Option Care Health, Inc. 10-Q

Item 1. Financial Statements 4 Table of Contents OPTION CARE HEALTH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) June 30, 2024 December 31, 2023 (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 376,872 $ 343,849 Accounts receivable, net 468,300 377,658 Inventories 281,421 274,004 Prepaid expenses and other current assets 100,820 98,744 Total current assets 1,227,413 1,094,255 NONCURRENT ASSETS: Property and equipment, net 123,931 120,630 Operating lease right-of-use asset 92,714 84,159 Intangible assets, net 18,542 20,092 Referral sources, net 299,660 315,304 Goodwill 1,540,246 1,540,246 Other noncurrent assets 46,086 42,349 Total noncurrent assets 2,121,179 2,122,780 TOTAL ASSETS $ 3,348,592 $ 3,217,035 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 535,688 $ 426,513 Accrued compensation and employee benefits 62,302 92,508 Accrued expenses and other current liabilities 68,959 75,010 Current portion of operating lease liability 21,946 18,278 Current portion of long-term debt 6,512 6,000 Total current liabilities 695,407 618,309 NONCURRENT LIABILITIES: Long-term debt, net of discount, deferred financing costs and current portion 1,105,575 1,056,650 Operating lease liability, net of current portion 91,434 85,484 Deferred income taxes 44,558 34,920 Other noncurrent liabilities 187 — Total noncurrent liabilities 1,241,754 1,177,054 Total liabilities 1,937,161 1,795,363 STOCKHOLDERS’ EQUITY: Preferred stock; $ 0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of June 30, 2024 and December 31, 2023 — — Common stock; $ 0.0001 par value: 250,000,000 shares authorized, 183,658,411 shares issued and 171,410,880 shares outstanding as of June 30, 2024; 182,905,559 shares issued and 174,575,537 shares outstanding as of December 31, 2023 18 18 Treasury stock; 12,247,531 and 8,330,022 shares outstanding, at cost, as of June 30, 2024 and December 31, 2023, respectively ( 374,164 ) ( 255,107 ) Paid-in capital 1,214,600 1,204,270 Retained earnings 555,347 457,513 Accumulated other comprehensive income 15,630 14,978 Total stockholders’ equity 1,411,431 1,421,672 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,348,592 $ 3,217,035 The notes to unaudited condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents OPTION CARE HEALTH, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 NET REVENUE $ 1,227,186 $ 1,069,072 $ 2,373,238 $ 2,084,920 COST OF REVENUE 977,821 818,243 1,885,373 1,605,086 GROSS PROFIT 249,365 250,829 487,865 479,834 OPERATING COSTS AND EXPENSES: Selling, general and administrative expenses 153,783 153,564 308,525 301,430 Depreciation and amortization expense 14,907 14,898 29,635 29,412 Total operating expenses 168,690 168,462 338,160 330,842 OPERATING INCOME 80,675 82,367 149,705 148,992 OTHER INCOME (EXPENSE): Interest expense, net ( 12,603 ) ( 13,196 ) ( 25,805 ) ( 27,030 ) Equity in earnings of joint ventures 1,405 1,397 2,530 2,834 Other, net 2,564 84,935 2,566 84,936 Total other (expense) income ( 8,634 ) 73,136 ( 20,709 ) 60,740 INCOME BEFORE INCOME TAXES 72,041 155,503 128,996 209,732 INCOME TAX EXPENSE 18,998 41,100 31,162 56,121 NET INCOME $ 53,043 $ 114,403 $ 97,834 $ 153,611 OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX: Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit (expense) of $ 242 , $( 1,103 ), $( 213 ) and $ 49 , respectively $ ( 899 ) $ 3,291 $ 652 $ ( 152 ) OTHER COMPREHENSIVE (LOSS) INCOME ( 899 ) 3,291 652 ( 152 ) NET COMPREHENSIVE INCOME $ 52,144 $ 117,694 $ 98,486 $ 153,459 EARNINGS PER COMMON SHARE: Earnings per share, basic $ 0.31 $ 0.64 $ 0.56 $ 0.85 Earnings per share, diluted $ 0.30 $ 0.63 $ 0.56 $ 0.84 Weighted average common shares outstanding, basic 172,927 179,807 173,428 180,531 Weighted average common shares outstanding, diluted 174,090 181,241 174,831 181,931 The notes to unaudited condensed consolidated financial statements are an integral part of these statements. 6 Table of Contents OPTION CARE HEALTH, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Six Months Ended June 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 97,834 $ 153,611 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization expense 30,802 30,801 Non-cash operating lease costs 12,503 9,334 Deferred income taxes - net 9,638 13,277 Loss on extinguishment of debt 377 — Amortization of deferred financing costs 2,306 2,187 Equity in earnings of joint ventures ( 2,530 ) ( 2,834 ) Stock-based incentive compensation expense 17,213 13,673 Capital distribution from equity method investments 750 2,500 Other adjustments ( 1,383 ) 361 Changes in operating assets and liabilities: Accounts receivable, net ( 90,642 ) ( 18,619 ) Inventories ( 7,417 ) ( 38,643 ) Prepaid expenses and other current assets ( 1,745 ) 654 Accounts payable 107,558 88,896 Accrued compensation and employee benefits ( 30,206 ) ( 3,949 ) Accrued expenses and other current liabilities ( 6,986 ) 24,805 Operating lease liabilities ( 11,459 ) ( 7,754 ) Other noncurrent assets and liabilities 258 ( 9,012 ) Net cash provided by operating activities 126,871 259,288 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ( 15,597 ) ( 13,554 ) Business acquisitions, net of cash acquired — ( 12,855 ) Net cash used in investing activities ( 15,597 ) ( 26,409 ) CASH FLOWS FROM FINANCING ACTIVITIES: Stock-based compensation tax withholdings ( 8,183 ) ( 2,149 ) Repayments of debt principal ( 3,128 ) ( 3,000 ) Proceeds from issuance of debt 49,959 — Deferred financing costs ( 77 ) — Purchase of company stock ( 118,122 ) ( 75,000 ) Other financing activities 1,300 ( 5,750 ) Net cash used in financing activities ( 78,251 ) ( 85,899 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 33,023 146,980 Cash and cash equivalents - beginning of the period 343,849 294,186 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 376,872 $ 441,166 Supplemental disclosure of cash flow information: Cash paid for interest $ 36,070 $ 33,991 Cash paid for income taxes $ 32,471 $ 21,786 Cash paid for operating leases $ 14,360 $ 13,231 The notes to unaudited condensed consolidated financial statements are an integral part of these statements. 7 Table of Contents OPTION CARE HEALTH, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (IN THOUSANDS) Preferred Stock Common Stock Treasury Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance - December 31, 2022 $ — $ 18 $ ( 2,403 ) $ 1,176,906 $ 190,423 $ 21,159 $ 1,386,103 Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — ( 1,902 ) — — ( 1,902 ) Stock-based incentive compensation — — — 5,988 — — 5,988 Purchase of company stock — — ( 75,735 ) — — — ( 75,735 ) Net income — — — — 39,208 — 39,208 Other comprehensive loss — — — — — ( 3,443 ) ( 3,443 ) Balance - March 31, 2023 $ — $ 18 $ ( 78,138 ) $ 1,180,992 $ 229,631 $ 17,716 $ 1,350,219 Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — ( 247 ) — — ( 247 ) Stock-based incentive compensation — — — 7,685 — — 7,685 Purchase of company stock, and related tax effects — — 32 — — — 32 Net income — — — — 114,403 — 114,403 Other comprehensive income — — — — — 3,291 3,291 Balance - June 30, 2023 $ — $ 18 $ ( 78,106 ) $ 1,188,430 $ 344,034 $ 21,007 $ 1,475,383 Balance - December 31, 2023 $ — $ 18 $ ( 255,107 ) $ 1,204,270 $ 457,513 $ 14,978 $ 1,421,672 Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — ( 8,182 ) — — ( 8,182 ) Stock-based incentive compensation — — — 9,605 — — 9,605 Purchase of company stock, and related tax effects — — ( 40,289 ) — — — ( 40,289 ) Net income — — — — 44,791 — 44,791 Other comprehensive income — — — — — 1,551 1,551 Balance - March 31, 2024 $ — $ 18 $ ( 295,396 ) $ 1,205,693 $ 502,304 $ 16,529 $ 1,429,148 Exercise of stock options, vesting of restricted stock, and related tax withholdings — — — 1,299 — — 1,299 Stock-based incentive compensation — — — 7,608 — — 7,608 Purchase of company stock, and related tax effects — — ( 78,768 ) — — — ( 78,768 ) Net income — — — — 53,043 — 53,043 Other comprehensive loss — — — — — ( 899 ) ( 899 ) Balance - June 30, 2024 $ — $ 18 $ ( 374,164 ) $ 1,214,600 $ 555,347 $ 15,630 $ 1,411,431 The notes to unaudited condensed consolidated financial statements are an integral part of these statements. 8 Table of Contents OPTION CARE HEALTH, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS Corporate Organization and Business — Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 93 full service pharmacies and 89 stand-alone ambulatory infusion suites. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings. The Company operates in one segment, infusion services. The Company’s stock is listed on the Nasdaq Global Select Market as of June 30, 2024. Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States and contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for interim financial reporting. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire year. These unaudited condensed consolidated financial statements do not include all of the information and notes to the financial statements required by GAAP for complete financial statements and should be read in conjunction with the 2023 audited consolidated financial statements, including the notes thereto, as presented in our Form 10-K. Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation. The Company has investments in companies that are 50 % owned and are accounted for as equity-method investments. The Company’s share of earnings from equity-method investments is included in the line entitled “Equity in earnings of joint ventures” in the unaudited condensed consolidated statements of comprehensive income. See Equity-Method Investments within Note 2, Summary of Significant Accounting Policies , for further discussion of the Company’s equity-method investments. 9 Table of Contents 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2024, cash equivalents consisted of money market funds. Prepaid Expenses and Other Current Assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $ 41.6 million and $ 52.0 million as of June 30, 2024 and December 31, 2023, respectively. Equity-Method Investments — The Company’s investments in certain unconsolidated entities are accounted for under the equity method. The balance of these investments is included in other noncurrent assets in the accompanying condensed consolidated balance sheets. As of June 30, 2024 and December 31, 2023, the balance of the investments was $ 22.7 million and $ 20.9 million, respectively. The balance of these investments is increased to reflect the Company’s capital contributions and equity in earnings of the investees. The balance of these investments is decreased to reflect the Company’s equity in losses of the investees and for distributions received that are not in excess of the carrying amount of the investments. The Company’s proportionate share of earnings or losses of the investees is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income. The Company’s proportionate share of earnings was $ 1.4 million and $ 2.5 million for the three and six months ended June 30, 2024, respectively. The Company’s proportionate share of earnings was $ 1.4 million and $ 2.8 million for the three and six months ended June 30, 2023, respectively. Distributions from the investees are treated as cash inflows from operating activities in the unaudited condensed consolidated statements of cash flows. During the three months ended June 30, 2024, the Company did not receive any distributions from the investees. During the six months ended June 30, 2024, the Company received distributions from the investees of $ 0.8 million. During the three months ended June 30, 2023, the Company did not receive any distributions from the investees. During the six months ended June 30, 2023, the Company received distributions from the investees of $ 2.5 million. See Note 15, Related-Party Transactions , for discussion of related-party transactions with these investees. 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 % for the three and six months ended June 30, 2024. Revenue related to the Company’s largest payer was approximately 14 % for the three and six months ended June 30, 2023. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented. For the three and six months ended June 30, 2024, approximately 11 % and 12 %, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. For the three and six months ended June 30, 2023, approximately 12 % of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of June 30, 2024 and December 31, 2023, approximately 11 % and 12 %, respectively, of the Company’s accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules and rates that are determined by the related governmental agency. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term. The Company does not require its patients or other payers to carry collateral for any amounts owed for goods or services provided. Other than as discussed above, concentration of credit risk relating to trade accounts receivable is limited due to the Company’s diversity of patients and payers. Further, the Company generally does not provide charity care; however, Option Care Health offers a financial assistance program for patients that meet certain defined hardship criteria. For the three and six months ended June 30, 2024, approximately 68 % and 67 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from four vendors. For the three and six months ended June 30, 2023, approximately 74 % and 73 %, respectively, of the Company’s pharmaceutical and medical supply purchases were from four vendors. Although there are a limited number of suppliers, the Company believes that other vendors could provide similar products on comparable terms. However, a change in suppliers could cause delays in service delivery, losses in revenue or decreased gross profit dollars, which could adversely affect the Company’s financial condition or operating results. 10 Table of Contents 3. REVENUE The following table sets forth the net revenue earned by category of payer for the three and six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Commercial payers $ 1,064,510 $ 934,001 $ 2,052,552 $ 1,807,912 Government payers 138,831 123,737 277,141 246,526 Patients 23,845 11,334 43,545 30,482 Net revenue $ 1,227,186 $ 1,069,072 $ 2,373,238 $ 2,084,920 4. INCOME TAXES During the three and six months ended June 30, 2024, the Company recorded tax expense of $ 19.0 million and $ 31.2 million, respectively, which represents an effective tax rate of 26.4 % and 24.2 %, respectively. The variance in the Company’s effective tax rate of 26.4 % and 24.2 % for the three and six months ended June 30, 2024, compared to the federal statutory rate of 21%, is primarily attributable to the difference between federal and state tax rates, various non-deductible expenses, and a change in state valuation allowance. During the six months ended June 30, 2024, the Company released $ 2.2 million of state valuation allowance. On June 26, 2023, the Company entered into an agreement to terminate the merger agreement (the “Mutual Termination Agreement”) with Amedisys, Inc. (“Amedisys”). Under the terms of the Mutual Termination Agreement, the Company received a payment of $ 106.0 million in cash on behalf of Amedisys (“Termination Fee”). During the three and six months ended June 30, 2023, the Company recorded tax expense of $ 41.1 million and $ 56.1 million, respectively, which includes $ 22.1 million of tax expense related to the Termination Fee payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses. The tax expense for the three and six months ended June 30, 2023 represents an effective tax rate of 26.4 % and 26.8 %, respectively. The variance in the Company’s effective tax rate of 26.4 % and 26.8 % for the three and six months ended June 30, 2023, respectively, 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 Company maintains a valuation allowance of $ 4.2 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 of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. In making this assessment, 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. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated. The Company’s tax expense of $ 19.0 million and $ 31.2 million for the three and six months ended June 30, 2024, respectively, consists of quarterly federal and state tax liabilities as well as recognized deferred federal and state tax expense. The Company’s tax expense of $ 41.1 million and $ 56.1 million for the three and six months ended June 30, 2023, respectively, consists of quarterly federal and state tax liabilities as well as recognized deferred federal and state tax expense. The Company has accumulated federal net operating loss carryovers that are subject to one or more Internal Revenue Code (“Code”) Section 382 limitations. This may limit the Company’s ability to utilize its federal net operating losses . 11 Table of Contents 5. EARNINGS PER SHARE The Company presents basic and diluted earnings per share for its common stock. Basic earnings per share is calculated by dividing the net income of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined by adjusting the profit or loss and the weighted average number of shares of common stock outstanding for the effects of all potentially dilutive securities. The earnings are used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. The computation of diluted shares for the three and six months ended June 30, 2024 and 2023 includes the effect of shares that would be issued in connection with warrants, stock options, restricted stock awards and performance stock unit awards, as these common stock equivalents are dilutive to the earnings per share recorded in those periods. The following table presents the Company’s common stock equivalents that were excluded from the calculation of earnings per share as they would be anti-dilutive: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Stock option awards 850,489 1,345,914 866,612 1,111,271 Restricted stock awards 429,782 48,690 431,444 591,176 Performance stock unit awards 331,370 — 246,157 152,189 The following table presents the Company’s basic earnings per share and shares outstanding (in thousands, except per share data): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net income (1) $ 53,043 $ 114,403 $ 97,834 $ 153,611 Denominator: Weighted average number of common shares outstanding 172,927 179,807 173,428 180,531 Earnings per common share: Earnings per common share, basic $ 0.31 $ 0.64 $ 0.56 $ 0.85 (1) Net income for the three and six months ended June 30, 2023 includes $ 62.8 million related to the termination payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses and taxes. The following table presents the Company’s diluted earnings per share and shares outstanding (in thousands, except per share data): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net income (1) $ 53,043 $ 114,403 $ 97,834 $ 153,611 Denominator: Weighted average number of common shares outstanding 172,927 179,807 173,428 180,531 Effect of dilutive securities 1,163 1,434 1,403 1,400 Weighted average number of common shares outstanding, diluted 174,090 181,241 174,831 181,931 Earnings per common share: Earnings per common share, diluted $ 0.30 $ 0.63 $ 0.56 $ 0.84 (1) Net income for the three and six months ended June 30, 2023 includes $ 62.8 million related to the termination payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses and taxes. 12 Table of Contents 6. LEASES During the three and six months ended June 30, 2024, the Company incurred operating lease expenses of $ 8.7 million and $ 16.6 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income. During the three and six months ended June 30, 2023, the Company incurred operating lease expenses of $ 7.3 million and $ 14.5 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income. As of June 30, 2024, the weighted-average remaining lease term was 6.6 years and the weighted-average discount rate was 6.45 %. Operating leases mature as follows (in thousands): Fiscal Year Ended December 31, Minimum Payments 2024 $ 14,818 2025 28,219 2026 25,403 2027 20,060 2028 13,007 Thereafter 43,365 Total lease payments 144,872 Less: interest ( 31,492 ) Present value of lease liabilities $ 113,380 During the six months ended June 30, 2024, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow o f $ 21.1 million re lated to increases in the operating lease right-of-use assets and operating lease liabilities. During the six months ended June 30, 2023, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow o f $ 16.8 million re lated to increases in the operating lease right-of-use assets and operating lease liabilities. As of June 30, 2024, the Company did not have any significant operating or financing leases that had not yet commenced. 13 Table of Contents 7. PROPERTY AND EQUIPMENT Property and equipment was as follows as of June 30, 2024 and December 31, 2023 (in thousands): June 30, 2024 December 31, 2023 Infusion pumps $ 36,812 $ 36,943 Equipment, furniture and other 26,947 23,593 Leasehold improvements 103,559 99,725 Computer software, purchased and internally developed 51,813 50,572 Assets under development 35,943 33,668 255,074 244,501 Less: accumulated depreciation ( 131,143 ) ( 123,871 ) Property and equipment, net $ 123,931 $ 120,630 Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income, depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three and six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Depreciation expense in cost of revenue $ 591 $ 680 $ 1,167 $ 1,390 Depreciation expense in operating expenses 6,302 6,288 12,422 12,300 Total depreciation expense $ 6,893 $ 6,968 $ 13,589 $ 13,690 8. GOODWILL AND OTHER INTANGIBLE ASSETS There was no change in the carrying amount of goodwill for the three and six months ended June 30, 2024. The carrying amount and accumulated amortization of intangible assets consist of the following as of June 30, 2024 and December 31, 2023 (in thousands): June 30, 2024 December 31, 2023 Gross intangible assets: Referral sources $ 514,388 $ 514,388 Trademarks/names 39,136 39,136 Other amortizable intangible assets 985 995 Total gross intangible assets 554,509 554,519 Accumulated amortization: Referral sources ( 214,728 ) ( 199,084 ) Trademarks/names ( 21,149 ) ( 19,698 ) Other amortizable intangible assets ( 430 ) ( 341 ) Total accumulated amortization ( 236,307 ) ( 219,123 ) Total intangible assets, net $ 318,202 $ 335,396 Amortization expense for intangible assets was $ 8.6 million and $ 17.2 million for the three and six months ended June 30, 2024, respectively. Amortization expense for intangible assets was $ 8.5 million and $ 17.0 million for the three and six months ended June 30, 2023, respectively. 14 Table of Contents 9. INDEBTEDNESS Long-term debt consisted of the following as of June 30, 2024 (in thousands): Principal Amount Discount Debt Issuance Costs Net Balance Revolver Facility $ — $ — $ — $ — First Lien Term Loan 634,872 ( 6,234 ) ( 8,506 ) 620,132 Senior Notes 500,000 — ( 8,045 ) 491,955 $ 1,134,872 $ ( 6,234 ) $ ( 16,551 ) 1,112,087 Less: current portion ( 6,512 ) Total long-term debt $ 1,105,575 Long-term debt consisted of the following as of December 31, 2023 (in thousands): Principal Amount Discount Debt Issuance Costs Net Balance Revolver Facility $ — $ — $ — $ — First Lien Term Loan 588,000 ( 6,974 ) ( 9,678 ) 571,348 Senior Notes 500,000 — ( 8,698 ) 491,302 $ 1,088,000 $ ( 6,974 ) $ ( 18,376 ) 1,062,650 Less: current portion ( 6,000 ) Total long-term debt $ 1,056,650 On May 8, 2024, the Company entered into the third amendment to the amended and restated First Lien Credit Agreement (the “Third Amendment”). The Third Amendment, among other things, reduces the interest rate on the First Lien Term Loan from Term Secured Overnight Financing Rate (“SOFR”) (including a credit spread adjustment) plus 2.75 % to Term SOFR plus 2.25 %, increases borrowings by $ 50.0 million, and removes the credit spread adjustment with respect to such First Lien Term Loan. The interest rate on the First Lien Term Loan was 7.58 % and 8.21 % as of June 30, 2024 and December 31, 2023, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 7.77 % and 7.98 % for the three and six months ended June 30, 2024, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 7.76 % and 7.52 % for the three and six months ended June 30, 2023, respectively. The interest rate on the Senior Notes was 4.375 % as of June 30, 2024 and December 31, 2023. The weighted average interest rate incurred on the Senior Notes was 4.375 % for the three and six months ended June 30, 2024, respectively. The weighted average interest rate incurred on the Senior Notes was 4.375 % for the three and six months ended June 30, 2023, respectively. The Company assessed whether the repayment of the First Lien Term Loan indebtedness resulted in an insubstantial modification or an extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows: (i) Lenders participating in both the First Lien Term Loan and Senior Notes; (ii) previous lenders that exited; and (iii) new lenders. The Company determined that $ 0.4 million of the First Lien Term Loan was extinguished. The First Lien Term Loan had insubstantial modifications for lenders that participated in both debt instruments, which resulted in a cash inflow from financing activities of $ 50.0 million in the unaudited condensed consolidated statements of cash flows. The Company incurred $ 1.6 million in fees, of which $ 0.1 million was capitalized, relative to the First Lien Term Loan and an immaterial amount of the total fees incurred was netted against the $ 50.0 million of debt proceeds as financing activities within the unaudited condensed consolidated statements of cash flows. The Company recognized a loss on extinguishment of debt of $ 0.4 million included in the line entitled “Other, net” in the unaudited condensed consolidated statements of comprehensive income. Long-term debt matures as follows (in thousands): Fiscal Year Ended December 31, Minimum Payments 2024 $ 3,256 2025 6,512 2026 6,512 2027 6,512 2028 612,080 Thereafter 500,000 Total $ 1,134,872 During the three and six months ended June 30, 2024 and 2023, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 10, Derivative Instruments , for further discussion. The following table presents the estimated fair values of the Company’s debt obligations as of June 30, 2024 (in thousands): Financial Instrument Carrying Value as of June 30, 2024 Markets for Identical Item (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) First Lien Term Loan $ 620,132 $ — $ 638,872 $ — Senior Notes 491,955 — 459,250 — Total debt instruments $ 1,112,087 $ — $ 1,098,122 $ — See Note 11, Fair Value Measurements , for further discussion. On December 7, 2023, the Company entered into the second amendment to the amended and restated First Lien Credit Agreement dated as of October 27, 2021 (the “Second Amendment”). The Second Amendment, among other things, provides for revolving credit commitments by the applicable Revolving Credit Lenders in an aggregate amount of $ 400.0 million (the “Revolver Facility”), pursuant to which such lenders have agreed to make Revolving Credit Loans to the Company. As of June 30, 2024, the Company had $ 4.1 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the Revolver Facility of $ 395.9 million. 15 Table of Contents 10. DERIVATIVE INSTRUMENTS The Company uses derivative financial instruments for hedging and non-trading purposes to limit the Company’s exposure to increases in interest rates related to its variable interest rate debt. Use of derivative financial instruments in hedging programs subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company’s derivative financial instruments is used to measure interest to be paid or received and does not represent the Company’s exposure due to credit risk. Credit risk is monitored through established approval procedures, including reviewing credit ratings when appropriate. In October 2021, the Company entered into an interest rate cap hedge with a notional amount of $ 300 million for a 5 -year term beginning November 30, 2021. The hedge partially offsets risk associated with the First Lien Term Loan’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 condensed consolidated balance sheets (in thousands): Fair Value - Derivatives in Asset Position Derivative Balance Sheet Caption June 30, 2024 December 31, 2023 Interest rate cap designated as cash flow hedge Prepaid expenses and other current assets $ 10,542 $ 9,746 Interest rate cap designated as cash flow hedge Other noncurrent assets 10,252 10,183 Total derivative assets $ 20,794 $ 19,929 The (loss) gain associated with the change in the fair value of the effective portion of the hedging instrument is recorded in other comprehensive (loss) income. The following table presents the pre-tax (loss) gain from derivative instruments recognized in other comprehensive (loss) income in the Company’s unaudited condensed consolidated statements of comprehensive income (in thousands): Three Months Ended June 30, Six Months Ended June 30, Derivative 2024 2023 2024 2023 Interest rate cap designated as cash flow hedge $ ( 1,141 ) $ 4,394 $ 865 $ ( 201 ) The following table presents the amount and location of pre-tax income recognized in the Company’s unaudited condensed consolidated statements of comprehensive income related to the Company’s derivative instruments (in thousands): Three Months Ended June 30, Six Months Ended June 30, Derivative Income Statement Caption 2024 2023 2024 2023 Interest rate cap designated as cash flow hedge Interest expense, net $ 2,969 $ 2,719 $ 5,948 $ 5,071 16 Table of Contents 11. FAIR VALUE MEASUREMENTS Fair value measurements are determined by maximizing the use of observable inputs and minimizing the use of unobservable inputs. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurements) and gives the lowest priority to unobservable inputs (Level 3 measurements). The categories within the valuation hierarchy are described as follows: • Level 1 — Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. • Level 2 — Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. • Level 3 — Inputs to the fair value measurement are unobservable inputs or valuation techniques. While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. First Lien Term Loan : The fair value of the First Lien Term Loan is derived from a broker quote on the loans in the syndication (Level 2 inputs). See Note 9, Indebtedness , for further discussion of the carrying amount and fair value of the First Lien Term Loan. Senior Notes: The fair value of the Senior Notes is derived from a broker quote (Level 2 inputs). See Note 9, Indebtedness , for further discussion of the carrying amount and fair value of the Senior Notes. Interest Rate Cap: 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 10, Derivative Instruments , for further discussion of the fair value of the interest rate cap. Money Market Funds: The fair value of the money market funds is derived from the closing price reported by the fund sponsor and classified as cash and cash equivalents on the Company’s condensed consolidated balance sheets (Level 1 inputs). There were no other material assets or liabilities measured at fair value at June 30, 2024 and December 31, 2023. 12. COMMITMENTS AND CONTINGENCIES The Company is involved in legal proceedings and is subject to investigations, inspections, audits, inquiries, and similar actions by governmental authorities, arising in the normal course of the Company’s business. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. From time to time, the Company may also be involved in legal proceedings as a plaintiff involving antitrust, tax, contract, intellectual property, and other matters. Gain contingencies, if any, are recognized when they are realized. The results of legal proceedings are often uncertain and difficult to predict, and the costs incurred in litigation can be substantial, regardless of the outcome. The Company does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s condensed consolidated balance sheets. However, substantial unanticipated verdicts, fines, and rulings may occur. As a result, the Company may from time to time incur judgments, enter into settlements, or revise expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations in the period in which the amounts are accrued and/or its cash flows in the period in which the amounts are paid. 17 Table of Contents 13. STOCK-BASED INCENTIVE COMPENSATION Equity Incentive Plans — Under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”), approved at the annual meeting by the BioScrip, Inc. (“BioScrip”) stockholders on May 3, 2018 and amended and restated on May 19, 2021 and May 15, 2024, the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, stock grants, and performance units to key employees and directors. The 2018 Plan is administered by the Company’s Compensation Committee, a standing committee of the Company’s Board of Directors. As of May 2021, a total of 9,101,734 shares of common stock were authorized for issuance under the 2018 Plan. In May 2024, an additional 4,000,000 shares were authorized for issuance under the 2018 Plan, resulting in a total of 13,101,734 shares of common stock authorized for issuance. The Company had stock options, restricted stock units and performance stock units outstanding related to the 2018 Plan as of June 30, 2024 and 2023. During the three and six months ended June 30, 2024, total stock-based incentive compensation expense recognized by the Company related to the 2018 Plan was $ 7.6 million and $ 17.2 million, respectively. During the three and six months ended June 30, 2023, total stock-based incentive compensation expense recognized by the Company related to the 2018 Plan was $ 7.7 million and $ 13.7 million, respectively. 14. STOCKHOLDERS’ EQUITY 2017 Warrants — During the three and six months ended June 30, 2024, warrant holders did not elect to exercise any warrants to purchase shares of common stock. During the three and six months ended June 30, 2023, warrant holders did not elect to exercise any warrants to purchase shares of common stock. As of June 30, 2024 and December 31, 2023, the remaining warrant holders are entitled to purchase 51,838 shares of common stock. 2015 Warrants — During the three and six months ended June 30, 2024, warrant holders exercised an immaterial number of warrants to purchase shares of common stock. During the three and six months ended June 30, 2023, warrant holders exercised an immaterial number of warrants to purchase shares of common stock. As of June 30, 2024 and December 31, 2023, the remaining warrant holders are entitled to purchase 12,381 and 13,888 shares of common stock, respectively. Share Repurchase Program — The Company’s Board of Directors approved a share repurchase program of up to an aggregate $ 500.0 million of common stock of the Company. Under the share repurchase program, repurchases may occur in any number of methods depending on timing, market conditions, regulatory requirements, and other corporate considerations. The share repurchase program has no specified expiration date. During the three and six months ended June 30, 2024, the Company purchased 2,665,770 and 3,917,509 shares of common stock for an average share price of $ 29.28 and $ 30.13 , totaling $ 78.1 million and $ 118.1 million, respectively. During the three months ended June 30, 2023, the Company did not purchase shares of common stock. During the six months ended June 30, 2023, the Company purchased 2,475,166 shares of common stock for an average share price of $ 30.30 , totaling $ 75.0 million. All repurchased shares became treasury stock. As of June 30, 2024, the Company is authorized to repurchase up to a remaining $ 131.9 million of common stock of the Company. Shares Outstanding — The following table shows the Company’s changes in shares of common stock for the three and six months ended June 30, 2024 and 2023 (in thousands): 2024 2023 Balance - beginning of the year 174,576 181,958 Equity issuances 492 274 Share repurchases ( 1,252 ) ( 2,475 ) Balance - March 31, 173,816 179,757 Equity issuances 261 114 Share repurchases ( 2,666 ) — Balance - June 30, 171,411 179,871 18 Table of Contents 15. RELATED-PARTY TRANSACTIONS Transactions with Equity-Method Investees — The Company provides management services to its joint ventures such as accounting, invoicing and collections in addition to day-to-day managerial support of the operations of the businesses. The Company recorded management fee income of $ 1.3 million and $ 2.9 million for the three and six months ended June 30, 2024, respectively. The Company recorded management fee income of $ 1.3 million and $ 2.6 million for the three and six months ended June 30, 2023, respectively. Management fees are recorded in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive income. During the three months ended June 30, 2024 the Company did not receive any distributions from the investees. During the six months ended June 30, 2024, the Company received distributions from the investees of $ 0.8 million. During the three months ended June 30, 2023, the Company did not receive any distributions from the investees. During the six months ended June 30, 2023, the Company received distributions from the investees of $ 2.5 million. The Company had amounts due from its joint ventures of $ 0.3 million and due to its joint ventures of $ 0.1 million as of June 30, 2024. The Company had amounts due from its joint ventures of $ 0.1 million and due to its joint ventures of $ 0.5 million as of December 31, 2023. Receivables were included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Payables were included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. These balances primarily relate to cash collections received by the Company on behalf of the joint ventures, offset by certain pharmaceutical inventories and other expenses paid for by the Company on behalf of the joint ventures. 19 Table of Contents