Option Care Health, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Option Care Health, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Option Care Health, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of transaction price adjustments As discussed in Notes 2 and 4 to the consolidated financial statements, net revenue is reported at the net realizable value amount that reflects the consideration the Company expects to receive in exchange for providing services. Revenues are from government payers, commercial payers, and patients for infusion therapy and other ancillary health care services. The Company estimates the transaction price adjustments based on the verification of the patient’s insurance coverage and historical price concessions, historical payments, and management’s manual price concession adjustments. We identified the evaluation of the transaction price adjustments related to recognizing revenue as a critical audit matter. Subjective and complex auditor judgment was required to evaluate the transaction price adjustments. Specifically, auditor judgment was required to evaluate the relevance and reliability of historical price concessions, historical payments, and management’s manual price concession adjustments. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s transaction price adjustment process, including controls related to the historical price concessions, historical payments, and management’s manual price concession adjustments. We tested the relevance and reliability of the underlying data that served as the basis for the transaction price 43 Table of Contents adjustments which included the historical price concessions and historical payments within the classes of payors by selecting certain historical price concessions and historical payments and agreeing to underlying support. We evaluated management’s manual price concession adjustments by comparing management’s prior-year recorded balance to actual write-offs during the current year. Evaluation of the realizability of deferred tax assets As discussed in Note 6 to the consolidated financial statements, the Company recorded a reduction in its valuation allowance on its deferred tax assets during the year ended December 31, 2021. In assessing the realizability of deferred tax assets, management considered the application of tax regulations, including those that limit the use of net operating losses following previous ownership changes. The Company had gross deferred tax assets of $174.9 million as of December 31, 2021. We identified the evaluation of the realizability of deferred tax assets as a critical audit matter. Specifically, auditor judgment was required to evaluate the Company’s application of tax regulations, including those that limit the use of net operating losses following previous ownership changes. This matter required involvement of tax professionals with specialized skills and knowledge. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s evaluation of the realizability of deferred tax assets, including controls related to the application of tax regulations that limit the use of net operating losses following previous ownership changes. We involved tax professionals with specialized skills and knowledge, who assisted by evaluating the Company’s analysis of tax regulations that limit the use of net operating losses following previous ownership changes. /s/ KPMG LLP We have served as the Company’s auditor since 2015. Chicago, Illinois February 23, 2022 44 Table of Contents OPTION CARE HEALTH, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) December 31, 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 119,423 $ 99,265 Accounts receivable, net 338,242 328,340 Inventories 183,095 158,601 Prepaid expenses and other current assets 69,496 70,806 Total current assets 710,256 657,012 NONCURRENT ASSETS: Property and equipment, net 111,535 121,149 Operating lease right-of-use asset 74,777 68,795 Intangible assets, net 21,433 23,429 Referral sources 344,587 327,623 Goodwill 1,477,564 1,428,610 Deferred income taxes 27,033 — Other noncurrent assets 23,733 20,821 Total noncurrent assets 2,080,662 1,990,427 TOTAL ASSETS $ 2,790,918 $ 2,647,439 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 279,246 $ 282,913 Accrued compensation and employee benefits 83,503 58,899 Accrued expenses and other current liabilities 71,857 64,075 Current portion of operating lease liability 19,089 18,886 Current portion of long-term debt 6,000 9,250 Total current liabilities 459,695 434,023 NONCURRENT LIABILITIES: Long-term debt, net of discount, deferred financing costs and current portion 1,059,900 1,115,103 Operating lease liability, net of current portion 74,492 70,776 Deferred income taxes — 3,339 Other noncurrent liabilities 20,945 8,474 Total noncurrent liabilities 1,155,337 1,197,692 Total liabilities 1,615,032 1,631,715 STOCKHOLDERS’ EQUITY: Preferred stock; $ 0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of December 31, 2021 and 2020, respectively. — — Common stock; $ 0.0001 par value: 250,000,000 shares authorized, 180,309,637 shares issued and 179,925,915 shares outstanding as of December 31, 2021; 180,178,308 shares issued and 179,794,586 shares outstanding as of December 31, 2020. 18 18 Treasury stock; 383,722 shares outstanding, at cost, as of December 31, 2021 and 2020, respectively. ( 2,403 ) ( 2,403 ) Paid-in capital 1,138,855 1,129,312 Retained earnings (Accumulated deficit) 39,867 ( 100,031 ) Accumulated other comprehensive loss ( 451 ) ( 11,172 ) Total stockholders’ equity 1,175,886 1,015,724 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,790,918 $ 2,647,439 The notes to consolidated financial statements are an integral part of these statements. 45 Table of Contents OPTION CARE HEALTH, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Year Ended December 31, 2021 2020 2019 NET REVENUE $ 3,438,640 $ 3,032,610 $ 2,310,417 COST OF REVENUE 2,659,034 2,350,346 1,797,418 GROSS PROFIT 779,606 682,264 512,999 OPERATING COSTS AND EXPENSES: Selling, general and administrative expenses 525,707 500,199 459,628 Depreciation and amortization expense 63,058 71,310 53,690 Total operating expenses 588,765 571,509 513,318 OPERATING INCOME (LOSS) 190,841 110,755 ( 319 ) OTHER INCOME (EXPENSE): Interest expense, net ( 67,003 ) ( 107,770 ) ( 73,724 ) Equity in earnings of joint ventures 6,030 3,313 2,840 Other, net ( 13,374 ) ( 11,541 ) ( 6,991 ) Total other expense ( 74,347 ) ( 115,998 ) ( 77,875 ) INCOME (LOSS) BEFORE INCOME TAXES 116,494 ( 5,243 ) ( 78,194 ) INCOME TAX (BENEFIT) EXPENSE ( 23,404 ) 2,833 ( 2,274 ) NET INCOME (LOSS) $ 139,898 $ ( 8,076 ) $ ( 75,920 ) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Change in unrealized gains (losses) on cash flow hedges, net of income taxes of $ 0 , $ 0 and $ 259 , respectively 10,721 ( 3,977 ) ( 8,039 ) OTHER COMPREHENSIVE INCOME (LOSS) 10,721 ( 3,977 ) ( 8,039 ) NET COMPREHENSIVE INCOME (LOSS) $ 150,619 $ ( 12,053 ) $ ( 83,959 ) EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per share, basic $ 0.78 $ ( 0.04 ) $ ( 0.49 ) Earnings (loss) per share, diluted $ 0.77 $ ( 0.04 ) $ ( 0.49 ) Weighted average common shares outstanding, basic 179,855 180,971 156,280 Weighted average common shares outstanding, diluted 181,205 180,971 156,280 The notes to consolidated financial statements are an integral part of these statements. 46 Table of Contents OPTION CARE HEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Year Ended December 31, 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 139,898 $ ( 8,076 ) $ ( 75,920 ) Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization expense 68,804 77,896 57,869 Non-cash operating lease costs 15,168 18,814 19,719 Deferred income taxes - net ( 30,372 ) 1,196 ( 4,607 ) Loss on sale of assets 767 742 3,269 Loss on extinguishment of debt 13,387 11,545 5,469 Amortization of deferred financing costs 4,998 5,517 4,544 Loss on interest rate swaps upon discontinuing hedge accounting — 3,746 — Paid-in-kind interest capitalized as principal — 7,525 12,256 Equity in earnings of joint ventures ( 6,030 ) ( 3,313 ) ( 2,840 ) Stock-based incentive compensation expense 9,575 2,920 4,170 Capital distribution from equity method investments 2,900 3,250 500 Change in contingent consideration liability — ( 1,500 ) ( 300 ) Other adjustments 844 — ( 688 ) Changes in operating assets and liabilities: Accounts receivable, net ( 4,273 ) ( 3,924 ) 82,285 Inventories ( 22,700 ) ( 42,725 ) ( 12,853 ) Prepaid expenses and other current assets 1,420 ( 19,500 ) ( 2,940 ) Accounts payable ( 10,381 ) 59,215 ( 30,856 ) Accrued compensation and employee benefits 23,977 13,134 2,671 Accrued expenses and other current liabilities 18,383 22,809 ( 317 ) Operating lease liabilities ( 18,496 ) ( 18,089 ) ( 17,253 ) Other noncurrent assets and liabilities 700 ( 3,790 ) ( 4,711 ) Net cash provided by operating activities 208,569 127,392 39,467 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ( 25,632 ) ( 26,875 ) ( 28,292 ) Proceeds from sale of assets — — 10 Insurance proceeds from business casualty loss — — 626 Business acquisitions, net of cash acquired ( 85,909 ) — ( 700,170 ) Other investing cash flows — 541 — Net cash used in investing activities ( 111,541 ) ( 26,334 ) ( 727,826 ) CASH FLOWS FROM FINANCING ACTIVITIES: Redemptions to related parties — — ( 2,000 ) Sale of management notes receivable — — 1,310 Exercise of stock options, vesting of restricted stock, and related tax withholdings ( 32 ) ( 904 ) ( 2,501 ) Net proceeds from issuance of common stock — 118,934 — Proceeds from debt 855,136 — 981,050 Repayments of debt principal ( 8,832 ) ( 9,250 ) ( 2,075 ) Retirement of debt obligations ( 910,345 ) ( 174,000 ) ( 226,738 ) Deferred financing costs ( 10,339 ) ( 149 ) ( 30,022 ) Debt prepayment fees ( 2,458 ) ( 3,480 ) — Net cash (used in) provided by financing activities ( 76,870 ) ( 68,849 ) 719,024 NET INCREASE IN CASH AND CASH EQUIVALENTS 20,158 32,209 30,665 Cash and cash equivalents - beginning of the period 99,265 67,056 36,391 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 119,423 $ 99,265 $ 67,056 Supplemental disclosure of cash flow information: Cash paid for interest $ 60,920 $ 97,640 $ 50,808 Cash paid for income taxes $ 5,706 $ 2,884 $ 2,405 Cash paid for operating leases $ 26,174 $ 26,809 $ 18,992 The notes to consolidated financial statements are an integral part of these statements. 47 Table of Contents OPTION CARE HEALTH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (IN THOUSANDS) Preferred Stock Common Stock Treasury Stock Paid-in Capital Management Notes Receivable Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance - December 31, 2018 $ — $ 14 $ — $ 619,621 $ ( 1,619 ) $ ( 16,035 ) $ 844 $ 602,825 Purchase of BioScrip, Inc. — 4 — 387,040 — — — 387,044 Interest on management notes receivable — — — — ( 62 ) — — ( 62 ) Repayment of management notes receivable — — — — 1,310 — — 1,310 Stockholders' redemptions — — — ( 2,371 ) 371 — — ( 2,000 ) Stock-based incentive compensation — — — 4,170 — — — 4,170 Exercise of stock options, vesting of restricted stock, and related tax withholdings — — ( 2,403 ) ( 98 ) — — — ( 2,501 ) Net loss — — — — — ( 75,920 ) — ( 75,920 ) Other comprehensive loss — — — — — — ( 8,039 ) ( 8,039 ) Balance - December 31, 2019 $ — $ 18 $ ( 2,403 ) $ 1,008,362 $ — $ ( 91,955 ) $ ( 7,195 ) $ 906,827 Stock-based incentive compensation — — — 2,920 — — — 2,920 Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — ( 904 ) — — — ( 904 ) Net proceeds from the issuance of common stock — 1 — 118,933 — — — 118,934 Cancellation of common stock - see Note 16 — ( 1 ) — 1 — — — — Net loss — — — — — ( 8,076 ) — ( 8,076 ) Other comprehensive loss — — — — — — ( 3,977 ) ( 3,977 ) Balance - December 31, 2020 $ — $ 18 $ ( 2,403 ) $ 1,129,312 $ — $ ( 100,031 ) $ ( 11,172 ) $ 1,015,724 Stock-based incentive compensation — — — 9,575 — — — 9,575 Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — ( 32 ) — — — ( 32 ) Net income — — — — — 139,898 — 139,898 Other comprehensive income — — — — — — 10,721 10,721 Balance - December 31, 2021 — 18 ( 2,403 ) 1,138,855 — 39,867 ( 451 ) 1,175,886 The notes to consolidated financial statements are an integral part of these statements. 48 Table of Contents OPTION CARE HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS Corporate Organization and Business — HC Group Holdings II, Inc. (“HC II”) was incorporated under the laws of the State of Delaware on January 7, 2015, with its sole shareholder being HC Group Holdings I, LLC. (“HC I”). On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion Services, Inc. and its subsidiaries from Walgreen Co., and the business was rebranded as Option Care (“Option Care”). On March 14, 2019, HC I and HC II entered into a definitive agreement (the “Merger Agreement”) to merge with and into a wholly-owned subsidiary of BioScrip, Inc. (“BioScrip”), a national provider of infusion and home care management solutions, along with certain other subsidiaries of BioScrip and HC II. The merger contemplated by the Merger Agreement (the “Merger”) was completed on August 6, 2019 (the “Merger Date”). The Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations with Option Care being considered the accounting acquirer and BioScrip being considered the legal acquirer. Under the terms of the Merger Agreement, shares of HC II common stock issued and outstanding immediately prior to the Merger Date were converted into 135,565,392 shares of BioScrip common stock, par value $ 0.0001 (the “BioScrip common stock”). BioScrip also issued an additional 7,048,357 shares to HC I in respect of certain outstanding unvested contingent restricted stock units of BioScrip, which were set aside to prevent dilution related to potential additional vesting on certain share-based instruments. See Note 16, Stockholders’ Equity , for additional discussion of these shares set aside. In conjunction with the Merger, holders of BioScrip preferred shares and certain warrants received 864,603 additional shares of BioScrip common stock and preferred shares were repurchased for $ 125.8 million of cash. In addition, all legacy BioScrip debt was settled for $ 575.0 million. As a result of the Merger, BioScrip’s stockholders held approximately 19.2 % of the combined company, and HC I held approximately 80.8 % of the combined company. Following the close of the transaction, BioScrip was rebranded as Option Care Health, Inc. (“Option Care Health”, or the “Company”). The combined company’s stock was listed on the Nasdaq Global Select Market as of December 31, 2021. See Note 3, Business Acquisitions , for further discussion of the Merger. Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 97 full service pharmacies and 57 stand-alone ambulatory infusion sites. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings. The Company operates in one segment, infusion services. Basis of Presentation — The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States. These principals require management to make certain estimates and assumptions in determining assets, liabilities, revenue, expenses, and related disclosures. Actual amounts could differ materially from those estimates. Principles of Consolidation — The Company’s consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. The BioScrip results have been included in the consolidated financial results since the Merger Date. All intercompany transactions and balances are eliminated in consolidation. The Company has investments in companies that are 50 % owned and are accounted for as equity-method investments. The Company’s share of earnings from equity-method investments is included in the line entitled “Equity in earnings of joint ventures” in the consolidated statements of comprehensive income (loss). See “Equity-Method Investments” within Note 2, Summary of Significant Accounting Policies , for further discussion of the Company’s equity-method investments. 49 Table of Contents 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Accounts Receivable — The Company’s accounts receivable is reported at the net realizable value amount that reflects the consideration the Company expects to receive in exchange for providing services, which is inclusive of adjustments for price concessions. The majority of accounts receivable are due from private insurance carriers and governmental health care programs, such as Medicare and Medicaid. Price concessions may result from patient hardships, patient uncollectible accounts sent to collection agencies, lack of recovery due to not receiving prior authorization, differing interpretations of covered therapies in payer contracts, different pricing methodologies, or various other reasons. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payers’ ability to pay outstanding billings. The allowance for doubtful accounts balance is $ 0 as of December 31, 2021 and 2020, respectively. Included in accounts receivable are earned but unbilled gross receivables of $ 80.1 million and $ 79.0 million as of December 31, 2021 and 2020, respectively. Delays ranging from one day up to several weeks between the date of service and billing can occur due to delays in obtaining certain required payer-specific documentation from internal and external sources. See Revenue Recognition for a further discussion of the Company’s revenue recognition policy. Inventory — Inventory, which consists primarily of pharmaceuticals, is stated at the lower of first‑in, first‑out cost or net realizable value basis, which the Company believes is reflective of the physical flow of inventories. Prepaid expenses and other current assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $ 43.0 million and $ 35.2 million for the years ended December 31, 2021 and 2020, respectively. There were no other items included in prepaid expenses and other current assets that comprised 5% or more of total assets. 50 Table of Contents Leases — The Company has lease agreements for facilities, warehouses, office space and property and equipment. At the inception of a contract, the Company determines if the contract is a lease or contains an embedded lease arrangement. Operating leases are included in the operating lease right-of-use asset (“ROU asset”) and operating lease liabilities in the consolidated financial statements. ROU assets, which represent the Company’s right to use the leased assets, and operating lease liabilities, which represent the present value of unpaid lease payments, are both recognized by the Company at the lease commencement date. The Company utilizes its estimated incremental borrowing rate at the lease commencement date to determine the present value of unpaid lease obligations. The rates are estimated primarily using a methodology dependent on the Company’s financial condition, creditworthiness, and availability of certain observable data. In particular, the Company considers its actual cost of borrowing for collateralized loans and its credit rating, along with the corporate bond yield curve in estimating its incremental borrowing rates. ROU assets are recorded as the amount of operating lease liability, adjusted for prepayments, accrued lease payments, initial direct costs, lease incentives, and impairment of the ROU asset. Tenant improvement allowances used to fund leasehold improvements are recognized when earned and reduce the related ROU asset. Tenant improvement allowances are recognized through the ROU asset as a reduction of expense over the term of the lease. Leases may contain rent escalations, however the Company recognizes the lease expense on a straight-line basis over the expected lease term. The Company reviews the terms of any lease renewal options to determine if it is reasonably certain that the renewal options will be exercised. The Company has determined that the expected lease term is typically the minimum non-cancelable period of the lease. The Company has lease agreements that contain both lease and non-lease components which the Company has elected to account for as a single lease component for all asset classes. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the term of the lease. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. See Note 8, Leases , for further discussion of leases. Goodwill, Intangible Assets, and Property and Equipment — Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under ASC Topic 350, Intangibles - Goodwill and Other. The Company tests goodwill for impairment annually, or more frequently whenever events or circumstances indicate impairment may exist. Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the fourth quarter. See Note 10, Goodwill and Other Intangible Assets , for further discussion of the Company’s goodwill and other intangible assets. Intangible assets arising from the Company’s acquisitions are amortized on a straight‑line basis over the estimated useful life of each asset. Referral sources have a useful life of fifteen to twenty years . Trademarks/names have a useful life ranging from two to fifteen years . The useful lives for other amortizable intangible assets range from approximately two to nine years . The Company does not have any indefinite‑lived intangible assets. Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation on owned property and equipment is provided for on a straight‑line basis over the estimated useful lives of owned assets. Leasehold improvements are amortized over the estimated useful life of the property or over the term of the lease, whichever is shorter. Estimated useful lives are seven years for infusion pumps and three years to thirteen years for equipment. Major repairs, which extend the useful life of an asset, are capitalized in the property and equipment accounts. Routine maintenance and repairs are expensed as incurred. Computer software is included in property and equipment and consists of purchased software and internally-developed software. The Company capitalizes application-stage development costs for significant internally-developed software projects. Once the software is ready for its intended use, these costs are amortized on a straight‑line basis over the software’s estimated useful life, generally five years . Costs recognized in the preliminary project phase and the post-implementation phase, as well as maintenance and training costs, are expensed as incurred. The Company tests long‑lived assets for impairment whenever events or circumstances indicate that a certain asset or asset group may be impaired. Once identified, the amount of the impairment is computed by comparing the carrying value of the respective asset or asset group to its fair value, which is based on the discounted estimated future cash flows. 51 Table of Contents Equity-Method Investments — The Company’s investments in certain unconsolidated entities are accounted for under the equity method. The balance of these investments is included in other noncurrent assets in the accompanying consolidated balance sheets. As of December 31, 2021 and 2020, the balance of the investments was $ 20.1 million and $ 17.0 million, respectively. The investments are increased to reflect the Company’s capital contributions and equity in earnings of the investees. The investments are decreased to reflect the Company’s equity in losses of the investees and for distributions received that are not in excess of the carrying amount of the investments. The Company’s proportionate share of earnings or losses of the investees is recorded in equity in earnings of joint ventures in the accompanying consolidated statements of comprehensive income (loss). The Company’s proportionate share of earnings was $ 6.0 million, $ 3.3 million and $ 2.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Distributions from the investees are treated as cash inflows from operating activities in the consolidated statements of cash flows. During the years ended December 31, 2021, 2020 and 2019, the Company received distributions from the investees of $ 2.9 million, $ 3.3 million and $ 0.5 million, respectively. See Footnote 17, Related-Party Transactions , for discussion of related-party transactions with these investees. Hedging Instruments — The Company uses derivative financial instruments to limit its exposure to increases in the interest rate of its variable rate debt instruments. The derivative financial instruments are recognized on the consolidated balance sheets at fair value. See Note 12, Derivative Instruments, for additional information. At inception of the hedge, the Company designated the derivative instruments as a hedge of the cash flows related to the interest on the variable rate debt. For all instruments designated as hedges, the Company documents the hedging relationships and its risk management objective of the hedging relationship. For all hedging instruments, the terms of the hedge perfectly offset the hedged expected cash flows. Revenue Recognition — Net revenue is reported at the net realizable value amount that reflects the consideration the Company expects to receive in exchange for providing services. Revenues are from government payers, commercial payers, and patients for goods and services provided and are based on a gross price based on payer contracts, fee schedules, or other arrangements less any implicit price concessions. Due to the nature of the health care industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. The Company assesses the expected consideration to be received at the time of patient acceptance based on the verification of the patient’s insurance coverage, historical information with the patient, similar patients, or the payer. Performance obligations are determined based on the nature of the services provided by the Company. The majority of the Company’s performance obligations are to provide infusion services to deliver medicine, nutrients, or fluids directly into the body. The Company provides a variety of infusion-related therapies to patients, which frequently include multiple deliverables of pharmaceutical drugs and related nursing services. After applying the criteria from ASC 606, the Company concluded that multiple performance obligations exist in its contracts with its customers. Revenue is allocated to each performance obligation based on relative standalone price, determined based on reimbursement rates established in the third-party payer contracts. Pharmaceutical drug revenue is recognized at the time the pharmaceutical drug is delivered to the patient, and nursing revenue is recognized on the date of service. The Company's outstanding performance obligations relate to contracts with a duration of less than one year. Therefore, the Company has elected to apply the practical expedient provided by ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. Any unsatisfied or partially unsatisfied performance obligations at the end of a reporting period are generally completed prior to the patient being discharged. See Note 4, Revenue for a further discussion of revenue. 52 Table of Contents Cost of Revenue — Cost of revenue consists of the actual cost of pharmaceuticals and other medical supplies dispensed to patients, as well as all other costs directly related to the production of revenue. These costs include warehousing costs, purchasing costs, freight costs, cash discounts, wages and related costs for pharmacists and nurses, along with depreciation expense relating to revenue-generating assets, such as infusion pumps. The Company receives prompt payment discounts from some of its pharmaceutical and medical supplies vendors. These prompt payment discounts are recorded as a reduction of inventory and are accounted for as a reduction of cost of goods sold when the related inventory is sold. The Company also receives rebates from pharmaceutical and medical supply manufacturers. Rebates are generally volume-based incentives and are recorded as a reduction of inventory and are accounted for as a reduction of cost of goods sold when the related inventory is sold. Selling, General and Administrative Expenses — Selling, general and administrative expenses mainly consist of salaries for administrative employees that directly and indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees. Stock Based Incentive Compensation - The Company accounts for stock-based incentive compensation expense in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). Stock-based incentive compensation expense is based on the grant date fair value. The Company estimates the fair value of stock option awards using a Black-Scholes option pricing model and the fair value of restricted stock unit awards using the closing price of the Company’s common stock on the grant date. For awards with a service-based vesting condition, the Company recognizes expense on a straight-line basis over the service period of the award. For awards with performance-based vesting conditions, the Company will recognize expense when it is probable that the performance-based conditions will be met. When the Company determines that it is probable that the performance-based conditions will be met, a cumulative catch-up of expense will be recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis through the remainder of the vesting period and will be updated if the Company determines that there has been a change in the probability of achieving the performance-based conditions. The Company records the impact of forfeited awards in the period in which the forfeiture occurs. Prior to the Merger, HCI issued incentive units to certain employees of Option Care, who remained employees of the Company following the Merger. In accordance with ASC 718, the Company recognizes compensation expense on a straight-line basis over the shorter of the vesting period of the award or the employee’s expected eligibility date. HC I also issued equity incentive units to certain members of the Option Care Board of Directors, who remained members of the Board of Directors following the Merger. See Note 15, Stock-Based Incentive Compensation , for a further discussion of equity incentive plans. Business Acquisitions - The Company accounts for business acquisitions in accordance with ASC Topic 805, Business Combinations , with assets and liabilities being recorded at their acquisition date fair value and goodwill being calculated as the purchase price in excess of the net identifiable assets. See Note 3, Business Acquisitions , for further discussion of the Company’s business acquisitions. Income Taxes — The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are reported for book-tax basis differences and are measured based on currently enacted tax laws using rates expected to apply to taxable income in the years in which the differences are expected to reverse. 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 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. Immaterial Error Correction — During the three months ended June 30, 2021, the Company identified prior period misstatements related to the net revenue earned by category of payer for the periods ended September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021. Certain individual payers were improperly classified as direct government and instead should have been classified as commercial payers. This error over-stated the Company’s government revenues and under-stated the Company’s commercial revenues in those periods. The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior 53 Table of Contents consolidated financial statements taken as a whole. As a result, the Company has corrected the misstatements as disclosed in the following tables: Three Months ended September 30, 2020 Nine Months ended September 30, 2020 Three Months ended December 31, 2020 Twelve Months ended December 31, 2020 Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue Commercial: As Previously Reported $ 644,385 82.4 % 1,893,105 85.0 % $ 649,880 80.8 % $ 2,542,985 83.9 % Adjustment 34,321 4.4 % 34,321 1.5 % 40,806 5.1 % 75,127 2.5 % As Revised 678,706 86.8 % 1,927,426 86.5 % 690,686 85.9 % 2,618,112 86.4 % Government: As Previously Reported 127,435 16.3 % 308,830 13.9 % 141,237 17.6 % 450,067 14.8 % Adjustment ( 34,321 ) ( 4.4 ) % ( 34,321 ) ( 1.5 ) % ( 40,806 ) ( 5.1 ) % ( 75,127 ) ( 2.5 ) % As Revised 93,114 11.9 % 274,509 12.4 % 100,431 12.5 % 374,940 12.3 % Three Months ended March 31, 2021 Three Months ended June 30, 2021 Six Months ended June 30, 2021 Amount % of Revenue Amount % of Revenue Amount % of Revenue Commercial: As Previously Reported $ 611,434 80.5 % $ 703,429 81.8 % $ 1,314,862 81.2 % Adjustment 37,073 4.9 % 43,218 5.0 % 80,292 4.9 % As Revised 648,507 85.4 % 746,647 86.8 % 1,395,154 86.1 % Government: As Previously Reported 134,914 17.8 % 145,799 16.9 % 280,714 17.3 % Adjustment ( 37,073 ) ( 4.9 ) % ( 43,218 ) ( 5.0 ) % ( 80,292 ) ( 4.9 ) % As Revised 97,841 12.9 % 102,581 11.9 % 200,422 12.4 % There was no impact to the Company’s consolidated balance sheets, consolidated statements of comprehensive income (loss) or the consolidated statements of cash flows for any of these periods. 54 Table of Contents Concentrations of Business Risk — The Company generates revenue from managed care contracts and other agreements with commercial third-party payers. Revenue related to the Company’s largest payer was approximately 16 %, 15 % and 16 % for the years ended December 31, 2021, 2020 and 2019, respectively. The Company renewed its contract with this payer effective February 2022. There were no other managed care contracts that represent greater than 10% of revenue for the years presented. For the years ended December 31, 2021, 2020 and 2019, approximately 12 %, 12 % and 12 %, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs such as Medicare and Medicaid. As of December 31, 2021 and 2020, approximately 11 % and 13 %, respectively, of the Company’s accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules and rates that are determined by the related governmental agency. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term. The Company does not require its patients nor other payers to carry collateral for any amounts owed for goods or services provided. Other than as discussed above, concentrations of credit risk relating to trade accounts receivable is limited due to the Company’s diversity of patients and payers. Further, the Company generally does not provide charity care. For the year ended December 31, 2021, approximately 74 % of the Company’s pharmaceutical and medical supply purchases were from four vendors. For the years ended December 31, 2020 and 2019, approximately 70 % of the Company’s pharmaceutical and medical supply purchases were from three vendors. Although there are a limited number of suppliers, the Company believes that other vendors could provide similar products on comparable terms. However, a change in suppliers could cause delays in service delivery and possible losses in revenue, which could adversely affect the Company’s financial condition or operating results. Although there is uncertainty regarding the COVID-19 pandemic, as of December 31, 2021 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations. Fair Value Measurements — The fair value measurement accounting standard, ASC Topic 820, Fair Value Measurement (“ASC 820”), provides a framework for measuring fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The standard establishes a valuation hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on independent market data sources. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available. The valuation hierarchy is composed of three categories. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows: • Level 1 - Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. • Level 2 - Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. • Level 3 - Inputs to the fair value measurement are unobservable inputs or valuation techniques. While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Recently Issued Accounting Pronouncements — In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The FASB further issued ASU 2021-01 to clarify the scope of Topic 848. The ASU can be adopted no later than December 1, 2022 with early adoption permitted. The Company does not expect adoption will have any material impact on the Company’s results of operations, cash flows or financial position. 3. BUSINESS ACQUISITIONS 55 Table of Contents Merger with BioScrip, Inc. — As discussed in Note 1, Nature of Operations and Presentation of Financial Statements , Option Care merged with BioScrip on August 6, 2019. BioScrip was a national provider of infusion and home care management solutions. The Merger of Option Care and BioScrip into Option Care Health created an expanded national platform and the opportunity to drive economies of scale through procurement savings, facility rationalization and other operating cost savings. The fair value of purchase consideration transferred of $ 1,087,214 , includes the value of the number of shares of the combined company owned by BioScrip shareholders at closing of the Merger, the value of common shares issued to certain warrant and preferred shareholders in conjunction with the Merger, the fair value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger. The Company’s allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed, net of cash acquired, in the Merger is as follows (in thousands): Amount Accounts receivable, net $ 96,532 Inventories 19,683 Property and equipment, net 48,732 Intangible assets, net 193,245 Deferred tax assets, net of deferred tax liabilities 26,731 Operating lease right-of-use asset 22,378 Operating lease liability ( 28,897 ) Accounts payable ( 66,668 ) Other assumed liabilities, net of other acquired assets ( 20,663 ) Total acquired identifiable assets and liabilities 291,073 Goodwill 796,141 Total consideration transferred $ 1,087,214 Assuming BioScrip had been acquired as of January 1, 2019, and the results of BioScrip had been included in operations beginning on January 1, 2019, the following tables provide estimated unaudited pro forma results of operations for the year ended December 31, 2019 (in thousands). The estimated pro forma net income adjusts for the effect of fair value adjustments related to the Merger, transaction costs and other non-recurring costs directly attributable to the Merger and the impact of the additional debt to finance the Merger. 2019 Net revenue $ 2,755,361 Net loss ( 49,566 ) Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or the future operating results. For the periods subsequent to the Merger Date that are included in the results of operations for the year ended December 31, 2019, BioScrip had net revenue of $ 308.9 million and a net loss of $ 30.1 million. Acquisition-related costs were expensed as incurred, with the exception of BioScrip success-based fees that are included in consideration transferred. The Company recorded transaction costs that are expensed in selling, general and administrative expenses during the year ended December 31, 2019 of approximately $ 25.8 million. Transaction expenses consisted of professional fees for advisory, consulting and underwriting services as well as other incremental costs directly related to the acquisition. BioCure Asset Acquisition — In April 2021, pursuant to the asset purchase agreement dated April 7, 2021, the Company completed the acquisition of certain assets of BioCure, LLC (“BioCure”) for a purchase price of $ 18.9 million. The allocation of the purchase price of BioCure was accounted for as an asset acquisition in accordance with ASC Topic 805, Business Combinations, with the total purchase price being allocated to the assets acquired based on the relative fair value of each asset. The purchase price was allocated to the assets acquired as follows: 56 Table of Contents Amount Inventories $ 601 Intangible assets, net $ 18,251 Total consideration transferred $ 18,852 Intangibles assets, net consists of referral sources which were assigned a useful life of 15 years, amortized on a straight-line basis. Infinity Infusion Nursing LLC — In October 2021, pursuant to the equity purchase agreement dated October 1, 2021, the Company completed the 100 % acquisition of the equity interest in Infinity Infusion LLC (“Infinity”) for a purchase price, net of cash acquired of $ 59.6 million, which is comprised of a $ 50.0 million cash payment, two contingent $ 5.0 million payments (included as a non-cash change in other noncurrent assets and liabilities within the consolidated statements of cash flows), and $( .4 ) million of other purchase price adjustments. The allocation of the purchase price of Infinity was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations , with the total purchase price being allocated to the assets and liabilities acquired based on the relative fair value of each asset and liability. The following is a preliminary estimate of the allocation of the consideration transferred, open for accounts receivable and accounts payable, to acquired identifiable assets and assumed liabilities, net of cash acquired, as of December 31, 2021 (in thousands): Amount Accounts receivable $ 2,219 Intangible assets 25,400 Accounts payable and other assumed liabilities ( 539 ) Fair value identifiable assets and liabilities 27,080 Goodwill (1) 32,524 Cash acquired 1,426 Purchase Price 61,030 Less: cash acquired ( 1,426 ) Purchase price, net of cash acquired 59,604 (1) Goodwill is attributable to cost synergies from operational efficiencies and establishing a more comprehensive clinical platform through the Company’s national infrastructure and Infinity’s nursing network. Wasatch Infusion LLC Acquisition — In December 2021, pursuant to the executed asset purchase agreement on December 29, 2021, the Company completed the acquisition of Wasatch Infusion LLC (“Wasatch”) for a purchase price of $ 19.5 million, which is comprised of a $ 17.8 million cash payment, a contingent $ 2.0 million payment (included as a non-cash change in other noncurrent assets and liabilities within the consolidated statements of cash flows), and $( .3 ) million of other purchase price adjustments. The allocation of the purchase price of Wasatch was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations , with the total purchase price being allocated to the assets and liabilities acquired based on the relative fair value of each asset and liability. The following is a preliminary estimate of the allocation of the consideration transferred, open for accounts receivable and accounts payable, to acquired identifiable assets and assumed liabilities, as of December 31, 2021 (in thousands): 57 Table of Contents Amount Accounts receivable $ 3,410 Inventories 2,038 Intangible assets 4,245 Other assets 958 Accounts payable ( 6,686 ) Other assumed liabilities ( 940 ) Fair value Identifiable assets and liabilities 3,025 Goodwill (1) 16,430 Purchase Price 19,455 (1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs. 4. REVENUE The following table sets forth the net revenue earned by category of payer for the years ended December 31, 2021, 2020 and 2019 (in thousands): Year Ended December 31, 2021 2020 2019 Commercial payers $ 2,971,900 $ 2,618,112 $ 2,001,105 Government payers 417,088 374,940 285,128 Patients 49,652 39,558 24,184 Net revenue $ 3,438,640 $ 3,032,610 $ 2,310,417 5. EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) plan and matches 100 % of employee contributions, up to 4 % of employee compensation. The Company recorded expense for the defined contribution plan of $ 11.6 million, $ 9.7 million and $ 6.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. In the years ended December 31, 2021, 2020 and 2019, Company contributions of $ 10.9 million, $ 8.9 million and $ 6.6 million, respectively, were paid. 6. INCOME TAXES The income tax expense (benefit) consists of the following for the years ended December 31, 2021, 2020 and 2019 (in thousands): 2021 2020 2019 US federal income tax (benefit) expense: Current $ — $ ( 69 ) $ — Deferred ( 30,411 ) 996 ( 3,072 ) ( 30,411 ) 927 ( 3,072 ) State income tax expense: Current 6,817 1,707 2,074 Deferred 190 199 ( 1,276 ) 7,007 1,906 798 Total income tax (benefit) expense $ ( 23,404 ) $ 2,833 $ ( 2,274 ) The difference between the statutory federal income tax rate and the effective tax rate is as follows for the years ended December 31, 2021, 2020 and 2019: 58 Table of Contents 2021 2020 2019 US federal statutory tax rate 21.0 % 21.0 % 21.0 % State and local income taxes net of federal tax benefit 4.9 % ( 29.5 ) % ( 0.5 ) % Valuation allowance ( 46.2 ) % ( 29.9 ) % ( 13.4 ) % Stock-based compensation ( 0.1 ) % 6.7 % 0.0 % Non-deductible compensation 0.1 % ( 16.3 ) % ( 0.7 ) % Non-deductible expenses 0.3 % ( 8.2 ) % ( 2.8 ) % Other, net ( 0.1 ) % 2.2 % ( 0.7 ) % Effective income tax rate ( 20.1 ) % ( 54.0 ) % 2.9 % 59 Table of Contents The components of deferred income tax assets and liabilities using the 21% U.S. Federal statutory tax rate were as follows as of December 31, 2021 and 2020 (in thousands): 2021 2020 Deferred tax assets: Price concessions $ 6,373 $ 6,907 Compensation and benefits 5,889 4,058 Interest limitation carryforward 35,114 39,094 Operating lease liability 23,266 22,644 Net operating losses 97,880 155,922 Other 6,381 8,501 Deferred tax assets before valuation allowance 174,903 237,126 Valuation allowance ( 13,151 ) ( 112,085 ) Deferred tax assets net of valuation allowance 161,752 125,041 Deferred tax liabilities: Accelerated depreciation ( 10,602 ) ( 12,593 ) Operating lease right-of-use asset ( 18,437 ) ( 17,186 ) Intangible assets ( 61,629 ) ( 67,127 ) Goodwill ( 36,702 ) ( 28,976 ) Other ( 7,349 ) ( 2,498 ) Deferred tax liabilities ( 134,719 ) ( 128,380 ) Net deferred tax assets (liabilities) $ 27,033 $ ( 3,339 ) As a result of the Merger, the Company had recorded a full valuation allowance against all of its net U.S. federal and state deferred tax assets except for certain state net operating losses (“NOL”). The initial recognition of this valuation allowance by the Company was reflected in the opening balance sheet of BioScrip and, to that extent, did not impact the Company’s tax expense (benefit) for the years ended December 31, 2020 and 2019. The company adjusted its valuation allowance to offset tax benefits that would have otherwise been recognized for the years ended December 31, 2020 and 2019. In the current year ended December 31, 2021, the company has assessed that it more likely than not will realize its deferred tax assets, with the exception of certain state NOL’s valued at $ 13.2 million, resulting in a reversal of the company’s valuation allowance in the current period. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment. On a quarterly basis, the Company evaluates the positive and negative evidence in determining if the valuation allowance is fairly stated. In the current period, the company determined the positive evidence to outweigh any negative evidence, such that the realization of the deferred tax assets is more likely than not and the reversal of the Company’s valuation allowance is warranted. Compelling objective positive evidence is the Company now realizing a multi-year cumulative income position combined with actual utilization of its deferred tax assets in the current period due to the Company generating positive pre-tax book income. Other objective positive factors include the Company’s January 2021 and October 2021 debt refinancing transactions, which result in reduced interest expense for the company compared to historical trends as well as the Company’s 2021 business acquisitions, which provide for a new and objective source of future income compared to prior year earnings. With the exception of the federal NOL carryovers noted below that are expected to expire unutilized due to limitations under Internal Revenue Code (“Code”) Section 382, the Company expects to fully utilize all of its deferred tax assets prior to any expiration based on current period income trends of the company. The Company is subject to taxation in the United States and various states. At December 31, 2021, the Company had $ 358.4 million of gross federal NOL carryforwards all of which are currently available to offset future taxable income in the United States and reflected as a deferred tax asset of the company. Gross federal NOL carryforwards of $ 223.7 million expire beginning in 2025 through 2037 and $ 134.7 million have an indefinite carryforward period. Excluded from this figure and not reflected as a deferred tax asset is $ 139.8 million of federal NOL carryovers that are expected to expire unutilized due to limitations under Code Section 382 and were written off in the current year. At December 31, 2020, the Company had $ 577.9 million of gross federal NOL’s, which included $ 139.8 million of fully reserved federal NOL carryovers that are expected to expire unutilized due to limitations under Code Section 382. At December 31, 2021 and 2020, the Company had $ 140.2 million and $ 154.8 million of interest limitation carryforwards which have an indefinite carryforward period. At December 31, 2021 60 Table of Contents and 2020, the Company also had $ 405.1 million and $ 600.1 million of cumulative gross state NOL carryforwards available to offset future taxable income in various states. These state NOL carryforwards will begin to expire beginning in 2022 through 2041, with some having an indefinite carryforward period. At December 31, 2021 and 2020, the unrecognized tax benefits for uncertain tax positions was $ 0 . The following table presents the valuation allowance for deferred tax assets for the years ended December 31, 2021, 2020 and 2019 (in thousands): Additions Description Balance at Beginning of Period Charged (Benefit) to Costs and Expenses Charged (Benefit) to Other Accounts Balance at End Period 2019: Valuation allowance for deferred tax assets $ 1,373 $ 15,395 $ 92,763 $ 109,531 2020: Valuation allowance for deferred tax assets $ 109,531 $ 1,549 $ 1,005 $ 112,085 2021: Valuation allowance for deferred tax assets $ 112,085 $ ( 96,136 ) $ ( 2,798 ) $ 13,151 Currently, the Company is not subject to any U.S. Federal income tax audits. The Company is subject to various state tax audits, and believes that the outcome of these audits will not have a material impact on the Company. The Company recorded no income tax expense or benefit for the years ended December 31, 2021 and 2020 associated with the tax provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). However, certain adjustments were made to the Company’s components of deferred tax assets and liabilities to reflect the tax provisions of the CARES Act. These adjustments were the result of the CARES Act’s tax provisions associated with interest expense limitations and bonus depreciation on leasehold improvements. These adjustments to the Company’s components of deferred tax assets and liabilities were offset by one another or the Company’s previously recognized valuation allowance. 7. EARNINGS (LOSS) PER SHARE The Company presents basic and diluted earnings (loss) per share for its common stock. Basic earnings (loss) per share is calculated by dividing the net income (loss) of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the profit or loss and the weighted average number of shares of common stock outstanding for the effects of all potentially dilutive securities. The earnings (loss) is used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. The computation of diluted shares for the year ended December 31, 2021 includes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as these common stock equivalents are dilutive to the earnings per share. The computation of diluted shares for the years ended December 31, 2020 and 2019 excludes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as their inclusion would be anti-dilutive to the loss per share. As of December 31, 2021 there were 457,753 warrants, 490,968 stock options and 316,454 restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive. As of December 31, 2020 there were 2,285,784 warrants, 412,831 stock options and 549,650 restricted stock awards outstanding that were excluded from the calculation as they were anti-dilutive. As of December 31, 2019, there were 2,328,120 warrants, 644,975 stock options and 231,562 restricted stock awards outstanding that were excluded from the calculation as they were anti-dilutive. The following table presents the Company’s basic earnings (loss) per share and shares outstanding (in thousands, except per share data): 61 Table of Contents Year Ended December 31, 2021 2020 2019 Numerator: Net income (loss) (1) $ 139,898 $ ( 8,076 ) $ ( 75,920 ) Denominator: Weighted average number of common shares outstanding 179,855 180,971 156,280 Earnings (loss) per Common Share: Earnings (loss) per common share, basic $ 0.78 $ ( 0.04 ) $ ( 0.49 ) (1) Net income (loss) for the year ended December 31, 2021 includes the impact of the Company’s release of its valuation allowance. See Note 6, Income Taxes , for further discussion. The following table presents the Company’s diluted earnings (loss) per share and shares outstanding (in thousands, except per share data): Year Ended December 31, 2021 2020 2019 Numerator: Net income (loss) (1) $ 139,898 $ ( 8,076 ) $ ( 75,920 ) Denominator: Weighted average number of common shares outstanding 179,855 180,971 156,280 Effect of dilutive securities 1,350 — — Weighted average number of common shares outstanding, diluted 181,205 180,971 156,280 Earnings (loss) per Common Share: Earnings (loss) per common share, diluted $ 0.77 $ ( 0.04 ) $ ( 0.49 ) (1) Net income (loss) for the year ended December 31, 2021 includes the impact of the Company’s release of its valuation allowance. See Note 6, Income Taxes , for further discussion. 62 Table of Contents 8. LEASES During the years ended December 31, 2021 and 2020, the Company incurred operating lease expenses of $ 29.8 million and $ 30.8 million including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the consolidated statements of comprehensive income (loss). As of December 31, 2021, the weighted-average remaining lease term was 6.6 years and the weighted-average discount rate was 5.10 %. Operating leases mature as follows (in thousands): Year Ending December 31 Minimum Payments 2022 $ 23,558 2023 20,508 2024 14,930 2025 12,218 2026 9,315 2027 and beyond 28,052 Total lease payments 108,581 Less: Interest ( 15,000 ) Present value of lease liabilities $ 93,581 During the year ended December 31, 2021, the Company commenced new leases, extensions and amendments, resulting in non-cash investing and financing activities in the consolidated statements of cash flows of $ 20.7 million related to the increases in the operating lease right-of-use asset and operating lease liabilities, respectively. As of December 31, 2021, the Company did not have any significant operating or financing leases that had not yet commenced. 63 Table of Contents 9. PROPERTY AND EQUIPMENT Property and equipment was as follows as of December 31, 2021 and 2020 (in thousands): December 31, 2021 December 31, 2020 Infusion pumps $ 34,547 $ 31,678 Equipment, furniture and other 52,913 47,886 Leasehold improvements 92,229 87,483 Computer software, purchased and internally developed 30,744 27,799 Assets under development 19,924 10,793 230,357 205,639 Less: accumulated depreciation 118,822 84,490 Property and equipment, net $ 111,535 $ 121,149 Depreciation expense is recorded within cost of revenue and operating expenses within the consolidated statements of comprehensive income (loss), depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the years ended December 31, 2021, 2020 and 2019 (in thousands): Year ended December 31, 2021 2020 2019 Depreciation expense in cost of revenue $ 5,746 $ 6,586 $ 4,179 Depreciation expense in operating expenses 29,865 36,180 27,629 Total depreciation expense $ 35,611 $ 42,766 $ 31,808 64 Table of Contents 10. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is not amortized, but is evaluated for impairment annually in the fourth quarter of the fiscal year, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Circumstances that could trigger an interim impairment test include: a significant adverse change in the business climate or legal factors; an adverse action or assessment by a regulator; unanticipated competition; the loss of key personnel; a change in reporting units; the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed of; and the results of testing for recoverability of a significant asset group within a reporting unit. A qualitative impairment analysis was performed in the fourth quarter of 2021, 2020, and 2019, to assess whether it is more likely than not that the fair value of the Company’s reporting unit is less than its carrying value. The Company assessed relevant events and circumstances including macroeconomic conditions, industry and market considerations, overall financial performance, entity-specific events, and changes in the Company’s stock price. The Company determined that there was no goodwill impairment in 2021, 2020, or 2019. 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. These estimates and assumptions primarily include, but are not limited to, the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which the Company competes; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures. Actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit, the amount of the goodwill impairment charge, or both. Changes in the carrying amount of goodwill consist of the following activity for the years ended December 31, 2021, 2020 and 2019 (in thousands): Balance at December 31, 2018 $ 632,469 Acquisitions 793,073 Balance at December 31, 2019 $ 1,425,542 Purchase accounting adjustments 3,068 Balance at December 31, 2020 $ 1,428,610 Acquisitions 48,954 Balance at December 31, 2021 $ 1,477,564 65 Table of Contents The carrying amount and accumulated amortization of intangible assets consists of the following as of December 31, 2021 and 2020 (in thousands): December 31, 2021 December 31, 2020 Gross intangible assets: Referral sources $ 482,200 $ 438,121 Trademarks/names 47,718 44,536 Other amortizable intangible assets 1,037 402 Total gross intangible assets 530,955 483,059 Accumulated amortization: Referral sources ( 137,613 ) ( 110,498 ) Trademarks/names ( 26,936 ) ( 21,146 ) Other amortizable intangible assets ( 386 ) ( 363 ) Total accumulated amortization ( 164,935 ) ( 132,007 ) Total intangible assets, net $ 366,020 $ 351,052 Amortization expense for intangible assets was $ 32.9 million, $ 35.1 million and $ 26.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Expected future amortization expense for intangible assets recorded at December 31, 2021, is as follows (in thousands): 2022 $ 31,628 2023 31,628 2024 31,628 2025 31,628 2026 31,628 2027 and beyond 207,880 Total $ 366,020 66 Table of Contents 11. INDEBTEDNESS Long-term debt consisted of the following as of December 31, 2021 (in thousands): Principal Amount Discount Debt Issuance Costs Net Balance ABL Facility $ — $ — $ — $ — First Lien Term Loan 600,000 ( 9,605 ) ( 13,331 ) 577,064 Senior Notes 500,000 — ( 11,164 ) 488,836 $ 1,100,000 $ ( 9,605 ) $ ( 24,495 ) 1,065,900 Less: current portion ( 6,000 ) Total long-term debt $ 1,059,900 Long-term debt consisted of the following as of December 31, 2020 (in thousands): Principal Amount Discount Debt Issuance Costs Net Balance ABL Facility $ — $ — $ — $ — First Lien Term Loan 915,750 ( 7,253 ) ( 19,710 ) 888,787 Second Lien Notes 245,781 ( 6,102 ) ( 4,113 ) 235,566 $ 1,161,531 $ ( 13,355 ) $ ( 23,823 ) 1,124,353 Less: current portion ( 9,250 ) Total long-term debt $ 1,115,103 On August 6, 2019, the Company repaid the outstanding balance of an $ 80.0 million revolving credit facility, a $ 415.0 million first lien term loan (“Previous First Lien Term Loan”) and a $ 150.0 million second lien term loan (“Previous Second Lien”) and retired the outstanding Previous Credit Facilities by entering into two new credit arrangements and a notes indenture. The two new credit agreements and the indenture initially provided for up to $ 1,475.0 million in senior secured credit facilities through a $ 150.0 million asset-based-lending revolving credit facility (the “ABL Facility”), a $ 925.0 million first lien term loan (the “First Lien Term Loan”, and together with the ABL Facility, the “Loan Facilities”), and a $ 400.0 million issuance of Second Lien Notes. The ABL Facility initially provided for borrowings up to $ 150.0 million, which matures on August 6, 2024. During the year ended December 31, 2020, the Company increased the borrowing capacity of its ABL Facility from $ 150.0 million to $ 175.0 million. The ABL Facility bore interest at a per annum rate initially provided that is determined by the Company’s periodic selection of rate type, either the Base Rate or the Eurocurrency Rate. Interest on the ABL Facility was charged on Base Rate loans at the greater of Base Rate, as defined, or 0.25 % plus 1.25 % to 1.75 %, depending on the historical excess availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement. Interest on the ABL Facility was charged on Eurocurrency Rate Loans at the Eurocurrency Rate, as defined, plus 2.25 % to 2.75 %, depending on the historical excess availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement. The ABL Facility contains commitment fees payable on the unused portion 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 %. Borrowings under the ABL Facility are secured by a first priority security interest in the Company’s and each of its subsidiaries’ inventory, accounts receivable, cash, deposit accounts and certain assets and property related thereto (the “ABL Priority Collateral”), in each case subject to certain exceptions, and a third priority security interest in the Term Loan Priority Collateral, as defined below. The Company had no outstanding borrowings under the ABL Facility at December 31, 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 was repayable in quarterly installments which commenced in March 2020 of $ 2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026. Interest on the First Lien Term Loan is payable monthly on Base Rate loans at Base Rate, as defined, plus 3.25 % to 3.50 %, depending on the Company’s leverage ratio. Interest is charged on Eurocurrency Rate loans at the Eurocurrency Rate, as defined, plus 4.25 % to 4.50 %, depending on the Company’s leverage ratio. The interest rate on the First Lien Term Loan was 4.40 % as of December 31, 2020. The weighted average interest rate incurred was 5.09 % for the year ended December 31, 2020. Amounts borrowed under the First Lien Term Loan are secured by a first priority security interest in each of the Company’s subsidiaries’ capital stock (subject to certain exceptions) and substantially all of the Company’s property and assets (other than the ABL 67 Table of Contents Priority Collateral), (the “Term Loan Priority Collateral”), in each case subject to certain exceptions, and a second priority security interest in the ABL Priority Collateral. The Second Lien Notes were set to mature on August 6, 2027. Interest on the Second Lien Notes was payable quarterly and is at London Interbank Offered Rate (“LIBOR”), plus 8.75 %. The Company elected to pay-in-kind (“PIK”) the first quarterly interest payment, due in November 2019, which resulted in the Company capitalizing $ 12.3 million in interest to the principal balance on the interest payment date. The Company also elected to PIK the quarterly interest payment due in August 2020, which resulted in the Company capitalizing $ 7.5 million in interest expense to the principal balance of the Second Lien Notes on the interest payment date. In connection with the PIK elections, the Company was charged an additional 1.00 % in interest expense on those quarterly interest payments. The interest rate on the Second Lien Notes was 8.98 % as of December 31, 2020. The weighted average interest incurred was 9.39 % for the year ended December 31, 2020. During the year ended December 31, 2020, the Company completed a public offering of stock for proceeds of $ 118.9 million. Those proceeds, along with additional cash on hand, were used to prepay $ 174.0 million of the Second Lien Notes, which is reflected as a cash outflow from financing activities in the Company’s consolidated statements of cash flows. The Company recognized a loss on extinguishment of debt of $ 11.5 million, of which $ 3.5 million related to the prepayment penalty and $ 8.0 million related to deferred financing fees which were written off upon extinguishment. The $ 3.5 million prepayment penalty was reflected as a cash outflow from financing activities in the Company’s consolidated statements of cash flows. The loss on extinguishment was recorded as a component of other, net in the Company’s consolidated statements of comprehensive income (loss). See Note 16, Stockholders’ Equity , for further discussion of the public offering. January 2021 Refinancing - In January 2021, the Company entered into an amendment on the First Lien Term Loan (the “First Lien Credit Agreement Amendment”). The First Lien Credit Agreement Amendment resulted in an additional $ 250.0 million of incremental First Lien Term Loan indebtedness being issued and reduced the interest rate on all outstanding First Lien Term Loan indebtedness from LIBOR plus 4.25 % to LIBOR plus 3.75 %. The proceeds of the $ 250.0 million incremental First Lien Term Loan indebtedness were used to prepay the remaining $ 245.8 million outstanding balance of the Second Lien Notes. 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. The Company assessed whether the repayment of the Second Lien Notes by issuing incremental First Lien Term Loan indebtedness resulted in an insubstantial modification or an extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows: (i) Lenders participating in both the First Lien Term Loan and Second Lien Notes; (ii) previous lenders that exited; and (iii) new lenders. The Company determined that $ 161.2 million of the First Lien Term Loan was extinguished and $ 122.9 million of the Second Lien Term Loan was extinguished, which is disclosed as an outflow from financing activities in the consolidated statements of cash flows. The First Lien Term Loan and Second Lien Notes had insubstantial modifications for lenders that participated in both debt instruments, which resulted in a cash outflow from financing activities of $ 352.0 million in the consolidated statements of cash flows. The Company determined that $ 356.2 million of new debt was issued related to the First Lien Term Loan, which is disclosed as an inflow from financing activities in the consolidated statements of cash flows. In connection with the prepayment of the Second Lien Notes and incremental First Lien Term Loan indebtedness, the Company incurred $ 7.2 million in debt issuance costs and third-party fees, of which $ 3.7 million was capitalized, $ 0.9 million was expensed as a component of other expense and $ 2.6 million was expensed as a loss on extinguishment as a component of other expense in the consolidated statements of comprehensive income (loss). Further, $ 1.0 million of the total fees incurred of $ 7.2 million was netted against the $ 356.2 million of proceeds from debt as a component of the cash flows from financing activities, $ 2.9 million was presented as deferred financing costs as a component of cash flows from financing activities, $ 2.4 million was presented as debt prepayment fees as a component of cash flows from financing activities, and the remaining $ 0.9 million was included in cash flows from operating activities in the consolidated statements of cash flows. 68 Table of Contents The Company recognized a loss on extinguishment of debt of $ 12.4 million included in the line entitled “Other, net” in the consolidated statements of comprehensive income (loss), of which $ 2.6 million related to debt issuance costs incurred with the incremental First Lien Term Loan indebtedness and prepayment of the Second Lien Notes, as discussed above, and $ 9.8 million related to existing deferred financing fees that were written off upon extinguishment. October 2021 Refinancing - 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 $ 600.0 million of refinanced borrowings (the “First Lien Term Loan Facility”). The refinancing changed the interest rate from LIBOR plus 3.75 % to, at the Parent Borrower’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 in the 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, beginning in March 2022, of $ 1.5 million plus interest and extended its maturity to October 27, 2028. The interest rate on the First Lien Term Loan was 3.25 % as of December 31, 2021. The weighted average interest rate incurred was 3.79 % for the year ended December 31, 2021. 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. The Company assessed whether the refinancing of the First Lien Term Loan Facility and issuance of the Senior Notes resulted in an insubstantial modification or an extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows: (i) Lenders continuing to participate in either the First Lien Term Loan Facility and Senior Notes (ii) previous lenders that exited; and (iii) new lenders. The Company determined that $ 35.7 million of the First Lien Term Loan was extinguished, which is disclosed as an outflow from financing activities in the condensed consolidated statements of cash flows. The First Lien Term Loan had insubstantial modifications for lenders that continued to participate in either debt instrument, which resulted in a cash outflow from financing activities of $ 558.3 million in the consolidated statements of cash flows. The Company determined that $ 501.4 million of new debt was issued related to the First Lien Term Loan, which is disclosed as an inflow from financing activities in the consolidated statements of cash flows. In connection with the refinancing of the First Lien Term Loan and issuance of the Senior Notes, the Company incurred $ 10.7 million in debt issuance costs and third-party fees, of which $ 8.8 million was capitalized, $ 1.7 million was expensed as a component of other expense and $ 0.2 million was expensed as a loss on extinguishment as a component of other expense in the consolidated statements of comprehensive income (loss). Further, $ 1.5 million of the total fees incurred of $ 10.7 million was netted against the $ 501.4 million of proceeds from debt as a component of the cash flows from financing activities, $ 7.4 million was presented as deferred financing costs as a component of cash flows from financing activities, and the remaining $ 1.8 million was included in cash flows from operating activities in the consolidated statements of cash flows. The Company recognized a loss on extinguishment of debt of $ 1.0 million included in the line entitled “Other, net” in the consolidated statements of comprehensive income (loss), of which $ 0.2 million related to debt issuance costs incurred with the First Lien Term Loan refinancing and issuance of the Senior Notes, as discussed above, and $ 0.8 million related to existing deferred financing fees that were written off upon extinguishment. The Company also entered into an agreement to amend its existing 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 Company had no outstanding borrowings under the ABL Facility at December 31, 2021. The Company had $ 7.1 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL Facility of $ 167.9 million as of December 31, 2021. The ABL Facility matures on October 27, 2026. Long-term debt matures as follows (in thousands): 69 Table of Contents Year Ending December 31, Minimum Payments 2022 $ 6,000 2023 6,000 2024 6,000 2025 6,000 2026 6,000 2027 and beyond 1,070,000 Total $ 1,100,000 During the year ended December 31, 2021, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 12, Derivative Instruments , for further discussion. The following table presents the estimated fair values of the Company’s debt obligations as of December 31, 2021 (in thousands): Financial Instrument Carrying Value as of December 31, 2021 Markets for Identical Item (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) First Lien Note Facility $ 577,064 $ — $ 598,500 $ — Senior Notes 488,836 — 501,250 — Total debt instruments $ 1,065,900 $ — $ 1,099,750 $ — The following table sets forth the changes in Level 3 measurements for the year ended December 31, 2021 (in thousands). As the Second Lien Notes were prepaid in Q1, there was no change in the fair value thereafter: Level 3 Measurements Second Lien Notes fair value as of January 1, 2021 $ 266,438 Principal prepayment ( 245,781 ) Change in fair value ( 20,657 ) Second Lien Notes fair value as of December 31, 2021 $ — See Note 13, Fair Value Measurements , for further discussion. 12. DERIVATIVE INSTRUMENTS The Company utilizes derivative financial instruments for hedging and non-trading purposes to limit the Company’s exposure to its variable interest rate risk. Use of derivative financial instruments in hedging strategies subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company’s derivative financial instruments is used to measure interest to be paid or received and does not represent the Company’s exposure due to credit risk. Credit risk is monitored through established approval procedures, including reviewing credit ratings when appropriate. In August 2019, the Company entered into interest rate swap agreements that reduce the variability in the interest rates on the newly-issued debt obligations following the Merger with BioScrip. The first interest rate swap for $ 925.0 million notional was effective in August 2019 with $ 911.1 million designated as a cash flow hedge against the underlying interest rate on the First Lien Term Loan interest payments indexed to one-month LIBOR through August 2021. In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges , the Company had determined that the $ 911.1 million designated cash flow hedge is perfectly effective. The remaining $ 13.9 million notional amount of the first interest rate swap is not designated as a hedging instrument. The first interest rate swap expired in August 2021. The second interest rate swap of $ 400.0 million notional was effective in November 2019 and was designated as a cash flow hedge against the underlying interest rate on the Second Lien Notes interest payments indexed to three-month LIBOR through November 2020. In May 2020, the Company elected to PIK the Second Lien Notes’ quarterly interest payment due in August 2020. Upon making the PIK election, the Company determined that the hedged interest payment would no longer occur, resulting in an 70 Table of Contents ineffective hedge, so the Company discontinued hedge accounting on its $ 400.0 million notional interest rate swap. As a result, the Company reclassified accumulated comprehensive loss of $ 3.7 million to interest expense, net in the consolidated statements of comprehensive income (loss). The gains and losses associated with the $ 400.0 million notional swap were recognized in net income (loss) through interest expense until the swap expired in November 2020. In October 2021, the Company entered into an interest rate cap hedge with a notional amount of $ 300 million for a 5-year term beginning November 30, 2021. The hedge partially offsets risk associated with the First Lien Term Loan Facility’s variable interest rate. The interest rate cap instrument perfectly offsets the terms of the interest rates associated with the variable interest rate of the First Lien Term Loan. The following table summarizes the amount and location of the Company’s derivative instruments in the consolidated balance sheets (in thousands): Fair value - Derivatives in liability position Derivative Balance Sheet Caption December 31, 2021 December 31, 2020 Interest rate caps designated as cash flow hedges Accrued expenses and other current liabilities $ 601 $ — Interest rate swaps designated as cash flow hedges Accrued expenses and other current liabilities — 11,172 Interest rate swaps not designated as hedges Accrued expenses and other current liabilities — 170 Total derivatives $ 601 $ 11,342 The gain and loss associated with the changes in the fair value of the effective portion of hedging instruments are recorded into other comprehensive (loss) income. The gain and loss associated with the changes in the fair value of the hedging instruments not designated are recognized in net income (loss) through interest expense. The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s consolidated statements of comprehensive income (loss) (in thousands): Years Ended December 31, Derivative 2021 2020 2019 Interest rate caps designated as cash flow hedges $ ( 601 ) $ — $ ( 1,103 ) Interest rate swaps designated as cash flow hedges 11,172 ( 7,723 ) ( 7,195 ) Interest rate swaps that discontinued hedge accounting — 3,746 — Total $ 10,571 $ ( 3,977 ) $ ( 8,298 ) The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s consolidated statement of comprehensive income (loss) related to the Company’s derivative instruments (in thousands): Year Ended December 31, Derivative Income Statement Caption 2021 2020 2019 Interest rate caps designated as cash flow hedges Interest expense $ ( 239 ) $ — $ ( 125 ) Interest rate swaps designated as cash flow hedges Interest expense ( 11,298 ) ( 12,799 ) ( 115 ) Interest rate swaps not designated as hedges Interest expense ( 2 ) ( 34 ) ( 92 ) Interest rate swaps that discontinued hedge accounting Interest expense — ( 3,746 ) — Total $ ( 11,539 ) $ ( 16,579 ) $ ( 332 ) The Company expects to reclassify $ 2.8 million of total interest rate costs from accumulated other comprehensive loss against interest expense during the next 12 months. 71 Table of Contents 13. FAIR VALUE MEASUREMENTS Fair value measurements are determined by maximizing the use of observable inputs and minimizing the use of unobservable inputs. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurements) and gives the lowest priority to unobservable inputs (Level 3 measurements). The three levels of inputs within the fair value hierarchy are defined in Note 2, Summary of Significant Accounting Policies. While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. First Lien Term Loan : Prior to the October refinancing, the fair value of the First Lien Term Loan is derived from a broker quote on the loans in the syndication (Level 2 inputs). See Note 11, Indebtedness , for further discussion of the carrying amount and fair value of the First Lien Term Loan. Second Lien Notes : Prior to the January refinancing, the fair value of the Second Lien Notes is derived from a cash flow model that discounted the cash flows based on market interest rates (Level 3 inputs). See Note 11, Indebtedness , for further discussion of the carrying amount and fair value of the Second Lien Notes. New First Lien Term Loan : The fair value of the New First Lien Term Loan is derived from a broker quote on the loans in the syndication (Level 2 inputs). See Note 11, Indebtedness , for further discussion of the carrying amount and fair value of the New First Lien Term Loan. Senior Notes : The fair value of the Senior Notes is derived from a broker quote (Level 2 inputs). See Note 11, Indebtedness , for further discussion of the carrying amount and fair value of the Senior Notes. Interest rate swaps : The fair values of interest rate swaps are derived from the interest rates prevalent in the market and future expectations of those interest rates (Level 2 inputs). The Company determines the fair value of the investments based on quoted prices from third-party brokers. Both interest rate swaps have been terminated. See Note 12, Derivative Instruments , for further discussion of the fair value of the interest rate swaps. Interest rate cap : The fair values of the interest rate cap are derived from the interest rates prevalent in the market and future expectations of those interest rates (Level 2 inputs). The Company determines the fair value of the investments based on quoted prices from third-party brokers. See Note 12, Derivative Instruments , for further discussion of the fair value of the interest rate caps. There were no other assets or liabilities measured at fair value at December 31, 2021 or 2020. 14. COMMITMENTS AND CONTINGENCIES The Company is involved in legal proceedings and is subject to investigations, inspections, audits, inquiries, and similar actions by governmental authorities, arising in the normal course of the Company’s business. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. From time to time, the Company may also be involved in legal proceedings as a plaintiff involving antitrust, tax, contract, intellectual property, and other matters. Gain contingencies, if any, are recognized when they are realized. The results of legal proceedings are often uncertain and difficult to predict, and the costs incurred in litigation can be substantial, regardless of the outcome. The Company believes that its defenses and assertions in pending legal proceedings have merit and does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s consolidated balance sheets. However, substantial unanticipated verdicts, fines, and rulings may occur. As a result, the Company may from time to time incur judgments, enter into settlements, or revise expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations in the period in which the amounts are accrued and/or its cash flows in the period in which the amounts are paid. 72 Table of Contents 15. STOCK-BASED INCENTIVE COMPENSATION Equity Incentive Plans — Under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”), approved at the annual meeting by the BioScrip stockholders on May 3, 2018, the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, stock grants, and performance units to key employees and directors. The 2018 plan is administered by the Company’s Compensation Committee, a standing committee of the Board of Directors. A total of 4,101,735 shares of common stock were initially authorized for issuance under the 2018 Plan. In May 2021, an additional 4,999,999 shares were authorized for issuance under the 2018 Plan, resulting in a total 9,101,734 shares of common stock authorized for issuance. Stock Options — Options granted under the 2018 Plan typically vest over a three - or four-year period and, in certain instances, may fully vest upon a change in control of the Company. The options also typically have an exercise price that may not be less than 100% of its fair market value on the date of grant and are exercisable seven to ten years after the date of grant, subject to earlier termination in certain circumstances. Compensation expense from stock options is recognized on a straight-line basis over the requisite service period. During the years ended December 31, 2021 and 2020, the Company recognized compensation expense related to stock options of $ 1.9 million and $ 0.4 million. The Company did not recognize any compensation expense related to stock options prior to the Merger. The weighted average grant-date fair value of options granted during the years ended December 31, 2021 and 2020 was $ 17.79 and $ 5.94 , respectively. The Company did no t grant any options during the year ended December 31, 2019. The fair value of stock options granted was estimated on the date of grant using a Black-Scholes pricing model. The assumptions used to compute the fair value of options for the year ended December 31, 2021 and 2020 are as follows: Years Ended December 31, 2021 2020 Expected volatility 51.92 % 45.7 % Risk-free interest rate 1.4 % 0.53 % Expected life of options 6.5 years 6.3 years Dividend rate — — A summary of stock option activity for the year ended December 31, 2021 is as follows: Options Weighted Average Exercise Price Aggregate Intrinsic Value (thousands) Weighted Average Remaining Contractual Life Balance at December 31, 2020 412,831 $ 14.77 $ 1,320 Granted 853,089 $ 22.14 $ 5,335 Exercised ( 42,405 ) $ 10.65 $ 461 Forfeited and expired ( 53,374 ) $ 22.13 $ 478 Balance at December 31, 2021 1,170,141 $ 19.96 $ 10,154 8.55 years Exercisable at December 31, 2021 150,890 $ 15.84 $ 2,131 3.63 years During the year ended December 31, 2021, shares were surrendered to satisfy tax withholding obligations on the exercise of stock options with a cost basis of $ 0.1 million. During the year ended December 31, 2020, shares were surrendered to satisfy tax withholding obligations on the exercise of stock options with a cost basis of $ 2.7 million, which are all held as treasury stock as of December 31, 2021. During the year ended December 31, 2020, $ 0.4 million of cash was received from stock option exercises under share-based payment arrangements. No cash was received from stock option exercises under share-based payment arrangements for the year ended December 31, 2019. 73 Table of Contents The maximum term of stock options under these plans is ten years . Options outstanding as of December 31, 2021 expire on various dates ranging from March 2023 through October 2031. The following table outlines the outstanding and exercisable stock options as of December 31, 2021: Options Outstanding Options Exercisable Range of Option Exercise Price Outstanding Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Options Exercisable Weighted Average Exercise Price $ 0.00 - $ 8.24 9,901 $ 6.52 5.1 years 9,901 $ 6.52 $ 8.24 - $ 16.52 292,189 $ 12.32 7.0 years 99,739 $ 10.30 $ 16.52 - $ 24.76 521,461 $ 19.90 9.0 years 21,375 $ 23.56 $ 24.76 - $ 33.00 336,715 $ 26.20 9.6 years 10,000 $ 30.20 $ 41.28 - $ 49.52 6,250 $ 44.16 1.2 years 6,250 $ 44.16 $ 49.52 - $ 57.76 2,375 $ 56.24 1.3 years 2,375 $ 56.24 $ 66.00 - $ 74.28 1,250 $ 66.52 1.6 years 1,250 $ 66.52 All options 1,170,141 150,890 As of December 31, 2021, there was $ 13.9 million of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of 2.3 years. Restricted Stock — Restricted stock grants subject solely to an employee’s continued service with the Company generally will become fully vested within one to four years from the grant date and, in certain instances, may fully vest upon a change in control of the Company. Restricted stock grants subject solely to a Director’s continued service with the Company generally will become fully vested within one year from the date of grant. Compensation expense from restricted stock is recognized on a straight-line basis over the requisite service period. During the years ended December 31, 2021 and 2020, the Company recognized compensation expense related to restricted stock awards of $ 4.9 million and $ 2.3 million, respectively. The Company did not recognize any compensation expense related to restricted stock awards prior to the Merger. A summary of restricted stock award activity for the year ended December 31, 2021 is as follows: Restricted Stock Weighted Average Grant Date Fair Value Balance at December 31, 2020 549,650 $ 13.26 Granted 875,554 $ 19.95 Vested and issued ( 91,858 ) $ 13.01 Forfeited and expired ( 67,120 ) $ 15.62 Balance at December 31, 2021 1,266,226 $ 17.73 During the year ended December 31, 2021, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $ 0.0 million. During the year ended December 31, 2020, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $ 0.3 million. As of December 31, 2021, there was $ 31.2 million in unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 2.1 years. The total fair value of restricted stock awards vested during the years ended December 31, 2021, 2020 and 2019 was $ 1.2 million, $ 1.5 million and $ 1.9 million, respectively. 74 Table of Contents HC I Incentive Units — Beginning in October 2015, HC I implemented an equity incentive plan for certain officers and employees of the Company. Incentive units are equity-based awards subject to time and performance vesting restrictions. The compensation expense related to this plan has been reflected in the Company’s financial statements. In accordance with ASC Topic 718, Compensation-Stock Compensation , compensation expense is recognized on a straight-line basis over the vesting period of the award or the employee’s retirement eligible date, if earlier. During the years ended December 31, 2021, 2020 and 2019, the Company recognized compensation expense related to the HC I incentive units of $ 0.1 million, $ 0.2 million and $ 1.9 million, respectively.There are no awards outstanding as of December 31, 2021 and no awards were issued during the year ended December 31, 2021. 75 Table of Contents 16. STOCKHOLDERS’ EQUITY On January 3, 2020, the Company’s board of directors and HC I, the stockholder of a majority of the Company’s common stock, approved a reverse stock split of the Company’s issued and outstanding common stock on a one share for four share basis and appropriately amended the Company’s Third Amended and Restated Certificate of Incorporation to reflect the change. On February 3, 2020, the reverse stock split became effective. In connection with the reverse stock split, the Company changed its ticker symbol from “BIOS” to “OPCH” and transferred the Company’s common stock from the Nasdaq Capital Market to the Nasdaq Global Select Market. The par value of the Company’s common stock remained unchanged as a result of the reverse stock split, resulting in a decrease to the aggregate par value of common stock and corresponding increase to paid-in capital in the Company’s consolidated financial statements, which was retrospectively applied to all periods presented in the financial statements. All common shares, warrants and stock awards presented in the consolidated financial statements have been retrospectively adjusted for the reverse stock split. During the year ended December 31, 2020, the Company completed a public offering of 20,700,000 shares of the Company’s common stock at a price of $ 12.50 per share, consisting of 10,000,000 shares of common stock issued and sold by the Company and 10,700,000 shares of common stock sold by HC I. The Company received net proceeds from the offering of $ 118.9 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. During the year ended December 31, 2021, HC I completed secondary offerings of 76,400,000 shares of common stock. For the year ended December 31, 2021, HCI holds approximately 20.7 % of the common stock of the Company. 2017 Warrants — Prior to the Merger, BioScrip issued warrants to certain debt holders pursuant to a Warrant Purchase Agreement dated as of June 29, 2017. In conjunction with the Merger, the 2017 Warrants were amended to entitle the purchasers of the warrants to purchase 2.1 million shares of common stock. The 2017 Warrants have a 10-year term and an exercise price of $ 8.00 per share and may be exercised by payment of the exercise price in cash or surrender of shares of common stock into which the 2017 Warrants are being converted in an aggregate amount sufficient to pay the exercise price. The 2017 Warrants are classified as equity instruments, and the fair value of these warrants of $ 14.1 million was recorded in paid-in capital as of the Merger Date. During the years ended December 31, 2021 and 2020, warrant holders exercised warrants to purchase zero and 42,336 shares of common stock, respectively. No proceeds were received from these exercises as the warrant holders elected to surrender shares to pay the exercise price. At December 31, 2021 and 2020, the remaining warrant holders are entitled to purchase 1.4 million shares of common stock, respectively. 2015 Warrants — Prior to the Merger, BioScrip issued warrants pursuant to a Common Stock Warrant Agreement dated as of March 9, 2015 which entitle the holders to purchase 0.9 million shares of common stock. The 2015 Warrants have a 10-year term and have exercise prices in a range of $ 20.68 per share to $ 25.80 per share. The 2015 Warrants were assumed by the Company in conjunction with the Merger and are classified as equity instruments, and the fair value of these warrants of $ 4.6 million was recorded in paid in capital as of the Merger Date. Home Solutions Restricted Stock — In conjunction with BioScrip’s 2016 acquisition of Home Solutions, Inc., 1.8 million restricted shares of common stock were issued, of which 0.8 million of these units vest upon the closing price of the Company’s common stock averaging at or above $ 16.00 per share over 20 consecutive trading days prior to December 31, 2019 and 1.0 million of these units vest upon the closing price of the Company’s common stock averaging at or above $ 20.00 per share over 20 consecutive trading days prior to December 31, 2019. The restricted stock expired on December 31, 2019. As discussed in Note 1, Nature of Operations and Presentation of Financial Statements , 7,048,357 common shares issued to HC I in conjunction with the Merger were set aside to prevent dilution related to the vesting of the Home Solutions restricted stock. During the year ended December 31, 2020, this matter was resolved with no common shares being issued to Home Solutions, Inc., and the 7,048,357 shares, at $ 0.0001 par value, set aside were cancelled as unvested and removed from the Company’s common shares issued and outstanding. Treasury Stock — During the year ended December 31, 2019, 290,117 shares were surrendered to satisfy tax withholding obligations on the exercise of stock options and the vesting of restricted stock awards with a cost basis of $ 2.5 million, of which $ 2.4 million remains held in treasury as of December 31, 2021 and 2020. At December 31, 2021 and 2020, the Company held 383,722 shares of treasury stock. Preferred Stock — In conjunction with the Merger, all legacy BioScrip preferred stock was settled, and no preferred stock is outstanding as of December 31, 2021 or 2020. 17. RELATED-PARTY TRANSACTIONS Management Services — In conjunction with the Option Care acquisition from Walgreen Co. in 2015, the Company entered into two separate Management Services Agreements with Madison Dearborn Partners VI-B, L.P. and Walgreen Co. 76 Table of Contents Each Management Services Agreement required the Company to pay $ 0.3 million to each party quarterly beginning July 1, 2015 for on-going management, consulting and financial services provided to the Company. Following the close of the Merger, both Management Services Agreements were terminated. The Company did not incur any management services expense during the years ended December 31, 2021 or December 31, 2020. In 2019, prior to the Merger, the Company incurred $ 1.5 million of management services expense, which has been reflected as a component of selling, general and administrative expense in the consolidated statements of comprehensive income (loss) for the year ended December 31, 2019. Management Equity Ownership Plan — In October 2015, HC I implemented an equity ownership and incentive plan for certain officers and employees of Option Care. The officers were able to purchase membership units in HC I and could fund a portion of the purchase with a loan from Option Care. These loans were treated as a shareholder contribution in Option Care. For the years ended December 31, 2021, 2020 and 2019, there was no activity credited to paid-in capital related to HC I membership units purchased with a loan from Option Care. There were no shareholder redemptions during the year ended December 31, 2021 and 2020. During the year ended December 31, 2019, shareholder redemptions totaled $ 2.4 million, comprised of a cash distribution to HC I of $ 2.0 million and notes redeemed of $ 0.4 million. During the year ended December 31, 2019, prior to the Merger, Option Care sold its notes receivable from management, along with all accrued interest expense, to a third-party bank. Option Care received cash proceeds of $ 1.3 million, which represented payment of $ 1.1 million in outstanding notes receivable from management and payment of $ 0.2 million in accrued interest expense. There were no notes receivable from management outstanding as of December 31, 2021, 2020 or 2019. Transactions with Equity-Method Investees — The Company provides management services to its joint ventures such as accounting, invoicing and collections in addition to day-to-day managerial support of the operations of the businesses. The Company recorded management fee income of $ 3.5 million, $ 2.9 million and $ 2.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Management fees are recorded in net revenues in the accompanying consolidated statements of comprehensive income (loss). The Company had amounts due to its joint ventures of $ 1.4 million as of December 31, 2021. The Company had amounts due from its joint ventures of $ 2.4 million as of December 31, 2020 and due to its joint ventures of $ 4.3 million as of December 31, 2019. These receivables were included in prepaid expenses and other current assets in the accompanying balance sheets and these payables were included in accrued expenses and other current liabilities in the accompanying balance sheets. These balances primarily relate to cash collections received by the Company on behalf of the joint ventures, offset by certain pharmaceutical inventories purchased by the Company on behalf of the joint ventures. 18. SUBSEQUENT EVENTS The Company has evaluated whether any subsequent events occurred since December 31, 2021 and noted the following subsequent event: In February 2022, the Company entered into a definitive agreement to acquire Specialty Pharmacy Nursing Network, Inc. The Company expects to complete the acquisition in 2022. An estimate of the financial effect cannot be made as the acquisition has not yet been completed. 77 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.