UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended September 30, ~~2021~~2022
			OR
☐			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

OPTION CARE HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware

05-0489664

(State of incorporation)

(I.R.S. Employer Identification No.)

3000 Lakeside Dr.

Suite 300N,

Bannockburn,

60015

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

312-940-2443

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	OPCH	Nasdaq 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 ☑ No ☐

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 ☑ No ☐

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 ☐☑ Accelerated filer ☑☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On ~~November 2, 2021,~~October 25, 2022, there were ~~179,875,193~~181,900,930 shares of the registrant’s Common Stock outstanding.

TABLE OF CONTENTS

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to "Option Care Health," the “Company,” “we,” “us” and “our” refer to Option Care Health, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

This Form 10-Q includes forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements concerning our expectations regarding industry and macroeconomic trends and our operating performance. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “believe,” “project,” “estimate,” “expect,” “may,” “should,” “will” and similar references to future periods.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. If any of these risks materialize, or if any of our assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, those set forth in Item 1A, “Risk Factors,” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 (our “Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”). Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10-Q. Any forward-looking statement made by us in this Form 10-Q speaks only as of the date hereof. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements

Table of Contents

OPTION CARE HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)


		(unaudited)					September 30, 2022		December 31, 2021
		September 30, 2021		December 31, 2020			(unaudited)
ASSETS	ASSETS					ASSETS
CURRENT ASSETS:	CURRENT ASSETS:					CURRENT ASSETS:
Cash and cash equivalents	Cash and cash equivalents	$	200,856	$	99,265	Cash and cash equivalents	$	255,468	$	119,423
Accounts receivable, net	Accounts receivable, net	355,650		328,340		Accounts receivable, net	364,187		338,242
Inventories	Inventories	189,830		158,601		Inventories	236,020		183,095
Prepaid expenses and other current assets	Prepaid expenses and other current assets	64,848		70,806		Prepaid expenses and other current assets	96,289		69,496
Total current assets	Total current assets	811,184		657,012		Total current assets	951,964		710,256

NONCURRENT ASSETS:	NONCURRENT ASSETS:					NONCURRENT ASSETS:
Property and equipment, net	Property and equipment, net	106,788		121,149		Property and equipment, net	96,312		111,535
Operating lease right-of-use asset	Operating lease right-of-use asset	71,992		68,795		Operating lease right-of-use asset	72,369		74,777
Intangible assets, net	Intangible assets, net	343,764		351,052		Intangible assets, net	23,066		21,433
Referral sources						Referral sources	349,487		344,587
Goodwill	Goodwill	1,428,610		1,428,610		Goodwill	1,533,043		1,477,564
Deferred income taxes						Deferred income taxes	—		27,033
Other noncurrent assets	Other noncurrent assets	23,806		20,821		Other noncurrent assets	47,022		23,733
Total noncurrent assets	Total noncurrent assets	1,974,960		1,990,427		Total noncurrent assets	2,121,299		2,080,662
TOTAL ASSETS	TOTAL ASSETS	$	2,786,144	$	2,647,439	TOTAL ASSETS	$	3,073,263	$	2,790,918

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:	CURRENT LIABILITIES:					CURRENT LIABILITIES:
Accounts payable	Accounts payable	$	318,561	$	282,913	Accounts payable	$	409,737	$	279,246
Accrued compensation and employee benefits	Accrued compensation and employee benefits	64,676		58,899		Accrued compensation and employee benefits	58,014		83,503
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	71,759		64,075		Accrued expenses and other current liabilities	93,803		71,857
Current portion of operating lease liability	Current portion of operating lease liability	18,893		18,886		Current portion of operating lease liability	19,246		19,089
Current portion of long-term debt	Current portion of long-term debt	11,775		9,250		Current portion of long-term debt	6,000		6,000
Total current liabilities	Total current liabilities	485,664		434,023		Total current liabilities	586,800		459,695

NONCURRENT LIABILITIES:	NONCURRENT LIABILITIES:					NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion	Long-term debt, net of discount, deferred financing costs and current portion	1,117,823		1,115,103		Long-term debt, net of discount, deferred financing costs and current portion	1,058,606		1,059,900
Operating lease liability, net of current portion	Operating lease liability, net of current portion	71,684		70,776		Operating lease liability, net of current portion	71,864		74,492
Deferred income taxes	Deferred income taxes	4,519		3,339		Deferred income taxes	10,598		—
Other noncurrent liabilities	Other noncurrent liabilities	8,974		8,474		Other noncurrent liabilities	8,060		20,945
Total noncurrent liabilities	Total noncurrent liabilities	1,203,000		1,197,692		Total noncurrent liabilities	1,149,128		1,155,337
Total liabilities	Total liabilities	1,688,664		1,631,715		Total liabilities	1,735,928		1,615,032

STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:					STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2021 and December 31, 2020, respectively		—		—
Common stock; $0.0001 par value: 250,000,000 shares authorized, 180,258,555 shares issued and 179,874,833 shares outstanding as of September 30, 2021; 180,178,308 shares issued and 179,794,586 shares outstanding as of December 31, 2020		18		18
Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2021 and December 31, 2020, respectively		(2,403)		(2,403)
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2022 and December 31, 2021, respectively						Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Common stock; $0.0001 par value: 250,000,000 shares authorized, 182,284,651 shares issued and 181,900,929 shares outstanding as of September 30, 2022; 180,309,637 shares issued and 179,925,915 shares outstanding as of December 31, 2021						Common stock; $0.0001 par value: 250,000,000 shares authorized, 182,284,651 shares issued and 181,900,929 shares outstanding as of September 30, 2022; 180,309,637 shares issued and 179,925,915 shares outstanding as of December 31, 2021	18		18
Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2022 and December 31, 2021, respectively						Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2022 and December 31, 2021, respectively	(2,403)		(2,403)
Paid-in capital	Paid-in capital	1,135,465		1,129,312		Paid-in capital	1,172,315		1,138,855
Accumulated deficit		(35,600)		(100,031)
Accumulated other comprehensive loss		—		(11,172)
Retained earnings						Retained earnings	142,894		39,867
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	24,511		(451)
Total stockholders’ equity	Total stockholders’ equity	1,097,480		1,015,724		Total stockholders’ equity	1,337,335		1,175,886
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,786,144	$	2,647,439	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,073,263	$	2,790,918

~~The notes to unaudited condensed consolidated financial statements are an integral part of these statements.~~

~~Table of Contents~~

~~OPTION CARE HEALTH, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

~~(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
NET REVENUE $ 891,937 $ 781,609 $ 2,511,446 $ 2,227,897
COST OF REVENUE 688,969 607,456 1,944,037 1,729,395
GROSS PROFIT 202,968 174,153 567,409 498,502
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses 134,633 123,000 388,930 377,198
Depreciation and amortization expense 15,452 16,597 48,410 54,892
Total operating expenses 150,085 139,597 437,340 432,090
OPERATING INCOME 52,883 34,556 130,069 66,412
OTHER INCOME (EXPENSE):
Interest expense, net (16,000) (24,583) (52,717) (84,102)
Equity in earnings of joint ventures 1,676 790 4,567 2,364
Other, net 4 (8,344) (12,392) (8,322)
Total other expense (14,320) (32,137) (60,542) (90,060)
INCOME (LOSS) BEFORE INCOME TAXES 38,563 2,419 69,527 (23,648)
INCOME TAX EXPENSE 3,087 756 5,096 2,267
NET INCOME (LOSS) $ 35,476 $ 1,663 $ 64,431 $ (25,915)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $0, $0 and $0, respectively 2,892 4,022 11,172 (8,034)
OTHER COMPREHENSIVE INCOME (LOSS) 2,892 4,022 11,172 (8,034)
NET COMPREHENSIVE INCOME (LOSS) $ 38,368 $ 5,685 $ 75,603 $ (33,949)
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per share, basic $ 0.20 $ 0.01 $ 0.36 $ (0.14)
Earnings (loss) per share, diluted $ 0.20 $ 0.01 $ 0.36 $ (0.14)
Weighted average common shares outstanding, basic 179,872 184,232 179,841 179,220
Weighted average common shares outstanding, diluted 181,430 184,822 181,055 179,220

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.

Table of Contents

OPTION CARE HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~COMPREHENSIVE INCOME

(IN ~~THOUSANDS)~~THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Nine Months Ended September 30,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 64,431 $ (25,915)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization expense 52,820 60,054
Non-cash operating lease costs 11,137 13,020
Paid-in-kind interest capitalized as principal — 7,525
Deferred income taxes - net 1,180 897
Loss on extinguishment of debt 12,403 8,349
Amortization of deferred financing costs 3,821 4,153
Loss on interest rate swaps upon discontinuing hedge accounting — 3,746
Equity in earnings of joint ventures (4,567) (2,364)
Stock-based incentive compensation expense 6,246 2,588
Other adjustments 2,622 1,589
Changes in operating assets and liabilities:
Accounts receivable, net (27,310) 3,496
Inventories (31,472) (39,602)
Prepaid expenses and other current assets 5,958 (8,724)
Accounts payable 35,648 66,508
Accrued compensation and employee benefits 5,777 5,461
Accrued expenses and other current liabilities 18,353 16,768
Operating lease liabilities (14,620) (11,976)
Other noncurrent assets and liabilities 832 (3,845)
Net cash provided by operating activities 143,259 101,728
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (11,744) (12,871)
Other investing cash flows — 541
Business acquisitions, net of cash acquired (18,852) —
Net cash used in investing activities (30,596) (12,330)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options, vesting of restricted stock, and related tax withholdings (93) (904)
Proceeds from issuance of debt 355,200 —
Repayments of debt (8,832) (6,937)
Retirement of debt (352,009) (125,000)
Deferred financing costs (2,880) —
Net proceeds from issuance of common stock — 118,934
Debt prepayment fees (2,458) —
Other financing cash flows — (2,500)
Net cash (used in) provided by financing activities (11,072) (16,407)
NET INCREASE IN CASH AND CASH EQUIVALENTS 101,591 72,991
Cash and cash equivalents - beginning of the period 99,265 67,056
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 200,856 $ 140,047
Supplemental disclosure of cash flow information:
Cash paid for interest $ 52,002 $ 73,224
Cash paid for income taxes $ 2,719 $ 2,373
Cash paid for operating leases $ 19,631 $ 19,941


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
NET REVENUE	$	1,020,918	$	891,937	$	2,917,522	$	2,511,446
COST OF REVENUE	802,917		688,969		2,281,685		1,944,037
GROSS PROFIT	218,001		202,968		635,837		567,409

OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	142,015		134,633		417,771		388,930
Depreciation and amortization expense	15,268		15,452		46,027		48,410
Total operating expenses	157,283		150,085		463,798		437,340
OPERATING INCOME	60,718		52,883		172,039		130,069

OTHER INCOME (EXPENSE):
Interest expense, net	(13,997)		(16,000)		(39,008)		(52,717)
Equity in earnings of joint ventures	1,472		1,676		4,065		4,567
Other, net	3,888		4		3,891		(12,392)
Total other expense	(8,637)		(14,320)		(31,052)		(60,542)

INCOME BEFORE INCOME TAXES	52,081		38,563		140,987		69,527
INCOME TAX EXPENSE	13,258		3,087		37,960		5,096

NET INCOME	$	38,823	$	35,476	$	103,027	$	64,431

OTHER COMPREHENSIVE INCOME, NET OF TAX:
Change in unrealized gains on cash flow hedges, net of income tax expense of $1,398, $0, $5,917, and $0, respectively	9,255		2,892		24,962		11,172
OTHER COMPREHENSIVE INCOME	9,255		2,892		24,962		11,172
NET COMPREHENSIVE INCOME	$	48,078	$	38,368	$	127,989	$	75,603

EARNINGS PER COMMON SHARE:
Earnings per share, basic	$	0.21	$	0.20	$	0.57	$	0.36
Earnings per share, diluted	$	0.21	$	0.20	$	0.57	$	0.36

Weighted average common shares outstanding, basic	181,884		179,872		180,829		179,841
Weighted average common shares outstanding, diluted	183,022		181,430		181,760		181,055

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.

Table of Contents

OPTION CARE HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS

(IN THOUSANDS)

Preferred Stock Common Stock Treasury Stock Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive (Loss)
Income Total Stockholders’ Equity
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
Exercise of stock options, vesting of restricted stock and related tax withholdings — — — (259) — — (259)
Stock-based incentive compensation — — — 1,170 — — 1,170
Net proceeds from the issuance of common stock — 1 — 118,933 — — 118,934
Net income — — — — 1,663 — 1,663
Other comprehensive income — — — — — 4,022 4,022
Balance - September 30, 2020 — 19 (2,403) 1,128,979 (117,870) (15,229) 993,496
Balance - December 31, 2020 $ — $ 18 $ (2,403) $ 1,129,312 $ (100,031) $ (11,172) $ 1,015,724
Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — (69) — — (69)
Stock-based incentive compensation — — — 1,205 — — 1,205
Net loss — — — — (2,861) — (2,861)
Other comprehensive income — — — — — 4,081 4,081
Balance - March 31, 2021 $ — $ 18 $ (2,403) $ 1,130,448 $ (102,892) $ (7,091) $ 1,018,080
Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — (9) — — (9)
Stock-based incentive compensation — — — 2,525 — — 2,525
Net income — — — — 31,816 — 31,816
Other comprehensive income — — — — — 4,199 4,199
Balance - June 30, 2021 $ — $ 18 $ (2,403) $ 1,132,964 $ (71,076) $ (2,892) $ 1,056,611
Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — (15) — — (15)
Stock-based incentive compensation — — — 2,516 — — 2,516
Net income — — — — 35,476 — 35,476
Other comprehensive income — — — — — 2,892 2,892
Balance - September 30, 2021 — 18 (2,403) 1,135,465 (35,600) — 1,097,480


	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	103,027	$	64,431
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense	49,723		52,820
Non-cash operating lease costs	14,451		11,137
Deferred income taxes - net	37,631		1,180
Loss on extinguishment of debt	—		12,403
Amortization of deferred financing costs	3,206		3,821
Equity in earnings of joint ventures	(4,065)		(4,567)
Stock-based incentive compensation expense	12,581		6,246
Capital distribution from equity method investments	2,500		1,250
Other adjustments	695		1,372
Changes in operating assets and liabilities:
Accounts receivable, net	(23,153)		(27,310)
Inventories	(52,749)		(31,472)
Prepaid expenses and other current assets	(10,335)		5,958
Accounts payable	129,859		35,648
Accrued compensation and employee benefits	(26,711)		5,777
Accrued expenses and other current liabilities	19,495		18,353
Operating lease liabilities	(15,372)		(14,620)
Other noncurrent assets and liabilities	(16,691)		832
Net cash provided by operating activities	224,092		143,259

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(17,111)		(11,744)
Business acquisitions, net of cash acquired	(87,315)		(18,852)
Net cash used in investing activities	(104,426)		(30,596)

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options, vesting of restricted stock, and related tax withholdings	(37)		(93)
Proceeds from warrant exercises	20,916		—
Proceeds from issuance of debt	—		355,200
Repayments of debt	(4,500)		(8,832)
Retirement of debt	—		(352,009)
Deferred financing costs	—		(2,880)
Debt prepayment fees	—		(2,458)
Net cash provided by (used in) financing activities	16,379		(11,072)
NET INCREASE IN CASH AND CASH EQUIVALENTS	136,045		101,591
Cash and cash equivalents - beginning of the period	119,423		99,265
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	255,468	$	200,856

Supplemental disclosure of cash flow information:
Cash paid for interest	$	29,578	$	52,002
Cash paid for income taxes	$	6,690	$	2,719
Cash paid for operating leases	$	18,964	$	19,631

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.

Table of Contents

OPTION CARE HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS)


	Preferred Stock		Common Stock		Treasury Stock		Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity


















Balance - December 31, 2020	$	—	$	18	$	(2,403)	$	1,129,312	$	(100,031)	$	(11,172)	$	1,015,724
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		(69)		—		—		(69)
Stock-based incentive compensation	—		—		—		1,205		—		—		1,205
Net loss	—		—		—		—		(2,861)		—		(2,861)
Other comprehensive income	—		—		—		—		—		4,081		4,081
Balance - March 31, 2021	$	—	$	18	$	(2,403)	$	1,130,448	$	(102,892)	$	(7,091)	$	1,018,080
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		(9)		—		—		(9)
Stock-based incentive compensation	—		—		—		2,525		—		—		2,525
Net income	—		—		—		—		31,816		—		31,816
Other comprehensive income	—		—		—		—		—		4,199		4,199
Balance at June 30, 2021	$	—	$	18	$	(2,403)	$	1,132,964	$	(71,076)	$	(2,892)	$	1,056,611
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		(15)		—		—		(15)
Stock-based incentive compensation	—		—		—		2,516		—		—		2,516
Net income	—		—		—		—		35,476		—		35,476
Other comprehensive income	—		—		—		—		—		2,892		2,892
Balance at September 30, 2021	$	—	$	18	$	(2,403)	$	1,135,465	$	(35,600)	$	—	$	1,097,480

Balance - December 31, 2021	$	—	$	18	$	(2,403)	$	1,138,855	$	39,867	$	(451)	$	1,175,886
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		355		—		—		355
Stock-based incentive compensation	—		—		—		4,178		—		—		4,178
Net income	—		—		—		—		30,275		—		30,275
Other comprehensive income	—		—		—		—		—		11,070		11,070
Balance - March 31, 2022	$	—	$	18	$	(2,403)	$	1,143,388	$	70,142	$	10,619	$	1,221,764
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		168		—		—		168
Exercise of warrants	—		—		—		20,098		—		—		20,098
Stock-based incentive compensation	—		—		—		4,398		—		—		4,398
Net income	—		—		—		—		33,929		—		33,929
Other comprehensive income	—		—		—		—		—		4,637		4,637
Balance - June 30, 2022	$	—	$	18	$	(2,403)	$	1,168,052	$	104,071	$	15,256	$	1,284,994
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		(560)		—		—		(560)
Exercise of warrants	—		—		—		818		—		—		818
Stock-based incentive compensation	—		—		—		4,005		—		—		4,005
Net income	—		—		—		—		38,823		—		38,823
Other comprehensive income	—		—		—		—		—		9,255		9,255
Balance - September 30, 2022	$	—	$	18	$	(2,403)	$	1,172,315	$	142,894	$	24,511	$	1,337,335

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.

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OPTION CARE HEALTH, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.~~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”).

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”), a national provider of infusion and home care management solutions, along with certain other subsidiaries of BioScrip and HC II. The merger contemplated by the Merger 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 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. (“Option Care Health”, or the “Company”). The combined Company’s stock is listed on the Nasdaq Global Select Market as of September 30, ~~2021. See Note 15,~~ ~~Stockholders’ Equity, for further discussion of HC I’s ownership as of~~2022. During the three and nine months ended September 30, ~~2021.~~2022, HC I completed a secondary offering of 11,000,000 shares of common stock. Following this offering, HC I holds approximately 14.4% of the common stock of the Company.

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 9897 full service ~~pharmacies.~~pharmacies and 64 stand-alone infusion suites. 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 patients’ homes or other nonhospital settings. The Company operates in 1one segment, infusion services.

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with 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 reporting. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire year. These unaudited condensed consolidated financial statements do not include all of the information and notes to the financial statements required by GAAP for complete financial statements and should be read in conjunction with the ~~2020~~2021 audited consolidated financial statements, including the notes thereto, as presented in ~~the Annual Report on~~our Form ~~10-K filed with the Securities and Exchange Commission on March 11, 2021.~~10-K.

Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation.

The 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 line entitled “Equity in earnings of joint ventures” in the unaudited condensed consolidated statements of comprehensive ~~income (loss).~~income. See Equity-Method Investments within Note 2, Summary of Significant Accounting Policies, for further discussion of the Company’s equity-method investments.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

~~In April 2020, the Company received $11.7 million in Coronavirus Aid, Relief,~~Prepaid Expenses and Economic Security Act (“CARES Act”) grant funds from the federal government, which was reflected in the second quarter 2020 as a cash inflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows. During the third quarter 2020, the Company returned the funds as unused to the federal government, which was reflected as a cash outflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows.

~~Prepaid expenses and other current assets~~Other Current Assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of ~~$36.9~~$46.4 million and ~~$35.2~~$43.0 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. There were no other items included in prepaid expenses and other current assets that comprised 5% or more of total current assets. As of September 30, 2022, the Company determined that certain assets related to the respiratory therapy and durable medical equipment business met the applicable criteria as being held for sale. As of September 30, 2022, $9.5 million of assets held for sale and $2.0 million of liabilities held for sale were classified in prepaid expenses and other current assets and accrued expenses and other current liabilities, respectively, in the condensed consolidated balance sheets. The assets and liabilities were classified as held for sale at the lower of their carrying amount or fair values less cost to sell. In October 2022, the Company entered into a definitive agreement to sell these assets. The Company expects to close the transaction within the fourth quarter of fiscal year 2022.

Equity Method Investments — The Company’s investments in certain unconsolidated entities are accounted for under the equity method. The balance of these investments is included in other noncurrent assets in the accompanying condensed consolidated balance sheets. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of the investments ~~were $20.3~~was $21.7 million and ~~$17.0~~$20.1 million, respectively. The balance of these investments ~~are~~is increased to reflect the Company’s capital contributions and equity in earnings of the investees. The balance of these investments ~~are~~is decreased to reflect the Company’s equity in losses of the investees and for distributions received that are not in excess of the carrying amount of the investments. The Company’s proportionate share of earnings or losses of the investees ~~are~~is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive ~~income (loss).~~income. The Company’s proportionate share of earnings was $1.5 million and $4.1 million for the three and nine months ended September 30, 2022, respectively, and $1.7 million and $4.6 million for the three and nine months ended September 30, 2021. The Company’s proportionate share of earnings was $0.8 million and $2.4 million for the three and nine months ended September 30, 2020. Distributions from the investees are treated as cash inflows from operating activities within other adjustments in the unaudited condensed consolidated statements of cash flows. During the three and nine months ended September 30, 2021, the Company received distributions from the investees of $1.3 million and $1.3 million, respectively. During the three and nine months ended September 30, 2020, the Company received distributions from the investees of $2.3 million and $2.8 million, respectively. See ~~Footnote~~Note 16, Related-Party Transactions, for discussion of related-party transactions with these investees.

~~Immaterial Error Correction~~ — During the three months ended June 30, 2021, the Company identified prior period misstatements related to the net revenue earned by category of payer for the periods ended September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021. Certain individual payers were improperly classified as direct government and instead should have been classified as commercial payers. This error over-stated the Company’s government revenues and under-stated the Company’s commercial revenues in those periods. The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior consolidated financial statements taken as a whole. As a result, the Company has corrected the misstatements as disclosed in the following tables:

Three Months ended September 30, 2020 Nine Months ended September 30, 2020 Three Months ended December 31, 2020 Twelve Months ended December 31, 2020
Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue
Commercial:
As Previously
Reported $ 644,385 82.4 % $ 1,893,105 85.0 % $ 649,880 80.8 % $ 2,542,985 83.9 %
Adjustment 34,321 4.4 % 34,321 1.5 % 40,806 5.1 % 75,127 2.5 %
As Revised 678,706 86.8 % 1,927,426 86.5 % 690,686 85.9 % 2,618,112 86.4 %
Government:
As Previously Reported 127,435 16.3 % 308,830 13.9 % 141,237 17.6 % 450,067 14.8 %
Adjustment (34,321) (4.4) % (34,321) (1.5) % (40,806) (5.1) % (75,127) (2.5) %
As Revised 93,114 11.9 % 274,509 12.4 % 100,431 12.5 % 374,940 12.3 %

~~Table of Contents~~

Three Months ended March 31, 2021 Three Months ended June 30, 2021 Six Months ended June 30, 2021
Amount % of Revenue Amount % of Revenue Amount % of Revenue
Commercial:
As Previously Reported $ 611,434 80.5 % $ 703,429 81.8 % $ 1,314,862 81.2 %
Adjustment 37,073 4.9 % 43,218 5.0 % 80,292 4.9 %
As Revised 648,507 85.4 % 746,647 86.8 % 1,395,154 86.1 %
Government:
As Previously Reported 134,914 17.8 % 145,799 16.9 % 280,714 17.3 %
Adjustment (37,073) (4.9) % (43,218) (5.0) % (80,292) (4.9) %
As Revised 97,841 12.9 % 102,581 11.9 % 200,422 12.4 %

~~There was no impact to the Company’s consolidated balance sheets, consolidated statements of comprehensive income (loss) or the consolidated statements of cash flows for any of these periods.~~

Concentrations of Business Risk — The Company generates revenue from managed care contracts and other agreements with commercial third-party payers. Revenue related to the Company’s largest payer was approximately 14% and 15% for the three and nine months ended September 30, 2022, respectively. Revenue related to the Company’s largest payer was approximately 16% and 16% for the three and nine months ended September 30, ~~2021. Revenue related to the Company’s largest payer was approximately 16% and 15% for the three and nine months ended September 30, 2020,~~2021, 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 annually thereafter unless notice is provided. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.

For the three and nine months ended September 30, 2022, approximately 12% and 12%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. For the three and nine months ended September 30, 2021, approximately 12% and 12%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. ~~For the three and nine months ended September 30, 2020, approximately 12% and 12%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid.~~ As of September 30, ~~2021~~2022 and December 31, ~~2020, respectively,~~2021, approximately 11% and ~~15%~~11%, respectively, of the Company’s accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules and rates that are determined by the related governmental 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.

The Company does not require its patients ~~nor~~or other payers to carry collateral for any amounts owed for goods or 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,~~care; however, Option Care Health offers a financial assistance program for patients that meet certain defined hardship criteria.

For the three and nine months ended September 30, 2022, approximately 74% and 73%, respectively, of the Company’s pharmaceutical and medical supply purchases were from four vendors. For the three and nine months ended September 30, 2021, approximately 65% and 65%, respectively, of the Company’s pharmaceutical and medical supply purchases were from three ~~vendors. For the three and nine months ended September 30, 2020, approximately 71% and 72%, 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 remains some uncertainty regarding the COVID-19 pandemic, as of September 30, ~~2021~~2022, the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

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3. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

~~BioCure Asset Acquisition~~ Infinity Infusion Nursing LLC —— In ~~April~~October 2021, pursuant to the ~~Asset Purchase Agreement~~equity purchase agreement dated ~~April 7,~~October 1, 2021, the Company completed the acquisition of ~~certain~~100% of the equity interests in Infinity Infusion Nursing, LLC for a purchase price, net of cash acquired, of $59.6 million. The Company has finalized the purchase price allocation of the acquisition and no purchase accounting adjustments were made.

Wasatch Infusion LLC Acquisition — In December 2021, pursuant to the executed asset purchase agreement on December 29, 2021, the Company completed the acquisition of Wasatch Infusion LLC for a purchase price of $19.5 million. As of March 31, 2022, the Company finalized the purchase price allocation of the acquisition. Certain adjustments were made to preliminary valuation amounts related to accounts receivable, other assets and other assumed liabilities. The following is a final allocation of ~~BioCure, LLC~~the consideration transferred to acquired identifiable assets and assumed liabilities (in thousands):


	Amount
Accounts receivable	$	2,688
Inventories	2,038
Intangible assets	4,245
Other assets	769
Accounts payable	(6,686)
Other assumed liabilities	(965)
Fair value Identifiable assets and liabilities	2,089
Goodwill (1)	17,366
Purchase Price	$	19,455

(1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs.

Specialty Pharmacy Nursing Network, Inc. — In April 2022, pursuant to the equity purchase agreement dated February 7, 2022, the Company completed the acquisition of 100% of the equity interests in Specialty Pharmacy Nursing Network, Inc. (“~~BioCure”~~SPNN”) for a purchase price, net of ~~$18.9~~cash acquired, of $59.9 million.

The allocation of the purchase price of ~~BioCure~~SPNN was accounted for as ~~an asset acquisition~~a business combination in accordance with ASC Topic 805, Business Combinations, with the total purchase price being allocated to the assets and liabilities acquired based on the relative fair value of each ~~asset.~~asset and liability. The ~~purchase price was allocated~~following is a preliminary estimate of the allocation of the consideration transferred, open for accounts receivable and accounts payable, to ~~the~~acquired identifiable assets and assumed liabilities, net of cash acquired, as ~~follows:~~of September 30, 2022 (in thousands):


	Amount
~~Inventories~~Accounts receivable	$	~~601~~2,303
Intangible assets ~~net~~	~~18,251~~25,580
~~Total consideration transferred~~Other assets	600
Accrued compensation	(1,164)
Accounts payable and other liabilities	(1,168)
Fair value identifiable assets and liabilities	26,151
Goodwill (1)	33,746
Cash acquired	661
Purchase Price	60,558
Less: cash acquired	(661)
Purchase price, net of cash acquired	$	~~18,852~~59,897

~~Intangibles assets, net consists of referral sources which were assigned~~(1) Goodwill is attributable to cost synergies from operational efficiencies and establishing a ~~useful life of 15 years, amortized on a straight-line basis.~~more comprehensive clinical platform through the Company’s national infrastructure and SPNN’s nursing network.

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Rochester Home Infusion, Inc. — In August 2022, pursuant to the stock purchase agreement dated June 10, 2022, the Company completed the acquisition of 100% of the equity interests in Rochester Home Infusion, Inc. (“RHI”) for a purchase price, net of cash acquired, of $27.4 million.

The allocation of the purchase price of RHI was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations, with the total purchase price being allocated to the assets and liabilities acquired based on the relative fair value of each asset and liability. The following is a preliminary estimate of the allocation of the consideration transferred, open for accounts receivable and accounts payable, to acquired identifiable assets and assumed liabilities, net of cash acquired, as of September 30, 2022 (in thousands):


	Amount
Accounts receivable	$	1,212
Intangible assets	5,449
Other assets	394
Accounts payable and other liabilities	(434)
Fair value Identifiable assets and liabilities	6,621
Goodwill (1)	20,797
Cash acquired	201
Purchase Price	27,619
Less: cash acquired	(201)
Purchase price, net of cash acquired	$	27,418

(1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs.

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4. REVENUE

The following table sets forth the net revenue earned by category of payer for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Commercial payers	Commercial payers	$	769,524	$	678,706	$	2,164,678	$	1,927,426	Commercial payers	$	888,162	$	769,524	$	2,526,354	$	2,164,678
Government payers	Government payers	106,645		93,114		307,067		274,509		Government payers	122,793		106,645		357,383		307,067
Patients	Patients	15,768		9,789		39,701		25,962		Patients	9,963		15,768		33,785		39,701
Net revenue	Net revenue	$	891,937	$	781,609	$	2,511,446	$	2,227,897	Net revenue	$	1,020,918	$	891,937	$	2,917,522	$	2,511,446

5. INCOME TAXES

During the three and nine months ended September 30, 2022, the Company recorded tax expense of $13.3 million and $38.0 million, respectively, which represents an effective tax rate of 25.5% and 26.9%, respectively. The variance in the Company’s effective tax rate of 25.5% and 26.9% for the three and nine months ended September 30, 2022, compared to the federal statutory rate of 21%, is primarily attributable to current and deferred state taxes as well as various non-deductible expenses. During the three and nine months ended September 30, 2021, the Company recorded tax expense of $3.1 million and $5.1 million, respectively, which represents an effective tax rate of 8.0% and 7.3%, respectively. ~~During~~The variance in the Company’s effective tax rate of 8.0% and 7.3% for the three and nine months ended September 30, ~~2020~~2021, compared to the federal statutory rate of 21%, is primarily attributable to the Company ~~recorded a~~only recognizing certain deferred federal and state tax expense ~~of $0.8 million~~ and ~~$2.3 million, respectively, which represents an effective~~current state tax ~~rate of 31.3% and (9.6)%, respectively~~expense while any tax benefits that would have otherwise been recognized were offset by the Company’s tax valuation allowance in effect during that period.

The Company maintains a ~~full~~ valuation allowance of ~~$97.3~~$13.1 million against ~~all of its net U.S. federal and state deferred tax assets with the exception of $0.3 million of estimated~~certain state net operating ~~losses (“NOL”).~~losses. In 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 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 tax expense for the ~~Company’s full valuation allowance,~~three and nine months ended September 30, 2022, of $13.3 million and $38.0 million, respectively, consists of quarterly tax liabilities attributable to specific state taxing authorities as ~~noted above, the~~well as recognized deferred federal and state tax expense. The Company’s tax expense for the three and nine months ended September 30, 2021 of $3.1 million and $5.1 million, respectively, consists of quarterly tax liabilities ~~attributable~~attributed to specific state taxing authorities as well as recognized deferred tax expense.

The Company has accumulated ~~U.S.~~ federal net operating loss carryovers that are subject to one or more Section 382 limitations. This may limit the Company’s ability to utilize its ~~U.S.~~ federal net operating losses.

~~The Company recorded no income tax expense or benefit for the three or nine months ended September 30, 2021 and 2020 associated with the tax provisions of the CARES Act.~~

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6. EARNINGS ~~(LOSS)~~ PER SHARE

The Company presents basic and diluted earnings ~~(loss)~~ per share for its common stock. Basic earnings ~~(loss)~~ per share is calculated by dividing the net income ~~(loss)~~ of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings ~~(loss)~~ per share is determined by adjusting the profit or loss and the weighted average number of shares of common stock outstanding for the effects of all potentially dilutive securities.

The earnings ~~(loss) is~~are used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. The computation of diluted shares for the three and nine months ended September 30, 2022 and 2021 includes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as these common stock equivalents are dilutive to the earnings per share recorded in those periods. ~~The computation~~For the three months ended September 30, 2022, there were 520,944 stock option awards and 13,561 restricted stock awards outstanding that were excluded from the calculation of ~~diluted shares for~~earnings per share as they would be anti-dilutive. For the nine months ended September 30, ~~2020 excludes~~2022, there were 794,887 stock option awards and 476,329 restricted stock awards outstanding that were excluded from the ~~effect~~calculation of ~~these common stock equivalents~~earnings per share as ~~their inclusion~~they would be ~~anti-dilutive to the loss per share recorded in the period.~~anti-dilutive. For the three months ended September 30, 2021, there were 457,754 warrants, 496,929 stock option awards, and 38,536 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. For the nine months ended September 30, 2021, there were 915,507 warrants, 387,656 stock option awards, and 272,540 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. ~~For the~~ three months ended September 30, 2020, there were 915,507 warrants, 296,876 stock options and 312,984 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. For the nine months ended September 30, 2020, there were 2,328,120 warrants, 424,878 stock options and 600,483 restricted stock awards outstanding that were excluded from the calculation of loss per share as they would be anti-dilutive.

The following table presents the Company’s basic earnings ~~(loss)~~ per share and shares outstanding (in thousands, except per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income (loss)		$	35,476	$	1,663	$	64,431	$	(25,915)
Net income										Net income	$	38,823	$	35,476	$	103,027	$	64,431
Denominator:	Denominator:									Denominator:
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	179,872		184,232		179,841		179,220		Weighted average number of common shares outstanding	181,884		179,872		180,829		179,841
Earnings (loss) per common share:
Earnings (loss) per common share, basic		$	0.20	$	0.01	$	0.36	$	(0.14)
Earnings per common share:										Earnings per common share:
Earnings per common share, basic										Earnings per common share, basic	$	0.21	$	0.20	$	0.57	$	0.36

The following table presents the Company’s diluted earnings ~~(loss)~~ per share and shares outstanding (in thousands, except per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income (loss)		$	35,476	$	1,663	$	64,431	$	(25,915)
Net income										Net income	$	38,823	$	35,476	$	103,027	$	64,431
Denominator:	Denominator:									Denominator:
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	179,872		184,232		179,841		179,220		Weighted average number of common shares outstanding	181,884		179,872		180,829		179,841
Effect of dilutive securities	Effect of dilutive securities	1,558		590		1,214		—		Effect of dilutive securities	1,138		1,558		931		1,214
Weighted average number of common shares outstanding, diluted	Weighted average number of common shares outstanding, diluted	181,430		184,822		181,055		179,220		Weighted average number of common shares outstanding, diluted	183,022		181,430		181,760		181,055
Earnings (loss) per common share:
Earnings (loss) per common share, diluted		$	0.20	$	0.01	$	0.36	$	(0.14)
Earnings per common share:										Earnings per common share:
Earnings per common share, diluted										Earnings per common share, diluted	$	0.21	$	0.20	$	0.57	$	0.36

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7. LEASES

During the three and nine months ended September 30, 2022, the Company incurred operating lease expenses of $7.8 million and $22.7 million, respectively, including short-term lease expense, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income. During the three and nine months ended September 30, 2021, the Company incurred operating lease expenses of $7.8 million and $22.3 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 nine months ended September 30, 2020, the Company incurred operating lease expense of $7.6 million and $23.0 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).~~income. As of September 30, ~~2021,~~2022, the weighted-average remaining lease term was ~~6.44~~6.6 years and the weighted-average discount rate was ~~5.09%~~5.17%.

Operating leases mature as follows (in thousands):


Fiscal Year Ending December 31,		Minimum Payments
2021		$	8,379
Fiscal Year Ended December 31,				Fiscal Year Ended December 31,	Minimum Payments
2022	2022	22,679		2022	$	8,296
2023	2023	19,324		2023	23,052
2024	2024	13,757		2024	16,878
2025	2025	11,053		2025	13,987
2026				2026	11,170
Thereafter	Thereafter	32,682		Thereafter	36,329
Total lease payments	Total lease payments	$	107,874	Total lease payments	$	109,712
Less: Interest	Less: Interest	17,297		Less: Interest	(18,602)
Present value of lease liabilities	Present value of lease liabilities	$	90,577	Present value of lease liabilities	$	91,110

During the ~~three~~nine months ended September 30, 2022, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow of $13.6 million related to increases in the operating lease right-of-use assets and operating lease liabilities, respectively. During the nine months ended September 30, 2021, the Company commenced new leases, extensions and amendments, resulting in non-cash ~~investing and financing~~operating activities in the unaudited condensed consolidated statements of cash ~~flow~~flows of ~~$14.5~~$14.5 million related to increases in the operating lease right-of-use asset and operating lease liabilities, respectively. During the three and nine months ended September 30, 2020, the Company commenced new leases, extensions and amendments, resulting in non-cash investing and financing activities in the unaudited condensed consolidated statements of cash flow of $20.1 million related to increases in the operating lease right-of-use assetassets and operating lease liabilities, respectively. As of September 30, ~~2021,~~2022, the Company did not have any significant operating or financing leases that had not yet commenced.

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8. PROPERTY AND EQUIPMENT

Property and equipment was as follows as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 (in thousands):


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Infusion pumps	Infusion pumps	$	34,249	$	31,678	Infusion pumps	$	36,221	$	34,547
Equipment, furniture and other	Equipment, furniture and other	53,770		47,886		Equipment, furniture and other	29,924		52,913
Leasehold improvements	Leasehold improvements	91,789		87,483		Leasehold improvements	94,664		92,229
Computer software, purchased and internally developed	Computer software, purchased and internally developed	29,804		27,799		Computer software, purchased and internally developed	35,094		30,744
Assets under development	Assets under development	7,894		10,793		Assets under development	17,782		19,924
		217,506		205,639			213,685		230,357
Less: accumulated depreciation	Less: accumulated depreciation	110,718		84,490		Less: accumulated depreciation	(117,373)		(118,822)
Property and equipment, net	Property and equipment, net	$	106,788	$	121,149	Property and equipment, net	$	96,312	$	111,535

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 nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Depreciation expense in cost of revenue	Depreciation expense in cost of revenue	$	1,664	$	1,643	$	4,410	$	5,161	Depreciation expense in cost of revenue	$	1,205	$	1,664	$	3,696	$	4,410
Depreciation expense in operating expenses	Depreciation expense in operating expenses	7,476		7,814		22,670		28,546		Depreciation expense in operating expenses	6,778		7,476		21,337		22,670
Total depreciation expense	Total depreciation expense	$	9,140	$	9,457	$	27,080	$	33,707	Total depreciation expense	$	7,983	$	9,140	$	25,033	$	27,080

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9. GOODWILL AND OTHER INTANGIBLE ASSETS

~~There was no change in the carrying amount of goodwill for the three or nine months ended September 30, 2021.~~

Changes in the carrying amount of goodwill consists of the following activity for the three and nine months ended September 30, ~~2020~~2022 (in thousands):


Balance at December 31, ~~2019~~2021	$	~~1,425,542~~1,477,564
~~Merger purchase~~Purchase accounting adjustments	~~2,341~~936
Balance at March 31, ~~2020~~2022	$		~~1,427,883~~1,478,500
~~Merger purchase accounting adjustments~~Acquisitions	~~727~~33,746
Balance at June 30, ~~2020~~2022	$	~~1,428,610~~1,512,246
~~Changes~~Acquisitions	—$	20,797
Balance at September 30, ~~2020~~2022	$	~~1,428,610~~1,533,043

There were no changes in the carrying amount of goodwill for the three or nine months ended September 30, 2021.

The carrying amount and accumulated amortization of intangible assets ~~consists~~consist of the following as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 (in thousands):


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Gross intangible assets:	Gross intangible assets:					Gross intangible assets:
Referral sources	Referral sources	$	456,372	$	438,121	Referral sources	$	509,646	$	482,200
Trademarks/names	Trademarks/names	44,536		44,536		Trademarks/names	38,508		47,718
Other amortizable intangible assets	Other amortizable intangible assets	402		402		Other amortizable intangible assets	912		1,037
Total gross intangible assets	Total gross intangible assets	501,310		483,059		Total gross intangible assets	549,066		530,955

Accumulated amortization:	Accumulated amortization:					Accumulated amortization:
Referral sources	Referral sources	(130,758)		(110,498)		Referral sources	(160,159)		(137,613)
Trademarks/names	Trademarks/names	(26,403)		(21,146)		Trademarks/names	(16,254)		(26,936)
Other amortizable intangible assets	Other amortizable intangible assets	(385)		(363)		Other amortizable intangible assets	(100)		(386)
Total accumulated amortization	Total accumulated amortization	(157,546)		(132,007)		Total accumulated amortization	(176,513)		(164,935)
Total intangible assets, net	Total intangible assets, net	$	343,764	$	351,052	Total intangible assets, net	$	372,553	$	366,020

Amortization expense for intangible assets was $8.4 million and $24.6 million for the three and nine months ended September 30, 2022, respectively. Amortization expense for intangible assets was $7.9 million and $25.5 million for the three and nine months ended September 30, 2021, respectively. ~~Amortization expense for intangible assets was $8.8 million and $26.3 million for the three and nine months ended September 30, 2020, respectively.~~

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10. INDEBTEDNESS

Long-term debt consisted of the following as of September 30, ~~2021~~2022 (in thousands):


		Principal Amount		Discount		Debt Issuance Costs		Net Balance			Principal Amount		Discount		Debt Issuance Costs		Net Balance
Asset-based-lending (“ABL”) facility	Asset-based-lending (“ABL”) facility	$	—	$	—	$	—	$	—	Asset-based-lending (“ABL”) facility	$	—	$	—	$	—	$	—
First lien term loan		1,156,919		(8,731)		(18,590)		1,129,598
Second lien notes		—		—		—		—
First Lien Term Loan										First Lien Term Loan	595,500		(8,638)		(11,987)		574,875
Senior Notes										Senior Notes	500,000		—		(10,269)		489,731
		$	1,156,919	$	(8,731)	$	(18,590)	1,129,598			$	1,095,500	$	(8,638)	$	(22,256)	1,064,606
Less: current portion	Less: current portion							(11,775)		Less: current portion							(6,000)
Total long-term debt	Total long-term debt							$	1,117,823	Total long-term debt							$	1,058,606

Long-term debt consisted of the following as of December 31, ~~2020~~2021 (in thousands):


		Principal Amount		Discount		Debt Issuance Costs		Net Balance			Principal Amount		Discount		Debt Issuance Costs		Net Balance
ABL facility	ABL facility	$	—	$	—	$	—	$	—	ABL facility	$	—	$	—	$	—	$	—
First lien term loan		915,750		(7,253)		(19,710)		888,787
Second lien notes		245,781		(6,102)		(4,113)		235,566
First Lien Term Loan										First Lien Term Loan	600,000		(9,605)		(13,331)		577,064
Senior Notes										Senior Notes	500,000		—		(11,164)		488,836
		$	1,161,531	$	(13,355)	$	(23,823)	1,124,353			$	1,100,000	$	(9,605)	$	(24,495)	1,065,900
Less: current portion	Less: current portion							(9,250)		Less: current portion							(6,000)
Total long-term debt	Total long-term debt							$	1,115,103	Total long-term debt							$	1,059,900

In January 2021, the Company entered into an amendment on the First Lien Term Loan (the “First Lien Credit Agreement Amendment”). The First Lien Credit Agreement Amendment resulted in an additional $250.0 million of incremental First Lien Term Loan indebtedness being issued and reduced the interest rate on all outstanding First Lien Term Loan indebtedness from LIBOR plus 4.25% to LIBOR plus 3.75%. The proceeds of the $250.0 million incremental First Lien Term Loan indebtedness were used to prepay the remaining $245.8 million outstanding balance of the Second Lien Notes. Following the First Lien Credit Agreement Amendment, the First Lien Term Loan is repayable in quarterly installments of $2.9 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026.

The Company assessed whether the repayment of the Second Lien Notes by issuing incremental First Lien Term Loan indebtedness resulted in an insubstantial modification or an extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows: (i) Lenders participating in both the First Lien Term Loan and Second Lien Notes; (ii) previous lenders that exited; and (iii) new lenders. The Company determined that $161.2 million of the First Lien Term Loan was extinguished and $122.9 million of the Second Lien Term Loan was extinguished, which is disclosed as an outflow from financing activities in the condensed consolidated statements of cash flows. The First Lien Term Loan and Second Lien Notes had insubstantial modifications for lenders that participated in both debt instruments, which resulted in a cash outflow from financing activities of $352.0 million in the condensed consolidated statements of cash flows. The Company determined that $356.2 million of new debt was issued related to the First Lien Term Loan, which is disclosed as an inflow from financing activities in the condensed consolidated statements of cash flows. In connection with the prepayment of the Second Lien Notes and incremental First Lien Term Loan indebtedness, the Company incurred $7.2 million in debt issuance costs and third-party fees, of which $3.7 million was capitalized, $0.9 million was expensed as a component of other expense and $2.6 million was expensed as a loss on extinguishment as a component of other expense in the condensed consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2021. Further, $1.0 million of the total fees incurred of $7.2 million was netted against the $356.2 million of proceeds from debt as a component of the cash flows from financing activities, $2.9 million was presented as deferred financing costs as a component of cash flows from financing activities, $2.4 million was presented as debt prepayment fees as a component of cash flows from financing activities, and the remaining $0.9 million was included in cash flows from operating activities in the condensed consolidated statements of cash flows.

The Company recognized a loss on extinguishment of debt of $12.4 million included in the line entitled “Other, net” in the unaudited condensed consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2021, of which $2.6 million related to debt issue costs incurred with the incremental First Lien Term Loan indebtedness and prepayment of the Second Lien Notes, as discussed above, and $9.8 million related to existing deferred financing fees that were written off upon extinguishment. All remaining deferred financing fees that existed prior to the First Lien Credit Agreement

~~Table of Contents~~

~~Amendment were attributed to modified loans, and were capitalized and amortized over the remaining term of the First Lien Term Loan.~~

The interest rate on the First Lien Term ~~Loa~~nLoan was ~~3.83%~~5.27% and ~~4.40%~~3.25% as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 4.94% and 3.90% for the three and nine months ended September 30, 2022, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 3.84% and 5.87% for the three and nine months ended September 30, 2021, respectively. The interest rate on the Senior Notes was 4.375% as of both September 30, 2022 and December 31, 2021. The weighted average interest rate incurred on the ~~previous First Lien Term Loan~~Senior Secured Notes was ~~4.67% and 5.29%~~4.375% for both the three and nine months ended September 30, 2020, respectively. The interest rate on the Second Lien Notes was 8.98% as of December 31, 2020. The weighted average interest rate incurred on the Second Lien Notes was 8.98% for the period January 1, 2021 through January 20, 2021, prior to the repayment of the outstanding balance. The weighted average interest rate incurred on the Second Lien Notes was 9.51% and 10.17% for the three and nine months ended September 30, 2020.2022.

Long-term debt matures as follows (in thousands):

Year Ending December 31, Minimum Payments
2021 $ 2,944
2022 11,775
2023 11,775
2024 11,775
2025 11,775
Thereafter 1,106,875
Total $ 1,156,919

In October 2021, the Company entered into an amendment on the First Lien Term Loan, to provide $600 million of refinanced borrowings. In October 2021, the Company also issued $500 million in aggregate principal amount of senior notes. See Note 17, ~~Subsequent Events, for further discussion.~~


Fiscal Year Ended December 31,	Minimum Payments
2022	$	1,500
2023	6,000
2024	6,000
2025	6,000
2026	6,000
Thereafter	1,070,000
Total	$	1,095,500

During the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 11, Derivative Instruments, for further discussion.

The following table presents the estimated fair values of the Company’s debt obligations as of September 30, ~~2021~~2022 (in thousands):

Financial Instrument Carrying Value as of September 30, 2021 Markets for Identical Item (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
First lien term loan $ 1,129,598 $ — $ 1,156,919 $ —
Second lien notes — — — —
Total debt instruments $ 1,129,598 $ — $ 1,156,919 $ —

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The following table sets forth the changes in Level 3 measurements for the three months ended March 31, 2021 (in thousands). As the Second Lien Notes were prepaid in Q1, there was no change in the fair value thereafter.


	~~Level 3 Measurements~~
~~Second lien notes fair value as of January 1, 2021~~	$	~~266,438~~
~~Principal prepayment~~	~~(245,781)~~
~~Change in fair value~~	~~(20,657)~~
~~Second lien notes fair value as of March 31, 2021~~	$	—


Financial Instrument	Carrying Value as of September 30, 2022		Markets for Identical Item (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
First Lien Term Loan	$	574,875	$	—	$	579,124	$	—
Senior Notes	489,731		—		420,000		—
Total debt instruments	$	1,064,606	$	—	$	999,124	$	—

See Note 12, Fair Value Measurements, for further discussion.

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11. 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.

In ~~August 2019,~~October 2021, the Company entered into an interest rate ~~swap agreements that reduce~~cap hedge with a notional amount of $300 million for a 5-year term beginning November 30, 2021. The hedge partially offsets risk associated with the ~~variability in~~First Lien Term Loan’s variable interest rate. The interest rate cap instrument perfectly offsets the terms of the interest rates on the newly-issued debt obligations following the Merger with BioScrip. 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 term loan interest payments indexed to one-month London Interbank Offered Rate (“LIBOR”) through August 2021. 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 remaining $13.9 million notional amount of the interest rate swap is not designated as a hedging instrument. The first interest rate swap expired in August 2021. The second interest rate swap of $400.0 million notional was effective in November 2019 and was designated as a cash flow hedge against the underlying interest rate on the second lien notes interest payments indexed to three-month LIBOR through November 2020.

In May 2020, the Company elected to pay-in-kind (“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 $3.7 million to interest expense, net in the unaudited condensed consolidated statements of comprehensive income (loss). The gains and losses associated with the ~~$400.0 million notional swap were recognized in net income (loss) through~~variable interest ~~expense until~~rate of the ~~swap expired in November 2020.~~First Lien Term Loan.

The following table summarizes the amount and location of the Company’s derivative instruments in the condensed consolidated balance sheets (in thousands):


	Fair ~~value~~Value - Derivatives in ~~liability position~~Asset Position
Derivative	Balance Sheet Caption	September 30, ~~2021~~2022		December 31, ~~2020~~2021
Interest rate ~~swaps~~cap designated as cash flow ~~hedges~~hedge	Prepaid expenses and other current assets	$	8,544	$	—
Interest rate cap designated as cash flow hedge	Other noncurrent assets	21,733		—

Fair Value - Derivatives in Liability Position

Derivative

Balance Sheet Caption

September 30, 2022

December 31, 2021

Interest rate cap designated as cash flow hedge

Accrued expenses and other current liabilities

—

~~11,172~~601

~~Interest rate swaps not designated as cash flow hedges~~

~~Accrued expenses and other current liabilities~~

—

~~170~~

~~Total derivatives~~

—

~~11,342~~

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The gain ~~and loss~~ associated with the ~~changes~~change in the fair value of the effective portion of the hedging instrument ~~are~~is recorded into other comprehensive ~~(loss)~~ income. ~~The gain and loss associated with the changes in the fair value of the $13.9 million notional amount not designated as a hedging instrument is 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):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Derivative	Derivative	2021		2020		2021		2020		Derivative	2022		2021		2022		2021
Interest rate cap designated as cash flow hedge										Interest rate cap designated as cash flow hedge	$	10,653	$	—	$	30,879	$	—
Interest rate swaps designated as cash flow hedges	Interest rate swaps designated as cash flow hedges	$	2,892	$	4,022	$	11,172	$	(11,780)	Interest rate swaps designated as cash flow hedges	—		2,892		—		11,172
Interest rate swaps that discontinued hedge accounting		—		—		—		3,746
		$	2,892	$	4,022	$	11,172	$	(8,034)
											$	10,653	$	2,892	$	30,879	$	11,172

The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s unaudited condensed consolidated ~~statement~~statements of comprehensive income ~~(loss)~~ related to the Company’s derivative instruments (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
Derivative Income Statement Caption 2021 2020 2021 2020
Interest rate swaps designated as cash flow hedges Interest expense $ (2,903) $ (4,152) $ (11,298) $ (8,604)
Interest rate swaps not designated as hedges Interest expense — (41) (2) (32)
Interest rate swaps that discontinued hedge accounting Interest expense — — — (3,746)
$ (2,903) $ (4,193) $ (11,300) $ (12,382)


		Three Months Ended September 30,				Nine Months Ended September 30,
Derivative	Income Statement Caption	2022		2021		2022		2021
Interest rate cap designated as cash flow hedge	Interest expense	$	(1,775)	$	—	$	(591)	$	—
Interest rate swaps designated as cash flow hedges	Interest expense	—		(2,903)		$	—	$	(11,298)
Interest rate swaps not designated as hedges	Interest expense	—		—		—		(2)

		$	(1,775)	$	(2,903)	$	(591)	$	(11,300)

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12. FAIR VALUE MEASUREMENTS

Fair value measurements are determined by maximizing the use of observable inputs and minimizing the use of unobservable inputs. The hierarchy places the highest 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 described as follows:

•Level 1 — Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities.

•Level 2 — Inputs to the 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 believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

First ~~lien term loan~~Lien Term Loan: The fair value of the ~~first lien term loan~~First Lien Term Loan is derived from a broker quote on the loans in the syndication (Level 2 inputs). See Note 10, Indebtedness, for further discussion of the carrying amount and fair value of the ~~first lien term loan.~~First Lien Term Loan.

~~Second lien notes~~Senior Notes: ~~: Prior to the January 2021 debt refinancing, the~~The fair value of the ~~second lien notes was~~Senior Notes is derived from a ~~cash flow model that discounted the cash flows based on market interest rates~~broker quote (Level 32 inputs). See Note 10, Indebtedness, for further discussion of the carrying amount and fair value of the ~~second lien notes.~~Senior Notes.

Interest ~~rate swaps~~Rate Cap: : The fair ~~values~~value of the interest rate ~~swaps are~~cap is 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 11, Derivative Instruments, for further discussion of the fair value of the interest rate ~~swaps.~~cap.

There were no other assets or liabilities measured at fair value at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

13. 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.

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14. STOCK-BASED INCENTIVE COMPENSATION

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 and amended and restated on May 19, 2021, 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.~~directors, resulting in a total of 9,101,734 shares of common stock are authorized for issuance. The 2018 ~~plan~~Plan is administered by the Company’s Compensation Committee, a standing committee of the Company’s Board of Directors. ~~A total of 9,101,734 shares of common stock are authorized for issuance.~~ The Company had stock options, restricted stock units and performance stock units outstanding related to the 2018 Plan as of September 30, ~~2021. As of~~2022. During the three and nine months ended September 30, ~~2021,~~2022, total stock-based incentive compensation expense recognized by the Company ~~also had incentive units outstanding~~ related to the ~~HC I equity incentive plan, which~~2018 Plan was ~~implemented in October 2015, for certain officers~~$4.0 million and ~~employees of the Company.~~$12.6 million, respectively. During the three and nine months ended September 30, 2021, total stock-based incentive compensation expense recognized by the Company related to ~~these plans~~the 2018 Plan was $2.5 million and $6.2 million, respectively. During the three and nine months ended September 30, 2020, total stock-based incentive compensation expense recognized by the Company related to these plans was $1.2 million and $2.6 million, respectively.

15. STOCKHOLDERS’ EQUITY

2017 Warrants — During the three ~~and~~months ended September 30, 2022, warrant holders did not elect to exercise any warrants to purchase shares of common stock. During the nine months ended September 30, ~~2021, HC I completed secondary offerings of 29,900,000 and 76,400,000~~2022, warrant holders elected to exercise 1,130,089 warrants to purchase shares of common ~~stock, respectively. Following these offerings, HC I holds approximately 21.1% of the common stock of the Company.~~

~~2017 Warrants~~ —stock. During the three and nine months ended September 30, 2021, warrant holders did not elect to exercise any warrants to purchase shares of common stock. ~~During the three and nine months ended September 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock.~~ As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the remaining warrant holders are entitled to purchase ~~1.4 million~~240,188 and 1,370,277 shares of common stock, respectively.

2015 Warrants — During the three and nine months ended September 30, 2022, warrant holders elected to exercise 31,968 and 900,272 warrants to purchase shares of common stock, respectively. During the three and nine months ended September 30, 2021, warrant holders did not elect to exercise any warrants to purchase shares of common stock. ~~During the three and nine months ended September 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock.~~ As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the remaining warrant holders are entitled to purchase ~~0.9 million~~15,231 and 915,503 shares of common stock, respectively.

16. RELATED-PARTY TRANSACTIONS

Transactions with Equity-Method Investees — The Company provides management services to its joint ventures such as accounting, invoicing and collections in addition to day-to-day managerial support of the operations of the businesses. The Company recorded management fee income of $1.1 million and $2.9 million for the three and nine months ended September 30, 2022, respectively. The Company recorded management fee income of $0.9 million and $2.6 million for the three and nine months ended September 30, 2021, ~~respectively. The Company recorded management fee income of $0.8 million and $2.1 million for the three and nine months ended September 30, 2020,~~ respectively. Management fees are recorded in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive ~~income (loss).~~income. During the three and nine months ended September 30, 2022, the Company received distributions from the investees of $1.5 million and $2.5 million, respectively. During the three and nine months ended September 30, 2021, the Company received $1.3 million in distributions from the investees.

The Company had amounts due tofrom its joint ventures of ~~$2.9~~$0.8 million as of September 30, ~~2021. This payable was~~2022. These receivables were included in ~~accrued~~prepaid expenses and other current ~~liabilities~~assets in the accompanying condensed consolidated balance sheets. The Company also had amounts due ~~from~~to its joint ventures of ~~$2.4~~$1.4 million as of December 31, ~~2020.~~2021. These ~~receivables~~payables were included in ~~prepaid~~accrued expenses and other current ~~assets~~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.

~~17. SUBSEQUENT EVENTS~~

~~The Company has evaluated whether any subsequent events occurred since September 30, 2021, and noted the following subsequent events:~~

On October 1, 2021 the Company acquired Infinity Infusion Nursing, LLC (“Infinity”) for $50 million in an all-cash transaction. Infinity is a leader in home infusion services that provide therapy management for patients with acute, chronic and rare disorders through a national network of highly-skilled, specialty nurses.

In October 2021, the Company refinanced its $1,157 million outstanding existing loan due 2026. The Company amended the existing First Lien Term Loan, to provide $600 million of refinanced borrowings (the “New First Lien Term Loan Facility”) which modified certain terms and extended its maturity to 2028. In conjunction with the refinancing, the Company also issued $500 million in aggregate principal of unsecured senior notes due 2029 (collectively, the “Transactions”). In connection with

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the Transactions, the Company incurred third party fees of $9.4 million and original issue discount of $1.5 million. The Company also utilized $69.9 million of cash on hand for the Transactions. In conjunction with the Transactions, the Company also entered into an interest rate cap hedge with a notional amount of $300 million for a 5-year term beginning November 30, 2021. The hedge partially offsets risk associated with the New First Lien Term Loan Facility’s variable interest rate.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context requires otherwise, references in this report to "Option Care Health," the “Company,” “we,” “us” and “our” refer to Option Care Health, Inc. and its consolidated subsidiaries. ~~The following~~Management’s discussion and analysis of ~~the~~ financial condition and results of operations (“MD&A”) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of ~~Option Care Health, Inc. (“Option Care Health”, or the “Company”)~~operations and financial condition. The following discussion and analysis should be read in conjunction with ~~the audited consolidated financial statements and related notes, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2021, as well as~~ the Company’s unaudited condensed consolidated financial statements and the related notes thereto included ~~elsewhere~~ in Item 1 of Part I of this ~~report.~~

~~Forward-Looking Statements~~

~~This~~ Quarterly Report on Form 10-Q (this ~~“Quarterly Report”~~“Form 10-Q”) ~~contains~~. Certain statements ~~not purely historical~~in this Item 2 of Part I of this Form 10-Q, 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’), 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. Such 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 based upon current expectations that involve numerous risks and uncertainties, including those described in 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~~Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 (our “Form 10-K”), may cause our actual results, ~~may~~financial position, and cash generated from operations to differ materially from ~~those possible results discussed in the~~these forward-looking ~~statements as a result of various factors.~~

Do 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, the 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.statements.

Business Overview

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of ~~146~~161 locations around the United States. 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 patients’ homes or other nonhospital settings. Our 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. We 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 common stock, par value $0.0001, is listed on the Nasdaq Capital Market under the ticker symbol “OPCH”.

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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 Company ~~relies upon patient referrals from multiple sources, including but not limited~~has been disrupted by both positive and negative referral patterns, experienced challenges in our staffing, increased pricing and periodic inability to ~~patients discharged from acute care settings (e.g., hospitals)~~procure personal protection equipment, supplies 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 three and nine months ended September 30, 2021, the revenue results reflect acute revenue that had mid-single digit growth, while chronic revenue grew in the mid-teens relative to the prior year. Option Care Health continues to collaborate with payers and health systems to transition patients into the home or one of our alternate treatment sites to receive vital infusion therapy.

The Company continued to experience cost inefficiencies during the three and nine months ended September 30, 2021 with respect to clinical labor and other staffing challenges. Integration-related initiatives that were accelerated during the year ended December 31, 2020 continue to offset the negative impacts resulting from the COVID-19 pandemic. Further, to date, the Company has experienced no material deceleration in cash collections and collaboration with payers continues to be productive.key drugs. The Company anticipates that the pandemic could affect its operations for an extended period; however, at this time it 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 and other pandemic events could adversely impact our business operations, results of operations, cash flows and financial position” included in our ~~Annual Report on~~ Form 10-K ~~for the year ended December 31, 2020~~ for further discussion of risks.

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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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

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 medical supplies dispensed to patients. In addition to product costs, cost of revenue includes warehousing costs, purchasing costs, depreciation expense relating to revenue-generating assets, such as infusion pumps, shipping and handling costs, and 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.

Operating 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 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~~First Lien Term Loan and ~~second lien notes,~~the Senior Notes, amortization of discount and deferred financing fees, changes in derivatives not designated as hedging instruments related to the interest rate swaps, and reclassification from accumulated other comprehensive income to interest expense upon discontinuing hedge accounting.fees. 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 joint ventures with health systems.

Other, Net. Other income (expense) primarily includes activity in the prior year loss on extinguishment of debt incurred in connection with the January 2021 debt refinancing and miscellaneous non-operating expenses.

Income Tax Expense. The Company is subject to taxation in the United States and various states. The Company’s income tax expense is reflective of the current federal and state tax rates.

Change in ~~unrealized gains (losses)~~Unrealized Gains (Losses) on ~~cash flow hedges, net~~Cash Flow Hedges, Net of ~~income tax expense (benefit)~~Income Tax Expense (Benefit). Change in unrealized gains (losses) 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 the interest rate caps and interest rate swaps, net of income taxes.

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Results of Operations

The following table presents Option Care Health’s consolidated results of operations for the three and nine months ended September 30, 2022 and September 30, 2021 ~~and 2020~~ (in ~~thousands)~~thousands, except for percentages):


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2021 (unaudited)				2020 (unaudited)				2021 (unaudited)				2020 (unaudited)					2022				2021				2022				2021
		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue
NET REVENUE	NET REVENUE	$	891,937	100.0	%	$	781,609	100.0	%	$	2,511,446	100.0	%	$	2,227,897	100.0	%	NET REVENUE	$	1,020,918	100.0	%	$	891,937	100.0	%	$	2,917,522	100.0	%	$	2,511,446	100.0	%
COST OF REVENUE	COST OF REVENUE	688,969		77.2	%	607,456		77.7	%	1,944,037		77.4	%	1,729,395		77.6	%	COST OF REVENUE	802,917		78.6	%	688,969		77.2	%	2,281,685		78.2	%	1,944,037		77.4	%
GROSS PROFIT	GROSS PROFIT	202,968		22.8	%	174,153		22.3	%	567,409		22.6	%	498,502		22.4	%	GROSS PROFIT	218,001		21.4	%	202,968		22.8	%	635,837		21.8	%	567,409		22.6	%

OPERATING COSTS AND EXPENSES:	OPERATING COSTS AND EXPENSES:																	OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	Selling, general and administrative expenses	134,633		15.1	%	123,000		15.7	%	388,930		15.5	%	377,198		16.9	%	Selling, general and administrative expenses	142,015		13.9	%	134,633		15.1	%	417,771		14.3	%	388,930		15.5	%
Depreciation and amortization expense	Depreciation and amortization expense	15,452		1.7	%	16,597		2.1	%	48,410		1.9	%	54,892		2.5	%	Depreciation and amortization expense	15,268		1.5	%	15,452		1.7	%	46,027		1.6	%	48,410		1.9	%
Total operating expenses	Total operating expenses	150,085		16.8	%	139,597		17.9	%	437,340		17.4	%	432,090		19.4	%	Total operating expenses	157,283		15.4	%	150,085		16.8	%	463,798		15.9	%	437,340		17.4	%
OPERATING INCOME	OPERATING INCOME	52,883		5.9	%	34,556		4.4	%	130,069		5.2	%	66,412		3.0	%	OPERATING INCOME	60,718		5.9	%	52,883		5.9	%	172,039		5.9	%	130,069		5.2	%

OTHER INCOME (EXPENSE):	OTHER INCOME (EXPENSE):																	OTHER INCOME (EXPENSE):
Interest expense, net	Interest expense, net	(16,000)		(1.8)	%	(24,583)		(3.1)	%	(52,717)		(2.1)	%	(84,102)		(3.8)	%	Interest expense, net	(13,997)		(1.4)	%	(16,000)		(1.8)	%	(39,008)		(1.3)	%	(52,717)		(2.1)	%
Equity in earnings of joint ventures	Equity in earnings of joint ventures	1,676		0.2	%	790		0.1	%	4,567		0.2	%	2,364		0.1	%	Equity in earnings of joint ventures	1,472		0.1	%	1,676		0.2	%	4,065		0.1	%	4,567		0.2	%
Other, net	Other, net	4		—	%	(8,344)		(1.1)	%	(12,392)		(0.5)	%	(8,322)		(0.4)	%	Other, net	3,888		0.4	%	4		—	%	3,891		0.1	%	(12,392)		(0.5)	%
Total other expense	Total other expense	(14,320)		(1.6)	%	(32,137)		(4.1)	%	(60,542)		(2.4)	%	(90,060)		(4.0)	%	Total other expense	(8,637)		(0.8)	%	(14,320)		(1.6)	%	(31,052)		(1.1)	%	(60,542)		(2.4)	%

INCOME (LOSS) BEFORE INCOME TAXES		38,563		4.3	%	2,419		0.3	%	69,527		2.8	%	(23,648)		(1.1)	%
INCOME BEFORE INCOME TAXES																		INCOME BEFORE INCOME TAXES	52,081		5.1	%	38,563		4.3	%	140,987		4.8	%	69,527		2.8	%
INCOME TAX EXPENSE	INCOME TAX EXPENSE	3,087		0.3	%	756		0.1	%	5,096		0.2	%	2,267		0.1	%	INCOME TAX EXPENSE	13,258		1.3	%	3,087		0.3	%	37,960		1.3	%	5,096		0.2	%
NET INCOME (LOSS)		$	35,476	4.0	%	$	1,663	0.2	%	$	64,431	2.6	%	$	(25,915)	(1.2)	%
NET INCOME																		NET INCOME	$	38,823	3.8	%	$	35,476	4.0	%	$	103,027	3.5	%	$	64,431	2.6	%

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $0, $0 and $0, respectively		2,892		0.3	%	4,022		0.5	%	11,172		0.4	%	(8,034)		(0.4)	%
OTHER COMPREHENSIVE INCOME (LOSS)		2,892		0.3	%	4,022		0.5	%	11,172		0.4	%	(8,034)		(0.4)	%
NET COMPREHENSIVE INCOME (LOSS)		$	38,368	4.3	%	$	5,685	0.7	%	$	75,603	3.0	%	$	(33,949)	(1.5)	%
OTHER COMPREHENSIVE INCOME, NET OF TAX:																		OTHER COMPREHENSIVE INCOME, NET OF TAX:
Change in unrealized gains on cash flow hedges, net of income tax expense of $1,398, $0, $5,917 and $0, respectively																		Change in unrealized gains on cash flow hedges, net of income tax expense of $1,398, $0, $5,917 and $0, respectively	$	9,255	0.9	%	$	2,892	0.3	%	$	24,962	0.9	%	$	11,172	0.4	%
OTHER COMPREHENSIVE INCOME																		OTHER COMPREHENSIVE INCOME	$	9,255	0.9	%	$	2,892	0.3	%	$	24,962	0.9	%	$	11,172	0.4	%
NET COMPREHENSIVE INCOME																		NET COMPREHENSIVE INCOME	$	48,078	4.7	%	$	38,368	4.3	%	$	127,989	4.4	%	$	75,603	3.0	%

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Three Months Ended September 30, ~~2021~~2022 Compared to Three Months Ended September 30, ~~2020~~2021

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~~months ended September 30, ~~2021~~2022 and ~~September 30, 2020.~~2021.

Gross Profit


		Three Months Ended September 30,
		2021			2020								Three Months Ended September 30,
		(unaudited)			(unaudited)			Variance					2022			2021			Variance

		(in thousands, except for percentages)											(in thousands, except for percentages)
Net revenue	Net revenue	$	891,937		$	781,609		$	110,328	14.1	%	Net revenue	$	1,020,918		$	891,937		$	128,981	14.5	%
Cost of revenue	Cost of revenue	688,969			607,456			81,513		13.4	%	Cost of revenue	802,917			688,969			113,948		16.5	%
Gross profit	Gross profit	$	202,968		$	174,153		$	28,815	16.5	%	Gross profit	$	218,001		$	202,968		$	15,033	7.4	%
Gross profit margin	Gross profit margin	22.8		%	22.3		%					Gross profit margin	21.4		%	22.8		%

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had ~~mid single digit~~mid-single-digit growth relative to the prior year while chronic revenue grew in the mid-teens. Acute growth was driven primarily by the impact of shifts in the competitive landscape, which increased the volume of patient service. Acquisition related growth accounted for approximately 2% and 3% of the increase in net revenue and gross profit, respectively. The increase in cost of revenue and gross profit was primarily driven by the growth in ~~revenue. The increase in gross profit was primarily related to contribution margin from the increase in net revenue. The slight increase in gross profit margin was driven~~revenue and also impacted by ~~mix shift toward higher profit therapies.~~inflationary pressures including labor, transportation, and medical supplies costs.

Operating Expenses


		Three Months Ended September 30,
		2021		2020							Three Months Ended September 30,
		(unaudited)		(unaudited)		Variance					2022		2021		Variance

		(in thousands, except for percentages)									(in thousands, except for percentages)
Selling, general and administrative expenses	Selling, general and administrative expenses	$	134,633	$	123,000	$	11,633	9.5	%	Selling, general and administrative expenses	$	142,015	$	134,633	$	7,382	5.5	%
Depreciation and amortization expense	Depreciation and amortization expense	15,452		16,597		(1,145)		(6.9)	%	Depreciation and amortization expense	15,268		15,452		(184)		(1.2)	%
Total operating expenses	Total operating expenses	$	150,085	$	139,597	$	10,488	7.5	%	Total operating expenses	$	157,283	$	150,085	$	7,198	4.8	%

The increase in ~~Selling,~~selling, general and administrative expenses is primarily due to salaries and benefits as a result of acquired team members and inflationary pressures, but has decreased as a percentage of revenue to 13.9% for the three months ended September 30, 2022 as compared to 15.1% for the three months ended September 30, 2021, ~~as compared to 15.7% for the three months ended September 30, 2020,~~ as our revenue has grown at a faster pace than our selling, general and administrative expenses.

The decrease in depreciation and amortization ~~was~~expense is primarily ~~related~~attributed to ~~a reduction in capital expenditures corresponding with the stabilization of capital expenditures through completion of Merger integration activities during the year ended December 31, 2020.~~certain intangible assets whose useful life expired partially offset by additional intangible assets due to acquisitions.

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Other Income (Expense)


		Three Months Ended September 30,
		2021		2020							Three Months Ended September 30,
		(unaudited)		(unaudited)		Variance					2022		2021		Variance

		(in thousands, except for percentages)									(in thousands, except for percentages)
Interest expense, net	Interest expense, net	$	(16,000)	$	(24,583)	$	8,583	(34.9)	%	Interest expense, net	$	(13,997)	$	(16,000)	$	2,003	(12.5)	%
Equity in earnings of joint ventures	Equity in earnings of joint ventures	1,676		790		886		112.2	%	Equity in earnings of joint ventures	1,472		1,676		(204)		(12.2)	%
Other, net	Other, net	4		(8,344)		8,348		(100.0)	%	Other, net	3,888		4		3,884		97,100.0	%
Total other expense	Total other expense	$	(14,320)	$	(32,137)	$	17,817	(55.4)	%	Total other expense	$	(8,637)	$	(14,320)	$	5,683	(39.7)	%

The decrease in interest expense during the three months ended September 30, 2022 was primarily attributable to the debt refinancing of the ~~first lien term loan~~First Lien Term Loan and ~~prepayment~~issuance of the ~~second lien notes~~Senior Notes in ~~January 2021, as well as the reduction in the outstanding debt balance due to retirement of debt obligations which were completed during 2020.~~October 2021. See Note 10, Indebtedness, of the ~~unaudited condensed~~ consolidated financial ~~statements.~~statements for further information.

The ~~increase~~decrease in equity in earnings of joint ventures was primarily attributable to ~~organic growth in both~~ the ~~acute and chronic portfolio~~performance of ~~therapies.~~the joint ventures.

The change in other, net is ~~primarily attributable~~due to one-time non-operating income for the ~~loss on extinguishment of debt of $8.3 million incurred in~~three months ended September 30, 2022 related to income from a prior legacy acquisition. There was no comparable activity during the ~~third quarter of 2020 in conjunction with the $125.0 million repayment of principal on the second lien notes.~~three months ended September 30, 2021.

Income Tax Expense

Three Months Ended September 30,
2021 2020
(unaudited) (unaudited) Variance
(in thousands, except for percentages)
Income tax expense $ 3,087 $ 756 $ 2,331 308.3 %


	Three Months Ended September 30,
	2022		2021		Variance

	(in thousands, except for percentages)
Income tax expense	$	13,258	$	3,087	$	10,171	329.5	%

The Company maintains a ~~full~~ valuation allowance ~~established at the time~~ of ~~Merger,~~$13.1 million against ~~all of its net U.S. federal and state deferred tax assets with the exception of approximately $0.3 million of estimated~~certain state net operating losses (“~~NOL”~~NOLs”). ~~Because of the Company’s full valuation allowance, the~~The Company’s tax expense for the three months ended September 30, ~~2021 only~~2022, consists of quarterly tax liabilities attributable to ~~separate company~~ state tax returns as well as recognized deferred federal and state tax expense. These tax expense items resulted in an effective tax rate of ~~8.0%~~25.5% during the three months ended September 30, ~~2021.~~2022. During the three months ended September 30, ~~2020,~~2021, the effective tax rate was ~~31.3%~~8.0%. The variance in the Company’s effective tax rate of 25.5% for the three months ended September 30, 2022, compared to the federal statutory rate of 21% is primarily attributable to current and deferred state taxes as well as various non-deductible expenses. The variance in the Company’s effective tax rate of 8.0% for the three months ended September 30, 2021, compared to the federal statutory rate of 21% is primarily attributable to the Company only recognizing certain deferred federal and state tax expense and current state tax expense while any tax benefits that would have otherwise been recognized were offset by the Company’s tax valuation allowance in effect during that period. The variance in the year-over-year effective tax rates is primarily attributable to ~~changes in~~ the Company not recognizing any tax benefit for the period ended September 30, 2021, because it maintained a full tax valuation allowance ~~combined with year-over-year variances in income (loss) before income taxes~~reserve against such benefits. This reserve was subsequently reversed during the three months ended December 31, 2021, except for the ~~Company. The quarterly~~$13.1 million allowance noted above. Therefore, the reserve was not applicable in computing tax ~~rates of both periods differ from~~expense for the ~~Company’s 21% federal statutory~~three months ended September 30, 2022, thus producing the effective tax rate ~~primarily due to changes in valuation allowance, certain state and local taxes, non-deductible costs and resolution of certain tax matters.~~variance year-over-year.

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Net Income and Other Comprehensive Income


		Three Months Ended September 30,
		2021		2020							Three Months Ended September 30,
		(unaudited)		(unaudited)		Variance					2022		2021		Variance

		(in thousands, except for percentages)									(in thousands, except for percentages)
Net income	Net income	$	35,476	$	1,663	$	33,813	2,033.3	%	Net income	$	38,823	$	35,476	$	3,347	9.4	%
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:									Other comprehensive income, net of tax:
Changes in unrealized gains on cash flow hedges, net of income taxes	Changes in unrealized gains on cash flow hedges, net of income taxes	2,892		4,022		(1,130)		(28.1)	%	Changes in unrealized gains on cash flow hedges, net of income taxes	9,255		2,892		6,363		220.0	%
Other comprehensive income	Other comprehensive income	2,892		4,022		(1,130)		(28.1)	%	Other comprehensive income	$	9,255	2,892		6,363		220.0	%
Net comprehensive income	Net comprehensive income	$	38,368	$	5,685	$	32,683	574.9	%	Net comprehensive income	$	48,078	$	38,368	$	9,710	25.3	%

The ~~increase~~change in net income was primarily ~~attributed~~attributable to ~~contribution margin~~organic growth from additional revenue related to ~~organic growth and realization of Merger-related integration savings that resulted~~the factors described in ~~total operating expenses decreasing as a percentage of revenue.~~the above sections.

~~The decrease in changes~~For the three months ended September 30, 2022, the change in unrealized gains on cash flow hedges, net of income taxes, was primarily related to the ~~$925.0~~increase in fair market value of the $300.0 million ~~notional swap as the swap expired~~interest rate cap hedge executed in ~~August~~October 2021.

~~Net comprehensive income increased to $38.4 million for~~ For the three months ended September 30, 2021, ~~compared to net comprehensive income of $5.7 million for~~ the ~~three months ended September 30, 2020, primarily as a result of the changes in net income, discussed above.~~

~~Table of Contents~~

~~Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020~~

The following tables present selected consolidated comparative results of operations from the Company’s unaudited condensed consolidated financial statements for the nine month periods ended September 30, 2021 and September 30, 2020.

~~Gross Profit~~

Nine Months Ended September 30,
2021 2020
(unaudited) (unaudited) Variance
(in thousands, except for percentages)
Net revenue $ 2,511,446 $ 2,227,897 $ 283,549 12.7 %
Cost of revenue 1,944,037 1,729,395 $ 214,642 12.4 %
Gross profit 567,409 498,502 $ 68,907 13.8 %
Gross profit margin 22.6 % 22.4 %

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies. The increase in cost of revenue was driven by the growth in revenue. The increase in gross profit was primarily related to contribution margin from the increase in net revenue. The slight increase in gross profit margin was driven by mix shift toward higher profit therapies.

~~Operating Expenses~~

Nine Months Ended September 30,
2021 2020
(unaudited) (unaudited) Variance
(in thousands, except for percentages)
Selling, general and administrative expenses $ 388,930 $ 377,198 $ 11,732 3.1 %
Depreciation and amortization expense 48,410 54,892 (6,482) (11.8) %
Total operating expenses $ 437,340 $ 432,090 $ 5,250 1.2 %

Selling, general and administrative expenses increased for the nine months ended September 30, 2021 primarily due to salaries and benefits, but has decreased as a percentage of revenue to 15.5% for the nine months ended September 30, 2021 as compared to 16.9% for the nine months ended September 30, 2020 due to Merger synergy realization.

The decrease in depreciation and amortization was primarily related to a reduction in capital expenditures corresponding with the completion of Merger integration activities during the year ended December 31, 2020.

~~Table of Contents~~

~~Other Income (Expense)~~

Nine Months Ended September 30,
2021 2020
(unaudited) (unaudited) Variance
(in thousands, except for percentages)
Interest expense, net $ (52,717) $ (84,102) $ 31,385 (37.3) %
Equity in earnings of joint ventures 4,567 2,364 2,203 93.2 %
Other, net (12,392) (8,322) (4,070) 48.9 %
Total other expense $ (60,542) $ (90,060) $ 29,518 (32.8) %

The decrease in interest expense was primarily attributable to the debt refinancing of the first lien term loan and prepayment of the second lien notes in January 2021, as well as the reduction in the outstanding debt balance due to retirement of debt obligations which were completed during 2020. See Note 10, ~~Indebtedness, of the unaudited condensed consolidated financial statements.~~

~~The increase in equity in earnings of joint ventures was primarily attributable to organic growth in both the acute and chronic portfolio of therapies.~~

The increase in other, net relates to the loss on extinguishment of debt of $12.4 million incurred in the first quarter of 2021 in conjunction with the refinancing of the first lien term loan and prepayment of all outstanding principal of the second lien notes.

~~Income Tax Expense~~

Nine Months Ended September 30,
2021 2020
(unaudited) (unaudited) Variance
(in thousands, except for percentages)
Income tax expense $ 5,096 $ 2,267 $ 2,829 124.8 %

The Company maintains 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 $0.3 million of estimated state net operating losses (“NOL”). Because of the Company’s full valuation allowance, the Company’s tax expense for the nine months ended September 30, 2021 only consists of quarterly tax liabilities attributable to separate company state taxing authorities as well as recognized deferred tax expense. These tax expense items created an effective tax rate of 7.3% during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the effective tax rate was negative 9.6%. The variance in the year-over-year effective tax rates is primarily attributable to changes in the valuation allowance combined with year-over-year variances in income (loss) before income taxes for the Company. The effective 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.

~~Table of Contents~~

~~Net Income (Loss) and Other Comprehensive Income (Loss)~~

Nine Months Ended September 30,
2021 2020
(unaudited) (unaudited) Variance
(in thousands, except for percentages)
Net income (loss) $ 64,431 $ (25,915) $ 90,346 (348.6) %
Other comprehensive income (loss), net of tax:
Changes in unrealized gains (losses) on cash flow hedges, net of income taxes 11,172 (8,034) 19,206 (239.1) %
Other comprehensive income (loss) 11,172 (8,034) 19,206 (239.1) %
Net comprehensive income (loss) $ 75,603 $ (33,949) $ 109,552 (322.7) %

The change in net income (loss) was primarily attributed to contribution margin from additional revenue related to organic growth and realizing Merger-related integration savings that resulted in total operating expenses decreasing as a percentage of revenue.

~~The~~ change in unrealized gains ~~(losses)~~ on cash flow hedges, net of income taxes, primarily related to the increase in fair value on the $925.0 million notional ~~swap as~~swap; the swap expired in August 2021. ~~The change in unrealized loss~~

Net comprehensive income increased to $48.1 million for the ~~nine~~three months ended September 30, ~~2020 related~~2022, compared 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~~ net comprehensive income ~~(loss) was~~of $38.4 million for the three months ended September 30, 2021, primarily as a result of the ~~change~~changes in net income, ~~(loss), described~~discussed above, further increased by the impact of the fair value of the interest rate ~~swaps.~~cap hedge.

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Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Gross Profit


	Nine Months Ended September 30,
	2022			2021			Variance

	(in thousands, except for percentages)
Net revenue	$	2,917,522		$	2,511,446		$	406,076	16.2	%
Cost of revenue	2,281,685			1,944,037			337,648		17.4	%
Gross profit	$	635,837		$	567,409		$	68,428	12.1	%
Gross profit margin	21.8		%	22.6		%

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had mid-single-digit growth relative to the prior year while chronic revenue grew in the high-teens. Acute growth was driven primarily by the impact of shifts in the competitive landscape, which increased the volume of patient service. Acquisition related growth accounted for approximately 2% and 3% of the increase in net revenue and gross profit, respectively. The increase in cost of revenue and gross profit was primarily driven by the growth in revenue and also impacted by inflationary pressures including labor, transportation, and medical supplies costs.

Operating Expenses


	Nine Months Ended September 30,
	2022		2021		Variance

	(in thousands, except for percentages)
Selling, general and administrative expenses	$	417,771	$	388,930	$	28,841	7.4	%
Depreciation and amortization expense	46,027		48,410		(2,383)		(4.9)	%
Total operating expenses	$	463,798	$	437,340	$	26,458	6.0	%

The increase in selling, general and administrative expenses is primarily due to salaries and benefits as a result of acquired team members and inflationary pressures, but has decreased as a percentage of revenue to 14.3% for the nine months ended September 30, 2022 as compared to 15.5% for the nine months ended September 30, 2021, as our revenue has grown at a faster pace than our selling, general and administrative expenses.

The decrease in depreciation and amortization expense is primarily attributed to certain intangible assets whose useful life expired partially offset by additional intangible assets due to acquisitions.

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Other Income (Expense)


	Nine Months Ended September 30,
	2022		2021		Variance

	(in thousands, except for percentages)
Interest expense, net	$	(39,008)	$	(52,717)	$	13,709	(26.0)	%
Equity in earnings of joint ventures	4,065		4,567		(502)		(11.0)	%
Other, net	3,891		(12,392)		16,283		(131.4)	%
Total other expense	$	(31,052)	$	(60,542)	$	29,490	(48.7)	%

The decrease in interest expense during the nine months ended September 30, 2022 was primarily attributable to the debt refinancing of the First Lien Term Loan and issuance of the Senior Notes in October 2021. See Note 10, Indebtedness, of the consolidated financial statements for further information.

The decrease in equity in earnings of joint ventures was primarily attributable to the performance of the joint ventures.

The change in other, net is primarily due to the loss on extinguishment of debt incurred in conjunction with the January 2021 debt refinancing and included in the results for the nine months ended September 30, 2021. There was no comparable activity during the nine months ended September 30, 2022. There was also one-time non-operating income for the nine months ended September 30, 2022 related to income from a prior legacy acquisition.

Income Tax Expense


	Nine Months Ended September 30,
	2022		2021		Variance

	(in thousands, except for percentages)
Income tax expense	$	37,960	$	5,096	$	32,864	644.9	%

The Company maintains a valuation allowance of $13.1 million against certain state NOLs. The Company’s tax expense for the nine months ended September 30, 2022, consists of quarterly tax liabilities attributable to state tax returns as well as recognized deferred federal and state tax expense. These tax expense items resulted in an effective tax rate of 26.9% during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, the effective tax rate was 7.3%. The variance in the Company’s effective tax rate of 26.9% for the nine months ended September 30, 2022, compared to the federal statutory rate of 21% is primarily attributable to current and deferred state taxes as well as various non-deductible expenses. The variance in the Company’s effective tax rate of 7.3% for the nine months ended September 30, 2021, compared to the federal statutory rate of 21% is primarily attributable to the Company only recognizing certain deferred federal and state tax expense and current state tax expense while any tax benefits that would have otherwise been recognized were offset by the Company’s tax valuation allowance in effect during that period. The variance in the year-over-year effective tax rates is primarily attributable to the Company not recognizing any tax benefit for the period ended September 30, 2021, because it maintained a full tax valuation allowance reserve against such benefits. This reserve was subsequently reversed during the three months ended December 31, 2021, except for the $13.1 million allowance noted above. Therefore, the reserve was not applicable in computing tax expense for the nine months ended September 30, 2022, thus producing the effective tax rate variance year-over-year.

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Net Income and Other Comprehensive Income


	Nine Months Ended September 30,
	2022		2021		Variance

	(in thousands, except for percentages)
Net income	$	103,027	$	64,431	$	38,596	59.9	%
Other comprehensive income, net of tax:
Changes in unrealized gains on cash flow hedges, net of income taxes	24,962		11,172		13,790		123.4	%
Other comprehensive income	$	24,962	11,172		13,790		123.4	%
Net comprehensive income	$	127,989	$	75,603	$	52,386	69.3	%

The change in net income was primarily attributable to organic growth from additional revenue related to the factors described in the above sections.

For the nine months ended September 30, 2022, the change in unrealized gains on cash flow hedges, net of income taxes, was related to the increase in fair market value of the $300.0 million interest rate cap hedge executed in October 2021. For the nine months ended September 30, 2021, the change in unrealized gains on cash flow hedges, net of income taxes, primarily related to the increase in fair value on the $925.0 million notional swap; the swap expired in August 2021.

Net comprehensive income increased to $128.0 million for the nine months ended September 30, 2022, compared to net comprehensive income of $75.6 million for the nine months ended September 30, 2021, primarily as a result of the changes in net income, discussed above, further increased by the impact of the fair value of the interest rate cap hedge.

Liquidity and Capital Resources

For the nine months ended September 30, ~~2021~~2022 and the twelve months ended December 31, ~~2020,~~2021, the Company’s primary sources of liquidity were cash on hand of ~~$200.9~~$255.5 million and ~~$99.3~~$119.4 million, respectively, as well as ~~the $165.4~~$168.3 million of borrowings available under its credit facilities (net of ~~$9.6~~$6.7 million undrawn letters of credit issued and outstanding). During the nine months ended September 30, ~~2021~~2022 and the year ended December 31, ~~2020,~~2021, 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 to pursue acquisitions.

The Company’s primary uses of cash include supporting our ongoing business activities, investment in capital expenditures in both facilities and ~~investing in various acquisitions~~technology, and ~~our infrastructure to support additional business volumes.~~the pursuit of acquisitions. 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 proceeds of warrant exercises, along with quarterly principal payments on our outstanding debt.

Our business strategy includes the ~~selective acquisition~~deployment of ~~additional infusion pharmacies and other related healthcare businesses.~~capital to pursue acquisitions that complement our existing operations. 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.

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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~~over the next 12 ~~months.~~months and beyond. We may require additional borrowings under our credit facilities and alternative forms of financings or investments to achieve our longer-term strategic plans.

~~Table of Contents~~

Credit Facilities

The Company’s ~~ABL~~asset-based-lending revolving credit facility provides for borrowings up to $175.0 million, which matures on ~~August 6, 2024.~~October 27, 2026 (the “ABL Facility”). The ABL ~~facility~~Facility bears interest at a ~~per annum~~ rate ~~that~~equal to, at the Borrowers’ election, either (i) a base rate determined in accordance with the ABL Credit Agreement plus an applicable margin, which is ~~determined by the Company’s periodic selection of rate type, either the Base Rate or the Eurocurrency Rate. The Base Rate is charged~~equal to between ~~1.25%~~0.25% and ~~1.75% and the Eurocurrency Rate is charged between 2.25% and 2.75%~~0.75% based on the historical excess availability as a percentage of the Line Cap as(as such term is defined in the ABL ~~facility credit agreement. The revolving credit facility contains commitment fees payable~~Credit Agreement) and (ii) LIBOR (or a comparable successor rate, with a floor of 0.00% per annum) plus an applicable margin, which is equal to between 1.25% and 1.75% based on the ~~unused portion~~historical excess availability as a percentage 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 September 30, 2021.~~Line Cap. The Company had ~~$9.6~~$6.7 million of undrawn l~~etters~~letters of credit issued and outstanding, resulting in net borrowing availability under the ABL ~~facility~~Facility of ~~$165.4~~$168.3 million as of September 30, ~~2021.~~2022.

The principal balance of the ~~first lien term loan was initially~~First Lien Term Loan is repayable in quarterly installments of ~~$2.3~~$1.5 million plus interest, with a final payment of all remaining outstanding principal due on ~~August 6, 2026.~~October 27, 2028. The quarterly principal payments commenced in March of ~~2020.~~2022. Interest on the first lien term loan was initially 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 was initially 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 3.83% as of September 30, 2021.

The second lien notes initially matured on August 6, 2027. Interest on the second lien notes was initially payable quarterly at London Interbank Offered Rate (“LIBOR”), plus 8.75%. The Company paid the second and third quarterly interest payments, due in February 2020 and May 2020. The Company elected to pay-in-kind the quarterly interest payment due in August 2020, which resulted in the Company capitalizing the interest payment to the principal balance on the interest payment date. In August 2020, the Company prepaid $125.0 million of the outstanding principal balance. In December 2020, the Company utilized available cash on hand to prepay an additional $49.0 million of the outstanding principal balance, reducing the outstanding principal balance to $245.8 million as of December 31, 2020.

During the three months ended March 31, 2021, the Company entered into an amendment on the first lien term loan (the “First Lien Credit Agreement Amendment”). The First Lien Credit Agreement Amendment resulted in an additional $250.0 million of incremental first lien term loan indebtedness being issued and reduced the interest rate on all outstanding first lien term loan indebtedness from LIBOR plus 4.25% to LIBOR plus 3.75%. The proceeds of the $250.0 million incremental first lien term loan indebtedness were used to prepay the remaining $245.8 million outstanding balance of the second lien notes. Following the First Lien Credit Agreement Amendment, the first lien term loan is repayable in quarterly installments of $2.9 million plus interest, with a final payment of all outstanding principal due on August 6, 2026. See Note 10, ~~Indebtedness, of the unaudited condensed consolidated financial statements included in Item 1 of this report for further discussion. The interest rate on the first lien term loan was~~ ~~3.83%~~ ~~as of September 30, 2021.~~

~~In October 2021, the Company entered into an amendment~~ on the First Lien Term Loan ~~to provide $600~~is payable monthly on either (i) LIBOR (or a comparable successor rate, with a floor of 0.50% per annum) plus an applicable margin of 2.75% for Eurocurrency Rate Loans and (ii) a base rate determined in accordance with the new First Lien Term Loan agreement, plus 1.75% for Base Rate Loans.

The Senior Notes bear interest at a rate of 4.375% per annum, which are payable semi-annually in arrears on October 31 and April 30 of each year, and which began on April 30, 2022. The Senior Notes mature on October 31, 2029.

Interest payments over the course of long-term debt obligations total an estimated $344.7 million based on final maturity dates of ~~refinanced borrowings. In October 2021,~~ the ~~Company also issued $500 million~~Company’s credit facilities. Interest payments are calculated based on the LIBOR rate as of September 30, 2022. Actual payments are based on changes in ~~aggregate principal amount of senior notes. See Note 17,~~ ~~Subsequent Events, for further discussion.~~LIBOR and exclude the interest rate cap derivative instrument.

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Cash Flows

Nine Months Ended September 30, ~~2021~~2022 Compared to Nine Months Ended September 30, ~~2020~~2021

The following table presents selected data from Option Care Health’s unaudited condensed consolidated statements of cash flows:


		Nine Months Ended September 30,
		2021		2020					Nine Months Ended September 30,
		(unaudited)		(unaudited)		Variance			2022		2021		Variance

		(in thousands)							(in thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	143,259	$	101,728	$	41,531	Net cash provided by operating activities	$	224,092	$	143,259	$	80,833
Net cash used in investing activities	Net cash used in investing activities	(30,596)		(12,330)		(18,266)		Net cash used in investing activities	(104,426)		(30,596)		(73,830)
Net cash used in financing activities		(11,072)		(16,407)		5,335
Net cash provided by (used in) financing activities								Net cash provided by (used in) financing activities	16,379		(11,072)		27,451
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	101,591		72,991		28,600		Net increase in cash and cash equivalents	136,045		101,591		34,454
Cash and cash equivalents - beginning of period	Cash and cash equivalents - beginning of period	99,265		67,056		32,209		Cash and cash equivalents - beginning of period	119,423		99,265		20,158
Cash and cash equivalents - end of period	Cash and cash equivalents - end of period	$	200,856	$	140,047	$	60,809	Cash and cash equivalents - end of period	$	255,468	$	200,856	$	54,612

Cash Flows from Operating Activities

The increase in cash flows provided by operating activities is primarily due to higher net income, decrease in interest expense due to the ~~January~~October 2021 debt ~~refinancing, and~~refinancings, timing of vendor payments and deferred income taxes, which were partially offset by changes in inventory and certain accruals during the nine months ended September 30, ~~2021~~2022 as compared to the nine months ended September 30, ~~2020.~~2021.

Cash Flows from Investing Activities

The increase in cash flows used in investing activities is primarily due to the ~~BioCure asset~~acquisitions of SPNN and RHI made within the nine months ended September 30, 2022, as compared to the acquisition inof Biocure made within the ~~current year.~~nine months ended September 30, 2021.

Cash Flows from Financing Activities

The increase in cash ~~used~~provided in financing activities is primarily related to the ~~current year debt refinancing, which resulted~~proceeds from warrant exercises during the nine months ended September 30, 2022, with no comparable activity during the nine months ended September 30, 2021. Additionally, the cash used in ~~proceeds of debt of $355.2 million, retirement of debt obligations of $352.0 million (as compared to $125.0 million~~financing activities for the nine months ended September 30, ~~2020), deferred financing costs of $2.9 million and debt prepayment penalties of 2.5 million. The remaining change in financing activities was~~2021 is related to ~~net proceeds from issuance of common stock in~~the January 2021 debt refinancing, with no comparable activity during the nine months ended September 30, ~~2020 with no comparable activity in the nine months ended September 30, 2021.~~2022.

~~Table of Contents~~

~~Commitments and Contractual Obligations~~

The following table presents Option Care Health’s commitments and contractual obligations as of September 30, 2021, as well as its long-term obligations that changed materially from the Company’s annual report on form 10-K (in thousands):

Payments Due by Period
Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years
(in thousands)
Long-term debt obligations (1)
$ 1,156,919 $ 8,831 $ 26,494 $ 1,121,594 $ —
Interest payments on long-term debt obligations (2)
212,126 44,770 88,166 79,190 —
Total $ 1,369,045 $ 53,601 $ 114,660 $ 1,200,784 $ —

~~(1) Includes aggregate principal payment from the first lien term loan.~~

(2) Interest payments calculated based on LIBOR rate as of September 30, 2021. Actual payments are based on changes in LIBOR. Calculated interest payments exclude interest rate swap agreements the Company entered into in connection with the long-term debt obligations.

~~The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding.~~

~~Off-Balance Sheet Arrangements~~

~~As of September 30, 2021, 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

The Company prepares its unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”), which requires the Company to make estimates and assumptions. The Company evaluates its estimates and ~~judgments~~assumptions on an ongoing basis. Estimates and ~~judgments~~assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making ~~judgments~~assumptions 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. The Company’s actual results may differ from these estimates, and different assumptions or conditions may yield different estimates.

~~The company’s~~There have been no material changes to the Company’s critical accounting policies and estimates as presented in our ~~Annual report on~~Form 10-K, ~~for the year ended December 31, 2020~~which are hereby incorporated by reference.

~~In addition, the following critical accounting policy should be considered:~~

~~Income Taxes~~

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are reported for book-tax basis differences and are measured based on currently enacted tax laws using rates expected to apply to taxable income in the years in which the differences are expected to reverse. The effect of a change in tax rate on deferred taxes is recognized in income tax expense in the period that includes the enactment date of the change.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to 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 carryforward periods, projected taxable income and tax-planning strategies, in making this assessment. Changes in projected future earnings could affect the recorded valuation allowance in the future. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.

The Company recognizes income tax positions that are more likely than not to be sustained on their technical merits. The Company measures recognized income tax positions at the maximum benefit that is more likely than not, based on cumulative

~~Table of Contents~~

~~probability, realizable upon final settlement of the position. Interest and penalties related to unrecognized tax benefits are reported in income tax expense.~~

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Item 3.Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our exposure to market risk from those included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which is hereby incorporated by reference.

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 September 30, ~~2021.~~2022. 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 September 30, ~~2021.~~2022.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, ~~2021~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1.Legal Proceedings

For a summary of legal proceedings, refer to Note 13, Commitments and Contingencies, of the unaudited condensed consolidated financial statements included in Item 1 of this ~~report.~~Quarterly Report on Form 10-Q.

Item 1A.Risk Factors

There have been no material changes to the risk factors affecting our business, financial condition or results of operations from those set forth in Part I, Item 1A. “Risk Factors” in our Annual Report on ~~form~~Form 10-K for the ~~Year~~year ended December 31, ~~2020, except as modified by the information in the following risk factor, which was modified.~~2021. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results.

~~As of September 30, 2021, Madison Dearborn Partners is our largest stockholder and has the ability to exercise significant influence over decisions requiring our stockholders’ approval.~~

As of September 30, 2021, Madison Dearborn Partners controls 21.1% of our common stock through its control of HC Group Holding I, LLC (“HC Group”). As a result, Madison Dearborn Partners has the ability to exercise significant influence over decisions requiring approval of our stockholders including the election of directors, amendments to our certificate of incorporation and approval of significant corporate transactions, such as a merger or other sale of us or our assets. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of us and may negatively affect the market price of our common stock. Also, Madison Dearborn Partners is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete with us. Madison Dearborn Partners or its affiliates may also pursue acquisition opportunities that are complementary to our business and, as a result, those acquisition opportunities may not be available to us. Based on information received from Madison Dearborn Partners, Walgreens is also an equityholder of HC Group and currently maintains its approximately 21% indirect financial interest in us through HC Group.

Item 6.Exhibits

(a) Exhibits.


Exhibit Number			Description
3.1			Third Amended and Restated Bylaws of Option Care Health, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on September 30, 2022).
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			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer pursuant to 18 ~~U.S. C.~~U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer pursuant to 18 ~~U.S. C.~~U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Labels Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document
104			XBRL Formatted Cover Page

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.

~~Table of Contents~~


OPTION CARE HEALTH, INC.

Date: ~~November 4, 2021~~October 27, 2022			~~/s/~~ /s/Michael Shapiro
Michael Shapiro
Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

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		Page Number
PART I

Item 1.	Financial Statements	45
	Condensed Consolidated Balance Sheets	56
	Unaudited Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~	67
	Unaudited Condensed Consolidated Statements of Cash Flows	78
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	89
	Notes to Unaudited Condensed Consolidated Financial Statements	910
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2524
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3936
Item 4.	Controls and Procedures	3936

PART II

Item 1.	Legal Proceedings	4037
Item 1A.	Risk Factors	4037
Item 6.	Exhibits	4037

SIGNATURES		4037


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
NET REVENUE	$	891,937	$	781,609	$	2,511,446	$	2,227,897
COST OF REVENUE	688,969		607,456		1,944,037		1,729,395
GROSS PROFIT	202,968		174,153		567,409		498,502

OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	134,633		123,000		388,930		377,198
Depreciation and amortization expense	15,452		16,597		48,410		54,892
Total operating expenses	150,085		139,597		437,340		432,090
OPERATING INCOME	52,883		34,556		130,069		66,412

OTHER INCOME (EXPENSE):
Interest expense, net	(16,000)		(24,583)		(52,717)		(84,102)
Equity in earnings of joint ventures	1,676		790		4,567		2,364
Other, net	4		(8,344)		(12,392)		(8,322)
Total other expense	(14,320)		(32,137)		(60,542)		(90,060)

INCOME (LOSS) BEFORE INCOME TAXES	38,563		2,419		69,527		(23,648)
INCOME TAX EXPENSE	3,087		756		5,096		2,267

NET INCOME (LOSS)	$	35,476	$	1,663	$	64,431	$	(25,915)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $0, $0 and $0, respectively	2,892		4,022		11,172		(8,034)
OTHER COMPREHENSIVE INCOME (LOSS)	2,892		4,022		11,172		(8,034)
NET COMPREHENSIVE INCOME (LOSS)	$	38,368	$	5,685	$	75,603	$	(33,949)

EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per share, basic	$	0.20	$	0.01	$	0.36	$	(0.14)
Earnings (loss) per share, diluted	$	0.20	$	0.01	$	0.36	$	(0.14)

Weighted average common shares outstanding, basic	179,872		184,232		179,841		179,220
Weighted average common shares outstanding, diluted	181,430		184,822		181,055		179,220


	Three Months ended September 30, 2020				Nine Months ended September 30, 2020				Three Months ended December 31, 2020				Twelve Months ended December 31, 2020
	Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue
Commercial:
As Previously Reported	$	644,385	82.4	%	$	1,893,105	85.0	%	$	649,880	80.8	%	$	2,542,985	83.9	%
Adjustment	34,321		4.4	%	34,321		1.5	%	40,806		5.1	%	75,127		2.5	%
As Revised	678,706		86.8	%	1,927,426		86.5	%	690,686		85.9	%	2,618,112		86.4	%

Government:
As Previously Reported	127,435		16.3	%	308,830		13.9	%	141,237		17.6	%	450,067		14.8	%
Adjustment	(34,321)		(4.4)	%	(34,321)		(1.5)	%	(40,806)		(5.1)	%	(75,127)		(2.5)	%
As Revised	93,114		11.9	%	274,509		12.4	%	100,431		12.5	%	374,940		12.3	%


	Three Months ended March 31, 2021				Three Months ended June 30, 2021				Six Months ended June 30, 2021
	Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue
Commercial:
As Previously Reported	$	611,434	80.5	%	$	703,429	81.8	%	$	1,314,862	81.2	%
Adjustment	37,073		4.9	%	43,218		5.0	%	80,292		4.9	%
As Revised	648,507		85.4	%	746,647		86.8	%	1,395,154		86.1	%

Government:
As Previously Reported	134,914		17.8	%	145,799		16.9	%	280,714		17.3	%
Adjustment	(37,073)		(4.9)	%	(43,218)		(5.0)	%	(80,292)		(4.9)	%
As Revised	97,841		12.9	%	102,581		11.9	%	200,422		12.4	%


Year Ending December 31,	Minimum Payments
2021	$	2,944
2022	11,775
2023	11,775
2024	11,775
2025	11,775
Thereafter	1,106,875
Total	$	1,156,919


Financial Instrument	Carrying Value as of September 30, 2021		Markets for Identical Item (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
First lien term loan	$	1,129,598	$	—	$	1,156,919	$	—
Second lien notes	—		—		—		—
Total debt instruments	$	1,129,598	$	—	$	1,156,919	$	—


	Payments Due by Period
	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
	(in thousands)
Long-term debt obligations (1)	$	1,156,919	$	8,831	$	26,494	$	1,121,594	$	—
Interest payments on long-term debt obligations (2)	212,126		44,770		88,166		79,190		—
Total	$	1,369,045	$	53,601	$	114,660	$	1,200,784	$	—