What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-03 · 63 added, 56 removed, 248 unchanged (32% of the section changed)

28 unchanged sentences

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

For the three and six months ended June 30, 2021, the revenue results reflect acute revenue that had high and mid-single digit growth, respectively, relative to the prior year while chronic revenue grew in the mid-teens.

For the three and nine months ended September 30, 2021, the revenue results reflect acute revenue that had mid-single digit growth, while chronic revenue grew in the mid-teens relative to the prior year.

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 continued to experience cost inefficiencies during the three and six months ended June 30, 2021 with respect to clinical labor and other staffing challenges.

The Company continued to experience cost inefficiencies during the three and nine months ended September 30, 2021 with respect to clinical labor and other staffing challenges.

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.

4 unchanged sentences

Composition of Results of Operations

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three and six months ended June 30, 2021 and 2020.

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three and nine months ended September 30, 2021 and 2020.

Gross profit represents our net revenue less cost of revenue.

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Interest Expense, Net .

Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, the first lien term loan and second lien notes, amortization of discount and deferred financing fees, and changes in derivatives not designated as hedging instruments related to the interest rate swaps.

Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, the first lien term loan and second lien notes, amortization of discount and deferred financing fees, changes in derivatives not designated as hedging instruments related to the interest rate swaps, and reclassification from accumulated other comprehensive income to interest expense upon discontinuing hedge accounting.

Refer to the “Liquidity and Capital Resources” section below for further discussion of these outstanding borrowings.

8 unchanged sentences

Results of Operations

The following table presents Option Care Health’s consolidated results of operations for the three and six months ended June 30, 2021 and 2020 (in thousands):

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

The following table presents Option Care Health’s consolidated results of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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

2021 (unaudited) 2020 (unaudited) 2021 (unaudited) 2020 (unaudited)

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NET COMPREHENSIVE INCOME (LOSS) $ 38,368 4.3 % $ 5,685 0.7 % $ 75,603 3.0 % $ (33,949) (1.5) %

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the three month periods ended June 30, 2021 and June 30, 2020.

Three Months Ended June 30,

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Three Months Ended September 30,

(unaudited) (unaudited) Variance

4 unchanged sentences

Gross profit margin 22.8 % 22.3 %

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had high single digit growth relative to the prior year while chronic revenue grew in the mid-teens.

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had mid single digit growth relative to the prior year while chronic revenue grew in the mid-teens.

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

2 unchanged sentences

Operating Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(unaudited) (unaudited) Variance

3 unchanged sentences

Total operating expenses $ 150,085 $ 139,597 $ 10,488 7.5 %

Selling, general and administrative expenses increased for the three months ended June 30, 2021 primarily due to salaries and benefits, but has decreased as a percentage of revenue to 15.6% for the three months ended June 30, 2021 as compared to 16.9% for the three months ended June 30, 2020, as our revenue has grown at a faster pace than our selling, general and administrative expenses.

The decrease in depreciation and amortization was primarily related to a reduction in capital expenditures corresponding with the completion of Merger integration activities during the year ended December 31, 2020.

The increase in Selling, general and administrative expenses is primarily due to salaries and benefits, but has decreased as a percentage of revenue to 15.1% for the three months ended September 30, 2021 as compared to 15.7% for the three months ended September 30, 2020, as our revenue has grown at a faster pace than our selling, general and administrative expenses.

The decrease in depreciation and amortization was primarily related to a reduction in capital expenditures corresponding with the stabilization of capital expenditures through completion of Merger integration activities during the year ended December 31, 2020.

Other Income (Expense)

Three Months Ended June 30,

Three Months Ended September 30,

(unaudited) (unaudited) Variance

6 unchanged sentences

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

The increase in equity in earnings of joint ventures was primarily attributable to organic growth in both the acute and chronic portfolio of therapies.

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

Income Tax Expense

Three Months Ended June 30,

Three Months Ended September 30,

(unaudited) (unaudited) Variance

3 unchanged sentences

federal and state deferred tax assets with the exception of approximately $0.3 million of estimated state net operating losses (“NOL”).

Because of the Company’s full valuation allowance, the Company’s tax expense for the three months ended June 30, 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 2.2% during the three months ended June 30, 2021.

During the three months ended June 30, 2020, the effective tax rate was negative 6.5%.

Because of the Company’s full valuation allowance, the Company’s tax expense for the three months ended September 30, 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 8.0% during the three months ended September 30, 2021.

During the three months ended September 30, 2020, the effective tax rate was 31.3%.

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 June 30,

Net Income and Other Comprehensive Income

Three Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Net income (loss) $ 31,816 $ (7,668) $ 39,484 (514.9) %

Other comprehensive income (loss), net of tax:

Changes in unrealized gains (losses) on cash flow hedges, net of income taxes 4,199 4,576 (377) (8.2) %

Other comprehensive income (loss) 4,199 4,576 (377) (8.2) %

Net comprehensive income (loss) $ 36,015 $ (3,092) $ 39,107 (1,264.8) %

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

Net comprehensive income was $36.0 million for the three months ended June 30, 2021, compared to net comprehensive loss of $3.1 million for the three months ended June 30, 2020, primarily as a result of the changes in net income (loss), discussed above.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

The following tables present selected consolidated comparative results of operations from the Company’s unaudited condensed consolidated financial statements for the six month periods ended June 30, 2021 and June 30, 2020.

Six Months Ended June 30,

Net income $ 35,476 $ 1,663 $ 33,813 2,033.3 %

Other comprehensive income, net of tax:

Changes in unrealized gains on cash flow hedges, net of income taxes 2,892 4,022 (1,130) (28.1) %

Other comprehensive income 2,892 4,022 (1,130) (28.1) %

Net comprehensive income $ 38,368 $ 5,685 $ 32,683 574.9 %

The increase in net income was primarily attributed to contribution margin from additional revenue related to organic growth and realization of Merger-related integration savings that resulted in total operating expenses decreasing as a percentage of revenue.

The decrease in changes in unrealized gains on cash flow hedges, net of income taxes, primarily related to the $925.0 million notional swap as the swap expired in August 2021.

Net comprehensive income increased to $38.4 million for the three months ended September 30, 2021, compared to net comprehensive income of $5.7 million for the three months ended September 30, 2020, primarily as a result of the changes in net income, discussed above.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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, 2021 and September 30, 2020.

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

9 unchanged sentences

Operating Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

3 unchanged sentences

Total operating expenses $ 437,340 $ 432,090 $ 5,250 1.2 %

Selling, general and administrative expenses increased slightly for the six months ended June 30, 2021 primarily due to salaries and benefits, but has decreased as a percentage of revenue to 15.7% for the six months ended June 30, 2021 as compared to 17.6% for the six months ended June 30, 2020 due to Merger synergy realization.

Selling, general and administrative expenses increased for the nine months ended September 30, 2021 primarily due to salaries and benefits, but has decreased as a percentage of revenue to 15.5% for the nine months ended September 30, 2021 as compared to 16.9% for the nine months ended September 30, 2020 due to Merger synergy realization.

Other Income (Expense)

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

6 unchanged sentences

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

The increase in equity in earnings of joint ventures was primarily attributable to organic growth in both the acute and chronic portfolio of therapies.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

3 unchanged sentences

federal and state deferred tax assets with the exception of approximately $0.3 million of estimated state net operating losses (“NOL”).

Because of the Company’s full valuation allowance, the Company’s tax expense for the six months ended June 30, 2021 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 an effective tax rate of 6.5% during the six months ended June 30, 2021.

During the six months ended June 30, 2020, the effective tax rate was negative 5.8%.

Because of the Company’s full valuation allowance, the Company’s tax expense for the nine months ended September 30, 2021 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 an effective tax rate of 7.3% during the nine months ended September 30, 2021.

During the nine months ended September 30, 2020, the effective tax rate was negative 9.6%.

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

6 unchanged sentences

The change in net income (loss) was primarily attributed to contribution margin from additional revenue related to organic growth and realizing Merger-related 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 six months ended June 30, 2020 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 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 expired in August 2021.

The change in unrealized loss for the nine months ended September 30, 2020 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 net comprehensive income (loss) was the result of the change in net income (loss), described above, further increased by the impact of the fair value of the interest rate swaps.

Liquidity and Capital Resources

For the six months ended June 30, 2021 and the twelve months ended December 31, 2020, the Company’s primary sources of liquidity were cash on hand of $157.5 million and $99.3 million, respectively, as well as the $165.4 million of borrowings available under its credit facilities.

During the six months ended June 30, 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.

For the nine months ended September 30, 2021 and the twelve months ended December 31, 2020, the Company’s primary sources of liquidity were cash on hand of $200.9 million and $99.3 million, respectively, as well as the $165.4 million of borrowings available under its credit facilities (net of $9.6 million undrawn letters of credit issued and outstanding).

During the nine months ended September 30, 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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Credit Facilities

The Company’s asset-based-lending (“ABL”) revolving credit facility provides for borrowings up to $175.0 million, which matures on August 6, 2024.

The Company’s ABL revolving credit facility provides for borrowings up to $175.0 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.

1 unchanged sentence

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

The Company had no outstanding borrowings under the ABL facility at June 30, 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 June 30, 2021.

The Company h ad no outstanding borrowings under the ABL facility at September 30, 2021.

The Company had $9.6 million of undrawn l etters of credit issued and outstanding, resulting in net borrowing availability under the ABL facility of $165.4 million as of September 30, 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.

2 unchanged sentences

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 interest rate on the first lien term loan was 3.85% as of June 30, 2021.

The interest rate on the first lien term loan was 3.83% as of September 30, 2021.

The second lien notes initially matured on August 6, 2027.

9 unchanged sentences

See Note 10, 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 3.85% as of June 30, 2021.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

The interest rate on the first lien term loan was 3.83% as of September 30, 2021.

In October 2021, the Company entered into an amendment on the First Lien Term Loan, to provide $600 million of refinanced borrowings.

In October 2021, the Company also issued $500 million in aggregate principal amount of senior notes.

See Note 17, Subsequent Events , for further discussion.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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

Six Months Ended June 30,

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

2 unchanged sentences

Net cash used in investing activities (30,596) (12,330) (18,266)

Net cash (used in) provided by financing activities (8,113) 6,381 (14,494)

Net cash used in financing activities (11,072) (16,407) 5,335

Net increase in cash and cash equivalents 101,591 72,991 28,600

2 unchanged sentences

Cash Flows from Operating Activities

The increase in cash flows provided by operating activities is primarily due to higher net income, working capital efficiencies and timing of vendor payments during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The increase in cash flows provided by operating activities is primarily due to higher net income, decrease in interest expense due to the January 2021 debt refinancing, and timing of vendor payments during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Cash Flows from Investing Activities

1 unchanged sentence

Cash Flows from Financing Activities

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 change in financing activities was related to receipt of $11.7 million of CARES Act funds in Q2 2020 with no comparable activity in the six months ended June 30, 2021.

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 (as compared to $125.0 million for the nine months ended September 30, 2020), deferred financing costs of $2.9 million and debt prepayment penalties of 2.5 million.

The remaining change in financing activities was related to net proceeds from issuance of common stock in the nine months ended September 30, 2020 with no comparable activity in the nine months ended September 30, 2021.

Commitments and Contractual Obligations

The following table presents Option Care Health’s commitments and contractual obligations as of June 30, 2021, as well as its long-term obligations that changed materially from the Company’s annual report on form 10-K (in thousands):

The following table presents Option Care Health’s commitments and contractual obligations as of September 30, 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

7 unchanged sentences

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

(2) Interest payments calculated based on LIBOR rate as of June 30, 2021.

(2) Interest payments calculated based on LIBOR rate as of September 30, 2021.

Actual payments are based on changes in LIBOR.

2 unchanged sentences

Off-Balance Sheet Arrangements

As of June 30, 2021, Option Care Health did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of September 30, 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

21 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