What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-03-05 · 326 added, 384 removed, 666 unchanged (52% of the section changed)

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Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition as of January 1, 2018 and leases as of January 1, 2019 due to the adoptions of ASU No.

2014-09, “Revenue from Contracts with Customers” and ASU No.

2016-02, “Leases”.

As discussed in Note 8 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of the Financial Acccounting Standards Board’s Accounting Standards Codification Topic 842 Leases .

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Evaluation of transaction price adjustments

As discussed in Notes 2 and 4 to the consolidated financial statements, net revenue is reported at the net realizable value amount that reflects the consideration the Company expects to receive in exchange for providing services.

Revenues are from government payers, commercial payers, and patients for infusion therapy and other ancillary health care services.

The Company estimates the transaction price adjustments based on the verification of the patient’s insurance coverage and historical price concessions, historical payments, and management’s manual price concession adjustments.

We identified the evaluation of the transaction price adjustments related to recognizing revenue as a critical audit matter.

Subjective and complex auditor judgment was required to evaluate the transaction price adjustments.

Specifically, auditor judgment was required to evaluate the relevance and reliability of historical price concessions, historical payments, and management’s manual price concession adjustments.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s transaction price adjustment process, including controls related to the historical price concessions, historical payments, and management’s manual price concession adjustments.

We tested the relevance and reliability of the underlying data that served as the basis for the transaction price adjustments which included the historical price concessions and historical payments within the classes of payors by selecting certain historical price concessions and historical payments and agreeing to underlying support.

We evaluated management’s manual price concession adjustments by comparing management’s prior-year recorded balance to actual write-offs during the current year.

We have served as the Company’s auditor since 2015.

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Accounts receivable, net 328,340 324,416

Inventories 158,601 115,876

Prepaid expenses and other current assets 70,806 51,306

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Intangible assets, net 351,052 385,910

Goodwill 1,428,610 1,425,542

Other noncurrent assets 20,821 22,741

Total noncurrent assets 1,990,427 2,030,893

TOTAL ASSETS $ 2,647,439 $ 2,589,547

LIABILITIES AND STOCKHOLDERS’ EQUITY

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$ 0.0001 par value;

12,500,000 shares authorized, no shares outstanding as of December 31, 2019.

No preferred stock authorized or outstanding as of December 31, 2018.

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

Common stock;

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250,000,000 shares authorized, 180,178,308 shares issued and 179,794,586 shares outstanding as of December 31, 2020;

142,613,749 shares issued and outstanding as of December 31, 2018.

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

Treasury stock;

383,722 shares outstanding, at cost, as of December 31, 2019;

no shares outstanding as of December 31, 2018

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

( 2,403 ) ( 2,403 )

Paid-in capital 1,129,312 1,008,362

Management notes receivable

Accumulated deficit ( 100,031 ) ( 91,955 )

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss ( 11,172 ) ( 7,195 )

Total stockholders’ equity 1,015,724 906,827

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Year Ended December 31,

2020 2019 2018

NET REVENUE $ 3,032,610 $ 2,310,417 $ 1,939,791

COST OF REVENUE 2,350,346 1,797,418 1,517,576

GROSS PROFIT 682,264 512,999 422,215

OPERATING COSTS AND EXPENSES:

Selling, general and administrative expenses 500,199 459,628 345,884

Provision for doubtful accounts

Depreciation and amortization expense 71,310 53,690 38,062

Total operating expenses 571,509 513,318 383,946

OPERATING (LOSS) INCOME

OPERATING INCOME (LOSS) 110,755 ( 319 ) 38,269

OTHER INCOME (EXPENSE):

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Equity in earnings of joint ventures 3,313 2,840 1,020

Other, net ( 11,541 ) ( 6,991 ) ( 2,233 )

Total other expense ( 115,998 ) ( 77,875 ) ( 47,037 )

LOSS BEFORE INCOME TAXES ( 5,243 ) ( 78,194 ) ( 8,768 )

INCOME TAX BENEFIT

NET (LOSS) INCOME

INCOME TAX EXPENSE (BENEFIT) 2,833 ( 2,274 ) ( 2,653 )

NET LOSS $ ( 8,076 ) $ ( 75,920 ) $ ( 6,115 )

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:

Change in unrealized (losses) gains on cash flow hedges, net of income taxes of $ 0 , $ 259 and $ 234 , respectively

( 3,977 ) ( 8,039 ) 774

OTHER COMPREHENSIVE (LOSS) INCOME ( 3,977 ) ( 8,039 ) 774

NET COMPREHENSIVE (LOSS) INCOME

(LOSS) EARNINGS PER COMMON SHARE

Net (loss) earnings per share, basic and diluted

NET COMPREHENSIVE LOSS $ ( 12,053 ) $ ( 83,959 ) $ ( 5,341 )

LOSS PER COMMON SHARE

Net loss per share, basic and diluted $ ( 0.04 ) $ ( 0.49 ) $ ( 0.04 )

Weighted average common shares outstanding, basic and diluted 180,971 156,280 142,614

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Year Ended December 31,

2020 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operations:

Net loss $ ( 8,076 ) $ ( 75,920 ) $ ( 6,115 )

Adjustments to reconcile net loss to net cash provided by operations:

Depreciation and amortization expense 77,896 57,869 41,055

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Amortization of deferred financing costs 5,517 4,544 3,107

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

Paid-in-kind interest capitalized as principal 7,525 12,256 —

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Accounts receivable, net ( 3,924 ) 82,285 ( 21,012 )

Inventories ( 42,725 ) ( 12,853 ) 2,965

Prepaid expenses and other current assets ( 19,500 ) ( 2,940 ) ( 4,715 )

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Business acquisitions, net of cash acquired — ( 700,170 ) ( 10,727 )

Other investing cash flows 541 — —

Net cash used in investing activities ( 26,334 ) ( 727,826 ) ( 37,003 )

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Exercise of stock options, vesting of restricted stock, and related tax withholdings ( 904 ) ( 2,501 ) —

Payment of contingent consideration liability

Net proceeds from issuance of common stock 118,934 — —

Proceeds from debt — 981,050 1,000

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Deferred financing costs ( 149 ) ( 30,022 ) —

Net cash provided by (used in) financing activities

Debt prepayment fees ( 3,480 ) — —

Net cash (used in) provided by financing activities ( 68,849 ) 719,024 ( 4,150 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 32,209 30,665 ( 16,725 )

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(IN THOUSANDS)

Preferred Stock

Treasury Stock

Paid-in Capital

Management Notes Receivable

Accumulated Deficit

Accumulated Other Comprehensive (Loss)

Total Stockholders’ Equity

Balance - December 31, 2016

Interest on management notes receivable

Stockholders' redemptions

Stock-based incentive compensation

Reclassification of certain tax effects

Other comprehensive income

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

Balance - December 31, 2017 $ — $ 14 $ — $ 617,057 $ ( 1,116 ) $ ( 9,920 ) $ 70 $ 606,105

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Stock-based incentive compensation — — — 2,139 — — — 2,139

Net loss — — — — — ( 6,115 ) — ( 6,115 )

Other comprehensive income — — — — — — 774 774

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Purchase of BioScrip, Inc.

— 4 — 387,040 — — — 387,044

Interest on management notes receivable — — — — ( 62 ) — — ( 62 )

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Exercise of stock options, vesting of restricted stock, and related tax withholdings — — ( 2,403 ) ( 98 ) — — — ( 2,501 )

Net loss — — — — — ( 75,920 ) — ( 75,920 )

Other comprehensive loss — — — — — — ( 8,039 ) ( 8,039 )

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

Stock-based incentive compensation — — — 2,920 — — — 2,920

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

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

Cancellation of common stock - see Note 16 — ( 1 ) — 1 — — — —

Net loss — — — — — ( 8,076 ) — ( 8,076 )

Other comprehensive loss — — — — — — ( 3,977 ) ( 3,977 )

Balance - December 31, 2020 $ — $ 18 $ ( 2,403 ) $ 1,129,312 $ — $ ( 100,031 ) $ ( 11,172 ) $ 1,015,724

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

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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 542,261,567 shares ( 135,565,392 equivalent shares after adjusting for the one share for four share reverse stock split - see Note 20, Subsequent Events ) of BioScrip common stock, par value $0.0001 (the “BioScrip common stock”).

BioScrip also issued an additional 28,193,428 shares ( 7,048,357 equivalent shares after adjusting for the reverse stock split) 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 17, 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 3,458,412 additional shares ( 864,603 equivalent shares after adjusting for the reverse stock split) of BioScrip common stock and preferred shares were repurchased for $125.8 million of cash.

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 were set aside to prevent dilution related to potential additional vesting on certain share-based instruments.

See Note 16, Stockholders’ Equity , for additional discussion of these shares set aside.

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 hold approximately 19.2% of the combined company, and HC I holds approximately 80.8% of the combined company.

As a result of the Merger, BioScrip’s stockholders held approximately 19.2 % of the combined company, and HC I held approximately 80.8 % 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 was listed on the Nasdaq Capital Market as of December 31, 2019 .

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

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 115 full service pharmacies.

The combined company’s stock was listed on the Nasdaq Global Select Market as of December 31, 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 99 full service pharmacies and 46 stand-alone ambulatory infusion sites.

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.

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

See Note 11, Equity-Method Investments , for further discussion of the Company’s equity-method investments.

See “Equity-Method Investments” within Note 2, Summary of Significant Accounting Policies , for further discussion of the Company’s equity-method investments.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Accounts Receivable — The Company’s accounts receivable are reported at the net realizable value amount that reflects the consideration the Company expects to receive in exchange for providing services, which is inclusive of adjustments for

price concessions.

Accounts Receivable — The Company’s accounts receivable is reported at the net realizable value amount that reflects the consideration the Company expects to receive in exchange for providing services, which is inclusive of adjustments for price concessions.

The majority of accounts receivable are due from private insurance carriers and governmental health care programs, such as Medicare and Medicaid.

Price concessions may result from patient hardships, patient uncollectible accounts sent to collection agencies, lack of recovery due to not receiving prior authorization, differing interpretations of covered therapies in payer contracts, different pricing methodologies, or various other reasons.

Subsequent to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payers’ ability to pay outstanding billings.

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payers’ ability to pay outstanding billings.

The allowance for doubtful accounts balance is $ 0 as of December 31, 2020 and 2019, respectively.

Prior to the adoption of ASC 606, estimates of uncollectible accounts receivable were recorded as either a pricing adjustment to revenue (“contractual adjustment”) or as an uncollectible account to provision for doubtful accounts.

The Company recorded an allowance for doubtful accounts based on historical experience and a detailed assessment of the collectability of its accounts receivable.

In estimating the allowance for doubtful accounts, the Company considered, among other factors, (i) the balance and aging composition of the accounts receivable, (ii) the Company’s historical write-offs and recoveries, (iii) the creditworthiness of its payers, and (iv) general economic conditions.

Accounts receivable were written-off as bad debts after all reasonable collection efforts have been exhausted.

Included in accounts receivable are earned but unbilled gross receivables of $ 79.0 million and $ 68.7 million as of December 31, 2020 and 2019, respectively.

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This business casualty loss was recorded as a component of operating costs and expenses within the consolidated statements of comprehensive income (loss).

The Company received insurance proceeds of $0.8 million during the year ended December 31, 2018 , and recorded a receivable of $1.0 million as a component of prepaid expenses and other current assets within the consolidated balance sheets at December 31, 2018 .

The Company received insurance proceeds of $ 0.8 million during the year ended December 31, 2018, and recorded a receivable of $ 1.0 million.

Both of these amounts were recorded as a partial offset to the business casualty loss in the consolidated statements of comprehensive income (loss).

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These proceeds resulted in a gain on business casualty loss of $ 2.0 million recorded as a component of selling, general and administrative expense in the consolidated statement of comprehensive income (loss).

Prepaid expenses and other current assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $ 35.2 million and $ 13.9 million for the years ended December 31, 2020 and 2019, respectively.

There were no other items included in prepaid expenses and other current assets that comprised 5% or more of the balance.

Leases — The Company has lease agreements for facilities, warehouses, office space and property and equipment.

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The Company utilizes its estimated incremental borrowing rate at the lease commencement date to determine the present value of unpaid lease obligations.

The rates were estimated primarily using a methodology dependent on the Company’s financial condition, creditworthiness, and availability of certain observable data.

In particular, the Company considered its actual cost of borrowing for collateralized loans and its credit rating, along with the corporate bond yield curve in estimating its incremental borrowing rates.

The rates are estimated primarily using a methodology dependent on the Company’s financial condition, creditworthiness, and availability of certain observable data.

In particular, the Company considers its actual cost of borrowing for collateralized loans and its credit rating, along with the corporate bond yield curve in estimating its incremental borrowing rates.

ROU assets are recorded as the amount of operating lease liability, adjusted for prepayments, accrued lease payments, initial direct costs, lease incentives, and impairment of the ROU asset.

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The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

See Note 8, Leases , for further discussion on leases.

See Note 8, Leases , for further discussion of leases.

Goodwill, Intangible Assets, and Property and Equipment — Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.

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The balance of these investments is included in other noncurrent assets in the accompanying consolidated balance sheets.

The investment is increased to reflect the Company’s capital contributions and equity in earnings of the investees.

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

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

See Note 11, Equity-Method Investments , for a further discussion of the Company’s equity method investments.

As of December 31, 2020 and 2019, the balance of the investments was $ 17.0 million and $ 17.0 million, respectively.

The investments are increased to reflect the Company’s capital contributions and equity in earnings 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 is recorded in equity in earnings of joint ventures in the accompanying consolidated statements of comprehensive income (loss).

The Company’s proportionate share of earnings was $ 3.3 million, $ 2.8 million and $ 1.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Distributions from the investees are treated as cash inflows from operating activities in the consolidated statements of cash flows.

During the years ended December 31, 2020, 2019 and 2018, the Company received distributions from the investees of $ 3.3 million, $ 0.5 million and $ 2.0 million, respectively.

See Footnote 17, Related-Party Transactions , for discussion of related-party transactions with these investees.

Hedging Instruments — The Company uses derivative financial instruments to limit its exposure to increases in the interest rate of its variable rate debt instruments.

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At inception of the hedge, the Company designated the derivative instruments as a hedge of the cash flows related to the interest on the variable rate debt.

For all hedging relationships, the Company documents the hedging relationships and its risk management objective of the hedging relationship.

For all instruments designated as hedges, the Company documents the hedging relationships and its risk management objective of the hedging relationship.

For all hedging instruments, the terms of the hedge perfectly offset the hedged expected cash flows.

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Any unsatisfied or partially unsatisfied performance obligations at the end of a reporting period are generally completed prior to the patient being discharged.

See Note 4, Revenue for a further discussion on revenue.

See Note 4, Revenue for a further discussion of revenue.

Cost of Revenue — Cost of revenue consists of the actual cost of pharmaceuticals and other medical supplies dispensed to patients, as well as all other costs directly related to the production of revenue.

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See Note 3, Business Acquisitions , for further discussion of the Company’s business acquisitions.

Income Taxes — On December 22, 2017, the U.S.

government enacted H.R.

1, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

The Tax Act significantly changed U.S.

tax law by, among other things, reducing the corporate tax rate from 35% to 21%, effective January 1, 2018.

In addition, there are many new provisions including changes to bonus depreciation, the deduction for executive compensation and interest expense, and usage of future net operating losses.

Included in the tax benefit for 2017 is the impact of the corporate tax rate reduction which resulted in a $17.0 million non-cash adjustment of our net deferred tax liabilities and a corresponding credit to income tax benefit.

While the corporate tax rate reduction was effective January 1, 2018, the Company accounted for this anticipated rate change in 2017, the period of enactment.

The Company accounts for income taxes using the asset and liability method.

Income Taxes — The Company accounts for income taxes using the asset and liability method.

Deferred tax assets and liabilities are reported for book-tax basis differences and are measured based on currently enacted tax laws using rates expected to apply to taxable income in the years in which the differences are expected to reverse.

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

The contract renewal is effective in February 2020 for a two-year term and auto-renews at the end of that term.

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 years presented.

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As of December 31, 2020 and 2019, approximately 15 % and 12 %, respectively, of the Company’s accounts receivable was related to these programs.

Governmental programs reimburse for services based on fee schedules and rates that are determined by the related governmental agency.

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.

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Further, the Company generally does not provide charity care.

For the year ended December 31, 2019 , approximately 70% of the Company’s pharmaceutical and medical supply purchases were from three vendors.

For the years ended December 31, 2018 and 2017 , approximately 66% and 73% , respectively, of the Company’s pharmaceutical and medical supply purchases were from two vendors.

For the years ended December 31, 2020 and 2019, approximately 70 % and 70 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors.

For the year ended December 31, 2018, approximately 66 % of the Company’s pharmaceutical and medical supply purchases were from two 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 December 31, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

Fair Value Measurements — The fair value measurement accounting standard, ASC Topic 820, Fair Value Measurement (“ASC 820”), provides a framework for measuring fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability.

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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.

Recently-Adopted Accounting Pronouncements — In February 2016, the FASB issued ASU No.

2016-02, Leases , intended to improve financial reporting about leasing transactions.

The new guidance requires entities that lease assets to recognize on their balance sheets the ROU assets and lease liabilities for the rights and obligations created by those leases and to disclose key information about leasing arrangements.

ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 for public entities and certain not-for-profits.

The Company adopted the standard as of January 1, 2019.

ASU 2016-02 allows for an optional transition method, which was elected by the Company, and permits the application of the standard as of the effective date without requiring the standard to be applied to the comparative periods presented in the consolidated financial statements.

The Company elected the transition package of three practical expedients allowed by ASU 2016-02, which allows the Company not to reassess prior conclusions about lease identification, lease classification and initial, direct costs.

The Company did not elect the practical expedient to use hindsight and, accordingly, the initial lease term did not differ under the new standard versus prior accounting practice.

The Company also made a policy election not to apply this standard to any leases with a term of 12 months or less.

Adoption of ASU 2016-02 resulted in the Company recording an operating lease liability of $67.0 million and a corresponding ROU asset of $59.9 million in the consolidated balance sheet as of January 1, 2019.

See Note 8, Leases , for further discussion on leases.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers .

The ASU requires that an entity recognizes revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for these goods or services.

ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017 for public entities and certain not-for-profits.

The Company adopted the standard as of January 1, 2018.

ASU 2014-09 allows for a modified retrospective approach upon adoption, which was elected by the Company, and permits application of the standard only to contracts that are not completed at the adoption date with no adjustment to the comparative periods presented in the consolidated financial statements.

The Company also elected the practical expedient for the portfolio approach, allowing contracts with similar characteristics and impacts to the financial statements to be evaluated together.

ASU 2014-09 requires the Company to recognize revenue as the amount of cash that is ultimately expected to be collected, which resulted in the Company treating its previously-reported provision for doubtful accounts as an implicit price concession and a reduction to revenue.

Other than the treatment of bad debt expense, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

See Note 4, Revenue , for further discussion on revenue.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718):

Scope of Modification Accounting .

ASU 2019-09 modifies when a change to the terms or conditions of share-based payment award must be accounted for as a modification.

The new guidance requires modification accounting if the fair value, vesting condition, or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award.

The effective date for ASU 2017-09 is for annual or interim periods beginning after December 15, 2017.

The Company adopted the standard as of January 1, 2018.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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

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.

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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.

Early adoption is permitted.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

Immaterial Error Correction — During the year ended December 31, 2019 , the Company identified prior period misstatements in the recording of other noncurrent liabilities that resulted in an overstatement of goodwill and other noncurrent liabilities in the Company’s consolidated balance sheets.

The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior consolidated financial statements taken as a whole.

As a result, the Company has corrected the misstatements by decreasing goodwill and other noncurrent liabilities by $6.5 million in the accompanying financial statements.

The misstatements had no impact on net (loss) income or net cash flows from operating, investing, or financing activities in any of the periods presented.

During the fourth quarter of the year ended December 31, 2019, the Company identified a misstatement in the recording of certain transaction fees related to the Merger, which resulted in a $6.5 million understatement of net loss for the three and nine months ended September 30, 2019 and a $6.5 million understatement of long term debt, net, at September 30, 2019, as reported in the third quarter 2019 report on Form 10-Q.

The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the results as reported in the third quarter report on Form 10-Q.

As a result, the Company has corrected the misstatements by (i) increasing selling, general and administrative expense on the statement of comprehensive income (loss), (ii) increasing long-term debt, net and reducing retained earnings on the balance sheet, and (iii) decreasing net cash provided by operating activities and increasing net cash provided by financing activities on the statement of cash flows in the fourth quarter of 2019.

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.

BUSINESS ACQUISITIONS

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

See Note 20, Subsequent Events , for further discussion of this 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, which is discussed in Note 11, Indebtedness .

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

The fair values were determined based upon a valuation and the estimates and assumptions used in the valuation of certain contingent liabilities are pending completion and subject to change, which could be significant, within the measurement period, up to one year from the August 6, 2019 acquisition date.

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

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

Accounts receivable, net (1) $ 96,532

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Total acquired identifiable assets and liabilities 291,073

Goodwill (8) 796,141

Total consideration transferred $ 1,087,214

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(4) The allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):

Weighted Average Estimated Life (in years)

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

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(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.

The Merger preliminarily resulted in $793.1 million of goodwill, which is attributable to cost synergies resulting from procurement and operational efficiencies and elimination of duplicative administrative costs.

(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 following tables provide estimated unaudited pro forma results of operations for the years ended December 31, 2019 and 2018 (in thousands).

The estimated pro forma net income 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.

The estimated pro forma net income 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.

Year Ended December 31,

Net revenue $ 2,755,361 $ 2,648,694

Net loss ( 49,566 ) ( 70,932 )

Estimated 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.

For the periods subsequent to the Merger Date that are included in the results of operations for the years ended December 31, 2019 , BioScrip had net revenue of $308.9 million and a net loss of $30.1 million .

For the periods subsequent to the Merger Date that are included in the results of operations for the year ended December 31, 2019, BioScrip had net revenue of $ 308.9 million and a net loss of $ 30.1 million.

Acquisition-related costs were expensed as incurred, with the exception of BioScrip success-based fees that are included in consideration transferred.

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During the year ended December 31, 2019, the Company reduced the contingent liability by $ 0.3 million.

Subsequent to December 31, 2019 , it was determined that the contingent payment was not payable.

Healthy Connections Homecare Services, Inc.

Acquisition — In October 2016, pursuant to the Share Purchase Agreement dated September 14, 2016, the Company completed the acquisition of 100% of the outstanding shares of Healthy Connections Homecare Services, Inc.

(“HCHS”), for a purchase price of $5.2 million , net of cash acquired.

The total consideration was comprised of cash paid of $4.2 million and a contingent payment of $1.0 million payable one year after the acquisition date.

The contingent payment was determined based on the operations of HCHS.

The contingent payment of $1.0 million was paid by the Company during the year ended December 31, 2017 .

On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective approach applied to those contracts that were not completed as of that date.

The Company did not record a cumulative catch-up adjustment, as the timing and measurement of revenue for the Company’s customers is similar to its prior revenue recognition model.

ASC 606 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services.

ASC 606 requires application of a five-step model to determine when to recognize revenue and at what amount.

The revenue standard applies to all contracts with customers and revenues are to be recognized when control of the promised goods or services is transferred to the Company’s patients in an amount that reflects consideration expected to be received in exchange for those goods or services.

Adoption of the standard impacted the Company’s results as follows (in thousands):

Prior to ASC 606 Adoption

Adjustments for ASC 606

Subsequent to ASC 606 Adoption

As of December 31, 2019

Consolidated Balance Sheets

Accounts receivable, net

Year Ended December 31, 2019

Consolidated Statement of Comprehensive Income (Loss)

Provision for doubtful accounts

Operating loss

Consolidated Statements of Cash Flows

Changes in operating cash flows:

Accounts receivable, net

As of December 31, 2018

Consolidated Balance Sheets

Accounts receivable, net

Year Ended December 31, 2018

Consolidated Statement of Comprehensive Income (Loss)

Provision for doubtful accounts

Operating income

Consolidated Statements of Cash Flows

Changes in operating cash flows:

Accounts receivable, net

The following table presents the allowance for doubtful accounts for the years ended December 31, 2019 , 2018 and 2017 (in thousands):

Balance at Beginning of Period

Write-Off of Receivables

Charged to Costs and Expenses

Balance at End of Period

Year ended December 31, 2017

Allowance for doubtful accounts

Year ended December 31, 2018

Allowance for doubtful accounts (1)

Year ended December 31, 2019

Allowance for doubtful accounts (1)

(1) Subsequent to the adoption of ASC 606, an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payers’ ability to pay outstanding billings.

During the year ended December 31, 2020, the Company determined that the contingent payment was not payable and reduced the remaining contingent liability by $ 1.5 million.

The following table sets forth the net revenue earned by category of payer for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

Commercial payers $ 2,542,985 $ 2,001,105 $ 1,699,450

Government payers 450,067 285,128 217,876

Patients 39,558 24,184 22,465

Net revenue $ 3,032,610 $ 2,310,417 $ 1,939,791

EMPLOYEE BENEFIT PLANS

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In the years ended December 31, 2020, 2019 and 2018, Company contributions of $ 8.9 million, $ 6.6 million and $ 6.3 million, respectively, were paid.

The income tax benefit consists of the following for the years ended December 31, 2019 , 2018 and 2017 (in thousands):

US federal income tax (benefit) expense:

State income tax (benefit) expense:

Total income tax benefit

The income tax expense (benefit) consists of the following for the years ended December 31, 2020, 2019 and 2018 (in thousands):

2020 2019 2018

US federal income tax expense (benefit):

Current $ ( 69 ) $ — $ —

Deferred 996 ( 3,072 ) ( 2,688 )

927 ( 3,072 ) ( 2,688 )

State income tax expense (benefit):

Current 1,707 2,074 1,176

Deferred 199 ( 1,276 ) ( 1,141 )

Total income tax expense (benefit) $ 2,833 $ ( 2,274 ) $ ( 2,653 )

The difference between the statutory federal income tax rate and the effective tax rate is as follows for the years ended December 31, 2020, 2019 and 2018:

2020 2019 2018

US federal statutory tax rate 21.0 % 21.0 % 21.0 %

US federal statutory tax rate change

State income taxes - net of federal benefit

State and local income taxes net of federal tax benefit ( 29.5 ) ( 0.5 ) 2.4

Valuation allowance ( 29.9 ) ( 13.4 ) 0.0

Stock-based compensation 6.7 0.0 0.0

Non-deductible compensation ( 16.3 ) ( 0.7 ) 0.0

Changes in uncertain tax positions 0.0 0.0 14.7

Non-deductible expenses ( 8.2 ) ( 2.8 ) ( 7.5 )

Other, net 2.2 ( 0.7 ) ( 0.3 )

Effective income tax rate ( 54.0 ) % 2.9 % 30.3 %

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Net operating losses 155,922 147,749

Other 8,682 5,506

Deferred tax assets before valuation allowance 237,307 227,314

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Intangible assets ( 67,127 ) ( 71,204 )

Goodwill ( 28,976 ) ( 20,250 )

Other ( 2,679 ) ( 2,654 )

Deferred tax liabilities ( 128,561 ) ( 119,926 )

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As a result of the Merger, the Company recorded a full valuation allowance against all of its net U.S.

federal and state deferred tax assets with the exception of $0.8 million of estimated state net operating losses (“NOL”).

The initial recognition of this valuation allowance by the Company was reflected in the opening balance sheet of BioScrip and, to that extent, did not impact the Company’s tax expense (benefit) for the year ended December 31, 2019 .

federal and state deferred tax assets except for certain state net operating losses (“NOL”) which were estimated to be $ 0.4 million as of December 31, 2020.

The valuation allowance for deferred tax assets as of December 31, 2020 was $ 112.1 million.

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At December 31, 2020 and 2019, the Company also had $ 600.1 million and $ 578.5 million of cumulative gross state NOL carryforwards available to offset future taxable income in various states.

These state NOL’s will begin to expire starting in 2021 if not utilized.

At December 31, 2020 and 2019, the unrecognized tax benefits for uncertain tax positions was $ 0 .

The following table presents the valuation allowance for deferred tax assets for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Balance at Beginning of Period

Charged (Benefit) to Costs and Expenses

Charged to Other Accounts

Balance at End Period

Description Balance at Beginning of Period Charged (Benefit) to Costs and Expenses Charged to Other Accounts Balance at End Period

Valuation allowance for deferred tax assets $ 1,263 $ 110 $ — $ 1,373

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The Company is subject to various state tax audits, and believes that the outcome of these audits will not have a material impact on the Company.

The Company recorded no income tax expense or benefit for the year ended December 31, 2020 associated with the tax provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

However, certain adjustments were made to the Company’s components of deferred tax assets and liabilities to reflect the tax provisions of the CARES Act.

These adjustments were the result of the CARES Act’s tax provisions associated with interest expense limitations and bonus depreciation on leasehold improvements.

These adjustments to the Company’s components of deferred tax assets and liabilities were offset by one another or the Company’s valuation allowance.

(LOSS) EARNINGS PER SHARE

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

Accordingly, the computation of diluted shares for the year ended December 31, 2019 excludes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as their inclusion would be anti-dilutive to the loss per share.

Accordingly, the computation of diluted shares for the years ended December 31, 2020 and 2019 excludes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as their inclusion would be anti-dilutive to the loss per share.

As of December 31, 2020 there were 2,285,784 warrants, 412,831 stock options and 549,650 restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive.

There are no dilutive potential common shares for the years ended December 31, 2018 or 2017 .

In conjunction with the one share for four share reverse stock split discussed in Note 20, Subsequent Events , all historical per share data and number of shares and equity awards were retroactively adjusted.

As of December 31, 2019 there were 2,328,120 warrants, 644,975 stock options and 231,562 restricted stock awards outstanding that were excluded from the calculation as they were anti-dilutive.

There were no dilutive potential common shares for the years ended December 31, 2018.

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

Year Ended December 31,

Net (loss) income

2020 2019 2018

Net loss $ ( 8,076 ) $ ( 75,920 ) $ ( 6,115 )

Weighted average number of common shares outstanding 180,971 156,280 142,614

(Loss) Earnings per Common Share:

(Loss) earnings per common share, basic and diluted

During the year ended December 31, 2019 , the Company incurred operating lease expenses of $25.8 million including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the consolidated statements of comprehensive income (loss).

Loss per Common Share:

Loss per common share, basic and diluted $ ( 0.04 ) $ ( 0.49 ) $ ( 0.04 )

On January 1, 2018, the Company adopted ASC 842, Leases, using an optional transition method that permitted application of the standards as of the effective date without requiring the standard to be applied to the comparative periods presented in the consolidated financial statements.

The Company elected the transition package of three practical expedients, which allowed the Company not to reassess prior conclusions about lease identification, lease classification and initial, direct costs.

The Company did not elect the practical expedient to use hindsight and accordingly, the initial lease term did not differ under the new standards versus prior accounting practice.

During the years ended December 31, 2020 and 2019, the Company incurred operating lease expenses of $ 30.8 million and $ 25.8 million including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the consolidated statements of comprehensive income (loss).

As of December 31, 2020, the weighted-average remaining lease term was 6.7 years and the weighted-average discount rate was 5.18 %.

Operating leases mature as follows (in thousands):

Year Ending December 31

Minimum Payments

Year Ending December 31 Minimum Payments

2021 $ 23,770

2026 and beyond 30,168

Total lease payments 110,011

Interest ( 20,349 )

Present value of lease liabilities $ 89,662

In addition, the Company had $0.7 million of financing leases outstanding at December 31, 2019 which mature over the next year.

During the year ended December 31, 2020, the Company commenced new leases, extensions and amendments, resulting in non-cash investing and financing activities in the consolidated statements of cash flows of $ 29.1 million related to the increases in the operating lease right-of-use asset and operating lease liabilities, respectively.

During the year ended December 31, 2019, the Company did not enter into any significant new operating or financing leases.

As of December 31, 2020, the Company did not have any significant operating or financing leases that had not yet commenced.

During the years ended December 31, 2018 and 2017 , the Company incurred rent expense of $17.3 million , respectively, under ASC Topic 840, Leases , which was included as a component of selling, general and administrative expenses in the consolidated statements of comprehensive income (loss).

During the year ended December 31, 2018, the Company incurred rent expense of $ 17.3 million, under ASC Topic 840, Leases , which was included as a component of selling, general and administrative expenses in the consolidated statements of comprehensive income (loss).

PROPERTY AND EQUIPMENT

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

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Infusion pumps $ 31,678 $ 30,416

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Assets under development 10,793 14,150

Less accumulated depreciation

205,639 211,820

accumulated depreciation 84,490 78,622

Property and equipment, net $ 121,149 $ 133,198

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Year ended December 31,

2020 2019 2018

Depreciation expense in cost of revenue $ 6,586 $ 4,179 $ 2,993

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A business casualty loss was recorded as a component of operating costs and expenses within the consolidated statements of comprehensive income (loss).

During the year ended December 31, 2019 , $0.6 million in

proceeds were received related to recovery of property and equipment.

During the year ended December 31, 2019, $ 0.6 million in proceeds were received related to recovery of property and equipment.

These proceeds resulted in a gain on business casualty loss of $ 0.6 million recorded as a component of selling, general, and administrative expenses in the consolidated statements of comprehensive income (loss) during the year ended December 31, 2019.

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and the results of testing for recoverability of a significant asset group within a reporting unit.

A qualitative impairment analysis was performed in the fourth quarter of 2019 to assess whether it is more likely than not that the fair value of the Company’s reporting unit is less than its carrying value.

A qualitative impairment analysis was performed in the fourth quarter of 2020 and 2019 to assess whether it is more likely than not that the fair value of the Company’s reporting unit is less than its carrying value.

The Company assessed relevant events and circumstances including macroeconomic conditions, industry and market considerations, overall financial performance, entity-specific events, and changes in the Company’s stock price.

The Company determined that there was no goodwill impairment in 2019.

A quantitative impairment analysis was performed in the fourth quarter of 2018 and 2017 , and the Company estimated the fair value of its reporting unit using an income approach.

The Company determined that there was no goodwill impairment in 2020 or 2019.

A quantitative impairment analysis was performed in the fourth quarter of 2018, and the Company estimated the fair value of its reporting unit using an income approach.

The income approach requires management to estimate a number of factors for its reporting unit, including projected future operating results, economic projections, anticipated future cash flows, and discount rates.

The fair value determined using the income approach was then compared to marketplace fair value data from within a comparable industry grouping for reasonableness.

The Company determined that there was no goodwill impairment in 2018 or 2017 .

The Company determined that there was no goodwill impairment in 2018.

The determination of fair value and the allocation of that value to individual assets and liabilities within the reporting unit requires the Company to make significant estimates and assumptions.

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Balance at December 31, 2017 $ 627,392

Acquisitions 5,077

Balance at December 31, 2018 $ 632,469

Acquisitions 793,073

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

There was no change in the carrying amount of goodwill for the year ended December 31, 2017 .

Purchase accounting adjustments 3,068

Balance at December 31, 2020 $ 1,428,610

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

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Gross intangible assets:

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Expected future amortization expense for intangible assets recorded at December 31, 2020, is as follows (in thousands):

2021 $ 32,015

2026 and beyond 205,685

The weighted average amortization period of intangible assets by class and in total as of December 31, 2019 are as follows:

17.1 years for referral sources, 4.2 years for trademarks/names, 1.5 years for other amortizable intangible assets, and 15.9 years for total intangible assets.

EQUITY-METHOD INVESTMENTS

The Company’s two equity-method investments totaled $17.0 million and $14.6 million as of December 31, 2019 and 2018 , respectively, and are included in other noncurrent assets in the accompanying consolidated balance sheets.

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

For the years ended December 31, 2019 , 2018 and 2017 , the Company’s proportionate share of earnings in its equity-method investees was $2.8 million , $1.0 million and $2.2 million , respectively.

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

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

The Company received a capital distribution from this investment of $0.5 million , $2.0 million and $1.3 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The following presents condensed financial information as of December 31, 2019 and December 31, 2018 and for the years ended December 31, 2019 , 2018 and 2017 (in thousands):

Consolidated statements of comprehensive income (loss) data:

Year Ended December 31,

Cost of revenue

Equity in net income

Consolidated balance sheet data:

As of December 31,

Current assets

Noncurrent assets

Current liabilities

Noncurrent liabilities

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

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

The following presents condensed financial information as of December 31, 2019 and 2018 and for the years ended December 31, 2019 , 2018 and 2017 , (in thousands):

Consolidated statements of comprehensive income (loss) data:

Year Ended December 31,

Cost of revenue

Equity in net income

Consolidated balance sheet data:

As of December 31,

Current assets

Noncurrent assets

Current liabilities

Noncurrent liabilities

Total $ 351,052

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

Principal Amount

Debt Issuance Costs

Principal Amount Discount Debt Issuance Costs Net Balance

ABL Facility $ — $ — $ — $ —

First Lien Term Loan 915,750 ( 7,253 ) ( 19,710 ) 888,787

Second Lien Notes 245,781 ( 6,102 ) ( 4,113 ) 235,566

$ 1,161,531 $ ( 13,355 ) $ ( 23,823 ) 1,124,353

current portion ( 9,250 )

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Long-term debt consisted of the following as of December 31, 2019 (in thousands):

Principal Amount

Debt Issuance Costs

Previous Revolving Credit Facility

Previous First Lien Term Loan

Previous Second Lien Term Loan

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

current portion ( 9,250 )

Total long-term debt $ 1,277,246

Retired Debt Obligations — During 2015, Option Care entered into two credit arrangements administered by Bank of America, N.A.

The agreements provided for up to $645.0 million in senior secured credit facilities through an $80.0 million revolving credit facility (the “Previous Revolving Credit Facility”), a $415.0 million first lien term loan (the “Previous First Lien Term Loan”), and a $150.0 million second lien term loan (the “Previous Second Lien Term Loan”, and together with the Previous First Lien Term Loan, the “Previous Term Loans”, and the Previous Term Loans, together with the Previous Revolving Credit Facility, the “Previous Credit Facilities”).

Amounts borrowed under the credit agreements were secured by substantially all of the assets of the Company.

The Company incurred an original issue discount in conjunction with entering into the Previous First Lien Term Loan of $2.1 million , and also incurred an aggregate of $21.1 million in debt issuance costs to obtain the two credit agreements.

These costs were recorded as a reduction to the carrying amount in the consolidated balance sheets and were being amortized over the term of the related debt using the effective interest method for the Previous Term Loans and the straight-line method for the Previous Revolving Credit Facility.

On August 6, 2019, the Company repaid the outstanding balance of Previous Term Loans and retired the outstanding Previous Credit Facilities by entering into two new credit arrangements and a notes indenture, described below under “New Debt Obligations”.

At the time of repayment, the outstanding balance of the Previous First Lien Term Loan was $393.8 million , which was comprised of principal of $399.4 million , net of debt issuance costs of $0.9 million and deferred financing costs of $4.7 million .

The balance of the Previous Second Lien Term Loan was $145.8 million , which was comprised of principal of $150.0 million , net of deferred financing costs of $4.2 million .

Proceeds from the two new credit arrangements and notes indenture were also used, in part, to repay the outstanding debt of BioScrip as of the Merger Date of $575.0 million .

Retired Debt Obligations — Prior to the Merger, the Company had two credit arrangements that provided for up to $ 645.0 million in senior secured credit facilities through an $ 80.0 million revolving credit facility (the “Previous Revolving Credit Facility”), a $ 415.0 million first lien term loan (the “Previous First Lien Term Loan”), and a $ 150.0 million second lien term loan (the “Previous Second Lien Term Loan”, and together with the Previous First Lien Term Loan, the “Previous Term Loans”, and the Previous Term Loans, together with the Previous Revolving Credit Facility, the “Previous Credit Facilities”).

The principal balance on the Previous First Lien Term Loan was repayable in quarterly installments of $ 1.0 million.

There were no quarterly principal payments required for the Previous Second Lien Term Loan.

Interest was payable monthly for the Previous First Lien Term Loan and quarterly for the Previous Second Lien Term Loan.

The interest rate on the Previous First Lien Term Loan was 6.10% as of December 31, 2018 and the interest rate on the Previous Second Lien Term Loan was 11.15% as of December 31, 2018 .

The weighted average interest rate paid on the Previous First Lien Term Loan was 6.20% and 6.30% for the years ended December 31, 2019 and 2018 , respectively, prior to the retirement of the debt obligations.

The weighted average interest paid on the Previous Second Lien Term Loan was 11.36% and 10.80% for the years ended December 31, 2019 and 2018 , respectively, prior to the retirement of the debt obligations.

The weighted average interest rate paid on the Previous First Lien Term Loan was 6.20 % for the year ended December 31, 2019, prior to the retirement of the debt obligations.

The weighted average interest paid on the Previous Second Lien Term Loan was 11.36 % for the year ended December 31, 2019, prior to the retirement of the debt obligations.

New Debt Obligations — In conjunction with the Merger, the Company entered into an asset-based-lending revolving credit facility administered by Bank of America, N.A.

The Company also issued senior secured second lien PIK toggle floating rate notes due 2027 (the “Second Lien Notes”) under an indenture with Ankura Trust Company, LLC.

The two new credit agreements and the indenture were entered into on August 6, 2019 and provide for up to $1,475.0 million in senior secured credit facilities through a $150.0 million asset-based-lending revolving credit facility (the “ABL Facility”), a $925.0 million first lien term loan (the “First Lien Term Loan”, and together with the ABL Facility, the “Loan Facilities”), and a $400.0 million issuance of Second Lien notes.

The ABL Facility provides for borrowings up to $150.0 million , which matures on August 6, 2024 .

The ABL Facility bears interest at a per annum rate that is determined by the Company’s periodic selection of rate type, either the Base Rate or the Eurocurrency Rate.

Interest on the ABL Facility is charged on Base Rate loans at Base Rate, as defined, 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 credit agreement.

The two new credit agreements and the indenture were entered into on August 6, 2019 and initially provided for up to $ 1,475.0 million in senior secured credit facilities through a $ 150.0 million asset-based-lending revolving credit facility (the “ABL Facility”), a $ 925.0 million first lien term loan (the “First Lien Term Loan”, and together with the ABL Facility, the “Loan Facilities”), and a $ 400.0 million issuance of Second Lien Notes.

The ABL Facility initially provided for borrowings up to $ 150.0 million, which matures on August 6, 2024.

During the year ended December 31, 2020, the Company increased the borrowing capacity of its ABL Facility from $ 150.0 million to $ 175.0 million.

The ABL Facility bears interest at a per annum rate initially provided that is determined by the Company’s periodic selection of rate type, either the Base Rate or the Eurocurrency Rate.

Interest on the ABL Facility is charged on Base Rate loans at the greater of Base Rate, as defined, or 0.25 % 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 credit agreement.

Interest on the ABL Facility is charged on Eurocurrency Rate Loans at the Eurocurrency Rate, as defined, plus 2.25 % to 2.75 %, depending on the historical excess availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement.

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Borrowings under the ABL Facility are secured by a first priority security interest in the Company’s and each of its subsidiaries’ inventory, accounts receivable, cash, deposit accounts and certain assets and property related thereto (the “ABL Priority Collateral”), in each case subject to certain exceptions, and a third priority security interest in the Term Loan Priority Collateral, as defined below.

The Company had no outstanding borrowings under the ABL Facility at December 31, 2019 .

The Company had no outstanding borrowings under the ABL Facility at December 31, 2020 and 2019.

The Company had $ 9.6 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL of $ 165.4 million as of December 31, 2020.

The principal balance of the First Lien Term Loan is repayable in quarterly installments commencing in March 2020 of $2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026 .

The principal balance of the First Lien Term Loan is repayable in quarterly installments which commenced in March 2020 of $ 2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026.

Interest on the First Lien Term Loan is payable monthly on Base Rate loans at Base Rate, as defined, plus 3.25 % to 3.50 %, depending on the Company’s leverage ratio.

Interest 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 6.20% as of December 31, 2019 .

The interest rate on the First Lien Term Loan was 4.40 % and 6.20 % as of December 31, 2020 and 2019, respectively.

The weighted average interest rate incurred was 5.09 % for the year ended December 31, 2020.

The weighted average interest rate incurred was 6.47 % for the period August 6, 2019 through December 31, 2019.

1 unchanged sentence

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 the London Interbank Offered Rate (“LIBOR”), plus 8.75% .

Interest on the Second Lien Notes is payable quarterly and is at London Interbank Offered Rate (“LIBOR”), plus 8.75 %.

The Company elected to pay-in-kind (“PIK”) the first quarterly interest payment, due in November 2019, which resulted in the Company capitalizing $ 12.3 million in interest to the principal balance on the interest payment date.

In connection with the PIK election, the Company was charged an additional 1.00% in interest expense on the first quarterly interest payment.

The interest rate on the Second Lien Notes was 10.66% as of December 31, 2019 .

The Company also elected to PIK the quarterly interest payment due in August 2020, which resulted in the Company capitalizing $ 7.5 million in interest expense to the principal balance of the Second Lien Notes on the interest payment date.

In connection with the PIK elections, the Company was charged an additional 1.00 % in interest expense on those quarterly interest payments.

The interest rate on the Second Lien Notes was 8.98 % and 10.66 % as of December 31, 2020 and 2019.

The weighted average interest incurred was 9.39 % for the year ended December 31, 2020.

The weighted average interest incurred was 11.45 % for the period August 6, 2019 through December 31, 2019.

The Company assessed whether the repayment of the Previous Term Loans and subsequent issuance of the First Lien Term Loan and the Second Lien Notes resulted in an insubstantial modification or an extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows:

During the year ended December 31, 2020, the Company completed a public offering of stock for proceeds of $ 118.9 million.

Those proceeds, along with additional cash on hand, were used to prepay $ 174.0 million of the Second Lien Notes, which is reflected as a cash outflow from financing activities in the Company’s consolidated statements of cash flows.

The Company recognized a loss on extinguishment of debt of $ 11.5 million, of which $ 3.5 million related to the prepayment penalty and $ 8.0 million related to deferred financing fees which were written off upon extinguishment.

The $ 3.5 million prepayment penalty was reflected as a cash outflow from financing activities in the Company’s consolidated statements of cash flows.

The loss on extinguishment was recorded as a component of other, net in the Company’s consolidated statements of comprehensive income (loss).

See Note 16, Stockholders’ Equity , for further discussion of the public offering.

During the year ended December 31, 2019, the Company assessed whether the repayment of the Previous Term Loans and subsequent issuance of the First Lien Term Loan and the Second Lien Notes resulted in an insubstantial modification or an extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows:

(i) Lenders participating in both the Previous Credit Facilities and the new Loan Facilities and Second Lien Notes;

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Further, $ 21.3 million of the total fees incurred of $ 52.6 million was netted against the $ 981.1 million of proceeds from debt as a component of the cash flows from financing activities, $ 30.0 million was presented as deferred financing costs as a component of cash flows from financing activities, and the remaining $ 1.3 million was included in cash flows from operating activities.

The Company recognized a loss on extinguishment of debt of $ 5.5 million , of which $3.2 million related to debt issue costs incurred with the issuance of the Loan Facilities and Second Lien Notes, as discussed above, and $2.3 million related to deferred financing fees on the Previous Credit Facilities, which were written off upon extinguishment.

During the year ended December 31, 2019, the Company recognized a loss on extinguishment of debt of $ 5.5 million, of which $ 3.2 million related to debt issue costs incurred with the issuance of the Loan Facilities and Second Lien Notes, as discussed above, and $ 2.3 million related to deferred financing fees on the Previous Credit Facilities, which were written off upon extinguishment.

All remaining deferred financing fees related to the Previous Credit Facilities of $ 7.6 million were attributed to modified loans, which are capitalized and will be amortized over the remaining term of the Loan Facilities and Second Lien Notes.

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

Year Ending December 31,

Minimum Payments

Year Ending December 31, Minimum Payments

2026 and beyond 1,115,281

Total $ 1,161,531

In January 2021, the Company entered into an amendment on the First Lien Term Loan, which resulted in an additional $ 250.0 million of incremental First Lien Term Loan indebtedness being issued, which was used to prepay the remaining $ 245.8 million outstanding balance of the Second Lien Notes.

See Note 19, Subsequent Events , for further discussion.

During the year ended December 31, 2020, the Company engaged in hedging activities to limit its exposure to changes in interest rates.

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The following table presents the estimated fair values of the Company’s debt obligations as of December 31, 2020 (in thousands):

Financial Instrument

Carrying Value as of December 31, 2019

Markets for Identical Item (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Financial Instrument Carrying Value as of December 31, 2020 Markets for Identical Item (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

First Lien Note Facility $ 888,787 $ — $ 913,461 $ —

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Level 3 Measurements

Previous Term Loans fair value as of January 1, 2019

Change in fair value

Repayments of debt principal

Retirements of Previous Term Loans

Issuance of Second Lien Notes as of August 6, 2019

Second Lien Notes fair value as of January 1, 2020 $ 411,119

Principal prepayment ( 174,000 )

Interest rate PIK 7,525

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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 LIBOR through August 2021.

The second interest rate swap for $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 payment indexed to three-month LIBOR through November 2020.

In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges , the Company has determined that the hedges are perfectly effective.

In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges , the Company has determined that the $ 911.1 million designated cash flow hedge is perfectly effective.

The remaining $ 13.9 million notional amount of the first interest rate swap is not designated as a hedging instrument.

The second interest rate swap for $ 400.0 million notional was effective in November 2019 and was designated as a cash flow hedge against the underlying interest rate on the Second Lien Notes interest payment indexed to three-month LIBOR through November 2020.

In May 2020, the Company elected to PIK the Second Lien Notes’ 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 consolidated statements of comprehensive income (loss).

The gains and losses associated with the $ 400.0 million notional swap were recognized in net income (loss) through interest expense until the swap expired in November 2020.

See Note 11, Indebtedness , for further discussion of the PIK.

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

Fair value - Derivatives in asset position

Balance Sheet Caption

December 31, 2019

December 31, 2018

Interest rate caps designated as cash flow hedges

Prepaid expenses and other current assets

Total derivatives

Fair value - Derivatives in liability position

Balance Sheet Caption

December 31, 2019

December 31, 2018

Interest rate swaps designated as cash flow hedges

Accrued expenses and other current liabilities

Interest rate swaps designated as cash flow hedges

Other noncurrent liabilities

Interest rate swaps not designated as hedges

Other noncurrent liabilities

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

Interest rate swaps designated as cash flow hedges Accrued expenses and other current liabilities $ 11,172 $ 1,275

Interest rate swaps not designated as hedges Accrued expenses and other current liabilities 170 —

Interest rate swaps designated as cash flow hedges Other noncurrent liabilities — 5,920

Interest rate swaps not designated as hedges Other noncurrent liabilities — 90

Total derivatives $ 11,342 $ 7,285

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 $13.9 million notional amount not designated as a hedging instrument are recognized in net income through interest expense.

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 consolidated statements of comprehensive income (loss) (in thousands):

Years Ended December 31,

Derivative 2020 2019 2018

Interest rate caps designated as cash flow hedges $ — $ ( 1,103 ) $ 1,008

Interest rate swaps designated as cash flow hedges ( 7,723 ) ( 7,195 ) —

Interest rate swaps that discontinued hedge accounting 3,746 — —

Total $ ( 3,977 ) $ ( 8,298 ) $ 1,008

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

Year Ended December 31,

Income Statement Caption

Interest rate caps designated as cash flow hedges

Interest expense

Interest rate swaps designated as cash flow hedges

Interest expense

Interest rate swaps not designated as hedges

Interest expense

Derivative Income Statement Caption 2020 2019 2018

Interest rate caps designated as cash flow hedges Interest expense $ — $ ( 125 ) $ 300

Interest rate swaps designated as cash flow hedges Interest expense ( 12,799 ) ( 115 ) —

Interest rate swaps not designated as hedges Interest expense ( 34 ) ( 92 ) —

Interest rate swaps that discontinued hedge accounting Interest expense ( 3,746 ) — —

Total $ ( 16,579 ) $ ( 332 ) $ 300

The Company expects to reclassify $ 11.2 million of total interest rate costs from accumulated other comprehensive loss against interest expense during the next 12 months.

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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 12, Indebtedness , for further discussion on the carrying amount and fair value of the First Lien Term Loan.

See Note 11, 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 12, Indebtedness , for further discussion on the carrying amount and fair value of the Second Lien Notes.

See Note 11, Indebtedness , for further discussion of the carrying amount and fair value of the Second Lien Notes.

Interest rate swaps :

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

See Note 13, Derivative Instruments , for further discussion on the fair value of the interest rate swaps.

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

Interest rate caps :

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

See Note 13, Derivative Instruments , for further discussion on the fair value of the interest rate caps.

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

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

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The 2018 plan is administered by the Company’s Compensation Committee, a standing committee of the Board of Directors.

A total of 16,406,939 shares ( 4,101,735 equivalent shares after adjusting for the one share for four share reverse stock split) of common stock were initially authorized for issuance under the 2018 Plan.

Stock Options — Options granted under the 2018 Plan typically vest over a three -year period and, in certain instances, may fully vest upon a change in control of the Company.

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

Stock Options — Options granted under the 2018 Plan typically vest over a three - or four-year period and, in certain instances, may fully vest upon a change in control of the Company.

The options also typically have an exercise price that may not be less than 100% of its fair market value on the date of grant and are exercisable seven to ten years after the date of grant, subject to earlier termination in certain circumstances.

Compensation expense from stock options is recognized on a straight-line basis over the requisite service period.

During the year ended December 31, 2019 , the Company recognized compensation expense related to stock options of $0.4 million .

During the years ended December 31, 2020 and 2019, the Company recognized compensation expense related to stock options of $ 0.4 million and $ 0.4 million.

The Company did not recognize any compensation expense related to stock options prior to the Merger.

The Company did no t grant any options during the year ended December 31, 2019 .

A summary of stock option activity from the Merger Date through December 31, 2019 was as follows (all amounts adjusted for the one share for four share reverse stock split):

Weighted Average Exercise Price

Aggregate Intrinsic Value (thousands)

Weighted Average Remaining Contractual Life

The weighted average grant-date fair value of options granted during the year ended December 31, 2020 was $ 5.94 .

The Company did no t grant any options during the years ended December 31, 2019 or 2018.

The fair value of stock options granted was estimated on the date of grant using a Black-Scholes pricing model.

The assumptions used to compute the fair value of options for the year ended December 31, 2020 are as follows:

Expected volatility 45.7 %

Risk-free interest rate 0.53 %

Expected life of options 6.3 years

Dividend rate —

A summary of stock option activity for the year ended December 31, 2020 is as follows:

Options Weighted Average Exercise Price Aggregate Intrinsic Value (thousands) Weighted Average Remaining Contractual Life

Balance at December 31, 2019 644,975 $ 15.36 $ 2,754

Acquired in Merger

Granted 204,928 $ 13.34 $ 471

Exercised ( 266,065 ) $ 7.63 $ 2,548

Forfeited and expired ( 171,007 ) $ 26.36 $ 88

Balance at December 31, 2019

Exercisable at December 31, 2019

Balance at December 31, 2020 412,831 $ 14.77 $ 1,320 6.7 years

Exercisable at December 31, 2020 197,735 $ 16.51 $ 789 4.2 years

During the year ended December 31, 2020, shares were surrendered to satisfy tax withholding obligations on the exercise of stock options with a cost basis of $ 2.7 million.

During the year ended December 31, 2019, shares were surrendered to satisfy tax withholding obligations on the exercise of stock options with a cost basis of $ 0.4 million, which are all held as treasury stock as of December 31, 2020.

During the year ended December 31, 2020, $ 0.4 million of cash was received from stock option exercises under share-based payment arrangements.

No cash was received from stock option exercises under share-based payment arrangements for the years ended December 31, 2019 or 2018.

The maximum term of stock options under these plans is ten years .

Options outstanding as of December 31, 2019 expire on various dates ranging from February 2020 through November 2028.

The following table outlines the outstanding and exercisable stock options as of December 31, 2019 (all amounts adjusted for the one share for four share reverse stock split):

Options Outstanding

Options Exercisable

Range of Option Exercise Price

Outstanding Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Options Exercisable

Weighted Average Exercise Price

Options outstanding as of December 31, 2020 expire on various dates ranging from January 2021 through March 2030.

The following table outlines the outstanding and exercisable stock options as of December 31, 2020:

Options Outstanding Options Exercisable

Range of Option Exercise Price Outstanding Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Options Exercisable Weighted Average Exercise Price

$ 0.00 - $ 8.24

9,901 $ 6.52 6.1 years 9,901 $ 6.52

$ 8.24 - $ 16.52

345,180 $ 12.08 7.5 years 130,084 $ 10.27

$ 16.52 - $ 24.76

25,500 $ 22.61 2.7 years 25,500 $ 22.61

$ 24.76 - $ 33.00

15,000 $ 30.41 2.3 years 15,000 $ 30.41

$ 33.00 - $ 41.28

— $ — 0.0 years — $ —

$ 41.28 - $ 49.52

12,500 $ 44.16 1.3 years 12,500 $ 44.16

$ 49.52 - $ 57.76

3,500 $ 56.24 2.0 years 3,500 $ 56.24

$ 57.76 - $ 66.00

— $ — 0.0 years — $ —

$ 66.00 - $ 74.28

1,250 $ 66.52 2.6 years 1,250 $ 66.52

All options 412,831 197,735

As of December 31, 2020, there was $ 1.0 million of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of 1.8 years.

Restricted Stock — Restricted stock grants subject solely to an employee’s continued service with the Company generally will become fully vested within one to three years from the grant date and, in certain instances, may fully vest upon a change in control of the Company.

Restricted Stock — Restricted stock grants subject solely to an employee’s continued service with the Company generally will become fully vested within one to four years from the grant date and, in certain instances, may fully vest upon a change in control of the Company.

Restricted stock grants subject solely to a Director’s continued service with the Company generally will become fully vested within one year from the date of grant.

Compensation expense from restricted stock is recognized on a straight-line basis over the requisite service period.

During the year ended December 31, 2019 , the Company recognized compensation expense related to restricted stock awards of $1.9 million .

During the years ended December 31, 2020 and 2019, the Company recognized compensation expense related to restricted stock awards of $ 2.3 million and $ 1.9 million, respectively.

The Company did not recognize any compensation expense related to restricted stock awards prior to the Merger.

A summary of restricted stock award activity from the Merger Date through December 31, 2019 was as follows:

Restricted Stock

Weighted Average Grant Date Fair Value

A summary of restricted stock award activity for the year ended December 31, 2020 is as follows:

Restricted Stock Weighted Average Grant Date Fair Value

Balance at December 31, 2019 231,562 $ 10.68

Acquired in Merger (1)

Granted 490,557 $ 13.32

Vested and issued ( 120,782 ) $ 12.15

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Balance at December 31, 2020 549,650 $ 13.26

(1) Weighted average grant date fair value was calculated as $2.67 stock price on the August 6, 2019 Merger Date, multiplied by four to adjust for the one share for four share reverse stock split.

During the year ended December 31, 2020, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $ 0.3 million.

During the year ended December 31, 2019, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $ 2.1 million, of which $ 2.0 million is held as treasury stock as of December 31, 2019.

As of December 31, 2020, there was $ 6.0 million in unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.7 years.

The total fair value of restricted stock awards vested during the years ended December 31, 2019 , 2018 and 2017 was $1.9 million , $0 and $0 , respectively.

The total fair value of restricted stock awards vested during the years ended December 31, 2020, 2019 and 2018 was $ 1.5 million, $ 1.9 million and $ 0 , respectively.

HC I Incentive Units — Beginning in October 2015, HC I implemented an equity incentive plan for certain officers and employees of the Company.

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During the years ended December 31, 2020, 2019 and 2018, the Company recognized compensation expense related to the HC I incentive units of $ 0.2 million, $ 1.9 million and $ 2.1 million, respectively.

The fair value of each award was determined using a Monte-Carlo simulation with the following weighted average assumptions used for the years ended December 31, 2019 and 2018 :

No awards were issued during the year ended December 31, 2020.

The fair value of each award was determined using a Monte-Carlo simulation with the following weighted average assumptions:

Risk-free interest rate (1) 2.25 %

Average time to liquidity (years) (2)

Average time to liquidity (years) (2) 2.1 years

Volatility (3) 47.00 %

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STOCKHOLDERS’ EQUITY

As further discussed in Note 20, Subsequent Events , on February 3, 2020, the Company completed a one share for four share reverse stock split.

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

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 consolidated financial statements, which was retrospectively applied to all periods presented in the financial statements.

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

During the year ended December 31, 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.

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.

Also, during the year ended December 31, 2020, HC I completed an additional secondary offering of 10,600,000 shares of common stock.

Following the offerings, HC I holds approximately 63.6 % of the common stock of the Company.

The Company used the proceeds from the offering, along with additional cash on hand, to repay $ 174.0 million on the principal balance of its Second Lien Notes outstanding.

See Note 11, Indebtedness , for further discussion of the repayment of the Second Lien Notes.

2017 Warrants — Prior to the Merger, BioScrip issued warrants to certain debt holders pursuant to a Warrant Purchase Agreement dated as of June 29, 2017.

In conjunction with the Merger, the 2017 Warrants were amended to entitle the purchasers of the warrants to purchase 8.3 million shares ( 2.1 million equivalent shares after adjusting for the reverse stock split) of common stock.

The 2017 Warrants have a 10 -year term and an exercise price of $2.00 per share ( $8.00 per share after adjusting for the reverse stock split), and may be exercised by payment of the exercise price in cash or surrender of shares of common stock into which the 2017 Warrants are being converted in an aggregate amount sufficient to pay the exercise price.

In conjunction with the Merger, the 2017 Warrants were amended to entitle the purchasers of the warrants to purchase 2.1 million shares of common stock.

The 2017 Warrants have a 10-year term and an exercise price of $ 8.00 per share and may be exercised by payment of the exercise price in cash or surrender of shares of common stock into which the 2017 Warrants are being converted in an aggregate amount sufficient to pay the exercise price.

The 2017 Warrants are classified as equity instruments, and the fair value of these warrants of $ 14.1 million was recorded in paid-in capital as of the Merger Date.

Subsequent to the Merger Date through December 31, 2019, warrant holders exercised warrants to purchase 2.6 million shares ( 0.7 million equivalent shares after adjusting for the reverse stock split) of common stock.

During the years ended December 31, 2020 and 2019, warrant holders exercised warrants to purchase 0.0 million and 0.7 million shares of common stock.

No proceeds were received from these exercises as the warrant holders elected to surrender shares to pay the exercise price.

At December 31, 2019, the remaining warrant holders are entitled to purchase 5.7 million shares ( 1.4 million equivalent shares after adjusting for the reverse stock split) of common stock.

2015 Warrants — Prior to the Merger, BioScrip issued warrants pursuant to a Common Stock Warrant Agreement dated as of March 9, 2015 which entitle the holders to purchase 3.7 million shares ( 0.9 million equivalent shares after adjusting for the reverse stock split) of common stock.

The 2015 Warrants have a 10 -year term and have exercise prices in a range of $5.17 per share to $6.45 per share ( $20.68 per share to $25.80 per share after adjusting for the reverse stock split).

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

2015 Warrants — Prior to the Merger, BioScrip issued warrants pursuant to a Common Stock Warrant Agreement dated as of March 9, 2015 which entitle the holders to purchase 0.9 million shares of common stock.

The 2015 Warrants have a 10-year term and have exercise prices in a range of $ 20.68 per share to $ 25.80 per share.

The 2015 Warrants were assumed by the Company in conjunction with the Merger and are classified as equity instruments, and the fair value of these warrants of $ 4.6 million was recorded in paid in capital as of the Merger Date.

Home Solutions Restricted Stock — In conjunction with BioScrip’s 2016 acquisition of Home Solutions, Inc., 7.1 million ( 1.8 million equivalent shares after adjusting for the reverse stock split) restricted shares of common stock were issued, of which 3.1 million ( 0.8 million equivalent shares after adjusting for the reverse stock split) of these units vest upon the closing price of the Company’s common stock averaging at or above $4.00 per share ( $16.00 per share after adjusting for the reverse stock split) over 20 consecutive trading days prior to December 31, 2019 and 4.0 million ( 1.0 million equivalent shares after adjusting for the reverse stock split) of these units vest upon the closing price of the Company’s common stock averaging at or above $5.00 per share ( $20.00 per share after adjusting for the reverse stock split) over 20 consecutive trading days prior to December 31, 2019 .

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 , 28,193,428 common shares ( 7,048,357 equivalent shares after adjusting for the reverse stock split) 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 28,193,428 common

shares ( 7,048,357 equivalent shares after adjusting for the reverse stock split) held in escrow will be returned to the Company and canceled.

As of December 31, 2019 , the Home Solutions restricted stock remained in escrow pending final resolution of this matter.

Treasury Stock — During the year ended December 31, 2019 , 1,160,469 shares ( 290,117 equivalent shares after adjusting for the reverse stock split) were surrendered to satisfy tax withholding obligations on the exercise of stock options and the vesting of restricted stock awards with a cost basis of $2.5 million , of which $2.4 million remains held in treasury as of December 31, 2019 .

At December 31, 2019 , the Company held 1,534,886 shares ( 383,722 equivalent shares after adjusting for the reverse stock split) of treasury stock.

No treasury stock existed prior to the Merger.

Preferred Stock — In conjunction with the Merger, all legacy BioScrip preferred stock was settled, and no preferred stock is outstanding as of December 31, 2019 .

There was no preferred stock existing as of December 31, 2018 .

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 were set aside to prevent dilution related to the vesting of the Home Solutions restricted stock.

During the year ended December 31, 2020, this matter was resolved with no common shares being issued to Home Solutions, Inc., and the 7,048,357 shares, at $ 0.0001 par value, set aside were cancelled as unvested and removed from the Company’s common shares issued and outstanding.

Treasury Stock — During the year ended December 31, 2019, 290,117 shares were surrendered to satisfy tax withholding obligations on the exercise of stock options and the vesting of restricted stock awards with a cost basis of $ 2.5 million, of which $ 2.4 million remains held in treasury as of December 31, 2020 and 2019.

At December 31, 2020 and 2019, the Company held 383,722 shares of treasury stock.

Preferred Stock — In conjunction with the Merger, all legacy BioScrip preferred stock was settled, and no preferred stock is outstanding as of December 31, 2020 or 2019.

RELATED-PARTY TRANSACTIONS

Management Services — In conjunction with the Option Care Acquisition, the Company entered into two separate Management Services Agreements with Madison Dearborn Partners VI-B, L.P.

Management Services — In conjunction with the Option Care acquisition from Walgreen Co.

in 2015, the Company entered into two separate Management Services Agreements with Madison Dearborn Partners VI-B, L.P.

and Walgreen Co.

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Following the close of the Merger, both Management Services Agreements were terminated.

The Company did not incur any management services expense during the year ended December 31, 2020.

In 2019, prior to the Merger, the Company incurred $ 1.5 million of management services expense, which has been reflected as a component of selling, general and administrative expense in the consolidated statements of comprehensive income (loss) for the year ended December 31, 2019.

During the years ended December 31, 2018 and 2017 , management services expense of $2.0 million was recorded as a component of selling, general, and administrative expense in the consolidated statements of comprehensive income (loss).

During the year ended December 31, 2018, management services expense of $ 2.0 million was recorded as a component of selling, general, and administrative expense in the consolidated statements of comprehensive income (loss).

Management Equity Ownership Plan — In October 2015, HC I implemented an equity ownership and incentive plan for certain officers and employees of Option Care.

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These loans were treated as a shareholder contribution in Option Care.

For the year ended December 31, 2019 , 2018 and 2017 , $0 , $0.4 million , and $0 , respectively, were credited to paid-in capital related to HC I membership units purchased with a loan from Option Care.

For the years ended December 31, 2020, 2019 and 2018, $ 0 , $ 0 and $ 0.4 million, respectively, were credited to paid-in capital related to HC I membership units purchased with a loan from Option Care.

There were no shareholder redemptions during the year ended December 31, 2020.

During the year ended December 31, 2019, shareholder redemptions totaled $ 2.4 million, comprised of a cash distribution to HC I of $ 2.0 million and notes redeemed of $ 0.4 million.

There were no shareholder redemptions during the year ended December 31, 2018.

During the year ended December 31, 2017 , shareholder redemptions totaled $0.1 million for notes redeemed by the officers, which was treated as a shareholder redemption that reduced paid-in-capital.

During the year ended December 31, 2019, prior to the Merger, Option Care sold its notes receivable from management, along with all accrued interest expense, to a third-party bank.

Option Care received cash proceeds of $ 1.3 million, which represented payment of $ 1.1 million in outstanding notes receivable from management and payment of $ 0.2 million in accrued interest expense.

Notes receivable from management of $0 and $1.6 million remained outstanding as of December 31, 2019 and 2018 , respectively.

The notes receivable from management and associated interest receivable are recorded in management notes receivable as a reduction to equity on the Company’s consolidated balance sheets as of December 31, 2018 .

There were no notes receivable from management outstanding as of December 31, 2020 and 2019.

As of December 31, 2018, notes receivable from management and associated interest receivable of $ 1.6 million are recorded in management notes receivable as a reduction to equity in the Company’s consolidated statements of stockholders’ equity.

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.

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

The Company had amounts due from its joint ventures of $ 2.4 million as of December 31, 2020.

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

The Company also had amounts due to its joint ventures of $0.9 million and amounts due from its joint ventures of $0.1 million as of December 31, 2018 .

These payables were included in accrued expenses and other current liabilities in the accompanying balance sheets and these receivables were included in prepaid expenses and other current assets in the accompanying balance sheets.

These receivables were included in prepaid expenses and other current assets in the accompanying balance sheets and these payables were included in accrued expenses and other current liabilities in the accompanying balance sheets.

These balances primarily relate to cash collections received by the Company on behalf of the joint ventures, offset by certain pharmaceutical inventories purchased by the Company on behalf of the joint ventures.

1 unchanged sentence

A summary of unaudited quarterly financial information for the years ended December 31, 2020 and 2019 is as follows (in thousands except per share amounts).

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year ended December 31, 2019

Operating income (loss)

Loss per share, basic and diluted

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

First Quarter Second Quarter Third Quarter Fourth Quarter

Year ended December 31, 2020

Net revenue $ 705,440 $ 740,848 $ 781,609 $ 804,713

Gross profit 158,029 166,320 174,153 183,762

Operating income 8,648 23,208 34,556 44,343

Net (loss) income $ ( 19,910 ) $ ( 7,668 ) $ 1,663 $ 17,839

(Loss) income per share, basic and diluted

(Loss) earnings per share, basic $ ( 0.11 ) $ ( 0.04 ) $ 0.01 $ 0.10

(Loss) earnings per share, diluted $ ( 0.11 ) $ ( 0.04 ) $ 0.01 $ 0.10

First Quarter Second Quarter Third Quarter Fourth Quarter

Year ended December 31, 2019

Net revenue $ 476,492 $ 497,266 $ 615,880 $ 720,779

Gross profit 98,194 101,390 137,773 175,642

Operating income (loss) 5,438 ( 8,005 ) ( 11,725 ) 13,973

Net loss $ ( 3,712 ) $ ( 13,603 ) $ ( 42,794 ) $ ( 15,811 )

Loss per share, basic $ ( 0.03 ) $ ( 0.10 ) $ ( 0.26 ) $ ( 0.09 )

Loss per share, diluted $ ( 0.03 ) $ ( 0.1 ) $ ( 0.26 ) $ ( 0.09 )

The net loss in the third quarter of 2019 included transaction expenses, integration costs and loss on extinguishment of debt incurred in conjunction with the Merger.

SUBSEQUENT EVENTS

The Company has evaluated whether any subsequent events occurred since December 31, 2019 and noted the following subsequent events:

On February 3, 2020, the reverse stock split became effective.

In connection with the reverse stock split, the Company changed its ticker symbols from “BIOS” to “OPCH” and transferred the Company’s common stock from the Nasdaq Capital Market to the Nasdaq Global Select Market.

The Company has evaluated whether any subsequent events occurred since December 31, 2020 and noted the following subsequent event:

In January 2021, the Company entered into an amendment on the First Lien Term Loan (the “First Lien Credit Agreement Amendment”).

The First Lien Credit Agreement Amendment resulted in an additional $ 250.0 million of incremental First Lien Term Loan indebtedness being issued and reduced the interest rate on all outstanding First Lien Term Loan indebtedness from LIBOR plus 4.25 % to LIBOR plus 3.75 %.

The proceeds of the $ 250.0 million incremental First Lien Term Loan indebtedness were used to prepay the remaining $ 245.8 million outstanding balance of the Second Lien Notes.

In connection with the First Lien Credit Agreement Amendment and prepayment of the Second Lien Notes the Company incurred debt prepayment penalties of $ 4.9 million, third party fees of $ 1.3 million and original issue discount of $ 1.0 million.

Following the First Lien Credit Agreement Amendment, the First Lien Term Loan is repayable in quarterly installments of $ 2.9 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026.

In February 2021, HC I completed a secondary offering of 17,250,000 shares of the Company’s common stock.

Following the offering, HC I holds approximately 54 % of the Company’s common stock.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data