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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-23 · 243 added, 315 removed, 681 unchanged (45% of the section changed)

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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

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Sufficiency of audit evidence over the 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

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 Company estimates the transaction price adjustments based on the verification of the patient’s insurance coverage, historical price concessions, and historical payments.

We identified the sufficiency of audit evidence over the evaluation of transaction price adjustments as a critical audit matter.

Complex auditor judgment was required to evaluate the sufficiency of audit evidence obtained due to the large volume of data and the information technology (IT) applications utilized in the transaction price adjustment process to capture and aggregate the data.

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.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s transaction price adjustment process, including general IT controls and IT application controls.

We involved IT professionals with specialized skills and knowledge who assisted in the identification and testing of certain IT systems used by the Company for the processing and recording of transaction price adjustments.

We tested the relevance and reliability of the underlying data that served as the basis for the transaction price adjustments by agreeing a selection of certain data elements to underlying support.

We assessed the sufficiency of audit evidence obtained related to transaction price adjustments by evaluating the cumulative results of the audit procedures.

We have served as the Company’s auditor since 2015.

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Intangible assets, net 22,371 21,433

Referral sources 344,587 327,623

Referral sources, net 341,744 344,587

Goodwill 1,533,424 1,477,564

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Paid-in capital 1,176,906 1,138,855

Retained earnings (Accumulated deficit) 39,867 ( 100,031 )

Accumulated other comprehensive loss ( 451 ) ( 11,172 )

Retained earnings 190,423 39,867

Accumulated other comprehensive income (loss) 21,159 ( 451 )

Total stockholders’ equity 1,386,103 1,175,886

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,112,936 $ 2,790,918

The notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

OPTION CARE HEALTH, INC.

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Total operating expenses 626,687 588,765 571,509

OPERATING INCOME (LOSS) 190,841 110,755 ( 319 )

OPERATING INCOME 240,231 190,841 110,755

OTHER INCOME (EXPENSE):

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INCOME (LOSS) BEFORE INCOME TAXES 205,768 116,494 ( 5,243 )

INCOME TAX (BENEFIT) EXPENSE ( 23,404 ) 2,833 ( 2,274 )

INCOME TAX EXPENSE (BENEFIT) 55,212 ( 23,404 ) 2,833

NET INCOME (LOSS) $ 150,556 $ 139,898 $ ( 8,076 )

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Weighted average common shares outstanding, diluted 182,075 181,205 180,971

The notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

OPTION CARE HEALTH, INC.

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Deferred income taxes - net 49,187 ( 30,372 ) 1,196

Loss on sale of assets 767 742 3,269

(Gain)/loss on sale of assets ( 9,403 ) 767 742

Loss on extinguishment of debt — 13,387 11,545

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Proceeds from sale of assets 14,670 — —

Insurance proceeds from business casualty loss — — 626

Business acquisitions, net of cash acquired ( 87,364 ) ( 85,909 ) —

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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 352 ( 32 ) ( 904 )

Net proceeds from issuance of common stock — — 118,934

Proceeds from debt 855,136 — 981,050

Proceeds from warrant exercises 20,916 — —

Proceeds from issuance of debt — 855,136 —

Repayments of debt principal ( 6,000 ) ( 8,832 ) ( 9,250 )

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Debt prepayment fees — ( 2,458 ) ( 3,480 )

Net cash (used in) provided by financing activities ( 76,870 ) ( 68,849 ) 719,024

Net cash provided by (used in) financing activities 15,268 ( 76,870 ) ( 68,849 )

NET INCREASE IN CASH AND CASH EQUIVALENTS 174,763 20,158 32,209

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Cash paid for operating leases $ 25,311 $ 26,174 $ 26,809

The notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

OPTION CARE HEALTH, INC.

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(IN THOUSANDS)

Preferred Stock Common Stock Treasury Stock Paid-in Capital Management Notes Receivable Retained Earnings

Preferred Stock Common Stock Treasury Stock Paid-in Capital Retained Earnings

(Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity

Balance - December 31, 2019 $ — $ 18 $ ( 2,403 ) $ 1,008,362 $ ( 91,955 ) $ ( 7,195 ) $ 906,827

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 — — — 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 )

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Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — ( 32 ) — — ( 32 )

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 )

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

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Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — 352 — — 352

Exercise of warrants — — — 20,916 — — 20,916

Net income — — — — 150,556 — 150,556

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Balance - December 31, 2022 $ — $ 18 $ ( 2,403 ) $ 1,176,906 $ 190,423 $ 21,159 $ 1,386,103

The notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

OPTION CARE HEALTH, INC.

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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.

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.

Corporate Organization and Business — 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.

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.

The combined Company’s stock is listed on the Nasdaq Global Select Market as of December 31, 2022.

During the year ended December 31, 2022, HC I completed a secondary offering of 11,000,000 shares of its Option Care common stock.

Following this offering, HC I holds approximately 14.4 % of the common stock of the Company.

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 96 full service pharmacies and 67 stand-alone ambulatory infusion sites.

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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.

GAAP requires management to make certain estimates and assumptions in determining assets, liabilities, revenue, expenses, and related disclosures.

Actual amounts could differ materially from those estimates.

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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.

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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.

The Company had no allowance for doubtful accounts as of December 31, 2022 and 2021, respectively.

Included in accounts receivable are earned but unbilled gross receivables of $ 101.5 million and $ 80.1 million as of December 31, 2022 and 2021, respectively.

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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.

Inventories — Inventories, 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 $ 53.4 million and $ 43.0 million for the years ended December 31, 2022 and 2021, respectively.

There were no other items included in prepaid expenses and other current assets that comprised 5% or more of total assets.

Leases — The Company has lease agreements for facilities, warehouses, office space and property and equipment.

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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.

Goodwill, Intangible Assets, Property and Equipment, and Referral Sources — 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.

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Goodwill is stated at cost less accumulated impairment losses.

The Company completes its goodwill impairment test annually in the fourth quarter.

The Company completes its goodwill impairment test annually in the fourth quarter on a qualitative basis.

See Note 10, Goodwill and Other Intangible Assets , for further discussion of the Company’s goodwill and other intangible assets.

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Referral sources have a useful life of fifteen to twenty years .

Trademarks/names have a useful life ranging from two to fifteen years .

Trademarks/names have a useful life ranging from ten to fifteen years .

The useful lives for other amortizable intangible assets range from approximately two to nine years .

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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.

Estimated useful lives are seven years for infusion pumps and three to thirteen years for equipment.

Major repairs, which extend the useful life of an asset, are capitalized in the property and equipment accounts.

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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.

Equity-Method Investments — The Company’s investments in certain unconsolidated entities are accounted for under the equity method.

The Company assesses long‑lived assets for impairment whenever events or circumstances indicate that a certain asset or asset group may be impaired.

If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount.

If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.

E quity-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.

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During the years ended December 31, 2022, 2021 and 2020, the Company received distributions from the investees of $ 5.9 million, $ 2.9 million and $ 3.3 million, respectively.

See Footnote 17, Related-Party Transactions , for discussion of related-party transactions with these investees.

See Note 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.

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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.

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 goods and 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.

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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.

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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.

See Note 3, Business Acquisitions and Divestitures , for further discussion of the Company’s business acquisitions.

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

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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

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

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 %

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

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 %

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.

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

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 14 %, 16 % and 15 % for the years ended December 31, 2022, 2021 and 2020, 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.

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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.

however, Option Care Health offers a financial assistance program for patients that meet certain defined hardship criteria.

For the years ended December 31, 2022 and 2021, approximately 73 % and 74 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from four vendors.

For the year ended December 31, 2020, 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.

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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.

BUSINESS ACQUISITIONS

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):

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.

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.

In response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation.

The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued.

The FASB further issued ASU 2021-01 to clarify the scope of Topic 848 and was effective immediately upon issuance.

The ASU 2020-04 was adopted during the year ended December 31, 2022.

The adoption did not have any material impact on the Company’s results of operations, cash flows or financial position.

BUSINESS ACQUISITIONS AND DIVESTITURES

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.

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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):

The Company has finalized the purchase price allocation of the acquisition and no purchase accounting adjustments were made.

The following is an allocation of acquired identifiable assets and assumed liabilities, net of cash acquired, as of December 31, 2022 (in thousands):

Accounts receivable $ 2,219

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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 Company has finalized the purchase price allocation of the acquisition.

Certain adjustments were made to preliminary valuation amounts related to accounts receivable, other assets and other assumed liabilities.

The following is a final allocation of the consideration transferred to acquired identifiable assets and assumed liabilities (in thousands):

Accounts receivable $ 2,688

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(1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs.

Specialty Pharmacy Nursing Network, Inc.

— In April 2022, pursuant to the equity purchase agreement dated February 7, 2022, the Company completed the acquisition of 100 % of the equity interests in Specialty Pharmacy Nursing Network, Inc.

(“SPNN”) for a purchase price, net of cash acquired, of $ 59.9 million.

The allocation of the purchase price of SPNN 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.

As of December 31, 2022, the Company finalized the purchase price allocation of the acquisition.

Certain adjustments were made to preliminary valuation amounts related to accrued compensation.

The following is a final allocation of the consideration transferred to acquired identifiable assets and assumed liabilities (in thousands):

Accounts receivable $ 2,303

Intangible assets 25,580

Other assets 600

Accrued compensation ( 1,115 )

Accounts payable and other liabilities ( 1,168 )

Fair value identifiable assets and liabilities 26,200

Goodwill (1) 33,746

Cash acquired 661

Purchase price 60,607

cash acquired ( 661 )

Purchase price, net of cash acquired $ 59,946

(1) Goodwill is attributable to cost synergies from operational efficiencies and establishing a more comprehensive clinical platform through the Company’s national infrastructure and SPNN’s nursing network.

Rochester Home Infusion, Inc.

— In August 2022, pursuant to the stock purchase agreement dated June 10, 2022, the Company completed the acquisition of 100 % of the equity interests in Rochester Home Infusion, Inc.

(“RHI”) for a purchase price, net of cash acquired, of $ 27.4 million.

The allocation of the purchase price of RHI 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, to acquired identifiable assets and assumed liabilities, net of cash acquired, as of December 31, 2022 (in thousands):

Accounts receivable $ 831

Intangible assets 5,449

Other assets 394

Accounts payable and other liabilities ( 434 )

Fair value identifiable assets and liabilities 6,240

Goodwill (1) 21,178

Cash acquired 201

Purchase price 27,619

cash acquired ( 201 )

Purchase price, net of cash acquired $ 27,418

(1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs.

Respiratory Therapy Asset Sale - As of September 30, 2022, the Company determined that certain respiratory therapy assets met the applicable criteria as being held for sale.

In October 2022, the Company entered into a definitive agreement to sell these assets.

The Company closed the transaction in December 2022, for a sale price of $ 18.4 million comprised of $ 14.7 million in proceeds received at the time of closing and $ 3.7 million recorded as a current asset due within one year (included as a non-cash change in prepaid expenses and other current assets within the consolidated statements of cash flows).

Pursuant to the final transaction terms, $ 8.8 million of assets were sold, along with $ 0.7 million of liabilities that were previously classified as held for sale at the lower of their carrying amount or fair values less cost to sell.

As a result of the transaction, a $ 10.3 million pre-tax gain on sale was recorded within Other, net in the Company’s consolidated statements of comprehensive income (loss) .

The following table sets forth the net revenue earned by category of payer for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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The income tax expense (benefit) consists of the following for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Year Ended December 31,

2022 2021 2020

US federal income tax (benefit) expense:

US federal income tax expense (benefit):

Current $ 4,103 $ — $ ( 69 )

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12,299 7,007 1,906

Total income tax (benefit) expense $ ( 23,404 ) $ 2,833 $ ( 2,274 )

Total income tax expense (benefit) $ 55,212 $ ( 23,404 ) $ 2,833

The difference between the statutory federal income tax rate and the effective tax rate is as follows for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

2022 2021 2020

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Effective income tax rate 26.8 % ( 20.1 ) % ( 54.0 ) %

The Company recorded income tax expense of $ 55.2 million and 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.

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, 2022 and 2021 (in thousands):

December 31, 2022 December 31, 2021

Deferred tax assets:

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Deferred tax liabilities ( 141,605 ) ( 134,719 )

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.

Net deferred tax (liabilities) assets $ ( 22,154 ) $ 27,033

Deferred tax assets are generally required to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

For the year ended December 31, 2022, the Company maintains a valuation allowance of $ 13.1 million against certain state net operating losses.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all 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.

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

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

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Gross federal NOL carryforwards of $ 144.9 million expire beginning in 2027 through 2036 and $ 56.4 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, the Company had $ 358.4 million of gross federal NOL’s.

At December 31, 2022 and 2021, the Company had $ 118.1 million and $ 140.2 million of interest limitation carryforwards which have an indefinite carryforward period.

At December 31, 2021

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.

At December 31, 2022 and 2021, the Company also had $ 349.5 million and $ 405.1 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 2023 through 2041, with some having an indefinite carryforward period.

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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.

EARNINGS (LOSS) PER SHARE

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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.

The computation of diluted shares for the years ended December 31, 2022 and 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 year ended December 31, 2020 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, 2022, there were 629,690 stock option awards and 205,652 restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive.

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 were anti-dilutive.

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See Note 6, Income Taxes , for further discussion.

(2) Net income (loss) for the year ended December 31, 2022 includes the impact of the Company’s Respiratory Therapy Asset Sale.

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

The following table presents the Company’s diluted earnings (loss) per share and shares outstanding (in thousands, except per share data):

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See Note 6, Income Taxes , for further discussion.

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).

(2) Net income (loss) for the year ended December 31, 2022 includes the impact of the Company’s Respiratory Therapy Asset Sale.

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

During the years ended December 31, 2022 and 2021, the Company incurred operating lease expenses of $ 29.1 million and $ 29.8 million, respectively, 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, 2022, the weighted-average remaining lease term was 6.5 years and the weighted-average discount rate was 5.25 %.

Operating leases mature as follows (in thousands):

Year Ending December 31 Minimum Payments

Fiscal Year Ended December 31, Minimum Payments

2023 $ 24,047

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The Company determined that there was no goodwill impairment in 2022, 2021 or 2020.

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.

The determination of fair value for acquisitions 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;

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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.

The Company did not recognize any accumulated impairment losses at the beginning of the period.

Changes in the carrying amount of goodwill consist of the following activity for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Balance at December 31, 2019 $ 1,425,542

Acquisitions 793,073

Balance at December 31, 2019 $ 1,425,542

Purchase accounting adjustments 3,068

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Balance at December 31, 2021 $ 1,477,564

Acquisitions 54,543

Purchase accounting adjustments 1,317

Balance at December 31, 2022 $ 1,533,424

The carrying amount and accumulated amortization of intangible assets consists of the following as of December 31, 2022 and 2021 (in thousands):

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First Lien Term Loan 600,000 ( 9,605 ) ( 13,331 ) 577,064

Second Lien Notes 245,781 ( 6,102 ) ( 4,113 ) 235,566

Senior Notes 500,000 — ( 11,164 ) 488,836

$ 1,100,000 $ ( 9,605 ) $ ( 24,495 ) 1,065,900

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Total long-term debt $ 1,059,900

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.

As of December 31, 2022 and 2021, the Company’s ABL Facility provided for borrowings up to $ 175.0 million, and matures on October 27, 2026.

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) 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 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.

The ABL Credit Agreement was amended in October 2021, and prior to the amendment, the ABL Facility bore interest at a per annum rate initially provided that was determined by the Company’s periodic selection of rate type, either the base rate or the Eurocurrency rate and previously matured on August 6, 2024.

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 Company had $ 6.7 million and $ 7.1 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL Facility of $ 168.3 million and $ 167.9 million, as of December 31, 2022 and 2021, respectively.

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 Company entered into the First Lien Term Loan Agreement (the “First Lien Credit Agreement Amendment”), which commenced in October 2021 (the “October 2021 Refinancing”).

The First Lien Term Loan (the “First Lien Term Loan Facility”) is charged an interest rate equal 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 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, which began in March 2022, and matures on October 27, 2028.

The interest rate on the First Lien Term Loan was 6.82 % and 3.25 % as of December 31, 2022 and 2021, respectively.

The weighted average interest rate incurred on the First Lien Term Loan was 4.52 % and 3.79 % for the years ended December 31, 2022 and 2021, respectively.

The October 2021 Refinancing refinanced the $ 1,157.0 million outstanding on the Company’s prior First Lien Term Loan due in 2026.

The Company amended the existing First Lien Term Loan, to provide $ 600.0 million of refinanced borrowings.

The principal balance of the First Lien Term Loan prior to the October 2021 Refinancing 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 was 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

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.

Amounts borrowed under the First Lien Term Loan were 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 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.

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 on April 30, 2022.

The Senior Notes mature on October 31, 2029.

The interest rate on the Senior Notes was 4.375 % as of both December 31, 2022 and 2021, respectively.

The weighted average interest rate incurred on the Senior Notes was 4.375 % for both years ended December 31, 2022 and 2021, respectively.

The Company assessed whether the October 2021 Refinancing 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 was 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 within the consolidated statements of comprehensive income (loss) and cash flows during the year ended December 31, 2021.

Prior to the October 2021 Refinancing, the Company entered into an amendment on the First Lien Term Loan in January 2021 (the “January 2021 Refinancing”).

The January 2021 Refinancing resulted in an additional $ 250.0 million of incremental First Lien Term Loan indebtedness being issued in addition to the $ 915.8 million outstanding 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 balance of the previous $ 400.0 million senior secured second lien pay-in-kind (“PIK”) toggle floating rate notes due 2027 (“Second Lien Notes”).

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

Prior to the January 2021 Refinancing, the Second Lien Notes were set to mature on August 6, 2027.

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

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:

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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 Company determined that $ 161.2 million of the First Lien Term Loan was extinguished and $ 122.9 million of the $ 150.0 million second lien term loan (“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.

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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.

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 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):

Year Ending December 31, Minimum Payments

Fiscal Year Ended December 31, Minimum Payments

2028 and beyond 1,064,000

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Financial Instrument Carrying Value as of December 31, 2022 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 $ —

First Lien Term Loan $ 574,164 $ — $ 588,832 $ —

Senior Notes 490,040 — 437,500 —

Total debt instruments $ 1,064,204 $ — $ 1,026,332 $ —

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 $ —

The Company had no fair value measurements that utilized Level 3 inputs of the fair value hierarchy for the year ended December 31, 2022.

See Note 13, Fair Value Measurements , for further discussion.

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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

ineffective hedge, so the Company discontinued hedge accounting on its $ 400.0 million notional interest rate swap.

Upon making the PIK election, the Company determined that the hedged interest payment would no longer occur, resulting in an 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).

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In October 2021, the Company entered into an interest rate cap hedge with a notional amount of $ 300.0 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 hedge partially offsets risk associated with the First Lien Term Loan’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 Asset Position

Derivative Balance Sheet Caption December 31, 2022 December 31, 2021

Interest rate cap designated as cash flow hedge Prepaid expenses and other current assets $ 10,926 $ —

Interest rate cap designated as cash flow hedge Other noncurrent assets 17,342 —

Total derivatives $ 28,268 $ —

Fair Value - Derivatives in Liability Position

Derivative Balance Sheet Caption December 31, 2022 December 31, 2021

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

Interest rate cap designated as cash flow hedge Accrued expenses and other current liabilities $ — $ 601

Total derivatives $ — $ 601

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 effective portion of hedging instruments are recorded into other comprehensive income (loss).

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,

The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive income (loss) in the Company’s consolidated statements of comprehensive income (loss) (in thousands):

Year Ended December 31,

Derivative 2022 2021 2020

Interest rate caps designated as cash flow hedges $ ( 601 ) $ — $ ( 1,103 )

Interest rate cap designated as cash flow hedge $ 28,869 $ ( 601 ) $ —

Interest rate swaps designated as cash flow hedges — 11,172 ( 7,723 )

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Derivative Income Statement Caption 2022 2021 2020

Interest rate caps designated as cash flow hedges Interest expense $ ( 239 ) $ — $ ( 125 )

Interest rate cap designated as cash flow hedge Interest expense $ 1,090 $ ( 239 ) $ —

Interest rate swaps designated as cash flow hedges Interest expense — ( 11,298 ) ( 12,799 )

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Total $ 1,090 $ ( 11,539 ) $ ( 16,579 )

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.

The Company expects to reclassify $ 2.8 million of total interest rate costs from accumulated other comprehensive income against interest expense during the next 12 months.

FAIR VALUE MEASUREMENTS

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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).

Prior to the October 2021 refinancing, the fair value of the First Lien Term Loan was 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).

Prior to the January 2021 refinancing, the fair value of the Second Lien Notes was 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).

Subsequent to the October 2021 refinancing, the fair value of the agreement to amend and restate its existing First Lien Term Loan (“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.

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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 fair values of interest rate swaps were 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.

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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 fair value of the interest rate cap is 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.

See Note 12, Derivative Instruments , for further discussion of the fair value of the interest rate cap.

There were no other assets or liabilities measured at fair value at December 31, 2022 or 2021.

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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.

During the years ended December 31, 2022, 2021 and 2020, the Company recognized compensation expense related to stock options of $ 2.5 million, $ 1.9 million and $ 0.4 million respectively.

The weighted average grant-date fair value of options granted during the years ended December 31, 2022, 2021 and 2020 was $ 12.51 , $ 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,

The assumptions used to compute the fair value of options for the years ended December 31, 2022, 2021 and 2020 are as follows:

Year Ended December 31,

2022 2021 2020

Expected volatility 51.19 % 51.92 % 45.70 %

Risk-free interest rate 3.91 % 1.40 % 0.53 %

Expected life of options 6.5 years 6.3 years

Expected life of options 6.2 years 6.5 years 6.3 years

Dividend rate — — —

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Exercisable at December 31, 2022 125,374 $ 15.00 $ 2,068 5.05 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 years ended December 31, 2022, 2021 and 2020, shares were surrendered to satisfy tax withholding obligations on the exercise of stock options with a cost basis of $ 0.7 million, $ 0.1 million and $ 2.7 million.

No cash was received from stock option exercises under share-based payment arrangements for the years ended December 31, 2022 or 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.

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.

Options outstanding as of December 31, 2022 expire on various dates ranging from March 2023 through November 2032.

The following table outlines the outstanding and exercisable stock options as of December 31, 2022:

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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.

Restricted stock grants subject solely to a Director’s continued service with the Company generally will become fully vested on a pro-rata basis over three years 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.

During the years ended December 31, 2022, 2021 and 2020, the Company recognized compensation expense related to restricted stock awards of $ 10.2 million, $ 4.9 million and $ 2.3 million respectively.

The grant-date fair value of restricted stock is valued as the closing price of the Company’s common stock on the date of the grant.

A summary of restricted stock award activity for the year ended December 31, 2022 is as follows:

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During the year ended December 31, 2022, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $ 1.4 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.

During the years ended December 31, 2021 and December 31, 2020, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with an immaterial cost basis.

As of December 31, 2022, there was $ 25.8 million in unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.4 years.

The total fair value of restricted stock awards vested during the years ended December 31, 2022, 2021 and 2020 was $ 3.7 million, $ 1.2 million and $ 1.5 million, respectively.

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.

Performance Stock Units — Performance-based stock units are generally earned based on the attainment of specified goals achieved over a designated performance period.

During the years ended December 31, 2022 and 2021, the Company’s Compensation Committee approved awards of performance-based stock units to certain senior executives of the Company with a grant date of February 2022 and February 2021, respectively.

The performance-based stock units approved during 2022 (“2022 PSU”) and 2021 (“2021 PSU”) each offer a three-year -cliff vesting schedule.

Each award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient.

The 2022 PSU and 2021 PSU awards may be earned upon the completion of the two-year -average performance periods ending December 31, 2023 and 2022, respectively.

Whether units are earned at the end of the performance period will be determined based on the achievement of certain performance objectives over the performance period.

The performance objectives include achieving a target growth for adjusted EBITDA and revenue combined in addition to a target growth for cash flow from operations over the performance period.

Depending on the results achieved during the performance period, the actual number of shares that a grant recipient receives at the end of the period may range from 0 % to 200 % of the Target Shares granted.

Each period begins with 100 % of the Target Shares and true-up or true-down adjustments are considered every quarter-end based on the forecasted performance period results.

The fair value of the Target Shares and performance stock unit awards are based on the fair value of the underlying shares as of market close on the grant date.

Compensation expense for performance unit stock awards is recognized on a straight-line basis over the requisite service period.

During the year ended December 31, 2022, the Company recognized compensation expense related to the 2022 PSU and 2021 PSU awards of $ 2.4 million and $ 1.7 million, respectively.

During the year ended December 31, 2021, the Company recognized compensation expense related to the 2021 PSU awards of $ 2.7 million.

As of December 31, 2022, there were $ 5.9 million and $ 2.7 million in unrecognized compensation expense related to unvested 2022 PSU and 2021 PSU awards, respectively, that are expected to be recognized over the period of 2.2 years and 1.2 years, respectively.

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 January 3, 2020, the Company’s board of directors and HC I, which at that time held 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.

2 unchanged sentences

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.

During the years ended December 31, 2022 and 2021, HC I completed secondary offerings of 11,000,000 and 76,400,000 shares of common stock, respectively.

As of December 31, 2022, HC I holds approximately 14.4 % 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.

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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.

During the years ended December 31, 2022 and 2021, warrant holders exercised warrants to purchase 1,130,089 and zero 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.

At December 31, 2022 and 2021, the remaining warrant holders are entitled to purchase 240,188 and 1,370,277 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.

1 unchanged sentence

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.

During the years ended December 31, 2022 and 2021, warrant holders exercised warrants to purchase 900,272 and zero shares of common stock, respectively.

During the year ended December 31, 2022, $ 20.9 million of cash was received as proceeds from warrant exercises.

At December 31, 2022 and 2021, the remaining warrant holders are entitled to purchase 15,231 and 915,503 shares of common stock, respectively.

Treasury Stock — As of December 31, 2022 and 2021, the Company held 383,722 shares of treasury stock.

Preferred Stock — The Company had no preferred stock outstanding as of December 31, 2022 or 2021.

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.

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.

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The Company had amounts due to its joint ventures of $ 1.5 million as of December 31, 2022.

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.

The Company had amounts due to its joint ventures of $ 1.4 million as of December 31, 2021 and due from its joint ventures of $ 2.4 million as of December 31, 2020.

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.

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The Company has evaluated whether any subsequent events occurred since December 31, 2022 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.

On February 20, 2023, the Company’s Board of Directors approved a share repurchase program of up to an aggregate $ 250 million of common stock of the Company.

Shares may be repurchased under the program through open market purchases, privately negotiated transactions, block trades, or accelerated or other structured share repurchase programs.

The extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by the Company’s management.

As a result, an estimate of the financial effect cannot be made.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data