What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-03 compared with 2020-08-04 · 110 added, 87 removed, 223 unchanged (47% of the section changed)

27 unchanged sentences

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

and the combined company’s stock, par value $0.0001, was listed on the Nasdaq Global Select Market as of June 30, 2020.

See Note 3, Business Acquisitions , of the unaudited condensed consolidated financial statements for further discussion on the Merger.

and the combined company’s stock, par value $0.0001, was listed on the Nasdaq Global Select Market as of September 30, 2020.

See Note 3, Business Acquisitions , of the unaudited condensed consolidated financial statements for further discussion of the Merger.

Update on the Impact of the COVID-19 Pandemic

The primary operations of the Company focus on providing infusion therapy services and based on the recent impact of the pandemic across the healthcare ecosystem, the Company began experiencing a related impact across a number of facets beginning in March 2020.

The second quarter of 2020 results reflect the Company’s continued efforts to accelerate growth and drive merger-related cost savings offset by the detrimental impact of the COVID-19 pandemic.

The third quarter of 2020 results reflect the Company’s continued efforts to accelerate growth and drive merger-related cost savings offset by the detrimental impact of the COVID-19 pandemic.

The Company relies upon patient referrals from multiple sources, including but not limited to patients discharged from acute care settings (e.g., hospitals) and patients requiring treatment for chronic conditions from specialty physicians.

1 unchanged sentence

however, the Company did experience an increase in patient transfers from hospital and outpatient settings which positively affected revenues.

For the second quarter of 2020, the revenue results reflect a single digit decline in acute revenues relative to the prior year while chronic revenue grew in the low double digits.

For the third quarter of 2020, the revenue results reflect flat acute revenues relative to the prior year while chronic revenue grew in the mid teens.

Option Care Health continues to collaborate with payers and health systems to transition patients into the home or one of our alternate treatment sites to receive vital infusion therapy.

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In delivering infusion therapy, the Company’s clinical personnel regularly utilize personal protection equipment (“PPE”) and ancillary medical supplies as dictated by the Company’s clinical protocols.

Based on the increased demand for PPE over the past several weeks, the Company has experienced challenges in procuring necessary PPE to ensure the safety of its personnel and the patients served in the form of higher costs for PPE as well as increased effort and resources dedicated to procurement activities.

Based on the increased demand for PPE, the Company has experienced challenges in procuring necessary PPE to ensure the safety of its personnel and the patients served in the form of higher costs for PPE as well as increased effort and resources dedicated to procurement activities.

To date, the Company has maintained adequate levels of PPE to support its operations, albeit at higher procurement costs.

The Company experienced cost inefficiencies in the second quarter with respect to clinical labor and other staffing challenges, as well as higher costs to procure personal protection equipment.

The Company experienced cost inefficiencies in the third quarter with respect to clinical labor and other staffing challenges, as well as higher costs to procure personal protection equipment.

Offsetting the negative impacts resulting from the COVID-19 pandemic, the Company managed spending and accelerated many integration-related initiatives as discussed below.

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however, at this time cannot confidently forecast the duration nor the ultimate financial impact on its operations.

“Risk Factors” under the caption “The COVID-19 pandemic could adversely impact our business, results of operations, cash flows and financial position” for further discussion on risks.

“Risk Factors” under the caption “The COVID-19 pandemic could adversely impact our business, results of operations, cash flows and financial position” for further discussion of risks.

In April 2020, the Company received approximately $11.7 million from the Public Health and Social Services Emergency Fund as part of the Coronavirus Aid, Relief, and Economics Security Act (“CARES Act”).

The $11.7 million is reflected in the second quarter 2020 as a cash inflow from financing activities and, as a result, is reflected in the June 30, 2020 cash balance and as a component of accrued expenses and other current liabilities.

Given the Company’s ability to largely offset the cost inefficiencies experienced from the COVID-19 pandemic with spending reductions and accelerated integration net cost synergies, the Company has determined that it will return these CARES Act funds to the federal government.

The $11.7 million was reflected in the second quarter 2020 as a cash inflow from financing activities.

Given the Company’s ability to largely offset the cost inefficiencies experienced from the COVID-19 pandemic with spending reductions and accelerated integration net cost synergies, the Company returned these CARES Act funds to the federal government during the third quarter of 2020.

This was reflected as a cash outflow from financing activities during the third quarter of 2020.

Merger Integration Execution

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After completion of the Merger, we have additional resources to invest in our people, process and systems, providing us improved strength and scale to drive better patient outcomes.

The Company accelerated its integration activities during the second quarter to offset the negative impacts resulting from COVID-19 pandemic, and as a result we exited the second quarter having fully achieved the articulated goal of at least $60.0 million in net cost synergies.

The Company accelerated its integration activities during the second quarter of 2020 to offset the negative impacts resulting from COVID-19 pandemic, and as a result we fully achieved the articulated goal of at least $60.0 million in net cost synergies.

We continue to pursue further integration efforts, and ultimately expect to exceed the net cost synergy goal.

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Composition of Results of Operations

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three and six months ended June 30, 2020 and 2019.

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three and nine months ended September 30, 2020 and 2019.

The BioScrip results have been included since the August 6, 2019 Merger Date.

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The Company is subject to taxation in the United States and various states.

The Company’s income tax (benefit) expense is reflective of the current federal and state tax rates.

Change in unrealized losses on cash flow hedges, net of income taxes .

Change in unrealized (losses) gains on cash flow hedges, net of income taxes, consists of the gains and losses associated with the changes in the fair value of derivatives designated as hedging instruments related to the interest rate caps and interest rate swaps, net of income taxes.

The Company’s income tax expense (benefit) is reflective of the current federal and state tax rates.

Change in unrealized gains (losses) on cash flow hedges, net of income taxe expense (benefit) .

Change in unrealized gains (losses) on cash flow hedges, net of income taxes, consists of the gains and losses associated with the changes in the fair value of derivatives designated as hedging instruments related to the interest rate caps and interest rate swaps, net of income taxes.

Results of Operations

The following table presents Option Care Health’s consolidated results of operations 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 Option Care Health’s consolidated results of operations 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 (unaudited) 2019 (unaudited) 2020 (unaudited) 2019 (unaudited)

13 unchanged sentences

Total other expense (32,137) (4.1) % (27,493) (4.5) % (90,060) (4.0) % (48,778) (3.1) %

LOSS BEFORE INCOME TAXES (7,198) (1.0) % (19,026) (3.8) % (26,067) (1.8) % (24,160) (2.5) %

INCOME (LOSS) BEFORE INCOME TAXES 2,419 0.3 % (39,218) (6.4) % (23,648) (1.1) % (63,378) (4.0) %

INCOME TAX EXPENSE (BENEFIT) 756 0.1 % 3,576 0.6 % 2,267 0.1 % (3,269) (0.2) %

NET LOSS $ (7,668) (1.0) % $ (13,603) (2.7) % $ (27,578) (1.9) % $ (17,315) (1.8) %

OTHER COMPREHENSIVE GAIN ( LOSS), NET OF TAX:

NET INCOME (LOSS) $ 1,663 0.2 % $ (42,794) (6.9) % $ (25,915) (1.2) % $ (60,109) (3.8) %

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 0.5 % (8,249) (1.3) % (8,034) (0.4) % (8,727) (0.5) %

OTHER COMPREHENSIVE GAIN (LOSS) 4,576 0.6 % 27 — % (12,056) (0.8) % (478) — %

NET COMPREHENSIVE LOSS $ (3,092) (0.4) % $ (13,576) (2.7) % $ (39,634) (2.7) % $ (17,793) (1.8) %

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the three month periods ended June 30, 2020 and June 30, 2019.

Three Months Ended June 30,

OTHER COMPREHENSIVE INCOME (LOSS) 4,022 0.5 % (8,249) (1.3) % (8,034) (0.4) % (8,727) (0.5) %

NET COMPREHENSIVE INCOME (LOSS) $ 5,685 0.7 % $ (51,043) (8.3) % $ (33,949) (1.5) % $ (68,836) (4.3) %

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Three Months Ended September 30,

(unaudited) (unaudited) Variance

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Gross profit margin 22.3 % 22.4 %

The increase in net revenue was primarily driven by additional revenue following the Merger of $208.4 million as well as growth in the Company’s portfolio of therapies.

The increase in cost of revenue was driven by the impact of the Merger and organic growth.

The increase in net revenue was primarily driven by additional revenue following the Merger, as the prior year included the results of BioScrip from the Merger Date, along with organic growth in the Company’s portfolio of therapies.

The increase in cost of revenue was driven by the impact of the Merger and revenue growth.

The increase in gross profit was primarily related to contribution margin from additional revenue from the Merger.

The increase in gross margin percentage was primarily driven by therapy mix shift and the positive impact from the merger integration net cost synergies, partially offset by the incremental wage costs and personal protective equipment costs related to the COVID-19 pandemic.

The slight decline in gross margin percentage was primarily driven by the positive impact from the merger integration net cost synergies, offset by the incremental wage costs and personal protective equipment costs related to the COVID-19 pandemic.

Operating Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(unaudited) (unaudited) Variance

3 unchanged sentences

Total operating expenses $ 139,597 $ 149,498 $ (9,901) (6.6) %

Selling, general and administrative expenses increased for the three months ended June 30, 2020 primarily due to the impact of the Merger but decreased as a percentage of revenue to 16.9% for the three months ended June 30, 2020 as compared to 20.0% for the three months ended June 30 2019 due to synergy realization.

The increase in depreciation and amortization was primarily related to the depreciation of the fixed assets acquired and the amortization of the intangibles acquired from the Merger of $3.6 million and $3.9 million, respectively.

Selling, general and administrative expenses for the three months ended September 30, 2019 included $21.2 million of transaction and integration expenses related to the Merger.

No similar expenses were incurred for the three months ended September 30, 2020.

Selling, general and administrative expenses decreased as a percentage of revenue to 15.7% for the three months ended September 30, 2020 as compared to 21.7% for the three months ended September 30, 2019 due to the prior year transaction and integration expenses along with realization of net cost synergies achieved related to the Merger.

The increase in depreciation and amortization was primarily related to the depreciation of additional investment s in our pharmacies and infrastructure.

Other Income (Expense)

Three Months Ended June 30,

Three Months Ended September 30,

(unaudited) (unaudited) Variance

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Total other expense $ (32,137) $ (27,493) $ (4,644) 16.9 %

The increase in interest expense was primarily attributable to the interest expense on the new debt issued in conjunction with the Merger.

The balance of debt increased from $538.9 million at June 30, 2019 to $1,284.6 million at June 30, 2020.

The increase in interest expense was primarily attributable to the interest expense on the new debt issued in conjunction with the Merger, as the prior year included interest expense on the new debt from the Merger Date, partially offset by the savings from the $125.0 million repayment of principal on the second lien notes in the third quarter of 2020.

See Note 10, Indebtedness , of the unaudited condensed consolidated financial statements.

The increase in other, net relates to the loss on extinguishment of debt of $8.3 million incurred in the third quarter of 2020 in conjunction with the $125.0 million repayment of principal on the second lien notes.

Income Tax Expense (Benefit)

Three Months Ended June 30,

Three Months Ended September 30,

(unaudited) (unaudited) Variance

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Income tax expense (benefit) $ 756 $ 3,576 $ (2,820) (78.9) %

The Company continues to maintain a full valuation allowance, established at the time of Merger, against all of its net U.S.

The Company maintains a full valuation allowance, established at the time of Merger, against all of its net U.S.

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

Because of the Company’s full valuation allowance, the Company’s tax expense for the three months ended June 30, 2020 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense.

These tax expense items created a negative effective tax rate of 6.5% during the three months ended June 30, 2020.

During the three months ended June 30, 2019, the effective tax rate was 28.5%.

Because of the Company’s full valuation allowance, the Company’s tax expense for the three months ended September 30, 2020 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense.

These tax expense items resulted in an effective tax rate of 31.3% during the three months ended September 30, 2020.

During the three months ended September 30, 2019, the effective tax rate was negative 9.1%.

The variance in the year-over-year effective tax rates is primarily attributable to the valuation allowance established by the Company at the time of the Merger.

The quarterly tax rates of both periods differ from the Company’s 21% federal statutory rate primarily due to changes in valuation allowance, certain state and local taxes, non-deductible costs and resolution of certain tax matters.

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

Three Months Ended June 30,

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

Three Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Net loss $ (7,668) $ (13,603) $ 5,935 (43.6) %

Other comprehensive loss, net of tax:

Net income (loss) $ 1,663 $ (42,794) $ 44,457 (103.9) %

Other comprehensive income (loss), net of tax:

Changes in unrealized gains (losses) on cash flow hedges, net of income taxes 4,022 (8,249) 12,271 (148.8) %

Other comprehensive gain (loss) 4,576 27 4,549 16,848.1 %

Net comprehensive loss $ (3,092) $ (13,576) $ 10,484 (77.2) %

The change in net loss was primarily attributed to operating efficiencies and certain cost saving initiatives related to COVID-19 and the impact of the Merger and related integration savings that resulted in total operating expenses decreasing as a percentage of net revenue.

The change in unrealized gains (losses) on cash flow hedges, net of income taxes, primarily related to the $3.7 million reclassification from accumulated other comprehensive loss to interest expense, net upon discontinuing hedge accounting on the Company’s $400.0 million notional swap.

The remaining change was related to increases in fair values on the $925.0 million notional swap.

The change in unrealized loss for the three months ended June 30, 2019 related to fluctuations on interest rate caps on $250.0 million of the previous first lien term loan.

Net comprehensive loss was $3.1 million for the three months ended June 30, 2020, compared to net comprehensive loss of $13.6 million for the three months ended June 30, 2019, as a result of the changes in net loss, discussed above, along with the impact of the interest rate swaps.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The following tables present selected consolidated comparative results of operations from the Company’s unaudited condensed consolidated financial statements for the six month periods ended June 30, 2020 and June 30, 2019.

Six Months Ended June 30,

Other comprehensive income (loss) 4,022 (8,249) 12,271 (148.8) %

Net comprehensive income (loss) $ 5,685 $ (51,043) $ 56,728 (111.1) %

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

The prior year net loss included transaction-related expenses incurred in conjunction with the Merger.

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

The change in unrealized loss for the three months ended September 30, 2019 related to decreases in variable interest rates, resulting in a corresponding liability on the fair value of the interest rate swaps.

Net comprehensive income was $5.7 million for the three months ended September 30, 2020, compared to net comprehensive loss of $51.0 million for the three months ended September 30, 2019, as a result of the changes in net income (loss), discussed above, along with the impact of the interest rate swaps.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

The following tables present selected consolidated comparative results of operations from the Company’s unaudited condensed consolidated financial statements for the nine month periods ended September 30, 2020 and September 30, 2019.

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

4 unchanged sentences

Gross profit margin 22.4 % 21.2 %

The increase in net revenue was primarily driven by additional revenue following the Merger of $402.1 million as well as growth in the Company’s portfolio of therapies.

The increase in net revenue was primarily driven by additional revenue following the Merger as well as growth in the Company’s portfolio of therapies.

The increase in cost of revenue was driven by the impact of the Merger and organic growth.

The increase in gross profit was primarily related to contribution margin from additional revenue from the Merger.

The increase in gross margin percentage was primarily driven by the positive impact from the merger integration net cost synergies, partially offset by the incremental wage costs and personal protective equipment costs related to the COVID-19 pandemic.

Operating Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

3 unchanged sentences

Total operating expenses $ 432,090 $ 351,957 $ 80,133 22.8 %

Selling, general and administrative expenses increased for the six months ended June 30, 2020 primarily due to the impact of the Merger, but has decreased as a percentage of revenue to 17.6% for the six months ended June 30, 2020 as compared to 18.7% for the six months ended June 30, 2019 due to synergy realization.

Selling, general and administrative expenses increased for the nine months ended September 30, 2020 primarily due to the impact of the Merger, but has decreased as a percentage of revenue to 16.9% for the nine months ended September 30, 2020 as compared to 19.9% for the nine months ended September 30, 2019 due to synergy realization.

Other Income (Expense)

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

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The increase in interest expense was primarily attributable to the interest expense on the new debt issued in conjunction with the Merger, as discussed above.

Income Tax Expense (Benefit)

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

1 unchanged sentence

Income tax expense (benefit) $ 2,267 $ (3,269) $ 5,536 (169.3) %

The Company continues to maintain a full valuation allowance, established at the time of Merger, against all of its net U.S.

The Company maintains a full valuation allowance, established at the time of Merger, against all of its net U.S.

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

Because of the Company’s full valuation allowance, the Company’s tax expense for the six months ended June 30, 2020 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense.

These tax expense items created a negative effective tax rate of 5.8% during the six months ended June 30, 2020.

During the six months ended June 30, 2019, the effective tax rate was 28.3%.

Because of the Company’s full valuation allowance, the Company’s tax expense for the nine months ended September 30, 2020 only consists of quarterly tax liabilities attributable to separate company state taxing authorities as well as recognized deferred tax expense.

These tax expense items created a negative effective tax rate of 9.6% during the nine months ended September 30, 2020.

During the nine months ended September 30, 2019, the effective tax rate was 5.2%.

The variance in the year-over-year effective tax rates is primarily attributable to the valuation allowance established by the Company at the time of the Merger.

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

Six Months Ended June 30,

The effective tax rates of both periods differ from the Company’s 21% federal statutory rate primarily due to changes in valuation allowance, certain state and local taxes, non-deductible costs and resolution of certain tax matters.

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

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Net (loss) income $ (27,578) $ (17,315) $ (10,263) 59.3 %

Net loss $ (25,915) $ (60,109) $ 34,194 (56.9) %

Other comprehensive income (loss), net of tax:

Changes in unrealized (losses) gains on cash flow hedges, net of income taxes (12,056) (478) (11,578) 2,422.2 %

Other comprehensive (loss) income (12,056) (478) (11,578) 2,422.2 %

Changes in unrealized losses on cash flow hedges, net of income taxes (8,034) (8,727) 693 (7.9) %

Other comprehensive loss (8,034) (8,727) 693 (7.9) %

Net comprehensive loss $ (33,949) $ (68,836) $ 34,887 (50.7) %

The change in net loss was primarily attributed to increased depreciation, amortization and interest expense, which was partially offset by operating efficiencies, certain cost saving initiatives related to COVID-19 and Merger integration savings.

The change in unrealized (losses) gains on cash flow hedges, net of income taxes, related to the decrease in the variable interest rates during 2020, partially offset by the $3.7 million reclassification from accumulated other comprehensive income to interest expense upon discontinuing hedge accounting on the $400.0 million notional interest rate swap.

The change in unrealized (loss) income for the six months ended June 30, 2019 related to fluctuations on interest rate caps.

The change in net comprehensive (loss) income was the result of the change in net loss, described above, further reduced by the impact of the fair value of the interest rate swaps.

The change in unrealized losses on cash flow hedges, net of income taxes, related to the decrease in the variable interest rates during 2020, partially offset by the $3.7 million reclassification from accumulated other comprehensive income to interest expense upon discontinuing hedge accounting on the $400.0 million notional interest rate swap.

The change in unrealized losses for the nine months ended September 30, 2019 related to fluctuations on interest rate caps along with decreasing interest rates, which resulted in a corresponding liability on the change in fair value of the interest rate swaps.

The change in net comprehensive loss was the result of the change in net loss, described above, further reduced by the impact of the fair value of the interest rate swaps.

Liquidity and Capital Resources

For the six months ended June 30, 2020 and the twelve months ended December 31, 2019, the Company’s primary sources of liquidity were cash on hand of $118.1 million and $67.1 million, respectively, as well as the $140.4 million of borrowings available under its credit facilities.

During the six months ended June 30, 2020 and the year ended December 31, 2019, the Company’s positive cash flows from operations enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as pursue acquisitions.

For the nine months ended September 30, 2020 and the twelve months ended December 31, 2019, the Company’s primary sources of liquidity were cash on hand of $140.0 million and $67.1 million, respectively, as well as the $140.4 million of borrowings available under its credit facilities.

During the nine months ended September 30, 2020 and the year ended December 31, 2019, the Company’s positive cash flows from operations enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as pursue acquisitions.

The Company’s primary uses of cash include supporting our ongoing business activities and investing in various acquisitions and our infrastructure to support additional business volumes.

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The revolving credit facility contains commitment fees payable on the unused portion of the ABL facility ranging from 0.25% to 0.375%, depending on various factors including the Company’s leverage ratio, type of loan and rate type, and letter of credit fees of 2.5%.

The Company had no outstanding borrowings under the ABL facility at June 30, 2020.

The Company had $9.6 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL facility of $140.4 million as of June 30, 2020.

The Company had no outstanding borrowings under the ABL facility at September 30, 2020.

The Company had $9.6 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL facility of $140.4 million as of September 30, 2020.

Subsequent to September 30, 2020, the Company increased the borrowing capacity of the ABL facility to $175.0 million, increasing net borrowings available to $165.4 million.

See Note 17, Subsequent Events , for further discussion of the increased borrowing capacity.

The principal balance of the first lien term loan is repayable in quarterly installments of $2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026.

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Interest is charged on Eurocurrency Rate loans at the Eurocurrency Rate, as defined, plus 4.25% to 4.50%, depending on the Company’s leverage ratio.

The interest rate on the first lien term loan was 4.68% as of June 30, 2020.

The interest rate on the first lien term loan was 4.65% as of September 30, 2020.

The second lien notes mature on August 6, 2027.

Interest on the second lien notes is payable quarterly and is at the greater of 1% or London Interbank Offered Rate (“LIBOR”), plus 8.75%.

The Company elected to pay-in-kind the first quarterly interest payment, due in November 2019, which resulted in the Company capitalizing the interest payment to the principal balance on the interest payment date, increasing the outstanding principal balance to $412.3 million.

The Company paid the second and third quarterly interest payments, due in February 2020 and May 2020.

The interest rate on the second lien notes was 10.25% as of June 30, 2020.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The Company elected to pay-in-kind the quarterly interest payment due in August 2020, which resulted in the Company capitalizing the interest payment to the principal balance on the interest payment date.

In August 2020, the Company prepaid $125.0 million of second lien note principal, bringing the outstanding principal balance to $294.8 million.

The interest rate on the second lien notes was 9.00% as of September 30, 2020.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

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

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

2 unchanged sentences

Net cash used in investing activities (12,330) (712,684) 700,354

Net cash provided by (used in) financing activities 6,381 (4,076) 10,457

Net cash (used in) provided by financing activities (16,407) 712,512 (728,919)

Net increase in cash and cash equivalents 72,991 16,398 56,593

2 unchanged sentences

Cash Flows from Operating Activities

The increase in cash flows provided by operating activities is primarily due to working capital efficiencies and timing of vendor payments during the six months ended June 30, 2020.

The increase in cash flows provided by operating activities is primarily due to working capital efficiencies and timing of vendor payments during the nine months ended September 30, 2020.

Cash Flows from Investing Activities

The increase in cash flows used in investing activities is primarily due to increased fixed asset additions during the six months ended June 30, 2020 as we invested more into our pharmacies and infrastructure.

The decrease in cash flows used in investing activities is primarily due to the BioScrip acquisition in the prior year.

Cash Flows from Financing Activities

The increase in cash provided by (used in) financing activities is related to receipt of $11.7 million of CARES Act funds, partially offset by increased principal payments.

The decrease in cash (used in) provided by financing activities is related to the prior year proceeds from the issuance of new debt of $981.1 million, partially offset by the retirement of the Company’s previous debt of $226.7 million and the payment of deferred financing costs of $36.5 million for the nine months ended September 30, 2019.

The cash used in financing activities for the nine months ended September 30, 2020 primarily related to prepayment of the second lien notes of $125.0 million, partially offset by proceeds from the issuance of common stock of $119.0 million, as well as principal payments on the first lien term loan.

Commitments and Contractual Obligations

There were no material changes to our commitments under contractual obligations, as disclosed in our latest Annual Report on Form 10-K.

The following table presents Option Care Health’s commitments and contractual obligations as of September 30, 2020, as well as its long-term obligations (in thousands):

Payments Due by Period

Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years

(in thousands)

Long-term debt obligations (1)

$ 1,212,844 $ 9,250 $ 18,500 $ 18,500 $ 1,166,594

Interest payments on long-term debt obligations (2)

455,844 69,981 138,655 136,910 110,298

Operating lease obligations 109,252 26,340 33,218 19,582 30,112

Total $ 1,777,940 $ 105,571 $ 190,373 $ 174,992 $ 1,307,004

(1) Includes aggregate principal payment from the first lien term loan and second lien notes.

(2) Interest payments calculated based on LIBOR rate as of September 30, 2020.

Actual payments are based on changes in LIBOR.

Calculated interest payments exclude interest rate swap agreements the Company entered into in connection with the long-term debt obligations.

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

Off-Balance Sheet Arrangements

As of June 30, 2020, Option Care Health did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of September 30, 2020, Option Care Health did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

7 unchanged sentences

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 2. Management’s Discussion and Analysis