What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-03 · 71 added, 166 removed, 167 unchanged (59% of the section changed)

27 unchanged sentences

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

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

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

and the combined company’s stock, par value $0.0001, was listed on the Nasdaq Global Select Market as of March 31, 2021.

Update on the Impact of the COVID-19 Pandemic

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

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

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

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

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

For the three months ended March 31, 2021, the revenue results reflect flat acute revenues relative to the prior year while chronic revenue had low double-digit growth.

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

The Company’s operations involve the compounding of therapeutic drugs in sterile cleanroom facilities by pharmacists and pharmacy technicians, the transportation of such drugs to the patients’ home or alternate infusion treatment site and the administration of the drug by a licensed healthcare professional.

Due to personal disruption experienced by employees of the Company, the ability to efficiently resource the compounding, delivery and administration of therapies has been negatively impacted given staffing challenges and availability.

This has resulted in higher wage costs in the form of overtime expenditures, migration of clinical resources to additional markets and utilization of contract labor resources.

In addition to direct labor investments, the Company has experienced similar impacts on the indirect support functions, as employees have generally migrated to a virtual, remote establishment.

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

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

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

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

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

Further, to date, the Company experienced no material deceleration in cash collections and collaboration with payers continues to be productive.

The Company anticipates that the pandemic could affect its operations for an extended period;

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

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

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

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

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

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

Merger Integration Execution

The Merger of Option Care and BioScrip into Option Care Health has created an opportunity to realize cost synergies while continuing to drive organic growth in chronic and acute therapies through our expanded national platform.

Option Care Health is well-positioned to leverage the investments in corporate infrastructure and drive economies of scale as a result of the Merger.

The synergy categories are as follows:

• Selling, General and Administrative Expenses Savings.

Merged corporate infrastructure has created significant opportunity for streamlining corporate and administrative costs, including headcount and functional spend.

• Network Optimization.

The previous investments in technology and compounding pharmacies, along with the overlapping geographic footprint, allows for facility rationalization and the optimization of assets.

• Procurement Savings.

The enhanced scale of the Company generates supply chain efficiencies through increased purchasing leverage.

The Company’s platform is also positioned to be the partner of choice for pharmaceutical manufacturers seeking innovative distribution channels and patient support models to access the market.

Since the Merger, we have worked to align our field and sales teams.

We have also made strides at combining our procurement process and contracts, all while continuing to focus on serving our patients.

Patient health is personal to us, which is why, throughout the integration process, we strive to improve and set the standard for quality care that is matched by best-in-class service.

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

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

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

Option Care merged with BioScrip on August 6, 2019.

BioScrip was a national provider of infusion and home care management, who partnered with physicians, hospital systems, payers, pharmaceutical manufacturers and skilled nursing facilities to provide patients access to post-acute care services.

The fair value of purchase consideration transferred, net of cash acquired, on the closing date of $1,087.2 million includes the value of the number of shares of the combined company to be owned by BioScrip shareholders at closing of the Merger, the value of common shares to be issued to certain warrant and preferred shareholders in conjunction with the Merger, the value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger.

For additional information on this transaction, see Note 3, Business Acquisitions, of the unaudited condensed consolidated financial statements.

The Company continued to experience cost inefficiencies during the three months ended March 31, 2021 with respect to clinical labor and other staffing challenges.

The integration-related initiatives that were accelerated during the year ended December 31, 2020 continue to offset the negative impacts resulting from the COVID-19 pandemic.

Further, to date, the Company has experienced no material deceleration in cash collections and collaboration with payers continues to be productive The Company anticipates that the pandemic could affect its operations for an extended period;

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

“Risk Factors” under the caption “The COVID-19 pandemic could adversely impact our business, results of operations, cash flows and financial position” include in our Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion of risks.

Composition of Results of Operations

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

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

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three months ended March 31, 2021 and 2020.

Gross profit represents our net revenue less cost of revenue.

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Equity in earnings of joint ventures consists of our proportionate share of equity earnings or losses from equity investments in two infusion joint ventures with health systems.

Other income (expense) primarily includes miscellaneous non-operating expenses and third-party fees paid in conjunction with debt issuances and debt extinguishments, as they occur.

Other income (expense) primarily includes loss on extinguishment of debt incurred in connection with the 2021 debt refinancing and miscellaneous non-operating expenses.

Income Tax Expense (Benefit) .

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

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

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

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

Results of Operations

The following table presents Option Care Health’s consolidated results of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):

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

2020 (unaudited) 2019 (unaudited) 2020 (unaudited) 2019 (unaudited)

Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue

The following table presents Option Care Health’s consolidated results of operations for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

2021 (unaudited) 2020 (unaudited)

Amount % of Revenue Amount % of Revenue

NET REVENUE $ 759,237 100.0 % $ 705,440 100.0 %

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Total operating expenses 136,379 18.0 % 149,381 21.2 %

OPERATING INCOME (LOSS) 34,556 4.4 % (11,725) (1.9) % 66,412 3.0 % (14,600) (0.9) %

OPERATING INCOME 29,094 3.8 % 8,648 1.2 %

OTHER INCOME (EXPENSE):

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Total other expense (30,677) (4.0) % (27,517) (3.9) %

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

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

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

LOSS BEFORE INCOME TAXES (1,583) (0.2) % (18,869) (2.7) %

INCOME TAX EXPENSE 1,278 0.2 % 1,041 0.1 %

NET LOSS $ (2,861) (0.4) % $ (19,910) (2.8) %

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

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NET COMPREHENSIVE INCOME (LOSS) $ 1,220 0.2 % $ (36,542) (5.2) %

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

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

Three Months Ended September 30,

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Three Months Ended March 31,

(unaudited) (unaudited) Variance

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Gross profit margin 21.8 % 22.4 %

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

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

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

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

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies.

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

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

The slight decrease in gross profit margin was driven by mix shift toward lower profit chronic therapies.

Operating Expenses

Three Months Ended September 30,

Three Months Ended March 31,

(unaudited) (unaudited) Variance

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Total operating expenses $ 136,379 $ 149,381 $ (13,002) (8.7) %

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

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

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

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

Selling, general and administrative expenses decreased for the three months ended March 31, 2021 due to a full period of synergy realization from Merger integration activities as well as spending reductions to offset the impacts of the COVID-19 pandemic.

The decrease in depreciation and amortization was primarily related to completing Merger integration activities during the year ended December 31, 2020.

Other Income (Expense)

Three Months Ended September 30,

Three Months Ended March 31,

(unaudited) (unaudited) Variance

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Total other expense $ (30,677) $ (27,517) $ (3,160) 11.5 %

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

The decrease in interest expense was primarily attributable to the debt refinancing of the first lien term loan and prepayment of the second lien notes during the three months ended March 31, 2021, as well as the reduction in the outstanding debt balance due to retirement of debt obligations which were completed during 2020.

See Note 9, Indebtedness, of the unaudited condensed consolidated financial statements.

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

The increase in other, net relates to the loss on extinguishment of debt of $12.4 million incurred in the first quarter of 2021 in conjunction with the refinancing of the first lien term loan and prepayment of all outstanding principal of the second lien notes.

Income Tax Expense (Benefit)

Three Months Ended September 30,

Three Months Ended March 31,

(unaudited) (unaudited) Variance

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federal and state deferred tax assets with the exception of approximately $0.5 million of estimated state net operating losses (“NOL”).

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

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

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

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

Because of the Company’s full valuation allowance, the Company’s tax expense for the three months ended March 31, 2021 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense.

These tax expense items resulted in an effective tax rate of negative 80.7% during the three months ended March 31, 2021.

During the three months ended March 31, 2020, the effective tax rate was negative 5.5%.

The variance in the year-over-year effective tax rates is primarily attributable to changes in the valuation allowance combined with year-over-year variances in income/loss before income taxes for the Company.

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

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

Three Months Ended September 30,

Net Loss and Other Comprehensive Income (Loss)

Three Months Ended March 31,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

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

Net loss $ (2,861) $ (19,910) $ 17,049 (85.6) %

Other comprehensive income (loss), net of tax:

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Net comprehensive income (loss) $ 1,220 $ (36,542) $ 37,762 (103.3) %

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

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

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

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

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

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

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

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Net revenue $ 2,227,897 $ 1,589,638 $ 638,259 40.2 %

Cost of revenue 1,729,395 1,252,281 $ 477,114 38.1 %

Gross profit 498,502 337,357 $ 161,145 47.8 %

Gross profit margin 22.4 % 21.2 %

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

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

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

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

Operating Expenses

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Selling, general and administrative expenses $ 377,198 $ 315,815 $ 61,383 19.4 %

Depreciation and amortization expense 54,892 36,142 18,750 51.9 %

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

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

The increase in depreciation and amortization was primarily related to the depreciation of the fixed assets acquired and the amortization of the intangibles acquired from the Merger along with depreciation of additional investments in our pharmacies and infrastructure.

Other Income (Expense)

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Interest expense, net $ (84,102) $ (44,117) $ (39,985) 90.6 %

Equity in earnings of joint ventures 2,364 2,018 346 17.1 %

Other, net (8,322) (6,679) (1,643) 24.6 %

Total other expense $ (90,060) $ (48,778) $ (41,282) 84.6 %

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

Income Tax Expense (Benefit)

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

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

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

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

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

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

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

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

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

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

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

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

Other comprehensive income (loss), net of tax:

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

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

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

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

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

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

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

The change in net loss was primarily attributed to contribution margin from additional revenue related to organic growth and realizing a full quarter of integration savings that resulted in total operating expenses decreasing as a percentage of revenue.

The change in unrealized gains (losses) on cash flow hedges, net of income taxes, primarily related to the increase in fair value on the $925.0 million notional swap as the swap nears maturity in August 2021.

The change in unrealized loss for the three months ended March 31, 2020 related to decreases in variable interest rates, resulting in a corresponding liability on the fair value of the interest rate swaps.

Net comprehensive income was $1.2 million for the three months ended March 31, 2021, compared to net comprehensive loss of $36.5 million for the three months ended March 31, 2020, as a result of the changes in net income (loss), discussed above, along with the impact of the interest rate swaps.

Liquidity and Capital Resources

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

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

For the three months ended March 31, 2021 and the twelve months ended December 31, 2020, the Company’s primary sources of liquidity were cash on hand of $109.4 million and $99.3 million, respectively, as well as the $165.4 million of borrowings available under its credit facilities.

During the three months ended March 31, 2021 and the year ended December 31, 2020, the Company’s positive cash flows from operations enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as pursue acquisitions.

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

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

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

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

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

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

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

The Company had no outstanding borrowings under the ABL facility at March 31, 2021.

The Company had $9.6 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL facility of $165.4 million as of March 31, 2021.

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

The quarterly principal payments commenced in March of 2020.

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 4.65% as of September 30, 2020.

The second lien notes mature on August 6, 2027.

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

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

Interest on the first lien term loan was initially 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 was initially 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 second lien notes initially matured on August 6, 2027.

Interest on the second lien notes was initially payable quarterly at London Interbank Offered Rate (“LIBOR”), plus 8.75%.

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

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

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

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

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

In August 2020, the Company prepaid $125.0 million of the outstanding principal balance.

In December 2020, the Company utilized available cash on hand to prepay an additional $49.0 million of the outstanding principal balance, reducing the outstanding principal balance to $245.8 million as of December 31, 2020.

During the three months ended March 31, 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.

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 outstanding principal due on August 6, 2026.

See Note 9, Indebtedness , of the unaudited condensed consolidated financial statements included in Item 1 of this report for further discussion.

The interest rate on the first lien term loan was 3.86% as of March 31, 2021.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

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

Nine Months Ended September 30,

Three Months Ended March 31,

(unaudited) (unaudited) Variance

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Net cash used in investing activities (3,123) (5,353) 2,230

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

Net cash used in financing activities (5,160) (2,862) (2,298)

Net increase in cash and cash equivalents 10,097 10,188 (91)

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Cash Flows from Operating Activities

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

Cash flows from operating activities for the three months ended March 31, 2021 were relatively consistent with the prior year as working capital efficiencies and timing of vendor payments continued to drive positive cash flows from operations.

Cash Flows from Investing Activities

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

The decrease in cash flows used in investing activities is primarily due to the amount of investments in our pharmacies and infrastructure.

Cash Flows from Financing Activities

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

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

The increase in cash used in financing activities is related to the current year debt refinancing, which resulted in proceeds of debt of $355.2 million, retirement of debt obligations of $352.0 million, deferred financing costs of $2.9 million and debt prepayment penalties of 2.5 million.

The remaining cash used in financing activities was related to quarterly repayments of debt principal of $2.9 million during the three months ended March 31, 2021 compared to $2.3 million for the three months ended March 31, 2020.

Commitments and Contractual Obligations

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

The following table presents Option Care Health’s commitments and contractual obligations as of March 31, 2021, as well as its long-term obligations that changed materially from the Company’s annual report on form 10-K (in thousands):

Payments Due by Period

5 unchanged sentences

243,438 52,511 89,177 87,334 14,416

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

Total $ 1,406,244 $ 64,286 $ 112,727 $ 110,884 $ 1,118,347

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

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

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

(2) Interest payments calculated based on LIBOR rate as of March 31, 2021.

Actual payments are based on changes in LIBOR.

2 unchanged sentences

Off-Balance Sheet Arrangements

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

As of March 31, 2021, Option Care Health did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

7 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis