UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 10-Q

(Mark One)
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
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: 001-11993

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BioScrip, Inc.OPTION CARE HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware05-0489664
(State of incorporation)(I.R.S. Employer Identification No.)
1600 Broadway, 3000 Lakeside Dr.Suite 700, Denver, Colorado300N,80202 Bannockburn, IL60015
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code:
720-697-5200312-940-2443

Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareOPCHNasdaq Global Select Market
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 þ☑     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 þ☑ 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 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 o☐     Accelerated filer þ☑     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 þ☑
Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareBIOSNasdaq Global Market
Rights to Purchase Series D Junior Participating Preferred StockNot applicableNasdaq Global Market


On July 29, 2019,31, 2020, there were 129,180,707186,716,364 shares of the registrant’s Common Stock outstanding.




TABLE OF CONTENTS
Page
Number
PART I
Number3
PART I
Item 1.
3
Condensed Consolidated Balance Sheets at June 30, 2019 (unaudited) and December 31, 2018
4
5
6
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018
76
7
89
1925
2836
2836
PART II
2837
2937
3338
Exhibits
3438
SIGNATURES
35

2

Table of Contents
PART I
FINANCIAL INFORMATION
Item 1.Financial Statements

Item 1.Financial Statements
BIOSCRIP,
3
Table of Contents
OPTION CARE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(unaudited)
June 30, 2020December 31, 2019
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents$118,099  $67,056  
   Accounts receivable, net320,222  324,416  
   Inventories149,115  115,876  
   Prepaid expenses and other current assets50,107  51,306  
Total current assets637,543  558,654  
NONCURRENT ASSETS:
   Property and equipment, net117,629  133,198  
   Operating lease right-of-use asset52,126  63,502  
   Intangible assets, net368,481  385,910  
   Goodwill1,428,610  1,425,542  
   Other noncurrent assets21,876  22,741  
Total noncurrent assets1,988,722  2,030,893  
TOTAL ASSETS$2,626,265  $2,589,547  
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$260,120  $221,060  
Accrued compensation and employee benefits47,742  45,765  
Accrued expenses and other current liabilities59,027  33,538  
Current portion of operating lease liability18,472  20,391  
Current portion of long-term debt9,250  9,250  
Total current liabilities394,611  330,004  
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion1,275,385  1,277,246  
Operating lease liability, net of current portion50,779  58,242  
Deferred income taxes2,741  2,143  
Other noncurrent liabilities34,783  15,085  
Total noncurrent liabilities1,363,688  1,352,716  
Total liabilities1,758,299  1,682,720  
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, 0 shares outstanding as of June 30, 2020 and December 31, 2019, respectively—  —  
Common stock; $0.0001 par value: 250,000,000 shares authorized, 177,098,513 shares issued and 176,714,791 shares outstanding as of June 30, 2020; 176,975,628 shares issued and 176,591,907 shares outstanding as of December 31, 201918  18  
Treasury stock; 383,722 shares outstanding, at cost, as of June 30, 2020 and December 31, 2019, respectively(2,403) (2,403) 
Paid-in capital1,009,135  1,008,362  
Accumulated deficit(119,533) (91,955) 
Accumulated other comprehensive loss(19,251) (7,195) 
Total stockholders’ equity867,966  906,827  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,626,265  $2,589,547  
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
4
 June 30, 2019 December 31, 2018
 (unaudited)  
ASSETS   
Current assets   
Cash and cash equivalents$14,390
 $14,539
Restricted cash4,322

4,321
Accounts receivable, net118,081
 114,864
Inventory27,801
 26,689
Prepaid expenses and other current assets13,046
 14,292
Total current assets177,640
 174,705
Property and equipment, net of accumulated depreciation of $76,282 and $100,851 as of June 30, 2019 and December 31, 2018, respectively27,103
 28,788
Goodwill367,198
 367,198
Deferred taxes995
 1,032
Intangible assets, net of accumulated amortization of $51,800 and $49,080 as of June 30, 2019 and December 31, 2018, respectively7,351
 10,470
Operating lease right-of-use assets18,611
 —
Other non-current assets1,679
 1,745
Total assets$600,577
 $583,938
LIABILITIES AND STOCKHOLDERS’ DEFICIT 
  
Current liabilities 
  
Current portion of long-term debt$5,879
 $3,179
Current portion of operating lease liabilities5,335
 —
Accounts payable73,367
 67,025
Amounts due to plan sponsors573
 956
Accrued interest6,659
 6,706
Accrued expenses and other current liabilities24,352
 29,450
Total current liabilities116,165
 107,316
Long-term debt, net of current portion519,384
 501,495
Operating lease liabilities, net of current portion19,231
 —
Other non-current liabilities21,009
 25,842
Total liabilities675,789
 634,653
Series A convertible preferred stock, $.0001 par value; 825,000 shares authorized; 21,630 shares issued and outstanding; and $3,452 and $3,264 liquidation preference as of June 30, 2019 and December 31, 2018, respectively3,442
 3,231
Series C convertible preferred stock, $.0001 par value; 625,000 shares authorized; 614,177 shares issued and outstanding; and $100,184 and $94,706 liquidation preference as of June 30, 2019 and December 31, 2018, respectively95,872
 90,058
Stockholders’ deficit   
Preferred stock, $.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively—
 —
Common stock, $.0001 par value; 250,000,000 shares authorized; 129,620,672 shares issued and 128,956,878 shares outstanding at June 30, 2019, and 128,391,456 shares issued and 128,077,651 shares outstanding as of December 31, 2018, respectively13
 13
Treasury stock, 663,794 and 313,805 shares outstanding, at cost, as of June 30, 2019 and December 31, 2018, respectively(1,722) (950)
Additional paid-in capital614,335
 618,137
Accumulated deficit(787,152) (761,204)
Total stockholders’ deficit(174,526) (144,004)
Total liabilities and stockholders’ deficit$600,577
 $583,938
Table of Contents
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BIOSCRIP,OPTION CARE HEALTH, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
NET REVENUE$740,848  $497,266  $1,446,288  $973,758  
COST OF REVENUE574,528  395,876  1,121,939  774,174  
GROSS PROFIT166,320  101,390  324,349  199,584  
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses124,918  99,245  254,198  182,032  
Depreciation and amortization expense18,194  10,150  38,295  20,119  
      Total operating expenses143,112  109,395  292,493  202,151  
OPERATING INCOME (LOSS)23,208  (8,005) 31,856  (2,567) 
OTHER INCOME (EXPENSE):
Interest expense, net(31,432) (11,563) (59,519) (22,608) 
Equity in earnings of joint ventures1,012  643  1,574  1,192  
Other, net14  (101) 22  (177) 
      Total other expense(30,406) (11,021) (57,923) (21,593) 
LOSS BEFORE INCOME TAXES(7,198) (19,026) (26,067) (24,160) 
INCOME TAX EXPENSE (BENEFIT)470  (5,423) 1,511  (6,845) 
NET LOSS$(7,668) $(13,603) $(27,578) $(17,315) 
OTHER COMPREHENSIVE GAIN ( LOSS), NET OF TAX:
Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $(15), $0 and $227, respectively4,576  27  (12,056) (478) 
OTHER COMPREHENSIVE GAIN (LOSS)4,576  27  (12,056) (478) 
NET COMPREHENSIVE LOSS$(3,092) $(13,576) $(39,634) $(17,793) 
LOSS PER COMMON SHARE
Net loss per share, basic and diluted$(0.04) $(0.10) $(0.16) $(0.12) 
Weighted average common shares outstanding, basic and diluted176,711  142,614  176,686  142,614  
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
5
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Net revenue$191,517
 $175,789
 $370,473
 $344,373
Cost of revenue (excluding depreciation expense)126,864
 115,832
 248,156
 229,368
Gross profit64,653
 59,957
 122,317
 115,005
        
Operating expenses:       
Service location operating expenses38,428
 38,861
 78,615
 78,160
General and administrative expenses11,796
 10,931
 23,290
 21,600
Depreciation and amortization expense4,665
 6,366
 9,738
 12,852
Restructuring, acquisition, integration, and other expenses2,871
 2,024
 8,892
 3,906
Total operating expenses57,760
 58,182
 120,535
 116,518
Operating income (loss)6,893
 1,775
 1,782
 (1,513)
Other expense:       
Interest expense, net15,638
 13,805
 30,869
 27,200
Change in fair value of equity linked liabilities5,216
 3,064
 (4,784) (375)
Loss (gain) on dispositions51
 (13) (25) (318)
Total other expense20,905
 16,856
 26,060
 26,507
Loss from continuing operations before income taxes(14,012) (15,081) (24,278) (28,020)
Income tax expense(154) (43) (170) (91)
Loss from continuing operations(14,166) (15,124) (24,448) (28,111)
Loss from discontinued operations, net of income taxes(1,500) (15) (1,500) (45)
Net loss(15,666) (15,139) (25,948) (28,156)
Accrued dividends on preferred stock(3,068) (2,756) (6,025) (5,413)
Loss attributable to common stockholders$(18,734) $(17,895) $(31,973) $(33,569)
        
Basic loss per share:       
Loss from continuing operations$(0.13) $(0.14) $(0.24) $(0.26)
Loss from discontinued operations(0.01) —
 (0.01) —
Basis loss per share$(0.14) $(0.14) $(0.25) $(0.26)
        
Diluted loss per share:       
Loss from continuing operations$(0.13) $(0.14) $(0.27) $(0.26)
Loss from discontinued operations(0.01) —
 (0.01) —
Diluted loss per share$(0.14) $(0.14) $(0.28) $(0.26)
        
Weighted average number of common shares outstanding:       
Basic128,779
 128,038
 128,446
 127,906
Diluted128,779
 128,038
 130,499
 130,158

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BIOSCRIP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
 (in thousands)


 Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit
Balance at December 31, 2018$—
 $13
 $(950) $618,137
 $(761,204) $(144,004)
Exercise of stock options, vesting of restricted stock and related tax withholdings—
 —
 (386) 253
 —
 (133)
Accrued dividends on preferred stock—
 —
 —
 (2,957) —
 (2,957)
Stock-based compensation—
 —
 —
 1,034
 —
 1,034
Net loss—
 —
 —
 —
��(10,282) (10,282)
Balance at March 31, 2019$—
 $13
 $(1,336) $616,467
 $(771,486) $(156,342)
Exercise of stock options, vesting of restricted stock and related tax withholdings—
 —
 (386) —
   (386)
Accrued dividends on preferred stock—
 —
 —
 (3,068)   (3,068)
Stock-based compensation—
 —
 —
 936
   936
Net loss—
 —
 —
   (15,666) (15,666)
Balance at June 30, 2019$—
 $13
 $(1,722) $614,335
 $(787,152) $(174,526)
            
 Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit
Balance at December 31, 2017$—
 $13
 $(16) $624,762
 $(709,511) $(84,752)
Exercise of stock options, vesting of restricted stock and related tax withholdings—
 —
 (338) 41
   (297)
Accrued dividends on preferred stock—
 —
   (2,657)   (2,657)
Stock-based compensation—
 —
   511
   511
Net loss—
 —
     (13,017) (13,017)
Balance at March 31, 2018$—
 $13
 $(354) $622,657
 $(722,528) $(100,212)
Exercise of stock options, vesting of restricted stock and related tax withholdings—
 —
 27
 94
   121
Accrued dividends on preferred stock—
 —
   (2,756)   (2,756)
Stock-based compensation—
 —
   1,020
   1,020
Net loss—
 —
     (15,139) (15,139)
Balance at June 30, 2018  $13
 $(327) $621,015
 $(737,667) $(116,966)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


BIOSCRIP,OPTION CARE HEALTH, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)IN THOUSANDS)
Six Months Ended 
 June 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(27,578) $(17,315) 
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization expense41,813  21,591  
Non-cash operating lease costs11,240  6,182  
Deferred income taxes - net598  (7,912) 
Amortization of deferred financing costs2,764  1,635  
Loss on interest rate swaps upon discontinuing hedge accounting3,746  —  
Equity in earnings of joint ventures(1,574) (1,192) 
Stock-based incentive compensation expense1,418  1,153  
Other adjustments(769) 61  
Changes in operating assets and liabilities:
Accounts receivable, net4,194  26,050  
Inventories(33,239) 8,321  
Prepaid expenses and other current assets1,199  6,527  
Accounts payable36,422  (18,692) 
Accrued compensation and employee benefits1,977  (7,338) 
Accrued expenses and other current liabilities13,767  7,609  
Operating lease liabilities(9,382) (5,442) 
Other noncurrent assets and liabilities6,794  1,168  
Net cash provided by operating activities53,390  22,406  
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment(9,269) (8,502) 
Other investing cash flows541  636  
Net cash used in investing activities(8,728) (7,866) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions to related parties—  (2,000) 
Exercise of stock options, vesting of restricted stock, and related tax withholdings(645) —  
Repayments of debt principal(4,625) (2,076) 
Other financing cash flows11,651  —  
Net cash provided by (used in) financing activities6,381  (4,076) 
NET INCREASE IN CASH AND CASH EQUIVALENTS51,043  10,464  
Cash and cash equivalents - beginning of the period67,056  36,391  
CASH AND CASH EQUIVALENTS - END OF PERIOD$118,099  $46,855  
Supplemental disclosure of cash flow information:
   Cash paid for interest$53,199  $15,156  
   Cash paid for income taxes$1,887  $1,060  
Cash paid for operating leases$13,388  $9,299  
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
6
 Six Months Ended 
 June 30,
 2019 2018
Cash flows from operating activities:   
Net loss$(25,948) $(28,156)
Less: Loss from discontinued operations, net of income taxes(1,500) (45)
Loss from continuing operations(24,448) (28,111)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:   
Depreciation and amortization9,738
 12,852
Amortization of operating lease right-of-use assets2,456
 —
Amortization of deferred financing costs and debt discount4,064
 4,071
Change in fair value of equity linked liabilities4,784
 (375)
Change in deferred income taxes36
 56
Stock-based compensation2,160
 1,809
Paid-in-kind interest capitalized as principal on Second Lien Note Facility8,383
 —
Gain on dispositions(25) (318)
Changes in assets and liabilities   
Accounts receivable(3,217) (11,397)
Inventory(1,112) 12,759
Prepaid expenses and other assets1,401
 10,054
Operating lease liabilities(2,817) —
Accounts payable6,342
 (16,702)
Amounts due to plan sponsors(384) (2,437)
Accrued interest(46) 23
Accrued expenses and other liabilities(11,238) (2,566)
Net cash used in operating activities from continuing operations(3,923) (20,282)
Net cash used in operating activities from discontinued operations—
 (45)
Net cash used in operating activities(3,923) (20,327)
Cash flows from investing activities:   
Purchases of property and equipment, net(3,246) (6,946)
Net cash used in investing activities(3,246) (6,946)
Cash flows from financing activities:   
Borrowings on long-term debt, net of expenses8,000
 10,000
Repayments of finance leases(460) (1,185)
Net activity from exercises of employee stock awards(519) (179)
Net cash provided by financing activities7,021
 8,636
Net change in cash, cash equivalents and restricted cash(148) (18,637)
Cash, cash equivalents and restricted cash - beginning of period18,860
 44,407
Cash, cash equivalents and restricted cash - end of period$18,712
 $25,770
SUPPLEMENTAL CASH FLOW INFORMATION:   
Cash paid during the period for interest$18,544
 $23,146
Cash paid during the period for income taxes, net of refunds$—
 $51
NON-CASH INVESTING AND FINANCING ACTIVITIES:   
Paid-in-kind interest capitalized as principal on Second Lien Note Facility$8,383
 $—
Table of Contents


See accompanying NotesOPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
Preferred StockCommon StockTreasury StockPaid-in CapitalManagement Notes ReceivableAccumulated DeficitAccumulated Other Comprehensive (Loss)
Income		Total Stockholders’ Equity
Balance - December 31, 2018$—  $14  $—  $619,621  $(1,619) $(16,035) $844  $602,825  
Interest on management notes receivable—  —  —  —  (21) —  —  (21) 
Stockholders' redemption—  —  —  (2,000) —  —  —  (2,000) 
Stock-based incentive compensation—  —  —  584  —  —  —  584  
Net loss—  —  —  —  —  (3,712) —  (3,712) 
Other comprehensive loss—  —  —  —  —  —  (505) (505) 
Balance - March 31, 2019$—  $14  $—  $618,205  $(1,640) $(19,747) $339  $597,171  
Interest on management notes receivable—  —  —  —  (18) —  —  (18) 
Stockholders' redemption—  —  —  (371) 371  —  —  —  
Stock-based incentive compensation—  —  —  569  —  —  —  569  
Net loss—  —  —  —  —  (13,603) —  (13,603) 
Other comprehensive income—  —  —  —  —  —  27  27  
Balance - June 30, 2019$—  $14  $—  $618,403  $(1,287) $(33,350) $366  $584,146  
Balance - December 31, 2019$—  $18  $(2,403) $1,008,362  $—  $(91,955) $(7,195) $906,827  
Exercise of stock options, vesting of restricted stock and related tax withholdings—  —  —  (549) —  —  —  (549) 
Stock-based incentive compensation—  —  —  757  —  —  —  757  
Net loss—  —  —  —  —  (19,910) —  (19,910) 
Other comprehensive loss—  —  —  —  —  —  (16,632) (16,632) 
Balance - March 31, 2020—  18  (2,403) 1,008,570  —  (111,865) (23,827) 870,493  
Exercise of stock options, vesting of restricted stock and related tax withholdings—  —  —  (96) —  —  —  (96) 
Stock-based incentive compensation—  —  —  661  —  —  —  661  
Net loss—  —  —  —  —  (7,668) —  (7,668) 
Other comprehensive income—  —  —  —  —  —  4,576  4,576  
Balance - June 30, 2020$—  $18  $(2,403) $1,009,135  $—  $(119,533) $(19,251) $867,966  
The notes to Unaudited Condensed Consolidated Financial Statements.unaudited condensed consolidated financial statements are an integral part of these statements.

7
BIOSCRIP,
Table of Contents
OPTION CARE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 —1. NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS
Corporate Organization and Business— HC Group Holdings II, Inc. (“HC II”) was incorporated under the laws of the State of Delaware on January 7, 2015, with its sole shareholder being HC Group Holdings I, LLC. (“HC I”). On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion Services, Inc. and its subsidiaries from Walgreen Co., and the business was rebranded as Option Care (“Option Care”).
We areOn March 14, 2019, HC I and HC II entered into a definitive agreement (the “Merger Agreement”) to merge with and into a wholly-owned subsidiary of BioScrip, Inc. (“BioScrip”), a national provider of infusion and home care management solutions, along with nearly 67 service locations aroundcertain other subsidiaries of BioScrip and HC II. The merger contemplated by the U.S. We partnerMerger Agreement (the “Merger”) was completed on August 6, 2019 (the “Merger Date”). The Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations with physicians, hospital systems, payors, pharmaceutical manufacturers and skilled nursing facilities to provide patients access to post-acute care services. We operate with a commitment to bring customer-focused pharmacy and related healthcare infusion therapy services into the home or alternate-site setting. By collaborating with the full spectrum of healthcare professionals and the patient, we aim to provide cost-effective care that is driven by clinical excellence, customer service and values that promote positive outcomes and an enhanced quality of life for those whom we serve.
Option Care Enterprises, Inc. Merger Agreementbeing considered the accounting acquirer and BioScrip being considered the legal acquirer.
On March 14, 2019 we entered into a definitive merger agreement with the shareholder of Option Care Enterprises, Inc. (“Option Care”), the nation’s largest independent provider of home and alternate treatment site infusion therapy services. Under the terms of the merger agreement, the Company will issue newMerger Agreement, shares of itsHC II common stock issued and outstanding immediately prior to the Option Care’s shareholderMerger Date were converted into 135,565,392 shares of BioScrip common stock, par value $0.0001 (the “BioScrip common stock”). BioScrip also issued an additional 7,048,357 shares to HC I in respect of certain outstanding unvested contingent restricted stock units of BioScrip, which are held in escrow to prevent dilution related to potential additional vesting on certain share-based instruments. See Note 16, Stockholders’ Equity, for additional discussion of these shares held in escrow. In conjunction with the Merger, holders of BioScrip preferred shares and certain warrants received 864,603 additional shares of BioScrip common stock and preferred shares were repurchased for $125.8 million of cash. In addition, all legacy BioScrip debt was settled for $575.0 million. As a non-taxable exchange, which will result in BioScrip shareholders holdingof the Merger, BioScrip’s stockholders hold approximately 20%19.3% of the combined company. The shareholder of Option Care has secured committed financing, the proceeds of which will be used to retire the Company’s First Lien Note Facility, Second Lien Note Facilitycompany, and 2021 Notes at the closeHC I holds approximately 80.7% of the transaction.combined company. Following the close of the transaction, BioScrip was rebranded as Option Care Health, Inc. (“Option Care Health”, or the “Company”). The combined company commoncompany’s stock will continue to beis listed on the Nasdaq Global Market. The transaction is currently expected to close inSelect Market as of June 30, 2020. See Note 3, Business Acquisitions, for further discussion on the third quarter of 2019.Merger.
Basis of Presentation
These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, and other information included in the Annual Report on Form 10-K of BioScrip, Inc.Option Care Health, and its wholly-owned subsidiaries, (the “Company”)provides infusion therapy and other ancillary health care services through a national network of 104 full service pharmacies. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the year ended December 31, 2018 (the “Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”). These Unaudited Condensed Consolidated Financial Statementspatients’ homes or other nonhospital settings. The Company operates in one segment, infusion services.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordanceconformity with U.S. generally accepted accounting principles (“GAAP”) in the United States and contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for interim financial information, andreporting. The results of operations for the instructions to Form 10-Q and Article 10interim periods presented are not necessarily indicative of Regulation S-X promulgated under the Securities Exchange Actresults of 1934, as amended (the “Exchange Act”). Accordingly, theyoperations for the entire year. These unaudited condensed consolidated financial statements do not include all of the information and footnotesnotes to the financial statements required by GAAP for complete financial statements.statements and should be read in conjunction with the 2019 audited consolidated financial statements, including the notes thereto, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2020.
Principles of Consolidation — The Company’s unaudited condensed consolidated balance sheet data as of December 31, 2018 was derived from audited financial statements but does not include all disclosures required by GAAP.
The information furnished in these Unaudited Condensed Consolidated Financial Statements reflects all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the interim periods presented require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes and are not necessarily indicative of the results that may be expected for the full year.
Principles of Consolidation
The Unaudited Condensed Consolidated Financial Statements include the accounts of the CompanyOption Care Health, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactionsThe BioScrip results have been included in the consolidated financial results since the Merger Date. All intercompany transactions and balances are eliminated in consolidation.
Reclassifications
Certain prior period financial statement amounts have been reclassified to conform to current period presentation. Additionally, certain amountsThe Company has investments in companies that are 50% owned and are accounted for as equity-method investments. The Company’s share of earnings from equity-method investments is included in the Unaudited Condensed Consolidated Statementsline entitled “Equity in earnings of Operations have been reclassified to includejoint ventures” in the presentationconsolidated statements of operating expenses and operatingcomprehensive income (loss). See Note 10, Equity-Method Investments, for further discussion of the Company’s equity-method investments.
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NOTE 2 —
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LeasesCash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

We have lease agreements for facilities, warehouses, office space,In April 2020, the Company received $11.7 million in Coronavirus Aid, Relief, and property and equipment. We determine if an arrangement is a lease at inception. Operating leasesEconomic Security Act (“CARES Act”) grant funds from the federal government, which are included in operating lease right-of-use assets (“ROU assets”)cash and operating lease

cash equivalents in the Company’s unaudited condensed consolidated balance sheet as of June 30, 2020. The $11.7 million is reflected in the second quarter as a cash inflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows. The $11.7 million has been recorded as a component of accrued expenses and other current liabilities in ourthe Company’s unaudited condensed consolidated balance sheets. Finance leases are included in propertysheet as of June 30, 2020 as the Company intends to return these funds as unused to the federal government.
Concentrations of Business Risk — The Company generates revenue from managed care contracts and equipment and long-term debt in our consolidated balance sheets.
ROU assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of unpaid lease payments. As the majority of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the lease commencement date to determine the present value of unpaid lease payments. ROU assets represent our right to use underlying assets and are recorded as operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of ROU assets. Tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use assetother agreements with commercial third-party payers. Revenue related to the lease. These are amortized throughCompany’s largest payer was approximately 16% and 15% for the right-of-use asset as reductionsthree and six months ended June 30, 2020. Revenue related to the Company’s largest payer was approximately 18% and 21% for the three and six months ended June 30, 2019, respectively. In December 2019, the Company renewed and expanded its multi-year contract with this payer. The contract renewal was effective in February 2020 for a two-year term and auto-renews at the end of expense overthat term. There were no other managed care contracts that represent greater than 10% of revenue for the lease term.periods presented.

Our leases typically contain rent escalations overFor the expected lease term. We recognize expense for these leases on a straight-line basis over the expected lease term. We review the terms of any renewal options to determine if it is reasonably certain that they will be exercised, however we generally conclude that our expected lease term is the minimum noncancellable periodthree and six months ended June 30, 2020, approximately 12% and 12%, respectively, of the lease.

We have lease agreements with both leaseCompany’s revenue was reimbursable through direct government healthcare programs, such as Medicare and non-lease components, which we electedMedicaid. For the three and six months ended June 30, 2019, approximately 13% and 13%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of June 30, 2020 and December 31, 2019, respectively, approximately 13% and 12%, respectively, of the Company’s accounts receivable was related to accountthese programs. Governmental programs pay for as single lease components for all asset classes. Leases with an initial term of 12 months or lessservices based on fee schedules and rates that are not recorded on the balance sheet and are expensed on a straight-line basis overdetermined by the related leasegovernmental agency. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term. Our lease agreements do
The Company does not containrequire its patients nor other payers to carry collateral for any material residual value guaranteesamounts owed for goods or material restrictive covenants.services provided. Other than as discussed above, concentration of credit risk relating to trade accounts receivable is limited due to the Company’s diversity of patients and payers. Further, the Company generally does not provide charity care.

For the three and six months ended June 30, 2020, approximately 72% and 72%, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors. For the three and six months ended June 30, 2019, approximately 73% and 74%, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors. Although there are a limited number of suppliers, the Company believes that other vendors could provide similar products on comparable terms. However, a change in suppliers could cause delays in service delivery and possible losses in revenue, which could adversely affect the Company’s financial condition or operating results. Although there is uncertainty regarding the COVID-19 pandemic, as of June 30, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.
Recently-Adopted Accounting Pronouncements Recently Adopted

We adopted ASU 2016-02, Leases, on January 1, 2019. The standard requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet and disclosure of key information about leasing arrangements. We elected the optional transition method to apply the standard as of the effective date and therefore, we did not apply the standard to the comparative periods presented in our financial statements. We elected the transition package of three practical expedients permitted within the standard, which eliminates the requirement to reassess prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.

Adoption of the new standard resulted in the recording of operating lease liabilities and corresponding ROU assets of $25.9 million as of January 1, 2019. Additionally, existing net liabilities for prepayments or accrued lease payments, initial direct costs and lease incentives of $5.0 million were reclassified as an offset to the ROU assets on January 1, 2019, resulting in net initial ROU assets of $20.9 million. The standard did not materially impact our consolidated statements of operations or cash flows.

We adopted ASU 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, on January 1, 2019. ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13— Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurements. ASU 2018-13 modifies fair value measurement disclosure requirements. The effective date for ASU 2018-13 is for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s disclosures to the consolidated financial statements.

— In June 2016, the FASB issued ASU 2016-13—2016-13, Financial Instruments—Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The amendmentsAmendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and

reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning January 1, 2020,after December 15, 2019, and is to be applied using a modified retrospective transition method. Earlier adoption is permitted.The Company adopted the standard as of January 1, 2020. The adoption of this standard isdid not expected to have a material impact on the Company’s consolidated financial statements.

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NOTE3. BUSINESS ACQUISITIONS
Merger with BioScrip, Inc. — As discussed in Note 1, Nature of Operations and Presentation of Financial Statements, Option Care merged with BioScrip on August 6, 2019. BioScrip was a national provider of infusion and home care management solutions. The Merger of Option Care and BioScrip into Option Care Health creates an expanded national platform and the opportunity to drive economies of scale through procurement savings, facility rationalization and other operating cost savings.
The fair value of purchase consideration transferred on the closing date includes the value of the number of shares of the combined company owned by BioScrip shareholders at closing of the Merger, the value of common shares issued to certain warrant and preferred shareholders in conjunction with the Merger, the fair value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger. The fair value per share of BioScrip’s common stock was $2.67 per share. This is the closing price of the BioScrip common stock on August 6, 2019.
Under the acquisition method of accounting, the calculation of total consideration exchanged is as follows (in thousands):
Amount
Number of BioScrip common shares outstanding at time of the Merger (1)129,181 
Common shares issued to warrant and preferred stockholders at time of the Merger (1)3,458 
Total shares of BioScrip common stock outstanding at time of the Merger (1)132,639 
BioScrip share price as of August 6, 2019$2.67 
Fair value of common shares$354,146 
Fair value of share-based instruments$32,898 
Cash paid in conjunction with the Merger included in purchase consideration$714,957 
Fair value of total consideration transferred$1,102,001 
Less: cash acquired$14,787 
Fair value of total consideration acquired, net of cash acquired$1,087,214 
(1) These shares were not adjusted for the one share for four share reverse stock split effective on February 3, — NET2020. See Note 16, Stockholders’ Equity, for further discussion on the one share for four share reverse stock split.
Cash paid in conjunction with the Merger includes payments made for settlement of $575.0 million in legacy BioScrip debt, $125.8 million in existing BioScrip preferred shares, and $14.1 million in legacy BioScrip success-based fees owed to third-party advisors. HC II financed these payments primarily through cash on hand and debt financing.
The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Merger is based on estimated fair values as of the Merger Date. As of June 30, 2020 the Company has finalized the valuation of the acquisition. The following is an allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, in the Merger as of August 6, 2019 (in thousands):
Amount
Accounts receivable, net (1)$96,532 
Inventories (2)19,683 
Property and equipment, net (3)48,732 
Intangible assets, net (4)193,245 
Deferred tax assets, net of deferred tax liabilities (5)26,731 
Operating lease right-of-use asset (6)22,378 
Operating lease liability (6)(28,897)
Accounts payable (7)(66,668)
Other assumed liabilities, net of other acquired assets (7)(20,663)
Total acquired identifiable assets and liabilities291,073 
Goodwill (8)796,141 
Total consideration transferred$1,087,214 
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(1)Management has valued accounts receivables based on the estimated future collectability of the receivables portfolio.
(2)Inventories are stated at fair value as of the Merger Date.
(3)The fair value of the property and equipment was determined based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison, and income capitalization approaches for each property appraised.
(4)The allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):
Fair ValueWeighted Average Estimated Life (in years)
Trademarks/Names$12,536  2
Patient referral sources180,329  20
Licenses380  1.5
Total intangible assets, net$193,245  18.8
The Company valued trademarks/names utilizing the relief of royalty method and patient referral sources utilizing the multi-period excess earnings method, a form of the income approach.
(5)Net deferred tax assets represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. See Note 5, Income Taxes, for additional discussion of the Company’s combined income tax position subsequent to the Merger.
(6)The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was based on current market rates available to the Company.
(7)Accounts payable as well as certain other current and non-current assets and liabilities are stated at fair value as of the Merger Date.
(8)The Merger resulted in $796.1 million of goodwill, which is attributable to cost synergies resulting from procurement and operational efficiencies and elimination of duplicative administrative costs. The goodwill created in the Merger is not expected to be deductible for tax purposes.
Assuming BioScrip had been acquired as of January 1, 2018, and the results of BioScrip had been included in operations beginning on January 1, 2018, the unaudited pro forma results of operations for the three and six months ended June 30, 2019 were net revenue of $688.8 million and $1,344.2 million, respectively, and net loss of $13.5 million and $35.5 million, respectively. The pro forma net loss adjusts for the effect of fair value adjustments related to the Merger, transaction costs and other non-recurring costs directly attributable to the Merger and the impact of the additional debt to finance the Merger. Unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or the future operating results.
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4. REVENUE AND ACCOUNTS RECEIVABLE

The following table presents our disaggregatedsets forth the net revenue earned by category of payer for each associated payor classthe three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Commercial payers$642,726  $439,747  $1,248,720  $847,554  
Government payers95,124  52,062  181,395  114,595  
Patients2,998  5,457  16,173  11,609  
Net revenue$740,848  $497,266  $1,446,288  $973,758  
5. INCOME TAXES
During the three and six months ended June 30, 2020, the Company recorded tax expense of $0.5 million and $1.5 million, respectively, which represents an effective tax rate of (6.5)% and (5.8)%, respectively. During the three and six months ended June 30, 2019 the Company recorded a tax benefit of $5.4 million and $6.8 million, respectively, which represents an effective tax rate of 28.5% and 28.3%, respectively.
The Company continues to maintain a full valuation allowance against all of its net U.S. federal and state deferred tax assets with the exception of $0.7 million of estimated state net operating losses (“NOL”). SalesIn assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities, including the effect in available carryback and usage-based taxes are excluded from net revenue.carryforward periods, projected taxable income and tax-planning strategies, in making this assessment. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.
Based on the Company’s full valuation allowance, as noted above, the Company’s tax expense for the three and six months ended June 30, 2020 of $0.5 million and $1.5 million consists of quarterly tax liabilities attributable to specific state tax returns as well as recognized deferred tax expense.
  Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
 Commercial $174,461
 $152,251
 $324,156
 $292,792
 Government 15,872
 22,397
 43,832
 48,939
 Patient 1,184
 1,141
 2,485
 2,642
 Total Net Revenue $191,517
 $175,789
 $370,473
 $344,373

Net Revenue Concentration
No single payor accountedThe Company recorded no income tax expense or benefit for more than 10.0% of revenue during the three or six months ended June 30, 2020 and 2019 or 2018.associated with the tax provisions of the CARES Act.
Collectability
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Table of Accounts ReceivableContents

6. (LOSS) EARNINGS PER SHARE
The following table sets forthCompany presents basic and diluted (loss) earnings per share for its common stock. Basic (loss) earnings per share is calculated by dividing the agingnet (loss) income of our net accounts receivable, aged based on datethe Company by the weighted average number of serviceshares of common stock outstanding during the period. Diluted (loss) earnings per share is determined by adjusting the profit or loss and categorized based on the three primary payor groups (in thousands):weighted average number of shares of common stock outstanding for the effects of all dilutive potential common shares.
  June 30, 2019 December 31, 2018
  0 - 180 days Over 180 days Total 0 - 180 days Over 180 days Total
Government $15,121
 $4,891
 $20,012
 $17,849
 $6,098
 $23,947
Commercial 74,369
 13,862
 88,231
 67,288
 14,740
 82,028
Patient 4,313
 5,525
 9,838
 2,092
 6,797
 8,889
Accounts receivable, net $93,803
 $24,278
 $118,081
 $87,229
 $27,635
 $114,864

NOTE 4 — LEASES

Operating lease costsAs a result of $1.8 million, including short-term leases,the Merger, which has been accounted for as a reverse merger, all historical per share data and number of shares and equity awards were retroactively adjusted. The (loss) earnings is used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. Accordingly, the computation of diluted shares for the three months ended June 30, 2019 and $3.7 million for the six months ended June 30, 20192020 excludes the effect of shares that would be issued in connection with stock options and restricted stock awards, as their inclusion would be anti-dilutive to the loss per share. As of June 30, 2020 there were 2,328,120 warrants, 497,517 stock options and 562,575 restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive. There are included in general and administrative expenses in the Condensed Consolidated Statements of Operations. Finance lease costs consisting of depreciation and amortization and interest were nominal during0 dilutive potential common shares for the three and six months ended June 30, 2019.

The following table presents the Company’s basic and diluted (loss) earnings per share and shares outstanding (in thousands, except per share data):
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Numerator:  
Net loss$(7,668) $(13,603) $(27,578) $(17,315) 
Denominator:  
Weighted average number of common shares outstanding176,711  142,614  176,686  142,614  
Loss per Common Share:
Loss per common share, basic and diluted$(0.04) $(0.10) $(0.16) $(0.12) 
7. LEASES
Lease term and discount rateJune 30, 2019
Weighted-average remaining lease term (years)
Operating leases5.3
Weighted-average discount rate
Operating leases10.97%
During the three and six months ended June 30, 2020, the Company incurred operating lease expenses of $7.6 million and $15.3 million, respectively, including short-term lease expense, which were included as a component of selling, general and administrative expense in the unaudited condensed consolidated statements of comprehensive income (loss). During the three and six months ended June 30, 2019, the Company incurred operating lease expense of $5.6 million and $10.8 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss). As of June 30, 2020, the weighted-average remaining lease term was 5.2 years and the weighted-average discount rate was 5.48%.

Operating leases mature as follows (in thousands):
Fiscal Year Ending December 31,Minimum Payments
2020$11,895  
202119,591  
202214,192  
202310,774  
20248,009  
Thereafter18,328  
Total lease payments$82,789  
Less: Interest13,538  
Present value of lease liabilities$69,251  
Supplemental cash flow information Six Months Ended 
 June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities  
Operating cash flows from operating leases $2,022
Financing cash flows from finance leases $460

WeDuring the three and six months ended June 30, 2020, the Company did not enter into any significant new operating leases or finance leases duringfinancing leases. As of June 30, 2020, the Company has entered into 1 build-to-suit lease agreement for a term of 15 years that has not yet commenced. The lease will require minimum lease payments over its life of approximately $22.9 million.
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8. PROPERTY AND EQUIPMENT
Property and equipment was as follows as of June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020December 31, 2019
Infusion pumps$33,546  $30,416  
Equipment, furniture and other48,177  51,454  
Leasehold improvements79,589  80,916  
Computer software, purchased and internally developed35,079  34,884  
Assets under development6,521  14,150  
202,912  211,820  
Less: accumulated depreciation85,283  78,622  
Property and equipment, net$117,629  $133,198  
Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income (loss), depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Depreciation expense in cost of revenue$1,747  $691  $3,489  $1,471  
Depreciation expense in operating expenses9,412  5,255  20,731  10,328  
Total depreciation expense$11,159  $5,946  $24,220  $11,799  
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9. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill consists of the following activity for the three and six months ended June 30, 2020 (in thousands):
Balance at December 31, 2019$1,425,542 
Purchase accounting adjustments2,341 
Balance at March 31, 2020$1,427,883 
Purchase accounting adjustments727
Balance at June 30, 2020$1,428,610 
There was no change in the carrying amount of goodwill for the three or six months ended June 30, 2019.


Maturities of lease liabilities      
(in thousands) Operating leases Finance leases Total
2019 $3,932
 $538
 $4,470
2020 6,963
 638
 7,601
2021 6,100
 —
 6,100
2022 4,872
 —
 4,872
2023 3,592
 —
 3,592
After 2023 7,088
 —
 7,088
Total future minimum lease payments 32,547
 1,176
 $33,723
Less: interest 7,981
 44
  
Present value of lease liabilities $24,566
 $1,132
  

AsThe carrying amount and accumulated amortization of June 30, 2019, we had no significant additional operating or finance leases that had not yet commenced.

Prior tointangible assets consists of the adoption of ASU 2016-02, Leases, on January 1, 2019, maturities of lease liabilities included certain variable non-lease components, which are excluded from maturities of lease liabilitiesfollowing as of June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020December 31, 2019
Gross intangible assets:
Referral sources$438,121  $438,121  
Trademarks/names44,536  44,536  
Other amortizable intangible assets402  402  
Total gross intangible assets483,059  483,059  
Accumulated amortization:
Referral sources(97,396) (84,295) 
Trademarks/names(16,946) (12,748) 
Other amortizable intangible assets(236) (106) 
Total accumulated amortization(114,578) (97,149) 
Total intangible assets, net$368,481  $385,910  
Amortization expense for intangible assets was $8.8 million and $17.6 million for the three and six months ended June 30, 2020, respectively. Amortization expense for intangible assets was $4.9 million and $9.8 million for the three and six months ended June 30, 2019, respectively.
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10. EQUITY-METHOD INVESTMENTS
The Company’s 2 equity-method investments totaled $18.0 million and $17.0 million as of June 30, 2020 and December 31, 2019, respectively, and are included in other noncurrent assets in the accompanying condensed consolidated balance sheets. The Company’s related proportionate share of earnings is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). For the three and six months ended June 30, 2020, the Company’s proportionate share of earnings in its investments was $1.0 million and $1.6 million, respectively. For the three and six months ended June 30, 2019, the Company’s proportionate share of earnings in its investment was $0.6 million and $1.2 million, respectively.
Legacy Health Systems — The Company’s 50% ownership interest in this limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Portland, Oregon market. In 2005, Option Care’s initial cash investment in this joint venture was $1.3 million. The Company received a capital distribution from this investment of $0 and $0.5 million for the three and six months ended June 30, 2020. The Company did 0t receive a capital distribution from this investment for the three or six months ended June 30, 2019. As previously disclosedThe following presents condensed financial information as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019 (in thousands).
Consolidated statements of comprehensive income (loss) data:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net revenue$6,520  $4,789  $12,011  $9,396  
Cost of revenue4,772  3,432  8,712  6,799  
Gross profit1,748  1,357  3,299  2,597  
Net income633  257  1,150  507  
Equity in net income316  129  574  254  
Consolidated balance sheet data:
As of
June 30, 2020December 31, 2019
Current assets$8,401  $7,643  
Noncurrent assets3,387  3,846  
Current liabilities1,213  903  
Noncurrent liabilities498  659  

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Vanderbilt Health Services — The Company’s 50% ownership interest in our 2018 Annual Report on Form 10-K, maturitiesthis limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Nashville, Tennessee market. In 2009, Option Care contributed both cash and certain operating assets into the joint venture for a total initial investment of lease liabilities are$1.1 million. The following presents condensed financial information as followsof June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019 (in thousands).
Consolidated statements of comprehensive income (loss) data:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net revenue$11,972  $9,925  $22,480  $19,163  
Cost of revenue9,341  7,468  17,981  14,517  
Gross profit2,631  2,457  4,499  4,646  
Net income1,391  1,028  1,999  1,876  
Equity in net income696  514  1,000  938  
Consolidated balance sheet data:
As of
June 30, 2020December 31, 2019
Current assets$14,684  $11,111  
Noncurrent assets1,699  2,033  
Current liabilities2,680  1,228  
Noncurrent liabilities745  956  
11. INDEBTEDNESS
Long-term debt consisted of the following as of June 30, 2020 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
ABL facility$—  $—  $—  $—  
First lien term loan920,375  (7,836) (21,295) 891,244  
Second lien notes412,256  (11,269) (7,596) 393,391  
$1,332,631  $(19,105) $(28,891) 1,284,635  
Less: current portion(9,250) 
Total long-term debt$1,275,385  
Long-term debt consisted of the following as of December 31, 2018:

Maturities of lease liabilities      
(in thousands) Operating leases Finance leases Total
2019 $8,934
 $679
 $9,613
2020 7,143
 311
 7,454
2021 6,252
 —
 6,252
2022 4,797
 —
 4,797
2023 3,320
 —
 3,320
After 2023 7,470
 —
 7,470
Total future minimum lease payments $37,916
 $990
 $38,906




NOTE 5 — DEBT
Debt consisted of the following2019 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
ABL facility$—  $—  $—  $—  
First lien term loan925,000  (8,399) (22,825) 893,776  
Second lien notes412,256  (11,672) (7,864) 392,720  
$1,337,256  $(20,071) $(30,689) 1,286,496  
Less: current portion(9,250) 
Total long-term debt$1,277,246  
The interest rate on the first lien term loan was 4.68% and 6.20% as of June 30, 2020 and December 31, 2019, respectively. The weighted average interest rate incurred on the first lien term loan was 5.02% and 5.60% for the three and six months ended June 30, 2020. The weighted average interest rate incurred on the previous first lien term loan was 6.22% and 6.24% for the three and six months ended June 30, 2019. The interest rate on the second lien notes was 10.25% and 10.66% as of June 30, 2020 and December 31, 2019, respectively. The weighted average interest incurred on the second lien notes was 10.33% and 10.44% for the three and six months ended June 30, 2020. The weighted average interest incurred on the previous second lien term loan was 11.34% and 11.45% for the three and six months ended June 30, 2019.
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 June 30, 2019 December 31, 2018
First Lien Note Facility, net of unamortized discount207,209
 198,962
Second Lien Note Facility, net of unamortized discount120,017
 108,931
2021 Notes, net of unamortized discount198,534
 198,125
Finance leases1,132
 990
Less: Deferred financing costs(1,629) (2,334)
Total debt525,263
 504,674
Less: Current portion of long-term debt(5,879) (3,179)
Long-term debt, net of current portion$519,384
 $501,495
The Company elected to pay-in-kind (“PIK”) the quarterly interest payment due in August 2020, which will result in the Company capitalizing $10.8 million in interest expense to the principal balance of the second lien term loan on the interest payment date. In connection with the PIK election, the Company was charged an additional 1.00% in interest expense during the quarterly interest period.
Debt FacilitiesSubsequent to June 30, 2020, the Company completed a public offering of stock for net proceeds of approximately $118 million. Those proceeds and available cash will be used to prepay $125.0 million of the second lien notes. See Note 18, Subsequent Events, for further discussion.
OnLong-term debt matures as follows (in thousands):
Year Ending December 31,Minimum Payments
2020$4,625  
20219,250  
20229,250  
20239,250  
20249,250  
Thereafter1,291,006  
Total1,332,631  

During the three and six months ended June 29,30, 2020 and 2019, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 12, Derivative Instruments, for further discussion.
The following table presents the estimated fair values of the Company’s debt obligations as of June 30, 2020 (in thousands):
Financial InstrumentCarrying Value as of June 30, 2020Markets for Identical Item (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
First lien term loan$891,244  $—  $892,764  $—  
Second lien notes393,391  —  —  417,910  
Total debt instruments$1,284,635  $—  $892,764  $417,910  
The following table sets forth the changes in Level 3 measurements for the three and six months ended June 30, 2020 (in thousands):
Level 3 Measurements
Second lien notes fair value as of January 1, 2020$411,119 
Change in fair value(71,748)
Second lien notes fair value as of March 31, 2020$339,371 
Change in fair value78,539 
Second lien notes fair value as of June 30, 2020$417,910
See Note 13, Fair Value Measurements, for further discussion.
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12. DERIVATIVE INSTRUMENTS
The Company uses derivative financial instruments for hedging and non-trading purposes to limit the Company’s exposure to increases in interest rates related to its variable interest rate debt. Use of derivative financial instruments in hedging programs subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company’s derivative financial instruments is used to measure interest to be paid or received and does not represent the Company’s exposure due to credit risk. Credit risk is monitored through established approval procedures, including reviewing credit ratings when appropriate.
During 2017, (the “Closing Date”),Option Care entered into interest rate caps that reduce the risk of increased interest payments due to interest rates rising. The hedges offset the risk of rising interest rates through 2020 on the first $250.0 million of the previous first lien term loan. The interest rate caps perfectly offset the terms of the interest rates associated with the variable interest rate previous first lien term loan. Option Care entered into the interest rate caps as a cash flow hedge for a notional amount of $1.9 million. In April 2019, Option Care terminated its interest rate caps.
In August 2019, the Company entered into (i)interest rate swap agreements that reduce the variability in the interest rates on the newly-issued debt obligations. The first interest rate swap for $925.0 million notional was effective in August 2019 with $911.1 million designated as a cash flow hedge against the underlying interest rate on the first lien note purchase agreement (the “First Lien Note Facility”), among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from

timeterm loan interest payments indexed to time party to the agreement (the “First Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the First Lien Note Purchasers (the “First Lien Collateral Agent”), pursuant to which the Company issued first lien senior secured notes in an aggregate principal amount of $200.0 million (the “First Lien Notes”); and (ii) a second lien note purchase agreement (the “Second Lien Note Facility” and, together with the First Lien Note Facility, the “Notes Facilities”) among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from time to time party to the agreement (the “Second Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the Second Lien Note Purchasers (the “Second Lien Collateral Agent” and, together with the First Lien Collateral Agent, the “Collateral Agent”), pursuant to which the Company (a) issued second lien senior secured notes in an aggregate initial principal amount of $100.0 million (the “Initial Second Lien Notes”) and (b) had the ability to draw upon the Second Lien Note Facility and issue second lien delayed draw senior secured notes, which was exercised on June 21, 2018, in an aggregate initial principal amount of $10.0 million, representing the maximum borrowings allowed on this facility (the “Second Lien Delayed Draw Notes” and, together with the Initial Second Lien Notes, the “Second Lien Notes”; the Second Lien Notes, together with the First Lien Notes, the “Notes”). Funds managed by Ares Management L.P. are acting as lead purchasers for the Notes Facilities.
The Company used the proceeds of the sale of the First Lien Notes and the Initial Second Lien Notes to repay in full all amounts outstanding under the Prior Credit Agreements and extinguished the liability. Each of the Prior Credit Agreements was terminated following such repayment. The Company used the remaining proceeds of $15.9 million, net of $0.2 million in issuance costs, from the Notes Facilities and the related private placement of the Company’s common stock for working capital and general corporate purposes.
The First Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to, at the option of the Company, (i) the base rate (defined as the highest of the Federal Funds Rate plus 0.5% per annum, the Prime Rate as published by The Wall Street Journal and the one-month London Interbank Offered Rate (“LIBOR”) (subject to a 1.0% floor) plus 1.0%), or (ii) the one-month LIBOR rate (subject to a 1.0% floor), plus a margin of 6.0% if the base rate is selected or 7.0% if the LIBOR Option is selected.through August 2021. The First Lien Notes mature on August 15, 2020, provided that if the Company’s existing 8.875% Senior Notes due 2021 (the “2021 Notes”) are refinanced prior to August 15, 2020, then the scheduled maturity date of the First Lien Notes shall be June 30, 2022.
The First Lien Notes amortize in equal quarterly installments equal to 0.625% of the aggregate principalremaining $13.9 million notional amount of the First Lien Note Facility, commencing on September 30,interest rate swap is not designated as a hedging instrument. The second interest rate swap of $400.0 million notional was effective in November 2019 and is designated as a cash flow hedge against the underlying interest rate on the last daysecond lien notes interest payments indexed to three-month LIBOR through November 2020.
In May 2020, the Company elected to PIK the second lien note’s quarterly interest payment due in August 2020. Upon making the PIK election, the Company determined that the hedged interest payment would no longer occur, resulting in an ineffective hedge, so the Company discontinued hedge accounting on its $400.0 million notional interest rate swap. As a result, the Company reclassified accumulated comprehensive loss of each third month thereafter,$3.7 million to interest expense, net in the unaudited condensed consolidated statements of comprehensive income (loss). The gains and losses associated with the balance payable at maturity. $400.0 million notional swap will be recognized in net income (loss) through interest expense until the swap expires in November 2020. See Note 11, Indebtedness, for further discussion of the PIK. In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges, the Company has determined that the $911.1 million designated cash flow hedge is perfectly effective.
The First Lien Notes are pre-payable atfollowing table summarizes the amount and location of the Company’s option at specified premiumsderivative instruments in the condensed consolidated balance sheets (in thousands):
Fair value - Derivatives in liability position
DerivativeBalance Sheet CaptionJune 30, 2020December 31, 2019
Interest rate swaps designated as cash flow hedgesAccrued expenses and other current liabilities$—  $1,275  
Interest rate swaps not designated as cash flow hedgesAccrued expenses and other current liabilities3,474  —  
Interest rate swaps designated as cash flow hedgesOther non-current liabilities19,251  5,920  
Interest rate swaps not designated as cash flow hedgesOther non-current liabilities293  90  
Total derivatives$23,018  $7,285  
The gain and loss associated with the changes in the fair value of the effective portion of the hedging instrument are recorded into other comprehensive (loss) income. The gain and loss associated with the changes in the fair value of the $400.0 million notional swap and the $13.9 million notional amount not designated as a hedging instrument are recognized in net income (loss) through interest expense. The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s unaudited condensed consolidated statements of comprehensive income (loss) (in thousands):
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Three Months Ended June 30,Six Months Ended June 30,
Derivative2020201920202019
Interest rate caps designated as cash flow hedges$—  $42  $—  $(705) 
Interest rate swaps designated as cash flow hedges830  —  (15,802) —  
Interest rate swaps that discontinued hedge accounting3,746  —  3,746  —  
$4,576  $42  $(12,056) $(705) 
The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s unaudited condensed consolidated statement of comprehensive income (loss) related to the principal amount that will decline overCompany’s derivative instruments (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
DerivativeIncome Statement Caption2020201920202019
Interest rate caps designated as cash flow hedgesInterest expense$—  $(103) $—  $(286) 
Interest rate swaps designated as cash flow hedgesInterest expense(3,654) —  (4,453) —  
Interest rate swaps not designated as hedgesInterest expense244  —  9  —  
Interest rate swaps that discontinued hedge accountingInterest expense(3,746) —  (3,746) —  
$(7,156) $(103) $(8,190) $(286) 
The Company expects to reclassify $16.6 million of total interest rate costs from accumulated other comprehensive loss against interest expense during the termnext 12 months.
13. FAIR VALUE MEASUREMENTS
Fair value measurements are determined by maximizing the use of observable inputs and minimizing the First Lien Note Facility. Ifuse of unobservable inputs. The hierarchy places the First Lien Noteshighest priority on unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurements) and gives the lowest priority to unobservable inputs (Level 3 measurements). The categories within the valuation hierarchy are prepaid priordescribed as follows:
•Level 1 — Inputs to the second anniversary offair value measurement are quoted prices in active markets for identical assets or liabilities.
•Level 2 — Inputs to the Closing Date,fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
•Level 3 — Inputs to the fair value measurement are unobservable inputs or valuation techniques.
While the Company will be requiredbelieves its valuation methods are appropriate and consistent with other market participants, the use ofdifferent methodologies or assumptions to pay a make-whole premium based ondetermine the presentfair value (using a discount rate based on the specified treasury rate plus 50 basis points) of all remaining interest payments on the First Lien Notes being prepaid prior to the second anniversary of the Closing Date, plus 4.0% of the principal amount of First Lien Notes being prepaid. On or after the second anniversary of the Closing Date, the prepayment premium is 4.0%, which declines to 2.0% on or after the third anniversary of the Closing Date, and declines to 0.0% on or after the fourth anniversary of the Closing Date. At any time, the Company may pre-pay up to $50.0 million in aggregate principal amount of the First Lien Notes from internally generated cash without incurring any make-whole or prepayment premium. The occurrence of certain events of default may increase the applicable rate of interest by 2.0% andfinancial instruments could result in the acceleration of the Company’s obligations under the First Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the First Lien Note Facility.
The First Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the First Lien Note Facility are guaranteed by joint and several guarantees from the Company’s subsidiaries.
In May 2019, the First Lien Note Facility was amended to allow for additional borrowings of up to $8.0 million under terms materially consistent with the existing agreement. The Company drew upon the agreement on May 7, 2019, in an aggregate initial principal amount of $8.0 million, representing the maximum borrowings allowed on this facility.
In connection with the First Lien Note Facility, the Company, its subsidiaries and the First Lien Collateral Agent entered into a First Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “First Lien Guaranty and Security Agreement”). Pursuant to the First Lien Guaranty and Security Agreement, the obligations under the First Lien Notes are secured by first priority liens on, and security interests in, substantially all of the assets of the Company and its subsidiaries.
The Second Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to,different fair value measurement at the option of the Company, (i) one-month LIBOR (subject to a 1.25% floor) plus 9.25% per annum in cash, (ii) one-month LIBOR (subject to a 1.25% floor) plus 11.25% per annum, which amount will be capitalized on each interest payment date, or (iii) one-month LIBORreporting date.

(subject to a 1.25% floor) plus 10.25% per annum, of which one-half LIBOR plus 4.625% per annum will be payable in cash and one-half LIBOR plus 5.625% per annum will be capitalized on each interest payment date, provided that, in each case, if any permitted refinancing indebtedness with which the 2021 Notes are refinanced requires or permits the payment of cash interest, all of the interest on the Second Lien Notes shall be paid in cash. For the six months ended June 30, 2019, $8.4 million of interest was capitalized to the Second Lien Notes, increasing the principal amount to $126.2 million as of June 30, 2019. The Second Lien Notes mature on August 15, 2020, provided that if the 2021 Notes are refinanced prior to August 15, 2020, then the scheduled maturity date of the Second Lien Notes shall be June 30, 2022.
In connection with the Second Lien Note Facility, the Company also issued warrants (the “2017 Warrants”) to the purchasers of the Second Lien Notes pursuant to a Warrant Purchase Agreement dated as of June 29, 2017 (the “Warrant Purchase Agreement”). The 2017 Warrants entitle the purchasers of the Warrants to purchase shares of Common Stock, representing at the time of any exercise of the 2017 Warrants an equivalent number of shares equal to 4.99% of the Common Stock of the Company on a fully diluted basis, subject to the terms of the Warrant Agreement governing the Warrants, dated as of June 29, 2017 (the “Warrant Agreement”). The 2017 Warrants, considered a derivative and subject to remeasurement at each reporting period, are reflected in other non-current liabilities at a fair value of $20.5 million.
The Second Lien Notes are not subject to scheduled amortization installments. The Second Lien Notes are pre-payable at the Company’s option at specified premiums to the principal amount that will decline over theFirst lien term of the Second Lien Note Facility. If the Second Lien Notes are prepaid prior to the third anniversary of the Closing Date, the Company will need to pay a make-whole premium based on the present value (using a discount rate based on the specified treasury rate plus 50 basis points) of all remaining interest payments on the Second Lien Notes being prepaid prior to the third anniversary of the Closing Date, plus 4.0% of the principal amount of Second Lien Notes being prepaid. On or after the third anniversary of the Closing Date, the prepayment premium is 4.0%, which declines to 2.0% on or after the fourth anniversary of the Closing Date, and declines to 0.0% on or after the fifth anniversary of the Closing Date. The occurrence of certain events of default may increase the applicable rate of interest by 2.0% and could result in the acceleration of the Company’s obligations under the Second Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the Second Lien Note Facility.
The Second Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the Second Lien Note Facility are guaranteed by joint and several guarantees from the Company’s subsidiaries.
In connection with the Second Lien Note Facility, the Company, its subsidiaries and the Second Lien Collateral Agent entered into a Second Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “Second Lien Guaranty and Security Agreement”). Pursuant to the Second Lien Guaranty and Security Agreement, the obligations under the Second Lien Notes are secured by second priority liens on, and security interests in, substantially all of the assets of the Company and its subsidies.
In connection with the First Lien Note Facility and the Second Lien Note Facility, the Company, the First Lien Collateral Agent and the Second Lien Collateral Agent, entered into an intercreditor agreement containing customary provisions to, among other things, subordinate the lien priority of the liens granted under the Second Lien Note Facility to the liens granted under the First Lien Note Facility.
2021 Notes
On February 11, 2014, the Company issued $200.0 million aggregate principal amount of the 2021 Notes. The 2021 Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed by all existing and future subsidiaries of the Company.
Interest on the 2021 Notes accrues at a fixed rate of 8.875% per annum and is payable in cash semi-annually on February 15 and August 15 of each year. The debt discount of $5.0 million at issuance is being amortized as interest expense through maturity which will result in the accretion over time of the outstanding debt balance to the principal amount. The 2021 Notes are the Company’s senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness.
The 2021 Notes are guaranteed on a full, joint and several basis by each of the Company’s existing and future domestic restricted subsidiaries that is a borrower under any of the Company’s credit facilities or that guarantees any of the Company’s debt or that of any of its restricted subsidiaries, in each case incurred under the Company’s credit facilities. As of June 30, 2019, the Company does not have any independent assets or operations, and as a result, its direct and indirect subsidiaries (other than minor subsidiaries), each being 100% owned by the Company, are fully and unconditionally, jointly and severally, providing guarantees on a senior unsecured basis to the 2021 Notes.

NOTE 6 — PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Series A Preferred Stock
As of June 30, 2019, the carrying value of Series A Preferred Stock included accrued dividends at 11.5% and discount accretion from the date of issuance. Dividends and discount accretion totaled $0.2 million and $22 thousand, respectively, for the six months ended June 30, 2019 and were recorded as a reduction to additional paid-in capital. The following table sets forth the activity recorded during the six months ended June 30, 2019 related to the Series A Preferred Stock (in thousands)loan:
Series A Preferred Stock carrying value at December 31, 2018$3,231
Dividends and discount accretion through June 30, 2019 1
211
Series A Preferred Stock carrying value at June 30, 2019$3,442
1 Dividends recorded reflect the increase in the Liquidation Preference associated with unpaid dividends.
Series C Preferred Stock
As of June 30, 2019, the carrying value of Series C Preferred Stock included accrued dividends at 11.5% and discount accretion from the date of issuance. Dividends and discount accretion totaled $5.5 million and $0.3 million, respectively, for the six months ended June 30, 2019 and were recorded as a reduction to additional paid-in capital. The following table sets forth the activity recorded during the six months ended June 30, 2019 related to the Series C Preferred Stock (in thousands):
Series C Preferred Stock carrying value at December 31, 2018$90,058
Dividends and discount accretion through June 30, 2019 1
5,814
Series C Preferred Stock carrying value at June 30, 2019$95,872

1 Dividends recorded reflect the increase in the Liquidation Preference associated with unpaid dividends.
As of June 30, 2019, the Liquidation Preference of the Series A Preferred Stock and Series C Preferred Stock was $3.5 million and $100.2 million, respectively.
2017 Warrants
In connection with the Second Lien Note Facility (as defined above), the Company issued the 2017 Warrants to the purchasers of the Second Lien Notes (as defined above) pursuant to a Warrant Purchase Agreement dated as of June 29, 2017 (the “Warrant Purchase Agreement”). The 2017 Warrants entitle the purchasers of the Warrants to purchase shares of Common Stock, representing at the time of any exercise of the 2017 Warrants an equivalent number of shares equal to 4.99% of the Common Stock of the Company on a fully diluted basis, subject to the terms of the Warrant Agreement governing the 2017 Warrants, dated as of June 29, 2017 (the “Warrant Agreement”); provided, however, the 2017 Warrants may not be converted to the extent that, after giving effect to such conversion, the holders of the 2017 Warrants would beneficially own, in the aggregate, in excess of (i) 19.99% of the shares of Common Stock outstanding as of June 29, 2017 (the “Closing Date”) minus (ii) the shares of Common Stock that were sold pursuant to the Second Quarter 2017 Private Placement (the “Conversion Cap”). The Conversion Cap will not apply to the 2017 Warrants if the Company obtains the approval of its stockholders for the removal of the Conversion Cap, which the Company is required to take certain steps to attempt to obtain, subject to the terms of the Warrant Agreement.
The 2017 Warrants have a 10-year term and an initial exercise price of $2.00 per share, and may be exercised by payment of the exercise price in cash or surrender of shares of Common Stock into which the 2017 Warrants are being converted in an aggregate amount sufficient to pay the exercise price.  The exercise price and the number of shares that may be acquired upon exercise of the 2017 Warrants are subject to adjustment in certain situations, including price based anti-dilution protection whereby, subject to certain exceptions, if the Company later issues Common Stock or certain Common Stock Equivalents (as defined in the Warrant Agreement) at a price less than either the then-current market price per share or exercise price of the 2017 Warrants, then the exercise price will be decreased and the percentage of shares of Common Stock issuable upon exercise of the 2017 Warrants will remain the same, giving effect to such issuance. Additionally, the 2017 Warrants have standard anti-dilution protections if the Company effects a stock split, subdivision, reclassification or combination of its Common Stock or fixes a record date for the making of a dividend or distribution to stockholders of cash or certain assets. Upon the occurrence of certain business combinations, the 2017 Warrants will be converted into the right to acquire shares of stock or other securities or property (including cash) of the successor entity.

The 2017 Warrants are reflected as a liability in other non-current liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheets and are adjusted to fair value at the end of each reporting period through an adjustment to earnings. The fair value of the 2017 Warrants was $20.5 million as of June 30, 2019. Fair value increases of $5.2 million and $3.1 millionfirst lien term loan is derived from a broker quote on the loans in the syndication (Level 2 inputs). See Note 11, Indebtedness, for three months ended June 30, 2019 and 2018, respectively,further discussion on the carrying amount and fair value decreases of $(4.8) million and $(0.4) million for the six months ended June 30, 2019 and 2018, respectively, are presented as changes infirst lien term loan.
Second lien notes: The fair value of equity linked liabilitiesthe second lien notes is derived from a cash flow model that discounted the cash flows based on market interest rates (Level 3 inputs). See Note 11, Indebtedness, for further discussion on the accompanying Unaudited Condensed Consolidated Statementscarrying amount and fair value of Operations.the second lien notes.
Interest rate swaps: The fair values of interest rate swaps are derived from the interest rates prevalent in the market and future expectations of those interest rates (Level 2 inputs). The Company determines the fair value of the investments based on quoted prices from third-party brokers. See Note 12, Derivative Instruments, for further discussion on the fair value of interest rate swaps.
NOTE 7 —There were no other assets or liabilities measured at fair value at June 30, 2020 and December 31, 2019.
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14. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings and is subject to investigations, inspections, audits, inquiries, and similar actions by governmental authorities, arising in the normal course of the Company’s business. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. From time to time, the Company may also be involved in legal proceedings as a plaintiff involving antitrust, tax, contract, intellectual property, and other matters. Gain contingencies, if any, are recognized when they are realized. The results of legal proceedings are often uncertain and difficult to predict, and the costs incurred in litigation can be substantial, regardless of the outcome. The Company believes that its defenses and assertions in pending legal proceedings have merit and does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s condensed consolidated balance sheets. However, substantial unanticipated verdicts, fines, and rulings may occur. As a result, the Company may from time to time incur judgments, enter into settlements, or revise expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations in the period in which the amounts are accrued and/or its cash flows in the period in which the amounts are paid.
15. STOCK-BASED INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS
BioScrip Equity Incentive Plans
— Under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”), approved at the annual meeting by the BioScrip stockholders on May 3, 2018, the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, stock grants, and performance units to key employees and directors. The 2018 Planplan is administered by the Company’s Management Development and Compensation Committee, (the “Compensation Committee”), a standing committee of the Board of Directors.
A total of 16,406,9394,101,735 shares of Common Stockcommon stock were initially authorized for issuance under the 2018 Plan. The Company had stock options and restricted stock outstanding related to the 2018 Plan which included the shares that remained available under the 2008 Plan. No key employee in any calendar year will be granted more than 3,000,000 sharesas of Common Stock with respect to any combination of (i) Options to purchase shares of Common Stock, (ii) Stock Appreciation Rights (based on the appreciation with respect to shares of Common Stock); and (iii) Stock Grants and Restricted Stock Units that are intended to comply with the requirements of Section 162(m) of the Code.
June 30, 2020. As of June 30, 2019, there were 13,199,877 shares of Common Stock available for future grant under2020, the 2018 Plan.
Stock Options
The Company recognized compensation expensealso had incentive units outstanding related to stock optionsthe HC I equity incentive plan, which was implemented in October 2015, for certain officers and employees of $0.2 million and $0.3 million duringthe Company. During the three months ended June 30, 2019 and 2018, respectively, and $0.4 million and $0.6 million of compensation expense during the six months ended June 30, 2019 and 2018, respectively.
Restricted Stock
The2020, total stock-based incentive compensation expense recognized by the Company recognized $0.8related to these plans was $0.7 million and $0.8$1.4 million, of compensation expense related to restricted stock awards during the three months ended June 30, 2019 and 2018, respectively, and $1.6 million and $1.0 million of compensation expense during the six months ended June 30, 2019 and 2018, respectively.
Employee Stock Purchase Plan
On May 3, 2018, the Company’s stockholders approved an amendment to the BioScrip, Inc. Employee Stock Purchase Plan (the “ESPP”). The ESPP provides all eligible employees, as defined under the ESPP, the opportunity to purchase up to a maximum number of shares of Common Stock of the Company as determined by the Compensation Committee. Participants in the ESPP may acquire the Common Stock at a cost of 85% of the lower of the fair market value on the first or last day of the quarterly offering period.
As of June 30, 2019, there were 1,310,802 remaining shares available for issuance under the ESPP. In July 2019, 73,639 shares were issued to participants under this plan for elections made for the second quarter of 2019. During the three months and six months ended June 30, 2019, and 2018, the Company incurred nominaltotal stock-based incentive compensation expense related to the ESPP.
NOTE 8 — LOSS PER SHARE
The Company presents basic and diluted loss per share for its common stock, par value $0.0001 per share (“Common Stock”). Basic loss per share is calculated by dividing the net loss attributable to common stockholders of the Company by the weighted average number of shares of Common Stock outstanding during the period. Diluted loss per share is determined by adjusting the profit or loss attributable to stockholders and the weighted average number of shares of Common Stock outstanding adjusted for the effects of all dilutive potential common shares comprised of options granted, unvested restricted stock, stock appreciation rights, the 2017 Warrants and Series A and Series C Convertible Preferred Stock. Potential Common Stock equivalents that have been issuedrecognized by the Company related to these plans was $0.6 million and $1.2 million, respectively.
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16. STOCKHOLDERS’ EQUITY
On January 3, 2020, the Company’s board of directors and HC I, the stockholder of a majority of the Company’s common stock, approved a reverse stock split of the Company’s issued and outstanding common stock options, unvested restrictedon a one share for four share basis and appropriately amended the Company’s Third Amended and Restated Certificate of Incorporation to reflect the change. On February 3, 2020, the reverse stock split became effective. In connection with the reverse stock split, the Company changed its ticker symbol from “BIOS” to “OPCH” and warrants are determined usingtransferred the treasuryCompany’s common stock method, while potential common shares relatedfrom the Nasdaq Capital Market to Series A and Series C Convertible Preferred Stock are determined using the “if converted” method.

Nasdaq Global Select Market. The Company's Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), and Series C Convertible Preferred Stock,of the Company’s common stock remained unchanged as a result of the reverse stock split, resulting in a decrease to the aggregate par value $0.0001 per share (the “Series C Preferred Stock” and, together with the Series A Preferred Stock, the “Preferred Stock”), is considered a participating security, which means the security may participate in undistributed earnings with Common Stock. The holders of the Preferred Stock would be entitled to share in dividends, on an as-converted basis, if the holders of Common Stock were to receive dividends. The Company is required to use the two-class method when computing loss per share when it has a security that qualifies as a participating security. The two-class method is an earnings allocation formula that determines loss per share for each class of common stock and participating security accordingcorresponding increase to dividends declared (or accumulated)paid-in capital in the Company’s unaudited condensed consolidated financial statements, which was retrospectively applied to all periods presented in the unaudited condensed consolidated financial statements. All common shares, warrants and participation rightsstock awards presented in undistributed earnings. In determining the amount of net earnings to allocate to common stockholders, earnings are allocated to both common and participating securities based on their respective weighted-average shares outstanding during the period. Diluted loss per shareunaudited condensed consolidated financial statements have been retrospectively adjusted for the Company’s Common Stock is computed usingreverse stock split. Subsequent to June 30, 2020, the more dilutiveCompany completed a public offering of the two-class method or the if-converted method.
The following table sets forth the computation of basic and diluted loss per common share (in thousands, except per share amounts):
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Numerator:       
Loss from continuing operations$(14,166) $(15,124) $(24,448) $(28,111)
Loss from discontinued operations, net of income taxes(1,500) (15) (1,500) (45)
Net loss$(15,666) $(15,139) $(25,948) $(28,156)
Accrued dividends on preferred stock(3,068) (2,756) (6,025) (5,413)
Loss attributable to common stockholders, basic$(18,734) $(17,895) $(31,973) $(33,569)
Income effect of 2017 Warrants—
 —
 (4,784) (375)
Loss attributable to common stockholders, diluted$(18,734) $(17,895) $(36,757) $(33,944)
        
Denominator: 
  
  
  
Weighted average number of common shares outstanding, basic128,779
 128,038
 128,446
 127,906
Dilutive effect of 2017 Warrants—
 —
 2,053
 2,252
Weighted average number of common shares outstanding, diluted128,779
 128,038
 130,499
 130,158
        
Basic loss per share:       
Loss from continuing operations$(0.13) $(0.14) $(0.24) $(0.26)
Loss from discontinued operations(0.01) —
 (0.01) —
Basis loss per share$(0.14) $(0.14) $(0.25) $(0.26)
        
Diluted loss per share:       
Loss from continuing operations$(0.13) $(0.14) $(0.27) $(0.26)
Loss from discontinued operations(0.01) —
 (0.01) —
Diluted loss per share$(0.14) $(0.14) $(0.28) $(0.26)
The loss attributable to common stockholders is used as the basis of determining whether the inclusion10,000,000 shares of common stock equivalents wouldfor net proceeds of approximately $118 million. Those proceeds will be anti-dilutive. Accordingly,used to prepay a portion of the computation of diluted sharessecond lien notes. See Note 18, Subsequent Events, for further discussion.
2017 Warrants — During the three and six months ended June 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock. NaN warrants existed in 2019 prior to the Merger. As of June 30, 2020 and December 31, 2019, the remaining warrant holders are entitled to purchase 1.4 million shares of common stock, respectively.
2015 Warrants — During the three and six months ended June 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock. NaN warrants existed in 2019 prior to the Merger. As of June 30, 2020 and December 31, 2019, warrant holders are entitled to purchase 0.9 million shares of common stock, respectively.
Home Solutions Restricted Stock — In conjunction with BioScrip’s 2016 acquisition of Home Solutions, Inc., 1.8 million restricted shares of common stock were issued, of which 0.8 million of these units vest upon the closing price of the Company’s common stock averaging at or above $16.00 per share over 20 consecutive trading days prior to December 31, 2019 and 2018 excludes1.0 million of these units vest upon the effectclosing price of the Company’s common stock averaging at or above $20.00 per share over 20 consecutive trading days prior to December 31, 2019. The restricted stock expired on December 31, 2019. As discussed in Note 1, Nature of Operations and Presentation of Financial Statements, 7,048,357 common shares that would be issued to HC I in connectionconjunction with the March 2015 PIPE transaction andMerger are held in escrow to prevent dilution related rights offering, stock options,to the vesting of the Home Solutions restricted stock. In the event the Home Solutions restricted stock awardsexpires unvested, the 7,048,357 common shares held in escrow will be returned to the Company and 2017 Warrants,canceled. As of June 30, 2020, the Home Solutions restricted stock remained in escrow pending final resolution of this matter.
17. RELATED-PARTY TRANSACTIONS
Transactions with Equity-Method Investees — The Company provides management services to its joint ventures such as their inclusion would be anti-dilutiveaccounting, invoicing and collections in addition to loss attributable to common stockholders.day-to-day managerial support of the operations of the businesses. The computationCompany recorded management fee income of diluted shares$0.7 million and $1.4 million for the three and six months ended June 30, 2020, respectively. The Company recorded management fee income of $0.6 million and $1.2 million for the three and six months ended June 30, 2019, and 2018 excludesrespectively. Management fees are recorded in net revenues in the effect of shares that would be issued in connection with the March 2015 PIPE transaction and related rights offering, stock options, and restricted stock awards, as their inclusion would be anti-dilutive to loss attributable to common stockholders.

NOTE 9 — INCOME TAXES
The federal and state income tax expense from continuing operations consisted of the following (in thousands):
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Current       
Federal$—
 $—
 $—
 $—
State123
 18
 134
 35
Total current123
 18
 134
 35
Deferred 
  
    
Federal—
 —
 —
 —
State31
 25
 36
 56
Total deferred31
 25
 36
 56
Total income tax expense$154
 $43
 $170
 $91
A reconciliation of the federal statutory rate to the effective income tax rate from continuing operations is as follows (in thousands):
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Tax benefit at statutory rate$(2,942) $(3,155) $(5,098) $(5,884)
State tax expense, net of federal taxes154
 43
 170
 91
Change in valuation allowance1,941
 2,484
 4,890
 5,903
Other1,001
 671
 208
 (19)
Income tax expense$154
 $43
 $170
 $91
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 or U.S. Federal Tax Reform (the “Reform”). The enactment included broad tax changes that are applicable to BioScrip, Inc. Most notably, the Reform decreased the U.S. corporate income tax rate from a high of 35% to a flat 21% rate effective January 1, 2018. As a result, the Company has revalued its ending net deferred tax assets as of December 31, 2017. At June 30, 2019, the Company had Federal net operating loss carry forwards of approximately $441.7 million, of which $12.2 million is subject to an annual limitation, which will begin expiring in 2026 and later. The Company also has a carryforward of approximately $75.8 million related to the interest expense limitation, which is not subject to an expiration period. The Company has post-apportioned state net operating loss carry forwards of approximately $495.8 million, the majority of which will begin expiring in 2019 and later.

NOTE 10 — FAIR VALUE MEASUREMENTS

The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of June 30, 2019 are as follows (in thousands):
Financial Instrument Carrying Value as of June 30, 2019 Markets for Identical Item (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
First Lien Note Facility(1)
 $207,209
 $—
 $—
 $215,536
Second Lien Note Facility (1)
 120,017
 —
 —
 132,092
2021 Notes (2)
 198,534
 —
 200,083
 —
Total debt instruments $525,760
 $—
 $200,083
 $347,628
         
2017 Warrants (3)
 $20,547
 $—
 $20,547
 $—


(1)The estimated fair values of the First and Second Lien Notes were based on cash flow models discounted at market interest rates that considered the underlying risks of the note.
(2)The estimated fair value of the 2021 Notes incorporated recent trading activity in public markets.
(3)The fair value of the 2017 Warrants is estimated using a valuation model that considers attributes of the Company’s common stock, including the number of outstanding shares, share price and volatility. The valuation also considers the exercise period of the warrants and the attributes of other convertible instruments in estimating the number of shares that will be issued upon the exercise of the warrants.

NOTE 11 — RESTRUCTURING, ACQUISITION, INTEGRATION, AND OTHER EXPENSES
Restructuring, acquisition, integration, and other expenses include non-recurring costs associated with restructuring, acquisition, pre-merger costs, integration initiatives such as employee severance costs, certain legal and professional fees, training costs, redundant wage costs, and other costs related to contract terminations and closed branches/offices.

Restructuring, acquisition, integration, and other expenses consisted of the following (in thousands):
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Restructuring expense$1,713
 $1,956
 $3,399
 $3,835
Acquisition and integration expense—
 68
 —
 71
Merger expenses1,158
 —
 5,493
 —
Total restructuring, acquisition, integration, and other expenses$2,871
 $2,024
 $8,892
 $3,906
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is a party to various legal, regulatory and governmental proceedings incidental to its business. Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters, including the matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond the Company’s control, and the indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period. 
With respect to all legal, regulatory and governmental proceedings, the Company considers the likelihood of a negative outcome. If the Company determines the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, the Company records an accrual for the estimated loss for the expected outcome of the matter. If the likelihood of a negative outcome with respect to material matters is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, whether in excess of a related accrued liability or where there is no accrued liability, the Company discloses the estimate of the possible loss or range of loss. However, the Company is unable to estimate a possible loss or range of loss in some instances based on the significant uncertainties involved in, and/or the preliminary nature of, certain legal, regulatory and governmental matters.

On December 18, 2017, a commercial payor of the Company sent a letter that claimed an alleged breach of the Company’s obligation under its provider contracts. While legal proceedings have not been filed, the Company and the payor have agreed in principal to a non-binding settlement of $1.5 million, payable contingent on the close of our merger with Option Care. The amount of this settlement agreement is recorded on the Company’saccompanying unaudited condensed consolidated statements of operations under “Losscomprehensive income (loss).
The Company had amounts due to its joint ventures of $3.3 million as of June 30, 2020. The Company also had amounts due to its joint ventures of $4.3 million as of December 31, 2019. These payables were included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. These balances primarily relate to cash collections received by the Company on behalf of the joint ventures, offset by certain pharmaceutical inventories and other expenses paid for by the Company on behalf of the joint ventures.
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18. SUBSEQUENT EVENTS
The Company has evaluated whether any subsequent events occurred since June 30, 2020, and noted the following subsequent events:
On July 24, 2020, the Company completed a public offering of 18,000,000 shares of the Company’s common stock at a price of $12.50 per share, consisting of 10,000,000 shares of common stock issued and sold by the Company and 8,000,000 shares of common stock sold by HC I. The Company received net proceeds from discontinued operations, netthe offering of income taxes,” asapproximately $118 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the alleged breach was relatedCompany. The Company intends to a business line that no longer exists.use the proceeds from the offering and available cash to repay $125.0 million on the principal balance of its second lien notes outstanding. Following the offering, HC I holds approximately 72.1% of the Company’s common stock.
On June 7, 2019, a putative class action lawsuit, captioned Erik Schmidt v. R. Carter Pate, et al., was filed
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Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations
Unless the context requires otherwise, references in connection withthis report to "Option Care Health," the “Company,” “we,” “us” and “our” refer to Option Care mergers in the Court of ChanceryHealth, Inc. and its consolidated subsidiaries. The following discussion and analysis of the Statefinancial condition and results of Delaware. The complaint names R. Carter Pate, Daniel E. Greenleaf, David Golding, Michael Goldstein, Christopher Shackelton, Michael G. Bronfein and Steven Neuman (collectively, the “BioScrip Board”), as defendants. The complaint alleges generally that the defendants breached their fiduciary duties by failing to disclose all material information relating to theoperations of Option Care mergers. The complaint seeks a judgment finding defendants liable as well as costs and disbursements, including attorneys’, accountants’ and experts’ fees. On July 9, 2019, the plaintiff filed a motion for expedited proceedings and for a preliminary injunction, and on July 15, 2019, the Court of Chancery of the State of Delaware granted the plaintiff’s motion for expedited proceedings and thereafter scheduled a hearing on plaintiff’s motion for preliminary

injunction for July 26, 2019. BioScrip caused certain supplemental disclosures regarding the proposed mergers to be filed in a Current Report on Form 8-K on July 24, 2019. Later that same day, the plaintiff withdrew his motion for a preliminary injunction.

On June 14, 2019, a putative class action lawsuit, captioned Earl M. Wheby, Jr. v. BioScrip,Health, Inc., et al., was filed in connection with the (“Option Care mergers inHealth”, or the United States District Court for the District of Delaware. The complaint names BioScrip and the members of the BioScrip Board, as defendants. The complaint alleges generally that the defendants caused BioScrip to file a preliminary proxy statement relating to the Option Care mergers that omits material information required to have been disclosed, in violation of Sections 14(a) and 20(a) of the Exchange Act. The complaint seeks, among other things, a preliminary injunction prohibiting defendants from proceeding with, consummating, or closing the Option Care merger or, in the event that the Option Care merger is consummated, rescission or rescissory damages as well as costs incurred in bringing the action (including plaintiff’s attorneys’ and experts’ fees).

On June 27, 2019, a putative class action lawsuit, captioned Lila Brennan v. BioScrip, Inc. et al., was filed in connection with the Option Care merger in the United States District Court for the District of Colorado. The complaint names BioScrip and the members of the BioScrip Board as defendants. The complaint alleges generally that the defendants caused BioScrip to file a definitive proxy statement relating to the merger that omits material information required to have been disclosed in violation of Sections 14(a) and 20(a) of the Exchange Act. The complaint seeks, among other things, a preliminary injunction prohibiting defendants from proceeding with, consummating, or closing the transaction, damages, and costs incurred in bringing the action (including plaintiff’s attorneys’ and experts’ fees).

Government Regulation

Various federal and state laws and regulations affecting the healthcare industry do or may impact the Company’s current and planned operations, including, without limitation, federal and state laws prohibiting kickbacks in government health programs, federal and state antitrust and drug distribution laws, and a wide variety of consumer protection, insurance and other state laws and regulations. While management believes the Company is in substantial compliance with all existing laws and regulations material to the operation of its business, such laws and regulations are often uncertain in their application to our business practices as they evolve and are subject to rapid change. As controversies continue to arise in the healthcare industry, federal and state regulation and enforcement priorities in this area can be expected to increase, the impact of which cannot be predicted.

From time to time, the Company responds to investigatory subpoenas and requests for information from governmental agencies and private parties. The Company cannot predict with certainty what the outcome of any of the foregoing might be. While the Company believes it is in substantial compliance with all laws, rules and regulations that affects its business and operations, there can be no assurance that the Company will not be subject to scrutiny or challenge under one or more existing laws or that any such challenge would not be successful. Any such challenge, whether or not successful, could have a material effect upon the Company’s Consolidated Financial Statements. A violation of the federal Anti-Kickback Statute, for example, may result in substantial criminal and civil penalties, as well as suspension or exclusion from the Medicare and Medicaid programs. Moreover, the costs and expenses associated with defending these actions, even where successful, can be significant. Further, there can be no assurance the Company will be able to obtain or maintain any of the regulatory approvals that may be required to operate its business, and the failure to do so could have a material effect on the Company’s Consolidated Financial Statements.

Item 2.
Management’s Discussion and Analysis of Financial Condition andResults of Operations
The following discussion“Company”) should be read in conjunction with the audited Consolidated Financial Statements, includingconsolidated financial statements and related notes, as presented in the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”),on March 5, 2020, as well as our Unaudited Condensed Consolidated Financial Statementsthe Company’s unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this report.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains statements not purely historical and which may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”Act’), including statements regarding our expectations, beliefs, future plans and strategies, anticipated events or trends concerning matters that are not historical facts or that necessarily depend upon future events. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions. Specifically, thisSuch forward-looking statements include, but are not limited to, the effect of the novel coronavirus (“COVID-19”) on our business, financial condition and results of operations. This Quarterly Report contains, among others, forward-looking statements about:
our ability to make principalbased upon current expectations that involve numerous risks and interest payments on our debt and unsecured notes and satisfy the other covenants containeduncertainties, including those described in our Notes Facilities;

our ability to successfully complete the Option Care merger and integrate the two companies;
our high level of indebtedness;
our expectations regarding financial condition or results of operations in future periods;
our future sources of, and needs for, liquidity and capital resources;
our expectations regarding economic and business conditions;
our expectations regarding legislative and regulatory changes impacting the level of reimbursement received from the Medicare and state Medicaid programs;
periodic reviews and billing audits of payments from governmental reimbursement programs and private payors;
our expectations regarding the size and growth of the market for our products and services;
our business strategies and our ability to grow our business;
the implementation or interpretation of current or future regulations and legislation, particularly governmental oversight of our business;
our expectations regarding the outcome of litigation;
our ability to maintain contracts and relationships with our customers;
our ability to avoid delays in payment from our customers;
sales and marketing efforts;
status of material contractual arrangements, including the negotiation or re-negotiation of such arrangements;
future capital expenditures;
our ability to hire and retain key employees;
our ability to execute our strategy;
our ability to successfully integrate businesses we may acquire.

Item 1A “Risk Factors”.
Investors are cautioned that any such forward-looking statements are not guarantees of future performance, involve risks and uncertainties and that actual results may differ materially from those possible results discussed in the forward-looking statements as a result of various factors. Important factors that could cause such differences include, among other things:
risks associated with the Option Care merger
risks associated with increased and complex government regulation related to the health care and insurance industries in general, and more specifically, home infusion providers;
our ability to comply with debt covenants in our Notes Facilities and unsecured notes indenture;
risks associated with our issuance of Preferred Stock and PIPE Warrants to the PIPE Investors and the 2017 Warrants;
risks associated with the retention or transition of executive officers and key employees;
our expectation regarding the interim and ultimate outcome of commercial disputes, including litigation;
unfavorable economic and market conditions;
disruptions in supplies and services resulting from force majeure events such as war, strike, riot, crime, or “acts of God” such as hurricanes, flooding, blizzards or earthquakes;
delays or suspensions of federal and state payments for services provided;
efforts to reduce healthcare costs and alter health care financing, which may involve reductions in reimbursement for our products and services;
•
effects of the 21st Century Act (the “Cures Act”);
the effect of health reform efforts including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together the “Affordable Care Act”), and value-based payment initiatives, including accountable care organizations (“ACOs”);
availability of financing sources;
declines and other changes in revenue due to the expiration of short-term contracts;
network lockouts and decisions to in-source by health insurers including lockouts with respect to acquired entities;
unforeseen contract terminations;
difficulties in the implementation and ongoing evolution of our operating systems;
difficulties with the implementation of our growth strategy and integrating businesses we have acquired or will acquire;
increases or other changes in our acquisition cost for our products;
increased competition from competitors having greater financial, technical, reimbursement, marketing and other resources could have the effect of reducing prices and margins;
disruptions in our relationship with our primary supplier of prescription products;
the level of our indebtedness and its effect on our ability to execute our business strategy and increased risk of default under our debt obligations;
introduction of new drugs, which can cause prescribers to adopt therapies for patients that are less profitable to us;
changes in industry pricing benchmarks, which could have the effect of reducing prices and margins; and
other risks and uncertainties described from time to time in our filings with the SEC.

You shouldDo not place undue reliance on such forward-looking statements as they speak only as of the date they are made. Except as required by law, we assumethe Company assumes no obligation to publicly update or revise any forward-looking statement even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
Business Overview
We areOption Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national providernetwork of infusion and home care management solutions with nearly 67 service148 locations around the U.S. We partnerUnited States. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, hospital systems, payors, pharmaceutical manufacturers and skilled nursing facilitiesother referral sources to provide pharmaceuticals and complex compounded solutions to patients access to post-acute care services. We operate with a commitment to bring customer-focused pharmacy and related healthcare infusion therapy services intofor intravenous delivery in the homepatients’ homes or alternate-site setting. By collaborating with the full spectrum of healthcare professionals and the patient, we aim to provide cost-effective care that is driven by clinical excellence, customer service and values that promote positive outcomes and an enhanced quality of life for those whom we serve.
other nonhospital settings. Our platform provides nationwide service capabilities and the ability to deliver clinical management services that offer patients a high-touch, community-based and home-based care environment. Our core services are provided in coordination with, and under the direction of, the patient’s physician. Our multidisciplinary team of clinicians, including pharmacists, nurses, dietitians and respiratory therapists, work with the physician to develop a plan of care suited to each patient’s specific needs. WhetherWe provide home infusion services consisting of anti-infectives, nutrition support, bleeding disorder therapies, immunoglobulin therapy, and other therapies for chronic and acute conditions.
HC Group Holdings II, Inc. (“HC II”) was incorporated under the laws of the State of Delaware on January 7, 2015, with its sole shareholder being HC Group Holdings I, LLC. (“HC I”). On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion Services, Inc. and its subsidiaries from Walgreen Co., and the business was rebranded as Option Care, Inc. (“Option Care”).
On March 14, 2019, HC I and HC II entered into a definitive agreement (the “Merger Agreement”) to merge with and into a wholly-owned subsidiary of BioScrip, Inc. (“BioScrip”) (the “Merger”), a national provider of infusion and home care management solutions, which was completed on August 6, 2019 (the “Merger Date”). The Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations with Option Care being considered the accounting acquirer and BioScrip being considered the legal acquirer. Following the close of the transaction, BioScrip was rebranded as Option Care Health, Inc. and the combined company’s stock, par value $0.0001, was listed on the Nasdaq Global Select Market as of June 30, 2020. See Note 3, Business Acquisitions, of the unaudited condensed consolidated financial statements for further discussion on the Merger.



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Update on the Impact of the COVID-19 Pandemic
The primary operations of the Company focus on providing infusion therapy services and based on the recent impact of the pandemic across the healthcare ecosystem, the Company began experiencing a related impact across a number of facets beginning in March 2020.
The second quarter of 2020 results reflect the Company’s continued efforts to accelerate growth and drive merger-related cost savings offset by the detrimental impact of the COVID-19 pandemic. The Company relies upon patient referrals from multiple sources, including but not limited to patients discharged from acute care settings (e.g., hospitals) and patients requiring treatment for chronic conditions from specialty physicians. As expected, the pandemic has negatively affected new patient referrals for both acute and chronic conditions; however, the Company did experience an increase in patient transfers from hospital and outpatient settings which positively affected revenues. For the second quarter of 2020, the revenue results reflect a single digit decline in acute revenues relative to the prior year while chronic revenue grew in the low double digits. Option Care Health continues to collaborate with payers and health systems to transition patients into the home physician office, ambulatoryor one of our alternate treatment sites to receive vital infusion center,therapy.
The Company’s operations involve the compounding of therapeutic drugs in sterile cleanroom facilities by pharmacists and pharmacy technicians, the transportation of such drugs to the patients’ home or alternate infusion treatment site and the administration of the drug by a licensed healthcare professional. Due to personal disruption experienced by employees of the Company, the ability to efficiently resource the compounding, delivery and administration of therapies has been negatively impacted given staffing challenges and availability. This has resulted in higher wage costs in the form of overtime expenditures, migration of clinical resources to additional markets and utilization of contract labor resources. In addition to direct labor investments, the Company has experienced similar impacts on the indirect support functions, as employees have generally migrated to a virtual, remote establishment.
In delivering infusion therapy, the Company’s clinical personnel regularly utilize personal protection equipment (“PPE”) and ancillary medical supplies as dictated by the Company’s clinical protocols. Based on the increased demand for PPE over the past several weeks, the Company has experienced challenges in procuring necessary PPE to ensure the safety of its personnel and the patients served in the form of higher costs for PPE as well as increased effort and resources dedicated to procurement activities. To date, the Company has maintained adequate levels of PPE to support its operations, albeit at higher procurement costs.
The Company experienced cost inefficiencies in the second quarter with respect to clinical labor and other staffing challenges, as well as higher costs to procure personal protection equipment. Offsetting the negative impacts resulting from the COVID-19 pandemic, the Company managed spending and accelerated many integration-related initiatives as discussed below. Further, to date, the Company experienced no material deceleration in cash collections and collaboration with payers continues to be productive. The Company anticipates that the pandemic could affect its operations for an extended period; however, at this time cannot confidently forecast the duration nor the ultimate financial impact on its operations. See Item 1A. “Risk Factors” under the caption “The COVID-19 pandemic could adversely impact our business, results of operations, cash flows and financial position” for further discussion on risks.
In April 2020, the Company received approximately $11.7 million from the Public Health and Social Services Emergency Fund as part of the Coronavirus Aid, Relief, and Economics Security Act (“CARES Act”). The $11.7 million is reflected in the second quarter 2020 as a cash inflow from financing activities and, as a result, is reflected in the June 30, 2020 cash balance and as a component of accrued expenses and other current liabilities. Given the Company’s ability to largely offset the cost inefficiencies experienced from the COVID-19 pandemic with spending reductions and accelerated integration net cost synergies, the Company has determined that it will return these CARES Act funds to the federal government.

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Merger Integration Execution
The Merger of Option Care and BioScrip into Option Care Health has created an opportunity to realize cost synergies while continuing to drive organic growth in chronic and acute therapies through our expanded national platform. Option Care Health is well-positioned to leverage the investments in corporate infrastructure and drive economies of scale as a result of the Merger. The synergy categories are as follows:
•Selling, General and Administrative Expenses Savings. Merged corporate infrastructure has created significant opportunity for streamlining corporate and administrative costs, including headcount and functional spend.
•Network Optimization. The previous investments in technology and compounding pharmacies, along with the overlapping geographic footprint, allows for facility rationalization and the optimization of assets.
•Procurement Savings. The enhanced scale of the Company generates supply chain efficiencies through increased purchasing leverage. The Company’s platform is also positioned to be the partner of choice for pharmaceutical manufacturers seeking innovative distribution channels and patient support models to access the market.
Since the Merger, we have worked to align our field and sales teams. We have also made strides at combining our procurement process and contracts, all while continuing to focus on serving our patients. Patient health is personal to us, which is why, throughout the integration process, we strive to improve and set the standard for quality care that is matched by best-in-class service. After completion of the Merger, we have additional resources to invest in our people, process and systems, providing us improved strength and scale to drive better patient outcomes. The Company accelerated its integration activities during the second quarter to offset the negative impacts resulting from COVID-19 pandemic, and as a result we exited the second quarter having fully achieved the articulated goal of at least $60.0 million in net cost synergies. We continue to pursue further integration efforts, and ultimately expect to exceed the net cost synergy goal.
Acquisitions
Option Care merged with BioScrip on August 6, 2019. BioScrip was a national provider of infusion and home care management, who partnered with physicians, hospital systems, payers, pharmaceutical manufacturers and skilled nursing facilityfacilities to provide patients access to post-acute care services. The fair value of purchase consideration transferred, net of cash acquired, on the closing date of $1,087.2 million includes the value of the number of shares of the combined company to be owned by BioScrip shareholders at closing of the Merger, the value of common shares to be issued to certain warrant and preferred shareholders in conjunction with the Merger, the value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger. For additional information on this transaction, see Note 3, Business Acquisitions, of the unaudited condensed consolidated financial statements.
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Composition of Results of Operations
The following results of operations include the accounts of Option Care Health and our subsidiaries for the three and six months ended June 30, 2020 and 2019. The BioScrip results have been included since the August 6, 2019 Merger Date.
Gross Profit
Gross profit represents our net revenue less cost of revenue.
Net Revenue.Infusion and related health care services revenue is reported at the estimated net realizable amounts from third-party payers and patients for goods sold and services rendered. When pharmaceuticals are provided to a patient, revenue is recognized upon delivery of the goods. When nursing services are provided, revenue is recognized when the services are rendered.
Due to the nature of the health care industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payers may result in adjustments to amounts originally recorded.
Cost of Revenue.Cost of revenue consists of the actual cost of pharmaceuticals and other alternate sitesmedical supplies dispensed to patients. In addition to product costs, cost of care, we provide products, services and condition-specific clinical management programs tailoredrevenue includes warehousing costs, purchasing costs, depreciation expense relating to improve the care of individuals with complex health conditionsrevenue-generating assets, such as gastrointestinal abnormalities, infectious diseases, cancer, multiple sclerosis, organinfusion pumps, shipping and blood cell transplants, bleeding disorders, immune deficiencieshandling costs, and heart failure.wages and related costs for the pharmacists, nurses, and all other employees and contracted workers directly involved in providing service to the patient.

The Company receives volume-based rebates and prompt payment discounts from some of its pharmaceutical and medical supplies vendors. These payments are recorded as a reduction of inventory and are accounted for as a reduction of cost of revenue when the related inventory is sold.
We operateOperating Costs and Expenses
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist principally of salaries for administrative employees that directly and indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees.
Depreciation and Amortization Expense. Depreciation within this caption includes infrastructure items such as computer hardware and software, office equipment and leasehold improvements. Depreciation of revenue-generating assets, such as infusion pumps, is included in one segment,cost of revenue.
Other Income (Expense)
Interest Expense, Net. Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, the first lien term loan and second lien notes, amortization of discount and deferred financing fees, and changes in derivatives not designated as hedging instruments related to the interest rate swaps. Refer to the “Liquidity and Capital Resources” section below for further discussion of these outstanding borrowings.
Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures consists of our proportionate share of equity earnings or losses from equity investments in two infusion services. On an ongoing basis we will not report operating segment information unless a changejoint ventures with health systems.
Other, Net. Other income (expense) primarily includes miscellaneous non-operating expenses and third-party fees paid in conjunction with debt issuances and debt extinguishments, as they occur.
Income Tax Expense (Benefit). The Company is subject to taxation in the business necessitatesUnited States and various states. The Company’s income tax (benefit) expense is reflective of the needcurrent federal and state tax rates.
Change in unrealized losses on cash flow hedges, net of income taxes. Change in unrealized (losses) gains on cash flow hedges, net of income taxes, consists of the gains and losses associated with the changes in the fair value of derivatives designated as hedging instruments related to do so.the interest rate caps and interest rate swaps, net of income taxes.

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Regulatory Matters UpdateResults of Operations
Approximately 17.5%The following table presents Option Care Health’s consolidated results of operations for the three and 19.3%six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
 2020 (unaudited)2019 (unaudited)2020 (unaudited)2019 (unaudited)
Amount% of RevenueAmount% of RevenueAmount% of RevenueAmount% of Revenue
NET REVENUE$740,848  100.0 %$497,266  100.0 %$1,446,288  100.0 %$973,758  100.0 %
COST OF REVENUE574,528  77.6 %395,876  79.6 %1,121,939  77.6 %774,174  79.5 %
GROSS PROFIT166,320  22.4 %101,390  20.4 %324,349  22.4 %199,584  20.5 %
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses124,918  16.9 %99,245  20.0 %254,198  17.6 %182,032  18.7 %
Depreciation and amortization expense18,194  2.5 %10,150  2.0 %38,295  2.6 %20,119  2.1 %
      Total operating expenses143,112  19.3 %109,395  22.0 %292,493  20.2 %202,151  20.8 %
OPERATING INCOME (LOSS)23,208  3.1 %(8,005) (1.6)%31,856  2.2 %(2,567) (0.3)%
OTHER INCOME (EXPENSE):
Interest expense, net(31,432) (4.2)%(11,563) (2.3)%(59,519) (4.1)%(22,608) (2.3)%
Equity in earnings of joint ventures1,012  0.1 %643  0.1 %1,574  0.1 %1,192  0.1 %
Other, net14  — %(101) — %22  — %(177) — %
      Total other expense(30,406) (4.1)%(11,021) (2.2)%(57,923) (4.0)%(21,593) (2.2)%
LOSS BEFORE INCOME TAXES(7,198) (1.0)%(19,026) (3.8)%(26,067) (1.8)%(24,160) (2.5)%
INCOME TAX EXPENSE (BENEFIT)470  0.1 %(5,423) (1.1)%1,511  0.1 %(6,845) (0.7)%
NET LOSS$(7,668) (1.0)%$(13,603) (2.7)%$(27,578) (1.9)%$(17,315) (1.8)%
OTHER COMPREHENSIVE GAIN ( LOSS), NET OF TAX:
Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $(15), $0 and $227, respectively4,576  0.6 %27  — %(12,056) (0.8)%(478) — %
OTHER COMPREHENSIVE GAIN (LOSS)4,576  0.6 %27  — %(12,056) (0.8)%(478) — %
NET COMPREHENSIVE LOSS$(3,092) (0.4)%$(13,576) (2.7)%$(39,634) (2.7)%$(17,793) (1.8)%
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Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the three month periods ended June 30, 2020 and June 30, 2019.
Gross Profit
 Three Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Net revenue$740,848  $497,266  $243,582  49.0 %
Cost of revenue574,528  395,876  178,652  45.1 %
Gross profit$166,320  $101,390  $64,930  64.0 %
Gross profit margin22.4 %20.4 %
The increase in net revenue was primarily driven by additional revenue following the Merger of $208.4 million as well as growth in the Company’s portfolio of therapies. The increase in cost of revenue was driven by the impact of the Merger and organic growth. The increase in gross profit was primarily related to contribution margin from additional revenue from the Merger. The increase in gross margin percentage was primarily driven by therapy mix shift and the positive impact from the merger integration net cost synergies, partially offset by the incremental wage costs and personal protective equipment costs related to the COVID-19 pandemic.
Operating Expenses
 Three Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Selling, general and administrative expenses$124,918  $99,245  $25,673  25.9 %
Depreciation and amortization expense18,194  10,150  8,044  79.3 %
      Total operating expenses$143,112  $109,395  $33,717  30.8 %
Selling, general and administrative expenses increased for the three months ended June 30, 2020 primarily due to the impact of the Merger but decreased as a percentage of revenue to 16.9% for the three months ended June 30, 2020 as compared to 20.0% for the three months ended June 30 2019 due to synergy realization.
The increase in depreciation and 2018, respectively,amortization was derived directlyprimarily related to the depreciation of the fixed assets acquired and the amortization of the intangibles acquired from the Medicare program, state Medicaid programsMerger of $3.6 million and other government payors. We also provide services$3.9 million, respectively.
Other Income (Expense)
 Three Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Interest expense, net$(31,432) $(11,563) $(19,869) 171.8 %
Equity in earnings of joint ventures1,012  643  369  57.4 %
Other, net14  (101) 115  (113.9)%
      Total other expense$(30,406) $(11,021) $(19,385) 175.9 %
The increase in interest expense was primarily attributable to beneficiariesthe interest expense on the new debt issued in conjunction with the Merger. The balance of Medicare, Medicaid and other government-sponsored healthcare programs through managed care entities. Medicare Part D, for example, is administered through managed care entities. Indebt increased from $538.9 million at June 30, 2019 to $1,284.6 million at June 30, 2020. See Note 11, Indebtedness, of the normal courseunaudited condensed consolidated financial statements.
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Table of business, we and our customers are subjectContents
Income Tax Expense (Benefit)
 Three Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Income tax expense (benefit)$470  $(5,423) $5,893  (108.7)%
The Company continues to legislative and regulatory changes impactingmaintain a full valuation allowance, established at the leveltime of reimbursement received from the MedicareMerger, against all of its net U.S. federal and state Medicaid programs.
State Medicaid Programs
Overdeferred tax assets with the last several years, increased Medicaid spending, combined with slowexception of approximately $0.7 million of estimated state revenue growth, led many states to institute measures aimed at controlling spending growth. Spending cuts have taken many forms including reducing eligibility and benefits, eliminating certain typesnet operating losses (“NOL”). Because of services, and provider reimbursement reductions. In addition, some states have been moving beneficiaries to managed care programs in an effort to reduce costs.
Each individual state Medicaid program represents less than 5% of our consolidated revenuethe Company’s full valuation allowance, the Company’s tax expense for the three months and sixended June 30, 2020 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense. These tax expense items created a negative effective tax rate of 6.5% during the three months ended June 30, 2020. During the three months ended June 30, 2019, the effective tax rate was 28.5%. The variance in the year-over-year effective tax rates is primarily attributable to the valuation allowance established by the Company at the time of the Merger. The quarterly tax rates of both periods differ from the Company’s 21% federal statutory rate primarily due to changes in valuation allowance, certain state and no individual state Medicaid reimbursement reduction is expectedlocal taxes, non-deductible costs and resolution of certain tax matters.
Net (Loss) Income and Other Comprehensive (Loss) Income
 Three Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Net loss$(7,668) $(13,603) $5,935  (43.6)%
Other comprehensive loss, net of tax:
Changes in unrealized gains (losses) on cash flow hedges, net of income taxes4,576  27  4,549  16,848.1 %
Other comprehensive gain (loss)4,576  27  4,549  16,848.1 %
Net comprehensive loss$(3,092) $(13,576) $10,484  (77.2)%
The change in net loss was primarily attributed to have a material effect on our Consolidated Financial Statements. We are continually assessingoperating efficiencies and certain cost saving initiatives related to COVID-19 and the impact of the state Medicaid reimbursement cutsMerger and related integration savings that resulted in total operating expenses decreasing as states propose, finalize and implement various cost-saving measures. These measures may include strategiesa percentage of net revenue.
The change in unrealized gains (losses) on cash flow hedges, net of income taxes, primarily related to reduce coverage, restrict enrollment, or enroll more beneficiariesthe $3.7 million reclassification from accumulated other comprehensive loss to interest expense, net upon discontinuing hedge accounting on the Company’s $400.0 million notional swap. The remaining change was related to increases in managed care programs.
Givenfair values on the reimbursement pressures, we strive to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible. In some cases, reimbursement rate reductions may result$925.0 million notional swap. The change in negative operating results, and we would likely exit some or all services where rate reductions result in unacceptable returns to our stockholders.
Medicare
Medicare currently covers home infusion therapy for selected therapies primarily through the durable medical equipment benefit. The Cures Act changed the new payment system for certain home infusion therapy services paid under Medicare Part B. The Cures Act significantly reduced the amount paid by Medicare for the drug costs, and also provides for the implementation of a clinical services payment. Under the Cures Act, the services payment does not take effect until 2021. However, the Bipartisan Budget Act of 2018 provides for a temporary transitional payment, starting January 1, 2019, for Medicare Part B home infusion services. CMS issued a final rule in October 2018 implementing this temporary benefit, which will continue until January 1, 2021,

when the services payment in the Cures Act takes effect. We have taken steps to mitigate the impact of the Cures Act on our business, but the Act has had material negative impact on our revenues and profitability.
Approximately 9.9% and 8.0% of revenueunrealized loss for the three months ended June 30, 2019 related to fluctuations on interest rate caps on $250.0 million of the previous first lien term loan.
Net comprehensive loss was $3.1 million for the three months ended June 30, 2020, compared to net comprehensive loss of $13.6 million for the three months ended June 30, 2019, as a result of the changes in net loss, discussed above, along with the impact of the interest rate swaps.
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Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
The following tables present selected consolidated comparative results of operations from the Company’s unaudited condensed consolidated financial statements for the six month periods ended June 30, 2020 and 2018,June 30, 2019.
Gross Profit
 Six Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Net revenue$1,446,288  $973,758  $472,530  48.5 %
Cost of revenue1,121,939  774,174  $347,765  44.9 %
Gross profit324,349  199,584  $124,765  62.5 %
Gross profit margin22.4 %20.5 %
The increase in net revenue was primarily driven by additional revenue following the Merger of $402.1 million as well as growth in the Company’s portfolio of therapies. The increase in cost of revenue was driven by the impact of the Merger and organic growth. The increase in gross profit was primarily related to contribution margin from additional revenue from the Merger. The increase in gross margin percentage was primarily driven by therapy mix shift and the positive impact from the merger integration net cost synergies, partially offset by the incremental wage costs and personal protective equipment costs related to the COVID-19 pandemic.
Operating Expenses
 Six Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Selling, general and administrative expenses$254,198  $182,032  $72,166  39.6 %
Depreciation and amortization expense38,295  20,119  18,176  90.3 %
      Total operating expenses$292,493  $202,151  $90,342  44.7 %
Selling, general and administrative expenses increased for the six months ended June 30, 2020 primarily due to the impact of the Merger, but has decreased as a percentage of revenue to 17.6% for the six months ended June 30, 2020 as compared to 18.7% for the six months ended June 30, 2019 due to synergy realization.
The increase in depreciation and amortization was primarily related to the depreciation of the fixed assets acquired and the amortization of the intangibles acquired from the Merger of $7.5 million and $7.8 million, respectively.
Other Income (Expense)
 Six Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Interest expense, net$(59,519) $(22,608) $(36,911) 163.3 %
Equity in earnings of joint ventures1,574  1,192  382  32.0 %
Other, net22  (177) 199  (112.4)%
      Total other expense$(57,923) $(21,593) $(36,330) 168.2 %
The increase in interest expense was primarily attributable to the interest expense on the new debt issued in conjunction with the Merger, as discussed above.


Income Tax Expense (Benefit)
 Six Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Income tax expense (benefit)$1,511  $(6,845) $8,356  (122.1)%
The Company continues to maintain a full valuation allowance, established at the time of Merger, against all of its net U.S. federal and state deferred tax assets with the exception of approximately $0.7 million of estimated state net operating losses (“NOL”). Because of the Company’s full valuation allowance, the Company’s tax expense for the six months ended June 30, 2020 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense. These tax expense items created a negative effective tax rate of 5.8% during the six months ended June 30, 2020. During the six months ended June 30, 2019, the effective tax rate was 28.3%. The variance in the year-over-year effective tax rates is primarily attributable to the valuation allowance established by the Company at the time of the Merger. The quarterly tax rates of both periods differ from the Company’s 21% federal statutory rate primarily due to changes in valuation allowance, certain state and local taxes, non-deductible costs and resolution of certain tax matters.
Net (Loss) Income and Other Comprehensive (Loss) Income
 Six Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands, except for percentages)
Net (loss) income$(27,578) $(17,315) $(10,263) 59.3 %
Other comprehensive income (loss), net of tax:
Changes in unrealized (losses) gains on cash flow hedges, net of income taxes(12,056) (478) (11,578) 2,422.2 %
Other comprehensive (loss) income(12,056) (478) (11,578) 2,422.2 %
Net comprehensive loss$(39,634) $(17,793) $(21,841) 122.8 %
The change in net loss was primarily attributed to increased depreciation, amortization and interest expense, which was partially offset by operating efficiencies, certain cost saving initiatives related to COVID-19 and Merger integration savings.
The change in unrealized (losses) gains on cash flow hedges, net of income taxes, related to the decrease in the variable interest rates during 2020, partially offset by the $3.7 million reclassification from accumulated other comprehensive income to interest expense upon discontinuing hedge accounting on the $400.0 million notional interest rate swap. The change in unrealized (loss) income for the six months ended June 30, 2019 related to fluctuations on interest rate caps.
The change in net comprehensive (loss) income was the result of the change in net loss, described above, further reduced by the impact of the fair value of the interest rate swaps.
Liquidity and Capital Resources
For the six months ended June 30, 2020 and the twelve months ended December 31, 2019, the Company’s primary sources of liquidity were cash on hand of $118.1 million and $67.1 million, respectively, as well as the $140.4 million of borrowings available under its credit facilities. During the six months ended June 30, 2020 and the year ended December 31, 2019, the Company’s positive cash flows from operations enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as pursue acquisitions.
The Company’s primary uses of cash include supporting our ongoing business activities and investing in various acquisitions and our infrastructure to support additional business volumes. Ongoing operating cash outflows are primarily associated with procuring and dispensing prescription drugs, personnel and other costs associated with servicing patients, as well as paying cash interest on the outstanding debt. Ongoing investing cash flows are primarily associated with capital projects related to business acquisitions, the improvement and maintenance of our pharmacy facilities and investment in our information technology systems. Ongoing financing cash flows are primarily associated with the quarterly principal payments on our outstanding debt.

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Our business strategy includes the selective acquisition of additional infusion pharmacies and other related healthcare businesses. We continue to evaluate acquisition opportunities and view acquisitions as a key part of our growth strategy. The Company historically has funded its acquisitions with cash with the exception of the Merger. The Company may require additional capital in excess of current availability in order to complete future acquisitions. It is impossible to predict the amount of capital that may be required for acquisitions, and there is no assurance that sufficient financing for these activities will be available on acceptable terms.
Short-Term and Long-Term Liquidity Requirements
The Company’s ability to make principal and interest payments on any borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based on our current level of operations and planned capital expenditures, we believe that our existing cash balances and expected cash flows generated from operations will be sufficient to meet our operating requirements for at least the next 12 months. We may require additional borrowings under our credit facilities and alternative forms of financings or investments to achieve our longer-term strategic plans.
Credit Facilities
The Company’s asset-based-lending (“ABL”) revolving credit facility provides for borrowings up to $150.0 million, which matures on August 6, 2024. The ABL facility bears interest at a per annum rate that is determined by the Company’s periodic selection of rate type, either the Base Rate or the Eurocurrency Rate. The Base Rate is charged between 1.25% and 1.75% and the Eurocurrency Rate is charged between 2.25% and 2.75% based on the historical excess availability as a percentage of the Line Cap, as defined in the ABL facility credit agreement. The revolving credit facility contains commitment fees payable on the unused portion of the ABL facility ranging from 0.25% to 0.375%, depending on various factors including the Company’s leverage ratio, type of loan and rate type, and letter of credit fees of 2.5%. The Company had no outstanding borrowings under the ABL facility at June 30, 2020. The Company had $9.6 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL facility of $140.4 million as of June 30, 2020.
The principal balance of the first lien term loan is repayable in quarterly installments of $2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026. The quarterly principal payments commenced in March of 2020. Interest on the first lien term loan is payable monthly on Base Rate loans at Base Rate, as defined, plus 3.25% to 3.50%, depending on the Company’s leverage ratio. Interest is charged on Eurocurrency Rate loans at the Eurocurrency Rate, as defined, plus 4.25% to 4.50%, depending on the Company’s leverage ratio. The interest rate on the first lien term loan was derived4.68% as of June 30, 2020.
The second lien notes mature on August 6, 2027. Interest on the second lien notes is payable quarterly and is at the greater of 1% or London Interbank Offered Rate (“LIBOR”), plus 8.75%. The Company elected to pay-in-kind the first quarterly interest payment, due in November 2019, which resulted in the Company capitalizing the interest payment to the principal balance on the interest payment date, increasing the outstanding principal balance to $412.3 million. The Company paid the second and third quarterly interest payments, due in February 2020 and May 2020. The interest rate on the second lien notes was 10.25% as of June 30, 2020.

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Table of Contents
Cash Flows
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
The following table presents selected data from Medicare.Option Care Health’s unaudited condensed consolidated statements of cash flows:
 Six Months Ended June 30,
 20202019
(unaudited)(unaudited)Variance
(in thousands)
Net cash provided by operating activities$53,390  $22,406  $30,984  
Net cash used in investing activities(8,728) (7,866) (862) 
Net cash provided by (used in) financing activities6,381  (4,076) 10,457  
Net increase in cash and cash equivalents51,043  10,464  40,579  
Cash and cash equivalents - beginning of period67,056  36,391  30,665  
Cash and cash equivalents - end of period$118,099  $46,855  $71,244  
Cash Flows from Operating Activities
The increase in cash flows provided by operating activities is primarily due to working capital efficiencies and timing of vendor payments during the six months ended June 30, 2020.
Cash Flows from Investing Activities
The increase in cash flows used in investing activities is primarily due to increased fixed asset additions during the six months ended June 30, 2020 as we invested more into our pharmacies and infrastructure.
Cash Flows from Financing Activities
The increase in cash provided by (used in) financing activities is related to receipt of $11.7 million of CARES Act funds, partially offset by increased principal payments.
Commitments and Contractual Obligations
There were no material changes to our commitments under contractual obligations, as disclosed in our latest Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of June 30, 2020, Option Care Health did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies and Estimates
We prepare our Unaudited Condensed Consolidated Financial StatementsThe Company prepares its unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”), which requires usthe Company to make estimates and assumptions. We evaluate ourThe Company evaluates its estimates and judgments on an ongoing basis. We base our estimatesEstimates and judgments are based on historical experience and on various other factors that we believeare believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period presented. OurThe Company’s actual results may differ from these estimates, and different assumptions or conditions may yield different estimates.
There have been no significant changes in ourthe critical accounting estimates from those described in the Company’s audited consolidated financial statements and related notes, as presented in our Annual Report.


Off-Balance Sheet Arrangements
As of June 30, 2019, we did not have any material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Results of Operations - Three and Six Months Ended June 30, 2019 compared to June 30, 2018
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements included in Item 1.
Net Revenue

The following table summarizes our net revenue, gross profit and gross marginreport on 10-K for the three monthsyear ended June 30, 2019 and 2018 (in thousands):
 Three Months Ended 
 June 30,		 Change
 2019 2018 2019 v. 2018
Net revenue$191,517
 $175,789
 $15,728
 8.9%
Gross profit, excluding depreciation expense$64,653
 $59,957
 $4,696
 7.8%
Gross margin33.8% 34.1%    

Net Revenue. Net revenue for the three months ended June 30, 2019 increased primarily due to an increase in patients served and higher reimbursement rates for certain therapies.
Gross Profit and Gross Margin. Gross profit consists of revenue less cost of revenue (excluding depreciation expense). The cost of revenue (excluding depreciation expense) primarily includes the costs of prescription medications, supplies, nursing services, shipping and other direct and indirect costs. The increase in gross profit was primarily driven by an increase in net revenue of $15.7 million and supply chain cost improvement initiatives. Gross profit as a percentage of revenue decreased for the three months ended June 30, 2019 primarily due to the impact of lower estimated realization percentages on revenue billings and a higher mix of lower margin chronic therapies during the period.
Operating Expenses

The following tables summarize our operating expenses, and percentages of net revenue, for the three months ended June 30, 2019 and 2018 (in thousands):
 Three Months Ended 
 June 30,		 As a Percentage of Net Revenue
 2019 2018 2019 2018
Service location operating expenses$38,428
 $38,861
 20.1% 22.1%
General and administrative expenses11,796
 10,931
 6.2% 6.2%
Depreciation and amortization expense4,665
 6,366
 2.4% 3.6%
Restructuring, acquisition, integration, and other expenses2,871
 2,024
 1.5% 1.2%
Total operating expenses$57,760
 $58,182
 30.2% 33.1%

 Three Months Ended 
 June 30,		 Change
 2019 2018 2019 v. 2018
Service location operating expenses$38,428
 $38,861
 $(433) (1.1)%
General and administrative expenses11,796
 10,931
 865
 7.9 %
Depreciation and amortization expense4,665
 6,366
 (1,701) (26.7)%
Restructuring, acquisition, integration, and other expenses2,871
 2,024
 847
 41.8 %
Total operating expenses$57,760
 $58,182
 $(422) (0.7)%


Service Location Operating Expenses. Service location operating expenses consist primarily of wages and benefits, travel expenses, professional service and field office expenses for our healthcare professionals engaged in providing infusion services to our patients. Service location operating expenses decreased during the three months ended June 30, 2019 due to a decrease in payroll, travel, and facility expenses, offset partially by an increase in revenue cycle management costs.

General and Administrative Expenses. General and administrative expenses consist of wages and benefits for corporate overhead personnel, and certain corporate level professional service fees, including legal, accounting, and IT fees. The increase in general and administrative expenses during the three months ended June 30, 2019 resulted primarily from increased self-insurance costs, offset by a reduction in stock-compensation expense, accounting fees, and legal fees.
Depreciation and Amortization Expense. Depreciation and amortization expense includes the depreciation of property and equipment and the amortization of intangible assets such as customer relationships, trademarks, and non-compete agreements with estimable lives. The decrease in depreciation and amortization expense during the three months ended June 30, 2019 is attributable to full depreciation of certain property and equipment and full amortization of certain intangible assets.
Restructuring, Acquisition, Integration, and Other Expenses. Restructuring, acquisition, integration, and other expenses consist primarily of employee severance and other benefit-related costs, third-party consulting costs, redundant facility and personnel-related costs and certain other costs associated with our restructuring, acquisition, merger, and integration activities. The restructuring, acquisition, integration, and other expenses increase during the three months ended June 30, 2019 was primarily due to merger-related costs.
The following table summarizes our other expenses and income and income taxes for the three months ended June 30, 2019 and 2018 (in thousands):
 Three Months Ended 
 June 30,		 Change
 2019 2018 2019 v. 2018
Interest expense, net$15,638
 $13,805
 $1,833
 13.3 %
Change in fair value of equity linked liabilities5,216
 3,064
 2,152
 70.2 %
Loss (gain) on dispositions51
 (13) 64
 (492.3)%
Total other expense$20,905
 $16,856
 $4,049
 24.0 %
        
Income taxes:       
Income tax expense$(154) $(43) $(111) 258.1 %
        
Loss from discontinued operations:       
Loss from discontinued operations, net of income taxes$(1,500) $(15) $(1,485) 9,900.0 %

Interest Expense, Net. Interest expense, net consists of interest expense, amortization of deferred financing costs and debt discounts reduced by an immaterial amount of interest income. The increase in interest expense during the three months ended June 30, 2019 is primarily the result of increasing variable interest rates on the First and Second Lien Note Facilities and an increase to the principal balance of the Second Lien Note Facility to $126.2 million as a result of an additional $10.0 million borrowing during June 2018 and paid-in-kind interest being capitalized as principal during 2018 and 2019.

Change in Fair Value of Equity Linked Liabilities. The change in the fair value of equity linked liabilities during the three months ended June 30, 2019 represents the mark to market adjustment associated with the issuance of the 2017 Warrants. The increase was primarily driven by an increase in the Company’s stock price.
Income Tax Expense. Income tax expense for the three months ended June 30, 2019 is $0.2 million and includes a $1.9 million increase in deferred tax asset valuation allowances and nominal state tax expense, partially offset by a federal tax benefit of $2.9 million and $1.0 million of permanent items. Income tax expense for the three months ended June 30, 2018 is nominal and includes a federal tax benefit of $(3.2) million and permanent items of $0.7 million, offset by a $2.5 million adjustment to deferred tax asset valuation allowances and nominal state tax expense.
Loss from discontinued operations, net of income taxes: Loss from discontinued operations, net of income taxes for both the three and six months ended June 30, 2019 includes a $1.5 million provision for a non-binding settlement with a commercial payor

related to a business line that no longer exists. This settlement is contingent on the close of our merger with Option Care. For more information on this provision, please refer to Footnote 12 of our Unaudited Condensed Consolidated Financial Statements.

Net Revenue

The following table summarizes our net revenue, gross profit and gross margin for the six months ended June 30, 2019 and 2018 (in thousands):
 Six Months Ended 
 June 30,		 Change
 2019 2018 2019 v. 2018
Net revenue$370,473
 $344,373
 $26,100
 7.6%
Gross profit, excluding depreciation expense$122,317
 $115,005
 $7,312
 6.4%
Gross margin33.0% 33.4%    
Net Revenue. Net revenue for the six months ended June 30, 2019 increased $26.1 million due to an increase in patients served and higher reimbursement rates for certain therapies.
Gross Profit. Gross profit consists of revenue less cost of revenue (excluding depreciation expense). The cost of revenue (excluding depreciation expense) primarily includes the costs of prescription medications, supplies, nursing services, shipping and other direct and indirect costs. The increase in gross profit was primarily driven by an increase in net revenue of $26.1 million and supply chain cost improvement initiatives. Gross profit as a percentage of revenue declined slightly for the six months ended June 30, 2019 due to the impact of lower estimated realization percentages on revenue billings.
Operating Expenses

The following tables summarize our operating expenses, and percentages of net revenue, for the six months ended June 30, 2019 and 2018 (in thousands):
 Six Months Ended 
 June 30,		 As a Percentage of Net Revenue
 2019 2018 2019 2018
Service location operating expenses$78,615
 $78,160
 21.2% 22.7%
General and administrative expenses23,290
 21,600
 6.3% 6.3%
Depreciation and amortization expense9,738
 12,852
 2.6% 3.7%
Restructuring, acquisition, integration, and other expenses8,892
 3,906
 2.4% 1.1%
Total operating expenses$120,535
 $116,518
 32.5% 33.8%
 Six Months Ended 
 June 30,		 Change
 2019 2018 2019 v. 2018
Service location operating expenses$78,615
 $78,160
 $455
 0.6 %
General and administrative expenses23,290
 21,600
 1,690
 7.8 %
Depreciation and amortization expense9,738
 12,852
 (3,114) (24.2)%
Restructuring, acquisition, integration, and other expenses8,892
 3,906
 4,986
 127.6 %
Total operating expenses$120,535
 $116,518
 $4,017
 3.4 %
Service Location Operating Expenses. Service location operating expenses consist primarily of wages and benefits, travel expenses, professional service and field office expenses for our healthcare professionals engaged in providing infusion services to our patients. Service location operating expenses for the six months ended June 30, 2019 increased due to decreased wage, benefit, and other employee costs as a result of integration, restructuring, and other workforce optimization efforts, offset by an increase in revenue cycle management costs.

General and Administrative Expenses. General and administrative expenses consist of wages and benefits for corporate overhead personnel and certain corporate level professional service fees, including legal, accounting, and IT fees. The increase in general and administrative expenses resulted primarily from increased self-insurance costs, offset by decreased professional service fees including legal and accounting.
Depreciation and Amortization Expense. Depreciation and amortization expense includes the depreciation of property and equipment and the amortization of intangible assets such as customer relationships, trademarks, and non-compete agreements with estimable lives. The decrease in depreciation and amortization expense for six months ended June 30, 2019 is attributable to full depreciation of certain property and equipment and full amortization of certain intangible assets.
Restructuring, Acquisition, Integration, and Other Expenses. Restructuring, acquisition, integration, and other expenses consist primarily of employee severance and other benefit-related costs, third-party consulting costs, redundant facility and personnel-related costs and certain other costs associated with our restructuring, acquisition, and integration activities. Restructuring, acquisition, integration, and other expenses increased during the six months ended June 30, 2019 primarily due to merger-related costs.
The following table summarizes our other expenses and income and income taxes for the six months ended June 30, 2019 and 2018 (in thousands):
 Six Months Ended 
 June 30,		 Change
 2019 2018 2019 v. 2018
Interest expense, net$30,869
 $27,200
 $3,669
 13.5 %
Change in fair value of equity linked liabilities(4,784) (375) (4,409) 1,175.7 %
Loss (gain) on dispositions(25) (318) 293
 (92.1)%
Total other expense$26,060
 $26,507
 $(447) (1.7)%
        
Income taxes:       
Income tax expense$(170) $(91) $(79) 86.8 %
        
Loss from discontinued operations:       
Loss from discontinued operations, net of income taxes$(1,500) $(45) $(1,455) 3,233.3 %
Interest Expense, Net. Interest expense, net consists of interest expense, amortization of deferred financing costs and debt discounts, reduced by an immaterial amount of interest income. During the six months ended June 30, 2019 and 2018, we recorded interest expense of $30.9 million and $27.2 million, respectively, including $6.1 million and $4.7 million of amortization of deferred financing costs and debt discounts, respectively. The increase in interest expense during the six months ended June 30, 2019 as compared to the same period in 2018 is primarily the result of the changes in debt structure (see Note 5 - Debt), and increasing variable interest rates on the First and Second Lien Note Facilities.
Change in Fair Value of Equity Linked Liabilities. The decrease in the change in fair value of equity linked liabilities during the six months ended June 30, 2019, represents the mark-to-market adjustment to the estimated fair value of the 2017 Warrants. The decrease in value was primarily driven by a decrease in the Company’s stock price.
Income Tax Expense. Income tax expense for the six months ended June 30, 2019 of $0.2 million includes a $4.9 million increase in deferred tax asset valuation allowances and $0.2 million of state tax expense, offset by a federal tax benefit of $5.1 million and permanent items of $0.2 million. Income tax expense for the six months ended June 30, 2018 of $0.1 million includes a $5.9 million increase in deferred tax asset valuation allowances, $0.1 million of state tax expense, and nominal permanent items, offset by a federal tax benefit of $5.9 million.
Loss from discontinued operations, net of income taxes. Loss from discontinued operations, net of income taxes for both the three and six months ended June 30, 2019 includes a $1.5 million provision for a non-binding settlement with a commercial payor related to a business line that no longer exists. This settlement is contingent on the close of our merger with Option Care. For more information on this provision, please refer to Footnote 12 of our Unaudited Condensed Consolidated Financial Statements.

Non-GAAP Measures
The following table reconciles GAAP loss from continuing operations, net of income taxes to Adjusted EBITDA. Adjusted EBITDA is net loss from continuing operations, net of income taxes, adjusted for interest expense, net, gain on dispositions, income tax expense, depreciation and amortization expense, stock-based compensation expense, and change in fair value of equity linked liabilities. Adjusted EBITDA also excludes restructuring, acquisition, integration, and other expenses, including associated non-recurring costs such as employee severance costs, certain legal and professional fees, training costs, redundant wage costs, and other costs related to contract terminations and closed branches/offices.

Adjusted EBITDA is a measure of earnings that management monitors as an important indicator of financial performance, particularly future earnings potential and recurring cash flow. Adjusted EBITDA is also a primary objective of the management bonus plan. Inclusion of Adjusted EBITDA is intended to provide investors insight into the manner in which management views the performance of the Company.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Our calculation of Adjusted EBITDA, as presented, may differ from similarly titled measures reported by other companies. We encourage investors to review these reconciliations and we qualify our use of non-GAAP financial measures with cautionary statements as to their limitations.
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
(in thousands)     
Loss from continuing operations$(14,166) $(15,124) $(24,448) $(28,111)
        
Interest expense, net(15,638) (13,805) (30,869) (27,200)
Loss (gain) on dispositions(51) 13
 25
 318
Income tax expense(154) (43) (170) (91)
Depreciation and amortization expense(4,665) (6,366) (9,738) (12,852)
Stock-based compensation(1,065) (1,253) (2,160) (1,808)
Change in fair value of equity linked liabilities(5,216) (3,064) 4,784
 375
Restructuring, acquisition, integration, and other expenses(2,871) (2,024) (8,892) (3,906)
Adjusted EBITDA$15,494
 $11,418
 $22,572
 $17,053
Adjusted EBITDA increased during the three months and six months ended June 30, 2019 compared to the same period of the prior year primarily due to the overall impact of the Company’s shift in strategy to focus on growing its core revenue mix and restructuring and integration efforts which optimized operations.
Liquidity and Capital Resources
At June 30, 2019, we had net working capital of $61.5 million, including $14.4 million of cash on hand, compared to $67.4 million of net working capital at December 31, 2018. The $5.9 million decrease was the result2019, hereby incorporated by reference.
34
Table of an increase in the current portion of long-term debt as principal payments on the First Lien Note Facility begin September 30, 2019, a net increase in other accounts payable and accrued expenses, and a decrease in prepaid expenses. At June 30, 2019, we had outstanding letters of credit totaling $4.3 million, collateralized by restricted cash of $4.3 million.Contents
On March 14, 2019 we entered into a definitive merger agreement with the shareholder of Option Care Enterprises, Inc. (“Option Care”), the nation’s largest independent provider of home and alternate treatment site infusion therapy services. Under the terms of the merger agreement, the Company will issue new shares of its common stock to the Option Care’s shareholder in a non-taxable exchange, which will result in BioScrip shareholders holding approximately 20% of the combined company. The shareholder of Option Care has secured committed financing, the proceeds of which will be used to retire the Company’s First Lien Note Facility, Second Lien Note Facility and 2021 Notes at the close of the transaction.  Following the close of the transaction, the combined company common stock will continue to be listed on the Nasdaq Global Market. The transaction is currently expected to close during the third quarter of 2019.
We regularly evaluate market conditions and financing options to improve our current liquidity profile and enhance our financial flexibility. These options may include opportunities to raise additional funds through the issuance of various forms of equity and/or debt securities or other instruments, or the sale of assets or refinancing all or a portion of our indebtedness.

In May 2019, the First Lien Note Facility was amended to allow for additional borrowings up to $8.0 million under terms materially consistent with the existing agreement. During the second quarter, the company drew the full $8.0 million and no additional borrowings are available. These borrowings are intended to provide us with working capital resources and financial flexibility needed before the close of the anticipated merger with Option Care.
While the contemplated merger is in process of closing, we will continue to execute on our strategic plans, which include growing revenue, improving our EBITDA margins, and accelerating our cash collections. If the merger does not close and/or we are unsuccessful in executing our strategic plans, including the acceleration of cash collections, there would be an adverse effect on our liquidity and results of operations and we will likely require additional or alternative sources of liquidity, including additional borrowings. However, there is no assurance that, if necessary, we would be able to raise enough capital to provide the required liquidity.
As of the filing of this Quarterly Report, and notwithstanding the above, we expect that our cash on hand, cash from operations, and additional borrowing capacity under the First Lien Note Facility will be sufficient to fund our anticipated working capital, scheduled interest repayments and other cash needs for at least the next 12 months. Principal payments on the Notes Facilities commence on September 30, 2019.
Operating Activities
Net cash used in operating activities from continuing operations totaled $3.9 million during the six months ended June 30, 2019 compared to $20.3 million during the six months ended June 30, 2018, a decrease of $16.4 million. The change is primarily related to fluctuations in the timing of collections of accounts receivable, inventory purchases and cash disbursements.
Investing Activities
Net cash used in investing activities from continuing operations during the six months ended June 30, 2019 was $3.2 million compared to $6.9 million during the same period in 2018. The decrease in cash used in investing was primarily due to a decrease in equipment purchases and renovations of branch locations.
Financing Activities
Net cash provided by financing activities from continuing operations during the six months ended June 30, 2019 was $7.0 million compared to $8.6 million during the same period in 2018, which was driven by a decrease in borrowings of long-term debt during the six months ended June 30, 2019 offset by lower finance lease payments.
Item 3.Quantitative and Qualitative Disclosures About Market Risks
Item 3.Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our exposure to market risk from those reportedincluded in our Annual Report.Report on Form 10-K for the year ended December 31, 2019, hereby incorporated by reference.
Item 4.Controls and Procedures
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2019.2020. Based on that evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019.2020.
Changes in Internal Control OverControls over Financial Reporting
There have been noThe Merger, which was completed on August 6, 2019, has had a material impact on the financial position, results of operations, and cash flows of the combined company from the date of acquisition through June 30, 2020. The business combination also resulted in material changes in ourthe combined company's internal controlcontrols over financial reporting. The Company is in the process of designing and integrating policies, processes, operations, technology, and other components of internal controls over financial reporting that occurred duringof the six months ended June 30, 2019 that have materially affected, orcombined company. Management will monitor the implementation of new controls and test the operating effectiveness when instances are reasonably likely to materially affect, our internal control over financial reporting.available in future periods.
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Table of Contents
PART II
OTHER INFORMATION
Item 1.Legal Proceedings
Item 1.Legal Proceedings

For a summary of legal proceedings, please refer to Note 12 within14, Commitments and Contingencies, of the unaudited condensed consolidated financial statements sectionincluded in Item 1 of this document.report.
Item 1A.Risk Factors
In addition to theItem 1A.Risk Factors
The risk factors disclosed in “Item 1A. Risk Factors” included in our Annual Report investors should carefully consideron Form 10-K for the following risk factors, which relate to the pending merger with Option Care. These risks should be read in conjunction with the risk factors set forth in our Annual Report and the other information contained in this report and our other filings with the SEC, whichyear ended December 31, 2019 are hereby incorporated by reference.
Risks RelatingIn addition to these risk factors, you should carefully consider the risk factor below:
The recent COVID-19 pandemic could adversely impact our business operations, results of operations, cash flows and financial position
In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The World Health Organization has declared COVID-19 a pandemic and public health emergency of international concern. In March 2020, the President of the United States declared a State of National Emergency due to the Merger with Option Care

BioScrip stockholders will haveCOVID-19 outbreak. Other countries affected by the outbreak took similar measures. Consequently, the COVID-19 pandemic has had a reduced ownership and voting interest in the combined company after the completion of the merger and will exercise less influence over management.
Currently, BioScrip stockholders have the right to vote in the election of the Board of Directors of BioScrip and the power to approve or reject any matters requiring stockholder approval under Delaware law and BioScrip’s certificate of incorporation and BioScrip’s bylaws. Upon completion of the merger with Option Care, referred to as the merger, BioScrip’s current stockholders will have a percentage ownership of BioScrip that is smaller than the BioScrip stockholders’ current percentage ownership of BioScrip. At the effective time of merger, the parent company of Option Care (“Omega Parent”) will receive 542,261,567 shares of BioScrip common stock. As of the date of the merger agreement with Option Care (referred to as the merger agreement) there were 128,160, 291 shares of BioScrip common stock outstanding, which represent approximately 20.5% of the combined company on a fully diluted pro forma basis (based on the BioScrip share price as of signing, and taking into account the share issuance in respect of the certain transactions related to the merger and the vesting of certain restricted stock units and performance restricted stock units as a result of the merger). Even if all former BioScrip stockholders voted together on all matters presented to BioScrip stockholders from time to time, the former BioScrip stockholders would exercise significantly less influence over BioScrip after the completion of the merger relative to their influence over BioScrip prior to the completion of the merger, and thus would have a less significantmaterial impact on the electionU.S. and global economies.
We are closely monitoring the impact of the BoardCOVID-19 pandemic on all aspects of Directorsour business, including how it will impact our patients, teammates, suppliers, vendors, referral sources, and third party payers. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which may adversely affect our business operations and may materially and adversely affect our results of BioScripoperations, cash flows and financial position.
While we cannot predict the impact that COVID-19 will have on our patients, suppliers, vendors, and third party payers and each of their financial conditions, we believe the following factors could lead to a material adverse impact on the approval or rejectionCompany’s business:
•Variability in acute therapy patient referrals from hospitals based on changes in hospital-based procedures and treatment patterns;
•Variability in chronic therapy patient referrals based on disruptions in the diagnosis of chronic conditions requiring infusion therapy;
•Inefficiencies in clinical labor expenses and higher labor costs from staffing disruptions and availability, potential overtime due to inefficient clinical staffing and utilization of contract labor;
•Higher costs to procure, and potential unavailability of, critical personal protection equipment, pharmaceuticals and medical supplies given a constrained supply environment; and
•Heightened operational risks from an extended period of remote work arrangements, which could strain our business continuity plans, including but not limited to cybersecurity risks, and could impair our ability to manage our business.
The situation is changing rapidly and additional consequences may arise that we are not aware of currently. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future proposals submitteddevelopments that we are not able to a stockholder vote. In addition, directors of BioScrip, as of immediately prior topredict, including: the effective timeseverity and duration of the merger, will represent twooutbreak; governmental, business and other actions; the promotion of social distancing and the adoption of shelter-in-place orders affecting our referral sources; the impacts on our supply chain; the impact of the 10 memberspandemic on economic activity; the health of the Board of Directors of BioScrip as of the effective time of the merger. Accordingly, each BioScrip stockholder will have less influence on the management and policies of BioScrip after the closing than such stockholder now has on the management and policies of BioScrip.

The merger may not be completed and the merger agreement mayeffect on our workforce; any impairment in value of our tangible or intangible assets which could be terminated in accordance with its terms.
The merger subject to a number of conditions that must be satisfied or waived (to the extent permissible), in each case prior to the completion of the merger. These conditions to the completion of the merger, some of which are beyond the control of BioScrip, may not be satisfied or waived in a timely manner or at all, and, accordingly, the merger may be delayed or not completed.
Additionally, either BioScrip or Option Care may terminate the merger agreement under certain circumstances, including, among other reasons, if the merger is not completed by December 13, 2019. Furthermore, if the merger agreement is terminated under certain circumstances specified therein, BioScrip may be required to pay Option Care a termination fee of $15.0 million, including certain circumstances in which the Board of Directors of BioScrip effects a recommendation against the merger or in favor of a third party superior acquisition proposal, or BioScrip terminates the merger agreement in connection with entering into a superior proposal.

The termination of the merger agreement could negatively impact BioScrip.
If the merger not completed for any reason, includingrecorded as a result of a failure to obtain the BioScrip requisite stockholder’s approval, the ongoing business of BioScrip may be adversely affected and, without realizing any of the benefits of having completed the merger, BioScrip would be subject to a number of risks, including the following:
BioScrip may experience negative reactions from the financial markets, including negative impacts on its stock price;
BioScrip may experience negative reactions from its suppliers, customers and employees;
the possible loss of employees necessary to operate the BioScrip business;
having to pay significant costs relating to the merger without receiving the benefits of the merger, including, in certain circumstances, a termination fee of $15.0 million or an expense reimbursement of up to $5.0 million;
BioScrip will be required to pay its costs relating to the merger, such as financial advisory, legal and accounting costs and associated fees and expenses, whether or not the merger are completed;

if the merger agreement is terminatedweaker economic conditions; and the Board of Directors of BioScrip seeks another business combination, BioScrip stockholders cannot be certain that BioScrip will be able to find a party willing to enter into a transactionpotential effects on terms equivalent to or more attractive than the terms that Option Care has agreed to in the merger agreement;
the merger agreement places certain restrictions on the conduct of BioScrip’s business prior to completion of the merger and such restrictions, the waiver of which is subject to the consent of Option Care (not to be unreasonably withheld, conditioned or delayed), which may prevent BioScrip from making certain acquisitions or taking certain other specified actions during the pendency of the merger; and
matters relating to the merger (including integration planning) will require substantial commitments of time and resources by BioScrip management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to BioScrip as an independent company.

Until the completion of the merger or the termination of the merger agreement in accordance with its terms, BioScrip is prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to BioScrip and its stockholders.
From and after the date of the merger agreement and prior to completion of the merger, the merger agreement restricts BioScrip from taking specified actions without the consent of the Option Care (not to be unreasonably withheld, conditioned or delayed) and requires that BioScrip use its reasonable best efforts to carry on its business and to cause its subsidiaries to carry on their respective businesses in the ordinary course consistent with past practice. These restrictions may prevent BioScrip from making appropriate changes to its business or organizational structure or from pursuing attractive business opportunities that may arise prior to the completion of the merger, and could have the effect of delaying or preventing other strategic transactions.
Adverse effects arising from the pendency of the merger could be exacerbated by any delays in consummation of the merger or termination of the merger agreement.

The merger agreement limits BioScrip’s ability to pursue alternatives to the business combination.
The merger agreement contains provisions that may discourage a third party from submitting an acquisition proposal to BioScrip that might result in greater value to BioScrip’s stockholders than the business combination with Option Care.
The merger agreement contains a general prohibition on BioScrip from soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by the Board of Directors of BioScrip, entering into discussions with any third party regarding any acquisition proposal or offer for a competing transaction. Further, subject to limited exceptions, consistent with applicable law, the merger agreement provides that the Board of Directors of BioScrip will not withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify) its recommendation in favor of the merger and the transactions contemplated hereby. Although the Board of Directors of BioScrip is permitted to effect a change in recommendation with respect to the merger after complying with certain procedures set forth in the merger agreement,our internal controls including in response to a superior proposal or an intervening event, if it determines in good faith (after consultation with outside counsel) that the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties, such change in recommendation would entitle Omega to terminate the merger agreement and collect a termination fee from BioScrip in the amount of $15.0 million. BioScrip may also terminate the merger agreement if, prior to the approval of the BioScrip proposals at the special meeting, the Board of Directors of BioScrip determines to enter into a definitive written agreement with respect to a superior proposal, but only if  (x) BioScrip is permitted to terminate the merger agreement and accept such superior proposal, (y) BioScrip has not materially breached or failed to perform any of its covenants or agreements with respect to non-solicitation of alternative proposals under the merger agreement and (z) immediately prior to or substantially concurrently with such termination, BioScrip pays the $15.0 million termination fee to Omega Parent.
These provisions could discourage a potential competing acquirer from considering or proposing an acquisition or merger, even if it were prepared to pay consideration with a higher value than that implied by the merger consideration, or might result in a potential competing acquirer proposing to pay a lower per-share price than it might otherwise have proposed to pay.

BioScrip stockholders will not be entitled to appraisal rights in the merger.
Appraisal rights are statutory rights that, if applicable under law, enable stockholders of a corporation to dissent from an extraordinary transaction, such as a merger, and to demand that such corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to such stockholders in connection with the transaction. Under the Delaware General Corporation Law (as amended, the “DGCL”), stockholders do not have appraisal rights if the shares of stock they hold are either listed on a national securities exchange or held of record by more than 2,000 holders. Notwithstanding the foregoing, appraisal rights are available if stockholders are required by the terms of a merger agreement to

accept for their shares anything other than (a) shares of stock of the surviving corporation, (b) shares of stock of another corporation that will either be listed on a national securities exchange or held of record by more than 2,000 holders, (c) cash in lieu of fractional shares or (d) any combination of the foregoing.
Because holders of BioScrip common stock will continue to hold their shares following completion of the merger, holders of BioScrip common stock are not entitled to appraisal rights in the merger.

Shares of BioScrip common stock after the closing will have rights different from the shares of BioScrip common stock prior to the closing.
Upon consummation of the merger, the rights of BioScrip stockholders, will be governed by the third amended and restated certificate of incorporation and bylaws of BioScrip. At the closing of the merger, BioScrip will also enter into the director nomination agreement. The rights associated with BioScrip common stock as of the date hereof and prior to the closing are different from the rights which will be associated with the BioScrip common stock after the closing.

Obtaining required approvals and satisfying closing conditions may prevent or delay completion of the merger.
The merger is subject to a number of conditions to the closing as specified in the merger agreement. These closing conditions include, the requisite approval of the BioScrip stockholders in favor of the merger and certain of the other transactions contemplated by the merger agreement, the expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Act (as amended, the “HSR Act”), the absence of governmental restraints or prohibitions preventing the consummation of the merger and receipt of certain regulatory consents or approvals under laws regulating pharmacies in California and North Carolina. The obligation of each of BioScrip and Option Care to consummate the merger is also conditioned on, among other things, the absence of a material adverse effect on the other party, the truth and correctness of the representations and warranties made by the other party on the date of the merger agreement and on the closing date (subject to certain materiality qualifiers), and the performance by the other party in all material respects of its obligations under the merger agreement. No assurance can be given that the required stockholder, governmental and regulatory consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the merger could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that BioScrip and Option Care expect to achieve if the merger is successfully completed within its expected time frame.

BioScrip and Option Care must obtain certain regulatory approvals and clearances to consummate the merger, which, if delayed, not granted or granted with unacceptable conditions, could prevent, substantially delay or impair consummation of the merger, result in additional expenditures of money and resources or reduce the anticipated benefits of the merger.
The completion of the merger is subject to the receipt of antitrust clearance in the United States. Under the HSR Act, the merger may not be completed until Notification and Report Forms have been filed with the FTC and the DOJ and the applicable waiting period has expired or been terminated. A transaction requiring notification under the HSR Act may not be completed until the expiration of a 30-calendar-day waiting period following the parties’ filing of their respective HSR notifications or the early termination of that waiting period. BioScrip and Omega each filed an HSR notification with the FTC and the DOJ on March 28, 2019 and the waiting period was terminated early on April 8, 2019.
At any time before or after consummation of the merger, notwithstanding the expiration or termination of the applicable waiting period under the HSR Act, the DOJ or the FTC, or any state, could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the merger, and notwithstanding the expiration or termination of the applicable waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.
In addition, Option Care’s and Omega Parent’s obligation to effect the merger are subject to obtaining the consent (or written correspondence that such consent will be issued shortly after the closing) of the California Board of Pharmacy and the North Carolina Board of Pharmacy in respect of the merger for certain pharmacy permits currently held by BioScrip and Option Care. Other state regulatory bodies may also require filings or consents to the merger, however, BioScrip and Option Care do not believe such other actions are material. While BioScrip and Omega expect to obtain such consents, there is no assurance that such consents

will be obtained. The failure to obtain the California or North Carolina consent, or any condition or delay arising in connection with obtaining such consents, could result in the conditions to the merger not being satisfied.
Any one of these requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the completion of or reduce the anticipated benefits of the merger. There is no assurance that BioScrip and Option Care will obtain the required clearances or approvals on a timely basis, or at all. Failure to obtain the necessary clearance under the HSR Act could substantially delay or prevent the consummation of the merger, which could negatively impact BioScrip.

BioScrip and Option Care may waive one or more of the conditions to the merger without resoliciting stockholder approval.
BioScrip and Option Care may determine to waive, in whole or in part, one or more of the conditions to its obligations to complete the merger, to the extent permitted by applicable laws. BioScrip will evaluate the materiality of any such waiver and its effect on BioScrip stockholders in light of the facts and circumstances at the time to determine whether any amendment of the proxy statement filed by BioScrip in respect of the merger and resolicitation of proxies is required or warranted. In some cases, if the Board of Directors of BioScrip determines that such a waiver is warranted but that such waiver or its effect on BioScrip stockholders is not sufficiently material to warrant resolicitation of proxies, BioScrip has the discretion to complete the merger without seeking further stockholder approval. Any determination whether to waive any condition to the merger or as to resoliciting stockholder approval or amending the proxy statement filed by BioScrip in respect of the mergerthose over financial reporting as a result of a waiverchanges in working environments such as shelter-in-place and similar orders that are applicable to our teammates. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, or impacts our credit ratings or stock price, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.
In addition, we cannot predict the impact that COVID-19 will be made by BioScrip at the timehave on our patients, suppliers, vendors, and third party payers, and each of such waiver basedtheir financial conditions; however, any material effect on the facts and circumstances as they exist at that time.
If BioScrip’s due diligence investigationthese parties could adversely impact us. The impact of Option Care was inadequate or if unexpectedCOVID-19 may also exacerbate other risks related to Option Care’s business materialize, itdiscussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material adverse effect on BioScrip stockholders’ investment.
Even though BioScrip conducted a due diligence investigation of Option Care, BioScrip cannot be sureus. This situation is changing rapidly and additional impacts may arise that its diligence surfaced all material issues that may be present inside Option Care or its business, or that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Option Care and its business and outside of its control will not arise later. If any such material issues arise, they may materially and adversely impact the ongoing business of the combined company and BioScrip stockholders’ investment.

Because the lack of a public market for Option Care shares makes it difficult to evaluate the fairness of the merger, the stockholders of Option Care may receive consideration in the merger that is more than the fair market value of the Option Care shares.
The outstanding capital stock of Option Care is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Option Care. Because the percentage of BioScrip equity to be issued to Option Care stockholders as consideration for the merger is determined based on an exchange ratio negotiated between the parties that will not be adjusted even if there is a change in the value of BioScrip, it is possible that the value of BioScrip common stock to be received by Option Care stockholders will be more than the fair market value of Option Care.

The directors and executive officers of BioScrip have interests and arrangements that may be different from, or in addition to, those of BioScrip stockholders generally.
Certain of BioScrip’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of BioScrip’s stockholders generally. These interests include, butwe are not limited to, continued serviceaware of certain memberscurrently.
36
Table of the Board of Directors of BioScrip on the board of directors of the combined company. In addition, certain executive officers of BioScrip, including Daniel Greenleaf, Stephen Deitsch, and Harriet Booker and certain other executive officers of BioScrip, hold equity awards and options with respect to BioScrip common stock that will become fully vested at the closing and that will become fully vested if the executive officer is terminated without “cause” or resigns for “good reason” within 12 months following the occurrence of the merger. Certain BioScrip executive officers also have employment or severance agreements that provide for severance payments and benefits in the event of a termination of employment by BioScrip without “cause” or resignation for “good reason” within 12 months following the occurrence of a “change in control” of BioScrip.Contents
In addition, Christopher Shackelton, a director on the Board of Directors of BioScrip, is a co-founder and managing partner of Coliseum Capital. Funds and accounts managed by Coliseum Capital beneficially own 100% of the Series C Convertible Preferred Stock of BioScrip and 50.04% of the Series A Convertible Preferred Stock of BioScrip. In connection with the merger agreement, BioScrip entered into the Preferred Stock Repurchase Agreement to purchase 100% of the Series C Convertible Preferred Stock held by funds and accounts managed by Christopher Shackelton and the Board of Directors of BioScrip approved the Series A COD Amendment. The Preferred Stock Repurchase Agreement and the Series A COD Amendment are described in more detail in the Preliminary Proxy Statement filed by BioScrip on April 30, 2019.

Item 5.Other Information
None.

Item 6.Exhibits
(a) Exhibits.
Item 6.Exhibit Number Exhibits
(a) Exhibits.
Description
Exhibit Number Description
2.1+31.1
3.1
Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4 (File No. 333-119098) declared effective on January 26, 2005).
3.2
Amendment to the Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 10, 2010, SEC File Number 000-28740).
3.3
Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of BioScrip, Inc. dated November 30, 2016 (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on December 2, 2016).
3.4
Certificate of Designations for Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 10, 2015, SEC File Number 000-28740).
3.5
Certificate of Designations for Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 13, 2016, SEC File Number 000-28740).
3.6
Certificate of Designations for Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 14, 2016, SEC File Number 000-28740).
3.7
Certificate of Designations, Preferences, and Rights for Series D Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 12, 2016, SEC File Number 000-28740).
3.8
Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on April 28, 2011, SEC File Number 000-28740).
4.1
Registration Rights Agreement, dated June 29, 2017, by and among the Company and the parties signatory thereto (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
4.2
Warrant Agreement, dated June 29, 2017, by and among the Company and the subscribers signatory thereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
10.1
Preferred Stock Repurchase Agreement, dated as of March 14, 2019, by and among BioScrip, Inc. and the parties signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 15, 2019).
10.2
Amended and Restated Warrant Agreement, dated as of March 14, 2019, by and among BioScrip, Inc. and the Holders (as defined therein) signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 15, 2019).
10.3
Form of Letter Agreement, dated March 14, 2019, by and among BioScrip, Inc. and each of the Holders (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 15, 2019).
10.4
Amendment No.1 to Registration Rights Agreement by and between BioScrip, Inc. and the stockholders of the Company signatory thereto (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 15, 2019).
31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
32.1
32.2
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Labels Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104XBRL Formatted Cover Page
+Certain schedules attached to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of the omitted schedules to the Securities and Exchange Commission upon request by the Commission.


SIGNATURES

Pursuant to the requirements 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, on July 31, 2019.authorized.



                                                          BIOSCRIP OPTION CARE HEALTH, INC.
Date: August 4, 2020
/s/  Stephen DeitschMichael Shapiro
                                                          Stephen DeitschMichael Shapiro
Chief Financial Officer and Treasurer (Principal Financial Officer and Duly Authorized Officer)


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