UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or
o TRANSITION 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 |
|
(IRS employer |
|
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 every Interactive Data File required to be submitted 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 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 November 5, 2018, there were 74,474,677 outstanding shares of the registrant’s no par value common stock.
DIPLOMAT PHARMACY, INC.
Form 10-Q
For the Quarter Ended September 30, 2018
FINANCIAL INFORMATION
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
|
|
|
September 30, |
|
December 31, |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and equivalents |
|
$ |
8,214 |
|
$ |
84,251 |
|
|
Receivables, net |
|
358,158 |
|
332,091 |
| ||
|
Inventories |
|
169,863 |
|
206,603 |
| ||
|
Prepaid expenses and other current assets |
|
13,491 |
|
11,125 |
| ||
|
Total current assets |
|
549,726 |
|
634,070 |
| ||
|
|
|
|
|
|
| ||
|
Property and equipment, net |
|
40,924 |
|
38,990 |
| ||
|
Capitalized software for internal use, net |
|
29,842 |
|
36,520 |
| ||
|
Goodwill |
|
834,580 |
|
832,624 |
| ||
|
Definite-lived intangible assets, net |
|
340,651 |
|
392,011 |
| ||
|
Other noncurrent assets |
|
4,938 |
|
6,208 |
| ||
|
Total assets |
|
$ |
1,800,661 |
|
$ |
1,940,423 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
315,268 |
|
$ |
384,719 |
|
|
Rebates payable |
|
29,954 |
|
28,744 |
| ||
|
Borrowings on line of credit |
|
178,250 |
|
188,250 |
| ||
|
Short-term debt, including current portion of long-term debt |
|
11,500 |
|
11,500 |
| ||
|
Accrued expenses: |
|
|
|
|
| ||
|
Compensation and benefits |
|
16,771 |
|
9,584 |
| ||
|
Contingent consideration |
|
5,200 |
|
8,100 |
| ||
|
Other |
|
21,542 |
|
20,560 |
| ||
|
Total current liabilities |
|
578,485 |
|
651,457 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt, less current portion |
|
440,552 |
|
521,098 |
| ||
|
Deferred income taxes |
|
12,423 |
|
14,367 |
| ||
|
Contingent consideration |
|
4,050 |
|
4,000 |
| ||
|
Other |
|
295 |
|
— |
| ||
|
Total liabilities |
|
1,035,805 |
|
1,190,922 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies (Note 12) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Shareholders’ equity: |
|
|
|
|
| ||
|
Preferred stock (10,000,000 shares authorized; none issued and outstanding) |
|
— |
|
— |
| ||
|
Common stock (no par value; 590,000,000 shares authorized; 74,448,430 and 73,871,424 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively) |
|
629,283 |
|
619,235 |
| ||
|
Additional paid-in capital |
|
48,172 |
|
38,450 |
| ||
|
Retained earnings |
|
87,445 |
|
91,816 |
| ||
|
Accumulated other comprehensive loss |
|
(44 |
) |
— |
| ||
|
Total shareholders’ equity |
|
764,856 |
|
749,501 |
| ||
|
Total liabilities and shareholders’ equity |
|
$ |
1,800,661 |
|
$ |
1,940,423 |
|
See accompanying notes to condensed consolidated financial statements.
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands, except per share amounts)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||
|
Net sales |
|
$ |
1,373,334 |
|
$ |
1,124,957 |
|
$ |
4,131,896 |
|
$ |
3,330,161 |
|
|
Cost of sales |
|
(1,279,976 |
) |
(1,059,867 |
) |
(3,849,743 |
) |
(3,128,595 |
) | ||||
|
Gross profit |
|
93,358 |
|
65,090 |
|
282,153 |
|
201,566 |
| ||||
|
Selling, general and administrative expenses |
|
(83,419 |
) |
(62,782 |
) |
(255,705 |
) |
(185,867 |
) | ||||
|
Income from operations |
|
9,939 |
|
2,308 |
|
26,448 |
|
15,699 |
| ||||
|
Other (expense) income: |
|
|
|
|
|
|
|
|
| ||||
|
Interest expense |
|
(10,179 |
) |
(2,054 |
) |
(30,998 |
) |
(6,034 |
) | ||||
|
Impairment of non-consolidated entities |
|
(286 |
) |
— |
|
(329 |
) |
— |
| ||||
|
Other |
|
574 |
|
45 |
|
1,385 |
|
111 |
| ||||
|
Total other expense |
|
(9,891 |
) |
(2,009 |
) |
(29,942 |
) |
(5,923 |
) | ||||
|
Income (loss) before income taxes |
|
48 |
|
299 |
|
(3,494 |
) |
9,776 |
| ||||
|
Income tax benefit (expense) |
|
121 |
|
662 |
|
(750 |
) |
(1,101 |
) | ||||
|
Net income (loss) |
|
169 |
|
961 |
|
(4,244 |
) |
8,675 |
| ||||
|
Less net loss attributable to noncontrolling interest |
|
— |
|
(55 |
) |
— |
|
(299 |
) | ||||
|
Net income (loss) attributable to Diplomat Pharmacy, Inc. |
|
$ |
169 |
|
$ |
1,016 |
|
$ |
(4,244 |
) |
$ |
8,974 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Other comprehensive income (loss), net of tax |
|
918 |
|
— |
|
(44 |
) |
— |
| ||||
|
Total comprehensive income (loss) |
|
$ |
1,087 |
|
$ |
1,016 |
|
$ |
(4,288 |
) |
$ |
8,974 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
0.00 |
|
$ |
0.01 |
|
$ |
(0.06 |
) |
$ |
0.13 |
|
|
Diluted |
|
$ |
0.00 |
|
$ |
0.01 |
|
$ |
(0.06 |
) |
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
74,386,386 |
|
68,371,429 |
|
74,181,869 |
|
67,600,920 |
| ||||
|
Diluted |
|
74,741,511 |
|
68,769,618 |
|
74,181,869 |
|
68,259,416 |
| ||||
See accompanying notes to condensed consolidated financial statements.
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
|
|
Nine Months Ended |
| ||||
|
|
|
2018 |
|
2017 |
| ||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Net (loss) income |
|
$ |
(4,244 |
) |
$ |
8,675 |
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
72,547 |
|
48,813 |
| ||
|
Share-based compensation expense |
|
15,771 |
|
5,487 |
| ||
|
Net provision for doubtful accounts |
|
5,862 |
|
7,523 |
| ||
|
Amortization of debt issuance costs |
|
3,703 |
|
892 |
| ||
|
Changes in fair values of contingent consideration |
|
2,419 |
|
1,965 |
| ||
|
Contingent consideration payments |
|
(3,181 |
) |
— |
| ||
|
Deferred income tax benefit |
|
(2,034 |
) |
(637 |
) | ||
|
Impairment of non-consolidated entities |
|
329 |
|
— |
| ||
|
Other |
|
(43 |
) |
1 |
| ||
|
Changes in operating assets and liabilities, net of business acquisitions: |
|
|
|
|
| ||
|
Accounts receivable |
|
(31,090 |
) |
4,117 |
| ||
|
Inventories |
|
36,717 |
|
22,379 |
| ||
|
Accounts payable |
|
(72,018 |
) |
(3,055 |
) | ||
|
Other assets and liabilities |
|
8,469 |
|
(2,514 |
) | ||
|
Net cash provided by operating activities |
|
33,207 |
|
93,646 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
Expenditures for capitalized software for internal use |
|
(8,736 |
) |
(3,252 |
) | ||
|
Expenditures for property and equipment |
|
(7,880 |
) |
(3,414 |
) | ||
|
Net payments to acquire businesses, net of cash acquired |
|
(1,139 |
) |
(76,646 |
) | ||
|
Other |
|
46 |
|
(38 |
) | ||
|
Net cash used in investing activities |
|
(17,709 |
) |
(83,350 |
) | ||
|
|
|
|
|
|
| ||
|
Cash flows from financing activities: |
|
|
|
|
| ||
|
Net payments on line of credit |
|
(10,000 |
) |
(17,663 |
) | ||
|
Payments on long-term debt |
|
(82,625 |
) |
(6,031 |
) | ||
|
Proceeds from long-term debt |
|
— |
|
25,000 |
| ||
|
Proceeds from issuance of stock upon stock option exercises |
|
3,999 |
|
7,597 |
| ||
|
Contingent consideration payments |
|
(2,088 |
) |
— |
| ||
|
Payments of debt issuance costs |
|
(821 |
) |
— |
| ||
|
Net cash (used in) provided by financing activities |
|
(91,535 |
) |
8,903 |
| ||
|
|
|
|
|
|
| ||
|
Net (decrease) increase in cash and equivalents |
|
(76,037 |
) |
19,199 |
| ||
|
|
|
|
|
|
| ||
|
Cash and equivalents at beginning of period |
|
84,251 |
|
7,953 |
| ||
|
|
|
|
|
|
| ||
|
Cash and equivalents at end of period |
|
$ |
8,214 |
|
$ |
27,152 |
|
|
|
|
|
|
|
| ||
|
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
|
Cash paid for interest |
|
$ |
27,707 |
|
$ |
5,125 |
|
|
Cash paid for income taxes |
|
2,142 |
|
4,716 |
| ||
See accompanying notes to condensed consolidated financial statements.
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(Dollars in thousands)
|
|
|
Nine Months Ended September 30, 2018 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
Total |
| |||||
|
|
|
Common Stock |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Shareholders’ |
| |||||||
|
|
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Loss |
|
Equity |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Balance at January 1, 2018 |
|
73,871,424 |
|
$ |
619,235 |
|
$ |
38,450 |
|
$ |
91,816 |
|
$ |
— |
|
$ |
749,501 |
|
|
Adoption of ASC Topic 606 (Note 3) |
|
— |
|
— |
|
— |
|
(126 |
) |
— |
|
(126 |
) | |||||
|
Net loss |
|
— |
|
— |
|
— |
|
(450 |
) |
— |
|
(450 |
) | |||||
|
Stock issued upon stock option exercises |
|
200,677 |
|
2,461 |
|
(552 |
) |
— |
|
— |
|
1,909 |
| |||||
|
Share-based compensation expense |
|
— |
|
— |
|
3,161 |
|
— |
|
— |
|
3,161 |
| |||||
|
Stock issued upon vesting of restricted stock units |
|
10,705 |
|
157 |
|
(157 |
) |
— |
|
— |
|
— |
| |||||
|
Balance at March 31, 2018 |
|
74,082,806 |
|
621,853 |
|
40,902 |
|
91,240 |
|
— |
|
753,995 |
| |||||
|
Net loss |
|
— |
|
— |
|
— |
|
(3,964 |
) |
— |
|
(3,964 |
) | |||||
|
Other comprehensive loss, net of tax |
|
— |
|
— |
|
— |
|
— |
|
(962 |
) |
(962 |
) | |||||
|
Stock issued upon stock option exercises |
|
129,722 |
|
1,831 |
|
(389 |
) |
— |
|
— |
|
1,442 |
| |||||
|
Share-based compensation expense |
|
— |
|
— |
|
6,961 |
|
— |
|
— |
|
6,961 |
| |||||
|
Stock issued upon vesting of restricted stock units |
|
47,683 |
|
1,109 |
|
(1,109 |
) |
— |
|
— |
|
— |
| |||||
|
Restricted stock award activity |
|
21,924 |
|
561 |
|
(561 |
) |
— |
|
— |
|
— |
| |||||
|
Balance at June 30, 2018 |
|
74,282,135 |
|
625,354 |
|
45,804 |
|
87,276 |
|
(962 |
) |
757,472 |
| |||||
|
Net income |
|
— |
|
— |
|
— |
|
169 |
|
— |
|
169 |
| |||||
|
Other comprehensive income, net of tax |
|
— |
|
— |
|
— |
|
— |
|
918 |
|
918 |
| |||||
|
Stock issued upon stock option exercises |
|
41,420 |
|
896 |
|
(248 |
) |
— |
|
— |
|
648 |
| |||||
|
Share-based compensation expense |
|
— |
|
— |
|
5,649 |
|
— |
|
— |
|
5,649 |
| |||||
|
Stock issued upon vesting of restricted stock units |
|
124,875 |
|
3,033 |
|
(3,033 |
) |
— |
|
— |
|
— |
| |||||
|
Balance at September 30, 2018 |
|
74,448,430 |
|
$ |
629,283 |
|
$ |
48,172 |
|
$ |
87,445 |
|
$ |
(44 |
) |
$ |
764,856 |
|
See accompanying notes to condensed consolidated financial statements.
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Continued
(Dollars in thousands)
|
|
|
Nine Months Ended September 30, 2017 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
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) |
|
— |
|
— |
|
— |
|
4,367 |
|
4,367 |
|
(142 |
) |
4,225 |
| ||||||
|
Stock issued upon stock option exercises |
|
391,965 |
|
3,553 |
|
(754 |
) |
— |
|
2,799 |
|
— |
|
2,799 |
| ||||||
|
Share-based compensation expense |
|
— |
|
— |
|
972 |
|
— |
|
972 |
|
— |
|
972 |
| ||||||
|
Restricted stock award activity |
|
7,642 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Balance at March 31, 2017 |
|
67,164,606 |
|
507,381 |
|
33,486 |
|
80,673 |
|
621,540 |
|
180 |
|
621,720 |
| ||||||
|
Net income (loss) |
|
— |
|
— |
|
— |
|
3,591 |
|
3,591 |
|
(102 |
) |
3,489 |
| ||||||
|
Issuance of stock as partial consideration of WRB Communications, LLC acquisition |
|
299,325 |
|
4,291 |
|
— |
|
— |
|
4,291 |
|
— |
|
4,291 |
| ||||||
|
Stock issued upon stock option exercises |
|
524,127 |
|
3,926 |
|
(718 |
) |
— |
|
3,208 |
|
— |
|
3,208 |
| ||||||
|
Share-based compensation expense |
|
— |
|
— |
|
2,826 |
|
— |
|
2,826 |
|
— |
|
2,826 |
| ||||||
|
Restricted stock award activity |
|
29,172 |
|
222 |
|
(222 |
) |
— |
|
— |
|
— |
|
— |
| ||||||
|
Balance at June 30, 2017 |
|
68,017,230 |
|
515,820 |
|
35,372 |
|
84,264 |
|
635,456 |
|
78 |
|
635,534 |
| ||||||
|
Net income (loss) |
|
— |
|
— |
|
— |
|
1,016 |
|
1,016 |
|
(55 |
) |
961 |
| ||||||
|
Issuance of stock as partial consideration of Accurate Rx Pharmacy Consulting, LLC acquisition |
|
131,108 |
|
1,776 |
|
— |
|
— |
|
1,776 |
|
— |
|
1,776 |
| ||||||
|
Issuance of stock as partial consideration of Focus Rx Pharmacy Services Inc. and Focus Rx Inc. acquisition |
|
374,297 |
|
5,643 |
|
— |
|
— |
|
5,643 |
|
— |
|
5,643 |
| ||||||
|
Stock issued upon stock option exercises |
|
241,666 |
|
1,933 |
|
(343 |
) |
— |
|
1,590 |
|
— |
|
1,590 |
| ||||||
|
Share-based compensation expense |
|
— |
|
— |
|
1,689 |
|
— |
|
1,689 |
|
— |
|
1,689 |
| ||||||
|
Balance at September 30, 2017 |
|
68,764,301 |
|
$ |
525,172 |
|
$ |
36,718 |
|
$ |
85,280 |
|
$ |
647,170 |
|
$ |
23 |
|
$ |
647,193 |
|
See accompanying notes to condensed consolidated financial statements.
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”) is the largest independent provider of specialty pharmacy services in the United States of America (“U.S.”). The Company is focused on improving the lives of patients with complex chronic diseases while also delivering unique solutions for manufacturers, hospitals, payers and providers. The Company’s patient-centric approach positions it at the center of the healthcare continuum for treatment of complex chronic disease states, including oncology, specialty infusion therapy, immunology, hepatitis, multiple sclerosis and many other serious or long-term conditions. The Company operates as two reporting segments. The Specialty segment offers a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs and a wide range of applications and the Pharmacy Benefit Management (“PBM”) segment provides services designed to help the Company’s customers reduce the cost and manage the complexity of their prescription drug programs. The Company dispenses to patients in all U.S. states and territories through its advanced distribution centers and manages centralized clinical call centers to deliver localized services on a national scale.
2. BASIS OF PRESENTATION
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations, cash flows and changes in shareholders’ equity. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 1, 2018.
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 controlled until it was dissolved during the fourth quarter of 2017.
All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
During the second quarter of 2018, the Company changed its accounting policy to reclassify shipping and handling costs incurred at its dispensing pharmacies from “Selling, general and administrative expenses” (“SG&A”) to “Cost of sales” in its condensed consolidated statements of operations. The amounts reclassified for the three and nine months ended September 30, 2017 were $15,408 and $39,794, respectively, due to this accounting policy change. For comparability purposes, shipping and handling costs incurred at our dispensing pharmacies for the three and nine months ended September 30, 2018 were $15,713 and $46,979, respectively.
The Company has historically classified the cost of its nursing support services within SG&A as these amounts were not considered significant in relation to total cost of sales. During the second quarter of 2018, the Company reclassified
these nursing support service costs from SG&A to cost of sales. The amounts reclassified for the three and nine months ended September 30, 2017 were $4,805 and $13,826, respectively. For comparability purposes, nursing support service costs for the three and nine months ended September 30, 2018 were $6,370 and $17,736, respectively.
These reclassifications had no impact on “Income from operations” for any of the periods presented.
3. NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), which supersedes the previous 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 a company to recognize revenue when it transfers the promised goods or services to its customers for an amount that represents what the company expects to be entitled to in exchange for those goods or services. Topic 606 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 (modified retrospective transition method). The new standard also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers.
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company recognized the cumulative effect of initially applying the new revenue recognition standard on January 1, 2018 and recorded an after-tax adjustment of $126 to reduce beginning retained earnings. This cumulative adjustment relates to a shift in the timing of revenue recognition of dispensing prescription drugs for home delivery from the date the drugs are shipped under the Company’s previous accounting policy to the date the drugs are physically delivered (which better reflects when control transfers) under the new accounting policy adopted in connection with Topic 606. The effect of this change is not significant as there is a very short timeframe from the shipment date to the physical delivery date of the prescription drugs. Additionally, in the PBM segment, prior to the adoption of Topic 606, revenue related to certain contracts was previously recognized on a net basis as the Company was considered to be acting as an agent in the transactions. The Company reassessed the principal versus agent criteria under Topic 606 and determined under the new guidance that the Company is considered to be acting as principal in these transactions and, effective January 1, 2018, began to recognize revenue on a gross basis.
As a result of applying the modified retrospective transition method, the following condensed consolidated balance sheet line items were adjusted as of January 1, 2018:
|
|
|
As Reported |
|
|
|
As Adjusted |
| |||
|
|
|
December 31, 2017 |
|
Adjustment |
|
January 1, 2018 |
| |||
|
Receivables, net |
|
$ |
332,091 |
|
$ |
(6,483 |
) |
$ |
325,608 |
|
|
Inventories |
|
206,603 |
|
6,313 |
|
212,916 |
| |||
|
Total current assets |
|
634,070 |
|
(170 |
) |
633,900 |
| |||
|
Total assets |
|
1,940,423 |
|
(170 |
) |
1,940,253 |
| |||
|
Accrued expenses — Other |
|
20,560 |
|
(44 |
) |
20,516 |
| |||
|
Total current liabilities |
|
651,457 |
|
(44 |
) |
651,413 |
| |||
|
Total liabilities |
|
1,190,922 |
|
(44 |
) |
1,190,878 |
| |||
|
Retained earnings |
|
91,816 |
|
(126 |
) |
91,690 |
| |||
|
Total shareholders’ equity |
|
749,501 |
|
(126 |
) |
749,375 |
| |||
|
Total liabilities and shareholders’ equity |
|
1,940,423 |
|
(170 |
) |
1,940,253 |
| |||
The following table compares the reported condensed consolidated statement of operations and comprehensive loss for the three months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
|
|
|
As Reported |
|
|
|
As Adjusted |
| |||
|
|
|
September 30, 2018 |
|
Adjustment |
|
September 30, 2018 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net sales |
|
$ |
1,373,334 |
|
$ |
(86,483 |
) |
$ |
1,286,851 |
|
|
Cost of sales |
|
(1,279,976 |
) |
86,446 |
|
(1,193,530 |
) | |||
|
Gross profit |
|
93,358 |
|
(37 |
) |
93,321 |
| |||
|
Income from operations |
|
9,939 |
|
(37 |
) |
9,902 |
| |||
|
Income before income taxes |
|
48 |
|
(37 |
) |
11 |
| |||
|
Income tax benefit |
|
121 |
|
10 |
|
131 |
| |||
|
Net income |
|
169 |
|
(27 |
) |
142 |
| |||
|
Net income attributable to Diplomat Pharmacy, Inc. |
|
169 |
|
(27 |
) |
142 |
| |||
|
Total comprehensive income |
|
1,087 |
|
(27 |
) |
1,060 |
| |||
The following table compares the reported condensed consolidated balance sheet, statement of operations and statement of cash flows as of and for the nine months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
|
|
|
As Reported As of |
|
|
|
As Adjusted As of |
| |||
|
|
|
September 30, 2018 |
|
Adjustment |
|
September 30, 2018 |
| |||
|
Condensed Consolidated Balance Sheet: |
|
|
|
|
|
|
| |||
|
Receivables, net |
|
$ |
358,158 |
|
$ |
7,590 |
|
$ |
365,748 |
|
|
Inventories |
|
169,863 |
|
(7,323 |
) |
162,540 |
| |||
|
Total current assets |
|
549,726 |
|
267 |
|
549,993 |
| |||
|
Total assets |
|
1,800,661 |
|
267 |
|
1,800,928 |
| |||
|
Accrued expenses — Other |
|
21,542 |
|
69 |
|
21,611 |
| |||
|
Total current liabilities |
|
578,485 |
|
69 |
|
578,554 |
| |||
|
Total liabilities |
|
1,035,805 |
|
69 |
|
1,035,874 |
| |||
|
Retained earnings |
|
87,445 |
|
198 |
|
87,643 |
| |||
|
Total shareholders’ equity |
|
764,856 |
|
198 |
|
765,054 |
| |||
|
Total liabilities and shareholders’ equity |
|
1,800,661 |
|
267 |
|
1,800,928 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Condensed Consolidated Statement of Operations and Comprehensive Loss: |
|
|
|
|
|
|
| |||
|
Net sales |
|
$ |
4,131,896 |
|
$ |
(278,919 |
) |
$ |
3,852,977 |
|
|
Cost of sales |
|
(3,849,743 |
) |
279,016 |
|
(3,570,727 |
) | |||
|
Gross profit |
|
282,153 |
|
97 |
|
282,250 |
| |||
|
Income from operations |
|
26,448 |
|
97 |
|
26,545 |
| |||
|
Loss before income taxes |
|
(3,494 |
) |
97 |
|
(3,397 |
) | |||
|
Income tax expense |
|
(750 |
) |
(25 |
) |
(775 |
) | |||
|
Net loss |
|
(4,244 |
) |
72 |
|
(4,172 |
) | |||
|
Net loss attributable to Diplomat Pharmacy, Inc. |
|
(4,244 |
) |
72 |
|
(4,172 |
) | |||
|
Total comprehensive loss |
|
(4,288 |
) |
72 |
|
(4,216 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Condensed Consolidated Statement of Cash Flows: |
|
|
|
|
|
|
| |||
|
Net loss |
|
$ |
(4,244 |
) |
$ |
72 |
|
$ |
(4,172 |
) |
|
Accounts receivable (change) |
|
(31,090 |
) |
(7,590 |
) |
(38,680 |
) | |||
|
Inventories (change) |
|
36,717 |
|
7,323 |
|
44,040 |
| |||
|
Other assets and liabilities (change) |
|
8,469 |
|
195 |
|
8,664 |
| |||
See the Revenue section in Note 4 for additional disclosures required under Topic 606.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 aligns hedge accounting with risk management activities and simplifies the requirement to qualify for hedge accounting. ASU 2017-12 is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted.
Effective January 1, 2018, the Company early adopted ASU 2017-12. There was no impact to the Company at the time of adoption.
Accounting Standards Issued But Not Yet Adopted
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“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. Topic 842 is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. The Company is substantially complete with the inventorying of its lease population and is continuing to evaluate the impact that adopting Topic 842 will have on its consolidated financial statements and/or notes thereto. The Company plans to adopt Topic 842 using the modified retrospective transition method, which means that comparative financial information will not be restated and will continue to be reported under the accounting standards in effect for those periods.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Receivables, net
Receivables, net consisted of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2018 |
|
2017 |
| ||
|
Trade receivables, net of allowances of $(23,039) and $(22,050), respectively |
|
$ |
322,072 |
|
$ |
317,004 |
|
|
Rebate receivables |
|
30,768 |
|
12,847 |
| ||
|
Other receivables |
|
5,318 |
|
2,240 |
| ||
|
|
|
$ |
358,158 |
|
$ |
332,091 |
|
Trade receivables are stated at the invoiced amount. Trade receivables primarily include amounts due from clients, third-party pharmacy benefit managers and insurance providers and are based on contracted prices. Trade receivables are unsecured and require no collateral. Trade receivable terms vary by payer, but generally are due within 30 days after the sale of the product or performance of the service.
Rebate receivables are amounts due from pharmaceutical manufacturers related to drug purchases by participants of the various pharmacy benefit plans that the Company manages, a portion of which, depending on contract terms, are paid back to the Company’s customers.
Inventories
Inventories consist of prescription and over-the-counter drugs and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Prescription drugs are returnable to the Company’s vendors and fully refundable before six months of expiration, and any remaining expired drugs are relieved from inventory on a quarterly basis.
Revenue
The following table disaggregates the Company’s net sales by major source:
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||
|
Oncology (Specialty) |
|
$ |
701,205 |
|
$ |
648,700 |
|
$ |
2,094,394 |
|
$ |
1,895,611 |
|
|
Specialty Infusion (Specialty) |
|
178,890 |
|
158,467 |
|
525,857 |
|
443,338 |
| ||||
|
Immunology (Specialty) |
|
135,397 |
|
139,670 |
|
413,948 |
|
420,126 |
| ||||
|
Other (Specialty) |
|
196,806 |
|
178,120 |
|
564,824 |
|
571,086 |
| ||||
|
PBM |
|
169,933 |
|
— |
|
550,148 |
|
— |
| ||||
|
Inter-segment eliminations |
|
(8,897 |
) |
— |
|
(17,275 |
) |
— |
| ||||
|
|
|
$ |
1,373,334 |
|
$ |
1,124,957 |
|
$ |
4,131,896 |
|
$ |
3,330,161 |
|
Specialty Segment
The Company recognizes revenue from dispensing prescription drugs for home delivery at the time the drugs are physically delivered (when control transfers). Revenue from dispensing prescription drugs that are picked up by patients at an open-door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Each prescription claim is considered its own arrangement with the customer and is a performance obligation.
The Company accrues an estimate of fees, including direct and indirect remuneration fees (“DIR fees”), which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a reduction at the time revenue is recognized. Changes in the Company’s estimate of such fees are recorded as an adjustment to revenue when the change becomes known.
PBM Segment
The Company provides a pharmacy benefit management service, including mail order pharmacy and specialty pharmacy services, to its clients, which include Medicare Part D Plans, regional health plans, self-insured clients and Medicaid Plans. The Company sells prescription drugs directly through its mail service dispensing pharmacy and indirectly through its contracted network of retail pharmacies. The Company recognizes revenue from the sale of prescription drugs by its mail order pharmacy service when the drugs are physically delivered (when control transfers) and by its retail pharmacy network when the claim is adjudicated. The Company’s pharmacy benefit management services are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. Pharmacy benefit management services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the dispensing of prescription drugs. The Company recognizes revenue using the gross method since the Company acts as principal in the arrangement, exercises pricing latitude and independently has a contractual obligation to pay its network pharmacy providers for benefits provided to its clients’ members, and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related pharmacy benefit management services. The Company includes the total prescription price (drug ingredient cost plus dispensing fee) it has contracted with these clients as revenue, including member co-payments to pharmacies, and as cost of sales.
Net sales include (i) the portion of the price the client pays directly to the Company, net of any variable consideration including volume-related or other discounts paid back to the client, (ii) the price paid to the Company by client plan members for mail order prescriptions and the price paid to retail network pharmacies by client plan members for retail prescriptions and (iii) claims-based administrative fees. The Company records revenue net of manufacturer’s rebates which are earned by its clients based on their plan members’ utilization of brand-name formulary drugs. The Company estimates these rebates at period-end based on actual and estimate claims data and its estimates of manufacturers’ rebates earned by its clients. The Company adjusts against revenues its rebates payable to clients to the actual amounts paid when such adjustments become known. The Company also adjusts revenues for refunds owed to its clients resulting from pricing and performance guarantees against defined metrics.
Sales taxes are presented on a net basis (excluded from revenue and cost) for both segments.
5. BUSINESS ACQUISITIONS
The Company accounts for its business acquisitions using the acquisition method as required by FASB Accounting Standards Codification (“ASC”) 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, except for a portion of LDI (defined 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. These estimates are preliminary and subject to change up to one year following each acquired entity’s respective acquisition date.
LDI Holding Company LLC
On December 20, 2017, the Company acquired LDI Holding Company LLC, doing business as LDI Integrated Pharmacy Services (“LDI”). LDI is a full-service PBM based in St. Louis, Missouri. LDI’s service offerings include URAC-accredited mail-order and specialty pharmacies, a national network of retail pharmacies and comprehensive clinical programs. The following table summarizes the consideration transferred to acquire LDI:
|
Cash |
|
$ |
520,157 |
|
|
4,113,188 restricted common shares |
|
79,088 |
| |
|
|
|
$ |
599,245 |
|
The above share consideration at closing is based on 4,113,188 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of December 19, 2017 ($20.24) and multiplied by 95 percent to account for the restricted nature of the shares.
Approximately $7,500 of the purchase consideration was deposited into an escrow account to satisfy any indemnification claims that may be made by the Company. Approximately $6,357 and $1,143 was released from escrow to the sellers and the Company, respectively, during the second quarter of 2018.
The Company incurred acquisition-related costs of $91 and $726 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2018, respectively.
The following table summarizes the preliminary fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
|
Cash |
|
$ |
780 |
|
|
Receivables, net |
|
40,673 |
| |
|
Inventories |
|
2,857 |
| |
|
Prepaid expenses and other current assets |
|
750 |
| |
|
Property and equipment |
|
1,930 |
| |
|
Capitalized software for internal use |
|
1,325 |
| |
|
Definite-lived intangible assets |
|
201,523 |
| |
|
Other noncurrent assets |
|
148 |
| |
|
Accounts payable |
|
(16,409 |
) | |
|
Rebates payable |
|
(23,121 |
) | |
|
Accrued expenses — compensation and benefits |
|
(2,329 |
) | |
|
Accrued expenses — other |
|
(1,948 |
) | |
|
Deferred income taxes |
|
(31,277 |
) | |
|
Total identifiable net assets |
|
174,902 |
| |
|
Goodwill |
|
424,343 |
| |
|
|
|
$ |
599,245 |
|
As of September 30, 2018, the Company was still in the process of finalizing its LDI valuation and, therefore, the purchase price allocation should be considered preliminary. The preliminary purchase price allocation may be subject to further refinement upon finalization of fair valuing acquisition-date working capital. The goodwill balance may be adjusted pending the completion of the valuation of the assets acquired and liabilities assumed as described above. To the extent that significant changes occur in the future, the Company will disclose such changes in the reporting period in which they occur.
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
|
|
|
Useful |
|
Amount |
| |
|
Customer relationships |
|
10 years |
|
$ |
184,973 |
|
|
Trade names and trademarks |
|
4 years |
|
16,550 |
| |
|
|
|
|
|
$ |
201,523 |
|
Pharmaceutical Technologies, Inc.
On November 27, 2017, the Company acquired Pharmaceuticals Technologies, Inc., doing business as National Pharmaceutical Services (“NPS”). NPS is a full-service PBM based in Omaha, Nebraska. The following table summarizes the consideration transferred to acquire NPS:
|
Cash |
|
$ |
36,534 |
|
|
835,017 restricted common shares |
|
12,753 |
| |
|
|
|
$ |
49,287 |
|
The above share consideration at closing is based on 835,017 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of November 24, 2017 ($16.97) and multiplied by 90 percent to account for the restricted nature of the shares.
Approximately $9,005 of the purchase consideration was deposited into an escrow account to be held for 18 to 26 months after the closing date to satisfy any indemnification claims that may be made by the Company.
The Company incurred acquisition-related costs of $555 which were charged to “Selling, general and administrative expenses” during the nine months ended September 30, 2018.
The following table summarizes the preliminary fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
|
Cash |
|
$ |
9,851 |
|
|
Accounts receivable |
|
20,622 |
| |
|
Inventories |
|
200 |
| |
|
Prepaid expenses and other current assets |
|
650 |
| |
|
Property and equipment |
|
13,544 |
| |
|
Capitalized software for internal use |
|
1,800 |
| |
|
Definite-lived intangible assets |
|
6,720 |
| |
|
Accounts payable |
|
(14,968 |
) | |
|
Rebates payable |
|
(7,882 |
) | |
|
Accrued expenses — compensation and benefits |
|
(160 |
) | |
|
Accrued expenses — other |
|
(4,891 |
) | |
|
Total identifiable net assets |
|
25,486 |
| |
|
Goodwill |
|
23,801 |
| |
|
|
|
$ |
49,287 |
|
As of September 30, 2018, the Company was still in the process of finalizing its NPS valuation and, therefore, the purchase price allocation should be considered preliminary. The preliminary purchase price allocation may be subject to further refinement upon finalization of fair valuing acquisition-date working capital. The goodwill balance may be adjusted pending the completion of the valuation of the assets acquired and liabilities assumed as described above. To the extent that significant changes occur in the future, the Company will disclose such changes in the reporting period in which they occur.
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
|
|
|
Useful |
|
Amount |
| |
|
Customer relationships |
|
10 years |
|
$ |
5,900 |
|
|
Trade names and trademarks |
|
2 years |
|
820 |
| |
|
|
|
|
|
$ |
6,720 |
|
Focus Rx Pharmacy Services Inc. and Focus Rx Inc.
On September 1, 2017, the Company acquired Focus Rx Pharmacy Services Inc. and Focus Rx Inc. (collectively, “Focus”), a specialty pharmacy focusing on infusion services located in Ronkonkoma, New York. The following table summarizes the consideration transferred to acquire Focus:
|
Cash |
|
$ |
17,252 |
|
|
374,297 restricted common shares |
|
5,643 |
| |
|
Contingent consideration at fair value |
|
2,080 |
| |
|
|
|
$ |
24,975 |
|
The above share consideration at closing is based on 374,297 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of August 31, 2017 ($16.75) 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 $1,500 per performance period based upon the achievement of certain gross profit targets in each of the 12-month periods ending September 30, 2018 and 2019. The maximum additional cash payout is $3,000. The fair value of this liability as of September 30, 2018 and December 31, 2017 was $2,900 and $2,600, respectively.
Approximately $1,200 of the purchase consideration was deposited into an escrow account to be held for 12 months after the closing date to satisfy any of the Company’s indemnification claims.
The Company incurred acquisition-related costs of $234 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
|
Cash |
|
$ |
1,809 |
|
|
Accounts receivable |
|
5,123 |
| |
|
Inventories |
|
261 |
| |
|
Definite-lived intangible assets |
|
7,100 |
| |
|
Other noncurrent assets |
|
22 |
| |
|
Accounts payable |
|
(5,122 |
) | |
|
Accrued expenses — compensation and benefits |
|
(156 |
) | |
|
Total identifiable net assets |
|
9,037 |
| |
|
Goodwill |
|
15,938 |
| |
|
|
|
$ |
24,975 |
|
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
|
|
|
Useful |
|
Amount |
| |
|
Patient relationships |
|
7 years |
|
$ |
3,700 |
|
|
Non-compete employment agreements |
|
3 years |
|
2,200 |
| |
|
Trade names and trademarks |
|
3 years |
|
1,200 |
| |
|
|
|
|
|
$ |
7,100 |
|
Accurate Rx Pharmacy Consulting, LLC
On July 5, 2017, the Company acquired Accurate Rx Pharmacy Consulting, LLC (“Accurate”), a specialty pharmacy focusing on infusion services located in Columbia, Missouri. The following table summarizes the consideration transferred to acquire Accurate:
|
Cash |
|
$ |
9,408 |
|
|
131,108 restricted common shares |
|
1,776 |
| |
|
Contingent consideration at fair value |
|
1,980 |
| |
|
|
|
$ |
13,164 |
|
The above share consideration at closing is based on 131,108 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of July 3, 2017 ($15.05) 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 $3,600 per performance period based upon the achievement of certain gross profit targets in each of the 12-month periods ending July 31, 2018 and 2019. The maximum additional cash payout is $7,200. The fair value of this liability as of September 30, 2018 and December 31, 2017 was $3,115 and $1,600,
respectively. Based upon Accurate’s actual results for the 12-month period ended July 31, 2018, the Company expects to pay $1,800 in cash to Accurate’s former owners during the fourth quarter of 2018.
Approximately $1,000 of the purchase consideration was deposited into an escrow account to be held for 15 months after the closing date to satisfy any of the Company’s indemnification claims. The full amount was released to the sellers from escrow in October 2018.
The Company incurred acquisition-related costs of $134 and $217 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017, respectively.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
|
Cash |
|
$ |
1,295 |
|
|
Accounts receivable |
|
2,196 |
| |
|
Inventory |
|
936 |
| |
|
Prepaid expenses and other current assets |
|
34 |
| |
|
Definite-lived intangible assets |
|
3,420 |
| |
|
Other noncurrent assets |
|
3 |
| |
|
Accounts payable |
|
(3,303 |
) | |
|
Accrued expenses — compensation and benefits |
|
(152 |
) | |
|
Accrued expenses — other |
|
(6 |
) | |
|
Total identifiable net assets |
|
4,423 |
| |
|
Goodwill |
|
8,741 |
| |
|
|
|
$ |
13,164 |
|
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
|
|
|
Useful |
|
Amount |
| |
|
Patient relationships |
|
7 years |
|
$ |
2,100 |
|
|
Non-compete employment agreements |
|
5 years |
|
670 |
| |
|
Trade names and trademarks |
|
3 years |
|
650 |
| |
|
|
|
|
|
$ |
3,420 |
|
WRB Communications, LLC
On May 8, 2017, the Company acquired WRB Communications, LLC (“WRB”), a communications and contact center company based in Chantilly, Virginia that specializes in relationship management programs for leading pharmaceutical manufacturers and service organizations. The following table summarizes the consideration transferred to acquire WRB:
|
Cash |
|
$ |
26,804 |
|
|
299,325 restricted common shares |
|
4,291 |
| |
|
Contingent consideration at fair value |
|
530 |
| |
|
|
|
$ |
31,625 |
|
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 each of the 12-month periods ending May 31, 2018 and
2019. During the fourth quarter of 2017, the Company guaranteed a full payout to allow for the acceleration of certain integration activities. The formers owners received $1,000 in cash in January 2018.
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 $28 and $255 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017, respectively.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
|
Cash |
|
$ |
1,018 |
|
|
Accounts receivable |
|
2,593 |
| |
|
Prepaid expenses and other current assets |
|
179 |
| |
|
Property and equipment |
|
498 |
| |
|
Definite-lived intangible assets |
|
7,730 |
| |
|
Other noncurrent assets |
|
24 |
| |
|
Accounts payable |
|
(100 |
) | |
|
Accrued expenses — other |
|
(498 |
) | |
|
Total identifiable net assets |
|
11,444 |
| |
|
Goodwill |
|
20,181 |
| |
|
|
|
$ |
31,625 |
|
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
|
|
|
Useful |
|
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, Alabama 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. The fair value of this liability as of September 30, 2018 and December 31, 2017 was $3,235 and $4,300, respectively. Based upon Comfort’s actual results for the 12-month period ended March 31, 2018, the Company paid $2,000 in cash to Comfort’s former owners in July 2018.
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 full amount was released to the sellers from escrow in September 2018.
The Company incurred acquisition-related costs of $11 and $232 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017, respectively.
The following table summarizes the 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 |
|
Amount |
| |
|
Patient 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, Texas that provides treatments and nursing services for patients with hemophilia. The following table summarizes the consideration transferred to acquire Affinity:
|
Cash |
|
$ |
17,228 |
|
|
Contingent consideration at fair value |
|
35 |
| |
|
|
|
$ |
17,263 |
|
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 February 28, 2018. The maximum payout of contingent consideration was $4,000. The fair value of this liability as of December 31, 2017 was $2,600. Based upon Affinity’s actual results for the 12-month period ended February 28, 2018, the Company paid $2,269 in cash to Affinity’s former owners in June 2018.
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. Approximately $1,851 and $149 was released from escrow to the sellers and the Company, respectively, in August 2018.
The Company incurred acquisition-related costs of $204 which were charged to “Selling, general and administrative expenses” during the nine months ended September 30, 2017.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
|
Cash |
|
$ |
1,043 |
|
|
Accounts receivable |
|
3,433 |
| |
|
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 |
|
8,490 |
| |
|
Goodwill |
|
8,773 |
| |
|
|
|
$ |
17,263 |
|
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
|
|
|
Useful |
|
Amount |
| |
|
Patient relationships |
|
7 years |
|
$ |
4,000 |
|
|
Non-compete employment agreements |
|
5 years |
|
1,100 |
| |
|
|
|
|
|
$ |
5,100 |
|
Pro Forma Operating Results
The following unaudited pro forma summary presents consolidated financial information as if the Accurate, Affinity, Comfort, Focus, LDI, NPS and WRB acquisitions had occurred on January 1, 2016. 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 date or of results that may occur in the future.
|
|
|
Three Months |
|
Nine Months |
| ||
|
|
|
September 30, 2017 |
|
September 30, 2017 |
| ||
|
Net sales |
|
$ |
1,242,227 |
|
$ |
3,704,486 |
|
|
Net (loss) income attributable to Diplomat Pharmacy, Inc. |
|
$ |
(3,640 |
) |
$ |
3,037 |
|
|
Net (loss) income per common share — basic & diluted |
|
$ |
(0.05 |
) |
$ |
0.04 |
|
6. 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:
|
|
|
Asset / |
|
|
|
|
|
Valuation |
| |||
|
|
|
(Liability) |
|
Level 2 |
|
Level 3 |
|
Technique |
| |||
|
September 30, 2018: |
|
|
|
|
|
|
|
|
| |||
|
Contingent consideration |
|
$ |
(9,250 |
) |
$ |
— |
|
$ |
(9,250 |
) |
C |
|
|
Interest rate swaps (Note 9) |
|
(59 |
) |
(59 |
) |
— |
|
A |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
December 31, 2017: |
|
|
|
|
|
|
|
|
| |||
|
Contingent consideration |
|
$ |
(12,100 |
) |
$ |
— |
|
$ |
(12,100 |
) |
C |
|
The following table sets forth a roll forward of the Level 3 measurements:
|
|
|
Contingent |
| |
|
Balance at January 1, 2018 |
|
$ |
(12,100 |
) |
|
Changes in fair values |
|
(2,419 |
) | |
|
Payments |
|
5,269 |
| |
|
Balance at September 30, 2018 |
|
$ |
(9,250 |
) |
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.
7. GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS
The following table sets forth a roll forward of goodwill for the nine months ended September 30, 2018:
|
Balance at January 1, 2018 |
|
$ |
832,624 |
|
|
Various purchase accounting adjustments |
|
1,956 |
| |
|
Balance at September 30, 2018 |
|
$ |
834,580 |
|
Goodwill by reporting segment is as follows:
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2018 |
|
2017 |
| ||
|
PBM |
|
$ |
448,144 |
|
$ |
446,740 |
|
|
Specialty |
|
386,436 |
|
385,884 |
| ||
|
|
|
$ |
834,580 |
|
$ |
832,624 |
|
Definite-lived intangible assets consist of the following:
|
|
|
September 30, 2018 |
|
December 31, 2017 |
| ||||||||||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
| ||||||
|
Customer relationships |
|
$ |
196,073 |
|
$ |
(17,602 |
) |
$ |
178,471 |
|
$ |
196,073 |
|
$ |
(1,141 |
) |
$ |
194,932 |
|
|
Patient relationships |
|
170,100 |
|
(63,448 |
) |
106,652 |
|
170,100 |
|
(49,643 |
) |
120,457 |
| ||||||
|
Non-compete employment agreements |
|
61,389 |
|
(40,603 |
) |
20,786 |
|
61,389 |
|
(30,560 |
) |
30,829 |
| ||||||
|
Trade names and trademarks |
|
44,020 |
|
(22,145 |
) |
21,875 |
|
44,020 |
|
(13,624 |
) |
30,396 |
| ||||||
|
Physician relationships |
|
21,700 |
|
(8,833 |
) |
12,867 |
|
21,700 |
|
(6,303 |
) |
15,397 |
| ||||||
|
|
|
$ |
493,282 |
|
$ |
(152,631 |
) |
$ |
340,651 |
|
$ |
493,282 |
|
$ |
(101,271 |
) |
$ |
392,011 |
|
The Company recorded amortization expense of $17,190 and $10,379 for the three months ended September 30, 2018 and 2017, respectively, and $51,360 and $30,371 for the nine months ended September 30, 2018 and 2017, respectively.
8. DEBT
The Company had $467,375 and $550,000 in outstanding term loans as of September 30, 2018 and December 31, 2017, respectively. Unamortized debt issuance costs of $15,323 and $17,402 as of September 30, 2018 and December 31, 2017, respectively, are presented in the condensed consolidated balance sheets as direct deductions from the outstanding debt balances. The Company also had $178,250 and $188,250 outstanding on its line of credit as of September 30, 2018 and December 31, 2017, respectively. The Company had $71,750 and $61,750 available to borrow on its line of credit at September 30, 2018 and December 31, 2017, respectively.
The interest rates the Company pays under its credit facility are primarily a function of a defined margin above LIBOR. The Company’s Term Loan A and Term Loan B interest rates were 4.50 percent and 6.75 percent, respectively, at September 30, 2018 and 4.04 percent and 6.04 percent, respectively, at December 31, 2017. The Company’s line of credit interest rate was 4.59 percent and 4.04 percent at September 30, 2018 and December 31, 2017, respectively. The Company is charged a monthly unused commitment fee ranging from 0.3 percent to 0.4 percent on the average unused daily balance on its $250,000 line of credit.
The Company’s credit facility contains certain financial and non-financial covenants. The Company was in compliance with all such covenants as of September 30, 2018 and December 31, 2017.
9. INTEREST RATE SWAPS
The Company entered into two interest rate swap agreements during the second quarter of 2018 to fix its interest rate payments from April 30, 2019 through March 31, 2022 on $150,000 principal balance on each of Term Loan A and Term Loan B ($300,000 principal balance in total). These cash flow derivatives are designated as hedging instruments under FASB ASC Subtopic 815-20. The Company recognized other comprehensive income (loss) of $918 ($1,228 income, net of $310 in taxes) and $(44) ($59 loss, net of $15 in taxes) during the three and nine months ended September 30, 2018, respectively. There was no impact to the condensed consolidated statements of operations. The $59 interest rate swap agreement liability is contained in “Other” noncurrent liabilities as of September 30, 2018.
The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.
10. SHARE-BASED COMPENSATION
Stock Options
A summary of the Company’s stock option activity as of and for the nine months ended September 30, 2018 is as follows:
|
|
|
|
|
|
|
Weighted |
|
|
| ||
|
|
|
|
|
Weighted |
|
Average |
|
|
| ||
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
| ||
|
|
|
Number |
|
Exercise |
|
Contractual |
|
Intrinsic |
| ||
|
|
|
of Options |
|
Price |
|
Life |
|
Value |
| ||
|
|
|
|
|
|
|
(Years) |
|
|
| ||
|
Outstanding at January 1, 2018 |
|
6,108,292 |
|
$ |
18.62 |
|
8.5 |
|
$ |
25,777 |
|
|
Granted |
|
411,486 |
|
21.39 |
|
|
|
|
| ||
|
Exercised |
|
(371,819 |
) |
10.76 |
|
|
|
|
| ||
|
Cancelled/expired |
|
(802,115 |
) |
22.04 |
|
|
|
|
| ||
|
Outstanding at September 30, 2018 |
|
5,345,844 |
|
$ |
18.89 |
|
8.0 |
|
$ |
17,380 |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Exercisable at September 30, 2018 |
|
1,716,553 |
|
$ |
19.63 |
|
6.6 |
|
$ |
8,771 |
|
The Company recorded share-based compensation expense associated with stock options of $2,073 and $1,467 for the three months ended September 30, 2018 and 2017, respectively, and $6,225 and $4,983 for the nine months ended September 30, 2018 and 2017, respectively.
The Company granted service-based awards of 330,135 options under its 2014 Omnibus Incentive Plan (the “2014 Plan”) and a make-whole inducement award of 81,351 options to purchase common stock to key employees during the nine months ended September 30, 2018, of which 306,486 and 105,000 options become exercisable in installments of 33.3 percent and 25 percent, respectively, per year, beginning on the first anniversary of the grant date. These options have a maximum term of ten years.
The 411,486 options to purchase common stock that were granted during the nine months ended September 30, 2018 have a weighted average grant date fair value of $8.75 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 |
|
$20.52 - $24.29 |
|
|
Expected volatility |
|
36.06% - 38.36% |
|
|
Expected dividend yield |
|
0% |
|
|
Risk-free rate for expected term |
|
2.33% - 2.73% |
|
|
Expected life (in years) |
|
6.00 - 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 a weighted average of the Company’s historic volatility and 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). Forfeitures are accounted for when they occur.
Restricted Stock Units (“RSU” or “RSUs”)
A summary of the Company’s RSU activity as of and for the nine months ended September 30, 2018 is as follows:
|
|
|
|
|
Weighted |
| |
|
|
|
|
|
Average |
| |
|
|
|
Number |
|
Grant Date |
| |
|
|
|
of RSUs |
|
Fair Value |
| |
|
Outstanding at January 1, 2018 |
|
66,639 |
|
$ |
14.65 |
|
|
Granted |
|
3,463,566 |
|
23.14 |
| |
|
Vested and issued |
|
(183,263 |
) |
23.46 |
| |
|
Cancelled/expired |
|
(67,792 |
) |
20.28 |
| |
|
Outstanding at September 30, 2018 |
|
3,279,150 |
|
$ |
23.01 |
|
The Company granted service-based awards of 1,037,581 RSUs to key employees under its 2014 Plan during the nine months ended September 30, 2018. The Company also granted a sign-on inducement award of 124,875 RSUs and a make-whole inducement award of 33,716 RSUs to a key employee during the second quarter of 2018. 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 ranges from immediate vesting to three years from grant date.
The Company granted performance-based awards of 139,512 RSUs to key employees under its 2014 Plan during the first quarter of 2018, which will be earned or forfeited based upon the Company’s performance relative to a specified adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) goal for the year ending December 31, 2018. The earned RSUs, if any, will vest in three equal installments, with the first installment vesting upon the earlier of the date that the Company files its 2018 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 Company is accounting for these performance-based RSUs under the current presumption that 50 percent will be earned and 50 percent will be forfeited.
The Company granted performance-based awards of 629,372 RSUs as a make-whole inducement award to a key employee during the second quarter of 2018, which will be earned or forfeited based upon the Company’s performance relative to specified Adjusted EBITDA and revenue goals for the year ending December 31, 2018. The earned RSUs, if any, will vest in three equal installments, with the first installment vesting upon the earlier of the date that the Company files its 2018 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 Company is accounting
for these performance-based RSUs under the current presumption that 25 percent will be earned and 75 percent will be forfeited.
The Company granted an additional performance-based award of 1,498,500 RSUs as a sign-on inducement award to a key employee during the second quarter of 2018, which will be earned or forfeited based upon the Company’s performance relative to specified cumulative Adjusted EBITDA and revenue goals for the years ending December 31, 2018 and 2019. The earned RSUs, if any, will vest in three equal installments, with the first installment vesting upon the earlier of the date that the Company files its 2019 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, provided that the vesting of a portion of this award may be accelerated at the discretion of the Board of Directors of the Company or its Compensation Committee following completion of the Company’s 2018 audit. The Company is accounting for these performance-based RSUs under the current presumption that 25 percent will be earned and 75 percent will be forfeited.
The Company recorded share-based compensation expense associated with RSUs of $3,438 and $83 for the three months ended September 30, 2018 and 2017, respectively, and $9,131 and $188 for the nine months ended September 30, 2018 and 2017, respectively.
Restricted Stock Awards (“RSA” or RSAs”)
A summary of the Company’s RSA activity as of and for the nine months ended September 30, 2018 is as follows:
|
|
|
Number |
|
Weighted |
| |
|
|
|
of Shares |
|
Average |
| |
|
|
|
Subject to |
|
Grant Date |
| |
|
|
|
Restriction |
|
Fair Value |
| |
|
Nonvested at January 1, 2018 |
|
34,291 |
|
$ |
17.45 |
|
|
Granted |
|
21,924 |
|
23.26 |
| |
|
Vested |
|
(31,732 |
) |
17.68 |
| |
|
Nonvested at September 30, 2018 |
|
24,483 |
|
$ |
22.36 |
|
Under the 2014 Plan, the Company issued RSAs to non-employee directors. The value of a RSA is determined by the market value of the Company’s common stock at the date of grant. The value of a RSA is recorded as share-based compensation expense on a straight-line basis over the vesting period, which is typically one year.
The Company recorded share-based compensation expense associated with RSAs of $138 for each of the three-month periods ended September 30, 2018 and 2017 and $415 and $316 for the nine months ended September 30, 2018 and 2017, respectively.
11. INCOME TAXES
A reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:
|
|
|
Nine Months Ended |
| ||||
|
|
|
2018 |
|
2017 |
| ||
|
Income tax benefit (expense) at U.S. statutory rate |
|
$ |
734 |
|
$ |
(3,422 |
) |
|
Tax effect from: |
|
|
|
|
| ||
|
Non-deductible employee compensation in excess of $1,000 |
|
(975 |
) |
— |
| ||
|
State income taxes, net of federal benefit |
|
(755 |
) |
(445 |
) | ||
|
Share-based compensation |
|
456 |
|
3,071 |
| ||
|
Other |
|
(210 |
) |
(305 |
) | ||
|
Income tax expense |
|
$ |
(750 |
) |
$ |
(1,101 |
) |
12. 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 the 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. The court issued orders denying the Company’s motion to dismiss on January 19, 2018 and the Company’s motion for reconsideration of its motion to dismiss on August 9, 2018. 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. 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, by agreement between the Company and the shareholder, the court ordered a stay of legal proceedings for 90 days, after which time by further agreements of the Company and the shareholder, the court extended the stay until August 1, 2018. The defendants’ deadline to answer or otherwise plead is November 21, 2018. 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.
13. INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted income (loss) per common share:
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||
|
Numerator: |
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) attributable to Diplomat Pharmacy, Inc. |
|
$ |
169 |
|
$ |
1,016 |
|
$ |
(4,244 |
) |
$ |
8,974 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Denominator: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding, basic |
|
74,386,386 |
|
68,371,429 |
|
74,181,869 |
|
67,600,920 |
| ||||
|
Weighted average dilutive effect of stock options, RSAs and RSUs |
|
355,125 |
|
398,189 |
|
— |
|
658,496 |
| ||||
|
Weighted average common shares outstanding, diluted |
|
74,741,511 |
|
68,769,618 |
|
74,181,869 |
|
68,259,416 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
0.00 |
|
$ |
0.01 |
|
$ |
(0.06 |
) |
$ |
0.13 |
|
|
Diluted |
|
$ |
0.00 |
|
$ |
0.01 |
|
$ |
(0.06 |
) |
$ |
0.13 |
|
Service-based and earned performance-based stock options to purchase a weighted average of 3,907,277 and 3,719,999 common shares for the three months ended September 30, 2018 and 2017, respectively, and 3,367,065 common shares for the nine months ended September 30, 2017 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 574,138 and 1,060,759 common shares for the three months ended September 30, 2018 and 2017, respectively, and 689,311 common shares for the nine months ended September 30, 2017 were excluded from the computation of diluted weighted average common shares outstanding as all performance conditions were not satisfied as of the end of the respective periods. Weighted average service-based RSUs of 285,386 common shares for the three months ended September 30, 2018 and 28,829 common shares for the nine months ended September 30, 2017 were excluded from the computation of diluted weighted average common shares outstanding as inclusion of such RSUs would be anti-dilutive. Weighted average performance-based RSUs of 2,267,384 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three months ended September 30, 2018 as all performance conditions were not satisfied as of September 30, 2018. Weighted average RSAs of 21,924 and 28,250 common shares for the three months ended September 30, 2018 and 2017, respectively, and 13,383 common shares for the nine months ended September 30, 2017 were excluded from the computation of diluted weighted average common shares outstanding as inclusion of such shares would be anti-dilutive.
The Company recognized a net loss for the nine months ended September 30, 2018. As a result, the diluted loss per share is the same as the basic loss per share as any potentially dilutive securities would reduce the loss per share. In the absence of a net loss, the weighted average dilutive effect of stock options, RSAs and RSUs would have been 383,742 for the nine months ended September 30, 2018. Service-based and earned performance-based stock options to purchase a weighted average of 3,983,767 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to a weighted average of 574,138 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as all performance conditions were not satisfied as of September 30, 2018. Weighted average service-based RSUs of 367,970 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as inclusion of such RSUs would be anti-dilutive. Weighted average performance-based RSUs of 1,015,331 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as all performance conditions were not satisfied as of September 30, 2018. Weighted average RSAs of 9,717 common shares were excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as inclusion of such shares would be anti-dilutive.
14. OPERATIONS BY REPORTING SEGMENT
Effective January 1, 2018, the Company reports in two operating segments: Specialty and PBM. The Specialty segment offers a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs and a wide range of applications and the PBM segment provides services designed to help the Company’s customers reduce the cost and manage the complexity of their prescription drug programs. The Company evaluates segment performance principally upon net sales and gross profit. Net sales, cost of sales and gross profit information by segment are as follows:
|
|
|
Three Months Ended September 30, |
| ||||||||||||||||
|
|
|
Net Sales |
|
Cost of Sales |
|
Gross Profit |
| ||||||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||||
|
Specialty |
|
$ |
1,212,298 |
|
$ |
1,124,957 |
|
$ |
(1,145,288 |
) |
$ |
(1,059,867 |
) |
$ |
67,010 |
|
$ |
65,090 |
|
|
PBM |
|
169,933 |
|
— |
|
(143,585 |
) |
— |
|
26,348 |
|
— |
| ||||||
|
Inter-segment eliminations |
|
(8,897 |
) |
— |
|
8,897 |
|
— |
|
— |
|
— |
| ||||||
|
|
|
$ |
1,373,334 |
|
$ |
1,124,957 |
|
$ |
(1,279,976 |
) |
$ |
(1,059,867 |
) |
$ |
93,358 |
|
$ |
65,090 |
|
|
|
|
Nine Months Ended September 30, |
| ||||||||||||||||
|
|
|
Net Sales |
|
Cost of Sales |
|
Gross Profit |
| ||||||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||||
|
Specialty |
|
$ |
3,599,023 |
|
$ |
3,330,161 |
|
$ |
(3,386,653 |
) |
$ |
(3,128,595 |
) |
$ |
212,370 |
|
$ |
201,566 |
|
|
PBM |
|
550,148 |
|
— |
|
(480,365 |
) |
— |
|
69,783 |
|
— |
| ||||||
|
Inter-segment eliminations |
|
(17,275 |
) |
— |
|
17,275 |
|
— |
|
— |
|
— |
| ||||||
|
|
|
$ |
4,131,896 |
|
$ |
3,330,161 |
|
$ |
(3,849,743 |
) |
$ |
(3,128,595 |
) |
$ |
282,153 |
|
$ |
201,566 |
|
Total assets by segment are as follows:
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2018 |
|
2017 |
| ||
|
Specialty |
|
$ |
1,071,694 |
|
$ |
1,190,188 |
|
|
PBM |
|
728,967 |
|
750,235 |
| ||
|
|
|
$ |
1,800,661 |
|
$ |
1,940,423 |
|
15. SUBSEQUENT EVENT
On October 18, 2018, the Company signed a definitive agreement with an outside third party to enter into a sale-leaseback of real estate that the Company acquired through its NPS acquisition. The transaction is expected to occur in December 2018. Upon completion of this transaction, the Company will receive net cash proceeds of approximately $13,400, for which it will recognize a deferred gain of approximately $5,800 in accordance with FASB ASC Topic 840, Leases.
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, 2017, which was filed on March 1, 2018 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,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” and similar terms and phrases, or the negative thereof, utilized in discussions of future operating or financial performance signify 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, 2017 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 provider of specialty pharmacy services in the United States of America (“U.S.”). We are focused on improving the lives of patients with complex chronic diseases while also delivering unique solutions for manufacturers, hospitals, payers and providers. Our patient-centric approach positions us at the center of the healthcare continuum for treatment of complex chronic diseases. 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) and a wide range of applications and pharmacy benefit management (“PBM”) services designed to help our customers reduce the cost and manage the complexity of their prescription drug programs. We have expertise across a broad range of high-growth specialty therapeutic categories, including oncology, specialty infusion therapy, immunology, hepatitis, multiple sclerosis and many other serious or long-term conditions. We dispense to patients in all U.S. states and territories through our advanced distribution centers and manage centralized clinical call centers to deliver localized services on a national scale. Diplomat opened its doors in 1975 as a neighborhood pharmacy with one essential tenet: “Take good care of patients and the rest falls into place.” Today, that tradition continues—always focused on improving patient care and clinical adherence.
Our revenue is derived from: (i) customized care management programs we deliver to our patients, including the dispensing of their specialty medications and (ii) PBM services that we provide to our customers. Because the therapeutic disease states primarily addressed by our specialty pharmacy services generally require multiyear or lifelong therapy, our focus on complex chronic diseases helps drive recurring revenue and sustainable growth. Our revenue growth is primarily driven by manufacturer price inflation, new drugs coming to market, new indications for existing drugs, volume growth with current clients, and the addition of new clients.
Our recent and historical revenue growth in our Specialty segment has largely been driven by our position as a leader in the oncology, specialty infusion and immunology therapeutic categories. We generated approximately 84 percent of our Specialty segment revenue in these categories during each of the three-month periods ended September 30, 2018 and 2017, and approximately 84 percent and 83 percent during the nine months ended September 30, 2018 and 2017, respectively.
We expect our revenue growth to continue 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 our expanding breadth of services, 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 has become 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 elevated focus on service, and because it allows for real-time patient-specific (albeit de-identified) data. Accordingly, we believe our current portfolio of more than 100 limited-distribution drugs, all of which are commercially available, is important to our revenue growth. For our PBM services, we expect our revenue to be propelled by continuing growth in specialty drug spend, a shift in the marketplace of drug coverage from a medical benefit to a pharmacy benefit and rising drug prices.
We also provide specialty pharmacy support services to 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.
Reclassifications
During the second quarter of 2018, we changed our accounting policy to reclassify shipping and handling costs incurred at our dispensing pharmacies from “Selling, general and administrative expenses” (“SG&A”) to “Cost of sales” in our condensed consolidated statements of operations. The amounts reclassified for the three and nine months ended September 30, 2017 were $15,408 and $39,794, respectively, due to this accounting policy change. For comparability purposes, shipping and handling costs incurred at our dispensing pharmacies for the three and nine months ended September 30, 2018 were $15,713 and $46,979, respectively.
We have historically classified the cost of our nursing support services within SG&A as these amounts were not considered significant in relation to total cost of sales. During the second quarter of 2018, we reclassified these nursing support service costs from SG&A to cost of sales. The amounts reclassified for the three and nine months ended September 30, 2017 were $4,805 and $13,826, respectively. For comparability purposes, nursing support service costs for the three and nine months ended September 30, 2018 were $6,370 and $17,736, respectively.
These reclassifications had no impact on “Income from operations” for any of the periods presented.
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 |
|
Nine Months Ended |
| ||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||
|
Specialty |
|
|
|
|
|
|
|
|
| ||||
|
Prescriptions dispensed |
|
230,000 |
|
222,000 |
|
689,000 |
|
661,000 |
| ||||
|
Net sales per prescription dispensed |
|
$ |
5,256 |
|
$ |
5,050 |
|
$ |
5,206 |
|
$ |
5,022 |
|
|
Gross profit per prescription dispensed |
|
$ |
287 |
|
$ |
289 |
|
$ |
303 |
|
$ |
302 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
PBM |
|
|
|
|
|
|
|
|
| ||||
|
Prescriptions filled (adjusted to a 30-day equivalent)(1) |
|
1,931,000 |
|
— |
|
6,235,000 |
|
— |
| ||||
|
Gross profit per prescription filled |
|
$ |
14 |
|
$ |
— |
|
$ |
11 |
|
$ |
— |
|
(1) A 90-day prescription is counted as three 30-day prescriptions filled
Prescription Data (rounded to the nearest thousand)
Specialty prescriptions dispensed represent prescriptions filled and dispensed by Diplomat to patients, or in rare cases, to physicians. Our volume for both the three- and nine-month periods ended September 30, 2018 increased by 4 percent from prior year periods. These volume increases were due to access to drugs that were new in the past year and growth through physician and payer relationships. Prescriptions filled (adjusted to a 30-day equivalent) by our PBM were approximately 1,931,000 and 6,235,000 for the three and nine months ended September 30, 2018, respectively.
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 represent 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 payers 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 sales.
Components of Results of Operations
Net Sales
Our Specialty segment recognizes revenue for a dispensed prescription drug at time of delivery (when control transfers) and at prescription adjudication (which approximates the fill date) for patient pick up at open door or retail pharmacy locations. We can earn revenue from multiple sources for any one claim, including the primary insurance plan, the secondary insurance plan, the tertiary insurance plan, the patient co-pay and patient assistance programs. Our Specialty segment’s net sales also include 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 hospital pharmacies for patient support that is provided by us to those non-Diplomat pharmacies to dispense specialty drugs to patients. The hospital pharmacies dispense the drug and pay us a service fee for clinically and administratively servicing their patients.
Our PBM segment recognizes revenue from the sale of prescription drugs by its mail order pharmacy service when the drugs are physically delivered (when control transfers) and by its retail pharmacy network when the claim is adjudicated. Our PBM segment recognizes revenue using the gross method since they act as principal in the arrangement, exercise pricing latitude and independently have a contractual obligation to pay their network pharmacy providers for benefits provided to their clients’ members, and assume primary responsibility for fulfilling the promise to provide prescription drugs to their client plan members while also performing the related pharmacy benefit management services. Our PBM segment includes the total prescription price (drug ingredient cost plus dispensing fee) they have contracted with their clients as revenue, including member co-payments to pharmacies, and as cost of sales.
Cost of Sales
Cost of sales primarily 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 sales 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 sales when they are earned. Other expenses contained in cost of sales consist of shipping and handling costs incurred at our dispensing pharmacies and nursing support services.
SG&A
Our operating expenses primarily consist of employee and employee-related costs inclusive of share-based compensation, amortization expense from definite-lived intangible assets associated with our acquired entities and amortization expense from capitalized software for internal use. Other operating expenses consist of occupancy and other indirect costs, insurance costs, professional fees and other general overhead expenses.
Other Expense
Other expense primarily consists of interest expense associated with our debt.
Results of Operations
Three Months Ended September 30, 2018 versus Three Months Ended September 30, 2017
Consolidated Results
The following table provides statements of operations data for each of the periods presented:
|
|
|
Three Months Ended |
| ||||
|
|
|
2018 |
|
2017 |
| ||
|
Net sales |
|
$ |
1,373,334 |
|
$ |
1,124,957 |
|
|
Cost of sales |
|
(1,279,976 |
) |
(1,059,867 |
) | ||
|
Gross profit |
|
93,358 |
|
65,090 |
| ||
|
SG&A |
|
(83,419 |
) |
(62,782 |
) | ||
|
Income from operations |
|
9,939 |
|
2,308 |
| ||
|
Other (expense) income: |
|
|
|
|
| ||
|
Interest expense |
|
(10,179 |
) |
(2,054 |
) | ||
|
Impairment of non-consolidated entities |
|
(286 |
) |
— |
| ||
|
Other |
|
574 |
|
45 |
| ||
|
Total other expense |
|
(9,891 |
) |
(2,009 |
) | ||
|
Income before income taxes |
|
48 |
|
299 |
| ||
|
Income tax benefit |
|
121 |
|
662 |
| ||
|
Net income |
|
169 |
|
961 |
| ||
|
Less net loss attributable to noncontrolling interest |
|
— |
|
(55 |
) | ||
|
Net income attributable to Diplomat Pharmacy, Inc. |
|
$ |
169 |
|
$ |
1,016 |
|
Net Sales
Net sales for the three months ended September 30, 2018 were $1,373,334, a $248,377 or 22 percent increase, compared to $1,124,957 for the three months ended September 30, 2017. This increase was primarily the result of approximately $180,000 of net sales from our recent acquisitions and approximately $62,000 from the impact of manufacturer price increases. These increases were partially offset by a decrease in hepatitis C business versus the prior year period and reimbursement compression.
Cost of Sales
Cost of sales for the three months ended September 30, 2018 was $1,279,976, a $220,109 or 21 percent increase, compared to $1,059,867 for the three months ended September 30, 2017. 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 sales was 93.2 percent and 94.2 percent of net sales for the three months ended September 30, 2018 and 2017, respectively. The increase in gross margin from 5.8 percent to 6.8 percent for the three months ended September 30, 2017 and 2018, respectively, was primarily due to the impact of our recent acquisitions, partially offset by reimbursement compression.
SG&A
SG&A for the three months ended September 30, 2018 were $83,419, a $20,637 increase, compared to $62,782 for the three months ended September 30, 2017. Employee cost increased by $10,968, inclusive of a $3,960 increase in share-based compensation expense. Amortization expense from definite-lived intangible assets, inclusive of capitalized software, associated with our acquired entities increased $7,006. The remaining increase was in other SG&A to support our business including rent, travel, consulting and professional fees, and other miscellaneous expenses. These increases were partially offset by a $2,439 decrease in acquisition-related expenses. As a percent of net sales, SG&A accounted for 6.1 percent and 5.6 percent for the three months ended September 30, 2018 and 2017, respectively.
Other Expense
Our other expense was $9,891 and $2,009 for the three months ended September 30, 2018 and 2017, respectively, and is primarily comprised of interest expense. The $8,125 increase in interest expense was due to significantly higher average borrowings in the third quarter of 2018 resulting from the funding of recent acquisitions.
Income Tax Benefit
Income tax benefit for the three months ended September 30, 2018 and 2017 was $121 and $662, respectively. The income tax benefit recognized during the third quarter of 2017 was primarily due to the recognition of excess tax benefits as a result of share-based compensation activities (stock option exercises, net of stock option cancellations/expirations) that occurred during the quarter.
Segment Results
Net sales, cost of sales and gross profit information by segment are as follows:
|
|
|
Three Months Ended September 30, |
| ||||||||||||||||
|
|
|
Net Sales |
|
Cost of Sales |
|
Gross Profit |
| ||||||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||||
|
Specialty |
|
$ |
1,212,298 |
|
$ |
1,124,957 |
|
$ |
(1,145,288 |
) |
$ |
(1,059,867 |
) |
$ |
67,010 |
|
$ |
65,090 |
|
|
PBM |
|
169,933 |
|
— |
|
(143,585 |
) |
— |
|
26,348 |
|
— |
| ||||||
|
Inter-segment eliminations |
|
(8,897 |
) |
— |
|
8,897 |
|
— |
|
— |
|
— |
| ||||||
|
|
|
$ |
1,373,334 |
|
$ |
1,124,957 |
|
$ |
(1,279,976 |
) |
$ |
(1,059,867 |
) |
$ |
93,358 |
|
$ |
65,090 |
|
Net Sales — Specialty
Net sales for the three months ended September 30, 2018 were $1,212,298, a $87,341 or 8 percent increase, compared to $1,124,957 for the three months ended September 30, 2017. This increase was primarily the result of approximately $62,000 from the impact of manufacturer price increases and approximately $10,000 from our recent acquisitions. These increases were partially offset by a decrease in hepatitis C business versus the prior year period and reimbursement compression.
Cost of Sales — Specialty
Cost of sales for the three months ended September 30, 2018 was $1,145,288, a $85,421 or 8 percent increase, compared to $1,059,867 for the three months ended September 30, 2017. This increase was primarily the result of the same factors that drove the increase in the Specialty segment’s net sales over the same time period. Cost of sales was 94.5 and 94.2 percent of net sales for the three months ended September 30, 2018 and 2017, respectively.
Net Sales & Cost of Sales — PBM
Net sales and cost of sales for the three months ended September 30, 2018 were $169,933 and $143,585, respectively, resulting in a gross profit of $26,348 and a gross margin of 15.5 percent.
Nine Months Ended September 30, 2018 versus Nine Months Ended September 30, 2017
Consolidated Results
The following table provides statements of operations data for each of the periods presented:
|
|
|
Nine Months Ended |
| ||||
|
|
|
2018 |
|
2017 |
| ||
|
Net sales |
|
$ |
4,131,896 |
|
$ |
3,330,161 |
|
|
Cost of sales |
|
(3,849,743 |
) |
(3,128,595 |
) | ||
|
Gross profit |
|
282,153 |
|
201,566 |
| ||
|
SG&A |
|
(255,705 |
) |
(185,867 |
) | ||
|
Income from operations |
|
26,448 |
|
15,699 |
| ||
|
Other (expense) income: |
|
|
|
|
| ||
|
Interest expense |
|
(30,998 |
) |
(6,034 |
) | ||
|
Impairment of non-consolidated entities |
|
(329 |
) |
— |
| ||
|
Other |
|
1,385 |
|
111 |
| ||
|
Total other expense |
|
(29,942 |
) |
(5,923 |
) | ||
|
(Loss) income before income taxes |
|
(3,494 |
) |
9,776 |
| ||
|
Income tax expense |
|
(750 |
) |
(1,101 |
) | ||
|
Net (loss) income |
|
(4,244 |
) |
8,675 |
| ||
|
Less net loss attributable to noncontrolling interest |
|
— |
|
(299 |
) | ||
|
Net (loss) income attributable to Diplomat Pharmacy, Inc. |
|
$ |
(4,244 |
) |
$ |
8,974 |
|
Net Sales
Net sales for the nine months ended September 30, 2018 were $4,131,896, a $801,735 or 24 percent increase, compared to $3,330,161 for the nine months ended September 30, 2017. This increase was primarily the result of approximately $621,000 of net sales from our recent acquisitions and approximately $237,000 from the impact of manufacturer price increases. These increases were partially offset by a decrease in hepatitis C business versus the prior year period, reimbursement compression and drug mix.
Cost of Sales
Cost of sales for the nine months ended September 30, 2018 was $3,849,743, a $721,148 or 23 percent increase, compared to $3,128,595 for the nine months ended September 30, 2017. 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 sales was 93.2 percent and 93.9 percent of net sales for the nine months ended September 30, 2018 and 2017, respectively. The increase in gross margin from 6.1 percent to 6.8 percent for the nine months ended September 30, 2017 and 2018, respectively, was primarily due to the impact of our recent acquisitions.
SG&A
SG&A for the nine months ended September 30, 2018 were $255,705, a $69,838 increase, compared to $185,867 for the nine months ended September 30, 2017. Employee cost increased by $35,813, inclusive of a $10,284 increase in share-based compensation expense. Amortization expense from definite-lived intangible assets, inclusive of capitalized software, associated with our acquired entities increased $21,184. The remaining increase was in other SG&A to support our business including consulting and professional fees, rent, recruiting primarily related to our CEO search, travel and other miscellaneous expenses. As a percent of net sales, SG&A accounted for 6.2 percent and 5.6 percent for the nine months ended September 30, 2018 and 2017, respectively.
Other Expense
Other expense was $29,942 and $5,923 for the nine months ended September 30, 2018 and 2017, respectively, and is primarily comprised of interest expense. The $24,964 increase in interest expense was due to significantly higher average borrowings during 2018 resulting from the funding of recent acquisitions.
Income Tax Expense
Income tax expense for the nine months ended September 30, 2018 and 2017 was $750 and $1,101, respectively. The income tax expense recognized during the nine months ended September 30, 2018 was primarily due to the expected recognition of employee compensation in excess of $1,000 during 2018, which will not be deductible for income taxes, as well as state taxes. The income tax expense recognized during the nine months ended September 30, 2017 was reduced by $3,071 due to the recognition of excess tax benefits as a result of share-based compensation activities (stock option exercises, net of stock option cancellations/expirations) that occurred during the period.
Segment Results
Net sales, cost of sales and gross profit information by segment are as follows:
|
|
|
Nine Months Ended September 30, |
| ||||||||||||||||
|
|
|
Net Sales |
|
Cost of Sales |
|
Gross Profit |
| ||||||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| ||||||
|
Specialty |
|
$ |
3,599,023 |
|
$ |
3,330,161 |
|
$ |
(3,386,653 |
) |
$ |
(3,128,595 |
) |
$ |
212,370 |
|
$ |
201,566 |
|
|
PBM |
|
550,148 |
|
— |
|
(480,365 |
) |
— |
|
69,783 |
|
— |
| ||||||
|
Inter-segment eliminations |
|
(17,275 |
) |
— |
|
17,275 |
|
— |
|
— |
|
— |
| ||||||
|
|
|
$ |
4,131,896 |
|
$ |
3,330,161 |
|
$ |
(3,849,743 |
) |
$ |
(3,128,595 |
) |
$ |
282,153 |
|
$ |
201,566 |
|
Net Sales — Specialty
Net sales for the nine months ended September 30, 2018 were $3,599,023, a $268,862 or 8 percent increase, compared to $3,330,161 for the nine months ended September 30, 2017. This increase was primarily the result of approximately $237,000 from the impact of manufacturer price increases and approximately $71,000 from our recent acquisitions. These increases were partially offset by a decrease in hepatitis C business versus the prior year period, reimbursement compression and drug mix.
Cost of Sales — Specialty
Cost of sales for the nine months ended September 30, 2018 was $3,386,653, a $258,058 or 8 percent increase, compared to $3,128,595 for the nine months ended September 30, 2017. This increase was primarily the result of the same factors that drove the increase in the Specialty segment’s net sales over the same time period. Cost of sales was 94.1 percent and 93.9 percent of net sales for the nine months ended September 30, 2018 and 2017, respectively.
Net Sales & Cost of Sales — PBM
Net sales and cost of sales for the nine months ended September 30, 2018 were $550,148 and $480,365, respectively, resulting in a gross profit of $69,783 and a gross margin of 12.7 percent.
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 September 30, 2018 and December 31, 2017, we had $8,214 and $84,251, 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 $178,250 and $188,250 at September 30, 2018 and December 31, 2017, respectively. Our available liquidity under our line of credit was $71,750 and $61,750 at September 30, 2018 and December 31, 2017, respectively.
We believe that funds generated from operations, 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.
The following table provides cash flow data for each of the periods presented:
|
|
|
Nine Months Ended |
| ||||
|
|
|
2018 |
|
2017 |
| ||
|
Net cash provided by operating activities |
|
$ |
33,207 |
|
$ |
93,646 |
|
|
Net cash used in investing activities |
|
(17,709 |
) |
(83,350 |
) | ||
|
Net cash (used in) provided by financing activities |
|
(91,535 |
) |
8,903 |
| ||
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(76,037 |
) |
$ |
19,199 |
|
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 $60,439 decrease in cash provided by operating activities for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was due to a $78,849 change in net working capital flows and a $12,919 decrease in net income, partially offset by a $31,329 increase in non-cash adjustments to net income.
Cash Flows from Investing Activities
Our primary investing activities have consisted of business acquisitions, labor and other costs associated with capitalized software for internal use, 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 $65,641 decrease in cash used in investing activities during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily related to a $75,507 decrease in cash used to acquire businesses, partially offset by a $9,950 increase 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 and proceeds from stock option exercises.
The $100,438 decrease in cash flow associated with financing activities during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily related to a $76,594 increase in payments on long-term debt and the nonrecurrence of a full draw down of our $25,000 deferred draw term loan during the first quarter of 2017.
Debt
We had $467,375 and $550,000 in outstanding term loans as of September 30, 2018 and December 31, 2017, respectively. We also had $178,250 and $188,250 outstanding on our line of credit as of September 30, 2018 and December 31, 2017, respectively. We had $71,750 and $61,750 available to borrow on our line of credit at September 30, 2018 and December 31, 2017, respectively.
The interest rates we pay under our credit facility are primarily a function of a defined margin above LIBOR. Our Term Loan A and Term Loan B interest rates were 4.50 percent and 6.75 percent, respectively, at September 30, 2018 and 4.04 percent and 6.04 percent, respectively, at December 31, 2017. Our line of credit interest rate was 4.59 percent and 4.04 percent at September 30, 2018 and December 31, 2017, respectively. We are charged a monthly unused commitment fee ranging from 0.3 percent to 0.4 percent on the average unused daily balance on our $250,000 line of credit.
Our credit facility contains certain financial and non-financial covenants. We were in compliance with all such covenants as of September 30, 2018 and December 31, 2017.
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 nine months ended September 30, 2018, 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, 2017 included in our Annual Report on Form 10-K, with the exception of our adoption of ASC Topic 606. 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 risk, 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 LIBOR, the Federal Funds Effective Rate, the Overnight Bank Funding Rate and our administrative agent’s prime rate in effect at its principal office in New York City related to debt outstanding under our credit facility. A 100 basis
point increase in 2018 interest rates would have increased our pre-tax loss for the three and nine months ended September 30, 2018 by approximately $1.6 million and $4.9 million, respectively.
In an effort to manage our exposure to interest rate fluctuations, we entered into two interest rate swap agreements during the second quarter of 2018 to fix our interest rate payments from April 30, 2019 through March 31, 2022 on $150,000 principal balance on each of Term Loan A and Term Loan B ($300,000 principal balance in total). See Note 9 of Item 1 for further details.
ITEM 4. CONTROLS AND PROCEDURES
Limitations on Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of the chief executive officer and the chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of September 30, 2018. Based on these evaluations, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures required by paragraph (b) of Rule 13a-15 or 15d-15 were effective as of September 30, 2018.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the third quarter of 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
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 the 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. The court issued orders denying the Company’s motion to dismiss on January 19, 2018 and the Company’s motion for reconsideration of its motion to dismiss on August 9, 2018. 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. 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, by agreement between the Company and the shareholder, the court ordered a stay of legal proceedings for 90 days, after which time by further agreements of the Company and the shareholder, the court extended the stay until August 1, 2018. The defendants’ deadline to answer or otherwise plead is November 21, 2018. 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.
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, 2017, which was filed with the Securities and Exchange Commission on March 1, 2018.
|
|
|
|
|
|
|
Incorporated by Reference | ||||||
|
Exhibit |
|
Exhibit Description |
|
Filed |
|
Form |
|
Period |
|
Exhibit / |
|
Filing Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1* |
|
Diplomat Non-Employee Director Compensation Program (October 2018) |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2* |
|
Severance Benefits Agreement, dated July 24, 2018, by and between the Company and Atul Kavthekar |
|
|
|
8-K |
|
|
|
10.1 |
|
July 27, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
X |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
X |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1** |
|
|
X |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2** |
|
|
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.
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: November 6, 2018
Diplomat Pharmacy, Inc.
Non-Employee Director Compensation Program
(effective October 1, 2018)
|
Annual cash retainer: |
|
|
| |
|
Board |
|
$ |
80,000 |
|
|
Additional annual cash retainer: |
|
|
| |
|
Lead Director |
|
$ |
30,000 |
|
|
Audit Committee-Chair |
|
$ |
20,000 |
|
|
Compensation Committee-Chair |
|
$ |
15,000 |
|
|
Nominating and Corporate Governance Committee-Chair |
|
$ |
15,000 |
|
|
Audit Committee-Member |
|
$ |
10,000 |
|
|
Compensation Committee-Member |
|
$ |
7,500 |
|
|
Nominating and Corporate Governance Committee-Member |
|
$ |
7,500 |
|
|
Special Committee-Member (as applicable) |
|
$ |
15,000-20,000 |
|
|
Annual grant of restricted stock (grant date fair value): |
|
|
| |
|
Board |
|
$ |
150,000 |
|
|
Special grant of restricted stock (grant date fair value): |
|
|
| |
|
Lead Director |
|
$ |
75,000 |
|
In addition, the Company reimburses expenses associated with attendance at Board meetings for all directors.
Restricted Stock - Board. Each non-employee director will be paid the annual grant of restricted stock as of the earlier of (a) June 1 and (b) the date of the annual meeting of shareholders. Notwithstanding the foregoing, (i) the initial restricted stock grant for a new non-employee director appointed other than at the annual meeting of shareholders shall be made as of the date of initial appointment and (ii) any restricted stock grant made as a result of changes to the non-employee director compensation program shall be made as of the effective date of such changes, each of the foregoing having a pro rata grant date fair value as determined by the Board or the Compensation Committee.
The restricted stock vests in full on the first anniversary of the grant date or earlier upon a change of control of the Company, subject to the director’s continued service to the Company through such vesting date. Except as set forth in the prior sentence, the restricted stock will be forfeited in the event of termination of service prior to the vesting date. During the restricted period, the restricted stock entitles the participant to all of the rights of a shareholder, including the right to vote the shares and the right to receive any dividends thereon. Prior to the end of the restricted period, restricted stock generally may not be sold, assigned, pledged, or otherwise disposed of or hypothecated by participants.
Restricted Stock — Lead Director. In connection with Mr. Wolin’s appointment as the initial Lead Director of the Board, he received a grant of restricted stock. The restricted stock vests 50% on the first anniversary of the initial appointment and 50% on the second anniversary (or earlier upon a change of control of the Company), subject to Mr. Wolin’s continued service to the Company as a director through such vesting dates. Except as set forth in the prior sentence, the restricted stock will be forfeited in the event of termination of service as Lead Director prior to the vesting date. During the restricted period, the restricted stock entitles Mr. Wolin to all of the rights of a shareholder, including the right to vote the shares and the right to receive any dividends thereon. Prior to the end of the restricted period, the restricted stock generally may not be sold, assigned, pledged, or otherwise disposed of or hypothecated.
CHIEF EXECUTIVE OFFICER’S 302 CERTIFICATION
I, Brian T. Griffin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Diplomat Pharmacy, Inc. (the “Company”) for the quarter ended September 30, 2018;
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: November 6, 2018 |
| |
|
|
| |
|
|
By: |
/s/ BRIAN T. GRIFFIN |
|
|
|
Brian T. Griffin |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
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 September 30, 2018;
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: November 6, 2018 |
| |
|
|
| |
|
|
By: |
/s/ ATUL KAVTHEKAR |
|
|
|
Atul Kavthekar |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Diplomat Pharmacy, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian T. Griffin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 6, 2018 |
| |
|
|
| |
|
|
By: |
/s/ BRIAN T. GRIFFIN |
|
|
|
Brian T. Griffin |
|
|
|
Chief Executive Officer |
CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Diplomat Pharmacy, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2018, 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: November 6, 2018 |
| |
|
|
| |
|
|
By: |
/s/ ATUL KAVTHEKAR |
|
|
|
Atul Kavthekar |
|
|
|
Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 05, 2018 |
|
| Document and Entity Information | ||
| Entity Registrant Name | Diplomat Pharmacy, Inc. | |
| Entity Central Index Key | 0001610092 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2018 | |
| 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 | 74,474,677 | |
| Document Fiscal Year Focus | 2018 | |
| Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| 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 | $ 0 |
| Common shares, authorized shares | 590,000,000 | 590,000,000 |
| Common shares, issued shares | 74,448,430 | 73,871,424 |
| Common shares, outstanding shares | 74,448,430 | 73,871,424 |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income | ||||
| Net sales | $ 1,373,334 | $ 1,124,957 | $ 4,131,896 | $ 3,330,161 |
| Cost of sales | (1,279,976) | (1,059,867) | (3,849,743) | (3,128,595) |
| Gross profit | 93,358 | 65,090 | 282,153 | 201,566 |
| Selling, general and administrative expenses | (83,419) | (62,782) | (255,705) | (185,867) |
| Income from operations | 9,939 | 2,308 | 26,448 | 15,699 |
| Other (expense) income: | ||||
| Interest expense | (10,179) | (2,054) | (30,998) | (6,034) |
| Impairment of non-consolidated entities | (286) | (329) | ||
| Other | 574 | 45 | 1,385 | 111 |
| Total other expense | (9,891) | (2,009) | (29,942) | (5,923) |
| Income (loss) before income taxes | 48 | 299 | (3,494) | 9,776 |
| Income tax benefit (expense) | 121 | 662 | (750) | (1,101) |
| Net income (loss) | 169 | 961 | (4,244) | 8,675 |
| Less net loss attributable to noncontrolling interest | (55) | (299) | ||
| Net income (loss) attributable to Diplomat Pharmacy, Inc. | 169 | 1,016 | (4,244) | 8,974 |
| Other comprehensive income (loss), net of tax | 918 | (44) | ||
| Total comprehensive income (loss) | $ 1,087 | $ 1,016 | $ (4,288) | $ 8,974 |
| Net income (loss) per common share: | ||||
| Basic (in dollars per share) | $ 0.00 | $ 0.01 | $ (0.06) | $ 0.13 |
| Diluted (in dollars per share) | $ 0.00 | $ 0.01 | $ (0.06) | $ 0.13 |
| Weighted average common shares outstanding: | ||||
| Basic (in shares) | 74,386,386 | 68,371,429 | 74,181,869 | 67,600,920 |
| Diluted (in shares) | 74,741,511 | 68,769,618 | 74,181,869 | 68,259,416 |
DESCRIPTION OF BUSINESS |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| DESCRIPTION OF BUSINESS | |
| DESCRIPTION OF BUSINESS |
1.DESCRIPTION OF BUSINESS
Diplomat Pharmacy, Inc. and its consolidated subsidiaries (the “Company”) is the largest independent provider of specialty pharmacy services in the United States of America (“U.S.”). The Company is focused on improving the lives of patients with complex chronic diseases while also delivering unique solutions for manufacturers, hospitals, payers and providers. The Company’s patient-centric approach positions it at the center of the healthcare continuum for treatment of complex chronic disease states, including oncology, specialty infusion therapy, immunology, hepatitis, multiple sclerosis and many other serious or long-term conditions. The Company operates as two reporting segments. The Specialty segment offers a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs and a wide range of applications and the Pharmacy Benefit Management (“PBM”) segment provides services designed to help the Company’s customers reduce the cost and manage the complexity of their prescription drug programs. The Company dispenses to patients in all U.S. states and territories through its advanced distribution centers and manages centralized clinical call centers to deliver localized services on a national scale.
|
BASIS OF PRESENTATION |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| BASIS OF PRESENTATION | |
| BASIS OF PRESENTATION |
2.BASIS OF PRESENTATION
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations, cash flows and changes in shareholders’ equity. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 1, 2018.
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 controlled until it was dissolved during the fourth quarter of 2017.
All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
During the second quarter of 2018, the Company changed its accounting policy to reclassify shipping and handling costs incurred at its dispensing pharmacies from “Selling, general and administrative expenses” (“SG&A”) to “Cost of sales” in its condensed consolidated statements of operations. The amounts reclassified for the three and nine months ended September 30, 2017 were $15,408 and $39,794, respectively, due to this accounting policy change. For comparability purposes, shipping and handling costs incurred at our dispensing pharmacies for the three and nine months ended September 30, 2018 were $15,713 and $46,979, respectively.
The Company has historically classified the cost of its nursing support services within SG&A as these amounts were not considered significant in relation to total cost of sales. During the second quarter of 2018, the Company reclassified these nursing support service costs from SG&A to cost of sales. The amounts reclassified for the three and nine months ended September 30, 2017 were $4,805 and $13,826, respectively. For comparability purposes, nursing support service costs for the three and nine months ended September 30, 2018 were $6,370 and $17,736, respectively.
These reclassifications had no impact on “Income from operations” for any of the periods presented.
|
NEW ACCOUNTING STANDARDS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEW ACCOUNTING STANDARDS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEW ACCOUNTING STANDARDS |
3.NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), which supersedes the previous 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 a company to recognize revenue when it transfers the promised goods or services to its customers for an amount that represents what the company expects to be entitled to in exchange for those goods or services. Topic 606 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 (modified retrospective transition method). The new standard also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers.
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company recognized the cumulative effect of initially applying the new revenue recognition standard on January 1, 2018 and recorded an after-tax adjustment of $126 to reduce beginning retained earnings. This cumulative adjustment relates to a shift in the timing of revenue recognition of dispensing prescription drugs for home delivery from the date the drugs are shipped under the Company’s previous accounting policy to the date the drugs are physically delivered (which better reflects when control transfers) under the new accounting policy adopted in connection with Topic 606. The effect of this change is not significant as there is a very short timeframe from the shipment date to the physical delivery date of the prescription drugs. Additionally, in the PBM segment, prior to the adoption of Topic 606, revenue related to certain contracts was previously recognized on a net basis as the Company was considered to be acting as an agent in the transactions. The Company reassessed the principal versus agent criteria under Topic 606 and determined under the new guidance that the Company is considered to be acting as principal in these transactions and, effective January 1, 2018, began to recognize revenue on a gross basis.
As a result of applying the modified retrospective transition method, the following condensed consolidated balance sheet line items were adjusted as of January 1, 2018:
The following table compares the reported condensed consolidated statement of operations and comprehensive loss for the three months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
The following table compares the reported condensed consolidated balance sheet, statement of operations and statement of cash flows as of and for the nine months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
See the Revenue section in Note 4 for additional disclosures required under Topic 606.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 aligns hedge accounting with risk management activities and simplifies the requirement to qualify for hedge accounting. ASU 2017-12 is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted.
Effective January 1, 2018, the Company early adopted ASU 2017-12. There was no impact to the Company at the time of adoption.
Accounting Standards Issued But Not Yet Adopted
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“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. Topic 842 is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. The Company is substantially complete with the inventorying of its lease population and is continuing to evaluate the impact that adopting Topic 842 will have on its consolidated financial statements and/or notes thereto. The Company plans to adopt Topic 842 using the modified retrospective transition method, which means that comparative financial information will not be restated and will continue to be reported under the accounting standards in effect for those periods.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
4.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Receivables, net
Receivables, net consisted of the following:
Trade receivables are stated at the invoiced amount. Trade receivables primarily include amounts due from clients, third-party pharmacy benefit managers and insurance providers and are based on contracted prices. Trade receivables are unsecured and require no collateral. Trade receivable terms vary by payer, but generally are due within 30 days after the sale of the product or performance of the service.
Rebate receivables are amounts due from pharmaceutical manufacturers related to drug purchases by participants of the various pharmacy benefit plans that the Company manages, a portion of which, depending on contract terms, are paid back to the Company’s customers.
Inventories
Inventories consist of prescription and over-the-counter drugs and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Prescription drugs are returnable to the Company’s vendors and fully refundable before six months of expiration, and any remaining expired drugs are relieved from inventory on a quarterly basis.
Revenue
The following table disaggregates the Company’s net sales by major source:
Specialty Segment
The Company recognizes revenue from dispensing prescription drugs for home delivery at the time the drugs are physically delivered (when control transfers). Revenue from dispensing prescription drugs that are picked up by patients at an open-door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Each prescription claim is considered its own arrangement with the customer and is a performance obligation.
The Company accrues an estimate of fees, including direct and indirect remuneration fees (“DIR fees”), which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a reduction at the time revenue is recognized. Changes in the Company’s estimate of such fees are recorded as an adjustment to revenue when the change becomes known.
PBM Segment
The Company provides a pharmacy benefit management service, including mail order pharmacy and specialty pharmacy services, to its clients, which include Medicare Part D Plans, regional health plans, self-insured clients and Medicaid Plans. The Company sells prescription drugs directly through its mail service dispensing pharmacy and indirectly through its contracted network of retail pharmacies. The Company recognizes revenue from the sale of prescription drugs by its mail order pharmacy service when the drugs are physically delivered (when control transfers) and by its retail pharmacy network when the claim is adjudicated. The Company’s pharmacy benefit management services are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. Pharmacy benefit management services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the dispensing of prescription drugs. The Company recognizes revenue using the gross method since the Company acts as principal in the arrangement, exercises pricing latitude and independently has a contractual obligation to pay its network pharmacy providers for benefits provided to its clients’ members, and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related pharmacy benefit management services. The Company includes the total prescription price (drug ingredient cost plus dispensing fee) it has contracted with these clients as revenue, including member co-payments to pharmacies, and as cost of sales.
Net sales include (i) the portion of the price the client pays directly to the Company, net of any variable consideration including volume-related or other discounts paid back to the client, (ii) the price paid to the Company by client plan members for mail order prescriptions and the price paid to retail network pharmacies by client plan members for retail prescriptions and (iii) claims-based administrative fees. The Company records revenue net of manufacturer’s rebates which are earned by its clients based on their plan members’ utilization of brand-name formulary drugs. The Company estimates these rebates at period-end based on actual and estimate claims data and its estimates of manufacturers’ rebates earned by its clients. The Company adjusts against revenues its rebates payable to clients to the actual amounts paid when such adjustments become known. The Company also adjusts revenues for refunds owed to its clients resulting from pricing and performance guarantees against defined metrics.
Sales taxes are presented on a net basis (excluded from revenue and cost) for both segments.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS ACQUISITIONS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS |
5.BUSINESS ACQUISITIONS
The Company accounts for its business acquisitions using the acquisition method as required by FASB Accounting Standards Codification (“ASC”) 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, except for a portion of LDI (defined 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. These estimates are preliminary and subject to change up to one year following each acquired entity’s respective acquisition date.
LDI Holding Company LLC
On December 20, 2017, the Company acquired LDI Holding Company LLC, doing business as LDI Integrated Pharmacy Services (“LDI”). LDI is a full-service PBM based in St. Louis, Missouri. LDI’s service offerings include URAC-accredited mail-order and specialty pharmacies, a national network of retail pharmacies and comprehensive clinical programs. The following table summarizes the consideration transferred to acquire LDI:
The above share consideration at closing is based on 4,113,188 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of December 19, 2017 ($20.24) and multiplied by 95 percent to account for the restricted nature of the shares.
Approximately $7,500 of the purchase consideration was deposited into an escrow account to satisfy any indemnification claims that may be made by the Company. Approximately $6,357 and $1,143 was released from escrow to the sellers and the Company, respectively, during the second quarter of 2018.
The Company incurred acquisition-related costs of $91 and $726 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2018, respectively.
The following table summarizes the preliminary fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
As of September 30, 2018, the Company was still in the process of finalizing its LDI valuation and, therefore, the purchase price allocation should be considered preliminary. The preliminary purchase price allocation may be subject to further refinement upon finalization of fair valuing acquisition-date working capital. The goodwill balance may be adjusted pending the completion of the valuation of the assets acquired and liabilities assumed as described above. To the extent that significant changes occur in the future, the Company will disclose such changes in the reporting period in which they occur.
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
Pharmaceutical Technologies, Inc.
On November 27, 2017, the Company acquired Pharmaceuticals Technologies, Inc., doing business as National Pharmaceutical Services (“NPS”). NPS is a full-service PBM based in Omaha, Nebraska. The following table summarizes the consideration transferred to acquire NPS:
The above share consideration at closing is based on 835,017 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of November 24, 2017 ($16.97) and multiplied by 90 percent to account for the restricted nature of the shares.
Approximately $9,005 of the purchase consideration was deposited into an escrow account to be held for 18 to 26 months after the closing date to satisfy any indemnification claims that may be made by the Company.
The Company incurred acquisition-related costs of $555 which were charged to “Selling, general and administrative expenses” during the nine months ended September 30, 2018.
The following table summarizes the preliminary fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
As of September 30, 2018, the Company was still in the process of finalizing its NPS valuation and, therefore, the purchase price allocation should be considered preliminary. The preliminary purchase price allocation may be subject to further refinement upon finalization of fair valuing acquisition-date working capital. The goodwill balance may be adjusted pending the completion of the valuation of the assets acquired and liabilities assumed as described above. To the extent that significant changes occur in the future, the Company will disclose such changes in the reporting period in which they occur.
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
Focus Rx Pharmacy Services Inc. and Focus Rx Inc.
On September 1, 2017, the Company acquired Focus Rx Pharmacy Services Inc. and Focus Rx Inc. (collectively, “Focus”), a specialty pharmacy focusing on infusion services located in Ronkonkoma, New York. The following table summarizes the consideration transferred to acquire Focus:
The above share consideration at closing is based on 374,297 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of August 31, 2017 ($16.75) 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 $1,500 per performance period based upon the achievement of certain gross profit targets in each of the 12-month periods ending September 30, 2018 and 2019. The maximum additional cash payout is $3,000. The fair value of this liability as of September 30, 2018 and December 31, 2017 was $2,900 and $2,600, respectively.
Approximately $1,200 of the purchase consideration was deposited into an escrow account to be held for 12 months after the closing date to satisfy any of the Company’s indemnification claims.
The Company incurred acquisition-related costs of $234 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
Accurate Rx Pharmacy Consulting, LLC
On July 5, 2017, the Company acquired Accurate Rx Pharmacy Consulting, LLC (“Accurate”), a specialty pharmacy focusing on infusion services located in Columbia, Missouri. The following table summarizes the consideration transferred to acquire Accurate:
The above share consideration at closing is based on 131,108 shares, in accordance with the purchase agreement, multiplied by the per share closing market price of the Company’s common stock as of July 3, 2017 ($15.05) 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 $3,600 per performance period based upon the achievement of certain gross profit targets in each of the 12-month periods ending July 31, 2018 and 2019. The maximum additional cash payout is $7,200. The fair value of this liability as of September 30, 2018 and December 31, 2017 was $3,115 and $1,600, respectively. Based upon Accurate’s actual results for the 12-month period ended July 31, 2018, the Company expects to pay $1,800 in cash to Accurate’s former owners during the fourth quarter of 2018.
Approximately $1,000 of the purchase consideration was deposited into an escrow account to be held for 15 months after the closing date to satisfy any of the Company’s indemnification claims. The full amount was released to the sellers from escrow in October 2018.
The Company incurred acquisition-related costs of $134 and $217 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017, respectively.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
WRB Communications, LLC
On May 8, 2017, the Company acquired WRB Communications, LLC (“WRB”), a communications and contact center company based in Chantilly, Virginia that specializes in relationship management programs for leading pharmaceutical manufacturers and service organizations. The following table summarizes the consideration transferred to acquire WRB:
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 each of the 12-month periods ending May 31, 2018 and 2019. During the fourth quarter of 2017, the Company guaranteed a full payout to allow for the acceleration of certain integration activities. The formers owners received $1,000 in cash in January 2018.
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 $28 and $255 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017, respectively.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
Comfort Infusion, Inc.
On March 22, 2017, the Company acquired Comfort Infusion, Inc. (“Comfort”), a specialty pharmacy and infusion services company based in Birmingham, Alabama that specializes in intravenous immune globulin therapy to support patients’ immune systems. The following table summarizes the consideration transferred to acquire Comfort:
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. The fair value of this liability as of September 30, 2018 and December 31, 2017 was $3,235 and $4,300, respectively. Based upon Comfort’s actual results for the 12-month period ended March 31, 2018, the Company paid $2,000 in cash to Comfort’s former owners in July 2018.
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 full amount was released to the sellers from escrow in September 2018.
The Company incurred acquisition-related costs of $11 and $232 which were charged to “Selling, general and administrative expenses” during the three and nine months ended September 30, 2017, respectively.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
Affinity Biotech, Inc.
On February 1, 2017, the Company acquired Affinity Biotech, Inc. (“Affinity”), a specialty pharmacy and infusion services company based in Houston, Texas that provides treatments and nursing services for patients with hemophilia. The following table summarizes the consideration transferred to acquire Affinity:
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 February 28, 2018. The maximum payout of contingent consideration was $4,000. The fair value of this liability as of December 31, 2017 was $2,600. Based upon Affinity’s actual results for the 12-month period ended February 28, 2018, the Company paid $2,269 in cash to Affinity’s former owners in June 2018.
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. Approximately $1,851 and $149 was released from escrow to the sellers and the Company, respectively, in August 2018.
The Company incurred acquisition-related costs of $204 which were charged to “Selling, general and administrative expenses” during the nine months ended September 30, 2017.
The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
Definite-lived intangible assets that were acquired and their respective useful lives are as follows:
Pro Forma Operating Results
The following unaudited pro forma summary presents consolidated financial information as if the Accurate, Affinity, Comfort, Focus, LDI, NPS and WRB acquisitions had occurred on January 1, 2016. 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 date or of results that may occur in the future.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS |
6.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:
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:
The following table sets forth a roll forward of the Level 3 measurements:
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.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS |
7.GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS
The following table sets forth a roll forward of goodwill for the nine months ended September 30, 2018:
Goodwill by reporting segment is as follows:
Definite-lived intangible assets consist of the following:
The Company recorded amortization expense of $17,190 and $10,379 for the three months ended September 30, 2018 and 2017, respectively, and $51,360 and $30,371 for the nine months ended September 30, 2018 and 2017, respectively.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| DEBT | |
| DEBT |
8.DEBT
The Company had $467,375 and $550,000 in outstanding term loans as of September 30, 2018 and December 31, 2017, respectively. Unamortized debt issuance costs of $15,323 and $17,402 as of September 30, 2018 and December 31, 2017, respectively, are presented in the condensed consolidated balance sheets as direct deductions from the outstanding debt balances. The Company also had $178,250 and $188,250 outstanding on its line of credit as of September 30, 2018 and December 31, 2017, respectively. The Company had $71,750 and $61,750 available to borrow on its line of credit at September 30, 2018 and December 31, 2017, respectively.
The interest rates the Company pays under its credit facility are primarily a function of a defined margin above LIBOR. The Company’s Term Loan A and Term Loan B interest rates were 4.50 percent and 6.75 percent, respectively, at September 30, 2018 and 4.04 percent and 6.04 percent, respectively, at December 31, 2017. The Company’s line of credit interest rate was 4.59 percent and 4.04 percent at September 30, 2018 and December 31, 2017, respectively. The Company is charged a monthly unused commitment fee ranging from 0.3 percent to 0.4 percent on the average unused daily balance on its $250,000 line of credit.
The Company’s credit facility contains certain financial and non-financial covenants. The Company was in compliance with all such covenants as of September 30, 2018 and December 31, 2017.
|
INTEREST RATE SWAPS |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| INTEREST RATE SWAPS | |
| INTEREST RATE SWAPS |
9.INTEREST RATE SWAPS
The Company entered into two interest rate swap agreements during the second quarter of 2018 to fix its interest rate payments from April 30, 2019 through March 31, 2022 on $150,000 principal balance on each of Term Loan A and Term Loan B ($300,000 principal balance in total). These cash flow derivatives are designated as hedging instruments under FASB ASC Subtopic 815-20. The Company recognized other comprehensive income (loss) of $918 ($1,228 income, net of $310 in taxes) and $(44) ($59 loss, net of $15 in taxes) during the three and nine months ended September 30, 2018, respectively. There was no impact to the condensed consolidated statements of operations. The $59 interest rate swap agreement liability is contained in “Other” noncurrent liabilities as of September 30, 2018.
The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.
|
SHARE-BASED COMPENSATION |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHARE-BASED COMPENSATION | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHARE-BASED COMPENSATION |
10.SHARE-BASED COMPENSATION
Stock Options
A summary of the Company’s stock option activity as of and for the nine months ended September 30, 2018 is as follows:
The Company recorded share-based compensation expense associated with stock options of $2,073 and $1,467 for the three months ended September 30, 2018 and 2017, respectively, and $6,225 and $4,983 for the nine months ended September 30, 2018 and 2017, respectively.
The Company granted service-based awards of 330,135 options under its 2014 Omnibus Incentive Plan (the “2014 Plan”) and a make-whole inducement award of 81,351 options to purchase common stock to key employees during the nine months ended September 30, 2018, of which 306,486 and 105,000 options become exercisable in installments of 33.3 percent and 25 percent, respectively, per year, beginning on the first anniversary of the grant date. These options have a maximum term of ten years.
The 411,486 options to purchase common stock that were granted during the nine months ended September 30, 2018 have a weighted average grant date fair value of $8.75 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:
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 a weighted average of the Company’s historic volatility and 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). Forfeitures are accounted for when they occur.
Restricted Stock Units (“RSU” or “RSUs”)
A summary of the Company’s RSU activity as of and for the nine months ended September 30, 2018 is as follows:
The Company granted service-based awards of 1,037,581 RSUs to key employees under its 2014 Plan during the nine months ended September 30, 2018. The Company also granted a sign-on inducement award of 124,875 RSUs and a make-whole inducement award of 33,716 RSUs to a key employee during the second quarter of 2018. 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 ranges from immediate vesting to three years from grant date.
The Company granted performance-based awards of 139,512 RSUs to key employees under its 2014 Plan during the first quarter of 2018, which will be earned or forfeited based upon the Company’s performance relative to a specified adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) goal for the year ending December 31, 2018. The earned RSUs, if any, will vest in three equal installments, with the first installment vesting upon the earlier of the date that the Company files its 2018 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 Company is accounting for these performance-based RSUs under the current presumption that 50 percent will be earned and 50 percent will be forfeited.
The Company granted performance-based awards of 629,372 RSUs as a make-whole inducement award to a key employee during the second quarter of 2018, which will be earned or forfeited based upon the Company’s performance relative to specified Adjusted EBITDA and revenue goals for the year ending December 31, 2018. The earned RSUs, if any, will vest in three equal installments, with the first installment vesting upon the earlier of the date that the Company files its 2018 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 Company is accounting for these performance-based RSUs under the current presumption that 25 percent will be earned and 75 percent will be forfeited.
The Company granted an additional performance-based award of 1,498,500 RSUs as a sign-on inducement award to a key employee during the second quarter of 2018, which will be earned or forfeited based upon the Company’s performance relative to specified cumulative Adjusted EBITDA and revenue goals for the years ending December 31, 2018 and 2019. The earned RSUs, if any, will vest in three equal installments, with the first installment vesting upon the earlier of the date that the Company files its 2019 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, provided that the vesting of a portion of this award may be accelerated at the discretion of the Board of Directors of the Company or its Compensation Committee following completion of the Company’s 2018 audit. The Company is accounting for these performance-based RSUs under the current presumption that 25 percent will be earned and 75 percent will be forfeited.
The Company recorded share-based compensation expense associated with RSUs of $3,438 and $83 for the three months ended September 30, 2018 and 2017, respectively, and $9,131 and $188 for the nine months ended September 30, 2018 and 2017, respectively.
Restricted Stock Awards (“RSA” or RSAs”)
A summary of the Company’s RSA activity as of and for the nine months ended September 30, 2018 is as follows:
Under the 2014 Plan, the Company issued RSAs to non-employee directors. The value of a RSA is determined by the market value of the Company’s common stock at the date of grant. The value of a RSA is recorded as share-based compensation expense on a straight-line basis over the vesting period, which is typically one year.
The Company recorded share-based compensation expense associated with RSAs of $138 for each of the three-month periods ended September 30, 2018 and 2017 and $415 and $316 for the nine months ended September 30, 2018 and 2017, respectively.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES |
11.INCOME TAXES
A reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONTINGENCIES |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| CONTINGENCIES | |
| CONTINGENCIES |
12.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 the 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. The court issued orders denying the Company’s motion to dismiss on January 19, 2018 and the Company’s motion for reconsideration of its motion to dismiss on August 9, 2018. 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. 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, by agreement between the Company and the shareholder, the court ordered a stay of legal proceedings for 90 days, after which time by further agreements of the Company and the shareholder, the court extended the stay until August 1, 2018. The defendants’ deadline to answer or otherwise plead is November 21, 2018. 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.
|
INCOME (LOSS) PER COMMON SHARE |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME (LOSS) PER COMMON SHARE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME (LOSS) PER COMMON SHARE |
13.INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted income (loss) per common share:
Service-based and earned performance-based stock options to purchase a weighted average of 3,907,277 and 3,719,999 common shares for the three months ended September 30, 2018 and 2017, respectively, and 3,367,065 common shares for the nine months ended September 30, 2017 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 574,138 and 1,060,759 common shares for the three months ended September 30, 2018 and 2017, respectively, and 689,311 common shares for the nine months ended September 30, 2017 were excluded from the computation of diluted weighted average common shares outstanding as all performance conditions were not satisfied as of the end of the respective periods. Weighted average service-based RSUs of 285,386 common shares for the three months ended September 30, 2018 and 28,829 common shares for the nine months ended September 30, 2017 were excluded from the computation of diluted weighted average common shares outstanding as inclusion of such RSUs would be anti-dilutive. Weighted average performance-based RSUs of 2,267,384 common shares were excluded from the computation of diluted weighted average common shares outstanding for the three months ended September 30, 2018 as all performance conditions were not satisfied as of September 30, 2018. Weighted average RSAs of 21,924 and 28,250 common shares for the three months ended September 30, 2018 and 2017, respectively, and 13,383 common shares for the nine months ended September 30, 2017 were excluded from the computation of diluted weighted average common shares outstanding as inclusion of such shares would be anti-dilutive.
The Company recognized a net loss for the nine months ended September 30, 2018. As a result, the diluted loss per share is the same as the basic loss per share as any potentially dilutive securities would reduce the loss per share. In the absence of a net loss, the weighted average dilutive effect of stock options, RSAs and RSUs would have been 383,742 for the nine months ended September 30, 2018. Service-based and earned performance-based stock options to purchase a weighted average of 3,983,767 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as inclusion of such options would be anti-dilutive. Performance-based stock options to purchase up to a weighted average of 574,138 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as all performance conditions were not satisfied as of September 30, 2018. Weighted average service-based RSUs of 367,970 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as inclusion of such RSUs would be anti-dilutive. Weighted average performance-based RSUs of 1,015,331 common shares would have been excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as all performance conditions were not satisfied as of September 30, 2018. Weighted average RSAs of 9,717 common shares were excluded from the computation of diluted weighted average common shares outstanding for the nine months ended September 30, 2018 as inclusion of such shares would be anti-dilutive.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATIONS BY REPORTING SEGMENT |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPERATIONS BY REPORTING SEGMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPERATIONS BY REPORTING SEGMENT |
14.OPERATIONS BY REPORTING SEGMENT
Effective January 1, 2018, the Company reports in two operating segments: Specialty and PBM. The Specialty segment offers a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs and a wide range of applications and the PBM segment provides services designed to help the Company’s customers reduce the cost and manage the complexity of their prescription drug programs. The Company evaluates segment performance principally upon net sales and gross profit. Net sales, cost of sales and gross profit information by segment are as follows:
Total assets by segment are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUBSEQUENT EVENT |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| SUBSEQUENT EVENT | |
| SUBSEQUENT EVENT |
15.SUBSEQUENT EVENT
On October 18, 2018, the Company signed a definitive agreement with an outside third party to enter into a sale-leaseback of real estate that the Company acquired through its NPS acquisition. The transaction is expected to occur in December 2018. Upon completion of this transaction, the Company will receive net cash proceeds of approximately $13,400, for which it will recognize a deferred gain of approximately $5,800 in accordance with FASB ASC Topic 840, Leases.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables, net |
Receivables, net
Receivables, net consisted of the following:
Trade receivables are stated at the invoiced amount. Trade receivables primarily include amounts due from clients, third-party pharmacy benefit managers and insurance providers and are based on contracted prices. Trade receivables are unsecured and require no collateral. Trade receivable terms vary by payer, but generally are due within 30 days after the sale of the product or performance of the service.
Rebate receivables are amounts due from pharmaceutical manufacturers related to drug purchases by participants of the various pharmacy benefit plans that the Company manages, a portion of which, depending on contract terms, are paid back to the Company’s customers.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories |
Inventories
Inventories consist of prescription and over-the-counter drugs and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Prescription drugs are returnable to the Company’s vendors and fully refundable before six months of expiration, and any remaining expired drugs are relieved from inventory on a quarterly basis.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue |
Revenue
The following table disaggregates the Company’s net sales by major source:
Specialty Segment
The Company recognizes revenue from dispensing prescription drugs for home delivery at the time the drugs are physically delivered (when control transfers). Revenue from dispensing prescription drugs that are picked up by patients at an open-door or retail pharmacy location are recorded at prescription adjudication, which approximates the fill date. Each prescription claim is considered its own arrangement with the customer and is a performance obligation.
The Company accrues an estimate of fees, including direct and indirect remuneration fees (“DIR fees”), which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a reduction at the time revenue is recognized. Changes in the Company’s estimate of such fees are recorded as an adjustment to revenue when the change becomes known.
PBM Segment
The Company provides a pharmacy benefit management service, including mail order pharmacy and specialty pharmacy services, to its clients, which include Medicare Part D Plans, regional health plans, self-insured clients and Medicaid Plans. The Company sells prescription drugs directly through its mail service dispensing pharmacy and indirectly through its contracted network of retail pharmacies. The Company recognizes revenue from the sale of prescription drugs by its mail order pharmacy service when the drugs are physically delivered (when control transfers) and by its retail pharmacy network when the claim is adjudicated. The Company’s pharmacy benefit management services are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. Pharmacy benefit management services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the dispensing of prescription drugs. The Company recognizes revenue using the gross method since the Company acts as principal in the arrangement, exercises pricing latitude and independently has a contractual obligation to pay its network pharmacy providers for benefits provided to its clients’ members, and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related pharmacy benefit management services. The Company includes the total prescription price (drug ingredient cost plus dispensing fee) it has contracted with these clients as revenue, including member co-payments to pharmacies, and as cost of sales.
Net sales include (i) the portion of the price the client pays directly to the Company, net of any variable consideration including volume-related or other discounts paid back to the client, (ii) the price paid to the Company by client plan members for mail order prescriptions and the price paid to retail network pharmacies by client plan members for retail prescriptions and (iii) claims-based administrative fees. The Company records revenue net of manufacturer’s rebates which are earned by its clients based on their plan members’ utilization of brand-name formulary drugs. The Company estimates these rebates at period-end based on actual and estimate claims data and its estimates of manufacturers’ rebates earned by its clients. The Company adjusts against revenues its rebates payable to clients to the actual amounts paid when such adjustments become known. The Company also adjusts revenues for refunds owed to its clients resulting from pricing and performance guarantees against defined metrics.
Sales taxes are presented on a net basis (excluded from revenue and cost) for both segments.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption of New Accounting Standards |
Adoption of New Accounting Standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), which supersedes the previous 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 a company to recognize revenue when it transfers the promised goods or services to its customers for an amount that represents what the company expects to be entitled to in exchange for those goods or services. Topic 606 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 (modified retrospective transition method). The new standard also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers.
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company recognized the cumulative effect of initially applying the new revenue recognition standard on January 1, 2018 and recorded an after-tax adjustment of $126 to reduce beginning retained earnings. This cumulative adjustment relates to a shift in the timing of revenue recognition of dispensing prescription drugs for home delivery from the date the drugs are shipped under the Company’s previous accounting policy to the date the drugs are physically delivered (which better reflects when control transfers) under the new accounting policy adopted in connection with Topic 606. The effect of this change is not significant as there is a very short timeframe from the shipment date to the physical delivery date of the prescription drugs. Additionally, in the PBM segment, prior to the adoption of Topic 606, revenue related to certain contracts was previously recognized on a net basis as the Company was considered to be acting as an agent in the transactions. The Company reassessed the principal versus agent criteria under Topic 606 and determined under the new guidance that the Company is considered to be acting as principal in these transactions and, effective January 1, 2018, began to recognize revenue on a gross basis.
As a result of applying the modified retrospective transition method, the following condensed consolidated balance sheet line items were adjusted as of January 1, 2018:
The following table compares the reported condensed consolidated statement of operations and comprehensive loss for the three months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
The following table compares the reported condensed consolidated balance sheet, statement of operations and statement of cash flows as of and for the nine months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
See the Revenue section in Note 4 for additional disclosures required under Topic 606.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 aligns hedge accounting with risk management activities and simplifies the requirement to qualify for hedge accounting. ASU 2017-12 is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted.
Effective January 1, 2018, the Company early adopted ASU 2017-12. There was no impact to the Company at the time of adoption.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Standards Issued But Not Yet Adopted |
Accounting Standards Issued But Not Yet Adopted
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“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. Topic 842 is effective for annual periods beginning on or after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. The Company is substantially complete with the inventorying of its lease population and is continuing to evaluate the impact that adopting Topic 842 will have on its consolidated financial statements and/or notes thereto. The Company plans to adopt Topic 842 using the modified retrospective transition method, which means that comparative financial information will not be restated and will continue to be reported under the accounting standards in effect for those periods.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NEW ACCOUNTING STANDARDS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ASU 2014-09 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEW ACCOUNTING STANDARDS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of impacts of adopting ASU 606 |
As a result of applying the modified retrospective transition method, the following condensed consolidated balance sheet line items were adjusted as of January 1, 2018:
The following table compares the reported condensed consolidated statement of operations and comprehensive loss for the three months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
The following table compares the reported condensed consolidated balance sheet, statement of operations and statement of cash flows as of and for the nine months ended September 30, 2018 to the as adjusted amounts had the previous revenue accounting guidance remained in effect:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of receivables, net |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of net sales by disaggregations |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS ACQUISITIONS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of unaudited pro forma results of operations |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LDI Holding Company LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consideration transferred |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of the fair values of identifiable acquired assets and assumed liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets that were acquired and their respective useful lives |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pharmaceutical Technologies, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consideration transferred |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of the fair values of identifiable acquired assets and assumed liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets that were acquired and their respective useful lives |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Focus Rx Pharmacy Services Inc. and Focus Rx Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consideration transferred |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of the fair values of identifiable acquired assets and assumed liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets that were acquired and their respective useful lives |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accurate Rx Pharmacy Consulting, LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consideration transferred |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of the fair values of identifiable acquired assets and assumed liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets that were acquired and their respective useful lives |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WRB Communications, LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consideration transferred |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of the fair values of identifiable acquired assets and assumed liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets that were acquired and their respective useful lives |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comfort Infusion, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consideration transferred |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of the fair values of identifiable acquired assets and assumed liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets that were acquired and their respective useful lives |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Affinity Biotech, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consideration transferred |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of the fair values of identifiable acquired assets and assumed liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets that were acquired and their respective useful lives |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of assets and liabilities measured and disclosed at fair value on a recurring basis |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of a roll forward of the Level 3 measurements |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of changes in the carrying amount of goodwill |
The following table sets forth a roll forward of goodwill for the nine months ended September 30, 2018:
Goodwill by reporting segment is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of definite-lived intangible assets |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHARE-BASED COMPENSATION | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of entity's stock option activity |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of assumptions used to determine the valuation of granted options |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of restricted stock units activity |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of restricted stock awards activity |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME (LOSS) PER COMMON SHARE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME (LOSS) PER COMMON SHARE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of the calculation for basic and diluted income (loss) per common share |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATIONS BY REPORTING SEGMENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPERATIONS BY REPORTING SEGMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of information by segment |
Total assets by segment are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DESCRIPTION OF BUSINESS - Operations (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
segment
| |
| DESCRIPTION OF BUSINESS | |
| Number of reporting segments | 2 |
BASIS OF PRESENTATION (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Percentage of ownership interest in subsidiary that the entity has the ability to control | 51.00% | 51.00% | ||
| Cost of sales | ||||
| Shipping and handling costs | $ 15,713 | $ 15,408 | $ 46,979 | $ 39,794 |
| Cost of nursing support services | $ 6,370 | $ 4,805 | $ 17,736 | $ 13,826 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Principles of Consolidation thru Receivables, net Inventories (Details) - USD ($) $ in Thousands |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2018 |
Jan. 02, 2018 |
Dec. 31, 2017 |
|
| Receivables | |||
| Receivables, net | $ 358,158 | $ 325,608 | $ 332,091 |
| Trade receivable terms | 30 days | ||
| Inventories | |||
| Maximum period before expiration within which Inventory is returnable and fully refundable | 6 months | ||
| Trade receivables | |||
| Receivables | |||
| Receivables, net | $ 322,072 | 317,004 | |
| Allowance for trade receivables | (23,039) | (22,050) | |
| Rebate receivables | |||
| Receivables | |||
| Receivables, net | 30,768 | 12,847 | |
| Other receivables | |||
| Receivables | |||
| Receivables, net | $ 5,318 | $ 2,240 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Revenue | ||||
| Revenue | $ 1,373,334 | $ 1,124,957 | $ 4,131,896 | $ 3,330,161 |
| Inter-segment eliminations | ||||
| Revenue | ||||
| Revenue | (8,897) | (17,275) | ||
| Specialty | Oncology (Specialty) | ||||
| Revenue | ||||
| Revenue | 701,205 | 648,700 | 2,094,394 | 1,895,611 |
| Specialty | Specialty Infusion (Specialty) | ||||
| Revenue | ||||
| Revenue | 178,890 | 158,467 | 525,857 | 443,338 |
| Specialty | Immunology (Specialty) | ||||
| Revenue | ||||
| Revenue | 135,397 | 139,670 | 413,948 | 420,126 |
| Specialty | Other (Specialty) | ||||
| Revenue | ||||
| Revenue | 196,806 | $ 178,120 | 564,824 | $ 571,086 |
| PBM | Other (Specialty) | ||||
| Revenue | ||||
| Revenue | $ 169,933 | $ 550,148 | ||
BUSINESS ACQUISITIONS - Pro Forma Data (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2017 |
|
| Pro Forma Operating Results | ||
| Net sales | $ 1,242,227 | $ 3,704,486 |
| Net (loss) income attributable to Diplomat Pharmacy, Inc. | $ (3,640) | $ 3,037 |
| Net (loss) income per common share - basic & diluted (in dollars per share) | $ (0.05) | $ 0.04 |
FAIR VALUE MEASUREMENTS - Recurring Basis (Details) - Recurring - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Contingent consideration | ||
| Fair value measurements | ||
| Asset (Liability) | $ (9,250) | $ (12,100) |
| Interest Rate Swaps | ||
| Fair value measurements | ||
| Asset (Liability) | (59) | |
| Level 2 | Interest Rate Swaps | ||
| Fair value measurements | ||
| Asset (Liability) | (59) | |
| Level 3 | Contingent consideration | ||
| Fair value measurements | ||
| Asset (Liability) | $ (9,250) | $ (12,100) |
FAIR VALUE MEASUREMENTS - Roll forward of Level 3 Measurements (Details) - Contingent consideration $ in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
| |
| Level 3 measurements | |
| Balance at beginning of the period | $ (12,100) |
| Changes in fair values | (2,419) |
| Payments | 5,269 |
| Balance at end of the period | $ (9,250) |
GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS - Roll forward of goodwill (Details) $ in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
| |
| Changes in the carrying amount of goodwill | |
| Balance as of beginning of period | $ 832,624 |
| Various purchase accounting adjustments | 1,956 |
| Balance as of end of period | $ 834,580 |
GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS - Goodwill by reporting segment (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Acquired Intangible Assets | ||
| Goodwill | $ 834,580 | $ 832,624 |
| PBM | ||
| Acquired Intangible Assets | ||
| Goodwill | 448,144 | 446,740 |
| Specialty | ||
| Acquired Intangible Assets | ||
| Goodwill | $ 386,436 | $ 385,884 |
DEBT (Details) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Term Loan | ||
| Debt | ||
| Unamortized debt issuance costs | $ 15,323 | $ 17,402 |
| Term Loan | GE | ||
| Debt | ||
| Amount of borrowings outstanding | $ 467,375 | $ 550,000 |
| Term Loan A | GE | ||
| Debt | ||
| Interest rate (as a percent) | 4.50% | 4.04% |
| Term Loan B | GE | ||
| Debt | ||
| Interest rate (as a percent) | 6.75% | 6.04% |
| Line of credit | GE | ||
| Debt | ||
| Amount of borrowings outstanding | $ 178,250 | $ 188,250 |
| Amount of borrowings available under the credit agreement | 71,750 | $ 61,750 |
| Maximum borrowing capacity | $ 250,000 | |
| Interest rate (as a percent) | 4.59% | 4.04% |
| Minimum | Line of credit | GE | ||
| Debt | ||
| Monthly unused commitment fee (as a percent) | 0.30% | |
| Maximum | Line of credit | GE | ||
| Debt | ||
| Monthly unused commitment fee (as a percent) | 0.40% |
INTEREST RATE SWAPS (Details) - Interest Rate Swaps $ in Thousands |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
|
Sep. 30, 2018
USD ($)
|
Jun. 30, 2018
item
|
Sep. 30, 2018
USD ($)
|
|
| Number of interest rate swap agreements | item | 2 | ||
| Other Noncurrent Assets | |||
| Interest rate swap | $ 59 | $ 59 | |
| Cash Flow Hedging | |||
| Cash flow hedging instruments, net of tax | 918 | (44) | |
| Cash flow hedging instruments, before tax | 1,228 | (59) | |
| Cash flow hedging instruments, tax | 310 | 15 | |
| Term Loan | |||
| Principal balance | 300,000 | 300,000 | |
| Term Loan A | |||
| Principal balance | 150,000 | 150,000 | |
| Term Loan B | |||
| Principal balance | $ 150,000 | $ 150,000 | |
INCOME TAXES - Reconciliation of income taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Reconciliation of income taxes computed at the United States federal statutory tax rate to income tax benefit (expense) | ||||
| Income tax benefit (expense) at U.S. statutory rate | $ 734 | $ (3,422) | ||
| Non-deductible employee compensation in excess of $1,000 | (975) | |||
| State income taxes, net of federal benefit | (755) | (445) | ||
| Share-based compensation | 456 | 3,071 | ||
| Other | (210) | (305) | ||
| Income tax expense | $ 121 | $ 662 | $ (750) | $ (1,101) |
OPERATIONS BY REPORTING SEGMENT (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
|
Jan. 01, 2018
segment
|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
USD ($)
|
|
| Segment reporting information | |||||
| Number of operating segments | segment | 2 | ||||
| Net Sales | $ 1,373,334 | $ 1,124,957 | $ 4,131,896 | $ 3,330,161 | |
| Cost of Sales | (1,279,976) | (1,059,867) | (3,849,743) | (3,128,595) | |
| Gross Profit | 93,358 | 65,090 | 282,153 | 201,566 | |
| Inter-segment eliminations | |||||
| Segment reporting information | |||||
| Net Sales | (8,897) | (17,275) | |||
| Cost of Sales | 8,897 | 17,275 | |||
| Specialty | Operating Segments | |||||
| Segment reporting information | |||||
| Net Sales | 1,212,298 | 1,124,957 | 3,599,023 | 3,330,161 | |
| Cost of Sales | (1,145,288) | (1,059,867) | (3,386,653) | (3,128,595) | |
| Gross Profit | 67,010 | $ 65,090 | 212,370 | $ 201,566 | |
| PBM | Operating Segments | |||||
| Segment reporting information | |||||
| Net Sales | 169,933 | 550,148 | |||
| Cost of Sales | (143,585) | (480,365) | |||
| Gross Profit | $ 26,348 | $ 69,783 | |||
OPERATIONS BY REPORTING SEGMENT - Total Assets by Segment (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Jan. 02, 2018 |
Dec. 31, 2017 |
|---|---|---|---|
| Segment reporting information | |||
| Total assets | $ 1,800,661 | $ 1,940,253 | $ 1,940,423 |
| Specialty | |||
| Segment reporting information | |||
| Total assets | 1,071,694 | 1,190,188 | |
| PBM | |||
| Segment reporting information | |||
| Total assets | $ 728,967 | $ 750,235 |
SUBSEQUENT EVENT (Details) - Subsequent event - Definitive agreement $ in Thousands |
Oct. 18, 2018
USD ($)
|
|---|---|
| SUBSEQUENT EVENT | |
| Net cash proceeds from sale-leaseback transaction | $ 13,400 |
| Deferred gain | $ 5,800 |
&_$LFF1!]F[Q>)O"*1A^"P$?%A(K]([!6)/03Q1L2'2?PB
MB5 5I?)J>%G!007Z*@13_W; 9;,-E^$]\5I>"N,2*$MK=H&?8'[5!V4CU+.<
M2@&5+F45*#AOPZ?E9A\[O ?\+J'1@WW@G!RE?'/!M],VC)P@X) ;Q\#L*3YNQ2Q&@2/FM/OC,1*BDMDP>FT!Z2=7]@C\*PF>34DO0S
MRZDE#X\)ZMA;K0Y3%'(M2*YJRE84