10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2020
	OR
o	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

OPTION CARE HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware	05-0489664
(State of incorporation)	(I.R.S. Employer Identification No.)
3000 Lakeside Dr. Suite 300N, Bannockburn, IL	60015
(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 Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	OPCH	Nasdaq 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 þ     No o

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 þ No o

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 o     Accelerated filer þ     Non-accelerated filer o      Smaller reporting company o Emerging growth company o

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. o

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

On May 5, 2020, there were 176,712,333 shares of the registrant’s Common Stock outstanding.

TABLE OF CONTENTS

		Page Number
PART I
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 6.	Exhibits	29
SIGNATURES		29

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

3

OPTION CARE HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)

	(unaudited)
	March 31, 2020			December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	77,244		$	67,056
Accounts receivable, net	337,197			324,416
Inventories	139,128			115,876
Prepaid expenses and other current assets	47,703			51,306
Total current assets	601,272			558,654
NONCURRENT ASSETS:
Property and equipment, net	125,786			133,198
Operating lease right-of-use asset	58,669			63,502
Intangible assets, net	377,196			385,910
Goodwill	1,427,883			1,425,542
Other noncurrent assets	21,725			22,741
Total noncurrent assets	2,011,259			2,030,893
TOTAL ASSETS	$	2,612,531		$	2,589,547
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	265,703		$	221,060
Accrued compensation and employee benefits	52,416			45,765
Accrued expenses and other current liabilities	32,302			33,538
Current portion of operating lease liability	19,352			20,391
Current portion of long-term debt	9,250			9,250
Total current liabilities	379,023			330,004
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion	1,276,329			1,277,246
Operating lease liability, net of current portion	54,541			58,242
Deferred income taxes	2,443			2,143
Other noncurrent liabilities	29,702			15,085
Total noncurrent liabilities	1,363,015			1,352,716
Total liabilities	1,742,038			1,682,720
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of March 31, 2020 and December 31, 2019, respectively	—			—
Common stock; $0.0001 par value: 250,000,000 shares authorized, 177,088,028 shares issued and 176,704,306 shares outstanding as of March 31, 2020; 176,975,628 shares issued and 176,591,907 shares outstanding as of December 31, 2019	18			18
Treasury stock; 383,722 shares outstanding, at cost, as of March 31, 2020 and December 31, 2019, respectively	(2,403		)	(2,403		)
Paid-in capital	1,008,570			1,008,362
Accumulated deficit	(111,865		)	(91,955		)
Accumulated other comprehensive loss	(23,827		)	(7,195		)
Total stockholders’ equity	870,493			906,827
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,612,531		$	2,589,547

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

4

OPTION CARE HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	Three Months Ended   March 31,
	2020			2019
NET REVENUE	$	705,440		$	476,492
COST OF REVENUE	547,411			378,298
GROSS PROFIT	158,029			98,194
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	129,280			82,787
Depreciation and amortization expense	20,101			9,969
Total operating expenses	149,381			92,756
OPERATING INCOME	8,648			5,438
OTHER INCOME (EXPENSE):
Interest expense, net	(28,087		)	(11,045		)
Equity in earnings of joint ventures	562			549
Other, net	8			(76		)
Total other expense	(27,517		)	(10,572		)
LOSS BEFORE INCOME TAXES	(18,869		)	(5,134		)
INCOME TAX EXPENSE (BENEFIT)	1,041			(1,422		)
NET LOSS	$	(19,910	)	$	(3,712	)
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Change in unrealized losses on cash flow hedges, net of income tax benefit of $0, and $242, respectively	(16,632		)	(505		)
OTHER COMPREHENSIVE LOSS	(16,632		)	(505		)
NET COMPREHENSIVE LOSS	$	(36,542	)	$	(4,217	)
LOSS PER COMMON SHARE
Net loss per share, basic and diluted	$	(0.11	)	$	(0.03	)
Weighted average common shares outstanding, basic and diluted	176,661			142,614

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

5

OPTION CARE HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	Three Months Ended   March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(19,910	)	$	(3,712	)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization expense	21,844			10,749
Non-cash operating lease costs	4,764			4,231
Deferred income taxes - net	300			(2,082		)
Amortization of deferred financing costs	1,396			799
Equity in earnings of joint ventures	(562		)	(549		)
Stock-based incentive compensation expense	757			584
Other adjustments	(882		)	(535		)
Changes in operating assets and liabilities:
Accounts receivable, net	(12,781		)	266
Inventories	(23,252		)	(6,690		)
Prepaid expenses and other current assets	3,603			7,263
Accounts payable	42,302			(3,395		)
Accrued compensation and employee benefits	6,651			(1,139		)
Accrued expenses and other current liabilities	(1,650		)	7,217
Operating lease liabilities	(4,740		)	(3,765		)
Other noncurrent assets and liabilities	563			(162		)
Net cash provided by operating activities	18,403			9,080
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(5,353		)	(5,367		)
Other investing cash flows	—			636
Net cash used in investing activities	(5,353		)	(4,731		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions to related parties	—			(2,000		)
Exercise of stock options, vesting of restricted stock, and related tax withholdings	(549		)	—
Repayments of debt principal	(2,313		)	(1,038		)
Net cash used in financing activities	(2,862		)	(3,038		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	10,188			1,311
Cash and cash equivalents - beginning of the period	67,056			36,391
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	77,244		$	37,702
Supplemental disclosure of cash flow information:
Cash paid for interest	$	25,936		$	6,321
Cash paid for income taxes	$	307		$	180
Cash paid for operating leases	$	6,798		$	4,671

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

6

OPTION CARE HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS)

	Preferred Stock		Common Stock		Treasury Stock			Paid-in Capital			Management Notes Receivable			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity
Balance - December 31, 2018	$	—	$	14	$	—		$	619,621		$	(1,619	)	$	(16,035	)	$	844		$	602,825
Interest on management notes receivable	—		—		—			—			(21		)	—			—			(21		)
Stockholders' redemption	—		—		—			(2,000		)	—			—			—			(2,000		)
Stock-based incentive compensation	—		—		—			584			—			—			—			584
Net loss	—		—		—			—			—			(3,712		)	—			(3,712		)
Other comprehensive loss	—		—		—			—			—			—			(505		)	(505		)
Balance - March 31, 2019	$	—	$	14	$	—		$	618,205		$	(1,640	)	$	(19,747	)	$	339		$	597,171
Balance - December 31, 2019	$	—	$	18	$	(2,403	)	$	1,008,362		$	—		$	(91,955	)	$	(7,195	)	$	906,827
Exercise of stock options, vesting of restricted stock and related tax withholdings	—		—		—			(549		)	—			—			—			(549		)
Stock-based incentive compensation	—		—		—			757			—			—			—			757
Net loss	—		—		—			—			—			(19,910		)	—			(19,910		)
Other comprehensive loss	—		—		—			—			—			—			(16,632		)	(16,632		)
Balance - March 31, 2020	$	—	$	18	$	(2,403	)	$	1,008,570		$	—		$	(111,865	)	$	(23,827	)	$	870,493

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.

Under the terms of the Merger Agreement, shares of HC II common stock issued and outstanding immediately prior to the Merger Date were converted into 135,565,392 shares of BioScrip common stock, par value $0.0001 (the “BioScrip common stock”). BioScrip also issued an additional 7,048,357 shares to HC I in respect of certain outstanding unvested contingent restricted stock units of BioScrip, which are held in escrow to prevent dilution related to potential additional vesting on certain share-based instruments. See Note 16, Stockholders’ Equity, for additional discussion of these shares held in escrow. In conjunction with the Merger, holders of BioScrip preferred shares and certain warrants received 864,603 additional shares of BioScrip common stock and preferred shares were repurchased for $125.8 million of cash. In addition, all legacy BioScrip debt was settled for $575.0 million. As a result of the Merger, BioScrip’s stockholders hold approximately 19.3% of the combined company, and HC I holds approximately 80.7% of the combined company. 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 was listed on the Nasdaq Global Select Market as of March 31, 2020. See Note 3, Business Acquisitions, for further discussion on the Merger.

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 111 full service pharmacies. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings. The Company operates in one segment, infusion services.

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States and contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for interim financial reporting. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire year. These unaudited condensed consolidated financial statements do not include all of the information and notes to the financial statements required by GAAP for complete financial statements and should be read in conjunction with the 2019 audited consolidated financial statements, including the notes thereto, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2020.

Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. The BioScrip results have been included in the consolidated financial results since the Merger Date. 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 consolidated statements of comprehensive income (loss). See Note 10, Equity-Method Investments, for further discussion of the Company’s equity-method investments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 13% and 16% for the three months ended March 31, 2020 and 2019, respectively. In December 2019, the Company renewed and expanded its multi-year contract with this payer. The contract renewal was effective in February 2020 for a two-year term and auto-renews at the

8

end of that term. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.

For three months ended March 31, 2020 and 2019, approximately 12% and 13%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of March 31, 2020 and December 31, 2019, respectively, approximately 12% and 12%, 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.

For the three months ended March 31, 2020 and 2019, approximately 70% and 75%, 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 is uncertainty regarding the COVID-19 pandemic, as of March 31, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

Recently-Adopted Accounting Pronouncements — In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The Amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and is to be applied using a modified retrospective transition method. The Company adopted the standard as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

3. BUSINESS ACQUISITIONS

Merger with BioScrip, Inc. — As discussed in Note 1, Nature of Operations and Presentation of Financial Statements, Option Care merged with BioScrip on August 6, 2019. BioScrip was a national provider of infusion and home care management solutions. The Merger of Option Care and BioScrip into Option Care Health creates an expanded national platform and the opportunity to drive economies of scale through procurement savings, facility rationalization and other operating cost savings.

The fair value of purchase consideration transferred on the closing date includes the value of the number of shares of the combined company owned by BioScrip shareholders at closing of the Merger, the value of common shares issued to certain warrant and preferred shareholders in conjunction with the Merger, the fair value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger. The fair value per share of BioScrip’s common stock was $2.67 per share. This is the closing price of the BioScrip common stock on August 6, 2019.

Under the acquisition method of accounting, the calculation of total consideration exchanged is as follows (in thousands):

	Amount
Number of BioScrip common shares outstanding at time of the Merger (1)	129,181
Common shares issued to warrant and preferred stockholders at time of the Merger (1)	3,458
Total shares of BioScrip common stock outstanding at time of the Merger (1)	132,639
BioScrip share price as of August 6, 2019	$	2.67
Fair value of common shares	$	354,146
Fair value of share-based instruments	$	32,898
Cash paid in conjunction with the Merger included in purchase consideration	$	714,957
Fair value of total consideration transferred	$	1,102,001
Less: cash acquired	$	14,787
Fair value of total consideration acquired, net of cash acquired	$	1,087,214

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(1) These shares were not adjusted for the one share for four share reverse stock split effective on February 3, 2020. See Note 16, Stockholders’ Equity, for further discussion on the one share for four share reverse stock split.

Cash paid in conjunction with the Merger includes payments made for settlement of $575.0 million in legacy BioScrip debt, $125.8 million in existing BioScrip preferred shares, and $14.1 million in legacy BioScrip success-based fees owed to third-party advisors. HC II financed these payments primarily through cash on hand and debt financing.

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Merger is based on estimated fair values as of the Merger Date. The fair values were determined based upon a preliminary valuation and the estimates and assumptions used in the valuation of certain contingent liabilities are pending completion and subject to change, which could be significant, within the measurement period, up to one year from the August 6, 2019 acquisition date.

The following is a preliminary estimate of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, in the Merger as of August 6, 2019 (in thousands):

	Amount
Accounts receivable, net (1)	$	96,532
Inventories (2)	19,683
Property and equipment, net (3)	48,732
Intangible assets, net (4)	193,245
Deferred tax assets, net of deferred tax liabilities (5)	26,731
Operating lease right-of-use asset (6)	22,378
Operating lease liability (6)	(28,897		)
Accounts payable (7)	(66,371		)
Other assumed liabilities, net of other acquired assets (7)	(20,233		)
Total acquired identifiable assets and liabilities	291,800
Goodwill (8)	795,414
Total consideration transferred	$	1,087,214

(1) Management has valued accounts receivables based on the estimated future collectability of the receivables portfolio.

(2) Inventories are stated at fair value as of the Merger Date.

(3) The fair value of the property and equipment was determined based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison, and income capitalization approaches for each property appraised.

(4) The preliminary allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):

	Fair Value		Weighted Average Estimated Life (in years)
Trademarks/Names	$	12,536	2
Patient referral sources	180,329		20
Licenses	380		1.5
Total intangible assets, net	$	193,245	18.8

The Company preliminarily valued trademarks/names utilizing the relief of royalty method and patient referral sources utilizing the multi-period excess earnings method, a form of the income approach.

(5) Net deferred tax assets represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. See Note 5, Income Taxes, for additional discussion of the Company’s combined income tax position subsequent to the Merger.

(6) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was based on current market rates available to the Company.

(7) Accounts payable as well as certain other current and non-current assets and liabilities are stated at fair value as of the Merger Date.

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(8) The Merger preliminarily resulted in $795.4 million of goodwill, which is attributable to cost synergies resulting from procurement and operational efficiencies and elimination of duplicative administrative costs. The goodwill created in the Merger is not expected to be deductible for tax purposes.

Assuming BioScrip had been acquired as of January 1, 2018, and the results of BioScrip had been included in operations beginning on January 1, 2018, the estimated unaudited pro forma results of operations for the three months ended March 31, 2019 were net revenue of $655.4 million and a net loss of $22.0 million. The estimated pro forma net loss adjusts for the effect of fair value adjustments related to the Merger, transaction costs and other non-recurring costs directly attributable to the Merger and the impact of the additional debt to finance the Merger. Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or the future operating results.

4. REVENUE

The following table sets forth the net revenue earned by category of payer for the three months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020		2019
Commercial payers	$	605,994	$	401,663
Government payers	86,271		63,548
Patients	13,175		11,281
Net revenue	$	705,440	$	476,492

5. INCOME TAXES

During the three months ended March 31, 2020, the Company recorded tax expense of $1.0 million, which represents an effective tax rate of (5.5)%. During the three months ended March 31, 2019, the Company recorded a tax benefit of $1.4 million, which represents an effective tax rate of 27.7%.

The Company continues to maintain a full valuation allowance against all of its net U.S. federal and state deferred tax assets with the exception of $0.7 million of estimated state net operating losses (“NOL”). In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities, including the effect in available carryback and carryforward periods, projected taxable income and tax-planning strategies, in making this assessment. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.

Based on the Company’s full valuation allowance, as noted above, the Company’s tax expense for the three months ended March 31, 2020 of $1.0 million consists of quarterly tax liabilities attributable to specific state tax returns as well as recognized deferred tax expense.

The Company recorded no income tax expense or benefit for the three months ended March 31, 2020 associated with the tax provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

6. (LOSS) EARNINGS PER SHARE

The Company presents basic and diluted (loss) earnings per share for its common stock. Basic (loss) earnings per share is calculated by dividing the net (loss) income of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted (loss) 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 dilutive potential common shares.

As a result of the Merger, which has been accounted for as a reverse merger, all historical per share data and number of shares and equity awards were retroactively adjusted. The (loss) earnings is used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. Accordingly, the computation of diluted shares for the three months ended March 31, 2020 excludes the effect of shares that would be issued in connection with stock options and restricted stock awards, as their inclusion would be anti-dilutive to the loss per share. As of March 31, 2020 there were 2,328,120

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warrants, 531,747 stock options and 484,326 restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive. There are no dilutive potential common shares for the three months ended March 31, 2019.

The following table presents the Company’s basic and diluted (loss) earnings per share and shares outstanding (in thousands, except per share data):

	Three Months Ended March 31,
	2020			2019
Numerator:
Net loss	$	(19,910	)	$	(3,712	)
Denominator:
Weighted average number of common shares outstanding	176,661			142,614
Loss per Common Share:
Loss per common share, basic and diluted	$	(0.11	)	$	(0.03	)

7. LEASES

During the three months ended March 31, 2020 and 2019, the Company incurred operating lease expenses of $7.7 millionand $5.2 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss). As of March 31, 2020, the weighted-average remaining lease term was 5.3 years and the weighted-average discount rate was 5.47%.

Operating leases mature as follows (in thousands):

Fiscal Year Ending December 31,	Minimum Payments
2020	$	18,202
2021	19,201
2022	14,103
2023	10,767
2024	8,008
Thereafter	18,327
Total lease payments	$	88,608
Less: Interest	14,715
Present value of lease liabilities	$	73,893

During the three months ended March 31, 2020, the Company did not enter into any significant new operating or financing leases. As of March 31, 2020, the Company did not have any significant operating or financing leases that had not yet commenced.

8. PROPERTY AND EQUIPMENT

Property and equipment was as follows as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020		December 31, 2019
Infusion pumps	$	33,386	$	30,416
Equipment, furniture and other	50,988		51,454
Leasehold improvements	82,140		80,916
Computer software, purchased and internally developed	35,079		34,884
Assets under development	5,438		14,150
	207,031		211,820
Less: accumulated depreciation	81,245		78,622
Property and equipment, net	$	125,786	$	133,198

Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income (loss), depending on the nature of the underlying fixed assets. The

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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 months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020		2019
Depreciation expense in cost of revenue	$	1,742	$	780
Depreciation expense in operating expenses	11,319		5,073
Total depreciation expense	$	13,061	$	5,853

9. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill consists of the following activity for the three months ended March 31, 2020 (in thousands):

Balance at December 31, 2019	$	1,425,542
Purchase accounting adjustments	2,341
Balance at March 31, 2020	$	1,427,883

There was no change in the carrying amount of goodwill for the three months ended March 31, 2019.

The carrying amount and accumulated amortization of intangible assets consists of the following as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020			December 31, 2019
Gross intangible assets:
Referral sources	$	438,121		$	438,121
Trademarks/names	44,536			44,536
Other amortizable intangible assets	402			402
Total gross intangible assets	483,059			483,059
Accumulated amortization:
Referral sources	(90,846		)	(84,295		)
Trademarks/names	(14,845		)	(12,748		)
Other amortizable intangible assets	(172		)	(106		)
Total accumulated amortization	(105,863		)	(97,149		)
Total intangible assets, net	$	377,196		$	385,910

Amortization expense for intangible assets was $8.8 million and $4.9 million for the three months ended March 31, 2020 and 2019, respectively.

10. EQUITY-METHOD INVESTMENTS

The Company’s two equity-method investments totaled $17.0 million and $17.0 million as of March 31, 2020 and December 31, 2019, respectively, and are included in other noncurrent assets in the accompanying condensed consolidated balance sheets. The Company’s related proportionate share of earnings is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). For the three months ended March 31, 2020 and 2019, the Company’s proportionate share of earnings in its investments was $0.6 million and $0.5 million, respectively.

Legacy Health Systems — The Company’s 50% ownership interest in this limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Portland, Oregon market. In 2005, Option Care’s initial cash investment in this joint venture was $1.3 million. The Company received a capital distribution from this investment of $0.5 million for the three months ended March 31, 2020. The Company did not receive a capital distribution from this

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investment for the three months ended March 31, 2019. The following presents condensed financial information as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:
	Three Months Ended March 31,
	2020		2019
Net revenue	$	5,491	$	4,775
Cost of revenue	3,940		3,367
Gross profit	1,551		1,408
Net income	517		250
Equity in net income	258		125
Consolidated balance sheet data:
	As of
	March 31, 2020		December 31, 2019
Current assets	$	7,482	$	7,643
Noncurrent assets	3,615		3,846
Current liabilities	1,074		903
Noncurrent liabilities	579		659

Vanderbilt Health Services — The Company’s 50% ownership interest in this limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Nashville, Tennessee market. In 2009, Option Care contributed both cash and certain operating assets into the joint venture for a total initial investment of $1.1 million. The following presents condensed financial information as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:
	Three Months Ended March 31,
	2020		2019
Net revenue	$	10,508	$	9,238
Cost of revenue	8,640		7,049
Gross profit	1,868		2,189
Net income	608		847
Equity in net income	304		424
Consolidated balance sheet data:
	As of
	March 31, 2020		December 31, 2019
Current assets	12,086		11,111
Noncurrent assets	1,862		2,033
Current liabilities	1,528		1,228
Noncurrent liabilities	852		956

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11. INDEBTEDNESS

Long-term debt consisted of the following as of March 31, 2020 (in thousands):

	Principal Amount		Discount			Debt Issuance Costs			Net Balance
ABL facility	$	—	$	—		$	—		$	—
First lien term loan	922,688		(8,120		)	(22,069		)	892,499
Second lien notes	412,256		(11,455		)	(7,721		)	393,080
	$	1,334,944	$	(19,575	)	$	(29,790	)	1,285,579
Less: current portion									(9,250		)
Total long-term debt									$	1,276,329

Long-term debt consisted of the following as of December 31, 2019 (in thousands):

	Principal Amount		Discount			Debt Issuance Costs			Net Balance
ABL facility	$	—	$	—		$	—		$	—
First lien term loan	925,000		(8,399		)	(22,825		)	893,776
Second lien notes	412,256		(11,672		)	(7,864		)	392,720
	$	1,337,256	$	(20,071	)	$	(30,689	)	1,286,496
Less: current portion									(9,250		)
Total long-term debt									$	1,277,246

The interest rate on the first lien term loan was 5.49% and 6.20% as of March 31, 2020 and December 31, 2019, respectively. The weighted average interest rate incurred on the first lien term loan was 6.18% for the three months ended March 31, 2020. The weighted average interest rate incurred on the previous first lien term loan was 6.25% for the three months ended March 31, 2019. The interest rate on the second lien notes was 10.49% and 10.66% as of March 31, 2020 and December 31, 2019, respectively. The weighted average interest incurred on the second lien notes was 10.54% for the three months ended March 31, 2020. The weighted average interest incurred on the previous second lien term loan was 11.55% for the three months ended March 31, 2019.

Long-term debt matures as follows (in thousands):

Year Ending December 31,	Minimum Payments
2020	$	6,938
2021	9,250
2022	9,250
2023	9,250
2024	9,250
Thereafter	1,291,006
Total	1,334,944

During the three months ended March 31, 2020 and 2019, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 12, Derivative Instruments, for further discussion.

The following table presents the estimated fair values of the Company’s debt obligations as of March 31, 2020 (in thousands):

Financial Instrument	Carrying Value as of March 31, 2020		Markets for Identical Item (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
First lien term loan	$	892,499	$	—	$	775,058	$	—
Second lien notes	393,080		—		—		339,371
Total debt instruments	$	1,285,579	$	—	$	775,058	$	339,371

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The following table sets forth the changes in Level 3 measurements for the three months ended March 31, 2020 (in thousands):

	Level 3 Measurements
Second lien notes fair value as of January 1, 2020	$	411,119
Change in fair value	(71,748		)
Second lien notes fair value as of March 31, 2020	$	339,371

See Note 13, Fair Value Measurements, for further discussion.

12. 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.

During 2017, Option Care entered into interest rate caps that reduce the risk of increased interest payments due to interest rates rising. The hedges offset the risk of rising interest rates through 2020 on the first $250.0 million of the previous first lien term loan. The interest rate caps perfectly offset the terms of the interest rates associated with the variable interest rate previous first lien term loan. Option Care entered into the interest rate caps as a cash flow hedge for a notional amount of $1.9 million. In April 2019, Option Care terminated its interest rate caps.

In August 2019, the Company entered into interest rate swap agreements that reduce the variability in the interest rates on the newly-issued debt obligations. The first interest rate swap for $925.0 million notional was effective in August 2019 with $911.1 million designated as a cash flow hedge against the underlying interest rate on the first lien term loan interest payments indexed to one-month London Interbank Offered Rate (“LIBOR”) through August 2021. The second interest rate swap of $400.0 million notional was effective in November 2019 and is designated as a cash flow hedge against the underlying interest rate on the second lien notes interest payments indexed to three-month LIBOR through November 2020. In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges, the Company has determined that the hedges are perfectly effective. The remaining $13.9 million notional amount of the interest rate swap is not designated as a hedging instrument.

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 liability position
Derivative	Balance Sheet Caption	March 31, 2020		December 31, 2019
Interest rate swaps designated as cash flow hedges	Accrued expenses and other current liabilities	$	3,122	$	1,275
Interest rate swaps designated as cash flow hedges	Other non-current liabilities	20,705		5,920
Interest rate swaps not designated as hedges	Other non-current liabilities	315		90
Total derivatives		$	24,142	$	7,285

The gain and loss associated with the changes in the fair value of the effective portion of the hedging instrument are recorded into other comprehensive (loss) income. The gain and loss associated with the changes in the fair value of the $13.9 million notional amount not designated as a hedging instrument are recognized in net income (loss) through interest expense. The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s unaudited condensed consolidated statements of comprehensive income (loss) (in thousands):

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	Three Months Ended March 31,
Derivative	2020			2019
Interest rate caps designated as cash flow hedges	$	—		$	(747	)
Interest rate swaps designated as cash flow hedges	(16,632		)	—
	$	(16,632	)	$	(747	)

The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s unaudited condensed consolidated statement of comprehensive income (loss) related to the Company’s derivative instruments (in thousands):

		Three months ended March 31,
Derivative	Income Statement Caption	2020			2019
Interest rate caps designated as cash flow hedges	Interest expense	$	—		$	(183	)
Interest rate swaps designated as cash flow hedges	Interest expense	(799		)	—
Interest rate swaps not designated as hedges	Interest expense	(234		)	—
		$	(1,033	)	$	(183	)

The Company expects to reclassify $18.0 million of total interest rate costs from accumulated other comprehensive loss against interest expense during the next 12 months.

13. 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 ofdifferent 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 11, Indebtedness, for further discussion on the carrying amount and fair value of the first lien term loan.

Second lien notes: The fair value of the second lien notes is derived from a cash flow model that discounted the cash flows based on market interest rates (Level 3 inputs). See Note 11, Indebtedness, for further discussion on the carrying amount and fair value of the second lien notes.

Interest rate swaps: The fair values of interest rate swaps are 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 12, Derivative Instruments, for further discussion on the fair value of interest rate swaps.

There were no other assets or liabilities measured at fair value at March 31, 2020 and December 31, 2019.

14. 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

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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.

15. 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, 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. The 2018 plan is administered by the Company’s Compensation Committee, a standing committee of the Board of Directors. A total of 4,101,735 shares of common stock were initially authorized for issuance under the 2018 Plan. The Company had stock options and restricted stock outstanding related to the 2018 Plan as of March 31, 2020. As of March 31, 2020, the Company also had incentive units outstanding related to the HC I equity incentive plan, which was implemented in October 2015, for certain officers and employees of the Company. During the three months ended March 31, 2020 and 2019, total stock-based incentive compensation expense recognized by the Company related to these plans was $0.8 million and $0.6 million, respectively.

16. STOCKHOLDERS’ EQUITY

On January 3, 2020, the Company’s board of directors and HC I, the stockholder of a majority of the Company’s common stock, approved a reverse stock split of the Company’s issued and outstanding common stock on a one share for four share basis and appropriately amended the Company’s Third Amended and Restated Certificate of Incorporation to reflect the change. On February 3, 2020, the reverse stock split became effective. In connection with the reverse stock split, the Company changed its ticker symbol from “BIOS” to “OPCH” and transferred the Company’s common stock from the Nasdaq Capital Market to the Nasdaq Global Select Market. The par value of the Company’s common stock remained unchanged as a result of the reverse stock split, resulting in a decrease to the aggregate par value of common stock and corresponding increase to paid-in capital in the Company’s unaudited condensed consolidated financial statements, which was retrospectively applied to all periods presented in the unaudited condensed consolidated financial statements. All common shares, warrants and stock awards presented in the unaudited condensed consolidated financial statements have been retrospectively adjusted for the reverse stock split

2017 Warrants — During the three months ended March 31, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock. No warrants existed in 2019 prior to the Merger. As of March 31, 2020 and December 31, 2019, the remaining warrant holders are entitled to purchase 1.4 million shares of common stock, respectively.

2015 Warrants — During the three months ended March 31, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock. No warrants existed in 2019 prior to the Merger. As of March 31, 2020 and December 31, 2019, warrant holders are entitled to purchase 0.9 million shares of common stock, respectively.

Home Solutions Restricted Stock — In conjunction with BioScrip’s 2016 acquisition of Home Solutions, Inc., 1.8 million restricted shares of common stock were issued, of which 0.8 million of these units vest upon the closing price of the Company’s common stock averaging at or above $16.00 per share over 20 consecutive trading days prior to December 31, 2019 and 1.0 million of these units vest upon the closing price of the Company’s common stock averaging at or above $20.00 per share over 20 consecutive trading days prior to December 31, 2019. The restricted stock expired on December 31, 2019. As discussed in Note 1, Nature of Operations and Presentation of Financial Statements, 7,048,357 common shares issued to HC I in conjunction with the Merger are held in escrow to prevent dilution related to the vesting of the Home Solutions restricted stock. In the event the Home Solutions restricted stock expires unvested, the 7,048,357 common shares held in escrow will be returned to the Company and canceled. As of March 31, 2020, the Home Solutions restricted stock remained in escrow pending final resolution of this matter.

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17. 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 $0.7 million and $0.6 million for three months ended March 31, 2020 and 2019, respectively. Management fees are recorded in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

The Company had amounts due to its joint ventures of $2.9 million as of March 31, 2020. The Company also had amounts due to its joint ventures of $4.3 million as of December 31, 2019. 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 purchased by the Company on behalf of the joint ventures.

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Item 2. Management’s Discussion and Analysis of Financial Condition andResults 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. The following discussion and analysis of the financial condition and results of operations of Option Care Health, Inc. (“Option Care Health”, or the “Company”) should be read in conjunction with the audited consolidated financial statements and related notes, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2020, as well as the Company’s unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this report.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains statements not purely historical and which may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act’), including statements regarding our expectations, beliefs, future plans and strategies, anticipated events or trends concerning matters that are not historical facts or that necessarily depend upon future events. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions. Such forward-looking statements include, but are not limited to, the effect of the novel coronavirus (“COVID-19”) on our business, financial condition and results of operations. This Quarterly Report contains, among others, forward-looking statements based upon current expectations that involve numerous risks and uncertainties, including those described in Item 1A “Risk Factors”.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance, involve risks and uncertainties and that actual results may differ materially from those possible results discussed in the forward-looking statements as a result of various factors.

Do not place undue reliance on such forward-looking statements as they speak only as of the date they are made. Except as required by law, the Company assumes no obligation to publicly update or revise any forward-looking statement even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

Business Overview

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 155 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, dietitians and respiratory therapists, 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.

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”). 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. and the combined company’s stock, par value $0.0001, was listed on the Nasdaq Global Select Market as of March 31, 2020. See Note 3, Business Acquisitions, of the unaudited condensed consolidated financial statements for further discussion on the Merger.

Update on the Impact of the COVID-19 Pandemic

During the first quarter of 2020, the Company did not experience a material financial impact from the COVID-19 pandemic (the “pandemic”) on the financial results as reported.  However, as the primary operations of the Company focus on providing infusion therapy services and based on the recent impact of the pandemic across the healthcare ecosystem, the Company has experienced a related impact across a number of facets beginning in March 2020.   

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The Company relies upon patient referrals from multiple sources, including but not limited to patients discharged from acute care settings (e.g., hospitals) and patients requiring treatment for chronic conditions from specialty physicians.  With the onset of the pandemic, the Company has experienced variability in the referral trends of patients from acute care settings as hospitals have reduced their non-pandemic related census.  Similarly, the Company has also experienced variability in the referral trends of patients with chronic conditions, as patient visits to specialty physician practices has been reduced under general guidelines for non-essential social interactions.

The Company’s operations involve the compounding of therapeutic drugs in sterile cleanroom facilities by pharmacists and pharmacy technicians, the transportation of such drugs to the patients’ home or alternate infusion treatment site and the administration of the drug by a licensed healthcare professional.  Due to personal disruption experienced by employees of the Company, the ability to efficiently resource the compounding, delivery and administration of therapies has been negatively impacted given staffing challenges and availability.  This has resulted in higher wage costs in the form of overtime expenditures, migration of clinical resources to additional markets and utilization of contract labor resources.  In addition to direct labor investments, the Company has experienced similar impacts on the indirect support functions, as employees have generally migrated to a virtual, remote establishment.

In delivering infusion therapy, the Company’s clinical personnel regularly utilize personal protection equipment (“PPE”) and ancillary medical supplies as dictated by the Company’s clinical protocols.  Based on the increased demand for PPE over the past several weeks, the Company has experienced challenges in procuring necessary PPE to ensure the safety of its personnel and the patients served in the form of higher costs for PPE as well as increased effort and resources dedicated to procurement activities.  To date, the Company has maintained adequate levels of PPE to support its operations, albeit at higher procurement costs.

The Company continues to evaluate the impact of the pandemic on the merger-related integration activities currently under way and remains confident in the ability to eventually generate at least $60.0 million in net cost synergies.  Further, to date, the Company experienced no material deceleration in cash collections and collaboration with payers continues to be productive. However, given the dynamic situation, the Company is not in a position to assess the potential impact of the pandemic on the timing associated with realizing the cost synergies. The Company anticipates that the pandemic will affect its operations for an extended period; however, at this time cannot confidently forecast the duration nor the ultimate financial impact on its operations. See Item 1A. “Risk Factors” under the caption “The COVID-19 pandemic could adversely impact our business, results of operations, cash flows and financial position” for further discussion on risks.

Merger Integration Execution

The Merger of Option Care and BioScrip into Option Care Health has created an opportunity to realize cost synergies while continuing to drive organic growth in chronic and acute therapies through our expanded national platform. Option Care Health is well-positioned to leverage the investments in corporate infrastructure and drive economies of scale as a result of the Merger. The forecasted synergy categories are as follows:

• Selling, General and Administrative Expenses Savings. Merged corporate infrastructure has created significant opportunity for streamlining corporate and administrative costs, including headcount and functional spend.

• Network Optimization. The previous investments in technology and compounding pharmacies, along with the overlapping geographic footprint, allows for facility rationalization and the optimization of assets.

• Procurement Savings. The enhanced scale of the Company generates supply chain efficiencies through increased purchasing leverage. The Company’s platform is also positioned to be the partner of choice for pharmaceutical manufacturers seeking innovative distribution channels and patient support models to access the market.

We continue to make progress on the achievement synergies, which will enable the delivery of high-quality, cost-effective solutions to providers across the country and help facilitate the introduction of new therapies to the marketplace while improving the profitability profile of the Company. 

Since the Merger, we have worked to align our field and sales teams. We have also made strides at combining our procurement process and contracts, all while continuing to focus on serving our patients. Patient health is personal to us, which is why, throughout the integration process, we strive to improve and set the standard for quality care that is matched by best-in-class service. After completion of the Merger, we have additional resources to invest in our people, process and systems, providing us improved strength and scale to drive better patient outcomes.

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Acquisitions

Option Care merged with BioScrip on August 6, 2019. BioScrip was a national provider of infusion and home care management, who partnered with physicians, hospital systems, payers, pharmaceutical manufacturers and skilled nursing facilities to provide patients access to post-acute care services. The fair value of purchase consideration transferred, net of cash acquired, on the closing date of $1,087.2 million includes the value of the number of shares of the combined company to be owned by BioScrip shareholders at closing of the Merger, the value of common shares to be issued to certain warrant and preferred shareholders in conjunction with the Merger, the value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger. For additional information on this transaction, see Note 3, Business Acquisitions, of the unaudited condensed consolidated financial statements.

Composition of Results of Operations

The following results of operations include the accounts of Option Care Health and our subsidiaries for the three months ended March 31, 2020 and 2019. The BioScrip results have been included since the August 6, 2019 Merger Date.

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 includes infrastructure items such as computer hardware and software, office equipment and leasehold improvements. 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, the first lien term loan and second lien notes, as well as the amortization of discount and deferred financing fees. 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.

22

Other, Net. Other income (expense) primarily includes miscellaneous non-operating expenses and third-party fees paid in conjunction with debt issuances and debt extinguishments, as they occur.

Income Tax Expense (Benefit). The Company is subject to taxation in the United States and various states. The Company’s income tax (benefit) expense is reflective of the current federal and state tax rates.

Change in unrealized losses on cash flow hedges, net of income taxes. Change in unrealized (losses) gains on cash flow hedges, net of income taxes, consists of the gains and losses associated with the changes in the fair value of hedging instruments related to the interest rate caps and interest rate swaps, net of income taxes.

Results of Operations

The following table presents Option Care Health’s consolidated results of operations for the three months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020 (unaudited)					2019 (unaudited)
	Amount			% of Revenue		Amount			% of Revenue
NET REVENUE	$	705,440		100.0	%	$	476,492		100.0	%
COST OF REVENUE	547,411			77.6	%	378,298			79.4	%
GROSS PROFIT	158,029			22.4	%	98,194			20.6	%
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	129,280			18.3	%	82,787			17.4	%
Depreciation and amortization expense	20,101			2.8	%	9,969			2.1	%
Total operating expenses	149,381			21.2	%	92,756			19.5	%
OPERATING INCOME	8,648			1.2	%	5,438			1.1	%
OTHER INCOME (EXPENSE):
Interest expense, net	(28,087		)	(4.0	)%	(11,045		)	(2.3	)%
Equity in earnings of joint ventures	562			0.1	%	549			0.1	%
Other, net	8			—	%	(76		)	—	%
Total other expense	(27,517		)	(3.9	)%	(10,572		)	(2.2	)%
LOSS BEFORE INCOME TAXES	(18,869		)	(2.7	)%	(5,134		)	(1.1	)%
INCOME TAX EXPENSE (BENEFIT)	1,041			0.1	%	(1,422		)	(0.3	)%
NET LOSS	$	(19,910	)	(2.8	)%	$	(3,712	)	(0.8	)%
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Change in unrealized losses on cash flow hedges, net of income tax benefit of $0, and $242, respectively	(16,632		)	(2.4	)%	(505		)	(0.1	)%
OTHER COMPREHENSIVE LOSS	(16,632		)	(2.4	)%	(505		)	(0.1	)%
NET COMPREHENSIVE LOSS	$	(36,542	)	(5.2	)%	$	(4,217	)	(0.9	)%

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The following tables present selected consolidated comparative results of operations from Option Care Health’s unaudited condensed consolidated financial statements for the three month periods ended March 31, 2020 and March 31, 2019.

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Gross Profit

	Three Months Ended March 31,
	2020			2019
	(unaudited)			(unaudited)			Variance
	(in thousands, except for percentages)
Net revenue	$	705,440		$	476,492		$	228,948	48.0	%
Cost of revenue	547,411			378,298			169,113		44.7	%
Gross profit	$	158,029		$	98,194		$	59,835	60.9	%
Gross profit margin	22.4		%	20.6		%

The increase in net revenue was primarily driven by additional revenue following the Merger of $193.7 million as well as growth in the Company’s portfolio of therapies. The increase in cost of revenue was driven by the impact of the Merger and organic growth. The increase in gross profit was primarily related to contribution margin from additional revenue from the Merger. The increase in gross margin percentage was primarily driven by therapy mix shift.

Operating Expenses

	Three Months Ended March 31,
	2020		2019
	(unaudited)		(unaudited)		Variance
	(in thousands, except for percentages)
Selling, general and administrative expenses	$	129,280	$	82,787	$	46,493	56.2	%
Depreciation and amortization expense	20,101		9,969		10,132		101.6	%
Total operating expenses	$	149,381	$	92,756	$	56,625	61.0	%

Operating expenses increased for the three months ended March 31, 2020 due to the impact of the Merger.

The increase in depreciation and amortization was primarily related to the depreciation of the fixed assets acquired and the amortization of the intangibles acquired from the Merger of $3.9 million and $3.9 million, respectively.

Other Income (Expense)

	Three Months Ended March 31,
	2020			2019
	(unaudited)			(unaudited)			Variance
	(in thousands, except for percentages)
Interest expense, net	$	(28,087	)	$	(11,045	)	$	(17,042	)	154.3	%
Equity in earnings of joint ventures	562			549			13			2.4	%
Other, net	8			(76		)	84			(110.5	)%
Total other expense	$	(27,517	)	$	(10,572	)	$	(16,945	)	160.3	%

The increase in interest expense was primarily attributable to the interest expense on the new debt issued in conjunction with the Merger. The balance of debt increased from $539.1 million at March 31, 2019 to $1,285.6 million at March 31, 2020. See Note 11, Indebtedness, of the unaudited condensed consolidated financial statements.

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Income Tax Expense (Benefit)

	Three Months Ended March 31,
	2020		2019
	(unaudited)		(unaudited)			Variance
	(in thousands, except for percentages)
Income tax expense (benefit)	$	1,041	$	(1,422	)	$	2,463	(173.2	)%

The Company continues to maintain a full valuation allowance, established at the time of Merger, against all of its net U.S. federal and state deferred tax assets with the exception of approximately $0.7 million of estimated state net operating losses (“NOL”). Because of the Company’s full valuation allowance, the Company’s tax expense for the three months ended March 31, 2020 only consists of quarterly tax liabilities attributable to separate company state tax returns as well as recognized deferred tax expense. These tax expense items created a negative quarterly effective tax rate of 5.5% during the three months ended March 31, 2020. During the three months ended March 31, 2019, the effective tax rate was 27.7%. The variance in the year-over-year effective tax rates is primarily attributable to the valuation allowance established by the Company at the time of the Merger. The quarterly tax rates of both periods differ from the Company’s 21% federal statutory rate primarily due to changes in valuation allowance, certain state and local taxes, non-deductible costs and resolution of certain tax matters.

Net (Loss) Income and Other Comprehensive (Loss) Income

	Three Months Ended March 31,
	2020			2019
	(unaudited)			(unaudited)			Variance
	(in thousands, except for percentages)
Net loss	$	(19,910	)	$	(3,712	)	$	(16,198	)	436.4	%
Other comprehensive loss, net of tax:
Changes in unrealized losses on cash flow hedges, net of income taxes	(16,632		)	(505		)	(16,127		)	3,193.5	%
Other comprehensive loss	(16,632		)	(505		)	(16,127		)	3,193.5	%
Net comprehensive loss	$	(36,542	)	$	(4,217	)	$	(32,325	)	766.5	%

The change in net loss was primarily related to the increased interest expense on the increased indebtedness.

The changes in unrealized losses on cash flow hedges, net of income taxes, related to the decrease in the variable interest rates during the first quarter of 2020 and projected as of March 31, 2020 resulted in a corresponding liability on the fair value of the interest rate swaps on $1,311.1 million of debt principal. The change in unrealized loss for the three months ended March 31, 2019 related to fluctuations on interest rate caps on $250.0 million of the previous first lien term loan.

Net comprehensive loss was $36.5 million for the three months ended March 31, 2020, compared to net comprehensive loss of $4.2 million for the three months ended March 31, 2019, as a result of the changes in net loss, discussed above, further reduced by the impact of the fair value of the interest rate swaps.

Liquidity and Capital Resources

For the three months ended March 31, 2020 and the twelve months ended December 31, 2019, the Company’s primary sources of liquidity were cash on hand of $77.2 million and $67.1 million, respectively, as well as the $140.4 million of borrowings available under its credit facilities. During the three months ended March 31, 2020 and the year ended December 31, 2019, the Company’s positive cash flows from operations have enabled investments in pharmacy and information technology infrastructure to support growth and create additional capacity in the future, as well as pursue acquisitions.

The Company’s primary uses of cash include supporting our ongoing business activities and investment in various acquisitions and our infrastructure to support additional business volumes. Ongoing operating cash outflows are associated with procuring and dispensing prescription drugs, personnel and other costs associated with servicing patients, as well as paying cash interest on the outstanding debt. Ongoing investing cash flows are primarily associated with capital projects related to business acquisitions, the improvement and maintenance of our pharmacy facilities and investment in our information technology systems. Ongoing financing cash flows are primarily associated with the quarterly principal payments on our outstanding debt.

Our business strategy includes the selective acquisition of additional infusion pharmacies and other related healthcare businesses. We continue to evaluate acquisition opportunities and view acquisitions as a key part of our growth strategy. The Company historically has funded its acquisitions with cash with the exception of the Merger. The Company may require additional capital in excess of current availability in order to complete future acquisitions. It is impossible to predict the amount of capital that may be required for acquisitions, and there is no assurance that sufficient financing for these activities will be available on acceptable terms.

25

Short-Term and Long-Term Liquidity Requirements

The Company’s ability to make principal and interest payments on any borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based on our current level of operations and planned capital expenditures, we believe that our existing cash balances and expected cash flows generated from operations will be sufficient to meet our operating requirements for at least the next 12 months. We may require additional borrowings under our credit facilities and alternative forms of financings or investments to achieve our longer-term strategic plans.

Credit Facilities

The Company’s asset-based-lending (“ABL”) revolving credit facility provides for borrowings up to $150.0 million, which matures on August 6, 2024. The ABL facility bears interest at a per annum rate that is determined by the Company’s periodic selection of rate type, either the Base Rate or the Eurocurrency Rate. The Base Rate is charged between 1.25% and 1.75% and the Eurocurrency Rate is charged between 2.25% and 2.75% based on the historical excess availability as a percentage of the Line Cap, as defined in the ABL facility credit agreement. The revolving credit facility contains commitment fees payable on the unused portion of the ABL facility ranging from 0.25% to 0.375%, depending on various factors including the Company’s leverage ratio, type of loan and rate type, and letter of credit fees of 2.5%. The Company had no outstanding borrowings under the ABL facility at March 31, 2020. The Company had $9.6 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL facility of $140.4 million as of March 31, 2020.

The principal balance of the first lien term loan is repayable in quarterly installments of $2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026. The quarterly principal payments commenced in March of 2020. Interest on the first lien term loan is payable monthly on Base Rate loans at Base Rate, as defined, plus 3.25% to 3.50%, depending on the Company’s leverage ratio. Interest is charged on Eurocurrency Rate loans at the Eurocurrency Rate, as defined, plus 4.25% to 4.50%, depending on the Company’s leverage ratio. The interest rate on the first lien term loan was 5.49% as of March 31, 2020.

The second lien notes mature on August 6, 2027. Interest on the second lien notes is payable quarterly and is at the greater of 1% or London Interbank Offered Rate (“LIBOR”), plus 8.75%. The Company elected to pay-in-kind the first quarterly interest payment, due in November 2019, which resulted in the Company capitalizing the interest payment to the principal balance on the interest payment date, increasing the outstanding principal balance to $412.3 million. The Company paid the second quarterly interest payment, due in February 2020; the interest rate on the second lien notes was 10.49% as of March 31, 2020.

Cash Flows

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The following table presents selected data from Option Care Health’s unaudited condensed consolidated statements of cash flows:

	Three Months Ended March 31,
	2020			2019
	(unaudited)			(unaudited)			Variance
	(in thousands)
Net cash provided by operating activities	$	18,403		$	9,080		$	9,323
Net cash used in investing activities	(5,353		)	(4,731		)	(622		)
Net cash used in financing activities	(2,862		)	(3,038		)	176
Net increase in cash and cash equivalents	10,188			1,311			8,877
Cash and cash equivalents - beginning of period	67,056			36,391			30,665
Cash and cash equivalents - end of period	$	77,244		$	37,702		$	39,542

Cash Flows from Operating Activities

The increase in cash flows provided by operating activities is due to working capital efficiencies and timing of vendor payments during the three months ended March 31, 2020.

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Cash Flows from Investing Activities

The increase in cash flows used in investing activities is due to increased fixed asset additions during the three months ended March 31, 2020 as we invested more into our pharmacies and infrastructure.

Cash Flows from Financing Activities

The decrease in cash flows used in financing activities is due to a $2.0 million redemption to related party during the three months ended March 31, 2019. This was offset by an increased principal repayment on the new debt and net payments for taxes on cashless exercises of options and vesting of restricted stock awards during the three months ended March 31, 2020.

Commitments and Contractual Obligations

There were no material changes to our commitments under contractual obligations, as disclosed in our latest Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of March 31, 2020, Option Care Health did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

The Company prepares its unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”), which requires the Company to make estimates and assumptions. The Company evaluates its estimates and judgments on an ongoing basis. Estimates and judgments are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period presented. The Company’s actual results may differ from these estimates, and different assumptions or conditions may yield different estimates.

There have been no significant changes in the critical accounting estimates from those described in the Company’s audited consolidated financial statements and related notes, as presented in our Annual report on 10-K for the year ended December 31, 2019, hereby incorporated by reference.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our exposure to market risk from those included in our Annual Report on Form 10-K for the year ended December 31, 2019, hereby incorporated by reference.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2020. Based on that evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.

Changes in Internal Controls over Financial Reporting

The Merger, which was completed on August 6, 2019, has had a material impact on the financial position, results of operations, and cash flows of the combined company from the date of acquisition through March 31, 2020. The business combination also resulted in material changes in the combined company's internal controls over financial reporting. The Company is in the process of designing and integrating policies, processes, operations, technology, and other components of internal controls over financial reporting of the combined company. Management will monitor the implementation of new controls and test the operating effectiveness when instances are available in future periods.

27

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

For a summary of legal proceedings, refer to Note 14, Commitments and Contingencies, of the unaudited condensed consolidated financial statements included in Item 1 of this report.

Item 1A. Risk Factors

The risk factors disclosed in “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019 are hereby incorporated by reference.

In addition to these risk factors, you should carefully consider the risk factor below:

The recent COVID-19 pandemic could adversely impact our business operations, results of operations, cash flows and financial position

In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The World Health Organization has declared COVID-19 a pandemic and public health emergency of international concern. In March 2020, the President of the United States declared a State of National Emergency due to the COVID-19 outbreak. Other countries affected by the outbreak took similar measures. Consequently, the COVID-19 pandemic has had a material impact on the U.S. and global economies.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our patients, teammates, suppliers, vendors, referral sources, and third party payers. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which may adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position.

While we cannot predict the impact that COVID-19 will have on our patients, suppliers, vendors, and third party payers and each of their financial conditions, we believe the following factors could lead to a material adverse impact on the Company’s business:

• Variability in acute therapy patient referrals from hospitals based on changes in hospital-based procedures and treatment patterns;

• Variability in chronic therapy patient referrals based on disruptions in the diagnosis of chronic conditions requiring infusion therapy;

• Inefficiencies in clinical labor expenses and higher labor costs from staffing disruptions and availability, potential overtime due to inefficient clinical staffing and utilization of contract labor;

• Higher costs to procure, and potential unavailability of, critical personal protection equipment, pharmaceuticals and medical supplies given a constrained supply environment; and

• Heightened operational risks from an extended period of remote work arrangements, which could strain our business continuity plans, including but not limited to cybersecurity risks, and could impair our ability to manage our business.

The situation is changing rapidly and additional consequences may arise that we are not aware of currently. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the severity and duration of the outbreak; governmental, business and other actions; the promotion of social distancing and the adoption of shelter-in-place orders affecting our referral sources; the impacts on our supply chain; the impact of the pandemic on economic activity; the health of and the effect on our workforce; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our teammates. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, or impacts our credit ratings or stock price, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.

28

In addition, we cannot predict the impact that COVID-19 will have on our patients, suppliers, vendors, and third party payers, and each of their financial conditions; however, any material effect on these parties could adversely impact us. The impact of COVID-19 may also exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

Item 6. Exhibits

(a) Exhibits.

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

OPTION CARE HEALTH, INC.
Date: May 7, 2020	/s/  Michael Shapiro
Michael Shapiro
Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

29

EX-31.1

EXHIBIT 31.1 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Rademacher, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Option Care Health, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2020

/s/ John Rademacher

John Rademacher

President, Chief Executive Officer and Principal Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Shapiro, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Option Care Health, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2020

/s/ Michael Shapiro

Michael Shapiro

Chief Financial Officer and Principal Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Option Care Health, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Rademacher, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2020

/s/ John Rademacher

John Rademacher

President, Chief Executive Officer and Principal Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Option Care Health, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Shapiro, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2020

/s/ Michael Shapiro

Michael Shapiro

Chief Financial Officer and Principal Financial Officer

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GOODWILL AND OTHER INTANGIBLE ASSETS - Carrying Amount and Accumulated Amortization of Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]
Total gross intangible assets	$ 483,059		$ 483,059
Total accumulated amortization	(105,863)		(97,149)
Total intangible assets, net	377,196		385,910
Amortization expense for intangible assets	8,800	$ 4,900
Referral sources
Finite-Lived Intangible Assets [Line Items]
Total gross intangible assets	438,121		438,121
Total accumulated amortization	(90,846)		(84,295)
Trademarks/names
Finite-Lived Intangible Assets [Line Items]
Total gross intangible assets	44,536		44,536
Total accumulated amortization	(14,845)		(12,748)
Other amortizable intangible assets
Finite-Lived Intangible Assets [Line Items]
Total gross intangible assets	402		402
Total accumulated amortization	$ (172)		$ (106)

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LEASES - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Leases [Abstract]
Operating lease cost	$ 7.7	$ 5.2
Weighted-average remaining lease term, operating leases	5 years 3 months 19 days
Weighted-average discount rate, operating leases	5.47%

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BUSINESS ACQUISITIONS - Pro Forma Financial Information (Details) - BioScrip $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Business Acquisition [Line Items]
Net revenue	$ 655.4
Net loss	$ 22.0

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
CURRENT ASSETS:
Cash and cash equivalents	$ 77,244	$ 67,056
Accounts receivable, net	337,197	324,416
Inventories	139,128	115,876
Prepaid expenses and other current assets	47,703	51,306
Total current assets	601,272	558,654
NONCURRENT ASSETS:
Property and equipment, net	125,786	133,198
Operating lease right-of-use asset	58,669	63,502
Intangible assets, net	377,196	385,910
Goodwill	1,427,883	1,425,542
Other noncurrent assets	21,725	22,741
Total noncurrent assets	2,011,259	2,030,893
TOTAL ASSETS	2,612,531	2,589,547
CURRENT LIABILITIES:
Accounts payable	265,703	221,060
Accrued compensation and employee benefits	52,416	45,765
Accrued expenses and other current liabilities	32,302	33,538
Current portion of operating lease liability	19,352	20,391
Current portion of long-term debt	9,250	9,250
Total current liabilities	379,023	330,004
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion	1,276,329	1,277,246
Operating lease liability, net of current portion	54,541	58,242
Deferred income taxes	2,443	2,143
Other noncurrent liabilities	29,702	15,085
Total noncurrent liabilities	1,363,015	1,352,716
Total liabilities	1,742,038	1,682,720
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of March 31, 2020 and December 31, 2019, respectively	0	0
Common stock; $0.0001 par value: 250,000,000 shares authorized, 177,088,028 shares issued and 176,704,306 shares outstanding as of March 31, 2020; 176,975,628 shares issued and 176,591,907 shares outstanding as of December 31, 2019	18	18
Treasury stock; 383,722 shares outstanding, at cost, as of March 31, 2020 and December 31, 2019, respectively	(2,403)	(2,403)
Paid-in capital	1,008,570	1,008,362
Accumulated deficit	(111,865)	(91,955)
Accumulated other comprehensive loss	(23,827)	(7,195)
Total stockholders’ equity	870,493	906,827
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 2,612,531	$ 2,589,547

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FAIR VALUE MEASURMENTS

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

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 ofdifferent 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 11, Indebtedness, for further discussion on the carrying amount and fair value of the first lien term loan.

Second lien notes: The fair value of the second lien notes is derived from a cash flow model that discounted the cash flows based on market interest rates (Level 3 inputs). See Note 11, Indebtedness, for further discussion on the carrying amount and fair value of the second lien notes.

Interest rate swaps: The fair values of interest rate swaps are 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 12, Derivative Instruments, for further discussion on the fair value of interest rate swaps.

There were no other assets or liabilities measured at fair value at March 31, 2020 and December 31, 2019.

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RELATED-PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

Related-Party Transactions

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 $0.7 million and $0.6 million for three months ended March 31, 2020 and 2019, respectively. Management fees are recorded in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

The Company had amounts due to its joint ventures of $2.9 million as of March 31, 2020. The Company also had amounts due to its joint ventures of $4.3 million as of December 31, 2019. 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 purchased by the Company on behalf of the joint ventures.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (19,910)	$ (3,712)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization expense	21,844	10,749
Non-cash operating lease costs	4,764	4,231
Deferred income taxes - net	300	(2,082)
Amortization of deferred financing costs	1,396	799
Equity in earnings of joint ventures	(562)	(549)
Stock-based incentive compensation expense	757	584
Other adjustments	(882)	(535)
Changes in operating assets and liabilities:
Accounts receivable, net	(12,781)	266
Inventories	(23,252)	(6,690)
Prepaid expenses and other current assets	3,603	7,263
Accounts payable	42,302	(3,395)
Accrued compensation and employee benefits	6,651	(1,139)
Accrued expenses and other current liabilities	(1,650)	7,217
Operating lease liabilities	(4,740)	(3,765)
Other noncurrent assets and liabilities	563	(162)
Net cash provided by operating activities	18,403	9,080
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(5,353)	(5,367)
Other investing cash flows	0	636
Net cash used in investing activities	(5,353)	(4,731)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions to related parties	0	(2,000)
Exercise of stock options, vesting of restricted stock, and related tax withholdings	(549)	0
Repayments of debt principal	(2,313)	(1,038)
Net cash used in financing activities	(2,862)	(3,038)
NET INCREASE IN CASH AND CASH EQUIVALENTS	10,188	1,311
Cash and cash equivalents - beginning of the period	67,056	36,391
CASH AND CASH EQUIVALENTS - END OF PERIOD	77,244	37,702
Supplemental disclosure of cash flow information:
Cash paid for interest	25,936	6,321
Cash paid for income taxes	307	180
Cash paid for operating leases	$ 6,798	$ 4,671

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(LOSS) EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Loss Per Share

The following table presents the Company’s basic and diluted (loss) earnings per share and shares outstanding (in thousands, except per share data):

	Three Months Ended March 31,
	2020			2019
Numerator:
Net loss	$	(19,910	)	$	(3,712	)
Denominator:
Weighted average number of common shares outstanding	176,661			142,614
Loss per Common Share:
Loss per common share, basic and diluted	$	(0.11	)	$	(0.03	)

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BUSINESS ACQUISITIONS - Acquired Identifiable Assets and Assumed Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Aug. 06, 2019
Business Acquisition [Line Items]
Goodwill	$ 1,427,883	$ 1,425,542
BioScrip
Business Acquisition [Line Items]
Accounts receivable, net			$ 96,532
Inventories			19,683
Property and equipment, net			48,732
Intangible assets, net			193,245
Deferred tax assets, net of deferred tax liabilities			26,731
Operating lease right-of-use asset			22,378
Operating lease liability			(28,897)
Accounts payable			(66,371)
Other assumed liabilities, net of other acquired assets			(20,233)
Total acquired identifiable assets and liabilities			291,800
Goodwill			795,414
Total consideration transferred			$ 1,087,214

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NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS (Details) $ / shares in Units, $ in Thousands	Aug. 06, 2019 USD ($) $ / shares shares	Mar. 31, 2020 USD ($) pharmacy $ / shares	Dec. 31, 2019 USD ($) $ / shares
Business Acquisition [Line Items]
Common stock, par value (in dollars per share) | $ / shares		$ 0.0001	$ 0.0001
Principal amount of debt | $		$ 1,285,579	$ 1,286,496
OptionCare Enterprises, Inc.
Business Acquisition [Line Items]
Shares converted in merger (in shares) | shares	135,565,392
Common stock, par value (in dollars per share) | $ / shares	$ 0.0001
Additional shares issued (in shares) | shares	7,048,357
Ownership retained by shareholders after merger	19.30%
Number of service locations | pharmacy		111
Preferred Stock and Certain Warrants | OptionCare Enterprises, Inc.
Business Acquisition [Line Items]
Shares repurchased | $	$ 125,800
Preferred Stock and Certain Warrants | Common Stock | OptionCare Enterprises, Inc.
Business Acquisition [Line Items]
Additional shares issued (in shares) | shares	864,603
HC Group Holdings I, LLC | OptionCare Enterprises, Inc.
Business Acquisition [Line Items]
Percentage of the combined company held	80.70%
Senior Notes | First Lien Term Loan
Business Acquisition [Line Items]
Principal amount of debt | $	$ 575,000
Legacy Health Systems
Business Acquisition [Line Items]
Ownership interest		50.00%	50.00%

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of the Carrying Amount of Goodwill

Changes in the carrying amount of goodwill consists of the following activity for the three months ended March 31, 2020 (in thousands):

Balance at December 31, 2019	$	1,425,542
Purchase accounting adjustments	2,341
Balance at March 31, 2020	$	1,427,883

Schedule of Carrying Amount and Accumulated Amortization of Intangible Assets

The carrying amount and accumulated amortization of intangible assets consists of the following as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020			December 31, 2019
Gross intangible assets:
Referral sources	$	438,121		$	438,121
Trademarks/names	44,536			44,536
Other amortizable intangible assets	402			402
Total gross intangible assets	483,059			483,059
Accumulated amortization:
Referral sources	(90,846		)	(84,295		)
Trademarks/names	(14,845		)	(12,748		)
Other amortizable intangible assets	(172		)	(106		)
Total accumulated amortization	(105,863		)	(97,149		)
Total intangible assets, net	$	377,196		$	385,910

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INCOME TAXES

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

During the three months ended March 31, 2020, the Company recorded tax expense of $1.0 million, which represents an effective tax rate of (5.5)%. During the three months ended March 31, 2019, the Company recorded a tax benefit of $1.4 million, which represents an effective tax rate of 27.7%.

The Company continues to maintain a full valuation allowance against all of its net U.S. federal and state deferred tax assets with the exception of $0.7 million of estimated state net operating losses (“NOL”). In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities, including the effect in available carryback and carryforward periods, projected taxable income and tax-planning strategies, in making this assessment. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.

Based on the Company’s full valuation allowance, as noted above, the Company’s tax expense for the three months ended March 31, 2020 of $1.0 million consists of quarterly tax liabilities attributable to specific state tax returns as well as recognized deferred tax expense.

The Company recorded no income tax expense or benefit for the three months ended March 31, 2020 associated with the tax provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

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GOODWILL AND OTHER INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill consists of the following activity for the three months ended March 31, 2020 (in thousands):

Balance at December 31, 2019	$	1,425,542
Purchase accounting adjustments	2,341
Balance at March 31, 2020	$	1,427,883

There was no change in the carrying amount of goodwill for the three months ended March 31, 2019.

The carrying amount and accumulated amortization of intangible assets consists of the following as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020			December 31, 2019
Gross intangible assets:
Referral sources	$	438,121		$	438,121
Trademarks/names	44,536			44,536
Other amortizable intangible assets	402			402
Total gross intangible assets	483,059			483,059
Accumulated amortization:
Referral sources	(90,846		)	(84,295		)
Trademarks/names	(14,845		)	(12,748		)
Other amortizable intangible assets	(172		)	(106		)
Total accumulated amortization	(105,863		)	(97,149		)
Total intangible assets, net	$	377,196		$	385,910

Amortization expense for intangible assets was $8.8 million and $4.9 million for the three months ended March 31, 2020 and 2019, respectively.

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EQUITY-METHOD INVESTMENTS - Additional Information (Details)	3 Months Ended
	Mar. 31, 2020 USD ($) investment	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2009 USD ($)	Dec. 31, 2005 USD ($)
Schedule of Equity Method Investments [Line Items]
Number of equity method investments | investment	2
Investments in equity-method investees	$ 17,000,000		$ 17,000,000
Proportionate share of earnings in equity-method investees	562,000	$ 549,000
Legacy Health Systems
Schedule of Equity Method Investments [Line Items]
Proportionate share of earnings in equity-method investees	$ 258,000	125,000
Ownership interest	50.00%		50.00%
Initial investment					$ 1,300,000
Capital distribution received from investment	$ 500,000	0
Vanderbilt Health Services
Schedule of Equity Method Investments [Line Items]
Proportionate share of earnings in equity-method investees	$ 304,000	$ 424,000
Ownership interest	50.00%
Initial investment				$ 1,100,000

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INDEBTEDNESS - Long Term Debt Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Debt Disclosure [Abstract]
2020	$ 6,938
2021	9,250
2022	9,250
2023	9,250
2024	9,250
Thereafter	1,291,006
Total	$ 1,334,944	$ 1,337,256

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DERIVATIVE INSTRUMENTS - Pre-tax Gain (Loss) on Derivative Instruments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Derivative [Line Items]
Pre-tax gains (losses) on interest rate derivatives recognized	$ (16,632)	$ (747)
Total gain (loss) on derivatives	(1,033)	(183)
Interest Rate Cap
Derivative [Line Items]
Pre-tax gains (losses) on interest rate derivatives recognized	0	(747)
Interest Rate Swap
Derivative [Line Items]
Pre-tax gains (losses) on interest rate derivatives recognized	(16,632)	0
Interest expense | Interest Rate Cap
Derivative [Line Items]
Gain (loss) location of derivative instruments	0	(183)
Interest expense | Interest Rate Swap
Derivative [Line Items]
Gain (loss) location of derivative instruments	(799)	0
Gain (loss) location of derivative instruments not designated	$ (234)	$ 0

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DERIVATIVE INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of Amount and Location of Derivatives in the Balance Sheet

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 liability position
Derivative	Balance Sheet Caption	March 31, 2020		December 31, 2019
Interest rate swaps designated as cash flow hedges	Accrued expenses and other current liabilities	$	3,122	$	1,275
Interest rate swaps designated as cash flow hedges	Other non-current liabilities	20,705		5,920
Interest rate swaps not designated as hedges	Other non-current liabilities	315		90
Total derivatives		$	24,142	$	7,285

Schedule of Pre-tax Income (Loss) Recognized in the Statements of Comprehensive Income (Loss)

The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s unaudited condensed consolidated statements of comprehensive income (loss) (in thousands):

	Three Months Ended March 31,
Derivative	2020			2019
Interest rate caps designated as cash flow hedges	$	—		$	(747	)
Interest rate swaps designated as cash flow hedges	(16,632		)	—
	$	(16,632	)	$	(747	)

The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s unaudited condensed consolidated statement of comprehensive income (loss) related to the Company’s derivative instruments (in thousands):

		Three months ended March 31,
Derivative	Income Statement Caption	2020			2019
Interest rate caps designated as cash flow hedges	Interest expense	$	—		$	(183	)
Interest rate swaps designated as cash flow hedges	Interest expense	(799		)	—
Interest rate swaps not designated as hedges	Interest expense	(234		)	—
		$	(1,033	)	$	(183	)

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment was as follows as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020		December 31, 2019
Infusion pumps	$	33,386	$	30,416
Equipment, furniture and other	50,988		51,454
Leasehold improvements	82,140		80,916
Computer software, purchased and internally developed	35,079		34,884
Assets under development	5,438		14,150
	207,031		211,820
Less: accumulated depreciation	81,245		78,622
Property and equipment, net	$	125,786	$	133,198

The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020		2019
Depreciation expense in cost of revenue	$	1,742	$	780
Depreciation expense in operating expenses	11,319		5,073
Total depreciation expense	$	13,061	$	5,853

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BUSINESS ACQUISITIONS - Consideration Exchanged (Details) - USD ($) $ / shares in Units, $ in Thousands	Aug. 06, 2019	Mar. 31, 2020	Dec. 31, 2019	Aug. 05, 2019
Business Acquisition [Line Items]
Number of BioScrip common shares outstanding at time of the merger (in shares)		176,704,306	176,591,907
BioScrip
Business Acquisition [Line Items]
Number of BioScrip common shares outstanding at time of the merger (in shares)	132,639,000			129,181,000
Common shares issued to warrant and preferred stockholders at time of the merger (in shares)	3,458,000
BioScrip share price as of August 6, 2019 (in dollars per share)	$ 2.67
Fair value of common shares	$ 354,146
Fair value of share-based instruments	32,898
Cash paid in conjunction with the Merger included in purchase consideration	714,957
Fair value of total consideration transferred	1,102,001
Less: cash acquired	14,787
Fair value of total consideration acquired, net of cash acquired	$ 1,087,214

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(LOSS) EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

(Loss) Earnings Per Share

(LOSS) EARNINGS PER SHARE

The Company presents basic and diluted (loss) earnings per share for its common stock. Basic (loss) earnings per share is calculated by dividing the net (loss) income of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted (loss) 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 dilutive potential common shares.

As a result of the Merger, which has been accounted for as a reverse merger, all historical per share data and number of shares and equity awards were retroactively adjusted. The (loss) earnings is used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. Accordingly, the computation of diluted shares for the three months ended March 31, 2020 excludes the effect of shares that would be issued in connection with stock options and restricted stock awards, as their inclusion would be anti-dilutive to the loss per share. As of March 31, 2020 there were 2,328,120 warrants, 531,747 stock options and 484,326 restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive. There are no dilutive potential common shares for the three months ended March 31, 2019.

The following table presents the Company’s basic and diluted (loss) earnings per share and shares outstanding (in thousands, except per share data):

	Three Months Ended March 31,
	2020			2019
Numerator:
Net loss	$	(19,910	)	$	(3,712	)
Denominator:
Weighted average number of common shares outstanding	176,661			142,614
Loss per Common Share:
Loss per common share, basic and diluted	$	(0.11	)	$	(0.03	)

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EQUITY-METHOD INVESTMENTS

3 Months Ended

Mar. 31, 2020

Equity Method Investments and Joint Ventures [Abstract]

Equity-Method Investments

EQUITY-METHOD INVESTMENTS

The Company’s two equity-method investments totaled $17.0 million and $17.0 million as of March 31, 2020 and December 31, 2019, respectively, and are included in other noncurrent assets in the accompanying condensed consolidated balance sheets. The Company’s related proportionate share of earnings is recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). For the three months ended March 31, 2020 and 2019, the Company’s proportionate share of earnings in its investments was $0.6 million and $0.5 million, respectively.

Legacy Health Systems — The Company’s 50% ownership interest in this limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Portland, Oregon market. In 2005, Option Care’s initial cash investment in this joint venture was $1.3 million. The Company received a capital distribution from this investment of $0.5 million for the three months ended March 31, 2020. The Company did not receive a capital distribution from this investment for the three months ended March 31, 2019. The following presents condensed financial information as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:
	Three Months Ended March 31,
	2020		2019
Net revenue	$	5,491	$	4,775
Cost of revenue	3,940		3,367
Gross profit	1,551		1,408
Net income	517		250
Equity in net income	258		125
Consolidated balance sheet data:
	As of
	March 31, 2020		December 31, 2019
Current assets	$	7,482	$	7,643
Noncurrent assets	3,615		3,846
Current liabilities	1,074		903
Noncurrent liabilities	579		659

Vanderbilt Health Services — The Company’s 50% ownership interest in this limited liability company, which provides infusion pharmacy services, expands the Company’s presence in the Nashville, Tennessee market. In 2009, Option Care contributed both cash and certain operating assets into the joint venture for a total initial investment of $1.1 million. The following presents condensed financial information as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:
	Three Months Ended March 31,
	2020		2019
Net revenue	$	10,508	$	9,238
Cost of revenue	8,640		7,049
Gross profit	1,868		2,189
Net income	608		847
Equity in net income	304		424
Consolidated balance sheet data:
	As of
	March 31, 2020		December 31, 2019
Current assets	12,086		11,111
Noncurrent assets	1,862		2,033
Current liabilities	1,528		1,228
Noncurrent liabilities	852		956

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STOCK-BASED INCENTIVE COMPENSATION (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	May 03, 2018
HC I Incentive Units
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Share-based compensation expense	$ 0.8	$ 0.6
The 2018 Plan
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Number of shares authorized (in shares)			4,101,735

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EQUITY-METHOD INVESTMENTS - Condensed Financial Information of Equity Method Investments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Consolidated statements of comprehensive income (loss) data:
Equity in net income	$ 562	$ 549
Legacy Health Systems
Consolidated statements of comprehensive income (loss) data:
Net revenue	5,491	4,775
Cost of revenue	3,940	3,367
Gross profit	1,551	1,408
Net income	517	250
Equity in net income	258	125
Consolidated balance sheet data:
Current assets	7,482		$ 7,643
Noncurrent assets	3,615		3,846
Current liabilities	1,074		903
Noncurrent liabilities	579		659
Vanderbilt Health Services
Consolidated statements of comprehensive income (loss) data:
Net revenue	10,508	9,238
Cost of revenue	8,640	7,049
Gross profit	1,868	2,189
Net income	608	847
Equity in net income	304	$ 424
Consolidated balance sheet data:
Current assets	12,086		11,111
Noncurrent assets	1,862		2,033
Current liabilities	1,528		1,228
Noncurrent liabilities	$ 852		$ 956

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INDEBTEDNESS - Estimated Fair Values of Debt Obligations (Details) - Senior Notes $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Debt Instrument [Line Items]
Total debt instruments	$ 1,285,579
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	1,285,579
First lien term loan
Debt Instrument [Line Items]
Total debt instruments	892,499
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	892,499
Second lien notes
Debt Instrument [Line Items]
Total debt instruments	393,080
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	393,080
Markets for Identical Item (Level 1)
Debt Instrument [Line Items]
Total debt instruments	0
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	0
Markets for Identical Item (Level 1) | First lien term loan
Debt Instrument [Line Items]
Total debt instruments	0
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	0
Markets for Identical Item (Level 1) | Second lien notes
Debt Instrument [Line Items]
Total debt instruments	0
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	0
Significant Other Observable Inputs (Level 2)
Debt Instrument [Line Items]
Total debt instruments	775,058
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	775,058
Significant Other Observable Inputs (Level 2) | First lien term loan
Debt Instrument [Line Items]
Total debt instruments	775,058
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	775,058
Significant Other Observable Inputs (Level 2) | Second lien notes
Debt Instrument [Line Items]
Total debt instruments	0
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	0
Significant Unobservable Inputs (Level 3)
Debt Instrument [Line Items]
Total debt instruments	339,371
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	339,371
Significant Unobservable Inputs (Level 3) | First lien term loan
Debt Instrument [Line Items]
Total debt instruments	0
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, end of period	0
Significant Unobservable Inputs (Level 3) | Second lien notes
Debt Instrument [Line Items]
Total debt instruments	339,371
Debt Instrument, Changes In Long-Term Debt [Roll Forward]
Total debt instruments, beginning of period	411,119
Change in fair value	(71,748)
Total debt instruments, end of period	$ 339,371

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(LOSS) EARNINGS PER SHARE - Schedule of Basic and Diluted Earnings (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Numerator:
Net (loss) income	$ (19,910,000)	$ (3,712,000)
Denominator:
Weighted average number of common shares outstanding (in shares)	176,661,000	142,614,000
Loss per Common Share:
(Loss) earnings per common share, basic and diluted (in dollars per share)	$ (0.11)	$ (0.03)
Dilutive potential common shares		$ 0
Warrant
Loss per Common Share:
Antidilutive securities excluded	2,328,120
Stock Options
Loss per Common Share:
Antidilutive securities excluded	531,747
Restricted Stock Award
Loss per Common Share:
Antidilutive securities excluded	484,326

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BUSINESS ACQUISITIONS - Consideration Allocated to Intangible Assets (Details) - BioScrip $ in Thousands	Aug. 06, 2019 USD ($)
Business Acquisition [Line Items]
Total intangible assets, net	$ 193,245
Weighted Average Estimated Life (in years)	18 years 10 months
Trademarks/Names
Business Acquisition [Line Items]
Total intangible assets, net	$ 12,536
Weighted Average Estimated Life (in years)	2 years
Patient referral sources
Business Acquisition [Line Items]
Total intangible assets, net	$ 180,329
Weighted Average Estimated Life (in years)	20 years
Licenses
Business Acquisition [Line Items]
Total intangible assets, net	$ 380
Weighted Average Estimated Life (in years)	1 year 6 months

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GOODWILL AND OTHER INTANGIBLE ASSETS - Carrying Amount of Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Goodwill [Roll Forward]
Goodwill - net book value, begging of period	$ 1,425,542
Purchase accounting adjustments	2,341
Goodwill - net book value, end of period	$ 1,427,883

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LEASES (Tables)

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Maturities of Lease Liabilities, Operating

Operating leases mature as follows (in thousands):

Fiscal Year Ending December 31,	Minimum Payments
2020	$	18,202
2021	19,201
2022	14,103
2023	10,767
2024	8,008
Thereafter	18,327
Total lease payments	$	88,608
Less: Interest	14,715
Present value of lease liabilities	$	73,893

Maturities of Lease Liabilities, Financing

Operating leases mature as follows (in thousands):

Fiscal Year Ending December 31,	Minimum Payments
2020	$	18,202
2021	19,201
2022	14,103
2023	10,767
2024	8,008
Thereafter	18,327
Total lease payments	$	88,608
Less: Interest	14,715
Present value of lease liabilities	$	73,893

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (in shares)	12,500,000	12,500,000
Preferred stock, shares, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	250,000,000	250,000,000
Common stock, shares, issued (in shares)	177,088,028	176,975,628
Common stock, shares, outstanding (in shares)	176,704,306	176,591,907
Treasury stock, at cost (in shares)	383,722	383,722

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

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 2019 audited consolidated financial statements, including the notes thereto, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2020.

Principles of Consolidation

Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. The BioScrip results have been included in the consolidated financial results since the Merger Date. All intercompany transactions and balances are eliminated in consolidation.

Concentrations of Business Risk

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 13% and 16% for the three months ended March 31, 2020 and 2019, respectively. In December 2019, the Company renewed and expanded its multi-year contract with this payer. The contract renewal was effective in February 2020 for a two-year term and auto-renews at the end of that term. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.

For three months ended March 31, 2020 and 2019, approximately 12% and 13%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of March 31, 2020 and December 31, 2019, respectively, approximately 12% and 12%, 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.

For the three months ended March 31, 2020 and 2019, approximately 70% and 75%, 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.

Recent Accounting Pronouncements

Recently-Adopted Accounting Pronouncements — In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The Amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and is to be applied using a modified retrospective transition method. The Company adopted the standard as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Fair Value Measurements

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 ofdifferent 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 11, Indebtedness, for further discussion on the carrying amount and fair value of the first lien term loan.

Second lien notes: The fair value of the second lien notes is derived from a cash flow model that discounted the cash flows based on market interest rates (Level 3 inputs). See Note 11, Indebtedness, for further discussion on the carrying amount and fair value of the second lien notes.

Interest rate swaps: The fair values of interest rate swaps are 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 12, Derivative Instruments, for further discussion on the fair value of interest rate swaps.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($) $ in Thousands	Total	Preferred Stock	Common Stock	Treasury Stock	Paid-in Capital	Management Notes Receivable	Accumulated Deficit	Accumulated Other Comprehensive (Loss) Income
Equity, beginning balance at Dec. 31, 2018	$ 602,825	$ 0	$ 14	$ 0	$ 619,621	$ (1,619)	$ (16,035)	$ 844
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Interest on management notes receivable	(21)				0	(21)
Stockholders' redemption	(2,000)				(2,000)
Stock-based incentive compensation	584				584
Net loss	(3,712)						(3,712)
Other comprehensive loss	(505)							(505)
Equity, ending balance at Mar. 31, 2019	597,171	0	14	0	618,205	(1,640)	(19,747)	339
Equity, beginning balance at Dec. 31, 2019	906,827	0	18	(2,403)	1,008,362	0	(91,955)	(7,195)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exercise of stock options, vesting of restricted stock and related tax withholdings	(549)				(549)
Stock-based incentive compensation	757				757
Net loss	(19,910)						(19,910)
Other comprehensive loss	(16,632)							(16,632)
Equity, ending balance at Mar. 31, 2020	$ 870,493	$ 0	$ 18	$ (2,403)	$ 1,008,570	$ 0	$ (111,865)	$ (23,827)

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REVENUE

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

Revenue

REVENUE

The following table sets forth the net revenue earned by category of payer for the three months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020		2019
Commercial payers	$	605,994	$	401,663
Government payers	86,271		63,548
Patients	13,175		11,281
Net revenue	$	705,440	$	476,492

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PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Property and Equipment

PROPERTY AND EQUIPMENT

Property and equipment was as follows as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020		December 31, 2019
Infusion pumps	$	33,386	$	30,416
Equipment, furniture and other	50,988		51,454
Leasehold improvements	82,140		80,916
Computer software, purchased and internally developed	35,079		34,884
Assets under development	5,438		14,150
	207,031		211,820
Less: accumulated depreciation	81,245		78,622
Property and equipment, net	$	125,786	$	133,198

Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income (loss), depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020		2019
Depreciation expense in cost of revenue	$	1,742	$	780
Depreciation expense in operating expenses	11,319		5,073
Total depreciation expense	$	13,061	$	5,853

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DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

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.

During 2017, Option Care entered into interest rate caps that reduce the risk of increased interest payments due to interest rates rising. The hedges offset the risk of rising interest rates through 2020 on the first $250.0 million of the previous first lien term loan. The interest rate caps perfectly offset the terms of the interest rates associated with the variable interest rate previous first lien term loan. Option Care entered into the interest rate caps as a cash flow hedge for a notional amount of $1.9 million. In April 2019, Option Care terminated its interest rate caps.

In August 2019, the Company entered into interest rate swap agreements that reduce the variability in the interest rates on the newly-issued debt obligations. The first interest rate swap for $925.0 million notional was effective in August 2019 with $911.1 million designated as a cash flow hedge against the underlying interest rate on the first lien term loan interest payments indexed to one-month London Interbank Offered Rate (“LIBOR”) through August 2021. The second interest rate swap of $400.0 million notional was effective in November 2019 and is designated as a cash flow hedge against the underlying interest rate on the second lien notes interest payments indexed to three-month LIBOR through November 2020. In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges, the Company has determined that the hedges are perfectly effective. The remaining $13.9 million notional amount of the interest rate swap is not designated as a hedging instrument.

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 liability position
Derivative	Balance Sheet Caption	March 31, 2020		December 31, 2019
Interest rate swaps designated as cash flow hedges	Accrued expenses and other current liabilities	$	3,122	$	1,275
Interest rate swaps designated as cash flow hedges	Other non-current liabilities	20,705		5,920
Interest rate swaps not designated as hedges	Other non-current liabilities	315		90
Total derivatives		$	24,142	$	7,285

The gain and loss associated with the changes in the fair value of the effective portion of the hedging instrument are recorded into other comprehensive (loss) income. The gain and loss associated with the changes in the fair value of the $13.9 million notional amount not designated as a hedging instrument are recognized in net income (loss) through interest expense. The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s unaudited condensed consolidated statements of comprehensive income (loss) (in thousands):

	Three Months Ended March 31,
Derivative	2020			2019
Interest rate caps designated as cash flow hedges	$	—		$	(747	)
Interest rate swaps designated as cash flow hedges	(16,632		)	—
	$	(16,632	)	$	(747	)

The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s unaudited condensed consolidated statement of comprehensive income (loss) related to the Company’s derivative instruments (in thousands):

		Three months ended March 31,
Derivative	Income Statement Caption	2020			2019
Interest rate caps designated as cash flow hedges	Interest expense	$	—		$	(183	)
Interest rate swaps designated as cash flow hedges	Interest expense	(799		)	—
Interest rate swaps not designated as hedges	Interest expense	(234		)	—
		$	(1,033	)	$	(183	)

The Company expects to reclassify $18.0 million of total interest rate costs from accumulated other comprehensive loss against interest expense during the next 12 months.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Revenue from Contract with Customer Benchmark | Company's Largest Payer
Concentration Risk [Line Items]
Contract term	2 years
Concentration risk	13.00%	16.00%
Revenue from Contract with Customer Benchmark | Governmental Programs
Concentration Risk [Line Items]
Concentration risk	12.00%	13.00%
Accounts Receivable | Governmental Programs
Concentration Risk [Line Items]
Concentration risk	12.00%		12.00%
Cost of Goods and Service, Product and Service Benchmark | Medical Supply Vendors
Concentration Risk [Line Items]
Concentration risk	70.00%	75.00%

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EQUITY-METHOD INVESTMENTS (Tables)

3 Months Ended

Mar. 31, 2020

Equity Method Investments and Joint Ventures [Abstract]

Schedule of Condensed Financial Information of Equity Method Investments

The following presents condensed financial information as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:
	Three Months Ended March 31,
	2020		2019
Net revenue	$	10,508	$	9,238
Cost of revenue	8,640		7,049
Gross profit	1,868		2,189
Net income	608		847
Equity in net income	304		424
Consolidated balance sheet data:
	As of
	March 31, 2020		December 31, 2019
Current assets	12,086		11,111
Noncurrent assets	1,862		2,033
Current liabilities	1,528		1,228
Noncurrent liabilities	852		956

The following presents condensed financial information as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 (in thousands).

Consolidated statements of comprehensive income (loss) data:
	Three Months Ended March 31,
	2020		2019
Net revenue	$	5,491	$	4,775
Cost of revenue	3,940		3,367
Gross profit	1,551		1,408
Net income	517		250
Equity in net income	258		125
Consolidated balance sheet data:
	As of
	March 31, 2020		December 31, 2019
Current assets	$	7,482	$	7,643
Noncurrent assets	3,615		3,846
Current liabilities	1,074		903
Noncurrent liabilities	579		659

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INDEBTEDNESS - Additional Information (Details) - Credit Agreements, Entered Into 2019 - Senior Notes	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
First Lien Term Loan
Debt Instrument [Line Items]
Effective rate on term loans at end of period	5.49%		6.20%
Weighted average interest rate paid on term loans during period	6.18%	6.25%
Second Lien Term Loan
Debt Instrument [Line Items]
Effective rate on term loans at end of period	10.49%		10.66%
Weighted average interest rate paid on term loans during period	10.54%	11.55%

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DERIVATIVE INSTRUMENTS - Balance Sheet Location of Derivatives (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Fair value - Derivatives in liability position
Total derivatives	$ 24,142	$ 7,285
Designated as Hedging Instrument | Accrued expenses and other current liabilities | Interest Rate Swap
Fair value - Derivatives in liability position
Interest rate swaps	3,122	1,275
Designated as Hedging Instrument | Other non-current liabilities | Interest Rate Swap
Fair value - Derivatives in liability position
Interest rate swaps	20,705	5,920
Not Designated as Hedging Instrument | Other non-current liabilities | Interest Rate Swap
Fair value - Derivatives in liability position
Interest rate swaps	$ 315	$ 90

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LEASES - Maturities of Lease Liabilities (Details) $ in Thousands	Mar. 31, 2020 USD ($)
Minimum Payments
Minimum Payments, Total lease payments, 2020	$ 18,202
Minimum Payments, Total lease payments, 2021	19,201
Minimum Payments, Total lease payments, 2022	14,103
Minimum Payments, Total lease payments, 2023	10,767
Minimum Payments, Total lease payments, 2024	8,008
Minimum Payments, Total lease payments, Thereafter	18,327
Minimum Payments, Total lease payments	88,608
Less: Interest	14,715
Present value of lease liabilities	$ 73,893

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REVENUE - Net Revenue Earned by Category of Payer (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Disaggregation of Revenue [Line Items]
Net revenue	$ 705,440	$ 476,492
Commercial payers
Disaggregation of Revenue [Line Items]
Net revenue	605,994	401,663
Government payers
Disaggregation of Revenue [Line Items]
Net revenue	86,271	63,548
Patients
Disaggregation of Revenue [Line Items]
Net revenue	$ 13,175	$ 11,281

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RELATED-PARTY TRANSACTIONS (Details) - Joint Venture - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Related Party Transaction [Line Items]
Management fee income	$ 0.7	$ 0.6
Due to joint ventures	$ 2.9		$ 4.3

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 13% and 16% for the three months ended March 31, 2020 and 2019, respectively. In December 2019, the Company renewed and expanded its multi-year contract with this payer. The contract renewal was effective in February 2020 for a two-year term and auto-renews at the end of that term. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.

For three months ended March 31, 2020 and 2019, approximately 12% and 13%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of March 31, 2020 and December 31, 2019, respectively, approximately 12% and 12%, 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.

For the three months ended March 31, 2020 and 2019, approximately 70% and 75%, 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 is uncertainty regarding the COVID-19 pandemic, as of March 31, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

Recently-Adopted Accounting Pronouncements — In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The Amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and is to be applied using a modified retrospective transition method. The Company adopted the standard as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 05, 2020
Document Entity Information [Abstract]
Entity Registrant Name	Option Care Health, Inc.
Entity Central Index Key	0001014739
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		176,712,333
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Entity Current Reporting Status	Yes

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

On January 3, 2020, the Company’s board of directors and HC I, the stockholder of a majority of the Company’s common stock, approved a reverse stock split of the Company’s issued and outstanding common stock on a one share for four share basis and appropriately amended the Company’s Third Amended and Restated Certificate of Incorporation to reflect the change. On February 3, 2020, the reverse stock split became effective. In connection with the reverse stock split, the Company changed its ticker symbol from “BIOS” to “OPCH” and transferred the Company’s common stock from the Nasdaq Capital Market to the Nasdaq Global Select Market. The par value of the Company’s common stock remained unchanged as a result of the reverse stock split, resulting in a decrease to the aggregate par value of common stock and corresponding increase to paid-in capital in the Company’s unaudited condensed consolidated financial statements, which was retrospectively applied to all periods presented in the unaudited condensed consolidated financial statements. All common shares, warrants and stock awards presented in the unaudited condensed consolidated financial statements have been retrospectively adjusted for the reverse stock split

2017 Warrants — During the three months ended March 31, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock. No warrants existed in 2019 prior to the Merger. As of March 31, 2020 and December 31, 2019, the remaining warrant holders are entitled to purchase 1.4 million shares of common stock, respectively.

2015 Warrants — During the three months ended March 31, 2020, warrant holders did not elect to exercise any warrants to purchase shares of common stock. No warrants existed in 2019 prior to the Merger. As of March 31, 2020 and December 31, 2019, warrant holders are entitled to purchase 0.9 million shares of common stock, respectively.

Home Solutions Restricted Stock — In conjunction with BioScrip’s 2016 acquisition of Home Solutions, Inc., 1.8 million restricted shares of common stock were issued, of which 0.8 million of these units vest upon the closing price of the Company’s common stock averaging at or above $16.00 per share over 20 consecutive trading days prior to December 31, 2019 and 1.0 million of these units vest upon the closing price of the Company’s common stock averaging at or above $20.00 per share over 20 consecutive trading days prior to December 31, 2019. The restricted stock expired on December 31, 2019. As discussed in Note 1, Nature of Operations and Presentation of Financial Statements, 7,048,357 common shares issued to HC I in conjunction with the Merger are held in escrow to prevent dilution related to the vesting of the Home Solutions restricted stock. In the event the Home Solutions restricted stock expires unvested, the 7,048,357 common shares held in escrow will be returned to the Company and canceled. As of March 31, 2020, the Home Solutions restricted stock remained in escrow pending final resolution of this matter.

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REVENUE (Tables)

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

Schedule of Net Revenue Earned by Category of Payer

The following table sets forth the net revenue earned by category of payer for the three months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020		2019
Commercial payers	$	605,994	$	401,663
Government payers	86,271		63,548
Patients	13,175		11,281
Net revenue	$	705,440	$	476,492

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Statement [Abstract]
Income taxes on unrealized gains (losses) on cash flow hedges	$ 0	$ 242

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 207,031		$ 211,820
Less: accumulated depreciation	81,245		78,622
Property and equipment, net	125,786		133,198
Depreciation expense	13,061	$ 5,853
Infusion pumps
Property, Plant and Equipment [Line Items]
Property and equipment, gross	33,386		30,416
Equipment, furniture and other
Property, Plant and Equipment [Line Items]
Property and equipment, gross	50,988		51,454
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	82,140		80,916
Computer software, purchased and internally developed
Property, Plant and Equipment [Line Items]
Property and equipment, gross	35,079		34,884
Assets under development
Property, Plant and Equipment [Line Items]
Property and equipment, gross	5,438		$ 14,150
Depreciation expense in cost of revenue
Property, Plant and Equipment [Line Items]
Depreciation expense	1,742	780
Depreciation expense in operating expenses
Property, Plant and Equipment [Line Items]
Depreciation expense	$ 11,319	$ 5,073

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Tax Disclosure [Abstract]
Income tax (benefit) expense	$ 1,041	$ (1,422)
Effective tax rate	(5.50%)	27.70%
State net operating losses	$ 700

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STOCKHOLDERS' EQUITY (Details)			12 Months Ended
	Feb. 03, 2020	Aug. 06, 2019 shares	Dec. 31, 2016 Days $ / shares shares	Mar. 31, 2020 shares	Dec. 31, 2019 shares	Aug. 05, 2019 shares
Class of Warrant or Right [Line Items]
Stock split ratio	0.25
Common Stock | 2017 Warrants
Class of Warrant or Right [Line Items]
Number of shares purchasable through warrants (in shares)				1,400,000	1,400,000	0
Common Stock | 2015 Warrants
Class of Warrant or Right [Line Items]
Number of shares purchasable through warrants (in shares)				900,000	900,000	0
OptionCare Enterprises, Inc.
Class of Warrant or Right [Line Items]
Common shares issued to warrant and preferred stockholders at time of the merger (in shares)		7,048,357
Restricted Stock Units (RSUs) | Home Solutions
Class of Warrant or Right [Line Items]
Shares issued pursuant to acquisition (in shares)			1,800,000
Tranche One | Restricted Stock Units (RSUs) | Home Solutions
Class of Warrant or Right [Line Items]
Shares issued pursuant to acquisition (in shares)			800,000
Stock price threshold (in dollars per share) | $ / shares			$ 16
Consecutive trading days threshold | Days			20
Tranche Two | Restricted Stock Units (RSUs) | Home Solutions
Class of Warrant or Right [Line Items]
Shares issued pursuant to acquisition (in shares)			1,000,000
Stock price threshold (in dollars per share) | $ / shares			$ 20
Consecutive trading days threshold | Days			20

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STOCK-BASED INCENTIVE COMPENSATION

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Incentive Compensation

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, 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. The 2018 plan is administered by the Company’s Compensation Committee, a standing committee of the Board of Directors. A total of 4,101,735 shares of common stock were initially authorized for issuance under the 2018 Plan. The Company had stock options and restricted stock outstanding related to the 2018 Plan as of March 31, 2020. As of March 31, 2020, the Company also had incentive units outstanding related to the HC I equity incentive plan, which was implemented in October 2015, for certain officers and employees of the Company. During the three months ended March 31, 2020 and 2019, total stock-based incentive compensation expense recognized by the Company related to these plans was $0.8 million and $0.6 million, respectively.

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BUSINESS ACQUISITIONS (Tables)

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

Schedule of Consideration Exchanged

Under the acquisition method of accounting, the calculation of total consideration exchanged is as follows (in thousands):

	Amount
Number of BioScrip common shares outstanding at time of the Merger (1)	129,181
Common shares issued to warrant and preferred stockholders at time of the Merger (1)	3,458
Total shares of BioScrip common stock outstanding at time of the Merger (1)	132,639
BioScrip share price as of August 6, 2019	$	2.67
Fair value of common shares	$	354,146
Fair value of share-based instruments	$	32,898
Cash paid in conjunction with the Merger included in purchase consideration	$	714,957
Fair value of total consideration transferred	$	1,102,001
Less: cash acquired	$	14,787
Fair value of total consideration acquired, net of cash acquired	$	1,087,214

(1) These shares were not adjusted for the one share for four share reverse stock split effective on February 3, 2020. See Note 16, Stockholders’ Equity, for further discussion on the one share for four share reverse stock split.

Schedule of Acquired Identifiable Assets and Assumed Liabilities

The following is a preliminary estimate of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, in the Merger as of August 6, 2019 (in thousands):

	Amount
Accounts receivable, net (1)	$	96,532
Inventories (2)	19,683
Property and equipment, net (3)	48,732
Intangible assets, net (4)	193,245
Deferred tax assets, net of deferred tax liabilities (5)	26,731
Operating lease right-of-use asset (6)	22,378
Operating lease liability (6)	(28,897		)
Accounts payable (7)	(66,371		)
Other assumed liabilities, net of other acquired assets (7)	(20,233		)
Total acquired identifiable assets and liabilities	291,800
Goodwill (8)	795,414
Total consideration transferred	$	1,087,214

(1) Management has valued accounts receivables based on the estimated future collectability of the receivables portfolio.

(2) Inventories are stated at fair value as of the Merger Date.

(3) The fair value of the property and equipment was determined based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison, and income capitalization approaches for each property appraised.

(4) The preliminary allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):

	Fair Value		Weighted Average Estimated Life (in years)
Trademarks/Names	$	12,536	2
Patient referral sources	180,329		20
Licenses	380		1.5
Total intangible assets, net	$	193,245	18.8

The Company preliminarily valued trademarks/names utilizing the relief of royalty method and patient referral sources utilizing the multi-period excess earnings method, a form of the income approach.

(5) Net deferred tax assets represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. See Note 5, Income Taxes, for additional discussion of the Company’s combined income tax position subsequent to the Merger.

(6) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was based on current market rates available to the Company.

(7) Accounts payable as well as certain other current and non-current assets and liabilities are stated at fair value as of the Merger Date.

(8) The Merger preliminarily resulted in $795.4 million of goodwill, which is attributable to cost synergies resulting from procurement and operational efficiencies and elimination of duplicative administrative costs. The goodwill created in the Merger is not expected to be deductible for tax purposes.

Schedule of Allocation of Consideration to Intangible Assets Acquired

The preliminary allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):

	Fair Value		Weighted Average Estimated Life (in years)
Trademarks/Names	$	12,536	2
Patient referral sources	180,329		20
Licenses	380		1.5
Total intangible assets, net	$	193,245	18.8

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Statement [Abstract]
NET REVENUE	$ 705,440	$ 476,492
COST OF REVENUE	547,411	378,298
GROSS PROFIT	158,029	98,194
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses	129,280	82,787
Depreciation and amortization expense	20,101	9,969
Total operating expenses	149,381	92,756
OPERATING INCOME	8,648	5,438
OTHER INCOME (EXPENSE):
Interest expense, net	(28,087)	(11,045)
Equity in earnings of joint ventures	562	549
Other, net	8	(76)
Total other expense	(27,517)	(10,572)
LOSS BEFORE INCOME TAXES	(18,869)	(5,134)
INCOME TAX EXPENSE (BENEFIT)	1,041	(1,422)
NET LOSS	(19,910)	(3,712)
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Change in unrealized losses on cash flow hedges, net of income tax benefit of $0, and $242, respectively	(16,632)	(505)
OTHER COMPREHENSIVE LOSS	(16,632)	(505)
NET COMPREHENSIVE LOSS	$ (36,542)	$ (4,217)
LOSS PER COMMON SHARE
Net (loss) income per share, basic and diluted (in dollars per share)	$ (0.11)	$ (0.03)
Weighted average common shares outstanding, basic and diluted (in shares)	176,661	142,614

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NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations and Presentation of Financial Statements

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.

Under the terms of the Merger Agreement, shares of HC II common stock issued and outstanding immediately prior to the Merger Date were converted into 135,565,392 shares of BioScrip common stock, par value $0.0001 (the “BioScrip common stock”). BioScrip also issued an additional 7,048,357 shares to HC I in respect of certain outstanding unvested contingent restricted stock units of BioScrip, which are held in escrow to prevent dilution related to potential additional vesting on certain share-based instruments. See Note 16, Stockholders’ Equity, for additional discussion of these shares held in escrow. In conjunction with the Merger, holders of BioScrip preferred shares and certain warrants received 864,603 additional shares of BioScrip common stock and preferred shares were repurchased for $125.8 million of cash. In addition, all legacy BioScrip debt was settled for $575.0 million. As a result of the Merger, BioScrip’s stockholders hold approximately 19.3% of the combined company, and HC I holds approximately 80.7% of the combined company. 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 was listed on the Nasdaq Global Select Market as of March 31, 2020. See Note 3, Business Acquisitions, for further discussion on the Merger.

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services through a national network of 111 full service pharmacies. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings. The Company operates in one segment, infusion services.

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States and contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for interim financial reporting. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire year. These unaudited condensed consolidated financial statements do not include all of the information and notes to the financial statements required by GAAP for complete financial statements and should be read in conjunction with the 2019 audited consolidated financial statements, including the notes thereto, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2020.

Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. The BioScrip results have been included in the consolidated financial results since the Merger Date. 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 consolidated statements of comprehensive income (loss). See Note 10, Equity-Method Investments, for further discussion of the Company’s equity-method investments.

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INDEBTEDNESS

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Indebtedness

INDEBTEDNESS

Long-term debt consisted of the following as of March 31, 2020 (in thousands):

	Principal Amount		Discount			Debt Issuance Costs			Net Balance
ABL facility	$	—	$	—		$	—		$	—
First lien term loan	922,688		(8,120		)	(22,069		)	892,499
Second lien notes	412,256		(11,455		)	(7,721		)	393,080
	$	1,334,944	$	(19,575	)	$	(29,790	)	1,285,579
Less: current portion									(9,250		)
Total long-term debt									$	1,276,329

Long-term debt consisted of the following as of December 31, 2019 (in thousands):

	Principal Amount		Discount			Debt Issuance Costs			Net Balance
ABL facility	$	—	$	—		$	—		$	—
First lien term loan	925,000		(8,399		)	(22,825		)	893,776
Second lien notes	412,256		(11,672		)	(7,864		)	392,720
	$	1,337,256	$	(20,071	)	$	(30,689	)	1,286,496
Less: current portion									(9,250		)
Total long-term debt									$	1,277,246

The interest rate on the first lien term loan was 5.49% and 6.20% as of March 31, 2020 and December 31, 2019, respectively. The weighted average interest rate incurred on the first lien term loan was 6.18% for the three months ended March 31, 2020. The weighted average interest rate incurred on the previous first lien term loan was 6.25% for the three months ended March 31, 2019. The interest rate on the second lien notes was 10.49% and 10.66% as of March 31, 2020 and December 31, 2019, respectively. The weighted average interest incurred on the second lien notes was 10.54% for the three months ended March 31, 2020. The weighted average interest incurred on the previous second lien term loan was 11.55% for the three months ended March 31, 2019.

Long-term debt matures as follows (in thousands):

Year Ending December 31,	Minimum Payments
2020	$	6,938
2021	9,250
2022	9,250
2023	9,250
2024	9,250
Thereafter	1,291,006
Total	1,334,944

During the three months ended March 31, 2020 and 2019, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 12, Derivative Instruments, for further discussion.

The following table presents the estimated fair values of the Company’s debt obligations as of March 31, 2020 (in thousands):

Financial Instrument	Carrying Value as of March 31, 2020		Markets for Identical Item (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
First lien term loan	$	892,499	$	—	$	775,058	$	—
Second lien notes	393,080		—		—		339,371
Total debt instruments	$	1,285,579	$	—	$	775,058	$	339,371

The following table sets forth the changes in Level 3 measurements for the three months ended March 31, 2020 (in thousands):

	Level 3 Measurements
Second lien notes fair value as of January 1, 2020	$	411,119
Change in fair value	(71,748		)
Second lien notes fair value as of March 31, 2020	$	339,371

See Note 13, Fair Value Measurements, for further discussion.

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BUSINESS ACQUISITIONS

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

Business Acquisitions

BUSINESS ACQUISITIONS

Merger with BioScrip, Inc. — As discussed in Note 1, Nature of Operations and Presentation of Financial Statements, Option Care merged with BioScrip on August 6, 2019. BioScrip was a national provider of infusion and home care management solutions. The Merger of Option Care and BioScrip into Option Care Health creates an expanded national platform and the opportunity to drive economies of scale through procurement savings, facility rationalization and other operating cost savings.

The fair value of purchase consideration transferred on the closing date includes the value of the number of shares of the combined company owned by BioScrip shareholders at closing of the Merger, the value of common shares issued to certain warrant and preferred shareholders in conjunction with the Merger, the fair value of stock-based instruments that were vested or earned as of the Merger, and cash payments made in conjunction with the Merger. The fair value per share of BioScrip’s common stock was $2.67 per share. This is the closing price of the BioScrip common stock on August 6, 2019.

Under the acquisition method of accounting, the calculation of total consideration exchanged is as follows (in thousands):

	Amount
Number of BioScrip common shares outstanding at time of the Merger (1)	129,181
Common shares issued to warrant and preferred stockholders at time of the Merger (1)	3,458
Total shares of BioScrip common stock outstanding at time of the Merger (1)	132,639
BioScrip share price as of August 6, 2019	$	2.67
Fair value of common shares	$	354,146
Fair value of share-based instruments	$	32,898
Cash paid in conjunction with the Merger included in purchase consideration	$	714,957
Fair value of total consideration transferred	$	1,102,001
Less: cash acquired	$	14,787
Fair value of total consideration acquired, net of cash acquired	$	1,087,214

(1) These shares were not adjusted for the one share for four share reverse stock split effective on February 3, 2020. See Note 16, Stockholders’ Equity, for further discussion on the one share for four share reverse stock split.

Cash paid in conjunction with the Merger includes payments made for settlement of $575.0 million in legacy BioScrip debt, $125.8 million in existing BioScrip preferred shares, and $14.1 million in legacy BioScrip success-based fees owed to third-party advisors. HC II financed these payments primarily through cash on hand and debt financing.

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Merger is based on estimated fair values as of the Merger Date. The fair values were determined based upon a preliminary valuation and the estimates and assumptions used in the valuation of certain contingent liabilities are pending completion and subject to change, which could be significant, within the measurement period, up to one year from the August 6, 2019 acquisition date.

The following is a preliminary estimate of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, in the Merger as of August 6, 2019 (in thousands):

	Amount
Accounts receivable, net (1)	$	96,532
Inventories (2)	19,683
Property and equipment, net (3)	48,732
Intangible assets, net (4)	193,245
Deferred tax assets, net of deferred tax liabilities (5)	26,731
Operating lease right-of-use asset (6)	22,378
Operating lease liability (6)	(28,897		)
Accounts payable (7)	(66,371		)
Other assumed liabilities, net of other acquired assets (7)	(20,233		)
Total acquired identifiable assets and liabilities	291,800
Goodwill (8)	795,414
Total consideration transferred	$	1,087,214

(1) Management has valued accounts receivables based on the estimated future collectability of the receivables portfolio.

(2) Inventories are stated at fair value as of the Merger Date.

(3) The fair value of the property and equipment was determined based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison, and income capitalization approaches for each property appraised.

(4) The preliminary allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):

	Fair Value		Weighted Average Estimated Life (in years)
Trademarks/Names	$	12,536	2
Patient referral sources	180,329		20
Licenses	380		1.5
Total intangible assets, net	$	193,245	18.8

The Company preliminarily valued trademarks/names utilizing the relief of royalty method and patient referral sources utilizing the multi-period excess earnings method, a form of the income approach.

(5) Net deferred tax assets represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. See Note 5, Income Taxes, for additional discussion of the Company’s combined income tax position subsequent to the Merger.

(6) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was based on current market rates available to the Company.

(7) Accounts payable as well as certain other current and non-current assets and liabilities are stated at fair value as of the Merger Date.

(8) The Merger preliminarily resulted in $795.4 million of goodwill, which is attributable to cost synergies resulting from procurement and operational efficiencies and elimination of duplicative administrative costs. The goodwill created in the Merger is not expected to be deductible for tax purposes.

Assuming BioScrip had been acquired as of January 1, 2018, and the results of BioScrip had been included in operations beginning on January 1, 2018, the estimated unaudited pro forma results of operations for the three months ended March 31, 2019 were net revenue of $655.4 million and a net loss of $22.0 million. The estimated pro forma net loss adjusts for the effect of fair value adjustments related to the Merger, transaction costs and other non-recurring costs directly attributable to the Merger and the impact of the additional debt to finance the Merger. Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or the future operating results.

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LEASES

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

LEASES

During the three months ended March 31, 2020 and 2019, the Company incurred operating lease expenses of $7.7 millionand $5.2 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss). As of March 31, 2020, the weighted-average remaining lease term was 5.3 years and the weighted-average discount rate was 5.47%.

Operating leases mature as follows (in thousands):

Fiscal Year Ending December 31,	Minimum Payments
2020	$	18,202
2021	19,201
2022	14,103
2023	10,767
2024	8,008
Thereafter	18,327
Total lease payments	$	88,608
Less: Interest	14,715
Present value of lease liabilities	$	73,893

During the three months ended March 31, 2020, the Company did not enter into any significant new operating or financing leases. As of March 31, 2020, the Company did not have any significant operating or financing leases that had not yet commenced.

Leases

LEASES

During the three months ended March 31, 2020 and 2019, the Company incurred operating lease expenses of $7.7 millionand $5.2 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss). As of March 31, 2020, the weighted-average remaining lease term was 5.3 years and the weighted-average discount rate was 5.47%.

Operating leases mature as follows (in thousands):

Fiscal Year Ending December 31,	Minimum Payments
2020	$	18,202
2021	19,201
2022	14,103
2023	10,767
2024	8,008
Thereafter	18,327
Total lease payments	$	88,608
Less: Interest	14,715
Present value of lease liabilities	$	73,893

During the three months ended March 31, 2020, the Company did not enter into any significant new operating or financing leases. As of March 31, 2020, the Company did not have any significant operating or financing leases that had not yet commenced.

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BUSINESS ACQUISITIONS - Additional Information (Details) $ / shares in Units, $ in Thousands	Feb. 03, 2020	Aug. 06, 2019 USD ($) $ / shares	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Business Acquisition [Line Items]
Stock split ratio	0.25
Goodwill			$ 1,427,883	$ 1,425,542
BioScrip
Business Acquisition [Line Items]
Share price (in dollars per share) | $ / shares		$ 2.67
Payment of shares in acquisition		$ 125,800
Success-based fees		14,100
Goodwill		795,414
Senior Notes | First Lien Term Loan | BioScrip
Business Acquisition [Line Items]
Payment in settlement of debt		$ 575,000

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INDEBTEDNESS (Tables)

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Summary of Debt

Long-term debt consisted of the following as of March 31, 2020 (in thousands):

	Principal Amount		Discount			Debt Issuance Costs			Net Balance
ABL facility	$	—	$	—		$	—		$	—
First lien term loan	922,688		(8,120		)	(22,069		)	892,499
Second lien notes	412,256		(11,455		)	(7,721		)	393,080
	$	1,334,944	$	(19,575	)	$	(29,790	)	1,285,579
Less: current portion									(9,250		)
Total long-term debt									$	1,276,329

Long-term debt consisted of the following as of December 31, 2019 (in thousands):

	Principal Amount		Discount			Debt Issuance Costs			Net Balance
ABL facility	$	—	$	—		$	—		$	—
First lien term loan	925,000		(8,399		)	(22,825		)	893,776
Second lien notes	412,256		(11,672		)	(7,864		)	392,720
	$	1,337,256	$	(20,071	)	$	(30,689	)	1,286,496
Less: current portion									(9,250		)
Total long-term debt									$	1,277,246

Schedule of Long-term Debt Maturities

Long-term debt matures as follows (in thousands):

Year Ending December 31,	Minimum Payments
2020	$	6,938
2021	9,250
2022	9,250
2023	9,250
2024	9,250
Thereafter	1,291,006
Total	1,334,944

Schedule of Estimated Fair Values of Debt Obligations

The following table presents the estimated fair values of the Company’s debt obligations as of March 31, 2020 (in thousands):

Financial Instrument	Carrying Value as of March 31, 2020		Markets for Identical Item (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
First lien term loan	$	892,499	$	—	$	775,058	$	—
Second lien notes	393,080		—		—		339,371
Total debt instruments	$	1,285,579	$	—	$	775,058	$	339,371

The following table sets forth the changes in Level 3 measurements for the three months ended March 31, 2020 (in thousands):

	Level 3 Measurements
Second lien notes fair value as of January 1, 2020	$	411,119
Change in fair value	(71,748		)
Second lien notes fair value as of March 31, 2020	$	339,371

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INDEBTEDNESS - Summary of Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Principal Amount	$ 1,334,944	$ 1,337,256
Discount	(19,575)	(20,071)
Debt Issuance Costs	(29,790)	(30,689)
Total	1,285,579	1,286,496
Less: current portion	(9,250)	(9,250)
Total long-term debt	1,276,329	1,277,246
Senior Notes | First lien term loan
Debt Instrument [Line Items]
Principal Amount	922,688	925,000
Discount	(8,120)	(8,399)
Debt Issuance Costs	(22,069)	(22,825)
Total	892,499	893,776
Senior Notes | Second lien notes
Debt Instrument [Line Items]
Principal Amount	412,256	412,256
Discount	(11,455)	(11,672)
Debt Issuance Costs	(7,721)	(7,864)
Total	393,080	392,720
Senior Notes | ABL facility
Debt Instrument [Line Items]
Principal Amount	0	0
Discount	0	0
Debt Issuance Costs	0	0
Total	$ 0	$ 0

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DERIVATIVE INSTRUMENTS - Additional Information (Details) - USD ($) $ in Millions	Mar. 31, 2020	Nov. 06, 2019	Aug. 31, 2019	Dec. 31, 2017
Derivative [Line Items]
Total interest rate costs expected to reclassify during next 12 months	$ 18.0
Interest Rate Swap
Derivative [Line Items]
Notional amount of derivative			$ 925.0
Designated as Hedging Instrument | Senior Notes | First Lien Term Loan | Credit Agreements, Entered Into 2019 | Interest Rate Cap
Derivative [Line Items]
Notional amount of derivative				$ 250.0
Designated as Hedging Instrument | Senior Notes | Second Lien Term Loan | Credit Agreements, Entered Into 2019 | Interest Rate Swap
Derivative [Line Items]
Notional amount of derivative		$ 400.0
Not Designated as Hedging Instrument | Interest Rate Swap
Derivative [Line Items]
Notional amount of derivative			13.9
Cash Flow Hedging | Designated as Hedging Instrument | Interest Rate Cap
Derivative [Line Items]
Notional amount of derivative				$ 1.9
Cash Flow Hedging | Designated as Hedging Instrument | Interest Rate Swap
Derivative [Line Items]
Notional amount of derivative			$ 911.1