What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-22 · 56 added, 54 removed, 172 unchanged (39% of the section changed)

10 unchanged sentences

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

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

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

The Company operates in one segment, infusion services.

Update on the Impact of the Change Healthcare Cybersecurity Incident

As previously disclosed, on February 21, 2024, Change Healthcare, a subsidiary of UnitedHealth Group, experienced an incident in which a cybersecurity threat actor gained access to some of its information technology systems (“Change Healthcare Cybersecurity Incident”).

Since the time of the system disruption, Option Care Health has worked continuously to find alternative processes to help maintain patient care and overall operations.

As of December 31, 2024, the Company has not identified any compromise or unauthorized access of its systems or networks due to this third party incident.

As of the end of the second quarter of 2024, the Company reconnected to key applications maintained by Change Healthcare and as of the end of the fourth quarter of 2024, the Company has fully recovered.

During the fourth quarter of 2024, the Company did not experience a material financial impact from the Change Healthcare Cybersecurity Incident on the financial results as reported.

The Company continues to maintain strong liquidity and, having resumed submission of all claims to payers, has determined that the Change Healthcare Cybersecurity Incident did not materially impact the Company, including its business operations, financial condition or results of operations.

Composition of Results of Operations

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Depreciation and Amortization Expense.

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

Depreciation within this caption relates to property and equipment and amortization relates to intangibles.

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

1 unchanged sentence

Interest Expense, Net .

Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, First Lien Term Loan, 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.

Interest expense consists principally of interest and fee 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, 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.

1 unchanged sentence

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

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.

During the year ended December 31, 2024, other income (expense) primarily includes activity related to non-operating income and expenses.

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

(“Amedisys”).

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

Income Tax 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 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.

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

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

Results of Operations

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Other, net 4,831 0.1 % 89,865 2.1 %

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

Total other (expense) income (38,234) (0.8) % 44,147 1.0 %

INCOME BEFORE INCOME TAXES 283,599 5.7 % 358,742 8.3 %

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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

Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit (expense) of $1,284 and $2,158, respectively

(3,931) (0.1) % (6,181) (0.1) %

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Gross profit margin 20.3% 22.8%

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.

The increase in net revenue during the year ended December 31, 2024 was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had high single digits growth relative to the prior year while chronic revenue grew in the high teens.

The increase in cost of revenue was primarily driven by the growth in revenue, therapy mix, and acute drug supply chain disruption, as well as the comparable impact of certain temporary favorable therapy procurement dynamics in the prior year.

The decrease in gross profit margin was primarily due to the launch of certain new higher cost therapies included within chronic growth (including rare and orphan therapies) and to the same comparable impact of certain temporary favorable procurement dynamics in the prior year that did not continue into 2024.

Additionally, the Company received notice of a manufacturer’s intention to significantly reduce the spread at which the Company procures a certain therapy relative to drug reference prices beginning in early 2025, which is expected to negatively impact gross profit by approximately $60 million to $70 million in 2025.

Operating Expenses

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Total operating expenses $ 691,160 $ 666,628 $ 24,532 3.7 %

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.

The increase in selling, general and administrative expenses during the year ended December 31, 2024 was primarily due to an increase in salaries, benefits, and general costs to support the business;

however, these expenses have declined as a percentage of revenue to 12.6% for the year ended December 31, 2024 compared to 14.1% for the year ended December 31, 2023, due to the Company’s focus on leveraging existing infrastructure to control spending.

Other Income (Expense)

5 unchanged sentences

Other, net 4,831 89,865 (85,034) (94.6) %

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.

Total other (expense) income $ (38,234) $ 44,147 $ (82,381) (186.6) %

The decrease in interest expense, net during the year ended December 31, 2024 was primarily attributable to additional interest income generated from our cash and cash equivalents, partially offset by an increase in the Company’s First Lien Term Loan principal balance, compared to the year ended December 31, 2023.

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

The decrease in other, net during the year ended December 31, 2024 was due to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses during the year ended December 31, 2023.

There was no comparable activity during the year ended December 31, 2024.

Income Tax Expense

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The Company recorded income tax expense of $71.8 million and $91.7 million, which represents an effective tax rate of 25.3% and 25.5% for the years ended December 31, 2024 and 2023, respectively.

The variance in the Company’s effective tax rate of 25.3% and 25.5% for the years ended December 31, 2024 and 2023, respectively, was 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 25.3% for the year ended December 31, 2024, compared to the federal statutory rate of 21%, was also primarily attributable to state taxes, various non-deductible expenses, and a change in state valuation allowance.

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

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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) %

Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit (expense) (3,931) (6,181) 2,250 (36.4) %

Other comprehensive (loss) income (3,931) (6,181) 2,250 (36.4) %

Net comprehensive income $ 207,892 $ 260,909 $ (53,017) (20.3) %

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.

The change in net income for the year ended December 31, 2024 was attributable to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses during the year ended December 31, 2023.

There was no comparable activity during the year ended December 31, 2024.

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.

For the years ended December 31, 2024 and 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 decreased to $207.9 million for the year ended December 31, 2024, compared to net comprehensive income of $260.9 million for the year ended December 31, 2023, primarily as a result of the changes in net income 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.

For the years ended December 31, 2024 and 2023, the Company’s primary sources of liquidity were cash and cash equivalents of $412.6 million and $343.8 million, respectively.

As of December 31, 2024, the Company had $395.9 million of borrowings available under its credit facilities (net of $4.1 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.

During the year ended December 31, 2023, 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 and cash equivalents 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.

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

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

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Credit Facilities

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, 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.

On May 8, 2024, the Company entered into the third amendment to the amended and restated First Lien Credit Agreement dated as of October 27, 2021 (the “Third Amendment”).

The Third Amendment, among other things, (i) provides for an additional $50.0 million of incremental First Lien Term Loan indebtedness and (ii) 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% and removes the credit spread adjustment with respect to such First Lien Term Loan.

The principal balance of the First Lien Term Loan is repayable in quarterly installments of $1.6 million plus interest, with a final payment of all remaining outstanding principal due on October 27, 2028.

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).

Under the Third Amendment, 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 2.25% for Term SOFR Loans (as such term is defined in the Third Amendment);

or (ii) a base rate determined in accordance with the Third Amendment, plus 1.25% for Base Rate Loans (as such term is defined in the Third Amendment).

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.

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 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 Second Amendment, (A) for Term SOFR Loans, 1.75%, or (B) for Base Rate Loans, 0.75% and (ii) thereafter, the Applicable Rate for Term SOFR Loans and Base Rate Loans, 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, 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.

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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Net cash used in investing activities (36,470) (56,506) 20,036

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

Net cash used in financing activities (218,206) (265,126) 46,920

Net increase in cash and cash equivalents 68,716 49,663 19,053

2 unchanged sentences

Cash Flows from Operating Activities

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.

The decrease in cash provided by operating activities during the year ended December 31, 2024 was primarily due to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses during the year ended December 31, 2023, changes in accounts receivable and accrued compensation and employee benefits.

Additionally, changes in accounts payable and inventory were driven by organic growth in the Company as well as strategic supply chain purchases.

Cash Flows from Investing Activities

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.

The decrease in cash used in investing activities during the year ended December 31, 2024 was primarily due to prior year acquisition activity with no comparable activity during the year ended December 31, 2024.

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

Cash Flows from Financing Activities

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.

The decrease in cash used in financing activities was primarily related to the Company’s debt refinancing in May 2024, in which $50.0 million in proceeds from issuance of debt was received, which partially offset $250.0 million in repurchase of common stock during the year ended December 31, 2024, whereas the cash used in financing activities during the year ended December 31, 2023 was primarily related to the Company’s $250.0 million repurchase of common stock.

Critical Accounting Estimates

The Company prepares its consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”), which requires the Company to make estimates and assumptions.

The Company prepares its consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”), which require the Company to make estimates and assumptions.

The Company evaluates its estimates and judgments on an ongoing basis.

31 unchanged sentences

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