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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 June 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
https://cdn.kscope.io/3ccacdaae82020e204605832f3a19bc3-bios-20220630_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 July 25, 2022, there were 181,861,467 shares of the registrant’s Common Stock outstanding.







1



TABLE OF CONTENTS
  Page
Number
PART I
PART II 
 
 
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

Table of Contents
PART I
FINANCIAL INFORMATION
Item 1.Financial Statements
5

Table of Contents
OPTION CARE HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(unaudited)
June 30, 2022December 31, 2021
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents$204,046 $119,423 
   Accounts receivable, net362,772 338,242 
   Inventories231,766 183,095 
   Prepaid expenses and other current assets78,555 69,496 
Total current assets877,139 710,256 
NONCURRENT ASSETS:
   Property and equipment, net105,210 111,535 
   Operating lease right-of-use asset73,461 74,777 
   Intangible assets, net23,161 21,433 
   Referral sources352,368 344,587 
   Goodwill1,512,246 1,477,564 
   Deferred income taxes2,256 27,033 
   Other noncurrent assets40,071 23,733 
Total noncurrent assets2,108,773 2,080,662 
TOTAL ASSETS $2,985,912 $2,790,918 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$380,516 $279,246 
Accrued compensation and employee benefits58,307 83,503 
Accrued expenses and other current liabilities91,284 71,857 
Current portion of operating lease liability19,201 19,089 
Current portion of long-term debt6,000 6,000 
Total current liabilities555,308 459,695 
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion1,059,017 1,059,900 
Operating lease liability, net of current portion73,148 74,492 
Other noncurrent liabilities13,445 20,945 
Total noncurrent liabilities1,145,610 1,155,337 
Total liabilities1,700,918 1,615,032 
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of June 30, 2022 and December 31, 2021, respectively
  
Common stock; $0.0001 par value: 250,000,000 shares authorized, 182,213,292 shares issued and 181,829,570 shares outstanding as of June 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 June 30, 2022 and December 31, 2021, respectively
(2,403)(2,403)
Paid-in capital1,168,052 1,138,855 
Retained earnings104,071 39,867 
Accumulated other comprehensive income (loss)15,256 (451)
Total stockholders’ equity1,284,994 1,175,886 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,985,912 $2,790,918 

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

Table of Contents
OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
 2022202120222021
NET REVENUE$980,820 $860,272 $1,896,604 $1,619,509 
COST OF REVENUE763,920 661,304 1,478,768 1,255,068 
GROSS PROFIT216,900 198,968 417,836 364,441 
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses141,787 134,257 275,756 254,297 
Depreciation and amortization expense16,037 16,619 30,759 32,958 
      Total operating expenses157,824 150,876 306,515 287,255 
OPERATING INCOME59,076 48,092 111,321 77,186 
OTHER INCOME (EXPENSE):
Interest expense, net(12,765)(17,236)(25,011)(36,717)
Equity in earnings of joint ventures1,326 1,686 2,593 2,891 
Other, net1 5 3 (12,396)
      Total other expense(11,438)(15,545)(22,415)(46,222)
INCOME BEFORE INCOME TAXES47,638 32,547 88,906 30,964 
INCOME TAX EXPENSE13,709 731 24,702 2,009 
NET INCOME$33,929 $31,816 $64,204 $28,955 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Change in unrealized gains on cash flow hedges, net of income tax expense of $756, $0, $4,519, and $0, respectively
4,637 4,199 15,707 8,280 
OTHER COMPREHENSIVE INCOME4,637 4,199 15,707 8,280 
NET COMPREHENSIVE INCOME $38,566 $36,015 $79,911 $37,235 
EARNINGS PER COMMON SHARE:
Earnings per share, basic$0.19 $0.18 $0.36 $0.16 
Earnings per share, diluted$0.19 $0.18 $0.35 $0.16 
Weighted average common shares outstanding, basic180,621 179,843 180,293 179,826 
Weighted average common shares outstanding, diluted181,618 181,037 181,176 180,975 

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)
Six Months Ended June 30,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$64,204 $28,955 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense33,249 35,705 
Non-cash operating lease costs9,988 5,766 
Deferred income taxes - net24,777 907 
Loss on extinguishment of debt 12,403 
Amortization of deferred financing costs2,117 2,512 
Equity in earnings of joint ventures(2,593)(2,891)
Stock-based incentive compensation expense8,576 3,730 
Capital distribution from equity method investments1,000  
Other adjustments506 261 
Changes in operating assets and liabilities:
Accounts receivable, net(22,950)(9,866)
Inventories(48,671)(14,651)
Prepaid expenses and other current assets(5,235)4,627 
Accounts payable100,924 26,532 
Accrued compensation and employee benefits(26,384)(907)
Accrued expenses and other current liabilities18,900 6,425 
Operating lease liabilities(11,032)(8,277)
Other noncurrent assets and liabilities(10,422)803 
Net cash provided by operating activities136,954 92,034 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment(10,055)(6,808)
Business acquisitions, net of cash acquired(59,897)(18,852)
Net cash used in investing activities(69,952)(25,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options, vesting of restricted stock, and related tax withholdings523 (78)
Proceeds from warrant exercises20,098  
Proceeds from issuance of debt 355,200 
Repayments of debt(3,000)(5,888)
Retirement of debt (352,009)
Deferred financing costs (2,880)
Debt prepayment fees (2,458)
Net cash provided by (used in) financing activities17,621 (8,113)
NET INCREASE IN CASH AND CASH EQUIVALENTS84,623 58,261 
Cash and cash equivalents - beginning of the period119,423 99,265 
CASH AND CASH EQUIVALENTS - END OF PERIOD$204,046 $157,526 
Supplemental disclosure of cash flow information:
   Cash paid for interest$21,793 $37,405 
   Cash paid for income taxes$4,966 $1,168 
Cash paid for operating leases$12,435 $12,909 
    
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 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)$1,056,611 
Balance - December 31, 2021$ $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 

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 June 30, 2022. HC I holds approximately 20.5% 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 60 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.
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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.
Prepaid expenses and other current assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $47.0 million and $43.0 million as of June 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.

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 June 30, 2022 and December 31, 2021, the balance of the investments were $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 $1.3 million and $2.6 million for the three and six months ended June 30, 2022, respectively. The Company’s proportionate share of earnings was $1.7 million and $2.9 million for the three and six months ended June 30, 2021, respectively. See Footnote 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 15% and 15%, respectively, for the three and six months ended June 30, 2022. Revenue related to the Company’s largest payer was approximately 16% and 16% for the three and six months ended June 30, 2021. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.
For the three and six months ended June 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 six months ended June 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 June 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 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 six months ended June 30, 2022, approximately 72% and 73%, respectively, of the Company’s pharmaceutical and medical supply purchases were from four vendors. For the three and six months ended June 30, 2021 approximately 64% 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 June 30, 2022 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
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 June 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.
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4. REVENUE
The following table sets forth the net revenue earned by category of payer for the three and six months ended June 30, 2022 and 2021 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Commercial payers$851,915 $746,647 $1,638,192 $1,395,154 
Government payers119,385 102,581 234,590 200,422 
Patients9,520 11,044 23,822 23,933 
Net revenue$980,820 $860,272 $1,896,604 $1,619,509 
5. INCOME TAXES
During the three and six months ended June 30, 2022, the Company recorded tax expense of $13.7 million and $24.7 million, respectively, which represents an effective tax rate of 28.8% and 27.8%, respectively. The variance in the Company’s effective tax rate of 28.8% and 27.8% for the three and six months ended June 30, 2022, respectively, 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 six months ended June 30, 2021, the Company recorded tax expense of $0.7 million and $2.0 million which represents an effective tax rate of 2.2% and 6.5%, respectively. The variance in the Company’s effective tax rate of 2.2% and 6.5% for the three and six months ended June 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 $13.0 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 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.

The Company’s tax expense for the three and six months ended June 30, 2022 of $13.7 million and $24.7 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 six months ended June 30, 2021 of $0.7 million and $2.0 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.

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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 six months ended June 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 June 30, 2022, there were 900,378 stock option awards and 136,568 restricted stock awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. For the six months ended June 30, 2022, there were 836,957 stock option awards and 389,831 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 June 30, 2021, there were 915,507 warrants and 547,310 stock option awards outstanding that were excluded from the calculation of earnings per share as they would be anti-dilutive. For the six months ended June 30, 2021, there were 915,507 warrants and 433,440 stock option 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 June 30,Six Months Ended June 30,
2022202120222021
Numerator:
Net income$33,929 $31,816 $64,204 $28,955 
Denominator:
Weighted average number of common shares outstanding180,621 179,843 180,293 179,826 
Earnings per common share:
Earnings per common share, basic$0.19 $0.18 $0.36 $0.16 
The following table presents the Company’s diluted earnings per share and shares outstanding (in thousands, except per share data):
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Numerator:  
Net income$33,929 $31,816 $64,204 $28,955 
Denominator:  
Weighted average number of common shares outstanding180,621 179,843 180,293 179,826 
Effect of dilutive securities997 1,194 883 1,149 
Weighted average number of common shares outstanding, diluted181,618 181,037 181,176 180,975 
Earnings per common share:
Earnings per common share, diluted$0.19 $0.18 $0.35 $0.16 
,

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7. LEASES
During the three and six months ended June 30, 2022, the Company incurred operating lease expenses of $7.4 million and $14.8 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. During the three and six months ended June 30, 2021, the Company incurred operating lease expenses of $6.9 million and $14.5 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 June 30, 2022, the weighted-average remaining lease term was 6.7 years and the weighted-average discount rate was 5.10%.
Operating leases mature as follows (in thousands):
Fiscal Year Ended December 31,Minimum Payments
2022$14,539 
202322,190 
202416,215 
202513,388 
202610,416 
Thereafter34,835 
Total lease payments$111,583 
Less: Interest(19,234)
Present value of lease liabilities$92,349 
During the six months ended June 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 $8.4 million related to increases in the operating lease right-of-use assets and operating lease liabilities, respectively. During the six months ended June 30, 2021, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow of $5.7 million related to increases in the operating lease right-of-use assets and operating lease liabilities, respectively. As of June 30, 2022, 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 June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022December 31, 2021
Infusion pumps$36,516 $34,547 
Equipment, furniture and other58,557 52,913 
Leasehold improvements96,799 92,229 
Computer software, purchased and internally developed33,969 30,744 
Assets under development14,721 19,924 
240,562 230,357 
Less: accumulated depreciation(135,352)(118,822)
Property and equipment, net$105,210 $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 six months ended June 30, 2022 and 2021 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Depreciation expense in cost of revenue$1,233 $1,369 $2,491 $2,747 
Depreciation expense in operating expenses7,371 7,589 14,559 15,188 
Total depreciation expense$8,604 $8,958 $17,050 $17,935 

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9. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill consists of the following activity for the three and six months June 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 
There were no changes in the carrying amount of goodwill for the three or six months ended June 30, 2021.
The carrying amount and accumulated amortization of intangible assets consists of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022December 31, 2021
Gross intangible assets:
Referral sources$504,812 $482,200 
Trademarks/names38,172 47,718 
Other amortizable intangible assets634 1,037 
Total gross intangible assets543,618 530,955 
Accumulated amortization:
Referral sources(152,444)(137,613)
Trademarks/names(15,611)(26,936)
Other amortizable intangible assets(34)(386)
Total accumulated amortization(168,089)(164,935)
Total intangible assets, net$375,529 $366,020 
Amortization expense for intangible assets was $8.7 million and $16.2 million for the three and six months ended June 30, 2022, respectively. Amortization expense for intangible assets was $9.0 million and $17.6 million for the three and six months ended June 30, 2021, respectively.


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10. INDEBTEDNESS

Long-term debt consisted of the following as of June 30, 2022 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
Asset-based-lending (“ABL”) facility$ $ $ $ 
First Lien Term Loan597,000 (8,966)(12,443)575,591 
Senior Notes500,000  (10,574)489,426 
$1,097,000 $(8,966)$(23,017)1,065,017 
Less: current portion(6,000)
Total long-term debt$1,059,017 
Long-term debt consisted of the following as of December 31, 2021 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
ABL facility$ $ $ $ 
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 3.81% and 3.25% as of June 30, 2022 and December 31, 2021, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 3.52% and 3.39% for the three and six months ended June 30, 2022, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 3.85% and 3.91% for the three and six months ended June 30, 2021, respectively. The interest rate on the Senior Notes was 4.375% as of both June 30, 2022 and December 31, 2021, respectively. The weighted average interest rate incurred on the Senior Secured Notes was 4.375% for both the three and six months ended June 30, 2022, respectively.
Long-term debt matures as follows (in thousands):
Fiscal Year Ended December 31,Minimum Payments
2022$3,000 
20236,000 
20246,000 
20256,000 
20266,000 
Thereafter1,070,000 
Total$1,097,000 

During the three and six months ended June 30, 2022 and 2021, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 11, Derivative Instruments, for further discussion.
The following table presents the estimated fair values of the Company’s debt obligations as of June 30, 2022 (in thousands):
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Financial Instrument
Carrying Value as of June 30, 2022
Markets for Identical Item (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
First Lien Term Loan$575,591 $ $571,628 $ 
Senior Notes489,426  430,000  
Total debt instruments$1,065,017 $ $1,001,628 $ 
See Note 12, Fair Value Measurements, for further discussion.
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11. DERIVATIVE INSTRUMENTS
The Company uses derivative financial instruments for hedging and non-trading purposes to limit the Company’s exposure to increases in interest rates related to its variable interest rate debt. Use of derivative financial instruments in hedging programs subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company’s derivative financial instruments is used to measure interest to be paid or received and does not represent the Company’s exposure due to credit risk. Credit risk is monitored through established approval procedures, including reviewing credit ratings when appropriate.
In October 2021, the Company entered into an interest rate cap hedge with a notional amount of $300 million for a 5-year term beginning November 30, 2021. The hedge partially offsets risk associated with the First Lien Term Loan Facility’s variable interest rate. The interest rate cap instrument perfectly offsets the terms of the interest rates associated with the variable interest rate of the First Lien Term Loan.
The following table summarizes the amount and location of the Company’s derivative instruments in the condensed consolidated balance sheets (in thousands):
Fair value - Derivatives in asset position
DerivativeBalance Sheet CaptionJune 30, 2022December 31, 2021
Interest rate cap designated as cash flow hedgePrepaid expenses and other current assets$4,853 $ 
Interest rate cap designated as cash flow hedgeOther noncurrent assets14,771  
Fair value - Derivatives in liability position
DerivativeBalance Sheet CaptionJune 30, 2022December 31, 2021
Interest rate cap designated as cash flow hedgeAccrued expenses and other current liabilities$ $601 

The gain associated with the change in the fair value of the effective portion of the hedging instrument are recorded into other comprehensive income. The following table presents the pre-tax gains from derivative instruments recognized in other comprehensive income in the Company’s unaudited condensed consolidated statements of comprehensive income (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Derivative2022202120222021
Interest rate cap designated as cash flow hedge$5,393 $ $20,226 $ 
Interest rate swaps designated as cash flow hedges 4,199  8,280 
$5,393 $4,199 $20,226 $8,280 
The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s unaudited condensed consolidated statements of comprehensive income related to the Company’s derivative instruments (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
DerivativeIncome Statement Caption2022202120222021
Interest rate cap designated as cash flow hedgeInterest expense$491 $ $1,184 $ 
Interest rate swaps designated as cash flow hedgesInterest expense (4,246)$ $(8,395)
Interest rate swaps not designated as hedgesInterest expense (1) (2)
$491 $(4,247)$1,184 $(8,397)
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Table of Contents

12. FAIR VALUE MEASUREMENTS
Fair value measurements are determined by maximizing the use of observable inputs and minimizing the use of unobservable inputs. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurements) and gives the lowest priority to unobservable inputs (Level 3 measurements). The categories within the valuation hierarchy are described as follows:
Level 1 — Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3 — Inputs to the fair value measurement are unobservable inputs or valuation techniques.
While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
First Lien Term Loan: The fair value of the First Lien Term Loan is derived from a broker quote on the loans in the syndication (Level 2 inputs). See Note 10, Indebtedness, for further discussion of the carrying amount and fair value of the First Lien Term Loan.
Senior Notes: The fair value of the Senior Notes is derived from a broker quote (Level 2 inputs). See Note 10, Indebtedness, for further discussion of the carrying amount and fair value of the Senior Notes.
Interest rate cap: The fair value of the interest rate cap is derived from the interest rates prevalent in the market and future expectations of those interest rates (Level 2 inputs). The Company determines the fair value of the investments based on quoted prices from third-party brokers. See Note 11, Derivative Instruments, for further discussion of the fair value of the interest rate cap.
There were no other assets or liabilities measured at fair value at June 30, 2022 and December 31, 2021.
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