What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-23 · 82 added, 126 removed, 144 unchanged (59% of the section changed)

2 unchanged sentences

Except for the historical information contained herein, the following discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements.

We discuss such risks, uncertainties and other factors throughout this Annual Report and specifically under the caption “Forward-Looking Statements” in this Annual Report.

We discuss such risks, uncertainties and other factors throughout this Annual Report and specifically under the caption “Forward-Looking Statements” and in Item 1A.

“Risk Factors” in this Annual Report.

In addition, the following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing in Item 8 in this Annual Report.

Business Overview

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 154 locations around the United States.

Option Care Health and its wholly-owned subsidiaries provide infusion therapy and other ancillary health care services through a national network of 163 locations around the United States.

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.

1 unchanged sentence

Our multidisciplinary team of clinicians, including pharmacists, nurses, dietitians and respiratory therapists, work with the physician to develop a plan of care suited to each patient’s specific needs.

We provide home infusion services consisting of anti-infectives, nutrition support, bleeding disorder therapies, immunoglobulin therapy, and other therapies for chronic and acute conditions.

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.

We provide home infusion services consisting of anti-infectives, nutrition support, therapies for chronic inflammatory disorders and neurological disorders, immunoglobulin therapy, and other therapies for chronic and acute conditions.

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, Inc.

(“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”.

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

and its subsidiaries from Walgreen Co., and the business was rebranded as Option Care.

On March 14, 2019, HC I and HC II entered into the Merger Agreement to merge with and into a wholly-owned subsidiary of BioScrip, a national provider of infusion and home care management solutions, which was completed on August 6, 2019.

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

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

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

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

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

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

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

Composition of Results of Operations

17 unchanged sentences

Depreciation and Amortization Expense.

Depreciation within this caption includes infrastructure items such as computer hardware and software, office equipment and leasehold improvements.

Depreciation within this caption includes infrastructure items such as intangibles amortization, computer hardware and software, office equipment and leasehold improvements.

Depreciation of revenue-generating assets, such as infusion pumps, is included in cost of revenue.

1 unchanged sentence

Interest Expense, Net .

Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, First Lien Term Loan, Senior Notes, as well as interest payments on the Company’s previous $400.0 million senior secured lien PIK toggle floating rate notes due 2027 that were fully prepaid in January 2021 (“the Second Lien Notes”) amortization of discount and deferred financing fees and changes in derivatives not designated as hedging instruments related to the interest rate swaps.

Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, First Lien Term Loan, Senior Notes, amortization of discount and deferred financing fees, and payments associated with the interest rate cap.

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

1 unchanged sentence

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

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

Income Tax (Benefit) Expense .

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

Current year other income (expense) primarily includes the gain on sale of respiratory therapy assets, which closed in December 2022.

Income Tax Expense (Benefit) .

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

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

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

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

Change in Unrealized Gains (Losses) on Cash Flow Hedges, Net of Income Tax Expense .

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

Results of Operations

The following table presents Option Care Health’s consolidated results of operations for the years ended December 31, 2021 and 2020 (in thousands).

For discussion of Option Care Health’s consolidated results of operations for the year ended December 31, 2020 compared to 2019, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on 10-K filed with the Securities and Exchange Commission on March 11, 2021.

The following table presents Option Care Health’s consolidated results of operations for the years ended December 31, 2022 and 2021 (in thousands, except for percentages).

For discussion of Option Care Health’s consolidated results of operations for the year ended December 31, 2021 compared to 2020, refer to Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2022.

Year Ended December 31,

13 unchanged sentences

Total other expense (34,463) (0.9) % (74,347) (2.2) %

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

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

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

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

INCOME BEFORE INCOME TAXES 205,768 5.2 % 116,494 3.4 %

INCOME TAX EXPENSE (BENEFIT) 55,212 1.4 % (23,404) (0.7) %

NET INCOME $ 150,556 3.8 % $ 139,898 4.1 %

OTHER COMPREHENSIVE INCOME, NET OF TAX:

Change in unrealized gains (losses) on cash flow hedges, net of income taxes of $7,259 and $0, respectively

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

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

21,610 0.5 % 10,721 0.3 %

OTHER COMPREHENSIVE INCOME 21,610 0.5 % 10,721 0.3 %

NET COMPREHENSIVE INCOME $ 172,166 4.4 % $ 150,619 4.4 %

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

7 unchanged sentences

Gross profit margin 22.0% 22.7%

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

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

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

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

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

Operating Expenses

The 14.7% increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of mid-single-digit acute revenue growth relative to the prior year while chronic revenue grew in the mid-teens.

Acute growth was driven primarily due to collaborating with referral sources, which increased the volume of patient service.

Acquisition related growth accounted for approximately 2% and 3% of the increase in net revenue and gross profit, respectively.

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

The decrease in gross margin percent was primarily driven by therapy mix and also impacted by inflationary pressures including labor, transportation, and medical supplies costs.

Year Ended December 31,

4 unchanged sentences

Total operating expenses $ 626,687 $ 588,765 $ 37,922 6.4 %

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

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

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

Selling, general and administrative expenses increased for the year ended December 31, 2022 primarily due to salaries, benefits and inflationary pressures, but has decreased as a percentage of revenue to 14.4% for the year ended December 31, 2022 as compared to 15.3% for the year ended December 31, 2021, as our revenue has grown at a faster pace than our selling, general and administrative expenses as the Company’s scaled enterprise partially mitigated the inflationary impacts.

The decrease in depreciation and amortization expense is primarily attributed to certain intangible assets whose useful life expired partially offset by additional intangible assets due to acquisitions.

Other Income (Expense)

6 unchanged sentences

Total other expense $ (34,463) $ (74,347) $ 39,884 (53.6) %

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

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

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

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

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

The decrease in interest expense for the year ended December 31, 2022 was primarily attributable to the debt refinancing of the First Lien Term Loan and issuance of the Senior Notes in October 2021.

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

Income Tax (Benefit) Expense

During the year ended December 31, 2022, the change in other, net is primarily due to a $10.3 million pre-tax gain from the sale of respiratory therapy assets that were previously held for sale (“Respiratory Therapy Asset Sale”), which closed in December 2022.

In addition, a loss on extinguishment of debt incurred in conjunction with the January and October 2021 debt refinancing was included in the results for the year ended December 31, 2021.

There was no comparable activity during the year ended December 31, 2022.

Income Tax Expense (Benefit)

Year Ended December 31,

1 unchanged sentence

(in thousands, except for percentages)

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

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

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

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

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

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

Income tax expense (benefit) $ 55,212 $ (23,404) $ 78,616 335.9 %

The Company recorded income tax expense of $55.2 million and an income tax benefit of $23.4 million, which represents an effective tax rate of 26.8% and negative 20.1% for the years ended December 31, 2022 and 2021, respectively.

The variance in the Company’s effective tax rate of 26.8% and negative 20.1% is primarily attributable to the release of the Company’s federal valuation allowance for the year ended December 31, 2021.

The variance in the Company’s effective tax rate of 26.8% for the year ended December 31, 2022 compared to the federal statutory rate of 21% is primarily attributable to the difference between federal and state tax rates, as well as various non-deductible expenses.

Net Income and Other Comprehensive Income

Year Ended December 31,

1 unchanged sentence

(in thousands, except for percentages)

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

Other comprehensive income (loss), net of tax:

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

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

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

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

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

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

Net income $ 150,556 $ 139,898 $ 10,658 7.6 %

Other comprehensive income, net of tax:

Changes in unrealized gains on cash flow hedges, net of income taxes 21,610 10,721 10,889 101.6 %

Other comprehensive income 21,610 10,721 10,889 101.6 %

Net comprehensive income $ 172,166 $ 150,619 $ 21,547 14.3 %

The change in net income was primarily attributable to organic growth from additional revenue related to the factors described in the above sections, in addition to the $10.3 million pre-tax gain from the Respiratory Therapy Asset Sale for the year ended December 31, 2022.

In addition, the 2021 release of the Company’s valuation allowance as referenced in the Income Tax (Benefit) Expense section above was included in the results for the year ended December 31, 2021.

There was no comparable activity during the year ended December 31, 2022.

For the year ended December 31, 2022, the change in unrealized gains on cash flow hedges, net of income taxes, was related to the increase in fair market value of the $300.0 million interest rate cap hedge.

For the year ended December 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.

The change in net comprehensive income was the result of the changes in net income, described above, further increased by the impact of the fair value of the interest rate cap hedge.

Liquidity and Capital Resources

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

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

For the years ended December 31, 2022 and 2021, the Company’s primary sources of liquidity were cash on hand of $294.2 million and $119.4 million, respectively.

As of December 31, 2022, $168.3 million of borrowings available under its credit facilities (net of $6.7 million undrawn letters of credit issued and outstanding), described further below.

During the years ended December 31, 2022 and 2021, the Company’s positive cash flows from operations have enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as the pursuit of 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 operating cash outflows are associated with procuring and dispensing drugs, personnel and other costs associated with servicing patients, as well as paying cash for interest on the outstanding debt and for income taxes.

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

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

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

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

4 unchanged sentences

Short-Term and Long-Term Liquidity Requirements

The Company’s ability to make principal and interest payments on any borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions.

Our ability to make principal and interest payments on any borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions.

Based on our current level of operations and planned capital expenditures, we believe that our existing cash balances and expected cash flows generated from operations will be sufficient to meet our operating requirements for at least the next 12 months.

1 unchanged sentence

Credit Facilities

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 was repayable in quarterly installments, beginning in March 2021, of $2.9 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026.

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

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

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

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

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

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

As of December 31, 2022, the Company’s asset-based-lending revolving credit facility provided for borrowings up to $175.0 million, which matures on October 27, 2026 (the “ABL Facility”).

The ABL Facility bears interest at a rate equal to, at the Company’s 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) London Interbank offered Rate (“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 $6.7 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL Facility of $168.3 million as of December 31, 2022.

Effective January 13, 2023, the Company entered into an agreement to amend the ABL Facility and increase the amount of borrowing availability by $50.0 million to $225.0 million total borrowing availability.

As a result of the amended agreement, Secured Overnight Financing Rate (“SOFR”) was established as the new reference rate, replacing LIBOR.

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 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 (as defined in the First Lien Term Loan agreement) and (ii) a base rate determined in accordance with the new First Lien Term Loan agreement, plus 1.75% for Base Rate Loans (as defined in the First Lien Term Loan agreement).

The First Lien Term Loan agreement addresses reference rate reform and established SOFR as the benchmark replacement when LIBOR ceases to exist.

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, and which began on April 30, 2022.

The Senior Notes mature on October 31, 2029.

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

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

The ABL Facility matures on October 27, 2026.

Interest payments over the course of long-term debt obligations total an estimated $383.8 million based on final maturity dates of the Company’s credit facilities.

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

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

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

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

5 unchanged sentences

Net cash used in investing activities (108,052) (111,541) 3,489

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

Net cash provided by (used in) financing activities 15,268 (76,870) 92,138

Net increase in cash and cash equivalents 174,763 20,158 154,605

2 unchanged sentences

Cash Flows from Operating Activities

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

The increase in cash flows provided by operating activities is primarily due to higher net income, decrease in interest expense due to the January and October 2021 debt refinancings, timing of vendor payments and deferred income taxes, which were partially offset by changes in inventory and accounts receivable during the year ended December 31, 2022, as compared to the year ended December 31, 2021.

Cash Flows from Investing Activities

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

The decrease in cash flows used in investing activities is primarily due to the inflow from the Respiratory Therapy Asset Sale and partially offset by various acquisitions made within the year ended December 31, 2022, which are described in Note 3, Business Acquisitions and Divestitures , of the consolidated financial statements, as compared to various acquisitions during the year ended December 31, 2021.

Cash Flows from Financing Activities

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

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

The increase in cash flows provided by financing activities is primarily related to the proceeds from warrant exercises during the year ended December 31, 2022, with no comparable activity during the year ended December 31, 2021.

Additionally, the cash used in financing activities for the year ended December 31, 2021, is related to the January and October 2021 debt refinancing activities, with no comparable activity during the year ended December 31, 2022.

Critical Accounting Estimates

14 unchanged sentences

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.

After applying the criteria from Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“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 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 Company’s accounts receivable are 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.

3 unchanged sentences

After applying the criteria from ASC 606, an allowance for doubtful accounts is established only as a result of an adverse change in the payers’ ability to pay outstanding billings.

The Company did not have an allowance for doubtful accounts as of December 31, 2021 or 2020.

As of December 31, 2022 and 2021, the Company had no allowance for doubtful accounts.

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

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

contractual adjustments expected to be realized in the future.

The detailed assessments included, among other factors, current over/under payments which had not yet been applied to an account, historical contractual adjustments, and historical payments.

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

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.

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.

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 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.

Business Acquisitions

The Company accounts for business acquisitions in accordance with ASC Topic 805 (“ASC 805”), Business Combinations , with assets and liabilities being recorded at their acquisition date fair values and goodwill being calculated as the purchase price in excess of the net identifiable assets.

The Company accounts for business acquisitions in accordance with ASC Topic 805, Business Combinations (“ASC 805”), with assets and liabilities being recorded at their acquisition date fair values and goodwill being calculated as the purchase price in excess of the net identifiable assets.

The application of ASC 805 requires management to make estimates and assumptions when determining the acquisition date fair values of acquired assets and assumed liabilities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis