(17) SEGMENTS

The Company delivers its solutions and manages its business through two reportable business segments, the supply chain services segment and the performance services segment. The supply chain services segment includes the Company's GPO, integrated pharmacy offerings and direct sourcing activities. The performance services segment includes the Company's informatics, collaborative, advisory services and insurance services businesses.

The Company uses Segment Adjusted EBITDA (a Non-GAAP measure) as its primary measure of profit or loss to assess segment performance and to determine the allocation of resources. The Company also uses Segment Adjusted EBITDA to facilitate the comparison of the segment operating performance on a consistent basis from period to period. The Company defines Segment Adjusted EBITDA as the segment's net revenue and equity in net income of unconsolidated affiliates less operating expenses directly attributable to the segment excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items. Non-recurring items are expenses that have not been incurred within the prior two years and are not expected to recur within the next two years. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA.

For more information on Segment Adjusted EBITDA and the use of Non-GAAP measures, see "Other Key Business Metrics" under Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.

All reportable segment revenues are presented net of inter-segment eliminations and represent revenues from external customers.

The following tables present selected net revenue and Segment Adjusted EBITDA (in thousands):



	Three months ended September 30,
Net Revenue	2016		2015
Supply Chain Services
Net administrative fees	$	125,976	$	117,949
Other services and support	1,645		819
Services	127,621		118,768
Products	106,129		77,781
Total Supply Chain Services	$	233,750	$	196,549
Performance Services	79,522		74,286
Total	$	313,272	$	270,835



	Three months ended September 30,
Segment Adjusted EBITDA	2016			2015
Supply Chain Services	$	117,304		$	102,949
Performance Services	22,311			24,925
Corporate	(28,842		)	(22,877		)
Total	$	110,773		$	104,997

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



	Three months ended September 30,
	2016			2015
Segment Adjusted EBITDA	$	110,773		$	104,997
Depreciation and amortization	(14,018		)	(11,865		)
Amortization of purchased intangible assets	(9,209		)	(6,047		)
Stock-based compensation expense ^(a)	(5,896		)	(13,700		)
Acquisition related expenses ^(b)	(2,937		)	(3,472		)
Strategic and financial restructuring expenses ^(c)	—			(27		)
Adjustment to tax receivable agreement liability ^(d)	5,722			4,818
ERP implementation expenses ^(e)	(1,094		)	(560		)
Acquisition related adjustment - deferred revenue ^(f)	(151		)	(3,092		)
Equity in net income of unconsolidated affiliates ^(g)	(9,579		)	(4,590		)
Deferred compensation plan expense	(1,095		)	1,809
Operating income	$	72,516		$	68,271
Equity in net income of unconsolidated affiliates ^(g)	9,579			4,590
Interest and investment income, net	(152		)	241
Loss on disposal of long-lived assets	(1,518		)	—
Other expense, net ^(h)	1,006			(1,809		)
Income before income taxes	$	81,431		$	71,293


(a)	Represents non-cash employee stock-based compensation expense and $0.1 million and $0.2 million stock purchase plan expense in the three months ended September 30, 2016 and 2015, respectively.


(b)	Represents legal, accounting and other expenses related to acquisition activities.


(c)	Represents legal, accounting and other expenses directly related to strategic and financial restructuring expenses.


(d)	Represents adjustment to tax receivable agreement liability for a 1% decrease in the North Carolina state income tax rate during the three months ended September 30, 2016 and 2015.


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

(f)

Represents non-cash adjustment to deferred revenue of acquired entities. 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 equity in net income of unconsolidated affiliates primarily generated by the Company's 50% ownership interest in Innovatix and 49% ownership interest in FFF, all of which is included in the supply chain services segment.


(h)	Represents unrealized gain on deferred compensation plan assets and losses on investments and other assets.

The following tables present capital expenditures, total assets and depreciation and amortization expense (in thousands):



	Three months ended September 30,
Capital Expenditures	2016		2015
Supply Chain Services	$	—	$	764
Performance Services	16,851		15,263
Corporate	115		1,114
Total	$	16,966	$	17,141



Total Assets	September 30, 2016		June 30, 2016
Supply Chain Services	$	411,810	$	345,219
Performance Services	971,834		934,588
Corporate	506,020		575,576
Total	$	1,889,664	$	1,855,383



	Three months ended September 30,
Depreciation and Amortization Expense ^(a)	2016		2015
Supply Chain Services	$	466	$	517
Performance Services	20,875		15,924
Corporate	1,886		1,471
Total	$	23,227	$	17,912


(a)	Includes amortization of purchased intangible assets.