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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, 2023
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/44d90f5a3edc2801be76ff1ddb5eb6bf-OPCH_Logo.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.

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

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

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

On October 23, 2023, there were 177,130,539 shares of the registrant’s Common Stock outstanding.







1



TABLE OF CONTENTS
  Page
Number
PART I
PART II 
 
 
2


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, 2022 (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.
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)
September 30, 2023December 31, 2022
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$386,489 $294,186 
Accounts receivable, net382,957 377,542 
Inventories251,366 224,281 
Prepaid expenses and other current assets95,473 98,330 
Total current assets1,116,285 994,339 
 
NONCURRENT ASSETS:
Property and equipment, net107,960 108,321 
Operating lease right-of-use asset83,732 72,424 
Intangible assets, net20,868 22,371 
Referral sources, net323,126 341,744 
Goodwill1,540,246 1,533,424 
Other noncurrent assets51,399 40,313 
Total noncurrent assets2,127,331 2,118,597 
TOTAL ASSETS $3,243,616 $3,112,936 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$429,536 $378,763 
Accrued compensation and employee benefits81,159 76,906 
Accrued expenses and other current liabilities88,921 84,302 
Current portion of operating lease liability18,468 19,380 
Current portion of long-term debt6,000 6,000 
Total current liabilities624,084 565,351 
 
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion1,057,016 1,058,204 
Operating lease liability, net of current portion85,423 71,441 
Deferred income taxes33,921 22,154 
Other noncurrent liabilities3,089 9,683 
Total noncurrent liabilities1,179,449 1,161,482 
Total liabilities1,803,533 1,726,833 
 
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2023 and December 31, 2022
  
Common stock; $0.0001 par value: 250,000,000 shares authorized, 182,901,785 shares issued and 177,129,378 shares outstanding as of September 30, 2023; 182,341,420 shares issued and 181,957,698 shares outstanding as of December 31, 2022
18 18 
Treasury stock; 5,772,407 and 383,722 shares outstanding, at cost, as of September 30, 2023 and December 31, 2022, respectively
(179,205)(2,403)
Paid-in capital1,197,874 1,176,906 
Retained earnings400,336 190,423 
Accumulated other comprehensive income21,060 21,159 
Total stockholders’ equity1,440,083 1,386,103 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,243,616 $3,112,936 

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 COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
NET REVENUE$1,093,014 $1,020,918 $3,177,934 $2,917,522 
COST OF REVENUE838,748 802,917 2,443,834 2,281,685 
GROSS PROFIT254,266 218,001 734,100 635,837 
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses158,214 142,015 459,644 417,771 
Depreciation and amortization expense15,005 15,268 44,417 46,027 
Total operating expenses173,219 157,283 504,061 463,798 
OPERATING INCOME81,047 60,718 230,039 172,039 
 
OTHER INCOME (EXPENSE):
Interest expense, net(11,786)(13,997)(38,816)(39,008)
Equity in earnings of joint ventures1,273 1,472 4,107 4,065 
Other, net(449)3,888 84,487 3,891 
Total other (expense) income(10,962)(8,637)49,778 (31,052)
 
INCOME BEFORE INCOME TAXES70,085 52,081 279,817 140,987 
INCOME TAX EXPENSE13,783 13,258 69,904 37,960 
NET INCOME$56,302 $38,823 $209,913 $103,027 
 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gain (loss) on cash flow hedges, net of income tax benefit (expense) of $8, $(1,398), $57 and $(5,917), respectively
$53 $9,255 $(99)$24,962 
OTHER COMPREHENSIVE INCOME (LOSS)53 9,255 (99)24,962 
NET COMPREHENSIVE INCOME $56,355 $48,078 $209,814 $127,989 
 
EARNINGS PER COMMON SHARE:
Earnings per share, basic$0.31 $0.21 $1.17 $0.57 
Earnings per share, diluted$0.31 $0.21 $1.16 $0.57 
 
Weighted average common shares outstanding, basic178,826 181,884 179,956 180,829 
Weighted average common shares outstanding, diluted180,528 183,022 181,286 181,760 

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,
 20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$209,913 $103,027 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense46,423 49,723 
Non-cash operating lease costs14,610 14,451 
Deferred income taxes - net11,767 37,631 
Amortization of deferred financing costs3,312 3,206 
Equity in earnings of joint ventures(4,107)(4,065)
Stock-based incentive compensation expense22,908 12,581 
Capital distribution from equity method investments4,000 2,500 
Other adjustments1,769 695 
Changes in operating assets and liabilities:
Accounts receivable, net(5,075)(23,153)
Inventories(28,362)(52,749)
Prepaid expenses and other current assets3,197 (10,335)
Accounts payable50,726 129,859 
Accrued compensation and employee benefits4,197 (26,711)
Accrued expenses and other current liabilities9,829 19,495 
Operating lease liabilities(13,019)(15,372)
Other noncurrent assets and liabilities(11,762)(16,691)
Net cash provided by operating activities320,326 224,092 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment(21,981)(17,111)
Business acquisitions, net of cash acquired(12,855)(87,315)
Other investing activities (5,889) 
Net cash used in investing activities(40,725)(104,426)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options, vesting of restricted stock, and related tax withholdings(1,940)(37)
Proceeds from warrant exercises 20,916 
Repayments of debt principal(4,500)(4,500)
Purchase of company stock(175,108) 
Other financing activities(5,750) 
Net cash (used in) provided by financing activities(187,298)16,379 
NET INCREASE IN CASH AND CASH EQUIVALENTS92,303 136,045 
Cash and cash equivalents - beginning of the period294,186 119,423 
CASH AND CASH EQUIVALENTS - END OF PERIOD$386,489 $255,468 
 
Supplemental disclosure of cash flow information:
Cash paid for interest$46,377 $29,578 
Cash paid for income taxes$53,699 $6,690 
Cash paid for operating leases$20,272 $18,964 

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 Other Comprehensive
Income (Loss)
Total Stockholders’ Equity
Balance - December 31, 2021$ $18 $(2,403)$1,138,855 $39,867 $(451)$1,175,886 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — 355 — — 355 
Stock-based incentive compensation— — — 4,178 — — 4,178 
Net income— — — — 30,275 — 30,275 
Other comprehensive income— — — — — 11,070 11,070 
Balance - March 31, 2022$ $18 $(2,403)$1,143,388 $70,142 $10,619 $1,221,764 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — 168 — — 168 
Exercise of warrants— — — 20,098 — — 20,098 
Stock-based incentive compensation— — — 4,398 — — 4,398 
Net income— — — — 33,929 — 33,929 
Other comprehensive income— — — — — 4,637 4,637 
Balance - June 30, 2022$ $18 $(2,403)$1,168,052 $104,071 $15,256 $1,284,994 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (560)— — (560)
Exercise of warrants— — — 818 — — 818 
Stock-based incentive compensation— — — 4,005 — — 4,005 
Net income— — — — 38,823 — 38,823 
Other comprehensive income— — — — — 9,255 9,255 
Balance - September 30, 2022$ $18 $(2,403)$1,172,315 $142,894 $24,511 $1,337,335 
 
Balance - December 31, 2022$ $18 $(2,403)$1,176,906 $190,423 $21,159 $1,386,103 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (1,902)— — (1,902)
Stock-based incentive compensation— — — 5,988 — — 5,988 
Purchase of company stock— — (75,735)— — — (75,735)
Net income— — — — 39,208 — 39,208 
Other comprehensive loss— — — — — (3,443)(3,443)
Balance - March 31, 2023$ $18 $(78,138)$1,180,992 $229,631 $17,716 $1,350,219 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — (247)— — (247)
Stock-based incentive compensation— — — 7,685 — — 7,685 
Purchase of company stock, and related tax effects— — 32 — — — 32 
Net income— — — — 114,403 — 114,403 
Other comprehensive income— — — — — 3,291 3,291 
Balance - June 30, 2023$ $18 $(78,106)$1,188,430 $344,034 $21,007 $1,475,383 
Exercise of stock options, vesting of restricted stock, and related tax withholdings— — — 209 — — 209 
Stock-based incentive compensation— — — 9,235 — — 9,235 
Purchase of company stock, and related tax effects— — (101,099)— — — (101,099)
Net income— — — — 56,302 — 56,302 
Other comprehensive income— — — — — 53 53 
Balance - September 30, 2023$ $18 $(179,205)$1,197,874 $400,336 $21,060 $1,440,083 

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, Inc. (“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”) (the “Merger”), a national provider of infusion and home care management solutions, which was completed on August 6, 2019 (the “Merger Date”). Following the close of the transaction, BioScrip was rebranded as Option Care Health. The combined Company’s stock is listed on the Nasdaq Global Select Market as of September 30, 2023. During the nine months ended September 30, 2023, HC I completed sales of 23,771,926 shares of common stock. In addition, the Company repurchased 2,475,166 shares from HC I on March 3, 2023 under the Company’s share repurchase program. See Note 15, Stockholders’ Equity, for further discussion of the Company’s share repurchase program. As of September 30, 2023, HC I no longer holds shares of the Company’s common stock.
Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 93 full service pharmacies and 81 stand-alone ambulatory 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 2022 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. As of September 30, 2023, cash equivalents consisted of money market funds.
Prepaid Expenses and Other Current Assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $51.0 million and $53.4 million as of September 30, 2023 and December 31, 2022, respectively.
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, 2023 and December 31, 2022, the balance of the investments was $19.5 million and $19.4 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 $4.1 million for the three and nine months ended September 30, 2023, respectively. The Company’s proportionate share of earnings was $1.5 million and $4.1 million for the three and nine months ended September 30, 2022, respectively. Distributions from the investees are treated as cash inflows from operating activities in the unaudited condensed consolidated statements of cash flows. During the three and nine months ended September 30, 2023, the Company received distributions from the investees of $1.5 million and $4.0 million, respectively. During the three and nine months ended September 30, 2022, the Company received distributions from the investees of $1.5 million and $2.5 million, respectively. See Note 16, Related-Party Transactions, for discussion of related-party transactions with these investees.
Concentrations of Business Risk — The Company generates revenue from managed care contracts and other agreements with commercial third-party payers. Revenue related to the Company’s largest payer was approximately 14% for the three and nine months ended September 30, 2023. Revenue related to the Company’s largest payer was approximately 14% and 15% for the three and nine months ended September 30, 2022, respectively. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.
For the three and nine months ended September 30, 2023, approximately 11% 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, 2022, approximately 12% of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of September 30, 2023 and December 31, 2022, approximately 11% and 13%, respectively, of the Company’s accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules and rates that are determined by the related governmental agency. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term.
The Company does not require its patients or other payers to carry collateral for any amounts owed for goods or services provided. Other than as discussed above, concentration of credit risk relating to trade accounts receivable is limited due to the Company’s diversity of patients and payers. Further, the Company generally does not provide charity care; however, Option Care Health offers a financial assistance program for patients that meet certain defined hardship criteria.
For the three and nine months ended September 30, 2023, approximately 73% of the Company’s pharmaceutical and medical supply purchases were from four vendors. For the three and nine months ended September 30, 2022, approximately 74% and 73%, respectively, of the Company’s pharmaceutical and medical supply purchases were from four vendors. 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.

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3. BUSINESS COMBINATIONS
Amedisys, Inc. — On May 3, 2023, the Company entered into a definitive merger agreement (the “Merger Agreement”) with Amedisys, Inc. (“Amedisys”), a leading provider of healthcare in home health and hospice settings. Under the terms of the merger agreement, the Company would issue new shares of its common stock to Amedisys’s stockholders, which would result in the Company’s stockholders holding approximately 64.5% of the combined company.
On June 26, 2023, the Company entered into an agreement to terminate the Merger Agreement (the “Mutual Termination Agreement”). Under the terms of the Mutual Termination Agreement, the Company received a payment of $106.0 million in cash on behalf of Amedisys (“Termination Fee”). The Termination Fee is included in Other, net in the unaudited condensed consolidated statements of comprehensive income and in Net cash provided by operating activities in the unaudited condensed consolidated statements of cash flows.
During the nine months ended September 30, 2023, the Company incurred $21.1 million in merger-related expenses, which are included in Other, net in the unaudited condensed consolidated statements of comprehensive income and in Net cash provided by operating activities in the unaudited condensed consolidated statements of cash flows.
Revitalized, LLC — In May 2023, pursuant to the equity purchase agreement dated May 1, 2023, the Company completed the acquisition of 100% of the membership interests in Revitalized, LLC (“Revitalized”) for a purchase price, net of cash acquired, of $12.5 million, inclusive of a $0.4 million non-cash receivable adjustment, which primarily consisted of $6.7 million of goodwill and $5.5 million of intangible assets.
Rochester Home Infusion, Inc. — In August 2022, pursuant to the stock purchase agreement dated June 10, 2022, the Company completed the acquisition of 100% of the equity interests in Rochester Home Infusion, Inc. (“RHI”) for a purchase price, net of cash acquired, of $27.4 million.
The allocation of the purchase price of RHI was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations, with the total purchase price being allocated to the assets and liabilities acquired based on the relative fair value of each asset and liability. The following is a final allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired (in thousands):
Amount
Accounts receivable$686 
Intangible assets5,449 
Other assets394 
Accounts payable and other liabilities(434)
Fair value identifiable assets and liabilities6,095 
Goodwill (1)21,323 
Cash acquired201 
Purchase price27,619 
Less: cash acquired (201)
Purchase price, net of cash acquired$27,418 
(1) Goodwill is attributable to cost synergies from procurement and operational efficiencies and elimination of duplicative administrative costs.
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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, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Commercial payers$957,601 $888,162 $2,765,513 $2,526,354 
Government payers124,122 122,793 370,648 357,383 
Patients11,291 9,963 41,773 33,785 
Net revenue$1,093,014 $1,020,918 $3,177,934 $2,917,522 
5. INCOME TAXES
During the three months ended September 30, 2023, the Company recorded tax expense of $13.8 million. During the nine months ended September 30, 2023, the Company recorded tax expense of $69.9 million, which 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 tax expense for the three and nine months ended September 30, 2023 represents an effective tax rate of 19.7% and 25.0%, respectively. The variance in the Company’s effective tax rate of 19.7% and 25.0% for the three and nine months ended September 30, 2023, respectively, 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. During the three months ended September 30, 2023, the Company released $5.8 million of state valuation allowance. During the three and nine months ended September 30, 2022, the Company recorded tax expense of $13.3 million and $38.0 million, respectively, which represents an effective tax rate of 25.5% and 26.9%, respectively. The variance in the Company’s effective tax rate of 25.5% and 26.9% for the three and nine months ended September 30, 2022, compared to the federal statutory rate of 21%, is primarily attributable to current and deferred state taxes as well as various non-deductible expenses.
The Company maintains a valuation allowance of $7.2 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. In making this assessment, 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. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.
The Company’s tax expense for the three and nine months ended September 30, 2023 of $13.8 million and $69.9 million, respectively, consists of quarterly federal and state tax liabilities as well as recognized deferred federal and state tax expense. The Company’s tax expense for the three and nine months ended September 30, 2022 of $13.3 million and $38.0 million, respectively, consists of quarterly tax liabilities attributable to specific state taxing authorities as well as recognized deferred federal and state tax expense.
The Company 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 nine months ended September 30, 2023 and 2022 includes the effect of shares that would be issued in connection with warrants, stock options, restricted stock awards and performance stock unit awards, as these common stock equivalents are dilutive to the earnings per share recorded in those periods.
The following table presents the Company’s common stock equivalents that were excluded from the calculation of earnings per share as they would be anti-dilutive:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Stock option awards984,567 520,944 1,180,376 794,887 
Restricted stock awards16,564 13,561 569,831 476,329 
Performance stock unit awards  288,680  
The following table presents the Company’s basic earnings per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Numerator:
Net income (1)$56,302 $38,823 $209,913 $103,027 
Denominator:
Weighted average number of common shares outstanding178,826 181,884 179,956 180,829 
Earnings per common share:
Earnings per common share, basic$0.31 $0.21 $1.17 $0.57 
(1) Net income for the nine months ended September 30, 2023 includes $62.8 million related to the termination payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses and taxes. See Note 3, Business Combinations, for further discussion.
The following table presents the Company’s diluted earnings per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Numerator:
Net income (1)$56,302 $38,823 $209,913 $103,027 
Denominator:
Weighted average number of common shares outstanding178,826 181,884 179,956 180,829 
Effect of dilutive securities1,702 1,138 1,330 931 
Weighted average number of common shares outstanding, diluted180,528 183,022 181,286 181,760 
Earnings per common share:
Earnings per common share, diluted$0.31 $0.21 $1.16 $0.57 
(1) Net income for the nine months ended September 30, 2023 includes $62.8 million related to the termination payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses and taxes. See Note 3, Business Combinations, for further discussion.
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7. LEASES
During the three and nine months ended September 30, 2023, the Company incurred operating lease expenses of $7.8 million and $22.3 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. During the three and nine months ended September 30, 2022, the Company incurred operating lease expenses of $7.8 million and $22.7 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income. As of September 30, 2023, the weighted-average remaining lease term was 6.9 years and the weighted-average discount rate was 6.04%.
Operating leases mature as follows (in thousands):
Fiscal Year Ended December 31,Minimum Payments
2023$9,410 
202423,564 
202521,350 
202618,490 
202715,315 
Thereafter44,262 
Total lease payments132,391 
Less: interest(28,500)
Present value of lease liabilities$103,891 
During the nine months ended September 30, 2023, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow of $26.1 million related to increases in the operating lease right-of-use assets and operating lease liabilities. During the nine months ended September 30, 2022, the Company commenced new leases, extensions and amendments, resulting in non-cash operating activities in the unaudited condensed consolidated statements of cash flow of $13.6 million related to increases in the operating lease right-of-use assets and operating lease liabilities. As of September 30, 2023, 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, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Infusion pumps$37,027 $34,942 
Equipment, furniture and other35,955 31,929 
Leasehold improvements101,283 99,085 
Computer software, purchased and internally developed47,878 34,922 
Assets under development26,915 29,411 
249,058 230,289 
Less: accumulated depreciation(141,098)(121,968)
Property and equipment, net$107,960 $108,321 
Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income, depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Depreciation expense in cost of revenue$616 $1,205 $2,006 $3,696 
Depreciation expense in operating expenses6,365 6,778 18,665 21,337 
Total depreciation expense$6,981 $7,983 $20,671 $25,033 
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9. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill consist of the following activity for the three and nine months ended September 30, 2023 (in thousands):
Balance at December 31, 2022$1,533,424 
Purchase accounting adjustments145 
Balance at March 31, 2023$1,533,569 
Acquisitions6,998 
Balance at June 30, 2023$1,540,567 
Purchase accounting adjustments(321)
Balance at September 30, 2023$1,540,246 
The carrying amount and accumulated amortization of intangible assets consist of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Gross intangible assets:
Referral sources$514,388 $509,646 
Trademarks/names39,136 38,508 
Other amortizable intangible assets1,003 912 
Total gross intangible assets554,527 549,066 
Accumulated amortization:
Referral sources(191,262)(167,902)
Trademarks/names(18,973)(16,901)
Other amortizable intangible assets(298)(148)
Total accumulated amortization(210,533)(184,951)
Total intangible assets, net$343,994 $364,115 
Amortization expense for intangible assets was $8.6 million and $25.6 million for the three and nine months ended September 30, 2023, respectively. Amortization expense for intangible assets was $8.4 million and $24.6 million for the three and nine months ended September 30, 2022, respectively.
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10. INDEBTEDNESS
Long-term debt consisted of the following as of September 30, 2023 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
Asset-based-lending (“ABL”) Facility$ $ $ $ 
First Lien Term Loan589,500 (7,313)(10,149)572,038 
Senior Notes500,000  (9,022)490,978 
$1,089,500 $(7,313)$(19,171)1,063,016 
Less: current portion(6,000)
Total long-term debt$1,057,016 
Long-term debt consisted of the following as of December 31, 2022 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
ABL Facility$ $ $ $ 
First Lien Term Loan594,000 (8,307)(11,529)574,164 
Senior Notes500,000  (9,960)490,040 
$1,094,000 $(8,307)$(21,489)1,064,204 
Less: current portion(6,000)
Total long-term debt$1,058,204 
Effective June 30, 2023, the Company entered into an agreement, dated as of June 8, 2023, to amend the First Lien Term Loan (the “First Lien Credit Agreement Amendment”) solely to replace London Interbank Offered Rate (“LIBOR”) and related definitions and provisions with Secured Overnight Financing Rate (“SOFR”) as the new reference rate. The Company elected an optional expedient allowed under ASC Topic 848 such that we will account for the modification as a continuation of the existing contract.
The interest rate on the First Lien Term Loan was 8.20% and 6.82% as of September 30, 2023 and December 31, 2022, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 8.11% and 7.71% for the three and nine months ended September 30, 2023, respectively. The weighted average interest rate incurred on the First Lien Term Loan was 4.94% and 3.90% for the three and nine months ended September 30, 2022, respectively. The interest rate on the Senior Notes was 4.375% as of September 30, 2023 and December 31, 2022. The weighted average interest rate incurred on the Senior Notes was 4.375% for the three and nine months ended September 30, 2023, respectively. The weighted average interest rate incurred on the Senior Notes was 4.375% for the three and nine months ended September 30, 2022, respectively.
Long-term debt matures as follows (in thousands):
Fiscal Year Ended December 31,Minimum Payments
2023$1,500 
20246,000 
20256,000 
20266,000 
20276,000 
Thereafter1,064,000 
Total$1,089,500 
During the three and nine months ended September 30, 2023 and 2022, 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 September 30, 2023 (in thousands):
Financial Instrument
Carrying Value as of September 30, 2023
Markets for Identical Item (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
First Lien Term Loan$572,037 $ $591,740 $ 
Senior Notes490,979  430,000  
Total debt instruments$1,063,016 $ $1,021,740 $ 
See Note 12, Fair Value Measurements, for further discussion.
Effective January 13, 2023, the Company entered into an agreement to amend the ABL Facility, to among other things, increase the amount of borrowing availability by $50.0 million to $225.0 million total borrowing availability and to replace LIBOR with SOFR as the new reference rate.
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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’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. As a result of the First Lien Credit Agreement Amendment, the Company elected an optional expedient allowed under ASC Topic 848 such that we will continue the hedging relationship for the interest rate cap hedge.
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 CaptionSeptember 30, 2023December 31, 2022
Interest rate cap designated as cash flow hedgePrepaid expenses and other current assets$5,927 $10,926 
Interest rate cap designated as cash flow hedgeOther noncurrent assets22,185 17,342 
Total derivative assets$28,112 $28,268 
The gain (loss) associated with the change in the fair value of the effective portion of the hedging instrument is recorded in other comprehensive income (loss). The following table presents the pre-tax gain (loss) from derivative instruments recognized in other comprehensive income (loss) in the Company’s unaudited condensed consolidated statements of comprehensive income (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
Derivative2023202220232022
Interest rate cap designated as cash flow hedge$45 $10,653 $(156)$30,879 
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 September 30,Nine Months Ended September 30,
DerivativeIncome Statement Caption2023202220232022
Interest rate cap designated as cash flow hedgeInterest expense, net$2,931 $(1,775)$8,002 $(591)

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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.
Money Market Funds: The fair value of the money market funds is derived from the closing price reported by the fund sponsor and classified as cash and cash equivalents on the Company’s condensed consolidated balance sheets (Level 1 inputs).
There were no other material assets or liabilities measured at fair value at September 30, 2023 and December 31, 2022.
13. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings and is subject to investigations, inspections, audits, inquiries, and similar actions by governmental authorities, arising in the normal course of the Company’s business. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. From time to time, the Company may also be involved in legal proceedings as a plaintiff involving antitrust, tax, contract, intellectual property, and other matters. Gain contingencies, if any, are recognized when they are realized.
The results of legal proceedings are often uncertain and difficult to predict, and the costs incurred in litigation can be substantial, regardless of the outcome. The Company believes that its defenses and assertions in pending legal proceedings have merit and does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s condensed consolidated balance sheets.
However, substantial unanticipated verdicts, fines, and rulings may occur. As a result, the Company may from time to time incur judgments, enter into settlements, or revise expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations in the period in which the amounts are accrued and/or its cash flows in the period in which the amounts are paid.

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14. STOCK-BASED INCENTIVE COMPENSATION
Equity Incentive Plans — Under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”), approved at the annual meeting by the BioScrip stockholders on May 3, 2018 and amended and restated on May 19, 2021, the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, stock grants, and performance units to key employees and directors, resulting in a total of 9,101,734 shares of common stock authorized for issuance. The 2018 Plan is administered by the Company’s Compensation Committee, a standing committee of the Company’s Board of Directors. The Company had stock options, restricted stock units and performance stock units outstanding related to the 2018 Plan as of September 30, 2023 and 2022. During the three and nine months ended September 30, 2023, total stock-based incentive compensation expense recognized by the Company related to the 2018 Plan was $9.2 million and $22.9 million, respectively. During the three and nine months ended September 30, 2022, total stock-based incentive compensation expense recognized by the Company related to the 2018 Plan was $4.0 million and $12.6 million, respectively.
15. STOCKHOLDERS’ EQUITY
2017 Warrants — During the three and nine months ended September 30, 2023, warrant holders elected to exercise 188,350 warrants to purchase shares of common stock. During the three months ended September 30, 2022, warrant holders did not elect to exercise any warrants to purchase shares of common stock. During the nine months ended September 30, 2022, warrant holders elected to exercise 1,130,089 warrants to purchase shares of common stock. As of September 30, 2023 and December 31, 2022, the remaining warrant holders are entitled to purchase 51,838 and 240,188 shares of common stock, respectively.
2015 Warrants — During the three and nine months ended September 30, 2023, warrant holders exercised an immaterial number of warrants to purchase shares of common stock. During the three and nine months ended September 30, 2022, warrant holders elected to exercise 31,968 and 900,272 warrants to purchase shares of common stock, respectively. As of September 30, 2023 and December 31, 2022, the remaining warrant holders are entitled to purchase 13,892 and 15,231 shares of common stock, respectively.
Share Repurchase Program — On February 20, 2023, the Company’s Board of Directors approved a share repurchase program of up to an aggregate $250.0 million of common stock of the Company. Under the share repurchase program, repurchases may occur in any number of methods depending on timing, market conditions, regulatory requirements, and other corporate considerations. The share repurchase program has no specified expiration date.
During the three and nine months ended September 30, 2023, the Company purchased 2,913,520 and 5,388,686 shares of common stock for an average share price of $34.32 and $32.48, totaling $100.0 million and $175.0 million, respectively. All repurchased shares became treasury stock. As of September 30, 2023, the Company is authorized to repurchase up to a remaining $75.0 million of common stock of the Company.
16. RELATED-PARTY TRANSACTIONS
Transactions with Equity-Method Investees — The Company provides management services to its joint ventures such as accounting, invoicing and collections in addition to day-to-day managerial support of the operations of the businesses. The Company recorded management fee income of $1.3 million and $3.9 million for the three and nine months ended September 30, 2023, respectively. The Company recorded management fee income of $1.1 million and $2.9 million for the three and nine months ended September 30, 2022, respectively. Management fees are recorded in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive income. During the three and nine months ended September 30, 2023, the Company received distributions from the investees of $1.5 million and $4.0 million, respectively. During the three and nine months ended September 30, 2022, the Company received distributions from the investees of $1.5 million and $2.5 million, respectively.
The Company had an amounts due from its joint ventures of $0.2 million and due to its joint ventures of $0.6 million as of September 30, 2023. Receivables were included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Payables were included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. The Company also had amounts due to its joint ventures of $1.5 million as of December 31, 2022. These payables were included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. These balances primarily relate to cash collections received by the Company on behalf of the joint ventures, offset by certain pharmaceutical inventories and other expenses paid for by the Company on behalf of the joint ventures.
Share Repurchase Agreement — On February 28, 2023, we entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with HC I, pursuant to which we agreed to repurchase, subject to the terms and conditions contained therein, up to $75.0 million of our common stock then held by HC I at the same purchase price per share as the underwriter in a concurrent underwritten public offering of our common stock held by HC I. On March 3, 2023, the transactions contemplated by the Share Repurchase Agreement closed, and we repurchased directly from HC I 2,475,166 shares of our common stock.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context requires otherwise, references in this report to "Option Care Health," the “Company,” “we,” “us” and “our” refer to Option Care Health, Inc. and its consolidated subsidiaries. Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operations and financial condition. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the related notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Form 10-Q”). Certain statements in this Item 2 of Part I of this Form 10-Q, and in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 (our “Form 10-K”), may cause our actual results, financial position, and cash and cash equivalents generated from operations to differ materially from these forward-looking statements.
Business Overview
Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 174 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.
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.
On March 14, 2019, HC I and HC II entered into the Merger Agreement to merge with and into a wholly-owned subsidiary of BioScrip, a national provider of infusion and home care management solutions, which was completed on August 6, 2019. Following the close of the transaction, BioScrip was rebranded as Option Care Health.
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Update on the Impact of the COVID-19 Pandemic
On May 11, 2023 the Department of Health and Human Services declared the COVID-19 pandemic is no longer a public health emergency. The Company anticipates that new variants could affect its operations for an extended period; however, at this time we cannot confidently forecast the duration or the ultimate financial impact on our operations.
See Item 1A. “Risk Factors” under the caption “The COVID-19 pandemic and other potential pandemic events could adversely impact our business, results of operations, cash flows and financial position” included in our Form 10-K for further discussion of risks.

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Composition of Results of Operations
The following results of operations include the accounts of Option Care Health and our subsidiaries for the three and nine months ended September 30, 2023 and 2022.
Gross Profit
Gross profit represents our net revenue less cost of revenue.
Net Revenue. Infusion and related health care services revenue is reported at the estimated net realizable amounts from third-party payers and patients for goods sold and services rendered. When pharmaceuticals are provided to a patient, revenue is recognized upon delivery of the goods. When nursing services are provided, revenue is recognized when the services are rendered.
Due to the nature of the health care industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payers may result in adjustments to amounts originally recorded.
Cost of Revenue. Cost of revenue consists of the actual cost of pharmaceuticals and other medical supplies dispensed to patients. In addition to product costs, cost of revenue includes warehousing costs, purchasing costs, depreciation expense relating to revenue-generating assets, such as infusion pumps, shipping and handling costs, and wages and related costs for the pharmacists, nurses, and all other employees and contracted workers directly involved in providing service to the patient.
The Company receives volume-based rebates and prompt payment discounts from some of its pharmaceutical and medical supplies vendors. These payments are recorded as a reduction of inventory and are accounted for as a reduction of cost of revenue when the related inventory is sold.
Operating Costs and Expenses
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist principally of salaries for administrative employees that directly and indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees.
Depreciation and Amortization Expense. Depreciation within this caption relates to fixed assets and amortization relates to intangibles. Depreciation of revenue-generating assets, such as infusion pumps, is included in cost of revenue.
Other Income (Expense)
Interest Expense, Net. Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the ABL Facility, First Lien Term Loan, Senior Notes, amortization of discount and deferred financing fees, payments associated with the interest rate cap, and interest income earned on cash and cash equivalents. Refer to the “Liquidity and Capital Resources” section below for further discussion of these outstanding borrowings.
Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures consists of our proportionate share of equity earnings or losses from equity investments in two infusion joint ventures with health systems.
Other, Net. Other income (expense) primarily includes activity related to non-operating income and expenses.
Income Tax Expense. The Company is subject to taxation in the United States and various states. The Company’s income tax expense is reflective of the current federal and state tax rates.
Change in Unrealized Gains (Losses) on Cash Flow Hedges, Net of Income Tax Benefit (Expense). Change in unrealized gains (losses) on cash flow hedges, net of income tax expense consists of the gains and losses 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.

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Results of Operations
The following table presents Option Care Health’s consolidated results of operations for the three and nine months ended September 30, 2023 and 2022 (in thousands, except for percentages):
Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Amount% of RevenueAmount% of RevenueAmount% of RevenueAmount% of Revenue
NET REVENUE$1,093,014 100.0 %$1,020,918 100.0 %$3,177,934 100.0 %$2,917,522 100.0 %
COST OF REVENUE838,748 76.7 %802,917 78.6 %2,443,834 76.9 %2,281,685 78.2 %
GROSS PROFIT254,266 23.3 %218,001 21.4 %734,100 23.1 %635,837 21.8 %
 
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses158,214 14.5 %142,015 13.9 %459,644 14.5 %417,771 14.3 %
Depreciation and amortization expense15,005 1.4 %15,268 1.5 %44,417 1.4 %46,027 1.6 %
Total operating expenses173,219 15.8 %157,283 15.4 %504,061 15.9 %463,798 15.9 %
OPERATING INCOME81,047 7.4 %60,718 5.9 %230,039 7.2 %172,039 5.9 %
 
OTHER INCOME (EXPENSE):
Interest expense, net(11,786)(1.1)%(13,997)(1.4)%(38,816)(1.2)%(39,008)(1.3)%
Equity in earnings of joint ventures1,273 0.1 %1,472 0.1 %4,107 0.1 %4,065 0.1 %
Other, net(449)— %3,888 0.4 %84,487 2.7 %3,891 0.1 %
Total other (expense) income(10,962)(1.0)%(8,637)(0.8)%49,778 1.6 %(31,052)(1.1)%
 
INCOME BEFORE INCOME TAXES70,085 6.4 %52,081 5.1 %279,817 8.8 %140,987 4.8 %
INCOME TAX EXPENSE13,783 1.3 %13,258 1.3 %69,904 2.2 %37,960 1.3 %
NET INCOME$56,302 5.2 %$38,823 3.8 %$209,913 6.6 %$103,027 3.5 %
 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gain (loss) on cash flow hedges, net of income tax benefit (expense) of $8, $(1,398), $57, and $(5,917), respectively53 — %9,255 0.9 %(99)— %24,962 0.9 %
OTHER COMPREHENSIVE INCOME (LOSS)53 — %9,255 0.9 %(99)— %24,962 0.9 %
NET COMPREHENSIVE INCOME $56,355 5.2 %$48,078 4.7 %$209,814 6.6 %$127,989 4.4 %

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Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the three months ended September 30, 2023 and 2022.
Gross Profit
 Three Months Ended September 30,
20232022Variance
(in thousands, except for percentages)
Net revenue$1,093,014 $1,020,918 $72,096 7.1 %
Cost of revenue838,748 802,917 35,831 4.5 %
Gross profit$254,266 $218,001 $36,265 16.6 %
Gross profit margin23.3 %21.4 %
The increase in net revenue was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had mid-single-digit growth relative to the prior year while chronic revenue grew in the high-single-digits. The increase in net revenue was partially offset by the divestiture of respiratory therapy assets as well as therapies related to the treatment of ALS and pre-term labor. The increase in cost of revenue and gross profit was primarily driven by the growth in revenue, which outpaced the increase in cost of revenue primarily due to our disciplined procurement strategies, certain temporary favorable therapy pricing dynamics, and efficient utilization of our infusion suite network.
Operating Expenses
 Three Months Ended September 30,
 20232022Variance
(in thousands, except for percentages)
Selling, general and administrative expenses$158,214 $142,015 $16,199 11.4 %
Depreciation and amortization expense15,005 15,268 (263)(1.7)%
Total operating expenses$173,219 $157,283 $15,936 10.1 %
The increase in selling, general and administrative expenses is primarily due to an increase in salaries, benefits and equity compensation.
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Other Income (Expense)
 Three Months Ended September 30,
 20232022Variance
(in thousands, except for percentages)
Interest expense, net$(11,786)$(13,997)$2,211 (15.8)%
Equity in earnings of joint ventures1,273 1,472 (199)(13.5)%
Other, net(449)3,888 (4,337)(111.5)%
Total other expense$(10,962)$(8,637)$(2,325)26.9 %
The decrease in interest expense, net during the three months ended September 30, 2023 was primarily attributable to an increase in interest income generated from our cash and cash equivalents, partially offset by increases in the First Lien Term Loan’s variable interest rate compared to three months ended September 30, 2022. See Note 10, Indebtedness, of the consolidated financial statements for further information.
The decrease in Other, net during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 is primarily related to one-time non-operating income during the three months ended September 30, 2022. There was no comparable activity during the three months ended September 30, 2023.
Income Tax Expense
 Three Months Ended September 30,
 20232022Variance
(in thousands, except for percentages)
Income tax expense$13,783 $13,258 $525 4.0 %
The Company recorded income tax expense of $13.8 million and $13.3 million for the three months ended September 30, 2023 and 2022, respectively. The tax expense for the three months ended September 30, 2023 and 2022 represents an effective tax rate of 19.7% and 25.5%, respectively. The variance in the Company’s effective tax rate of 19.7% for the three months ended September 30, 2023, compared to the federal statutory rate of 21%, 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 25.5% for the three months ended September 30, 2022, compared to the federal statutory rate of 21%, is primarily attributable to current and deferred state taxes as well as various non-deductible expenses.
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Net Income and Other Comprehensive Income
 Three Months Ended September 30,
 20232022Variance
(in thousands, except for percentages)
Net income$56,302 $38,823 $17,479 45.0 %
Other comprehensive income, net of tax:
Changes in unrealized gain on cash flow hedges, net of income taxes53 9,255 (9,202)(99.4)%
Other comprehensive income53 9,255 (9,202)(99.4)%
Net comprehensive income$56,355 $48,078 $8,277 17.2 %
The change in net income was attributable to organic growth from additional revenue related to the factors described in the above sections.
For the three months ended September 30, 2023 and 2022, the change in unrealized gain on cash flow hedges, net of income taxes was related to the change in fair market value of the $300.0 million interest rate cap hedge executed in October 2021.
Net comprehensive income increased to $56.4 million for the three months ended September 30, 2023, compared to net comprehensive income of $48.1 million for the three months ended September 30, 2022, primarily as a result of the changes in net income discussed above and partially offset by the impact of the fair value of the interest rate cap hedge.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the nine months ended September 30, 2023 and 2022.
Gross Profit
 Nine Months Ended September 30,
 20232022Variance
(in thousands, except for percentages)
Net revenue$3,177,934 $2,917,522 $260,412 8.9 %
Cost of revenue2,443,834 2,281,685