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 September 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 November 3, 2015, there were 64,354,867 outstanding shares of the registrant’s no par value common stock.

DIPLOMAT PHARMACY, INC.

Form 10-Q

For the Quarter Ended September 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		22
	Item 3 — Qualitative and Quantitative Disclosures about Market Risk		33
	Item 4 — Controls and Procedures		33
Part II — Other Information
	Item 1 — Legal Proceedings		35
	Item 1A — Risk Factors		35
	Item 6 — Exhibits		35
Signatures			37
Exhibits

2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

	September 30, 2015		December 31, 2014
ASSETS
Current assets:
Cash and equivalents	$	15,665	$	17,957
Accounts receivable, net	258,158		155,273
Inventories	153,293		110,683
Deferred income taxes	2,503		1,813
Prepaid expenses and other current assets	7,551		5,360
Total current assets	437,170		291,086
Property and equipment, net	14,988		13,150
Capitalized software for internal use, net	35,904		13,236
Goodwill	253,426		23,148
Definite-lived intangible assets, net	233,677		44,973
Deferred debt issuance costs	5,312		921
Investment in non-consolidated entity	3,500		3,500
Other noncurrent assets	179		72
Total assets	$	984,156	$	390,086
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	271,988	$	202,495
Borrowings on line of credit	21,756		—
Short-term debt, including current portion of long-term debt	6,000		—
Accrued expenses:
Contingent consideration	44,281		6,282
Compensation and benefits	6,126		2,257
Other	8,372		4,394
Total current liabilities	358,523		215,428
Long-term debt, less current portion	112,500		—
Contingent consideration, less current portion	—		5,409
Deferred income taxes	11,128		518
Other noncurrent liabilities	—		4
Total liabilities	482,151		221,359
Commitments and contingencies
Shareholders’ equity:
Preferred stock (10,000,000 shares authorized; none issued and outstanding)	—		—
Common stock (no par value; 590,000,000 shares authorized; 64,253,037 and 51,457,023 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively)	448,736		148,901
Additional paid-in capital	21,868		9,893
Retained earnings	27,564		5,354
Total Diplomat Pharmacy shareholders’ equity	498,168		164,148
Noncontrolling interests	3,837		4,579
Total shareholders’ equity	502,005		168,727
Total liabilities and shareholders’ equity	$	984,156	$	390,086

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						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Net sales	$	946,913		$	595,529		$	2,379,807		$	1,602,881
Cost of products sold	(871,150		)	(555,364		)	(2,193,233		)	(1,503,639		)
Gross profit	75,763			40,165			186,574			99,242
Selling, general and administrative expenses	(48,860		)	(34,306		)	(147,637		)	(85,330		)
Income from operations	26,903			5,859			38,937			13,912
Other (expense) income:
Interest expense	(1,542		)	(734		)	(3,766		)	(1,629		)
Change in fair value of redeemable common shares	—			6,916			—			7,873
Termination of existing stock redemption agreement	—			(4,842		)	—			(4,842		)
Equity loss of non-consolidated entity	—			(377		)	—			(1,087		)
Other	90			146			270			663
Total other (expense) income	(1,452		)	1,109			(3,496		)	978
Income before income taxes	25,451			6,968			35,441			14,890
Income tax expense	(9,768		)	(2,427		)	(13,973		)	(6,984		)
Net income	15,683			4,541			21,468			7,906
Less net loss attributable to noncontrolling interest	(278		)	—			(742		)	—
Net income attributable to Diplomat Pharmacy, Inc.	15,961			4,541			22,210			7,906
Net income allocable to preferred shareholders	—			745			—			1,062
Net income allocable to common shareholders	$	15,961		$	3,796		$	22,210		$	6,844
Net income per common share:
Basic	$	0.25		$	0.12		$	0.37		$	0.22
Diluted	$	0.24		$	0.11		$	0.36		$	0.20
Weighted average common shares outstanding:
Basic	63,890,060			31,643,725			59,507,347			31,479,950
Diluted	65,513,055			33,670,041			61,758,979			33,955,995

See accompanying notes to condensed consolidated financial statements.

4

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net income	$	21,468		$	7,906
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20,823			5,331
Change in fair value of contingent consideration	(1,660		)	657
Contingent consideration payment	(3,738		)	—
Net provision for doubtful accounts	3,307			3,257
Share-based compensation expense	2,502			1,828
Excess tax benefits related to share-based awards	(14,348		)	—
Deferred tax expense	1,185			3,286
Amortization of debt issuance costs	665			276
Impairment of capitalized software for internal use	150			—
Loss (gain) on sale or disposal of property and equipment	60			(11		)
Change in fair value of redeemable common shares	—			(7,873		)
Termination of existing stock redemption agreement	—			4,842
Equity loss of non-consolidated entity	—			1,087
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	(43,513		)	(18,563		)
Inventories	(28,379		)	(6,913		)
Accounts payable	18,644			26,192
Other assets and liabilities	25,366			(1,998		)
Net cash provided by operating activities	2,532			19,304
Cash flows from investing activities:
Payments to acquire businesses, net of cash acquired	(299,534		)	(51,599		)
Expenditures for capitalized software for internal use	(9,145		)	(5,758		)
Expenditures for property and equipment	(2,374		)	(834		)
Net proceeds from sales of property and equipment	8			21
Loan to non-consolidated entity	—			(500		)
Net repayment of related parties’ notes receivable	—			150
Net cash used in investing activities	(311,045		)	(58,520		)
Cash flows from financing activities:
Net borrowings from line of credit	21,756			13,940
Proceeds from long-term debt	120,000			—
Payments on long-term debt	(1,500		)	(5,693		)
Proceeds from follow-on public offering, net of transaction costs	187,238			—
Proceeds from sale of preferred stock, net of transaction costs	—			101,815
Payments made to repurchase common stock	—			(53,400		)
Payments made to repurchase stock options	(36,298		)	(9,400		)
Proceeds from issuance of stock upon stock option exercises	8,745			—
Excess tax benefits related to share-based awards	14,348			—
Payments of debt issuance costs	(5,056		)	—
Contingent consideration payment	(3,012		)	—
Payments of stock offering costs	—			(1,368		)
Net cash provided by financing activities	306,221			45,894
Net (decrease) increase in cash and equivalents	(2,292		)	6,678
Cash and equivalents at beginning of period	17,957			9,109
Cash and equivalents at end of period	$	15,665		$	15,787
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,730		$	1,411
Cash paid for income taxes	346			3,426

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)	—	—			—			22,210		22,210			(742		)	21,468
Proceeds from public offering, net of issuance costs	6,821,125	187,238			—			—		187,238			—			187,238
Repurchase of stock options	—	(34,194		)	(2,104		)	—		(36,298		)	—			(36,298		)
Stock issued upon stock option exercises	1,683,000	11,516			(2,771		)	—		8,745			—			8,745
Excess tax benefits related to share-based awards	—	—			14,348			—		14,348			—			14,348
Issuance of common stock as partial consideration in BioRx, LLC acquisition	4,038,853	125,697			—			—		125,697			—			125,697
Issuance of common stock as partial consideration in Burman’s Apothecary, LLC acquisition	253,036	9,578			—			—		9,578			—			9,578
Share-based compensation expense	—	—			2,502			—		2,502			—			2,502
Balance at September 30, 2015	64,253,037	$	448,736		$	21,868		$	27,564	$	498,168		$	3,837		$	502,005

See accompanying notes to condensed consolidated financial statements.

6

DIPLOMAT PHARMACY, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except share and 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, specialized infusion therapy, HIV and many other serious or long-term conditions. The Company has its corporate headquarters and main distribution facility in Flint, Michigan and maintains 16 other pharmacy locations in Arizona, California, Connecticut, Florida, Illinois, Iowa, Massachusetts, Michigan, Minnesota, North Carolina, Ohio and Pennsylvania. The Company also has centralized call centers to effectively deliver services to customers located in all 50 states in the United States of America (“U.S.”) and U.S. territories. The Company operates as one reportable segment.

Initial Public Offering

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

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

Follow-On Public Offering

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

2.BASIS OF PRESENTATION

Interim Unaudited Condensed Consolidated Financial Statements

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

7

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

Stock Split

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

Effect of Conversion from S Corporation to C Corporation

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

Reclassifications

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

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

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

All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

Revenue Recognition

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

8

recorded at prescription adjudication, which approximates the fill date. Sales taxes are presented on a net basis (excluded from revenues and costs). Revenues generated from prescription drug sales were $941,533 and $592,410 for the three months ended September 30, 2015 and 2014, respectively, and $2,365,860 and $1,594,197 for the nine months ended September 30, 2015 and 2014, respectively.

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

New Accounting Pronouncements

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

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

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

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

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, requiring that an acquirer recognize adjustments to provisional

9

amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU also requires an entity to present separately on the face of the income statement, or disclose in the notes to the financial statements, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective within annual periods beginning on or after December 15, 2015, including interim periods within that reporting period, and will be applied prospectively to measurement-period adjustments that occur after the effective date of this ASU.

4.BUSINESS ACQUISITIONS

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

Burman’s Apothecary, LLC

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

Cash at closing	$	84,296
253,036 restricted common shares	9,578
Receivable for post-closing adjustment	(6,880		)
	$	86,994

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

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

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

Accounts receivable	$	17,109
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	88
Capitalized software for internal use	17,000
Definite-lived intangible assets	23,400
Accounts payable	(25,761		)
Accrued expenses — compensation and benefits	(169		)
Accrued expenses — other	(6		)
Total identifiable net assets	47,843
Goodwill	39,151
	$	86,994

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

	Useful Life	Amount
Physician relationships	10 years	$	15,000
Non-compete employment agreements	5 years	5,700
Favorable supply agreement	1 year	2,700
		$	23,400

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

BioRx

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

Cash	$	217,024
4,038,853 restricted common shares	125,697
Contingent consideration at fair value	41,000
	$	383,721

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

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

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

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

Cash and cash equivalents	$	1,786
Accounts receivable	38,946
Inventories	5,546
Deferred income taxes	382
Prepaid expenses and other current assets	287
Property and equipment	494
Definite-lived intangible assets	181,700
Other noncurrent assets	163
Accounts payable	(25,088		)
Accrued expenses — compensation and benefits	(1,653		)
Accrued expenses — other	(852		)
Deferred income taxes	(9,117		)
Total identifiable net assets	192,594
Goodwill	191,127
	$	383,721

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

	Useful Life	Amount
Patient relationships	10 years	$	130,000
Non-compete employment agreements	5 years	39,700
Trade names and trademarks	8 years	12,000
		$	181,700

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

MedPro Rx, Inc.

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

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

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

The following table summarizes the consideration transferred to acquire MedPro:

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

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

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

Cash and cash equivalents	$	668
Accounts receivable	9,050
Inventories	3,819
Prepaid expenses and other current assets	204
Property and equipment	697
Capitalized software for internal use	25
Definite-lived intangible assets	37,099
Accounts payable	(3,638		)
Accrued expenses — compensation and benefits	(157		)
Accrued expenses — other	(865		)
Total identifiable net assets	46,902
Goodwill	21,635
	$	68,537

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

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

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

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Proforma Operating Results

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net sales	$	946,913	$	733,776	$	2,656,523	$	2,055,904
Net income attributable to Diplomat Pharmacy, Inc.	$	11,090	$	5,536	$	29,259	$	11,565
Net income per common share — basic	$	0.17	$	0.13	$	0.47	$	0.27
Net income per common share — diluted	$	0.17	$	0.12	$	0.46	$	0.26

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).

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

	Asset /						Valuation
	(Liability)			Level 3			Technique
September 30, 2015:
Contingent consideration	$	(44,281	)	$	(44,281	)	C
December 31, 2014:
Contingent consideration	$	(11,691	)	$	(11,691	)	C

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

	Contingent Consideration
Balance at January 1, 2015	$	(11,691	)
BioRx acquisition	(41,000		)
Changes in fair value	1,660
Payments	6,750
Balance at September 30, 2015	$	(44,281	)

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

6.INVENTORIES

Inventories consist of the following:

	September 30,		December 31,
	2015		2014
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$	153,286	$	110,464
Raw materials	—		208
Finished goods	7		11
	$	153,293	$	110,683

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7.GOODWILL AND OTHER INTANGIBLE ASSETS

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

Balance at January 1, 2015	$	23,148
BioRx acquisition	191,127
Burman’s acquisition	39,151
Balance at September 30, 2015	$	253,426

Definite-lived intangible assets consist of the following:

	September 30, 2015							December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	159,100	$	(11,507	)	$	147,593	$	29,100	$	(2,895	)	$	26,205
Non-compete employment agreements	50,399		(5,612		)	44,787		4,999		(560		)	4,439
Trade names and trademarks	22,100		(2,082		)	20,018		10,100		(575		)	9,525
Physician relationships	15,000		(438		)	14,562		—		—			—
Software licensing agreement	2,647		—			2,647		2,647		—			2,647
Favorable supply agreement	2,700		(787		)	1,913		—		—			—
Intellectual property	2,157		—			2,157		2,157		—			2,157
	$	254,103	$	(20,426	)	$	233,677	$	49,003	$	(4,030	)	$	44,973

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

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

8.INVESTMENT IN NON-CONSOLIDATED ENTITIES

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

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

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

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9.DEBT

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

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

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

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

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

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10.SHARE-BASED COMPENSATION

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

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	of Options		Price		Life	Value
					(Years)
Outstanding at December 31, 2014	7,217,331		$	7.54	6.9	$	142,262
Granted	1,022,439		41.65
Repurchased	(1,641,387	)	5.44
Exercised	(1,683,000	)	5.20
Expired/cancelled	(787,119	)	16.13
Outstanding at September 30, 2015	4,128,264		$	16.15	7.7	$	65,195
Exercisable at September 30, 2015	1,011,545		$	4.01	5.2	$	25,060

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

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

Exercise price	$39.26 - $48.72
Expected volatility	25.82% - 26.70%
Expected dividend yield	0%
Risk-free rate over the estimated expected life	1.84% - 2.01%
Expected life (in years)	6.25

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

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

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

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

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

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

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

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

11.INCOME TAXES

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

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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13.REDEEMABLE CAPITAL STOCK

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

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

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

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

14.TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT

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

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15.INCOME PER COMMON SHARE

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	15,961	$	4,541	$	22,210	$	7,906
Less net income allocable to preferred shareholders	—		745		—		1,062
Net income allocable to common shareholders	15,961		3,796		22,210		6,844
Denominator:
Weighted average common shares outstanding, basic	63,890,060		31,643,725		59,507,347		31,479,950
Weighted average dilutive effect of stock options and restricted stock awards	1,622,995		2,026,316		2,251,632		2,476,045
Weighted average common shares outstanding, diluted	65,513,055		33,670,041		61,758,979		33,955,995
Net income per common share:
Basic	$	0.25	$	0.12	$	0.37	$	0.22
Diluted	$	0.24	$	0.11	$	0.36	$	0.20

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

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

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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, 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, specialty infusion therapy and HIV. 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 nine months ended September 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 recent and historical growth has largely been driven by our position as a leader in oncology, immunology, hepatitis, multiple sclerosis and specialty infusion therapeutic categories. For the three months ended September 30, 2015 and 2014, we generated approximately 93% and 91%, respectively, of our revenues in these categories. For the nine months ended September 30, 2015 and 2014, we generated approximately 92% and 90%, respectively, of our revenues in these 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, mix shift toward higher-cost specialty drugs and manufacturer price increases. 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 over 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 nine months ended September 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 $86,994, excluding related acquisition costs. Included in the total acquisition price is $77,416 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 $383,721, excluding related acquisition costs. Included in the total acquisition price is $217,024 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 $41,000 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 $187,238 after deducting underwriting discounts and commissions of $9,891, and other offering expenses of $685. 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 September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Prescriptions dispensed	245,000		209,000		673,000		589,000
Prescriptions serviced (not dispensed)	73,000		56,000		197,000		158,000
Total prescriptions	318,000		265,000		870,000		747,000
Net sales per prescription dispensed	$	3,857	$	2,846	$	3,525	$	2,712
Gross profit per prescription dispensed	$	301	$	185	$	269	$	161
Net sales per prescription serviced (not dispensed)	$	28	$	27	$	29	$	27
Gross profit per prescription serviced (not dispensed)	$	28	$	27	$	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 September 30, 2015 was 318,000 prescriptions dispensed or serviced, a 20% increase compared to 265,000 prescriptions dispensed or serviced for the three months ended September 30, 2014. Our volume for the nine months ended September 30, 2015 was 870,000 prescriptions dispensed or serviced, a 16% increase compared to 747,000 prescriptions dispensed or serviced for the nine months ended September 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. Our 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 and the decision to sell our compounding business in September 2015.

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, time of administration for a drug treat regimen administered in a patient’s home, 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.

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

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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 $941,533 and $592,410 for the three months ended September 30, 2015 and 2014, respectively, and $2,365,860 and $1,594,197 for the nine months ended September 30, 2015 and 2014, respectively.

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”), where most commonly AWP equals WAC multiplied by 1.20, 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 September 30, 2015 versus Three Months Ended September 30, 2014

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

	Three Months Ended September 30,
	2015			2014
Net sales	$	946,913		$	595,529
Cost of products sold	(871,150		)	(555,364		)
Gross profit	75,763			40,165
Selling, general and administrative expenses	(48,860		)	(34,306		)
Income from operations	26,903			5,859
Other (expense) income:
Interest expense	(1,542		)	(734		)
Change in fair value of redeemable common shares	—			6,916
Termination of existing stock redemption agreement	—			(4,842		)
Equity loss of non-consolidated entity	—			(377		)
Other	90			146
Total other (expense) income	(1,452		)	1,109
Income before income taxes	25,451			6,968
Income tax expense	(9,768		)	(2,427		)
Net income	15,683			4,541
Less net loss attributable to noncontrolling interest	(278		)	—
Net income attributable to Diplomat Pharmacy, Inc.	15,961			4,541
Net income allocable to preferred shareholders	—			745
Net income allocable to common shareholders	$	15,961		$	3,796

Net Sales

Our net sales for the three months ended September 30, 2015 were $946,913, a $351,384 increase, or 59%, compared to $595,529 in the same period of 2014. The increase was in part the result of approximately $119,000 of additional revenue from drugs that were new to the market or newly dispensed by us. BioRx and Burman’s contributed approximately $159,000 to the increase. The remaining increase is primarily attributable to the impact of manufacturer price increases, a more favorable mix of those drugs that existed a year ago and payor mix changes.

Cost of Goods Sold

Our cost of goods sold for the three months ended September 30, 2015 was $871,150, a $315,786 increase, or 57%, compared to $555,364 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 92.0% and 93.3% of revenue for the three months ended September 30, 2015 and 2014, respectively. The gross margin improvement, from 6.7% to 8.0% in the third quarter of 2014 and 2015, respectively, was primarily due to drug mix changes, including the impact of recent acquisitions, as well as the impact of increased pharma dollars, and, to a lesser extent, continued favorable pricing trends.

Selling, General and Administrative Expenses

Our selling, general, and administrative expense (“SG&A”) for the three months ended September 30, 2015 was $48,860, a $14,554 increase, compared to $34,306 in the same period of 2014. SG&A was 5.2% and 5.8% of revenue for the three months ended September 30, 2015 and 2014, respectively. Of this increase, $12,269 relates to employee cost, including the employee expense from our acquired entities. The increased employee expense was primarily attributable to the 20% increase in dispensed and serviced prescription volume, combined with the increased clinical and administrative complexity associated with our mix of business. We also experienced a $6,958

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increase in amortization expense from definite-lived intangible assets associated with our acquisitions. The remaining increase was in all other SG&A to support our growth including public company requirements, consulting fees, travel, and other miscellaneous expenses. These increases were partially offset by a net decrease in the fair value of contingent consideration related to our acquisitions and a decrease in bad debt expense. As a percent of revenue, SG&A, excluding acquisition-related amortization and change in contingent consideration, accounted for 5.0% of total revenues for the three months ended September 30, 2015 compared to 5.4% in the prior year period. This decrease is primarily attributable to a favorable adjustment to our allowance for doubtful accounts and operating efficiencies, partially offset by increased expense to support the more clinically intensive therapies from the businesses we have acquired and increased share-based compensation expense.

Other (Expense) Income

Our other (expense) income for the three months ended September 30, 2015 was $(1,452), compared to $1,109 in the same period of 2014. The $(2,561) quarter-over-quarter change is primarily due to a $808 increase in interest expense and a $6,916 redeemable share fair value change during the third quarter of 2014, partially offset by a $4,842 charge associated with the termination of an existing stock redemption agreement and a $377 equity loss of non-consolidated entity, both of which were recognized during the third 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 September 30, 2015 and 2014 was $9,768 and $2,427, respectively, resulting in effective tax rates of 38% and 35%, respectively. The lower effective tax rate for the three months ended September 30, 2014 was primarily due to $6,916 of non-taxable income recorded that period related to the change in fair value of redeemable shares, partially offset by $4,842 of non-tax deductible expense recorded that period related to the termination of an existing stock redemption agreement.

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Nine Months Ended September 30, 2015 versus Nine Months Ended September 30, 2014

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

	Nine Months Ended September 30,
	2015			2014
Net sales	$	2,379,807		$	1,602,881
Cost of products sold	(2,193,233		)	(1,503,639		)
Gross profit	186,574			99,242
Selling, general and administrative expenses	(147,637		)	(85,330		)
Income from operations	38,937			13,912
Other (expense) income:
Interest expense	(3,766		)	(1,629		)
Change in fair value of redeemable common shares	—			7,873
Termination of existing stock redemption agreement	—			(4,842		)
Equity loss of non-consolidated entity	—			(1,087		)
Other	270			663
Total other (expense) income	(3,496		)	978
Income before income taxes	35,441			14,890
Income tax expense	(13,973		)	(6,984		)
Net income	21,468			7,906
Less net loss attributable to noncontrolling interest	(742		)	—
Net income attributable to Diplomat Pharmacy, Inc.	22,210			7,906
Net income allocable to preferred shareholders	—			1,062
Net income allocable to common shareholders	$	22,210		$	6,844

Net Sales

Our net sales for the nine months ended September 30, 2015 were $2,379,807, a $776,926 increase, or 48%, compared to $1,602,881 in the same period of 2014. The increase was in part the result of approximately $292,000 of additional revenue from drugs that were new to the market or newly dispensed by us. BioRx, Burman’s and MedPro contributed approximately $300,000 to the increase. The remaining increase is attributable to manufacturer price increases, a more favorable mix of those drugs that existed a year ago, payor mix changes and prescription volume growth of existing drugs.

Cost of Goods Sold

Our cost of goods sold for the nine months ended September 30, 2015 was $2,193,233, a $689,594 increase, or 46%, compared to $1,503,639 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 92.2% and 93.8% of revenue for the nine months ended September 30, 2015 and 2014, respectively. The gross margin improvement, from 6.2% to 7.8% in the nine months ended September 30, 2014 and 2015, respectively, was driven by drug mix changes, including the impact of BioRx, Burman’s and MedPro, and continued favorable trends in manufacturer-derived gross profit.

Selling, General and Administrative Expenses

Our SG&A for the nine months ended September 30, 2015 was $147,637, a $62,307 increase, compared to $85,330 in the same period of 2014. SG&A was 6.2% and 5.3% of revenue for the nine months ended September 30, 2015 and 2014, respectively. Of this increase, $15,148 relates to an increase in amortization expense from definite-lived intangible assets associated with our acquired entities. Total employee cost increased by $31,747 and includes the employee expense for our acquired entities. The increased employee expense was primarily attributable to two factors. First, the 16% increase in dispensed and serviced prescription volume, combined with the increased clinical and administrative complexity associated with our mix of business. Second,

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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 public company requirements, consulting fees, freight, travel, and other miscellaneous expenses. These increases were partially offset by a decrease of $2,317 in the change in fair value of contingent consideration related to our acquisitions. As a percent of revenue, SG&A, excluding acquisition-related amortization and change in contingent consideration, accounted for 5.5% of total revenues for the nine months ended September 30, 2015 compared to 5.1% in the year ago period. This increase is primarily attributable to the more clinically intensive therapies from the businesses we have acquired, increased share-based compensation expense and the additional expense associated with option redemption payroll taxes.

Other (Expense) Income

Our other (expense) income for the nine months ended September 30, 2015 was $(3,496), compared to $978 in the same period of 2014. The $(4,474) period-over-period change is primarily due to a $2,137 increase in interest expense and a $7,873 redeemable share fair value change during 2014, partially offset by a $4,842 charge associated with the termination of an existing stock redemption agreement and a $1,087 equity loss of non-consolidated entity, both of which were recognized during 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 nine months ended September 30, 2015 and 2014 was $13,973 and $6,984, respectively, resulting in effective tax rates of 39% and 47%, respectively.

Liquidity and Capital Resources

Our primary uses of cash include funding our working capital, business acquisitions, acquiring and maintaining property and equipment and internal use software, 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 September 30, 2015 and December 31, 2014, we had $15,665 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 $21,756 and $0 at September 30, 2015 and December 31, 2014, respectively. Our available liquidity under our line of credit was $139,032 and $108,272 at September 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 may access the equity or debt markets to raise additional funds to finance acquisitions or otherwise on a strategic basis.

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

	Nine Months Ended September 30,
	2015			2014
Net cash provided by operating activities	$	2,532		$	19,304
Net cash used in investing activities	(311,045		)	(58,520		)
Net cash provided by financing activities	306,221			45,894
Net (decrease) increase in cash and cash equivalents	$	(2,292	)	$	6,678

Net Cash Provided By Operating Activities

Cash 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 $16,772 decrease in net cash flow provided by operating activities during the nine months ended September 30, 2015 compared to the same period of 2014 was primarily due to a $26,600 increase in net working capital outflows and a $3,734 decrease in adjustments to net income, partially offset by a $13,562 increase in 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 $252,525 increase in net cash used in investing activities during the nine months ended September 30, 2015 compared to the same period of 2014 was primarily related to a $247,935 increase in cash used to acquire businesses and a $3,387 increase in expenditures for capitalized 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 $260,327 increase in net cash provided by financing activities during the nine months ended September 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, $8,745 in proceeds from issuance of stock upon stock option exercises, and the following changes in period-over-period activities: $85,423 increase in net proceeds from capital stock offerings; $26,502 decrease in the repurchase of stock and stock options; $7,816 increase in net borrowings under our line of credit; and $4,193 decrease in payments on long-term debt.

Excess Tax Benefits Related to Share-Based Awards

For U.S. GAAP purposes, share-based compensation expense associated with stock options is based upon recognition of the grant date fair value over the vesting period of the option. For income tax purposes, share-based compensation tax deductions associated with stock option exercises and repurchases are based upon the difference between the stock price and the exercise price at time of exercise or repurchase. In instances where share-based compensation expense for tax purposes is in excess of share-based compensation expense for U.S. GAAP purposes, U.S. GAAP requires that the tax benefit associated with this excess expense be recorded to shareholders’ equity to the extent that it reduces cash taxes payable. During the three and nine months ended September 30, 2015, we recorded excess tax benefits related to

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share-based awards of $9,365 and $14,348, respectively. As of September 30, 2015, we have approximately $54,000 of excess share-based compensation expense remaining to offset against future taxable income. Therefore, at an estimated effective tax rate of 39.0%, the amount of excess tax benefits yet to be recognized by us as a reduction to cash taxes payable is approximately $21,000. To the extent that stock option exercises that occur in the future generate additional excess expense, this amount would increase.

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

Debt

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. 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.

At September 30, 2015, our Term Loan A interest rate options were (i) LIBOR (as defined) plus 2.50% or (ii) Base Rate (as defined) plus 1.50%, and our line of credit and swingline loan interest rate options were (i) LIBOR (as defined) plus 2.00% or (ii) Base Rate (as defined) plus 1.00%. 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 $5,056 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 September 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.

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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 nine months ended September 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.

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 September 30, 2015. Based on these evaluations, the Chief Executive Officer and the

33

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 September 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 third quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

34

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 within our Form 10-Q for the quarterly period ended June 30, 2015, 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.

ITEM 6.EXHIBITS

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Period Ending	Exhibit / Appendix Number	Filing Date
10.1*	Second Amendment to Prime Vendor Agreement, effective August 1, 2015, by and among the Company, AmerisourceBergen Drug Corporation, and each Company subsidiary named therein.		8-K		10.1	September 15, 2015
10.2	Consent to Sale of Compounding Business, dated August 27, 2015, by and among the Company, General Electric Capital Corporation, and the other lender parties thereto.	X
10.3	Form of Restricted Stock Award Agreement (Non-Employee Directors) (2014 Omnibus Incentive Plan)	X
10.4	Notice of Termination of Voting Agreement, dated July 21, 2015, by Philip R. Hagerman (as Majority Holder)	X
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

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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

*Confidential treatment has been granted for portions of this Exhibit. These portions have been omitted from this Exhibit and submitted separately to the Securities and Exchange Commission.

** 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.

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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:      November 4, 2015

37

EX-10.2

Exhibit 10.2

August 27, 2015

Diplomat Pharmacy, Inc.,
as Borrower, and the other

Credit Parties

4100 S. Saginaw Street

Flint, Michigan 18507

Attention:  Sean Whelan,

Chief Financial Officer

Facsimile: (810) 282-0195

Re:Diplomat Pharmacy, Inc. —
Consent to Sale of Compounding Business

Ladies and Gentlemen:

Reference is made to the Second Amended and Restated Credit Agreement dated as of April 1, 2015 (as amended, the “Credit Agreement”), by and among Diplomat Pharmacy, Inc., a Michigan corporation (“Borrower”), the other Credit Parties party thereto, and General Electric Capital Corporation, a Delaware corporation, in its capacity as agent (in such capacity, “Agent”) for the several financial institutions from time to time party thereto.  Capitalized terms used in this letter and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement.

Borrower, as a portion of its business, is engaged in the business of pharmacy compounding, whereby compounded medications are made based on a practitioner’s prescription in which individual ingredients are mixed together in the exact strength and dosage form required by an individual patient’s specific need (the “Non-Core Specialty Compounding Business”).  Borrower has advised Agent and the Lenders that it intends to sell certain assets and rights related solely to the Non-Core Specialty Compounding Business, including patient files, formularies of sterile and non-sterile compounds, marketing materials, telephone numbers and fax numbers (collectively, the “Disposed Assets”), pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) between Restore Partners, LLC, a Florida limited liability company (the “Buyer”) and the Borrower (the “Asset Sale”).

The aggregate consideration for the Purchased Assets is expected to be $18.00 per prescription with respect to “Seller-Generated Accounts” during the two-year period commencing on the closing date of the Asset Sale and such consideration will be paid by Buyer on a quarterly basis (the “Deferred Consideration”), with no consideration paid on the closing date (other than the assumption of certain liabilities by the Buyer).  “Seller-Generated Accounts” are sales from (i) Borrower’s existing customers for which patient files are transferred to Buyer or (ii) prescriptions received by Buyer via Borrower’s telephone numbers, fax numbers, websites, etc. that constitute the Disposed Assets.

Pursuant to Section 5.2 of the Credit Agreement, the Borrower, the other Credit Parties and their Subsidiaries may not, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any Property or enter into any agreement to do any of the foregoing, except as specifically permitted therein.  The Borrower has informed the Agent and the Lenders that the Asset Sale, including the nature and timing of the Deferred Consideration, is not permitted under Section 5.2 of the Credit Agreement, absent consent of the Required Lenders, and has requested that the Agent and Required Lenders consent to the Asset Sale and, to the extent constituting an Investment under Section 5.4 of the Credit Agreement, the Deferred Consideration received from the Asset Sale.

Effective as of the date hereof, upon execution of this letter agreement by the Agent, the Required Lenders and the Credit Parties, and receipt by Agent of a true, correct and complete copy of the Purchase Agreement, in reliance upon the representations and warranties of the Credit Parties set forth in the Credit Agreement and notwithstanding any provisions in the Credit Agreement to the contrary, the Agent and the Lenders party hereto hereby consent to and approve the Asset Sale and, to the extent constituting an Investment under Section 5.4 of the Credit Agreement, the Deferred Consideration received from the Asset Sale.

Except to the extent specifically set forth herein, this letter shall not constitute an amendment or waiver by Agent or any Lender of any provisions of the Credit Agreement or any other Loan Document, and all of the provisions of the Credit Agreement and the other Loan Documents shall remain in full force and effect to the extent in effect prior to the date hereof.  This letter may be executed in any number of several counterparts, each of which shall be an original, but all of which shall constitute one and the same letter agreement.  Delivery of an executed counterpart of a signature page to this letter by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart thereof.  This letter shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws.

[signature pages follow]

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, Swingline Lender and as a Lender
By:	/s/ Karen M. Dahlquist
Name:	Karen M. Dahlquist
Title:	Duly Authorized Signatory

Signature Page to Consent Letter — August 2015

GE CAPITAL BANK,
as a Lender
By:	/s/ Paul Sleet
Name:	Paul Sleet
Title:	Duly Authorized Signatory

Signature Page to Consent Letter — August 2015

COMERICA BANK,
as a Lender
By:	/s/ Michael Cliff
Name:	Michael Cliff
Title:	Vice President

Signature Page to Consent Letter — August 2015

JPMORGAN CHASE BANK, N.A.,
as a Lender
By:	/s/ Wieslaw R. Sliwinski
Name:	Wieslaw R. Sliwinski
Title:	Authorized Signer

Signature Page to Consent Letter — August 2015

MUFG Union Bank, N.A.,
as a Lender
By:	/s/ R. Cassandra Bolz
Name:	R. Cassandra Bolz
Title:	Authorized Signatory

Signature Page to Consent Letter — August 2015

WELLS FARGO BANK, N.A.,
as a Lender
By:	/s/ Steve Scott
Name:	Steve Scott
Title:	Duly Authorized Signatory

Signature Page to Consent Letter — August 2015

BANK OF AMERICA, N.A.,
as a Lender
By:	/s/ Linda Alto
Name:	Linda Alto
Title:	SVP

Signature Page to Consent Letter — August 2015

CAPITAL ONE, N.A.,
as a Lender
By:	/s/ Charlie V. Boyle
Name:	Charlie V. Boyle
Title:	Vice President

Signature Page to Consent Letter — August 2015

CITIZENS BANK, N.A.,
as a Lender
By:	/s/ Cheryl Carangelo
Name:	Cheryl Carangelo
Title:	Managing Director

Signature Page to Consent Letter — August 2015

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Lender
By:	/s/ Christopher Day
Name:	Christopher Day
Title:	Authorized Signatory
By:	/s/ D. Andrew Maletta
Name:	D. Andrew Maletta
Title:	Authorized Signatory

Signature Page to Consent Letter — August 2015

DEUTSCHE BANK AG NEW YORK BRANCH, as a Lender
By:	/s/ MichaelWinters
Name:	Michael Winters
Title:	Vice President
DEUTSCHE BANK AG NEW YORK BRANCH, as a Lender
By:	/s/ Marcus M. Tarkington
Name:	Marcus M. Tarkington
Title:	Director

Signature Page to Consent Letter — August 2015

FIFTH THIRD BANK,
as a Lender
By:	/s/ Nathaniel E. Sher
Nathaniel E. Sher
Vice President

Signature Page to Consent Letter — August 2015

FIRSTMERIT BANK, N.A.,
as a Lender
By:	/s/ John Zimbo
Name:	John Zimbo
Title:	Vice President

Signature Page to Consent Letter — August 2015

FLAGSTAR BANK, FSB,
as a Lender
By:	/s/ Elizabeth K. Hausman
Name:	Elizabeth K. Hausman
Title:	First Vice President

Signature Page to Consent Letter — August 2015

THE HUNTINGTON NATIONAL BANK,
as a Lender
By:	/s/ David Tholt
Name:	David Tholt
Title:	Vice President

Signature Page to Consent Letter — August 2015

MORGAN STANLEY SENIOR FUNDING, INC., as a Lender
By:	/s/ Allen Chang
Name:	Allen Chang
Title:	Vice President

Signature Page to Consent Letter — August 2015

TALMER BANK AND TRUST,
as a Lender
By:	/s/ Brian Banning
Name:	Brian Banning
Title:	Managing Director

Signature Page to Consent Letter — August 2015

ACKNOWLEDGED AND AGREED:
	DIPLOMAT PHARMACY, INC.
	By:	/s/ Philip R. Hagerman
		Name:	Philip R. Hagerman
		Title:	Chief Executive Officer
	DIPLOMAT HEALTH SERVICES, LLC
	DIPLOMAT SPECIALTY PHARMACY OF
	FLINT, LLC
	DIPLOMAT SPECIALTY PHARMACY OF
	GRAND RAPIDS, LLC
	DIPLOMAT SPECIALTY PHARMACY OF CHICAGO, LLC
	DIPLOMAT SPECIALTY PHARMACY OF
	FT. LAUDERDALE, LLC
	DIPLOMAT SPECIALTY PHARMACY OF SOUTHERN CALIFORNIA, LLC
	DIPLOMAT SPECIALTY PHARMACY GREAT LAKES DISTRIBUTION CENTER, LLC
	DIPLOMAT CORPORATE PROPERTIES, LLC
	By: Diplomat Pharmacy, Inc., its member
	By:	/s/ Philip R. Hagerman
	Name:	Philip R. Hagerman
	Title:	Chief Executive Officer
	NAVIGATOR HEALTH SERVICES, LLC
	DSP FLINT REAL ESTATE, LLC
	DSP-BUILDING C, LLC
	DIPLOMAT INFUSION SERVICES, LLC
	DIPLOMAT HOLDING, LLC
	DIPLOMAT HEALTH MANAGEMENT, LLC
	By:	/s/ Philip R. Hagerman
	Name:	Philip R. Hagerman
	Title:	Manager
	AMERICAN HOMECARE FEDERATION, INC.
	By:	/s/ Jeffrey Rowe
	Name:	Jeffrey Rowe
	Title:	President

Signature Page to Consent Letter — August 2015

MEDPRO RX, INC.
By:	/s/ Jeffrey Rowe
Name:	Jeffrey Rowe
Title:	President
AMBASSADOR COMPOUNDING, LLC
ENVOY HEALTH MANAGEMENT, LLC
By:	/s/ Jeffrey Rowe
Name:	Jeffrey Rowe
Title:	Manager
DIPLOMAT BLOCKER, INC.
By:	/s/ Gary Kadlec
Name:	Gary Kadlec
Title:	President
BIORX, LLC
By:	/s/ Jeffrey Rowe
Name:	Jeffrey Rowe
Title:	Manager
BURMAN’S APOTHECARY, L.L.C.
BURMAN’S MEDIA PHARMACY, LLC
PHARMTRACK, LLC
By:	/s/ Gary Kadlec
Name:	Gary Kadlec
Title:	President and Treasurer

Signature Page to Consent Letter — August 2015

EX-10.3

Exhibit 10.3

DIPLOMAT PHARMACY, INC.

Form of Restricted Stock Award Agreement (Non-Employee Directors)

Under 2014 Omnibus Incentive Plan

Grantee:

Grant Date:

Number of Shares:

1.Grant of Restricted Stock.  Pursuant to the Diplomat Pharmacy, Inc. 2014 Omnibus Incentive Plan (the “Plan”), effective as of the Grant Date set forth above, Diplomat Pharmacy, Inc. (the “Company”) grants to the Grantee identified above that number of shares of the Company’s common stock, no par value, set forth above (the “Restricted Stock”), on the terms and subject to the conditions set forth in this Restricted Stock Award Agreement (this “Agreement”) and in the Plan.  Grantee shall not be required to pay any consideration to the Company for the Restricted Stock, other than rendering services and except for applicable tax withholding (as provided in Paragraph 8 below).  Capitalized terms not defined in this Agreement have the meanings ascribed to such terms in the Plan.

2.Transfer and Forfeiture Restrictions.  The following provisions shall apply to the Restricted Stock:

(a)Shares of Restricted Stock that have not yet become vested under Paragraph 3 of this Agreement may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered by Grantee, and any attempt to do so shall be null and void and without effect.

(b)If Grantee’s service as a director on the Board of Directors of the Company (the “Board”) terminates for any reason whatsoever, shares of Restricted Stock which have not then become vested under Paragraph 3 of this Agreement shall automatically be forfeited by Grantee back to the Company for no consideration, and Grantee shall have no further rights or interest in such unvested shares of Restricted Stock.

(c)If Grantee is removed from the Board for Cause, any shares of Restricted Stock that have then become vested under Paragraph 3 of this Agreement shall also be automatically forfeited back to the Company by Grantee for no consideration, and Grantee shall have no further rights or interest in such vested shares of Restricted Stock.

(d)Except for the restrictions on the Restricted Stock set forth in this Paragraph 2 or as otherwise provided in this Agreement, Grantee shall have all of the rights of a shareholder in respect of the Restricted Stock, including, but not limited to, the right to receive dividends on, and the right to vote, the Restricted Stock; provided, however, that any stock of the Company distributed on or in respect of the Restricted Stock, whether by reason of a stock split, stock dividend or otherwise, shall be subject to the same restrictions as are imposed on the Restricted Stock under this Agreement.

3.Vesting Period.  Grantee shall become vested in 100% of the shares of Restricted Stock on the first anniversary of the Grant Date, provided, however, that the Restricted Stock shall cease vesting upon the termination of Grantee’s service as a director on the Board for any reason whatsoever. Notwithstanding the immediately preceding sentence, however, in the event of a Change in Control, occurring from the Grant Date to the time of the Change in Control, all shares of Restricted Stock that are then unvested shall immediately become vested.

4.Restrictive Covenants; Compensation Recovery.  By signing this Agreement, Grantee acknowledges and agrees that the Restricted Stock (and any stock or stock-based award previously granted by the Company or a Subsidiary to Grantee under the Plan or otherwise) shall (i) be subject to forfeiture as a result of Grantee’s violation of any agreement with the Company or a Subsidiary regarding non-competition, non-solicitation, confidentiality, non-disparagement, inventions and/or similar restrictive covenants (the “Restrictive Covenants Agreement”), and (ii) be subject to forfeiture and/or recovery under any compensation recovery policy that may be adopted from time to time by the Company or any of its Subsidiaries. For avoidance of doubt, compensation recovery rights to the Restricted Stock or other shares of Company stock (including shares of stock acquired under previously granted stock-based awards) shall extend to the proceeds realized by Grantee due to sale or other transfer of such stock. Grantee’s prior execution of the Restrictive Covenants Agreement was a material inducement for the Company’s grant of the Restricted Stock under this Agreement.

5.Conformity with Plan.  This Agreement and the Restricted Stock granted hereunder are intended to conform in all respects with and are subject to all applicable provisions of the Plan, which is incorporated herein by reference. Any inconsistencies between the provisions of this Agreement and the Plan shall be resolved in accordance with the provisions of the Plan.

6.Rights as a Participant.  Nothing contained in this Agreement shall (i) interfere with or limit in any way the right of the Board (or any shareholder, to the extent permitted under applicable law and the Company’s governing documents) to terminate Grantee’s service on the Board at any time and for any or no reason, (ii) confer upon Grantee any right to be selected again as a Plan Participant, or (iii) require or permit any adjustment to the number of shares of Restricted Stock upon or as a result of the occurrence of any subsequent event (except as provided in Paragraph 13 of the Plan).

7.Code Section 83(b) Election.  Grantee acknowledges that he is aware of his right to make an election under Section 83(b) of the Internal Revenue Code with respect to the grant of the Restricted Stock (the “Section 83(b) Election”), by filing a properly completed Section 83(b) Election with the Internal Revenue Service within 30 days after the Grant Date and attaching a copy of the filed Section 83(b) Election to his tax return for the year that includes the Grant Date. It shall be the sole responsibility of Grantee, in consultation with his tax advisor, to determine whether to make the Section 83(b) Election with respect to the grant of the Restricted Stock. Should Grantee make the Section 83(b) Election with respect to the grant of the Restricted Stock, Grantee shall provide the Company a copy of the Section 83(b) Election simultaneously with filing it with the Internal Revenue Service.

2

8.Withholding of Taxes.  If applicable, any income or employment tax required to be withheld upon the grant or vesting of the Restricted Stock, or the payment of dividends on the Restricted Stock, shall be paid by Grantee to the Company, or the Company may withhold such tax from the cash compensation otherwise payable to Grantee. Alternatively, Grantee may pay any such withholding tax by such cashless means as may be permitted under law and in the discretion of the Committee.

9.Stock Certificates.  The Company shall issue certificates for the shares of Restricted Stock, registered in the name of Grantee; provided, however, that prior to the time the Restricted Stock becomes vested under the terms of this Agreement, such certificates shall have imprinted thereon the legend set forth in Paragraph 8(e) of the Plan and such certificates shall be held by the Secretary.  At the time shares of Restricted Stock become vested in Grantee hereunder, the Company shall re-issue certificates for such shares to Grantee without such legend.

10.Resale Restrictions.  The Company currently has an effective registration statement on file with the Securities and Exchange Commission with respect to the Restricted Stock.  The Company currently intends to maintain this registration, but has no obligation to do so.  If the registration ceases to be effective, in addition to the transfer restrictions imposed under Paragraph 2 hereunder, Grantee will not be able to sell or transfer the Restricted Stock issued to Grantee hereunder unless an exemption from registration under applicable securities laws is available. Grantee agrees that any resale by Grantee of the Restricted Stock shall comply in all respects with the requirements of all applicable securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the Exchange Act, and the respective rules and regulations promulgated thereunder) and any other law, rule or regulation applicable thereto, as such laws, rules and regulations may be amended from time to time.  The Company shall not be obligated to permit sale of the Restricted Stock if such sale would violate any such requirements.

11.Consent to Transfer of Personal Data.  In administering this Agreement and the Plan, or to comply with applicable legal, regulatory, tax or accounting requirements, it may be necessary for the Company to transfer certain Grantee personal data to a Subsidiary, or to outside service providers, or to governmental agencies. By signing this Agreement and accepting the award of the Restricted Stock, Grantee consents, to the fullest extent permitted by law, to the use and transfer, electronically or otherwise, of Grantee’s personal data to such entities for such purposes.

12.Consent to Electronic Delivery.  In lieu of receiving documents in hard copy paper format, Grantee agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other agreements, documents, forms and communications) in connection with the Restricted Stock and any other prior or future incentive award or program made or offered by the Company, a Subsidiary and their predecessors or successors. Electronic delivery of a document to Grantee may be via a Company or Subsidiary email system or by reference to a location on a Company or Subsidiary intranet site to which Grantee has access.

3

13.Notices.  Any and all notices, designations, consents, offers, acceptances and any other communications provided for herein shall be given in writing and shall be delivered either personally or by registered or certified mail, postage prepaid, which shall be addressed, in the case of the Company, to the Chief Financial Officer of the Company at the principal office of the Company and, in the case of Grantee, to the Grantee’s address appearing on the books of the Company or to such other address as may be designated in writing by Grantee.

14.Successors.  The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and of Grantee and the beneficiaries, executors, administrators, heirs and successors of Grantee.

15.Invalid Provision.  The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

16.Modifications.  Except as provided in the Plan, no change, modification or waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.

17.Entire Agreement.  This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

18.Governing Law.  This Agreement and the rights of the Grantee hereunder shall be governed, construed, and administered in accordance with and governed by the laws of the State of Michigan (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws of such jurisdiction or any other jurisdiction).

19.Headings.  The headings of the Paragraphs hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.

20.Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

21.Committee Determinations Final and Binding.  The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations thereunder, and its decision shall be binding and conclusive upon Grantee and his legal representative in respect of any questions arising under the Plan or this Agreement.

4

Very Truly Yours,

Diplomat Pharmacy, Inc.

By

Name:

Its:

The undersigned hereby acknowledges having read this Agreement and the Plan and agrees to be bound by all provisions set forth herein and in the Plan.

Dated as of:	GRANTEE:
	Name:

5

EX-10.4

Exhibit 10.4

July 21, 2015

Diplomat Pharmacy, Inc.

4100 S. Saginaw Street

Flint, MI  48507

Re:          Termination of Voting Agreement

Ladies and Gentlemen:

Reference is made to that certain voting agreement (the “Voting Agreement”) dated as of August 15, 2014 by and among Diplomat Pharmacy, Inc., a Michigan corporation (the “Company”) and the persons listed on the signature pages thereto (the “Shareholders”).  Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Voting Agreement.

This letter constitutes the express written consent of Majority Holder to terminate the Voting Agreement pursuant to Section 9(c), effective immediately.  You are hereby notified that the Voting Agreement is no longer of any force or effect.

	Regards,
	/s/ Philip R. Hagerman
	Philip R. Hagerman
	Majority Holder
cc: Shareholders (Via Email)

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 September 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:      November 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 September 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:November 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 September 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:November 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 September 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:November 4, 2015

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

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details) $ in Thousands				3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 19, 2015 USD ($)	Feb. 26, 2015 USD ($)	Aug. 28, 2014 USD ($) entity	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2014 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				$ 253,426		253,426		$ 23,148
Gross carrying amount				254,103		254,103		49,003
Accumulated amortization				(20,426)		(20,426)		(4,030)
Net Carrying Amount				233,677		233,677		44,973
Amortization expense				$ 7,908	$ 1,725	$ 16,396	$ 2,353
Ownership percentage				25.00%		25.00%
Aggregate amortization expense for amortizing intangible assets				$ 7,908	$ 1,725	$ 16,396	$ 2,353
BioRx, LLC
Changes in the carrying amount of goodwill
Goodwill acquired during the year						191,127
Balance as of end of period		$ 191,127
Burman's Apothecary, LLC
Changes in the carrying amount of goodwill
Goodwill acquired during the year						39,151
Balance as of end of period	$ 39,151
Primrose
Changes in the carrying amount of goodwill
Amortization expense			$ 0			0
Number of unrelated third party entities (in entities) | entity			2
Committed contribution			$ 5,000
Ownership percentage			51.00%
Amount contributed						2,000		3,000
Aggregate amortization expense for amortizing intangible assets			$ 0			0
Patient relationships
Changes in the carrying amount of goodwill
Gross carrying amount				159,100		159,100		29,100
Accumulated amortization				(11,507)		(11,507)		(2,895)
Net Carrying Amount				147,593		147,593		26,205
Non-compete employment agreements
Changes in the carrying amount of goodwill
Gross carrying amount				50,399		50,399		4,999
Accumulated amortization				(5,612)		(5,612)		(560)
Net Carrying Amount				44,787		44,787		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				22,100		22,100		10,100
Accumulated amortization				(2,082)		(2,082)		(575)
Net Carrying Amount				20,018		20,018		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				15,000		15,000
Accumulated amortization				(438)		(438)
Net Carrying Amount				14,562		14,562
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	10 years
Software licensing agreement
Changes in the carrying amount of goodwill
Gross carrying amount				2,647		2,647		2,647
Net Carrying Amount				2,647		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		2,700
Accumulated amortization				(787)		(787)
Net Carrying Amount				1,913		1,913
Favorable supply agreement | Burman's Apothecary, LLC
Changes in the carrying amount of goodwill
Weighted average amortization period	1 year
Intellectual property
Changes in the carrying amount of goodwill
Gross carrying amount				2,157		2,157		2,157
Net Carrying Amount				$ 2,157		$ 2,157		$ 2,157
Intellectual property | Primrose
Changes in the carrying amount of goodwill
Amount contributed by unrelated third party entities			$ 2,157

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BUSINESS ACQUISITIONS (Details) $ / shares in Units, $ in Thousands					3 Months Ended			9 Months Ended
	Jun. 19, 2015 USD ($) shares	Jun. 18, 2015 $ / shares	Feb. 26, 2015 USD ($) shares	Jun. 27, 2014 USD ($) shares	Sep. 30, 2015 USD ($)	Mar. 31, 2015 $ / shares	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($) segment	Sep. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
Business acquisition
Number of acquisitions not treated as asset purchase for tax purposes | segment								1
Summary of the preliminary fair value determination of the acquired assets and liabilities
Goodwill					$ 253,426			$ 253,426		$ 23,148
Burman's Apothecary, LLC
Business acquisition
Cash at closing	$ 84,296
Restricted common shares	9,578
Receivable for estimated post-closing adjustment	(6,880)
Total	$ 86,994
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					532			735
Summary of the preliminary fair value determination of the acquired assets and liabilities
Accounts receivable, net	$ 17,109
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	88
Capitalized software for internal use	17,000
Definite-lived intangible assets	23,400
Accounts payable	(25,761)
Accrued expenses - compensation and benefits	(169)
Accrued expenses - other	(6)
Total identifiable net assets	47,843
Goodwill	39,151
Total acquisition price	86,994
BioRx, LLC
Business acquisition
Cash at closing			$ 217,024
Restricted common shares			125,697
Contingent consideration fair value			41,000
Total			$ 383,721
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					$ 40			$ 1,394
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash and cash equivalents			$ 1,786
Accounts receivable, net			38,946
Inventories			5,546
Deferred income taxes			382
Prepaid expenses and other current assets			287
Property and equipment			494
Definite-lived intangible assets			181,700
Other noncurrent assets			163
Accounts payable			(25,088)
Accrued expenses - compensation and benefits			(1,653)
Accrued expenses - other			(852)
Deferred income taxes			(9,117)
Total identifiable net assets			192,594
Goodwill			191,127
Total acquisition price			383,721
BioRx, LLC | Subsidiary
Business acquisition
Number of acquisitions 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
Acquisition-related costs charged to Selling, general, and administrative expenses							$ 190		$ 825
Maximum payout of contingent consideration				$ 11,500
Purchase consideration deposited into an escrow account				$ 3,500
Deposit term into an escrow account				2 years
External lease term				5 years
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash and cash equivalents				$ 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
Definite-lived intangible assets				37,099
Accounts payable				(3,638)
Accrued expenses - compensation and benefits				(157)
Accrued expenses - other				(865)
Total identifiable net assets				46,902
Goodwill				21,635
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			12,000
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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INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2015

INVENTORIES

Schedule of inventories

	September 30,		December 31,
	2015		2014
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$	153,286	$	110,464
Raw materials	—		208
Finished goods	7		11
	$	153,293	$	110,683

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SHARE-BASED COMPENSATION (Details) - Stock options - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Number of Options
Outstanding at beginning of period (in shares)	7,217,331
Granted (in shares)	1,022,439
Repurchased (in shares)	(1,641,387)
Exercised (in shares)	(1,683,000)
Expired/cancelled (in shares)	(787,119)
Outstanding at end of period (in shares)	4,128,264	7,217,331
Exercisable at end of period (in shares)	1,011,545
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)	$ 7.54
Granted (in dollars per share)	41.65
Repurchased (in dollars per share)	5.44
Exercised (in dollars per share)	5.20
Expired/cancelled (in dollars per share)	16.13
Outstanding at end of period (in dollars per share)	16.15	$ 7.54
Exercisable at end of period (in dollars per share)	$ 4.01
Weighted Average Remaining Contractual Life
Outstanding at beginning of period	7 years 8 months 12 days	6 years 10 months 24 days
Outstanding at end of period	7 years 8 months 12 days	6 years 10 months 24 days
Exercisable at end of period	5 years 2 months 12 days
Aggregate Intrinsic Value
Outstanding at beginning of period	$ 142,262
Outstanding at end of period	65,195	$ 142,262
Exercisable at end of period	$ 25,060

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FAIR VALUE MEASUREMENTS (Details 2) - Level 3 - Contingent consideration $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($)
Level 3 measurements
Balance at beginning of the period	$ (11,691)
BioRx acquisition	(41,000)
Changes in fair value	1,660
Payments	6,750
Balance at end of the period	$ (44,281)

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INCOME PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Preferred shares portions of net income (as a percent)		16.00%		13.00%
Net income attributable to Diplomat Pharmacy, Inc.	$ 15,961	$ 4,541	$ 22,210	$ 7,906
Less net income allocable to preferred shareholders		745		1,062
Net income allocable to common shareholders	$ 15,961	$ 3,796	$ 22,210	$ 6,844
Weighted average common shares outstanding, basic (in shares)	63,890,060	31,643,725	59,507,347	31,479,950
Weighted average dilutive effect of stock options and restricted stock awards (in shares)	1,622,995	2,026,316	2,251,632	2,476,045
Weighted average common shares outstanding, diluted (in shares)	65,513,055	33,670,041	61,758,979	33,955,995
Net income per common share:
Basic (in dollars per share)	$ 0.25	$ 0.12	$ 0.37	$ 0.22
Diluted (in dollars per share)	$ 0.24	$ 0.11	$ 0.36	$ 0.20
Contingent consideration
Net income per common share:
Anti-dilutive options excluded (in shares)	1,350,309		1,350,309
Performance-based stock options
Net income per common share:
Anti-dilutive options excluded (in shares)	678,234	871,293	550,512	826,103
Service-based stock options
Net income per common share:
Anti-dilutive options excluded (in shares)	615,504	679,629	270,421	579,653

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 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 (see Note 7). The Company also owns a 25% interest in a non-consolidated entity which is accounted for under the equity method of accounting since the Company does not control the entity but has the ability to exercise significant influence over its operating and financial policies. This equity method investment was fully impaired during the fourth quarter of 2014. An investment in an entity in which the Company owns less than 20% and does not have the ability to exercise significant influence is accounted for under the cost method.

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

All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

Revenue Recognition

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

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

New Accounting Pronouncements

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

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

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

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

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

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SHARE-BASED COMPENSATION (Details 2) $ / shares in Units, $ in Thousands	1 Months Ended			3 Months Ended			9 Months Ended
	Mar. 31, 2015 USD ($)	Apr. 30, 2014 USD ($) shares	Jan. 31, 2014 USD ($) shares	Sep. 30, 2015 USD ($) $ / shares	Dec. 31, 2014 shares	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($) item $ / shares shares	Sep. 30, 2014 USD ($)
Additional disclosures
Cash consideration to repurchase stock options							$ 36,298	$ 9,400
Excess tax benefits related to share-based awards reported as decrease to operating activities							(14,348)
Excess tax benefits related to share-based awards reported as increase to financing activities							$ 14,348
Effective tax rate							39.00%	47.00%
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				$ 48.72			$ 48.72
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
Expected volatility (as a percent)							25.82%
Risk-free interest rate for the estimated expected term (as a percent)							1.84%
Stock options
Share-based compensation
Granted (in shares) | shares							1,022,439
Granted (in dollars per share) | $ / shares							$ 12.72
Additional disclosures
Total compensation expense				$ 1,232		$ 693	$ 2,389	$ 1,828
Repurchased (in shares)							(1,641,387)
Stock options repurchased 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
Excess tax benefits related to share-based awards reported as decrease to operating activities				(9,365)			$ (14,348)
Excess tax benefits related to share-based awards reported as increase to financing activities							14,348
Excess share-based compensation expense remaining to offset against future taxable income							$ 54,000
Effective tax rate							39.00%
Excess tax benefit yet to be recognized				21,000			$ 21,000
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							631,396
Percentage of options exercisable in installments beginning on the first anniversary of the grant date and each of the three anniversaries thereafter							25.00%
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			$ 113

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DESCRIPTION OF BUSINESS (Details) $ / shares in Units, $ in Thousands	1 Months Ended		9 Months Ended
	Mar. 31, 2015 USD ($) $ / shares shares	Oct. 31, 2014 USD ($) $ / shares shares	Sep. 30, 2015 USD ($) segment location $ / shares	Sep. 30, 2014 USD ($) $ / 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]
Public offering price (in dollars per share) | $ / shares				$ 13.00
Proceeds from follow-on public offering, net of transaction costs			$ 187,238
Other offering expenses				$ 1,368
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			$ 21,756
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	$ 187,238
Underwriting discounts and commissions	9,891
Other offering expenses	685
Net proceeds used to repurchase stock options	$ 36,298

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INCOME PER COMMON SHARE (Tables)

9 Months Ended

Sep. 30, 2015

INCOME PER COMMON SHARE

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	15,961	$	4,541	$	22,210	$	7,906
Less net income allocable to preferred shareholders	—		745		—		1,062
Net income allocable to common shareholders	15,961		3,796		22,210		6,844
Denominator:
Weighted average common shares outstanding, basic	63,890,060		31,643,725		59,507,347		31,479,950
Weighted average dilutive effect of stock options and restricted stock awards	1,622,995		2,026,316		2,251,632		2,476,045
Weighted average common shares outstanding, diluted	65,513,055		33,670,041		61,758,979		33,955,995
Net income per common share:
Basic	$	0.25	$	0.12	$	0.37	$	0.22
Diluted	$	0.24	$	0.11	$	0.36	$	0.20

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INCOME TAXES (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Jan. 23, 2014
INCOME TAXES
Net deferred income tax liability			$ 2,965
Effective tax rate	39.00%	47.00%

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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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	Sep. 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	$ 5,312	$ 921
Primrose
Principles of Consolidation
Percentage of interest in a non-consolidated entity			51.00%

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BASIS OF PRESENTATION

9 Months Ended

Sep. 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 nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 3, 2015.

Stock Split

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

Effect of Conversion from S Corporation to C Corporation

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

Reclassifications

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Revenue recognition
Revenues from service, data and consulting services	$ 5,380	$ 3,119	$ 13,947	$ 8,684
Prescription Drugs
Revenue recognition
Revenues	$ 941,533	$ 592,410	$ 2,365,860	$ 1,594,197

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INVESTMENT IN NON-CONSOLIDATED ENTITY (Details) $ in Thousands	1 Months Ended		2 Months Ended	9 Months Ended
	Jan. 31, 2014 USD ($)	Oct. 31, 2011 USD ($)	Dec. 31, 2013 USD ($) item	Sep. 30, 2014 USD ($)	Sep. 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					$ 8,725
Physician Resource Management, Inc.
Schedule of Equity Method Investments [Line Items]
Investment at cost						$ 3,500
Equity position						15.00%

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Current assets:
Cash and equivalents	$ 15,665	$ 17,957
Accounts receivable, net	258,158	155,273
Inventories	153,293	110,683
Deferred income taxes	2,503	1,813
Prepaid expenses and other current assets	7,551	5,360
Total current assets	437,170	291,086
Property and equipment, net	14,988	13,150
Capitalized software for internal use, net	35,904	13,236
Goodwill	253,426	23,148
Definite-lived intangible assets, net	233,677	44,973
Deferred debt issuance costs	5,312	921
Investment in non-consolidated entity	3,500	3,500
Other noncurrent assets	179	72
Total assets	984,156	390,086
Current liabilities:
Accounts payable	271,988	202,495
Borrowings on line of credit	21,756
Short-term debt, including current portion of long-term debt	6,000
Accrued expenses:
Contingent consideration	44,281	6,282
Compensation and benefits	6,126	2,257
Other	8,372	4,394
Total current liabilities	358,523	215,428
Long-term debt, less current portion	112,500
Contingent consideration, less current portion		5,409
Deferred income taxes	11,128	518
Other noncurrent liabilities		4
Total liabilities	$ 482,151	$ 221,359
Commitments and contingencies
Shareholders' equity:
Preferred stock (10,000,000 shares authorized; none issued and outstanding)
Common stock (no par value; 590,000,000 shares authorized; 64,253,037 and 51,457,023 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively)	$ 448,736	$ 148,901
Additional paid-in capital	21,868	9,893
Retained earnings	27,564	5,354
Total Diplomat Pharmacy shareholders' equity	498,168	164,148
Noncontrolling interests	3,837	4,579
Total shareholders' equity	502,005	168,727
Total liabilities and shareholders' equity	$ 984,156	$ 390,086

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REDEEMABLE CAPITAL STOCK (Details) $ / shares in Units, $ in Thousands	1 Months Ended			3 Months Ended	9 Months Ended
	Oct. 31, 2014 $ / shares shares	Apr. 30, 2014 USD ($) $ / shares shares	Jan. 31, 2014 USD ($) $ / shares shares	Sep. 30, 2014 USD ($) $ / shares	Sep. 30, 2015 shareholder $ / shares shares	Sep. 30, 2014 USD ($) $ / shares	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					64,253,037		51,457,023
Change on fair value of redeemable shares				$ 6,916		$ 7,873
Share price (in dollars per share) | $ / shares				$ 13.00		$ 13.00
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

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Condensed Consolidated Statements of Changes in Stockholders' Equity - 9 months ended Sep. 30, 2015 - USD ($) $ in Thousands	BioRx, LLC Common stock	BioRx, LLC Diplomat Pharmacy, Inc. Shareholders' Equity	BioRx, LLC	Burman's Apothecary, LLC Common stock	Burman's Apothecary, LLC Diplomat Pharmacy, Inc. Shareholders' Equity	Burman's Apothecary, LLC	Common stock	Additional Paid-in Capital	Retained Earnings	Diplomat Pharmacy, Inc. Shareholders' Equity	Noncontrolling Interest	Total
Balance at the beginning of the period at Dec. 31, 2014							$ 148,901	$ 9,893	$ 5,354	$ 164,148	$ 4,579	$ 168,727
Balance at the beginning of the period (in shares) at Dec. 31, 2014							51,457,023					51,457,023
Changes in shareholders' deficit
Net income									22,210	22,210	(742)	$ 21,468
Proceeds from public offering, net of issuance costs							$ 187,238			187,238		187,238
Proceeds from public offering, net of issuance costs (in shares)							6,821,125
Repurchase of stock options							$ (34,194)	(2,104)		(36,298)		(36,298)
Stock issued upon stock option exercises							$ 11,516	(2,771)		8,745		8,745
Stock issued upon stock option exercises (in shares)							1,683,000
Excess tax benefits related to share-based awards								14,348		14,348		14,348
Issuance of common stock as partial consideration in acquisition	$ 125,697	$ 125,697	$ 125,697	$ 9,578	$ 9,578	$ 9,578
Issuance of common stock as partial consideration in acquisition (in shares)	4,038,853			253,036
Share-based compensation expense								2,502		2,502		2,502
Balance at the end of the period at Sep. 30, 2015							$ 448,736	$ 21,868	$ 27,564	$ 498,168	$ 3,837	$ 502,005
Balance at the end of the period (in shares) at Sep. 30, 2015							64,253,037					64,253,037

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BUSINESS ACQUISITIONS (Details 3) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Pro Forma Operating Results
Net sales	$ 946,913	$ 733,776	$ 2,656,523	$ 2,055,904
Net income attributable to Diplomat Pharmacy, Inc.	$ 11,090	$ 5,536	$ 29,259	$ 11,565
Net income per common share - basic (in dollars per share)	$ 0.17	$ 0.13	$ 0.47	$ 0.27
Net income per common share - diluted (in dollars per share)	$ 0.17	$ 0.12	$ 0.46	$ 0.26

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 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 (see Note 7). The Company also owns a 25% interest in a non-consolidated entity which is accounted for under the equity method of accounting since the Company does not control the entity but has the ability to exercise significant influence over its operating and financial policies. This equity method investment was fully impaired during the fourth quarter of 2014. An investment in an entity in which the Company owns less than 20% and does not have the ability to exercise significant influence is accounted for under the cost method.

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

All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

Use of Estimates

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

Revenue Recognition

Revenue Recognition

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

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

New Accounting Pronouncements

New Accounting Pronouncements

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

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

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

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

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

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FAIR VALUE MEASUREMENTS (Details) - Recurring - Contingent consideration - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Fair value measurements
Asset (Liability)	$ (44,281)	$ (11,691)
Level 3
Fair value measurements
Asset (Liability)	$ (44,281)	$ (11,691)

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 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
September 30, 2015:
Contingent consideration	$	(44,281	)	$	(44,281	)	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	(41,000		)
Changes in fair value	1,660
Payments	6,750
Balance at September 30, 2015	$	(44,281	)

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DESCRIPTION OF BUSINESS

9 Months Ended

Sep. 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, specialized infusion therapy, HIV and many other serious or long-term conditions. The Company has its corporate headquarters and main distribution facility in Flint, Michigan and maintains 16 other pharmacy locations in Arizona, California, Connecticut, Florida, Illinois, Iowa, Massachusetts, Michigan, Minnesota, North Carolina, Ohio and Pennsylvania. The Company also has centralized call centers to effectively deliver services to customers located in all 50 states in the United States of America (“U.S.”) and U.S. territories. The Company operates as one reportable segment.

Initial Public Offering

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

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

Follow-On Public Offering

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

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 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	64,253,037	51,457,023
Common shares, outstanding shares	64,253,037	51,457,023

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INCOME TAXES

9 Months Ended

Sep. 30, 2015

INCOME TAXES

INCOME TAXES

11.INCOME TAXES

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

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Nov. 03, 2015
Document and Entity Information
Entity Registrant Name	Diplomat Pharmacy, Inc.
Entity Central Index Key	0001610092
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		64,354,867
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3

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CONTINGENCIES

9 Months Ended

Sep. 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		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Condensed Consolidated Statements of Operations
Net sales	$ 946,913	$ 595,529	$ 2,379,807	$ 1,602,881
Cost of products sold	(871,150)	(555,364)	(2,193,233)	(1,503,639)
Gross profit	75,763	40,165	186,574	99,242
Selling, general and administrative expenses	(48,860)	(34,306)	(147,637)	(85,330)
Income from operations	26,903	5,859	38,937	13,912
Other (expense) income:
Interest expense	(1,542)	(734)	(3,766)	(1,629)
Change in fair value of redeemable common shares		6,916		7,873
Termination of existing stock redemption agreement		(4,842)		(4,842)
Equity loss of non-consolidated entity		(377)		(1,087)
Other	90	146	270	663
Total other (expense) income	(1,452)	1,109	(3,496)	978
Income before income taxes	25,451	6,968	35,441	14,890
Income tax expense	(9,768)	(2,427)	(13,973)	(6,984)
Net income	15,683	4,541	21,468	7,906
Less net loss attributable to noncontrolling interest	(278)		(742)
Net income attributable to Diplomat Pharmacy, Inc.	15,961	4,541	22,210	7,906
Net income allocable to preferred shareholders		745		1,062
Net income allocable to common shareholders	$ 15,961	$ 3,796	$ 22,210	$ 6,844
Net income per common share:
Basic (in dollars per share)	$ 0.25	$ 0.12	$ 0.37	$ 0.22
Diluted (in dollars per share)	$ 0.24	$ 0.11	$ 0.36	$ 0.20
Weighted average common shares outstanding:
Basic (in shares)	63,890,060	31,643,725	59,507,347	31,479,950
Diluted (in shares)	65,513,055	33,670,041	61,758,979	33,955,995

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INVENTORIES

9 Months Ended

Sep. 30, 2015

INVENTORIES

INVENTORIES

6.INVENTORIES

Inventories consist of the following:

	September 30,		December 31,
	2015		2014
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$	153,286	$	110,464
Raw materials	—		208
Finished goods	7		11
	$	153,293	$	110,683

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 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 September 30, 2015 and December 31, 2014:

	Asset /						Valuation
	(Liability)			Level 3			Technique
September 30, 2015:
Contingent consideration	$	(44,281	)	$	(44,281	)	C
December 31, 2014:
Contingent consideration	$	(11,691	)	$	(11,691	)	C

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

	Contingent Consideration
Balance at January 1, 2015	$	(11,691	)
BioRx acquisition	(41,000		)
Changes in fair value	1,660
Payments	6,750
Balance at September 30, 2015	$	(44,281	)

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

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BUSINESS ACQUISITIONS (Tables)

9 Months Ended

Sep. 30, 2015

Business acquisition

Schedule of unaudited pro forma results of operations

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net sales	$	946,913	$	733,776	$	2,656,523	$	2,055,904
Net income attributable to Diplomat Pharmacy, Inc.	$	11,090	$	5,536	$	29,259	$	11,565
Net income per common share — basic	$	0.17	$	0.13	$	0.47	$	0.27
Net income per common share — diluted	$	0.17	$	0.12	$	0.46	$	0.26

Burman's Apothecary, LLC

Business acquisition

Schedule of consideration transferred

Cash at closing	$	84,296
253,036 restricted common shares	9,578
Receivable for post-closing adjustment	(6,880		)
	$	86,994

Summary of the amounts of identifiable acquired assets and assumed liabilities

Accounts receivable	$	17,109
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	88
Capitalized software for internal use	17,000
Definite-lived intangible assets	23,400
Accounts payable	(25,761		)
Accrued expenses — compensation and benefits	(169		)
Accrued expenses — other	(6		)
Total identifiable net assets	47,843
Goodwill	39,151
	$	86,994

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

	Useful Life	Amount
Physician relationships	10 years	$	15,000
Non-compete employment agreements	5 years	5,700
Favorable supply agreement	1 year	2,700
		$	23,400

BioRx, LLC

Business acquisition

Schedule of consideration transferred

Cash	$	217,024
4,038,853 restricted common shares	125,697
Contingent consideration at fair value	41,000
	$	383,721

Summary of the amounts of identifiable acquired assets and assumed liabilities

Cash and cash equivalents	$	1,786
Accounts receivable	38,946
Inventories	5,546
Deferred income taxes	382
Prepaid expenses and other current assets	287
Property and equipment	494
Definite-lived intangible assets	181,700
Other noncurrent assets	163
Accounts payable	(25,088		)
Accrued expenses — compensation and benefits	(1,653		)
Accrued expenses — other	(852		)
Deferred income taxes	(9,117		)
Total identifiable net assets	192,594
Goodwill	191,127
	$	383,721

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	12,000
		$	181,700

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
Definite-lived intangible assets	37,099
Accounts payable	(3,638		)
Accrued expenses — compensation and benefits	(157		)
Accrued expenses — other	(865		)
Total identifiable net assets	46,902
Goodwill	21,635
	$	68,537

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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REDEEMABLE CAPITAL STOCK

9 Months Ended

Sep. 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 $6,916 and a $7,873 “Change in fair value of redeemable shares” during the three and nine months ended September 30, 2014, respectively.

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

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

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

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DEBT

9 Months Ended

Sep. 30, 2015

DEBT

DEBT

9.DEBT

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

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

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

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

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

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 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 nine months ended September 30, 2015:

Balance at January 1, 2015	$	23,148
BioRx acquisition	191,127
Burman’s acquisition	39,151
Balance at September 30, 2015	$	253,426

Definite-lived intangible assets consist of the following:

	September 30, 2015							December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	159,100	$	(11,507	)	$	147,593	$	29,100	$	(2,895	)	$	26,205
Non-compete employment agreements	50,399		(5,612		)	44,787		4,999		(560		)	4,439
Trade names and trademarks	22,100		(2,082		)	20,018		10,100		(575		)	9,525
Physician relationships	15,000		(438		)	14,562		—		—			—
Software licensing agreement	2,647		—			2,647		2,647		—			2,647
Favorable supply agreement	2,700		(787		)	1,913		—		—			—
Intellectual property	2,157		—			2,157		2,157		—			2,157
	$	254,103	$	(20,426	)	$	233,677	$	49,003	$	(4,030	)	$	44,973

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

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

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INVESTMENT IN NON-CONSOLIDATED ENTITIES

9 Months Ended

Sep. 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 $8,725 to Ageology as of September 30, 2015.

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

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

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SHARE-BASED COMPENSATION

9 Months Ended

Sep. 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 nine months ended September 30, 2015 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	of Options		Price		Life	Value
					(Years)
Outstanding at December 31, 2014	7,217,331		$	7.54	6.9	$	142,262
Granted	1,022,439		41.65
Repurchased	(1,641,387	)	5.44
Exercised	(1,683,000	)	5.20
Expired/cancelled	(787,119	)	16.13
Outstanding at September 30, 2015	4,128,264		$	16.15	7.7	$	65,195
Exercisable at September 30, 2015	1,011,545		$	4.01	5.2	$	25,060

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

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

Exercise price	$39.26 - $48.72
Expected volatility	25.82% - 26.70%
Expected dividend yield	0%
Risk-free rate over the estimated expected life	1.84% - 2.01%
Expected life (in years)	6.25

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

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

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

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

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

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

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

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

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BUSINESS ACQUISITIONS (Details 2) - USD ($) $ in Thousands				3 Months Ended		9 Months Ended
	Jun. 19, 2015	Feb. 26, 2015	Jun. 27, 2014	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Definite-lived intangible assets
Fair value of this contingent consideration liability change in amount						$ (1,660)	$ 657
Contingent consideration related charges						5,316
Amortization expense				$ 7,908	$ 1,725	16,396	$ 2,353
MedPro Rx, Inc.
Definite-lived intangible assets
Total			$ 37,099
Contingent consideration earned and paid				$ 5,750
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
Total	$ 23,400
Burman's Apothecary, LLC | Physician relationships
Definite-lived intangible assets
Useful Life	10 years
Amount	$ 15,000
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
Total		$ 181,700
Fair value of this contingent consideration liability change in amount						$ (38,000)
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		$ 12,000
BioRx, LLC | Non-compete employment agreements
Definite-lived intangible assets
Useful Life		5 years
Amount		$ 39,700

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INCOME PER COMMON SHARE

9 Months Ended

Sep. 30, 2015

INCOME PER COMMON SHARE

INCOME PER COMMON SHARE

15.INCOME PER COMMON SHARE

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	15,961	$	4,541	$	22,210	$	7,906
Less net income allocable to preferred shareholders	—		745		—		1,062
Net income allocable to common shareholders	15,961		3,796		22,210		6,844
Denominator:
Weighted average common shares outstanding, basic	63,890,060		31,643,725		59,507,347		31,479,950
Weighted average dilutive effect of stock options and restricted stock awards	1,622,995		2,026,316		2,251,632		2,476,045
Weighted average common shares outstanding, diluted	65,513,055		33,670,041		61,758,979		33,955,995
Net income per common share:
Basic	$	0.25	$	0.12	$	0.37	$	0.22
Diluted	$	0.24	$	0.11	$	0.36	$	0.20

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

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

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 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	191,127
Burman’s acquisition	39,151
Balance at September 30, 2015	$	253,426

Schedule of definite-lived intangible assets

	September 30, 2015							December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	159,100	$	(11,507	)	$	147,593	$	29,100	$	(2,895	)	$	26,205
Non-compete employment agreements	50,399		(5,612		)	44,787		4,999		(560		)	4,439
Trade names and trademarks	22,100		(2,082		)	20,018		10,100		(575		)	9,525
Physician relationships	15,000		(438		)	14,562		—		—			—
Software licensing agreement	2,647		—			2,647		2,647		—			2,647
Favorable supply agreement	2,700		(787		)	1,913		—		—			—
Intellectual property	2,157		—			2,157		2,157		—			2,157
	$	254,103	$	(20,426	)	$	233,677	$	49,003	$	(4,030	)	$	44,973

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DEBT (Details) - USD ($) $ in Thousands		1 Months Ended	9 Months Ended
	Apr. 01, 2015	Oct. 31, 2014	Sep. 30, 2015	Jun. 30, 2014
Line of credit | GE
Debt
Maximum borrowing capacity	$ 175,000
Letters of credit | GE
Debt
Maximum borrowing capacity				$ 10,000
Deferred draw term loan | GE
Debt
Maximum borrowing capacity	25,000
Deferred financing costs	5,056
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)			1.50%
Base Rate | Line Of Credit And Swingline Loan | GE
Debt
Variable rate basis			Base Rate
Interest rate margin (as a percent)			1.00%
LIBOR | Line of credit | GE
Debt
Variable rate basis			LIBOR
Interest rate margin (as a percent)			2.50%
LIBOR | Line Of Credit And Swingline Loan | GE
Debt
Variable rate basis			LIBOR
Interest rate margin (as a percent)			2.00%

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Cash flows from operating activities:
Net income	$ 21,468	$ 7,906
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20,823	5,331
Change in fair value of contingent consideration	(1,660)	657
Contingent consideration payment	(3,738)
Net provision for doubtful accounts	3,307	3,257
Share-based compensation expense	2,502	1,828
Excess tax benefits related to share-based awards	(14,348)
Deferred tax expense	1,185	3,286
Amortization of debt issuance costs	665	276
Impairment of capitalized software for internal use	150
Loss (gain) on sale or disposal of property and equipment	60	(11)
Change in fair value of redeemable common shares		(7,873)
Termination of existing stock redemption agreement		4,842
Equity loss of non-consolidated entity		1,087
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	(43,513)	(18,563)
Inventories	(28,379)	(6,913)
Accounts payable	18,644	26,192
Other assets and liabilities	25,366	(1,998)
Net cash provided by operating activities	2,532	19,304
Cash flows from investing activities:
Payments to acquire business, net of cash acquired	(299,534)	(51,599)
Expenditures for capitalized software for internal use	(9,145)	(5,758)
Expenditures for property and equipment	(2,374)	(834)
Net proceeds from sales of property and equipment	8	21
Loan to non-consolidated entity		(500)
Net repayment of related parties' notes receivable		150
Net cash used in investing activities	(311,045)	(58,520)
Cash flows from financing activities:
Net borrowings from line of credit	21,756	13,940
Proceeds from long-term debt	120,000
Payments on long-term debt	(1,500)	(5,693)
Proceeds from follow-on public offering, net of transaction costs	187,238
Proceeds from sale of preferred stock, net of transaction costs		101,815
Payments made to repurchase common stock		(53,400)
Payments made to repurchase stock options	(36,298)	(9,400)
Proceeds from issuance of stock upon stock option exercises	8,745
Excess tax benefits related to share-based awards	14,348
Payments of debt issuance costs	(5,056)
Contingent consideration payment	(3,012)
Payments of stock offering costs		(1,368)
Net cash provided by financing activities	306,221	45,894
Net (decrease) increase in cash and equivalents	(2,292)	6,678
Cash and equivalents at beginning of period	17,957	9,109
Cash and equivalents at end of period	15,665	15,787
Supplemental disclosures of cash flow information:
Cash paid for interest	2,730	1,411
Cash paid for income taxes	$ 346	$ 3,426

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BUSINESS ACQUISITIONS

9 Months Ended

Sep. 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 at closing	$	84,296
253,036 restricted common shares	9,578
Receivable for post-closing adjustment	(6,880		)
	$	86,994

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

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

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

Accounts receivable	$	17,109
Inventories	8,668
Prepaid expenses and other current assets	7,514
Property and equipment	88
Capitalized software for internal use	17,000
Definite-lived intangible assets	23,400
Accounts payable	(25,761		)
Accrued expenses — compensation and benefits	(169		)
Accrued expenses — other	(6		)
Total identifiable net assets	47,843
Goodwill	39,151
	$	86,994

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

	Useful Life	Amount
Physician relationships	10 years	$	15,000
Non-compete employment agreements	5 years	5,700
Favorable supply agreement	1 year	2,700
		$	23,400

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

BioRx

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

Cash	$	217,024
4,038,853 restricted common shares	125,697
Contingent consideration at fair value	41,000
	$	383,721

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

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

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

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

Cash and cash equivalents	$	1,786
Accounts receivable	38,946
Inventories	5,546
Deferred income taxes	382
Prepaid expenses and other current assets	287
Property and equipment	494
Definite-lived intangible assets	181,700
Other noncurrent assets	163
Accounts payable	(25,088		)
Accrued expenses — compensation and benefits	(1,653		)
Accrued expenses — other	(852		)
Deferred income taxes	(9,117		)
Total identifiable net assets	192,594
Goodwill	191,127
	$	383,721

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

	Useful Life	Amount
Patient relationships	10 years	$	130,000
Non-compete employment agreements	5 years	39,700
Trade names and trademarks	8 years	12,000
		$	181,700

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

MedPro Rx, Inc.

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

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

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

The following table summarizes the consideration transferred to acquire MedPro:

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

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

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

Cash and cash equivalents	$	668
Accounts receivable	9,050
Inventories	3,819
Prepaid expenses and other current assets	204
Property and equipment	697
Capitalized software for internal use	25
Definite-lived intangible assets	37,099
Accounts payable	(3,638		)
Accrued expenses — compensation and benefits	(157		)
Accrued expenses — other	(865		)
Total identifiable net assets	46,902
Goodwill	21,635
	$	68,537

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

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

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

Proforma Operating Results

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net sales	$	946,913	$	733,776	$	2,656,523	$	2,055,904
Net income attributable to Diplomat Pharmacy, Inc.	$	11,090	$	5,536	$	29,259	$	11,565
Net income per common share — basic	$	0.17	$	0.13	$	0.47	$	0.27
Net income per common share — diluted	$	0.17	$	0.12	$	0.46	$	0.26

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SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 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	1,022,439		41.65
Repurchased	(1,641,387	)	5.44
Exercised	(1,683,000	)	5.20
Expired/cancelled	(787,119	)	16.13
Outstanding at September 30, 2015	4,128,264		$	16.15	7.7	$	65,195
Exercisable at September 30, 2015	1,011,545		$	4.01	5.2	$	25,060

Schedule of assumptions used to determine the valuation of granted options

Exercise price	$39.26 - $48.72
Expected volatility	25.82% - 26.70%
Expected dividend yield	0%
Risk-free rate over the estimated expected life	1.84% - 2.01%
Expected life (in years)	6.25

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

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INVENTORIES (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
INVENTORIES
Prescription medications, over-the-counter medications and medical supplies, and non-medical retail items	$ 153,286	$ 110,464
Raw materials		208
Finished goods	7	11
Total inventories	$ 153,293	$ 110,683

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TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT

9 Months Ended

Sep. 30, 2015

TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT.

TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT

14.TERMINATION OF EXISTING STOCK REDEMPTION AGREEMENT

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