What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-03-11 · 83 added, 148 removed, 187 unchanged (55% of the section changed)

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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 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.

As expected, the pandemic has negatively affected new patient referrals for both acute and chronic conditions;

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

For the year ended December 31, 2020, the revenue results reflect flat acute revenues relative to the prior year while chronic revenue grew in the mid-teens.

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

The Company experienced cost inefficiencies during the year ended December 31, 2020 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 has been disrupted by both positive and negative referral patterns, experienced challenges in our staffing, and ability to procure personal protection equipment and key drugs.

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

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“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, allow 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, processes 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 million in net cost synergies.

Changes to Medicare Reimbursement

In recent years, legislative changes have resulted in reductions in reimbursement under government healthcare programs.

In December 2016, the Cures Act legislation was signed into law, which decreased reimbursement for Medicare Part B Durable Medical Equipment infusion drugs administered in an alternate site setting effective January 1, 2017.

The original legislation did not provide for reimbursement for the service component until 2021.

Center for Medicare and Medicaid Services issued a final rule in October 2018 implementing a temporary transition benefit for Medicare Part B home infusion services, which will continue from January 1, 2019 until January 1, 2021.

This temporary transition benefit defines professional services as only including nursing, and not pharmacy, care planning, care coordination, or monitoring, and only pays for an infusion day when the nurse is in the home.

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.

On February 3, 2020, the Company completed a one share for four reverse stock split.

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 consolidated financial statements.

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

Composition of Results of Operations

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

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

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 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, First Lien Term Loan, Senior Notes, as well as interest payments on the Company’s previous $400.0 million senior secured lien PIK toggle floating rate notes due 2027 that were fully prepaid in January 2021 (“the 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.

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

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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 current year loss on extinguishment of debt incurred in connection with 2020 debt prepayments.

Prior year amounts relate to third-party fees paid in conjunction with our 2019 debt issuance of the Loan Facilities and Second Lien Notes and loss on extinguishment of debt for the Company’s Previous Credit Facilities.

Income Tax Expense (Benefit) .

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

Income Tax (Benefit) Expense .

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

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

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

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

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

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

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Total operating expenses 588,765 17.1% 571,509 18.8%

OPERATING INCOME (LOSS) 110,755 3.7% (319) —%

OPERATING INCOME 190,841 5.5% 110,755 3.7%

OTHER INCOME (EXPENSE):

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Total other expense (74,347) (2.2)% (115,998) (3.8)%

LOSS BEFORE INCOME TAXES (5,243) (0.2)% (78,194) (3.4)%

INCOME TAX EXPENSE (BENEFIT) 2,833 0.1% (2,274) (0.1)%

NET LOSS $ (8,076) (0.3)% $ (75,920) (3.3)%

OTHER COMPREHENSIVE LOSS, NET OF TAX:

Change in unrealized losses on cash flow hedges, net of income taxes of $0 and $259, respectively (3,977) (0.1)% (8,039) (0.3)%

OTHER COMPREHENSIVE LOSS (3,977) (0.1)% (8,039) (0.3)%

NET COMPREHENSIVE LOSS $ (12,053) (0.4)% $ (83,959) (3.6)%

(1) 2020 includes the results of operations from BioScrip for the full year.

2019 includes the results of operations of BioScrip from the August 6, 2019 Merger Date onward and are, therefore, not comparable.

INCOME (LOSS) BEFORE INCOME TAXES 116,494 3.4% (5,243) (0.2)%

INCOME TAX (BENEFIT) EXPENSE (23,404) (0.7)% 2,833 0.1%

NET INCOME (LOSS) $ 139,898 4.1% $ (8,076) (0.3)%

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

Change in unrealized gains (losses) on cash flow hedges, net of income taxes of $0 and $0, respectively 10,721 0.3% (3,977) (0.1)%

OTHER COMPREHENSIVE INCOME (LOSS) 10,721 0.3% (3,977) (0.1)%

NET COMPREHENSIVE INCOME (LOSS) $ 150,619 4.4% $ (12,053) (0.4)%

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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Gross profit margin 22.7 % 22.5 %

The 31.3% increase in net revenue was primarily driven by additional revenue following the Merger, as the prior year included the results of BioScrip from the August 6, 2019 Merger Date, along with organic growth in the Company’s portfolio of therapies.

For the year ended December 31, 2020, the revenue results reflect flat revenues for acute therapies relative to the prior year due to the impact of the COVID-19 pandemic, while revenue for chronic therapies grew in the mid-teens.

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 increase in gross profit margin 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 and mix shift toward lower profit chronic therapies.

The 13.4% increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies.

For the year ended December 31, 2021, the revenue results reflect mid single-digits revenue growth for acute therapies, while revenue for chronic therapies grew in the mid-teens relative to the prior year.

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

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

The slight increase in gross profit margin was driven by mix shift toward higher profit therapies.

Operating Expenses

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Total operating expenses $ 588,765 $ 571,509 $ 17,256 3.0 %

Selling, general and administrative expenses increased for the year ended December 31, 2020 primarily due to the impact of the Merger, but has decreased as a percentage of revenue to 16.5% for the year ended December 31, 2020 as compared to 19.9% for the year ended December 31, 2019 primarily due to synergy realization from Merger integration activities as well as spending reductions to offset the negative impacts of the COVID-19 pandemic.

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

Selling, general and administrative expenses increased for the year ended December 31, 2021 primarily due to salaries and benefits, but has decreased as a percentage of revenue to 15.3% for the year ended December 31, 2021 as compared to 16.5% for the year ended December 31, 2020 primarily due to disciplined expense management, the leverage of established infrastructure, and Merger synergy realization.

The decrease in depreciation and amortization was attributable to a reduction in capital expenditures, due to more efficient capital expenditures given investments in prior years and the completion of Merger integration activities during the year ended December 31, 2020.

There was also a decrease in amortization expense attributed to certain intangible assets whose useful life expired partway through 2021.

Other Income (Expense)

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Total other expense $ (74,347) $ (115,998) $ 41,651 (35.9) %

The increase in interest expense was primarily attributable to the additional expense related to the new debt issued at the close of the Merger, partially offset by the savings from the combined $174.0 million prepayment of principal on the Second Lien Notes in the third and fourth quarters of 2020.

The prior year included interest expense on the new debt from the Merger Date.

The decrease in interest expense was attributable to the debt refinancing of the First Lien Term Loan and prepayment of the Second Lien Notes in January 2021.

In addition, the decrease is attributable to the debt refinancing of the First Lien Term Loan and issuance of Senior Notes in October 2021.

See Note 11, Indebtedness , of the consolidated financial statements.

The increase in other, net of was the result of the loss on extinguishment of debt of $11.5 million incurred during the year ended December 31, 2020 in conjunction with the $174.0 million prepayment of principal on the Second Lien Notes, compared to the loss on extinguishment of debt of $5.5 million incurred during the year ended December 31, 2019 in conjunction with the extinguishment of debt related to the Merger.

Income Tax Expense (Benefit)

The increase in equity of joint ventures was primarily attributable to organic growth and improved profitability in the Company’s two joint ventures.

The increase in other, net relates to the loss on extinguishment of debt of $13.4 million incurred in conjunction with the January 2021 and October 2021 debt refinancings.

See Note 11, Indebtedness , of the consolidated financial statements for more information.

Income Tax (Benefit) Expense

Year Ended December 31,

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(in thousands, except for percentages)

Income tax expense (benefit) $ 2,833 $ (2,274) $ 5,107 (224.6) %

The Company’s tax expense for the year ended December 31, 2020 is comprised of a change in deferred tax assets and liabilities, partially offset by a change in valuation allowance, and state tax liabilities, resulting in a negative effective tax rate of 54.0%.

The Company’s tax benefit for the year ended December 31, 2019 is comprised of a deferred tax benefit partially offset by a change in valuation allowance and state tax liabilities.

This results in an effective tax rate of 2.9% for the year ended December 31, 2019.

These effective tax rates differ from the Company’s 21% federal statutory rate primarily due to a change in valuation allowance, certain state and local taxes and non-deductible costs.

Net Loss and Other Comprehensive Loss

Income tax (benefit) expense $ (23,404) $ 2,833 $ (26,237) (926.1) %

The Company’s tax benefit for the year ended December 31, 2021 is comprised of a change in deferred tax assets and liabilities, state tax liabilities, and the release of valuation allowance, resulting in a negative effective tax rate of 20.1%.

The Company’s tax expense for year ended December 31, 2020 is comprised of a deferred tax benefit offset by a change in valuation allowance, a change in deferred tax assets and liabilities, and state tax liabilities.

This resulted in an effective tax rate of negative 54.0% for the year ended December 31, 2020.

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

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

Year Ended December 31,

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(in thousands, except for percentages)

Net loss $ (8,076) $ (75,920) $ 67,844 (89.4) %

Other comprehensive loss, net of tax:

Changes in unrealized losses on cash flow hedges, net of income taxes (3,977) (8,039) 4,062 (50.5) %

Other comprehensive loss (3,977) (8,039) 4,062 (50.5) %

Net comprehensive loss $ (12,053) $ (83,959) $ 71,906 (85.6) %

Net loss decreased primarily driven by the growth in gross profit, which more than offset the incremental operating expenses and interest expense incurred in conjunction with the Merger.

The decrease in net loss is also impacted by the full realization of $60 million of Merger synergies in 2020 following the Merger, which more than offset the negative impacts of the COVID-19 pandemic during 2020.

Changes in unrealized losses on cash flow hedges, net of income taxes, decreased as the interest rate swap nears maturity in August 2021.

Net comprehensive loss decreased for the year ended December 31, 2020 as a result of the changes in net loss, discussed above, further reduced by the impact of the hedging instruments.

Net income (loss) $ 139,898 $ (8,076) $ 147,974 (1,832.3) %

Other comprehensive income (loss), net of tax:

Changes in unrealized gains (losses) on cash flow hedges, net of income taxes 10,721 (3,977) 14,698 (369.6) %

Other comprehensive income (loss) 10,721 (3,977) 14,698 (369.6) %

Net comprehensive income (loss) $ 150,619 $ (12,053) $ 162,672 (1,349.6) %

The change in net income (loss) was primarily attributable to contribution margin from additional revenue related to the factors described in the above sections, and the release of the Company’s valuation allowance as referenced in the Income Tax (Benefit) Expense section above.

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 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 swap.

Liquidity and Capital Resources

For the years ended December 31, 2021 and 2020, the Company’s primary sources of liquidity were cash on hand of $119.4 million and $99.3 million, respectively, as well as borrowings under its credit facilities, described further below.

During the years ended December 31, 2020 and 2019, the Company’s positive cash flows from operations have 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, integration efforts, and investment in various acquisitions and our infrastructure to support additional business volumes.

Ongoing operating cash outflows are associated with procuring and dispensing prescription drugs, personnel and other costs associated with servicing patients, as well as paying cash interest on the outstanding debt.

During the year ended December 31, 2021 and 2020, the Company’s positive cash flows from operations have 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, investment in capital expenditures in both facilities and technology, and the pursuit of acquisitions.

Ongoing operating cash outflows are associated with procuring and dispensing drugs, personnel and other costs associated with servicing patients, as well as paying cash interest on the outstanding debt.

Ongoing investing cash flows are primarily associated with capital projects related to business acquisitions, the improvement and maintenance of our pharmacy facilities and investment in our information technology systems.

Ongoing financing cash flows are primarily associated with the quarterly principal payments on our outstanding debt.

In addition to these ongoing investing and financing activities, during the year ended December 31, 2020, the Company prepaid $174.0 million of outstanding debt principal balance.

During the year ended December 31, 2019, the Company entered into the Merger Agreement, and the Merger resulted in cash used in investing activities of $700.2 million and net cash provided by financing activities for net proceeds of indebtedness of $724.3 million.

Our business strategy includes the selective acquisition of additional infusion pharmacies and other related healthcare businesses.

In addition to these ongoing investing and financing activities, during the year ended December 31, 2021, the Company entered into debt refinancing transactions further described below under Credit Facilities .

Our business strategy includes the deployment of capital to pursue acquisitions that complement our operations.

We continue to evaluate acquisition opportunities and view acquisitions as a key part of our growth strategy.

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Credit Facilities

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.

On August 6, 2019, the Company repaid the outstanding balance of the Previous Term Loans and retired the outstanding credit arrangements for $551.7 million.

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

In conjunction with the Merger, the Company entered into two credit agreements and an indenture that 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 facility (the “First Lien Term Loan”, and together with the ABL Facility, the “Loan Facilities”), and a $400.0 million senior secured second lien PIK toggle floating rate notes due 2027 (the “Second Lien Notes”).

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

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

During the year ended December 31, 2020, the Company increased the borrowing capacity to $175.0 million.

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.

The Base Rate is charged between 1.25% and 1.75% and the Eurocurrency Rate is charged between 2.25% and 2.75% based on the historical excess availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement.

The revolving credit facility contains commitment fees payable on the unused portion of the ABL 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 2.50%.

The Company did not borrow against the ABL Facility at any time during 2020, and had no outstanding borrowings under the ABL Facility at December 31, 2020.

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 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 4.40% as of December 31, 2020.

The Second Lien Notes mature on August 6, 2027.

Interest on the Second Lien Notes is payable quarterly at LIBOR, plus 8.75%.

The Company elected to pay-in-kind the 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.

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 used the proceeds from a stock offering to prepay $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.

As a result of these actions, the outstanding principal balance of the Second Lien Notes is $245.8 million as of December 31, 2020.

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

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

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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 remaining outstanding principal due on August 6, 2026.

Following the First Lien Credit Agreement Amendment, the First Lien Term Loan was repayable in quarterly installments, beginning in March 2021, of $2.9 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026.

In October 2021, the Company refinanced its $1,157.0 million outstanding existing First Lien Term Loan due 2026.

The Company amended the existing First Lien Term Loan, to provide $600 million of refinanced borrowings (the “First Lien Term Loan Facility”).

The refinancing changed the interest rate from LIBOR plus 3.75% to, at the Company’s option, either (i) LIBOR (or a comparable successor rate, with a floor of 0.50% per annum) plus an applicable margin of 2.75% for Eurocurrency Rate Loans (as such term is defined in the First Lien Term Loan Agreement) and (ii) a base rate determined in accordance with the New First Lien Term Loan Agreement, plus 1.75% for Base Rate Loans (as such term is defined in the First Lien Term Loan Agreement).

The First Lien Term Loan Facility is repayable in quarterly installments of $1.5 million plus interest and extended its maturity to October 27, 2028.

In conjunction with the refinancing, the Company also issued $500.0 million in aggregate principal of unsecured senior notes (“Senior Notes”).

The Senior Notes bear interest at a rate of 4.375% per annum payable semi-annually in arrears on October 31 and April 30 of each year, commencing April 30, 2022.

The Senior Notes mature on October 31, 2029.

In October 2021, the Company also entered into an agreement to amend its existing asset-based lending revolving credit facility (“ABL Facility”).

The ABL Facility bears interest at a rate equal to, at the Borrowers’ election, either (i) a base rate determined in accordance with the ABL Credit Agreement plus an applicable margin, which is equal to between 0.25% and 0.75% based on the historical excess availability as a percentage of the Line Cap (as such term is defined in the ABL Credit Agreement) and (ii) LIBOR (or a comparable successor rate, with a floor of 0.00% per annum) plus an applicable margin, which is equal to between 1.25% and 1.75% based on the historical excess availability as a percentage of the Line Cap.

The ABL Facility matures on October 27, 2026.

Interest payments over the course of long-term debt obligations total an estimated $300.9 million based on final maturity dates of the Company’s credit facilities.

Interest payments are calculated based on the LIBOR rate as of December 31, 2021.

Actual payments are based on changes in LIBOR and exclude the interest rate derivative agreement the Company entered into in connection with the debt refinancing in October 2021.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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Net cash used in investing activities (111,541) (26,334) (85,207)

Net cash (used in) provided by financing activities (68,849) 719,024 (787,873)

Net cash used in financing activities (76,870) (68,849) (8,021)

Net increase in cash and cash equivalents 20,158 32,209 (12,051)

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Cash Flows from Operating Activities

The increase in cash provided by operating activities for the year ended December 31, 2020 was primarily driven by the improvement in net loss during 2020.

In addition, working capital efficiencies also contributed to this increase, as additional investment in accounts receivable and inventories in conjunction with the growth in business volumes were more than offset by increases in accounts payable due to the timing of vendor payments.

The increase in cash provided by operating activities for the year ended December 31, 2021 was primarily due to higher net income, and decrease in interest expense due to the January and October 2021 debt refinancings as compared to the prior year.

Cash Flows from Investing Activities

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

The increase in cash flows used in investing activities is primarily due to acquisitions made in the year ended December 31, 2021, which are described in Note 3, Business Acquisitions , of the consolidated financial statements.

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, which was partially offset by the retirement of the Company’s previous debt of $226.7 million and the payment of deferred financing costs of $30.0 million related to the Merger.

In 2020, the cash used in financing activities consisted of the $174.0 million prepayment of the Second Lien Notes, which was partially offset by $118.9 million of proceeds from the issuance of common stock, as well as principal payments on the First Lien Term Loan.

Commitments and Contractual Obligations

The following table presents Option Care Health’s commitments and contractual obligations as of December 31, 2020, as well as its long-term obligations:

Payments Due by Period

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

(in thousands)

Long-term debt obligations (1)

$ 1,161,531 $ 9,250 $ 18,500 $ 18,500 $ 1,115,281

Interest payments on long-term debt obligations (2)

391,301 63,039 124,840 123,191 80,231

Operating lease obligations 110,011 23,770 35,020 21,053 30,168

Total $ 1,662,843 $ 96,059 $ 178,360 $ 162,744 $ 1,225,680

(1) Includes aggregate principal payment on the indebtedness from the First Lien Term Loan and the Second Lien Notes incurred in 2019.

(2) Interest payments calculated based on LIBOR rate as of December 31, 2020.

Actual payments are based on changes in LIBOR.

Calculated interest payments exclude interest rate swap agreements the Company entered into in connection with the new indebtedness incurred in 2019.

Off-Balance Sheet Arrangements

As of December 31, 2020, Option Care Health did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

The increase in cash flows used in financing activities is related to the January and October refinancing activities in the current year.

The prior year cash used in financing activities consisted of the $174.0 million prepayment of the Second Lien Notes, which was partially offset by $118.9 million of proceeds from the issuance of common stock, as well as principal payments on the First Lien Term Loan.

Critical Accounting Estimates

The Company prepares its consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”), which requires the Company to make estimates and assumptions.

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The Company recorded an allowance for implicit price concessions based on its historical experience of additional revenue being recorded or revenue being written off when amounts received are greater than or less than the originally estimated net realizable value.

The detailed assessments included, among other factors, (i) current over/under payments which had not yet been applied to an account, (ii) historical contractual adjustments, and (iii) an estimate for contractual adjustments expected to be realized in the future.

contractual adjustments expected to be realized in the future.

Contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled.

14 unchanged sentences

The Company determined that there was no goodwill impairment in 2021, 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 the Company 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.

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.

10 unchanged sentences

Management’s estimates and assumptions include, but are not limited to, the future cash flows an asset is expected to generate and the weighted-average cost of capital.

See Note 3, Business Acquisitions , for further discussion of business acquisitions.

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.

The effect of a change in tax rate on deferred taxes is recognized in income tax expense in the period that includes the enactment date of the change.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible.

The Company considers the scheduled reversal of deferred tax liabilities, including the effect in available carryback and carryforward periods, projected taxable income and tax-planning strategies, in making this assessment.

Changes in projected future earnings could affect the recorded valuation allowance in the future.

The Company also considers known or expected limitations on its ability to utilize its deferred tax assets in the future, such as limitations provided for under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.

The Company recognizes income tax positions that are more likely than not to be sustained on their technical merits.

The Company measures recognized income tax positions at the maximum benefit that is more likely than not, based on cumulative probability, realizable upon final settlement of the position.

Interest and penalties related to unrecognized tax benefits are reported in income tax expense.

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 7. Management’s Discussion and Analysis