SEGMENTS (Tables)

9 Months Ended

Mar. 31, 2017

Segment information was as follows (in thousands):



	Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2016		2017		2016
Net revenue:
Supply Chain Services
Net administrative fees	$	143,915	$	131,270	$	398,962	$	369,952
Other services and support	3,116		1,104		5,962		2,963
Services	147,031		132,374		404,924		372,915
Products	138,132		80,010		386,639		239,107
Total Supply Chain Services	285,163		212,384		791,563		612,022
Performance Services	94,640		86,285		260,012		249,151
Net revenue	$	379,803	$	298,669	$	1,051,575	$	861,173

Depreciation and amortization expense ^(a):
Supply Chain Services	$	5,717	$	262	$	8,637	$	1,138
Performance Services	21,491		20,016		63,350		55,616
Corporate	1,974		1,572		5,771		4,478
Total depreciation and amortization expense	$	29,182	$	21,850	$	77,758	$	61,232

Capital expenditures:
Supply Chain Services	$	198	$	63	$	2,347	$	1,031
Performance Services	16,308		14,368		47,079		44,836
Corporate	1,061		1,371		2,466		8,817
Total capital expenditures	$	17,567	$	15,802	$	51,892	$	54,684

Total assets:					March 31, 2017		June 30, 2016
Supply Chain Services					$	1,075,683	$	345,219
Performance Services					901,360		934,588
Corporate					589,218		575,576
Total assets					$	2,566,261	$	1,855,383


(a)	Includes amortization of purchased intangible assets.

Reconciliation of Income Before Income Taxes to Segment Adjusted EBITDA

A reconciliation of income before income taxes to Segment Adjusted EBITDA is as follows (in thousands):



	Three Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2017			2016
Income before income taxes	$	78,653		$	81,100		$	443,697		$	226,062
Remeasurement gain attributable to acquisition of Innovatix, LLC	—			—			(204,833		)	—
Equity in net income of unconsolidated affiliates ^(a)	(83		)	(6,627		)	(14,789		)	(16,002		)
Interest and investment loss, net ^(b)	2,017			285			3,026			981
Loss on disposal of long-lived assets	725			—			2,243			—
Other expense (income), net	(2,260		)	—			(3,135		)	2,081
Operating income	79,052			74,758			226,209			213,122
Depreciation and amortization	15,102			13,110			43,318			37,174
Amortization of purchased intangible assets	14,080			8,740			34,440			24,058
Stock-based compensation ^(c)	7,157			11,839			19,476			37,093
Acquisition related expenses	4,330			2,583			11,483			11,699
Strategic and financial restructuring expenses	—			33			—			268
Adjustment to tax receivable agreement liability ^(d)	2,768			—			(2,954		)	(4,818		)
ERP implementation expenses ^(e)	215			1,162			1,741			3,240
Acquisition related adjustment - revenue ^(f)	11,765			1,077			17,729			5,216
Equity in net income of unconsolidated affiliates ^(a)	83			6,627			14,789			16,002
Deferred compensation plan income (expense) ^(g)	1,675			—			2,778			(2,073		)
Other income	497			—			497			—
Adjusted EBITDA	$	136,724		$	119,929		$	369,506		$	340,981

Segment Adjusted EBITDA:
Supply Chain Services	$	127,898		$	118,704		$	364,224		$	329,642
Performance Services	36,535			30,771			87,449			90,158
Corporate ^(h)	(27,709		)	(29,546		)	(82,167		)	(78,819		)
Adjusted EBITDA	$	136,724		$	119,929		$	369,506		$	340,981


(a)	Represents equity in net income of unconsolidated affiliates primarily generated by the Company's 49% ownership interest in FFF and 50% ownership interest in Innovatix prior to the acquisition of the remaining 50% interest on December 2, 2016.


(b)	Represents interest expense, net and realized gains and losses on our marketable securities.


(c)	In addition to non-cash employee stock-based compensation expense, includes stock purchase plan expense of $0.1 million for both the three months ended March 31, 2017 and 2016 and $0.4 million and $0.3 million for the nine months ended March 31, 2017 and 2016, respectively.


(d)	Represents adjustment to tax receivable agreement liability for an increase in income apportioned to California during the three months ended March 31, 2017 and a 1% decrease in the North Carolina state income tax rate that occurred during each of the nine months ended March 31, 2017 and 2016.


(e)	Represents implementation and other costs associated with the implementation of an enterprise resource planning ("ERP") system.

(f)

During the three and nine months ended March 31, 2017, we recorded $11.6 million and $17.2 million purchase accounting adjustments to Adjusted EBITDA, respectively, related to our acquisition of Innovatix and Essensa in December 2016. These adjustments reflect the fair value of administrative fees related to member purchases that occurred prior to December 2, 2016, but were reported to us subsequent to that date through March 31, 2017. Under our revenue recognition accounting policy, which is in accordance with GAAP, these administrative fees would be ordinarily recorded as revenue when reported to us; however, the acquisition method of accounting requires us to estimate the amount of purchases prior to the acquisition date and to record the fair value of the administrative fees to be received from those purchases as an account receivable (as opposed to recognizing revenue when these transactions are reported to us) and record any corresponding revenue share obligation as a liability. The purchase accounting adjustment amounted to an estimated $22.1 million of accounts receivable relating to these administrative fees and an estimated $4.0 million for the related revenue share obligation through March 31, 2017.

This item also includes non-cash adjustments to deferred revenue of acquired entities of $0.1 million and $1.1 million for the three months ended March 31, 2017 and 2016, respectively, and $0.5 million and $5.2 million for the nine months ended March 31, 2017 and 2016, respectively. Business combination accounting rules require the Company to record a deferred revenue liability at its fair value only if the acquired deferred revenue represents a legal performance obligation assumed by the acquirer. The fair value is based on direct and indirect incremental costs of providing the services plus a normal profit margin. Generally, this results in a reduction to the purchased deferred revenue balance, which was based on upfront fees associated with software license updates and product support contracts assumed in connection with acquisitions. Because these support contracts are typically one year in duration, our GAAP revenues for the one year period subsequent to the acquisition of a business do not reflect the full amount of support revenues on these assumed support contracts that would have otherwise been recorded by the acquired entity. The Non-GAAP adjustment to software license updates and product support revenues is intended to include, and thus reflect, the full amount of such revenues.


(g)	Represents realized and unrealized gains and losses and dividend income on deferred compensation plan assets.


(h)	Corporate consists of general and administrative corporate expenses that are not specific to either of our reporting segments.