Option Care(OPCH) - 2021 Q4 - Annual Report

PART I Item 1. Business Option Care Health is the largest independent provider of home and alternate site infusion services, delivering patient-centered, cost-effective therapy nationwide - Option Care Health is the largest independent provider of home and alternate site infusion services, operating in 45 states with 154 locations[16] - The company's services include clinical management of infusion therapy, nursing support, and care coordination, provided by a team of approximately 4,300 clinicians[16] - The company's operating model benefits patients (improved quality of life, home therapy), payers (cost-effective solutions), providers (timely clinical support), pharmaceutical manufacturers (broad distribution, clinical data), and health systems (post-acute care network)[20] Quality Quality is central to the company's mission, focusing on favorable outcomes and cost-effective care through comprehensive services - Quality is central to the company's mission, focusing on favorable outcomes and cost-effective care through comprehensive services[21] - The company holds national accreditations from ACHC, PCAB, ASHP, and URAC, indicating adherence to high healthcare and compounding standards (e.g., USP 797)[22][23] Services The company offers home and alternate site infusion services through 97 full-service pharmacies and 57 stand-alone ambulatory infusion suites - The company offers home and alternate site infusion services through 97 full-service pharmacies and 57 stand-alone ambulatory infusion suites[24] - Services include medication/supply administration, patient education, nursing support (approx. 2,500 employees), clinical monitoring, and reimbursement assistance[24][25] - Therapies cover Anti-Infectives, Nutrition Support, Immunoglobulin (IG), Chronic Inflammatory Disorders, Neurological Disorders, Bleeding Disorders, Women's Health, Heart Failure, and other conditions like pain management and chemotherapy[26] Sales and Marketing Sales and marketing objectives include expanding managed care contracts, strengthening patient referral relationships, and developing ties with pharmaceutical manufacturers - Sales and marketing objectives include expanding managed care contracts, strengthening patient referral relationships, and developing ties with pharmaceutical manufacturers for new product distribution[27] - The sales structure leverages national managed care relationships with local field sales personnel to market services to physicians, hospital discharge planners, HMOs, and PPOs[28] Competition The home infusion market is highly competitive and fragmented, with competition based on quality of care, clinical outcomes, pricing, reputation, and service reliability - The home infusion market is highly competitive and fragmented, with competition based on quality of care, clinical outcomes, pricing, reputation, and service reliability[29] - Major competitors include Coram CVS/specialty infusion services, Accredo Health Group, Inc., and Briova[29] - The company believes its national presence, quality services, and marketing capabilities, enhanced by the Merger, provide a strong competitive advantage[29] Intellectual Property The company owns a variety of trademarks, licenses, and service marks, such as "Option Care Health" and "BioScrip" - The company owns a variety of trademarks, licenses, and service marks, such as "Option Care Health" and "BioScrip"[30] Suppliers The company purchases pharmaceuticals and medical supplies from manufacturers, distributors, and group purchasing organizations - Purchases pharmaceuticals and medical supplies from manufacturers, distributors, and group purchasing organizations[32] - Approximately 74% of pharmaceutical and medical supply purchases in 2021 were from four vendors, posing a risk if supplier relationships change[33] - The company negotiates favorable terms, including volume purchase rebates and vendor administration fees, recorded as reductions to cost of revenue[34] Billing & Significant Payers Most revenue comes from third-party payers, with pharmaceutical reimbursement typically based on AWP minus a percentage or ASP plus a percentage - Most revenue comes from third-party payers (managed care, insurance, Medicare, Medicaid)[35] - Pharmaceutical reimbursement is typically based on AWP minus a percentage or ASP plus a percentage; nursing and other services are billed separately or per diem[35] Revenue Concentration by Payer (Year Ended December 31, 2021) | Payer Type | % of Revenue | | :----------- | :----------- | | Largest Payer | 16% | | Direct Governmental Programs (Medicare/Medicaid) | 12% | Governmental Regulation The home infusion industry is subject to extensive and complex federal, state, and local governmental regulations - The home infusion industry is subject to extensive and complex federal, state, and local governmental regulations[37] - Failure to comply with regulations could result in civil/criminal penalties and exclusion from Medicare/Medicaid, adversely affecting the business[37] Professional Licensure Employees (nurses, pharmacists, etc.) require individual state licenses/certifications, and the company ensures compliance with licensure laws - Employees (nurses, pharmacists, etc.) require individual state licenses/certifications[38] - The company conducts background checks and ensures employees comply with licensure laws[38] Pharmacy Licensing and Registration Pharmacy locations require in-state and out-of-state licenses, with DEA and state agencies mandating registrations for controlled substances - Pharmacy locations require in-state and, for out-of-state deliveries, out-of-state licenses[39] - DEA and state agencies mandate individual registrations for handling controlled substances, with strict labeling, reporting, and record-keeping[39] - Many states require home infusion companies to be licensed as home health agencies[40] Matters Affecting Drug Prices Reimbursement pricing is based on benchmarks like AWP and ASP, and changes to these could significantly impact profitability - Reimbursement pricing is based on benchmarks like AWP and ASP, which are periodically published by third parties and CMS[41] - Changes to these pricing benchmarks, particularly AWP, could significantly impact the company's profitability and contract economics[41] Privacy and Security Requirements The company is subject to HIPAA and HITECH regulations concerning protected health information (PHI) and continuously ensures compliance - Subject to HIPAA and HITECH regulations concerning protected health information (PHI) use, disclosure, confidentiality, and integrity[42] - The company continuously takes steps to ensure its policies and procedures comply with applicable HIPAA provisions[43] Regulations The company is governed by FDCA and DQSA for pharmaceuticals, and subject to Anti-Kickback Statute, False Claims Act, and Stark Law - Governed by FDCA for pharmaceutical handling and distribution, and DQSA for compounded drugs, adhering to PCAB and USP 797 standards[45][46] - Subject to the Anti-Kickback Statute, prohibiting payments to induce referrals, and the False Claims Act, prohibiting fraudulent claims for federal healthcare programs[48][49] - Must comply with the Stark Law, which prohibits physician referrals for certain Designated Health Services (DHS) to entities with which they have a financial relationship, unless an exception applies[51][52] Human Capital Resources Business success relies on attracting and retaining skilled and licensed nursing staff, pharmacists, and other professionals Employee Count (as of December 31, 2021) | Employee Type | Count | | :------------ | :---- | | Full-time | 5,430 | | Part-time | 1,808 | | Total | 7,238 | - Business success relies on attracting and retaining skilled and licensed nursing staff, pharmacists, and other professionals through competitive compensation and engaging assignments[54] Environment-Social-Corporate Governance Initiative The company is committed to ESG initiatives across four pillars: environmental impact reduction, patient community care, employee empowerment, and responsible enterprise management - The company is committed to ESG initiatives across four pillars: environmental impact reduction, patient community care, employee empowerment, and responsible enterprise management[55][56] - ESG initiatives include green packaging, expanding ambulatory infusion suites, increasing health access for patients, improving diversity/equity/inclusion, and strengthening data security and corporate governance[56] Available Information Corporate headquarters is in Bannockburn, IL, and SEC filings are available on investors.optioncarehealth.com and www.sec.gov - Corporate headquarters: 3000 Lakeside Drive, Suite 300N, Bannockburn, IL 60015[56] - SEC filings (10-K, 10-Q, 8-K, Proxy Statements) are available on investors.optioncarehealth.com and www.sec.gov[57](index=57&type=chunk) Item 1A. Risk Factors This section details various risks that could materially affect Option Care Health's business, including pharmaceutical, payer, regulatory, and financial factors Company-Specific Risk Factors Revenue and profitability are highly dependent on pharmaceutical manufacturers, and disruptions could have a material adverse effect - Revenue and profitability are highly dependent on pharmaceutical manufacturers' ability to develop, supply, and market compatible drugs; disruptions (supply shortages, recalls, FDA changes) could have a material adverse effect[60][61] - Loss of MCO relationships or reduced pricing from competitive bidding could significantly reduce patient access, revenue, and gross margins, as 88% of 2021 revenue came from non-governmental payers[62] - The healthcare industry is highly competitive, with national, regional, and local providers, some of whom are vertically integrated or have more favorable supply arrangements, potentially limiting the company's growth and pricing power[63][64][65] - Shortages of qualified nursing staff, pharmacists, and other professionals could increase operating costs and negatively impact service quality, patient retention, and referral sources[71][72] - Operating in highly regulated environments (pharmacy licensing, FDA, DEA, HIPAA, Anti-Kickback, False Claims, Stark Law) means non-compliance or changes in regulations could materially adversely affect reputation and profitability[77][78][79][80][81][82] Federal actions and legislation may reduce reimbursement rates from governmental payers and adversely affect our results of operations. Federal actions have historically reduced Medicare payments and drug costs, making the company vulnerable to changes in government programs - Federal actions (e.g., Budget Control Act, Affordable Care Act, 21st Century Cures Act) have historically reduced Medicare payments and drug costs[83] - 12% of 2021 revenue derived from government programs (Medicare, Medicaid) makes the company vulnerable to changes in statutory and regulatory requirements, administrative rulings, and funding restrictions[84] - State budgetary pressures may lead to decreased spending or spending growth for Medicaid programs, further impacting reimbursement[85] Delays in reimbursement may adversely affect our liquidity, cash flows and operating results. Complex reimbursement processes lead to significant delays in payment, and inability to collect accounts receivable could materially adversely affect liquidity and cash flows - Complex reimbursement processes lead to significant delays in payment, requiring multiple claim resubmissions[87] - Inability to collect outstanding accounts receivable could materially adversely affect liquidity, cash flows, and operating results[87] We are subject to pricing pressures and other risks involved with Third Party Payers. Competition and payer efforts to control costs have led to reduced reimbursement rates, and consolidation among MCOs could limit negotiation power - Competition and payer efforts to control costs have led to reduced reimbursement rates for home infusion and specialty pharmacy services[88] - Continued pricing pressures and consolidation among MCOs could limit the company's ability to negotiate favorable contract terms and increase competitive intensity[89] We face periodic reviews and billing audits by governmental and private payers, and these audits could have adverse findings that may negatively impact our business. The company is subject to periodic governmental and private payer reviews and billing audits, where adverse findings could lead to significant costs and reputational damage - Subject to periodic governmental and private payer reviews and billing audits to verify compliance with programs and regulations[90] - Adverse audit findings, including extrapolated billing errors, could lead to significant costs, required refunds, fines, exclusion from programs, or reputational damage[90][91][92] If any of our pharmacies fail to comply with the conditions of participation in the Medicare program, that pharmacy could be terminated from Medicare, which could adversely affect our consolidated financial statements. Pharmacies must comply with Medicare conditions of participation, as non-compliance could lead to termination and adversely affect financial statements - Pharmacies must comply with Medicare conditions of participation; non-compliance could lead to termination from the program[93] - Termination from Medicare for one or more pharmacies could adversely affect consolidated financial statements[93] We cannot predict the impact of changing requirements on compounding pharmacies. Compounding pharmacies are closely monitored by federal and state agencies, and reclassification or increased scrutiny could significantly increase costs - Compounding pharmacies are closely monitored by federal and state agencies[94] - Reclassification as an "outsourcing facility" under DQSA or increased scrutiny could significantly increase costs or affect operations[94] Risks Relating to Our Indebtedness The company's indebtedness could divert funds, impair liquidity, and restrict business opportunities, placing it at a competitive disadvantage Outstanding Indebtedness (as of December 31, 2021) | Debt Type | Amount (Millions USD) | | :-------------------- | :-------------------- | | First Lien Term Loan | $600 | | Senior Unsecured Notes | $500 | | Total | $1,100 | - Indebtedness could divert funds, impair liquidity, limit additional debt, and restrict business opportunities, placing the company at a competitive disadvantage[97][99] - Inability to generate sufficient cash flow to service debt may necessitate refinancing, asset disposal, or equity issuance, potentially on unfavorable terms, or lead to acceleration of indebtedness and asset foreclosure[100][101] Risks Relating to Our Common Stock Walgreens controls approximately 20.7% of common stock, giving it significant influence over stockholder-approved decisions, and corporate governance provisions could hinder acquisitions - Walgreens controls approximately 20.7% of common stock, giving it significant influence over stockholder-approved decisions like director elections and corporate transactions[103] - Corporate governance provisions (e.g., undesignated preferred stock, supermajority votes for director removal/charter amendments, no written consent) could hinder acquisitions or management changes, potentially depressing stock price[104][105][108] - The certificate of incorporation designates Delaware's Court of Chancery as the exclusive forum for certain litigation, potentially limiting stockholders' ability to choose a favorable judicial forum[107] General Risk Factors The COVID-19 pandemic continues to create significant volatility and uncertainty, impacting operations, staffing, and supply chain - The COVID-19 pandemic continues to create significant volatility and uncertainty, impacting operations, staffing, supply chain, and financial position, with unpredictable future developments[110][111][112][113] - Pending and future litigation (e.g., medical malpractice, breach of contract) could lead to significant monetary damages, substantial defense expenses, and required changes in business practices, potentially exceeding insurance coverage[114][115][116][117][118] - Cybersecurity risks (e.g., deliberate attacks, unintentional events) could compromise patient/customer/personnel information, leading to significant liability, regulatory penalties (HIPAA), reputational harm, and operational disruption[122][123][124][125] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[130] Item 2. Properties The company leases all its properties, including headquarters and 97 infusion pharmacies across 45 states, with terms through 2035 - All properties are leased, with terms extending through 2035[131] - Corporate headquarters is in Bannockburn, IL[131] - Operates 97 infusion pharmacies in 45 states, many with clean room and compounding capabilities, some co-located with ambulatory infusion centers[131] Item 3. Legal Proceedings Material legal proceedings are referenced in Note 14, Commitments and Contingencies, within the consolidated financial statements in Item 8 - Material legal proceedings are summarized in Note 14, Commitments and Contingencies, in Item 8[132] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Item not applicable[133] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Option Care Health's common stock trades on Nasdaq under "OPCH"; the company has never paid cash dividends and shows significant cumulative returns Common Stock Common Stock trades on Nasdaq Global Select Market under symbol "OPCH" - Common Stock trades on Nasdaq Global Select Market under symbol "OPCH"[136] Holders of Record Stockholders of Record | Date | Number of Holders | | :----------- | :---------------- | | Feb 18, 2022 | 122 | Dividend Policy The company has never paid cash dividends and does not anticipate doing so in the foreseeable future - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future[138] Securities Authorized for Issuance under Equity Compensation Plans Refer to Item 12 for information on securities authorized under equity compensation plans - Refer to Item 12 for information on securities authorized under equity compensation plans[139] Recent Sale of Unregistered Securities and Use of Proceeds No recent sale of unregistered securities or use of proceeds was reported - No recent sale of unregistered securities or use of proceeds[139] Stock Performance Graph Option Care Health's stock achieved a cumulative return of 683.65% from December 31, 2016, to December 31, 2021, significantly outperforming benchmark indices Cumulative Total Returns ($100 invested on Dec 31, 2016) | Index/Company | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | :-------------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | Option Care Health, Inc. | $100.00 | $279.81 | $343.27 | $358.65 | $375.96 | $683.65 | | Nasdaq Composite Index | $100.00 | $128.24 | $123.26 | $166.68 | $239.42 | $290.63 | | Nasdaq Health Services Index | $100.00 | $121.30 | $116.25 | $146.28 | $190.22 | $183.47 | - Option Care Health's stock achieved a cumulative return of 683.65% from December 31, 2016, to December 31, 2021, significantly outperforming benchmark indices[142] Item 6. Reserved This item is intentionally left blank - Item 6 is reserved[143] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Option Care Health's financial condition and results for 2021 and 2020, highlighting key changes, COVID-19 impact, and accounting estimates Business Overview Option Care Health provides infusion therapy and ancillary healthcare services through a national network of 154 locations - Option Care Health provides infusion therapy and ancillary healthcare services through a national network of 154 locations[146] - The company contracts with managed care organizations, third-party payers, hospitals, and physicians to provide pharmaceuticals and compounded solutions in home or non-hospital settings[146] - The company was formed from the reverse merger of Option Care into BioScrip in August 2019 and is listed on the Nasdaq Global Select Market[148] Update on the Impact of the COVID-19 Pandemic The COVID-19 pandemic has impacted operations since March 2020, affecting referral patterns, staffing, and procurement of PPE and key drugs - COVID-19 pandemic has impacted operations since March 2020, affecting referral patterns, staffing, and procurement of PPE and key drugs[150] - The company cannot confidently forecast the duration or ultimate financial impact of the pandemic on its operations[150] Composition of Results of Operations Gross profit is derived from net revenue less cost of revenue, while operating costs include selling, general, and administrative expenses and depreciation/amortization - Gross profit is derived from net revenue (estimated net realizable amounts from payers/patients) less cost of revenue (pharmaceuticals, medical supplies, warehousing, shipping, personnel, depreciation of revenue-generating assets)[153][155] - Volume-based rebates and prompt payment discounts from vendors reduce inventory and are accounted for as a reduction of cost of revenue when inventory is sold[156] - Operating costs include selling, general, and administrative expenses (salaries, occupancy, marketing, insurance, professional fees) and depreciation/amortization (infrastructure items)[157][158] - Other income/expense includes interest expense (on debt, amortization of fees, derivative changes), equity in joint ventures, and other non-operating items (e.g., loss on debt extinguishment)[159][160] Results of Operations Net revenue increased by 13.4% in 2021, primarily due to organic growth in chronic and acute therapies, leading to increased gross profit margin Consolidated Results of Operations (in thousands) | Metric | Year Ended Dec 31, 2021 (Amount) (in thousands USD) | Year Ended Dec 31, 2021 (% of Revenue) | Year Ended Dec 31, 2020 (Amount) (in thousands USD) | Year Ended Dec 31, 2020 (% of Revenue) | Variance (Amount) (in thousands USD) | Variance (%) | | :-------------------------------------- | :------------------------------------------------ | :----------------------------------- | :------------------------------------------------ | :----------------------------------- | :----------------------------------- | :----------- | | NET REVENUE | $3,438,640 | 100.0% | $3,032,610 | 100.0% | $406,030 | 13.4% | | COST OF REVENUE | 2,659,034 | 77.3% | 2,350,346 | 77.5% | 308,688 | 13.1% | | GROSS PROFIT | 779,606 | 22.7% | 682,264 | 22.5% | 97,342 | 14.3% | | Selling, general and administrative expenses | 525,707 | 15.3% | 500,199 | 16.5% | 25,508 | 5.1% | | Depreciation and amortization expense | 63,058 | 1.8% | 71,310 | 2.4% | (8,252) | (11.6)% | | Total operating expenses | 588,765 | 17.1% | 571,509 | 18.8% | 17,256 | 3.0% | | OPERATING INCOME | 190,841 | 5.5% | 110,755 | 3.7% | 80,086 | 72.3% | | Interest expense, net | (67,003) | (1.9)% | (107,770) | (3.6)% | 40,767 | (37.8)% | | Equity in earnings of joint ventures | 6,030 | 0.2% | 3,313 | 0.1% | 2,717 | 82.0% | | Other, net | (13,374) | (0.4)% | (11,541) | (0.4)% | (1,833) | 15.9% | | Total other expense | (74,347) | (2.2)% | (115,998) | (3.8)% | 41,651 | (35.9)% | | INCOME (LOSS) BEFORE INCOME TAXES | 116,494 | 3.4% | (5,243) | (0.2)% | 121,737 | (2321.8)% | | INCOME TAX (BENEFIT) EXPENSE | (23,404) | (0.7)% | 2,833 | 0.1% | (26,237) | (926.1)% | | NET INCOME (LOSS) | $139,898 | 4.1% | $(8,076) | (0.3)% | $147,974 | (1832.3)% | - Net revenue increased by 13.4% primarily due to organic growth in chronic therapies (mid-teens growth) and acute therapies (mid-single-digits growth)[166] - Gross profit margin slightly increased to 22.7% in 2021 (from 22.5% in 2020) due to a mix shift toward higher profit therapies[166] - Interest expense decreased by 37.8% due to debt refinancings in January and October 2021[170] - The company recorded a tax benefit of $23.4 million in 2021, resulting in a negative effective tax rate of 20.1%, primarily due to the release of a valuation allowance on deferred tax assets[172] Liquidity and Capital Resources The company's business strategy includes pursuing acquisitions, which may require additional capital beyond current availability Cash on Hand (in millions) | Year | Cash and Cash Equivalents (Millions USD) | | :--- | :--------------------------------------- | | 2021 | $119.4 | | 2020 | $99.3 | - The company's business strategy includes pursuing acquisitions, which may require additional capital beyond current availability[177] - In October 2021, the company refinanced its First Lien Term Loan ($600 million at LIBOR + 2.75%) and issued $500 million in 4.375% Senior Notes due 2029, extending maturities and reducing interest rates[180] Cash Flows Operating cash flow increased due to higher net income and decreased interest expense, while investing cash flow increased due to acquisitions Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Year Ended Dec 31, 2021 (in thousands USD) | Year Ended Dec 31, 2020 (in thousands USD) | Variance (in thousands USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------------- | | Net cash provided by operating activities | $208,569 | $127,392 | $81,177 | | Net cash used in investing activities | $(111,541) | $(26,334) | $(85,207) | | Net cash used in financing activities | $(76,870) | $(68,849) | $(8,021) | | Net increase in cash and cash equivalents | $20,158 | $32,209 | $(12,051) | | Cash and cash equivalents - end of period | $119,423 | $99,265 | $20,158 | - Operating cash flow increased due to higher net income and decreased interest expense from debt refinancings[184] - Investing cash flow increased due to acquisitions made in 2021[185] Critical Accounting Estimates Financial statements require estimates and assumptions for revenue recognition, accounts receivable, goodwill impairment, business acquisitions, and income taxes - Financial statements require estimates and assumptions for revenue recognition, accounts receivable, goodwill impairment, business acquisitions, and income taxes[188][189] - Revenue recognition involves estimating net realizable value, including adjustments for implicit price concessions based on insurance verification and historical data[190][191][192][193][194][195][196][197][198] - Goodwill is tested annually for impairment using a qualitative analysis, assessing macroeconomic conditions, industry factors, financial performance, and stock price changes. No impairment was found in 2021, 2020, or 2019[199][201] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is changing LIBOR-based interest rates on its variable-rate First Lien Term Loan, mitigated by derivatives Interest Rate Risk Primary market risk is changing LIBOR-based interest rates, affecting the $600.0 million variable-rate First Lien Term Loan - Primary market risk is changing LIBOR-based interest rates, affecting the $600.0 million variable-rate First Lien Term Loan[207] - The company uses interest rate derivative contracts, including a $300.0 million notional interest rate cap hedge (effective Nov 2021), to reduce interest rate risk[208] Impact of Interest Rate Change on Interest Expense | Change in Market Interest Rates | Impact on Interest Expense (Annual) | | :------------------------------ | :---------------------------------- | | +100 basis points | +$1.8 million | | -100 basis points | -$1.8 million | Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2021-2019, with an unqualified opinion from KPMG LLP on financial statements and internal controls Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the three-year period ended December 31, 2021[212] - KPMG LLP also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[213] - Critical audit matters included the evaluation of transaction price adjustments related to revenue recognition and the realizability of deferred tax assets, both involving subjective and complex auditor judgment[217][218][221][222] Consolidated Balance Sheets The consolidated balance sheets show increased total assets and stockholders' equity, with a decrease in total liabilities and long-term debt in 2021 Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2021 (in thousands USD) | December 31, 2020 (in thousands USD) | Change (in thousands USD) | | :------------------------------------------ | :----------------------------------- | :----------------------------------- | :------------------------ | | Total Assets | $2,790,918 | $2,647,439 | +$143,479 | | Total Liabilities | $1,615,032 | $1,631,715 | -$16,683 | | Total Stockholders' Equity | $1,175,886 | $1,015,724 | +$160,162 | | Cash and cash equivalents | $119,423 | $99,265 | +$20,158 | | Accounts receivable, net | $338,242 | $328,340 | +$9,902 | | Inventories | $183,095 | $158,601 | +$24,494 | | Goodwill | $1,477,564 | $1,428,610 | +$48,954 | | Long-term debt, net of discount, deferred financing costs and current portion | $1,059,900 | $1,115,103 | -$55,203 | Consolidated Statements of Comprehensive Income (Loss) Net income significantly improved to $139.9 million in 2021, reversing losses in prior years, driven by revenue growth and operational efficiencies Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands, except per share amounts) | Metric | Year Ended Dec 31, 2021 (in thousands USD) | Year Ended Dec 31, 2020 (in thousands USD) | Year Ended Dec 31, 2019 (in thousands USD) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net Revenue | $3,438,640 | $3,032,610 | $2,310,417 | | Gross Profit | $779,606 | $682,264 | $512,999 | | Operating Income (Loss) | $190,841 | $110,755 | $(319) | | Income (Loss) Before Income Taxes | $116,494 | $(5,243) | $(78,194) | | Net Income (Loss) | $139,898 | $(8,076) | $(75,920) | | Earnings (Loss) Per Common Share, Diluted | $0.77 | $(0.04) | $(0.49) | - Net income significantly improved to $139.9 million in 2021, reversing losses in prior years, driven by revenue growth and operational efficiencies[227] Consolidated Statements of Cash Flows Operating cash flow increased significantly in 2021, while investing cash flow increased due to acquisitions Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Year Ended Dec 31, 2021 (in thousands USD) | Year Ended Dec 31, 2020 (in thousands USD) | Year Ended Dec 31, 2019 (in thousands USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $208,569 | $127,392 | $39,467 | | Net cash used in investing activities | $(111,541) | $(26,334) | $(727,826) | | Net cash (used in) provided by financing activities | $(76,870) | $(68,849) | $719,024 | | Net increase in cash and cash equivalents | $20,158 | $32,209 | $30,665 | | Cash and cash equivalents - end of period | $119,423 | $99,265 | $67,056 | - Operating cash flow increased significantly in 2021, while investing cash flow increased due to acquisitions[229] Consolidated Statements of Stockholders' Equity Total stockholders' equity increased by $160.2 million in 2021, primarily due to net income and other comprehensive income Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2021 (in thousands USD) | December 31, 2020 (in thousands USD) | December 31, 2019 (in thousands USD) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Total Stockholders' Equity | $1,175,886 | $1,015,724 | $906,827 | | Paid-in capital | $1,138,855 | $1,129,312 | $1,008,362 | | Retained earnings (Accumulated deficit) | $39,867 | $(100,031) | $(91,955) | | Accumulated other comprehensive loss | $(451) | $(11,172) | $(7,195) | - Total stockholders' equity increased by $160.2 million in 2021, primarily due to net income and other comprehensive income[230] Notes to Consolidated Financial Statements This section provides detailed notes supporting the consolidated financial statements, covering operations, accounting policies, acquisitions, revenue, and other financial aspects Note 1. Nature of Operations and Presentation of Financial Statements Option Care Health provides infusion therapy and ancillary healthcare services through 97 full-service pharmacies and 57 ambulatory infusion sites - Option Care Health provides infusion therapy and ancillary healthcare services via 97 full-service pharmacies and 57 ambulatory infusion sites[235] - The company resulted from a reverse merger of Option Care into BioScrip on August 6, 2019, with Option Care as the accounting acquirer[233][234] - The company operates in a single segment: infusion services[235] Note 2. Summary of Significant Accounting Policies Accounts receivable are reported at net realizable value, and operating leases are recognized as right-of-use (ROU) assets and operating lease liabilities - Accounts receivable are reported at net realizable value, with no allowance for doubtful accounts as of December 31, 2021 and 2020[240][241] - Operating leases are recognized as right-of-use (ROU) assets and operating lease liabilities, with lease expense recognized on a straight-line basis[245][246][247] - An immaterial error correction reclassified certain payers from direct government to commercial for prior periods, with no impact on consolidated financial statements[271][272] Revenue Reclassification (December 31, 2020) | Payer Type | As Previously Reported (in thousands USD) | Adjustment (in thousands USD) | As Revised (in thousands USD) | | :----------- | :-------------------------------------- | :---------------------------- | :---------------------------- | | Commercial | $2,542,985 | $75,127 | $2,618,112 | | Government | $450,067 | $(75,127) | $374,940 | Note 3. Business Acquisitions The 2019 reverse merger with BioScrip created an expanded national platform, and 2021 saw acquisitions of BioCure assets, Infinity Infusion Nursing LLC, and Wasatch Infusion LLC - The 2019 reverse merger with BioScrip (Option Care as accounting acquirer) created an expanded national platform and opportunities for economies of scale[281][283] 2019 BioScrip Merger Consideration and Allocation (in thousands) | Item | Amount (in thousands USD) | | :------------------------------------------ | :------------------------ | | Total consideration transferred | $1,087,214 | | Total acquired identifiable assets and liabilities | $291,073 | | Goodwill | $796,141 | - In 2021, the company acquired BioCure assets ($18.9 million), Infinity Infusion Nursing LLC equity ($59.6 million), and Wasatch Infusion LLC equity ($19.5 million)[287][290][292] - Goodwill from Infinity acquisition ($32.5 million) is attributable to cost synergies and establishing a more comprehensive clinical platform. Goodwill from Wasatch acquisition ($16.4 million) is attributable to cost synergies from procurement and operational efficiencies[291][294] Note 4. Revenue Net revenue increased by 13.4% from 2020 to 2021, primarily driven by commercial payers Net Revenue by Payer Category (in thousands) | Payer Category | 2021 (in thousands USD) | 2020 (in thousands USD) | 2019 (in thousands USD) | | :--------------- | :---------------------- | :---------------------- | :---------------------- | | Commercial payers | $2,971,900 | $2,618,112 | $2,001,105 | | Government payers | $417,088 | $374,940 | $285,128 | | Patients | $49,652 | $39,558 | $24,184 | | Net revenue | $3,438,640 | $3,032,610 | $2,310,417 | - Net revenue increased by 13.4% from 2020 to 2021, primarily driven by commercial payers[295] Note 5. Employee Benefit Plans The company offers a 401(k) plan with a 100% match up to 4% of employee contributions - The company offers a 401(k) plan with a 100% match up to 4% of employee contributions[296] Defined Contribution Plan Expense (in millions) | Year | Expense (Millions USD) | | :--- | :--------------------- | | 2021 | $11.6 | | 2020 | $9.7 | | 2019 | $6.4 | Note 6. Income Taxes The company recognized a $23.4 million income tax benefit in 2021, primarily due to the reversal of a valuation allowance on deferred tax assets Income Tax (Benefit) Expense (in thousands) | Metric | 2021 (in thousands USD) | 2020 (in thousands USD) | 2019 (in thousands USD) | | :-------------------------- | :---------------------- | :---------------------- | :---------------------- | | Total income tax (benefit) expense | $(23,404) | $2,833 | $(2,274) | | Effective income tax rate | (20.1)% | (54.0)% | 2.9% | - The company recognized a $23.4 million income tax benefit in 2021, primarily due to the reversal of a valuation allowance on deferred tax assets[297][300] - The reversal of the valuation allowance was based on positive evidence including multi-year cumulative income, actual utilization of deferred tax assets, reduced interest expense from debt refinancings, and income from 2021 acquisitions[301] Deferred Tax Assets and Liabilities (in thousands) | Item | December 31, 2021 (in thousands USD) | December 31, 2020 (in thousands USD) | | :------------------------------------------ | :----------------------------------- | :----------------------------------- | | Deferred tax assets before valuation allowance | $174,903 | $237,126 | | Valuation allowance | $(13,151) | $(112,085) | | Deferred tax assets net of valuation allowance | $161,752 | $125,041 | | Deferred tax liabilities | $(134,719) | $(128,380) | | Net deferred tax assets (liabilities) | $27,033 | $(3,339) | Note 7. Earnings (Loss) Per Share Diluted EPS was $0.77 in 2021, reflecting net income and the inclusion of dilutive securities, while common stock equivalents were excluded in prior loss years Earnings (Loss) Per Common Share (in thousands, except per share data) | Metric | 2021 (in thousands USD) | 2020 (in thousands USD) | 2019 (in thousands USD) | | :------------------------------------------ | :---------------------- | :---------------------- | :---------------------- | | Net income (loss) | $139,898 | $(8,076) | $(75,920) | | Weighted average common shares outstanding, diluted | 181,205 | 180,971 | 156,280 | | Earnings (loss) per common share, diluted | $0.77 | $(0.04) | $(0.49) | - Diluted EPS was $0.77 in 2021, reflecting net income and the inclusion of dilutive securities[310] - Common stock equivalents were excluded from diluted EPS calculations in 2020 and 2019 as their inclusion would have been anti-dilutive due to net losses[307] Note 8. Leases New leases, extensions, and amendments in 2021 led to a $20.7 million increase in operating lease ROU assets and liabilities Operating Lease Expenses and Terms | Metric | 2021 (Millions USD) | 2020 (Millions USD) | | :-------------------------------- | :------------------ | :------------------ | | Operating lease expenses (millions) | $29.8 | $30.8 | | Weighted-average remaining lease term | 6.6 years | N/A | | Weighted-average discount rate | 5.10% | N/A | Operating Lease Maturities (in thousands) | Year Ending December 31 | Minimum Payments (in thousands USD) | | :---------------------- | :---------------------------------- | | 2022 | $23,558 | | 2023 | $20,508 | | 2024 | $14,930 | | 2025 | $12,218 | | 2026 | $9,315 | | 2027 and beyond | $28,052 | | Total lease payments | $108,581 | | Less: Interest | $(15,000) | | Present value of lease liabilities | $93,581 | - New leases, extensions, and amendments in 2021 led to a $20.7 million increase in operating lease ROU assets and liabilities[313] Note 9. Property and Equipment Depreciation expense is split between cost of revenue (revenue-generating assets) and operating expenses (infrastructure) Property and Equipment, Net (in thousands) | Asset Category | December 31, 2021 (in thousands USD) | December 31, 2020 (in thousands USD) | | :---------------------------------- | :----------------------------------- | :----------------------------------- | | Infusion pumps | $34,547 | $31,678 | | Equipment, furniture and other | $52,913 | $47,886 | | Leasehold improvements | $92,229 | $87,483 | | Computer software | $30,744 | $27,799 | | Assets under development | $19,924 | $10,793 | | Less: accumulated depreciation | $(118,822) | $(84,490) | | Property and equipment, net | $111,535 | $121,149 | Total Depreciation Expense (in thousands) | Year | Depreciation Expense (in thousands USD) | | :--- | :------------------------------------ | | 2021 | $35,611 | | 2020 | $42,766 | | 2019 | $31,808 | - Depreciation expense is split between cost of revenue (revenue-generating assets) and operating expenses (infrastructure)[314] Note 10. Goodwill and Other Intangible Assets Goodwill is not amortized but is tested annually for impairment, with no impairment found in 2021, 2020, or 2019 Goodwill Carrying Amount (in thousands) | Year | Balance at December 31 (in thousands USD) | | :--- | :-------------------------------------- | | 2018 | $632,469 | | 2019 | $1,425,542 | | 2020 | $1,428,610 | | 2021 | $1,477,564 | - Goodwill is not amortized but is tested annually for impairment; no impairment was found in 2021, 2020, or 2019[315][317] Intangible Assets, Net (in thousands) | Asset Category | December 31, 2021 (in thousands USD) | December 31, 2020 (in thousands USD) | | :-------------------------- | :----------------------------------- | :----------------------------------- | | Referral sources | $344,587 | $327,623 | | Trademarks/names | $20,782 | $23,390 | | Other amortizable intangible assets | $651 | $39 | | Total intangible assets, net | $366,020 | $351,052 | Expected Future Amortization Expense for Intangible Assets (in thousands) | Year | Amortization Expense (in thousands USD) | | :--- | :------------------------------------ | | 2022 | $31,628 | | 2023 | $31,628 | | 2024 | $31,628 | | 2025 | $31,628 | | 2026 | $31,628 | | 2027 and beyond | $207,880 | | Total | $366,020 | Note 11. Indebtedness In October 2021, the company refinanced its First Lien Term Loan to $600 million and issued $500 million in 4.375% Senior Notes, extending maturities and reducing interest rates Long-term Debt (in thousands) | Debt Type | December 31, 2021 (Net Balance) (in thousands USD) | December 31, 2020 (Net Balance) (in thousands USD) | | :---------------------------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | First Lien Term Loan | $577,064 | $888,787 | | Senior Notes | $488,836 | — | | Second Lien Notes | — | $235,566 | | Total long-term debt, net of discount, deferred financing costs and current portion | $1,059,900 | $1,115,103 | - In January 2021, the company amended its First Lien Term Loan, issuing $250 million incremental debt to prepay Second Lien Notes and reducing the interest rate from LIBOR + 4.25% to LIBOR + 3.75%[329] - In October 2021, the company refinanced its First Lien Term Loan to $600 million (LIBOR + 2.75%, maturing Oct 2028) and issued $500 million in 4.375% Senior Notes (maturing Oct 2029)[333] - The ABL Facility had $167.9 million net borrowing availability as of December 31, 2021, with no outstanding borrowings[336] Long-term Debt Maturities (in thousands) | Year Ending December 31 | Minimum Payments (in thousands USD) | | :---------------------- | :---------------------------------- | | 2022 | $6,000 | | 2023 | $6,000 | | 2024 | $6,000 | | 2025 | $6,000 | | 2026 | $6,000 | | 2027 and beyond | $1,070,000 | | Total | $1,100,000 | Note 12. Derivative Instruments The company uses derivative financial instruments (interest rate swaps and caps) to manage variable interest rate risk on debt - The company uses derivative financial instruments (interest rate swaps and caps) to manage variable interest rate risk on debt[340] - In October 2021, an interest rate cap hedge of $300 million notional was initiated for a 5-year term to partially offset First Lien Term Loan variable interest rate risk[344] - A $925 million notional interest rate swap expired in August 2021. A $400 million notional swap was discontinued as a hedge in May 2020 due to a PIK election on Second Lien Notes, reclassifying $3.7 million accumulated comprehensive loss to interest expense[341][342][343] Pre-tax Gains (Losses) from Derivative Instruments in OCI (in thousands) | Derivative | 2021 (in thousands USD) | 2020 (in thousands USD) | 2019 (in thousands USD) | | :------------------------------------------ | :---------------------- | :---------------------- | :---------------------- | | Interest rate caps designated as cash flow hedges | $(601) | — | $(1,103) | | Interest rate swaps designated as cash flow hedges | $11,172 | $(7,723) | $(7,195) | | Interest rate swaps that discontinued hedge accounting | — | $3,746 | — | | Total | $10,571 | $(3,977) | $(8,298) | Note 13. Fair Value Measurements Fair value measurements prioritize observable inputs (Level 1 & 2) over unobservable inputs (Level 3) - Fair value measurements prioritize observable inputs (Level 1 & 2) over unobservable inputs (Level 3)[346] - Fair values for First Lien Term Loan, Senior Notes, and interest rate derivatives are derived from broker quotes and market interest rates (Level 2 inputs)[347][349][350][351] - Second Lien Notes (prior to prepayment) were valued using a cash flow model based on market interest rates (Level 3 inputs)[348] Note 14. Commitments and Contingencies The company is involved in legal proceedings, investigations, and audits, where unanticipated verdicts or settlements could materially impact results - The company is involved in legal proceedings, investigations, and audits, some potentially involving large or indeterminate amounts[353] - While the company believes its defenses have merit, unanticipated verdicts or settlements could materially impact results of operations or cash flows[353] Note 15. Stock-Based Incentive Compensation The 2018 Equity Incentive Plan authorizes various equity awards, with an additional 4,999,999 shares authorized in May 2021, totaling 9,101,734 shares - The 2018 Equity Incentive Plan authorizes various equity awards; an additional 4,999,999 shares were authorized in May 2021, totaling 9,101,734 shares[354] Stock-Based Compensation Expense (in millions) | Award Type | 2021 (Millions USD) | 2020 (Millions USD) | 2019 (Millions USD) | | :-------------------------- | :------------------ | :------------------ | :------------------ | | Stock options | $1.9 | $0.4 | $0.0 | | Restricted stock awards | $4.9 | $2.3 | $0.0 | | HC I incentive units | $0.1 | $0.2 | $1.9 | Unrecognized Compensation Expense (as of December 31, 2021) | Award Type | Unrecognized Expense (Millions USD) | Weighted-Average Period | | :-------------------------- | :-------------------------------- | :---------------------- | | Stock options | $13.9 | 2.3 years | | Restricted stock awards | $31.2 | 2.1 years | Note 16. Stockholders' Equity A one-for-four reverse stock split was effective February 3, 2020, changing the ticker to "OPCH" and moving to Nasdaq Global Select Market - A one-for-four reverse stock split was effective February 3, 2020, changing the ticker to "OPCH" and moving to Nasdaq Global Select Market[365] - In 2020, the company received $118.9 million in net proceeds from a public offering of 10 million common shares[366] - HC I, the largest stockholder, held approximately 20.7% of common stock as of December 31, 2021, after completing secondary offerings[366] - All legacy BioScrip preferred stock was settled during the Merger, with no preferred stock outstanding as of December 31, 2021 or 2020[371] Note 17. Related-Party Transactions Management Services Agreements with Madison Dearborn Partners and Walgreen Co. were terminated post-Merger, incurring no expense in 2021 or 2020 - Management Services Agreements with Madison Dearborn Partners and Walgreen Co. were terminated post-Merger, incurring no expense in 2021 or 2020[372][373] - The company provides management services to its joint ventures, generating $3.5 million in income in 2021[376] - Balances due to/from joint ventures relate to cash collections and pharmaceutical purchases[377] Item 18. Subsequent Events In February 2022, the company agreed to acquire Specialty Pharmacy Nursing Network, Inc., with the financial effect not yet estimated - In February 2022, the company agreed to acquire Specialty Pharmacy Nursing Network, Inc., expected to close in 2022[378] - The financial effect of the acquisition cannot yet be estimated[378] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with accountants on accounting and financial disclosure - No unresolved staff comments were reported[380] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures were effective as of December 31, 2021, ensuring timely and accurate reporting - Disclosure controls and procedures were effective as of December 31, 2021, ensuring timely and accurate reporting[381] Management Report on Internal Control over Financial Reporting Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on COSO criteria - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on COSO criteria[383] - Internal control systems have inherent limitations and may not prevent or detect all misstatements[384] Changes in Internal Controls over Financial Reporting No material changes in internal controls over financial reporting occurred during Q4 2021 - No material changes in internal controls over financial reporting during Q4 2021[385] Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2021 - KPMG LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2021[388] - The audit was conducted according to PCAOB standards to obtain reasonable assurance about the maintenance of effective internal control[391] Item 9B. Other Information The company reported no other information required by this item - No other information was reported[395] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[396](i