10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2017

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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x     Accelerated filer o     Non-accelerated filer o

Smaller Reporting Company o     Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  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 August 7, 2017, there were 68,303,038 outstanding shares of the registrant’s no par value common stock.

DIPLOMAT PHARMACY, INC.

Form 10-Q

For the Quarter Ended June 30, 2017

INDEX

	Page No.
Part I — Financial Information
Item 1 — Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Operations (Unaudited)	4
Condensed Consolidated Statements of Cash Flows (Unaudited)	5
Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3 — Qualitative and Quantitative Disclosures about Market Risk	29
Item 4 — Controls and Procedures	29
Part II — Other Information
Item 1 — Legal Proceedings	31
Item 1A — Risk Factors	31
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6 — Exhibits	32
Signatures	33
Exhibits

2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

	June 30, 2017		December 31, 2016
ASSETS
Current assets:
Cash and equivalents	$	7,804	$	7,953
Accounts receivable, net	279,604		275,568
Inventories	178,131		215,351
Prepaid expenses and other current assets	10,477		6,235
Total current assets	476,016		505,107
Property and equipment, net	20,963		20,372
Capitalized software for internal use, net	42,953		50,247
Goodwill	358,178		316,616
Definite-lived intangible assets, net	195,100		199,862
Deferred income taxes	5,031		6,010
Other noncurrent assets	1,081		1,040
Total assets	$	1,099,322	$	1,099,254
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	307,718	$	320,684
Borrowings on line of credit	2,521		39,255
Short-term debt, including current portion of long-term debt	10,875		7,500
Accrued expenses:
Compensation and benefits	6,511		5,674
Other	12,792		12,233
Total current liabilities	340,417		385,346
Long-term debt, less current portion	119,006		100,184
Contingent consideration	4,365		—
Total liabilities	463,788		485,530
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; 68,017,230 and 66,764,999 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively)	515,820		503,828
Additional paid-in capital	35,372		33,268
Retained earnings	84,264		76,306
Total Diplomat Pharmacy shareholders’ equity	635,456		613,402
Noncontrolling interests	78		322
Total shareholders’ equity	635,534		613,724
Total liabilities and shareholders’ equity	$	1,099,322	$	1,099,254

See accompanying notes to condensed consolidated financial statements.

3

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net sales	$	1,126,464		$	1,088,506		$	2,205,204		$	2,084,376
Cost of products sold	(1,041,630		)	(1,005,236		)	(2,035,321		)	(1,921,868		)
Gross profit	84,834			83,270			169,883			162,508
Selling, general and administrative expenses	(79,991		)	(69,416		)	(156,492		)	(123,610		)
Income from operations	4,843			13,854			13,391			38,898
Other (expense) income:
Interest expense	(1,931		)	(1,521		)	(3,980		)	(2,956		)
Other	34			105			66			213
Total other expense	(1,897		)	(1,416		)	(3,914		)	(2,743		)
Income before income taxes	2,946			12,438			9,477			36,155
Income tax benefit (expense)	544			(4,145		)	(1,763		)	(12,679		)
Net income	3,490			8,293			7,714			23,476
Less net loss attributable to noncontrolling interest	(101		)	(241		)	(244		)	(487		)
Net income attributable to Diplomat Pharmacy, Inc.	$	3,591		$	8,534		$	7,958		$	23,963
Net income per common share:
Basic	$	0.05		$	0.13		$	0.12		$	0.37
Diluted	$	0.05		$	0.13		$	0.12		$	0.35
Weighted average common shares outstanding:
Basic	67,528,151			66,085,149			67,209,280			65,312,155
Diluted	68,211,882			68,034,392			67,997,929			67,939,665

See accompanying notes to condensed consolidated financial statements.

4

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income	$	7,714		$	23,476
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	31,935			22,389
Net provision for doubtful accounts	5,401			4,010
Share-based compensation expense	3,798			3,152
Deferred income tax expense	979			11,178
Amortization of debt issuance costs	595			581
Change in fair value of contingent consideration	—			(8,922		)
Contingent consideration payment	—			(382		)
Other	6			1
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	(3,024		)	(49,246		)
Inventories	37,179			(11,358		)
Accounts payable	(14,353		)	52,878
Other assets and liabilities	(2,977		)	(1,808		)
Net cash provided by operating activities	67,253			45,949
Cash flows from investing activities:
Payments to acquire businesses, net of cash acquired	(53,571		)	(69,072		)
Expenditures for capitalized software for internal use	(2,459		)	(7,349		)
Expenditures for property and equipment	(2,289		)	(3,705		)
Other	(43		)	1
Net cash used in investing activities	(58,362		)	(80,125		)
Cash flows from financing activities:
Net (payments on) proceeds from line of credit	(36,734		)	17,057
Proceeds from long-term debt	25,000			—
Payments on long-term debt	(3,313		)	(3,000		)
Proceeds from issuance of stock upon stock option exercises	6,007			1,203
Contingent consideration payment	—			(722		)
Payments of debt issuance costs	—			(56		)
Net cash (used in) provided by financing activities	(9,040		)	14,482
Net decrease in cash and equivalents	(149		)	(19,694		)
Cash and equivalents at beginning of period	7,953			27,600
Cash and equivalents at end of period	$	7,804		$	7,906
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	4,458		$	401
Cash paid for interest	3,386			2,318

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, 2017	66,764,999	$	503,828	$	33,268		$	76,306	$	613,402	$	322		$	613,724
Net income (loss)	—	—		—			7,958		7,958		(244		)	7,714
Issuance of stock as partial consideration of WRB Communications, LLC	299,325	4,291		—			—		4,291		—			4,291
Stock issued upon stock option exercises	916,092	7,701		(1,694		)	—		6,007		—			6,007
Share-based compensation expense	—	—		3,798			—		3,798		—			3,798
Restricted stock awards	36,814	—		—			—		—		—			—
Balance at June 30, 2017	68,017,230	$	515,820	$	35,372		$	84,264	$	635,456	$	78		$	635,534

See accompanying notes to condensed consolidated financial statements.

6

DIPLOMAT PHARMACY, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts)

1.DESCRIPTION OF BUSINESS

Diplomat Pharmacy, Inc. and its consolidated subsidiaries (the “Company”) operate a specialty pharmacy business which stocks, dispenses, and distributes prescriptions for various biotechnology and specialty pharmaceutical manufacturers. Its primary focus is on medication management programs for individuals with complex chronic diseases. Disease states covered include oncology, immunology, specialty infusion therapy, hepatitis, multiple sclerosis, and many other serious or long-term conditions. The Company has its corporate headquarters and main distribution facility in Flint, Michigan, and operates 28 other locations in Alabama, Arizona, California, Connecticut, Florida, Illinois, Iowa, Kansas, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New York, North Carolina, Ohio, Pennsylvania, Texas, Virginia, and Wisconsin. 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.

2.BASIS OF PRESENTATION

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations, cash flows, and changes in shareholders’ equity. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 8, 2017.

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 percent owned subsidiary, formed in August 2014, which the Company controls. An investment in an entity in which the Company owns less than 20 percent 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.

7

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.

Inventories

Inventories consist of prescription and over-the-counter medications and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Prescription medications are returnable to the Company’s vendors and fully refundable before six months of expiration, and any remaining expired medication is relieved from inventory on a quarterly basis.

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. 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 $1,118,196 and $1,082,221 for the three months ended June 30, 2017 and 2016, respectively, and $2,192,061 and $2,072,232 for the six months ended June 30, 2017 and 2016, 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 $8,268 and $6,285 for the three months ended June 30, 2017 and 2016, respectively, and $13,143 and $12,144 for the six months ended June 30, 2017 and 2016, respectively.

Accounting Standards Update (“ASU”) Adoption — Balance Sheet Classification of Deferred Taxes

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), eliminating the requirement for companies to present deferred tax assets and liabilities as current and noncurrent. Instead, companies are required to classify all deferred tax assets and liabilities as noncurrent. This ASU is effective for annual periods beginning on or after December 15, 2016, including interim periods within those annual periods, and can be adopted either prospectively or retrospectively.

Effective January 1, 2017, the Company retrospectively adopted the accounting guidance contained within ASU 2015-17. The following December 31, 2016 condensed consolidated balance sheet line items were adjusted due to this adoption:

	As
	Previously
	Reported		Adjustment			As Adjusted
Deferred income taxes (current asset)	$	14,703	$	(14,703	)	$	—
Total current assets	519,810		(14,703		)	505,107
Deferred income taxes (noncurrent asset)	—		6,010			6,010
Total assets	1,107,947		(8,693		)	1,099,254
Deferred income taxes (noncurrent liability)	8,693		(8,693		)	—
Total liabilities	494,223		(8,693		)	485,530
Total liabilities and shareholders’ equity	1,107,947		(8,693		)	1,099,254

8

ASU Adoption — Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), eliminating Step 2 from the quantitative goodwill impairment test. Instead, an entity will perform its annual, or interim, quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount (Step 1). An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for an entity’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted.

Effective January 1, 2017, the Company adopted the accounting guidance contained within ASU 2017-04. There was no current impact to the Company as a result of this adoption.

New Accounting Pronouncements

In May 2014, the FASB issued 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, though early adoption is permitted. ASU 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (cumulative catch-up transition method). The Company currently anticipates adopting ASU 2014-09 using the cumulative catch-up transition method. The Company continues to assess the impact that the adoption of ASU 2014-09 will have on its condensed consolidated financial statements and/or notes thereto, although the Company does not expect the impact to be significant.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at lease commencement date. This ASU is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods, though early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and/or notes thereto.

In May 2017, the FASB issued ASU No. 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, providing guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU is effective for annual periods beginning on or after December 15, 2017, including interim periods within those annual periods, though early adoption is permitted. This ASU is to be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating whether to early adopt and the impact that the adoption of this guidance will have on its condensed consolidated financial statements and/or notes thereto.

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 asset purchases for income tax purposes and the related goodwill resulting from these business acquisitions is deductible for income tax purposes. The results of operations for acquired businesses are included in the Company’s consolidated financial statements from their respective acquisition dates.

9

The assets acquired and liabilities assumed in the business combinations described below, including identifiable intangible assets, were based on their estimated fair values as of the acquisition date. The excess of purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The allocation of the purchase price required management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to identifiable intangible assets. These estimated fair values were based on information obtained from management of the acquired companies and historical experience and, with respect to the long-lived tangible and intangible assets, were made with the assistance of an independent valuation firm. These estimates included, but were not limited to, the cash flows that an asset is expected to generate in the future, and the cost savings expected to be derived from acquiring an asset, discounted at rates commensurate with the risks and uncertainties involved. For acquisitions that involved contingent consideration, the Company recognized a liability equal to the fair value of the contingent consideration obligation as of the acquisition date. The estimate of fair value of a contingent consideration obligation required subjective assumptions regarding future business results, discount rates, and probabilities assigned to various potential business result scenarios.

WRB Communications, LLC

On May 8, 2017, the Company acquired WRB Communications, LLC (“WRB”), a communications and contact center company based in Chantilly, VA that specializes in relationship management programs for leading pharmaceutical manufacturers and service organizations. The following table summarizes the consideration transferred to acquire WRB:

Cash	$	26,394
299,325 restricted common shares	4,291
Contingent consideration at fair value	530
	$	31,215

The above share consideration at closing is based on 299,325 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of May 5, 2017 ($15.93), and multiplied by 90 percent to account for the restricted nature of the shares.

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners additional cash payouts of up to $500 per performance period based upon the achievement of certain earnings before interest, taxes, depreciation, and amortization targets in the 12-month periods ending April 30, 2018 and 2019. The maximum additional cash payout is $1,000.

Approximately $1,950 of the purchase consideration was deposited into an escrow account to be held for 18 months after the closing date to satisfy any of the Company’s indemnification claims.

The Company incurred acquisition-related costs of $196 which were charged to “Selling, general and administrative expenses” during both the three and six month periods ended June 30, 2017.

10

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

Cash	$	1,018
Accounts receivable	2,594
Prepaid expenses and other current assets	194
Property and equipment	498
Definite-lived intangible assets	7,730
Other noncurrent assets	24
Accounts payable	(100		)
Accrued expenses — other	(513		)
Total identifiable net assets	11,445
Goodwill	19,770
	$	31,215

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

	Useful Life	Amount
Customer relationships	7 years	$	5,200
Non-compete employment agreements	4 years	1,530
Trade names and trademarks	2 years	1,000
		$	7,730

Comfort Infusion, Inc.

On March 22, 2017, the Company acquired Comfort Infusion, Inc. (“Comfort”), a specialty pharmacy and infusion services company based in Birmingham, AL that specializes in intravenous immune globulin therapy to support patients’ immune systems. The following table summarizes the consideration transferred to acquire Comfort:

Cash	$	10,613
Contingent consideration at fair value	3,800
	$	14,413

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners additional cash payouts of up to $2,000 per performance period based upon the achievement of certain gross profit targets in each of the 12-month periods ending March 31, 2018, 2019, and 2020. The maximum payout of contingent consideration is $6,000.

Approximately $1,050 of the purchase consideration was deposited into an escrow account to be held for 18 months after the closing date to satisfy any of the Company’s indemnification claims.

11

The Company incurred acquisition-related costs of $81 and $214 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2017, respectively.

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

Cash	$	104
Accounts receivable	575
Inventories	118
Prepaid expenses and other current assets	15
Definite-lived intangible assets	2,400
Other noncurrent assets	5
Accounts payable	(372		)
Accrued expenses — other	(101		)
Total identifiable net assets	2,744
Goodwill	11,669
	$	14,413

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

	Useful Life	Amount
Physician relationships	7 years	$	1,200
Non-compete employment agreements	5 years	1,200
		$	2,400

Affinity Biotech, Inc.

On February 1, 2017, the Company acquired Affinity Biotech, Inc. (“Affinity”), a specialty pharmacy and infusion services company based in Houston, TX that provides treatments and nursing services for patients with hemophilia. The following table summarizes the consideration transferred to acquire Affinity:

Cash	$	17,377
Contingent consideration at fair value	35
	$	17,412

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners an additional cash payout based upon the achievement of a certain earnings before interest, taxes, depreciation, and amortization target in the 12-month period ending January 31, 2018. The maximum payout of contingent consideration is $4,000.

Approximately $2,000 of the purchase consideration was deposited into an escrow account to be held for 18 months after the closing date to satisfy any of the Company’s indemnification claims.

The Company incurred acquisition-related costs of $203 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2016.

12

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

Cash	$	1,043
Accounts receivable	3,583
Inventories	79
Prepaid expenses and other current assets	74
Definite-lived intangible assets	5,100
Other noncurrent assets	5
Accounts payable	(1,075		)
Accrued expenses — compensation and benefits	(144		)
Accrued expenses — other	(25		)
Total identifiable net assets	8,640
Goodwill	8,772
	$	17,412

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

	Useful Life	Amount
Patient relationships	7 years	$	4,000
Non-compete employment agreements	5 years	1,100
		$	5,100

Valley Campus Pharmacy, Inc.

On June 1, 2016, the Company acquired Valley Campus Pharmacy, Inc., doing business as TNH Advanced Specialty Pharmacy (“TNH”). TNH, a specialty pharmacy based in Van Nuys, California, provides medication management programs for individuals with complex chronic diseases, including oncology, hepatitis, and immunology. The following table summarizes the consideration transferred to acquire TNH:

Cash	$	70,267
324,244 restricted common shares	9,507
	$	79,774

The above share consideration at closing is based on 324,244 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of May 31, 2016 ($32.58), and multiplied by 90 percent to account for the restricted nature of the shares.

Approximately $3,800 of the purchase consideration was deposited into an escrow account to be held for one year after the closing date to satisfy any indemnification claims that may be made by the Company. All but $100 was released to the sellers from escrow during the second quarter of 2017.

The Company incurred acquisition-related costs of $359 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2016.

13

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

Cash	$	2,114
Accounts receivable	16,271
Inventories	4,740
Prepaid expenses and other current assets	46
Property and equipment	200
Capitalized software for internal use	14,000
Definite-lived intangible assets	13,890
Other noncurrent assets	21
Accounts payable	(29,773		)
Accrued expenses — compensation and benefits	(400		)
Accrued expenses — other	(1,962		)
Total identifiable net assets	19,147
Goodwill	60,627
	$	79,774

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

	Useful Life	Amount
Physician relationships	10 years	$	7,700
Non-compete employment agreements	5 years	4,490
Trade names and trademarks	1 year	1,700
		$	13,890

Pro Forma Operating Results

The following 2017 unaudited pro forma summary presents condensed consolidated financial information as if the Affinity, Comfort, and WRB acquisitions had occurred on January 1, 2016. The following 2016 unaudited pro forma summary presents condensed consolidated financial information as if the Affinity, Comfort, and WRB acquisitions had occurred on January 1, 2016 and the TNH acquisition had occurred on January 1, 2015. 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 the as if dates or of results that may occur in the future.

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net sales	$	1,128,151	$	1,182,015	$	2,214,971	$	2,309,463
Net income attributable to Diplomat Pharmacy, Inc.	$	3,618	$	8,472	$	8,127	$	24,528
Net income per common share — basic	$	0.05	$	0.13	$	0.12	$	0.37
Net income per common share — diluted	$	0.05	$	0.12	$	0.12	$	0.36

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

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participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy was established, which prioritizes the inputs used in measuring fair value as follows:

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

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

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

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

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

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

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

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

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and disclosed at fair value on a recurring basis at June 30, 2017:

	Asset /						Valuation
	(Liability)			Level 3			Technique
Contingent consideration	$	(4,365	)	$	(4,365	)	C

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

	Contingent Consideration
Balance at January 1, 2017	$	—
Affinity acquisition	(35		)
Comfort acquisition	(3,800		)
WRB acquisition	(530		)
Balance at June 30, 2017	$	(4,365	)

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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6.GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

The following table sets forth a roll forward of goodwill for the six months ended June 30, 2017:

Balance at January 1, 2017	$	316,616
Affinity acquisition	8,772
Comfort Infusion acquisition	11,669
WRB acquisition	19,770
TNH purchase price adjustment	1,351
Balance at June 30, 2017	$	358,178

Definite-lived intangible assets consisted of the following:

	June 30, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	163,100	$	(39,096	)	$	124,004	$	159,100	$	(31,445	)	$	127,655
Non-compete employment agreements	58,519		(24,298		)	34,221		54,689		(18,674		)	36,015
Physician relationships	22,900		(5,784		)	17,116		21,700		(2,831		)	18,869
Trade names and trademarks	24,800		(10,117		)	14,683		23,800		(6,477		)	17,323
Customer relationships	5,200		(124		)	5,076		—		—			—
	$	274,519	$	(79,419	)	$	195,100	$	259,289	$	(59,427	)	$	199,862

7.INVESTMENT IN NON-CONSOLIDATED ENTITY

From October 2011 through January 2017, the Company maintained a 25 percent minority interest in Worksmart MD, LLC, also known as Ageology, though it fully impaired its investment during the fourth quarter of 2014. In transactions unrelated to the Company, SkyPoint Ventures LLC (“SkyPoint”), an affiliated entity of the Company’s chief executive officer, loaned $16,000 to Ageology through January 2017. In February 2017, SkyPoint elected to convert its $16,000 in outstanding loans into equity in Ageology, which equated to an approximate ownership of 43 percent. Concurrently, the Company converted its $2,500 in outstanding loans (which the Company had written off during the fourth quarter of 2014) into equity in Ageology, which resulted in the Company having an approximate 22 percent minority interest following the recapitalization. Because the Company does not direct the activities that most significantly impact the economic performance of Ageology, management has determined that the Company is not nor ever has been Ageology’s primary beneficiary.

Subsequent to the February 2017 concurrent conversion transactions, SkyPoint loaned Ageology $1,660 during the six months ended June 30, 2017.

8.DEBT

The Company had $108,000 and $111,000 outstanding on its Term Loan A as of June 30, 2017 and December 31, 2016, respectively. Unamortized debt issuance costs of $2,806 and $3,316 as of June 30, 2017 and December 31, 2016, respectively, are presented in the condensed consolidated balance sheets as direct deductions from the outstanding debt balances. During the first quarter of 2017, the Company fully drew down its $25,000 deferred draw term loan (“DDTL”), of which $24,688 was outstanding as of June 30, 2017. The Company also had $2,521 and $39,255 outstanding on its line of credit as of June 30, 2017 and December 31, 2016, respectively. The Company had $156,032 and $129,908 available to borrow on its line of credit at June 30, 2017 and December 31, 2016, respectively.

The Company’s Term Loan A interest rate options are (i) LIBOR (as defined) plus 2.50 percent or (ii) Base Rate (as defined) plus 1.50 percent, and the Company’s line of credit and swingline loan interest rate options are (i) LIBOR (as defined) plus 2.00 percent or (ii) Base Rate (as defined) plus 1.00 percent. The interest rate on the Company’s

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Term Loan A and DDTL was 3.55 percent and 3.13 percent at June 30, 2017 and December 31, 2016, respectively. The Company’s line of credit interest rate was 5.00 percent and 4.75 percent at June 30, 2017 and December 31, 2016, respectively. In addition, the Company is charged a monthly unused commitment fee ranging from 0.25 percent to 0.50 percent on its average unused daily balance on its $175,000 line of credit.

The Company’s credit facility, consisting of the Term Loan A, DDTL, and line of credit, contains certain financial and non-financial covenants. The Company was in compliance with all such covenants as of June 30, 2017 and December 31, 2016.

9.SHARE-BASED COMPENSATION

A summary of the Company’s stock option activity as of and for the six months ended June 30, 2017 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	of Options		Price		Life	Value
					(Years)
Outstanding at January 1, 2017	4,413,341		$	19.02	7.0	$	11,558
Granted	2,185,735		14.92
Exercised	(916,092	)	6.56
Expired/cancelled	(588,570	)	27.38
Outstanding at June 30, 2017	5,094,414		$	18.54	8.3	$	6,778
Exercisable at June 30, 2017	1,496,673		$	16.35	5.9	$	6,675

The Company recorded share-based compensation expense associated with stock options of $2,626 and $1,562 for the three months ended June 30, 2017 and 2016, respectively, and $3,514 and $2,994 for the six months ended June 30, 2017 and 2016, respectively.

The Company granted service-based awards of 849,976 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan (“2014 Plan”) during the six months ended June 30, 2017, of which 200,000 options were immediately vested at time of grant. The remaining 649,976 options become exercisable in installments of 25 percent per year, beginning on the first anniversary of the grant date and each of the three anniversaries thereafter. All service-based options have a maximum term of 10 years.

The Company also granted performance-based awards of 1,060,759 options to purchase common stock to key employees under its 2014 Plan during the second quarter of 2017, of which 260,759 options will be earned or forfeited based upon the Company’s performance relative to specified net sales and adjusted earnings before interest, taxes, depreciation, and amortization goals for the year ending December 31, 2017. The earned options, if any, will vest in four installments of 25%, with the first installment vesting upon the earlier of the date that the Company files its Annual Report on Form 10-K or Audit Committee confirmation of the satisfaction of the applicable performance goals, with the remaining installments vesting annually thereafter. The remaining 800,000 options will be earned or forfeited in increments based on the cumulative growth in adjusted earnings before interest, taxes, depreciation, and amortization of a certain therapeutic category during the years ending December 31, 2017, 2018, 2019, and 2020. The earned options, if any, will be determined annually each March 31 of the subsequent year and vest as of that date. All performance-based options have a maximum term of 10 years.

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The 1,910,735 options to purchase common stock that were granted during the six months ended June 30, 2017 have a weighted average grant date fair value of $5.48 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	$14.36 - $17.93
Expected volatility	33.44% - 33.93	%
Expected dividend yield	0	%
Risk-free rate over the estimated expected life	1.88% - 2.32	%
Expected life (in years)	5.00 - 6.25

Estimating grant date fair values for employee stock options requires management to make assumptions regarding expected volatility of value of those underlying 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. Risk-free rate is determined based upon U.S. Treasury rates over the estimated expected option lives. Expected dividend yield is zero as the Company does not anticipate that any dividends will be declared during the expected term of the options. The expected term of options granted is calculated using the simplified method (the midpoint between the end of the vesting period and the end of the maximum term).

Restricted Stock Units (“RSU” or “RSUs”)

A summary of the Company’s RSU activity as of and for the six months ended June 30, 2017 is as follows:

		Weighted
		Average
	Number	Grant Date
	of RSUs	Fair Value
Nonvested at January 1, 2017	—	$	—
Granted	90,718	14.65
Nonvested at June 30, 2017	90,718	$	14.65

The Company granted 90,708 RSUs to key employees under its 2014 Plan during the second quarter of 2017. The value of an RSU is determined by the market value of the Company’s common stock at the date of grant. This value is recorded as compensation expense on a straight-line basis over the vesting period, which is three years. Of the 90,708 RSUs granted, 46,495 cliff vest after three years, while the remaining 44,213 vest one-third per year, beginning on the first anniversary of the grant date and each of the two anniversaries thereafter.

The Company recorded share-based compensation expense associated with RSUs of $105 for both the three and six months ended June 30, 2017, respectively.

Restricted Stock Awards (“RSA” or “RSAs”)

A summary of the Company’s RSA activity as of and for the six months ended June 30, 2017 is as follows:

	Number		Weighted
	of Shares		Average
	Subject to		Grant Date
	Restriction		Fair Value
Nonvested at January 1, 2017	5,765		$	32.97
Granted	36,814		17.13
Vested	(9,210	)	25.58
Nonvested at June 30, 2017	33,369		$	17.53

The Company grants RSAs to non-employee directors. The value of an RSA is determined by the market value of the Company’s common stock at the date of grant. This value is recorded as compensation expense on a straight-line

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basis over the vesting period, which is one year. The Company recorded share-based compensation expense associated with RSAs of $95 and $87 for the three months ended June 30, 2017 and 2016, respectively, and $179 and $158 for the six months ended June 30, 2017 and 2016, respectively.

10.CONTINGENCIES

On November 10, 2016, a putative class action complaint was filed in the U.S. District Court for the Eastern District of Michigan against Diplomat Pharmacy, Inc. and certain officers of the Company. Following appointment of lead plaintiffs and lead counsel, an amended complaint was filed on April 11, 2017. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with public filings made between February 29, 2016 and November 2, 2016 (the “potential class period”). The plaintiff seeks to represent a class of shareholders who purchased stock in the potential class period. The complaint seeks unspecified monetary damages and other relief. The Company filed a motion to dismiss the amended complaint on May 24, 2017, and the lead plaintiffs filed a response in opposition to the Company’s motion to dismiss on July 10, 2017. A hearing on the motion to dismiss is scheduled for October 19, 2017. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against the action. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition, or cash flows.

On February 10, 2017, the Company’s Board of Directors (the “Board”) received a demand letter from a purported shareholder containing allegations similar to those contained in the putative class action complaint described above. The letter demanded that the Board take action to remedy the alleged violations. In response, the Board established a Special Independent Committee of its disinterested and independent members to investigate the claims. The Special Independent Committee is continuing to review this matter and has not yet concluded its investigation. Subsequently, on June 2, 2017, the shareholder filed a putative shareholder’s derivative lawsuit in the Michigan Circuit Court for the County of Genesee regarding the same matters alleged in the demand letter. The complaint names the Company as a nominal defendant and names a number of the Company’s current and former officers and directors as defendants. The complaint seeks unspecified monetary damages and other relief. In connection with the ongoing Special Independent Committee investigation, on July 20, 2017, the court ordered a stay of legal proceedings for 90 days. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition, or cash flows.

The results of legal proceedings are often uncertain and difficult to predict, and the Company could from time to time incur judgments, enter into settlements, materially change its business practices or technologies or revise its expectations regarding the outcome of certain matters. In addition, the costs incurred in litigation can be substantial, regardless of the outcome.

The Company’s business of providing specialized pharmacy services and other related services may subject it to litigation and liability for damages in the ordinary course of business. Nevertheless, the Company believes there are no other legal proceedings, the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business, financial position, cash flows, or results of operations.

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11.INCOME PER COMMON SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	3,591	$	8,534	$	7,958	$	23,963
Denominator:
Weighted average common shares outstanding, basic	67,528,151		66,085,149		67,209,280		65,312,155
Weighted average dilutive effect of stock options and restricted stock awards/units	683,731		1,949,243		788,649		1,954,369
Weighted average dilutive effect contingent consideration	—		—		—		673,141
Weighted average common shares outstanding, diluted	68,211,882		68,034,392		67,997,929		67,939,665
Net income per common share:
Basic	$	0.05	$	0.13	$	0.12	$	0.37
Diluted	$	0.05	$	0.13	$	0.12	$	0.35

Service-based and earned performance-based stock options to purchase a weighted average of 3,947,686 and 1,541,467 common shares for the three months ended June 30, 2017 and 2016, respectively, and 3,190,598 and 1,455,421 common shares for the six months ended June 30, 2017 and 2016, respectively, were excluded from the computation of diluted weighted average common shares outstanding as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to a weighted average of 221,891 and 381,532 common shares for the three months ended June 30, 2017 and 2016, respectively, and 110,946 and 213,826 common shares for the six months ended June 30, 2017 and 2016, respectively, were excluded from the computation of diluted weighted average common shares outstanding as all performance conditions were not satisfied as of June 30, 2017 and 2016, respectively. Weighted average restricted stock awards of 9,340 and 5,950 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2017, respectively, as inclusion of such shares would be anti-dilutive. Weighted average restricted stock units of 86,488 and 43,244 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2017, respectively, as inclusion of such shares would be anti-dilutive. Contingent consideration to issue up to 1,350,309 common shares was excluded from the computation of diluted weighted average common shares outstanding for the six months ended June 30, 2016 as all performance conditions were not satisfied as of March 31, 2016.

12. SUBSEQUENT EVENT

On July 5, 2017, the Company acquired Accurate Rx Pharmacy Consulting, LLC, a specialty pharmacy focusing on infusion services located in Columbia, MO. Under the terms of the Agreement, Diplomat transferred cash and stock consideration of approximately $8,000 and $1,800, respectively, with additional cash payouts of up to $3,600 per performance period based upon the achievement of certain gross profit targets in the 12-month periods ending July 31, 2018 and 2019. The maximum additional cash payout is $7,200.

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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, 2016, which was filed on March 8, 2017 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, 2016 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 largest independent specialty pharmacy in the United States of America (“U.S.”), and is focused on improving the 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 more than $100,000 per patient, per year). We have expertise across a broad range of high-growth specialty therapeutic categories, including oncology, immunology, hepatitis, specialty infusion therapy, multiple sclerosis, and many other serious or long-term conditions. We dispense to patients in all 50 states and U.S. territories through our advanced distribution centers and manage centralized clinical call centers to deliver localized services on a national scale. Diplomat was founded in 1975 by our chief executive officer and chairman, 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 multiyear or lifelong therapy, our singular focus on complex chronic diseases helps drive recurring revenues and sustainable growth. Our organic revenue growth is primarily driven by new drugs coming to market, new indications for existing drugs, volume growth with current clients, and the addition of new clients. For the three and six months ended June 30, 2017 and 2016, we derived over 99 percent of our revenue from the dispensing of drugs and the reporting of data associated with those dispenses to pharmaceutical manufacturers and other outside companies.

Our historical revenue growth has largely been driven by our position as a leader in the oncology, immunology, specialty infusion, hepatitis, and multiple sclerosis therapeutic categories. For the three months ended June 30, 2017

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and 2016, we generated approximately 94% and 93%, respectively, of our revenues in these categories in aggregate. For the six months ended June 30, 2017 and 2016, we generated approximately 94% and 93%, respectively, in the aggregate, of our revenues in these categories.

We expect future revenue growth to be driven by a highly visible and recurring base of prescription volume and 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 service offerings, our growing penetration with new customers, and our access to limited-distribution drugs will help us achieve sustainable revenue growth in the future. Further, we believe that limited distribution is becoming the delivery system of choice for many specialty drug manufacturers because it is conducive to smaller patient populations, facilitates high patient engagement, clinical expertise, and an elevated focus on service, and because it allows for real-time patient-specific (albeit de-identified) data. Accordingly, we believe our current portfolio of approximately 100 limited-distribution drugs, all of which are commercially available, is important to our revenue growth.

We also provide specialty pharmacy support services to a national network of retailers and independent hospital groups, as well as hospitals and health systems. Through many of these 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 months ended June 30, 2017 and 2016 was derived from these services provided to retail and hospital pharmacy partners.

Recent Developments

Accurate Rx Pharmacy Consulting, LLC

On July 5, 2017, we acquired Accurate Rx Pharmacy Consulting, LLC, a specialty pharmacy focusing on infusion services located in Columbia, MO. Under the terms of the Agreement, Diplomat transferred cash and stock consideration of approximately $8,000 and $1,800, respectively, with additional cash payouts of up to $3,600 per performance period based upon the achievement of certain gross profit targets in the 12-month periods ending July 31, 2018 and 2019. The maximum additional cash payout is $7,200.

WRB Communications, LLC Acquisition

On May 8, 2017, we acquired WRB Communications, LLC (“WRB”) for a total acquisition price of $31,215, excluding related acquisition costs. Included in the total acquisition price is $26,394 in cash, 299,325 restricted shares of our common stock, fair valued at $4,291 as of the acquisition date, and contingent consideration of up to $500 in cash per performance period to the former holders of WRB’s equity interests based upon the achievement of certain earnings before interest, taxes, depreciation and amortization targets in each of the twelve month periods ending April 30, 2018 and 2019, which was fair valued at $530 as of the acquisition date. WRB a communications and contact center company based in Chantilly, VA that specializes in relationship management programs for leading pharmaceutical manufacturers and service organizations.

Comfort Infusion, Inc. Acquisition

On March 22, 2017, we acquired Comfort Infusion, Inc. (“Comfort”) for a total acquisition price of $14,413, excluding related acquisition costs. Included in the total acquisition price is $10,613 in cash, and contingent consideration of up to $2,000 in cash per performance period to the former holders of Comfort’s equity interests based upon the achievement of certain earnings before interest, taxes, depreciation and amortization targets in each of the twelve month periods ending March 31, 2018, 2019, and 2020, which was fair valued at $3,800 as of the acquisition date. Comfort is a specialty pharmacy and infusion services company based in Birmingham, AL that specializes in intravenous immune globulin therapy to support patients’ immune systems.

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Affinity Biotech, Inc. Acquisition

On February 1, 2017, we acquired Affinity Biotech, Inc. (“Affinity”) for a total acquisition price of $17,412, excluding related acquisition costs. Included in the total acquisition price is $17,377 in cash, and contingent consideration of up to $4,000 in cash to the former holders of Affinity’s equity interests based upon the achievement of a certain earnings before interest, taxes, depreciation and amortization target in the twelve month period ending January 31, 2018, which was fair valued at $35 as of the acquisition date. Affinity is a specialty pharmacy and infusion services company based in Houston, TX that provides treatments and nursing services for patients with hemophilia.

Key Performance Metrics

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Prescriptions dispensed	220,000		241,000		440,000		473,000
Net sales per prescription dispensed	$	5,107	$	4,505	$	5,008	$	4,393
Gross profit per prescription dispensed	$	371	$	339	$	377	$	335

Prescription Data (rounded to the nearest thousand)

Prescriptions dispensed represent prescriptions filled and dispensed by Diplomat to patients, or in rare cases, to physicians. Our volume for the three and six month periods ended June 30, 2017 decreased by 9 percent and 7 percent, respectively, from the prior year periods. These volume decreases were due to contracts that were not renewed, a business decision to exit dispensing certain high-volume, but low-profit, drugs, and a decrease in hepatitis C volume, partially offset by the contributions of our recent acquisitions, 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.

Other Metrics

Other key metrics used in analyzing our business are net sales per prescription dispensed and gross profit per prescription 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 paid by manufacturers to us, which are recorded as a reduction to cost of products sold.

Components of Results of Operations

Net Sales

Revenue for a dispensed prescription is recognized at the time of shipment for home delivery and at prescription adjudication (which approximates the fill date) for patient pick up at open door or retail pharmacy locations. We can

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earn revenue from multiple sources for any one claim, including the primary insurance plan, the secondary insurance plan, the tertiary insurance plan, the 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 provided by us to those non-Diplomat pharmacies to dispense specialty drugs to patients. The retail and hospital pharmacies dispense the drug and pay us a service fee for clinically and administratively servicing their patients.

Cost of Products Sold

Cost of products 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 products 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 WAC and receive reimbursement at a discount off AWP. The discounts off AWP and WAC that we receive vary significantly by drug and by contract. Rebates we receive from manufacturers are reflected as reductions to cost of products sold when they are earned.

Selling, General and Administrative Expenses (“SG&A”)

Our operating expenses primarily consist of employee and employee-related costs, outbound prescription drug transportation and logistics costs, and amortization expense from definite-lived intangible assets associated with our acquired entities. 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 in dollars as we incur additional expenses related to our growth.

Other Expense

Other expense primarily consists of interest expense associated with our debt, and tax credits.

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Results of Operations

Three Months Ended June 30, 2017 versus Three Months Ended June 30, 2016

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

	Three Months Ended June 30,
	2017			2016
Net sales	$	1,126,464		$	1,088,506
Cost of products sold	(1,041,630		)	(1,005,236		)
Gross profit	84,834			83,270
SG&A	(79,991		)	(69,416		)
Income from operations	4,843			13,854
Other (expense) income:
Interest expense	(1,931		)	(1,521		)
Other	34			105
Total other expense	(1,897		)	(1,416		)
Income before income taxes	2,946			12,438
Income tax benefit (expense)	544			(4,145		)
Net income	3,490			8,293
Less net loss attributable to noncontrolling interest	(101		)	(241		)
Net income attributable to Diplomat Pharmacy, Inc.	$	3,591		$	8,534

Net Sales

Net sales for the three months ended June 30, 2017 were $1,126,464, a $37,958 or 3.5 percent increase, compared to $1,088,506 for the three months ended June 30, 2016. This increase was primarily the result of approximately $83,000 of net sales from our recent acquisitions, approximately $63,000 from the impact of manufacturer price increases, and approximately $32,000 from drugs that were new in the past twelve months. These increases were partially offset by a decrease due to contracts that were not renewed as well as a decrease in hepatitis C versus the prior year period.

Cost of Products Sold

Cost of products sold for the three months ended June 30, 2017 was $1,041,630, a $36,394 or 3.6 percent increase, compared to $1,005,236 for the three months ended June 30, 2016. This 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 92.5 percent and 92.4 percent of net sales for the three months ended June 30, 2017 and 2016, respectively. The slight reduction in gross margin from 7.6 percent to 7.5 percent for the three months ended June 30, 2016 and 2017, respectively, was primarily due to an increase in accrued direct and indirect remuneration (“DIR”) fees versus what had been accrued during the second quarter of 2016.

SG&A

SG&A for the three months ended June 30, 2017 were $79,991, a $10,575 increase, compared to $69,416 for the three months ended June 30, 2016. Total employee cost increased by $7,200 and includes the employee expense for our acquired entities. The increased employee expense was primarily attributable to the growth in our oncology and specialty infusion therapeutic categories, which are more clinically and administratively complex. Amortization expense from definite-lived intangible assets associated with our acquired entities increased $3,126. The remaining increase was in various other SG&A including bad debt, freight, insurance, share-based compensation, and other miscellaneous expenses. As a percent of net sales, SG&A accounted for 7.1 percent for the three months ended June 30, 2017 compared to 6.4 percent for the three months ended June 30, 2016. This increase is primarily attributable to the increase in acquisition-related amortization and the increased operating complexity associated with both our acquisitions and new drugs.

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Other Expense

Other expense for the three months ended June 30, 2017 was $1,897, compared to $1,416 for the three months ended June 30, 2016, and is primarily comprised of interest expense. The increase in interest expense was primarily due to higher average borrowings in the second quarter of 2017.

Income Tax Benefit (Expense)

Income tax benefit (expense) for the three months ended June 30, 2017 and 2016 was $544 and $(4,145), respectively. The income tax benefit recognized during the second quarter of 2017 was primarily due to the recognition of excess tax benefits as a result of stock option exercises that occurred during the quarter.

Six Months Ended June 30, 2017 versus Three Months Ended June 30, 2016

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

	Six Months Ended June 30,
	2017			2016
Net sales	$	2,205,204		$	2,084,376
Cost of products sold	(2,035,321		)	(1,921,868		)
Gross profit	169,883			162,508
SG&A	(156,492		)	(123,610		)
Income from operations	13,391			38,898
Other (expense) income:
Interest expense	(3,980		)	(2,956		)
Other	66			213
Total other expense	(3,914		)	(2,743		)
Income before income taxes	9,477			36,155
Income tax expense	(1,763		)	(12,679		)
Net income	7,714			23,476
Less net loss attributable to noncontrolling interest	(244		)	(487		)
Net income attributable to Diplomat Pharmacy, Inc.	$	7,958		$	23,963

Net Sales

Net sales for the six months ended June 30, 2017 were $2,205,204, a $120,828 or 5.8 percent increase, compared to $2,084,376 for the six months ended June 30, 2016. This increase was primarily the result of approximately $199,000 of net sales from our recent acquisitions, approximately $137,000 from the impact of manufacturer price increases, and approximately $80,000 from drugs that were new in the past twelve months. These increases were partially offset by a decrease due to contracts that were not renewed as well as a decrease in hepatitis C versus the prior year period.

Cost of Products Sold

Cost of products sold for the six months ended June 30, 2017 was $2,035,321, a $113,453 or 5.9 percent increase, compared to $1,921,868 for the six months ended June 30, 2016. This increase was primarily the result of the same factors that drove the increase in our net sales over the same time period. Cost of goods sold was 92.3 percent and 92.2 percent of net sales for the six months ended June 30, 2017 and 2016, respectively. The slight reduction in gross margin from 7.8 percent to 7.7 percent for the six months ended June 30, 2016 and 2017, respectively, was primarily due to an increase in accrued direct and indirect remuneration (“DIR”) fees versus what had been accrued during the first half of 2016.

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SG&A

SG&A for the six months ended June 30, 2017 were $156,492, a $32,882 increase, compared to $123,610 for the six months ended June 30, 2016. Change in fair value of contingent consideration was $0 and $(8,922) for the six months ended June 31, 2017 and 2016, respectively, leading to a period-over-period increase of $8,922. Total employee cost increased by $13,078 and includes the employee expense for our acquired entities. The increased employee expense was primarily attributable to the growth in our oncology and specialty infusion therapeutic categories, which are more clinically and administratively complex. Amortization expense from definite-lived intangible assets associated with our acquired entities increased $6,763. The remaining increase was in various other SG&A including bad debt, freight, insurance, and other miscellaneous expenses. As a percent of net sales, SG&A, excluding the change in fair value of contingent consideration, accounted for 7.1 percent for the six months ended June 30, 2017 compared to 6.4 percent for the six months ended June 30, 2016. This increase is primarily attributable to the increase in acquisition-related amortization and the increased operating complexity associated with both our acquisitions and new drugs.

Other Expense

Other expense for the six months ended June 30, 2017 was $3,914, compared to $2,743 for the six months ended June 30, 2016, and is primarily comprised of interest expense. The increase in interest expense was primarily due to higher average borrowings in the first half of 2017.

Income Tax Expense

Income tax expense for the six months ended June 30, 2017 and 2016 was $1,763 and $12,679, respectively, resulting in effective tax rates of 19 percent and 35 percent, respectively. Income tax expense for the six months ended June 30, 2017 and 2016 included the recognition of excess tax benefits, which favorably impacted the year-to-date effective tax rates by 24 percent and 4 percent, respectively.

Liquidity and Capital Resources

Our primary uses of cash include funding our ongoing working capital needs, business acquisitions, acquiring and maintaining internal use software and property and equipment, and debt service. Our primary source of liquidity for our working capital is cash flows generated from operations. At various times during the course of the year, we may be in an operating cash usage position, which may require us to use our short-term borrowings. We continuously monitor our working capital position and associated cash requirements and explore opportunities to more effectively manage our inventory and capital spending. As of June 30, 2017 and December 31, 2016, we had $7,804 and $7,953, 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 $2,521 and $39,255 at June 30, 2017 and December 31, 2016, respectively. Our available liquidity under our line of credit was $156,032 and $129,908 at June 30, 2017 and December 31, 2016, 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 the next 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:

	Six Months Ended June 30,
	2017			2016
Net cash provided by operating activities	$	67,253		$	45,949
Net cash used in investing activities	(58,362		)	(80,125		)
Net cash (used in) provided by financing activities	(9,040		)	14,482
Net decrease in cash and cash equivalents	$	(149	)	$	(19,694	)

Cash Flows from Operating Activities

Cash flows from operating activities consists of net income, adjusted for non-cash items, and changes in various working capital items, including accounts receivable, inventories, accounts payable, and other assets/liabilities.

The $21,304 increase in cash provided by operating activities for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was due to a $26,359 change in net working capital flows and a $10,707 increase in non-cash adjustments to net income, partially offset by a $15,762 decrease in net income.

Cash Flows from Investing Activities

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

The $21,763 decrease in cash used in investing activities during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily related to a $15,501 decrease in cash used to acquire businesses and a $6,306 decrease in spending on capitalized software and property and equipment.

Cash Flows from Financing Activities

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

The $23,522 decrease in cash flow associated with financing activities during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily related to a $53,791 change in line of credit activity, partially offset by a full draw down of our $25,000 deferred draw term loan (“DDTL”) during the first quarter of 2017 and a $4,804 increase in proceeds from the issuance of common stock upon stock option exercises.

Debt

We had $108,000 and $111,000 outstanding on our Term Loan A as of June 30, 2017 and December 31, 2016, respectively. During the first quarter of 2017, we fully drew down our $25,000 DDTL, of which $24,688 was outstanding as of June 30, 2017. We also had $2,521 and $39,255 outstanding on our line of credit as of June 30, 2017 and December 31, 2016, respectively. We had $156,032 and $129,908 available to borrow on our line of credit at June 30, 2017 and December 31, 2016, respectively.

The interest rate on our Term Loan A and DDTL was 3.55 percent and 3.13 percent at June 30, 2017 and December 31, 2016, respectively. Our line of credit interest rate was 5.00 percent and 4.75 percent at June 30, 2017 and December 31, 2016, respectively. In addition, we are charged a monthly unused commitment fee ranging from 0.25 percent to 0.50 percent on our average unused daily balance on our $175,000 line of credit.

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Our credit facility, consisting of the Term Loan A, DDTL, and line of credit, contains certain financial and non-financial covenants. We were in compliance with all such covenants as of June 30, 2017 and December 31, 2016.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

The MD&A is based on the condensed consolidated financial statements, which have been prepared in accordance with 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, internal tracking processes, contract terms, and, in some cases, estimation of applicable volume and future performance adjustments, and 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 six months ended June 30, 2017, 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, 2016 included in our Annual Report on Form 10-K, with the exception of our adoption of ASU 2017-04. See Note 3 for further details.

New Accounting Pronouncements

See Note 3 for a description of new accounting pronouncements.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations are solely in the United States of America (“U.S.”) and U.S. Territories and 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 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 these interest rate swaps for trading or other speculative purposes. We currently are not using any interest rate swaps, but may in the future. A 100 basis point increase in 2017 interest rates would have decreased our pre-tax income for the three and six months ended June 30, 2017 by approximately $0.4 million and $0.7 million, respectively.

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

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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 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 Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016 filed on March 8, 2017, management had then concluded that there was a material weakness in internal control over financial reporting related to the operating effectiveness of our evaluation and review of recorded inventory balances, and which had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q. Specifically, at certain locations the initial costs used to value ending inventories were not correct and we did not initially identify all items necessary to accurately complete our inventory reconciliation.

Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15(d)-15(e) promulgated under the Exchange Act) as of June 30, 2017. Based on these evaluations, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures required by paragraph (b) of Rule 13a-15 or 15d-15 were not effective as of June 30, 2017 as a result of the material weakness discussed above.

Notwithstanding the identified material weaknesses, our management has concluded that the condensed consolidated financial statements included in this quarterly filing fairly represent in all material respects our financial position, results of operations, cash flows, and changes in shareholders’ equity as of and for the periods presented in accordance with U.S. GAAP.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the second quarter of 2017, except as discussed below in “—Remediation Plan”, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

Management is actively implementing a remediation plan to ensure that deficiencies contributing to the material weakness are remediated such that these controls will operate effectively, which includes steps to strengthen our internal processes, data tracking, data reconciliation, inventory costing, estimating, accrual processes, and inventory reconciliation controls. The remediation actions we are taking include: additional testing of the pricing file utilized to cost physical inventory; and strengthening the depth and breadth of review of the inventory reconciliation by senior accounting and finance personnel.

We believe that these actions, and the improvements we expect to achieve as a result, will effectively remediate the material weakness. However, until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively, the material weakness in our internal controls over financial reporting will not be considered remediated. We expect that the remediation of this material weakness will be completed in fiscal 2017.

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PART II

OTHER INFORMATION

ITEM 1.                LEGAL PROCEEDINGS

On November 10, 2016, a putative class action complaint was filed in the U.S. District Court for the Eastern District of Michigan against Diplomat Pharmacy, Inc. and certain officers of the Company. Following appointment of lead plaintiffs and lead counsel, an amended complaint was filed on April 11, 2017. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with public filings made between February 29, 2016 and November 2, 2016 (the “potential class period”). The plaintiff seeks to represent a class of shareholders who purchased stock in the potential class period. The complaint seeks unspecified monetary damages and other relief. The Company filed a motion to dismiss the amended complaint on May 24, 2017, and the lead plaintiffs filed a response in opposition to the Company’s motion to dismiss on July 10, 2017. A hearing on the motion to dismiss is scheduled for October 19, 2017. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against the action.

On February 10, 2017, the Company’s Board of Directors (the “Board”) received a demand letter from a purported shareholder containing allegations similar to those contained in the putative class action complaint described above. The letter demanded that the Board take action to remedy the alleged violations. In response, the Board established a Special Independent Committee of its disinterested and independent members to investigate the claims. The Special Independent Committee is continuing to review this matter and has not yet concluded its investigation. Subsequently, on June 2, 2017, the shareholder filed a putative shareholder’s derivative lawsuit in the Michigan Circuit Court for the County of Genesee regarding the same matters alleged in the demand letter. The complaint names the Company as a nominal defendant and names a number of the Company’s current and former officers and directors as defendants. The complaint seeks unspecified monetary damages and other relief. In connection with the ongoing Special Independent Committee investigation, on July 20, 2017, the court ordered a stay of legal proceedings for 90 days. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition, or cash flows.

On April 13, 2017, the Company commenced an arbitration proceeding with CVS Health Corporation f/k/a CVS Caremark Corp., Caremark, LLC, Caremark PCS, LLC, and Silverscript Insurance Company (collectively “CVS/Caremark”) before the American Arbitration Association, as required under the Pharmacy Provider Agreement and related documents that govern the relationship between the Company and CVS/Caremark. The Company is pursuing this arbitration to challenge the validity of applying direct and indirect remuneration (“DIR”) fees to Diplomat’s specialty pharmacy business, which the Company alleges was inappropriately applied under the parties’ agreements as well as federal statutes, regulations, and guidance regulating the Medicare Part D prescription drug program. The Company is seeking declaratory and injunctive relief and unspecified monetary damages.

The results of legal proceedings are often uncertain and difficult to predict, and the Company could from time to time incur judgments, enter into settlements, materially change its business practices or technologies or revise its expectations regarding the outcome of certain matters. In addition, the costs incurred in litigation can be substantial, regardless of the outcome.

The Company’s business of providing specialized pharmacy services and other related services may subject it to litigation and liability for damages in the ordinary course of business. Nevertheless, the Company believes there are no other legal proceedings, the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business, financial position, cash flows, or results of operations.

ITEM 1A.             RISK FACTORS

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, 2016, which was filed with the Securities and Exchange Commission on March 8, 2017.

ITEM 2.                UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 8, 2017, in connection with the closing of the WRB Communications, LLC (“WRB”) acquisition, the Company issued 299,325 shares of its common stock to the former owners of WRB. No cash proceeds were

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received by the Company as the shares were issued as consideration for the acquisition. The 299,325 shares of common stock of the Company issued to the seller in connection with the WRB acquisition were issued and sold pursuant to exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated thereunder by the SEC.

ITEM 6.                EXHIBITS

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Period Ending	Exhibit / Appendix Number	Filing Date
10.1*	Form of Restricted Stock Unit Award Agreement (Time-Based)		8-K		10.1	April 6, 2017
31.1	Section 302 Certification — CEO	X
31.2	Section 302 Certification — CFO	X
32.1**	Section 906 Certification — CEO	X
32.2**	Section 906 Certification — CFO	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema Document	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase	X
101.LAB	XBRL Taxonomy Extension Label Linkbase	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	X

* Indicates a management contract or compensatory plan or arrangement.

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

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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.
	(Registrant)
	By:	/s/ ATUL KAVTHEKAR
		Atul Kavthekar
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and
		Principal Accounting Officer)
Date:      August 9, 2017

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EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER’S 302 CERTIFICATION

I, Philip R. Hagerman, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Diplomat Pharmacy, Inc. (the “Company”) for the quarter ended June 30, 2017;

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date:August 9, 2017

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, Atul Kavthekar, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Diplomat Pharmacy, Inc. (the “Company”) for the quarter ended June 30, 2017;

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date:August 9, 2017

By:	/s/ ATUL KAVTHEKAR
	Atul Kavthekar
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Diplomat Pharmacy, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip R. Hagerman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date:August 9, 2017

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

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Diplomat Pharmacy, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Atul Kavthekar, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date:August 9, 2017

By:	/s/ ATUL KAVTHEKAR
	Atul Kavthekar
	Chief Financial Officer

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 07, 2017
Document and Entity Information
Entity Registrant Name	Diplomat Pharmacy, Inc.
Entity Central Index Key	0001610092
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		68,303,038
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and equivalents	$ 7,804	$ 7,953
Accounts receivable, net	279,604	275,568
Inventories	178,131	215,351
Prepaid expenses and other current assets	10,477	6,235
Total current assets	476,016	505,107
Property and equipment, net	20,963	20,372
Capitalized software for internal use, net	42,953	50,247
Goodwill	358,178	316,616
Definite-lived intangible assets, net	195,100	199,862
Deferred income taxes	5,031	6,010
Other noncurrent assets	1,081	1,040
Total assets	1,099,322	1,099,254
Current liabilities:
Accounts payable	307,718	320,684
Borrowings on line of credit	2,521	39,255
Short-term debt, including current portion of long-term debt	10,875	7,500
Accrued expenses:
Compensation and benefits	6,511	5,674
Other	12,792	12,233
Total current liabilities	340,417	385,346
Long-term debt, less current portion	119,006	100,184
Contingent consideration	4,365
Total liabilities	463,788	485,530
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; 68,017,230 and 66,764,999 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively)	515,820	503,828
Additional paid-in capital	35,372	33,268
Retained earnings	84,264	76,306
Total Diplomat Pharmacy shareholders' equity	635,456	613,402
Noncontrolling interests	78	322
Total shareholders' equity	635,534	613,724
Total liabilities and shareholders' equity	$ 1,099,322	$ 1,099,254

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
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	68,017,230	66,764,999
Common shares, outstanding shares	68,017,230	66,764,999

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Condensed Consolidated Statements of Operations
Net sales	$ 1,126,464	$ 1,088,506	$ 2,205,204	$ 2,084,376
Cost of products sold	(1,041,630)	(1,005,236)	(2,035,321)	(1,921,868)
Gross profit	84,834	83,270	169,883	162,508
Selling, general and administrative expenses	(79,991)	(69,416)	(156,492)	(123,610)
Income from operations	4,843	13,854	13,391	38,898
Other (expense) income:
Interest expense	(1,931)	(1,521)	(3,980)	(2,956)
Other	34	105	66	213
Total other expense	(1,897)	(1,416)	(3,914)	(2,743)
Income before income taxes	2,946	12,438	9,477	36,155
Income tax benefit (expense)	544	(4,145)	(1,763)	(12,679)
Net income	3,490	8,293	7,714	23,476
Less net loss attributable to noncontrolling interest	(101)	(241)	(244)	(487)
Net income attributable to Diplomat Pharmacy, Inc.	$ 3,591	$ 8,534	$ 7,958	$ 23,963
Net income per common share:
Basic (in dollars per share)	$ 0.05	$ 0.13	$ 0.12	$ 0.37
Diluted (in dollars per share)	$ 0.05	$ 0.13	$ 0.12	$ 0.35
Weighted average common shares outstanding:
Basic (in shares)	67,528,151	66,085,149	67,209,280	65,312,155
Diluted (in shares)	68,211,882	68,034,392	67,997,929	67,939,665

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net income	$ 7,714	$ 23,476
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	31,935	22,389
Net provision for doubtful accounts	5,401	4,010
Share-based compensation expense	3,798	3,152
Deferred income tax expense	979	11,178
Amortization of debt issuance costs	595	581
Change in fair value of contingent consideration		(8,922)
Contingent consideration payment		(382)
Other	6	1
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	(3,024)	(49,246)
Inventories	37,179	(11,358)
Accounts payable	(14,353)	52,878
Other assets and liabilities	(2,977)	(1,808)
Net cash provided by operating activities	67,253	45,949
Cash flows from investing activities:
Payments to acquire businesses, net of cash acquired	(53,571)	(69,072)
Expenditures for capitalized software for internal use	(2,459)	(7,349)
Expenditures for property and equipment	(2,289)	(3,705)
Other	(43)	1
Net cash used in investing activities	(58,362)	(80,125)
Cash flows from financing activities:
Net (payments on) proceeds from line of credit	(36,734)	17,057
Proceeds from long-term debt	25,000
Payments on long-term debt	(3,313)	(3,000)
Proceeds from issuance of stock upon stock option exercises	6,007	1,203
Contingent consideration payment		(722)
Payments of debt issuance costs		(56)
Net cash (used in) provided by financing activities	(9,040)	14,482
Net decrease in cash and equivalents	(149)	(19,694)
Cash and equivalents at beginning of period	7,953	27,600
Cash and equivalents at end of period	7,804	7,906
Supplemental disclosures of cash flow information:
Cash paid for income taxes	4,458	401
Cash paid for interest	$ 3,386	$ 2,318

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Condensed Consolidated Statement of Changes in Stockholders' Equity - 6 months ended Jun. 30, 2017 - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings	Diplomat Pharmacy, Inc. Shareholders' Equity	Noncontrolling Interest	Total
Balance at Dec. 31, 2016	$ 503,828	$ 33,268	$ 76,306	$ 613,402	$ 322	$ 613,724
Balance at the beginning of the period (in shares) at Dec. 31, 2016	66,764,999					66,764,999
Changes in Shareholders' Equity
Net income (loss)			7,958	7,958	(244)	$ 7,714
Issuance of stock as partial consideration of WRB Communications, LLC	$ 4,291			4,291		4,291
Issuance of stock as partial consideration of WRB Communications, LLC (in shares)	299,325
Stock issued upon stock option exercises	$ 7,701	(1,694)		6,007		6,007
Stock issued upon stock option exercises (in shares)	916,092
Share-based compensation expense		3,798		3,798		3,798
Restricted stock awards (in shares)	36,814
Balance at Jun. 30, 2017	$ 515,820	$ 35,372	$ 84,264	$ 635,456	$ 78	$ 635,534
Balance at the end of the period (in shares) at Jun. 30, 2017	68,017,230					68,017,230

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DESCRIPTION OF BUSINESS

6 Months Ended

Jun. 30, 2017

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. Disease states covered include oncology, immunology, specialty infusion therapy, hepatitis, multiple sclerosis, and many other serious or long-term conditions. The Company has its corporate headquarters and main distribution facility in Flint, Michigan, and operates 28 other locations in Alabama, Arizona, California, Connecticut, Florida, Illinois, Iowa, Kansas, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New York, North Carolina, Ohio, Pennsylvania, Texas, Virginia, and Wisconsin. 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.

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2017

BASIS OF PRESENTATION

BASIS OF PRESENTATION

2.BASIS OF PRESENTATION

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations, cash flows, and changes in shareholders’ equity. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 8, 2017.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2017

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 percent owned subsidiary, formed in August 2014, which the Company controls. An investment in an entity in which the Company owns less than 20 percent 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.

Inventories

Inventories consist of prescription and over-the-counter medications and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Prescription medications are returnable to the Company’s vendors and fully refundable before six months of expiration, and any remaining expired medication is relieved from inventory on a quarterly basis.

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. 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 $1,118,196 and $1,082,221 for the three months ended June 30, 2017 and 2016, respectively, and $2,192,061 and $2,072,232 for the six months ended June 30, 2017 and 2016, 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 $8,268 and $6,285 for the three months ended June 30, 2017 and 2016, respectively, and $13,143 and $12,144 for the six months ended June 30, 2017 and 2016, respectively.

Accounting Standards Update (“ASU”) Adoption — Balance Sheet Classification of Deferred Taxes

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), eliminating the requirement for companies to present deferred tax assets and liabilities as current and noncurrent. Instead, companies are required to classify all deferred tax assets and liabilities as noncurrent. This ASU is effective for annual periods beginning on or after December 15, 2016, including interim periods within those annual periods, and can be adopted either prospectively or retrospectively.

Effective January 1, 2017, the Company retrospectively adopted the accounting guidance contained within ASU 2015-17. The following December 31, 2016 condensed consolidated balance sheet line items were adjusted due to this adoption:

	As
	Previously
	Reported		Adjustment			As Adjusted
Deferred income taxes (current asset)	$	14,703	$	(14,703	)	$	—
Total current assets	519,810		(14,703		)	505,107
Deferred income taxes (noncurrent asset)	—		6,010			6,010
Total assets	1,107,947		(8,693		)	1,099,254
Deferred income taxes (noncurrent liability)	8,693		(8,693		)	—
Total liabilities	494,223		(8,693		)	485,530
Total liabilities and shareholders’ equity	1,107,947		(8,693		)	1,099,254

ASU Adoption — Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), eliminating Step 2 from the quantitative goodwill impairment test. Instead, an entity will perform its annual, or interim, quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount (Step 1). An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for an entity’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted.

Effective January 1, 2017, the Company adopted the accounting guidance contained within ASU 2017-04. There was no current impact to the Company as a result of this adoption.

New Accounting Pronouncements

In May 2014, the FASB issued 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, though early adoption is permitted. ASU 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (cumulative catch-up transition method). The Company currently anticipates adopting ASU 2014-09 using the cumulative catch-up transition method. The Company continues to assess the impact that the adoption of ASU 2014-09 will have on its condensed consolidated financial statements and/or notes thereto, although the Company does not expect the impact to be significant.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at lease commencement date. This ASU is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods, though early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and/or notes thereto.

In May 2017, the FASB issued ASU No. 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, providing guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU is effective for annual periods beginning on or after December 15, 2017, including interim periods within those annual periods, though early adoption is permitted. This ASU is to be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating whether to early adopt and the impact that the adoption of this guidance will have on its condensed consolidated financial statements and/or notes thereto.

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BUSINESS ACQUISITIONS

6 Months Ended

Jun. 30, 2017

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 asset purchases for income tax purposes and the related goodwill resulting from these business acquisitions is deductible for income tax purposes. The results of operations for acquired businesses are included in the Company’s consolidated financial statements from their respective acquisition dates.

The assets acquired and liabilities assumed in the business combinations described below, including identifiable intangible assets, were based on their estimated fair values as of the acquisition date. The excess of purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The allocation of the purchase price required management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to identifiable intangible assets. These estimated fair values were based on information obtained from management of the acquired companies and historical experience and, with respect to the long-lived tangible and intangible assets, were made with the assistance of an independent valuation firm. These estimates included, but were not limited to, the cash flows that an asset is expected to generate in the future, and the cost savings expected to be derived from acquiring an asset, discounted at rates commensurate with the risks and uncertainties involved. For acquisitions that involved contingent consideration, the Company recognized a liability equal to the fair value of the contingent consideration obligation as of the acquisition date. The estimate of fair value of a contingent consideration obligation required subjective assumptions regarding future business results, discount rates, and probabilities assigned to various potential business result scenarios.

WRB Communications, LLC

On May 8, 2017, the Company acquired WRB Communications, LLC (“WRB”), a communications and contact center company based in Chantilly, VA that specializes in relationship management programs for leading pharmaceutical manufacturers and service organizations. The following table summarizes the consideration transferred to acquire WRB:

Cash	$	26,394
299,325 restricted common shares	4,291
Contingent consideration at fair value	530
	$	31,215

The above share consideration at closing is based on 299,325 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of May 5, 2017 ($15.93), and multiplied by 90 percent to account for the restricted nature of the shares.

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners additional cash payouts of up to $500 per performance period based upon the achievement of certain earnings before interest, taxes, depreciation, and amortization targets in the 12-month periods ending April 30, 2018 and 2019. The maximum additional cash payout is $1,000.

Approximately $1,950 of the purchase consideration was deposited into an escrow account to be held for 18 months after the closing date to satisfy any of the Company’s indemnification claims.

The Company incurred acquisition-related costs of $196 which were charged to “Selling, general and administrative expenses” during both the three and six month periods ended June 30, 2017.

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

Cash	$	1,018
Accounts receivable	2,594
Prepaid expenses and other current assets	194
Property and equipment	498
Definite-lived intangible assets	7,730
Other noncurrent assets	24
Accounts payable	(100		)
Accrued expenses — other	(513		)
Total identifiable net assets	11,445
Goodwill	19,770
	$	31,215

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

	Useful Life	Amount
Customer relationships	7 years	$	5,200
Non-compete employment agreements	4 years	1,530
Trade names and trademarks	2 years	1,000
		$	7,730

Comfort Infusion, Inc.

On March 22, 2017, the Company acquired Comfort Infusion, Inc. (“Comfort”), a specialty pharmacy and infusion services company based in Birmingham, AL that specializes in intravenous immune globulin therapy to support patients’ immune systems. The following table summarizes the consideration transferred to acquire Comfort:

Cash	$	10,613
Contingent consideration at fair value	3,800
	$	14,413

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners additional cash payouts of up to $2,000 per performance period based upon the achievement of certain gross profit targets in each of the 12-month periods ending March 31, 2018, 2019, and 2020. The maximum payout of contingent consideration is $6,000.

Approximately $1,050 of the purchase consideration was deposited into an escrow account to be held for 18 months after the closing date to satisfy any of the Company’s indemnification claims.

The Company incurred acquisition-related costs of $81 and $214 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2017, respectively.

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

Cash	$	104
Accounts receivable	575
Inventories	118
Prepaid expenses and other current assets	15
Definite-lived intangible assets	2,400
Other noncurrent assets	5
Accounts payable	(372		)
Accrued expenses — other	(101		)
Total identifiable net assets	2,744
Goodwill	11,669
	$	14,413

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

	Useful Life	Amount
Physician relationships	7 years	$	1,200
Non-compete employment agreements	5 years	1,200
		$	2,400

Affinity Biotech, Inc.

On February 1, 2017, the Company acquired Affinity Biotech, Inc. (“Affinity”), a specialty pharmacy and infusion services company based in Houston, TX that provides treatments and nursing services for patients with hemophilia. The following table summarizes the consideration transferred to acquire Affinity:

Cash	$	17,377
Contingent consideration at fair value	35
	$	17,412

The purchase price includes a contingent consideration arrangement that requires the Company to pay the former owners an additional cash payout based upon the achievement of a certain earnings before interest, taxes, depreciation, and amortization target in the 12-month period ending January 31, 2018. The maximum payout of contingent consideration is $4,000.

Approximately $2,000 of the purchase consideration was deposited into an escrow account to be held for 18 months after the closing date to satisfy any of the Company’s indemnification claims.

The Company incurred acquisition-related costs of $203 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2016.

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

Cash	$	1,043
Accounts receivable	3,583
Inventories	79
Prepaid expenses and other current assets	74
Definite-lived intangible assets	5,100
Other noncurrent assets	5
Accounts payable	(1,075		)
Accrued expenses — compensation and benefits	(144		)
Accrued expenses — other	(25		)
Total identifiable net assets	8,640
Goodwill	8,772
	$	17,412

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

	Useful Life	Amount
Patient relationships	7 years	$	4,000
Non-compete employment agreements	5 years	1,100
		$	5,100

Valley Campus Pharmacy, Inc.

On June 1, 2016, the Company acquired Valley Campus Pharmacy, Inc., doing business as TNH Advanced Specialty Pharmacy (“TNH”). TNH, a specialty pharmacy based in Van Nuys, California, provides medication management programs for individuals with complex chronic diseases, including oncology, hepatitis, and immunology. The following table summarizes the consideration transferred to acquire TNH:

Cash	$	70,267
324,244 restricted common shares	9,507
	$	79,774

The above share consideration at closing is based on 324,244 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of May 31, 2016 ($32.58), and multiplied by 90 percent to account for the restricted nature of the shares.

Approximately $3,800 of the purchase consideration was deposited into an escrow account to be held for one year after the closing date to satisfy any indemnification claims that may be made by the Company. All but $100 was released to the sellers from escrow during the second quarter of 2017.

The Company incurred acquisition-related costs of $359 which were charged to “Selling, general and administrative expenses” during the three and six months ended June 30, 2016.

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

Cash	$	2,114
Accounts receivable	16,271
Inventories	4,740
Prepaid expenses and other current assets	46
Property and equipment	200
Capitalized software for internal use	14,000
Definite-lived intangible assets	13,890
Other noncurrent assets	21
Accounts payable	(29,773		)
Accrued expenses — compensation and benefits	(400		)
Accrued expenses — other	(1,962		)
Total identifiable net assets	19,147
Goodwill	60,627
	$	79,774

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

	Useful Life	Amount
Physician relationships	10 years	$	7,700
Non-compete employment agreements	5 years	4,490
Trade names and trademarks	1 year	1,700
		$	13,890

Pro Forma Operating Results

The following 2017 unaudited pro forma summary presents condensed consolidated financial information as if the Affinity, Comfort, and WRB acquisitions had occurred on January 1, 2016. The following 2016 unaudited pro forma summary presents condensed consolidated financial information as if the Affinity, Comfort, and WRB acquisitions had occurred on January 1, 2016 and the TNH acquisition had occurred on January 1, 2015. 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 the as if dates or of results that may occur in the future.

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net sales	$	1,128,151	$	1,182,015	$	2,214,971	$	2,309,463
Net income attributable to Diplomat Pharmacy, Inc.	$	3,618	$	8,472	$	8,127	$	24,528
Net income per common share — basic	$	0.05	$	0.13	$	0.12	$	0.37
Net income per common share — diluted	$	0.05	$	0.12	$	0.12	$	0.36

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2017

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

5.FAIR VALUE MEASUREMENTS

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based upon assumptions that market

participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy was established, which prioritizes the inputs used in measuring fair value as follows:

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

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

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

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

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

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

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

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

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and disclosed at fair value on a recurring basis at June 30, 2017:

	Asset /						Valuation
	(Liability)			Level 3			Technique
Contingent consideration	$	(4,365	)	$	(4,365	)	C

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

	Contingent Consideration
Balance at January 1, 2017	$	—
Affinity acquisition	(35		)
Comfort acquisition	(3,800		)
WRB acquisition	(530		)
Balance at June 30, 2017	$	(4,365	)

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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GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2017

GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

6.GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

The following table sets forth a roll forward of goodwill for the six months ended June 30, 2017:

Balance at January 1, 2017	$	316,616
Affinity acquisition	8,772
Comfort Infusion acquisition	11,669
WRB acquisition	19,770
TNH purchase price adjustment	1,351
Balance at June 30, 2017	$	358,178

Definite-lived intangible assets consisted of the following:

	June 30, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	163,100	$	(39,096	)	$	124,004	$	159,100	$	(31,445	)	$	127,655
Non-compete employment agreements	58,519		(24,298		)	34,221		54,689		(18,674		)	36,015
Physician relationships	22,900		(5,784		)	17,116		21,700		(2,831		)	18,869
Trade names and trademarks	24,800		(10,117		)	14,683		23,800		(6,477		)	17,323
Customer relationships	5,200		(124		)	5,076		—		—			—
	$	274,519	$	(79,419	)	$	195,100	$	259,289	$	(59,427	)	$	199,862

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INVESTMENT IN NON-CONSOLIDATED ENTITY

6 Months Ended

Jun. 30, 2017

INVESTMENT IN NON-CONSOLIDATED ENTITY

INVESTMENT IN NON-CONSOLIDATED ENTITY

7.INVESTMENT IN NON-CONSOLIDATED ENTITY

From October 2011 through January 2017, the Company maintained a 25 percent minority interest in Worksmart MD, LLC, also known as Ageology, though it fully impaired its investment during the fourth quarter of 2014. In transactions unrelated to the Company, SkyPoint Ventures LLC (“SkyPoint”), an affiliated entity of the Company’s chief executive officer, loaned $16,000 to Ageology through January 2017. In February 2017, SkyPoint elected to convert its $16,000 in outstanding loans into equity in Ageology, which equated to an approximate ownership of 43 percent. Concurrently, the Company converted its $2,500 in outstanding loans (which the Company had written off during the fourth quarter of 2014) into equity in Ageology, which resulted in the Company having an approximate 22 percent minority interest following the recapitalization. Because the Company does not direct the activities that most significantly impact the economic performance of Ageology, management has determined that the Company is not nor ever has been Ageology’s primary beneficiary.

Subsequent to the February 2017 concurrent conversion transactions, SkyPoint loaned Ageology $1,660 during the six months ended June 30, 2017.

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DEBT

6 Months Ended

Jun. 30, 2017

DEBT

DEBT

8.DEBT

The Company had $108,000 and $111,000 outstanding on its Term Loan A as of June 30, 2017 and December 31, 2016, respectively. Unamortized debt issuance costs of $2,806 and $3,316 as of June 30, 2017 and December 31, 2016, respectively, are presented in the condensed consolidated balance sheets as direct deductions from the outstanding debt balances. During the first quarter of 2017, the Company fully drew down its $25,000 deferred draw term loan (“DDTL”), of which $24,688 was outstanding as of June 30, 2017. The Company also had $2,521 and $39,255 outstanding on its line of credit as of June 30, 2017 and December 31, 2016, respectively. The Company had $156,032 and $129,908 available to borrow on its line of credit at June 30, 2017 and December 31, 2016, respectively.

The Company’s Term Loan A interest rate options are (i) LIBOR (as defined) plus 2.50 percent or (ii) Base Rate (as defined) plus 1.50 percent, and the Company’s line of credit and swingline loan interest rate options are (i) LIBOR (as defined) plus 2.00 percent or (ii) Base Rate (as defined) plus 1.00 percent. The interest rate on the Company’s Term Loan A and DDTL was 3.55 percent and 3.13 percent at June 30, 2017 and December 31, 2016, respectively. The Company’s line of credit interest rate was 5.00 percent and 4.75 percent at June 30, 2017 and December 31, 2016, respectively. In addition, the Company is charged a monthly unused commitment fee ranging from 0.25 percent to 0.50 percent on its average unused daily balance on its $175,000 line of credit.

The Company’s credit facility, consisting of the Term Loan A, DDTL, and line of credit, contains certain financial and non-financial covenants. The Company was in compliance with all such covenants as of June 30, 2017 and December 31, 2016.

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SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2017

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

9.SHARE-BASED COMPENSATION

A summary of the Company’s stock option activity as of and for the six months ended June 30, 2017 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	of Options		Price		Life	Value
					(Years)
Outstanding at January 1, 2017	4,413,341		$	19.02	7.0	$	11,558
Granted	2,185,735		14.92
Exercised	(916,092	)	6.56
Expired/cancelled	(588,570	)	27.38
Outstanding at June 30, 2017	5,094,414		$	18.54	8.3	$	6,778
Exercisable at June 30, 2017	1,496,673		$	16.35	5.9	$	6,675

The Company recorded share-based compensation expense associated with stock options of $2,626 and $1,562 for the three months ended June 30, 2017 and 2016, respectively, and $3,514 and $2,994 for the six months ended June 30, 2017 and 2016, respectively.

The Company granted service-based awards of 849,976 options to purchase common stock to key employees under its 2014 Omnibus Incentive Plan (“2014 Plan”) during the six months ended June 30, 2017, of which 200,000 options were immediately vested at time of grant. The remaining 649,976 options become exercisable in installments of 25 percent per year, beginning on the first anniversary of the grant date and each of the three anniversaries thereafter. All service-based options have a maximum term of 10 years.

The Company also granted performance-based awards of 1,060,759 options to purchase common stock to key employees under its 2014 Plan during the second quarter of 2017, of which 260,759 options will be earned or forfeited based upon the Company’s performance relative to specified net sales and adjusted earnings before interest, taxes, depreciation, and amortization goals for the year ending December 31, 2017. The earned options, if any, will vest in four installments of 25%, with the first installment vesting upon the earlier of the date that the Company files its Annual Report on Form 10-K or Audit Committee confirmation of the satisfaction of the applicable performance goals, with the remaining installments vesting annually thereafter. The remaining 800,000 options will be earned or forfeited in increments based on the cumulative growth in adjusted earnings before interest, taxes, depreciation, and amortization of a certain therapeutic category during the years ending December 31, 2017, 2018, 2019, and 2020. The earned options, if any, will be determined annually each March 31 of the subsequent year and vest as of that date. All performance-based options have a maximum term of 10 years.

The 1,910,735 options to purchase common stock that were granted during the six months ended June 30, 2017 have a weighted average grant date fair value of $5.48 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	$14.36 - $17.93
Expected volatility	33.44% - 33.93	%
Expected dividend yield	0	%
Risk-free rate over the estimated expected life	1.88% - 2.32	%
Expected life (in years)	5.00 - 6.25

Estimating grant date fair values for employee stock options requires management to make assumptions regarding expected volatility of value of those underlying 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. Risk-free rate is determined based upon U.S. Treasury rates over the estimated expected option lives. Expected dividend yield is zero as the Company does not anticipate that any dividends will be declared during the expected term of the options. The expected term of options granted is calculated using the simplified method (the midpoint between the end of the vesting period and the end of the maximum term).

Restricted Stock Units (“RSU” or “RSUs”)

A summary of the Company’s RSU activity as of and for the six months ended June 30, 2017 is as follows:

		Weighted
		Average
	Number	Grant Date
	of RSUs	Fair Value
Nonvested at January 1, 2017	—	$	—
Granted	90,718	14.65
Nonvested at June 30, 2017	90,718	$	14.65

The Company granted 90,708 RSUs to key employees under its 2014 Plan during the second quarter of 2017. The value of an RSU is determined by the market value of the Company’s common stock at the date of grant. This value is recorded as compensation expense on a straight-line basis over the vesting period, which is three years. Of the 90,708 RSUs granted, 46,495 cliff vest after three years, while the remaining 44,213 vest one-third per year, beginning on the first anniversary of the grant date and each of the two anniversaries thereafter.

The Company recorded share-based compensation expense associated with RSUs of $105 for both the three and six months ended June 30, 2017, respectively.

Restricted Stock Awards (“RSA” or “RSAs”)

A summary of the Company’s RSA activity as of and for the six months ended June 30, 2017 is as follows:

	Number		Weighted
	of Shares		Average
	Subject to		Grant Date
	Restriction		Fair Value
Nonvested at January 1, 2017	5,765		$	32.97
Granted	36,814		17.13
Vested	(9,210	)	25.58
Nonvested at June 30, 2017	33,369		$	17.53

The Company grants RSAs to non-employee directors. The value of an RSA is determined by the market value of the Company’s common stock at the date of grant. This value is recorded as compensation expense on a straight-line

basis over the vesting period, which is one year. The Company recorded share-based compensation expense associated with RSAs of $95 and $87 for the three months ended June 30, 2017 and 2016, respectively, and $179 and $158 for the six months ended June 30, 2017 and 2016, respectively.

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CONTINGENCIES

6 Months Ended

Jun. 30, 2017

CONTINGENCIES

CONTINGENCIES

10.  CONTINGENCIES

On November 10, 2016, a putative class action complaint was filed in the U.S. District Court for the Eastern District of Michigan against Diplomat Pharmacy, Inc. and certain officers of the Company. Following appointment of lead plaintiffs and lead counsel, an amended complaint was filed on April 11, 2017. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with public filings made between February 29, 2016  and November 2, 2016 (the “potential class period”). The plaintiff seeks to represent a class of shareholders who purchased stock in the potential class period. The complaint seeks unspecified monetary damages and other relief. The Company filed a motion to dismiss the amended complaint on May 24, 2017, and the lead plaintiffs filed a response in opposition to the Company’s motion to dismiss on July 10, 2017. A hearing on the motion to dismiss is scheduled for October 19, 2017.  The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against the action. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition, or cash flows.

On February 10, 2017, the Company’s Board of Directors (the “Board”) received a demand letter from a purported shareholder containing allegations similar to those contained in the putative class action complaint described above. The letter demanded that the Board take action to remedy the alleged violations. In response, the Board established a Special Independent Committee of its disinterested and independent members to investigate the claims. The Special Independent Committee is continuing to review this matter and has not yet concluded its investigation. Subsequently, on June 2, 2017, the shareholder filed a putative shareholder’s derivative lawsuit in the Michigan Circuit Court for the County of Genesee regarding the same matters alleged in the demand letter. The complaint names the Company as a nominal defendant and names a number of the Company’s current and former officers and directors as defendants. The complaint seeks unspecified monetary damages and other relief. In connection with the ongoing Special Independent Committee investigation, on July 20, 2017, the court ordered a stay of legal proceedings for 90 days. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition, or cash flows.

The results of legal proceedings are often uncertain and difficult to predict, and the Company could from time to time incur judgments, enter into settlements, materially change its business practices or technologies or revise its expectations regarding the outcome of certain matters. In addition, the costs incurred in litigation can be substantial, regardless of the outcome.

The Company’s business of providing specialized pharmacy services and other related services may subject it to litigation and liability for damages in the ordinary course of business. Nevertheless, the Company believes there are no other legal proceedings, the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business, financial position, cash flows, or results of operations.

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INCOME PER COMMON SHARE

6 Months Ended

Jun. 30, 2017

INCOME PER COMMON SHARE

INCOME PER COMMON SHARE

11.INCOME PER COMMON SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	3,591	$	8,534	$	7,958	$	23,963
Denominator:
Weighted average common shares outstanding, basic	67,528,151		66,085,149		67,209,280		65,312,155
Weighted average dilutive effect of stock options and restricted stock awards/units	683,731		1,949,243		788,649		1,954,369
Weighted average dilutive effect contingent consideration	—		—		—		673,141
Weighted average common shares outstanding, diluted	68,211,882		68,034,392		67,997,929		67,939,665
Net income per common share:
Basic	$	0.05	$	0.13	$	0.12	$	0.37
Diluted	$	0.05	$	0.13	$	0.12	$	0.35

Service-based and earned performance-based stock options to purchase a weighted average of 3,947,686 and 1,541,467 common shares for the three months ended June 30, 2017 and 2016, respectively, and 3,190,598 and 1,455,421 common shares for the six months ended June 30, 2017 and 2016, respectively, were excluded from the computation of diluted weighted average common shares outstanding as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to a weighted average of 221,891 and 381,532 common shares for the three months ended June 30, 2017 and 2016, respectively, and 110,946 and 213,826 common shares for the six months ended June 30, 2017 and 2016, respectively, were excluded from the computation of diluted weighted average common shares outstanding as all performance conditions were not satisfied as of June 30, 2017 and 2016, respectively. Weighted average restricted stock awards of 9,340 and 5,950 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2017, respectively, as inclusion of such shares would be anti-dilutive. Weighted average restricted stock units of 86,488 and 43,244 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2017, respectively, as inclusion of such shares would be anti-dilutive. Contingent consideration to issue up to 1,350,309 common shares was excluded from the computation of diluted weighted average common shares outstanding for the six months ended June 30, 2016 as all performance conditions were not satisfied as of March 31, 2016.

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SUBSEQUENT EVENT

6 Months Ended

Jun. 30, 2017

SUBSEQUENT EVENT

SUBSEQUENT EVENT

12. SUBSEQUENT EVENT

On July 5, 2017, the Company acquired Accurate Rx Pharmacy Consulting, LLC, a specialty pharmacy focusing on infusion services located in Columbia, MO. Under the terms of the Agreement, Diplomat transferred cash and stock consideration of approximately $8,000 and $1,800, respectively, with additional cash payouts of up to $3,600 per performance period based upon the achievement of certain gross profit targets in the 12-month periods ending July 31, 2018 and 2019. The maximum additional cash payout is $7,200.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2017

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 percent owned subsidiary, formed in August 2014, which the Company controls. An investment in an entity in which the Company owns less than 20 percent 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.

Inventories

Inventories

Inventories consist of prescription and over-the-counter medications and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Prescription medications are returnable to the Company’s vendors and fully refundable before six months of expiration, and any remaining expired medication is relieved from inventory on a quarterly basis.

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. 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 $1,118,196 and $1,082,221 for the three months ended June 30, 2017 and 2016, respectively, and $2,192,061 and $2,072,232 for the six months ended June 30, 2017 and 2016, 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 $8,268 and $6,285 for the three months ended June 30, 2017 and 2016, respectively, and $13,143 and $12,144 for the six months ended June 30, 2017 and 2016, respectively.

Accounting Standards Update (ASU) Adoption

Accounting Standards Update (“ASU”) Adoption — Balance Sheet Classification of Deferred Taxes

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), eliminating the requirement for companies to present deferred tax assets and liabilities as current and noncurrent. Instead, companies are required to classify all deferred tax assets and liabilities as noncurrent. This ASU is effective for annual periods beginning on or after December 15, 2016, including interim periods within those annual periods, and can be adopted either prospectively or retrospectively.

Effective January 1, 2017, the Company retrospectively adopted the accounting guidance contained within ASU 2015-17. The following December 31, 2016 condensed consolidated balance sheet line items were adjusted due to this adoption:

	As
	Previously
	Reported		Adjustment			As Adjusted
Deferred income taxes (current asset)	$	14,703	$	(14,703	)	$	—
Total current assets	519,810		(14,703		)	505,107
Deferred income taxes (noncurrent asset)	—		6,010			6,010
Total assets	1,107,947		(8,693		)	1,099,254
Deferred income taxes (noncurrent liability)	8,693		(8,693		)	—
Total liabilities	494,223		(8,693		)	485,530
Total liabilities and shareholders’ equity	1,107,947		(8,693		)	1,099,254

ASU Adoption — Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), eliminating Step 2 from the quantitative goodwill impairment test. Instead, an entity will perform its annual, or interim, quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount (Step 1). An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for an entity’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted.

Effective January 1, 2017, the Company adopted the accounting guidance contained within ASU 2017-04. There was no current impact to the Company as a result of this adoption.

New Accounting Pronouncements

New Accounting Pronouncements

In May 2014, the FASB issued 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, though early adoption is permitted. ASU 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (cumulative catch-up transition method). The Company currently anticipates adopting ASU 2014-09 using the cumulative catch-up transition method. The Company continues to assess the impact that the adoption of ASU 2014-09 will have on its condensed consolidated financial statements and/or notes thereto, although the Company does not expect the impact to be significant.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at lease commencement date. This ASU is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods, though early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and/or notes thereto.

In May 2017, the FASB issued ASU No. 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, providing guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU is effective for annual periods beginning on or after December 15, 2017, including interim periods within those annual periods, though early adoption is permitted. This ASU is to be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating whether to early adopt and the impact that the adoption of this guidance will have on its condensed consolidated financial statements and/or notes thereto.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of consolidated balance sheet line items adjusted due to this adoption

The following December 31, 2016 condensed consolidated balance sheet line items were adjusted due to this adoption:

	As
	Previously
	Reported		Adjustment			As Adjusted
Deferred income taxes (current asset)	$	14,703	$	(14,703	)	$	—
Total current assets	519,810		(14,703		)	505,107
Deferred income taxes (noncurrent asset)	—		6,010			6,010
Total assets	1,107,947		(8,693		)	1,099,254
Deferred income taxes (noncurrent liability)	8,693		(8,693		)	—
Total liabilities	494,223		(8,693		)	485,530
Total liabilities and shareholders’ equity	1,107,947		(8,693		)	1,099,254

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BUSINESS ACQUISITION (Tables)

6 Months Ended

Jun. 30, 2017

BUSINESS ACQUISITIONS

Schedule of unaudited pro forma results of operations

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net sales	$	1,128,151	$	1,182,015	$	2,214,971	$	2,309,463
Net income attributable to Diplomat Pharmacy, Inc.	$	3,618	$	8,472	$	8,127	$	24,528
Net income per common share — basic	$	0.05	$	0.13	$	0.12	$	0.37
Net income per common share — diluted	$	0.05	$	0.12	$	0.12	$	0.36

WRB Communications, LLC

BUSINESS ACQUISITIONS

Schedule of consideration transferred

Cash	$	26,394
299,325 restricted common shares	4,291
Contingent consideration at fair value	530
	$	31,215

Summary of the fair values of identifiable acquired assets and assumed liabilities

Cash	$	1,018
Accounts receivable	2,594
Prepaid expenses and other current assets	194
Property and equipment	498
Definite-lived intangible assets	7,730
Other noncurrent assets	24
Accounts payable	(100		)
Accrued expenses — other	(513		)
Total identifiable net assets	11,445
Goodwill	19,770
	$	31,215

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

	Useful Life	Amount
Customer relationships	7 years	$	5,200
Non-compete employment agreements	4 years	1,530
Trade names and trademarks	2 years	1,000
		$	7,730

Comfort Infusion, Inc

BUSINESS ACQUISITIONS

Schedule of consideration transferred

Cash	$	10,613
Contingent consideration at fair value	3,800
	$	14,413

Summary of the fair values of identifiable acquired assets and assumed liabilities

Cash	$	104
Accounts receivable	575
Inventories	118
Prepaid expenses and other current assets	15
Definite-lived intangible assets	2,400
Other noncurrent assets	5
Accounts payable	(372		)
Accrued expenses — other	(101		)
Total identifiable net assets	2,744
Goodwill	11,669
	$	14,413

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

	Useful Life	Amount
Physician relationships	7 years	$	1,200
Non-compete employment agreements	5 years	1,200
		$	2,400

Affinity Biotech, Inc

BUSINESS ACQUISITIONS

Schedule of consideration transferred

Cash	$	17,377
Contingent consideration at fair value	35
	$	17,412

Summary of the fair values of identifiable acquired assets and assumed liabilities

Cash	$	1,043
Accounts receivable	3,583
Inventories	79
Prepaid expenses and other current assets	74
Definite-lived intangible assets	5,100
Other noncurrent assets	5
Accounts payable	(1,075		)
Accrued expenses — compensation and benefits	(144		)
Accrued expenses — other	(25		)
Total identifiable net assets	8,640
Goodwill	8,772
	$	17,412

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

	Useful Life	Amount
Patient relationships	7 years	$	4,000
Non-compete employment agreements	5 years	1,100
		$	5,100

Valley Campus Pharmacy, Inc

BUSINESS ACQUISITIONS

Schedule of consideration transferred

Cash	$	70,267
324,244 restricted common shares	9,507
	$	79,774

Summary of the fair values of identifiable acquired assets and assumed liabilities

Cash	$	2,114
Accounts receivable	16,271
Inventories	4,740
Prepaid expenses and other current assets	46
Property and equipment	200
Capitalized software for internal use	14,000
Definite-lived intangible assets	13,890
Other noncurrent assets	21
Accounts payable	(29,773		)
Accrued expenses — compensation and benefits	(400		)
Accrued expenses — other	(1,962		)
Total identifiable net assets	19,147
Goodwill	60,627
	$	79,774

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

	Useful Life	Amount
Physician relationships	10 years	$	7,700
Non-compete employment agreements	5 years	4,490
Trade names and trademarks	1 year	1,700
		$	13,890

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2017

FAIR VALUE MEASUREMENTS

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

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and disclosed at fair value on a recurring basis at June 30, 2017:

	Asset /						Valuation
	(Liability)			Level 3			Technique
Contingent consideration	$	(4,365	)	$	(4,365	)	C

Schedule of a roll forward of the Level 3 measurements

	Contingent Consideration
Balance at January 1, 2017	$	—
Affinity acquisition	(35		)
Comfort acquisition	(3,800		)
WRB acquisition	(530		)
Balance at June 30, 2017	$	(4,365	)

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GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2017

GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

Schedule of changes in the carrying amount of goodwill

Balance at January 1, 2017	$	316,616
Affinity acquisition	8,772
Comfort Infusion acquisition	11,669
WRB acquisition	19,770
TNH purchase price adjustment	1,351
Balance at June 30, 2017	$	358,178

Schedule of definite-lived intangible assets

	June 30, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patient relationships	$	163,100	$	(39,096	)	$	124,004	$	159,100	$	(31,445	)	$	127,655
Non-compete employment agreements	58,519		(24,298		)	34,221		54,689		(18,674		)	36,015
Physician relationships	22,900		(5,784		)	17,116		21,700		(2,831		)	18,869
Trade names and trademarks	24,800		(10,117		)	14,683		23,800		(6,477		)	17,323
Customer relationships	5,200		(124		)	5,076		—		—			—
	$	274,519	$	(79,419	)	$	195,100	$	259,289	$	(59,427	)	$	199,862

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SHARE-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2017

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 January 1, 2017	4,413,341		$	19.02	7.0	$	11,558
Granted	2,185,735		14.92
Exercised	(916,092	)	6.56
Expired/cancelled	(588,570	)	27.38
Outstanding at June 30, 2017	5,094,414		$	18.54	8.3	$	6,778
Exercisable at June 30, 2017	1,496,673		$	16.35	5.9	$	6,675

Schedule of assumptions used to determine the valuation of granted options

Exercise price	$14.36 - $17.93
Expected volatility	33.44% - 33.93	%
Expected dividend yield	0	%
Risk-free rate over the estimated expected life	1.88% - 2.32	%
Expected life (in years)	5.00 - 6.25

Summary of restricted stock units activity

		Weighted
		Average
	Number	Grant Date
	of RSUs	Fair Value
Nonvested at January 1, 2017	—	$	—
Granted	90,718	14.65
Nonvested at June 30, 2017	90,718	$	14.65

Summary of restricted stock award activity

	Number		Weighted
	of Shares		Average
	Subject to		Grant Date
	Restriction		Fair Value
Nonvested at January 1, 2017	5,765		$	32.97
Granted	36,814		17.13
Vested	(9,210	)	25.58
Nonvested at June 30, 2017	33,369		$	17.53

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INCOME PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2017

INCOME PER COMMON SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Numerator:
Net income attributable to Diplomat Pharmacy, Inc.	$	3,591	$	8,534	$	7,958	$	23,963
Denominator:
Weighted average common shares outstanding, basic	67,528,151		66,085,149		67,209,280		65,312,155
Weighted average dilutive effect of stock options and restricted stock awards/units	683,731		1,949,243		788,649		1,954,369
Weighted average dilutive effect contingent consideration	—		—		—		673,141
Weighted average common shares outstanding, diluted	68,211,882		68,034,392		67,997,929		67,939,665
Net income per common share:
Basic	$	0.05	$	0.13	$	0.12	$	0.37
Diluted	$	0.05	$	0.13	$	0.12	$	0.35

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DESCRIPTION OF BUSINESS - Operations (Details)	6 Months Ended
	Jun. 30, 2017 state segment location
DESCRIPTION OF BUSINESS
Number of pharmacy locations (in locations) | location	28
Number of states with call center locations (in states) | state	50
Number of reportable segments | segment	1

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Principles of Consolidation thru Inventories (Details)	6 Months Ended
	Jun. 30, 2017
Principles of Consolidation
Percentage of ownership interest in subsidiary that the entity has the ability to control	51.00%
Inventories
Maximum period before expiration within which Inventory is returnable and fully refundable	6 months

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition thru New Accounting Pronouncements (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Revenue recognition
Revenues from service, data and consulting services	$ 8,268	$ 6,285	$ 13,143	$ 12,144
Change in Accounting Principle
Total current assets	476,016		476,016		$ 505,107
Deferred income taxes (noncurrent asset)	5,031		5,031		6,010
Total assets	1,099,322		1,099,322		1,099,254
Total liabilities	463,788		463,788		485,530
Total liabilities and shareholders' equity	1,099,322		1,099,322		1,099,254
Prescription Drugs
Revenue recognition
Revenues	$ 1,118,196	$ 1,082,221	$ 2,192,061	$ 2,072,232
As Previously Reported
Change in Accounting Principle
Deferred income taxes (current asset)					14,703
Total current assets					519,810
Total assets					1,107,947
Deferred income taxes (noncurrent liability)					8,693
Total liabilities					494,223
Total liabilities and shareholders' equity					1,107,947
Adjustment
Change in Accounting Principle
Deferred income taxes (current asset)					(14,703)
Total current assets					(14,703)
Deferred income taxes (noncurrent asset)					6,010
Total assets					(8,693)
Deferred income taxes (noncurrent liability)					(8,693)
Total liabilities					(8,693)
Total liabilities and shareholders' equity					$ (8,693)

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BUSINESS ACQUISITIONS - WRB Communications, LLC (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended	6 Months Ended
	May 08, 2017	May 05, 2017	Jun. 30, 2017	Jun. 30, 2017	Dec. 31, 2016
Summary of the preliminary fair value determination of the acquired assets and liabilities
Goodwill			$ 358,178	$ 358,178	$ 316,616
WRB Communications, LLC
BUSINESS ACQUISITIONS
Cash	$ 26,394
Restricted common shares	4,291
Contingent consideration at fair value	530
Total	$ 31,215
Restricted common shares (in shares)	299,325
Market price (in dollars per share)		$ 15.93
Market price multiplier to factor in restricted nature of the shares (as a percent)		90.00%
Maximum additional cash payouts per performance period	$ 500
Maximum payout of contingent consideration	1,000
Purchase consideration deposited into an escrow account	$ 1,950
Deposit term into an escrow account	18 months
Acquisition-related costs charged to Selling, general, and administrative expenses			$ 196	$ 196
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash	$ 1,018
Accounts receivable	2,594
Prepaid expenses and other current assets	194
Property and equipment	498
Definite-lived intangible assets	7,730
Other noncurrent assets	24
Accounts payable	(100)
Accrued expenses - other	(513)
Total identifiable net assets	11,445
Goodwill	19,770
Total acquisition price	31,215
Definite-lived intangible assets
Amount	7,730
Customer relationships | WRB Communications, LLC
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 5,200
Definite-lived intangible assets
Useful Life	7 years
Amount	$ 5,200
Non-compete employment agreements | WRB Communications, LLC
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 1,530
Definite-lived intangible assets
Useful Life	4 years
Amount	$ 1,530
Trade names and trademarks | WRB Communications, LLC
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 1,000
Definite-lived intangible assets
Useful Life	2 years
Amount	$ 1,000

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BUSINESS ACQUISITIONS - Comfort Infusion, Inc. (Details) - USD ($) $ in Thousands		3 Months Ended	6 Months Ended
	Mar. 22, 2017	Jun. 30, 2017	Jun. 30, 2017	Dec. 31, 2016
Summary of the preliminary fair value determination of the acquired assets and liabilities
Goodwill		$ 358,178	$ 358,178	$ 316,616
Comfort Infusion, Inc
BUSINESS ACQUISITIONS
Cash	$ 10,613
Contingent consideration at fair value	3,800
Total	14,413
Maximum additional cash payouts per performance period	2,000
Maximum payout of contingent consideration	6,000
Purchase consideration deposited into an escrow account	$ 1,050
Deposit term into an escrow account	18 months
Acquisition-related costs charged to Selling, general, and administrative expenses		$ 81	$ 214
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash	$ 104
Accounts receivable	575
Inventories	118
Prepaid expenses and other current assets	15
Definite-lived intangible assets	2,400
Other noncurrent assets	5
Accounts payable	(372)
Accrued expenses - other	(101)
Total identifiable net assets	2,744
Goodwill	11,669
Total acquisition price	14,413
Definite-lived intangible assets
Amount	2,400
Physician relationships | Comfort Infusion, Inc
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 1,200
Definite-lived intangible assets
Useful Life	7 years
Amount	$ 1,200
Non-compete employment agreements | Comfort Infusion, Inc
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 1,200
Definite-lived intangible assets
Useful Life	5 years
Amount	$ 1,200

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BUSINESS ACQUISITIONS - Affinity Biotech, Inc. (Details) - USD ($) $ in Thousands		3 Months Ended	6 Months Ended
	Feb. 01, 2017	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2017	Dec. 31, 2016
Summary of the preliminary fair value determination of the acquired assets and liabilities
Goodwill				$ 358,178	$ 316,616
Affinity Biotech, Inc
BUSINESS ACQUISITIONS
Cash	$ 17,377
Contingent consideration at fair value	35
Total	17,412
Maximum payout of contingent consideration	4,000
Purchase consideration deposited into an escrow account	$ 2,000
Deposit term into an escrow account	18 months
Acquisition-related costs charged to Selling, general, and administrative expenses		$ 203	$ 203
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash	$ 1,043
Accounts receivable	3,583
Inventories	79
Prepaid expenses and other current assets	74
Definite-lived intangible assets	5,100
Other noncurrent assets	5
Accounts payable	(1,075)
Accrued expenses - compensation and benefits	(144)
Accrued expenses - other	(25)
Total identifiable net assets	8,640
Goodwill	8,772
Total acquisition price	17,412
Definite-lived intangible assets
Amount	5,100
Patient relationships | Affinity Biotech, Inc
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 4,000
Definite-lived intangible assets
Useful Life	7 years
Amount	$ 4,000
Non-compete employment agreements | Affinity Biotech, Inc
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 1,100
Definite-lived intangible assets
Useful Life	5 years
Amount	$ 1,100

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BUSINESS ACQUISITIONS - Valley Campus Pharmacy, Inc (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended		6 Months Ended
	Jun. 01, 2016	May 31, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2016	Dec. 31, 2016
Summary of the preliminary fair value determination of the acquired assets and liabilities
Goodwill			$ 358,178			$ 316,616
Valley Campus Pharmacy, Inc
BUSINESS ACQUISITIONS
Cash	$ 70,267
Restricted common shares	9,507
Total	$ 79,774
Restricted common shares (in shares)	324,244
Market price (in dollars per share)		$ 32.58
Market price multiplier to factor in restricted nature of the shares (as a percent)		90.00%
Purchase consideration deposited into an escrow account	$ 3,800
Deposit term into an escrow account	1 year
All but this amount released from escrow account to the sellers			$ 100
Acquisition-related costs charged to Selling, general, and administrative expenses				$ 359	$ 359
Summary of the preliminary fair value determination of the acquired assets and liabilities
Cash	$ 2,114
Accounts receivable	16,271
Inventories	4,740
Prepaid expenses and other current assets	46
Property and equipment	200
Capitalized software for internal use	14,000
Definite-lived intangible assets	13,890
Other noncurrent assets	21
Accounts payable	(29,773)
Accrued expenses - compensation and benefits	(400)
Accrued expenses - other	(1,962)
Total identifiable net assets	19,147
Goodwill	60,627
Total acquisition price	79,774
Definite-lived intangible assets
Amount	13,890
Physician relationships | Valley Campus Pharmacy, Inc
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 7,700
Definite-lived intangible assets
Useful Life	10 years
Amount	$ 7,700
Non-compete employment agreements | Valley Campus Pharmacy, Inc
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 4,490
Definite-lived intangible assets
Useful Life	5 years
Amount	$ 4,490
Trade names and trademarks | Valley Campus Pharmacy, Inc
Summary of the preliminary fair value determination of the acquired assets and liabilities
Definite-lived intangible assets	$ 1,700
Definite-lived intangible assets
Useful Life	1 year
Amount	$ 1,700

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BUSINESS ACQUISITIONS - Pro Forma Data (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Pro Forma Operating Results
Net sales	$ 1,128,151	$ 1,182,015	$ 2,214,971	$ 2,309,463
Net income attributable to Diplomat Pharmacy, Inc.	$ 3,618	$ 8,472	$ 8,127	$ 24,528
Net income per common share - basic (in dollars per share)	$ 0.05	$ 0.13	$ 0.12	$ 0.37
Net income per common share - diluted (in dollars per share)	$ 0.05	$ 0.12	$ 0.12	$ 0.36

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FAIR VALUE MEASUREMENTS - Recurring Basis (Details) - Recurring - Contingent consideration $ in Thousands	Jun. 30, 2017 USD ($)
Fair value measurements
Asset (Liability)	$ (4,365)
Level 3
Fair value measurements
Asset (Liability)	$ (4,365)

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FAIR VALUE MEASUREMENTS - Roll forward of Level 3 Measurements (Details) - Contingent consideration $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($)
Level 3 measurements
Balance at end of the period	$ (4,365)
Affinity Biotech, Inc
Level 3 measurements
Acquisition	(35)
Comfort Infusion, Inc
Level 3 measurements
Acquisition	(3,800)
WRB Communications, LLC
Level 3 measurements
Acquisition	$ (530)

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GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Changes in the carrying amount of goodwill
Balance as of beginning of period	$ 316,616
Balance as of end of period	358,178
Gross Carrying Amount	274,519	$ 259,289
Accumulated Amortization	(79,419)	(59,427)
Net Carrying Amount	195,100	199,862
Patient relationships
Changes in the carrying amount of goodwill
Gross Carrying Amount	163,100	159,100
Accumulated Amortization	(39,096)	(31,445)
Net Carrying Amount	124,004	127,655
Non-compete employment agreements
Changes in the carrying amount of goodwill
Gross Carrying Amount	58,519	54,689
Accumulated Amortization	(24,298)	(18,674)
Net Carrying Amount	34,221	36,015
Physician relationships
Changes in the carrying amount of goodwill
Gross Carrying Amount	22,900	21,700
Accumulated Amortization	(5,784)	(2,831)
Net Carrying Amount	17,116	18,869
Trade names and trademarks
Changes in the carrying amount of goodwill
Gross Carrying Amount	24,800	23,800
Accumulated Amortization	(10,117)	(6,477)
Net Carrying Amount	14,683	$ 17,323
Customer relationships
Changes in the carrying amount of goodwill
Gross Carrying Amount	5,200
Accumulated Amortization	(124)
Net Carrying Amount	5,076
Affinity
Changes in the carrying amount of goodwill
Acquired during the period	8,772
Comfort Infusion, Inc
Changes in the carrying amount of goodwill
Acquired during the period	11,669
WRB Communications, LLC
Changes in the carrying amount of goodwill
Acquired during the period	19,770
Valley Campus Pharmacy, Inc
Changes in the carrying amount of goodwill
TNH purchase price adjustment	$ 1,351

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INVESTMENT IN NON-CONSOLIDATED ENTITY (Details) - Ageology - USD ($) $ in Thousands	1 Months Ended
	Feb. 28, 2017	Jun. 30, 2017	Jan. 31, 2017
Schedule of Equity Method Investments
Ownership percentage (as a percent)	22.00%		25.00%
Conversion of outstanding loans in to equity	$ 2,500
Affiliated entity | Chief Executive Officer
Schedule of Equity Method Investments
Ownership percentage (as a percent)	43.00%
Amount loaned		$ 1,660	$ 16,000
Conversion of outstanding loans in to equity	$ 16,000

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DEBT (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016
Debt
Debt issuance costs	$ 2,806		$ 3,316
Term Loan A | GE
Debt
Amount of borrowings outstanding	108,000		111,000
DDTL | GE
Debt
Amount of borrowings outstanding	24,688
Maximum borrowing capacity		$ 25,000
Line of credit | GE
Debt
Amount of borrowings outstanding	2,521		39,255
Maximum borrowing capacity	175,000
Amount of borrowings available under the credit agreement	$ 156,032		$ 129,908
Interest rate (as a percent)	5.00%		4.75%
Term Loan A and DDTL | GE
Debt
Interest rate (as a percent)	3.55%		3.13%
Minimum | Line of credit | GE
Debt
Monthly unused commitment fee (as a percent)	0.25%
Maximum | Line of credit | GE
Debt
Monthly unused commitment fee (as a percent)	0.50%
Base Rate | Term Loan A | GE
Debt
Interest rate margin (as a percent)	1.50%
Base Rate | Line Of Credit And Swingline Loan | GE
Debt
Interest rate margin (as a percent)	1.00%
LIBOR | Term Loan A | GE
Debt
Interest rate margin (as a percent)	2.50%
LIBOR | Line Of Credit And Swingline Loan | GE
Debt
Interest rate margin (as a percent)	2.00%

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SHARE-BASED COMPENSATION - Stock Option Activity (Details) - Stock options - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Number of Options
Outstanding at beginning of period (in shares)	4,413,341
Granted (in shares)	2,185,735
Exercised (in shares)	(916,092)
Expired/cancelled (in shares)	(588,570)
Outstanding at end of period (in shares)	5,094,414	4,413,341
Exercisable at end of period (in shares)	1,496,673
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)	$ 19.02
Granted (in dollars per share)	14.92
Exercised (in dollars per share)	6.56
Expired/cancelled (in dollars per share)	27.38
Outstanding at end of period (in dollars per share)	18.54	$ 19.02
Exercisable at end of period (in dollars per share)	$ 16.35
Weighted Average Remaining Contractual Life
Weighted Average Remaining Contractual Life (in years)	8 years 3 months 18 days	7 years
Exercisable at end of period	5 years 10 months 24 days
Aggregate Intrinsic Value
Outstanding at beginning of period	$ 11,558
Outstanding at end of period	6,778	$ 11,558
Exercisable at end of period	$ 6,675

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SHARE-BASED COMPENSATION - Information and Valuation Assumptions (Details) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($) installment $ / shares shares	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($) $ / shares shares	Jun. 30, 2016 USD ($)
Share-based compensation
Total compensation expense | $	$ 2,626	$ 1,562	$ 3,514	$ 2,994
Assumptions used to determine the valuation of granted options
Expected dividend yield (as a percent)			0.00%
Minimum
Assumptions used to determine the valuation of granted options
Exercise price | $ / shares	$ 14.36		$ 14.36
Expected volatility (as a percent)			33.44%
Risk-free rate over the estimated expected life (as a percent)			1.88%
Expected life (in years)			5 years
Maximum
Assumptions used to determine the valuation of granted options
Exercise price | $ / shares	$ 17.93		$ 17.93
Expected volatility (as a percent)			33.93%
Risk-free rate over the estimated expected life (as a percent)			2.32%
Expected life (in years)			6 years 3 months
Service-based awards | 2014 Plan
Share-based compensation
Number of shares options vested at time of grant (in shares)	200,000		200,000
Number of shares options exercisable (in shares)	649,976		649,976
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
Service-based awards | 2014 Plan | Key employees
Share-based compensation
Number of shares issued during the period (in shares)			849,976
Performance-based awards | 2014 Plan
Share-based compensation
Percentage of options exercisable in installments beginning on the first anniversary of the grant date and each of the three anniversaries thereafter	25.00%
Maximum term of stock option plan	10 years
Number of installments for vesting (in installments) | installment	4
Performance-based awards | 2014 Plan | Key employees
Share-based compensation
Number of shares issued during the period (in shares)	1,060,759
Options earned or forfeited for the current fiscal year | 2014 Plan
Share-based compensation
Number of shares issued during the period (in shares)	260,759
Options earned or forfeited for the current fiscal year through two thousand and twenty | 2014 Plan
Share-based compensation
Number of shares issued during the period (in shares)	800,000
Stock options
Share-based compensation
Number of shares options exercisable (in shares)	1,496,673		1,496,673
Granted (in shares)			2,185,735
Weighted average grant-date fair value of options granted (in dollars per share) | $ / shares			$ 5.48

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SHARE-BASED COMPENSATION - Restricted Stock Units and Restricted Stock Awards (Details) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($) $ / shares shares	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($) $ / shares shares	Jun. 30, 2016 USD ($)
Additional disclosures
Share-based compensation expense | $	$ 2,626	$ 1,562	$ 3,514	$ 2,994
Restricted Stock Units
Number of Shares Subject to Restriction
Granted (in shares)			90,718
Nonvested at the end of the period (in shares)	90,718		90,718
Weighted Average Grant Date Fair Value
Granted (in dollars per share) | $ / shares			$ 14.65
Nonvested at the end of the period (in dollars per share) | $ / shares	$ 14.65		$ 14.65
Additional disclosures
Vesting period	3 years
Number of anniversary dates upon which options become exercisable	2
Share-based compensation expense | $	$ 105		$ 105
Restricted Stock Units | Key employees
Number of Shares Subject to Restriction
Granted (in shares)	90,708
Restricted Stock Units | Cliff Vest
Number of Shares Subject to Restriction
Granted (in shares)	46,495
Additional disclosures
Vesting period	3 years
Restricted Stock Units | One-third per year vest
Number of Shares Subject to Restriction
Granted (in shares)	44,213
Additional disclosures
Percentage of options exercisable in installments beginning on the first anniversary of the grant date and each of the two anniversaries thereafter	33.33%
Restricted Stock Awards
Number of Shares Subject to Restriction
Nonvested at the beginning of the period (in shares)			5,765
Granted (in shares)			36,814
Vested (in shares)			(9,210)
Nonvested at the end of the period (in shares)	33,369		33,369
Weighted Average Grant Date Fair Value
Nonvested at the beginning of the period (in dollars per share) | $ / shares			$ 32.97
Granted (in dollars per share) | $ / shares			17.13
Vested (in dollars per share) | $ / shares			25.58
Nonvested at the end of the period (in dollars per share) | $ / shares	$ 17.53		$ 17.53
Additional disclosures
Vesting period			1 year
Share-based compensation expense | $	$ 95	$ 87	$ 179	$ 158

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INCOME PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Numerator:
Net income attributable to Diplomat Pharmacy, Inc	$ 3,591	$ 8,534	$ 7,958	$ 23,963
Denominator:
Weighted average common shares outstanding, basic (in shares)	67,528,151	66,085,149	67,209,280	65,312,155
Weighted average dilutive effect of stock options and restricted stock awards/units (in shares)	683,731	1,949,243	788,649	1,954,369
Weighted average dilutive effect of contingent consideration (in shares)				673,141
Weighted average common shares outstanding, diluted (in shares)	68,211,882	68,034,392	67,997,929	67,939,665
Net income per common share:
Basic (in dollars per share)	$ 0.05	$ 0.13	$ 0.12	$ 0.37
Diluted (in dollars per share)	$ 0.05	$ 0.13	$ 0.12	$ 0.35
Contingent consideration
Net income per common share:
Anti-dilutive securities excluded (in shares)				1,350,309
Performance-based stock options
Net income per common share:
Anti-dilutive securities excluded (in shares)	221,891	381,532	110,946	213,826
Restricted Stock Awards
Net income per common share:
Anti-dilutive securities excluded (in shares)	9,340		5,950
Restricted Stock Units
Net income per common share:
Anti-dilutive securities excluded (in shares)	86,488		43,244
Service-based and Performance-based stock options
Net income per common share:
Anti-dilutive securities excluded (in shares)	3,947,686	1,541,467	3,190,598	1,455,421

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SUBSEQUENT EVENT (Details) - Accurate Rx Pharmacy Consulting, LLC - Subsequent event $ in Thousands	Jul. 05, 2017 USD ($)
SUBSEQUENT EVENT
Cash consideration	$ 8,000
Consideration paid in shares	1,800
Maximum additional cash payouts per performance period during 12-month periods ending July 31, 2018 and 2019	3,600
Maximum payout of contingent consideration	$ 7,200