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, ~~2022~~2023
			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 October ~~25, 2022,~~23, 2023, there were ~~181,900,930~~177,130,539 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~~2022 (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)


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
CURRENT ASSETS:	CURRENT ASSETS:					CURRENT ASSETS:
Cash and cash equivalents	Cash and cash equivalents	$	255,468	$	119,423	Cash and cash equivalents	$	386,489	$	294,186
Accounts receivable, net	Accounts receivable, net	364,187		338,242		Accounts receivable, net	382,957		377,542
Inventories	Inventories	236,020		183,095		Inventories	251,366		224,281
Prepaid expenses and other current assets	Prepaid expenses and other current assets	96,289		69,496		Prepaid expenses and other current assets	95,473		98,330
Total current assets	Total current assets	951,964		710,256		Total current assets	1,116,285		994,339

NONCURRENT ASSETS:	NONCURRENT ASSETS:					NONCURRENT ASSETS:
Property and equipment, net	Property and equipment, net	96,312		111,535		Property and equipment, net	107,960		108,321
Operating lease right-of-use asset	Operating lease right-of-use asset	72,369		74,777		Operating lease right-of-use asset	83,732		72,424
Intangible assets, net	Intangible assets, net	23,066		21,433		Intangible assets, net	20,868		22,371
Referral sources		349,487		344,587
Referral sources, net						Referral sources, net	323,126		341,744
Goodwill	Goodwill	1,533,043		1,477,564		Goodwill	1,540,246		1,533,424
Deferred income taxes		—		27,033
Other noncurrent assets	Other noncurrent assets	47,022		23,733		Other noncurrent assets	51,399		40,313
Total noncurrent assets	Total noncurrent assets	2,121,299		2,080,662		Total noncurrent assets	2,127,331		2,118,597
TOTAL ASSETS	TOTAL ASSETS	$	3,073,263	$	2,790,918	TOTAL ASSETS	$	3,243,616	$	3,112,936

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:	CURRENT LIABILITIES:					CURRENT LIABILITIES:
Accounts payable	Accounts payable	$	409,737	$	279,246	Accounts payable	$	429,536	$	378,763
Accrued compensation and employee benefits	Accrued compensation and employee benefits	58,014		83,503		Accrued compensation and employee benefits	81,159		76,906
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	93,803		71,857		Accrued expenses and other current liabilities	88,921		84,302
Current portion of operating lease liability	Current portion of operating lease liability	19,246		19,089		Current portion of operating lease liability	18,468		19,380
Current portion of long-term debt	Current portion of long-term debt	6,000		6,000		Current portion of long-term debt	6,000		6,000
Total current liabilities	Total current liabilities	586,800		459,695		Total current liabilities	624,084		565,351

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	1,058,606		1,059,900		Long-term debt, net of discount, deferred financing costs and current portion	1,057,016		1,058,204
Operating lease liability, net of current portion	Operating lease liability, net of current portion	71,864		74,492		Operating lease liability, net of current portion	85,423		71,441
Deferred income taxes	Deferred income taxes	10,598		—		Deferred income taxes	33,921		22,154
Other noncurrent liabilities	Other noncurrent liabilities	8,060		20,945		Other noncurrent liabilities	3,089		9,683
Total noncurrent liabilities	Total noncurrent liabilities	1,149,128		1,155,337		Total noncurrent liabilities	1,179,449		1,161,482
Total liabilities	Total liabilities	1,735,928		1,615,032		Total liabilities	1,803,533		1,726,833

STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:					STOCKHOLDERS’ EQUITY:
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		18		18
Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2022 and December 31, 2021, respectively		(2,403)		(2,403)
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2023 and December 31, 2022						Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock; $0.0001 par value: 250,000,000 shares authorized, 182,901,785 shares issued and 177,129,378 shares outstanding as of September 30, 2023; 182,341,420 shares issued and 181,957,698 shares outstanding as of December 31, 2022						Common stock; $0.0001 par value: 250,000,000 shares authorized, 182,901,785 shares issued and 177,129,378 shares outstanding as of September 30, 2023; 182,341,420 shares issued and 181,957,698 shares outstanding as of December 31, 2022	18		18
Treasury stock; 5,772,407 and 383,722 shares outstanding, at cost, as of September 30, 2023 and December 31, 2022, respectively						Treasury stock; 5,772,407 and 383,722 shares outstanding, at cost, as of September 30, 2023 and December 31, 2022, respectively	(179,205)		(2,403)
Paid-in capital	Paid-in capital	1,172,315		1,138,855		Paid-in capital	1,197,874		1,176,906
Retained earnings	Retained earnings	142,894		39,867		Retained earnings	400,336		190,423
Accumulated other comprehensive income (loss)		24,511		(451)
Accumulated other comprehensive income						Accumulated other comprehensive income	21,060		21,159
Total stockholders’ equity	Total stockholders’ equity	1,337,335		1,175,886		Total stockholders’ equity	1,440,083		1,386,103
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,073,263	$	2,790,918	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,243,616	$	3,112,936

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

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
NET REVENUE	$	1,093,014	$	1,020,918	$	3,177,934	$	2,917,522
COST OF REVENUE	838,748		802,917		2,443,834		2,281,685
GROSS PROFIT	254,266		218,001		734,100		635,837

OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	158,214		142,015		459,644		417,771
Depreciation and amortization expense	15,005		15,268		44,417		46,027
Total operating expenses	173,219		157,283		504,061		463,798
OPERATING INCOME	81,047		60,718		230,039		172,039

OTHER INCOME (EXPENSE):
Interest expense, net	(11,786)		(13,997)		(38,816)		(39,008)
Equity in earnings of joint ventures	1,273		1,472		4,107		4,065
Other, net	(449)		3,888		84,487		3,891
Total other (expense) income	(10,962)		(8,637)		49,778		(31,052)

INCOME BEFORE INCOME TAXES	70,085		52,081		279,817		140,987
INCOME TAX EXPENSE	13,783		13,258		69,904		37,960
NET INCOME	$	56,302	$	38,823	$	209,913	$	103,027

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gain (loss) on cash flow hedges, net of income tax benefit (expense) of $8, $(1,398), $57 and $(5,917), respectively	$	53	$	9,255	$	(99)	$	24,962
OTHER COMPREHENSIVE INCOME (LOSS)	53		9,255		(99)		24,962
NET COMPREHENSIVE INCOME	$	56,355	$	48,078	$	209,814	$	127,989

EARNINGS PER COMMON SHARE:
Earnings per share, basic	$	0.31	$	0.21	$	1.17	$	0.57
Earnings per share, diluted	$	0.31	$	0.21	$	1.16	$	0.57

Weighted average common shares outstanding, basic	178,826		181,884		179,956		180,829
Weighted average common shares outstanding, diluted	180,528		183,022		181,286		181,760

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~~CASH FLOWS

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

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


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	209,913	$	103,027
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense	46,423		49,723
Non-cash operating lease costs	14,610		14,451
Deferred income taxes - net	11,767		37,631
Amortization of deferred financing costs	3,312		3,206
Equity in earnings of joint ventures	(4,107)		(4,065)
Stock-based incentive compensation expense	22,908		12,581
Capital distribution from equity method investments	4,000		2,500
Other adjustments	1,769		695
Changes in operating assets and liabilities:
Accounts receivable, net	(5,075)		(23,153)
Inventories	(28,362)		(52,749)
Prepaid expenses and other current assets	3,197		(10,335)
Accounts payable	50,726		129,859
Accrued compensation and employee benefits	4,197		(26,711)
Accrued expenses and other current liabilities	9,829		19,495
Operating lease liabilities	(13,019)		(15,372)
Other noncurrent assets and liabilities	(11,762)		(16,691)
Net cash provided by operating activities	320,326		224,092

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(21,981)		(17,111)
Business acquisitions, net of cash acquired	(12,855)		(87,315)
Other investing activities	(5,889)		—
Net cash used in investing activities	(40,725)		(104,426)

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options, vesting of restricted stock, and related tax withholdings	(1,940)		(37)
Proceeds from warrant exercises	—		20,916
Repayments of debt principal	(4,500)		(4,500)
Purchase of company stock	(175,108)		—
Other financing activities	(5,750)		—
Net cash (used in) provided by financing activities	(187,298)		16,379

NET INCREASE IN CASH AND CASH EQUIVALENTS	92,303		136,045
Cash and cash equivalents - beginning of the period	294,186		119,423
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	386,489	$	255,468

Supplemental disclosure of cash flow information:
Cash paid for interest	$	46,377	$	29,578
Cash paid for income taxes	$	53,699	$	6,690
Cash paid for operating leases	$	20,272	$	18,964

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~~STOCKHOLDERS’ EQUITY

(IN THOUSANDS)

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


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

Balance - December 31, 2022	$	—	$	18	$	(2,403)	$	1,176,906	$	190,423	$	21,159	$	1,386,103
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		(1,902)		—		—		(1,902)
Stock-based incentive compensation	—		—		—		5,988		—		—		5,988
Purchase of company stock	—		—		(75,735)		—		—		—		(75,735)
Net income	—		—		—		—		39,208		—		39,208
Other comprehensive loss	—		—		—		—		—		(3,443)		(3,443)
Balance - March 31, 2023	$	—	$	18	$	(78,138)	$	1,180,992	$	229,631	$	17,716	$	1,350,219
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		(247)		—		—		(247)
Stock-based incentive compensation	—		—		—		7,685		—		—		7,685
Purchase of company stock, and related tax effects	—		—		32		—		—		—		32
Net income	—		—		—		—		114,403		—		114,403
Other comprehensive income	—		—		—		—		—		3,291		3,291
Balance - June 30, 2023	$	—	$	18	$	(78,106)	$	1,188,430	$	344,034	$	21,007	$	1,475,383
Exercise of stock options, vesting of restricted stock, and related tax withholdings	—		—		—		209		—		—		209
Stock-based incentive compensation	—		—		—		9,235		—		—		9,235
Purchase of company stock, and related tax effects	—		—		(101,099)		—		—		—		(101,099)
Net income	—		—		—		—		56,302		—		56,302
Other comprehensive income	—		—		—		—		—		53		53
Balance - September 30, 2023	$	—	$	18	$	(179,205)	$	1,197,874	$	400,336	$	21,060	$	1,440,083

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.~~

~~Table of~~ Contents

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, 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, ~~along with certain other subsidiaries of BioScrip and HC II. The merger contemplated by the Merger Agreement (the “Merger”)~~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. (“Option Care Health”, or the “Company”).~~Health. The combined Company’s stock is listed on the Nasdaq Global Select Market as of September 30, ~~2022.~~2023. During the ~~three and~~ nine months ended September 30, ~~2022,~~2023, HC I completed ~~a secondary offering~~sales of ~~11,000,000~~23,771,926 shares of common stock. ~~Following this offering,~~In addition, the Company repurchased 2,475,166 shares from HC I ~~holds approximately 14.4%~~on March 3, 2023 under the Company’s share repurchase program. See Note 15, Stockholders’ Equity, for further discussion of the ~~common stock~~Company’s share repurchase program. As of September 30, 2023, HC I no longer holds shares of the ~~Company.~~Company’s common stock.

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 9793 full service pharmacies and 6481 stand-alone ambulatory 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 one 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 ~~2021~~2022 audited consolidated financial statements, including the notes thereto, as presented in our Form 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. See Equity-Method Investments within Note 2, Summary of Significant Accounting Policies, for further discussion of the Company’s equity-method investments.

109

Table of Contents

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. As of September 30, 2023, cash equivalents consisted of money market funds.

Prepaid Expenses and Other Current Assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of ~~$46.4~~$51.0 million and ~~$43.0~~$53.4 million as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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~~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, ~~2022~~2023 and December 31, ~~2021,~~2022, the balance of the investments was ~~$21.7~~$19.5 million and ~~$20.1~~$19.4 million, respectively. The balance of these investments is increased to reflect the Company’s capital contributions and equity in earnings of the investees. The balance of these investments 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 is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income. The Company’s proportionate share of earnings was $1.3 million and $4.1 million for the three and nine months ended September 30, 2023, respectively. 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~~respectively. Distributions from the investees are treated as cash inflows from operating activities in the unaudited condensed consolidated statements of cash flows. During the three and nine months ended September 30, ~~2021,~~2023, the Company received distributions from the investees of $1.5 million and $4.0 million, respectively. 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. See Note 16, Related-Party Transactions, for discussion of related-party transactions with these investees.

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% for the three and nine months ended September 30, 2023. 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,~~ respectively. 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,~~2023, approximately ~~12%~~11% 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,~~2022, 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, ~~2022~~2023 and December 31, ~~2021,~~2022, approximately 11%and ~~11%~~13%, 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 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; 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, 2023, approximately 73% of the Company’s pharmaceutical and medical supply purchases were from four vendors. 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. 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, 2022, the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

1110

Table of Contents

3. BUSINESS COMBINATIONS ~~AND ASSET ACQUISITIONS~~

~~Infinity Infusion Nursing~~Amedisys, Inc. — On May 3, 2023, the Company entered into a definitive merger agreement (the “Merger Agreement”) with Amedisys, Inc. (“Amedisys”), a leading provider of healthcare in home health and hospice settings. Under the terms of the merger agreement, the Company would issue new shares of its common stock to Amedisys’s stockholders, which would result in the Company’s stockholders holding approximately 64.5% of the combined company.

On June 26, 2023, the Company entered into an agreement to terminate the Merger Agreement (the “Mutual Termination Agreement”). Under the terms of the Mutual Termination Agreement, the Company received a payment of $106.0 million in cash on behalf of Amedisys (“Termination Fee”). The Termination Fee is included in Other, net in the unaudited condensed consolidated statements of comprehensive income and in Net cash provided by operating activities in the unaudited condensed consolidated statements of cash flows.

During the nine months ended September 30, 2023, the Company incurred $21.1 million in merger-related expenses, which are included in Other, net in the unaudited condensed consolidated statements of comprehensive income and in Net cash provided by operating activities in the unaudited condensed consolidated statements of cash flows.

Revitalized, LLC — In ~~October 2021,~~May 2023, pursuant to the equity purchase agreement dated ~~October~~May 1, ~~2021,~~2023, the Company completed the acquisition of 100% of the ~~equity~~membership interests in ~~Infinity Infusion Nursing,~~Revitalized, 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 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.~~ (“~~SPNN”~~Revitalized”) for a purchase price, net of cash acquired, of ~~$59.9 million.~~

~~The allocation~~$12.5 million, inclusive of ~~the purchase price~~a $0.4 million non-cash receivable adjustment, which primarily consisted of ~~SPNN 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~~$6.7 million of goodwill and ~~liabilities acquired based on the relative fair value~~$5.5 million 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):intangible assets.


	~~Amount~~
~~Accounts receivable~~	$	~~2,303~~
~~Intangible assets~~	~~25,580~~
~~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~~	$	~~59,897~~

(1) Goodwill is attributable to cost synergies from operational efficiencies and establishing a more comprehensive clinical platform through the Company’s national infrastructure and SPNN’s nursing network.

~~Table of Contents~~

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~~final 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~~686
Intangible assets	5,449
Other assets	394
Accounts payable and other liabilities	(434)
Fair value ~~Identifiable~~identifiable assets and liabilities	~~6,621~~6,095
Goodwill (1)	~~20,797~~21,323
Cash acquired	201
Purchase ~~Price~~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.

1311

Table of Contents

4. REVENUE

The following table sets forth the net revenue earned by category of payer for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Commercial payers	Commercial payers	$	888,162	$	769,524	$	2,526,354	$	2,164,678	Commercial payers	$	957,601	$	888,162	$	2,765,513	$	2,526,354
Government payers	Government payers	122,793		106,645		357,383		307,067		Government payers	124,122		122,793		370,648		357,383
Patients	Patients	9,963		15,768		33,785		39,701		Patients	11,291		9,963		41,773		33,785
Net revenue	Net revenue	$	1,020,918	$	891,937	$	2,917,522	$	2,511,446	Net revenue	$	1,093,014	$	1,020,918	$	3,177,934	$	2,917,522

5. INCOME TAXES

During the three months ended September 30, 2023, the Company recorded tax expense of $13.8 million. During the nine months ended September 30, 2023, the Company recorded tax expense of $69.9 million, which includes $22.1 million of tax expense related to the Termination Fee payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses. The tax expense for the three and nine months ended September 30, 2023 represents an effective tax rate of 19.7% and 25.0%, respectively. The variance in the Company’s effective tax rate of 19.7% and 25.0% for the three and nine months ended September 30, 2023, respectively, compared to the federal statutory rate of 21%, is primarily attributable to the difference between federal and state tax rates, various non-deductible expenses, and a change in state valuation allowance. During the three months ended September 30, 2023, the Company released $5.8 million of state valuation allowance. 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. The variance in the Company’s effective tax rate of 8.0% and 7.3% for the three and 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 Company maintains a valuation allowance of ~~$13.1~~$7.2 million against certain state net operating 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~~In making this assessment, 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.~~strategies. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.

The Company’s tax expense for the three and nine months ended September 30, 2023 of $13.8 million and $69.9 million, respectively, consists of quarterly federal and state tax liabilities as well as recognized deferred federal and state tax expense. The Company’s tax expense for the 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 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 attributed to specific state taxing authorities as well as recognized deferred tax expense.

The Company has accumulated 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 federal net operating losses.

Table of Contents

6. EARNINGS PER SHARE

The Company presents basic and diluted earnings per share for its common stock. Basic earnings per share is calculated by dividing the net income of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings 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 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~~2023 and ~~2021~~2022 includes the effect of shares that would be issued in connection with warrants, stock options, ~~and~~ restricted stock awards and performance stock unit awards, as these common stock equivalents are dilutive to the earnings per share recorded in those periods.~~For~~

The following table presents the ~~three months ended~~ ~~September 30, 2022,~~ ~~there were~~ ~~520,944~~Company’s common stock ~~option awards and~~ ~~13,561~~ ~~restricted stock awards outstanding~~equivalents that were excluded from the calculation of earnings per share as they would be ~~anti-dilutive. For the nine months ended~~ ~~September 30, 2022,~~ ~~there were~~ ~~794,887~~ ~~stock option awards and~~ ~~476,329~~ ~~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, 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.anti-dilutive:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Stock option awards	984,567	520,944	1,180,376	794,887
Restricted stock awards	16,564	13,561	569,831	476,329
Performance stock unit awards	—	—	288,680	—

The following table presents the Company’s basic earnings 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,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
Net income(1)	Net income(1)	$	38,823	$	35,476	$	103,027	$	64,431	Net income(1)	$	56,302	$	38,823	$	209,913	$	103,027
Denominator:	Denominator:									Denominator:
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	181,884		179,872		180,829		179,841		Weighted average number of common shares outstanding	178,826		181,884		179,956		180,829
Earnings per common share:	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	Earnings per common share, basic	$	0.31	$	0.21	$	1.17	$	0.57

(1) Net income for the nine months ended September 30, 2023 includes $62.8 million related to the termination payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses and taxes. See Note 3, Business Combinations, for further discussion.

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

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Numerator:
Net income $ 38,823 $ 35,476 $ 103,027 $ 64,431
Denominator:
Weighted average number of common shares outstanding 181,884 179,872 180,829 179,841
Effect of dilutive securities 1,138 1,558 931 1,214
Weighted average number of common shares outstanding, diluted 183,022 181,430 181,760 181,055
Earnings per common share:
Earnings per common share, diluted $ 0.21 $ 0.20 $ 0.57 $ 0.36


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net income (1)	$	56,302	$	38,823	$	209,913	$	103,027
Denominator:
Weighted average number of common shares outstanding	178,826		181,884		179,956		180,829
Effect of dilutive securities	1,702		1,138		1,330		931
Weighted average number of common shares outstanding, diluted	180,528		183,022		181,286		181,760
Earnings per common share:
Earnings per common share, diluted	$	0.31	$	0.21	$	1.16	$	0.57

1513

Table of Contents

7. LEASES

During the three and nine months ended September 30, ~~2022,~~2023, the Company incurred operating lease expenses of $7.8 million and ~~$22.7~~$22.3 million, respectively, including short-term lease ~~expense,~~expenses, 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,~~2022, the Company incurred operating lease expenses of $7.8 million and ~~$22.3~~$22.7 million, respectively, including short-term lease ~~expense,~~expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income. As of September 30, ~~2022,~~2023, the weighted-average remaining lease term was ~~6.6~~6.9 years and the weighted-average discount rate was ~~5.17%~~6.04%.

Operating leases mature as follows (in thousands):


Fiscal Year Ended December 31,	Fiscal Year Ended December 31,	Minimum Payments		Fiscal Year Ended December 31,	Minimum Payments
2022		$	8,296
2023	2023	23,052		2023	$	9,410
2024	2024	16,878		2024	23,564
2025	2025	13,987		2025	21,350
2026	2026	11,170		2026	18,490
2027				2027	15,315
Thereafter	Thereafter	36,329		Thereafter	44,262
Total lease payments	Total lease payments	$	109,712	Total lease payments	132,391
Less: Interest		(18,602)
Less: interest				Less: interest	(28,500)
Present value of lease liabilities	Present value of lease liabilities	$	91,110	Present value of lease liabilities	$	103,891

During the nine months ended September 30, 2023, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow of $26.1 million related to increases in the operating lease right-of-use assets and operating lease liabilities. During the 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~~of $13.6 million re~~lated~~ 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 operating activities in the unaudited condensed consolidated statements of cash flows of ~~$14.5 million~~ re~~lated to increases in the operating lease right-of-use assets and operating lease liabilities, respectively.~~liabilities. As of September 30, ~~2022,~~2023, the Company did not have any significant operating or financing leases that had not yet commenced.

1614

Table of Contents

8. PROPERTY AND EQUIPMENT

Property and equipment was as follows as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Infusion pumps	Infusion pumps	$	36,221	$	34,547	Infusion pumps	$	37,027	$	34,942
Equipment, furniture and other	Equipment, furniture and other	29,924		52,913		Equipment, furniture and other	35,955		31,929
Leasehold improvements	Leasehold improvements	94,664		92,229		Leasehold improvements	101,283		99,085
Computer software, purchased and internally developed	Computer software, purchased and internally developed	35,094		30,744		Computer software, purchased and internally developed	47,878		34,922
Assets under development	Assets under development	17,782		19,924		Assets under development	26,915		29,411
		213,685		230,357			249,058		230,289
Less: accumulated depreciation	Less: accumulated depreciation	(117,373)		(118,822)		Less: accumulated depreciation	(141,098)		(121,968)
Property and equipment, net	Property and equipment, net	$	96,312	$	111,535	Property and equipment, net	$	107,960	$	108,321

Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income, 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, ~~2022~~2023 and ~~2021~~2022 (in thousands):

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Depreciation expense in cost of revenue	$	616	$	1,205	$	2,006	$	3,696
Depreciation expense in operating expenses	6,365		6,778		18,665		21,337
Total depreciation expense	$	6,981	$	7,983	$	20,671	$	25,033

1715

Table of Contents

9. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill ~~consists~~consist of the following activity for the three and nine months ended September 30, ~~2022~~2023 (in thousands):


Balance at December 31, ~~2021~~2022	$	~~1,477,564~~1,533,424
Purchase accounting adjustments	~~936~~145
Balance at March 31, ~~2022~~2023	~~1,478,500~~$	1,533,569
Acquisitions	~~33,746~~6,998
Balance at June 30, ~~2022~~2023	$	~~1,512,246~~1,540,567
~~Acquisitions~~Purchase accounting adjustments	$		~~20,797~~ (321)
Balance at September 30, ~~2022~~2023	$	~~1,533,043~~1,540,246

~~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 consist of the following as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Gross intangible assets:	Gross intangible assets:					Gross intangible assets:
Referral sources	Referral sources	$	509,646	$	482,200	Referral sources	$	514,388	$	509,646
Trademarks/names	Trademarks/names	38,508		47,718		Trademarks/names	39,136		38,508
Other amortizable intangible assets	Other amortizable intangible assets	912		1,037		Other amortizable intangible assets	1,003		912
Total gross intangible assets	Total gross intangible assets	549,066		530,955		Total gross intangible assets	554,527		549,066

Accumulated amortization:	Accumulated amortization:					Accumulated amortization:
Referral sources	Referral sources	(160,159)		(137,613)		Referral sources	(191,262)		(167,902)
Trademarks/names	Trademarks/names	(16,254)		(26,936)		Trademarks/names	(18,973)		(16,901)
Other amortizable intangible assets	Other amortizable intangible assets	(100)		(386)		Other amortizable intangible assets	(298)		(148)
Total accumulated amortization	Total accumulated amortization	(176,513)		(164,935)		Total accumulated amortization	(210,533)		(184,951)
Total intangible assets, net	Total intangible assets, net	$	372,553	$	366,020	Total intangible assets, net	$	343,994	$	364,115

Amortization expense for intangible assets was $8.6 million and $25.6 million for the three and nine months ended September 30, 2023, respectively. 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.~~

1816

Table of Contents

10. INDEBTEDNESS

Long-term debt consisted of the following as of September 30, ~~2022~~2023 (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	First Lien Term Loan	595,500		(8,638)		(11,987)		574,875		First Lien Term Loan	589,500		(7,313)		(10,149)		572,038
Senior Notes	Senior Notes	500,000		—		(10,269)		489,731		Senior Notes	500,000		—		(9,022)		490,978
		$	1,095,500	$	(8,638)	$	(22,256)	1,064,606			$	1,089,500	$	(7,313)	$	(19,171)	1,063,016
Less: current portion	Less: current portion							(6,000)		Less: current portion							(6,000)
Total long-term debt	Total long-term debt							$	1,058,606	Total long-term debt							$	1,057,016

Long-term debt consisted of the following as of December 31, ~~2021~~2022 (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	First Lien Term Loan	600,000		(9,605)		(13,331)		577,064		First Lien Term Loan	594,000		(8,307)		(11,529)		574,164
Senior Notes	Senior Notes	500,000		—		(11,164)		488,836		Senior Notes	500,000		—		(9,960)		490,040
		$	1,100,000	$	(9,605)	$	(24,495)	1,065,900			$	1,094,000	$	(8,307)	$	(21,489)	1,064,204
Less: current portion	Less: current portion							(6,000)		Less: current portion							(6,000)
Total long-term debt	Total long-term debt							$	1,059,900	Total long-term debt							$	1,058,204

Effective June 30, 2023, the Company entered into an agreement, dated as of June 8, 2023, to amend the First Lien Term Loan (the “First Lien Credit Agreement Amendment”) solely to replace London Interbank Offered Rate (“LIBOR”) and related definitions and provisions with Secured Overnight Financing Rate (“SOFR”) as the new reference rate. The Company elected an optional expedient allowed under ASC Topic 848 such that we will account for the modification as a continuation of the existing contract.

The interest rate on the First Lien Term Loan was ~~5.27%~~8.20% and ~~3.25%~~6.82% as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 8.11% and 7.71% for the three and nine months ended September 30, 2023, 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~~2023 and December 31, ~~2021.~~2022. The weighted average interest rate incurred on the Senior ~~Secured~~ Notes was 4.375% for ~~both~~ the three and nine months ended September 30, ~~2022.~~

2023, respectively. The weighted average interest rate incurred on the Senior Notes was 4.375% for the three and nine months ended September 30, 2022, respectively.

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

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


Fiscal Year Ended December 31,	Minimum Payments
2023	$	1,500
2024	6,000
2025	6,000
2026	6,000
2027	6,000
Thereafter	1,064,000
Total	$	1,089,500

During the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, 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, ~~2022~~2023 (in thousands):

~~Table of Contents~~


Financial Instrument	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)		Financial Instrument	Carrying Value as of September 30, 2023		Markets for Identical Item (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
First Lien Term Loan	First Lien Term Loan	$	574,875	$	—	$	579,124	$	—	First Lien Term Loan	$	572,037	$	—	$	591,740	$	—
Senior Notes	Senior Notes	489,731		—		420,000		—		Senior Notes	490,979		—		430,000		—
Total debt instruments	Total debt instruments	$	1,064,606	$	—	$	999,124	$	—	Total debt instruments	$	1,063,016	$	—	$	1,021,740	$	—

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

Table of Contents

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 October 2021, the Company 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 First Lien Term Loan’s variable interest rate. The interest rate cap instrument perfectly offsets the terms of the interest rates associated with the variable interest rate of the First Lien Term Loan. As a result of the First Lien Credit Agreement Amendment, the Company elected an optional expedient allowed under ASC Topic 848 such that we will continue the hedging relationship for the interest rate cap hedge.

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

~~Fair Value - Derivatives in Asset Position~~

~~Derivative~~

~~Balance Sheet Caption~~

~~September 30, 2022~~

~~December 31, 2021~~

~~Interest rate cap designated as cash flow 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~~

—

~~601~~


	Fair Value - Derivatives in Asset Position
Derivative	Balance Sheet Caption	September 30, 2023		December 31, 2022
Interest rate cap designated as cash flow hedge	Prepaid expenses and other current assets	$	5,927	$	10,926
Interest rate cap designated as cash flow hedge	Other noncurrent assets	22,185		17,342
Total derivative assets		$	28,112	$	28,268

The gain (loss) associated with the change in the fair value of the effective portion of the hedging instrument is recorded ~~into~~in other comprehensive ~~income.~~income (loss). The following table presents the pre-tax ~~gains~~gain (loss) from derivative instruments recognized in other comprehensive income (loss) in the Company’s unaudited condensed consolidated statements of comprehensive income (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Derivative	Derivative	2022		2021		2022		2021		Derivative	2023		2022		2023		2022
Interest rate cap designated as cash flow hedge	Interest rate cap designated as cash flow hedge	$	10,653	$	—	$	30,879	$	—	Interest rate cap designated as cash flow hedge	$	45	$	10,653	$	(156)	$	30,879
Interest rate swaps designated as cash flow hedges		—		2,892		—		11,172

		$	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 statements of comprehensive income related to the Company’s derivative instruments (in thousands):


			Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
Derivative	Derivative	Income Statement Caption	2022		2021		2022		2021		Derivative	Income Statement Caption	2023		2022		2023		2022
Interest rate cap designated as cash flow hedge	Interest rate cap designated as cash flow hedge	Interest expense	$	(1,775)	$	—	$	(591)	$	—	Interest rate cap designated as cash flow hedge	Interest expense, net	$	2,931	$	(1,775)	$	8,002	$	(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)

2118

Table of Contents

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: The fair value of the 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.

Senior Notes: The fair value of the Senior Notes is derived from a broker quote (Level 2 inputs). See Note 10, Indebtedness, for further discussion of the carrying amount and fair value of the Senior Notes.

Interest Rate Cap: The fair value of the interest rate 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 cap.

Money Market Funds: The fair value of the money market funds is derived from the closing price reported by the fund sponsor and classified as cash and cash equivalents on the Company’s condensed consolidated balance sheets (Level 1 inputs).

There were no other material assets or liabilities measured at fair value at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

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.

2219

Table of Contents

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, resulting in a total of 9,101,734 shares of common stock ~~are~~ authorized for issuance. The 2018 Plan is administered by the Company’s Compensation Committee, a standing committee of the Company’s Board of Directors. The Company had stock options, restricted stock units and performance stock units outstanding related to the 2018 Plan as of September 30, 2023 and 2022. During the three and nine months ended September 30, 2023, total stock-based incentive compensation expense recognized by the Company related to the 2018 Plan was $9.2 million and $22.9 million, respectively. During the three and nine months ended September 30, 2022, total stock-based incentive compensation expense recognized by the Company related to the 2018 Plan was ~~$4.0 million~~ ~~and~~ ~~$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 the 2018 Plan was $2.5~~$4.0 million and ~~$6.2~~$12.6 million, respectively.

15. STOCKHOLDERS’ EQUITY

2017 Warrants — During the three and nine months ended September 30, 2023, warrant holders elected to exercise 188,350 warrants to purchase shares of common stock. During the three 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, 2022, warrant holders elected to exercise 1,130,089 ~~warrants to purchase shares of common 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. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the remaining warrant holders are entitled to purchase ~~240,188~~51,838 and ~~1,370,277~~240,188 shares of common stock, respectively.

2015 Warrants — During the three and nine months ended September 30, ~~2022,~~2023, warrant holders ~~elected to exercise~~ ~~31,968~~ ~~and~~ ~~900,272~~exercised an immaterial number of warrants to purchase shares of common ~~stock, respectively.~~stock. During the three and nine months ended September 30, ~~2021,~~2022, warrant holders ~~did not elect~~elected to exercise ~~any~~31,968 and 900,272 warrants to purchase shares of common ~~stock.~~stock, respectively. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the remaining warrant holders are entitled to purchase ~~15,231~~13,892 and ~~915,503~~15,231 shares of common stock, respectively.

Share Repurchase Program — On February 20, 2023, the Company’s Board of Directors approved a share repurchase program of up to an aggregate $250.0 million of common stock of the Company. Under the share repurchase program, repurchases may occur in any number of methods depending on timing, market conditions, regulatory requirements, and other corporate considerations. The share repurchase program has no specified expiration date.

During the three and nine months ended September 30, 2023, the Company purchased 2,913,520 and 5,388,686 shares of common stock for an average share price of $34.32 and $32.48, totaling $100.0 million and $175.0 million, respectively. All repurchased shares became treasury stock. As of September 30, 2023, the Company is authorized to repurchase up to a remaining $75.0 million of common stock of the Company.

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 $1.3 million and $3.9 million for the three and nine months ended September 30, 2023, respectively. 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. Management fees are recorded in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive income. During the three and nine months ended September 30, 2023, the Company received distributions from the investees of $1.5 million and $4.0 million, respectively. 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 an amounts due from its joint ventures of ~~$0.8~~$0.2 million and due to its joint ventures of $0.6 million as of September 30, ~~2022. These receivables~~2023. Receivables were included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Payables were included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. The Company also had amounts due to its joint ventures of ~~$1.4~~$1.5 million as of December 31, ~~2021.~~2022. These payables were included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. These balances primarily relate to cash collections received by the Company on behalf of the joint ventures, offset by certain pharmaceutical inventories and other expenses paid for by the Company on behalf of the joint ventures.

Share Repurchase Agreement — On February 28, 2023, we entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with HC I, pursuant to which we agreed to repurchase, subject to the terms and conditions contained therein, up to $75.0 million of our common stock then held by HC I at the same purchase price per share as the underwriter in a concurrent underwritten public offering of our common stock held by HC I. On March 3, 2023, the transactions contemplated by the Share Repurchase Agreement closed, and we repurchased directly from HC I 2,475,166 shares of our common stock.

2320

Table of Contents

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. Management’s discussion and analysis of 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 operations and financial condition. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the related notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Form 10-Q”). Certain statements in this Item 2 of Part I of this Form 10-Q, and in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (our “Form 10-K”), may cause our actual results, financial position, and cash and cash equivalents generated from operations to differ materially from these forward-looking 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 ~~161~~174 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,~~dietitians 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”).~~ Care.

On March 14, 2019, HC I and HC II entered into ~~a definitive agreement (the “Merger 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.2019. 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”.~~

Health.

2421

Table of Contents

Update on the Impact of the COVID-19 Pandemic

~~The primary operations~~On May 11, 2023 the Department of Health and Human Services declared the ~~Company focus on providing infusion therapy services and based on the recent impact of the~~COVID-19 pandemic ~~across the healthcare ecosystem, the Company began experiencing~~is no longer a related impact across a number of facets beginning in March 2020. The Company has been disrupted by both positive and negative referral patterns, experienced challenges in our staffing, increased pricing and periodic inability to procure personal protection equipment, supplies and key drugs.public health emergency. The Company anticipates that ~~the pandemic~~new variants could affect its operations for an extended period; however, at this time itwe cannot confidently forecast the duration ~~nor~~or the ultimate financial impact on ~~its~~our operations.

See Item 1A. “Risk Factors” under the caption “The COVID-19 pandemic and other potential pandemic events could adversely impact our business, ~~operations,~~ results of operations, cash flows and financial position” included in our Form 10-K for further discussion of risks.

Table of Contents

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, ~~2022~~2023 and ~~2021.~~2022.

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~~relates to fixed assets and ~~software, office equipment and leasehold improvements.~~amortization relates to intangibles. 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, ~~and the~~ Senior Notes, amortization of discount and deferred financing ~~fees.~~fees, payments associated with the interest rate cap, and interest income earned on cash and cash equivalents. 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~~related to non-operating income 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) on Cash Flow Hedges, Net of Income Tax ~~Expense (Benefit)~~Benefit (Expense). Change in unrealized gains (losses) on cash flow hedges, net of income ~~taxes,~~tax expense 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,~~cap hedge, net of income taxes.

Table of Contents

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~~2023 and ~~September 30, 2021~~2022 (in thousands, except for percentages):


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021					2023				2022				2023				2022
		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	$	1,020,918	100.0	%	$	891,937	100.0	%	$	2,917,522	100.0	%	$	2,511,446	100.0	%	NET REVENUE	$	1,093,014	100.0	%	$	1,020,918	100.0	%	$	3,177,934	100.0	%	$	2,917,522	100.0	%
COST OF REVENUE	COST OF REVENUE	802,917		78.6	%	688,969		77.2	%	2,281,685		78.2	%	1,944,037		77.4	%	COST OF REVENUE	838,748		76.7	%	802,917		78.6	%	2,443,834		76.9	%	2,281,685		78.2	%
GROSS PROFIT	GROSS PROFIT	218,001		21.4	%	202,968		22.8	%	635,837		21.8	%	567,409		22.6	%	GROSS PROFIT	254,266		23.3	%	218,001		21.4	%	734,100		23.1	%	635,837		21.8	%

OPERATING COSTS AND EXPENSES:	OPERATING COSTS AND EXPENSES:																	OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	Selling, general and administrative expenses	142,015		13.9	%	134,633		15.1	%	417,771		14.3	%	388,930		15.5	%	Selling, general and administrative expenses	158,214		14.5	%	142,015		13.9	%	459,644		14.5	%	417,771		14.3	%
Depreciation and amortization expense	Depreciation and amortization expense	15,268		1.5	%	15,452		1.7	%	46,027		1.6	%	48,410		1.9	%	Depreciation and amortization expense	15,005		1.4	%	15,268		1.5	%	44,417		1.4	%	46,027		1.6	%
Total operating expenses	Total operating expenses	157,283		15.4	%	150,085		16.8	%	463,798		15.9	%	437,340		17.4	%	Total operating expenses	173,219		15.8	%	157,283		15.4	%	504,061		15.9	%	463,798		15.9	%
OPERATING INCOME	OPERATING INCOME	60,718		5.9	%	52,883		5.9	%	172,039		5.9	%	130,069		5.2	%	OPERATING INCOME	81,047		7.4	%	60,718		5.9	%	230,039		7.2	%	172,039		5.9	%

OTHER INCOME (EXPENSE):	OTHER INCOME (EXPENSE):																	OTHER INCOME (EXPENSE):
Interest expense, net	Interest expense, net	(13,997)		(1.4)	%	(16,000)		(1.8)	%	(39,008)		(1.3)	%	(52,717)		(2.1)	%	Interest expense, net	(11,786)		(1.1)	%	(13,997)		(1.4)	%	(38,816)		(1.2)	%	(39,008)		(1.3)	%
Equity in earnings of joint ventures	Equity in earnings of joint ventures	1,472		0.1	%	1,676		0.2	%	4,065		0.1	%	4,567		0.2	%	Equity in earnings of joint ventures	1,273		0.1	%	1,472		0.1	%	4,107		0.1	%	4,065		0.1	%
Other, net	Other, net	3,888		0.4	%	4		—	%	3,891		0.1	%	(12,392)		(0.5)	%	Other, net	(449)		—	%	3,888		0.4	%	84,487		2.7	%	3,891		0.1	%
Total other expense		(8,637)		(0.8)	%	(14,320)		(1.6)	%	(31,052)		(1.1)	%	(60,542)		(2.4)	%
Total other (expense) income																		Total other (expense) income	(10,962)		(1.0)	%	(8,637)		(0.8)	%	49,778		1.6	%	(31,052)		(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 BEFORE INCOME TAXES	70,085		6.4	%	52,081		5.1	%	279,817		8.8	%	140,987		4.8	%
INCOME TAX EXPENSE	INCOME TAX EXPENSE	13,258		1.3	%	3,087		0.3	%	37,960		1.3	%	5,096		0.2	%	INCOME TAX EXPENSE	13,783		1.3	%	13,258		1.3	%	69,904		2.2	%	37,960		1.3	%
NET INCOME	NET INCOME	$	38,823	3.8	%	$	35,476	4.0	%	$	103,027	3.5	%	$	64,431	2.6	%	NET INCOME	$	56,302	5.2	%	$	38,823	3.8	%	$	209,913	6.6	%	$	103,027	3.5	%

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	0.9	%	$	2,892	0.3	%	$	24,962	0.9	%	$	11,172	0.4	%
OTHER COMPREHENSIVE INCOME		$	9,255	0.9	%	$	2,892	0.3	%	$	24,962	0.9	%	$	11,172	0.4	%
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:																		OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gain (loss) on cash flow hedges, net of income tax benefit (expense) of $8, $(1,398), $57, and $(5,917), respectively																		Change in unrealized gain (loss) on cash flow hedges, net of income tax benefit (expense) of $8, $(1,398), $57, and $(5,917), respectively	53		—	%	9,255		0.9	%	(99)		—	%	24,962		0.9	%
OTHER COMPREHENSIVE INCOME (LOSS)																		OTHER COMPREHENSIVE INCOME (LOSS)	53		—	%	9,255		0.9	%	(99)		—	%	24,962		0.9	%
NET COMPREHENSIVE INCOME	NET COMPREHENSIVE INCOME	$	48,078	4.7	%	$	38,368	4.3	%	$	127,989	4.4	%	$	75,603	3.0	%	NET COMPREHENSIVE INCOME	$	56,355	5.2	%	$	48,078	4.7	%	$	209,814	6.6	%	$	127,989	4.4	%

2724

Table of Contents

Three Months Ended September 30, ~~2022~~2023 Compared to Three Months Ended September 30, ~~2021~~2022

The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the three months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

Gross Profit


		Three Months Ended September 30,											Three Months Ended September 30,
		2022			2021			Variance					2023			2022			Variance

		(in thousands, except for percentages)											(in thousands, except for percentages)
Net revenue	Net revenue	$	1,020,918		$	891,937		$	128,981	14.5	%	Net revenue	$	1,093,014		$	1,020,918		$	72,096	7.1	%
Cost of revenue	Cost of revenue	802,917			688,969			113,948		16.5	%	Cost of revenue	838,748			802,917			35,831		4.5	%
Gross profit	Gross profit	$	218,001		$	202,968		$	15,033	7.4	%	Gross profit	$	254,266		$	218,001		$	36,265	16.6	%
Gross profit margin	Gross profit margin	21.4		%	22.8		%					Gross profit margin	23.3		%	21.4		%

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 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 thehigh-single-digits. The increase in net revenue was partially offset by the divestiture of respiratory therapy assets as well as therapies related to the treatment of ALS and ~~gross profit, respectively.~~pre-term labor. The increase in cost of revenue and gross profit was primarily driven by the growth in revenue, which outpaced the increase in cost of revenue primarily due to our disciplined procurement strategies, certain temporary favorable therapy pricing dynamics, and ~~also impacted by inflationary pressures including labor, transportation, and medical supplies costs.~~

efficient utilization of our infusion suite network.

Operating Expenses


		Three Months Ended September 30,									Three Months Ended September 30,
		2022		2021		Variance					2023		2022		Variance

		(in thousands, except for percentages)									(in thousands, except for percentages)
Selling, general and administrative expenses	Selling, general and administrative expenses	$	142,015	$	134,633	$	7,382	5.5	%	Selling, general and administrative expenses	$	158,214	$	142,015	$	16,199	11.4	%
Depreciation and amortization expense	Depreciation and amortization expense	15,268		15,452		(184)		(1.2)	%	Depreciation and amortization expense	15,005		15,268		(263)		(1.7)	%
Total operating expenses	Total operating expenses	$	157,283	$	150,085	$	7,198	4.8	%	Total operating expenses	$	173,219	$	157,283	$	15,936	10.1	%

The increase in selling, general and administrative expenses is primarily due to an increase in salaries, benefits 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 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.

equity compensation.

2825

Table of Contents

Other Income (Expense)

Three Months Ended September 30,
2022 2021 Variance
(in thousands, except for percentages)
Interest expense, net $ (13,997) $ (16,000) $ 2,003 (12.5) %
Equity in earnings of joint ventures 1,472 1,676 (204) (12.2) %
Other, net 3,888 4 3,884 97,100.0 %
Total other expense $ (8,637) $ (14,320) $ 5,683 (39.7) %


	Three Months Ended September 30,
	2023		2022		Variance

	(in thousands, except for percentages)
Interest expense, net	$	(11,786)	$	(13,997)	$	2,211	(15.8)	%
Equity in earnings of joint ventures	1,273		1,472		(199)		(13.5)	%
Other, net	(449)		3,888		(4,337)		(111.5)	%
Total other expense	$	(10,962)	$	(8,637)	$	(2,325)	26.9	%

The decrease in interest expense, net during the three months ended September 30, ~~2022~~2023 was primarily attributable to ~~the debt refinancing of~~an increase in interest income generated from our cash and cash equivalents, partially offset by increases in the First Lien Term ~~Loan and issuance of the Senior Notes in October 2021.~~Loan’s variable interest rate compared to three months ended September 30, 2022. See Note 10, Indebtedness, of the consolidated financial statements for further information.

The decrease in ~~equity in earnings of joint ventures was primarily attributable~~Other, net during the three months ended September 30, 2023 as compared to ~~the performance of the joint ventures.~~

~~The change in other, net is due to one-time non-operating income for~~ the three months ended September 30, 2022 is primarily related to one-time non-operating income ~~from a prior legacy acquisition.~~during the three months ended September 30, 2022. There was no comparable activity during the three months ended September 30, ~~2021.~~

2023.

Income Tax Expense

Three Months Ended September 30,
2022 2021 Variance
(in thousands, except for percentages)
Income tax expense $ 13,258 $ 3,087 $ 10,171 329.5 %


	Three Months Ended September 30,
	2023		2022		Variance

	(in thousands, except for percentages)
Income tax expense	$	13,783	$	13,258	$	525	4.0	%

The Company ~~maintains a valuation allowance~~recorded income tax expense of ~~$13.1~~$13.8 million ~~against certain state net operating losses (“NOLs”).~~and $13.3 million for the three months ended September 30, 2023 and 2022, respectively. The ~~Company’s~~ tax expense for the three months ended September 30, 2023 and 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~~represents an effective tax rate of 19.7% and 25.5% ~~during~~, respectively. The variance in the Company’s effective tax rate of 19.7% for the three months ended September 30, ~~2022. During~~2023, compared to the ~~three months ended September 30, 2021,~~federal statutory rate of 21%, is primarily attributable to the ~~effective~~difference between federal and state tax ~~rate was 8.0%.~~rates, various non-deductible expenses, and a change in state valuation allowance. 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 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 three months ended September 30, 2022, thus producing the effective tax rate variance year-over-year.

2926

Table of Contents

Net Income and Other Comprehensive Income


		Three Months Ended September 30,									Three Months Ended September 30,
		2022		2021		Variance					2023		2022		Variance

		(in thousands, except for percentages)									(in thousands, except for percentages)
Net income	Net income	$	38,823	$	35,476	$	3,347	9.4	%	Net income	$	56,302	$	38,823	$	17,479	45.0	%
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		9,255		2,892		6,363		220.0	%
Changes in unrealized gain on cash flow hedges, net of income taxes										Changes in unrealized gain on cash flow hedges, net of income taxes	53		9,255		(9,202)		(99.4)	%
Other comprehensive income	Other comprehensive income	$	9,255	2,892		6,363		220.0	%	Other comprehensive income	53		9,255		(9,202)		(99.4)	%
Net comprehensive income	Net comprehensive income	$	48,078	$	38,368	$	9,710	25.3	%	Net comprehensive income	$	56,355	$	48,078	$	8,277	17.2	%

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 three months ended September 30, 2023 and 2022, the change in unrealized ~~gains~~gain on cash flow hedges, net of income taxes was ~~primarily~~ related to the ~~increase~~change in fair market value of the $300.0 million interest rate cap hedge executed in October 2021. For the three 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 ~~$48.1~~$56.4 million for the three months ended September 30, ~~2022,~~2023, compared to net comprehensive income of $~~38.4~~48.1 million for the three months ended September 30, ~~2021,~~2022, primarily as a result of the changes in net income discussed above ~~further increased~~and partially offset by the impact of the fair value of the interest rate cap hedge.

~~Table of Contents~~

Nine Months Ended September 30, ~~2022~~2023 Compared to Nine Months Ended September 30, ~~2021~~2022

The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

Gross Profit


		Nine Months Ended September 30,											Nine Months Ended September 30,
		2022			2021			Variance					2023			2022			Variance

		(in thousands, except for percentages)											(in thousands, except for percentages)
Net revenue	Net revenue	$	2,917,522		$	2,511,446		$	406,076	16.2	%	Net revenue	$	3,177,934		$	2,917,522		$	260,412	8.9	%
Cost of revenue	Cost of revenue	2,281,685			1,944,037			337,648		17.4	%	Cost of revenue	2,443,834			2,281,685			162,149		7.1	%
Gross profit	Gross profit	$	635,837		$	567,409		$	68,428	12.1	%	Gross profit	$	734,100		$	635,837		$	98,263	15.5	%
Gross profit margin	Gross profit margin	21.8		%	22.6		%					Gross profit margin	23.1		%	21.8		%

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 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 thelow-double-digits. The increase in net revenue was partially offset by the divestiture of respiratory therapy assets as well as therapies related to the treatment of ALS and ~~gross profit, respectively.~~pre-term labor. The increase in cost of revenue and gross profit was primarily driven by the growth in revenue, which outpaced the increase in cost of revenue primarily due to our disciplined procurement strategies, certain temporary favorable therapy pricing dynamics, and ~~also impacted by inflationary pressures including labor, transportation, and medical supplies costs.~~efficient utilization of our infusion suite network.

Table of Contents

Operating Expenses


		Nine Months Ended September 30,									Nine Months Ended September 30,
		2022		2021		Variance					2023		2022		Variance

		(in thousands, except for percentages)									(in thousands, except for percentages)
Selling, general and administrative expenses	Selling, general and administrative expenses	$	417,771	$	388,930	$	28,841	7.4	%	Selling, general and administrative expenses	$	459,644	$	417,771	$	41,873	10.0	%
Depreciation and amortization expense	Depreciation and amortization expense	46,027		48,410		(2,383)		(4.9)	%	Depreciation and amortization expense	44,417		46,027		(1,610)		(3.5)	%
Total operating expenses	Total operating expenses	$	463,798	$	437,340	$	26,458	6.0	%	Total operating expenses	$	504,061	$	463,798	$	40,263	8.7	%

The increase in selling, general and administrative expenses is primarily due to an increase in salaries, benefits, and ~~benefits~~equity compensation as a result of ~~acquired~~expansion of team members ~~and inflationary pressures, but has decreased~~to adjust to current volumes, however, these expenses have remained relatively consistent as a percentage of revenue toat 14.5% and 14.3% for the nine months ended September 30, 2023 and 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~~respectively, due to ~~acquisitions.~~

~~Table of Contents~~

the Company’s focus on controlling spending leverage.

Other Income (Expense)


		Nine Months Ended September 30,									Nine Months Ended September 30,
		2022		2021		Variance					2023		2022		Variance

		(in thousands, except for percentages)									(in thousands, except for percentages)
Interest expense, net	Interest expense, net	$	(39,008)	$	(52,717)	$	13,709	(26.0)	%	Interest expense, net	$	(38,816)	$	(39,008)	$	192	(0.5)	%
Equity in earnings of joint ventures	Equity in earnings of joint ventures	4,065		4,567		(502)		(11.0)	%	Equity in earnings of joint ventures	4,107		4,065		42		1.0	%
Other, net	Other, net	3,891		(12,392)		16,283		(131.4)	%	Other, net	84,487		3,891		80,596		2,071.3	%
Total other expense		$	(31,052)	$	(60,542)	$	29,490	(48.7)	%
Total other income (expense)										Total other income (expense)	$	49,778	$	(31,052)	$	80,830	(260.3)	%

The ~~decrease~~increase in ~~interest expense~~Other, net 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~~2023 is ~~primarily~~ due to the ~~loss~~$106.0 million payment received on ~~extinguishment~~behalf of ~~debt incurred in conjunction with~~Amedisys, under the ~~January 2021 debt refinancing and included in~~terms of the ~~results for the nine months ended September 30, 2021.~~Mutual Termination Agreement, net of merger-related expenses. There was no comparable activity during the nine months ended September 30, 2022. ~~There was also one-time non-operating~~See Note 3, Business Combinations, for further discussion.

Income Tax Expense


	Nine Months Ended September 30,
	2023		2022		Variance

	(in thousands, except for percentages)
Income tax expense	$	69,904	$	37,960	$	31,944	84.2	%

The Company recorded income tax expense of $69.9 million and $38.0 million for the nine months ended September 30, 2023 and 2022, ~~related to~~respectively. The 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~~2023 includes $22.1 million 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~~related to the Termination Fee payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses. The tax ~~rate of 26.9% during~~expense for the nine months ended September 30, ~~2022. During~~2023 and 2022 represents an effective tax rate of 25.0% and 26.9%, respectively. The variance in the Company’s effective tax rate of 25.0% for the nine months ended September 30, ~~2021,~~2023, compared to the ~~effective~~federal statutory rate of 21%, is primarily attributable to the difference between federal and state tax ~~rate was 7.3%.~~rates, various non-deductible expenses, and a change in state valuation allowance. 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.

3228

Table of Contents

Net Income and Other Comprehensive (Loss) 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 %


	Nine Months Ended September 30,
	2023		2022		Variance

	(in thousands, except for percentages)
Net income	$	209,913	$	103,027	$	106,886	103.7	%
Other comprehensive (loss) income, net of tax:
Changes in unrealized (loss) gain on cash flow hedges, net of income taxes	(99)		24,962		(25,061)		(100.4)	%
Other comprehensive (loss) income	(99)		24,962		(25,061)		(100.4)	%
Net comprehensive income	$	209,814	$	127,989	$	81,825	63.9	%

The change in net income was ~~primarily~~ attributable to organic growth from additional revenue related to the factors described in the above sections. Additionally, the change in net income was attributable to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses. There was no comparable activity during the nine months ended September 30, 2022.

For the nine months ended September 30, ~~2022,~~2023, the change in unrealized ~~gains~~(loss) gain on cash flow hedges, net of income taxes was related to the ~~increase~~change in fair market value of the $300.0 million interest rate cap hedge executed in October 2021. ~~For~~

Net comprehensive income increased to $209.8 million for the nine months ended September 30, ~~2021, the change in unrealized gains on cash flow hedges,~~2023, compared to 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~~of $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~~and partially offset by the impact of the fair value of the interest rate cap hedge.

Liquidity and Capital Resources

For the nine months ended September 30, ~~2022~~2023 and the twelve months ended December 31, ~~2021,~~2022, the Company’s primary sources of liquidity were cash ~~on hand~~and cash equivalents of ~~$255.5~~$386.5 million and ~~$119.4~~$294.2 million, ~~respectively, as well as~~respectively. As of September 30, 2023, the Company had $219.7 million of borrowings available under its credit facilities (net of $5.3 million undrawn letters of credit issued and outstanding). As of December 31, 2022, the Company had $168.3 million of borrowings available under its credit facilities (net of $6.7 million undrawn letters of credit issued and outstanding). During the nine months ended September 30, ~~2022~~2023 and the ~~year~~twelve months ended December 31, ~~2021,~~2022, 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.~~acquisitions and share repurchases.

The Company’s primary uses of cash and cash equivalents include supporting our ongoing business activities, investment in capital expenditures in both facilities and technology, ~~and~~ the pursuit of ~~acquisitions.~~acquisitions, and share repurchases. Ongoing operating cash outflows are associated with procuring and dispensing drugs, personnel and other costs associated with servicing patients, as well as paying cash interest on outstanding ~~debt.~~debt and cash taxes. 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.~~debt, along with potential future share repurchases.

Our business strategy includes the deployment of 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 and cash equivalents 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.

3329

Table of Contents

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 and cash equivalents 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 and cash equivalents balances and expected cash flows generated from operations will be sufficient to meet our operating requirements over the next 12 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.

Credit Facilities

Effective January 13, 2023, the Company entered into an agreement to amend the ABL Facility, to among other things, increase the amount of borrowing availability by $50.0 million to $225.0 million total borrowing availability and to replace LIBOR with SOFR as the new reference rate. The ~~Company’s asset-based-lending revolving credit facility~~ABL Facility provides for borrowings up to ~~$175.0~~$225.0 million ~~which~~and matures on October 27, ~~2026 (the “ABL Facility”).~~2026. The ABL Facility bears interest at a rate equal to, at the ~~Borrowers’~~Company’s election, either (i) a base rate determined in accordance with the ABL Credit Agreement plus an applicable margin, which is equal to between 0.25% and 0.75% based on the historical excess availability as a percentage of the Line Cap (as such term is defined in the ABL Credit Agreement) and (ii) ~~LIBOR~~SOFR (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 historical excess availability as a percentage of the Line Cap. The Company had ~~$6.7~~$5.3 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL Facility of ~~$168.3~~$219.7 million as of September 30, ~~2022.~~2023.

Effective June 30, 2023, the Company entered into an agreement, dated as of June 8, 2023, to amend the First Lien Term Loan to replace LIBOR and related definitions and provisions with SOFR as the new reference rate. The principal balance of the First Lien Term Loan is repayable in quarterly installments of $1.5 million plus interest, with a final payment of all remaining outstanding principal due on October 27, 2028. The quarterly principal payments commenced in March of 2022. ~~Interest~~Under the First Lien Credit Agreement Amendment, interest on the First Lien Term Loan is payable monthly on either (i) ~~LIBOR (or a comparable successor rate, with~~SOFR (with a floor of 0.50% per annum) plus an applicable margin of 2.75% for ~~Eurocurrency Rate~~Term SOFR Loans ~~and~~(as such term is defined in the First Lien Credit Agreement Amendment); or (ii) a base rate determined in accordance with the ~~new~~ First Lien ~~Term Loan agreement,~~Credit Agreement Amendment, plus 1.75% for Base Rate ~~Loans.~~

Loans (as such term is defined in the First Lien Credit Agreement Amendment).

The Senior Notes bear interest at a rate of 4.375% per annum ~~which~~and 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~~$377.4 million based on final maturity dates of the Company’s credit facilities. Interest payments are calculated based on ~~the LIBOR rate~~current rates as of September 30, ~~2022.~~2023. Actual payments are based on changes in ~~LIBOR~~SOFR and exclude the interest rate cap derivative instrument.

3430

Table of Contents

Cash Flows

Nine Months Ended September 30, ~~2022~~2023 Compared to Nine Months Ended September 30, ~~2021~~2022

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


		Nine Months Ended September 30,							Nine Months Ended September 30,
		2022		2021		Variance			2023		2022		Variance

		(in thousands)							(in thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	224,092	$	143,259	$	80,833	Net cash provided by operating activities	$	320,326	$	224,092	$	96,234
Net cash used in investing activities	Net cash used in investing activities	(104,426)		(30,596)		(73,830)		Net cash used in investing activities	(40,725)		(104,426)		63,701
Net cash provided by (used in) financing activities		16,379		(11,072)		27,451
Net cash (used in) provided by financing activities								Net cash (used in) provided by financing activities	(187,298)		16,379		(203,677)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	136,045		101,591		34,454		Net increase in cash and cash equivalents	92,303		136,045		(43,742)
Cash and cash equivalents - beginning of period	Cash and cash equivalents - beginning of period	119,423		99,265		20,158		Cash and cash equivalents - beginning of period	294,186		119,423		174,763
Cash and cash equivalents - end of period	Cash and cash equivalents - end of period	$	255,468	$	200,856	$	54,612	Cash and cash equivalents - end of period	$	386,489	$	255,468	$	131,021

Cash Flows from Operating Activities

The increase in cash ~~flows~~ provided by operating activities is primarily due to higher net income, ~~decrease~~the Termination Fee received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses and taxes, changes in ~~interest expense due to the October 2021 debt refinancings,~~accrued compensation and employee benefits, and changes in inventory, partially offset by cash paid for taxes, prepaid expenses, other current assets, certain accruals and 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, ~~2022~~2023 as compared to the nine months ended September 30, ~~2021.~~2022.

Cash Flows from Investing Activities

The ~~increase~~decrease in cash ~~flows~~ used in investing activities ~~is primarily due to the acquisitions of SPNN and RHI made within~~during the nine months ended September 30, ~~2022,~~2023 is primarily due a decrease in acquisition activity as compared to ~~the acquisition of Biocure made within~~ the nine months ended September 30, ~~2021.~~2022.

Cash Flows from Financing Activities

The ~~increase in~~ cash ~~provided~~used in financing activities is primarily related to the ~~proceeds from warrant exercises~~Company’s repurchase of common stock during the nine months ended September 30, ~~2022, with no comparable activity during~~2023, whereas the nine months ended September 30, ~~2021. Additionally, the cash used in financing activities for the nine months ended September 30, 2021 is~~2022 activity primarily related to the ~~January 2021 debt refinancing, with no comparable activity during the nine months ended September 30, 2022.~~

proceeds of warrant exercises.

Critical Accounting Policies and Estimates

The Company prepares its unaudited condensed consolidated financial statements in accordance with ~~United States generally accepted accounting principles (“GAAP”),~~GAAP, which requires the Company to make estimates and assumptions. The Company evaluates its estimates and assumptions on an ongoing basis. Estimates and 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 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.

There have been no material changes to the Company’s critical accounting policies and estimates as presented in our Form 10-K, which are hereby incorporated by reference.

3531

Table of Contents

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, 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, ~~2022.~~2023. 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, ~~2022.~~2023.

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, ~~2022~~2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3632

Table of Contents

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 ~~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 ~~10-K for the year ended December 31, 2021.~~10-K. 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On February 20, 2023, the Company’s Board of Directors approved a share repurchase program of up to an aggregate $250.0 million of common stock of the Company. This program has no specified expiration date.

The following table provides certain information with respect to the Company’s repurchases of common stock from July 1, 2023 through September 30, 2023:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2023 - July 31, 2023	—	$	—	—	$	174,999,995
August 1, 2023 - August 31, 2023	1,833,677	34.35		1,833,677	112,015,417
September 1, 2023 - September 30, 2023	1,079,843	34.28		1,079,843	75,000,067
	2,913,520	$	34.32	2,913,520	$	75,000,067

Item 5. Other Information

Adoption, Modification and Termination of Rule 10b5-1 Plans and Certain Other Trading Arrangements

No director or officer of the Company has adopted, modified or terminated a Rule 10b5-1 plan or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023.

Table of Contents

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. 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. 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.


OPTION CARE HEALTH, INC.

Date: October ~~27, 2022~~25, 2023			~~/s/~~/s/ Michael Shapiro
Michael Shapiro
Chief Financial Officer and Executive Vice President (Principal Financial Officer and Duly Authorized Officer)

3734


		Page Number
PART I

Item 1.	Financial Statements	54
	Condensed Consolidated Balance Sheets	65
	Unaudited Condensed Consolidated Statements of Comprehensive Income	76
	Unaudited Condensed Consolidated Statements of Cash Flows	87
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	98
	Notes to Unaudited Condensed Consolidated Financial Statements	109
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2421
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3632
Item 4.	Controls and Procedures	3632

PART II

Item 1.	Legal Proceedings	3733
Item 1A.	Risk Factors	3733
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 5.	Other Information	33
Item 6.	Exhibits	3734

SIGNATURES		3734