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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-23 · 81 added, 81 removed, 145 unchanged (53% of the section changed)

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Business Overview

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

The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings.

Option Care Health and its wholly-owned subsidiaries provide infusion therapy and other ancillary healthcare services through a national network of 177 locations around the United States.

Our services are provided in coordination with, and under the direction of, the patient’s physician.

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

On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion Services, Inc.

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

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

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

Update on the Impact of the COVID-19 Pandemic

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

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

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

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

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

Composition of Results of Operations

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Net Revenue .

Infusion and related health care services revenue is reported at the estimated net realizable amounts from third-party payers and patients for goods sold and services rendered.

Infusion and related healthcare services revenue is reported at the estimated net realizable amounts from third-party payers and patients for goods sold and services rendered.

When pharmaceuticals are provided to a patient, revenue is recognized upon delivery of the goods.

When nursing services are provided, revenue is recognized when the services are rendered.

Due to the nature of the health care industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided.

Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available.

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Interest Expense, Net .

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

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

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

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

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

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

Income Tax Expense (Benefit) .

On May 3, 2023, the Company entered into a definitive merger agreement (the “Amedisys Merger Agreement”) with Amedisys, Inc.

(“Amedisys”), a leading provider of healthcare in home health and hospice settings.

On June 26, 2023, the Company entered into an agreement to terminate the Amedisys Merger Agreement (the “Mutual Termination Agreement”).

Under the terms of the Mutual Termination Agreement, the Company received a payment of $106.0 million in cash on behalf of Amedisys (the “Termination Fee”).

Other income (expense) primarily includes the termination fee, net of merger-related expenses, received on behalf of Amedisys during the year ended December 31, 2023.

During the year ended December 31, 2022, other income (expense) primarily includes the gain on the sale of respiratory therapy assets, which closed in December 2022.

Income Tax Benefit Expense .

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

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

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

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

Change in Unrealized Gain (Loss) on Cash Flow Hedge, Net of Income Tax Benefit (Expense) .

Change in unrealized gain (loss) on cash flow hedge, net of income tax benefit (expense), consists of the gain (loss) associated with the changes in the fair value of hedging instruments related to the interest rate cap, net of income taxes.

Results of Operations

The following table presents Option Care Health’s consolidated results of operations for the years ended December 31, 2023 and 2022 (in thousands, except for percentages).

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

For a discussion of Option Care Health’s consolidated results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2023.

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Other, net 89,865 2.1 % 14,218 0.4 %

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

Total other income (expense) 44,147 1.0 % (34,463) (0.9) %

INCOME BEFORE INCOME TAXES 358,742 8.3 % 205,768 5.2 %

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

INCOME TAX EXPENSE 91,652 2.1 % 55,212 1.4 %

NET INCOME $ 267,090 6.2 % $ 150,556 3.8 %

OTHER COMPREHENSIVE INCOME, NET OF TAX:

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

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:

Change in unrealized (loss) gain on cash flow hedge, net of income tax benefit (expense) of $2,158 and $(7,259), respectively

(6,181) (0.1) % 21,610 0.5 %

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

OTHER COMPREHENSIVE (LOSS) INCOME (6,181) (0.1) % 21,610 0.5 %

NET COMPREHENSIVE INCOME $ 260,909 6.1 % $ 172,166 4.4 %

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The following tables present selected consolidated comparative results of operations for the years ended December 31, 2022 and 2021:

The following table presents selected consolidated comparative results of operations for the years ended December 31, 2023 and 2022:

Year Ended December 31,

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Gross profit margin 22.8% 22.0%

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

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

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

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

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

The increase in net revenue during the year ended December 31, 2023 was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had mid-single-digit growth relative to the prior year while chronic revenue grew in the low-double-digits.

The increase in net revenue was partially offset by the divestiture of respiratory therapy assets in December 2022 as well as therapies related to the treatment of ALS and pre-term labor.

The increase in cost of revenue and gross profit was primarily driven by the growth in revenue, which outpaced the increase in cost of revenue primarily due to our disciplined procurement strategies, certain temporary favorable therapy pricing dynamics that emerged due to the timing in variances in reference prices that affects our costs relative to reimbursement, and efficient utilization of our clinical workforce and infusion suite network.

Operating Expenses

Year Ended December 31,

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Total operating expenses $ 666,628 $ 626,687 $ 39,941 6.4 %

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

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

The increase in selling, general and administrative expenses during the year ended December 31, 2023 is primarily due to an increase in salaries, benefits, and equity compensation as a result of expansion of team members to adjust to current volumes, however, these expenses have remained relatively consistent as a percentage of revenue at 14.1% and 14.4% for the years ended December 31, 2023 and 2022, respectively, due to the Company’s focus on controlling spending leverage.

Other Income (Expense)

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Other, net 89,865 14,218 75,647 532.1 %

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

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

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

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

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

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

Income Tax Expense (Benefit)

Total other income (expense) $ 44,147 $ (34,463) $ 78,610 (228.1) %

The decrease in interest expense, net during the year ended December 31, 2023 was primarily attributable to an increase in interest income generated from our cash and cash equivalents, partially offset by increases in the First Lien Term Loan’s variable interest rate compared to the year ended December 31, 2022.

The increase in other, net during the year ended December 31, 2023 is primarily attributable to the receipt of the Termination Fee, net of merger-related expenses.

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

Income Tax Expense

Year Ended December 31,

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(in thousands, except for percentages)

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

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

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

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

Net Income and Other Comprehensive Income

Income tax expense $ 91,652 $ 55,212 $ 36,440 66.0 %

The Company recorded income tax expense of $91.7 million and $55.2 million, which represents an effective tax rate of 25.5% and 26.8% for the years ended December 31, 2023 and 2022, respectively.

The income tax expense for the year ended December 31, 2023 includes $21.8 million of tax expense related to the Termination Fee received, under the terms of the Mutual Termination Agreement, net of merger-related expenses, and the release of $5.8 million of state valuation allowance in September 2023.

The variance in the Company’s effective tax rate of 25.5% and 26.8% for the years ended December 31, 2023 and 2022, respectively, is primarily attributable to the difference in state taxes, various non-deductible expenses, and a change in state valuation allowance.

The variance in the Company’s effective tax rate of 25.5% for the year ended December 31, 2023, compared to the federal statutory rate of 21%, is also primarily attributable to state taxes, various non-deductible expenses, and a change in state valuation allowance.

Net Income and Other Comprehensive (Loss) Income

Year Ended December 31,

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Net income $ 267,090 $ 150,556 $ 116,534 77.4 %

Other comprehensive income, net of tax:

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

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

Other comprehensive (loss) income, net of tax:

Change in unrealized (loss) gain on cash flow hedge, net of income tax benefit (expense) (6,181) 21,610 (27,791) (128.6) %

Other comprehensive (loss) income (6,181) 21,610 (27,791) (128.6) %

Net comprehensive income $ 260,909 $ 172,166 $ 88,743 51.5 %

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

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

The change in net income for the year ended December 31, 2023 was attributable to organic growth from additional revenue related to the factors described in the above sections and the Termination Fee received under the terms of the Mutual Termination Agreement, net of merger-related expenses.

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

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

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

the swap expired in August 2021.

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

For the year ended December 31, 2023, the change in unrealized (loss) gain on cash flow hedge, net of income tax benefit (expense) was related to the change in fair market value of the $300.0 million interest rate cap hedge executed in October 2021.

Net comprehensive income increased to $260.9 million for the year ended December 31, 2023, compared to net comprehensive income of $172.2 million for the year ended December 31, 2022, primarily as a result of the changes in net income discussed above, partially offset by the impact of the change in fair market value of the interest rate cap hedge discussed above.

Liquidity and Capital Resources

For the years ended December 31, 2023 and 2022, the Company’s primary sources of liquidity were cash on hand of $343.8 million and $294.2 million, respectively.

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

During the years ended December 31, 2022 and 2021, the Company’s positive cash flows from operations have enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as the pursuit of acquisitions.

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

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

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

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

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

As of December 31, 2023, the Company had $394.7 million of borrowings available under its credit facilities (net of $5.3 million undrawn letters of credit issued and outstanding), described further below.

During the years ended December 31, 2023 and 2022, the Company’s positive cash flows from operations have enabled investments in pharmacy, infusion suites, and information technology infrastructure to support growth and create additional capacity in the future, as well as to pursue acquisitions and share repurchases.

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

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

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

Ongoing financing cash flows are primarily associated with the quarterly principal payments on our outstanding debt, along with potential future share repurchases.

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

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

The Company historically has funded its acquisitions with cash with the exception of the Merger.

The Company historically has funded its acquisitions with cash and cash equivalents with the exception of the Merger.

The Company may require additional capital in excess of current availability in order to complete future acquisitions.

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Short-Term and Long-Term Liquidity Requirements

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

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

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

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

We may require additional borrowings under our credit facilities and alternative forms of financings or investments to achieve our longer-term strategic plans.

Credit Facilities

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

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

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

On December 7, 2023, the Company amended its First Lien Credit Agreement to, among other things, create a Revolver Facility which provides for borrowings up to $400.0 million.

The Revolver Facility matures on the date that is the earlier of (i) December 7, 2028 and (ii) the date that is 91 days prior to the stated maturity date applicable to any Term B Loans.

Borrowings under the Revolver Facility will bear interest at a rate equal to, at the option of the Company, either (i) the Term Secured Overnight Financing Rate (“SOFR”) applicable thereto plus the Applicable Rate or (ii) the then-applicable Base Rate plus the Applicable Rate, which Applicable Rate shall be, subject to certain caveats thereto, as follows (i) until delivery of financial statements and related Compliance Certificate for the first full fiscal quarter ending after the effective date of the Amendment, (A) for Term SOFR Loans, 1.75%, (B) for Base Rate Loans, 0.75% and (ii) thereafter, the following percentages per annum, based upon the Total Net Leverage Ratio as set forth in the most recent compliance certificate received by the Administrative Agent pursuant to the terms of the Credit Agreement.

As of December 31, 2023, the Company had $5.3 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the Revolver Facility of $394.7 million.

The table below illustrates the aforementioned interest rate terms:

Pricing Level Total Net Leverage Ratio Applicable Rate for Term SOFR Loans Applicable Rate for Base Rate Loans

I Greater than or equal to 3.00x 2.25% 1.25%

II Less than 3.00x, but greater than or equal to 2.25x 2.00% 1.00%

III Less than 2.25x, but greater than or equal to 1.50x 1.75% 0.75%

IV Less than 1.50x, but greater than or equal to 1.00x 1.50% 0.50%

V Less than 1.00x 1.25% 0.25%

Concurrently with the creation of the Revolver Facility, the Company terminated the asset-based-lending revolving credit facility, which provided for borrowings up to $225.0 million with a maturity date of October 27, 2026 (the “ABL Facility”).

The ABL Facility bore 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) SOFR (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.

As of December 31, 2023, the Company’s ABL Facility was terminated.

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.

As a result of the amended agreement, SOFR was established as the new reference rate, replacing LIBOR.

Effective June 30, 2023, the Company entered into an agreement, dated as of June 8, 2023, to amend the First Lien Term Loan to replace LIBOR and related definitions and provisions with SOFR as the new reference rate.

The principal balance of the First Lien Term Loan is repayable in quarterly installments of $1.5 million plus interest, with a final payment of all remaining outstanding principal due on October 27, 2028.

The quarterly principal payments commenced in March of 2022.

Interest on the First Lien Term Loan is payable monthly on either (i) LIBOR (or a comparable successor rate, with a floor of 0.50% per annum) plus an applicable margin of 2.75% for Eurocurrency Rate Loans (as defined in the First Lien Term Loan agreement) and (ii) a base rate determined in accordance with the new First Lien Term Loan agreement, plus 1.75% for Base Rate Loans (as defined in the First Lien Term Loan agreement).

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

The quarterly principal payments commenced in March 2022.

Interest on the First Lien Term Loan is payable monthly on either (i) SOFR (with a floor of 0.50% per annum) plus an applicable margin of 2.75% for Term SOFR Loans (as such term is defined in the First Lien Credit Agreement Amendment);

or (ii) a base rate determined in accordance with the new First Lien Credit Agreement Amendment, plus 1.75% for Base Rate Loans (as such term is defined in the First Lien Credit Agreement Amendment).

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

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Interest payments over the course of long-term debt obligations total an estimated $359.8 million based on final maturity dates of the Company’s credit facilities.

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

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

Interest payments are calculated based on current rates as of December 31, 2023.

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

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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Net cash used in investing activities (56,506) (108,052) 51,546

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

Net cash (used in) provided by financing activities (265,126) 15,268 (280,394)

Net increase in cash and cash equivalents 49,663 174,763 (125,100)

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Cash Flows from Operating Activities

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

The increase in cash provided by operating activities is primarily due to higher net income, the Termination Fee received under the terms of the Mutual Termination Agreement, net of merger-related expenses and taxes, stock-based incentive compensation expense, changes in accrued compensation and employee benefits, timing of collections on accounts receivable, partially offset by cash paid for taxes, changes in inventory, and certain accruals and timing of vendor payments during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Cash Flows from Investing Activities

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

The decrease in cash used in investing activities during the year ended December 31, 2023 is primarily due to a decrease in acquisition activity as compared to the year ended December 31, 2022.

See Note 3, Business Acquisitions and Divestitures , of the consolidated financial statements for more information.

Cash Flows from Financing Activities

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

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

The cash used in financing activities is primarily related to the Company’s repurchase of common stock during the year ended December 31, 2023, whereas the cash provided by financing activities in the year ended December 31, 2022 was primarily related to the proceeds of warrant exercises.

Critical Accounting Estimates

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Revenues are from commercial payers, government payers, and patients for goods and services provided and are based on a gross price based on payer contracts, fee schedules, or other arrangements less any implicit price concessions.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided.

Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available.

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The Company’s accounts receivable are reported at the net realizable value amount that reflects the consideration the Company expects to receive in exchange for providing services, which is inclusive of adjustments for price concessions.

The majority of accounts receivable are due from private insurance carriers and governmental health care programs, such as Medicare and Medicaid.

The majority of accounts receivable are due from private insurance carriers and governmental healthcare programs, such as Medicare and Medicaid.

Price concessions may result from patient hardships, patient uncollectible accounts sent to collection agencies, lack of recovery due to not receiving prior authorization, differing interpretations of covered therapies in payer contracts, different pricing methodologies, or various other reasons.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis