10-Q 1 bios-20220930.htm 10-Q bios-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from     to             
Commission file number: 001-11993
bios-20220930_g1.jpg
OPTION CARE HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware05-0489664
(State of incorporation)(I.R.S. Employer Identification No.)
3000 Lakeside Dr.Suite 300N, Bannockburn, IL60015
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:
312-940-2443
Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareOPCHNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer      Accelerated filer      Non-accelerated filer       Smaller reporting company  Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No   

On October 25, 2022, there were 181,900,930 shares of the registrant’s Common Stock outstanding.







1



TABLE OF CONTENTS
3


Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to "Option Care Health," the “Company,” “we,” “us” and “our” refer to Option Care Health, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

This Form 10-Q includes forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements concerning our expectations regarding industry and macroeconomic trends and our operating performance. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “believe,” “project,” “estimate,” “expect,” “may,” “should,” “will” and similar references to future periods.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. If any of these risks materialize, or if any of our assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, those set forth in Item 1A, “Risk Factors,” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 (our “Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”). Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10-Q. Any forward-looking statement made by us in this Form 10-Q speaks only as of the date hereof. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
4

PART I
FINANCIAL INFORMATION
Item 1.Financial Statements
5

OPTION CARE HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
September 30, 2022December 31, 2021
(unaudited)
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents$255,468 $119,423 
   Accounts receivable, net364,187 338,242 
   Inventories236,020 183,095 
   Prepaid expenses and other current assets96,289 69,496 
Total current assets951,964 710,256 
NONCURRENT ASSETS:
   Property and equipment, net96,312 111,535 
   Operating lease right-of-use asset72,369 74,777 
   Intangible assets, net23,066 21,433 
   Referral sources349,487 344,587 
   Goodwill1,533,043 1,477,564 
   Deferred income taxes 27,033 
   Other noncurrent assets47,022 23,733 
Total noncurrent assets2,121,299 2,080,662 
TOTAL ASSETS $3,073,263 $2,790,918 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$409,737 $279,246 
Accrued compensation and employee benefits58,014 83,503 
Accrued expenses and other current liabilities93,803 71,857 
Current portion of operating lease liability19,246 19,089 
Current portion of long-term debt6,000 6,000 
Total current liabilities586,800 459,695 
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion1,058,606 1,059,900 
Operating lease liability, net of current portion71,864 74,492 
Deferred income taxes10,598  
Other noncurrent liabilities8,060 20,945 
Total noncurrent liabilities1,149,128 1,155,337 
Total liabilities1,735,928 1,615,032 
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2022 and December 31, 2021, respectively
  
Common stock; $0.0001 par value: 250,000,000 shares authorized, 182,284,651 shares issued and 181,900,929 shares outstanding as of September 30, 2022; 180,309,637 shares issued and 179,925,915 shares outstanding as of December 31, 2021
18 18 
Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2022 and December 31, 2021, respectively
(2,403)(2,403)
Paid-in capital1,172,315 1,138,855 
Retained earnings142,894 39,867 
Accumulated other comprehensive income (loss)24,511 (451)
Total stockholders’ equity1,337,335 1,175,886 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,073,263 $2,790,918 

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
6

OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
NET REVENUE$1,020,918 $891,937 $2,917,522 $2,511,446 
COST OF REVENUE802,917 688,969 2,281,685 1,944,037 
GROSS PROFIT218,001 202,968 635,837 567,409 
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses142,015 134,633 417,771 388,930 
Depreciation and amortization expense15,268 15,452 46,027 48,410 
      Total operating expenses157,283 150,085 463,798 437,340 
OPERATING INCOME60,718 52,883 172,039 130,069 
OTHER INCOME (EXPENSE):
Interest expense, net(13,997)(16,000)(39,008)(52,717)
Equity in earnings of joint ventures1,472 1,676 4,065 4,567 
Other, net3,888 4 3,891 (12,392)
      Total other expense(8,637)(14,320)(31,052)(60,542)
INCOME BEFORE INCOME TAXES52,081 38,563 140,987 69,527 
INCOME TAX EXPENSE13,258 3,087 37,960 5,096 
NET INCOME$38,823 $35,476 $103,027 $64,431 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Change in unrealized gains on cash flow hedges, net of income tax expense of $1,398, $0, $5,917, and $0, respectively
9,255 2,892 24,962 11,172 
OTHER COMPREHENSIVE INCOME9,255 2,892 24,962 11,172 
NET COMPREHENSIVE INCOME $48,078 $38,368 $127,989 $75,603 
EARNINGS PER COMMON SHARE:
Earnings per share, basic$0.21 $0.20 $0.57 $0.36 
Earnings per share, diluted$0.21 $0.20 $0.57 $0.36 
Weighted average common shares outstanding, basic181,884 179,872 180,829 179,841 
Weighted average common shares outstanding, diluted183,022 181,430 181,760 181,055 

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
7

OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended September 30,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$103,027 $64,431 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense49,723 52,820 
Non-cash operating lease costs14,451 11,137 
Deferred income taxes - net37,631 1,180 
Loss on extinguishment of debt 12,403 
Amortization of deferred financing costs3,206 3,821 
Equity in earnings of joint ventures(4,065)(4,567)
Stock-based incentive compensation expense12,581 6,246 
Capital distribution from equity method investments2,500 1,250 
Other adjustments695 1,372 
Changes in operating assets and liabilities:
Accounts receivable, net(23,153)(27,310)
Inventories(52,749)(31,472)
Prepaid expenses and other current assets(10,335)5,958 
Accounts payable129,859 35,648 
Accrued compensation and employee benefits(26,711)5,777 
Accrued expenses and other current liabilities19,495 18,353 
Operating lease liabilities(15,372)(14,620)
Other noncurrent assets and liabilities(16,691)832 
Net cash provided by operating activities224,092 143,259 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment(17,111)(11,744)
Business acquisitions, net of cash acquired(87,315)(18,852)
Net cash used in investing activities(104,426)(30,596)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options, vesting of restricted stock, and related tax withholdings(37)(93)
Proceeds from warrant exercises20,916  
Proceeds from issuance of debt 355,200 
Repayments of debt(4,500)(8,832)
Retirement of debt (352,009)
Deferred financing costs (2,880)
Debt prepayment fees (2,458)
Net cash provided by (used in) financing activities16,379 (11,072)
NET INCREASE IN CASH AND CASH EQUIVALENTS136,045 101,591 
Cash and cash equivalents - beginning of the period119,423 99,265 
CASH AND CASH EQUIVALENTS - END OF PERIOD$255,468 $200,856 
Supplemental disclosure of cash flow information:
   Cash paid for interest$29,578 $52,002 
   Cash paid for income taxes$6,690 $2,719 
Cash paid for operating leases$18,964 $19,631 
    
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
8

OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
Preferred StockCommon StockTreasury StockPaid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive (Loss)
Income
Total Stockholders’ Equity
Balance - December 31, 2020$ $18 $(2,403)$1,129,312 $(100,031)$(11,172)$1,015,724 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (69)— — (69)
Stock-based incentive compensation— — — 1,205 — — 1,205 
Net loss— — — — (2,861)— (2,861)
Other comprehensive income— — — — — 4,081 4,081 
Balance - March 31, 2021$ $18 $(2,403)$1,130,448 $(102,892)$(7,091)$1,018,080 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (9)— — (9)
Stock-based incentive compensation— — — 2,525 — — 2,525 
Net income— — — — 31,816 — 31,816 
Other comprehensive income— — — — — 4,199 4,199 
Balance at June 30, 2021$ $18 $(2,403)$1,132,964 $(71,076)$(2,892)$1,056,611 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (15)— — (15)
Stock-based incentive compensation— — — 2,516 — — 2,516 
Net income— — — — 35,476 — 35,476 
Other comprehensive income— — — — — 2,892 2,892 
Balance at September 30, 2021$ $18 $(2,403)$1,135,465 $(35,600)$ $1,097,480 
Balance - December 31, 2021$ $18 $(2,403)$1,138,855 $39,867 $(451)$1,175,886 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — 355 — — 355 
Stock-based incentive compensation— — — 4,178 — — 4,178 
Net income— — — — 30,275 — 30,275 
Other comprehensive income— — — — — 11,070 11,070 
Balance - March 31, 2022$ $18 $(2,403)$1,143,388 $70,142 $10,619 $1,221,764 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — 168 — — 168 
Exercise of warrants— — — 20,098 — — 20,098 
Stock-based incentive compensation— — — 4,398 — — 4,398 
Net income— — — — 33,929 — 33,929 
Other comprehensive income— — — — — 4,637 4,637 
Balance - June 30, 2022$ $18 $(2,403)$1,168,052 $104,071 $15,256 $1,284,994 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (560)— — (560)
Exercise of warrants— — — 818 — — 818 
Stock-based incentive compensation— — — 4,005 — — 4,005 
Net income— — — — 38,823 — 38,823 
Other comprehensive income— — — — — 9,255 9,255 
Balance - September 30, 2022$ $18 $(2,403)$1,172,315 $142,894 $24,511 $1,337,335 

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
9

OPTION CARE HEALTH, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS
Corporate Organization and Business — HC Group Holdings II, Inc. (“HC II”) was incorporated under the laws of the State of Delaware on January 7, 2015, with its sole shareholder being HC Group Holdings I, LLC (“HC I”). On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion Services, Inc. and its subsidiaries from Walgreen Co., and the business was rebranded as Option Care (“Option Care”).
On March 14, 2019, HC I and HC II entered into a definitive agreement (the “Merger Agreement”) to merge with and into a wholly-owned subsidiary of BioScrip, Inc. (“BioScrip”), a national provider of infusion and home care management solutions, along with certain other subsidiaries of BioScrip and HC II. The merger contemplated by the Merger Agreement (the “Merger”) was completed on August 6, 2019 (the “Merger Date”). The Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations with Option Care being considered the accounting acquirer and BioScrip being considered the legal acquirer. Following the close of the transaction, BioScrip was rebranded as Option Care Health, Inc. (“Option Care Health”, or the “Company”). The combined Company’s stock is listed on the Nasdaq Global Select Market as of September 30, 2022. During the three and nine months ended September 30, 2022, HC I completed a secondary offering of 11,000,000 shares of common stock. Following this offering, HC I holds approximately 14.4% of the common stock of the Company.
Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 97 full service pharmacies and 64 stand-alone infusion suites. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings. The Company operates in one segment, infusion services.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States and contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for interim financial reporting. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire year. These unaudited condensed consolidated financial statements do not include all of the information and notes to the financial statements required by GAAP for complete financial statements and should be read in conjunction with the 2021 audited consolidated financial statements, including the notes thereto, as presented in our Form 10-K.
Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation.
The Company has investments in companies that are 50% owned and are accounted for as equity-method investments. The Company’s share of earnings from equity-method investments is included in the line entitled “Equity in earnings of joint ventures” in the unaudited condensed consolidated statements of comprehensive income. See Equity-Method Investments within Note 2, Summary of Significant Accounting Policies, for further discussion of the Company’s equity-method investments.
10

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Prepaid Expenses and Other Current Assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $46.4 million and $43.0 million as of September 30, 2022 and December 31, 2021, respectively. There were no other items included in prepaid expenses and other current assets that comprised 5% or more of total current assets. As of September 30, 2022, the Company determined that certain assets related to the respiratory therapy and durable medical equipment business met the applicable criteria as being held for sale. As of September 30, 2022, $9.5 million of assets held for sale and $2.0 million of liabilities held for sale were classified in prepaid expenses and other current assets and accrued expenses and other current liabilities, respectively, in the condensed consolidated balance sheets. The assets and liabilities were classified as held for sale at the lower of their carrying amount or fair values less cost to sell. In October 2022, the Company entered into a definitive agreement to sell these assets. The Company expects to close the transaction within the fourth quarter of fiscal year 2022.

Equity Method Investments — The Company’s investments in certain unconsolidated entities are accounted for under the equity method. The balance of these investments is included in other noncurrent assets in the accompanying condensed consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the balance of the investments was $21.7 million and $20.1 million, respectively. The balance of these investments is increased to reflect the Company’s capital contributions and equity in earnings of the investees. The balance of these investments is decreased to reflect the Company’s equity in losses of the investees and for distributions received that are not in excess of the carrying amount of the investments. The Company’s proportionate share of earnings or losses of the investees is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income. The Company’s proportionate share of earnings was $1.5 million and $4.1 million for the three and nine months ended September 30, 2022, respectively, and $1.7 million and $4.6 million for the three and nine months ended September 30, 2021, respectively. See Note 16, Related-Party Transactions, for discussion of related-party transactions with these investees.
Concentrations of Business Risk — The Company generates revenue from managed care contracts and other agreements with commercial third-party payers. Revenue related to the Company’s largest payer was approximately 14% and 15% for the three and nine months ended September 30, 2022, respectively. Revenue related to the Company’s largest payer was approximately 16% and 16% for the three and nine months ended September 30, 2021, respectively. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.
For the three and nine months ended September 30, 2022, approximately 12% and 12%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. For the three and nine months ended September 30, 2021, approximately 12% and 12%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of September 30, 2022 and December 31, 2021, approximately 11% and 11%, respectively, of the Company’s accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules and rates that are determined by the related governmental agency. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term.

The Company does not require its patients or other payers to carry collateral for any amounts owed for goods or services provided. Other than as discussed above, concentration of credit risk relating to trade accounts receivable is limited due to the Company’s diversity of patients and payers. Further, the Company generally does not provide charity care; however, Option Care Health offers a financial assistance program for patients that meet certain defined hardship criteria.
For the three and nine months ended September 30, 2022, approximately 74% and 73%, respectively, of the Company’s pharmaceutical and medical supply purchases were from four vendors. For the three and nine months ended September 30, 2021, approximately 65% and 65%, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors. Although there are a limited number of suppliers, the Company believes that other vendors could provide similar products on comparable terms. However, a change in suppliers could cause delays in service delivery and possible losses in revenue, which could adversely affect the Company’s financial condition or operating results. Although there remains some uncertainty regarding the COVID-19 pandemic, as of September 30, 2022, the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.
11


3. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
Infinity Infusion Nursing LLC — In October 2021, pursuant to the equity purchase agreement dated October 1, 2021, the Company completed the acquisition of 100% of the equity interests in Infinity Infusion Nursing, LLC for a purchase price, net of cash acquired, of $59.6 million. The Company has finalized the purchase price allocation of the acquisition and no purchase accounting adjustments were made.
Wasatch Infusion LLC Acquisition — In December 2021, pursuant to the executed asset purchase agreement on December 29, 2021, the Company completed the acquisition of Wasatch Infusion LLC for a purchase price of $19.5 million. As of March 31, 2022, the Company finalized the purchase price allocation of the acquisition. Certain adjustments were made to preliminary valuation amounts related to accounts receivable, other assets and other assumed liabilities. The following is a final allocation of the consideration transferred to acquired identifiable assets and assumed liabilities (in thousands):
Amount
Accounts receivable$2,688 
Inventories2,038 
Intangible assets4,245 
Other assets769 
Accounts payable(6,686)
Other assumed liabilities(965)
Fair value Identifiable assets and liabilities2,089 
Goodwill (1)17,366 
Purchase Price$19,455 
(1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs.
Specialty Pharmacy Nursing Network, Inc. — In April 2022, pursuant to the equity purchase agreement dated February 7, 2022, the Company completed the acquisition of 100% of the equity interests in Specialty Pharmacy Nursing Network, Inc. (“SPNN”) for a purchase price, net of cash acquired, of $59.9 million.
The allocation of the purchase price of SPNN was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations, with the total purchase price being allocated to the assets and liabilities acquired based on the relative fair value of each asset and liability. The following is a preliminary estimate of the allocation of the consideration transferred, open for accounts receivable and accounts payable, to acquired identifiable assets and assumed liabilities, net of cash acquired, as of September 30, 2022 (in thousands):
Amount
Accounts receivable$2,303 
Intangible assets25,580 
Other assets600 
Accrued compensation(1,164)
Accounts payable and other liabilities(1,168)
Fair value identifiable assets and liabilities26,151 
Goodwill (1)33,746 
Cash acquired661 
Purchase Price60,558 
Less: cash acquired(661)
Purchase price, net of cash acquired$59,897 
(1) Goodwill is attributable to cost synergies from operational efficiencies and establishing a more comprehensive clinical platform through the Company’s national infrastructure and SPNN’s nursing network.
12

Rochester Home Infusion, Inc. — In August 2022, pursuant to the stock purchase agreement dated June 10, 2022, the Company completed the acquisition of 100% of the equity interests in Rochester Home Infusion, Inc. (“RHI”) for a purchase price, net of cash acquired, of $27.4 million.
The allocation of the purchase price of RHI was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations, with the total purchase price being allocated to the assets and liabilities acquired based on the relative fair value of each asset and liability. The following is a preliminary estimate of the allocation of the consideration transferred, open for accounts receivable and accounts payable, to acquired identifiable assets and assumed liabilities, net of cash acquired, as of September 30, 2022 (in thousands):
Amount
Accounts receivable$1,212 
Intangible assets5,449 
Other assets394 
Accounts payable and other liabilities(434)
Fair value Identifiable assets and liabilities6,621 
Goodwill (1)20,797 
Cash acquired201 
Purchase Price27,619 
Less: cash acquired (201)
Purchase price, net of cash acquired$27,418 
(1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs.
13

4. REVENUE
The following table sets forth the net revenue earned by category of payer for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Commercial payers$888,162 $769,524 $2,526,354 $2,164,678 
Government payers122,793 106,645 357,383 307,067 
Patients9,963 15,768 33,785 39,701 
Net revenue$1,020,918 $891,937 $2,917,522 $2,511,446 
5. INCOME TAXES
During the three and nine months ended September 30, 2022, the Company recorded tax expense of $13.3 million and $38.0 million, respectively, which represents an effective tax rate of 25.5% and 26.9%, respectively. The variance in the Company’s effective tax rate of 25.5% and 26.9% for the three and nine months ended September 30, 2022, compared to the federal statutory rate of 21%, is primarily attributable to current and deferred state taxes as well as various non-deductible expenses. During the three and nine months ended September 30, 2021, the Company recorded tax expense of $3.1 million and $5.1 million, respectively, which represents an effective tax rate of 8.0% and 7.3%, respectively. The variance in the Company’s effective tax rate of 8.0% and 7.3% for the three and nine months ended September 30, 2021, compared to the federal statutory rate of 21%, is primarily attributable to the Company only recognizing certain deferred federal and state tax expense and current state tax expense while any tax benefits that would have otherwise been recognized were offset by the Company’s tax valuation allowance in effect during that period.

The Company maintains a valuation allowance of $13.1 million against certain state net operating losses. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities, including the effect in available carryback and carryforward periods, projected taxable income and tax-planning strategies, in making this assessment. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.

The Company’s tax expense for the three and nine months ended September 30, 2022, of $13.3 million and $38.0 million, respectively, consists of quarterly tax liabilities attributable to specific state taxing authorities as well as recognized deferred federal and state tax expense. The Company’s tax expense for the three and nine months ended September 30, 2021 of $3.1 million and $5.1 million, respectively, consists of quarterly tax liabilities attributed to specific state taxing authorities as well as recognized deferred tax expense.

The Company has accumulated federal net operating loss carryovers that are subject to one or more Section 382 limitations. This may limit the Company’s ability to utilize its federal net operating losses.

14

6. EARNINGS PER SHARE
The Company presents basic and diluted earnings per share for its common stock. Basic earnings per share is calculated by dividing the net income of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined by adjusting the profit or loss and the weighted average number of shares of common stock outstanding for the effects of all potentially dilutive securities.
The earnings are used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. The computation of diluted shares for the three and nine months ended September 30, 2022 and 2021 includes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as these common stock equivalents are dilutive to the earnings per share recorded in those periods. For the three months ended September 30, 2022, there were 520,944 stock option awards and 13,561 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. For the nine months ended September 30, 2022, there were 794,887 stock option awards and 476,329 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. For the three months ended September 30, 2021, there were 457,754 warrants, 496,929 stock option awards, and 38,536 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. For the nine months ended September 30, 2021, there were 915,507 warrants, 387,656 stock option awards, and 272,540 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive.
The following table presents the Company’s basic earnings per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Numerator:
Net income$38,823 $35,476 $103,027 $64,431 
Denominator:
Weighted average number of common shares outstanding181,884 179,872 180,829 179,841 
Earnings per common share:
Earnings per common share, basic$0.21 $0.20 $0.57 $0.36 
The following table presents the Company’s diluted earnings per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Numerator:  
Net income$38,823 $35,476 $103,027 $64,431 
Denominator:  
Weighted average number of common shares outstanding181,884 179,872 180,829 179,841 
Effect of dilutive securities1,138 1,558 931 1,214 
Weighted average number of common shares outstanding, diluted183,022 181,430 181,760 181,055 
Earnings per common share:
Earnings per common share, diluted$0.21 $0.20 $0.57 $0.36 
,

15

7. LEASES
During the three and nine months ended September 30, 2022, the Company incurred operating lease expenses of $7.8 million and $22.7 million, respectively, including short-term lease expense, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income. During the three and nine months ended September 30, 2021, the Company incurred operating lease expenses of $7.8 million and $22.3 million, respectively, including short-term lease expense, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income. As of September 30, 2022, the weighted-average remaining lease term was 6.6 years and the weighted-average discount rate was 5.17%.
Operating leases mature as follows (in thousands):
Fiscal Year Ended December 31,Minimum Payments
2022$8,296 
202323,052 
202416,878 
202513,987 
202611,170 
Thereafter36,329 
Total lease payments$109,712 
Less: Interest(18,602)
Present value of lease liabilities$91,110 
During the nine months ended September 30, 2022, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow of $13.6 million related to increases in the operating lease right-of-use assets and operating lease liabilities, respectively. During the nine months ended September 30, 2021, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flows of $14.5 million related to increases in the operating lease right-of-use assets and operating lease liabilities, respectively. As of September 30, 2022, the Company did not have any significant operating or financing leases that had not yet commenced.

16

8. PROPERTY AND EQUIPMENT
Property and equipment was as follows as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022December 31, 2021
Infusion pumps$36,221 $34,547 
Equipment, furniture and other29,924 52,913 
Leasehold improvements94,664 92,229 
Computer software, purchased and internally developed35,094 30,744 
Assets under development17,782 19,924 
213,685 230,357 
Less: accumulated depreciation(117,373)(118,822)
Property and equipment, net$96,312 $111,535 
Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income, depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Depreciation expense in cost of revenue$1,205 $1,664 $3,696 $4,410 
Depreciation expense in operating expenses6,778 7,476 21,337 22,670 
Total depreciation expense$7,983 $9,140 $25,033 $27,080 

17

9. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill consists of the following activity for the three and nine months ended September 30, 2022 (in thousands):
Balance at December 31, 2021$1,477,564 
Purchase accounting adjustments936 
Balance at March 31, 20221,478,500 
Acquisitions33,746 
Balance at June 30, 2022$1,512,246 
Acquisitions $20,797 
Balance at September 30, 2022$1,533,043 
There were no changes in the carrying amount of goodwill for the three or nine months ended September 30, 2021.
The carrying amount and accumulated amortization of intangible assets consist of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022December 31, 2021
Gross intangible assets:
Referral sources$509,646 $482,200 
Trademarks/names38,508 47,718 
Other amortizable intangible assets912 1,037 
Total gross intangible assets549,066 530,955 
Accumulated amortization:
Referral sources(160,159)(137,613)
Trademarks/names(16,254)(26,936)
Other amortizable intangible assets(100)(386)
Total accumulated amortization(176,513)(164,935)
Total intangible assets, net$372,553 $366,020 
Amortization expense for intangible assets was $8.4 million and $24.6 million for the three and nine months ended September 30, 2022, respectively. Amortization expense for intangible assets was $7.9 million and $25.5 million for the three and nine months ended September 30, 2021, respectively.


18

10. INDEBTEDNESS

Long-term debt consisted of the following as of September 30, 2022 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
Asset-based-lending (“ABL”) facility$ $ $ $ 
First Lien Term Loan595,500 (8,638)(11,987)574,875 
Senior Notes500,000  (10,269)489,731 
$1,095,500 $(8,638)$(22,256)1,064,606 
Less: current portion(6,000)
Total long-term debt$1,058,606 
Long-term debt consisted of the following as of December 31, 2021 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
ABL facility$ $ $ $ 
First Lien Term Loan600,000 (9,605)(13,331)577,064 
Senior Notes500,000  (11,164)488,836 
$1,100,000 $(9,605)$(24,495)1,065,900 
Less: current portion(6,000)
Total long-term debt$1,059,900 
The interest rate on the First Lien Term Loan was 5.27% and 3.25% as of September 30, 2022 and December 31, 2021, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 4.94% and 3.90% for the three and nine months ended September 30, 2022, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 3.84% and 5.87% for the three and nine months ended September 30, 2021, respectively. The interest rate on the Senior Notes was