Option Care Health, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Unless the context requires otherwise, references in this report to "Option Care Health," the “Company,” “we,” “us” and “our” refer to Option Care Health, Inc. and its consolidated subsidiaries. Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operations and financial condition. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the related notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Form 10-Q”). Certain statements in this Item 2 of Part I of this Form 10-Q, and in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025 (our “Form 10-K”), may cause our actual results, financial position, and cash and cash equivalents generated from operations to differ materially from these forward-looking statements. Business Overview Option Care Health, and its wholly-owned subsidiaries, provide infusion therapy and other ancillary health care services through a national network of 87 full service pharmacies, including 73 with ambulatory infusion suites. Additionally, the Company has 111 stand-alone ambulatory infusion suites, including 28 with advanced practitioner capabilities. Our services are provided in coordination with, and under the direction of, the patient’s physician. Our multidisciplinary team of clinicians, including pharmacists, nurses, and dietitians 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 neurological disorders and chronic inflammatory disorders, immunoglobulin therapy, and other therapies for chronic and acute conditions. Our national footprint enables us to collaborate with health systems and national payers to provide high quality care at an appropriate cost in a comfortable setting. We have established key relationships that allow us access to local resources to ensure responsiveness to our patients’ needs. At the center of everything we do is the patient. This is the driving force behind all of our actions and the partnerships that we have across the healthcare ecosystem. 21 Table of Contents Composition of Results of Operations The following results of operations include the accounts of Option Care Health and our subsidiaries for the three months ended March 31, 2026 and 2025. Gross Profit Gross profit represents our net revenue less cost of revenue. Net Revenue. 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 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. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payers may result in adjustments to amounts originally recorded. Cost of Revenue. Cost of revenue consists of the actual cost of pharmaceuticals and other medical supplies dispensed to patients. In addition to product costs, cost of revenue includes warehousing costs, purchasing costs, depreciation expense relating to revenue-generating assets, such as infusion pumps, shipping and handling costs, and wages and related costs for the pharmacists, nurses, and all other employees and contracted workers directly involved in providing service to the patient. The Company receives volume-based rebates and prompt payment discounts from some of its pharmaceutical and medical supplies vendors. These payments are recorded as a reduction of inventory and are accounted for as a reduction of cost of revenue when the related inventory is sold. Operating Costs and Expenses Selling, General and Administrative Expenses . Selling, general and administrative expenses consist principally of salaries for administrative employees that directly and indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees. Depreciation and Amortization Expense. 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. Other Income (Expense) Interest Expense, Net . Interest expense consists principally of interest and fee payments on the Company’s outstanding borrowings under the 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. Equity in Earnings of Joint Ventures . 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 healthcare systems. Other, Net . Other income (expense) primarily includes activity related to non-operating income and expenses. 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 (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 derivatives designated as hedging instruments related to the interest rate cap hedge, net of income taxes. 22 Table of Contents Results of Operations The following table presents Option Care Health’s consolidated results of operations for the three months ended March 31, 2026 and 2025 (in thousands, except for percentages): Three Months Ended March 31, 2026 2025 Amount % of Revenue Amount % of Revenue NET REVENUE $ 1,350,654 100.0 % $ 1,332,972 100.0 % COST OF REVENUE 1,088,640 80.6 % 1,069,920 80.3 % GROSS PROFIT 262,014 19.4 % 263,052 19.7 % OPERATING COSTS AND EXPENSES: Selling, general and administrative expenses 174,562 12.9 % 168,118 12.6 % Depreciation and amortization expense 14,907 1.1 % 15,746 1.2 % Total operating expenses 189,469 14.0 % 183,864 13.8 % OPERATING INCOME 72,545 5.4 % 79,188 5.9 % OTHER INCOME (EXPENSE): Interest expense, net (13,304) (1.0) % (13,231) (1.0) % Equity in earnings of joint ventures 1,689 0.1 % 1,729 0.1 % Other, net 73 — % (4,130) (0.3) % Total other (expense) income (11,542) (0.9) % (15,632) (1.2) % INCOME BEFORE INCOME TAXES 61,003 4.5 % 63,556 4.8 % INCOME TAX EXPENSE 15,660 1.2 % 16,814 1.3 % NET INCOME $ 45,343 3.4 % $ 46,742 3.5 % OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit of $239 and $783, respectively (732) (0.1) % (2,398) (0.2) % OTHER COMPREHENSIVE (LOSS) INCOME (732) (0.1) % (2,398) (0.2) % NET COMPREHENSIVE INCOME $ 44,611 3.3 % $ 44,344 3.3 % 23 Table of Contents Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025 The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the three months ended March 31, 2026 and 2025. Gross Profit Three Months Ended March 31, 2026 2025 Variance (in thousands, except for percentages) Net revenue $ 1,350,654 $ 1,332,972 $ 17,682 1.3 % Cost of revenue 1,088,640 1,069,920 18,720 1.7 % Gross profit $ 262,014 $ 263,052 $ (1,038) (0.4) % Gross profit margin 19.4 % 19.7 % The increase in net revenue was primarily driven by high single-digit growth in the Company’s acute portfolio of therapies, while the chronic portfolio of therapies were down slightly compared to prior year. Acute growth was driven by a focus on maintaining referral source and payer relationships along with strong partnerships with hospitals and health systems. The chronic portfolio revenue was primarily impacted by shifts within the chronic inflammatory disease (“CID”) portfolio, related to increased patient attrition and unfavorable therapy mix, as well as slower than expected growth of certain other specialty therapies. Management now expects the CID dynamics to negatively impact gross profit by approximately $55 million in 2026. The increase in cost of revenue was primarily driven by the growth in revenue and therapy mix, while the decrease in gross profit margin was primarily due to headwinds on the CID portfolio. Operating Expenses Three Months Ended March 31, 2026 2025 Variance (in thousands, except for percentages) Selling, general and administrative expenses $ 174,562 $ 168,118 $ 6,444 3.8 % Depreciation and amortization expense 14,907 15,746 (839) (5.3) % Total operating expenses $ 189,469 $ 183,864 $ 5,605 3.0 % The increase in selling, general and administrative expenses during the three months ended March 31, 2026 was primarily due to investment in internal resources, technology, and other general costs to support both ongoing business needs as well as future business growth. The Company anticipates these investments will drive revenue growth and enhance profitability and cash generation over time. 24 Table of Contents Other Income (Expense) Three Months Ended March 31, 2026 2025 Variance (in thousands, except for percentages) Interest expense, net $ (13,304) $ (13,231) $ (73) 0.6 % Equity in earnings of joint ventures 1,689 1,729 (40) (2.3) % Other, net 73 (4,130) 4,203 NM (1) Total other (expense) income $ (11,542) $ (15,632) $ 4,090 (26.2) % (1) Not meaningful The change in Other, net was primarily attributable to prior year accruals related to an abandoned or unclaimed property voluntary disclosure agreement (“VDA”) program with no comparable accruals in the current period. This VDA is related to the pre-merger operations of BioScrip, Inc. (“BioScrip”), which was entered into by BioScrip prior to its merger with the Company in 2019. As of March 31, 2026, the matters related to this program are ongoing. Income Tax Expense Three Months Ended March 31, 2026 2025 Variance (in thousands, except for percentages) Income tax expense $ 15,660 $ 16,814 $ (1,154) (6.9) % The Company recorded income tax expense of $15.7 million and $16.8 million for the three months ended March 31, 2026 and 2025, respectively, which represents an effective tax rate of 25.7% and 26.5%, respectively. The variance in the Company’s effective tax rate of 25.7% and 26.5% for the three months ended March 31, 2026 and 2025, respectively, compared to the federal statutory rate of 21%, as well as year-over-year changes, was primarily attributable to state taxes in multiple jurisdictions and various non-deductible expenses. Net Income and Other Comprehensive (Loss) Income Three Months Ended March 31, 2026 2025 Variance (in thousands, except for percentages) Net income $ 45,343 $ 46,742 $ (1,399) (3.0) % Other comprehensive income (loss), net of tax: Change in unrealized (loss) gain on cash flow hedges, net of income taxes (732) (2,398) 1,666 (69.5) % Other comprehensive (loss) income (732) (2,398) 1,666 (69.5) % Net comprehensive income $ 44,611 $ 44,344 $ 267 0.6 % The change in net income was attributable to the factors described in the above sections. For the three months ended March 31, 2026 and 2025, the change in unrealized (loss) gain on cash flow hedges, net of income taxes 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 $44.6 million for the three months ended March 31, 2026, compared to net comprehensive income of $44.3 million for the three months ended March 31, 2025, primarily as a result of the factors described in the above sections. 25 Table of Contents Liquidity and Capital Resources For the three months ended March 31, 2026 and the twelve months ended December 31, 2025, the Company’s primary sources of liquidity were cash and cash equivalents of $177.3 million and $232.6 million, respectively. On March 30, 2026, the Company entered into the Fifth Amendment to the amended and restated Credit Agreement dated as of October 27, 2021. The Fifth Amendment, among other things, increases the Revolver Facility by $450.0 million, resulting in an aggregate capacity amount of $850.0 million. As of March 31, 2026, the Company had $846.0 million of borrowings available under its credit facilities (net of $4.0 million undrawn letters of credit issued and outstanding). As of December 31, 2025, the Company had $396.0 million of borrowings available under its credit facilities (net of $4.0 million undrawn letters of credit issued and outstanding). During the three months ended March 31, 2026 and 2025, the Company’s cash flows from operations have been invested in pharmacies, infusion suites, and information technology infrastructure to support growth and create additional capacity in the future, as well as the pursuit of acquisitions and the periodic repurchases of Company shares. The Company’s primary uses of cash and cash equivalents include supporting our ongoing business activities, internal investment in resources to support future growth, investment in capital expenditures in both facilities and technology, the pursuit of acquisitions, and the pursuit of 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 repurchases of Company shares. Our business strategy includes strategic deployment of capital to internal investments in resources, infrastructure, and technologies to support future growth, the pursuit of strategic tuck-in and adjacent acquisitions that complement our existing operations and the periodic repurchases of Company shares. We continue to evaluate acquisition opportunities and view acquisitions as a key part of our growth strategy. The Company has historically funded its acquisitions with cash and cash equivalents. The Company may require additional capital in excess of current availability in order to complete future acquisitions. It is impossible to predict the amount of capital that may be required for acquisitions, and there is no assurance that sufficient financing for these activities will be available on acceptable terms. Short-Term and Long-Term Liquidity Requirements The Company’s ability to make principal and interest payments on any borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash 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, expected cash flows generated from operations, and availability under our credit facility will be sufficient to meet our operating requirements over 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. 26 Table of Contents Credit Facilities On March 30, 2026, the Company entered into the Fifth Amendment to the Credit Agreement. The Fifth Amendment, among other things, increases the existing Revolver Facility by $450.0 million, resulting in an aggregate capacity amount of $850.0 million. The principal balance of the First Lien Term Loan is repayable in quarterly installments of $1.7 million plus interest, with a final payment of all remaining outstanding principal due on September 22, 2032. Interest on the First Lien Term Loan is payable monthly on either (i) the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 1.75% for Term SOFR Loans; or (ii) a base rate, plus 0.75% for Base Rate Loans. The Senior Notes bear interest at a rate of 4.375% per annum and are payable semi-annually in arrears on October 31 and April 30 of each year. The Senior Notes mature on October 31, 2029. The Company’s Revolver Facility provides for borrowings up to $850.0 million. The Revolver Facility matures on the date that is the earlier of (i) September 22, 2030 and (ii) the date that is 91 days prior to the stated maturity date applicable to the Senior Notes to the extent any amount of the Senior Notes remains unpaid and outstanding as of the date that is 91 days prior to the stated maturity date applicable to the Senior Notes. 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 fourth amendment to the Credit Agreement, (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 such terms are defined in the Credit Agreement). As of March 31, 2026, the Company had $4.0 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the Revolver Facility of $846.0 million. Interest payments over the course of long-term debt obligations total an estimated $312.3 million based on final maturity dates of the Company’s credit facilities. Interest payments are calculated based on current rates as of March 31, 2026. Actual payments are based on changes in SOFR and exclude the interest rate cap derivative instrument. 27 Table of Contents Cash Flows Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025 The following table presents selected data from Option Care Health’s unaudited condensed consolidated statements of cash flows: Three Months Ended March 31, 2026 2025 Variance (in thousands) Net cash used in operating activities $ (12,110) $ (7,214) $ (4,896) Net cash used in investing activities (9,320) (126,693) 117,373 Net cash used in financing activities (33,873) (107,286) 73,413 Net decrease in cash and cash equivalents (55,303) (241,193) 185,890 Cash and cash equivalents - beginning of period 232,624 412,565 (179,941) Cash and cash equivalents - end of period $ 177,321 $ 171,372 $ 5,949 Cash Flows from Operating Activities The increase in cash used in operating activities during the three months ended March 31, 2026 was primarily due to decreases in accounts payable due to the timing of vendor payments and accrued compensation and employee benefits due to annual variable incentive compensation payments, which increased over the prior year based on growth and Company performance compared to target goals. The change was also driven by an increase in accounts receivable driven by administrative efforts focused on annual reverification of patients’ insurance coverage and deductible resets, partially offset by a decrease in inventory due to focused efforts on supply chain management. Cash Flows from Investing Activities The decrease in cash used in investing activities during the three months ended March 31, 2026 was primarily related to the Intramed Plus acquisition made during the three months ended March 31, 2025 with no comparable activity during the three months ended March 31, 2026. Cash Flows from Financing Activities The decrease in cash used in financing activities was primarily related to the Company’s $17.5 million repurchase of common stock during the three months ended March 31, 2026, compared to the Company’s $100.0 million repurchase of common stock during the three months ended March 31, 2025. Critical Accounting Policies and Estimates The Company prepares its unaudited condensed consolidated financial statements in accordance with GAAP, which requires the Company to make estimates and assumptions. The Company evaluates its estimates and assumptions on an ongoing basis. Estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making assumptions about the carrying values of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period presented. The Company’s actual results may differ from these estimates, and different assumptions or conditions may yield different estimates. There have been no material changes to the Company’s critical accounting policies and estimates as presented in our Form 10-K, which are hereby incorporated by reference. 28 Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to our exposure to market risk from those included in our Form 10-K, which is hereby incorporated by reference.