# Option Care Health, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Option Care Health, Inc.](/companies/opch.md) (CIK 1014739)
- Form: 10-Q
- Filed: 2024-10-30
- Accepted by EDGAR: Oct 30, 2024, 16:00 ET
- Period: 2024-09-30
- Accession: 0001014739-24-000052
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1014739/000101473924000052/bios-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1014739/000101473924000052/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $1.28bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $3.65bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $1.02bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $2.91bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $256.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $744.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $157.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $465.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $85.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $234.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $12.3m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $38.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $19.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $50.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $53.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $151.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.31 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.87 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.32 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.88 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 171,941,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 173,848,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $287.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $25.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $160.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $483.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $1.32bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $3.43bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $763.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $2.00bn | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $1.11bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $6.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $1.43bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,504 characters.

*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, 2023 (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, provides infusion therapy and other ancillary health care services through a national network of 185 locations around the United States. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings. 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, bleeding disorder therapies, immunoglobulin therapy, and other therapies for chronic and acute conditions.

### Update on the Impact of the Change Healthcare Cybersecurity Incident

As previously disclosed, Change Healthcare, a subsidiary of UnitedHealth Group, experienced an incident on February 21, 2024, 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 September 30, 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 third quarter of 2024, the Company has substantially recovered operationally. The Company continues to work through accumulated patient payment obligations and to establish full recovery from the Change Healthcare Cybersecurity Incident.

During the third 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 a majority of claims to payers, has determined that the Change Healthcare Cybersecurity Incident is not reasonably likely to materially impact the Company, including its business operations, financial condition or results of operations.

### Composition of Results of Operations

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three and nine months ended September 30, 2024 and 2023.

### Gross Profit

Gross profit represents our net revenue less cost of revenue.

*Net Revenue.* Infusion and related health care services revenue is reported at the estimated net realizable amounts from third-party payers and patients for goods sold and services rendered. When pharmaceuticals are provided to a patient, revenue is recognized upon delivery of the goods. When nursing services are provided, revenue is recognized when the services are rendered.

Due to the nature of the health care industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided. 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 fixed assets 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 health 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*. Change in unrealized (loss) gain on cash flow hedge, net of income tax benefit, 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.

### Results of Operations

The following table presents Option Care Health’s consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands, except for percentages):

|  | Three Months Ended September 30, 2024 Amount | % of Revenue | 2023 Amount | % of Revenue | Nine Months Ended September 30, 2024 Amount | % of Revenue | 2023 Amount | % of Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| NET REVENUE | $1,278,546 | 100.0% | $1,093,014 | 100.0% | $3,651,784 | 100.0% | $3,177,934 | 100.0% |
| COST OF REVENUE | 1,021,797 | 79.9% | 838,748 | 76.7% | 2,907,170 | 79.6% | 2,443,834 | 76.9% |
| GROSS PROFIT | 256,749 | 20.1% | 254,266 | 23.3% | 744,614 | 20.4% | 734,100 | 23.1% |
| OPERATING COSTS AND EXPENSES: |  |  |  |  |  |  |  |  |
| Selling, general and administrative expenses | 156,999 | 12.3% | 158,214 | 14.5% | 465,524 | 12.7% | 459,644 | 14.5% |
| Depreciation and amortization expense | 14,659 | 1.1% | 15,005 | 1.4% | 44,294 | 1.2% | 44,417 | 1.4% |
| Total operating expenses | 171,658 | 13.4% | 173,219 | 15.8% | 509,818 | 14.0% | 504,061 | 15.9% |
| OPERATING INCOME | 85,091 | 6.7% | 81,047 | 7.4% | 234,796 | 6.4% | 230,039 | 7.2% |
| OTHER INCOME (EXPENSE): |  |  |  |  |  |  |  |  |
| Interest expense, net | (12,345) | (1.0)% | (11,786) | (1.1)% | (38,150) | (1.0)% | (38,816) | (1.2)% |
| Equity in earnings of joint ventures | 1,391 | 0.1% | 1,273 | 0.1% | 3,921 | 0.1% | 4,107 | 0.1% |
| Other, net | (583) | —% | (449) | —% | 1,983 | 0.1% | 84,487 | 2.7% |
| Total other (expense) income | (11,537) | (0.9)% | (10,962) | (1.0)% | (32,246) | (0.9)% | 49,778 | 1.6% |
| INCOME BEFORE INCOME TAXES | 73,554 | 5.8% | 70,085 | 6.4% | 202,550 | 5.5% | 279,817 | 8.8% |
| INCOME TAX EXPENSE | 19,698 | 1.5% | 13,783 | 1.3% | 50,860 | 1.4% | 69,904 | 2.2% |
| NET INCOME | $53,856 | 4.2% | $56,302 | 5.2% | $151,690 | 4.2% | $209,913 | 6.6% |
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX: |  |  |  |  |  |  |  |  |
| Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit of $1,998, $8, $1,785 and $57, respectively | (6,127) | (0.5)% | 53 | —% | (5,475) | (0.1)% | (99) | —% |
| OTHER COMPREHENSIVE (LOSS) INCOME | (6,127) | (0.5)% | 53 | —% | (5,475) | (0.1)% | (99) | —% |
| NET COMPREHENSIVE INCOME | $47,729 | 3.7% | $56,355 | 5.2% | $146,215 | 4.0% | $209,814 | 6.6% |

22

### Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

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 September 30, 2024 and 2023.

### Gross Profit

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $1,278,546 | $1,093,014 | $185,532 | 17.0% |
| Cost of revenue | 1,021,797 | 838,748 | 183,049 | 21.8% |
| Gross profit | $256,749 | $254,266 | $2,483 | 1.0% |
| Gross profit margin | 20.1% | 23.3% |  |  |

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had single-digit growth relative to the prior year while chronic revenue grew in the low-twenties. The increase in cost of revenue was primarily driven by the growth in revenue and therapy mix, 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. Future revenue and gross profit may be impacted by the supply chain disruption in the availability of certain IV fluids in the near term. Additionally, management anticipates that 2025 gross profit will be negatively impacted due to a manufacturer’s proposed significant reduction in the spread at which the Company procures a key therapy relative to drug reference prices beginning in early 2025.

### Operating Expenses

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $156,999 | $158,214 | $(1,215) | (0.8)% |
| Depreciation and amortization expense | 14,659 | 15,005 | (346) | (2.3)% |
| Total operating expenses | $171,658 | $173,219 | $(1,561) | (0.9)% |

Selling, general and administrative expenses during the three months ended September 30, 2024 was relatively consistent with prior year; however, these expenses have declined as a percentage of revenue to 12.3% for the three months ended September 30, 2024 compared to 14.5% for the three months ended September 30, 2023, due to the Company’s focus on leveraging existing infrastructure to control spending.

### Other Income (Expense)

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $(12,345) | $(11,786) | $(559) | 4.7% |
| Equity in earnings of joint ventures | 1,391 | 1,273 | 118 | 9.3% |
| Other, net | (583) | (449) | (134) | 29.8% |
| Total other (expense) income | $(11,537) | $(10,962) | $(575) | 5.2% |

The increase in interest expense, net during the three months ended September 30, 2024 was primarily attributable to an increase in the Company’s First Lien Term Loan principal balance, compared to the three months ended September 30, 2023. See Note 9, *Indebtedness*, of the unaudited condensed consolidated financial statements for further information.

### Income Tax Expense

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Income tax expense | $19,698 | $13,783 | $5,915 | 42.9% |

The Company recorded income tax expense of $19.7 million and $13.8 million for the three months ended September 30, 2024 and 2023, respectively, which represents an effective tax rate of 26.8% and 19.7%, respectively. The variance in the Company’s effective tax rate of 26.8% for the three months ended September 30, 2024, compared to the federal statutory rate of 21%, was primarily attributable to the difference between federal and state tax rates, various non-deductible expenses, and a change in state valuation allowance. The variance in the Company’s effective tax rate of 19.7% for the three months ended September 30, 2023, compared to the federal statutory rate of 21%, was primarily attributable to the difference between federal and state tax rates, various non-deductible expenses, and a change in state valuation allowance. The variance in the Company’s effective tax rate of 26.8% for the three months ended September 30, 2024, compared to 19.7% for the three months ended September 30, 2023 was primarily due to change in state valuation allowance. In September 2023, the Company released $5.8 million of state valuation allowance.

### Net Income and Other Comprehensive Income (Loss)

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Net income | $53,856 | $56,302 | $(2,446) | (4.3)% |
| Other comprehensive (loss) income, net of tax: |  |  |  |  |
| Changes in unrealized (loss) gain on cash flow hedges, net of income taxes | (6,127) | 53 | (6,180) | NM(1) |
| Other comprehensive (loss) income | (6,127) | 53 | (6,180) | NM(1) |
| Net comprehensive income | $47,729 | $56,355 | $(8,626) | (15.3)% |

(1) Not meaningful

The change in net income was attributable to the factors described in the above sections.

For the three months ended September 30, 2024 and 2023, 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 decreased to $47.7 million for the three months ended September 30, 2024, compared to net comprehensive income of $56.4 million for the three months ended September 30, 2023, primarily as a result of the changes in net income discussed above as well as the change in the fair market value of the cash flow hedge.

### Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the nine months ended September 30, 2024 and 2023.

### Gross Profit

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $3,651,784 | $3,177,934 | $473,850 | 14.9% |
| Cost of revenue | 2,907,170 | 2,443,834 | 463,336 | 19.0% |
| Gross profit | $744,614 | $734,100 | $10,514 | 1.4% |
| Gross profit margin | 20.4% | 23.1% |  |  |

The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had single-digit growth relative to the prior year while chronic revenue grew in the mid-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. Future revenue and gross profit may be impacted by the supply chain disruption in the availability of certain IV fluids in the near term. Additionally, management anticipates that 2025 gross profit will be negatively impacted due to a manufacturer’s proposed significant reduction in the spread at which the Company procures a key therapy relative to drug reference prices beginning in early 2025.

### Operating Expenses

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $465,524 | $459,644 | $5,880 | 1.3% |
| Depreciation and amortization expense | 44,294 | 44,417 | (123) | (0.3)% |
| Total operating expenses | $509,818 | $504,061 | $5,757 | 1.1% |

The increase in selling, general and administrative expenses during the nine months ended September 30, 2024 was primarily due to an increase in salaries, benefits, and equity compensation; however, these expenses have declined as a percentage of revenue to 12.7% for the nine months ended September 30, 2024 compared to 14.5% for the nine months ended September 30, 2023, due to the Company’s focus on leveraging existing infrastructure to control spending.

### Other Income (Expense)

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $(38,150) | $(38,816) | $666 | (1.7)% |
| Equity in earnings of joint ventures | 3,921 | 4,107 | (186) | (4.5)% |
| Other, net | 1,983 | 84,487 | (82,504) | (97.7)% |
| Total other (expense) income | $(32,246) | $49,778 | $(82,024) | (164.8)% |

The decrease in interest expense, net during the nine months ended September 30, 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 nine months ended September 30, 2023. See Note 9, *Indebtedness*, of the unaudited condensed consolidated financial statements for further information.

The decrease in Other, net during the nine months ended September 30, 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 nine months ended September 30, 2023. There was no comparable activity during the nine months ended September 30, 2024.

### Income Tax Expense

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Income tax expense | $50,860 | $69,904 | $(19,044) | (27.2)% |

The Company recorded income tax expense of $50.9 million and $69.9 million for the nine months ended September 30, 2024 and 2023, respectively, which represents an effective tax rate of 25.1% and 25.0%, respectively. The income tax expense for the nine months ended September 30, 2023 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 variance in the Company’s effective tax rate of 25.1% for the nine months ended September 30, 2024, compared to the federal statutory rate of 21%, was primarily attributable to the difference between federal and state tax rates, various non-deductible expenses, and a change in state valuation allowance. The variance in the Company’s effective tax rate of 25.0% for the nine months ended September 30, 2023, compared to the federal statutory rate of 21%, was primarily attributable to the difference between federal and state tax rates, various non-deductible expenses, and a change in state valuation allowance.

### Net Income and Other Comprehensive Income (Loss)

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2024 | 2023 | Variance |  |
| --- | ---: | ---: | ---: | ---: |
| Net income | $151,690 | $209,913 | $(58,223) | (27.7)% |
| Other comprehensive loss, net of tax: |  |  |  |  |
| Changes in unrealized loss on cash flow hedges, net of income taxes | (5,475) | (99) | (5,376) | NM(1) |
| Other comprehensive loss | (5,475) | (99) | (5,376) | NM(1) |
| Net comprehensive income | $146,215 | $209,814 | $(63,599) | (30.3)% |

(1) Not meaningful

The change in net income was attributable to the factors described in the above sections in addition 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 nine months ended September 30, 2023. There was no comparable activity during the nine months ended September 30, 2024.

For the nine months ended September 30, 2024 and 2023, the change in unrealized loss 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 decreased to $146.2 million for the nine months ended September 30, 2024, compared to net comprehensive income of $209.8 million for the nine months ended September 30, 2023, primarily as a result of the changes in net income discussed above as well as the change in the fair market value of the cash flow hedge.

### Liquidity and Capital Resources

For the nine months ended September 30, 2024 and the twelve months ended December 31, 2023, the Company’s primary sources of liquidity were cash and cash equivalents of $483.0 million and $343.8 million, respectively. As of September 30, 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). As of December 31, 2023, the Company had $394.7 million of borrowings available under its credit facilities (net of $5.3 million undrawn letters of credit issued and outstanding). During the nine months ended September 30, 2024, the Company’s cash flows from operations were impacted by the Change Healthcare Cybersecurity Incident. See the caption “Update on the Impact of the Change Healthcare Cybersecurity Incident” included in this Form 10-Q for further discussion. During the nine months ended September 30, 2023, the Company’s cash flows from operations 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, 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 related to business acquisitions, the improvement and maintenance of our pharmacy facilities and investment in our information technology systems. Ongoing financing cash flows are primarily associated with the quarterly principal payments on our outstanding debt, along with potential future share repurchases.

Our business strategy includes the deployment of capital to pursue acquisitions that complement our existing operations. We continue to evaluate acquisition opportunities and view acquisitions as a key part of our growth strategy. The Company historically has funded its acquisitions with cash and cash equivalents with the exception of the BioScrip merger. 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 and expected cash flows generated from operations 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.

### Credit Facilities

The Company’s Revolver Facility 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 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 September 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.

In May 2024, the Company entered into the Third Amendment on the First Lien Term Loan. 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 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. 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).

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, which began on April 30, 2022. The Senior Notes mature on October 31, 2029.

Interest payments over the course of long-term debt obligations total an estimated $305.1 million based on final maturity dates of the Company’s credit facilities. Interest payments are calculated based on current rates as of September 30, 2024. Actual payments are based on changes in SOFR and exclude the interest rate cap derivative instrument.

### Cash Flows

### Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

The following table presents selected data from Option Care Health’s unaudited condensed consolidated statements of cash flows:

*(in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Variance |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $287,270 | $320,326 | $(33,056) |
| Net cash used in investing activities | (25,266) | (40,725) | 15,459 |
| Net cash used in financing activities | (122,827) | (187,298) | 64,471 |
| Net increase in cash and cash equivalents | 139,177 | 92,303 | 46,874 |
| Cash and cash equivalents - beginning of period | 343,849 | 294,186 | 49,663 |
| Cash and cash equivalents - end of period | $483,026 | $386,489 | $96,537 |

### Cash Flows from Operating Activities

The decrease in cash provided in operating activities during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily due to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, and changes in accounts receivable, accrued compensation and employee benefits, and changes in prepaid expenses, offset by changes in accounts payable.

### Cash Flows from Investing Activities

The change in cash used in investing activities during the nine months ended September 30, 2023 was primarily due to prior year acquisition activity with no comparable activity within the nine months ended September 30, 2024.

### Cash Flows from Financing Activities

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 $160.0 million in repurchase of common stock during the nine months ended September 30, 2024. The cash used in financing activities during the nine months ended September 30, 2023 was primarily related to the Company’s $175.0 million repurchase of common stock.

### 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.

## Market risk

As filed, 147 characters.

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.

## Controls and procedures

As filed, 1,452 characters.

### Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2024. Based on that evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.

### Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 9,131 characters.

There have been no material changes to the risk factors affecting our business, financial condition or results of operations from those set forth in Part I, Item 1A. “Risk Factors” in our Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results, except for the updated risk factors below:

***Delays in reimbursement may adversely affect our liquidity, cash flows and results of operations.***

The reimbursement process for the services we provide is complex, resulting in delays between the time we bill for a service and receipt of payment that can be significant. Reimbursement and procedural issues often require us to resubmit claims multiple times and respond to multiple administrative requests before payment is remitted. The collection of accounts receivable is challenging and requires constant focus and involvement by management and ongoing enhancements to information systems and billing center operating procedures. While management believes that our controls and processes are satisfactory, there can be no assurance that collections of accounts receivable will continue at historical rates. The risks associated with third-party payers and the inability to collect outstanding accounts receivable could have a material adverse effect on our liquidity, cash flows, and results of operations. For example, in the first quarter of 2024, Change Healthcare, a subsidiary of UnitedHealth Group, experienced a cybersecurity incident that disrupted its operations, causing us to disconnect from certain Change Healthcare applications until the end of the quarter, preventing us from processing claims for services and reducing our cash flows from operations in the first quarter of 2024. The majority of previously unprocessed claims were recognized in the second quarter of 2024 and we continued to experience delays in certain patient payment obligations through the third quarter of 2024.

***Changes in our relationships with pharmaceutical suppliers, including changes in drug availability or pricing, could adversely affect our business and financial results.***

We have contractual relationships with pharmaceutical manufacturers to purchase the pharmaceuticals that we dispense. In order to have access to these pharmaceuticals, and to be able to participate in the launch of new pharmaceuticals, we must maintain a good working relationship with these manufacturers. Most of the manufacturers of the pharmaceuticals we sell have the right to cancel their supply contracts with us without cause and after giving only minimal notice. Any changes to these relationships, including, but not limited to, the loss of a manufacturer relationship, drug shortages, or changes in pricing, could have an adverse effect on our business and financial results. For example, in October 2024, 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 margins in 2025.

Some pharmaceutical manufacturers attempt to limit the number of preferred distributors that may market certain of their pharmaceutical products. We cannot provide assurance that we will be selected and retained as a preferred distributor or that we can remain a preferred distributor to market these products. Although we believe we can effectively meet our suppliers’ requirements, we cannot provide assurance that we will be able to compete effectively with other providers to retain our position as a distributor of each of our core products. Our failure to retain our position as a distributor of each of our core products could have a material adverse effect on our financial condition and results of operations.

***Federal actions and legislation may reduce reimbursement rates from governmental payers and adversely affect our results of operations.***

In recent years, Congress has passed legislation reducing payments to healthcare providers. The Budget Control Act of 2011, as amended, requires automatic spending reductions to reduce the federal deficit, including Medicare spending reductions of up to 2% per fiscal year that extend through 2027. The Center for Medicare & Medicaid Services (“CMS”) began imposing a 2% reduction on Medicare claims on April 1, 2013. The Affordable Care Act provides for material reductions in the growth of Medicare program spending. The 21st Century Cures Act (the “Cures Act”) significantly reduced the amount paid by Medicare for drug costs, while delaying the implementation of a clinical services payment, although Congress also passed a temporary transitional service payment that took effect January 1, 2019. In addition, from time to time, CMS revises the reimbursement systems used to reimburse healthcare providers, which may result in reduced Medicare payments. In addition, in August 2024, CMS announced the results of its negotiation with pharmaceutical manufacturers with respect to the inaugural 10 drugs covered under Medicare Part D for which CMS conducted drug price negotiations under the Inflation Reduction Act of 2022 (the “IRA”). CMS negotiated a 66% discount, applicable beginning in 2026, from the 2023 list price with the manufacturer on a certain drug within the Company’s portfolio of therapies, and the manufacturer notified us in October 2024 that it intends to significantly reduce the spread at which we procure this therapy relative to drug reference prices beginning in early 2025. The results of price negotiations between CMS and drug manufacturers pursuant to the IRA with respect to therapies that the Company dispenses is expected to negatively impact our results of operations.

For the year ended December 31, 2023, 12% of our revenue was derived from reimbursement by direct federal and state programs such as Medicare and Medicaid. Reimbursement from these and other government programs is subject to statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments, governmental funding restrictions and changes to or new legislation, all of which may materially affect the amount and timing of reimbursement payments to us. Changes to the way Medicare pays for our services, including mandatory payment reductions, such as sequestration, may reduce our revenue and profitability on services provided to Medicare patients and increase our working capital requirements. In addition, we are sensitive to possible changes in state Medicaid programs.

Because most states must operate with balanced budgets and because the Medicaid program is often a state’s largest program, some states have enacted or may consider enacting legislation designed to reduce their Medicaid expenditures. Further, many states have taken steps to reduce coverage and/or enroll Medicaid recipients in managed care programs. The current economic environment has increased the budgetary pressures on many states, and these budgetary pressures have resulted, and likely will continue to result, in decreased spending, or decreased spending growth, for Medicaid programs and the Children’s Health Insurance Program in many states.

In some cases, Third-Party Payers rely on all or portions of Medicare payment systems to determine payment rates. Changes to government healthcare programs that reduce payments under these programs may negatively impact payments from Third-Party Payers. Current or future healthcare reform and deficit reduction efforts, changes in other laws or regulations affecting government healthcare programs, changes in the administration of government healthcare programs and changes in payment rates by Third-Party Payers could have a material, adverse effect on our financial position and results of operations.

***A disruption in pharmaceutical and medical supply could adversely impact our business.***

For the year ended December 31, 2023, approximately 72% of our pharmaceutical and medical supply purchases were from four vendors. Most of the pharmaceuticals that we purchase are available from multiple sources, and we believe they are available in sufficient quantities to meet our needs and the needs of our patients. We keep safety stock to ensure continuity of service for reasonable, but limited, periods of time. Should a supply disruption result in our inability to obtain especially high margin drugs and compound components necessary for patient care, our consolidated financial statements could be negatively impacted. For example, Hurricane Helene caused significant damage late in the third quarter of 2024 to a certain manufacturer’s plant that produces intravenous solution bags that are used by the Company, which may impact our ability to service existing and onboard new patients. This disruption is expected to negatively impact our revenue and gross profit results until the supply situation improves.

Filed Oct 30, 2024.
Source: SEC EDGAR, the filing index for accession 0001014739-24-000052. Last ingested by Listed: Nov 10, 2026, 20:55 ET. No prices; not investment advice.