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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, 2021
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
https://cdn.kscope.io/abd67d0c8d705b9708127674dd9a4027-bios-20210930_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 November 2, 2021, there were 179,875,193 shares of the registrant’s Common Stock outstanding.







1



TABLE OF CONTENTS
  Page
Number
PART I
PART II 
 
 
3

Table of Contents
PART I
FINANCIAL INFORMATION
Item 1.Financial Statements
4

Table of Contents
OPTION CARE HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(unaudited)
September 30, 2021December 31, 2020
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents$200,856 $99,265 
   Accounts receivable, net355,650 328,340 
   Inventories189,830 158,601 
   Prepaid expenses and other current assets64,848 70,806 
Total current assets811,184 657,012 
NONCURRENT ASSETS:
   Property and equipment, net106,788 121,149 
   Operating lease right-of-use asset71,992 68,795 
   Intangible assets, net343,764 351,052 
   Goodwill1,428,610 1,428,610 
   Other noncurrent assets23,806 20,821 
Total noncurrent assets1,974,960 1,990,427 
TOTAL ASSETS $2,786,144 $2,647,439 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$318,561 $282,913 
Accrued compensation and employee benefits64,676 58,899 
Accrued expenses and other current liabilities71,759 64,075 
Current portion of operating lease liability18,893 18,886 
Current portion of long-term debt11,775 9,250 
Total current liabilities485,664 434,023 
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion1,117,823 1,115,103 
Operating lease liability, net of current portion71,684 70,776 
Deferred income taxes4,519 3,339 
Other noncurrent liabilities8,974 8,474 
Total noncurrent liabilities1,203,000 1,197,692 
Total liabilities1,688,664 1,631,715 
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2021 and December 31, 2020, respectively
  
Common stock; $0.0001 par value: 250,000,000 shares authorized, 180,258,555 shares issued and 179,874,833 shares outstanding as of September 30, 2021; 180,178,308 shares issued and 179,794,586 shares outstanding as of December 31, 2020
18 18 
Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2021 and December 31, 2020, respectively
(2,403)(2,403)
Paid-in capital1,135,465 1,129,312 
Accumulated deficit(35,600)(100,031)
Accumulated other comprehensive loss (11,172)
Total stockholders’ equity1,097,480 1,015,724 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,786,144 $2,647,439 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
5

Table of Contents
OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2021202020212020
NET REVENUE$891,937 $781,609 $2,511,446 $2,227,897 
COST OF REVENUE688,969 607,456 1,944,037 1,729,395 
GROSS PROFIT202,968 174,153 567,409 498,502 
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses134,633 123,000 388,930 377,198 
Depreciation and amortization expense15,452 16,597 48,410 54,892 
      Total operating expenses150,085 139,597 437,340 432,090 
OPERATING INCOME52,883 34,556 130,069 66,412 
OTHER INCOME (EXPENSE):
Interest expense, net(16,000)(24,583)(52,717)(84,102)
Equity in earnings of joint ventures1,676 790 4,567 2,364 
Other, net4 (8,344)(12,392)(8,322)
      Total other expense(14,320)(32,137)(60,542)(90,060)
INCOME (LOSS) BEFORE INCOME TAXES38,563 2,419 69,527 (23,648)
INCOME TAX EXPENSE3,087 756 5,096 2,267 
NET INCOME (LOSS)$35,476 $1,663 $64,431 $(25,915)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $0, $0 and $0, respectively
2,892 4,022 11,172 (8,034)
OTHER COMPREHENSIVE INCOME (LOSS)2,892 4,022 11,172 (8,034)
NET COMPREHENSIVE INCOME (LOSS)$38,368 $5,685 $75,603 $(33,949)
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per share, basic$0.20 $0.01 $0.36 $(0.14)
Earnings (loss) per share, diluted$0.20 $0.01 $0.36 $(0.14)
Weighted average common shares outstanding, basic179,872 184,232 179,841 179,220 
Weighted average common shares outstanding, diluted181,430 184,822 181,055 179,220 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
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OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$64,431 $(25,915)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization expense52,820 60,054 
Non-cash operating lease costs11,137 13,020 
Paid-in-kind interest capitalized as principal 7,525 
Deferred income taxes - net1,180 897 
Loss on extinguishment of debt12,403 8,349 
Amortization of deferred financing costs3,821 4,153 
Loss on interest rate swaps upon discontinuing hedge accounting 3,746 
Equity in earnings of joint ventures(4,567)(2,364)
Stock-based incentive compensation expense6,246 2,588 
Other adjustments2,622 1,589 
Changes in operating assets and liabilities:
Accounts receivable, net(27,310)3,496 
Inventories(31,472)(39,602)
Prepaid expenses and other current assets5,958 (8,724)
Accounts payable35,648 66,508 
Accrued compensation and employee benefits5,777 5,461 
Accrued expenses and other current liabilities18,353 16,768 
Operating lease liabilities(14,620)(11,976)
Other noncurrent assets and liabilities832 (3,845)
Net cash provided by operating activities143,259 101,728 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment(11,744)(12,871)
Other investing cash flows 541 
Business acquisitions, net of cash acquired(18,852) 
Net cash used in investing activities(30,596)(12,330)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options, vesting of restricted stock, and related tax withholdings(93)(904)
Proceeds from issuance of debt355,200  
Repayments of debt(8,832)(6,937)
Retirement of debt(352,009)(125,000)
Deferred financing costs(2,880) 
Net proceeds from issuance of common stock 118,934 
Debt prepayment fees(2,458) 
Other financing cash flows (2,500)
Net cash (used in) provided by financing activities(11,072)(16,407)
NET INCREASE IN CASH AND CASH EQUIVALENTS101,591 72,991 
Cash and cash equivalents - beginning of the period99,265 67,056 
CASH AND CASH EQUIVALENTS - END OF PERIOD$200,856 $140,047 
Supplemental disclosure of cash flow information:
   Cash paid for interest$52,002 $73,224 
   Cash paid for income taxes$2,719 $2,373 
Cash paid for operating leases$19,631 $19,941 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
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OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
Preferred StockCommon StockTreasury StockPaid-in CapitalAccumulated DeficitAccumulated Other Comprehensive (Loss)
Income
Total Stockholders’ Equity
Balance - December 31, 2019$ $18 $(2,403)$1,008,362 $(91,955)$(7,195)$906,827 
Exercise of stock options, vesting of restricted stock and related tax withholdings— — — (549)— — (549)
Stock-based incentive compensation— — — 757 — — 757 
Net loss— — — — (19,910)— (19,910)
Other comprehensive loss— — — — — (16,632)(16,632)
Balance - March 31, 2020$ $18 $(2,403)$1,008,570 $(111,865)$(23,827)$870,493 
Exercise of stock options, vesting of restricted stock and related tax withholdings— — — (96)— — (96)
Stock-based incentive compensation— — — 661 — — 661 
Net loss— — — — (7,668)— (7,668)
Other comprehensive income— — — — — 4,576 4,576 
Balance - June 30, 2020$ $18 $(2,403)$1,009,135 $(119,533)$(19,251)$867,966 
Exercise of stock options, vesting of restricted stock and related tax withholdings— — — (259)— — (259)
Stock-based incentive compensation— — — 1,170 — — 1,170 
Net proceeds from the issuance of common stock— 1 — 118,933 — — 118,934 
Net income— — — — 1,663 — 1,663 
Other comprehensive income— — — — — 4,022 4,022 
Balance - September 30, 2020 19 (2,403)1,128,979 (117,870)(15,229)993,496 
Balance - December 31, 2020$ $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)$1,018,080 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (9)— — (9)
Stock-based incentive compensation— — — 2,525 — — 2,525 
Net income— — — — 31,816 — 31,816 
Other comprehensive income— — — — — 4,199 4,199 
Balance - June 30, 2021$ $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 - September 30, 2021 18 (2,403)1,135,465 (35,600) 1,097,480 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
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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, 2021. See Note 15, Stockholders’ Equity, for further discussion of HC I’s ownership as of September 30, 2021.
Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 98 full service pharmacies. 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 2020 audited consolidated financial statements, including the notes thereto, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2021.
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 (loss). See Equity-Method Investments within Note 2, Summary of Significant Accounting Policies, for further discussion of the Company’s equity-method investments.
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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.
In April 2020, the Company received $11.7 million in Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) grant funds from the federal government, which was reflected in the second quarter 2020 as a cash inflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows. During the third quarter 2020, the Company returned the funds as unused to the federal government, which was reflected as a cash outflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows.
Prepaid expenses and other current assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $36.9 million and $35.2 million as of September 30, 2021 and December 31, 2020, respectively. There were no other items included in prepaid expenses and other current assets that comprised 5% or more of total current assets.

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, 2021 and December 31, 2020, the balance of the investments were $20.3 million and $17.0 million, respectively. The investments are increased to reflect the Company’s capital contributions and equity in earnings of the investees. The investments are 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 are recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). The Company’s proportionate share of earnings was $1.7 million and $4.6 million for the three and nine months ended September 30, 2021. The Company’s proportionate share of earnings was $0.8 million and $2.4 million for the three and nine months ended September 30, 2020. Distributions from the investees are treated as cash inflows from operating activities within other adjustments in the unaudited condensed consolidated statements of cash flows. During the three and nine months ended September 30, 2021, the Company received distributions from the investees of $1.3 million and $1.3 million, respectively. During the three and nine months ended September 30, 2020, the Company received distributions from the investees of $2.3 million and $2.8 million, respectively. See Footnote 16, Related-Party Transactions, for discussion of related-party transactions with these investees.
Immaterial Error Correction — During the three months ended June 30, 2021, the Company identified prior period misstatements related to the net revenue earned by category of payer for the periods ended September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021. Certain individual payers were improperly classified as direct government and instead should have been classified as commercial payers. This error over-stated the Company’s government revenues and under-stated the Company’s commercial revenues in those periods. The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior consolidated financial statements taken as a whole. As a result, the Company has corrected the misstatements as disclosed in the following tables:
Three Months ended September 30, 2020Nine Months ended September 30, 2020Three Months ended December 31, 2020Twelve Months ended December 31, 2020
Amount% of RevenueAmount% of RevenueAmount% of RevenueAmount% of Revenue
Commercial:
As Previously
Reported
$644,385 82.4 %$1,893,105 85.0 %$649,880 80.8 %$2,542,985 83.9 %
Adjustment34,3214.4 %34,3211.5 %40,8065.1 %75,1272.5 %
As Revised678,70686.8 %1,927,42686.5 %690,68685.9 %2,618,11286.4 %
Government:
As Previously Reported127,43516.3 %308,83013.9 %141,23717.6 %450,06714.8 %
Adjustment(34,321)(4.4)%(34,321)(1.5)%(40,806)(5.1)%(75,127)(2.5)%
As Revised93,11411.9 %274,50912.4 %100,43112.5 %374,94012.3 %


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Three Months ended March 31, 2021Three Months ended June 30, 2021Six Months ended June 30, 2021
Amount% of RevenueAmount% of RevenueAmount% of Revenue
Commercial:
As Previously Reported$611,434 80.5 %$703,429 81.8 %$1,314,862 81.2 %
Adjustment37,0734.9 %43,2185.0 %80,2924.9 %
As Revised648,50785.4 %746,64786.8 %1,395,15486.1 %
Government:
As Previously Reported134,91417.8 %145,79916.9 %280,71417.3 %
Adjustment(37,073)(4.9)%(43,218)(5.0)%(80,292)(4.9)%
As Revised97,84112.9 %102,58111.9 %200,42212.4 %

There was no impact to the Company’s consolidated balance sheets, consolidated statements of comprehensive income (loss) or the consolidated statements of cash flows for any of these periods.

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 16% and 16% for the three and nine months ended September 30, 2021. Revenue related to the Company’s largest payer was approximately 16% and 15% for the three and nine months ended September 30, 2020, respectively. In December 2019, the Company renewed and expanded its multi-year contract with this payer. The contract renewal was effective in February 2020 for a two-year term and auto-renews annually thereafter unless notice is provided. 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, 2021, 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, 2020, 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, 2021 and December 31, 2020, respectively, approximately 11% and 15%, 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 nor 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, 2021, approximately 65% and 65%, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors. For the three and nine months ended September 30, 2020, approximately 71% and 72%, 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, 2021 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.
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3. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
BioCure Asset Acquisition — In April 2021, pursuant to the Asset Purchase Agreement dated April 7, 2021, the Company completed the acquisition of certain assets of BioCure, LLC (“BioCure”) for a purchase price of $18.9 million.
The allocation of the purchase price of BioCure was accounted for as an asset acquisition in accordance with ASC Topic 805, Business Combinations, with the total purchase price being allocated to the assets acquired based on the relative fair value of each asset. The purchase price was allocated to the assets acquired as follows:
Amount
Inventories$601 
Intangible assets, net18,251
Total consideration transferred$18,852 
Intangibles assets, net consists of referral sources which were assigned a useful life of 15 years, amortized on a straight-line basis.
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4. REVENUE
The following table sets forth the net revenue earned by category of payer for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Commercial payers$769,524 $678,706 $2,164,678 $1,927,426 
Government payers106,645 93,114 307,067 274,509 
Patients15,768 9,789 39,701 25,962 
Net revenue$891,937 $781,609 $2,511,446 $2,227,897 
5. INCOME TAXES
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. During the three and nine months ended September 30, 2020 the Company recorded a tax expense of $0.8 million and $2.3 million, respectively, which represents an effective tax rate of 31.3% and (9.6)%, respectively.
The Company maintains a full valuation allowance of $97.3 million against all of its net U.S. federal and state deferred tax assets with the exception of $0.3 million of estimated state net operating losses (“NOL”). In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of 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.
Based on the Company’s full valuation allowance, as noted above, the Company’s tax expense for the three and nine months ended September 30, 2021 of $3.1 million and $5.1 million consists of quarterly tax liabilities attributable to specific state taxing authorities as well as recognized deferred tax expense.
The Company has accumulated U.S. 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 U.S. federal net operating losses.

The Company recorded no income tax expense or benefit for the three or nine months ended September 30, 2021 and 2020 associated with the tax provisions of the CARES Act.

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6. EARNINGS (LOSS) PER SHARE
The Company presents basic and diluted earnings (loss) per share for its common stock. Basic earnings (loss) per share is calculated by dividing the net income (loss) of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) 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 (loss) is 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, 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. The computation of diluted shares for the nine months ended September 30, 2020 excludes the effect of these common stock equivalents as their inclusion would be anti-dilutive to the loss per share recorded in the period. 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. For the three months ended September 30, 2020, there were 915,507 warrants, 296,876 stock options and 312,984 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, 2020, there were 2,328,120 warrants, 424,878 stock options and 600,483 restricted stock awards outstanding that were excluded from the calculation of loss per share as they would be anti-dilutive.
The following table presents the Company’s basic earnings (loss) per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Numerator:
Net income (loss)$35,476 $1,663 $64,431 $(25,915)
Denominator:
Weighted average number of common shares outstanding179,872 184,232 179,841 179,220 
Earnings (loss) per common share:
Earnings (loss) per common share, basic$0.20 $0.01 $0.36 $(0.14)
The following table presents the Company’s diluted earnings (loss) per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Numerator:  
Net income (loss)$35,476 $1,663 $64,431 $(25,915)
Denominator:  
Weighted average number of common shares outstanding179,872 184,232 179,841 179,220 
Effect of dilutive securities1,558 590 1,214  
Weighted average number of common shares outstanding, diluted181,430 184,822 181,055 179,220 
Earnings (loss) per common share:
Earnings (loss) per common share, diluted$0.20 $0.01 $0.36 $(0.14)
,

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7. LEASES
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 expense in the unaudited condensed consolidated statements of comprehensive income (loss). During the three and nine months ended September 30, 2020, the Company incurred operating lease expense of $7.6 million and $23.0 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss). As of September 30, 2021, the weighted-average remaining lease term was 6.44 and the weighted-average discount rate was 5.09%.
Operating leases mature as follows (in thousands):
Fiscal Year Ending December 31,Minimum Payments
2021$8,379 
202222,679 
202319,324 
202413,757 
202511,053 
Thereafter32,682 
Total lease payments$107,874 
Less: Interest17,297 
Present value of lease liabilities$90,577 
During the three and nine months ended September 30, 2021, the Company commenced new leases, extensions and amendments, resulting in non-cash investing and financing activities in the unaudited condensed consolidated statements of cash flow of $14.5 million related to increases in the operating lease right-of-use asset and operating lease liabilities, respectively. During the three and nine months ended September 30, 2020, the Company commenced new leases, extensions and amendments, resulting in non-cash investing and financing activities in the unaudited condensed consolidated statements of cash flow of $20.1 million related to increases in the operating lease right-of-use asset and operating lease liabilities, respectively. As of September 30, 2021, the Company did not have any significant operating or financing leases that had not yet commenced.

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8. PROPERTY AND EQUIPMENT
Property and equipment was as follows as of September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021December 31, 2020
Infusion pumps$34,249 $31,678 
Equipment, furniture and other53,770 47,886 
Leasehold improvements91,789 87,483 
Computer software, purchased and internally developed29,804 27,799 
Assets under development7,894 10,793 
217,506 205,639 
Less: accumulated depreciation110,718 84,490 
Property and equipment, net$106,788 $121,149 
Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income (loss), 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, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Depreciation expense in cost of revenue$1,664 $1,643 $4,410 $5,161 
Depreciation expense in operating expenses7,476 7,814 22,670 28,546 
Total depreciation expense$9,140 $9,457 $27,080 $33,707 

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9. GOODWILL AND OTHER INTANGIBLE ASSETS
There was no change in the carrying amount of goodwill for the three or nine months ended September 30, 2021.
Changes in the carrying amount of goodwill consists of the following activity for the three and nine months ended September 30, 2020 (in thousands):
Balance at December 31, 2019$1,425,542 
Merger purchase accounting adjustments2,341
Balance at March 31, 2020$1,427,883 
Merger purchase accounting adjustments727
Balance at June 30, 2020$1,428,610 
Changes 
Balance at September 30, 2020$1,428,610 

The carrying amount and accumulated amortization of intangible assets consists of the following as of September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021December 31, 2020
Gross intangible assets:
Referral sources$456,372 $438,121