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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-11-04 · 78 added, 172 removed, 139 unchanged (64% of the section changed)

3 unchanged sentences

The following discussion and analysis of the financial condition and results of operations of Option Care Health, Inc.

(“Option Care Health”, or the “Company”) should be read in conjunction with the audited consolidated financial statements and related notes, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2021, as well as the Company’s unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this report.

(“Option Care Health”, or the “Company”) should be read in conjunction with the audited consolidated financial statements and related notes, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2022, as well as the Company’s unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this report.

Forward-Looking Statements

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(“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”) (the “Merger”), a national provider of infusion and home care management solutions, which 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.

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

and the combined company’s stock, par value $0.0001, was listed on the Nasdaq Capital Market.

Effective February 3, 2020, the Company was listed on the Nasdaq Global Select Market under the ticker symbol “OPCH”.

Update on the Impact of the COVID-19 Pandemic

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

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

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

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

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

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

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

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

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

The Company has been disrupted by both positive and negative referral patterns, experienced challenges in our staffing, increased pricing and ability to procure, and ability to procure personal protection equipment, supplies and key drugs.

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

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

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

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

“Risk Factors” under the caption “The COVID-19 pandemic and other pandemic events could adversely impact our business operations, results of operations, cash flows and financial position” included in our Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion of risks.

Composition of Results of Operations

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

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three months March 31, 2022 and 2021.

Gross profit represents our net revenue less cost of revenue.

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Interest Expense, Net .

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

Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, the first lien term loan and senior notes, amortization of discount and deferred financing fees.

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

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

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

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

Income Tax Expense .

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Results of Operations

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

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

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

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

The following table presents Option Care Health’s consolidated results of operations for the three months ended March 31,

2022 and March 31, 2021 (in thousands):

For the three months ended

March 31, 2022 March 31, 2021

Amount % of Revenue Amount % of Revenue

NET REVENUE $ 915,784 100.0 % $ 759,237 100.0 %

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NET INCOME (LOSS) $ 30,275 3.3 % $ (2,861) (0.4) %

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $0, $0 and $0, respectively 2,892 0.3 % 4,022 0.5 % 11,172 0.4 % (8,034) (0.4) %

OTHER COMPREHENSIVE INCOME (LOSS) 2,892 0.3 % 4,022 0.5 % 11,172 0.4 % (8,034) (0.4) %

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

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

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

Three Months Ended September 30,

OTHER COMPREHENSIVE INCOME, NET OF TAX:

Change in unrealized gains on cash flow hedges, net of income tax expense of $3,763,and $0, respectively 11,070 1.2 % 4,081 0.5 %

OTHER COMPREHENSIVE INCOME $ 11,070 1.2 % $ 4,081 0.5 %

NET COMPREHENSIVE INCOME $ 41,345 4.5 % $ 1,220 0.2 %

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

For the three months ended

March 31, 2022 March 31, 2021

(unaudited) (unaudited) Variance

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Gross profit margin 21.9 % 21.8 %

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

Additionally, acquisition related growth accounted for approximately 2% of the increase in net revenue and gross profit.

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

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

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

Gross profit margin was consistent with the prior year as the growth in the chronic portfolio was concentrated in higher profit therapies.

Operating Expenses

Three Months Ended September 30,

For the three months ended

March 31, 2022 March 31, 2021

(unaudited) (unaudited) Variance

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Total operating expenses $ 148,691 $ 136,379 $ 12,312 9.0 %

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

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

The increase in Selling, general and administrative expenses is primarily due to salaries and benefits as a result of acquired team members, but has decreased as a percentage of revenue to 14.6% for the three months ended March 31, 2022 as compared to 15.8% for the three months ended March 31, 2021, as our revenue has grown at a faster pace than our selling, general and administrative expenses.

The decrease in depreciation and amortization expense is primarily attributed to certain intangible assets whose useful life expired, which resulted in approximately $1.5 million decrease to amortization expense.

Other Income (Expense)

Three Months Ended September 30,

For the three months ended

March 31, 2022 March 31, 2021

(unaudited) (unaudited) Variance

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Total other expense $ (10,977) $ (30,677) $ 19,700 (64.2) %

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

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

The decrease in interest expense was primarily attributable to the debt refinancing of the first lien term loan and issuance of senior notes in October 2021 during the three months ended March 31, 2022.

See Note 10, Indebtedness , of the consolidated financial statements for further information.

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

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

Income Tax Expense

Three Months Ended September 30,

For the three months ended

March 31, 2022 March 31, 2021

(unaudited) (unaudited) Variance

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Income tax expense 10,993 1,278 $ 9,715 760.2 %

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

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

Because of the Company’s full valuation allowance, the Company’s tax expense for the three months ended September 30, 2021 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense.

These tax expense items resulted in an effective tax rate of 8.0% during the three months ended September 30, 2021.

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

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

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

The Company maintains a valuation allowance against certain state net operating losses (“NOL”).

The Company’s tax expense for the three months ended March 31, 2022 consists of quarterly tax liabilities attributable to state tax returns as well as recognized deferred federal and state tax expense.

These tax expense items resulted in an effective tax rate of 26.6% during the three months ended March 31, 2022.

During the three months ended March 31, 2021, the effective tax rate was negative 80.7%.

The variance in the Company’s effective tax rate of 26.6% for the three months ended March 31, 2022 compared to the Company’s Federal statutory rate of 21% is primarily attributable to current and deferred state taxes as well as various non-deductible expenses.

The variance in the Company’s effective tax rate of negative 80.7% for the three months ended March 31, 2021 compared to the Company’s Federal statutory rate of 21% is primarily attributable to the Company only recognizing certain deferred federal and state tax expense and current state tax expense while any tax benefits that would have otherwise been recognized were offset by the Company’s tax valuation allowance in effect during that period.

The variance in the year-over-year effective tax rates is primarily attributable to the company not recognizing any tax benefit for the period ended March 31, 2021 because it maintained a full tax valuation allowance reserve against such benefits.

This reserve was subsequently reversed during the three months ended December 31, 2021.

Therefore, the reserve was not applicable in computing tax expense for the three months ended March 31, 2022, thus producing the effective tax rate variance year-over-year.

Net Income and Other Comprehensive Income

Three Months Ended September 30,

For the three months ended

March 31, 2022 March 31, 2021

(unaudited) (unaudited) Variance

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Net comprehensive income $ 41,345 $ 1,220 $ 40,125 3,288.9 %

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

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

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

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

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

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Net revenue $ 2,511,446 $ 2,227,897 $ 283,549 12.7 %

Cost of revenue 1,944,037 1,729,395 $ 214,642 12.4 %

Gross profit 567,409 498,502 $ 68,907 13.8 %

Gross profit margin 22.6 % 22.4 %

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

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

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

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

Operating Expenses

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Selling, general and administrative expenses $ 388,930 $ 377,198 $ 11,732 3.1 %

Depreciation and amortization expense 48,410 54,892 (6,482) (11.8) %

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

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

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

Other Income (Expense)

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Interest expense, net $ (52,717) $ (84,102) $ 31,385 (37.3) %

Equity in earnings of joint ventures 4,567 2,364 2,203 93.2 %

Other, net (12,392) (8,322) (4,070) 48.9 %

Total other expense $ (60,542) $ (90,060) $ 29,518 (32.8) %

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

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

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

Income Tax Expense

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Income tax expense $ 5,096 $ 2,267 $ 2,829 124.8 %

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

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

Because of the Company’s full valuation allowance, the Company’s tax expense for the nine months ended September 30, 2021 only consists of quarterly tax liabilities attributable to separate company state taxing authorities as well as recognized deferred tax expense.

These tax expense items created an effective tax rate of 7.3% during the nine months ended September 30, 2021.

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

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

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

Nine Months Ended September 30,

(unaudited) (unaudited) Variance

(in thousands, except for percentages)

Net income (loss) $ 64,431 $ (25,915) $ 90,346 (348.6) %

Other comprehensive income (loss), net of tax:

Changes in unrealized gains (losses) on cash flow hedges, net of income taxes 11,172 (8,034) 19,206 (239.1) %

Other comprehensive income (loss) 11,172 (8,034) 19,206 (239.1) %

Net comprehensive income (loss) $ 75,603 $ (33,949) $ 109,552 (322.7) %

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

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

The change in unrealized loss for the nine months ended September 30, 2020 related to the decrease in the variable interest rates during 2020, partially offset by the $3.7 million reclassification from accumulated other comprehensive income to interest expense upon discontinuing hedge accounting on the $400.0 million notional interest rate swap.

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

The change in net income (loss) was primarily attributable to organic growth from additional revenue related to the factors described in the above sections.

The change in unrealized gains on cash flow hedges, net of income taxes, was primarily related to the increase in fair market value of the $300.0 million interest rate cap hedge executed in October 2021.

For the three months ended March 31, 2021, the change in unrealized gains on cash flow hedges, net of income taxes, primarily related to the increase in fair value on the $925.0 million notional swap;

the swap expired in August 2021.

Net comprehensive income increased to $41.3 million for the three months ended March 31, 2022, compared to net comprehensive income of $1.2 million for the three months ended March 31, 2021, primarily as a result of the changes in net income, discussed above, further increased by the impact of the fair value of the interest rate cap hedge.

For the three months ended March 31, 2021, the change in net comprehensive income was primarily related to the increase in fair value on the $925.0 million notional swap;

the swap expired August 2021.

Liquidity and Capital Resources

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

During the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company’s positive cash flows from operations enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as pursue acquisitions.

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

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

For the three months ended March 31, 2022 and the twelve months ended December 31, 2021, the Company’s primary sources of liquidity were cash on hand of $145.6 million and $119.4 million, respectively, as well as the $167.9 million of borrowings available under its credit facilities (net of $7.1 million undrawn letters of credit issued and outstanding).

During the three months ended March 31, 2022 and the year ended December 31, 2021, the Company’s positive cash flows from operations enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as pursue acquisitions.

The Company’s primary uses of cash include supporting our ongoing business activities, investment in capital expenditures in both facilities and technology, and the pursuit of acquisitions.

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

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

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

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

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

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

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Credit Facilities

The Company’s ABL revolving credit facility provides for borrowings up to $175.0 million, which matures on August 6, 2024.

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

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

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

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

The Company had $9.6 million of undrawn l etters of credit issued and outstanding, resulting in net borrowing availability under the ABL facility of $165.4 million as of September 30, 2021.

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

The Company’s asset-based-lending (“ABL”) revolving credit facility provides for borrowings up to $175.0 million, which matures on October 27, 2026.

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 $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 March 31, 2022.

The principal balance of the first lien term loan is repayable in quarterly installments of $1.5 million plus interest, with a final payment of all remaining outstanding principal due on October 27, 2028.

The quarterly principal payments commenced in March of 2022.

Interest on the first lien term loan was initially payable monthly on Base Rate loans at Base Rate, as defined, plus 3.25% to 3.50%, depending on the Company’s leverage ratio.

Interest was initially charged on Eurocurrency Rate loans at the Eurocurrency Rate, as defined, plus 4.25% to 4.50%, depending on the Company’s leverage ratio.

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

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

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

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

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

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

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

During the three months ended March 31, 2021, the Company entered into an amendment on the first lien term loan (the “First Lien Credit Agreement Amendment”).

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

The proceeds of the $250.0 million incremental first lien term loan indebtedness were used to prepay the remaining $245.8 million outstanding balance of the second lien notes.

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

See Note 10, Indebtedness , of the unaudited condensed consolidated financial statements included in Item 1 of this report for further discussion.

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

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

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

See Note 17, Subsequent Events , for further discussion.

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

Interest on the first lien term loan is payable monthly on 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 and (ii) a base rate determined in accordance with the new first lien term loan agreement, plus 1.75% for Base Rate Loans.

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

The senior notes mature on October 31, 2029.

Interest payments over the course of long-term debt obligations total an estimated $293.8 million based on final maturity dates of the Company’s credit facilities.

Interest payments are calculated based on the LIBOR rate as of March 31, 2022.

Actual payments are based on changes in LIBOR and exclude the interest rate cap derivative instrument.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

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

Nine Months Ended September 30,

Three Months Ended March 31,

(unaudited) (unaudited) Variance

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Cash Flows from Operating Activities

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

The increase in cash flows provided by operating activities is primarily due to higher net income, decrease in interest expense due to the October 2021 debt refinancing, and timing of vendor payments during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Cash Flows from Investing Activities

The increase in cash flows used in investing activities is primarily due to the BioCure asset acquisition in the current year.

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

Cash Flows from Financing Activities

The increase in cash used in financing activities is related to the current year debt refinancing, which resulted in proceeds of debt of $355.2 million, retirement of debt obligations of $352.0 million (as compared to $125.0 million for the nine months ended September 30, 2020), deferred financing costs of $2.9 million and debt prepayment penalties of 2.5 million.

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

Commitments and Contractual Obligations

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

Payments Due by Period

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

(in thousands)

Long-term debt obligations (1)

$ 1,156,919 $ 8,831 $ 26,494 $ 1,121,594 $ —

Interest payments on long-term debt obligations (2)

212,126 44,770 88,166 79,190 —

Total $ 1,369,045 $ 53,601 $ 114,660 $ 1,200,784 $ —

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

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

Actual payments are based on changes in LIBOR.

Calculated interest payments exclude interest rate swap agreements the Company entered into in connection with the long-term debt obligations.

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding.

Off-Balance Sheet Arrangements

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

The decrease in cash used in financing activities is related to the current year repayments of the first term lien notes, which resulted in repayments of $1.5 million.

The remaining change in financing activities was related to net proceeds from the January 2021 refinancing in the three months ended March 31, 2021 with no comparable activity in the three months ended March 31, 2022.

Critical Accounting Policies and Estimates

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The company’s critical accounting policies and estimates as presented in our Annual report on 10-K for the year ended December 31, 2021 are hereby incorporated by reference.

In addition, the following critical accounting policy should be considered:

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

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

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

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

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

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

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

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

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

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

The Company measures recognized income tax positions at the maximum benefit that is more likely than not, based on cumulative

probability, realizable upon final settlement of the position.

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

Quantitative and Qualitative Disclosures about Market Risk

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Item 2. Management’s Discussion and Analysis