $190 and $825 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2014.

 

The following table summarizes the consideration transferred to acquire MedPro:

 

Cash

 

$

52,267 

 

716,695 restricted common shares

 

12,000 

 

Contingent consideration at fair value

 

4,270 

 

 

 

 

 

 

 

$

68,537 

 

 

 

 

 

 

 

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners an additional payout based upon the achievement of certain revenue and gross profit targets in each of the twelve month periods ending June 30, 2015 and 2016. The maximum payout of contingent consideration is $11,500. Approximately $3,500 of the purchase consideration was deposited into an escrow account to be held for two years after the closing date to satisfy any of the Company’s indemnification claims.

 

The following table summarizes the amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

 

Cash and cash equivalents

 

$

668

 

Accounts receivable

 

9,050

 

Inventories

 

3,819

 

Prepaid expenses and other current assets

 

204

 

Property and equipment

 

697

 

Capitalized software for internal use

 

25

 

Definite-lived intangible assets

 

37,099

 

Accounts payable

 

(3,638

)

Accrued expenses — compensation and benefits

 

(157

)

Accrued expenses — other

 

(865

)

 

 

 

 

Total identifiable net assets

 

46,902

 

Goodwill

 

21,635

 

 

 

 

 

 

 

$

68,537

 

 

 

 

 

 

 

Definite-lived intangible assets that were acquired and their respective useful lives are as follows:

 

 

 

Useful
Life

 

Amount

 

Patient relationships

 

7 years

 

$

24,000 

 

Trade names and trademarks

 

10 years

 

8,700 

 

Non-compete employment agreements

 

5 years

 

4,399 

 

 

 

 

 

 

 

 

 

 

 

$

37,099 

 

 

 

 

 

 

 

 

 

The Company determined the fair values of the identifiable long-lived assets with assistance from an independent valuation firm. The valuation firm also assisted with the Company’s determination of the fair value of the contingent consideration utilizing historical results, forecasted operating results of MedPro for each of the twelve month periods ending June 30, 2015 and 2016, and the corresponding contractual contingent payouts based on those results discounted at rates commensurate with the uncertainty involved. Based on operating results since MedPro’s acquisition, the Company increased the estimated contingent payment in the fourth quarter of 2014, and, with accreted interest through September 30, 2015, the resulting liability as of September 30, 2015 was $5,316. Based upon MedPro’s actual results for the twelve months ended June 30, 2015, $5,750 was earned and was paid during the third quarter of 2015.

 

Proforma Operating Results

 

The following unaudited pro forma summary presents consolidated financial information as if the Burman’s, BioRx and MedPro acquisitions had occurred on January 1, 2014. The unaudited pro forma results reflect certain adjustments related to the acquisitions, such as amortization expense resulting from intangible assets acquired and adjustments to reflect the Company’s borrowings and tax rates. Accordingly, such pro forma operating results were prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of January 1, 2014 or of results that may occur in the future.

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Net sales

 

$

946,913 

 

$

733,776 

 

$

2,656,523 

 

$

2,055,904 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Diplomat Pharmacy, Inc.

 

$

11,090 

 

$

5,536 

 

$

29,259 

 

$

11,565 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — basic

 

$

0.17 

 

$

0.13 

 

$

0.47 

 

$

0.27 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — diluted

 

$

0.17 

 

$

0.12 

 

$

0.46 

 

$

0.26 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS

 

5.FAIR VALUE MEASUREMENTS

 

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy was established, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1:Observable inputs such as quoted prices in active markets;

 

Level 2:Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

 

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

 

A.

Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

 

B.

Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).

 

C.

Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).

 

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and disclosed at fair value on a recurring basis at September 30, 2015 and December 31, 2014:

 

 

 

Asset /

 

 

 

Valuation

 

 

 

(Liability)

 

Level 3

 

Technique

 

September 30, 2015:

 

 

 

 

 

 

 

Contingent consideration

 

$

(44,281

)

$

(44,281

)

C

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

Contingent consideration

 

$

(11,691

)

$

(11,691

)

C

 

 

The following table sets forth a roll forward of the Level 3 measurements:

 

 

 

Contingent
Consideration

 

Balance at January 1, 2015

 

$

(11,691

)

BioRx acquisition

 

(41,000

)

Changes in fair value

 

1,660

 

Payments

 

6,750

 

 

 

 

 

Balance at September 30, 2015

 

$

(44,281

)

 

 

 

 

 

 

The carrying amounts of the Company’s financial instruments, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable and other liabilities, approximate their estimated fair values due to the relative short-term nature of the amounts. The carrying amount of debt approximates fair value due to variable interest rates at customary terms and rates the Company could obtain in current financing.

 

INVENTORIES
INVENTORIES

 

6.INVENTORIES

 

Inventories consist of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items

 

$

153,286 

 

$

110,464 

 

Raw materials

 

 

208 

 

Finished goods

 

 

11 

 

 

 

 

 

 

 

 

 

$

153,293 

 

$

110,683 

 

 

 

 

 

 

 

 

 

 

GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL AND OTHER INTANGIBLE ASSETS

 

7.GOODWILL AND OTHER INTANGIBLE ASSETS

 

The following table sets forth a roll forward of goodwill for the nine months ended September 30, 2015:

 

Balance at January 1, 2015

 

$

23,148 

 

BioRx acquisition

 

191,127 

 

Burman’s acquisition

 

39,151 

 

 

 

 

 

Balance at September 30, 2015

 

$

253,426 

 

 

 

 

 

 

 

Definite-lived intangible assets consist of the following:

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Patient relationships

 

$

159,100

 

$

(11,507

)

$

147,593

 

$

29,100

 

$

(2,895

)

$

26,205

 

Non-compete employment agreements

 

50,399

 

(5,612

)

44,787

 

4,999

 

(560

)

4,439

 

Trade names and trademarks

 

22,100

 

(2,082

)

20,018

 

10,100

 

(575

)

9,525

 

Physician relationships

 

15,000

 

(438

)

14,562

 

 

 

 

Software licensing agreement

 

2,647

 

 

2,647

 

2,647

 

 

2,647

 

Favorable supply agreement

 

2,700

 

(787

)

1,913

 

 

 

 

Intellectual property

 

2,157

 

 

2,157

 

2,157

 

 

2,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

254,103

 

$

(20,426

)

$

233,677

 

$

49,003

 

$

(4,030

)

$

44,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization expense was $7,908 and $1,725 for the three months ended September 30, 2015 and 2014, respectively, and $16,396 and $2,353 for the nine months ended September 30, 2015 and 2014, respectively.

 

On August 28, 2014, the Company and two unrelated third party entities entered into a contribution agreement to form a new company, Primrose Healthcare, LLC (“Primrose”). Primrose functions as a management company, managing a network of physicians and medical professionals providing continuum care for patients infected with the hepatitis C virus. The Company contributed $5,000 for its 51% interest, of which $2,000 and $3,000 were contributed in 2015 and 2014, respectively. The unrelated third party entities contributed a software licensing agreement valued at $2,647 and intellectual property valued at $2,157. No amortization related to these intangibles has been recorded as the entity has yet to recognize any revenue.

 

INVESTMENT IN NON-CONSOLIDATED ENTITIES
INVESTMENT IN NON-CONSOLIDATED ENTITIES

 

8.INVESTMENT IN NON-CONSOLIDATED ENTITIES

 

In October 2011, the Company purchased a 25% minority interest in WorkSmartMD, L.L.C., also known as Ageology, for $5,000 of cash consideration, which was paid in installments during 2011, 2012 and 2013. During November and December 2013, the Company entered into two $1,000 6% per annum interest-bearing promissory notes receivable from Ageology. During January 2014, the Company entered into a $500, 8% per annum interest bearing secured promissory note receivable from Ageology. The notes are due on demand and secured by all personal property and fixtures owned by Ageology. In addition, in transactions unrelated to the Company, an affiliated entity owned by the Company’s chief executive officer has personally loaned $8,725 to Ageology as of September 30, 2015.

 

During the fourth quarter of 2014, the Company reassessed the recoverability of its investment in Ageology. Based upon this assessment, it was determined that a full impairment was warranted, primarily due to updated projections of continuing losses into the foreseeable future.

 

In December 2014, the Company invested $3,500 in Physician Resource Management, Inc. in exchange for a 15% equity position. The Company is accounting for this investment under the cost method as the Company does not have significant influence over its operations.

 

DEBT
DEBT

 

9.DEBT

 

On April 1, 2015, in connection with the BioRx acquisition, the Company entered into a Second Amended and Restated Credit Agreement with General Electric Capital Corporation (“GE”), as agent and as a lender, the other lenders party thereto and the other credit parties party thereto, providing for an increase in the Company’s line of credit to $175,000, a fully drawn Term Loan A for $120,000 and a deferred draw term loan for an additional $25,000 (the “new credit facility”). The new credit facility also extended the maturity date to April 1, 2020. The new credit facility provides for the issuance of letters of credit up to $10,000 and swingline loans up to $15,000, the issuance and incurrence of which will reduce the availability of the line of credit. The new credit facility is guaranteed by substantially all of the Company’s subsidiaries and is collateralized by substantially all of the Company’s and its subsidiaries’ respective assets, with certain exceptions. In addition, the Company has pledged the equity of substantially all of its subsidiaries as security for the obligations under the new credit facility. The Company is required to maintain a depository bank account where money is collected and swept directly to the line of credit.

 

At September 30, 2015, the Company’s Term Loan A interest rate options were (i) LIBOR (as defined) plus 2.50% or (ii) Base Rate (as defined) plus 1.50%, and the Company’s line of credit and swingline loan interest rate options were (i) LIBOR (as defined) plus 2.00% or (ii) Base Rate (as defined) plus 1.00%. The Company is charged a monthly unused commitment fee ranging from 0.25% to 0.50% on the average unused daily balance.

 

The Company incurred deferred financing costs of $5,056 associated with the new credit facility, which were capitalized in “Deferred debt issuance costs” on the condensed consolidated balance sheet. These costs, along with previously unamortized deferred debt issuance costs, are being amortized to interest expense over the term of the new credit facility.

 

The new credit facility with GE contains certain financial and non-financial covenants. The Company was in compliance with all such covenants as of September 30, 2015.

 

As disclosed in Note 1, using proceeds received from its IPO in October 2014, the Company repaid all outstanding borrowings including existing indebtedness to certain current or former shareholders and employees of $19,824 and borrowings under the line of credit of $60,634.

 

SHARE-BASED COMPENSATION
SHARE-BASED COMPENSATION

 

10.SHARE-BASED COMPENSATION

 

A summary of the Company’s stock option activity as of and for the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Number

 

Exercise

 

Contractual

 

Intrinsic

 

 

 

of Options

 

Price

 

Life

 

Value

 

 

 

 

 

 

 

(Years)

 

 

 

Outstanding at December 31, 2014

 

7,217,331

 

$

7.54

 

6.9

 

$

142,262

 

Granted

 

1,022,439

 

41.65

 

 

 

 

 

Repurchased

 

(1,641,387

)

5.44

 

 

 

 

 

Exercised

 

(1,683,000

)

5.20

 

 

 

 

 

Expired/cancelled

 

(787,119

)

16.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2015

 

4,128,264

 

$

16.15

 

7.7

 

$

65,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2015

 

1,011,545

 

$

4.01

 

5.2

 

$

25,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company granted service-based awards of 631,396 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan during the nine months ended September 30, 2015. The options become exercisable in installments of 25% per year, beginning on the first anniversary of the grant date and each of the three anniversaries thereafter, and have a maximum term of ten years. The Company also granted performance-based awards of 391,043 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan during the nine months ended September 30, 2015. Such options will be earned or forfeited based upon the Company’s performance relative to specified revenue and adjusted earnings before interest, taxes, depreciation and amortization goals for the year ended December 31, 2015. The earned options, if any, will vest in four installments of 25%, with the first installment vesting upon Audit Committee confirmation of the satisfaction of the applicable performance goals, and the remaining installments vesting annually thereafter. These options also have a maximum term of ten years.

 

The 1,022,439 options to purchase common stock that were granted during 2015 and that are described in the above paragraph have a weighted average grant date fair value of $12.72 per option. The grant-date fair values of these stock option awards were estimated using the Black-Scholes-Merton option pricing model using the assumptions set forth in the following table:

 

Exercise price

 

$39.26 - $48.72

 

Expected volatility

 

25.82% - 26.70%

 

Expected dividend yield

 

0% 

 

Risk-free rate over the estimated expected life

 

1.84% - 2.01%

 

Expected life (in years)

 

6.25 

 

 

Estimating grant date fair values for stock options requires management to make assumptions regarding the expected volatility of value of the underlying common shares, the risk-free rate over the expected life of the stock options, and the date on which share-based payments will be settled. Expected volatility is based on an implied volatility for a group of industry-relevant healthcare companies as of the measurement date. Expected dividend yield is zero as the Company does not anticipate that any dividends will be declared during the expected life of the options. Risk-free rate is determined based upon U.S. Treasury rates over the estimated expected stock option lives. Expected life of the stock options is calculated using the simplified method (the midpoint between the end of the vesting period and the end of the maximum term) because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its awards have been outstanding. If actual results differ significantly from these estimates and assumptions, share-based compensation expense, primarily with respect to future share-based awards, could be materially impacted.

 

In March 2015, the Company repurchased vested stock options to buy 1,641,387 shares of common stock from certain current employees, including certain executive officers, for cash consideration totaling $36,298. All repurchased stock options were granted under the Company’s 2007 Stock Option Plan. No incremental compensation expense was recognized as a result of these repurchases.

 

In April 2014, the Company repurchased vested stock options to buy 183,993 shares of common stock from certain current employees for cash consideration, totaling $2,300. No incremental compensation expense was recognized as a result of these redemptions.

 

In January 2014, the Company repurchased vested stock options to buy 239,768 shares of common stock from certain current employees for cash consideration, totaling $3,100. No incremental compensation expense was recognized as a result of these redemptions.

 

The Company recorded share-based compensation expense associated with stock options of $1,232 and $693 for the three months ended September 30, 2015 and 2014, respectively, and $2,389 and $1,828 for the nine months ended September 30, 2015 and 2014, respectively. Recorded share-based compensation expense for the three and nine months ended September 30, 2015 assumes achievement of certain performance-based goals.

 

During the fourth quarter of 2014, the Company granted 8,277 restricted share awards to its non-employee directors. The Company recorded share-based compensation expense associated with restricted stock awards of $38 and $113 for the three and nine months ended September 30, 2015, respectively.

 

For U.S. GAAP purposes, share-based compensation expense associated with stock options is based upon recognition of the grant date fair value over the vesting period of the option. For income tax purposes, share-based compensation tax deductions associated with stock option exercises and repurchases are based upon the difference between the stock price and the exercise price at time of exercise or repurchase. In instances where share-based compensation expense for tax purposes is in excess of share-based compensation expense for U.S. GAAP purposes, U.S. GAAP requires that the tax benefit associated with this excess expense be recorded to shareholders’ equity to the extent that it reduces cash taxes payable. During the three and nine months ended September 30, 2015, the Company recorded excess tax benefits related to share-based awards of $9,365 and $14,348, respectively. As of September 30, 2015, the Company has approximately $54,000 of excess share-based compensation expense remaining to offset against future taxable income. Therefore, at an estimated effective tax rate of 39.0%, the amount of excess tax benefits yet to be recognized by the Company as a reduction to cash taxes payable is approximately $21,000.

 

U.S. GAAP also requires that excess tax benefits related to share-based awards be reported as a decrease to cash flows from operating activities and as an increase to cash flows from financing activities. Therefore, the Company reported $14,348 of excess tax benefits related to share-based awards as a decrease to cash flows from operating activities and as an increase to cash flows from financing activities for the nine months ended September 30, 2015.

INCOME TAXES
INCOME TAXES

 

11.INCOME TAXES

 

As disclosed in Note 2, the Company changed its income tax status from an S corporation to a C corporation on January 23, 2014. Accordingly, on that date, the Company recorded a net deferred income tax liability of $2,965 and a corresponding charge to deferred income tax expense. This adoption impact, net of the impact of S corporation earnings from January 1, 2014 to January 22, 2014 which were not tax affected, resulted in a 47% effective tax rate for the nine months ended September 30, 2014. The Company’s effective tax rate for the nine months ended September 30, 2015 was 39%.

 

CONTINGENCIES
CONTINGENCIES

 

12.CONTINGENCIES

 

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Management believes that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

REDEEMABLE CAPITAL STOCK
REDEEMABLE CAPITAL STOCK

 

13.REDEEMABLE CAPITAL STOCK

 

Several years prior to its IPO, the Company issued 11,050,000 shares of common stock to two shareholders that had certain redemption features which provided that upon the death of the shareholder or termination of his employment from the Company, all such outstanding shares owned by such shareholder would immediately be deemed to be offered for sale to the Company at an agreed-upon price meant to represent the then-current fair value of such shares. Due to this repurchase feature, the Company would be required to purchase the shares. Pursuant to this provision, the common shares were deemed to be mandatorily redeemable and, as such, were required to be reflected as a liability at their period end estimated fair value. Fair value was determined based on good faith estimates of the Company’s Board of Directors, in some cases with the assistance of independent third party valuations of the Company. The Company recognized a $6,916 and a $7,873 “Change in fair value of redeemable shares” during the three and nine months ended September 30, 2014, respectively.

 

In January 2014, the Company entered into a Redeemable Series A Preferred Stock Purchase Agreement with certain funds of T. Rowe Price Associates, Inc. (“T. Rowe”) under which the Company issued to T. Rowe 2,986,229 shares of Redeemable Series A Preferred Stock at a purchase price of $16.74 per share. The Company used $20,000 of this $50,000 investment for general corporate purposes inclusive of fees associated with this transaction, and the remaining $30,000 was distributed to holders of common stock ($26,900) and holders of options to acquire common stock ($3,100).

 

In April 2014, the Company entered into a Redeemable Series A Preferred Stock Purchase Agreement with certain funds of Janus Capital Management LLC (“Janus”) under which the Company issued to Janus 3,225,127 shares of Redeemable Series A Preferred Stock at a purchase price of $16.74 per share. The Company used $25,200 of this $54,000 investment for general corporate purposes inclusive of fees associated with this transaction, and the remaining $28,800 was distributed to holders of common stock ($26,500) and holders of options to acquire common stock ($2,300).

 

As disclosed in Note 1, immediately prior to the closing of the IPO, each share of the Company’s then-outstanding capital stock converted into one share of its newly-authorized shares of no par value common stock.

TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT
TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT

 

14.TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT

 

In August 2014, the Company issued 372,486 shares of common stock to a non-employee relative (and associated trusts) of the Company’s chief executive officer in connection with the termination of an existing stock redemption agreement. The Company recorded a charge of $4,842 during both the three and nine month periods ended September 30, 2014 associated with this transaction. The value of the issued shares was based on the Company’s initial public offering price of $13.00 per share.

INCOME PER COMMON SHARE
INCOME PER COMMON SHARE

 

15.INCOME PER COMMON SHARE

 

For the period January 23, 2014 through September 30, 2014, the Company computed net income per common share using the two-class method as its Redeemable Series A Preferred Stock met the definition of a participating security and thereby shared in the net income of the Company on a ratable basis with the common shareholders. The preferred stock’s portions of net income for the three and nine months ended September 30, 2014 were 16% and 13%, respectively.

 

The following table sets forth the computation of basic and diluted income per common share:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income attributable to Diplomat Pharmacy, Inc.

 

$

15,961 

 

$

4,541 

 

$

22,210 

 

$

7,906 

 

Less net income allocable to preferred shareholders

 

 

745 

 

 

1,062 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common shareholders

 

15,961 

 

3,796 

 

22,210 

 

6,844 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

63,890,060 

 

31,643,725 

 

59,507,347 

 

31,479,950 

 

Weighted average dilutive effect of stock options and restricted stock awards

 

1,622,995 

 

2,026,316 

 

2,251,632 

 

2,476,045 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, diluted

 

65,513,055 

 

33,670,041 

 

61,758,979 

 

33,955,995 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25 

 

$

0.12 

 

$

0.37 

 

$

0.22 

 

Diluted

 

$

0.24 

 

$

0.11 

 

$

0.36 

 

$

0.20 

 

 

Service-based stock options to purchase a weighted average of 615,504 and 270,421 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2015, respectively, as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to a weighted average of 678,234 and 550,512 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2015, respectively, as none of the necessary conditions were satisfied as of September 30, 2015. Contingent consideration to issue up to 1,350,309 common shares was excluded from the computation of diluted weighted average common shares outstanding for both the three and nine months ended September 30, 2015 as none of the necessary conditions were satisfied as of September 30, 2015. Service-based stock options to purchase a weighted average of 679,629 and 579,653 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2014, respectively, as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to a weighted average of 871,293 and 826,103 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2014, respectively, as none of the necessary conditions were satisfied as of September 30, 2014.

 

The effect of all Redeemable Series A Preferred Stock were excluded from the computation of diluted weighted average common shares outstanding for both the three and nine months ended September 30, 2014 as inclusion would be anti-dilutive.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Diplomat Pharmacy, Inc., its wholly-owned subsidiaries, and a 51%-owned subsidiary, formed in August 2014, which the Company controls (see Note 7). The Company also owns a 25% interest in a non-consolidated entity which is accounted for under the equity method of accounting since the Company does not control the entity but has the ability to exercise significant influence over its operating and financial policies. This equity method investment was fully impaired during the fourth quarter of 2014. An investment in an entity in which the Company owns less than 20% and does not have the ability to exercise significant influence is accounted for under the cost method.

 

Noncontrolling interest in a consolidated subsidiary in the condensed consolidated balance sheets represents the minority shareholders’ proportionate share of the equity in such subsidiary. Consolidated net income (loss) is allocated to the Company and noncontrolling interests (i.e., minority shareholders) in proportion to their percentage ownership.

 

All intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

 

Revenue Recognition

 

The Company recognizes revenue from prescription drug sales for home delivery at the time the drugs are shipped. At the time of shipment, the Company has performed substantially all of its obligations under its payor contracts and does not experience a significant level of returns or reshipments. If the Company administers a drug treatment regimen in a patient’s home, the Company recognizes revenue at the time of administration. Revenues from dispensing specialty prescriptions that are picked up by patients at an open door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drug sales were $941,533 and $592,410 for the three months ended September 30, 2015 and 2014, respectively, and $2,365,860 and $1,594,197 for the nine months ended September 30, 2015 and 2014, respectively.

 

The Company recognizes revenue from service, data and consulting services when the services have been performed and the earnings process is therefore complete. Revenues generated from service, data and consulting services were $5,380 and $3,119 for the three months ended September 30, 2015 and 2014, respectively, and $13,947 and $8,684 for the nine months ended September 30, 2015 and 2014, respectively.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which will supersede the existing revenue recognition guidance under U.S. GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017 for public entities. ASU 2014-09 may be applied either retrospectively or as a cumulative effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is currently assessing the method under which it will adopt and the potential impact of adopting ASU 2014-09 on its financial position, results of operations, cash flows and/or disclosures.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Targets Could Be Achieved after the Requisite Service Period, requiring that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period. The Company does not expect the adoption of this guidance to have a significant impact on its financial position, results of operations, cash flows or disclosures.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), and, in August 2015, the FASB issued ASU No. 2015-15, Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-15 then clarified that debt issuance costs related to a line-of-credit arrangement can be presented as an asset on the balance sheet, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These ASUs are effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. An entity should apply this new guidance on a retrospective basis and is required to comply with applicable disclosures for a change in an accounting principle. These standards will result in a balance sheet reclassification and require related disclosure revisions in the Company’s financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, requiring that inventory be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective within annual periods beginning on or after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

 

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, requiring that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU also requires an entity to present separately on the face of the income statement, or disclose in the notes to the financial statements, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period, and will be applied prospectively to measurement-period adjustments that occur after the effective date of this ASU.

BUSINESS ACQUISITIONS (Tables)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Net sales

 

$

946,913 

 

$

733,776 

 

$

2,656,523 

 

$

2,055,904 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Diplomat Pharmacy, Inc.

 

$

11,090 

 

$

5,536 

 

$

29,259 

 

$

11,565 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — basic

 

$

0.17 

 

$

0.13 

 

$

0.47 

 

$

0.27 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — diluted

 

$

0.17 

 

$

0.12 

 

$

0.46 

 

$

0.26 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at closing

 

$

84,296

 

253,036 restricted common shares

 

9,578

 

Receivable for post-closing adjustment

 

(6,880

)

 

 

 

 

 

 

$

86,994

 

 

 

 

 

 

 

 

Accounts receivable

 

$

17,109

 

Inventories

 

8,668

 

Prepaid expenses and other current assets

 

7,514

 

Property and equipment

 

88

 

Capitalized software for internal use

 

17,000

 

Definite-lived intangible assets

 

23,400

 

Accounts payable

 

(25,761

)

Accrued expenses — compensation and benefits

 

(169

)

Accrued expenses — other

 

(6

)

 

 

 

 

Total identifiable net assets

 

47,843

 

Goodwill

 

39,151

 

 

 

 

 

 

 

$

86,994

 

 

 

 

 

 

 

 

 

Useful
Life

 

Amount

 

Physician relationships

 

10 years

 

$

15,000 

 

Non-compete employment agreements

 

5 years

 

5,700 

 

Favorable supply agreement

 

1 year

 

2,700 

 

 

 

 

 

 

 

 

 

 

 

$

23,400 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

217,024 

 

4,038,853 restricted common shares

 

125,697 

 

Contingent consideration at fair value

 

41,000 

 

 

 

 

 

 

 

$

383,721 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,786

 

Accounts receivable

 

38,946

 

Inventories

 

5,546

 

Deferred income taxes

 

382

 

Prepaid expenses and other current assets

 

287

 

Property and equipment

 

494

 

Definite-lived intangible assets

 

181,700

 

Other noncurrent assets

 

163

 

Accounts payable

 

(25,088

)

Accrued expenses — compensation and benefits

 

(1,653

)

Accrued expenses — other

 

(852

)

Deferred income taxes

 

(9,117

)

 

 

 

 

Total identifiable net assets

 

192,594

 

Goodwill

 

191,127

 

 

 

 

 

 

 

$

383,721

 

 

 

 

 

 

 

 

 

 

Useful
Life

 

Amount

 

Patient relationships

 

10 years

 

$

130,000 

 

Non-compete employment agreements

 

5 years

 

39,700 

 

Trade names and trademarks

 

8 years

 

12,000 

 

 

 

 

 

 

 

 

 

 

 

$

181,700 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

52,267 

 

716,695 restricted common shares

 

12,000 

 

Contingent consideration at fair value

 

4,270 

 

 

 

 

 

 

 

$

68,537 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

668

 

Accounts receivable

 

9,050

 

Inventories

 

3,819

 

Prepaid expenses and other current assets

 

204

 

Property and equipment

 

697

 

Capitalized software for internal use

 

25

 

Definite-lived intangible assets

 

37,099

 

Accounts payable

 

(3,638

)

Accrued expenses — compensation and benefits

 

(157

)

Accrued expenses — other

 

(865

)

 

 

 

 

Total identifiable net assets

 

46,902

 

Goodwill

 

21,635

 

 

 

 

 

 

 

$

68,537

 

 

 

 

 

 

 

 

 

Useful
Life

 

Amount

 

Patient relationships

 

7 years

 

$

24,000 

 

Trade names and trademarks

 

10 years

 

8,700 

 

Non-compete employment agreements

 

5 years

 

4,399 

 

 

 

 

 

 

 

 

 

 

 

$

37,099 

 

 

 

 

 

 

 

 

 

FAIR VALUE MEASUREMENTS (Tables)

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset /

 

 

 

Valuation

 

 

 

(Liability)

 

Level 3

 

Technique

 

September 30, 2015:

 

 

 

 

 

 

 

Contingent consideration

 

$

(44,281

)

$

(44,281

)

C

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

Contingent consideration

 

$

(11,691

)

$

(11,691

)

C

 

 

 

 

 

 

Contingent
Consideration

 

Balance at January 1, 2015

 

$

(11,691

)

BioRx acquisition

 

(41,000

)

Changes in fair value

 

1,660

 

Payments

 

6,750

 

 

 

 

 

Balance at September 30, 2015

 

$

(44,281

)

 

 

 

 

 

 

INVENTORIES (Tables)
Schedule of inventories

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items

 

$

153,286 

 

$

110,464 

 

Raw materials

 

 

208 

 

Finished goods

 

 

11 

 

 

 

 

 

 

 

 

 

$

153,293 

 

$

110,683 

 

 

 

 

 

 

 

 

 

 

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

 

Balance at January 1, 2015

 

$

23,148 

 

BioRx acquisition

 

191,127 

 

Burman’s acquisition

 

39,151 

 

 

 

 

 

Balance at September 30, 2015

 

$

253,426 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Patient relationships

 

$

159,100

 

$

(11,507

)

$

147,593

 

$

29,100

 

$

(2,895

)

$

26,205

 

Non-compete employment agreements

 

50,399

 

(5,612

)

44,787

 

4,999

 

(560

)

4,439

 

Trade names and trademarks

 

22,100

 

(2,082

)

20,018

 

10,100

 

(575

)

9,525

 

Physician relationships

 

15,000

 

(438

)

14,562

 

 

 

 

Software licensing agreement

 

2,647

 

 

2,647

 

2,647

 

 

2,647

 

Favorable supply agreement

 

2,700

 

(787

)

1,913

 

 

 

 

Intellectual property

 

2,157

 

 

2,157

 

2,157

 

 

2,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

254,103

 

$

(20,426

)

$

233,677

 

$

49,003

 

$

(4,030

)

$

44,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARE-BASED COMPENSATION (Tables)

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Number

 

Exercise

 

Contractual

 

Intrinsic

 

 

 

of Options

 

Price

 

Life

 

Value

 

 

 

 

 

 

 

(Years)

 

 

 

Outstanding at December 31, 2014

 

7,217,331

 

$

7.54

 

6.9

 

$

142,262

 

Granted

 

1,022,439

 

41.65

 

 

 

 

 

Repurchased

 

(1,641,387

)

5.44

 

 

 

 

 

Exercised

 

(1,683,000

)

5.20

 

 

 

 

 

Expired/cancelled

 

(787,119

)

16.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2015

 

4,128,264

 

$

16.15

 

7.7

 

$

65,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2015

 

1,011,545

 

$

4.01

 

5.2

 

$

25,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise price

 

$39.26 - $48.72

 

Expected volatility

 

25.82% - 26.70%

 

Expected dividend yield

 

0% 

 

Risk-free rate over the estimated expected life

 

1.84% - 2.01%

 

Expected life (in years)

 

6.25 

 

 

INCOME PER COMMON SHARE (Tables)
Schedule of the calculation for basic and diluted income per common share

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income attributable to Diplomat Pharmacy, Inc.

 

$

15,961 

 

$

4,541 

 

$

22,210 

 

$

7,906 

 

Less net income allocable to preferred shareholders

 

 

745 

 

 

1,062 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common shareholders

 

15,961 

 

3,796 

 

22,210 

 

6,844 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

63,890,060 

 

31,643,725 

 

59,507,347 

 

31,479,950 

 

Weighted average dilutive effect of stock options and restricted stock awards

 

1,622,995 

 

2,026,316 

 

2,251,632 

 

2,476,045 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, diluted

 

65,513,055 

 

33,670,041 

 

61,758,979 

 

33,955,995 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25 

 

$

0.12 

 

$

0.37 

 

$

0.22 

 

Diluted

 

$

0.24 

 

$

0.11 

 

$

0.36 

 

$

0.20 

 

 

DESCRIPTION OF BUSINESS (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended 9 Months Ended 1 Months Ended
Oct. 31, 2014
Sep. 30, 2015
segment
location
Sep. 30, 2014
Dec. 31, 2014
Oct. 31, 2014
Initial Public Offering
Mar. 31, 2015
Follow-On Public Offering
DESCRIPTION OF BUSINESS
 
 
 
 
 
 
Number of pharmacy locations
 
16 
 
 
 
 
Number of reportable segments
 
 
 
 
 
Initial Public Offering [Line Items]
 
 
 
 
 
 
Number of shares of common stock sold (in shares)
 
 
 
 
15,333,333 
9,821,125 
Number of shares sold by the Company (in shares)
 
 
 
 
11,000,000 
6,821,125 
Number of shares of stock sold by the existing shareholders (in shares)
 
 
 
 
4,333,333 
3,000,000 
Public offering price (in dollars per share)
 
 
$ 13.00 
 
$ 13.00 
$ 29.00 
Net proceeds from initial public offering
 
 
 
 
$ 130,440 
 
Proceeds from follow-on public offering, net of transaction costs
 
187,238 
 
 
 
187,238 
Underwriting discounts and commissions
 
 
 
 
9,652 
9,891 
Other offering expenses
 
 
1,368 
 
2,908 
685 
Net proceeds used for debt payments
 
 
 
 
80,458 
 
Existing indebtedness to certain current or former shareholders and employees
 
 
 
 
19,824 
 
Amount of borrowings repaid under the revolving line of credit
 
 
 
 
60,634 
 
Number of newly authorized shares issued upon conversion (in shares)
 
 
 
 
 
Common shares, par value (in dollars per share)
$ 0.00 
$ 0.00 
 
$ 0.00 
 
 
Net proceeds used to repurchase stock options
 
 
 
 
 
36,298 
Borrowings under the revolving line of credit
 
$ 21,756 
 
 
 
 
BASIS OF PRESENTATION (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended
Oct. 31, 2014
Jan. 23, 2014
Stock Split
 
 
Number of shares issued as stock dividend (in shares)
8,500 
 
Effect of Conversion from S Corporation to C Corporation
 
 
Net deferred income tax liability
 
$ 2,965 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Aug. 28, 2014
Primrose
Principles of Consolidation
 
 
 
Percentage of ownership interest in subsidiary that the entity has the ability to control
51.00% 
 
 
Percentage of interest in a non-consolidated entity
25.00% 
 
51.00% 
Ownership interest (as a percent)
20.00% 
 
 
Debt Issuance Costs
 
 
 
Net debt issuance costs
$ 5,312 
$ 921 
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Revenue recognition
 
 
 
 
Revenues from service, data and consulting services
$ 5,380 
$ 3,119 
$ 13,947 
$ 8,684 
Prescription Drugs
 
 
 
 
Revenue recognition
 
 
 
 
Revenues
$ 941,533 
$ 592,410 
$ 2,365,860 
$ 1,594,197 
BUSINESS ACQUISITIONS (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 0 Months Ended 3 Months Ended 9 Months Ended 0 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended 0 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2015
segment
Dec. 31, 2014
Jun. 19, 2015
Burman's Apothecary, LLC
Jun. 18, 2015
Burman's Apothecary, LLC
Sep. 30, 2015
Burman's Apothecary, LLC
Sep. 30, 2015
Burman's Apothecary, LLC
Jun. 19, 2015
Burman's Apothecary, LLC
Jun. 18, 2015
Burman's Apothecary, LLC
Feb. 26, 2015
BioRx, LLC
Sep. 30, 2015
BioRx, LLC
Mar. 31, 2015
BioRx, LLC
Sep. 30, 2015
BioRx, LLC
Feb. 26, 2015
BioRx, LLC
Sep. 30, 2015
BioRx, LLC
Subsidiary
segment
Jun. 27, 2014
MedPro Rx, Inc.
Sep. 30, 2014
MedPro Rx, Inc.
Sep. 30, 2014
MedPro Rx, Inc.
Jun. 27, 2014
MedPro Rx, Inc.
Feb. 26, 2015
Trade names and trademarks
BioRx, LLC
Jun. 27, 2014
Trade names and trademarks
MedPro Rx, Inc.
Jun. 19, 2015
Non-compete employment agreements
Burman's Apothecary, LLC
Feb. 26, 2015
Non-compete employment agreements
BioRx, LLC
Jun. 27, 2014
Non-compete employment agreements
MedPro Rx, Inc.
Business acquisition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of acquisitions not treated as asset purchase for tax purposes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash at closing
 
 
$ 84,296 
 
 
 
 
 
$ 217,024 
 
 
 
 
 
$ 52,267 
 
 
 
 
 
 
 
 
Restricted common shares
 
 
9,578 
 
 
 
 
 
125,697 
 
 
 
 
 
12,000 
 
 
 
 
 
 
 
 
Contingent consideration fair value
 
 
 
 
 
 
 
 
41,000 
 
 
 
 
 
4,270 
 
 
 
 
 
 
 
 
Receivable for estimated post-closing adjustment
 
 
(6,880)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
86,994 
 
 
 
 
 
383,721 
 
 
 
 
 
68,537 
 
 
 
 
 
 
 
 
Restricted common shares (in shares)
 
 
253,036 
 
 
 
 
 
4,038,853 
 
 
 
 
 
716,695 
 
 
 
 
 
 
 
 
Market price (in dollars per share)
 
 
 
 
 
 
 
$ 42.06 
 
 
$ 34.58 
 
 
 
 
 
 
 
 
 
 
 
 
Market price multiplier to factor in restricted nature of the shares (as a percent)
 
 
 
90.00 
 
 
 
 
 
 
90.00 
 
 
 
 
 
 
 
 
 
 
 
 
Number of additional restricted Company shares to be issued upon achievement of EBITDA-based metric (in shares)
 
 
 
 
 
 
 
 
1,350,309 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of principal employees whose termination will trigger maximum contingent payout
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition-related costs charged to Selling, general, and administrative expenses
 
 
 
 
532 
735 
 
 
 
40 
 
1,394 
 
 
 
190 
825 
 
 
 
 
 
 
Maximum payout of contingent consideration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11,500 
 
 
 
 
 
Purchase consideration deposited into an escrow account
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,500 
 
 
 
 
 
 
 
 
Deposit term into an escrow account
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2 years 
 
 
 
 
 
 
 
 
External lease term
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5 years 
 
 
 
 
 
 
 
 
Summary of the preliminary fair value determination of the acquired assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
 
 
1,786 
 
 
 
 
668 
 
 
 
 
 
Accounts receivable, net
 
 
 
 
 
 
17,109 
 
 
 
 
 
38,946 
 
 
 
 
9,050 
 
 
 
 
 
Inventories
 
 
 
 
 
 
8,668 
 
 
 
 
 
5,546 
 
 
 
 
3,819 
 
 
 
 
 
Deferred income taxes
 
 
 
 
 
 
 
 
 
 
 
 
382 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
 
 
 
 
 
7,514 
 
 
 
 
 
287 
 
 
 
 
204 
 
 
 
 
 
Property and equipment
 
 
 
 
 
 
88 
 
 
 
 
 
494 
 
 
 
 
697 
 
 
 
 
 
Capitalized software for internal use
 
 
 
 
 
 
17,000 
 
 
 
 
 
 
 
 
 
 
25 
 
 
 
 
 
Definite-lived intangible assets
 
 
 
 
 
 
23,400 
 
 
 
 
 
181,700 
 
 
 
 
37,099 
 
 
 
 
 
Other noncurrent assets
 
 
 
 
 
 
 
 
 
 
 
 
163 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
 
 
 
 
 
(25,761)
 
 
 
 
 
(25,088)
 
 
 
 
(3,638)
 
 
 
 
 
Accrued expenses - compensation and benefits
 
 
 
 
 
 
(169)
 
 
 
 
 
(1,653)
 
 
 
 
(157)
 
 
 
 
 
Accrued expenses - other
 
 
 
 
 
 
(6)
 
 
 
 
 
(852)
 
 
 
 
(865)
 
 
 
 
 
Deferred income taxes
 
 
 
 
 
 
 
 
 
 
 
 
(9,117)
 
 
 
 
 
 
 
 
 
 
Total identifiable net assets
 
 
 
 
 
 
47,843 
 
 
 
 
 
192,594 
 
 
 
 
46,902 
 
 
 
 
 
Goodwill
253,426 
23,148 
 
 
 
 
39,151 
 
 
 
 
 
191,127 
 
 
 
 
21,635 
 
 
 
 
 
Definite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12,000 
8,700 
5,700 
39,700 
4,399 
Total acquisition price
 
 
 
 
 
 
$ 86,994 
 
 
 
 
 
$ 383,721 
 
 
 
 
$ 68,537 
 
 
 
 
 
BUSINESS ACQUISITIONS (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 9 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
MedPro Rx, Inc.
Jun. 27, 2014
MedPro Rx, Inc.
Jun. 27, 2014
MedPro Rx, Inc.
Physician relationships
Jun. 27, 2014
MedPro Rx, Inc.
Physician relationships
Jun. 27, 2014
MedPro Rx, Inc.
Trade names and trademarks
Jun. 27, 2014
MedPro Rx, Inc.
Trade names and trademarks
Jun. 27, 2014
MedPro Rx, Inc.
Non-compete employment agreements
Jun. 27, 2014
MedPro Rx, Inc.
Non-compete employment agreements
Jun. 19, 2015
Burman's Apothecary, LLC
Jun. 19, 2015
Burman's Apothecary, LLC
Physician relationships
Jun. 19, 2015
Burman's Apothecary, LLC
Physician relationships
Jun. 19, 2015
Burman's Apothecary, LLC
Non-compete employment agreements
Jun. 19, 2015
Burman's Apothecary, LLC
Non-compete employment agreements
Jun. 19, 2015
Burman's Apothecary, LLC
Favorable supply agreement
Jun. 19, 2015
Burman's Apothecary, LLC
Favorable supply agreement
Sep. 30, 2015
BioRx, LLC
Feb. 26, 2015
BioRx, LLC
Feb. 26, 2015
BioRx, LLC
Physician relationships
Feb. 26, 2015
BioRx, LLC
Physician relationships
Feb. 26, 2015
BioRx, LLC
Trade names and trademarks
Feb. 26, 2015
BioRx, LLC
Trade names and trademarks
Feb. 26, 2015
BioRx, LLC
Non-compete employment agreements
Feb. 26, 2015
BioRx, LLC
Non-compete employment agreements
Definite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Useful Life
 
 
 
 
 
 
7 years 
 
10 years 
 
5 years 
 
 
10 years 
 
5 years 
 
1 year 
 
 
 
10 years 
 
8 years 
 
5 years 
 
Amount
 
 
 
 
 
 
 
$ 24,000 
 
$ 8,700 
 
$ 4,399 
 
 
$ 15,000 
 
$ 5,700 
 
$ 2,700 
 
 
 
$ 130,000 
 
$ 12,000 
 
$ 39,700 
Total
 
 
 
 
 
37,099 
 
 
 
 
 
 
23,400 
 
 
 
 
 
 
 
181,700 
 
 
 
 
 
 
Fair value of this contingent consideration liability change in amount
 
 
(1,660)
657 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(38,000)
 
 
 
 
 
 
 
Contingent consideration related charges
 
 
5,316 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration earned and paid
 
 
 
 
5,750 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization expense
$ 7,908 
$ 1,725 
$ 16,396 
$ 2,353 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BUSINESS ACQUISITIONS (Details 3) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Pro Forma Operating Results
 
 
 
 
Net sales
$ 946,913 
$ 733,776 
$ 2,656,523 
$ 2,055,904 
Net income attributable to Diplomat Pharmacy, Inc.
$ 11,090 
$ 5,536 
$ 29,259 
$ 11,565 
Net income per common share - basic (in dollars per share)
$ 0.17 
$ 0.13 
$ 0.47 
$ 0.27 
Net income per common share - diluted (in dollars per share)
$ 0.17 
$ 0.12 
$ 0.46 
$ 0.26 
FAIR VALUE MEASUREMENTS (Details) (Recurring, Contingent consideration, USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Fair value measurements
 
 
Asset (Liability)
$ (44,281)
$ (11,691)
Level 3
 
 
Fair value measurements
 
 
Asset (Liability)
$ (44,281)
$ (11,691)
FAIR VALUE MEASUREMENTS (Details 2) (Level 3, Contingent consideration, USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Level 3 |
Contingent consideration
 
Level 3 measurements
 
Balance at beginning of the period
$ (11,691)
BioRx acquisition
(41,000)
Changes in fair value
1,660 
Payments
6,750 
Balance at end of the period
$ (44,281)
INVENTORIES (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
INVENTORIES
 
 
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items
$ 153,286 
$ 110,464 
Raw materials
 
208 
Finished goods
11 
Total inventories
$ 153,293 
$ 110,683 
GOODWILL AND OTHER INTANGIBLE ASSETS (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended 0 Months Ended 9 Months Ended 12 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Dec. 31, 2014
Sep. 30, 2015
BioRx, LLC
Feb. 26, 2015
BioRx, LLC
Sep. 30, 2015
Burman's Apothecary, LLC
Jun. 19, 2015
Burman's Apothecary, LLC
Aug. 28, 2014
Primrose
entity
Sep. 30, 2015
Primrose
Dec. 31, 2014
Primrose
Aug. 28, 2014
Primrose
Sep. 30, 2015
Patient relationships
Dec. 31, 2014
Patient relationships
Sep. 30, 2015
Non-compete employment agreements
Dec. 31, 2014
Non-compete employment agreements
Feb. 26, 2015
Non-compete employment agreements
BioRx, LLC
Jun. 19, 2015
Non-compete employment agreements
Burman's Apothecary, LLC
Sep. 30, 2015
Trade names and trademarks
Dec. 31, 2014
Trade names and trademarks
Feb. 26, 2015
Trade names and trademarks
BioRx, LLC
Sep. 30, 2015
Physician relationships
Feb. 26, 2015
Physician relationships
BioRx, LLC
Jun. 19, 2015
Physician relationships
Burman's Apothecary, LLC
Sep. 30, 2015
Software licensing agreement
Dec. 31, 2014
Software licensing agreement
Aug. 28, 2014
Software licensing agreement
Primrose
Sep. 30, 2015
Favorable supply agreement
Jun. 19, 2015
Favorable supply agreement
Burman's Apothecary, LLC
Sep. 30, 2015
Intellectual property
Dec. 31, 2014
Intellectual property
Aug. 28, 2014
Intellectual property
Primrose
Changes in the carrying amount of goodwill
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of beginning of period
 
 
$ 23,148 
 
 
 
$ 191,127 
 
$ 39,151 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill acquired during the year
 
 
 
 
 
191,127 
 
39,151 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of end of period
253,426 
 
253,426 
 
 
 
191,127 
 
39,151 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average amortization period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5 years 
5 years 
 
 
8 years 
 
10 years 
10 years 
 
 
 
 
1 year 
 
 
 
Gross carrying amount
254,103 
 
254,103 
 
49,003 
 
 
 
 
 
 
 
 
159,100 
29,100 
50,399 
4,999 
 
 
22,100 
10,100 
 
15,000 
 
 
2,647 
2,647 
 
2,700 
 
2,157 
2,157 
 
Accumulated amortization
(20,426)
 
(20,426)
 
(4,030)
 
 
 
 
 
 
 
 
(11,507)
(2,895)
(5,612)
(560)
 
 
(2,082)
(575)
 
(438)
 
 
 
 
 
(787)
 
 
 
 
Net Carrying Amount
233,677 
 
233,677 
 
44,973 
 
 
 
 
 
 
 
 
147,593 
26,205 
44,787 
4,439 
 
 
20,018 
9,525 
 
14,562 
 
 
2,647 
2,647 
 
1,913 
 
2,157 
2,157 
 
Amortization expense
7,908 
1,725 
16,396 
2,353 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of unrelated third party entities (in entities)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Committed contribution
 
 
 
 
 
 
 
 
 
 
 
 
5,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ownership percentage
25.00% 
 
25.00% 
 
 
 
 
 
 
 
 
 
51.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount contributed
 
 
 
 
 
 
 
 
 
 
2,000 
3,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount contributed by unrelated third party entities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,647 
 
 
 
 
2,157 
Aggregate amortization expense for amortizing intangible assets
$ 7,908 
$ 1,725 
$ 16,396 
$ 2,353 
 
 
 
 
 
$ 0 
$ 0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INVESTMENT IN NON-CONSOLIDATED ENTITY (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended 1 Months Ended 2 Months Ended
Sep. 30, 2014
Sep. 30, 2015
Jan. 31, 2014
Ageology
Oct. 31, 2011
Ageology
Dec. 31, 2013
Ageology
item
Sep. 30, 2015
Ageology
Affiliated entity
Chief Executive Officer
Dec. 31, 2014
Physician Resource Management, Inc.
Schedule of Equity Method Investments [Line Items]
 
 
 
 
 
 
 
Ownership percentage
 
25.00% 
 
25.00% 
 
 
 
Cash consideration paid in installments
$ 500 
 
 
$ 5,000 
 
 
 
Investment at cost
 
 
 
 
 
 
3,500 
Equity position
 
 
 
 
 
 
15.00% 
Secured promissory notes receivable
 
 
500 
 
1,000 
 
 
Interest rate of secured promissory notes receivable (as a percent)
 
 
8.00% 
 
6.00% 
 
 
Number of promissory notes receivable (in notes)
 
 
 
 
 
 
Amount loaned
 
 
 
 
 
$ 8,725 
 
DEBT (Details) (USD $)
In Thousands, unless otherwise specified
0 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended
Apr. 1, 2015
Line of credit
GE
Jun. 30, 2014
Letters of credit
GE
Apr. 1, 2015
Deferred draw term loan
GE
Apr. 1, 2015
Deferred draw term loan
GE
Apr. 1, 2015
Term Loan A
GE
Jun. 30, 2014
Swing loans
GE
Sep. 30, 2015
Minimum
Line of credit
Sep. 30, 2015
Maximum
Line of credit
Oct. 31, 2014
Initial Public Offering
Sep. 30, 2015
Base Rate
Line of credit
GE
Sep. 30, 2015
Base Rate
Line Of Credit And Swingline Loan
GE
Sep. 30, 2015
LIBOR
Line of credit
GE
Sep. 30, 2015
LIBOR
Line Of Credit And Swingline Loan
GE
Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum borrowing capacity
$ 175,000 
$ 10,000 
 
$ 25,000 
$ 120,000 
$ 15,000 
 
 
 
 
 
 
 
Variable rate basis
 
 
 
 
 
 
 
 
 
Base Rate 
Base Rate 
LIBOR 
LIBOR 
Interest rate margin (as a percent)
 
 
 
 
 
 
 
 
 
1.50% 
1.00% 
2.50% 
2.00% 
Monthly unused commitment fee (as a percent)
 
 
 
 
 
 
0.25% 
0.50% 
 
 
 
 
 
Existing indebtedness to certain current or former shareholders and employees
 
 
 
 
 
 
 
 
19,824 
 
 
 
 
Amount of borrowings repaid under the revolving line of credit
 
 
 
 
 
 
 
 
60,634 
 
 
 
 
Deferred financing costs
 
 
$ 5,056 
 
 
 
 
 
 
 
 
 
 
SHARE-BASED COMPENSATION (Details) (Stock options, USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2015
Dec. 31, 2014
Stock options
 
 
Number of Options
 
 
Outstanding at beginning of period (in shares)
7,217,331 
 
Granted (in shares)
1,022,439 
 
Repurchased (in shares)
(1,641,387) 
 
Exercised (in shares)
(1,683,000)
 
Expired/cancelled (in shares)
(787,119)
 
Outstanding at end of period (in shares)
4,128,264 
7,217,331 
Exercisable at end of period (in shares)
1,011,545 
 
Weighted Average Exercise Price
 
 
Outstanding at beginning of period (in dollars per share)
$ 7.54 
 
Granted (in dollars per share)
$ 41.65 
 
Repurchased (in dollars per share)
$ 5.44 
 
Exercised (in dollars per share)
$ 5.20 
 
Expired/cancelled (in dollars per share)
$ 16.13 
 
Outstanding at end of period (in dollars per share)
$ 16.15 
$ 7.54 
Exercisable at end of period (in dollars per share)
$ 4.01 
 
Weighted Average Remaining Contractual Life
 
 
Outstanding at beginning of period
7 years 8 months 12 days 
6 years 10 months 24 days 
Outstanding at end of period
7 years 8 months 12 days 
6 years 10 months 24 days 
Exercisable at end of period
5 years 2 months 12 days 
 
Aggregate Intrinsic Value
 
 
Outstanding at beginning of period
$ 142,262 
 
Outstanding at end of period
65,195 
142,262 
Exercisable at end of period
$ 25,060 
 
SHARE-BASED COMPENSATION (Details 2) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 1 Months Ended 3 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
2014 Plan
Sep. 30, 2015
Maximum
2014 Plan
Sep. 30, 2015
Minimum
2014 Plan
Apr. 30, 2014
Stock options
Jan. 31, 2014
Stock options
Sep. 30, 2015
Stock options
Sep. 30, 2014
Stock options
Sep. 30, 2015
Stock options
Sep. 30, 2014
Stock options
Mar. 31, 2015
Stock options
2007 Stock Option Plan
Sep. 30, 2015
Performance-based stock options
2014 Plan
item
Sep. 30, 2015
Service-based stock options
2014 Plan
Sep. 30, 2015
Restricted Stock Awards
Dec. 31, 2014
Restricted Stock Awards
Sep. 30, 2015
Restricted Stock Awards
Share-based compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted (in shares)
 
 
 
 
 
 
 
 
 
1,022,439 
 
 
391,043 
631,396 
 
 
 
Percentage of options exercisable in installments beginning on the first anniversary of the grant date and each of the three anniversaries thereafter
 
 
 
 
 
 
 
 
 
 
 
 
25.00% 
25.00% 
 
 
 
Number of anniversary dates upon which options become exercisable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum term of stock option plan
 
 
 
 
 
 
 
 
 
 
 
 
10 years 
10 years 
 
 
 
Number of installments for vesting
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted (in dollars per share)
 
 
 
 
 
 
 
 
 
$ 12.72 
 
 
 
 
 
 
 
Assumptions used to determine the valuation of granted options
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise price of options
 
 
 
$ 48.72 
$ 39.26 
 
 
 
 
 
 
 
 
 
 
 
 
Expected volatility (as a percent)
 
 
 
26.70% 
25.82% 
 
 
 
 
 
 
 
 
 
 
 
 
Expected dividend yield (as a percent)
 
 
0.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk-free interest rate for the estimated expected term (as a percent)
 
 
 
2.01% 
1.84% 
 
 
 
 
 
 
 
 
 
 
 
 
Expected life
 
 
6 years 3 months 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional disclosures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted (in shares)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,277 
 
Total compensation expense
 
 
 
 
 
 
 
$ 1,232 
$ 693 
$ 2,389 
$ 1,828 
 
 
 
$ 38 
 
$ 113 
Repurchased (in shares)
 
 
 
 
 
 
 
 
 
(1,641,387) 
 
1,641,387 
 
 
 
 
 
Cash consideration to repurchase stock options
36,298 
9,400 
 
 
 
 
 
 
 
 
 
36,298 
 
 
 
 
 
Stock options repurchased to buy shares from certain current and former employees
 
 
 
 
 
183,993 
239,768 
 
 
 
 
 
 
 
 
 
 
Cash consideration for redeemed stock options
 
 
 
 
 
2,300 
3,100 
 
 
 
 
 
 
 
 
 
 
Incremental compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Excess tax benefits related to share-based awards reported as decrease to operating activities
(14,348)
 
 
 
 
 
 
(9,365)
 
(14,348)
 
 
 
 
 
 
 
Excess tax benefits related to share-based awards reported as increase to financing activities
14,348 
 
 
 
 
 
 
 
 
14,348 
 
 
 
 
 
 
 
Excess share-based compensation expense remaining to offset against future taxable income
 
 
 
 
 
 
 
 
 
54,000 
 
 
 
 
 
 
 
Effective tax rate
39.00% 
47.00% 
 
 
 
 
 
 
 
39.00% 
 
 
 
 
 
 
 
Excess tax benefit yet to be recognized
 
 
 
 
 
 
 
$ 21,000 
 
$ 21,000 
 
 
 
 
 
 
 
INCOME TAXES (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Jan. 23, 2014
INCOME TAXES
 
 
 
Net deferred income tax liability
 
 
$ 2,965 
Effective tax rate
39.00% 
47.00% 
 
REDEEMABLE CAPITAL STOCK (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended 1 Months Ended
Oct. 31, 2014
Sep. 30, 2014
Sep. 30, 2014
Sep. 30, 2015
Dec. 31, 2014
Sep. 30, 2015
Two shareholders
shareholder
Jan. 31, 2014
Series A Preferred
T.Rowe Price
Apr. 30, 2014
Series A Preferred
Janus
Redeemable capital stock
 
 
 
 
 
 
 
 
Series A Preferred Stock, issued (in shares)
 
 
 
 
 
 
2,986,229 
3,225,127 
Number of newly authorized shares issued upon conversion (in shares)
 
 
 
 
 
 
 
Common shares, par value (in dollars per share)
$ 0.00 
 
 
$ 0.00 
$ 0.00 
 
 
 
Stock issued to shareholders several years prior to IPO (in shares)
 
 
 
64,253,037 
51,457,023 
11,050,000 
 
 
Number of shareholders to whom common stock is issued several years prior to IPO (in shareholders)
 
 
 
 
 
 
 
Change on fair value of redeemable shares
 
$ 6,916 
$ 7,873 
 
 
 
 
 
Share price (in dollars per share)
 
$ 13.00 
$ 13.00 
 
 
 
$ 16.74 
$ 16.74 
Proceeds from issuance of preferred stock
 
 
 
 
 
 
50,000 
54,000 
Amount used for general corporate expenses
 
 
 
 
 
 
20,000 
25,200 
Remaining amount used for distribution to existing holders
 
 
 
 
 
 
30,000 
28,800 
Amount used for distribution to existing holders of common stock
 
 
 
 
 
 
26,900 
26,500 
Amount used for holders of options to acquire common stock
 
 
$ 53,400 
 
 
 
$ 3,100 
$ 2,300 
TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2014
Aug. 31, 2014
Non Employee Relative of CEO
Common stock issued
 
 
372,486 
Termination of existing stock redemption agreement
$ 4,842 
$ 4,842 
 
Public offering price (in dollars per share)
$ 13.00 
$ 13.00 
 
INCOME PER COMMON SHARE (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Preferred shares portions of net income (as a percent)
 
16.00% 
 
13.00% 
Net income attributable to Diplomat Pharmacy, Inc.
$ 15,961 
$ 4,541 
$ 22,210 
$ 7,906 
Less net income allocable to preferred shareholders
 
745 
 
1,062 
Net income allocable to common shareholders
$ 15,961 
$ 3,796 
$ 22,210 
$ 6,844 
Weighted average common shares outstanding, basic (in shares)
63,890,060 
31,643,725 
59,507,347 
31,479,950 
Weighted average dilutive effect of stock options and restricted stock awards (in shares)
1,622,995 
2,026,316 
2,251,632 
2,476,045 
Weighted average common shares outstanding, diluted (in shares)
65,513,055 
33,670,041 
61,758,979 
33,955,995 
Net income per common share:
 
 
 
 
Basic (in dollars per share)
$ 0.25 
$ 0.12 
$ 0.37 
$ 0.22 
Diluted (in dollars per share)
$ 0.24 
$ 0.11 
$ 0.36 
$ 0.20 
Contingent consideration
 
 
 
 
Net income per common share:
 
 
 
 
Anti-dilutive options excluded (in shares)
1,350,309 
 
1,350,309 
 
Performance-based stock options
 
 
 
 
Net income per common share:
 
 
 
 
Anti-dilutive options excluded (in shares)
678,234 
871,293 
550,512 
826,103 
Service-based stock options
 
 
 
 
Net income per common share:
 
 
 
 
Anti-dilutive options excluded (in shares)
615,504 
679,629 
270,421 
579,653