What happened

Shares of Diplomat Pharmacy (DPLO) are down 27% at 2:29 p.m. EST after the company released lackluster third-quarter earnings yesterday after the closing bell.

Revenue was up 22%, but much of that gain was from the recently acquired pharmacy benefit manager (PBM) businesses, which Diplomat rebranded as CastiaRx. Revenue for the legacy specialty pharmacy segment was up a solid-enough 8% compared to the year-ago quarter.

The problem was on the bottom line where Diplomat Pharmacy barely broke even. Operating income was up substantially year over year, but the debt Diplomat took on to pay for the PBMs ate up that income.

So what

Management cut the top of its 2018 revenue guidance from $5.9 million down to $5.7 million although the bottom of the range was held at $5.5 million. Earnings-per-share guidance went up; management now expects EPS in the range of a loss of $0.10 to a profit of $0.03, up from the previous range that bottomed out at a loss of as much as $0.15. Most of the increase in EPS guidance is due to less stock-based compensation as adjusted EBITDA guidance remained unchanged.

Hands taking medications from a pharmacy shelf.

Image source: Getty Images.

Now what

Some of today's decline likely has less to do with the third-quarter performance or even 2018 guidance, and more to do with how well a lack of new information on how Diplomat Pharmacy is doing securing PBM contracts that are scheduled to start in 2019. With just two months left, investors are likely getting antsy about whether Diplomat can get new PBM business to help cover the added interest expenses.