10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2014

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to        

Commission file number 001-36677

Diplomat Pharmacy, Inc.

(Exact name of registrant as specified in its charter)

Michigan	38-2063100
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4100 South Saginaw Street, Flint, Michigan	48507
(Address of principal executive offices)	(Zip code)

(888) 720-4450

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o  No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x  (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The number of outstanding shares of the registrant’s common stock, no par value, as of November 7, 2014 was 51,448,746.

EXPLANATORY NOTE

Diplomat Pharmacy, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment”) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, which was originally filed with the Securities and Exchange Commission on November 10, 2014 (the “Original Report”).

The Company is filing this Amendment for the sole purpose to submit the XBRL files as Exhibit 101 as permitted by the grace period rules.

Except as described above, the Original Report has not been amended, updated or otherwise modified.

2

Part II

Item 6.                  EXHIBITS

		Previously Included or Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Period Ending	Exhibit / Appendix Number	Filing Date
10.1.1	Voting Agreement by and among Philip Hagerman and the persons on the signature pages thereto	S-1/A		10.3	August 19, 2014
10.1.2	Joinder to Voting Agreement by and among Philip Hagerman and the persons on the signature pages thereto	S-1/A		10.10	September 29, 2014
10.2*	Diplomat Pharmacy, Inc. 2014 Omnibus Incentive Plan	S-1/A		10.7	September 29, 2014
31.1	Section 302 Certification — CEO	10-Q	September 30, 2014	31.1	November 10, 2014
31.2	Section 302 Certification — CFO	10-Q	September 30, 2014	31.2	November 10, 2014
32.1**	Section 906 Certification — CEO	10-Q	September 30, 2014	32.1	November 10, 2014
32.2**	Section 906 Certification — CFO	10-Q	September 30, 2014	32.2	November 10, 2014
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

*Indicates a management contract or compensatory plan or arrangement.

** This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DIPLOMAT PHARMACY, INC.
By:	/s/ Sean M. Whelan
	Sean M. Whelan
	Chief Financial Officer,
	Principal Financial Officer,
	Principal Accounting Officer

Dated:    November 25, 2014

4

XML

FAIR VALUE MEASUREMENTS (Details 2) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Redeemable common shares
Level 3 measurements
Balance at beginning of the period	$ (53,370)
Change in fair value	7,873
Redemptions	6,874
Removal of redemption features	7,116
Balance at end of the period	(31,507)
Contingent consideration
Level 3 measurements
Balance at beginning of the period	(1,300)
Change in fair value	(657)
MedPro acquisition	(4,270)
Balance at end of the period	$ (6,227)

XML

SHARE-BASED COMPENSATION (Details) (USD $) In Thousands, except Share data, unless otherwise specified		1 Months Ended	3 Months Ended		9 Months Ended				1 Months Ended									9 Months Ended
	Sep. 30, 2014 2014 Plan	May 31, 2014 Stock options	Sep. 30, 2014 Stock options	Sep. 30, 2013 Stock options	Sep. 30, 2014 Stock options	Sep. 30, 2013 Stock options	Sep. 30, 2014 Stock options 2007 Stock Option Plan	Sep. 30, 2014 Stock options 2014 Plan	May 31, 2014 Stock options Common stock	Apr. 30, 2014 Stock options Common stock	Jan. 31, 2014 Stock options Common stock	May 31, 2014 Stock options Class A Voting Common Stock	Apr. 30, 2014 Stock options Class A Voting Common Stock	Jan. 31, 2014 Stock options Class A Voting Common Stock	May 31, 2014 Stock options Class B Nonvoting Common Stock	Apr. 30, 2014 Stock options Class B Nonvoting Common Stock	Jan. 31, 2014 Stock options Class B Nonvoting Common Stock	Sep. 30, 2014 Stock options Maximum 2007 Stock Option Plan	Sep. 30, 2014 Stock options Maximum 2014 Plan	Sep. 30, 2014 Restricted shares 2014 Plan Non-employee director
Share-based compensation
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%
Term of stock option plan																		10 years	10 years
Number of shares of common stock reserved for issuance (in shares)	4,000,000
Number of shares issued during the period (in shares)																				5,769
Additional disclosures
Total compensation expense			$ 693	$ 216	$ 1,828	$ 671
Stock options redeemed to buy shares from certain current and former employees									884,000			44,200	9,696	148,650	839,800	174,297	91,118
Cash consideration		4,000								2,300	3,100
Incremental compensation expense		$ 0			$ 0

XML

INCOME TAXES (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended	3 Months Ended	9 Months Ended
	Jan. 23, 2014	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2014	Jan. 23, 2014
Current
Federal			$ (3,111)
State and local			(587)
Total current			(3,698)
Deferred
Federal			(3,073)
State and local			(213)
Total deferred	2,861		(3,286)	3,286
Income tax expense		2,427	(6,984)	6,984
Reconciliation of income taxes computed at the United States federal statutory tax rate to income tax expense
Income tax expense at United States statutory rate				(5,194)
Earnings while a S corporation				497
Adoption of C corporation status				(2,861)
State income taxes, net of federal benefit				(436)
Change in fair value of redeemable common shares				2,147
Termination of existing stock redemption agreement				(1,322)
Other non-deductible expenses				(55)
Other				240
Income tax expense		2,427	(6,984)	6,984
Deferred tax assets
Inventories		128	128	128
Compensation and benefits		2,220	2,220	2,220
Allowance for doubtful accounts		1,021	1,021	1,021
Other temporary differences		6	6	6
Total deferred tax assets		3,375	3,375	3,375
Deferred tax liabilities
Property and intangible assets		(3,664)	(3,664)	(3,664)
Investment in non-consolidated entity		(2,155)	(2,155)	(2,155)
Prepaid expenses		(842)	(842)	(842)
Total deferred tax liabilities		(6,661)	(6,661)	(6,661)
Net deferred tax liabilities		(3,286)	(3,286)	(3,286)	(2,861)
Uncertain tax positions		$ 0	$ 0	$ 0

XML

BASIS OF PRESENTATION (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 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	$ 3,286	$ 2,861

XML

INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2014

INVENTORIES

Schedule of inventories

	September 30,		December 31,
	2014		2013
Prescription medications, OTC medications and medical supplies, and retail items	$	66,970	$	56,155
Raw materials	250		284
Finished goods	10		15
	$	67,230	$	56,454

XML

INCOME PER COMMON SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
INCOME PER COMMON SHARE
Preferred shares portions of net income (as a percent)	16.00%		13.00%
Net income attributable to Diplomat Pharmacy	$ 4,541	$ 3,008	$ 7,906	$ 6,522
Net income allocable to preferred shareholders	745		1,062
Net income allocable to common shareholders	$ 3,796	$ 3,008	$ 6,844	$ 6,522
Weighted average common shares outstanding, basic	31,637,000	33,142,000	31,474,000	33,142,000
Incremental shares on assumed exercise of stock options	2,315,000	794,000	2,348,000	703,000
Weighted average common shares outstanding, diluted	33,952,000	33,936,000	33,822,000	33,845,000
Net income per common share:
Basic (in dollars per share)	$ 0.12	$ 0.09	$ 0.22	$ 0.20
Diluted (in dollars per share)	$ 0.11	$ 0.09	$ 0.20	$ 0.19
Anti-dilutive options outstanding	1,300,000		1,300,000

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Dec. 31, 2013
Acquired Intangible Assets
Gross carrying amount	$ 49,003	$ 49,003	$ 7,100
Accumulated amortization	(2,241)	(2,241)
Net carrying amount	46,762	46,762	7,100
Aggregate amortization expense for amortizing intangible assets	1,790	2,241
Estimated amortization expense
Remainder of 2014	2,044	2,044
2015	7,985	7,985
2016	7,583	7,583
2017	7,154	7,154
2018	6,589	6,589
Changes in the carrying amount of goodwill
Balance as of beginning of period		1,537
Goodwill acquired during the year		21,635	1,537
Balance as of end of period	23,172	23,172	1,537
Impairment	0
Patient relationships
Acquired Intangible Assets
Weighted average amortization period		7 years 6 months	10 years
Gross carrying amount	29,100	29,100	5,100
Accumulated amortization	(1,608)	(1,608)
Net carrying amount	27,492	27,492	5,100
Trade names and trademarks
Acquired Intangible Assets
Weighted average amortization period		10 years	10 years
Gross carrying amount	10,100	10,100	1,400
Accumulated amortization	(322)	(322)
Net carrying amount	9,778	9,778	1,400
Non-compete employment agreements
Acquired Intangible Assets
Weighted average amortization period		5 years	5 years
Gross carrying amount	4,999	4,999	600
Accumulated amortization	(311)	(311)
Net carrying amount	4,688	4,688	600
Intellectual property
Acquired Intangible Assets
Weighted average amortization period		6 years
Gross carrying amount	2,157	2,157
Net carrying amount	2,157	2,157
Aggregate amortization expense for amortizing intangible assets	0	0
Software licensing agreement
Acquired Intangible Assets
Weighted average amortization period		4 years
Gross carrying amount	2,647	2,647
Net carrying amount	2,647	2,647
Aggregate amortization expense for amortizing intangible assets	$ 0	$ 0

XML

BUSINESS ACQUISITIONS (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended			12 Months Ended	9 Months Ended	12 Months Ended	3 Months Ended	9 Months Ended		0 Months Ended			3 Months Ended	9 Months Ended		0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Trade names and trademarks	Dec. 31, 2013 Trade names and trademarks	Sep. 30, 2014 Non-compete employment agreements	Dec. 31, 2013 Non-compete employment agreements	Sep. 30, 2014 MedPro Rx, Inc.	Sep. 30, 2014 MedPro Rx, Inc.	Jun. 27, 2014 MedPro Rx, Inc.	Jun. 27, 2014 MedPro Rx, Inc. Patient relationships	Jun. 27, 2014 MedPro Rx, Inc. Trade names and trademarks	Jun. 27, 2014 MedPro Rx, Inc. Non-compete employment agreements	Sep. 30, 2014 American Homecare Federation, Inc	Sep. 30, 2014 American Homecare Federation, Inc	Dec. 16, 2013 American Homecare Federation, Inc	Dec. 16, 2013 American Homecare Federation, Inc Patient relationships	Dec. 16, 2013 American Homecare Federation, Inc Trade names and trademarks	Dec. 16, 2013 American Homecare Federation, Inc Non-compete employment agreements
Definite-lived intangible assets
Useful Life					10 years	10 years	5 years	5 years				7 years	10 years	5 years				10 years	10 years	5 years
Amount											$ 37,099	$ 24,000	$ 8,700	$ 4,399			$ 7,100	$ 5,100	$ 1,400	$ 600
Maximum estimated contingent payout																2,000
Contingent consideration liability									4,491	4,491	4,270				1,736	1,736	1,300
Contingent consideration related charges									221	221					436	115
Amortization expense	1,790		2,241						1,564	1,564					226	677
Pro Forma Operating Results
Net sales	595,529	426,935	1,646,661	1,184,846
Net income	$ 4,654	$ 1,815	$ 8,326	$ 3,777
Net income per common share - basic (in dollars per share)	$ 0.12	$ 0.05	$ 0.23	$ 0.11
Net income per common share - diluted (in dollars per share)	$ 0.11	$ 0.05	$ 0.21	$ 0.11

XML

CAPITAL STOCK (Details) (USD $)	3 Months Ended	9 Months Ended	1 Months Ended			9 Months Ended	0 Months Ended			9 Months Ended		0 Months Ended	3 Months Ended	9 Months Ended	1 Months Ended			9 Months Ended	1 Months Ended
	Sep. 30, 2014	Sep. 30, 2014 item	Mar. 31, 2014 Class A Voting Common Stock item	Sep. 30, 2014 Class A Voting Common Stock	Dec. 31, 2013 Class A Voting Common Stock	Sep. 30, 2014 Class A Voting Common Stock Two shareholders	Jun. 02, 2014 Class B Nonvoting Common Stock	Sep. 30, 2014 Class B Nonvoting Common Stock	Dec. 31, 2013 Class B Nonvoting Common Stock	Sep. 30, 2014 Class B Nonvoting Common Stock Two shareholders	Dec. 31, 2013 Class B Nonvoting Common Stock Two shareholders	Aug. 12, 2014 Class B Nonvoting Common Stock Deborah L. Ward and associated trusts	Sep. 30, 2014 Class B Nonvoting Common Stock Deborah L. Ward and associated trusts	Sep. 30, 2014 Class B Nonvoting Common Stock Deborah L. Ward and associated trusts	Mar. 31, 2014 Class C Voting Common Stock item	Sep. 30, 2014 Class C Voting Common Stock	Dec. 31, 2013 Class C Voting Common Stock	Sep. 30, 2014 Series A Preferred	Jan. 31, 2014 Series A Preferred T.Rowe Price	Apr. 30, 2014 Series A Preferred Janus	Sep. 30, 2014 Series A Preferred Maximum
Capital stock
Par Value (in dollars per share)				$ 1.00	$ 1.00			$ 1.00	$ 1.00							$ 1.00	$ 1.00
Authorized (in shares)				42,500,000	42,500,000			807,500,000	807,500,000							6,222,000	6,222,000
Series A Preferred stock, Par Value (in dollars per share)	$ 0.001	$ 0.001																$ 0.001
Series A Preferred stock, Authorized (in shares)	6,222,000	6,222,000																6,222,000
Total Authorized (in shares)	862,444,000	862,444,000
Number of votes per share entitled to holders			20												1
Number of newly authorized shares issued upon conversion		1
Number of redeemable shares distributed to existing holders of common stock																			143,339	195,545
Stock issued to shareholders (in shares)				1,657,500	1,657,500			31,678,743	31,492,500							0	0
Number of shareholders to whom common stock is issued		2
Shares outstanding (in shares)				1,657,500	1,657,500			31,678,743	31,492,500		3,187,500					0	0
Conversion ratio of preferred stock (per share of common stock)		1
Aggregate redemption price of preferred stock																					$ 5,000,000
Return compounded annually at the time of liquidation event (as a percent)																		15.00%
Preferred stock issued (in shares)																		6,211,355	2,986,228,000	3,225,127,000
Share price (in dollars per share)	$ 13.00	$ 13.00											$ 13.00	$ 13.00					$ 16.74	$ 16.74
Proceeds from issuance of preferred stock																			50,000,000	54,000,000
Amount used for general corporate expenses																			20,000,000	25,200,000
Remaining amount used for distribution to existing holders																			30,000,000	28,800,000
Amount used for distribution to existing holders of common stock																			(26,900,000)	(26,500,000)
Amount used for holders of options to acquire common stock																			(3,100,000)	(2,300,000)
Number of shares transferred into separate trust							425,000
Common stock issued (in shares)						552,500				10,497,500		186,243,000
Termination of existing stock redemption agreement	$ 4,842,000	$ 4,842,000											$ 4,842,000	$ 4,842,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of Diplomat Pharmacy, Inc. and its wholly-owned subsidiaries and a 51%-owned subsidiary, formed in August 2014, which the Company has the ability to control. Noncontrolling interests in the consolidated balance sheets represent the minority stockholders’ proportionate share of the equity in such subsidiary. 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 but has the ability to exercise significant influence over operating and financial policies. All intercompany transactions and accounts have been eliminated in consolidation.

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 will function 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 has committed to contributing $5,000 for its 51% interest, of which $2,000 was contributed in August 2014 with the remainder to be contributed in 2014 and 2015. The unrelated third party entities contributed a software licensing agreement valued at $2,647 and intellectual property valued at $2,157. Primrose had no operating activity through September 30, 2014.

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 filled at an open door or retail pharmacy location are recorded at prescription adjudication, which approximates fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drugs were $591,676 and $395,723 for the three months ended September 30, 2014 and 2013, respectively, and $1,593,114 and $1,095,423 for the nine months ended September 30, 2014 and 2013, respectively.

The Company also recognizes revenue from providing various prescription data to pharmaceutical manufacturers and others and from consulting and other services when these services have been performed and the earnings process is complete. Revenues generated from these services were $3,853 and $2,904 for the three months ended September 30, 2014 and 2013, respectively, and $9,767 and $7,729 for the nine months ended September 30, 2014 and 2013, respectively.

Deferred Offering Costs: The Company has incurred accounting, legal, printing and other expenses in connection with its initial public offering.  Through September 30, 2014, offering costs of $1,604 were deferred and included in other assets in the accompanying condensed consolidated balance sheet.  Such costs will be charged to additional paid-in capital against the gross proceeds of the offering.

New Accounting Pronouncements: In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-8, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU is effective within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015 with early adoption permitted in certain circumstances. This ASU changes the requirements for reporting discontinued operations. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), which provides a single revenue recognition model intended to improve comparability over a range of industries, companies and geographical boundaries and is intended to enhance disclosures. The standard is effective retrospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016.  Early adoption is not permitted. The Company is currently assessing the potential impact on its operations and financial statements.

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. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (subtopic 205-40). This ASU is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter, and defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The Company expects the adoption of this guidance will have no impact on the Company’s financial position, results of operations, cash flows and/or disclosures.

XML

INVESTMENT IN NON-CONSOLIDATED ENTITY (Details) (USD $)	1 Months Ended				3 Months Ended		9 Months Ended
	Jan. 31, 2014	Dec. 31, 2013 item	Nov. 30, 2013 item	Oct. 31, 2011	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Schedule of Equity Method Investments [Line Items]
Ownership percentage					25.00%		25.00%
Cash consideration paid in installments							$ 500,000	$ 2,500,000
Equity in earnings (loss) of equity method investments					(377,000)	(319,000)	(1,087,000)	(629,000)
Equity investment		5,577,000			4,990,000		4,990,000
Ageology
Schedule of Equity Method Investments [Line Items]
Ownership percentage				25.00%
Cash consideration paid in installments				5,000,000
Equity in earnings (loss) of equity method investments					(377,000)	(319,000)	(1,087,000)	(629,000)
Equity investment		3,577,000			2,490,000		2,490,000
Secured promissory notes receivable	500,000	1,000,000	1,000,000
Interest rate of secured promissory notes receivable (as a percent)	8.00%	6.00%	6.00%
Number of promissory notes receivable		2	2
Statements of Operations:
Net sales					14,000		15,000	1,000
Net loss					(1,428,000)	(1,274,000)	(4,268,000)	(2,517,000)
Ageology | Affiliated entity | Chief Executive Officer
Schedule of Equity Method Investments [Line Items]
Amount loaned					$ 3,200,000		$ 3,200,000

XML

INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2014

INCOME TAXES

Schedule of components of the expense for income taxes

Significant components of the expense for income taxes for the period from January 23, 2014 to September 30, 2014 are as follows:

Current:
Federal	$	(3,111	)
State and local	(587		)
Total current	(3,698		)
Deferred:
Federal	(3,073		)
State and local	(213		)
Total deferred	(3,286		)
	$	(6,984	)

Schedule of reconciliation of income taxes computed at the United States federal statutory tax rate to income tax expense

The reconciliation of income taxes computed at the United States federal statutory tax rate to income tax expense for the nine months ended September 30, 2014 is:

Income tax expense at United States statutory rate	$	(5,194	)
Tax effect from:
Earnings while a S corporation	497
Adoption of C corporation status	(2,861		)
State income taxes, net of federal benefit	(436		)
Change in fair value of redeemable common shares	2,147
Termination of existing stock redemption agreement	(1,322		)
Other non-deductible expenses	(55		)
Other	240
Income tax expense	$	(6,984	)

Schedule of components of the entity's deferred tax assets and liabilities

Significant components of the Company’s deferred tax assets and liabilities at September 30, 2014 are as follows:

Deferred tax assets:
Inventories	$	128
Compensation and benefits	2,220
Allowance for doubtful accounts	1,021
Other temporary differences	6
Total deferred tax assets	3,375
Deferred tax liabilities:
Property and intangible assets	(3,664		)
Investment in non-consolidated entity	(2,155		)
Prepaid expenses	(842		)
Total deferred tax liabilities	(6,661		)
Net deferred tax liabilities	$	(3,286	)

XML

DEBT (Tables)

9 Months Ended

Sep. 30, 2014

DEBT

Schedule of debt

	September 30,			December 31,
	2014			2013
Note payable to an individual; payable monthly in the amount of $242-$282 including interest at 1.3% through January 2017; secured by redeemed shares held in escrow per the pledge agreement and subordinated to the line of credit commitment	$	11,846		$	14,252
Note payable to a shareholder; payable quarterly in the amount of $100 including interest at 1.3%; matures July 20, 2017; secured by redeemed shares held in escrow per the pledge agreement and subordinated to the line of credit commitment	7,004			7,235
Mortgage with JPMorgan Chase; was payable in quarterly payments of principal of $124 plus interest at a rate per year equal to the adjusted LIBOR rate plus the floating rate; was paid off in May 2014	—			2,728
Note payable to an individual; payable quarterly in the amount of $79 including interest at 4.25%; matures July 20, 2017; secured by redeemed shares held in escrow per the pledge agreement and subordinated to the line of credit commitment	878			1,087
Note payable to an individual; payable quarterly in the amount of $40 interest free; matures June 15, 2015; unsecured and subordinated to the line of credit commitment	120			240
	19,848			25,542
Less short-term debt, including current portion of long-term debt	(3,960		)	(6,693		)
Long-term debt, less current portion	$	15,888		$	18,849

XML

LINE OF CREDIT (Details) (GE, Line of credit, USD $) In Thousands, unless otherwise specified	0 Months Ended	9 Months Ended			9 Months Ended		9 Months Ended		9 Months Ended
	Jul. 20, 2012	Sep. 30, 2014	Jun. 27, 2014	Jun. 25, 2014	Sep. 30, 2014 Base Rate	Dec. 31, 2013 Base Rate	Sep. 30, 2014 LIBOR	Dec. 31, 2013 LIBOR	Sep. 30, 2014 Maximum	Sep. 30, 2014 Minimum
Line of credit
Term of credit agreement	5 years
Maximum borrowing capacity	$ 60,000		$ 120,000	$ 85,000
Advances under the credit agreement as percentage of book value of eligible accounts receivable	85.00%
Amount of borrowings outstanding		76,562			51,562		25,000
Amount of borrowings available under the credit agreement		36,960
Amount of incremental increases under the credit agreement									25,000
Variable rate basis					Base Rate		LIBOR
Interest rate margin (as a percent)					0.75%		1.75%
Effective interest rate (as a percent)					4.00%	4.00%	1.90%	1.92%
Unused commitment fee (as a percent)									0.50%	0.25%
Transaction costs		$ 1,538

XML

CAPITAL STOCK (Tables)

9 Months Ended

Sep. 30, 2014

CAPITAL STOCK

Schedule of classes of capital stock

Pursuant to the Second Amended and Restated Articles of Incorporation dated March 31, 2014, the Company had the following classes of capital stock as of September 30, 2014:

Class	Par Value		Authorized	Voting Rights
Class A Common	$	1.00	42,500,000	20 votes per share
Class B Common	$	1.00	807,500,000	Nonvoting
Class C Common	$	1.00	6,222,000	One vote per share
Series A Preferred	$	0.001	6,222,000	As described below
			862,444,000

XML

INCOME PER COMMON SHARE (Tables)

9 Months Ended

Sep. 30, 2014

INCOME PER COMMON SHARE

Schedule of reconciliation of the numerators and the denominators of the basic and diluted income per common share

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net income attributable to Diplomat Pharmacy	$	4,541	$	3,008	$	7,906	$	6,522
Net income allocable to preferred shareholders	745		—		1,062		—
Net income allocable to common shareholders	$	3,796	$	3,008	$	6,844	$	6,522
Weighted average common shares outstanding, basic (in thousands)	31,637		33,142		31,474		33,142
Incremental shares on assumed exercise of stock options (in thousands)	2,315		794		2,348		703
Weighted average common shares outstanding, diluted (in thousands)	33,952		33,936		33,822		33,845
Net income per common share:
Basic	$	0.12	$	0.09	$	0.22	$	0.20
Diluted	$	0.11	$	0.09	$	0.20	$	0.19

XML

BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2014

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 United States of America (“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 results of operations, financial position, changes in shareholders’ deficit and cash flows. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.  These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2013 included in the Company’s final prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the SEC on October 10, 2014.

Stock Split

Immediately prior to the IPO, the Company affected a stock split in the form of a stock dividend of 8,500 shares for each share of capital stock. Accordingly, all share and per share amounts presented in these unaudited condensed consolidated financial statements and notes thereto, were adjusted, where applicable, to reflect the split.

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 $2,861 and reclassified all of its accumulated deficit, inclusive of the net deferred tax liability adjustment, into additional paid-in capital. The pro forma data presented on the unaudited condensed consolidated statements of income give effect to the Company’s election to be a C corporation as if that election was made effective January 1, 2013.

XML

DESCRIPTION OF BUSINESS (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended	1 Months Ended
	Sep. 30, 2014	Oct. 31, 2014 Subsequent event
Initial Public Offering
Number of shares of common stock sold		11,000,000
Number of shares of stock sold by the existing shareholders		4,333,333
Initial public offering price (in dollars per share)	$ 13.00	$ 13.00
Net proceeds from initial public offering		$ 130,648
Underwriting discounts and commissions	1,368	9,652
Other offering expenses		2,700
Amount of borrowings repaid under the revolving line of credit		96,410
Remaining net proceeds used for working capital and other general purposes		$ 34,238
Number of newly authorized shares issued upon conversion	1	1
Common shares, par value (in dollars per share)		$ 0.00

XML

FAIR VALUE MEASUREMENTS (Details 3) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
FAIR VALUE MEASUREMENTS
Initial public offering price (in dollars per share)	$ 13.00
Interest rate swap contract
Fair value measurements
Notional amount	$ 2,160
Fixed rate of interest paid to counterparty (as a percent)	2.72%
Cost incurred in termination of agreement	$ 9

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 15,787	$ 9,109
Accounts receivable, net	135,396	110,294
Inventories	67,230	56,454
Deferred income taxes	603
Prepaid expenses and other current assets	2,897	1,924
Total current assets	221,913	177,781
Property and equipment, net	12,967	12,378
Capitalized software for internal use, net	10,217	6,564
Goodwill	23,172	1,537
Definite-lived intangible assets, net	46,762	7,100
Investment in non-consolidated entity	4,990	5,577
Other noncurrent assets	2,641	840
Total assets	322,662	211,777
Current liabilities:
Accounts payable	172,183	142,353
Line of credit	76,562	62,622
Short-term debt, including current portion of long-term debt	3,960	6,693
Accrued compensation	2,424	2,703
Income taxes payable	272
Other accrued expenses	6,447	2,296
Total current liabilities	261,848	216,667
Long-term debt, less current portion	15,888	18,849
Deferred income taxes	3,889
Other noncurrent liabilities	2,927	673
Total liabilities	316,059	289,559
Common stock:
Additional paid-in capital	(108,504)	4,186
Retained earnings (accumulated deficit)	8,484	(81,972)
Total Diplomat Pharmacy shareholders' deficit	(100,016)	(77,782)
Noncontrolling interest	4,804
Total deficit	(95,212)	(77,782)
Total liabilities and deficit	322,662	211,777
Series A Preferred Stock
Current liabilities:
Redeemable Shares	101,815
Common shares
Current liabilities:
Redeemable Shares	31,507	53,370
Class B Nonvoting Common Stock
Common stock:
Common shares	4	4
Total deficit	$ 4	$ 4

XML

DEBT (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Debt
Debt	$ 19,848	$ 25,542
Less short-term debt, including current portion of long-term debt	(3,960)	(6,693)
Long-term debt, less current portion	15,888	18,849
Note payable to an individual maturing through January 2017
Debt
Debt	11,846	14,252
Interest rate (as a percent)	1.30%
Note payable to an individual maturing through January 2017 | Minimum
Debt
Repayment of principal including interest	242
Note payable to an individual maturing through January 2017 | Maximum
Debt
Repayment of principal including interest	282
Note payable to a shareholder maturing July 20, 2017
Debt
Debt	7,004	7,235
Repayment of principal including interest	100
Interest rate (as a percent)	1.30%
Mortgage with JPMorgan Chase
Debt
Debt		2,728
Repayment of principal including interest	124
Note payable to an individual maturing July 20, 2017
Debt
Debt	878	1,087
Repayment of principal including interest	79
Interest rate (as a percent)	4.25%
Note payable to an individual maturing June 15, 2015
Debt
Debt	120	240
Repayment of principal	$ 40

XML

Condensed Consolidated Statement of Changes in Equity Deficit (USD $) In Thousands, unless otherwise specified	Total	Class B Nonvoting Common Stock	Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)	Diplomat Pharmacy Shareholders' Deficit	Non-Controlling Interest
Balance at the beginning of the year at Dec. 31, 2013	$ (77,782)	$ 4	$ 4,186	$ (81,972)	$ (77,782)
Changes in shareholders' deficit
Net income/net comprehensive income	7,906			7,906	7,906
Reclassification of S corporation accumulated deficit			(82,550)	82,550
Stock redemptions	(46,526)		(46,526)		(46,526)
Removal of common stock redemption features	7,116		7,116		7,116
Stock option redemptions	(9,400)		(9,400)		(9,400)
Issuance of Class B Nonvoting Common Stock as partial consideration for a business acquisition	12,000		12,000		12,000
Issuance of Class B Nonvoting Common Stock in connection with termination of existing stock redemption agreement	4,842		4,842		4,842
Capital investments in subsidiary by noncontrolling shareholders	4,804					4,804
Share-based compensation expense	1,828		1,828		1,828
Balance at the end of the year at Sep. 30, 2014	$ (95,212)	$ 4	$ (108,504)	$ 8,484	$ (100,016)	$ 4,804

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues from service, data and consulting services	$ 3,853	$ 2,904	$ 9,767	$ 7,729
Revenue recognition
Revenues from prescription drugs	595,529	398,627	1,602,881	1,103,152
Deferred Offering Costs
Deferred offering costs	1,604		1,604
Prescription Drugs
Revenue recognition
Revenues from prescription drugs	$ 591,676	$ 395,723	$ 1,593,114	$ 1,095,423

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Principles of Consolidation: The consolidated financial statements include the accounts of Diplomat Pharmacy, Inc. and its wholly-owned subsidiaries and a 51%-owned subsidiary, formed in August 2014, which the Company has the ability to control. Noncontrolling interests in the consolidated balance sheets represent the minority stockholders’ proportionate share of the equity in such subsidiary. 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 but has the ability to exercise significant influence over operating and financial policies. All intercompany transactions and accounts have been eliminated in consolidation.

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 will function 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 has committed to contributing $5,000 for its 51% interest, of which $2,000 was contributed in August 2014 with the remainder to be contributed in 2014 and 2015. The unrelated third party entities contributed a software licensing agreement valued at $2,647 and intellectual property valued at $2,157. Primrose had no operating activity through September 30, 2014.

Use of Estimates

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

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 filled at an open door or retail pharmacy location are recorded at prescription adjudication, which approximates fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drugs were $591,676 and $395,723 for the three months ended September 30, 2014 and 2013, respectively, and $1,593,114 and $1,095,423 for the nine months ended September 30, 2014 and 2013, respectively.

The Company also recognizes revenue from providing various prescription data to pharmaceutical manufacturers and others and from consulting and other services when these services have been performed and the earnings process is complete. Revenues generated from these services were $3,853 and $2,904 for the three months ended September 30, 2014 and 2013, respectively, and $9,767 and $7,729 for the nine months ended September 30, 2014 and 2013, respectively.

Deferred Offering Costs

Deferred Offering Costs: The Company has incurred accounting, legal, printing and other expenses in connection with its initial public offering.  Through September 30, 2014, offering costs of $1,604 were deferred and included in other assets in the accompanying condensed consolidated balance sheet.  Such costs will be charged to additional paid-in capital against the gross proceeds of the offering.

New Accounting Pronouncements

New Accounting Pronouncements: In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-8, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU is effective within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015 with early adoption permitted in certain circumstances. This ASU changes the requirements for reporting discontinued operations. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), which provides a single revenue recognition model intended to improve comparability over a range of industries, companies and geographical boundaries and is intended to enhance disclosures. The standard is effective retrospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016.  Early adoption is not permitted. The Company is currently assessing the potential impact on its operations and financial statements.

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. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (subtopic 205-40). This ASU is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter, and defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The Company expects the adoption of this guidance will have no impact on the Company’s financial position, results of operations, cash flows and/or disclosures.

XML

BUSINESS ACQUISITIONS (Details) (USD $) In Thousands, unless otherwise specified			0 Months Ended	9 Months Ended	0 Months Ended		12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Jun. 27, 2014 MedPro Rx, Inc.	Sep. 30, 2014 MedPro Rx, Inc.	Jun. 27, 2014 MedPro Rx, Inc. Class B Nonvoting Common Stock	Dec. 16, 2013 American Homecare Federation, Inc	Jun. 30, 2014 American Homecare Federation, Inc	Sep. 30, 2014 American Homecare Federation, Inc
Business acquisitions
Cash portion of total acquisition price			$ 52,267			$ 12,100
Number of shares issued					716,695
Value of stock issued					12,000
Contingent consideration fair value			4,270	4,491		1,300		1,736
Maximum payout of contingent consideration			11,500			2,000
Purchase consideration deposited into an escrow account			3,503			1,353
Deposit term into an escrow account			2 years			2 years
Acquisition costs				825			552
External lease term			5 years			5 years
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash and cash equivalents			668			1,917
Accounts receivable, net			9,050			3,512
Inventories			3,819			1,138
Prepaid expenses and other current assets			204			27
Property and equipment			697			182
Capitalized software for internal use			25
Goodwill	23,172	1,537	21,635			1,537
Definite-lived intangible assets			37,099			7,100
Current liabilities			(4,660)			(1,964)
Total acquisition price			$ 68,537			$ 13,449

XML

FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2014

FAIR VALUE MEASUREMENTS

Schedule of assets and liabilities re-measured and disclosed at fair value on a recurring basis

	Asset									Valuation
	(Liability)			Level 2			Level 3			Technique
September 30, 2014:
Redeemable common shares	$	(31,507	)	$	—		$	(31,507	)	A,C
Contingent consideration	(6,227		)	—			(6,227		)	C
December 31, 2013:
Redeemable common shares	$	(53,370	)	$	—		$	(53,370	)	A,C
Contingent consideration	(1,300		)	—			(1,300		)	C
Interest rate swap contract	(16		)	(16		)	—			C

Schedule of a roll forward of the Level 3 measurements

	Redeemable Common Shares			Contingent Consideration
Balance at January 1, 2014	$	(53,370	)	$	(1,300	)
Change in fair value	7,873			(657		)
Redemptions	6,874			—
Removal of redemption features	7,116			—
MedPro acquisition	—			(4,270		)
Balance at September 30, 2014	$	(31,507	)	$	(6,227	)

XML

DESCRIPTION OF BUSINESS

9 Months Ended

Sep. 30, 2014

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 biotech and specialty pharmaceuticals. The Company has its corporate headquarters and main distribution facility in Flint, Michigan and maintains eight other pharmacy locations in Michigan, Illinois, Florida, California, Connecticut, Massachusetts and North Carolina. The Company operates as one reportable segment.

Initial Public Offering

In October 2014, the Company completed its initial public offering (“IPO”) in which it issued and sold 11,000,000 shares of common stock and certain existing shareholders sold 4,333,333 shares of common stock at a public offering price of $13.00 per share.  The Company did not receive any proceeds from the sale of common stock by the existing shareholders.  The Company received net proceeds of $130,648 after deducting underwriting discounts and commissions of $9,652, and other offering expenses of $2,700.  The net proceeds were used to repay indebtedness to certain current or former stakeholders and employees, and to fully repay the borrowings under the revolving line of credit (an aggregate of $96,410). The remaining net proceeds of $34,238 will be used for working capital and other general 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.  The issuance of shares of common stock from the IPO and the conversion of the outstanding capital stock prior to the IPO into shares of common stock will have a significant impact on future computations of net income per share.

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Redeemable Shares, par value (in dollars per share)	$ 0.001
Redeemable Shares, authorized shares	6,222,000
Series A Preferred Stock
Redeemable Shares, par value (in dollars per share)	$ 0.001
Redeemable Shares, authorized shares	6,222,000
Redeemable Shares, issued shares	6,211,355
Redeemable Shares, outstanding shares	6,211,355
Common shares
Redeemable Shares, par value (in dollars per share)	$ 1.00	$ 1.00
Redeemable Shares, outstanding shares	2,423,616	3,187,500
Class A Voting Common Stock
Common shares, par value (in dollars per share)	$ 1.00	$ 1.00
Common shares, authorized shares	42,500,000	42,500,000
Common shares, issued shares	1,657,500	1,657,500
Common shares, outstanding shares	1,657,500	1,657,500
Class B Nonvoting Common Stock
Common shares, par value (in dollars per share)	$ 1.00	$ 1.00
Common shares, authorized shares	807,500,000	807,500,000
Common shares, issued shares	31,678,743	31,492,500
Common shares, outstanding shares	31,678,743	31,492,500
Class C Voting Common Stock
Common shares, par value (in dollars per share)	$ 1.00	$ 1.00
Common shares, authorized shares	6,222,000	6,222,000
Common shares, issued shares	0	0
Common shares, outstanding shares	0	0

XML

INCOME TAXES

9 Months Ended

Sep. 30, 2014

INCOME TAXES

INCOME TAXES

11.  INCOME TAXES

As disclosed in Note 2, 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 $2,861 and a corresponding charge to deferred income tax expense.

Prior to January 23, 2014, the Company had elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under these provisions, the Company did not pay federal corporate income taxes on its taxable income. Instead, the shareholders were liable for individual federal income taxes on their respective shares of the Company’s taxable income. Distributions were made periodically to the Company’s shareholders to the extent needed to cover their income tax liability based on the Company’s taxable income.

As a C corporation, the Company accounts for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities and on tax credit carry forwards as measured by the enacted tax rates which will be in effect when these items impact the tax returns. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

Significant components of the expense for income taxes for the period from January 23, 2014 to September 30, 2014 are as follows:

Current:
Federal	$	(3,111	)
State and local	(587		)
Total current	(3,698		)
Deferred:
Federal	(3,073		)
State and local	(213		)
Total deferred	(3,286		)
	$	(6,984	)

The reconciliation of income taxes computed at the United States federal statutory tax rate to income tax expense for the nine months ended September 30, 2014 is:

Income tax expense at United States statutory rate	$	(5,194	)
Tax effect from:
Earnings while a S corporation	497
Adoption of C corporation status	(2,861		)
State income taxes, net of federal benefit	(436		)
Change in fair value of redeemable common shares	2,147
Termination of existing stock redemption agreement	(1,322		)
Other non-deductible expenses	(55		)
Other	240
Income tax expense	$	(6,984	)

Significant components of the Company’s deferred tax assets and liabilities at September 30, 2014 are as follows:

Deferred tax assets:
Inventories	$	128
Compensation and benefits	2,220
Allowance for doubtful accounts	1,021
Other temporary differences	6
Total deferred tax assets	3,375
Deferred tax liabilities:
Property and intangible assets	(3,664		)
Investment in non-consolidated entity	(2,155		)
Prepaid expenses	(842		)
Total deferred tax liabilities	(6,661		)
Net deferred tax liabilities	$	(3,286	)

The Company prepares and files tax returns based on interpretations of tax laws and regulations. In the normal course of business the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. In determining the Company’s tax provision for financial reporting purposes, the Company establishes a reserve for uncertain income tax positions unless it is determined to be “more likely than not” that such tax positions would be sustained upon examination, based on their technical merits. That is, for financial reporting purposes, the Company only recognizes tax benefits taken on the tax return if it believes it is “more likely than not” that such tax position would be sustained. There is considerable judgment involved in determining whether it is “more likely than not” that such tax positions would be sustained. As of September 30, 2014, the Company has no recorded uncertain tax positions.

The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and settlements with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax provision of any given year includes adjustments to prior year income tax accruals and related estimated interest charges that are considered appropriate. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax expense.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 07, 2014
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, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		51,448,746
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3

XML

CONTINGENCIES

9 Months Ended

Sep. 30, 2014

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 consolidated results of operations, financial position or cash flows of the Company.

XML

Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Net sales	$ 595,529	$ 398,627	$ 1,602,881	$ 1,103,152
Cost of goods sold	(555,364)	(375,497)	(1,503,639)	(1,039,379)
Gross profit	40,165	23,130	99,242	63,773
Selling, general and administrative expenses	(34,306)	(19,331)	(85,330)	(55,321)
Income from operations	5,859	3,799	13,912	8,452
Interest expense	(734)	(512)	(1,629)	(1,454)
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)	(319)	(1,087)	(629)
Other income	146	40	663	153
Income before income taxes	6,968	3,008	14,890	6,522
Income tax expense	(2,427)		(6,984)
Net income / net comprehensive income	4,541	3,008	7,906	6,522
Net income / net comprehensive income attributable to Diplomat Pharmacy	4,541	3,008	7,906	6,522
Net income allocable to preferred shareholders	745		1,062
Net income allocable to common shareholders	3,796	3,008	6,844	6,522
Net income per common share:
Basic (in dollars per share)	$ 0.12	$ 0.09	$ 0.22	$ 0.20
Diluted (in dollars per share)	$ 0.11	$ 0.09	$ 0.20	$ 0.19
Weighted average common shares outstanding:
Basic (in shares)	31,637	33,142	31,474	33,142
Diluted (in shares)	33,952	33,936	33,822	33,845
Pro Forma Data (Notes 2):
Income before income taxes	6,968	3,008	14,890	6,522
Income tax expense	(2,427)	(1,051)	(4,620)	(2,294)
Net income / net comprehensive income	4,541	1,957	10,270	4,228
Net income / net comprehensive income attributable to Diplomat Pharmacy	4,541	1,957	10,270	4,228
Net income allocable to preferred shareholders	745		1,379
Net income allocable to common shareholders	$ 3,796	$ 1,957	$ 8,891	$ 4,228
Pro forma net income per common share:
Basic (in dollars per share)	$ 0.12	$ 0.06	$ 0.28	$ 0.13
Diluted (in dollars per share)	$ 0.11	$ 0.06	$ 0.26	$ 0.12

XML

INVENTORIES

9 Months Ended

Sep. 30, 2014

INVENTORIES

INVENTORIES

6.  INVENTORIES

Inventories consist of the following:

	September 30,		December 31,
	2014		2013
Prescription medications, OTC medications and medical supplies, and retail items	$	66,970	$	56,155
Raw materials	250		284
Finished goods	10		15
	$	67,230	$	56,454

XML

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2014

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

5.  FAIR VALUE MEASUREMENTS

Accounting guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. 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).

Assets and liabilities of the Company re-measured and disclosed at fair value on a recurring basis at September 30, 2014 and December 31, 2013 are set forth in the table below:

	Asset									Valuation
	(Liability)			Level 2			Level 3			Technique
September 30, 2014:
Redeemable common shares	$	(31,507	)	$	—		$	(31,507	)	A,C
Contingent consideration	(6,227		)	—			(6,227		)	C
December 31, 2013:
Redeemable common shares	$	(53,370	)	$	—		$	(53,370	)	A,C
Contingent consideration	(1,300		)	—			(1,300		)	C
Interest rate swap contract	(16		)	(16		)	—			C

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

	Redeemable Common Shares			Contingent Consideration
Balance at January 1, 2014	$	(53,370	)	$	(1,300	)
Change in fair value	7,873			(657		)
Redemptions	6,874			—
Removal of redemption features	7,116			—
MedPro acquisition	—			(4,270		)
Balance at September 30, 2014	$	(31,507	)	$	(6,227	)

The fair value of the redeemable common stock was determined by the Company’s Board of Directors, with input from management. The nature of the material assumptions and estimates considered to determine the fair market value of the redeemable common stock are highly complex and subjective. Given the absence of a public trading market of the Company’s common stock prior to the Company’s IPO, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately-Held-Company Equity Securities issued as Compensation, the Board of Directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of the redeemable common stock including:

· recent significant investments by sophisticated, institutional investors for purchases of the Series A Preferred Stock, and the rights, privileges and preferences of such preferred stock to the redeemable common stock;

· valuations of the Company’s common stock performed by an unrelated third-party valuation specialist;

· the Company’s historical and projected operating and financial results;

· the market performance and financial results of comparable publicly-traded companies;

· industry or company-specific considerations;

· likelihood of achieving a liquidity event, such as an initial public offering or a sale of the Company;

· lack of marketability of the Company’s common stock; and

· the U.S. and global capital market conditions.

For the fair value determination as of September 30, 2014, the Board of Directors considered the Company’s initial public offering price of $13.00 per share.

See Note 4 for more information regarding the valuation of the contingent consideration.

The significant inputs, primarily the LIBOR yield curve, used to determine the fair value of the Company’s interest rate swap contract were considered Level 2 observable market inputs. The Company monitored the credit and nonperformance risk associated with its counterparty and believed them to be insignificant and not warranting a credit adjustment at December 31, 2013.

The Company’s interest rate swap agreement had an original notional amount of $2,160, equal to a mortgage loan with Bank of America. The purpose of the swap agreement was to fix the interest rate on the monthly balance of the mortgage and reduce exposure to interest rate fluctuations. Under the agreement, the Company paid the counterparty interest at a fixed rate of 2.72% and received interest at a variable rate, adjusted quarterly and based on LIBOR. Because this instrument is not classified as a hedging activity, changes in the fair value of this instrument are included in interest expense on the accompanying condensed consolidated statements of income. Fair value of the interest rate swap agreement was recorded in “Other accrued expenses” on the December 31, 2013 condensed consolidated balance sheet. This agreement was terminated in February 2014 at a cost of $9.

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.

XML

BUSINESS ACQUISITIONS (Tables)

9 Months Ended

Sep. 30, 2014

Business acquisitions

Schedule of unaudited pro forma results of operations

	Three Months Ended  September 30,				Nine Months Ended  September 30,
	2014		2013		2014		2013
Net sales	$	595,529	$	426,935	$	1,646,661	$	1,184,846
Net income	$	4,654	$	1,815	$	8,326	$	3,777
Net income per common share — basic	$	0.12	$	0.05	$	0.23	$	0.11
Net income per common share — diluted	$	0.11	$	0.05	$	0.21	$	0.11

MedPro Rx, Inc.

Business acquisitions

Summary of the fair value determination of the acquired assets and liabilities

Cash and cash equivalents	$	668
Accounts receivable, net	9,050
Inventories	3,819
Prepaid expenses and other current assets	204
Property and equipment	697
Capitalized software for internal use	25
Goodwill	21,635
Definite-lived intangible assets	37,099
Current liabilities	(4,660		)
	$	68,537

Schedule of definite-lived intangible assets that were acquired and their respective useful lives

	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

American Homecare Federation, Inc

Business acquisitions

Summary of the fair value determination of the acquired assets and liabilities

Cash and cash equivalents	$	1,917
Accounts receivable, net	3,512
Inventories	1,138
Prepaid expenses and other current assets	27
Property and equipment	182
Goodwill	1,537
Definite-lived intangible assets	7,100
Current liabilities	(1,964		)
	$	13,449

Schedule of definite-lived intangible assets that were acquired and their respective useful lives

	Useful Life	Amount
Patient relationships	10 years	$	5,100
Trade names and trademarks	10 years	1,400
Non-compete employment agreements	5 years	600
		$	7,100

XML

CAPITAL STOCK

9 Months Ended

Sep. 30, 2014

CAPITAL STOCK

CAPITAL STOCK

13.  CAPITAL STOCK

Pursuant to the Second Amended and Restated Articles of Incorporation dated March 31, 2014, the Company had the following classes of capital stock as of September 30, 2014:

Class	Par Value		Authorized	Voting Rights
Class A Common	$	1.00	42,500,000	20 votes per share
Class B Common	$	1.00	807,500,000	Nonvoting
Class C Common	$	1.00	6,222,000	One vote per share
Series A Preferred	$	0.001	6,222,000	As described below
			862,444,000

Each class of common stock has equal and identical rights, preferences and limitations, other than for voting rights. The Series A Preferred Stock is entitled to vote as if converted into Class C Voting Common Stock on the voting date.

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.

Common Stock

Of the common shares, 552,500 shares of Class A Voting Common Stock and 10,497,500 shares of Class B Nonvoting Common Stock were issued to two shareholders with certain redemption features which provide that upon the death of the shareholder or termination of his employment from the Company, all such outstanding shares owned by such shareholder will 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. The Company would then be required to purchase the shares. Pursuant to this provision, the common shares were deemed to be mandatorily redeemable and, as such, are required to be reflected as liabilities at their period end estimated fair value. Changes in their fair value are reflected as “Change in fair value of redeemable common shares” on the Company’s condensed consolidated statements of income. Fair value is 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. These redemption provisions terminated upon the effectiveness of the Company’s IPO in October 2014.

Pursuant to redemptions that occurred in 2012, as of December 31, 2013, 3,187,500 shares of redeemable Class B Nonvoting Common Stock remained outstanding. In January 2014 and April 2014, 143,339 and 195,545 shares, respectively, were redeemed.  On June 1, 2014, 425,000 shares were transferred into a separate trust, upon which the redemption provisions were terminated for those transferred shares and the related liability was reclassified into additional paid-in capital.

On August 12, 2014, the Company issued 372,486 shares of Class B Nonvoting Common Stock in the aggregate to a relative (and associated trusts) of the Company’s chief executive officer, in connection with the termination of an existing Stock Redemption Agreement. This issuance resulted in a charge of $4,842 to “Termination of existing stock redemption agreement” during both the three and nine month periods ended September 30, 2014. The value of the issued shares was based on the Company’s initial public offering price of $13.00 per share.

Preferred Stock

In January 2014, the Company entered into a Series A Preferred Stock Purchase Agreement with T. Rowe Price under which the Company issued to T. Rowe Price 2,986,228 shares of 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 the currently existing holders of common stock including 143,339 redeemable shares ($26,900) and currently existing holders of options to acquire common stock ($3,100) (Note 14).

In April 2014, the Company entered into a Series A Preferred Stock Purchase Agreement with Janus Capital Group (‘‘Janus’’) under which the Company issued to Janus 3,225,127 shares of Series A Preferred Stock at a purchase price of $16.74 per share. The Company used $25,200 of the $54,000 investment for general corporate purposes inclusive of fees associated with this transaction, and the remaining $28,800 was distributed to the currently existing holders of common stock including 195,545 redeemable shares ($26,500) and currently existing holders of options to acquire common stock ($2,300) (Note 14).

The Series A Preferred Stock has no coupon rate, is convertible into Class C Voting Common Stock at any time at the option of the holder, has optional redemption rights and has liquidation preferences. The conversion rate is on a one-for-one basis, subject to adjustment for stock splits and subdivisions, stock combinations, certain future issuances of common stock or common stock equivalents at effective prices lower than the then-applicable conversion rate, and other circumstances as described in the amended articles of incorporation. The Series A Preferred Stock automatically converts into Class C Voting Common Stock upon either (i) a qualified common stock public offering (as defined), or (ii) an affirmative vote of the majority of the Series A Preferred Stock.

Pursuant to an affirmative vote of the majority of the Series A Preferred Stock, the holders thereof can demand redemption of all outstanding shares of Series A Preferred Stock anytime on or after the earlier of (i) January 23, 2021, (ii) such time as the Company’s aggregate market price (as defined) is equal or greater than $5,000,000, and (iii) such time as certain changes are made to the Company’s board of directors, certain executive officers and/or certain controlling shareholders. The redemption price is payable in cash and will be the greater of the original issuance price plus all declared but unpaid dividends and fair market value (as defined). Because of these redemption features, the Series A Preferred Stock is reflected outside of permanent equity on the Company’s condensed consolidated balance sheet. Upon a liquidation event (as defined) the Series A Preferred Stockholders are entitled to receive the greater of (i) the sum of the original issuance price plus a 15% return compounded annually and (ii) the amount they would receive upon the liquidation had the Series A Preferred Stock converted into Class C Voting Common Stock on the liquidation date.

XML

LINE OF CREDIT

9 Months Ended

Sep. 30, 2014

LINE OF CREDIT

LINE OF CREDIT

9.  LINE OF CREDIT

On July 20, 2012, the Company entered into a five-year line of credit with General Electric Capital Corporation (‘‘GE’’). The original facility was comprised of a $60,000 revolving loan commitment, which is secured by security interest in and lien upon substantially all of the Company’s assets, not otherwise encumbered. The Company maintains a depository bank account where money is swept directly to the line of credit. Advances under the revolving credit loan commitment are limited to a borrowing base that consists of approximately 85% of the book value of eligible accounts receivable. In 2013, the facility was amended to increase the aggregate revolving loan commitments under the line of credit from $60,000 to $85,000. On June 26, 2014, the facility was amended to increase the aggregate revolving loan commitments under the line of credit from $85,000 to $120,000. As of September 30, 2014, the Company had $76,562 of borrowings outstanding and had $36,960 of availability under the line of credit. Additionally, the facility allows incremental increases in the line of credit or issuances of term loans up to an aggregate amount of $25,000, subject to specific conditions. As disclosed in Note 1, all outstanding borrowings were repaid from the proceeds received from the Company’s IPO in October 2014.

Interest on borrowings are charged at a rate equal to either: (a) the base rate, which equates to the rate last quoted by The Wall Street Journal as the “Prime Rate” or as further defined in the agreement in the absence of such, plus an applicable margin (the “Base Rate”); or (b) LIBOR, as defined by the agreement, plus an applicable margin. The applicable margin on the Base Rate borrowings is 0.75% and on LIBOR rate borrowings is 1.75%. The effective interest rate for Base Rate borrowings at both September 30, 2014 and December 31, 2013 was 4.00%. The effective rate on LIBOR rate borrowings at September 30, 2014 and December 31, 2013 was 1.90% and 1.92%, respectively. At September 30, 2014, the Company had Base Rate borrowings outstanding in the amount of $51,562 and LIBOR rate borrowings outstanding in the amount of $25,000. Additionally, the Company is charged a monthly unused commitment fee ranging from 0.25% to 0.50% on the average unused daily balance.

In connection with securing this facility, the Company incurred transaction costs totaling $1,538. These costs are being amortized as interest expense over the remaining life of the line of credit.

The revolving credit commitment with GE contains certain financial and non-financial covenants. The Company was in compliance with all covenants as of September 30, 2014.

XML

GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2014

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

7. GOODWILL AND OTHER INTANGIBLE ASSETS

(a) Acquired Intangible Assets

Definite-lived intangible assets were acquired in the acquisitions of AHF and MedPro, and the formation of Primrose.  The definite-lived intangibles assets are amortized over their estimated useful lives using accelerated method for patient relationships and the straight-line method for the remaining intangible assets.

	September 30, 2014
	Weighted
	average	Gross				Net
	amortization	carrying		Accumulated		carrying
	period	amount		amortization		amount
Amortizing intangible assets:
Patient relationships	7.5 yrs	$	29,100	(1,608	)	27,492
Trade names and trademarks	10 yrs	10,100		(322	)	9,778
Non-compete employment agreements	5 yrs	4,999		(311	)	4,688
Intellectual property	6 yrs	2,157		—		2,157
Software licensing agreement	4 yrs	2,647		—		2,647
Total		$	49,003	(2,241	)	46,762

	December 31, 2013
	Weighted
	average	Gross			Net
	amortization	carrying		Accumulated	carrying
	period	amount		amortization	amount
Amortizing intangible assets:
Patient relationships	10 yrs	$	5,100	—	$	5,100
Trade names and trademarks	10 yrs	1,400		—	1,400
Non-compete employment agreements	5 yrs	600		—	600
Total		$	7,100	—	$	7,100

The software licensing agreement and intellectual property intangibles were contributed on formation of Primrose. No amortization related to these intangibles has been recorded in the three and nine months ended September 30, 2014 as the entity had no significant operations.

Aggregate amortization expense for amortizing intangible assets was $1,790 and $2,241 for the three and nine months ended September 30, 2014, respectively. Estimated amortization expense, including Primrose amortization from the expected start date of its operations, for the remainder of 2014 is: $2,044, $7,985 in 2015, $7,583 in 2016, $7,154 in 2017, and $6,589 in 2018.

(b) Goodwill

Goodwill represents the excess purchase price paid over the estimated fair value of its acquired net assets recorded from the Company’s acquisitions of MedPro in June 2014 and AHF in December 2013. Goodwill is not amortized but is tested for impairment at least annually or earlier when events and circumstances indicate that it is more likely than not such assets have been impaired. The Company performs its annual impairment testing as of the first day of the fourth quarter of each year. No impairment was identified during the periods presented.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2014 and the year ended December 31, 2013 are as follows:

	September 30, 2014		December 31, 2013
Balance as of beginning of period	$	1,537	$	—
Goodwill acquired during the year	21,635		1,537
Balance as of the end of period	$	23,172	$	1,537

XML

INVESTMENT IN NON-CONSOLIDATED ENTITY

9 Months Ended

Sep. 30, 2014

INVESTMENT IN NON-CONSOLIDATED ENTITY

INVESTMENT IN NON-CONSOLIDATED ENTITY

8.  INVESTMENT IN NON-CONSOLIDATED ENTITY

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. No further payments or other commitments are required as of September 30, 2014. Because the Company does not direct the activities that most significantly impact the economic performance of Ageology, management has determined that the Company is not its primary beneficiary.

Ageology is an anti-aging physician network dedicated to nutrition, fitness and hormones, and has created a commercial software product for anti-aging physician practices that is in the late stages of development. The Company accounts for Ageology under the equity method, as it has significant influence over its operations. The Company’s portion of Ageology’s net losses were $377 and $319 for the three months ended September 30, 2014 and 2013, respectively, and $1,087 and $629 for the nine months ended September 30, 2014 and 2013, respectively. The Company’s equity investment balance in Ageology at September 30, 2014 and December 31, 2013 was $2,490 and $3,577, respectively.

During January 2014, the Company entered into a $500 8% per annum interest-bearing secured promissory note receivable from Ageology. During November and December 2013, the Company entered into two $1,000 6% per annum interest-bearing promissory notes receivable from Ageology. The notes are secured by all personal property and fixtures owned by Ageology. While due on demand, the Company does not intend to call the notes any time prior to September 30, 2015 and, accordingly, reflects the notes as noncurrent assets within ‘‘Investment in non-consolidated entity’’ on the Condensed Consolidated Balance Sheets.  In addition, in transactions in 2014 unrelated to the Company, an affiliated entity of the Company’s Chief Executive Officer has personally loaned $3.2 million to Ageology as of September 30, 2014.

The following table presents summarized financial information of Ageology:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Statements of Operations:
Net sales	$	14		$	—		$	15		$	1
Net loss	(1,428		)	(1,274		)	(4,268		)	(2,517		)

XML

DEBT

9 Months Ended

Sep. 30, 2014

DEBT

DEBT

10.  DEBT

Debt consists of the following:

	September 30,			December 31,
	2014			2013
Note payable to an individual; payable monthly in the amount of $242-$282 including interest at 1.3% through January 2017; secured by redeemed shares held in escrow per the pledge agreement and subordinated to the line of credit commitment	$	11,846		$	14,252
Note payable to a shareholder; payable quarterly in the amount of $100 including interest at 1.3%; matures July 20, 2017; secured by redeemed shares held in escrow per the pledge agreement and subordinated to the line of credit commitment	7,004			7,235
Mortgage with JPMorgan Chase; was payable in quarterly payments of principal of $124 plus interest at a rate per year equal to the adjusted LIBOR rate plus the floating rate; was paid off in May 2014	—			2,728
Note payable to an individual; payable quarterly in the amount of $79 including interest at 4.25%; matures July 20, 2017; secured by redeemed shares held in escrow per the pledge agreement and subordinated to the line of credit commitment	878			1,087
Note payable to an individual; payable quarterly in the amount of $40 interest free; matures June 15, 2015; unsecured and subordinated to the line of credit commitment	120			240
	19,848			25,542
Less short-term debt, including current portion of long-term debt	(3,960		)	(6,693		)
Long-term debt, less current portion	$	15,888		$	18,849

As disclosed in Note 1, all outstanding borrowings were repaid from the proceeds received from the Company’s IPO in October 2014.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended	9 Months Ended
	Aug. 28, 2014 item	Sep. 30, 2014 item
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of reportable segments		1
Number of pharmacy locations		8
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%
Principles of Consolidation
Number of unrelated third party entities	2
Software licensing agreement
Principles of Consolidation
Amount contributed by unrelated third party entities	$ 2,647
Intellectual property
Principles of Consolidation
Amount contributed by unrelated third party entities	2,157
Primrose
Principles of Consolidation
Committed contribution	5,000
Amount contributed	$ 2,000
Ownership interest (as a percent)	51.00%

XML

INCOME PER COMMON SHARE

9 Months Ended

Sep. 30, 2014

INCOME PER COMMON SHARE

INCOME PER COMMON SHARE

15.  INCOME PER COMMON SHARE

The Company computes net income per common share using the two-class method as its preferred shares meet the definition of a participating security and thereby share in the net income or loss of the Company on a ratable basis with the common shareholders. The preferred shares portions of net income for the three and nine months ended September 30, 2014 were 16% and 13%, respectively. Basic net income per common share is computed by dividing net income allocable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share, further includes any common shares available to be issued upon exercise of outstanding stock options if such inclusion would be dilutive.

The following is a reconciliation of the numerators and the denominators of the basic and diluted income per common share:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net income attributable to Diplomat Pharmacy	$	4,541	$	3,008	$	7,906	$	6,522
Net income allocable to preferred shareholders	745		—		1,062		—
Net income allocable to common shareholders	$	3,796	$	3,008	$	6,844	$	6,522
Weighted average common shares outstanding, basic (in thousands)	31,637		33,142		31,474		33,142
Incremental shares on assumed exercise of stock options (in thousands)	2,315		794		2,348		703
Weighted average common shares outstanding, diluted (in thousands)	33,952		33,936		33,822		33,845
Net income per common share:
Basic	$	0.12	$	0.09	$	0.22	$	0.20
Diluted	$	0.11	$	0.09	$	0.20	$	0.19

The effect of certain stock options was excluded from the computation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2014 as inclusion of such items would be anti-dilutive.  There were approximately 1.3 million stock options in the three and nine months ended September 30, 2014, respectively, that were considered anti-dilutive. All stock options were considered dilutive in the three and nine months period ended September 30, 2013.

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2014

GOODWILL AND OTHER INTANGIBLE ASSETS

Schedule of acquired intangible assets

	September 30, 2014
	Weighted
	average	Gross				Net
	amortization	carrying		Accumulated		carrying
	period	amount		amortization		amount
Amortizing intangible assets:
Patient relationships	7.5 yrs	$	29,100	(1,608	)	27,492
Trade names and trademarks	10 yrs	10,100		(322	)	9,778
Non-compete employment agreements	5 yrs	4,999		(311	)	4,688
Intellectual property	6 yrs	2,157		—		2,157
Software licensing agreement	4 yrs	2,647		—		2,647
Total		$	49,003	(2,241	)	46,762

	December 31, 2013
	Weighted
	average	Gross			Net
	amortization	carrying		Accumulated	carrying
	period	amount		amortization	amount
Amortizing intangible assets:
Patient relationships	10 yrs	$	5,100	—	$	5,100
Trade names and trademarks	10 yrs	1,400		—	1,400
Non-compete employment agreements	5 yrs	600		—	600
Total		$	7,100	—	$	7,100

Schedule of changes in the carrying amount of goodwill

	September 30, 2014		December 31, 2013
Balance as of beginning of period	$	1,537	$	—
Goodwill acquired during the year	21,635		1,537
Balance as of the end of period	$	23,172	$	1,537

XML

SHARE-BASED COMPENSATION (Details 2) (Stock options, USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Jun. 30, 2014
Stock options
Number of Shares
Outstanding at beginning of period (in shares)	6,657,519
Granted (in shares)	885,590
Cancelled (in shares)	(1,307,761)
Outstanding at end of period (in shares)	6,235,348
Exercisable at end of period (in shares)	3,164,756
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)	$ 4.30
Granted (in dollars per share)	$ 16.74
Cancelled (in dollars per share)	$ 1.45
Outstanding at end of period (in dollars per share)	$ 6.64
Exercisable at end of period (in dollars per share)	$ 3.77
Weighted Average Grant Date Fair Value
Outstanding at beginning of period (in dollars per share)	$ 0.86
Granted (in dollars per share)	$ 4.74
Cancelled (in dollars per share)	$ 0.36
Outstanding at end of period (in dollars per share)	$ 1.83
Exercisable at end of period (in dollars per share)	$ 1.25
Weighted Average Remaining Contractual Term
Outstanding at beginning of period	7 years 3 months 18 days	7 years
Outstanding at end of period	7 years 3 months 18 days	7 years
Exercisable at end of period	6 years 1 month 6 days
Aggregate Intrinsic Value
Outstanding at beginning of period	$ 69,732
Outstanding at end of period	39,634
Exercisable at end of period	$ 29,204

XML

INVENTORIES (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
INVENTORIES
Prescription medications, OTC medications and medical supplies, and retail items	$ 66,970	$ 56,155
Raw materials	250	284
Finished goods	10	15
Inventories	$ 67,230	$ 56,454

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash Flows From Operating Activities
Net income	$ 7,906	$ 6,522
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,331	2,786
Change in fair value of redeemable common shares	(7,873)
Change in fair value of contingent consideration	657
Termination of existing stock redemption agreement	4,842
Share-based compensation expense	1,828	671
Equity loss of non-consolidated entity	1,087	629
Net provision for doubtful accounts	3,257	437
Amortization of debt issuance costs	276	144
Deferred income tax expense	3,286
Gain on disposal of property and equipment	(11)	(7)
Increase (Decrease) in Operating Capital [Abstract]
Accounts receivable	(18,563)	(27,705)
Inventories	(6,913)	479
Accounts payable	26,192	16,598
Other assets and liabilities	(1,998)	(405)
Net cash provided by operating activities	19,304	149
Cash Flows From Investing Activities
Payments to acquire business, net of cash acquired	(51,599)
Expenditures for capitalized software for internal use	(5,758)	(3,521)
Expenditures for property and equipment	(834)	(597)
Capital investment in and loans to non-consolidated entity	(500)	(2,500)
Net repayment (issuance) of related parties' notes receivable	150	(54)
Net proceeds from sales of equipment	21	26
Net cash used in investing activities	(58,520)	(6,646)
Cash Flows From Financing Activities
Net proceeds from line of credit	13,940	16,061
Payments on long-term debt	(5,693)	(9,475)
Proceeds from sale of preferred stock, net of transaction costs	101,815
Payments associated with stock and stock option redemptions	(62,800)
Payments of stock offering costs	(1,368)
Shareholder distributions		(89)
Net cash provided by financing activities	45,894	6,497
Increase in cash and cash equivalents	6,678
Cash and cash equivalents at beginning of period	9,109
Cash and cash equivalents at end of period	15,787
Supplemental Cash Flow Information
Issuance of Class B Nonvoting Common Stock as partial consideration for a business acquisition	12,000
Cash paid for interest	1,411	1,169
Cash paid for income taxes	$ 3,426

XML

BUSINESS ACQUISITIONS

9 Months Ended

Sep. 30, 2014

BUSINESS ACQUISITIONS

BUSINESS ACQUISITIONS

4.  BUSINESS ACQUISITIONS

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”) for a total acquisition price of approximately $68,537, excluding related acquisition costs. Included in the total acquisition price is $52,267 in cash, 716,695 restricted shares of the Company’s Class B Nonvoting Common Stock valued at approximately $12,000, and contingent consideration fair valued at $4,270, with a maximum payout of $11,500 of contingent consideration that is based upon the achievement of certain revenue and gross profit targets in each of the twelve month periods ending June 30, 2015 and 2016. At the closing of the acquisition, approximately $3,503 of the purchase consideration was deposited into an escrow account that will be held for two years after the closing date to satisfy any of the Company’s indemnification claims. The Company incurred related acquisition costs of approximately $825 that were expensed through “Selling, general and administrative expenses” during the nine months ended September 30, 2014.

MedPro is a specialty pharmacy focused on specialty infusion therapies including hemophilia and immune globulin based in Raleigh, North Carolina. 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 country. The Company ascribes significant value to the cost reductions as well as 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 acquisition is treated as a stock purchase for accounting purposes, and the goodwill resulting from this acquisition is deductible for tax purposes. The results of operations for MedPro are included in the Company’s condensed consolidated financial statements from the acquisition date.

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 with 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 accounted for its acquisition of MedPro using the acquisition method as required by FASB Accounting Standards Codification (‘‘ASC’’) Topic 805, Business Combinations (‘‘FASB ASC 805’’). A summary of the fair value determination of the acquired assets and liabilities from the MedPro acquisition is as follows:

Cash and cash equivalents	$	668
Accounts receivable, net	9,050
Inventories	3,819
Prepaid expenses and other current assets	204
Property and equipment	697
Capitalized software for internal use	25
Goodwill	21,635
Definite-lived intangible assets	37,099
Current liabilities	(4,660		)
	$	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 estimated fair values of MedPro’s identifiable long-lived assets with assistance from an independent valuation firm. That firm also assisted in 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. The related liability is $4,491 as of September 30, 2014, with a charge of $221 to ‘‘Selling, general and administrative expenses’’ for the three and nine month periods ended September 30, 2014.

The Company recorded amortization expense related to its definite-lived intangible assets of $1,564 for the three and nine month periods ended September 30, 2014.

American Homecare Federation, Inc.

On December 16, 2013, the Company acquired all of the authorized, issued and outstanding shares of capital stock of American Homecare Federation, Inc. (“AHF”) for a total acquisition price of approximately $13,449, excluding related acquisition costs. Included in the total acquisition price was approximately $12,100 in cash and contingent consideration fair valued at $1,300, with a maximum payout of $2,000 of contingent consideration that is based on achieving certain revenue and gross profit targets in each of the two years ending December 31, 2014 and 2015. At the closing of the acquisition, approximately $1,353 of the purchase consideration was deposited into an escrow account that will be held for two years after the closing date to satisfy any of the Company’s indemnification claims. The Company incurred related acquisition costs of approximately $552 that were expensed through ‘‘Selling, general and administrative expenses.’’

AHF provides clotting medications, ancillaries and supplies to individuals with bleeding disorders, such as hemophilia. AHF has provided uninterrupted specialty pharmacy services exclusively to the bleeding disorders community since 1989. The acquisition of AHF will allow the Company to participate in AHF’s direct purchase agreements with key hemophilia manufacturers while also providing AHF access to the Company’s proprietary care management modules to better manage clinical care of the AHF patients. The Company ascribes significant value to the cost reductions as well as 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 acquisition is treated as a stock purchase for accounting purposes, and the goodwill resulting from this acquisition is deductible for tax purposes. The results of operations for AHF are included in the Company’s condensed consolidated financial statements from the acquisition date.

The Company did not acquire AHF’s affiliate from which AHF leased its operating facility. Instead, the Company, commensurate with the acquisition, entered into a five-year external lease agreement for the facility with 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 accounted for its acquisition of AHF using the acquisition method as required by FASB ASC 805. A summary of the fair value determination of the acquired assets and liabilities from the AHF acquisition is as follows:

Cash and cash equivalents	$	1,917
Accounts receivable, net	3,512
Inventories	1,138
Prepaid expenses and other current assets	27
Property and equipment	182
Goodwill	1,537
Definite-lived intangible assets	7,100
Current liabilities	(1,964		)
	$	13,449

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

	Useful Life	Amount
Patient relationships	10 years	$	5,100
Trade names and trademarks	10 years	1,400
Non-compete employment agreements	5 years	600
		$	7,100

The Company determined the estimated fair values of AHF’s identifiable long-lived assets with assistance from an independent valuation firm. That firm also assisted in the Company’s determination of the fair value of the contingent consideration utilizing historical results, forecasted operating results of AHF for each of the two years ending December 31, 2014 and 2015, and the corresponding contractual contingent payouts based on those results discounted at rates commensurate with the uncertainty involved. Based on operating results since AHF’s acquisition, the Company increased the estimated contingent payout to $2,000, the maximum amount, during the nine months ended September 30, 2014. The related liability was $1,736 as of September 30, 2014, with charges of $115 and $436 to ‘‘Selling, general and administrative expenses’’ during the three and nine months ended September 30, 2014, respectively.

The Company recorded amortization expense related to the definite-lived intangible assets of $226 and $677 for the three and nine months ended September 30, 2014, respectively.

Pro Forma Operating Results

The following table provides unaudited pro forma results of operations for the three and nine months ended September 30, 2014 and 2013 as if the acquisitions had occurred on January 1, 2013. 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, 2013 or of results that may occur in the future.

	Three Months Ended  September 30,				Nine Months Ended  September 30,
	2014		2013		2014		2013
Net sales	$	595,529	$	426,935	$	1,646,661	$	1,184,846
Net income	$	4,654	$	1,815	$	8,326	$	3,777
Net income per common share — basic	$	0.12	$	0.05	$	0.23	$	0.11
Net income per common share — diluted	$	0.11	$	0.05	$	0.21	$	0.11

XML

INVESTMENT IN NON-CONSOLIDATED ENTITY (Tables)

9 Months Ended

Sep. 30, 2014

INVESTMENT IN NON-CONSOLIDATED ENTITY

Summary of financial information of Ageology

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Statements of Operations:
Net sales	$	14		$	—		$	15		$	1
Net loss	(1,428		)	(1,274		)	(4,268		)	(2,517		)

XML

FAIR VALUE MEASUREMENTS (Details) (Recurring, USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Contingent consideration
Fair value measurements
Asset (Liability)	$ (6,227)	$ (1,300)
Redeemable common shares
Fair value measurements
Asset (Liability)	(31,507)	(53,370)
Interest rate swap contract
Fair value measurements
Asset (Liability)		(16)
Level 2 | Interest rate swap contract
Fair value measurements
Asset (Liability)		(16)
Level 3 | Contingent consideration
Fair value measurements
Asset (Liability)	(6,227)	(1,300)
Level 3 | Redeemable common shares
Fair value measurements
Asset (Liability)	$ (31,507)	$ (53,370)

XML

SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2014

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

14.  SHARE-BASED COMPENSATION

The Company’s 2007 Stock Option Plan, as approved by the Company’s Board of Directors and amended March 1, 2009, authorizes the granting of stock options to its key employees at no less than the market price on the date the option is granted. Options generally 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. As of September 30, 2014, all share-based compensation awards for employees were granted under the 2007 Stock Option Plan.  No further awards will be granted under the 2007 Stock Option Plan.  All outstanding awards previously granted under the 2007 Stock Option Plan will continue to be governed by their existing terms.  Equity awards issued on or after the IPO will be granted under the Diplomat Pharmacy, Inc. 2014 Omnibus Incentive Plan (“2014 Plan”).

The Company has reserved 4,000,000 shares of its common stock for issuance to employees, directors or consultants of the Company under the 2014 Plan.  The 2014 Plan provides for the issuance of stock options, stock appreciation rights, restricted stock units and other stock-based awards.  The stock-based awards will be issued at no less than the market price on the date the awards are granted.  On October 10, 2014, the Company issued 1,007,500 stock option awards to key employees and 5,769 restricted shares to a non-employee director. Options generally 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.

Total compensation expense related to employee stock options was $693 and $216 during the three months ended September 30, 2014 and 2013, respectively, and $1,828 and $671 during the nine months ended September 30, 2014 and 2013, respectively. In January 2014, the Company redeemed stock options to buy 148,650 shares of Class A Voting Common Stock and 91,118 shares of Class B Nonvoting Common Stock from certain current and former employees for cash consideration totaling $3,100 (Note 12). In April 2014, the Company redeemed stock options to buy 9,696 shares of Class A Voting Common Stock and 174,297 shares of Class B Nonvoting Common Stock from certain current and former employees for cash consideration totaling $2,300 (Note 13). No incremental compensation expense was recognized as a result of these redemptions.

In May 2014, the Company entered into a Stock Option Redemption Agreement with a former executive whereby the Company redeemed options to acquire 884,000 shares of common stock, comprised of 44,200 shares of Class A Voting Common Stock and 839,800 shares of Class B Nonvoting Common Stock, for the cash purchase price of $4,000. No incremental compensation expense was recognized as a result of this redemption.