What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 179 added, 159 removed, 414 unchanged (45% of the section changed)

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(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

CURRENT ASSETS:

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$ 0.0001 par value;

12,500,000 shares authorized, no shares outstanding as of June 30, 2020 and December 31, 2019, respectively

12,500,000 shares authorized, no shares outstanding as of September 30, 2020 and December 31, 2019, respectively

Common stock;

$ 0.0001 par value:

250,000,000 shares authorized, 177,098,513 shares issued and 176,714,791 shares outstanding as of June 30, 2020;

250,000,000 shares authorized, 187,141,475 shares issued and 186,757,753 shares outstanding as of September 30, 2020;

176,975,628 shares issued and 176,591,907 shares outstanding as of December 31, 2019

Treasury stock;

383,722 shares outstanding, at cost, as of June 30, 2020 and December 31, 2019, respectively

383,722 shares outstanding, at cost, as of September 30, 2020 and December 31, 2019, respectively

( 2,403 ) ( 2,403 )

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Total other expense ( 32,137 ) ( 27,493 ) ( 90,060 ) ( 48,778 )

LOSS BEFORE INCOME TAXES ( 7,198 ) ( 19,026 ) ( 26,067 ) ( 24,160 )

INCOME (LOSS) BEFORE INCOME TAXES 2,419 ( 39,218 ) ( 23,648 ) ( 63,378 )

INCOME TAX EXPENSE (BENEFIT) 756 3,576 2,267 ( 3,269 )

NET LOSS $ ( 7,668 ) $ ( 13,603 ) $ ( 27,578 ) $ ( 17,315 )

OTHER COMPREHENSIVE GAIN ( LOSS), NET OF TAX:

NET INCOME (LOSS) $ 1,663 $ ( 42,794 ) $ ( 25,915 ) $ ( 60,109 )

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $ 0 , $ 32 , $ 0 and $ 259 , respectively

4,022 ( 8,249 ) ( 8,034 ) ( 8,727 )

OTHER COMPREHENSIVE GAIN (LOSS) 4,576 27 ( 12,056 ) ( 478 )

NET COMPREHENSIVE LOSS $ ( 3,092 ) $ ( 13,576 ) $ ( 39,634 ) $ ( 17,793 )

LOSS PER COMMON SHARE

Net loss per share, basic and diluted $ ( 0.04 ) $ ( 0.10 ) $ ( 0.16 ) $ ( 0.12 )

Weighted average common shares outstanding, basic and diluted 176,711 142,614 176,686 142,614

OTHER COMPREHENSIVE INCOME (LOSS) 4,022 ( 8,249 ) ( 8,034 ) ( 8,727 )

NET COMPREHENSIVE INCOME (LOSS) $ 5,685 $ ( 51,043 ) $ ( 33,949 ) $ ( 68,836 )

EARNINGS (LOSS) PER COMMON SHARE:

Earnings (loss) per share, basic $ 0.01 $ ( 0.26 ) $ ( 0.14 ) $ ( 0.40 )

Earnings (loss) per share, diluted $ 0.01 $ ( 0.26 ) $ ( 0.14 ) $ ( 0.40 )

Weighted average common shares outstanding, basic 184,232 162,894 179,220 149,448

Weighted average common shares outstanding, diluted 184,822 162,894 179,220 149,448

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

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(IN THOUSANDS)

Six Months Ended

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Deferred income taxes - net 897 ( 5,252 )

Loss on extinguishment of debt 8,349 5,469

Amortization of deferred financing costs 4,153 3,057

Paid-in-kind interest capitalized as principal 7,525 —

Loss on interest rate swaps upon discontinuing hedge accounting 3,746 —

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Other investing cash flows 541 636

Business acquisitions, net of cash acquired — ( 700,170 )

Net cash used in investing activities ( 12,330 ) ( 712,684 )

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Redemptions to related parties — ( 2,000 )

Sale of management notes receivable — 1,310

Exercise of stock options, vesting of restricted stock, and related tax withholdings ( 904 ) ( 2,497 )

Proceeds from debt — 981,050

Repayments of debt principal ( 6,937 ) ( 2,075 )

Retirement of debt obligations ( 125,000 ) ( 226,738 )

Deferred financing costs — ( 36,538 )

Net proceeds from issuance of common stock 118,934 —

Other financing cash flows ( 2,500 ) —

Net cash provided by (used in) financing activities 6,381 ( 4,076 )

Net cash (used in) provided by financing activities ( 16,407 ) 712,512

NET INCREASE IN CASH AND CASH EQUIVALENTS 72,991 16,398

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Balance - June 30, 2019 $ — $ 14 $ — $ 618,403 $ ( 1,287 ) $ ( 33,350 ) $ 366 $ 584,146

Interest on management notes receivable — — — — ( 23 ) — — ( 23 )

Repayment of management notes receivable — — — — 1,310 — — 1,310

Purchase of BioScrip, Inc.

— 4 — 387,040 — — — 387,044

Stock-based incentive compensation — — — 2,745 — — — 2,745

Exercise of stock options, vesting of restricted stock and related tax withholdings — — ( 2,399 ) ( 98 ) — — — ( 2,497 )

Net loss — — — — — ( 42,794 ) — ( 42,794 )

Other comprehensive loss — — — — — — ( 8,249 ) ( 8,249 )

Balance - September 30, 2019 $ — $ 18 $ ( 2,399 ) $ 1,008,090 $ — $ ( 76,144 ) $ ( 7,883 ) $ 921,682

Balance - December 31, 2019 $ — $ 18 $ ( 2,403 ) $ 1,008,362 $ — $ ( 91,955 ) $ ( 7,195 ) $ 906,827

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Balance - June 30, 2020 $ — $ 18 $ ( 2,403 ) $ 1,009,135 $ — $ ( 119,533 ) $ ( 19,251 ) $ 867,966

Exercise of stock options, vesting of restricted stock and related tax withholdings — — — ( 259 ) — — — ( 259 )

Stock-based incentive compensation — — — 1,170 — — — 1,170

Net proceeds from the issuance of common stock — 1 — 118,933 — — — 118,934

Net income — — — — — 1,663 — 1,663

Other comprehensive income — — — — — — 4,022 4,022

Balance - September 30, 2020 $ — $ 19 $ ( 2,403 ) $ 1,128,979 $ — $ ( 117,870 ) $ ( 15,229 ) $ 993,496

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

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In addition, all legacy BioScrip debt was settled for $ 575.0 million.

As a result of the Merger, BioScrip’s stockholders hold approximately 19.3 % of the combined company, and HC I holds approximately 80.7 % of the combined company.

As a result of the Merger, BioScrip’s stockholders held approximately 19.3 % of the combined company, and HC I held approximately 80.7 % of the combined company.

Following the close of the transaction, BioScrip was rebranded as Option Care Health, Inc.

(“Option Care Health”, or the “Company”).

The combined company’s stock is listed on the Nasdaq Global Select Market as of June 30, 2020.

See Note 3, Business Acquisitions , for further discussion on the Merger.

The combined company’s stock is listed on the Nasdaq Global Select Market as of September 30, 2020.

See Note 3, Business Acquisitions , for further discussion of the Merger.

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 102 full service pharmacies.

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The Company’s share of earnings from equity-method investments is included in the line entitled “Equity in earnings of joint ventures” in the consolidated statements of comprehensive income (loss).

See Note 10, Equity-Method Investments , for further discussion of the Company’s equity-method investments.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

In April 2020, the Company received $ 11.7 million in Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) grant funds from the federal government, which are included in cash and cash equivalents in the Company’s unaudited condensed consolidated balance sheet as of June 30, 2020.

The $ 11.7 million is reflected in the second quarter as a cash inflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows.

The $ 11.7 million has been recorded as a component of accrued expenses and other current liabilities in the Company’s unaudited condensed consolidated balance sheet as of June 30, 2020 as the Company intends to return these funds as unused to the federal government.

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

During the third quarter, the Company returned the funds as unused to the federal government, which was reflected as a cash outflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows.

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, 2020 and December 31, 2019, the balance of the investments were $ 16.6 million and $ 17.0 million, respectively.

The investments are increased to reflect the Company’s capital contributions and equity in earning of the investees.

The investments are decreased to reflect the Company’s equity in losses of the investees and for distributions received that are not in excess of the carrying amount of the investments.

The Company’s proportionate share of earnings or losses of the investees are recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

The Company’s proportionate share of earnings was $ 0.8 million and $ 2.4 million for the three and nine months ended September 30, 2020.

The Company’s proportionate share of earnings was $ 0.8 million and $ 2.0 million for the three and nine months ended September 30, 2019.

Distributions from the investees are treated as cash inflows from operating activities within other adjustments in the unaudited condensed consolidated statements of cash flows.

During the three and nine months ended September 30, 2020, the Company received distributions from the investees of $ 2.3 million and $ 2.8 million, respectively.

During the three and nine months ended September 30, 2019, the Company received distributions from the investees of $ 0.5 million and $ 0.5 million, respectively.

See Footnote 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 16 % and 15 % for the three and six months ended June 30, 2020.

Revenue related to the Company’s largest payer was approximately 18 % and 21 % for the three and six months ended June 30, 2019, respectively.

Revenue related to the Company’s largest payer was approximately 16 % and 15 % for the three and nine months ended September 30, 2020.

Revenue related to the Company’s largest payer was approximately 15 % and 13 % for the three and nine months ended September 30, 2019, respectively.

In December 2019, the Company renewed and expanded its multi-year contract with this payer.

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There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.

For the three and six months ended June 30, 2020, approximately 12 % and 12 %, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid.

For the three and six months ended June 30, 2019, approximately 13 % and 13 %, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid.

As of June 30, 2020 and December 31, 2019, respectively, approximately 13 % and 12 %, respectively, of the Company’s accounts receivable was related to these programs.

For the three and nine months ended September 30, 2020, approximately 16 % and 14 %, 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, 2019, approximately 13 % and 12 %, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid.

As of September 30, 2020 and December 31, 2019, respectively, approximately 13 % and 12 %, 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.

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Further, the Company generally does not provide charity care.

For the three and six months ended June 30, 2020, approximately 72 % and 72 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors.

For the three and six months ended June 30, 2019, approximately 73 % and 74 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors.

For the three and nine months ended September 30, 2020, approximately 71 % and 72 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors.

For the three and nine months ended September 30, 2019, approximately 69 % and 72 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors.

Although there are a limited number of suppliers, the Company believes that other vendors could provide similar products on comparable terms.

However, a change in suppliers could cause delays in service delivery and possible losses in revenue, which could adversely affect the Company’s financial condition or operating results.

Although there is uncertainty regarding the COVID-19 pandemic, as of June 30, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

Although there is uncertainty regarding the COVID-19 pandemic, as of September 30, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

Recently-Adopted Accounting Pronouncements — In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

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BioScrip was a national provider of infusion and home care management solutions.

The Merger of Option Care and BioScrip into Option Care Health creates an expanded national platform and the opportunity to drive economies of scale through procurement savings, facility rationalization and other operating cost savings.

The Merger of Option Care and BioScrip into Option Care Health created an expanded national platform and the opportunity to drive economies of scale through procurement savings, facility rationalization and other operating cost savings.

The fair value of purchase consideration transferred on the closing date includes the value of the number of shares of the combined company owned by BioScrip shareholders at closing of the Merger, the value of common shares issued to certain warrant and preferred shareholders in conjunction with the Merger, the fair value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger.

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(1) These shares were not adjusted for the one share for four share reverse stock split effective on February 3, 2020.

See Note 16, Stockholders’ Equity , for further discussion on the one share for four share reverse stock split.

See Note 15, Stockholders’ Equity , for further discussion of the one share for four share reverse stock split.

Cash paid in conjunction with the Merger includes payments made for settlement of $ 575.0 million in legacy BioScrip debt, $ 125.8 million in existing BioScrip preferred shares, and $ 14.1 million in legacy BioScrip success-based fees owed to third-party advisors.

HC II financed these payments primarily through cash on hand and debt financing.

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Merger is based on estimated fair values as of the Merger Date.

As of June 30, 2020 the Company has finalized the valuation of the acquisition.

The following is an allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, in the Merger as of August 6, 2019 (in thousands):

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed, net of cash acquired, in the Merger is as follows (in thousands):

Accounts receivable, net (1) $ 96,532

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(5) Net deferred tax assets represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases.

See Note 5, Income Taxes , for additional discussion of the Company’s combined income tax position subsequent to the Merger.

(6) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was based on current market rates available to the Company.

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The goodwill created in the Merger is not expected to be deductible for tax purposes.

Assuming BioScrip had been acquired as of January 1, 2018, and the results of BioScrip had been included in operations beginning on January 1, 2018, the unaudited pro forma results of operations for the three and six months ended June 30, 2019 were net revenue of $ 688.8 million and $ 1,344.2 million, respectively, and net loss of $ 13.5 million and $ 35.5 million, respectively.

Assuming BioScrip had been acquired as of January 1, 2018, and the results of BioScrip had been included in operations beginning on January 1, 2018, the unaudited pro forma results of operations for the three and nine months ended September 30, 2019 were net revenue of $ 690.4 million and $ 2,034.6 million, respectively, and net loss of $ 18.7 million and $ 54.2 million, respectively.

The pro forma net loss adjusts for the effect of fair value adjustments related to the Merger, transaction costs and other non-recurring costs directly attributable to the Merger and the impact of the additional debt to finance the Merger.

Unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or the future operating results.

The following table sets forth the net revenue earned by category of payer for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The following table sets forth the net revenue earned by category of payer for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Net revenue $ 781,609 $ 615,880 $ 2,227,897 $ 1,589,638

During the three and six months ended June 30, 2020, the Company recorded tax expense of $ 0.5 million and $ 1.5 million, respectively, which represents an effective tax rate of ( 6.5 )% and ( 5.8 )%, respectively.

During the three and six months ended June 30, 2019 the Company recorded a tax benefit of $ 5.4 million and $ 6.8 million, respectively, which represents an effective tax rate of 28.5 % and 28.3 %, respectively.

The Company continues to maintain a full valuation allowance against all of its net U.S.

During the three and nine months ended September 30, 2020, the Company recorded tax expense of $ 0.8 million and $ 2.3 million, respectively, which represents an effective tax rate of 31.3 % and ( 9.6 )%, respectively.

During the three and nine months ended September 30, 2019 the Company recorded a tax expense (benefit) of $ 3.6 million and $( 3.3 ) million, respectively, which represents an effective tax rate of ( 9.1 )% and 5.2 %, respectively.

The Company maintains a full valuation allowance against all of its net U.S.

federal and state deferred tax assets with the exception of $ 0.6 million of estimated state net operating losses (“NOL”).

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On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.

Based on the Company’s full valuation allowance, as noted above, the Company’s tax expense for the three and six months ended June 30, 2020 of $ 0.5 million and $ 1.5 million consists of quarterly tax liabilities attributable to specific state tax returns as well as recognized deferred tax expense.

The Company recorded no income tax expense or benefit for the three or six months ended June 30, 2020 and 2019 associated with the tax provisions of the CARES Act.

(LOSS) EARNINGS PER SHARE

The Company presents basic and diluted (loss) earnings per share for its common stock.

Basic (loss) earnings per share is calculated by dividing the net (loss) income of the Company by the weighted average number of shares of common stock outstanding during the period.

Diluted (loss) 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 dilutive potential common shares.

Based on the Company’s full valuation allowance, as noted above, the Company’s tax expense for the three and nine months ended September 30, 2020 of $ 0.8 million and $ 2.3 million consists of quarterly tax liabilities attributable to specific state taxing authorities as well as recognized deferred tax expense.

The Company recorded no income tax expense or benefit for the three or nine months ended September 30, 2020 and 2019 associated with the tax provisions of the CARES Act.

EARNINGS (LOSS) PER SHARE

The Company presents basic and diluted earnings (loss) per share for its common stock.

Basic earnings (loss) per share is calculated by dividing the net income (loss) of the Company by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is determined by adjusting the profit or loss and the weighted average number of shares of common stock outstanding for the effects of all potentially dilutive securities.

As a result of the Merger, which has been accounted for as a reverse merger, all historical per share data and number of shares and equity awards were retroactively adjusted.

The (loss) earnings is used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive.

Accordingly, the computation of diluted shares for the three and six months ended June 30, 2020 excludes the effect of shares that would be issued in connection with stock options and restricted stock awards, as their inclusion would be anti-dilutive to the loss per share.

As of June 30, 2020 there were 2,328,120 warrants, 497,517 stock options and 562,575 restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive.

There are no dilutive potential common shares for the three and six months ended June 30, 2019.

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

Three Months Ended June 30, Six Months Ended June 30,

The earnings (loss) is 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 months ended September 30, 2020 includes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as these common stock equivalents are dilutive to the earnings per share recorded in the quarter.

The computation of diluted shares for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019 excludes the effect of these common stock equivalents as their inclusion would be anti-dilutive to the loss per share recorded in those periods.

As of September 30, 2020 there were 2,328,120 warrants, 424,878 stock options and 600,483 restricted stock awards outstanding that were excluded from the calculation of earnings (loss) per share for the nine months ended September 30, 2020 as they would be anti-dilutive.

As of September 30, 2019, there were 2,987,336 warrants, 657,846 stock options and 109,905 restricted stock awards outstanding that were excluded from the calculation of earnings (loss) per share for the three and nine months ended September 30, 2019 as they would be anti-dilutive.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net loss $ ( 7,668 ) $ ( 13,603 ) $ ( 27,578 ) $ ( 17,315 )

Net income (loss) $ 1,663 $ ( 42,794 ) $ ( 25,915 ) $ ( 60,109 )

Weighted average number of common shares outstanding 184,232 162,894 179,220 149,448

Loss per Common Share:

Loss per common share, basic and diluted $ ( 0.04 ) $ ( 0.10 ) $ ( 0.16 ) $ ( 0.12 )

During the three and six months ended June 30, 2020, the Company incurred operating lease expenses of $ 7.6 million and $ 15.3 million, respectively, including short-term lease expense, which were included as a component of selling, general and administrative expense in the unaudited condensed consolidated statements of comprehensive income (loss).

During the three and six months ended June 30, 2019, the Company incurred operating lease expense of $ 5.6 million and $ 10.8 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss).

As of June 30, 2020, the weighted-average remaining lease term was 5.2 years and the weighted-average discount rate was 5.48 %.

Earnings (loss) per common share:

Earnings (loss) per common share, basic $ 0.01 $ ( 0.26 ) $ ( 0.14 ) $ ( 0.40 )

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income (loss) $ 1,663 $ ( 42,794 ) $ ( 25,915 ) $ ( 60,109 )

Weighted average number of common shares outstanding 184,232 162,894 179,220 149,448

Effect of dilutive securities 590 — — —

Weighted average number of common shares outstanding, diluted 184,822 162,894 179,220 149,448

Earnings (loss) per common share:

Earnings (loss) per common share, diluted $ 0.01 $ ( 0.26 ) $ ( 0.14 ) $ ( 0.40 )

During the three and nine months ended September 30, 2020, the Company incurred operating lease expenses of $ 7.6 million and $ 23.0 million, respectively, including short-term lease expense, which were included as a component of selling, general and administrative expense in the unaudited condensed consolidated statements of comprehensive income (loss).

During the three and nine months ended September 30, 2019, the Company incurred operating lease expense of $ 7.4 million and $ 21.5 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss).

As of September 30, 2020, the weighted-average remaining lease term was 6.8 years and the weighted-average discount rate was 5.30 %.

Operating leases mature as follows (in thousands):

Fiscal Year Ending December 31, Minimum Payments

2020 $ 11,895

Thereafter 36,473

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Present value of lease liabilities $ 86,723

During the three and six months ended June 30, 2020, the Company did not enter into any significant new operating or financing leases.

As of June 30, 2020, the Company has entered into one build-to-suit lease agreement for a term of 15 years that has not yet commenced.

The lease will require minimum lease payments over its life of approximately $ 22.9 million.

During the three and nine months ended September 30, 2019, the Company did not enter into any significant new operating or financing leases.

During the three and nine months ended September 30, 2020, the Company commenced new leases, extensions and amendments, resulting in non-cash investing and financing activities in the unaudited condensed consolidated statements of cash flow of $ 20.1 million related to increases in the operating lease right-of-use asset and operating lease liabilities, respectively.

As of September 30, 2020, the Company did not have any significant operating or financing leases that had not yet commenced.

PROPERTY AND EQUIPMENT

Property and equipment was as follows as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Property and equipment was as follows as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

Infusion pumps $ 33,368 $ 30,416

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The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements.

The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

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, 2020 and 2019 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill consists of the following activity for the three and six months ended June 30, 2020 (in thousands):

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

Balance at December 31, 2019 $ 1,425,542

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Balance at June 30, 2020 $ 1,428,610

There was no change in the carrying amount of goodwill for the three or six months ended June 30, 2019.

The carrying amount and accumulated amortization of intangible assets consists of the following as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Balance at September 30, 2020 $ 1,428,610

Changes in the carrying amount of goodwill consists of the following activity for the three and nine months ended September 30, 2019 (in thousands):

Balance at December 31, 2018 $ 632,469

Balance at March 31, 2019 $ 632,469

Balance at June 30, 2019 $ 632,469

Acquisitions 786,904

Balance at September 30, 2019 $ 1,419,373

The carrying amount and accumulated amortization of intangible assets consists of the following as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

Gross intangible assets:

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Total intangible assets, net $ 359,766 $ 385,910

Amortization expense for intangible assets was $ 8.8 million and $ 17.6 million for the three and six months ended June 30, 2020, respectively.

Amortization expense for intangible assets was $ 4.9 million and $ 9.8 million for the three and six months ended June 30, 2019, respectively.

EQUITY-METHOD INVESTMENTS

The Company’s two equity-method investments totaled $ 18.0 million and $ 17.0 million as of June 30, 2020 and December 31, 2019, respectively, and are included in other noncurrent assets in the accompanying condensed consolidated balance sheets.

The Company’s related proportionate share of earnings is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

For the three and six months ended June 30, 2020, the Company’s proportionate share of earnings in its investments was $ 1.0 million and $ 1.6 million, respectively.

For the three and six months ended June 30, 2019, the Company’s proportionate share of earnings in its investment was $ 0.6 million and $ 1.2 million, respectively.

Legacy Health Systems — The Company’s 50 % ownership interest in this limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Portland, Oregon market.

In 2005, Option Care’s initial cash investment in this joint venture was $ 1.3 million.

The Company received a capital distribution from this investment of $ 0 and $ 0.5 million for the three and six months ended June 30, 2020.

The Company did no t receive a capital distribution from this investment for the three or six months ended June 30, 2019.

The following presents condensed financial information as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net revenue $ 6,520 $ 4,789 $ 12,011 $ 9,396

Cost of revenue 4,772 3,432 8,712 6,799

Gross profit 1,748 1,357 3,299 2,597

Net income 633 257 1,150 507

Equity in net income 316 129 574 254

Consolidated balance sheet data:

June 30, 2020 December 31, 2019

Current assets $ 8,401 $ 7,643

Noncurrent assets 3,387 3,846

Current liabilities 1,213 903

Noncurrent liabilities 498 659

Vanderbilt Health Services — The Company’s 50 % ownership interest in this limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Nashville, Tennessee market.

In 2009, Option Care contributed both cash and certain operating assets into the joint venture for a total initial investment of $ 1.1 million.

The following presents condensed financial information as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net revenue $ 11,972 $ 9,925 $ 22,480 $ 19,163

Cost of revenue 9,341 7,468 17,981 14,517

Gross profit 2,631 2,457 4,499 4,646

Net income 1,391 1,028 1,999 1,876

Equity in net income 696 514 1,000 938

Consolidated balance sheet data:

June 30, 2020 December 31, 2019

Current assets $ 14,684 $ 11,111

Noncurrent assets 1,699 2,033

Current liabilities 2,680 1,228

Noncurrent liabilities 745 956

Long-term debt consisted of the following as of June 30, 2020 (in thousands):

Amortization expense for intangible assets was $ 8.8 million and $ 26.3 million for the three and nine months ended September 30, 2020, respectively.

Amortization expense for intangible assets was $ 7.5 million and $ 17.3 million for the three and nine months ended September 30, 2019, respectively.

Long-term debt consisted of the following as of September 30, 2020 (in thousands):

Principal Amount Discount Debt Issuance Costs Net Balance

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Total long-term debt $ 1,277,246

The interest rate on the first lien term loan was 4.68 % and 6.20 % as of June 30, 2020 and December 31, 2019, respectively.

The weighted average interest rate incurred on the first lien term loan was 5.02 % and 5.60 % for the three and six months ended June 30, 2020.

The weighted average interest rate incurred on the previous first lien term loan was 6.22 % and 6.24 % for the three and six months ended June 30, 2019.

The interest rate on the second lien notes was 10.25 % and 10.66 % as of June 30, 2020 and December 31, 2019, respectively.

The weighted average interest incurred on the second lien notes was 10.33 % and 10.44 % for the three and six months ended June 30, 2020.

The weighted average interest incurred on the previous second lien term loan was 11.34 % and 11.45 % for the three and six months ended June 30, 2019.

The Company elected to pay-in-kind (“PIK”) the quarterly interest payment due in August 2020, which will result in the Company capitalizing $ 10.8 million in interest expense to the principal balance of the second lien term loan on the interest payment date.

The interest rate on the first lien term loan was 4.65 % and 6.20 % as of September 30, 2020 and December 31, 2019, respectively.

The weighted average interest rate incurred on the first lien term loan was 4.67 % and 5.29 % for the three and nine months ended September 30, 2020.

The weighted average interest rate incurred on the first lien term loan was 6.67 % for the period August 6, 2019 through September 30, 2019.

The weighted average interest rate incurred on the previous first lien term loan was 6.06 % and 6.20 % for the three and nine months ended September 30, 2019, respectively, prior to the retirement of the previous credit facilities on August 6, 2019.

The interest rate on the second lien notes was 9.00 % and 10.66 % as of September 30, 2020 and December 31, 2019, respectively.

The weighted average interest incurred on the second lien notes was 9.51 % and 10.17 % for the three and nine months ended September 30, 2020.

The weighted average interest rate incurred on the second lien notes was 10.89 % for the period August 6, 2019 through September 30, 2019.

The weighted average interest incurred on the previous second lien term loan was 11.02 % and 11.36 % for the three and nine months ended September 30, 2019, respectively, prior to the retirement of the previous credit facilities on August 6, 2019.

The Company elected to pay-in-kind (“PIK”) the quarterly interest payment due in August 2020 for the second lien notes, which resulted in the Company capitalizing $ 7.5 million in interest expense to the principal balance of the second lien term loan on the interest payment date.

In connection with the PIK election, the Company was charged an additional 1.00 % in interest expense during the quarterly interest period.

Subsequent to June 30, 2020, the Company completed a public offering of stock for net proceeds of approximately $ 118 million.

Those proceeds and available cash will be used to prepay $ 125.0 million of the second lien notes.

See Note 18, Subsequent Events , for further discussion.

During the three months ended September 30, 2020, the Company completed a public offering of stock for net proceeds of $ 118.9 million.

Those proceeds, along with additional cash on hand, were used to prepay $ 125.0 million of the second lien notes, which is reflected as a cash outflow from financing activities in the Company’s unaudited condensed consolidated statements of cash flows.

The Company recognized a loss on extinguishment of debt of $ 8.3 million, of which $ 2.5 million related to a prepayment penalty and $ 5.8 million related to deferred financing fees, which were written off upon extinguishment.

The $ 2.5 million prepayment penalty was reflected as a cash outflow from financing activities in the unaudited condensed consolidated statements of cash flows.

See Note 15, Stockholders’ Equity , for further discussion of the public offering.

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

2 unchanged sentences

Total 1,212,844

During the three and six months ended June 30, 2020 and 2019, the Company engaged in hedging activities to limit its exposure to changes in interest rates.

During the three and nine months ended September 30, 2020 and 2019, 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 June 30, 2020 (in thousands):

Financial Instrument Carrying Value as of June 30, 2020 Markets for Identical Item (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

The following table presents the estimated fair values of the Company’s debt obligations as of September 30, 2020 (in thousands):

Financial Instrument Carrying Value as of September 30, 2020 Markets for Identical Item (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

First lien term loan $ 890,011 $ — $ 905,485 $ —

1 unchanged sentence

Total debt instruments $ 1,172,086 $ — $ 905,485 $ 321,172

The following table sets forth the changes in Level 3 measurements for the three and six months ended June 30, 2020 (in thousands):

The following table sets forth the changes in Level 3 measurements for the three and nine months ended September 30, 2020 (in thousands):

Level 3 Measurements

4 unchanged sentences

Second lien notes fair value as of June 30, 2020 $ 417,910

Interest rate PIK 7,525

Principal prepayment ( 125,000 )

Change in fair value 20,737

Second lien notes fair value as of September 30, 2020 $ 321,172

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

12 unchanged sentences

In April 2019, Option Care terminated its interest rate caps.

In August 2019, the Company entered into interest rate swap agreements that reduce the variability in the interest rates on the newly-issued debt obligations.

In August 2019, the Company entered into interest rate swap agreements that reduce the variability in the interest rates on the newly-issued debt obligations following the Merger with BioScrip.

The first interest rate swap for $ 925.0 million notional was effective in August 2019 with $ 911.1 million designated as a cash flow hedge against the underlying interest rate on the first lien term loan interest payments indexed to one-month London Interbank Offered Rate (“LIBOR”) through August 2021.

9 unchanged sentences

Fair value - Derivatives in liability position

Derivative Balance Sheet Caption June 30, 2020 December 31, 2019

Derivative Balance Sheet Caption September 30, 2020 December 31, 2019

Interest rate swaps designated as cash flow hedges Accrued expenses and other current liabilities $ 15,229 $ 1,275

6 unchanged sentences

The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s unaudited condensed consolidated statements of comprehensive income (loss) (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Derivative 2020 2019 2020 2019

4 unchanged sentences

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Derivative Income Statement Caption 2020 2019 2020 2019

15 unchanged sentences

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 11, Indebtedness , for further discussion on the carrying amount and fair value of the first lien term loan.

See Note 10, Indebtedness , for further discussion of the carrying amount and fair value of the first lien term loan.

Second lien notes :

The fair value of the second lien notes is derived from a cash flow model that discounted the cash flows based on market interest rates (Level 3 inputs).

See Note 11, Indebtedness , for further discussion on the carrying amount and fair value of the second lien notes.

See Note 10, Indebtedness , for further discussion of the carrying amount and fair value of the second lien notes.

Interest rate swaps :

1 unchanged sentence

The Company determines the fair value of the investments based on quoted prices from third-party brokers.

See Note 12, Derivative Instruments , for further discussion on the fair value of interest rate swaps.

There were no other assets or liabilities measured at fair value at June 30, 2020 and December 31, 2019.

See Note 11, Derivative Instruments , for further discussion of the fair value of interest rate swaps.

There were no other assets or liabilities measured at fair value at September 30, 2020 and December 31, 2019.

COMMITMENTS AND CONTINGENCIES

11 unchanged sentences

A total of 4,101,735 shares of common stock were initially authorized for issuance under the 2018 Plan.

The Company had stock options and restricted stock outstanding related to the 2018 Plan as of June 30, 2020.

As of June 30, 2020, the Company also had incentive units outstanding related to the HC I equity incentive plan, which was implemented in October 2015, for certain officers and employees of the Company.

During the three and six months ended June 30, 2020, total stock-based incentive compensation expense recognized by the Company related to these plans was $ 0.7 million and $ 1.4 million, respectively.

During the three and six months ended June 30, 2019, total stock-based incentive compensation expense recognized by the Company related to these plans was $ 0.6 million and $ 1.2 million, respectively.

The Company had stock options and restricted stock outstanding related to the 2018 Plan as of September 30, 2020.

As of September 30, 2020, the Company also had incentive units outstanding related to the HC I equity incentive plan, which was implemented in October 2015, for certain officers and employees of the Company.

During the three and nine months ended September 30, 2020, total stock-based incentive compensation expense recognized by the Company related to these plans was $ 1.2 million and $ 2.6 million, respectively.

During the three and nine months ended September 30, 2019, total stock-based incentive compensation expense recognized by the Company related to these plans was $ 2.7 million and $ 3.9 million, respectively.

STOCKHOLDERS’ EQUITY

4 unchanged sentences

All common shares, warrants and stock awards presented in the unaudited condensed consolidated financial statements have been retrospectively adjusted for the reverse stock split.

Subsequent to June 30, 2020, the Company completed a public offering of 10,000,000 shares of common stock for net proceeds of approximately $ 118 million.

Those proceeds will be used to prepay a portion of the second lien notes.

See Note 18, Subsequent Events , for further discussion.

2017 Warrants — During the three and six months ended June 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock.

During the three months ended September 30, 2020, the Company completed a public offering of 20,700,000 shares of the Company’s common stock at a price of $ 12.50 per share, consisting of 10,000,000 shares of common stock issued and sold by the Company and 10,700,000 shares of common stock sold by HC I.

Following the public offering, HC I holds approximately 70.6 % of the common stock of the Company.

The Company received net proceeds from the offering of $ 118.9 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

The Company used the proceeds from the offering, along with additional cash on hand, to repay $ 125.0 million on the principal balance of its second lien notes outstanding.

See Note 10, Indebtedness , for further discussion of the repayment of the second lien note.

2017 Warrants — During the three and nine months ended September 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock.

During the three and nine months ended September 30, 2019, warrant holders did not elect to exercise any warrants to purchase shares of common stock.

No warrants existed in 2019 prior to the Merger.

As of June 30, 2020 and December 31, 2019, the remaining warrant holders are entitled to purchase 1.4 million shares of common stock, respectively.

2015 Warrants — During the three and six months ended June 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock.

As of September 30, 2020 and December 31, 2019, the remaining warrant holders are entitled to purchase 1.4 million shares of common stock, respectively.

2015 Warrants — During the three and nine months ended September 30, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock.

During the three and nine months ended September 30, 2019, warrant holders did not elect to exercise any warrants to purchase shares of common stock.

No warrants existed in 2019 prior to the Merger.

As of June 30, 2020 and December 31, 2019, warrant holders are entitled to purchase 0.9 million shares of common stock, respectively.

As of September 30, 2020 and December 31, 2019, warrant holders are entitled to purchase 0.9 million shares of common stock, respectively.

Home Solutions Restricted Stock — In conjunction with BioScrip’s 2016 acquisition of Home Solutions, Inc., 1.8 million restricted shares of common stock were issued, of which 0.8 million of these units vest upon the closing price of the Company’s common stock averaging at or above $ 16.00 per share over 20 consecutive trading days prior to December 31, 2019 and 1.0 million of these units vest upon the closing price of the Company’s common stock averaging at or above $ 20.00 per share over 20 consecutive trading days prior to December 31, 2019.

2 unchanged sentences

In the event the Home Solutions restricted stock expires unvested, the 7,048,357 common shares held in escrow will be returned to the Company and canceled.

As of June 30, 2020, the Home Solutions restricted stock remained in escrow pending final resolution of this matter.

As of September 30, 2020, the Home Solutions restricted stock remained in escrow pending final resolution of this matter.

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 $ 0.7 million and $ 1.4 million for the three and six months ended June 30, 2020, respectively.

The Company recorded management fee income of $ 0.6 million and $ 1.2 million for the three and six months ended June 30, 2019, respectively.

The Company recorded management fee income of $ 0.8 million and $ 2.1 million for the three and nine months ended September 30, 2020, respectively.

The Company recorded management fee income of $ 0.6 million and $ 1.8 million for the three and nine months ended September 30, 2019, respectively.

Management fees are recorded in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

The Company had amounts due to its joint ventures of $ 3.3 million as of June 30, 2020.

The Company had amounts due from its joint ventures of $ 1.8 million as of September 30, 2020.

This receivable was included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.

The Company also had amounts due to its joint ventures of $ 4.3 million as of December 31, 2019.

These payables were included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

This payable was 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.

SUBSEQUENT EVENTS

The Company has evaluated whether any subsequent events occurred since June 30, 2020, and noted the following subsequent events:

On July 24, 2020, the Company completed a public offering of 18,000,000 shares of the Company’s common stock at a price of $ 12.50 per share, consisting of 10,000,000 shares of common stock issued and sold by the Company and 8,000,000 shares of common stock sold by HC I.

The Company received net proceeds from the offering of approximately $ 118 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

The Company intends to use the proceeds from the offering and available cash to repay $ 125.0 million on the principal balance of its second lien notes outstanding.

Following the offering, HC I holds approximately 72.1 % of the Company’s common stock.

The Company has evaluated whether any subsequent events occurred since September 30, 2020, and noted the following subsequent event:

In October 2020, the Company increased the borrowing capacity of its ABL facility from $ 150.0 million to $ 175.0 million, with net borrowings available of $ 165.4 million due to the Company’s $ 9.6 million of undrawn letters of credit issued and outstanding.

In conjunction with the increase in borrowing capacity, the terms of the ABL facility were amended to call for monthly interest payments to be charged at the greater of 0.25 % or LIBOR, plus 1.25 % to 1.75 %, depending on the historical excess availability as a percentage of the line cap, as defined in the ABL facility agreement.

No other terms of the ABL facility were amended.

The Company incurred bank and legal fees of approximately $ 0.1 million, which will be capitalized and amortized over the remaining term of the ABL facility.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements