Option Care Health, Inc. 10-Q

Item 1. Financial Statements 3 Table of Contents OPTION CARE HEALTH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) (unaudited) September 30, 2020 December 31, 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 140,047 $ 67,056 Accounts receivable, net 320,920 324,416 Inventories 155,478 115,876 Prepaid expenses and other current assets 60,030 51,306 Total current assets 676,475 558,654 NONCURRENT ASSETS: Property and equipment, net 113,017 133,198 Operating lease right-of-use asset 70,344 63,502 Intangible assets, net 359,766 385,910 Goodwill 1,428,610 1,425,542 Other noncurrent assets 20,278 22,741 Total noncurrent assets 1,992,015 2,030,893 TOTAL ASSETS $ 2,668,490 $ 2,589,547 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 290,206 $ 221,060 Accrued compensation and employee benefits 51,226 45,765 Accrued expenses and other current liabilities 63,239 33,538 Current portion of operating lease liability 19,252 20,391 Current portion of long-term debt 9,250 9,250 Total current liabilities 433,173 330,004 NONCURRENT LIABILITIES: Long-term debt, net of discount, deferred financing costs and current portion 1,162,836 1,277,246 Operating lease liability, net of current portion 67,471 58,242 Deferred income taxes 3,040 2,143 Other noncurrent liabilities 8,474 15,085 Total noncurrent liabilities 1,241,821 1,352,716 Total liabilities 1,674,994 1,682,720 STOCKHOLDERS’ EQUITY: Preferred stock; $ 0.0001 par value; 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, 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 19 18 Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2020 and December 31, 2019, respectively ( 2,403 ) ( 2,403 ) Paid-in capital 1,128,979 1,008,362 Accumulated deficit ( 117,870 ) ( 91,955 ) Accumulated other comprehensive loss ( 15,229 ) ( 7,195 ) Total stockholders’ equity 993,496 906,827 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,668,490 $ 2,589,547 The notes to unaudited condensed consolidated financial statements are an integral part of these statements. 4 Table of Contents OPTION CARE HEALTH, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 NET REVENUE $ 781,609 $ 615,880 $ 2,227,897 $ 1,589,638 COST OF REVENUE 607,456 478,107 1,729,395 1,252,281 GROSS PROFIT 174,153 137,773 498,502 337,357 OPERATING COSTS AND EXPENSES: Selling, general and administrative expenses 123,000 133,475 377,198 315,815 Depreciation and amortization expense 16,597 16,023 54,892 36,142 Total operating expenses 139,597 149,498 432,090 351,957 OPERATING INCOME (LOSS) 34,556 ( 11,725 ) 66,412 ( 14,600 ) OTHER INCOME (EXPENSE): Interest expense, net ( 24,583 ) ( 21,509 ) ( 84,102 ) ( 44,117 ) Equity in earnings of joint ventures 790 826 2,364 2,018 Other, net ( 8,344 ) ( 6,810 ) ( 8,322 ) ( 6,679 ) Total other expense ( 32,137 ) ( 27,493 ) ( 90,060 ) ( 48,778 ) 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 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 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. 5 Table of Contents OPTION CARE HEALTH, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 25,915 ) $ ( 60,109 ) Adjustments to reconcile net loss to net cash provided by operations: Depreciation and amortization expense 60,054 38,997 Non-cash operating lease costs 13,020 15,246 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 — Equity in earnings of joint ventures ( 2,364 ) ( 2,018 ) Stock-based incentive compensation expense 2,588 3,898 Other adjustments 1,589 1,046 Changes in operating assets and liabilities: Accounts receivable, net 3,496 71,029 Inventories ( 39,602 ) ( 6,212 ) Prepaid expenses and other current assets ( 8,724 ) 1,447 Accounts payable 66,508 ( 36,157 ) Accrued compensation and employee benefits 5,461 5,312 Accrued expenses and other current liabilities 16,768 ( 3,846 ) Operating lease liabilities ( 11,976 ) ( 11,922 ) Other noncurrent assets and liabilities ( 3,845 ) ( 3,415 ) Net cash provided by operating activities 101,728 16,570 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ( 12,871 ) ( 13,150 ) Other investing cash flows 541 636 Business acquisitions, net of cash acquired — ( 700,170 ) Net cash used in investing activities ( 12,330 ) ( 712,684 ) CASH FLOWS FROM FINANCING ACTIVITIES: 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 (used in) provided by financing activities ( 16,407 ) 712,512 NET INCREASE IN CASH AND CASH EQUIVALENTS 72,991 16,398 Cash and cash equivalents - beginning of the period 67,056 36,391 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 140,047 $ 52,789 Supplemental disclosure of cash flow information: Cash paid for interest $ 73,224 $ 35,531 Cash paid for income taxes $ 2,373 $ 1,617 Cash paid for operating leases $ 19,941 $ 15,248 The notes to unaudited condensed consolidated financial statements are an integral part of these statements. 6 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 Management Notes Receivable Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Total Stockholders’ Equity Balance - December 31, 2018 $ — $ 14 $ — $ 619,621 $ ( 1,619 ) $ ( 16,035 ) $ 844 $ 602,825 Interest on management notes receivable — — — — ( 21 ) — — ( 21 ) Stockholders' redemption — — — ( 2,000 ) — — — ( 2,000 ) Stock-based incentive compensation — — — 584 — — — 584 Net loss — — — — — ( 3,712 ) — ( 3,712 ) Other comprehensive loss — — — — — — ( 505 ) ( 505 ) Balance - March 31, 2019 $ — $ 14 $ — $ 618,205 $ ( 1,640 ) $ ( 19,747 ) $ 339 $ 597,171 Interest on management notes receivable — — — — ( 18 ) — — ( 18 ) Stockholders' redemption — — — ( 371 ) 371 — — — Stock-based incentive compensation — — — 569 — — — 569 Net loss — — — — — ( 13,603 ) — ( 13,603 ) Other comprehensive income — — — — — — 27 27 Balance - June 30, 2019 $ — $ 14 $ — $ 618,403 $ ( 1,287 ) $ ( 33,350 ) $ 366 $ 584,146 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 Exercise of stock options, vesting of restricted stock and related tax withholdings — — — ( 549 ) — — — ( 549 ) Stock-based incentive compensation — — — 757 — — — 757 Net loss — — — — — ( 19,910 ) — ( 19,910 ) Other comprehensive loss — — — — — — ( 16,632 ) ( 16,632 ) Balance - March 31, 2020 $ — $ 18 $ ( 2,403 ) $ 1,008,570 $ — $ ( 111,865 ) $ ( 23,827 ) $ 870,493 Exercise of stock options, vesting of restricted stock and related tax withholdings — — — ( 96 ) — — — ( 96 ) Stock-based incentive compensation — — — 661 — — — 661 Net loss — — — — — ( 7,668 ) — ( 7,668 ) Other comprehensive income — — — — — — 4,576 4,576 Balance - June 30, 2020 $ — $ 18 $ ( 2,403 ) $ 1,009,135 $ — $ ( 119,533 ) $ ( 19,251 ) $ 867,966 Exercise of stock options, vesting of restricted stock and related tax withholdings — — — ( 259 ) — — — ( 259 ) Stock-based incentive compensation — — — 1,170 — — — 1,170 Net proceeds from the issuance of common stock — 1 — 118,933 — — — 118,934 Net income — — — — — 1,663 — 1,663 Other comprehensive income — — — — — — 4,022 4,022 Balance - September 30, 2020 $ — $ 19 $ ( 2,403 ) $ 1,128,979 $ — $ ( 117,870 ) $ ( 15,229 ) $ 993,496 The notes to unaudited condensed consolidated financial statements are an integral part of these statements. 7 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. (“HC I”). On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion Services, Inc. and its subsidiaries from Walgreen Co., and the business was rebranded as Option Care (“Option Care”). On March 14, 2019, HC I and HC II entered into a definitive agreement (the “Merger Agreement”) to merge with and into a wholly-owned subsidiary of BioScrip, Inc. (“BioScrip”), a national provider of infusion and home care management solutions, along with certain other subsidiaries of BioScrip and HC II. The merger contemplated by the Merger Agreement (the “Merger”) was completed on August 6, 2019 (the “Merger Date”). The Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations with Option Care being considered the accounting acquirer and BioScrip being considered the legal acquirer. Under the terms of the Merger Agreement, shares of HC II common stock issued and outstanding immediately prior to the Merger Date were converted into 135,565,392 shares of BioScrip common stock, par value $ 0.0001 (the “BioScrip common stock”). BioScrip also issued an additional 7,048,357 shares to HC I in respect of certain outstanding unvested contingent restricted stock units of BioScrip, which are held in escrow to prevent dilution related to potential additional vesting on certain share-based instruments. See Note 15, Stockholders’ Equity , for additional discussion of these shares held in escrow. In conjunction with the Merger, holders of BioScrip preferred shares and certain warrants received 864,603 additional shares of BioScrip common stock and preferred shares were repurchased for $ 125.8 million of cash. In addition, all legacy BioScrip debt was settled for $ 575.0 million. As a 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 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. 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 2019 audited consolidated financial statements, including the notes thereto, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2020. Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. The BioScrip results have been included in the consolidated financial results since the Merger Date. 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 consolidated statements of comprehensive income (loss). 8 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. 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 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. The contract renewal was effective in February 2020 for a two-year term and auto-renews at the end of that term. 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, 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. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term. The Company does not require its patients nor 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. 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 September 30, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations. 9 Table of Contents Recently-Adopted Accounting Pronouncements — In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which requires measurement and recognition of expected credit losses for financial assets held. The Amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and is to be applied using a modified retrospective transition method. The Company adopted the standard as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. 3. BUSINESS ACQUISITIONS Merger with BioScrip, Inc. — As discussed in Note 1, Nature of Operations and Presentation of Financial Statements, Option Care merged with BioScrip on August 6, 2019. BioScrip was a national provider of infusion and home care management solutions. The Merger of Option Care and BioScrip into Option Care Health 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. The fair value per share of BioScrip’s common stock was $ 2.67 per share. This is the closing price of the BioScrip common stock on August 6, 2019. Under the acquisition method of accounting, the calculation of total consideration exchanged is as follows (in thousands): Amount Number of BioScrip common shares outstanding at time of the Merger (1) 129,181 Common shares issued to warrant and preferred stockholders at time of the Merger (1) 3,458 Total shares of BioScrip common stock outstanding at time of the Merger (1) 132,639 BioScrip share price as of August 6, 2019 $ 2.67 Fair value of common shares $ 354,146 Fair value of share-based instruments $ 32,898 Cash paid in conjunction with the Merger included in purchase consideration $ 714,957 Fair value of total consideration transferred $ 1,102,001 Less: cash acquired $ 14,787 Fair value of total consideration acquired, net of cash acquired $ 1,087,214 (1) These shares were not adjusted for the one share for four share reverse stock split effective on February 3, 2020. 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. 10 Table of Contents 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): Amount Accounts receivable, net (1) $ 96,532 Inventories (2) 19,683 Property and equipment, net (3) 48,732 Intangible assets, net (4) 193,245 Deferred tax assets, net of deferred tax liabilities (5) 26,731 Operating lease right-of-use asset (6) 22,378 Operating lease liability (6) ( 28,897 ) Accounts payable (7) ( 66,668 ) Other assumed liabilities, net of other acquired assets (7) ( 20,663 ) Total acquired identifiable assets and liabilities 291,073 Goodwill (8) 796,141 Total consideration transferred $ 1,087,214 (1) Management has valued accounts receivables based on the estimated future collectability of the receivables portfolio. (2) Inventories are stated at fair value as of the Merger Date. (3) The fair value of the property and equipment was determined based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison, and income capitalization approaches for each property appraised. (4) The allocation of consideration exchanged to intangible assets acquired is as follows (in thousands): Fair Value Weighted Average Estimated Life (in years) Trademarks/Names $ 12,536 2 Patient referral sources 180,329 20 Licenses 380 1.5 Total intangible assets, net $ 193,245 18.8 The Company valued trademarks/names utilizing the relief of royalty method and patient referral sources utilizing the multi-period excess earnings method, a form of the income approach. (5) Net deferred tax assets represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. (6) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was based on current market rates available to the Company. (7) Accounts payable as well as certain other current and non-current assets and liabilities are stated at fair value as of the Merger Date. (8) The Merger resulted in $ 796.1 million of goodwill, which is attributable to cost synergies resulting from procurement and operational efficiencies and elimination of duplicative administrative costs. The goodwill created in the Merger is not expected to be deductible for tax purposes. Assuming BioScrip had been acquired as of January 1, 2018, and the results of BioScrip had been included in operations beginning on January 1, 2018, the unaudited pro forma results of operations for the three and 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. 11 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, 2020 and 2019 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Commercial payers $ 644,385 $ 525,927 $ 1,893,105 $ 1,373,481 Government payers 127,435 80,280 308,830 194,875 Patients 9,789 9,673 25,962 21,282 Net revenue $ 781,609 $ 615,880 $ 2,227,897 $ 1,589,638 5. INCOME TAXES 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”). In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities, including the effect in available carryback and carryforward periods, projected taxable income and tax-planning strategies, in making this assessment. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated. Based on the Company’s 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. 12 Table of Contents 6. EARNINGS (LOSS) PER SHARE The Company presents basic and diluted earnings (loss) per share for its common stock. Basic earnings (loss) per share is calculated by dividing the net income (loss) of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the profit or loss and the weighted average number of shares of common stock outstanding for the effects of all potentially dilutive securities. 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 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 Numerator: Net income (loss) $ 1,663 $ ( 42,794 ) $ ( 25,915 ) $ ( 60,109 ) Denominator: Weighted average number of common shares outstanding 184,232 162,894 179,220 149,448 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 Numerator: Net income (loss) $ 1,663 $ ( 42,794 ) $ ( 25,915 ) $ ( 60,109 ) Denominator: 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 ) 13 Table of Contents 7. LEASES 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 $ 8,688 2021 22,799 2022 17,417 2023 13,698 2024 10,177 Thereafter 36,473 Total lease payments $ 109,252 Less: Interest 22,529 Present value of lease liabilities $ 86,723 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. 14 Table of Contents 8. PROPERTY AND EQUIPMENT 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 Equipment, furniture and other 49,931 51,454 Leasehold improvements 79,828 80,916 Computer software, purchased and internally developed 36,567 34,884 Assets under development 7,284 14,150 206,978 211,820 Less: accumulated depreciation 93,961 78,622 Property and equipment, net $ 113,017 $ 133,198 Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income (loss), depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three and nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Depreciation expense in cost of revenue $ 1,643 $ 1,384 $ 5,161 $ 2,855 Depreciation expense in operating expenses 7,814 8,522 28,546 18,849 Total depreciation expense $ 9,457 $ 9,906 $ 33,707 $ 21,704 15 Table of Contents 9. GOODWILL AND OTHER INTANGIBLE ASSETS 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 Purchase accounting adjustments 2,341 Balance at March 31, 2020 $ 1,427,883 Purchase accounting adjustments 727 Balance at June 30, 2020 $ 1,428,610 Changes — 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 Changes — Balance at March 31, 2019 $ 632,469 Changes — 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: Referral sources $ 438,121 $ 438,121 Trademarks/names 44,536 44,536 Other amortizable intangible assets 402 402 Total gross intangible assets 483,059 483,059 Accumulated amortization: Referral sources ( 103,947 ) ( 84,295 ) Trademarks/names ( 19,046 ) ( 12,748 ) Other amortizable intangible assets ( 300 ) ( 106 ) Total accumulated amortization ( 123,293 ) ( 97,149 ) Total intangible assets, net $ 359,766 $ 385,910 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. 16 Table of Contents 10. INDEBTEDNESS Long-term debt consisted of the following as of September 30, 2020 (in thousands): Principal Amount Discount Debt Issuance Costs Net Balance ABL facility $ — $ — $ — $ — First lien term loan 918,063 ( 7,546 ) ( 20,506 ) 890,011 Second lien notes 294,781 ( 7,590 ) ( 5,116 ) 282,075 $ 1,212,844 $ ( 15,136 ) $ ( 25,622 ) 1,172,086 Less: current portion ( 9,250 ) Total long-term debt $ 1,162,836 Long-term debt consisted of the following as of December 31, 2019 (in thousands): Principal Amount Discount Debt Issuance Costs Net Balance ABL facility $ — $ — $ — $ — First lien term loan 925,000 ( 8,399 ) ( 22,825 ) 893,776 Second lien notes 412,256 ( 11,672 ) ( 7,864 ) 392,720 $ 1,337,256 $ ( 20,071 ) $ ( 30,689 ) 1,286,496 Less: current portion ( 9,250 ) Total long-term debt $ 1,277,246 The interest rate on the first lien term loan was 4.65 % 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. 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. 17 Table of Contents Long-term debt matures as follows (in thousands): Year Ending December 31, Minimum Payments 2020 $ 2,313 2021 9,250 2022 9,250 2023 9,250 2024 9,250 Thereafter 1,173,531 Total 1,212,844 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 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 $ — Second lien notes 282,075 — — 321,172 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 nine months ended September 30, 2020 (in thousands): Level 3 Measurements Second lien notes fair value as of January 1, 2020 $ 411,119 Change in fair value ( 71,748 ) Second lien notes fair value as of March 31, 2020 $ 339,371 Change in fair value 78,539 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. 18 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. During 2017, Option Care entered into interest rate caps that reduce the risk of increased interest payments due to interest rates rising. The hedges offset the risk of rising interest rates through 2020 on the first $ 250.0 million of the previous first lien term loan. The interest rate caps perfectly offset the terms of the interest rates associated with the variable interest rate previous first lien term loan. Option Care entered into the interest rate caps as a cash flow hedge for a notional amount of $ 1.9 million. In April 2019, Option Care terminated its interest rate caps. In August 2019, the Company entered into 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. The remaining $ 13.9 million notional amount of the interest rate swap is not designated as a hedging instrument. The second interest rate swap of $ 400.0 million notional was effective in November 2019 and is designated as a cash flow hedge against the underlying interest rate on the second lien notes interest payments indexed to three-month LIBOR through November 2020. In May 2020, the Company elected to PIK the second lien note’s quarterly interest payment due in August 2020. Upon making the PIK election, the Company determined that the hedged interest payment would no longer occur, resulting in an ineffective hedge, so the Company discontinued hedge accounting on its $ 400.0 million notional interest rate swap. As a result, the Company reclassified accumulated comprehensive loss of $ 3.7 million to interest expense, net in the unaudited condensed consolidated statements of comprehensive income (loss). The gains and losses associated with the $ 400.0 million notional swap will be recognized in net income (loss) through interest expense until the swap expires in November 2020. See Note 10, Indebtedness , for further discussion of the PIK. In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges , the Company has determined that the $ 911.1 million designated cash flow hedge is perfectly effective. The 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 liability position 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 Interest rate swaps not designated as cash flow hedges Accrued expenses and other current liabilities 2,117 — Interest rate swaps designated as cash flow hedges Other non-current liabilities — 5,920 Interest rate swaps not designated as cash flow hedges Other non-current liabilities — 90 Total derivatives $ 17,346 $ 7,285 19 Table of Contents The gain and loss associated with the changes in the fair value of the effective portion of the hedging instrument are recorded into other comprehensive (loss) income. The gain and loss associated with the changes in the fair value of the $ 400.0 million notional swap and the $ 13.9 million notional amount not designated as a hedging instrument are recognized in net income (loss) through interest expense. The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s unaudited condensed consolidated statements of comprehensive income (loss) (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Derivative 2020 2019 2020 2019 Interest rate caps designated as cash flow hedges $ — $ ( 398 ) $ — $ ( 1,103 ) Interest rate swaps designated as cash flow hedges 4,022 ( 7,883 ) ( 11,780 ) ( 7,883 ) Interest rate swaps that discontinued hedge accounting — — 3,746 — $ 4,022 $ ( 8,281 ) $ ( 8,034 ) $ ( 8,986 ) 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 September 30, Nine Months Ended September 30, Derivative Income Statement Caption 2020 2019 2020 2019 Interest rate caps designated as cash flow hedges Interest expense $ — $ 269 $ — $ ( 125 ) Interest rate swaps designated as cash flow hedges Interest expense ( 4,152 ) 129 ( 8,604 ) 129 Interest rate swaps not designated as hedges Interest expense ( 41 ) ( 118 ) ( 32 ) ( 118 ) Interest rate swaps that discontinued hedge accounting Interest expense — — ( 3,746 ) — $ ( 4,193 ) $ 280 $ ( 12,382 ) $ ( 114 ) The Company expects to reclassify $ 13.9 million of total interest rate costs from accumulated other comprehensive loss against interest expense during the next 12 months. 20 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. 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 10, Indebtedness , for further discussion of the carrying amount and fair value of the second lien notes. Interest rate swaps : The fair values of interest rate swaps are derived from the interest rates prevalent in the market and future expectations of those interest rates (Level 2 inputs). The Company determines the fair value of the investments based on quoted prices from third-party brokers. See Note 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. 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. 21 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, the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, stock grants, and performance units to key employees and directors. The 2018 plan is administered by the Company’s Compensation Committee, a standing committee of the Board of Directors. 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 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. 15. STOCKHOLDERS’ EQUITY On January 3, 2020, the Company’s board of directors and HC I, the stockholder of a majority of the Company’s common stock, approved a reverse stock split of the Company’s issued and outstanding common stock on a one share for four share basis and appropriately amended the Company’s Third Amended and Restated Certificate of Incorporation to reflect the change. On February 3, 2020, the reverse stock split became effective. In connection with the reverse stock split, the Company changed its ticker symbol from “BIOS” to “OPCH” and transferred the Company’s common stock from the Nasdaq Capital Market to the Nasdaq Global Select Market. The par value of the Company’s common stock remained unchanged as a result of the reverse stock split, resulting in a decrease to the aggregate par value of common stock and corresponding increase to paid-in capital in the Company’s unaudited condensed consolidated financial statements, which was retrospectively applied to all periods presented in the unaudited condensed consolidated financial statements. All common shares, warrants and stock awards presented in the unaudited condensed consolidated financial statements have been retrospectively adjusted for the reverse stock split. 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 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 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. The restricted stock expired on December 31, 2019. As discussed in Note 1, Nature of Operations and Presentation of Financial Statements , 7,048,357 common shares issued to HC I in conjunction with the Merger are held in escrow to prevent dilution related to the vesting of the Home Solutions restricted stock. 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 September 30, 2020, the Home Solutions restricted stock remained in escrow pending final resolution of this matter. 22 Table of Contents 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 $ 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 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. 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. 17. SUBSEQUENT EVENTS 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. 23 Table of Contents