Option Care Health Inc

Previous wording

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 177 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.

Current wording

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 182 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.

Previous wording

As of March 31, 2024, the Company has not identified any compromise or unauthorized access of its systems or networks due to this third party incident. As of the end of the first quarter of 2024, the Company reconnected to certain applications maintained by Change Healthcare and resumed claims submission to several payers and utilized alternative platforms for the majority of its claims. The Company continues to work through accumulated unprocessed claims and to establish full recovery with Change Healthcare’s applications.

Current wording

As of June 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 resumed claims submission to payers, however, certain functionality remains disrupted. The Company continues to work through accumulated unprocessed billing and to establish full recovery from the Change Healthcare Cybersecurity Incident.

Previous wording

During the first 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 impact to the first quarter financial results was primarily related to cash flows from operations, which are expected to be recognized later in 2024, additional labor costs to support continued operations, and higher net interest expense due to lower-than-expected interest-bearing cash balances. The Company continues to maintain strong liquidity and, having resumed submission 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.

Current wording

During the second 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.

Previous wording

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three months ended March 31, 2024 and 2023.

Current wording

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

Previous wording

Interest Expense, Net. Interest expense consists principally of interest 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.

Current wording

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.

Previous wording

Change in Unrealized Gain (Loss) on Cash Flow Hedge, Net of Income Tax (Expense) Benefit. Change in unrealized gain (loss) on cash flow hedge, net of income tax (expense) benefit, consists of the gain (loss) 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.

Current wording

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.

Previous wording

The following table presents Option Care Health’s consolidated results of operations for the three months ended March 31, 2024 and 2023 (in thousands, except for percentages):

Current wording

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

Previous wording

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 pricing dynamics in the prior year. The decrease in gross profit margin was primarily due to the same comparable impact of certain temporary favorable pricing dynamics in the prior year that did not continue into 2024.

Current wording

The increase in net revenue was primarily driven by organic growth in the Company’s broad portfolio of acute and chronic 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.

Previous wording

The decrease in interest expense, net during the three months ended March 31, 2024 was primarily attributable to additional interest income generated from our cash and cash equivalents, partially offset by an increase in the Company’s First Lien Term Loan variable interest rate, compared to three months ended March 31, 2023. See Note 9, Indebtedness, of the condensed consolidated financial statements for further information.

Current wording

The decrease in interest expense, net during the three months ended June 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 variable interest rate, compared to the three months ended June 30, 2023. See Note 9, Indebtedness, of the unaudited condensed consolidated financial statements for further information.

Previous wording

The Company recorded income tax expense of $12.2 million and $15.0 million for the three months ended March 31, 2024 and 2023, respectively, which represents an effective tax rate of 21.4% and 27.7%, respectively. The variance in the Company’s effective tax rate of 21.4% for the three months ended March 31, 2024, compared to the federal statutory rate of 21%, is primarily attributable to the difference between federal and state tax rates, various non-deductible expenses, and a change in state valuation allowance. The variance in the Company’s effective tax rate of 27.7% for the three months ended March 31, 2023, compared to the federal statutory rate of 21%, is primarily attributable to the difference between federal and state tax rates, as well as various non-deductible expenses.

Current wording

The Company recorded income tax expense of $19.0 million and $41.1 million for the three months ended June 30, 2024 and 2023, respectively, which represents an effective tax rate of 26.4% and 26.4%, respectively. The income tax expense for the three months ended June 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 26.4% for the three months ended June 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 26.4% for the three months ended June 30, 2023, compared to the federal statutory rate of 21%, was primarily attributable to the difference between federal and state tax rates, as well as various non-deductible expenses.

Previous wording

The change in net income was attributable to organic growth from additional revenue related to the factors described in the above sections.

Current wording

The change in net income was attributable to organic growth from additional revenue related 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 three months ended June 30, 2023. There was no comparable activity during the three months ended June 30, 2024.

Previous wording

Net comprehensive income increased to $46.3 million for the three months ended March 31, 2024, compared to net comprehensive income of$35.8 million for the three months ended March 31, 2023, primarily as a result of the changes in net income discussed above.

Current wording

Net comprehensive income decreased to $52.1 million for the three months ended June 30, 2024, compared to net comprehensive income of$117.7 million for the three months ended June 30, 2023, primarily as a result of the changes in net income discussed above.

Previous wording

The increase in selling, general and administrative expenses during the three months ended March 31, 2024 is primarily due to an increase in salaries, benefits, and equity compensation; however, these expenses have declined as a percentage of revenue to 13.5% for the three months ended March 31, 2024 compared to 14.6% for the three months ended March 31, 2023, due to the Company’s focus on leveraging existing infrastructure to control spending.

Current wording

The increase in selling, general and administrative expenses during the six months ended June 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 13.0% for the six months ended June 30, 2024 compared to 14.5% for the six months ended June 30, 2023, due to the Company’s focus on leveraging existing infrastructure to control spending.

Previous wording

For the three months ended March 31, 2024 and the twelve months ended December 31, 2023, the Company’s primary sources of liquidity were cash and cash equivalents of $219.5 million and $343.8 million, respectively. As of March 31, 2024 and 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 three months ended March 31, 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 twelve months ended December 31, 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.

Current wording

For the six months ended June 30, 2024 and the twelve months ended December 31, 2023, the Company’s primary sources of liquidity were cash and cash equivalents of $376.9 million and $343.8 million, respectively. As of June 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 six months ended June 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 twelve months ended December 31, 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.

Previous wording

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 Secured Overnight Financing Rate (“SOFR”) applicable thereto plus the Applicable Rate or (ii) the then-applicable Base Rate plus the Applicable Rate, which Applicable Rate shall be, subject to certain caveats thereto, as follows (i) until delivery of financial statements and related Compliance Certificate for the first full fiscal quarter ending after the effective date of the First Lien Credit Agreement 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 March 31, 2024, the Company had $5.3 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the Revolver Facility of $394.7 million.

Current wording

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 June 30, 2024, the Company had $4.1 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the Revolver Facility of $395.9 million.

Previous wording

The principal balance of the First Lien Term Loan is repayable in quarterly installments of $1.5 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 First Lien Credit Agreement 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 2.75% for Term SOFR Loans (as such term is defined in the First Lien Credit Agreement Amendment); or (ii) a base rate determined in accordance with the First Lien Credit Agreement Amendment, plus 1.75% for Base Rate Loans (as such term is defined in the First Lien Credit Agreement Amendment).

Current wording

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).

Previous wording

Interest payments over the course of long-term debt obligations total an estimated $341.8 million based on final maturity dates of the Company’s credit facilities. Interest payments are calculated based on current rates as of March 31, 2024. Actual payments are based on changes in SOFR and exclude the interest rate cap derivative instrument.

Current wording

Interest payments over the course of long-term debt obligations total an estimated $325.0 million based on final maturity dates of the Company’s credit facilities. Interest payments are calculated based on current rates as of June 30, 2024. Actual payments are based on changes in SOFR and exclude the interest rate cap derivative instrument.

Previous wording

The use of cash in operating activities during the three months ended March 31, 2024, as compared to the cash provided by operating activities in the three months ended March 31, 2023, is primarily due to changes in accounts receivable as a result of the Change Healthcare Cybersecurity Incident, with lesser impacts from accrued compensation and employee benefits, accrued expenses and other current liabilities, which were partially offset by higher net income and higher inventory turnover.

Current wording

The decrease in cash provided in operating activities during the six months ended June 30, 2024, as compared to the six months ended June 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, changes in prepaid expenses, and other current liabilities, offset by purchasing of additional inventory and changes in accounts payable.

Previous wording

The decrease in cash used in financing activities is primarily related to the Company’s $40.0 million repurchase of common stock during the three months ended March 31, 2024, whereas the three months ended March 31, 2023 activity primarily related to the Company’s $75.0 million repurchase of common stock.

Current wording

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 offset by $118.1 million in repurchase of common stock during the six months ended June 30, 2024, with no comparable activity during the six months ended June 30, 2023. The cash used in financing activities during the six months ended June 30, 2023 was primarily related to the Company’s $75.0 million repurchase of common stock.