10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

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)	(IRS employer identification number)

4100 S. Saginaw St., Flint, Michigan	48507
(Address of principal executive offices)	(Zip Code)

(888) 720-4450

(Registrant’s telephone number, including area code)

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 x  No o

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 (§232.405 of this chapter) 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	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

As of July 31, 2015, there were 63,643,867 outstanding shares of the registrant’s no par value common stock.

DIPLOMAT PHARMACY, INC.

Form 10-Q

For the Quarter Ended June 30, 2015

INDEX

	Page No.
Part I — Financial Information
Item 1 — Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Operations (Unaudited)	4
Condensed Consolidated Statements of Cash Flows (Unaudited)	5
Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3 — Qualitative and Quantitative Disclosures about Market Risk	32
Item 4 — Controls and Procedures	32
Part II — Other Information
Item 1 — Legal Proceedings	33
Item 1A — Risk Factors	33
Item 6 — Exhibits	35
Signatures	37
Exhibits

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands, except par values)

	June 30, 2015		December 31, 2014
ASSETS
Current assets:
Cash and equivalents	$	17,305	$	17,957
Accounts receivable, net	257,913		155,273
Inventories	159,462		110,683
Deferred income taxes	2,168		1,813
Prepaid expenses and other current assets	15,886		5,360
Total current assets	452,734		291,086
Property and equipment, net	14,187		13,150
Capitalized software for internal use, net	35,417		13,236
Goodwill	250,544		23,148
Intangible assets, net	242,882		44,973
Investment in non-consolidated entity	3,500		3,500
Deferred debt issuance costs	5,681		921
Other noncurrent assets	234		72
Total assets	$	1,005,179	$	390,086
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	265,565	$	202,495
Borrowings on line of credit	70,994		—
Short-term debt, including current portion of long-term debt	6,000		—
Accrued expenses:
Contingent consideration	47,681		6,282
Compensation and benefits	5,682		2,257
Other	6,142		4,394
Total current liabilities	402,064		215,428
Long-term debt, less current portion	114,000		—
Contingent consideration, less current portion	5,179		5,409
Deferred income taxes	11,081		518
Other noncurrent liabilities	—		4
Total liabilities	532,324		221,359
Commitments and contingencies
Shareholders’ equity:
Preferred stock (10,000,000 shares authorized; none issued and outstanding)	—		—
Common stock (no par value; 590,000,000 shares authorized; 63,613,867 and 51,457,023 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively)	445,280		148,901
Additional paid-in capital	11,857		9,893
Retained earnings	11,603		5,354
Total Diplomat Pharmacy shareholders’ equity	468,740		164,148
Noncontrolling interests	4,115		4,579
Total shareholders’ equity	472,855		168,727
Total liabilities and shareholders’ equity	$	1,005,179	$	390,086

See accompanying notes to condensed consolidated financial statements.

3

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net sales	$	808,011		$	541,675		$	1,432,894		$	1,007,352
Cost of products sold	(738,342		)	(512,107		)	(1,322,083		)	(948,275		)
Gross profit	69,669			29,568			110,811			59,077
Selling, general and administrative expenses	(62,474		)	(27,485		)	(98,777		)	(51,024		)
Income from operations	7,195			2,083			12,034			8,053
Other income (expense):
Interest expense	(1,903		)	(365		)	(2,224		)	(895		)
Change in fair value of redeemable common shares	—			957			—			957
Equity loss of non-consolidated entity	—			(309		)	—			(710		)
Other	75			49			179			517
Total other (expense) income	(1,828		)	332			(2,045		)	(131		)
Income before income taxes	5,367			2,415			9,989			7,922
Income tax expense	(2,254		)	(740		)	(4,204		)	(4,557		)
Net income	3,113			1,675			5,785			3,365
Less net loss attributable to noncontrolling interest	(277		)	—			(464		)	—
Net income attributable to Diplomat Pharmacy, Inc.	3,390			1,675			6,249			3,365
Net income allocable to preferred shareholders	—			299			—			401
Net income allocable to common shareholders	$	3,390		$	1,376		$	6,249		$	2,964
Net income per common share:
Basic	$	0.05		$	0.04		$	0.11		$	0.09
Diluted	$	0.05		$	0.04		$	0.10		$	0.09
Weighted average common shares outstanding:
Basic	62,610,850			30,748,750			57,279,670			31,400,210
Diluted	64,795,362			33,304,028			59,845,620			34,101,120

See accompanying notes to condensed consolidated financial statements.

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DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net income	$	5,785		$	3,365
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	10,875			2,545
Change in fair value of contingent consideration	5,169			321
Share-based compensation expense	1,232			1,135
Excess tax benefits related to share-based awards	(4,983		)	—
Net provision for doubtful accounts	5,359			997
Amortization of debt issuance costs	371			182
Deferred tax expense	1,450			2,105
Contingent consideration payment	(300		)	—
Impairment of capitalized software for internal use	150			—
Loss (gain) on sale or disposal of property and equipment	60			(7		)
Change in fair value of redeemable common shares	—			(957		)
Equity loss of non-consolidated entity	—			710
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	(48,230		)	(27,154		)
Inventories	(34,545		)	(9,217		)
Accounts payable	12,221			48,258
Other assets and liabilities	4,831			(1,456		)
Net cash (used in) provided by operating activities	(40,555		)	20,827
Cash flows from investing activities:
Payments to acquire businesses, net of cash acquired	(299,977		)	(51,302		)
Expenditures for capitalized software for internal use	(6,118		)	(3,893		)
Expenditures for property and equipment	(1,009		)	(426		)
Net proceeds from sales of property and equipment	8			17
Loan to non-consolidated entity	—			(500		)
Net repayment of related parties’ notes receivable	—			150
Net cash used in investing activities	(307,096		)	(55,954		)
Cash flows from financing activities:
Net proceeds from line of credit	70,994			17,254
Proceeds from long-term debt	120,000			—
Payments on long-term debt	—			(4,701		)
Proceeds from follow-on public offering, net of transaction costs	187,271			—
Proceeds from sale of preferred stock, net of transaction costs	—			101,815
Payments made to repurchase common stock	—			(53,400		)
Payments made to repurchase stock options	(36,298		)	(9,400		)
Proceeds from issuance of stock upon stock option exercises	5,880			—
Excess tax benefits related to share-based awards	4,983			—
Payment of debt issuance costs	(5,131		)	—
Contingent consideration payment	(700		)	—
Net cash provided by financing activities	346,999			51,568
(Decrease) increase in cash and equivalents	(652		)	16,441
Cash and equivalents at beginning of period	17,957			9,109
Cash and equivalents at end of period	$	17,305		$	25,550
Supplemental disclosures of cash flow information:
Issuance of common stock as partial consideration for business acquisitions	$	135,275		$	12,000
Cash paid for interest	1,217			713
Cash paid for income taxes	216			—

See accompanying notes to condensed consolidated financial statements.

5

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statement of Changes in Shareholders’ Equity

(dollars in thousands)

										Total
										Diplomat
					Additional					Pharmacy, Inc.						Total
	Common Stock				Paid-In			Retained		Shareholders’			Noncontrolling			Shareholders’
	Shares	Amount			Capital			Earnings		Equity			Interest			Equity
Balance at January 1, 2015	51,457,023	$	148,901		$	9,893		$	5,354	$	164,148		$	4,579		$	168,727
Net income (loss)	—	—			—			6,249		6,249			(464		)	5,785
Proceeds from public offering, net of issuance costs	6,821,125	187,271			—			—		187,271			—			187,271
Repurchase of stock options	—	(34,194		)	(2,104		)	—		(36,298		)	—			(36,298		)
Excess tax benefits related to share-based awards	—	—			4,983			—		4,983			—			4,983
Issuance of common stock as partial consideration of BioRx, LLC acquisition	4,038,853	125,697			—			—		125,697			—			125,697
Issuance of common stock as partial consideration of Burman’s Apothecary, LLC acquisition	253,036	9,578			—			—		9,578			—			9,578
Share-based compensation expense	—	—			1,232			—		1,232			—			1,232
Stock issued upon stock option exercises	1,043,830	8,027			(2,147		)	—		5,880			—			5,880
Balance at June 30, 2015	63,613,867	$	445,280		$	11,857		$	11,603	$	468,740		$	4,115		$	472,855

See accompanying notes to condensed consolidated financial statements.

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DIPLOMAT PHARMACY, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

1.DESCRIPTION OF BUSINESS

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

Initial Public Offering

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

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

Follow-On Public Offering

In March 2015, the Company completed a follow-on public offering in which 9,821,125 shares of common stock were sold at a public offering price of $29.00 per share. The Company sold 6,821,125 shares of common stock and certain shareholders sold 3,000,000 shares of common stock. The Company did not receive any proceeds from the sale of common stock by the shareholders. The Company received net proceeds of $187,271 after deducting underwriting discounts and commissions of $9,891, and other offering expenses of $652. The Company used $36,298 of the net proceeds to repurchase options to purchase common stock held by a number of current and former employees, including certain executive officers, with the remainder of the proceeds used to pay a portion of the cash consideration for the BioRx, LLC (“BioRx”) acquisition (Note 4). The purchase price for each stock option repurchased was based on the public offering price per share, net of the underwriting discount and exercise price.

2.BASIS OF PRESENTATION

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations, cash flows and changes in shareholders’ equity. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial

7

statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 3, 2015.

Stock Split

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

Effect of Conversion from S Corporation to C Corporation

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

Reclassifications

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

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

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

All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

Revenue Recognition

The Company recognizes revenue from prescription drug sales for home delivery at the time the drugs are shipped. At the time of shipment, the Company has performed substantially all of its obligations under its payor contracts and does not experience a significant level of returns or reshipments. If the Company administers a drug treatment regimen in a patient’s home, the Company recognizes revenue at time of administration. Revenues from dispensing

8

specialty prescriptions that are picked up by patients at an open door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drug sales were $802,605 and $538,989 for the three months ended June 30, 2015 and 2014, respectively, and $1,424,327 and $1,001,787 for the six months ended June 30, 2015 and 2014, respectively.

The Company recognizes revenue from service, data and consulting services when the services have been performed and the earnings process is therefore complete. Revenues generated from service, data and consulting services were $5,406 and $2,686 for the three months ended June 30, 2015 and 2014, respectively, and $8,567 and $5,565 for the six months ended June 30, 2015 and 2014, respectively.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (Topic 606), which will supersede the existing revenue recognition guidance under U.S. GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this ASU by one year to annual reporting periods beginning after December 15, 2017 for public entities. This ASU may be applied either retrospectively or as a cumulative effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is currently assessing the method under which it will adopt and the potential impact of adopting this ASU on its financial position, results of operations, cash flows and/or disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Targets Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. An entity should apply this new guidance on a retrospective basis and is required to comply with applicable disclosures for a change in an accounting principle. This standard may result in a balance sheet reclassification and require related disclosure revisions in the Company’s financial statements.

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

4.BUSINESS ACQUISITIONS

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

9

is deductible for tax purposes. The results of operations for acquired businesses are included in the Company’s consolidated financial statements from their respective acquisition dates.

Burman’s Apothecary, LLC

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

Cash	$	84,296
253,036 restricted common shares	9,578
	$	93,874

The above cash consideration is subject to a post-closing adjustment for net working capital, indebtedness, cash and sellers’ expenses. This amount is not known at this time and is therefore not reflected above.

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

The Company incurred acquisition-related costs of approximately $204 which were charged to “Selling, general and administrative expenses” during both the three and six months ended June 30, 2015.

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

Accounts receivable	$	17,274
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	49
Capitalized software for internal use	18,000
Intangible assets	24,400
Current liabilities	(25,797		)
Total identifiable net assets	50,108
Goodwill	43,766
	$	93,874

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

	Useful Life	Amount
Physician relationships	12 years	$	16,000
Non-compete employment agreements	5 years	5,700
Favorable supply agreement	1 year	2,700
		$	24,400

The Company has not finalized the purchase price allocation. Accordingly, the purchase price allocation described above could change materially as the Company finalizes its assessment of the allocation and the fair values of the net tangible and intangible assets it acquired, some of which are dependent on the finalization of valuations being performed by independent valuation specialists.

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BioRx

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

Cash at closing	$	217,467
4,038,853 restricted common shares	125,697
Contingent consideration at fair value	37,000
Receivable for estimated post-closing adjustment	(619		)
	$	379,545

The above receivable is subject to a final true-up and, therefore, subject to change.

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

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

The Company incurred acquisition-related costs of approximately $283 and $1,354 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2015.

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

Cash and cash equivalents	$	1,786
Accounts receivable	42,131
Inventories	5,546
Prepaid expenses and other current assets	669
Property and equipment	494
Other noncurrent assets	162
Intangible assets	182,000
Liabilities	(36,873		)
Total identifiable net assets	195,915
Goodwill	183,630
	$	379,545

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

	Useful Life	Amount
Patient relationships	10 years	$	130,000
Non-compete employment agreements	5 years	39,700
Trade names and trademarks	8 years	12,300
		$	182,000

The Company determined the estimated fair values of the identifiable long-lived assets with assistance from an independent valuation firm. The valuation firm also assisted with the Company’s determination of the fair value of the contingent consideration utilizing a Monte Carlo simulation. Based on BioRx’s operating results and an increase in the Company’s stock price since BioRx’s acquisition, the fair value of this contingent consideration liability increased to $41,000 as of June 30, 2015.

MedPro Rx, Inc.

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

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

The following table summarizes the consideration transferred to acquire MedPro:

Cash	$	52,267
716,695 restricted common shares	12,000
Contingent consideration at fair value	4,270
	$	68,537

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners an additional payout based upon the achievement of certain revenue and gross profit targets in each of the twelve month periods ending June 30, 2015 and 2016. The maximum payout of contingent consideration is $11,500. Approximately $3,503 of the purchase consideration was deposited into an escrow account to be held for two years after the closing date to satisfy any of the Company’s indemnification claims.

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

Cash and cash equivalents	$	668
Accounts receivable	9,050
Inventories	3,819
Prepaid expenses and other current assets	204
Property and equipment	697
Capitalized software for internal use	25
Intangible assets	37,099
Current liabilities	(4,660		)
Total identifiable net assets	46,902
Goodwill	21,635
	$	68,537

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

	Useful Life	Amount
Patient relationships	7 years	$	24,000
Trade names and trademarks	10 years	8,700
Non-compete employment agreements	5 years	4,399
		$	37,099

The Company determined the estimated fair values of the identifiable long-lived assets with assistance from an independent valuation firm. The valuation firm also assisted with the Company’s determination of the fair value of the contingent consideration utilizing historical results, forecasted operating results of MedPro for each of the twelve month periods ending June 30, 2015 and 2016, and the corresponding contractual contingent payouts based on those results discounted at rates commensurate with the uncertainty involved. Based on operating results since MedPro’s acquisition, the Company increased the estimated contingent payment in the fourth quarter of 2014, and, with accreted interest through June 30, 2015, the resulting liability as of June 30, 2015 was $10,929, of which $5,750 was earned based on actual results for the twelve months ended June 30, 2015 and will be paid during the third quarter of 2015.

Proforma Operating Results

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net sales	$	913,199	$	730,414	$	1,709,610	$	1,322,128
Net income attributable to Diplomat Pharmacy, Inc.	$	8,090	$	2,899	$	15,567	$	4,106
Net income per common share — basic	$	0.13	$	0.08	$	0.26	$	0.11
Net income per common share — diluted	$	0.12	$	0.08	$	0.25	$	0.11

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5.FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

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

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

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

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

	Asset /						Valuation
	(Liability)			Level 3			Technique
June 30, 2015:
Contingent consideration	$	(52,860	)	$	(52,860	)	C
December 31, 2014:
Contingent consideration	$	(11,691	)	$	(11,691	)	C

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

	Contingent Consideration
Balance at January 1, 2015	$	(11,691	)
BioRx acquisition	(37,000		)
Change in fair value	(5,169		)
Payment	1,000
Balance at June 30, 2015	$	(52,860	)

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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.

6.INVENTORIES

Inventories consist of the following:

	June 30,		December 31,
	2015		2014
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$	159,266	$	110,464
Raw materials	187		208
Finished goods	9		11
	$	159,462	$	110,683

7.GOODWILL AND OTHER INTANGIBLE ASSETS

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

Balance at January 1, 2015	$	23,148
BioRx acquisition	183,630
Burman’s acquisition	43,766
Balance at June 30, 2015	$	250,544

At June 30, 2015 and December 31, 2014, definite-lived intangible assets consist of the following:

	June 30, 2015							December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	159,100	$	(7,796	)	$	151,304	$	29,100	$	(2,895	)	$	26,205
Non-compete employment agreements	50,399		(3,092		)	47,307		4,999		(560		)	4,439
Trade names and trademarks	22,400		(1,464		)	20,936		10,100		(575		)	9,525
Physician relationships	16,000		(56		)	15,944		—		—			—
Software licensing agreement	2,647		—			2,647		2,647		—			2,647
Favorable supply agreement	2,700		(113		)	2,587		—		—			—
Customer relationships	2,157		—			2,157		2,157		—			2,157
	$	255,403	$	(12,521	)	$	242,882	$	49,003	$	(4,030	)	$	44,973

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On August 28, 2014, the Company and two unrelated third party entities entered into a contribution agreement to form a new company, Primrose Healthcare, LLC (“Primrose”). Primrose functions as a management company, managing a network of physicians and medical professionals providing continuum care for patients infected with the Hepatitis C virus. The Company has committed to contributing $5,000 for its 51% interest, of which $3,000 was contributed in 2014 with the remaining $2,000 being contributed during the six months ended June 30, 2015. The unrelated third party entities contributed a software licensing agreement valued at $2,647 and intellectual property valued at $2,157. No amortization related to these intangibles has been recorded as the entity has yet to recognize any revenue.

8.INVESTMENT IN NON-CONSOLIDATED ENTITIES

In October 2011, the Company purchased a 25% minority interest in WorkSmartMD, L.L.C., also known as Ageology, for $5,000 of cash consideration, which was paid in installments during 2011, 2012 and 2013. During November and December 2013, the Company entered into two $1,000 6% per annum interest-bearing promissory notes receivable from Ageology. During January 2014, the Company entered into a $500, 8% per annum interest bearing secured promissory note receivable from Ageology. The notes are due on demand and secured by all personal property and fixtures owned by Ageology. In addition, in transactions unrelated to the Company, an affiliated entity owned by the Company’s chief executive officer has personally loaned $7,050 to Ageology as of June 30, 2015.

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

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

9.DEBT

On July 20, 2012, the Company entered into a credit facility (“facility”) with General Electric Capital Corporation (“GE”) that provided for borrowings under a line of credit of up to $60,000. In 2013, the facility was amended to increase the commitment under the line of credit to $85,000. In June 2014, the facility was further amended to increase the commitment under the line of credit to $120,000. On April 1, 2015, in connection with the BioRx acquisition, the Company entered into a Second Amended and Restated Credit Agreement with GE, as agent and as a lender, the other lenders party thereto and the other credit parties party thereto, providing for an increase in the Company’s line of credit to $175,000, a fully drawn Term Loan A for $120,000 and a deferred draw term loan for an additional $25,000 (the “new credit facility”). The new credit facility also extended the maturity date to April 1, 2020. The new credit facility provides for the issuance of letters of credit up to $10,000 and swingline loans up to $15,000, the issuance and incurrence of which will reduce the availability of the line of credit. The new credit facility is guaranteed by substantially all of the Company’s subsidiaries and is collateralized by substantially all of the Company’s and its subsidiaries’ respective assets, with certain exceptions. In addition, the Company has pledged the equity of substantially all of its subsidiaries as security for the obligations under the new credit facility. The Company is required to maintain a depository bank account where money is collected and swept directly to the line of credit.

The new credit facility provides two interest rate options, (i) LIBOR (as defined) plus 2.75% or (ii) Base Rate (as defined) plus 1.75%, provided, however, that the interest rate may adjust downward only, by as much as 0.25%, beginning September 2015 based on changes in the Company’s leverage ratio. In addition, the Company is charged a monthly unused commitment fee ranging from 0.25% to 0.50% on the average unused daily balance.

The Company incurred deferred financing costs of $5,131 associated with the new credit facility, which were capitalized in “Deferred debt issuance costs” on the condensed consolidated balance sheet. These costs, along with

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previously unamortized deferred debt issuance costs, are being amortized to interest expense over the term of the new credit facility.

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

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

10.SHARE-BASED COMPENSATION

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

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	Of Options		Price		Life	Value
					(Years)
Outstanding at December 31, 2014	7,217,331		$	7.54	6.9	$	142,262
Granted	885,543		40.66
Repurchased	(1,641,387	)	5.44
Exercised	(1,043,830	)	5.63
Expired/cancelled	(641,392	)	16.44
Outstanding at June 30, 2015	4,776,265		$	13.63	7.8	$	149,207
Exercisable at June 30, 2015	1,421,806		$	4.19	5.8	$	57,836

The Company granted service-based awards of 494,500 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan during June 2015. The options become exercisable in installments of 25% per year, beginning on the first anniversary of the grant date and each of the three anniversaries thereafter, and have a maximum term of ten years. The Company also granted performance-based awards of 391,043 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan during June 2015. Such options will be earned or forfeited based upon the Company’s performance relative to specified revenue and adjusted earnings before interest, taxes, depreciation and amortization goals for the year ended December 31, 2015. The earned options, if any, will vest in four installments of 25%, with the first installment vesting upon Audit Committee confirmation of the satisfaction of the applicable performance goals, and the remaining installments vesting annually thereafter. These options also have a maximum term of ten years.

The 885,543 options to purchase common stock that were granted during June 2015 and that are described in the above paragraph have a weighted average grant date fair value of $12.46 per option. The grant-date fair values of these stock option awards were estimated using the Black-Scholes-Merton option pricing model using the assumptions set forth in the following table:

Exercise price	$39.26 - $44.39
Expected volatility	26.21% - 26.70%
Expected dividend yield	0%
Risk-free rate over the estimated expected life	1.84% - 2.01%
Expected life (in years)	6.25

Estimating grant date fair values for stock options requires management to make assumptions regarding the expected volatility of value of the underlying common shares, the risk-free rate over the expected life of the stock options, and the date on which share-based payments will be settled. Expected volatility is based on an implied volatility for a

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

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

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

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

The Company recorded share-based compensation expense associated with stock options of $632 and $873 for the three months ended June 30, 2015 and 2014, respectively, and $1,157 and $1,135 for the six months ended June 30, 2015 and 2014, respectively. Recorded share-based compensation expense for the three and six months ended June 30, 2015 assumes achievement of certain performance-based goals.

During the fourth quarter of 2014, the Company granted 8,277 restricted share awards to its non-employee directors. The Company recorded share-based compensation expense associated with restricted stock awards of $38 and $75 for the three and six months ended June 30, 2015, respectively.

11.INCOME TAXES

As disclosed in Note 2, the Company changed its income tax status from an S corporation to a C corporation on January 23, 2014. Accordingly, on that date, the Company recorded a net deferred income tax liability of $2,965 and a corresponding charge to deferred income tax expense. This adoption impact, net of the impact of S corporation earnings from January 1, 2014 to January 22, 2014 which were not tax affected, resulted in a 57.5% effective tax rate for the six months ended June 30, 2014.

12.CONTINGENCIES

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

13.REDEEMABLE CAPITAL STOCK

Several years prior to its IPO, the Company issued 11,050,000 shares of common stock to two shareholders that had certain redemption features which provided that upon the death of the shareholder or termination of his employment from the Company, all such outstanding shares owned by such shareholder would immediately be deemed to be offered for sale to the Company at an agreed-upon price meant to represent the then-current fair value of such shares. Due to this repurchase feature, the Company would be required to purchase the shares. Pursuant to this provision, the common shares were deemed to be mandatorily redeemable and, as such, were required to be

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reflected as a liability at their period end estimated fair value. Fair value was determined based on good faith estimates of the Company’s Board of Directors, in some cases with the assistance of independent third party valuations of the Company. The Company recognized a $957 “Change in fair value of redeemable shares” during the three and six months ended June 30, 2014.

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

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

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

14.INCOME PER COMMON SHARE

For the period January 23, 2014 through June 30, 2014, the Company computed net income per common share using the two-class method as its Redeemable Series A Preferred Stock met the definition of a participating security and thereby shared in the net income of the Company on a ratable basis with the common shareholders. The preferred stock’s portions of net income for the three and six months ended June 30, 2014 were 18% and 12%, respectively. The Company’s restricted stock awards that were granted during the fourth quarter of 2014 also meet the definition of a participating security. Therefore, the Company continues to use the two class method to compute income per share.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	3,390	$	1,675	$	6,249	$	3,365
Less net income allocable to preferred shareholders	—		299		—		401
Net income allocable to common shareholders	3,390		1,376		6,249		2,964
Denominator:
Weighted average common shares outstanding, basic	62,610,850		30,748,750		57,279,670		31,400,210
Weighted average dilutive effect of stock options and restricted stock awards	2,184,512		2,555,278		2,565,950		2,700,910
Weighted average common shares outstanding, diluted	64,795,362		33,304,028		59,845,620		34,101,120
Net income per common share:
Basic	$	0.05	$	0.04	$	0.11	$	0.09
Diluted	$	0.05	$	0.04	$	0.10	$	0.09

Service-based stock options to purchase 494,500 common shares were excluded from the computation of diluted weighted average common shares outstanding for both the three and six months ended June 30, 2015 as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to 678,234 common shares and contingent consideration to issue up to 1,350,309 common shares were excluded from the computation of diluted

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weighted average common shares outstanding for both the three and six months ended June 30, 2015 as none of the necessary conditions were satisfied as of June 30, 2015. Service-based stock options to purchase 679,629 common shares were excluded from the computation of diluted weighted average common shares outstanding for both the three and six months ended June 30, 2014 as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to 871,293 common shares were excluded from the computation of diluted weighted average common shares outstanding for both the three and six months ended June 30, 2014 as none of the necessary conditions were satisfied as of June 30, 2014.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollars in thousands, except per share, per patient and per prescription data)

The following Management’s Discussion and Analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements (unaudited), related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 3, 2015 with the Securities and Exchange Commission (“SEC”).

Forward-Looking Statements

Certain statements contained or incorporated in this Quarterly Report on Form 10-Q which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek” and similar terms and phrases, or the negative thereof, may be used to identify forward-looking statements.

The forward-looking statements contained in this report are based on management’s good-faith belief and reasonable judgment based on current information. The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described elsewhere in this report (including Part II, Item 1A, “Risk Factors”), as well as in our Annual Report on Form 10-K for the year ended December 31, 2014 and subsequent reports filed with or furnished to the SEC. Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

Overview

Diplomat Pharmacy, Inc. (the “Company,” Diplomat,” “our,” “us,” or “we”) is the nation’s largest independent specialty pharmacy in the United States, and is focused on improving lives of patients with complex chronic diseases. Our patient-centric approach positions us at the center of the healthcare continuum for treatment of complex chronic diseases through partnerships with patients, payors, pharmaceutical manufacturers and physicians. We offer a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs (many of which can cost over $100,000 per patient, per year). We have expertise across a broad range of high-growth specialty therapeutic categories, including oncology, immunology, hepatitis, multiple sclerosis, HIV and specialty infusion therapy. We dispense to all 50 states through our advanced distribution center that enables us to ship medications nationwide as well as a centralized clinical call center that helps us deliver localized services on a national scale. Diplomat was founded in 1975 by our chief executive officer, Philip Hagerman, and his father, Dale, both trained pharmacists who transformed our business from a traditional pharmacy into a leading specialty pharmacy beginning in 2005.

Our core revenues are derived from the customized care management programs we deliver to our patients, including the dispensing of their specialty medications. Because our core therapeutic disease states generally require multi-year or life-long therapy, our singular focus on complex chronic diseases helps drive recurring revenues and sustainable growth. Our revenue growth is primarily driven by new drugs coming to market, new indications for existing drugs, volume growth with current clients, addition of new clients and business acquisitions. For the three and six months ended June 30, 2015 and 2014, we derived over 99% of our revenue from the dispensing of drugs and the reporting of data associated with those dispenses to pharmaceutical manufacturers and other outside companies.

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Our historical growth has largely been driven by our position as a leader in oncology, immunology and hepatitis therapeutic categories. For the three months ended June 30, 2015 and 2014, we generated approximately 71% and 78%, respectively, of our revenues in these three categories. For the six months ended June 30, 2015 and 2014, we generated approximately 73% and 76%, respectively, of our revenues in these three categories.

We expect our growth to continue to be driven by a highly visible and recurring base of revenues, favorable demographic trends, advanced clinical developments, expanding drug pipelines, earlier detection of chronic diseases, improved access to medical care, manufacturer price increases and mix shift toward higher-cost specialty drugs. In addition, we believe that our expanding breadth of services, our growing penetration with new customers, and our access to limited distribution drugs, will help us achieve significant and sustainable growth and profitability in the future. Further, we believe that limited distribution is becoming the delivery system of choice for many specialty drug manufacturers because it facilitates high patient engagement, clinical expertise, and an elevated focus on service. Accordingly, we believe our current portfolio of approximately 90 limited distribution drugs, all of which are post-launch, is important to our growth.

We also provide specialty pharmacy support services to a national network of retailers as well as hospitals and health systems. We provide services to retailers and independent pharmacy groups, hospitals and health systems. For many of our retail, hospital and health system partners, we earn revenue by providing clinical and administrative support services on a fee-for-service basis to help them dispense specialty medications. Our other revenue for the three and six months ended June 30, 2015 and 2014 was derived from these services.

Recent Developments

Burman’s Apothecary, LLC Acquisition

On June 19, 2015, we acquired all of the outstanding equity interests of Burman’s Apothecary, LLC (“Burman’s”) for a total acquisition price of $93,874, excluding related acquisition costs. Included in the total acquisition price is $84,296 in cash and 253,036 restricted shares of our common stock, fair valued at $9,578. Burman’s, located in the greater Philadelphia, Pennsylvania area, is a provider of individualized patient care with a primary focus on hepatitis C. We acquired Burman’s to further expand our existing hepatitis business and to increase our national presence.

BioRx, LLC Acquisition

On April 1, 2015, we acquired all of the outstanding stock of BioRx, LLC (“BioRx”) for a total acquisition price of $379,545, excluding related acquisition costs. Included in the total acquisition price is $217,467 in cash, 4,038,853 restricted shares of our common stock, fair valued at $125,697, and contingent consideration of up to 1,350,309 shares of our restricted common stock to the former holders of BioRx’s equity interests based upon the achievement of a certain earnings before interest, taxes, depreciation and amortization target in the twelve month period ending March 31, 2016, which was fair valued at $37,000 as of the acquisition date. BioRx is a highly specialized pharmacy and infusion services company based in Cincinnati, Ohio that provides treatments for patients with ultra-orphan and rare, chronic diseases. We acquired BioRx to further expand our existing specialty infusion business and to increase our national presence.

New Credit Facility

On April 1, 2015, in connection with the BioRx acquisition, we entered into a Second Amended and Restated Credit Agreement with General Electric Capital Corporation (“GE”), as agent and as a lender, the other lenders party thereto and the other credit parties party thereto, providing for an increase in our line of credit to $175,000, a fully drawn Term Loan A for $120,000 and a deferred draw term loan for an additional $25,000 (the “new credit facility”). The new credit facility also extended the maturity date to April 1, 2020. The new credit facility provides for the issuance of letters of credit up to $10,000 and swingline loans up to $15,000, the issuance and incurrence of which will reduce the availability of the line of credit.

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Follow-On Public Offering

In March 2015, we completed a public offering in which 9,821,125 shares of common stock were sold at a public offering price of $29.00 per share. We sold 6,821,125 shares of common stock and certain existing shareholders sold 3,000,000 shares of common stock. We did not receive any proceeds from the sale of common stock by the existing shareholders. We received net proceeds of $187,271 after deducting underwriting discounts and commissions of $9,891, and other offering expenses of $652. We used $36,298 of the net proceeds to repurchase options to purchase common stock held by a number of current and former employees, including certain executive officers, with the remainder of the proceeds used to pay a portion of the cash consideration for the BioRx acquisition. The purchase price for each stock option repurchased was based on the public offering price per share, net of the underwriting discount and exercise price.

Initial Public Offering

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

MedPro Rx, Inc. Acquisition

On June 27, 2014, we acquired all of the outstanding stock of MedPro Rx, Inc. (“MedPro”) for a total acquisition price of $68,537, excluding related acquisition costs. Included in the total acquisition price is $52,267 in cash, 716,695 restricted shares of our common stock, fair valued at $12,000, and contingent consideration fair valued at $4,270 as of the acquisition date, with a maximum payout of $11,500, that is based on the achievement of certain revenue and gross profit targets for each of the twelve months ended June 30, 2015 and 2016. MedPro is a specialty pharmacy focused on specialty infusion therapies, including hemophilia and immune globulin, based in Raleigh, North Carolina. We acquired MedPro to expand our existing specialty infusion business and to increase our presence in the mid-Atlantic and Southern regions of the country.

Key Performance Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Prescriptions dispensed	234,000		197,000		429,000		381,000
Prescriptions serviced (not dispensed)	71,000		48,000		124,000		102,000
Total prescriptions	305,000		245,000		553,000		483,000
Net sales per prescription dispensed	$	3,442	$	2,745	$	3,329	$	2,639
Gross profit per prescription dispensed	$	289	$	143	$	250	$	148
Net sales per prescription serviced (not dispensed)	$	30	$	29	$	29	$	27
Gross profit per prescription serviced (not dispensed)	$	30	$	29	$	29	$	27

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Prescription Data

Prescriptions dispensed (rounded to nearest thousand) represents actual prescriptions filled and dispensed by Diplomat to patients, or in rare cases, to physicians. Prescriptions serviced (not dispensed) (rounded to nearest thousand), represents prescriptions filled and dispensed from a non-Diplomat pharmacy, including unaffiliated retailers and health systems, for which we provide support services required to assist these patients and pharmacies through the complexity of filling specialty medications, and for which we earn a fee.

Our volume for the three months ended June 30, 2015 was 305,000 prescriptions dispensed or serviced, a 24% increase compared to 245,000 prescriptions dispensed or serviced for the three months ended June 30, 2014. Our volume for the six months ended June 30, 2015 was 553,000 prescriptions dispensed or serviced, a 14% increase compared to 483,000 prescriptions dispensed or serviced for the six months ended June 30, 2014. The volume increase was due to new drugs to the market or newly dispensed by us, growth in patients from current payors and physician practices, and the addition of patients from new payors and physician practices. The Burman’s, BioRx and MedPro acquisitions (the “Acquisitions”) also contributed to the volume increase. These volume increases were partially offset by the loss of non-specialty dispenses resulting from the decision to close our Grand Rapids facility in November 2014.

Other Metrics

Other key metrics used in analyzing our business are net sales per prescription dispensed, gross profit per prescription dispensed, net sales per prescription serviced (not dispensed), and gross profit per prescription serviced (not dispensed).

Net sales per prescription dispensed represents total prescription revenue from prescriptions dispensed by Diplomat divided by the number of prescriptions dispensed by Diplomat. Gross profit per prescription dispensed represents gross profit from prescriptions dispensed by Diplomat divided by the number of prescriptions dispensed by Diplomat. Total prescription revenue from prescriptions dispensed includes all revenue collected from patients, third party payors, and various patient assistance programs, as well as revenue collected from pharmaceutical manufacturers for data and other services directly tied to the actual dispensing of their drug(s). Gross profit represents total prescription revenue from prescriptions dispensed less the cost of the drugs purchased, including performance-related rebates.

Net sales per prescription serviced (not dispensed) represents total prescription revenue from prescriptions serviced divided by the number of prescriptions serviced for the non-Diplomat pharmacies. Gross profit per prescription serviced (not dispensed) is equal to net sales per prescription serviced because there is no cost of drug associated with such transactions. Total prescription revenue from prescriptions serviced includes revenue collected from partner pharmacies, including retailers and health systems, for support services rendered to their patients.

Components of Results of Operations

Net Sales

Revenue for a dispensed prescription is recognized at the time of shipment for home delivery and at prescription adjudication (which approximates the fill date) for patient pick up at open door or retail pharmacy locations. We can earn revenue from multiple sources for any one claim, including the primary insurance plan, the secondary insurance plan, the tertiary insurance plan, patient co-pay, and patient assistance programs. Prescription revenue also includes revenue from pharmaceutical manufacturers and other outside companies for data reporting or additional services rendered for dispensed prescriptions. Service revenue is primarily derived from fees earned by us from retail and hospital pharmacies for patient support that is required for those non-Diplomat pharmacies to dispense specialty drugs to patients. The retail and hospital pharmacies dispense the drug, and pay us for clinically and administratively servicing their patients.

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Cost of Goods Sold

Cost of goods sold represents the purchase price of the drugs that we ultimately dispense. These drugs are purchased directly from the manufacturer or from an authorized wholesaler and the purchase price is negotiated with the selling entity. In general, period over period percentage changes in cost of goods sold will move directionally with period over period percentage changes in net sales for prescription dispensing transactions. This is due to the mathematical relationship between average wholesale price (“AWP”) and wholesale acquisition cost (“WAC”), and our contractual relationships to purchase at a discount off of WAC and receive reimbursement at a discount off of AWP. The discounts off of AWP and WAC that we receive vary significantly by drug and by contract. Rebates we receive from manufacturers are reflected in cost of goods sold when they are earned.

Selling, General and Administrative Expenses

Our operating expenses primarily consist of employee and employee-related costs, as well as outbound prescription drug transportation and logistics costs. Our employee and employee-related costs relate to both our patient-facing personnel and our non-patient facing support and administrative personnel. Other operating expenses consist of occupancy and other indirect costs, insurance costs, professional fees, and other general overhead expenses. We expect that general and administrative expenses will continue to increase as we incur additional expenses related to being a public company, including professional fees and share-based compensation.

Other Income (Expense)

Other income (expense) primarily consists of interest expense associated with our debt, equity income or losses associated with our 25% owned non-consolidated entity which was written off in December 2014, change in fair value associated with our redeemable common shares (2014 only), tax credits and income from property rentals.

Income Tax Expense

On January 23, 2014, we changed from an S corporation to a C corporation. Prior to this date, our historical financial statements reflected our results as an S corporation.

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Results of Operations

Three Months Ended June 30, 2015 versus Three Months Ended June 30, 2014

The following table provides statements of operations data for each of the periods presented:

	Three Months Ended June 30,
	2015			2014
Net sales	$	808,011		$	541,675
Cost of products sold	(738,342		)	(512,107		)
Gross profit	69,669			29,568
Selling, general and administrative expenses	(62,474		)	(27,485		)
Income from operations	7,195			2,083
Other income (expense):
Interest expense	(1,903		)	(365		)
Change in fair value of redeemable common shares	—			957
Equity loss of non-consolidated entity	—			(309		)
Other	75			49
Total other (expense) income	(1,828		)	332
Income before income taxes	5,367			2,415
Income tax expense	(2,254		)	(740		)
Net income	3,113			1,675
Less net loss attributable to noncontrolling interest	(277		)	—
Net income attributable to Diplomat Pharmacy, Inc.	3,390			1,675
Net income allocable to preferred shareholders	—			299
Net income allocable to common shareholders	$	3,390		$	1,376

Net Sales

Our net sales for the three months ended June 30, 2015 were $808,011, a $266,336 increase, or 49%, compared to $541,675 in the same period of 2014. The increase was in part the result of approximately $91,000 of additional revenue from drugs that were new to the market or newly dispensed by us. The Acquisitions contributed approximately $109,000 to the increase. The remaining increase is primarily attributable to the impact of manufacturer price increases, a favorable mix of high-priced drugs and payor mix changes.

Cost of Goods Sold

Our cost of goods sold for the three months ended June 30, 2015 was $738,342, a $226,235 increase, or 44%, compared to $512,107 in the same period of 2014. The increase was primarily the result of the same factors that drove the increase in our net sales over the same time period. Cost of goods sold was 91.4% and 94.5% of revenue for the three months ended June 30, 2015 and 2014, respectively. The gross margin improvement in the second quarter of 2015 was driven by drug mix changes, including the impact of the Acquisitions, and continued favorable trends in manufacturer-derived gross profit.

Selling, General and Administrative Expenses

Our selling, general, and administrative expense (“SG&A”) for the three months ended June 30, 2015 was $62,474, a $34,989 increase, compared to $27,485 in the same period of 2014. SG&A was 7.7% and 5.1% of revenue for the three months ended June 30, 2015 and 2014, respectively. Of this increase, $11,178 relates to an increase in the fair value of contingent consideration and amortization expense from definite-lived intangible assets of our Acquisitions. Total employee cost increased by $14,008 and includes the employee expense for our acquired entities. The increased employee expense was primarily attributable to the 24% increase in dispensed and serviced prescription volume, combined with the increased administrative complexity associated with our mix of business. The remaining increase was in all other SG&A to support our growth including public company

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requirements, bad debt expense, consulting fees, travel, and other miscellaneous expenses.  As a percent of revenue, SG&A, excluding acquisition-related amortization and change in contingent consideration, accounted for 6.3% of total revenues for the three months ended June 30, 2015 compared to 5.0% in the year ago period. This increase is primarily attributable to the more clinically intensive businesses we have acquired and the additional operating expense associated with servicing those patients.

Other (Expense) Income

Our other (expense) income for the three months ended June 30, 2015 was $(1,828), compared to $332 in the same period of 2014. The $(2,160) quarter-over-quarter change is primarily due to a $1,538 increase in interest expense and a $957 redeemable share fair value change during the second quarter of 2014, partially offset by a $309 equity loss of non-consolidated entity during the second quarter of 2014. Redeemable shares were converted to shares of no par value common stock immediately prior to the closing of the IPO, and our 25% owned non-consolidated entity was written off in December 2014.

Income Tax Expense

Our income tax expense for the three months ended June 30, 2015 and 2014 was $2,254 and $740, respectively, resulting in effective tax rates of 42% and 31%, respectively. The lower effective tax rate for the three months ended June 30, 2014 was primarily due to $957 of non-taxable income recorded that period related to the change in fair value of redeemable shares.

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Six Months Ended June 30, 2015 versus Six Months Ended June 30, 2014

The following table provides statements of operations data for each of the periods presented:

	Six Months Ended June 30,
	2015			2014
Net sales	$	1,432,894		$	1,007,352
Cost of products sold	(1,322,083		)	(948,275		)
Gross profit	110,811			59,077
Selling, general and administrative expenses	(98,777		)	(51,024		)
Income from operations	12,034			8,053
Other income (expense):
Interest expense	(2,224		)	(895		)
Change in fair value of redeemable common shares	—			957
Equity loss of non-consolidated entity	—			(710		)
Other	179			517
Total other expense	(2,045		)	(131		)
Income before income taxes	9,989			7,922
Income tax expense	(4,204		)	(4,557		)
Net income	5,785			3,365
Less net loss attributable to noncontrolling interest	(464		)	—
Net income attributable to Diplomat Pharmacy, Inc.	6,249			3,365
Net income allocable to preferred shareholders	—			401
Net income allocable to common shareholders	$	6,249		$	2,964

Net Sales

Our net sales for the six months ended June 30, 2015 were $1,432,894, a $425,542 increase, or 42%, compared to $1,007,352 in the same period of 2014. The increase was in part the result of approximately $144,000 of additional revenue from drugs that were new to the market or newly dispensed by us. The Acquisitions contributed approximately $133,000 to the increase. The remaining increase is attributable to manufacturer price increases, drug mix, payor mix and prescription volume growth of existing drugs.

Cost of Goods Sold

Our cost of goods sold for the six months ended June 30, 2015 was $1,322,083, a $373,808 increase, or 39%, compared to $948,275 in the same period of 2014. The increase was primarily the result of the same factors that drove the increase in our net sales over the same time period. Cost of goods sold was 92.3% and 94.1% of revenue for the six months ended June 30, 2015 and 2014, respectively. The gross margin improvement in the six months ended June 30, 2015 was driven by drug mix changes, including the impact of the Acquisitions, and continued favorable trends in manufacturer-derived gross profit.

Selling, General and Administrative Expenses

Our SG&A for the six months ended June 30, 2015 was $98,777, a $47,753 increase, compared to $51,024 in the same period of 2014. SG&A was 6.9% and 5.1% of revenue for the six months ended June 30, 2015 and 2014, respectively. Of this increase, $12,613 relates to an increase in the fair value of contingent consideration and amortization expense from definite-lived intangible assets of our Acquisitions. Total employee cost increased by $20,683 and includes the employee expense for our Acquisitions. The increased employee expense was primarily attributable to two factors. First, the 14% increase in dispensed and serviced prescription volume, combined with the increased administrative complexity associated with the mix of business. Second, our ongoing efforts to improve IT systems to support current and future growth required additional indirect labor to develop our key systems. The remaining increase was in all other SG&A to support our growth including bad debt expense, consulting fees, freight, travel, and other miscellaneous expenses. As a percent of revenue, SG&A,

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excluding acquisition-related amortization and change in contingent consideration, accounted for 5.9% of total revenues for the three months ended June 30, 2015 compared to 5.0% in the year ago period. This increase is primarily attributable to the more clinically intensive businesses we have acquired and the additional operating expense associated with servicing those patients.

Other Expense

Our other expense for the six months ended June 30, 2015 was $2,045, compared to $131 in the same period of 2014. The $1,914 period-over-period change is due to a $1,329 increase in interest expense, a $957 redeemable share fair value change during the first half of 2014 and a $338 decrease in other income, partially offset by a $710 equity loss of non-consolidated entity during the first half of 2014. Redeemable shares were converted to shares of no par value common stock immediately prior to the closing of the IPO, and our 25% owned non-consolidated entity was written off in December 2014.

Income Tax Expense

On January 23, 2014, we changed our income tax status from an S corporation to a C corporation and, as such, now bear income taxes which had previously been borne by our shareholders. Accordingly, on that date, we recorded a net deferred income tax liability of $2,965 and a charge to income tax expense for the same amount. Our income tax expense for the six months ended June 30, 2015 and 2014 was $4,204 and $4,557, respectively, resulting in effective tax rates of 42% and 58%, respectively.

Liquidity and Capital Resources

Our primary uses of cash include funding our working capital, acquiring and maintaining property and equipment and internal use software, business acquisitions and debt service. Our primary source of liquidity for our working capital is cash flows generated from operations. At various times during the course of the year, we may be in an operating cash usage position, which may require us to use our short-term borrowings. We continuously monitor our working capital position and associated cash requirements and explore opportunities to more effectively manage our inventory and capital spending. As of June 30, 2015 and December 31, 2014, we had $17,305 and $17,957, respectively, of cash and cash equivalents. Our cash balances fluctuate based on working capital needs and the timing of sweeping available cash each day to pay down any outstanding balance on our line of credit, which was $70,994 and $0 at June 30, 2015 and December 31, 2014, respectively. Our available liquidity under our line of credit was $61,784 and $108,272 at June 30, 2015 and December 31, 2014, respectively.

We believe that funds generated from operations, our cash and cash equivalents on hand, and available borrowing capacity under our line of credit will be sufficient to meet our working capital and capital expenditure requirements for at least 12 months. We may enhance our competitive position through additional complementary acquisitions in both existing and new markets. Therefore, from time to time, we expect to access the equity or debt markets to raise additional funds to finance acquisitions or otherwise on a strategic basis.

The following table provides cash flow data for each of the periods presented:

	Six Months Ended June 30,
	2015			2014
Net cash (used in) provided by operating activities	$	(40,555	)	$	20,827
Net cash used in investing activities	(307,096		)	(55,954		)
Net cash provided by financing activities	346,999			51,568
Net (decrease) increase in cash and cash equivalents	$	(652	)	$	16,441

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Net Cash (Used In) Provided By Operating Activities

Cash (used in) provided by operating activities consists of significant components of the statement of operations adjusted for changes in various working capital items including accounts receivable, inventories, prepaid expenses, accounts payable and other accrued expenses.

The $61,382 decrease in cash flow associated with operating activities during the six months ended June 30, 2015 compared to the same period of 2014 was primarily due to a $76,154 increase in net working capital outflows, partially offset by a $12,352 increase in non-cash adjustments to net income.

Net Cash Used In Investing Activities

Our primary investing activities have consisted of business acquisitions, investments in non-consolidated entities, capital expenditures to purchase computer equipment, software, furniture and fixtures, labor expenditures associated with capitalized software for internal use, as well as building improvements to support the expansion of our infrastructure and workforce. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.

The $251,142 increase in cash used in investing activities during the six months ended June 30, 2015 compared to the same period of 2014 was primarily related to a $248,675 increase in cash used to acquire businesses and a $2,225 increase in expenditures for software for internal use as we continue to expand and improve our information systems.

Net Cash Provided By Financing Activities

Our primary financing activities have consisted of proceeds from capital stock offerings, payments made to repurchase capital stock and stock options, debt borrowings and repayments, payment of debt issuance costs and proceeds from stock option exercises.

The $295,431 increase in cash provided by financing activities during the six months ended June 30, 2015 compared to the same period of 2014 was primarily related to $120,000 in proceeds from entering into Term Loan A on April 1, 2015 and the following changes in period-over-period activities: $85,456 increase in net proceeds from capital stock offerings; $53,740 increase in net borrowings under our line of credit; and $26,502 decrease in the repurchase of stock and stock options.

Debt

On July 20, 2012, we entered into a credit facility (“facility”) with GE that provided for borrowings under a line of credit of up to $60,000. In 2013, the facility was amended to increase the commitment under the line of credit to $85,000. In June 2014, the facility was further amended to increase the commitment under the line of credit to $120,000. On April 1, 2015, in connection with the BioRx acquisition, we entered into a Second Amended and Restated Credit Agreement with GE, as agent and as a lender, the other lenders party thereto and the other credit parties party thereto, providing for an increase in our line of credit to $175,000, a fully drawn Term Loan A for $120,000 and a deferred draw term loan for an additional $25,000 (the “new credit facility”). The new credit facility also extended the maturity date to April 1, 2020. The new credit facility provides for the issuance of letters of credit up to $10,000 and swingline loans up to $15,000, the issuance and incurrence of which will reduce the availability of the line of credit. The new credit facility is guaranteed by substantially all of our subsidiaries and is collateralized by substantially all of our and our subsidiaries’ respective assets, with certain exceptions. In addition, we have pledged the equity of substantially all of our subsidiaries as security for the obligations under the new credit facility. We are required to maintain a depository bank account where money is collected and swept directly to the line of credit.

The new credit facility provides two interest rate options, (i) LIBOR (as defined) plus 2.75% or (ii) Base Rate (as defined) plus 1.75%, provided, however, that the interest rate may adjust downward only, by as much as 0.25%,

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beginning September 2015 based on changes in our leverage ratio. In addition, we are charged a monthly unused commitment fee ranging from 0.25% to 0.50% on the average unused daily balance.

We incurred deferred financing costs of $5,131 associated with the new credit facility, which were capitalized. These costs, along with previously unamortized deferred debt issuance costs are being amortized to interest expense over the term of the new credit facility.

The new credit facility with GE contains certain financial and non-financial covenants. We were in compliance with all such covenants as of June 30, 2015.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

The MD&A is based on the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results might differ from these estimates under different assumptions or conditions and, to the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. During the three and six months ended June 30, 2015, there were no material changes to our critical accounting policies and use of estimates, which are disclosed in our audited consolidated financial statements for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K.

New Accounting Pronouncements

See Note 3, Summary of Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a description of new accounting pronouncements.

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations are solely in the United States (and United States Territories) (“U.S.”) and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and certain exposure, as well as risks, relating to changes in the general economic conditions in the U.S. We are exposed to interest rate fluctuations with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include the U.S. Prime Rate and LIBOR related to debt outstanding under our new credit facility. In the past, we used interest rate swaps to reduce the volatility of our financing costs and to achieve a desired proportion of fixed and floating-rate debt. We did not use its interest rate swaps for trading or other speculative purposes. We currently are not using any interest rate swaps, but may in the future.

ITEM 4. CONTROLS AND PROCEDURES

Limitations on Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods in the SEC’s rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15(d)-15(e) promulgated under the Exchange Act) as of June 30, 2015. Based on these evaluations, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures required by paragraph (b) of Rule 13a-15 or 15d-15 were effective as of June 30, 2015.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the second quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

We are subject to claims and lawsuits that arise primarily in the ordinary course of business. We believe that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 1A.RISK FACTORS

Except for the revised or additional risk factors included below, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the Securities and Exchange Commission on March 3, 2015.

Risks Related to Our Acquisitions of BioRx, LLC (“BioRx”) and Burman’s Apothecary, LLC (“Burman’s”)

Combining the companies may be more difficult, costly or time consuming than expected and the anticipated benefits of the acquisitions may not be realized.

Prior to the respective acquisition dates, we, BioRx and Burman’s operated independently. The success of the acquisitions, including anticipated benefits, will depend, in part, on our ability to successfully combine and integrate the businesses of BioRx and Burman’s with our business. It is possible that the integration process could result in the loss of key employees, higher than expected costs, diversion of management attention of the combined company, the disruption of our combined businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the acquisitions. If we experience difficulties with the integration process, the anticipated benefits of the acquisitions may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on the combined company for an undetermined period.

In connection with the acquisitions, we incurred significant additional indebtedness, which could adversely affect us, including by decreasing our business flexibility, and increasing our interest expense.

We have substantially increased indebtedness following the acquisitions in comparison to recent periods, which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our interest expense. We have also incurred various costs and expenses associated with the financing. The amount of cash required to pay interest and/or principal on our increased indebtedness levels following the acquisitions, and thus the demands on our cash resources, will be greater than the amount of cash flows required to service our indebtedness prior to the transactions. The increased levels of indebtedness following the acquisitions could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected benefits from the acquisitions, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

Moreover, we may be required to raise substantial additional funds to finance working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.

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The acquisitions involved substantial costs.

We, BioRx and Burman’s have incurred, and we expect to continue to incur, a number of non-recurring costs associated with the acquisitions and combining the operations of the companies. The substantial majority of non-recurring expenses were comprised of transaction and regulatory costs related to the acquisitions. We also will incur transaction fees and costs related to formulating and implementing integration plans, including purchasing and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the integration of the combined company’s business. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. See the risk factor entitled “Combining the companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the acquisitions may not be realized” above.

Sales of shares of our common stock after the expirations of the lock-up periods may cause the market price of our common stock to fall.

We issued approximately 4.0 million shares of our common stock upon the initial closing of the BioRx transaction, and may issue up to an additional 1.4 million shares of our common stock contingent upon BioRx’s achievement of a specified EBITDA-based target in the 12-month period following the closing. We issued approximately 0.3 million shares of our common stock upon the closing of the Burman’s transaction. Although all sellers are subject to a lock-up agreement preventing them from selling our common stock received at the closings for a period of at least six months following the respective closing dates, certain sellers may decide not to hold the shares of Company common stock they will receive in the acquisitions to the extent permitted. Other sellers, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of our common stock that they receive in the acquisitions as soon as permitted. Such sales of our common stock could have the effect of depressing the market price for our common stock and may take place promptly following the expiration of the respective lock-up periods, or promptly upon receipt with respect to the shares to be issued in the event the contingent consideration is earned.

Uncertainties associated with the acquisitions may cause a loss of our management personnel and other key employees, which could adversely affect the future business and operations of the combined company following the acquisitions.

We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plan. The combined company’s success will depend in part upon our ability to retain key management personnel and other key employees of the combined company. Our current and prospective employees may experience uncertainty about their future roles with the combined company following the acquisitions, which may materially adversely affect the ability of the combined company to attract and retain key personnel. Accordingly, no assurance can be given that the combined company will be able to retain key management personnel and other key employees of the combined company.

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ITEM 6.EXHIBITS

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Period Ending	Exhibit / Appendix Number	Filing Date
2	Membership Interest Purchase Agreement, dated June 19, 2015, by and among Diplomat Pharmacy, Inc., Burman’s Apothecary, L.L.C., and the other parties named therein		8-K		2.1	June 22, 2015
4	Registration Rights Agreement, dated April 1, 2015, by and among the Company and each shareholder named therein		8-K		4	April 6, 2015
10.1.1	Second Amended and Restated Credit Agreement, dated April 1, 2015, by and among the Company, each party thereto designated as a credit party, General Electric Capital Corporation, as agent and as lender, and the lenders from time to time party thereto		8-K		10.1	April 6, 2015
10.1.2	Consent to Acquisition, dated June 19, 2015, by and among Diplomat Pharmacy, Inc., the other credit parties party thereto, General Electric Capital Corporation, as agent and as lender, and the other lenders party thereto		8-K		10.1	June 22, 2015
10.2.1	Second Amended and Restated Guaranty and Security Agreement, dated April 1, 2015, by the Company and each other grantor party thereto in favor of General Electric Capital Corporation, as agent		8-K		10.2	April 6, 2015
10.2.2	Joinder Agreement to Guaranty and Security Agreement and Credit Agreement, dated June 19, 2015, by and among Burman’s Apothecary, L.L.C. and its wholly owned subsidiaries and accepted and agreed by Diplomat Pharmacy, Inc. and General Electric Capital Corporation, as agent		8-K		10.2	June 22, 2015
10.3	Form of Stock Option Award Agreement (Performance-Based)		8-K		10.1	June 9, 2015
10.4	Diplomat Pharmacy, Inc. Annual Performance Bonus Plan		8-K		10.2	June 9, 2015

35

31.1	Section 302 Certification — CEO	X
31.2	Section 302 Certification — CFO	X
32.1**	Section 906 Certification — CEO	X
32.2**	Section 906 Certification — CFO	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema Document	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase	X
101.LAB	XBRL Taxonomy Extension Label Linkbase	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	X

** 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.

36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, Secretary and Treasurer
	(Principal Financial Officer and Principal
	Accounting Officer)

Date:August 4, 2015

37

EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER’S 302 CERTIFICATION

I, Philip R. Hagerman, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Diplomat Pharmacy, Inc. (the “Company”) for the quarter ended June 30, 2015;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Intentionally omitted;

c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:August 4, 2015

By:	/s/ Philip R. Hagerman
	Philip R. Hagerman
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CHIEF FINANCIAL OFFICER’S 302 CERTIFICATION

I, Sean M. Whelan, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Diplomat Pharmacy, Inc. (the “Company”) for the quarter ended June 30, 2015;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Intentionally omitted.

c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:August 4, 2015

By:	/s/ Sean M. Whelan
	Sean M. Whelan
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Diplomat Pharmacy, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip R. Hagerman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:August 4, 2015

By:	/s/ Philip R. Hagerman
	Philip R. Hagerman
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Diplomat Pharmacy, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean M. Whelan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:August 4, 2015

By:	/s/ Sean M. Whelan
	Sean M. Whelan
	Chief Financial Officer

XML

INVESTMENT IN NON-CONSOLIDATED ENTITY (Details) $ in Thousands	1 Months Ended		2 Months Ended	6 Months Ended
	Jan. 31, 2014 USD ($)	Oct. 31, 2011 USD ($)	Dec. 31, 2013 USD ($) item	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Schedule of Equity Method Investments [Line Items]
Ownership percentage					25.00%
Cash consideration paid in installments				$ 500
Ageology
Schedule of Equity Method Investments [Line Items]
Ownership percentage		25.00%
Cash consideration paid in installments		$ 5,000
Secured promissory notes receivable	$ 500		$ 1,000
Interest rate of secured promissory notes receivable (as a percent)	8.00%		6.00%
Number of promissory notes receivable (in notes) | item			2
Ageology | Affiliated entity | Chief Executive Officer
Schedule of Equity Method Investments [Line Items]
Amount loaned					$ 7,050
Physician Resource Management, Inc.
Schedule of Equity Method Investments [Line Items]
Investment at cost						$ 3,500
Equity position						15.00%

XML

BUSINESS ACQUISITIONS (Details 2) - USD ($) $ in Thousands				6 Months Ended
	Jun. 19, 2015	Feb. 26, 2015	Jun. 27, 2014	Jun. 30, 2015	Jun. 30, 2014
Definite-lived intangible assets
Fair value of this contingent consideration liability change in amount				$ 5,169	$ 321
Maximum estimated contingent payout				5,750
Contingent consideration related charges				10,929
MedPro Rx, Inc.
Definite-lived intangible assets
Amount			$ 37,099
Total			$ 37,099
MedPro Rx, Inc. | Physician relationships
Definite-lived intangible assets
Useful Life			7 years
Amount			$ 24,000
MedPro Rx, Inc. | Trade names and trademarks
Definite-lived intangible assets
Useful Life			10 years
Amount			$ 8,700
MedPro Rx, Inc. | Non-compete employment agreements
Definite-lived intangible assets
Useful Life			5 years
Amount			$ 4,399
Burman's Apothecary, LLC
Definite-lived intangible assets
Amount	$ 24,400
Total	$ 24,400
Burman's Apothecary, LLC | Physician relationships
Definite-lived intangible assets
Useful Life	12 years
Amount	$ 16,000
Burman's Apothecary, LLC | Non-compete employment agreements
Definite-lived intangible assets
Useful Life	5 years
Amount	$ 5,700
Burman's Apothecary, LLC | Favorable supply agreement
Definite-lived intangible assets
Useful Life	1 year
Amount	$ 2,700
BioRx, LLC
Definite-lived intangible assets
Amount		$ 182,000
Total		$ 182,000
Fair value of this contingent consideration liability change in amount				$ 41,000
BioRx, LLC | Physician relationships
Definite-lived intangible assets
Useful Life		10 years
Amount		$ 130,000
BioRx, LLC | Trade names and trademarks
Definite-lived intangible assets
Useful Life		8 years
Amount		$ 12,300
BioRx, LLC | Non-compete employment agreements
Definite-lived intangible assets
Useful Life		5 years
Amount		$ 39,700

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2015

GOODWILL AND OTHER INTANGIBLE ASSETS

Schedule of changes in the carrying amount of goodwill

Balance at January 1, 2015	$	23,148
BioRx acquisition	183,630
Burman’s acquisition	43,766
Balance at June 30, 2015	$	250,544

Schedule of definite-lived intangible assets

	June 30, 2015							December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	159,100	$	(7,796	)	$	151,304	$	29,100	$	(2,895	)	$	26,205
Non-compete employment agreements	50,399		(3,092		)	47,307		4,999		(560		)	4,439
Trade names and trademarks	22,400		(1,464		)	20,936		10,100		(575		)	9,525
Physician relationships	16,000		(56		)	15,944		—		—			—
Software licensing agreement	2,647		—			2,647		2,647		—			2,647
Favorable supply agreement	2,700		(113		)	2,587		—		—			—
Customer relationships	2,157		—			2,157		2,157		—			2,157
	$	255,403	$	(12,521	)	$	242,882	$	49,003	$	(4,030	)	$	44,973

XML

SHARE-BASED COMPENSATION (Details 2) $ / shares in Units, $ in Thousands	1 Months Ended				3 Months Ended			6 Months Ended
	Jun. 30, 2015 item $ / shares shares	Mar. 31, 2015 USD ($)	Apr. 30, 2014 USD ($) shares	Jan. 31, 2014 USD ($) shares	Jun. 30, 2015 USD ($) $ / shares	Dec. 31, 2014 shares	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($) $ / shares shares	Jun. 30, 2014 USD ($)
Additional disclosures
Cash consideration to repurchase stock options								$ 36,298	$ 9,400
2014 Plan
Assumptions used to determine the valuation of granted options
Expected dividend yield (as a percent)								0.00%
Expected life								6 years 3 months
Maximum | 2014 Plan
Assumptions used to determine the valuation of granted options
Exercise price of options | $ / shares	$ 44.39				$ 44.39			$ 44.39
Expected volatility (as a percent)								26.70%
Risk-free interest rate for the estimated expected term (as a percent)								2.01%
Minimum | 2014 Plan
Assumptions used to determine the valuation of granted options
Exercise price of options | $ / shares	$ 39.26				$ 39.26			$ 39.26
Expected volatility (as a percent)								26.21%
Risk-free interest rate for the estimated expected term (as a percent)								1.84%
Stock options
Share-based compensation
Granted (in shares) | shares	885,543							885,543
Granted (in dollars per share) | $ / shares	$ 12.46
Additional disclosures
Total compensation expense					$ 632		$ 873	$ 1,157	$ 1,135
Repurchased (in shares)								(1,641,387)
Stock options redeemed to buy shares from certain current and former employees | shares			183,993	239,768
Cash consideration for redeemed stock options			$ 2,300	$ 3,100
Incremental compensation expense			$ 0	$ 0
Stock options | 2007 Stock Option Plan
Additional disclosures
Repurchased (in shares)		1,641,387
Cash consideration to repurchase stock options		$ 36,298
Incremental compensation expense		$ 0
Performance-based stock options | 2014 Plan
Share-based compensation
Granted (in shares) | shares	391,043
Percentage of options exercisable in installments beginning on the first anniversary of the grant date and each of the three anniversaries thereafter	25.00%
Maximum term of stock option plan	10 years
Number of installments for vesting | item	4
Service-based stock options | 2014 Plan
Share-based compensation
Granted (in shares) | shares	494,500
Percentage of options exercisable in installments beginning on the first anniversary of the grant date and each of the three anniversaries thereafter	25.00%
Number of anniversary dates upon which options become exercisable	3
Maximum term of stock option plan	10 years
Restricted Stock Awards
Additional disclosures
Granted (in shares) | shares						8,277
Total compensation expense					$ 38			$ 75

XML

INVENTORIES (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
INVENTORIES
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$ 159,266	$ 110,464
Raw materials	187	208
Finished goods	9	11
Total inventories	$ 159,462	$ 110,683

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

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

All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

Revenue Recognition

The Company recognizes revenue from prescription drug sales for home delivery at the time the drugs are shipped. At the time of shipment, the Company has performed substantially all of its obligations under its payor contracts and does not experience a significant level of returns or reshipments. If the Company administers a drug treatment regimen in a patient’s home, the Company recognizes revenue at time of administration. Revenues from dispensing specialty prescriptions that are picked up by patients at an open door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drug sales were $802,605 and $538,989 for the three months ended June 30, 2015 and 2014, respectively, and $1,424,327 and $1,001,787 for the six months ended June 30, 2015 and 2014, respectively.

The Company recognizes revenue from service, data and consulting services when the services have been performed and the earnings process is therefore complete. Revenues generated from service, data and consulting services were $5,406 and $2,686 for the three months ended June 30, 2015 and 2014, respectively, and $8,567 and $5,565 for the six months ended June 30, 2015 and 2014, respectively.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (Topic 606), which will supersede the existing revenue recognition guidance under U.S. GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this ASU by one year to annual reporting periods beginning after December 15, 2017 for public entities. This ASU may be applied either retrospectively or as a cumulative effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is currently assessing the method under which it will adopt and the potential impact of adopting this ASU on its financial position, results of operations, cash flows and/or disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Targets Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. An entity should apply this new guidance on a retrospective basis and is required to comply with applicable disclosures for a change in an accounting principle. This standard may result in a balance sheet reclassification and require related disclosure revisions in the Company’s financial statements.

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

XML

INCOME TAXES (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2014	Jan. 23, 2014
INCOME TAXES
Net deferred income tax liability		$ 2,965
Effective tax rate	57.50%

XML

BASIS OF PRESENTATION (Details) - USD ($) $ in Thousands	1 Months Ended
	Oct. 31, 2014	Jan. 23, 2014
Stock Split
Number of shares issued as stock dividend (in shares)	8,500
Effect of Conversion from S Corporation to C Corporation
Net deferred income tax liability		$ 2,965

XML

DESCRIPTION OF BUSINESS (Details) $ / shares in Units, $ in Thousands	1 Months Ended		6 Months Ended
	Mar. 31, 2015 USD ($) $ / shares shares	Oct. 31, 2014 USD ($) $ / shares shares	Jun. 30, 2015 USD ($) segment location $ / shares	Dec. 31, 2014 $ / shares
DESCRIPTION OF BUSINESS
Number of pharmacy locations | location			16
Number of reportable segments | segment			1
Initial Public Offering [Line Items]
Proceeds from follow-on public offering, net of transaction costs			$ 187,271
Number of newly authorized shares issued upon conversion (in shares) | shares		1
Common shares, par value (in dollars per share) | $ / shares		$ 0.00	$ 0.00	$ 0.00
Borrowings under the revolving line of credit			$ 70,994
Initial Public Offering
Initial Public Offering [Line Items]
Number of shares of common stock sold (in shares) | shares		15,333,333
Number of shares sold by the Company (in shares) | shares		11,000,000
Number of shares of stock sold by the existing shareholders (in shares) | shares		4,333,333
Public offering price (in dollars per share) | $ / shares		$ 13.00
Net proceeds from initial public offering		$ 130,440
Underwriting discounts and commissions		9,652
Other offering expenses		2,908
Net proceeds used for debt payments		80,458
Existing indebtedness to certain current or former shareholders and employees		19,824
Amount of borrowings repaid under the revolving line of credit		$ 60,634
Follow-On Public Offering
Initial Public Offering [Line Items]
Number of shares of common stock sold (in shares) | shares	9,821,125
Number of shares sold by the Company (in shares) | shares	6,821,125
Number of shares of stock sold by the existing shareholders (in shares) | shares	3,000,000
Public offering price (in dollars per share) | $ / shares	$ 29.00
Proceeds from follow-on public offering, net of transaction costs	$ 187,271
Underwriting discounts and commissions	9,891
Other offering expenses	652
Net proceeds used to repurchase stock options	$ 36,298

XML

REDEEMABLE CAPITAL STOCK (Details) $ / shares in Units, $ in Thousands	1 Months Ended			3 Months Ended	6 Months Ended
	Oct. 31, 2014 $ / shares shares	Apr. 30, 2014 USD ($) $ / shares shares	Jan. 31, 2014 USD ($) $ / shares shares	Jun. 30, 2014 USD ($)	Jun. 30, 2015 shareholder $ / shares shares	Jun. 30, 2014 USD ($)	Dec. 31, 2014 $ / shares shares
Redeemable capital stock
Number of newly authorized shares issued upon conversion (in shares) | shares	1
Common shares, par value (in dollars per share) | $ / shares	$ 0.00				$ 0.00		$ 0.00
Stock issued to shareholders several years prior to IPO (in shares) | shares					63,613,867		51,457,023
Change on fair value of redeemable shares				$ 957		$ 957
Amount used for holders of options to acquire common stock						$ 53,400
Two shareholders
Redeemable capital stock
Stock issued to shareholders several years prior to IPO (in shares) | shares					11,050,000
Number of shareholders to whom common stock is issued several years prior to IPO (in shareholders) | shareholder					2
Series A Preferred | T.Rowe Price
Redeemable capital stock
Series A Preferred Stock, issued (in shares) | shares			2,986,229
Share price (in dollars per share) | $ / shares			$ 16.74
Proceeds from issuance of preferred stock			$ 50,000
Amount used for general corporate expenses			20,000
Remaining amount used for distribution to existing holders			30,000
Amount used for distribution to existing holders of common stock			26,900
Amount used for holders of options to acquire common stock			$ 3,100
Series A Preferred | Janus
Redeemable capital stock
Series A Preferred Stock, issued (in shares) | shares		3,225,127
Share price (in dollars per share) | $ / shares		$ 16.74
Proceeds from issuance of preferred stock		$ 54,000
Amount used for general corporate expenses		25,200
Remaining amount used for distribution to existing holders		28,800
Amount used for distribution to existing holders of common stock		26,500
Amount used for holders of options to acquire common stock		$ 2,300

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Aug. 28, 2014
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%
Ownership interest (as a percent)	20.00%
Debt Issuance Costs
Net debt issuance costs	$ 5,681	$ 921
Primrose
Principles of Consolidation
Percentage of interest in a non-consolidated entity			51.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenue recognition
Revenues from service, data and consulting services	$ 5,406	$ 2,686	$ 8,567	$ 5,565
Prescription Drugs
Revenue recognition
Revenues	$ 802,605	$ 538,989	$ 1,424,327	$ 1,001,787

XML

BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2015

BASIS OF PRESENTATION

BASIS OF PRESENTATION

2.BASIS OF PRESENTATION

Interim Unaudited Condensed Consolidated Financial Statements

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

Stock Split

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

Effect of Conversion from S Corporation to C Corporation

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

Reclassifications

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

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BUSINESS ACQUISITIONS (Details) $ / shares in Units, $ in Thousands					3 Months Ended		6 Months Ended
	Jun. 19, 2015 USD ($) shares	Jun. 18, 2015 $ / shares	Feb. 26, 2015 USD ($) shares	Jun. 27, 2014 USD ($) shares	Jun. 30, 2015 USD ($)	Mar. 31, 2015 USD ($) $ / shares	Jun. 30, 2015 USD ($) segment	Dec. 31, 2014 USD ($)
Business acquisition
Number of acquitisions not treated as asset purchase for tax purposes | segment							1
Contingent consideration fair value					$ 5,179		$ 5,179	$ 5,409
Summary of the preliminary fair value determination of the acquired assets and liabilities
Goodwill					250,544		250,544	$ 23,148
Burman's Apothecary, LLC
Business acquisition
Cash at closing	$ 84,296
Restricted common shares	9,578
Total	$ 93,874
Restricted common shares (in shares) | shares	253,036
Market price (in dollars per share) | $ / shares		$ 42.06
Market price multiplier to factor in restricted nature of the shares (as a percent)		90.00
Acquisition-related costs charged to Selling, general, and administrative expenses					204		204
Acquisition costs					$ 204		204
Summary of the preliminary fair value determination of the acquired assets and liabilities
Accounts receivable, net	$ 17,274
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	49
Capitalized software for internal use	18,000
Intangible assets	24,400
Current liabilities	(25,797)
Total identifiable net assets	50,108
Goodwill	43,766
Definite-lived intangible assets	24,400
Total acquisition price	93,874
BioRx, LLC
Business acquisition
Cash at closing			$ 217,467
Restricted common shares			125,697
Contingent consideration fair value			37,000
Receivable for estimated post-closing adjustment			(619)
Total			$ 379,545
Restricted common shares (in shares) | shares			4,038,853
Market price (in dollars per share) | $ / shares						$ 34.58
Market price multiplier to factor in restricted nature of the shares (as a percent)						90.00
Number of additional restricted Company shares to be issued upon achievement of EBITDA-based metric (in shares) | shares			1,350,309
Number of principal employees whose termination will trigger maximum contingent payout			2
Acquisition-related costs charged to Selling, general, and administrative expenses						$ 283	1,354
Acquisition costs						$ 283	$ 1,354
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash and cash equivalents			$ 1,786
Accounts receivable, net			42,131
Inventories			5,546
Prepaid expenses and other current assets			669
Property and equipment			494
Other noncurrent assets			162
Intangible assets			182,000
Liabilities			(36,873)
Total identifiable net assets			195,915
Goodwill			183,630
Definite-lived intangible assets			182,000
Total acquisition price			379,545
BioRx, LLC | Subsidiary
Business acquisition
Number of acquitisions not treated as asset purchase for tax purposes | segment							1
MedPro Rx, Inc.
Business acquisition
Cash at closing				$ 52,267
Restricted common shares				12,000
Contingent consideration fair value				4,270
Total				$ 68,537
Restricted common shares (in shares) | shares				716,695
Maximum payout of contingent consideration				$ 11,500
Purchase consideration deposited into an escrow account				$ 3,503
Deposit term into an escrow account				2 years
External lease term				5 years
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash and cash equivalents				$ 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
Intangible assets				37,099
Current liabilities				(4,660)
Total identifiable net assets				(46,902)
Goodwill				21,635
Definite-lived intangible assets				37,099
Total acquisition price				68,537
Trade names and trademarks | BioRx, LLC
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets			12,300
Trade names and trademarks | MedPro Rx, Inc.
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets				8,700
Non-compete employment agreements | Burman's Apothecary, LLC
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 5,700
Non-compete employment agreements | BioRx, LLC
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets			$ 39,700
Non-compete employment agreements | MedPro Rx, Inc.
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets				$ 4,399

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DEBT (Details) - USD ($) $ in Thousands		1 Months Ended	6 Months Ended
	Apr. 01, 2015	Oct. 31, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2013	Jul. 20, 2012
Line of credit | GE
Debt
Maximum borrowing capacity	$ 175,000			$ 120,000	$ 85,000	$ 60,000
Letters of credit | GE
Debt
Maximum borrowing capacity				10,000
Deferred draw term loan | GE
Debt
Maximum borrowing capacity	25,000
Deferred financing costs	5,131
Term Loan A | GE
Debt
Maximum borrowing capacity	$ 120,000
Swing loans | GE
Debt
Maximum borrowing capacity				$ 15,000
Minimum | Line of credit
Debt
Monthly unused commitment fee (as a percent)			0.25%
Maximum | Line of credit
Debt
Monthly unused commitment fee (as a percent)			0.50%
Initial Public Offering
Debt
Existing indebtedness to certain current or former shareholders and employees		$ 19,824
Amount of borrowings repaid under the revolving line of credit		$ 60,634
Base Rate | Line of credit | GE
Debt
Variable rate basis			Base Rate
Interest rate margin (as a percent)			1.75%
LIBOR | Line of credit | GE
Debt
Variable rate basis			LIBOR
Interest rate margin (as a percent)			0.25%

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 17,305	$ 17,957
Accounts receivable, net	257,913	155,273
Inventories	159,462	110,683
Deferred income taxes	2,168	1,813
Prepaid expenses and other current assets	15,886	5,360
Total current assets	452,734	291,086
Property and equipment, net	14,187	13,150
Capitalized software for internal use, net	35,417	13,236
Goodwill	250,544	23,148
Intangible assets, net	242,882	44,973
Investment in non-consolidated entity	3,500	3,500
Deferred debt issuance costs	5,681	921
Other noncurrent assets	234	72
Total assets	1,005,179	390,086
Current liabilities:
Accounts payable	265,565	202,495
Borrowings on line of credit	70,994
Short-term debt, including current portion of long-term debt	6,000
Accrued expenses:
Contingent consideration	47,681	6,282
Compensation and benefits	5,682	2,257
Other	6,142	4,394
Total current liabilities	402,064	215,428
Long-term debt, less current portion	114,000
Contingent consideration, less current portion	5,179	5,409
Deferred income taxes	11,081	518
Other noncurrent liabilities		4
Total liabilities	$ 532,324	$ 221,359
Commitments and contingencies
Shareholders' equity:
Preferred stock (10,000,000 shares authorized; none issued and outstanding)
Common stock (no par value; 590,000,000 shares authorized; 63,613,867 and 51,457,023 issued and outstanding at June 30, 2015 and December 31, 2014, respectively)	$ 445,280	$ 148,901
Additional paid-in capital	11,857	9,893
Retained earnings	11,603	5,354
Total Diplomat Pharmacy shareholders' equity	468,740	164,148
Noncontrolling interests	4,115	4,579
Total shareholders' equity	472,855	168,727
Total liabilities and shareholders' equity	$ 1,005,179	$ 390,086

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INCOME PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Preferred shares portions of net income (as a percent)		18.00%		12.00%
Net income attributable to Diplomat Pharmacy, Inc.	$ 3,390	$ 1,675	$ 6,249	$ 3,365
Less net income allocable to preferred shareholders		299		401
Net income allocable to common shareholders	$ 3,390	$ 1,376	$ 6,249	$ 2,964
Weighted average common shares outstanding, basic (in shares)	62,610,850	30,748,750	57,279,670	31,400,210
Weighted average dilutive effect of stock options and restricted stock awards	2,184,512	2,555,278	2,565,950	2,700,910
Weighted average common shares outstanding, diluted (in shares)	64,795,362	33,304,028	59,845,620	34,101,120
Net income per common share:
Basic (in dollars per share)	$ 0.05	$ 0.04	$ 0.11	$ 0.09
Diluted (in dollars per share)	$ 0.05	$ 0.04	$ 0.10	$ 0.09
Contingent consideration
Net income per common share:
Anti-dilutive options excluded (in shares)	1,350,309		1,350,309
Performance-based stock options
Net income per common share:
Anti-dilutive options excluded (in shares)	678,234	871,293	678,234	871,293
Service-based stock options
Net income per common share:
Anti-dilutive options excluded (in shares)	494,500	679,629	494,500	679,629

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Condensed Consolidated Statements of Changes in Stockholders' Equity - 6 months ended Jun. 30, 2015 - USD ($) $ in Thousands	BioRx, LLC Diplomat Pharmacy, Inc. Shareholders' Equity	BioRx, LLC Common stock	BioRx, LLC	Burman's Apothecary, LLC Diplomat Pharmacy, Inc. Shareholders' Equity	Burman's Apothecary, LLC Common stock	Burman's Apothecary, LLC	Additional Paid-in Capital	Retained Earnings	Diplomat Pharmacy, Inc. Shareholders' Equity	Noncontrolling Interest	Common stock	Total
Balance at the beginning of the period at Dec. 31, 2014							$ 9,893	$ 5,354	$ 164,148	$ 4,579	$ 148,901	$ 168,727
Balance at the beginning of the period (in shares) at Dec. 31, 2014											51,457,023	51,457,023
Changes in shareholders' deficit
Net income								6,249	6,249	(464)		$ 5,785
Issuance of common stock as partial consideration in acquisition	$ 125,697	$ 125,697	$ 125,697	$ 9,578	$ 9,578	$ 9,578
Issuance of common stock as partial consideration in acquisition (in shares)		4,038,853			253,036
Proceeds from public offering, net of issuance costs									187,271		$ 187,271	187,271
Proceeds from public offering, net of issuance costs (in shares)											6,821,125
Repurchase of stock options							(2,104)		(36,298)		$ (34,194)	(36,298)
Excess tax benefits related to share-based awards							4,983		4,983			4,983
Share-based compensation expense							1,232		1,232			1,232
Stock issued upon stock option exercises							(2,147)		5,880		$ 8,027	5,880
Stock issued upon stock option exercises (in shares)											1,043,830
Balance at the end of the period at Jun. 30, 2015							$ 11,857	$ 11,603	$ 468,740	$ 4,115	$ 445,280	$ 472,855
Balance at the end of the period (in shares) at Jun. 30, 2015											63,613,867	63,613,867

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FAIR VALUE MEASUREMENTS (Details) - Recurring - Contingent consideration - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Fair value measurements
Asset (Liability)	$ (52,860)	$ (11,691)
Level 3
Fair value measurements
Asset (Liability)	$ (52,860)	$ (11,691)

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BUSINESS ACQUISITIONS (Tables)

6 Months Ended

Jun. 30, 2015

Business acquisition

Schedule of unaudited pro forma results of operations

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net sales	$	913,199	$	730,414	$	1,709,610	$	1,322,128
Net income attributable to Diplomat Pharmacy, Inc.	$	8,090	$	2,899	$	15,567	$	4,106
Net income per common share — basic	$	0.13	$	0.08	$	0.26	$	0.11
Net income per common share — diluted	$	0.12	$	0.08	$	0.25	$	0.11

Burman's Apothecary, LLC

Business acquisition

Schedule of consideration transferred

Cash	$	84,296
253,036 restricted common shares	9,578
	$	93,874

Summary of the amounts of identifiable acquired assets and assumed liabilities

Accounts receivable	$	17,274
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	49
Capitalized software for internal use	18,000
Intangible assets	24,400
Current liabilities	(25,797		)
Total identifiable net assets	50,108
Goodwill	43,766
	$	93,874

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

	Useful Life	Amount
Physician relationships	12 years	$	16,000
Non-compete employment agreements	5 years	5,700
Favorable supply agreement	1 year	2,700
		$	24,400

BioRx, LLC

Business acquisition

Schedule of consideration transferred

Cash at closing	$	217,467
4,038,853 restricted common shares	125,697
Contingent consideration at fair value	37,000
Receivable for estimated post-closing adjustment	(619		)
	$	379,545

Summary of the amounts of identifiable acquired assets and assumed liabilities

Cash and cash equivalents	$	1,786
Accounts receivable	42,131
Inventories	5,546
Prepaid expenses and other current assets	669
Property and equipment	494
Other noncurrent assets	162
Intangible assets	182,000
Liabilities	(36,873		)
Total identifiable net assets	195,915
Goodwill	183,630
	$	379,545

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

	Useful Life	Amount
Patient relationships	10 years	$	130,000
Non-compete employment agreements	5 years	39,700
Trade names and trademarks	8 years	12,300
		$	182,000

MedPro Rx, Inc.

Business acquisition

Schedule of consideration transferred

Cash	$	52,267
716,695 restricted common shares	12,000
Contingent consideration at fair value	4,270
	$	68,537

Summary of the amounts of identifiable acquired assets and assumed liabilities

Cash and cash equivalents	$	668
Accounts receivable	9,050
Inventories	3,819
Prepaid expenses and other current assets	204
Property and equipment	697
Capitalized software for internal use	25
Intangible assets	37,099
Current liabilities	(4,660		)
Total identifiable net assets	46,902
Goodwill	21,635
	$	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

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FAIR VALUE MEASUREMENTS (Details 2) - Level 3 - Contingent consideration $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($)
Level 3 measurements
Balance at beginning of the period	$ (11,691)
BioRx acquisition	(37,000)
Change in fair value	(5,169)
Payment	1,000
Balance at end of the period	$ (52,860)

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INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2015

INVENTORIES

Schedule of inventories

	June 30,		December 31,
	2015		2014
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$	159,266	$	110,464
Raw materials	187		208
Finished goods	9		11
	$	159,462	$	110,683

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DESCRIPTION OF BUSINESS

6 Months Ended

Jun. 30, 2015

DESCRIPTION OF BUSINESS

DESCRIPTION OF BUSINESS

1.DESCRIPTION OF BUSINESS

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

Initial Public Offering

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

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

Follow-On Public Offering

In March 2015, the Company completed a follow-on public offering in which 9,821,125 shares of common stock were sold at a public offering price of $29.00 per share. The Company sold 6,821,125 shares of common stock and certain shareholders sold 3,000,000 shares of common stock. The Company did not receive any proceeds from the sale of common stock by the shareholders. The Company received net proceeds of $187,271 after deducting underwriting discounts and commissions of $9,891, and other offering expenses of $652. The Company used $36,298 of the net proceeds to repurchase options to purchase common stock held by a number of current and former employees, including certain executive officers, with the remainder of the proceeds used to pay a portion of the cash consideration for the BioRx, LLC (“BioRx”) acquisition (Note 4). The purchase price for each stock option repurchased was based on the public offering price per share, net of the underwriting discount and exercise price.

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
Condensed Consolidated Balance Sheets
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common shares, par value (in dollars per share)	$ 0.00	$ 0.00
Common shares, authorized shares	590,000,000	590,000,000
Common shares, issued shares	63,613,867	51,457,023
Common shares, outstanding shares	63,613,867	51,457,023

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INCOME TAXES

6 Months Ended

Jun. 30, 2015

INCOME TAXES

INCOME TAXES

11.INCOME TAXES

As disclosed in Note 2, the Company changed its income tax status from an S corporation to a C corporation on January 23, 2014. Accordingly, on that date, the Company recorded a net deferred income tax liability of $2,965 and a corresponding charge to deferred income tax expense. This adoption impact, net of the impact of S corporation earnings from January 1, 2014 to January 22, 2014 which were not tax affected, resulted in a 57.5% effective tax rate for the six months ended June 30, 2014.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 31, 2015
Document and Entity Information
Entity Registrant Name	Diplomat Pharmacy, Inc.
Entity Central Index Key	0001610092
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		63,643,867
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

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CONTINGENCIES

6 Months Ended

Jun. 30, 2015

CONTINGENCIES

CONTINGENCIES

12.CONTINGENCIES

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

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Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Condensed Consolidated Statements of Operations
Net sales	$ 808,011	$ 541,675	$ 1,432,894	$ 1,007,352
Cost of products sold	(738,342)	(512,107)	(1,322,083)	(948,275)
Gross profit	69,669	29,568	110,811	59,077
Selling, general and administrative expenses	(62,474)	(27,485)	(98,777)	(51,024)
Income from operations	7,195	2,083	12,034	8,053
Other income (expense):
Interest expense	(1,903)	(365)	(2,224)	(895)
Change in fair value of redeemable common shares		957		957
Equity loss of non-consolidated entity		(309)		(710)
Other	75	49	179	517
Total other (expense) income	(1,828)	332	(2,045)	(131)
Income before income taxes	5,367	2,415	9,989	7,922
Income tax expense	(2,254)	(740)	(4,204)	(4,557)
Net income	3,113	1,675	5,785	3,365
Less net loss attributable to noncontrolling interest	(277)		(464)
Net income attributable to Diplomat Pharmacy, Inc.	3,390	1,675	6,249	3,365
Net income allocable to preferred shareholders		299		401
Net income allocable to common shareholders	$ 3,390	$ 1,376	$ 6,249	$ 2,964
Net income per common share:
Basic (in dollars per share)	$ 0.05	$ 0.04	$ 0.11	$ 0.09
Diluted (in dollars per share)	$ 0.05	$ 0.04	$ 0.10	$ 0.09
Weighted average common shares outstanding:
Basic (in shares)	62,610,850	30,748,750	57,279,670	31,400,210
Diluted (in shares)	64,795,362	33,304,028	59,845,620	34,101,120

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INVENTORIES

6 Months Ended

Jun. 30, 2015

INVENTORIES

INVENTORIES

6.INVENTORIES

Inventories consist of the following:

	June 30,		December 31,
	2015		2014
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$	159,266	$	110,464
Raw materials	187		208
Finished goods	9		11
	$	159,462	$	110,683

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

5.FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

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

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

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

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

	Asset /						Valuation
	(Liability)			Level 3			Technique
June 30, 2015:
Contingent consideration	$	(52,860	)	$	(52,860	)	C
December 31, 2014:
Contingent consideration	$	(11,691	)	$	(11,691	)	C

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

	Contingent Consideration
Balance at January 1, 2015	$	(11,691	)
BioRx acquisition	(37,000		)
Change in fair value	(5,169		)
Payment	1,000
Balance at June 30, 2015	$	(52,860	)

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.

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS

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

	Asset /						Valuation
	(Liability)			Level 3			Technique
June 30, 2015:
Contingent consideration	$	(52,860	)	$	(52,860	)	C
December 31, 2014:
Contingent consideration	$	(11,691	)	$	(11,691	)	C

Schedule of a roll forward of the Level 3 measurements

	Contingent Consideration
Balance at January 1, 2015	$	(11,691	)
BioRx acquisition	(37,000		)
Change in fair value	(5,169		)
Payment	1,000
Balance at June 30, 2015	$	(52,860	)

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REDEEMABLE CAPITAL STOCK

6 Months Ended

Jun. 30, 2015

REDEEMABLE CAPITAL STOCK

REDEEMABLE CAPITAL STOCK

13.REDEEMABLE CAPITAL STOCK

Several years prior to its IPO, the Company issued 11,050,000 shares of common stock to two shareholders that had certain redemption features which provided that upon the death of the shareholder or termination of his employment from the Company, all such outstanding shares owned by such shareholder would immediately be deemed to be offered for sale to the Company at an agreed-upon price meant to represent the then-current fair value of such shares. Due to this repurchase feature, the Company would be required to purchase the shares. Pursuant to this provision, the common shares were deemed to be mandatorily redeemable and, as such, were required to be reflected as a liability at their period end estimated fair value. Fair value was determined based on good faith estimates of the Company’s Board of Directors, in some cases with the assistance of independent third party valuations of the Company. The Company recognized a $957 “Change in fair value of redeemable shares” during the three and six months ended June 30, 2014.

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

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

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

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DEBT

6 Months Ended

Jun. 30, 2015

DEBT

DEBT

9.DEBT

On July 20, 2012, the Company entered into a credit facility (“facility”) with General Electric Capital Corporation (“GE”) that provided for borrowings under a line of credit of up to $60,000. In 2013, the facility was amended to increase the commitment under the line of credit to $85,000. In June 2014, the facility was further amended to increase the commitment under the line of credit to $120,000. On April 1, 2015, in connection with the BioRx acquisition, the Company entered into a Second Amended and Restated Credit Agreement with GE, as agent and as a lender, the other lenders party thereto and the other credit parties party thereto, providing for an increase in the Company’s line of credit to $175,000, a fully drawn Term Loan A for $120,000 and a deferred draw term loan for an additional $25,000 (the “new credit facility”). The new credit facility also extended the maturity date to April 1, 2020. The new credit facility provides for the issuance of letters of credit up to $10,000 and swingline loans up to $15,000, the issuance and incurrence of which will reduce the availability of the line of credit. The new credit facility is guaranteed by substantially all of the Company’s subsidiaries and is collateralized by substantially all of the Company’s and its subsidiaries’ respective assets, with certain exceptions. In addition, the Company has pledged the equity of substantially all of its subsidiaries as security for the obligations under the new credit facility. The Company is required to maintain a depository bank account where money is collected and swept directly to the line of credit.

The new credit facility provides two interest rate options, (i) LIBOR (as defined) plus 2.75% or (ii) Base Rate (as defined) plus 1.75%, provided, however, that the interest rate may adjust downward only, by as much as 0.25%, beginning September 2015 based on changes in the Company’s leverage ratio. In addition, the Company is charged a monthly unused commitment fee ranging from 0.25% to 0.50% on the average unused daily balance.

The Company incurred deferred financing costs of $5,131 associated with the new credit facility, which were capitalized in “Deferred debt issuance costs” on the condensed consolidated balance sheet. These costs, along with previously unamortized deferred debt issuance costs, are being amortized to interest expense over the term of the new credit facility.

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

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

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GOODWILL AND OTHER INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2015

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

7.GOODWILL AND OTHER INTANGIBLE ASSETS

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

Balance at January 1, 2015	$	23,148
BioRx acquisition	183,630
Burman’s acquisition	43,766
Balance at June 30, 2015	$	250,544

At June 30, 2015 and December 31, 2014, definite-lived intangible assets consist of the following:

	June 30, 2015							December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	159,100	$	(7,796	)	$	151,304	$	29,100	$	(2,895	)	$	26,205
Non-compete employment agreements	50,399		(3,092		)	47,307		4,999		(560		)	4,439
Trade names and trademarks	22,400		(1,464		)	20,936		10,100		(575		)	9,525
Physician relationships	16,000		(56		)	15,944		—		—			—
Software licensing agreement	2,647		—			2,647		2,647		—			2,647
Favorable supply agreement	2,700		(113		)	2,587		—		—			—
Customer relationships	2,157		—			2,157		2,157		—			2,157
	$	255,403	$	(12,521	)	$	242,882	$	49,003	$	(4,030	)	$	44,973

On August 28, 2014, the Company and two unrelated third party entities entered into a contribution agreement to form a new company, Primrose Healthcare, LLC (“Primrose”). Primrose functions as a management company, managing a network of physicians and medical professionals providing continuum care for patients infected with the Hepatitis C virus. The Company has committed to contributing $5,000 for its 51% interest, of which $3,000 was contributed in 2014 with the remaining $2,000 being contributed during the six months ended June 30, 2015. The unrelated third party entities contributed a software licensing agreement valued at $2,647 and intellectual property valued at $2,157. No amortization related to these intangibles has been recorded as the entity has yet to recognize any revenue.

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INVESTMENT IN NON-CONSOLIDATED ENTITIES

6 Months Ended

Jun. 30, 2015

INVESTMENT IN NON-CONSOLIDATED ENTITIES

INVESTMENT IN NON-CONSOLIDATED ENTITIES

8.INVESTMENT IN NON-CONSOLIDATED ENTITIES

In October 2011, the Company purchased a 25% minority interest in WorkSmartMD, L.L.C., also known as Ageology, for $5,000 of cash consideration, which was paid in installments during 2011, 2012 and 2013. During November and December 2013, the Company entered into two $1,000 6% per annum interest-bearing promissory notes receivable from Ageology. During January 2014, the Company entered into a $500, 8% per annum interest bearing secured promissory note receivable from Ageology. The notes are due on demand and secured by all personal property and fixtures owned by Ageology. In addition, in transactions unrelated to the Company, an affiliated entity owned by the Company’s chief executive officer has personally loaned $7,050 to Ageology as of June 30, 2015.

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

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

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SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2015

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

10.SHARE-BASED COMPENSATION

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

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	Of Options		Price		Life	Value
					(Years)
Outstanding at December 31, 2014	7,217,331		$	7.54	6.9	$	142,262
Granted	885,543		40.66
Repurchased	(1,641,387	)	5.44
Exercised	(1,043,830	)	5.63
Expired/cancelled	(641,392	)	16.44
Outstanding at June 30, 2015	4,776,265		$	13.63	7.8	$	149,207
Exercisable at June 30, 2015	1,421,806		$	4.19	5.8	$	57,836

The Company granted service-based awards of 494,500 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan during June 2015. The options become exercisable in installments of 25% per year, beginning on the first anniversary of the grant date and each of the three anniversaries thereafter, and have a maximum term of ten years. The Company also granted performance-based awards of 391,043 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan during June 2015. Such options will be earned or forfeited based upon the Company’s performance relative to specified revenue and adjusted earnings before interest, taxes, depreciation and amortization goals for the year ended December 31, 2015. The earned options, if any, will vest in four installments of 25%, with the first installment vesting upon Audit Committee confirmation of the satisfaction of the applicable performance goals, and the remaining installments vesting annually thereafter. These options also have a maximum term of ten years.

The 885,543 options to purchase common stock that were granted during June 2015 and that are described in the above paragraph have a weighted average grant date fair value of $12.46 per option. The grant-date fair values of these stock option awards were estimated using the Black-Scholes-Merton option pricing model using the assumptions set forth in the following table:

Exercise price	$39.26 - $44.39
Expected volatility	26.21% - 26.70%
Expected dividend yield	0%
Risk-free rate over the estimated expected life	1.84% - 2.01%
Expected life (in years)	6.25

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

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

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

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

The Company recorded share-based compensation expense associated with stock options of $632 and $873 for the three months ended June 30, 2015 and 2014, respectively, and $1,157 and $1,135 for the six months ended June 30, 2015 and 2014, respectively. Recorded share-based compensation expense for the three and six months ended June 30, 2015 assumes achievement of certain performance-based goals.

During the fourth quarter of 2014, the Company granted 8,277 restricted share awards to its non-employee directors. The Company recorded share-based compensation expense associated with restricted stock awards of $38 and $75 for the three and six months ended June 30, 2015, respectively.

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BUSINESS ACQUISITIONS (Details 3) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Pro Forma Operating Results
Net sales	$ 913,199	$ 730,414	$ 1,709,610	$ 1,322,128
Net income attributable to Diplomat Pharmacy, Inc.	$ 8,090	$ 2,899	$ 15,567	$ 4,106
Net income per common share - basic (in dollars per share)	$ 0.13	$ 0.08	$ 0.26	$ 0.11
Net income per common share - diluted (in dollars per share)	$ 0.12	$ 0.08	$ 0.25	$ 0.11

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Principles of Consolidation

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

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

All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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 time of administration. Revenues from dispensing specialty prescriptions that are picked up by patients at an open door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drug sales were $802,605 and $538,989 for the three months ended June 30, 2015 and 2014, respectively, and $1,424,327 and $1,001,787 for the six months ended June 30, 2015 and 2014, respectively.

The Company recognizes revenue from service, data and consulting services when the services have been performed and the earnings process is therefore complete. Revenues generated from service, data and consulting services were $5,406 and $2,686 for the three months ended June 30, 2015 and 2014, respectively, and $8,567 and $5,565 for the six months ended June 30, 2015 and 2014, respectively.

New Accounting Pronouncements

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (Topic 606), which will supersede the existing revenue recognition guidance under U.S. GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this ASU by one year to annual reporting periods beginning after December 15, 2017 for public entities. This ASU may be applied either retrospectively or as a cumulative effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is currently assessing the method under which it will adopt and the potential impact of adopting this ASU on its financial position, results of operations, cash flows and/or disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Targets Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. An entity should apply this new guidance on a retrospective basis and is required to comply with applicable disclosures for a change in an accounting principle. This standard may result in a balance sheet reclassification and require related disclosure revisions in the Company’s financial statements.

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

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SHARE-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2015

SHARE-BASED COMPENSATION

Summary of entity's stock option activity

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	Of Options		Price		Life	Value
					(Years)
Outstanding at December 31, 2014	7,217,331		$	7.54	6.9	$	142,262
Granted	885,543		40.66
Repurchased	(1,641,387	)	5.44
Exercised	(1,043,830	)	5.63
Expired/cancelled	(641,392	)	16.44
Outstanding at June 30, 2015	4,776,265		$	13.63	7.8	$	149,207
Exercisable at June 30, 2015	1,421,806		$	4.19	5.8	$	57,836

Schedule of assumptions used to determine the valuation of granted options

Exercise price	$39.26 - $44.39
Expected volatility	26.21% - 26.70%
Expected dividend yield	0%
Risk-free rate over the estimated expected life	1.84% - 2.01%
Expected life (in years)	6.25

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SHARE-BASED COMPENSATION (Details) - Plan Name [Domain] - Stock options - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Number of Options
Outstanding at beginning of period (in shares)		7,217,331
Granted (in shares)	885,543	885,543
Repurchased (in shares)		(1,641,387)
Exercised (in shares)		(1,043,830)
Expired/cancelled (in shares)		(641,392)
Outstanding at end of period (in shares)	4,776,265	4,776,265	7,217,331
Exercisable at end of period (in shares)	1,421,806	1,421,806
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)		$ 7.54
Granted (in dollars per share)		40.66
Repurchased (in dollars per share)		5.44
Exercised (in dollars per share)		5.63
Expired/cancelled (in dollars per share)		16.44
Outstanding at end of period (in dollars per share)	$ 13.63	13.63	$ 7.54
Exercisable at end of period (in dollars per share)	$ 4.19	$ 4.19
Weighted Average Remaining Contractual Life
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2		7 years 9 months 18 days	6 years 10 months 24 days
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2		7 years 9 months 18 days	6 years 10 months 24 days
Exercisable at end of period		5 years 9 months 18 days
Aggregate Intrinsic Value
Outstanding at beginning of period		$ 142,262
Outstanding at end of period	$ 149,207	149,207	$ 142,262
Exercisable at end of period	$ 57,836	$ 57,836

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net income	$ 5,785	$ 3,365
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	10,875	2,545
Change in fair value of contingent consideration	5,169	321
Share-based compensation expense	1,232	1,135
Excess tax benefits related to share-based awards	(4,983)
Net provision for doubtful accounts	5,359	997
Amortization of debt issuance costs	371	182
Deferred tax expense	1,450	2,105
Contingent consideration payment	(300)
Impairment of capitalized software for internal use	150
Loss (gain) on sale or disposal of property and equipment	60	(7)
Change in fair value of redeemable common shares		(957)
Equity loss of non-consolidated entity		710
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	(48,230)	(27,154)
Inventories	(34,545)	(9,217)
Accounts payable	12,221	48,258
Other assets and liabilities	4,831	(1,456)
Net cash (used in) provided by operating activities	(40,555)	20,827
Cash flows from investing activities:
Payments to acquire business, net of cash acquired	(299,977)	(51,302)
Expenditures for capitalized software for internal use	(6,118)	(3,893)
Expenditures for property and equipment	(1,009)	(426)
Net proceeds from sales of property and equipment	8	17
Loan to non-consolidated entity		(500)
Net repayment of related parties' notes receivable		150
Net cash used in investing activities	(307,096)	(55,954)
Cash flows from financing activities:
Net proceeds from line of credit	70,994	17,254
Proceeds from long-term debt	120,000
Payments on long-term debt		(4,701)
Proceeds from follow-on public offering, net of transaction costs	187,271
Proceeds from sale of preferred stock, net of transaction costs		101,815
Payments made to repurchase common stock		(53,400)
Payments made to repurchase stock options	(36,298)	(9,400)
Proceeds from issuance of stock upon stock option exercises	5,880
Excess tax benefits related to share-based awards	4,983
Payment of debt issuance costs	(5,131)
Contingent consideration payment	(700)
Net cash provided by financing activities	346,999	51,568
(Decrease) increase in cash and equivalents	(652)	16,441
Cash and equivalents at beginning of period	17,957	9,109
Cash and equivalents at end of period	17,305	25,550
Supplemental disclosures of cash flow information:
Issuance of common stock as partial consideration for business acquisitions	135,275	12,000
Cash paid for interest	1,217	$ 713
Cash paid for income taxes	$ 216

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BUSINESS ACQUISITIONS

6 Months Ended

Jun. 30, 2015

BUSINESS ACQUISITIONS

BUSINESS ACQUISITIONS

4.BUSINESS ACQUISITIONS

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

Burman’s Apothecary, LLC

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

Cash	$	84,296
253,036 restricted common shares	9,578
	$	93,874

The above cash consideration is subject to a post-closing adjustment for net working capital, indebtedness, cash and sellers’ expenses. This amount is not known at this time and is therefore not reflected above.

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

The Company incurred acquisition-related costs of approximately $204 which were charged to “Selling, general and administrative expenses” during both the three and six months ended June 30, 2015.

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

Accounts receivable	$	17,274
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	49
Capitalized software for internal use	18,000
Intangible assets	24,400
Current liabilities	(25,797		)
Total identifiable net assets	50,108
Goodwill	43,766
	$	93,874

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

	Useful Life	Amount
Physician relationships	12 years	$	16,000
Non-compete employment agreements	5 years	5,700
Favorable supply agreement	1 year	2,700
		$	24,400

The Company has not finalized the purchase price allocation. Accordingly, the purchase price allocation described above could change materially as the Company finalizes its assessment of the allocation and the fair values of the net tangible and intangible assets it acquired, some of which are dependent on the finalization of valuations being performed by independent valuation specialists.

BioRx

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

Cash at closing	$	217,467
4,038,853 restricted common shares	125,697
Contingent consideration at fair value	37,000
Receivable for estimated post-closing adjustment	(619		)
	$	379,545

The above receivable is subject to a final true-up and, therefore, subject to change.

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

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

The Company incurred acquisition-related costs of approximately $283 and $1,354 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2015.

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

Cash and cash equivalents	$	1,786
Accounts receivable	42,131
Inventories	5,546
Prepaid expenses and other current assets	669
Property and equipment	494
Other noncurrent assets	162
Intangible assets	182,000
Liabilities	(36,873		)
Total identifiable net assets	195,915
Goodwill	183,630
	$	379,545

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

	Useful Life	Amount
Patient relationships	10 years	$	130,000
Non-compete employment agreements	5 years	39,700
Trade names and trademarks	8 years	12,300
		$	182,000

The Company determined the estimated fair values of the identifiable long-lived assets with assistance from an independent valuation firm. The valuation firm also assisted with the Company’s determination of the fair value of the contingent consideration utilizing a Monte Carlo simulation. Based on BioRx’s operating results and an increase in the Company’s stock price since BioRx’s acquisition, the fair value of this contingent consideration liability increased to $41,000 as of June 30, 2015.

MedPro Rx, Inc.

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

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

The following table summarizes the consideration transferred to acquire MedPro:

Cash	$	52,267
716,695 restricted common shares	12,000
Contingent consideration at fair value	4,270
	$	68,537

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners an additional payout based upon the achievement of certain revenue and gross profit targets in each of the twelve month periods ending June 30, 2015 and 2016. The maximum payout of contingent consideration is $11,500. Approximately $3,503 of the purchase consideration was deposited into an escrow account to be held for two years after the closing date to satisfy any of the Company’s indemnification claims.

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

Cash and cash equivalents	$	668
Accounts receivable	9,050
Inventories	3,819
Prepaid expenses and other current assets	204
Property and equipment	697
Capitalized software for internal use	25
Intangible assets	37,099
Current liabilities	(4,660		)
Total identifiable net assets	46,902
Goodwill	21,635
	$	68,537

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

	Useful Life	Amount
Patient relationships	7 years	$	24,000
Trade names and trademarks	10 years	8,700
Non-compete employment agreements	5 years	4,399
		$	37,099

The Company determined the estimated fair values of the identifiable long-lived assets with assistance from an independent valuation firm. The valuation firm also assisted with the Company’s determination of the fair value of the contingent consideration utilizing historical results, forecasted operating results of MedPro for each of the twelve month periods ending June 30, 2015 and 2016, and the corresponding contractual contingent payouts based on those results discounted at rates commensurate with the uncertainty involved. Based on operating results since MedPro’s acquisition, the Company increased the estimated contingent payment in the fourth quarter of 2014, and, with accreted interest through June 30, 2015, the resulting liability as of June 30, 2015 was $10,929, of which $5,750 was earned based on actual results for the twelve months ended June 30, 2015 and will be paid during the third quarter of 2015.

Proforma Operating Results

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net sales	$	913,199	$	730,414	$	1,709,610	$	1,322,128
Net income attributable to Diplomat Pharmacy, Inc.	$	8,090	$	2,899	$	15,567	$	4,106
Net income per common share — basic	$	0.13	$	0.08	$	0.26	$	0.11
Net income per common share — diluted	$	0.12	$	0.08	$	0.25	$	0.11

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INCOME PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2015

INCOME PER COMMON SHARE

Schedule of the calculation for basic and diluted income per common share

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	3,390	$	1,675	$	6,249	$	3,365
Less net income allocable to preferred shareholders	—		299		—		401
Net income allocable to common shareholders	3,390		1,376		6,249		2,964
Denominator:
Weighted average common shares outstanding, basic	62,610,850		30,748,750		57,279,670		31,400,210
Weighted average dilutive effect of stock options and restricted stock awards	2,184,512		2,555,278		2,565,950		2,700,910
Weighted average common shares outstanding, diluted	64,795,362		33,304,028		59,845,620		34,101,120
Net income per common share:
Basic	$	0.05	$	0.04	$	0.11	$	0.09
Diluted	$	0.05	$	0.04	$	0.10	$	0.09

XML

Label	Element	Value
Deferred Income Tax Expense (Benefit)	us-gaap_DeferredIncomeTaxExpenseBenefit	$ 2,965

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) $ in Thousands				6 Months Ended	12 Months Ended
	Jun. 19, 2015 USD ($)	Feb. 26, 2015 USD ($)	Aug. 28, 2014 USD ($) entity	Jun. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Changes in the carrying amount of goodwill
Balance as of beginning of period				$ 23,148
Balance as of end of period				250,544	$ 23,148
Gross carrying amount				255,403	49,003
Accumulated amortization				(12,521)	(4,030)
Net Carrying Amount				$ 242,882	44,973
Ownership percentage				25.00%
BioRx, LLC
Changes in the carrying amount of goodwill
Goodwill acquired during the year				$ 183,630
Balance as of end of period		$ 183,630
Burman's Apothecary, LLC
Changes in the carrying amount of goodwill
Goodwill acquired during the year				43,766
Balance as of end of period	$ 43,766
Primrose
Changes in the carrying amount of goodwill
Number of unrelated third party entities (in entities) | entity			2
Committed contribution			$ 5,000
Ownership percentage			51.00%
Amount contributed				2,000	3,000
Amortization expenses			$ 0	0
Patient relationships
Changes in the carrying amount of goodwill
Gross carrying amount				159,100	29,100
Accumulated amortization				(7,796)	(2,895)
Net Carrying Amount				151,304	26,205
Non-compete employment agreements
Changes in the carrying amount of goodwill
Gross carrying amount				50,399	4,999
Accumulated amortization				(3,092)	(560)
Net Carrying Amount				47,307	4,439
Non-compete employment agreements | BioRx, LLC
Changes in the carrying amount of goodwill
Weighted average amortization period		5 years
Non-compete employment agreements | Burman's Apothecary, LLC
Changes in the carrying amount of goodwill
Weighted average amortization period	5 years
Trade names and trademarks
Changes in the carrying amount of goodwill
Gross carrying amount				22,400	10,100
Accumulated amortization				(1,464)	(575)
Net Carrying Amount				20,936	9,525
Trade names and trademarks | BioRx, LLC
Changes in the carrying amount of goodwill
Weighted average amortization period		8 years
Physician relationships
Changes in the carrying amount of goodwill
Gross carrying amount				16,000
Accumulated amortization				(56)
Net Carrying Amount				15,944
Physician relationships | BioRx, LLC
Changes in the carrying amount of goodwill
Weighted average amortization period		10 years
Physician relationships | Burman's Apothecary, LLC
Changes in the carrying amount of goodwill
Weighted average amortization period	12 years
Software licensing agreement
Changes in the carrying amount of goodwill
Gross carrying amount				2,647	2,647
Net Carrying Amount				2,647	2,647
Software licensing agreement | Primrose
Changes in the carrying amount of goodwill
Amount contributed by unrelated third party entities			2,647
Favorable supply agreement
Changes in the carrying amount of goodwill
Gross carrying amount				2,700
Accumulated amortization				(113)
Net Carrying Amount				2,587
Favorable supply agreement | Burman's Apothecary, LLC
Changes in the carrying amount of goodwill
Weighted average amortization period	1 year
Customer relationships
Changes in the carrying amount of goodwill
Gross carrying amount				2,157	2,157
Net Carrying Amount				$ 2,157	$ 2,157
Intellectual property | Primrose
Changes in the carrying amount of goodwill
Amount contributed by unrelated third party entities			$ 2,157

XML

INCOME PER COMMON SHARE

6 Months Ended

Jun. 30, 2015

INCOME PER COMMON SHARE

INCOME PER COMMON SHARE

14.INCOME PER COMMON SHARE

For the period January 23, 2014 through June 30, 2014, the Company computed net income per common share using the two-class method as its Redeemable Series A Preferred Stock met the definition of a participating security and thereby shared in the net income of the Company on a ratable basis with the common shareholders. The preferred stock’s portions of net income for the three and six months ended June 30, 2014 were 18% and 12%, respectively. The Company’s restricted stock awards that were granted during the fourth quarter of 2014 also meet the definition of a participating security. Therefore, the Company continues to use the two class method to compute income per share.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	3,390	$	1,675	$	6,249	$	3,365
Less net income allocable to preferred shareholders	—		299		—		401
Net income allocable to common shareholders	3,390		1,376		6,249		2,964
Denominator:
Weighted average common shares outstanding, basic	62,610,850		30,748,750		57,279,670		31,400,210
Weighted average dilutive effect of stock options and restricted stock awards	2,184,512		2,555,278		2,565,950		2,700,910
Weighted average common shares outstanding, diluted	64,795,362		33,304,028		59,845,620		34,101,120
Net income per common share:
Basic	$	0.05	$	0.04	$	0.11	$	0.09
Diluted	$	0.05	$	0.04	$	0.10	$	0.09

Service-based stock options to purchase 494,500 common shares were excluded from the computation of diluted weighted average common shares outstanding for both the three and six months ended June 30, 2015 as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to 678,234 common shares and contingent consideration to issue up to 1,350,309 common shares were excluded from the computation of diluted weighted average common shares outstanding for both the three and six months ended June 30, 2015 as none of the necessary conditions were satisfied as of June 30, 2015. Service-based stock options to purchase 679,629 common shares were excluded from the computation of diluted weighted average common shares outstanding for both the three and six months ended June 30, 2014 as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to 871,293 common shares were excluded from the computation of diluted weighted average common shares outstanding for both the three and six months ended June 30, 2014 as none of the necessary conditions were satisfied as of June 30, 2014.