Option Care Health Annual Report 2020

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FY2020 Annual Report · Option Care Health

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Option Care 21OCH00117 2020 Annual Report Wrap_MARKS.pdf

The numbers tell the story

2020 ANNUAL REPORT

Extraordinary care
throughout an
extraordinary year

2,900 1+

multidisciplinary clinicians

95 1+

pharmacies

125 1+

Ambulatory Infusion Suites

We provide service coverage to

96%1

of all insured lives

A MARKET LEADER

in providing access to specialty infusion therapies

in open and limited distribution networks

More than

220,000 2

patients cared for annually

Licensed to treat patients in

ALL 50 1

states

95% 3

overall patient satisfaction

References: 1. Data on file, Option Care Health. 2. January-December 2019, total Option Care Health unique patients serviced.3. January-December 2019 patient satisfaction data.

Survey of 9,878 patients.

3000 Lakeside Drive | Suite 300N | Bannockburn, IL 60015

59 Maiden Lane | New York, NY 10038

Investor Relations:

OPTION CARE HEALTH

Corporate Office

Phone: 866.827.8203

PRIMARY IR CONTACT

Mike Shapiro, Chief Financial Officer

Phone: 312.940.2538

Email: investor.relations@optioncare.com

TRANSFER AGENT

American Stock Transfer & Trust Co.

Phone: 718.921.8124

ACCOUNTANTS

KPMG LLP

Phone: 312.665.1000

200 E. Randolph Street | Suite 5500 | Chicago, IL 60601

optioncarehealth.com

Option Care Health locations are ACHC accredited. HHA numbers are available to view at optioncarehealth.com.

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March 15, 2021 11:33:51

Option Care 21OCH00117 2020 Annual Report Wrap_MARKS.pdf

Clinical excellence
infused with
compassionate
care.

Option Care Health® is the largest
independent provider of infusion

therapy in the nation. For over 40 years,

we’ve delivered cutting-edge infusion

medications, nursing support and seamless

transitional care for patients of all ages in

their homes and at conveniently located

Ambulatory Infusion Suites (AIS).

Through our long-term partnerships with

payers, biopharmaceutical manufacturers,

healthcare systems, physicians and other

referral sources, we deliver advanced

intravenous treatments available for a wide

range of acute and chronic conditions.

But the relationships that truly drive our

commitment to clinical excellence are those

between our team of more than 2,900¹

clinicians and the patients they serve.

Dear Shareholders,

For all of us, 2020 was an unprecedented and extraordinary year. And for Option
Care Health®, this was no exception. Managing through a global pandemic, extreme
weather events and enabling a remote workforce in a single year was something we
never predicted. Despite these challenges, I am incredibly proud of how our team
rose to the occasion and continued to provide extraordinary care to patients across
the country. Our 6,000 team members – with nearly 4,000 front-line workers - are
truly superheroes for the courage, compassion and perseverance they demonstrated.
This year they allowed us to service more than 220,000 patients and conduct nearly
500,000 nursing visits in the home or at one of our infusion suites. No matter what
obstacles we face, I can say with confidence that our patients are always at the center
- and the heart - of everything we do.

In spite of the challenges, we completed the vast majority of our integration efforts
following our merger with BioScrip in 2019 and achieved our goal of more than
$60 million in cost synergies. This included optimizing and consolidating facilities,
harmonizing our policies and procedures, deploying a comprehensive suite of
technology applications, and creating a cohesive and inclusive high-performance
culture.

There were definitely unforeseen benefits in 2020 as we quickly responded to the
COVID-19 crisis. The strength of our technology platform and the inherently mobile
design of our applications provided agility as we moved a significant number of team
members to remote work. We capitalized on collaboration tools we had previously
deployed to maximize the engagement of our team. Moreover, we innovated and
updated our procedures to ensure the safety of our team members and our patients;
including the accelerated development, deployment and adoption of telehealth/virtual
discharge and virtual visit capabilities.

In addition to demonstrating our ability to respond, recover and prosper in the face of
the COVID-19 pandemic, we made great progress delivering on our strategic priorities
that resulted in a very solid financial performance. Meanwhile, we never took our eye
off the safety of our employees and the needs of our patients.

Some additional achievements in 2020 included:

• Accelerating our top line growth

• Providing consistent high-quality care

• Strengthening our balance sheet

• And, improving our effectiveness in converting every claim to cash

Option Care Health is my recommendation as the very best provider.

This strong financial performance has allowed us to continue to invest in our people,
processes and technology.

Looking ahead, Option Care Health is poised to continue the momentum we created
during a very difficult year. We will capitalize on the favorable market trends placing
the home at the center of care, and our unparalleled platform and clinical expertise in
order to help transform healthcare and the patient experience.

Our purpose is to provide extraordinary care that changes lives – and 2020
demonstrated that this is in high demand now more than ever.

Best regards,

John C. Rademacher
President and Chief Executive Officer

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March 15, 2021 11:33:51

I’d like to express my gratitude for the excellent nursing and customer service I received while

I was a patient with Option Care Health. From the confident and experienced nursing staff, prompt

delivery and knowledgeable pharmacy assistance to the informed and compassionate customer service…

Thank you for making a stressful and difficult time in my life a little easier and manageable.

Derek, Option Care Health patient, Crohn’s disease

Testimonials are utilized with the express written consent of the individual patient.UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)

☑

☐

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 001-11993

OPTION CARE HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State of incorporation)

3000 Lakeside Dr. Suite 300N, Bannockburn, IL

(Address of principal executive offices)

05-0489664

(I.R.S. Employer Identification No.)
60015

(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
Common Stock, $0.0001 par value per share

Trading Symbol
OPCH

Name of each exchange on which registered
Nasdaq Global Select Market

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☑

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

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of June 30, 2020, the last business day of the
registrant’s most recently completed second fiscal quarter, was approximately $473,322,477 based on the closing price of the registrant’s Common
Stock on the Nasdaq Global Select Market on such date.

As of March 8, 2021, there were 179,814,189 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission (the “SEC”) within 120 days after the close of the registrant’s fiscal year are incorporated by reference into Part III of this Annual Report
on Form 10-K.

TABLE OF CONTENTS

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

PART I

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Item 9.

Item 9A.

Item 9B.

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information

PART III

Directors, Executive Officers and Corporate Governance

Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accounting Fees and Services

Item 15.

Item 16.

SIGNATURES

Exhibits, Financial Statement Schedules

Form 10-K Summary

PART IV

Page
Number

Forward-Looking Statements

This Annual Report on Form 10-K (“Annual 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. This Annual 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, Option Care Health, Inc. 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.

Item 1.

Business

Overview

PART I

Option Care Health, Inc. (“Option Care Health”, “we”, “us”, “our”, or the “Company”) is the largest independent provider

of home and alternate site infusion services through its national network of 145 locations in 45 states. Option Care Health draws
on nearly 40 years of clinical care experience to offer patient-centered, cost-effective infusion therapy. Option Care Health’s
infusion services include the clinical management of infusion therapy, nursing support and care coordination. Option Care
Health’s multidisciplinary team of approximately 2,900 clinicians, including pharmacists, pharmacy technicians, nurses and
dietitians, are able to provide infusion service coverage for nearly all patients across the United States needing treatment for
complex and chronic medical 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”), a national provider of infusion and home care management solutions,
along with certain other subsidiaries of BioScrip and HC II. The merger contemplated by the Merger Agreement (the “Merger”)
was completed on August 6, 2019 (the “Merger Date”). The Merger was accounted for as a reverse merger under the
acquisition method of accounting for business combinations with Option Care being considered the accounting acquirer and
BioScrip being considered the legal acquirer. Following the close of the transaction, BioScrip was rebranded as Option Care
Health, Inc.

Option Care Health 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.

The Company’s operating model enables it to provide favorable outcomes to its stakeholders as follows:

•

Patients. The Company improves patients’ quality of life by allowing them to receive infusion therapy at home or at
one of its ambulatory infusion suites. In addition, the Company helps manage patients’ conditions through counseling
and education regarding their treatment and by providing ongoing monitoring to encourage patient compliance with
the prescribed therapy. The Company also provides services to help patients receive reimbursement benefits.

Payers. The Company provides payers with a comprehensive approach to meeting their pharmacy service needs and
providing a cost-effective solution. The Company’s provision of infusion pharmacy services in the patient’s home or at
one of its local ambulatory infusion suites offers a lower cost alternative to providing these therapies in a hospital
setting. The Company also provides payers with utilization and outcome data to evaluate therapy effectiveness.

Physicians. The Company provides physicians with timely patient clinical support by providing care management
related to their patients’ pharmacy needs and improving compliance with therapy protocols. The Company eliminates
the need for physicians to carry inventories of high cost prescriptions by distributing the medications directly to
patients’ homes.

Pharmaceutical Manufacturers. The Company collaborates with pharmaceutical manufacturers to provide a broad
distribution channel for their existing pharmaceuticals and their new product launches. The Company implements
patient monitoring programs that encourage compliance with the prescribed therapy. The Company also provides
valuable clinical information in the form of outcomes and compliance data to manufacturers to aid in their evaluation
of the efficacy of their products.

Quality

Quality is at the core of the Company’s mission as it strives to deliver quality healthcare, leading to favorable outcomes
and more cost-effective care. The Company offers comprehensive services that align with specific healthcare provider needs
and has demonstrated success in improving outcomes across a broad range of therapies through improved clinical-reported
patient adherence rates and decreased rates of un-planned hospital re-admissions.

The Company’s commitment to continuous quality improvement to provide optimal outcomes for its patients is evidenced
by its national accreditations, including accreditations from Accreditation Commission for Health Care (“ACHC”), Pharmacy
Compounding Accreditation Board (“PCAB”), American Society of Health-System Pharmacists (“ASHP”) and Utilization
Review Accreditation Commission (“URAC”).

ACHC accreditation is awarded to healthcare organizations that meet regulatory requirements and accreditation standards,

and PCAB accreditation offers the most comprehensive compliance solution in the industry based on more than 40 sterile
compounding standards in the U.S. Pharmacopeia Pharmaceutical Compounding - Sterile Preparations Standards (“USP 797”).

Services

The Company is the largest independent provider of home and alternate site infusion services. The Company’s services are

most typically provided in the patient’s home, but may also be provided at clinics, the physician’s office or at one of its
ambulatory infusion suites. The Company provides a broad therapy portfolio through its network of 99 full service pharmacies
and 46 stand-alone ambulatory infusion suites. The Company’s home infusion services include medication and supplies for
administration and use at home or within one of its ambulatory infusion suites, consultation and education regarding the
patient’s condition and the prescribed medication nursing support, clinical monitoring and assistance in monitoring potential
side effects, and assistance in obtaining reimbursement. The Company administers a wide variety of therapies and services,
including the following:

•

Anti-Infectives Infusion. The Company provides comprehensive home infusion services to combat serious infections
in patients of all ages. The Company’s anti-infective therapy and services help avoid hospitalizations for many
infections that can be safely treated at home.

• Heart Failure. The Company administers home infusion services to treat heart failure, either in anticipation of

•

cardiac transplant or to provide palliation of heart failure symptoms.
Chronic Inflammatory Disorders. The Company treats chronic inflammatory disorders, which include Crohn’s
disease, plaque psoriasis, psoriatic arthritis, rheumatoid arthritis, ulcerative colitis, and other chronic inflammatory
disorders.
Immunoglobulin Infusion. The Company offers industry-leading expertise, access, and support in immunoglobulin
(“IG”) infusion therapy designed to treat immune deficiencies. Immune deficiencies are disorders that reduce the
patient’s ability to identify and destroy substances that do not belong in the human body and are characterized by
reduced levels of antibodies. Intravenous IG infusions are concentrated antibodies that have been purified from large
numbers of human blood donors.
Bleeding Disorders Infusion. As a leading provider of home infusion therapy for hemophilia and von Willebrand
disease, the Company streamlines the administrative burdens associated with infusion therapies for bleeding disorders.
The Company works with medical specialists across the country to offer access to all approved factor products, a full
range of therapies, and dedicated support services. Hemophilia is one of the most costly diseases to treat. The
treatment goal is to raise the level of the deficient clotting factor and maintain it to stop the bleeding. Treatments
include infusion of the clotting factor products and other biologic prescription drugs. The length of treatment depends
on the severity of the bleeding episode, and the need for treatment continues throughout the life of the patient.
Nutrition Support Infusion. The Company delivers comprehensive nutrition support across pediatric, adult, and
geriatric patients. The Company’s expert team provides home parenteral nutrition and enteral nutrition support for
numerous acute and chronic conditions negatively affecting nutritional status, such as stroke, cancer, and
gastrointestinal diseases.

• Women’s Health. The Company offers therapies that women need to survive and thrive through high-risk

pregnancies. Personalized programs in prematurity, nausea and vomiting hyperemesis, diabetes in pregnancy, and
hypertension help meet the needs of each mother.
Neurological Disorders. The Company provides an array of treatments to manage the progression of neurological
disorders such as Amyotrophic Lateral Sclerosis (“ALS” or “Lou Gehrig’s disease”) and Duchenne Muscular
Dystrophy.
Other. The Company offers a range of other infusion therapies to treat a variety of conditions, including pain
management, chemotherapy and respiratory medication.

•

The Company also provides nursing services to support the above therapies, comprised of its nursing team of

approximately 1,300 employees, and through its network of sub-contracted nursing agencies.

Sales and Marketing

The Company’s sales and marketing efforts focus on three primary objectives: (1) building new relationships and
expanding existing contracts with managed care organizations; (2) establishing, maintaining and strengthening relationships
with local and regional patient referral sources; and (3) maintaining existing and developing new relationships with
pharmaceutical manufacturers to gain distribution access as they release new products.

The Company’s sales structure is focused on maintaining and expanding its relationships with drug manufacturers to
establish its position as a participating provider when they release new products. In addition, the Company’s sales structure
allows it to leverage its national managed care relationships to provide sales and contract pull-through by the Company’s local
field-based sales personnel. This cross-utility enables the Company to market its services to numerous sources of patient
referrals, including physicians, hospital discharge planners, hospital personnel, Health Maintenance Organizations (“HMOs”)
and Preferred Provider Organizations (“PPOs”).

Competition

The Company competes in the large and highly fragmented home infusion market for contracts with managed care

organizations and other third party payers to receive referrals from physicians, case managers and hospital discharge planners.
Competition in the home infusion market is based on quality of care, clinical outcomes, pricing and cost of service, reputation,
and reliability of service. Its competitors within the home infusion market include Coram CVS/specialty infusion services (a
division of CVS Health), Accredo Health Group, Inc. (a unit of Cigna), Briova (a subsidiary of OptumRx, which is a unit of the
United Healthcare Insurance Company) and various regional and local providers. The Company believes that its reputation for
providing quality services, the strength of its national presence and its ability to effectively market its services at national,
regional and local levels places it in a strong position against existing and potential competitors. The Company believes that the
value created by the Merger has put the Company in a unique position to efficiently capture market share through its expanded
footprint and synergies.

Intellectual Property

The Company owns a variety of trademarks, licenses, and service marks, including but not limited to: “Option Care
Health”, “Option Care”, “Critical Care Systems”, “Clinical Specialties”, “BioScrip”, “BioScrip Infusion Services”, “BioScrip
Nursing Services”, “BioScrip Pharmacy Services”, “CarePoint Partners”, “HomeChoice Partners”, “InfuScience”,
“InfusionCare”, “Infusion Partners”, “Infusion Solutions”, “New England Home Therapies”, “Option Health”, “Professional
Home Care Services”, “Wilcox Home Infusion”, “Home Solutions”, as well as several others.

Suppliers

The Company purchases pharmaceuticals and medical supplies through pharmaceutical manufacturers, distributors and
group purchasing organizations. Through the coverage and clinical expertise of its 99 full service pharmacies, the Company
provides pharmaceutical manufacturers with a broad distribution channel for its existing pharmaceutical products. Many of the
pharmaceuticals that the Company purchases are available from multiple sources and are available in sufficient quantities to
meet its needs and the needs of its patients. However, some drugs are only available through the manufacturer and may be
subject to limits on distribution. In such cases, it is important the Company establishes and maintains good working relations
with the manufacturer to secure sufficient supply to meet its patients’ needs. Additionally, certain drugs may become subject to
supply shortages. Such shortages can result in cost increases or hamper the Company’s ability to obtain sufficient quantities to
meet the needs of its patients. The Company actively manages its relationships with direct manufacturers and distributors to
ensure consistent supply and cost-effective procurement. These relationships provide the Company the opportunity to become a
selected partner in the launch of their new products. The Company may receive fees, which it records as revenue, from certain
biotech manufacturers for providing them with clinical outcomes data. The Company’s continued growth will be dependent on
maintaining its existing relationships with manufacturers and establishing new relationships with additional manufacturers as
the Company launches new products.

For the year ended December 31, 2020, approximately 70% of the Company’s pharmaceutical and medical supply
purchases are 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.

Through the purchasing power of its national platform, the Company is able to negotiate favorable terms and economics,

including volume purchase rebates and vendor administration fees. Such fees are recorded as reductions to cost of revenue
when the pharmaceuticals are delivered to the patient.

Billing & Significant Payers

The Company generates most of its revenue from contracts with third party payers, including managed care organizations,

insurance companies, self-insured employers, Medicare, and Medicaid programs. Where permissible, the Company bills
patients for any amounts not reimbursed by third party payers. The majority of the Company’s infusion pharmacy revenue
consists of reimbursement for both the cost of the pharmaceuticals sold and the cost of services provided. Pharmaceuticals are
typically reimbursed on a percentage discount from the published average wholesale price (“AWP”) of each drug or on a
percentage premium to average sales price (“ASP”). Nursing services are typically billed separately, while other patient support
services, such as pharmacy compounding service, delivery service and ancillary medical supplies are reimbursed either
separately or on a per diem basis, where applicable.

The Company’s largest payer is United Health Group, which represented approximately 15% of its revenue for the year

ended December 31, 2020. No other single payer represented more than 10% of its revenue. The Company also provides
services that are directly reimbursable through government healthcare programs such as Medicare and state Medicaid programs.
For the year ended December 31, 2020, approximately 15% of the Company’s revenue was reimbursable through direct
governmental programs, such as Medicare and Medicaid.

Governmental Regulation

The home infusion industry is subject to extensive regulation by a number of federal, state and local governmental entities.
The industry is also subject to frequent regulatory change. Laws and regulations in the healthcare industry are complex and, in
many instances, the industry does not benefit from significant regulatory or judicial interpretation that would clarify how these
laws and regulations should be applied. Moreover, the Company’s business is also impacted by certain laws and regulations that
are applicable to its managed care and other clients. If the Company fails to comply with the laws and regulations directly
applicable to its business, the Company could suffer civil and/or criminal penalties, and the Company could be excluded from
participating in Medicare, Medicaid and other federal and state healthcare programs, which would have an adverse impact on its
business.

Professional Licensure

Nurses, pharmacists and certain other healthcare professionals employed by the Company are required to be individually
licensed or certified under applicable state law. The Company performs criminal and other background checks on employees
and takes steps to ensure that its employees possess all necessary licenses and certifications, and the Company believes that its
employees comply in all material respects with applicable licensure laws.

Pharmacy Licensing and Registration

State laws require that each of its pharmacy locations be licensed as an in-state pharmacy to dispense pharmaceuticals in

that state. Certain states also require that its pharmacy locations be licensed as an out-of-state pharmacy if the Company
delivers prescription pharmaceuticals into those states from locations outside of the state. The Company believes that it
materially complies with all applicable state licensing laws. If the Company is unable to maintain its licenses or if states place
burdensome regulations on non-resident pharmacies, its ability to operate in some states would be limited, which could have an
adverse impact on its business. Laws enforced by the Drug Enforcement Administration (“DEA”), as well as some similar state
agencies, require its pharmacy locations to individually register in order to handle controlled substances, including prescription
pharmaceuticals. A separate registration is required at each principal place of business where the Company dispenses controlled
substances. Federal and state laws also require that the Company follow specific labeling, reporting and record-keeping
requirements for controlled substances. The Company maintains federal and state controlled substance registrations for each of
its facilities that require such registration and follows procedures intended to comply with all applicable federal and state
requirements regarding controlled substances.

Many states in which the Company operates also require home infusion companies to be licensed as home health agencies.

The Company believes it is in compliance with these laws, as applicable.

The Company believes that it materially complies with all applicable state licensing laws, including any applicable change

of control requirements that may have triggered in connection with the Merger.

Matters Affecting Drug Prices

Pricing benchmarks in the pharmacy industry are periodically published by third parties such as First DataBank, Medi-
Span, RJ Health, and the Centers for Medicare & Medicaid Services (“CMS”), and the benchmark reimbursement varies by
payer contract. The most commonly used benchmarks are AWP and ASP. AWP is based on self-reported prices charged by
wholesalers and manufacturers. Reimbursement is generally AWP minus a percentage and may include a per diem fee or a
fixed dispensing fee. ASP is based on actual sales transactions reported by wholesalers, and is generally lower than AWP.
Reimbursement is generally ASP plus a percentage. The Company may also receive a fixed dispensing fee or a per diem fee for
each day a patient is on service. Changes to these pricing benchmarks may have a significant impact on the profitability of the
Company’s business.

Privacy and Security Requirements

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the Health Information
Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations regulate the use, disclosure,
confidentiality, availability and integrity of individually identifiable health information, known as “protected health
information,” and provide for a number of individual rights with respect to such information. The federal privacy regulations
(the “Privacy Regulations”) are designed to protect health-related information that could be used to identify an individual’s
protected health information.

The requirements imposed by HIPAA are extensive, and the Company has taken and intends to continue to take steps to

ensure its policies and procedures are in compliance with the applicable provisions.

Regulations

Food, Drug and Cosmetic Act. Certain provisions of the Food, Drug and Cosmetic Act (“FDCA”) govern the handling and
distribution of pharmaceutical products. This law exempts many pharmaceuticals and medical devices from federal labeling and
packaging requirements as long as they are not adulterated or misbranded and are dispensed in accordance with and pursuant to
a valid prescription. The Company believes it complies with all applicable requirements. The FDCA also governs interstate
commerce for pharmaceutical products. The Company cannot predict the impact of any proposed FDCA regulations on its
ability to ship drugs to different states from its pharmacies.

The Drug Quality and Security Act (“DQSA”) amended the FDCA to grant the Food and Drug Administration (“FDA”)

authority to regulate the manufacturing of compounded pharmaceutical drugs. The Company complies with the PCAB and
Accreditation Standards for Sterile and Non-Sterile Pharmacy Compounding, and aggressively pursues accreditation from
quality associations. The Company believes it complies in all material respects with all applicable requirements of a non-
outsourcing-facility pharmacy.

The FDA also regulates certain medical devices, such as infusion pumps the Company uses to provide its services. In

recent years, the FDA has increased its oversight of infusion pumps, resulting in additional requirements around patient
education and adverse event reporting. The Company believes it complies in all material respects with all applicable
requirements and that its employees have the level of proficiency required to use these devices and provide training to its
patients.

Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits individuals and entities from knowingly and willfully
paying, offering, receiving, or soliciting money or anything else of value in order to induce the referral of patients or to induce a
person to purchase, lease, order, arrange for, or recommend services or goods covered by Medicare, Medicaid, or other
government healthcare programs. The Anti-Kickback Statute is broad and potentially covers many standard business
arrangements. A number of states also have statutes and regulations that prohibit the same general types of conduct as those
prohibited by the Anti-Kickback Statute described above. Violations can lead to significant criminal or civil penalties, including
imprisonment. The Office of the Inspector General (“OIG”) of the U.S. Department of Health and Human Services (“HHS”)
has published clarifying regulations that identify a limited number of safe harbors from criminal enforcement or civil
administrative actions. The Company attempts to structure its business relationships to comply with these statutes and to satisfy
an applicable safe harbor where applicable. However, in situations where a business relationship does not fully satisfy the
elements of a safe harbor, or where no safe harbor exists, the Company attempts to satisfy as many elements of an applicable
safe harbor as possible.

False Claims Act. The Company is subject to state and federal laws that govern the submission of claims for
reimbursement. These laws generally prohibit an individual or entity from knowingly and willfully presenting a claim or
causing a claim to be presented for payment from a federal healthcare program that is false or fraudulent. The standard for
“knowing and willful” may include conduct that amounts to a reckless disregard for the accuracy of information presented to
payers. Penalties under these statutes include substantial civil and criminal fines, exclusion from the Medicare or Medicaid
programs and imprisonment. One of the most prominent of these laws is the federal False Claims Act, which may be enforced
by the federal government directly or by a private plaintiff by filing a qui tam lawsuit on the government’s behalf. Under the
False Claims Act, the government and private plaintiffs, if any, may recover monetary penalties in the amount of $11,665 to
$23,331 per false claim, as well as an amount equal to three times the amount of damages sustained by the government as a
result of the false claim. A number of states, including states in which the Company operates, have adopted their own false
claims statutes as well as statutes that allow individuals to bring qui tam actions. The Company believes that it has procedures
in place to ensure the accuracy of its claims.

Medicare Home Health CY 2020 Home Health Prospective Payment Systems Rate Update. On October 31, 2019, the CMS

issued a final rule that includes updates to payment policies, payment rates, and quality provisions for services. The final rule
set forth routine updates to the home infusion therapy services for calendar year 2021 and subsequent years, and solicits
comments on options to enhance future efforts to improve policies related to coverage of eligible drugs for home infusion
therapy.

Ethics in Patient Referrals Law (Stark Law)

The Stark Law exempts certain business relationships that meet its exception requirements. However, unlike the Anti-

Kickback Statute under which an activity may fall outside a safe harbor and still be lawful, a referral for certain Designated
Health Services (“DHS”) that does not fall within an exception is strictly prohibited by the Stark Law. In addition to the Stark
Law, many of the states in which the Company operates have comparable restrictions on the ability of physicians to refer
patients for certain services to entities with which the Company has a financial relationship. Certain of these state statutes
mirror the Stark Law while others may be more restrictive. The Company attempts to structure all of its business relationships
with physicians to comply with the Stark Law and any applicable state self-referral laws.

The federal Stark Law generally prohibits a physician from making referrals for certain DHS, reimbursable by Medicare or
Medicaid, to entities with which the physician or an immediate family member has a financial relationship, unless an exception
applies. A financial relationship is generally defined as an ownership, investment or compensation relationship. DHS includes
outpatient pharmaceuticals, parenteral and enteral nutrition products, home health services, durable medical equipment,
physical and occupational therapy services, and inpatient and outpatient hospital services. Among other sanctions, a civil
monetary penalty may be imposed for each bill or claim for a service a person knows or should know is for a service for which
payment may not be made due to the Stark Law. Such persons or entities are also subject to exclusion from the Medicare and
Medicaid programs. Any person or entity participating in a circumvention scheme to avoid the referral prohibitions is liable for
civil monetary penalties, and additional fines may be imposed for failure to comply with reporting requirements regarding an
entity’s ownership, investment and compensation arrangements for each day for which reporting is required to have been made
under the Stark Law.

Human Capital Resources

As of December 31, 2020, the Company employed 5,146 persons on a full-time basis and 706 persons on a part-time basis.

The majority of its part-time employees are clinicians due to the nature and timing of the services the Company provides.

Our business relies on our ability to attract and retain nursing staff, pharmacists and other professionals who possess the
skills, experience and licenses necessary to meet the requirements of their job responsibilities. Our ability to attract and retain
personnel depends on several factors, including our ability to provide them with engaging assignments and competitive salaries
and benefits.

Available Information

The Company’s corporate headquarters is located at 3000 Lakeside Drive, Suite 300N, Bannockburn, IL 60015. The

Company maintains a website at http://www.optioncarehealth.com. The information contained on its website is not incorporated
by reference into this Annual Report and should not be considered part of this report. The Company’s Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Proxy Statements are available through the website
at https://investors.optioncarehealth.com/, free of charge, as soon as reasonably practicable after they are filed with or furnished
to the SEC.

The SEC maintains a website that contains reports, proxy and information statements, and other information regarding

issuers that file electronically with the SEC at www.sec.gov.

Item 1A.

Risk Factors

Investors should carefully consider the following Company-specific and general risk factors.

Company-Specific Risk Factors

Our revenue and profitability will decline if the pharmaceutical industry undergoes certain changes, including limiting
or discontinuing research, development, production and marketing of the pharmaceuticals that are compatible with the
services we provide.

Our business is highly dependent on the ability of pharmaceutical manufacturers to develop, supply and market
pharmaceuticals that are compatible with the services we provide. Our revenue and profitability will decline if those companies
were to sell pharmaceuticals directly to the public, fail to support existing pharmaceuticals or develop new pharmaceuticals
with different administration requirements than our service offerings are currently equipped to handle. Our business could also
be harmed if the pharmaceutical industry experiences any supply shortages, pharmaceutical recalls, changes in the FDA
approval processes, or changes to how pharmaceutical manufacturers finance, promote or sell pharmaceutical products. A
reduction in the supply of and market for pharmaceuticals that are compatible with the services we provide may have a material
adverse effect on our financial condition and results of operations.

If we lose relationships with managed care organizations (“MCOs”) and other non-governmental third party payers, we

could lose access to a significant number of patients and our revenue and profitability could decline.

We are highly dependent on reimbursement from MCOs, government programs such as Medicare and Medicaid and
commercial insurers (collectively, “Third Party Payers”). For the year ended December 31, 2020, 85% of our revenue came
from managed care organizations and other nongovernmental payers, including Medicare Advantage plans, Managed Medicaid
plans, pharmacy benefit managers (“PBM’s”), and self-pay patients. Many payers seek to limit the number of providers that
supply pharmaceuticals to their enrollees in order to build volume that justifies their discounted pricing. From time to time,
payers with whom we have relationships require that we bid against our competitors to keep their business. As a result of this
bidding process, we may not be retained, and even if we are retained, the prices at which we are able to retain the business may
be reduced. The loss of a payer relationship could significantly reduce the number of patients we serve and have a material
adverse effect on our revenue and net income, and a reduction in pricing could reduce our gross margins and net income.

The healthcare industry is highly competitive.

The healthcare industry is highly competitive. We compete directly with national, regional and local healthcare providers.
There are many other companies and individuals currently providing healthcare services that we provide, many of which have
been in business longer and/or have substantially more resources. Other companies could enter the healthcare industry in the
future and divert some or all of our business. We expect to continue to encounter competition in the future that could limit our
ability to grow revenue and/or maintain acceptable pricing levels.

Some of our competitors have vertically integrated business models with commercial payers, or are under common control

with, or owned by, pharmaceutical wholesalers and distributors, managed care organizations, PBMs or retail pharmacy chains
and may be better positioned with respect to the cost-effective distribution of pharmaceuticals. In addition, some of our
competitors may have secured long-term supply or distribution arrangements for prescription pharmaceuticals necessary to treat
certain chronic disease states on price terms substantially more favorable than the terms currently available to us. Consequently,
we may be less price competitive than some of these competitors with respect to certain pharmaceutical products.

Accountable Care Organizations (“ACOs”) and other clinical integration models may result in lower reimbursement rates.

Some of our competitors may negotiate exclusivity provisions with managed care plans or otherwise interfere with the ability of
managed care companies to contract with us. Increasing consolidation in the payer and supplier industries, including vertical
integration efforts among insurers, providers, and suppliers, and cost-reduction strategies by large employer groups and their
affiliates may limit our ability to negotiate favorable terms and conditions in our contracts and otherwise intensify competitive
pressure. In addition, our competitive position could be adversely affected by any inability to obtain access to new biotech
pharmaceutical products.

If we are unable to maintain relationships with existing patient referral sources, our business and consolidated

financial condition, results of operations, and cash flows could be materially adversely affected.

Our success depends on referrals from physicians, hospitals, and other sources in the communities we serve and on our
ability to maintain good relationships with existing referral sources. Our referral sources are not contractually obligated to refer
patients to us and may refer their patients to other providers. Our growth and profitability depends, in part, on our ability to
establish and maintain close working relationships with these patient referral sources, and to increase awareness and acceptance
of the benefits of home infusion by our referral sources and their patients. Our loss of, or failure to maintain, existing
relationships or our failure to develop new referral relationships could have a material adverse effect on our business and
consolidated financial condition, results of operations, and cash flows.

Changes in industry pricing benchmarks could adversely affect our financial performance.

Our contracts generally use certain published benchmarks to establish pricing for the reimbursement of prescription
medications we dispense. These benchmarks include AWP, wholesale acquisition cost, ASP and average manufacturer price.
Many of our contracts utilize the AWP benchmark. Publication of the AWP benchmark was expected to cease in 2011 as a
result of the settlement of class-action lawsuits brought against First DataBank and Medi-Span, third-party publishers of various
pricing benchmarks. However, Medi-Span continues to publish the AWP benchmark and has indicated that it will continue to
do so until a new benchmark is widely accepted. Several industry participants have explored establishing a new benchmark but
there is not currently a viable generally accepted alternative to the AWP benchmark. Without a suitable pricing benchmark in
place, many of our contracts will have to be modified and could potentially change the economic structure of our agreements.

Changes in our relationships with pharmaceutical suppliers, including changes in drug availability or pricing, could

adversely affect our business and financial results.

We have contractual relationships with pharmaceutical manufacturers to purchase the pharmaceuticals that we dispense. In

order to have access to these pharmaceuticals, and to be able to participate in the launch of new pharmaceuticals, we must
maintain a good working relationship with these manufacturers. Most of the manufacturers of the pharmaceuticals we sell have
the right to cancel their supply contracts with us without cause and after giving only minimal notice. Any changes to these
relationships, including, but not limited to, the loss of a manufacturer relationship, drug shortages or changes in pricing, could
have an adverse effect on our business and financial results.

Some pharmaceutical manufacturers attempt to limit the number of preferred distributors that may market certain of their

pharmaceutical products. We cannot provide assurance that we will be selected and retained as a preferred distributor or can
remain a preferred distributor to market these products. Although we believe we can effectively meet our suppliers’
requirements, we cannot provide assurance that we will be able to compete effectively with other providers to retain our
position as a distributor of each of our core products. Adverse developments with respect to this trend could have a material
adverse effect on our financial condition and results of operations.

A disruption in pharmaceutical and medical supply could adversely impact our business.

For the year ended December 31, 2020, approximately 70% of our pharmaceutical and medical supply purchases are from

three vendors. Most of the pharmaceuticals that we purchase are available from multiple sources, and we believe they are
available in sufficient quantities to meet our needs and the needs of our patients. We keep safety stock to ensure continuity of
service for reasonable, but limited, periods of time. Should a supply disruption result in the inability to obtain especially high
margin drugs and compound components necessary for patient care, our consolidated financial statements could be negatively
impacted. The COVID-19 pandemic has led to a constrained supply environment which could result in higher cost to procure,
and potential unavailability of, critical personal protection equipment, pharmaceuticals and medical supplies. As of
December 31, 2020 we have not experienced a significant impact in the availability of supplies from the COVID-19 pandemic.

A shortage of qualified registered nursing staff, pharmacists and other professionals could adversely affect our ability to

attract, train and retrain qualified personnel and could increase operating costs.

Our business relies on our ability to attract and retain nursing staff, pharmacists and other professionals who possess the

skills, experience and licenses necessary to meet the requirements of their job responsibilities. From time to time and
particularly in recent years, there have been shortages of nursing staff, pharmacists and other professionals in certain local and
regional markets. As a result, we are often required to compete for personnel with other healthcare systems and our competitors.
Our ability to attract and retain personnel depends on several factors, including our ability to provide them with engaging
assignments and competitive salaries and benefits. We may not be successful in any of these areas.

In addition, where labor shortages arise in markets in which we operate, we may face higher costs to attract personnel, and

we may have to provide them with more attractive benefit packages than originally anticipated or are being paid in other
markets where such shortages do not exist at the time. In either case, such circumstances could cause our profitability to
decline. Finally, if we expand our operations into geographic areas where healthcare providers historically have unionized or
unionization occurs in our existing geographic areas, negotiating collective bargaining agreements may have a negative effect
on our ability to timely and successfully recruit qualified personnel and on our financial results. If we are unable to attract and
retain nursing staff, pharmacists and other professionals, the quality of our services may decline and we could lose patients and
referral sources, which could have a material adverse effect on our business and consolidated financial condition, results of
operations and cash flows.

Introduction of new drugs or accelerated adoption of existing lower margin drugs could cause us to experience lower

revenues and profitability when prescribers prescribe these drugs for their patients or they are mandated by Third Party
Payers.

The pharmaceutical industry pipeline of new drugs includes many drugs that over the long term may replace older, more
expensive therapies. As a result of such older drugs losing patent protection and being replaced by generic substitutes, new and
less expensive delivery methods (such as when an infusion or injectable drug is replaced with an oral drug) or additional
products are added to a therapeutic class, thereby increasing price competition among competing manufacturer’s products in
that therapeutic category. In such cases, manufacturers have the ability to increase drug acquisition costs or lower the selling
price of replaced products. This could negatively impact our revenues and/or margins.

Failure to develop new services or adapt to changes and trends within the healthcare industry may adversely affect our

business.

We operate in a highly competitive environment. We develop new services from time to time to assist our clients. If we are

unsuccessful in developing innovative services, our ability to attract new clients and retain existing clients may suffer.

Technology, including the ability to capture and report outcomes, is also an important component of our business as we
continue to utilize new and better channels to communicate and interact with our clients, members and business partners. If our
competitors are more successful than us in employing this technology, our ability to attract new clients, retain existing clients
and operate efficiently may suffer. Any significant shifts in the structure of the healthcare products and services industry in
general could alter the industry dynamics and adversely affect our ability to attract or retain clients. Our failure to anticipate or
appropriately adapt to changes in the industry could negatively impact our competitive position and adversely affect our
business and results of operations.

Changes in future business conditions could cause business investments and/or recorded goodwill to become impaired,

and our financial condition and results of operations could suffer if there is an impairment of goodwill.

Our acquisitions resulted in significant goodwill reported on our financial statements. Goodwill results when the purchase
price exceeds the fair value of the net identifiable tangible and intangible assets acquired. We may not realize the full value of
this goodwill. As such, we evaluate on at least an annual basis whether events and circumstances indicate that all or some of the
carrying value of goodwill is no longer recoverable, in which case we would recognize the unrecoverable goodwill as a charge
against our earnings. When evaluating goodwill for potential impairment, we compare the fair value of our reporting units to
their respective carrying amounts. We estimate the fair value of our reporting units using the income approach. If the carrying
amount of a reporting unit exceeds its estimated fair value, a goodwill impairment loss is recognized in an amount equal to the
excess to the extent of the goodwill balance. The income approach requires us to estimate a number of factors for our reporting
units, including projected future operating results, economic projections, anticipated future cash flows, and discount rates. The
fair value determined using the income approach is then compared to marketplace fair value data from within a comparable
industry grouping for reasonableness. Because of the significance of our goodwill, any future impairment could result in
material non-cash charges to our results of operations, which could have an adverse effect on our financial condition and results
of operations.

A significant change in, or noncompliance with, governmental regulations and other legal requirements could have a

material adverse effect on our reputation and profitability.

We operate in complex, highly regulated environments and could be materially and adversely affected by changes to

applicable legal requirements including the related interpretations and enforcement practices, new legal requirements and/or any
failure to comply with applicable regulations. Our home infusion and alternate site infusion businesses are subject to numerous
federal, state and local regulations including licensing and other requirements for pharmacies and reimbursement arrangements.

The federal and state statutes and regulations to which we are subject include, but are not limited to, laws requiring the

registration and regulation of pharmacies; laws governing the dispensing of pharmaceuticals and controlled substances; laws
regulating the protection of the environment and health and safety matters, including those governing exposure to, and the
management and disposal of, hazardous substances; laws regarding food and drug safety, including those of the FDA and DEA;
applicable governmental payer regulations, including those applicable to Medicare and Medicaid; data privacy and security
laws, including HIPAA and its associated regulations; federal and state fraud and abuse laws, including, but not limited to, the
anti-kickback statute and false claims laws; trade regulations, including those of the U.S. Federal Trade Commission (“FTC”);
the U.S. Foreign Corrupt Practices Act (the “FCPA”) and similar anti-corruption laws in connection with the services provided
by certain of our contractors; and the consumer protection and safety laws, including those of the Consumer Product Safety
Commission.

We are required to hold valid DEA and state-level licenses, meet various security and operating standards and comply with

the federal and various state controlled substance acts and related regulations governing the sale, dispensing, disposal, holding
and distribution of controlled substances. The DEA, FDA and state regulatory authorities have broad enforcement powers,
including the ability to seize or recall products and impose significant criminal, civil and administrative sanctions for violations
of these laws and regulations.

We use, disclose and otherwise process personally identifiable information, including health information, making us
subject to HIPAA and other federal and state privacy and security regulations and failure to comply with those regulations or to
adequately secure the information we hold could result in significant liability or reputational harm and, in turn, have a material
adverse effect on our patient base and revenue.

We are also governed by federal and state laws of general applicability, including laws regulating matters of working
conditions, health and safety and equal employment opportunity and other labor and employment matters as well as employee
benefit, competition, antitrust, taxation and escheatment matters. In addition, we could have significant exposure if we are
found to have infringed another party’s intellectual property rights.

Changes in laws, regulations and policies and the related interpretations and enforcement practices may alter the landscape

in which we do business and may significantly affect our cost of doing business. The impact of new laws, regulations and
policies and the related interpretations and enforcement practices generally cannot be predicted, and changes in applicable laws,
regulations and policies and the related interpretations and enforcement practices may require extensive system and operational
changes, be difficult to implement, increase our operating costs and require significant capital expenditures. Untimely
compliance or noncompliance with applicable laws and regulations could result in the imposition of civil and criminal penalties
that could adversely affect the continued operation of our businesses, including: suspension of payments from government
programs; loss of required government certifications; loss of authorizations to participate in or exclusion from government
programs, including the Medicare and Medicaid programs; loss of licenses; and significant fines or monetary penalties. Any
failure to comply with applicable regulatory requirements could result in significant legal and financial exposure, damage our
reputation, and have a material adverse effect on our business operations, financial condition and results of operations.

The Affordable Care Act and other healthcare reform efforts could have a material adverse effect on our business.

In recent years, healthcare reform efforts at federal and state levels of government have resulted in sweeping changes to the

delivery and funding of health care. The Affordable Care Act is the most prominent of these efforts. However, there is
substantial uncertainty regarding its net effect and its future. The Affordable Care Act has been subject to legislative and
regulatory changes and court challenges. Effective January 2019, Congress eliminated the financial penalty associated with the
individual mandate to maintain health insurance coverage. Because the penalty associated with the individual mandate was
eliminated, a federal court in Texas ruled in December 2018 that the entire Affordable Care Act was unconstitutional. However,
the law remains in place pending appeal. It is impossible to predict the full impact of the Affordable Care Act and related
regulations or the impact of its modification on our operations in light of the uncertainty regarding whether, when or how the
law will be changed and what alternative reforms, such as single-payer proposals, may be enacted. Health reform efforts may
adversely affect our customers, which may cause them to reduce or delay use of our products and services. As such, we cannot
predict the impact of the Affordable Care Act on our business, operations or financial performance.

Federal actions and legislation may reduce reimbursement rates from governmental payers and adversely affect our

results of operations.

In recent years, Congress has passed legislation reducing payments to health care providers. The Budget Control Act of
2011, as amended, requires automatic spending reductions to reduce the federal deficit, including Medicare spending reductions
of up to 2% per fiscal year that extend through 2027. The Center for Medicare & Medicaid Services (“CMS”) began imposing a
2% reduction on Medicare claims on April 1, 2013. The Affordable Care Act provides for material reductions in the growth of
Medicare program spending. More recently, the Cures Act significantly reduced the amount paid by Medicare for drug costs,
while delaying the implementation of a clinical services payment, although Congress also passed a temporary transitional
service payment that took effect January 1, 2019. In addition, from time to time, CMS revises the reimbursement systems used
to reimburse health care providers, which may result in reduced Medicare payments.

For the year ended December 31, 2020, 15% of our revenue is derived from reimbursement by direct federal and state
programs such as Medicare and Medicaid. Reimbursement from these and other government programs is subject to statutory
and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures,
retroactive payment adjustments, governmental funding restrictions and changes to or new legislation, all of which may
materially affect the amount and timing of reimbursement payments to us. Changes to the way Medicare pays for our services,
including mandatory payment reductions such as sequestration, may reduce our revenue and profitability on services provided
to Medicare patients and increase our working capital requirements. In addition, we are sensitive to possible changes in state
Medicaid programs.

Because most states must operate with balanced budgets and because the Medicaid program is often a state’s largest
program, some states have enacted or may consider enacting legislation designed to reduce their Medicaid expenditures.
Further, many states have taken steps to reduce coverage and/or enroll Medicaid recipients in managed care programs. The
current economic environment has increased the budgetary pressures on many states, and these budgetary pressures have
resulted, and likely will continue to result, in decreased spending, or decreased spending growth, for Medicaid programs and the
Children’s Health Insurance Program in many states.

In some cases, Third Party Payers rely on all or portions of Medicare payment systems to determine payment rates.

Changes to government healthcare programs that reduce payments under these programs may negatively impact payments from
Third Party Payers. Current or future healthcare reform and deficit reduction efforts, changes in other laws or regulations
affecting government healthcare programs, changes in the administration of government healthcare programs and changes by
Third Party Payers could have a material, adverse effect on our financial position and results of operations.

Delays in reimbursement may adversely affect our liquidity, cash flows and operating results.

The reimbursement process for the services we provide is complex, resulting in delays between the time we bill for a
service and receipt of payment that can be significant. Reimbursement and procedural issues often require us to resubmit claims
multiple times and respond to multiple administrative requests before payment is remitted. The collection of accounts
receivable is challenging, and requires constant focus and involvement by management and ongoing enhancements to
information systems and billing center operating procedures. While management believes that our controls and processes are
satisfactory, there can be no assurance that collections of accounts receivable will continue at historical rates. The risks
associated with Third Party Payers and the inability to collect outstanding accounts receivable could have a material adverse
effect on our liquidity, cash flows and operating results.

We are subject to pricing pressures and other risks involved with Third Party Payers.

Competition to provide healthcare services, efforts by traditional Third Party Payers to contain or reduce healthcare costs,
and the increasing influence of managed care payers such as health maintenance organizations, has resulted in reduced rates of
reimbursement for home infusion and specialty pharmacy services. Changes in reimbursement policies of governmental Third
Party Payers, including policies relating to Medicare, Medicaid and other federal and state funded programs, could reduce the
amounts reimbursed to our customers for our products and, in turn, the amount these customers would be willing to pay for our
products and services, or could directly reduce the amounts payable to us by such payers. Pricing pressures by Third Party
Payers may continue, and these trends may adversely affect our business.

Also, continued growth in managed care plans has pressured healthcare providers to find ways of becoming more cost
competitive. MCOs have grown substantially in terms of the percentage of the population they cover and in terms of the portion
of the healthcare economy they control. MCOs have continued to consolidate to enhance their ability to influence the delivery
of healthcare services and to exert pressure to control healthcare costs. A rapid concentration of revenue derived from
individual managed care payers could harm our business.

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.

As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews

and audits to verify our compliance with these programs and applicable laws and regulations. We also are subject to audits
under various government programs in which third party firms engaged by CMS conduct extensive reviews of claims data and
medical and other records to identify potential improper payments under the Medicare program. Third Party Payers may also
conduct audits. Disputes with payers can arise from these reviews. Payers can claim that payments based on certain billing
practices or billing errors were made incorrectly. If billing errors are identified in the sample of reviewed claims, the billing
error can be extrapolated to all claims filed which could result in a larger overpayment than originally identified in the sample
of reviewed claims. Our costs to respond to and defend claims, reviews and audits may be significant and could have a material
adverse effect on our business and consolidated financial condition, results of operations and cash flows. Moreover, an adverse
claim, review or audit could result in:

•

•
•
•

required refunding or retroactive adjustment of amounts we have been paid by governmental payers or Third Party
Payers;
state or federal agencies imposing fines, penalties and other sanctions on us;
suspension or exclusion from the Medicare program, state programs, or one or more third party payer networks; or
damage to our business and reputation in various markets.

These results could have a material adverse effect on our business and consolidated financial condition, results of

operations and cash flows.

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.

Our pharmacies must comply with the extensive conditions of participation in the Medicare program. If a pharmacy fails to
meet any of the Medicare supplier standards, that pharmacy could be terminated from the Medicare program. We respond in the
ordinary course to deficiency notices issued by surveyors, and none of our pharmacies has ever been terminated from the
Medicare program for failure to comply with the supplier standards. Any termination of one or more of our pharmacies from
the Medicare program for failure to satisfy the Medicare supplier standards could adversely affect our consolidated financial
statements.

We cannot predict the impact of changing requirements on compounding pharmacies.

Compounding pharmacies are closely monitored by federal and state governmental agencies. We believe that our

compounding is performed in safe environments and we have clinically appropriate policies and procedures in place. We only
compound pursuant to a patient-specific prescription and do so in compliance with USP 797 standards. In 2013, Congress
passed the DQSA, which creates a new category of compounding facilities called outsourcing facilities, which are regulated by
the FDA. We do not believe that our current compounding practices qualify us as an outsourcing facility and therefore we
continue to operate consistently with USP 797 standards and applicable state pharmacy laws. Should state regulators or the
FDA disagree, or should our business practices change to qualify us as an outsourcing facility, there is a risk of regulatory
action and/or increased resources required to comply with federal requirements imposed pursuant to the DQSA on outsourcing
facilities that could significantly increase our costs or otherwise affect our results of operations. Furthermore, we cannot predict
the overall impact of increased scrutiny on compounding pharmacies.

Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal tax purposes is

subject to limitation and risk that could further limit our ability to utilize our net operating losses.

Under U.S. federal income tax law, a corporation’s ability to utilize its net operating losses (“NOLs”) to offset future
taxable income may be significantly limited if it experiences an “ownership change” as defined in Section 382 of the Internal
Revenue Code of 1986, as amended (the “Code”). In general, an ownership change will occur if there is a cumulative change in
a corporation’s ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. A
corporation that experiences an ownership change will generally be subject to an annual limitation on the use of its pre-
ownership change NOLs equal to the value of the corporation immediately before the ownership change, multiplied by the
long-term tax-exempt rate (subject to certain adjustments). At December 31, 2020, we had U.S. federal NOLs of approximately
$577.9 million, of which $139.8 million are expected to expire unutilized due to limitations under Section 382 of the Code. We
also had $600.1 million of cumulative gross state NOL carryforwards available to offset future taxable income in various states.

Any limitation to our annual use of NOLs could require us to pay a greater amount of U.S. federal (and in some cases, state)
income taxes, which could reduce our after-tax income from operations for future taxable years and adversely impact our
financial condition. At December 31, 2020, we maintained a full valuation allowance against all of our net U.S. federal and
state deferred tax assets with the exception of $0.4 million of estimated state NOLs.

Risks Relating to Our Indebtedness

Our existing indebtedness could adversely affect our business and growth prospects.

As of December 31, 2020, we had $1,161.5 million of outstanding borrowings, including (i) $915.8 million under our First

Lien Term Loan and (ii) $245.8 million under our Second Lien Notes. All obligations under the credit agreements and
indenture governing these facilities and notes are secured by first-priority perfected security interests in substantially all of our
assets and the assets of our subsidiaries, subject to permitted liens and other exceptions. Our indebtedness, or any additional
indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our
liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our
debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of these
actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in our credit agreement and

indenture have important consequences, including but not limited to:

•

limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our
cash flows from operations to the repayment of debt and the interest on this debt;
limiting our ability to incur additional indebtedness;
limiting our ability to capitalize on significant business opportunities;

•
•
• making us more vulnerable to rising interest rates; and
• making us more vulnerable in the event of a downturn in our business.

Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged.

Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest
we are required to pay and reduce earnings accordingly. In addition, developments in tax policy, such as the disallowance of tax
deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business,
financial conditions and results of operations. Further, our credit agreements and indenture contain customary affirmative and
negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions
on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may
believe are advisable or necessary for our business. Our term loan facility is also subject to mandatory prepayments in certain
circumstances and requires a prepayment of a certain percentage of our excess cash flow. This excess cash flow payment, and
future required prepayments, will reduce our cash available for investment in our business.

We expect to use cash flow from operations to meet current and future financial obligations, including funding our
operations, debt service requirements and capital expenditures. The ability to make these payments depends on our financial
and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain
financial, business, economic and other factors beyond our control.

Despite our substantial indebtedness, we may still need to incur significantly more debt. This could exacerbate the risks

associated with our substantial leverage.

We may need to incur substantial additional indebtedness, including additional secured indebtedness, in the future, in

connection with future acquisitions, strategic investments and strategic relationships. Although the financing documents
governing our indebtedness contain covenants and restrictions on the incurrence of additional debt, these restrictions are subject
to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these
restrictions, including secured debt, could be substantial. Adding additional debt to current debt levels could exacerbate the
leverage-related risks described above.

We may not be able to generate sufficient cash flow to service all of our indebtedness, and may be forced to take other

actions to satisfy our obligations under such indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance outstanding debt obligations depends on our financial and
operating performance, which will be affected by prevailing economic, industry and competitive conditions and by financial,
business and other factors beyond our control. We may not be able to maintain a sufficient level of cash flow from operating
activities to permit us to pay the principal, premium, if any, and interest on our indebtedness. Any failure to make payments of
interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating,
which would also harm our ability to incur additional indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or

delay capital expenditures, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. Any
refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants.
These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the
absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material
assets or operations to attempt to meet our debt service obligations. The financing documents governing our First Lien Term
Loan, our ABL Facility and our Second Lien Notes restrict our ability to conduct asset sales and/or use the proceeds from asset
sales. We may not be able to consummate these asset sales to raise capital or sell assets at prices and on terms that we believe
are fair and any proceeds that we do receive may not be adequate to meet any debt service obligations then due. If we cannot
meet our debt service obligations, the holders of our indebtedness may accelerate such indebtedness and, to the extent such
indebtedness is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our
indebtedness.

Risks Relating to Our Common Stock

We are a “controlled company” within the meaning of the rules of Nasdaq and, as a result, qualify for and rely on,
exemptions from certain corporate governance standards, which limit the presence of independent directors on our board of
directors or board committees.

As of December 31, 2020, approximately 64% of the outstanding shares of our common stock is held by HC Group
Holdings I, LLC. As a result, we are a “controlled company” for purposes of the Nasdaq listing rules and are exempt from
certain governance requirements otherwise required by Nasdaq, including requirements that:

•
•

•

a majority of our board of directors consist of independent directors;
we have a nominating and corporate governance committee that is composed entirely of independent directors
with a written charter addressing the committee's purpose and responsibilities;
we have a compensation committee that is composed entirely of independent directors with a written charter
addressing the committee's purpose and responsibilities;
we conduct annual performance evaluation of the nominating and corporate governance and compensation
committees.

Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the

corporate governance requirements of the Nasdaq.

A significant portion of our total outstanding shares may be sold into the market in the near future. This could cause

the market price of our common stock to drop significantly, even if our business is doing well.

The shares of our common stock issued in the Merger to HC Group Holdings I, LLC as Merger consideration, or

approximately 64% of the outstanding shares of our common stock as of December 31, 2020, are generally eligible for resale.
The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the
market or even the perception that these sales could occur. Subsequent to December 31, 2020, HC Group Holdings I, LLC
completed a secondary offering of 17,250,000 shares of common stock. Following the offering, HC Group Holdings I, LLC
holds approximately 54% of the Company’s common stock.

As of December 31, 2020, Madison Dearborn Partners is our largest stockholder, controlling approximately 64% of our

common stock, and has the ability to exercise significant influence over decisions requiring our stockholders’ approval.

As of December 31, 2020, Madison Dearborn Partners controls approximately 64% of our common stock through its
control of HC Group Holding I, LLC, with an economic interest in approximately 31% of our common stock. As a result,
Madison Dearborn Partners has the ability to exercise significant influence over decisions requiring approval of our
stockholders including the election of directors, amendments to our certificate of incorporation and approval of significant
corporate transactions, such as a Merger or other sale of us or our assets.

This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of us and may

negatively affect the market price of our common stock. Also, Madison Dearborn Partners is in the business of making
investments in companies and may from time to time acquire and hold interests in businesses that compete with us. Madison
Dearborn Partners or its affiliates may also pursue acquisition opportunities that are complementary to our business and, as a
result, those acquisition opportunities may not be available to us.

Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent

attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.

In addition to HC Group Holding I, LLC’s beneficial ownership of approximately 64% of our common stock, our third

amended and restated certificate of incorporation contains provisions that could make it more difficult for a third party to
acquire us, even if doing so might be beneficial to our stockholders. Among other things:

•

these provisions allow us to authorize the issuance of undesignated preferred stock, the terms of which may
be established and the shares of which may be issued without stockholder approval, and which may include
supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of
stockholders;
these provisions provide that, at any time when HC Group Holdings I, LLC beneficially owns, in the
aggregate, less than 50% in voting power of our stock entitled to vote generally in the election of directors,
directors may be removed with or without cause only by the affirmative vote of holders of at least 66 2⁄3% in
voting power of all the then-outstanding vote thereon, voting together as a single class;
these provisions prohibit stockholder action by written consent from and after the date on which HC Group
Holding I, LLC beneficially owns, in the aggregate, less than 50% in voting power of our stock entitled to
vote generally in the election of directors; and
these provisions provide that for as long as HC Group Holdings I, LLC beneficially owns, in the aggregate,
50% or more in voting power of our stock entitled to vote generally in the election of directors, any
amendment, alteration, rescission or repeal of our bylaws or certificate of incorporation by our stockholders
will require the affirmative vote of at least a majority in voting power of the outstanding shares of our stock
and at any time when HC Group Holdings I, LLC beneficially owns, in the aggregate, less than 50% in voting
power of all outstanding shares of our stock entitled to vote generally in the election of directors, any
amendment, alteration, rescission or repeal of our bylaws or certificate of incorporation by our stockholders
will require the affirmative vote of the holders of at least 66 2⁄3% in voting power of all the then-outstanding
shares of our stock entitled to vote thereon, voting together as a single class.

These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for
shareholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by our then-current Board,
including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions
could negatively affect the price of our common stock and limit opportunities to realize value in a corporate transaction.

Moreover, Section 203 of the General Corporation Law of the State of Delaware (“DGCL”) may discourage, delay, or
prevent a change of control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and
other transactions between us and holders of 15% or more of our common stock.

Our third amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware

as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our third amended and restated certificate of incorporation, unless we consent in writing to the selection of an

alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative
action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our
directors, officers, employees and stockholders to us or our stockholders, (3) any action asserting a claim against us arising
pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of
Delaware, our third amended and restated certificate of incorporation or our bylaws or (4) any other action asserting a claim
against us that is governed by the internal affairs doctrine; provided that for the avoidance of doubt, the forum selection
provision that identifies the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation, including
any “derivative action”, will not apply to suits to enforce a duty or liability created by the Exchange Act or any other claim for
which the federal courts have exclusive jurisdiction. Our third amended and restated certificate of incorporation will further
provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have
notice of and consented to the provisions of our certificate of incorporation described above. The forum selection clause in our
third amended and restated certificate of incorporation may have the effect of discouraging lawsuits against us or our directors
and officers and may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or

could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

Our third amended and restated certificate of incorporation authorizes us to issue one or more series of preferred stock. Our

Board has the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix
the number of shares constituting any series and the designation of such series, without any further vote or action by our
stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our
common stock. The potential issuance of preferred stock may delay or prevent a change in control, discouraging bids for our
common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights
of the holders of our common stock.

General Risk Factors

The recent COVID-19 pandemic and other potential pandemic events 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.

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, 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.

Pending and future litigation could subject us to significant monetary damages and/or require us to change our

business practices.

We employ pharmacists, dieticians, nurses and other health care professionals. We are subject to liability for negligent acts,

omissions, or injuries occurring at one of these clinics or caused by one of our employees. We are subject to risks relating to
asserted claims, litigation and other proceedings in connection with our operations. We are or may face claims or become a
party to a variety of legal actions that affect our business, including breach of contract actions, employment and employment
discrimination-related suits, employee benefit claims, stockholder suits and other securities laws claims, and tort claims. Due to
the nature of our business, we, through our employees and caregivers who provide services on our behalf, may be the subject of
medical malpractice claims. A court could find these individuals should be considered our agents, and, as a result, we could be
held liable for their acts or omissions.

We may incur substantial expenses in defending such claims or litigation, regardless of merit, and such claims or litigation

could result in a significant diversion of the efforts of our management personnel. Successful claims against us may result in
monetary liability or a material disruption in the conduct of our business. Similarly, if we settle such legal proceedings, it may
affect how we operate our business. See Item 3 for a description of material proceedings pending against us. We believe that
these suits are without merit and, to the extent not already concluded, intend to contest them vigorously. However, an adverse
outcome in one or more of these suits may have a material adverse effect on our consolidated results of operations, consolidated
financial position, and/or consolidated cash flow from operations, or may require us to make material changes to our business
practices.

We may be subject to liability claims for damages and other expenses that are not covered by insurance.

As a result of operating in the home infusion industry, our business entails an inherent risk of claims, losses and potential

lawsuits alleging incidents involving our employees that are likely to occur in a patient’s home. We maintain professional
liability insurance to provide coverage to us and our subsidiaries against these risks. A successful product or professional
liability claim in excess of our insurance coverage could harm our consolidated financial statements. Various aspects of our
business may subject us to litigation and liability for damages. For example, a prescription drug dispensing error could result in
a patient receiving the wrong or incorrect amount of medication, leading to personal injury or death. Our business and
consolidated financial statements could suffer if we pay damages or defense costs in connection with a claim that is outside the
scope of any applicable contractual indemnity or insurance coverage.

Our insurance coverage also includes fire, property damage and general liability with varying limits. We cannot assure that

the insurance we maintain will satisfy claims made against us or that insurance coverage will continue to be available to us at
commercially reasonable rates, in adequate amounts or on satisfactory terms. Any claims made against us, regardless of their
merit or eventual outcome, could damage our reputation and business.

Pressures relating to downturns in the economy could adversely affect our business and consolidated financial

statements.

Medicare and other federal and state payers account for a portion of our revenues. During economic downturns and periods

of stagnant or slow economic growth, federal and state budgets are typically negatively affected, resulting in reduced
reimbursements or delayed payments by the federal and state government health care coverage programs in which we
participate, including Medicare, Medicaid, and other federal or state assistance plans. Government programs could also slow or
temporarily suspend payments, negatively impacting our cash flow and increasing our working capital needs and interest
payments. We have seen, and believe we will continue to see, Medicare and state Medicaid programs institute measures aimed
at controlling spending growth, including reductions in reimbursement rates.

Higher unemployment rates and significant employment layoffs and downsizings may lead to lower numbers of patients

enrolled in employer-provided plans. Adverse economic conditions could also cause employers to stop offering, or limit,
healthcare coverage, or modify program designs, shifting more costs to the individual and exposing us to greater credit risk
from patients or the discontinuance of therapy.

Acquisitions, strategic investments and strategic relationships involve certain risks.

We may pursue acquisitions, strategic investments in, or strategic relationships with businesses and technologies.

Acquisitions may entail numerous risks, including difficulties in assessing values for acquired businesses, intangible assets and
technologies, difficulties in the assimilation of acquired operations and products, diversion of management’s attention from
other business concerns, assumption of unknown material liabilities of acquired companies, amortization of acquired intangible
assets which could reduce future reported earnings, and potential loss of clients or key employees of acquired companies. We
may not be able to successfully fully integrate the operations, personnel, services or products that we have acquired or may
acquire in the future. Strategic investments may also entail some of the risks described above. If these investments are
unsuccessful, we may need to incur charges against earnings. We may also pursue a number of strategic relationships. These
relationships and others we may enter into in the future may be important to our business and growth prospects. We may not be
able to maintain these relationships or develop new strategic alliances.

Cybersecurity risks could compromise our information and expose us to liability, which may harm our ability to operate

effectively and may cause our business and reputation to suffer.

Cybersecurity refers to the combination of technologies, processes and procedures established to protect information
technology systems and data from unauthorized access, attack, or damage. We rely on our information systems to provide
security for processing, transmission and storage of confidential information about our patients, customers and personnel, such
as names, addresses and other individually identifiable information protected by HIPAA and other privacy laws. Cyber
incidents can result from deliberate attacks or unintentional events. Cyber-attacks are increasingly more common, including in
the health care industry. The regulatory environment surrounding information security and privacy is increasingly demanding,
with the frequent imposition of new and changing requirements. Compliance with changes in privacy and information security
laws and with rapidly evolving industry standards may result in our incurring significant expense due to increased investment in
technology and the development of new operational processes.

We have not experienced any known attacks on our information technology systems that compromised any confidential

information. We maintain our information technology systems with safeguard protection against cyber-attacks including
passive intrusion protection, firewalls and virus detection software. However, these safeguards do not ensure that a significant
cyber-attack could not occur. Although we have taken steps to protect the security of our information systems and the data
maintained in those systems, it is possible that our safety and security measures will not prevent the systems’ improper
functioning or damage or the improper access or disclosure of personally identifiable information such as in the event of cyber-
attacks.

Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches can

create system disruptions or shutdowns or the unauthorized use or disclosure of confidential information. If personal
information or protected health information is improperly accessed, tampered with or disclosed as a result of a security breach,
we may incur significant costs to notify and mitigate potential harm to the affected individuals, and we may be subject to
sanctions and civil or criminal penalties if we are found to be in violation of the privacy or security rules under HIPAA or other
similar federal or state laws protecting confidential personal information. In addition, a security breach of our information
systems could damage our reputation, subject us to liability claims or regulatory penalties for compromised personal
information and could have a material adverse effect on our business, financial condition, and results of operations.

Our business is dependent on the services provided by third party information technology vendors.

Our information technology infrastructure includes hosting services provided by third parties. While we believe these third

parties are high-performing organizations with secure platforms and customary certifications, they could suffer a security
breach or business interruption which in turn could impact our operations negatively. In addition, changes in pricing terms
charged by our technology vendors may adversely affect our financial performance.

Failure to maintain effective internal control over our financial reporting could have an adverse effect on our ability to

report our financial results on a timely and accurate basis.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”), and is required to evaluate the
effectiveness of these controls and procedures on a periodic basis and publicly disclose the results of these evaluations and
related matters in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Effective internal
control over financial reporting is necessary for us to provide reliable financial reports, to help mitigate the risk of fraud and to
operate successfully. Any failure to implement and maintain effective internal controls could result in material weaknesses or
material misstatements in our consolidated financial statements.

If we fail to maintain effective internal control over financial reporting, or our independent registered public accounting
firm is unable to provide us with an unqualified attestation report on our internal control, we may be required to take corrective
measures or restate the affected historical financial statements. In addition, we may be subjected to investigations and/or
sanctions by federal and state securities regulators, and/or civil lawsuits by security holders. Any of the foregoing could also
cause investors to lose confidence in our reported financial information and in us and would likely result in a decline in the
market price of our stock and in our ability to raise additional financing if needed in the future.

Acts of God such as major weather disturbances could disrupt our business.

We operate in a network of prescribers, providers, patients and facilities that can be negatively impacted by local weather

disturbances and other force majeure events. For example, in anticipation of major weather events, patients with impaired
health may be moved to alternate sites. After a major weather event, availability of electricity, clean water and transportation
can impact our ability to provide service in the home. Similarly, such events could impact key suppliers or vendors, disrupting
the services or materials they provide us. In addition, acts of God and other force majeure events may cause a reduction in our
business or increased costs, such as increased costs in our operations as we incur overtime charges or redirect services to other
locations, delays in our ability to work with payers, hospitals, physicians and other strategic partners on new business
initiatives, and disruption to referral patterns as patients are moved out of facilities affected by such events or are unable to
return to sites of service in the home.

The transition from the London Interbank Offered Rate (“LIBOR”) could negatively affect our interest rates and

results of operations.

In 2017, the U.K. Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In
addition, other regulators have suggested reforming or replacing other benchmark rates. The discontinuation, reform, or
replacement of LIBOR or any other benchmark rates may result in fluctuating interest rates that may have a negative impact on
our interest expense and our profitability.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

We currently lease all of our properties from third parties under various lease terms expiring over periods extending
through 2035, in addition to a number of non-material, month-to-month leases. Our corporate headquarters are located at 3000
Lakeside Drive, Suite 300N, Bannockburn, IL 60015. Our other properties mainly consist of infusion pharmacies equipped with
clean room and compounding capabilities. Some infusion pharmacies are co-located with an ambulatory infusion center where
patients receive infusion treatments. As of December 31, 2020 our material property locations, consisting of our pharmacies, all
in support of our infusion services business, were as follows:

Hoover, AL
Mobile, AL

Jonesboro, AR
Little Rock, AR
Tempe, AZ
Bakersfield, CA
Chico, CA
Hayward, CA

Irvine, CA

Riverside, CA

Sacramento, CA

San Diego, CA

Peachtree Corners, GA
Savannah, GA

Honolulu, HI
Urbandale, IA
Meridian, ID
Itasca, IL (2)
Carmel, IN
Overland Park, KS

Ashland, KY

Lexington, KY

Louisville, KY

Charlotte, NC
Fayetteville, NC

Morrisville, NC
Wilmington, NC
Lincoln, NE
Omaha, NE
Bedford, NH
Eatontown, NJ

Morris Plains, NJ

Somers Point, NJ

Las Vegas, NV

Baton Rouge, LA

Reno, NV

Santa Fe Springs, CA (2)

New Orleans, LA

Sun Valley, CA

Englewood, CO

Shelton, CT

Newark, DE

Fort Myers, FL

Gainesville, FL

Jacksonville, FL

Melbourne, FL

Miramar, FL

St. Petersburg, FL

Albany, GA

Augusta, GA

Shreveport, LA

Marlborough, MA

Columbia, MD

Auburn, ME

Farmington Hills, MI

Grand Rapids, MI

Roseville, MN

Sauk Rapids, MN

Columbia, MO

Fenton, MO

Pearl, MS

Bozeman, MT

Item 3.

Legal Proceedings

College Point, NY

Orchard Park, NY

Brecksville, OH

Canfield, OH

Dublin, OH

Milford, OH

Sylvania, OH

Oklahoma City, OK

Bend, OR

Portland, OR

Audubon, PA

Dunmore, PA

York, PA

Cranston, RI
Duncan, SC

Mount Pleasant, SC
Knoxville, TN
Memphis, TN
Nashville, TN
Austin, TX
Houston, TX

Irving, TX

San Antonio, TX

Salt Lake City, UT

Ashland, VA

Chantilly, VA

Norfolk, VA

Roanoke, VA

Rutland, VT

Everett, WA

Spokane Valley, WA

Tukwila, WA

Wauwatosa, WI

Charleston, WV

White Hall, WV

For a summary of material legal proceedings, if any, refer to Note 14, Commitments and Contingencies, of the consolidated

financial statements included in Item 8 of this report.

Item 4.

Mine Safety Disclosures

Item not applicable.

PART II

Item 5.
Securities

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Common Stock

Prior to February 3, 2020, our Common Stock, par value $0.0001 per share, was traded on the Nasdaq Capital Market
under the symbol “BIOS”. On February 3, 2020, we changed our symbol to “OPCH” and began trading on the Nasdaq Global
Select Market.

Holders of Record

As of March 8, 2021, there were 142 stockholders of record of our Common Stock.

Dividend Policy

We have never paid cash dividends on our Common Stock and do not anticipate doing so in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Recent Sale of Unregistered Securities and Use of Proceeds

None.

Stock Performance Graph

The following graph compares the total cumulative returns of BioScrip through August 6, 2019 and Option Care Health

from August 7, 2019 through December 31, 2020 with the total cumulative returns of the Nasdaq Composite Index and the
Nasdaq Health Services Index for the five-year period from December 31, 2015 through December 31, 2020. The graph shows
the performance of a $100 investment in our Common Stock and each index as of December 31, 2015.

2015

2016

2017

2018

2019

2020

Years Ended December 31,

Option Care Health, Inc. $

100.00 $

59.43 $

166.29 $

204.00 $

213.14 $

223.43

Nasdaq Composite Index $

100.00 $

107.50 $

137.86 $

132.51 $

179.19 $

257.38

Nasdaq Health Services Index $

100.00 $

83.09 $

100.79 $

96.59 $

121.54 $

158.04

* $100 invested on December 31, 2015 in stock or index, including reinvestment of dividends.

Item 6.

Selected Financial Data

The selected consolidated financial data presented below should be read in conjunction with, and is qualified in its entirety
by reference to, Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated
financial statements and the Notes thereto appearing elsewhere in this Annual Report. The selected consolidated financial data
for the years ended December 31, 2020, 2019 and 2018 reflect the adoption of ASU 2014-09, Revenue from Contracts with
Customers (“ASC 606”) and the selected financial data for the year ended December 31, 2020 and 2019 reflect the adoption of
ASU 2016-02, Leases (“ASC 842”). See Note 2, Summary of Significant Accounting Policies within the consolidated financial
statements included in Item 8 of this report for further discussion on our accounting policies related to revenue and leases. The
below periods include the results of operations from BioScrip, Inc. from the August 6, 2019 Merger Date onward.

Consolidated Balance Sheets Data:

Working capital (1) (2)

Total assets (2)

Total debt, net

Stockholders' equity

December 31,

2020

2019

2018

2017

2016

(in thousands)

$ 222,989

228,650

227,428

226,535

227,763

2,647,439

2,589,547

1,428,211

1,429,542

1,405,285

1,124,353

1,286,496

1,015,724

906,827

539,375

602,825

540,346

606,105

541,500

600,770

(1) Working capital consists of total current assets less total current liabilities.

(2) Working capital and total assets for the year ended December 31, 2020 and 2019 reflect the adoption of ASU 2016-02,
Leases, and are, therefore, not comparable to prior periods. See Note 2, Summary of Significant Accounting Policies included in
Item 8 of this report for further discussion on our accounting policies related to leases.

2020 (1)

2019 (1)

2018

2017

2016

Year Ended December 31,

(in thousands)

Consolidated Statements of
Comprehensive Income (Loss)

Net revenue (2)

Gross profit (2)

Operating income (loss)

Net (loss) income

Net comprehensive (loss) income

Net (loss) earnings per share,
basic and diluted

Weighted average common shares
outstanding, basic and diluted

3,032,610 $

2,310,417 $

1,939,791 $

1,828,046 $

1,711,438

682,264

110,755

(8,076)
(12,053)

512,999

(319)

(75,920)
(83,959)

422,215

38,269

(6,115)

(5,341)

(0.04)

(0.49)

(0.04)

445,999

27,279

3,878

3,936

0.03

449,307

52,448

3,910

0.03

180,971

156,280

142,614

(1) 2020 and 2019 include the results of operations of BioScrip from August 6, 2019 onward and are, therefore, not

comparable to prior periods.

(2) Net revenue and gross profit for the years ended December 31, 2020, 2019 and 2018 reflect the adoption of ASU
2014-09, Revenue from Contracts with Customers, and are, therefore, not comparable to prior periods. See Note 2, Summary of
Significant Accounting Policies included in Item 8 of this report for further discussion on our accounting policies related to
revenue.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to

assist the reader in understanding our consolidated financial statements, the changes in certain key items in those financial
statements from year-to-year and the primary factors that accounted for those changes as well as how certain accounting
principles affect our consolidated financial statements.

Except for the historical information contained herein, the following discussion contains forward-looking statements that
are subject to known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially
from those expressed or implied by such forward-looking statements. We discuss such risks, uncertainties and other factors
throughout this Annual Report and specifically under the caption “Forward-Looking Statements” in this Annual Report. In
addition, the following discussion of financial condition and results of operations should be read in conjunction with the
consolidated financial statements and notes thereto appearing in Item 8 in this Annual Report.

Business Overview

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services

through a national network of 145 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

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 Capital
Market. Effective February 3, 2020, the Company was listed on the Nasdaq Global Select Market under the ticker symbol
“OPCH”. See Note 3, Business Acquisitions, of the consolidated financial statements for further discussion of the Merger.

Update on the Impact of the COVID-19 Pandemic

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 began experiencing a related impact across a number of facets
beginning in March 2020.

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. As
expected, the pandemic has negatively affected new patient referrals for both acute and chronic conditions; however, the
Company did experience an increase in patient transfers from hospital and outpatient settings which positively affected
revenues. For the year ended December 31, 2020, the revenue results reflect flat acute revenues relative to the prior year while
chronic revenue grew in the mid-teens. Option Care Health continues to collaborate with payers and health systems to transition
patients into the home or one of our alternate treatment sites to receive vital infusion therapy.

The Company experienced cost inefficiencies during the year ended December 31, 2020 with respect to clinical labor and

other staffing challenges, as well as higher costs to procure personal protection equipment. Offsetting the negative impacts
resulting from the COVID-19 pandemic, the Company managed spending and accelerated many integration-related initiatives
as discussed below. Further, to date, the Company experienced no material deceleration in cash collections and collaboration
with payers continues to be productive. The Company anticipates that the pandemic could affect its operations for an extended
period; however, at this time it 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 of risks.

In April 2020, the Company received approximately $11.7 million from the Public Health and Social Services Emergency
Fund as part of the Coronavirus Aid, Relief, and Economics Security Act (“CARES Act”). The $11.7 million was reflected in
the second quarter 2020 as a cash inflow from financing activities. Given the Company’s ability to largely offset the cost
inefficiencies experienced from the COVID-19 pandemic with spending reductions and accelerated integration net cost
synergies, the Company returned these CARES Act funds to the federal government during the third quarter of 2020. This was
reflected as a cash outflow from financing activities during the third quarter of 2020.

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 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, allow 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.

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, processes and systems,
providing us improved strength and scale to drive better patient outcomes. The Company accelerated its integration activities
during the second quarter of 2020 to offset the negative impacts resulting from COVID-19 pandemic, and as a result we fully
achieved the articulated goal of at least $60 million in net cost synergies.

Changes to Medicare Reimbursement

In recent years, legislative changes have resulted in reductions in reimbursement under government healthcare programs. In

December 2016, the Cures Act legislation was signed into law, which decreased reimbursement for Medicare Part B Durable
Medical Equipment infusion drugs administered in an alternate site setting effective January 1, 2017. The original legislation
did not provide for reimbursement for the service component until 2021. Center for Medicare and Medicaid Services issued a
final rule in October 2018 implementing a temporary transition benefit for Medicare Part B home infusion services, which will
continue from January 1, 2019 until January 1, 2021. This temporary transition benefit defines professional services as only
including nursing, and not pharmacy, care planning, care coordination, or monitoring, and only pays for an infusion day when
the nurse is in the home.

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. On February 3, 2020, the Company completed a one share
for four reverse stock split. 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 consolidated
financial statements, which was retrospectively applied to all periods presented in the consolidated financial statements. For
additional information on this Merger, see Note 3, Business Acquisitions, of the 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 years ended

December 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 First Lien Term Loan and Second Lien Notes, amortization of discount and deferred financing fees and changes in
derivatives not designated as hedging instruments related to the interest rate swaps. Refer to the “Liquidity and Capital
Resources” section below for further discussion of these outstanding borrowings.

Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures consists of our proportionate share of equity

earnings or losses from equity investments in two infusion joint ventures with health systems.

Other, Net. Other income (expense) primarily includes current year loss on extinguishment of debt incurred in connection
with 2020 debt prepayments. Prior year amounts relate to third-party fees paid in conjunction with our 2019 debt issuance of the
Loan Facilities and Second Lien Notes and loss on extinguishment of debt for the Company’s Previous Credit Facilities.

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 tax rates.

Change in unrealized (losses) gains 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 years ended December 31, 2020

and 2019 (in thousands). For discussion of Option Care Health’s consolidated results of operations for the year ended
December 31, 2019 compared to 2018, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in our 2019 Annual Report on 10-K filed with the Securities and Exchange Commission on March 5,
2020.

NET REVENUE

COST OF REVENUE

GROSS PROFIT

OPERATING COSTS AND EXPENSES:

Selling, general and administrative expenses

Depreciation and amortization expense

Total operating expenses

OPERATING INCOME (LOSS)

OTHER INCOME (EXPENSE):

Interest expense, net

Equity in earnings of joint ventures

Other, net

Total other expense

LOSS BEFORE INCOME TAXES

INCOME TAX EXPENSE (BENEFIT)

NET LOSS

Year Ended December 31,

2020 (1)

2019 (1)

Amount

% of Revenue

Amount

% of Revenue

3,032,610

100.0%

2,310,417

100.0%

2,350,346

682,264

77.5%

22.5%

1,797,418

512,999

77.8%

22.2%

500,199

71,310

571,509

110,755

(107,770)

3,313

(11,541)

(115,998)

(5,243)

2,833

(8,076)

16.5%

2.4%

18.8%

3.7%

(3.6)%

0.1%

(0.4)%

(3.8)%

(0.2)%

0.1%

(0.3)%

(0.1)%

(0.4)%

459,628

53,690

513,318

(319)

(73,724)

2,840

(6,991)

(77,875)

(78,194)

(2,274)

(75,920)

(8,039)

(83,959)

19.9%

2.3%

22.2%

—%

(3.2)%

0.1%

(0.3)%

(3.4)%

(0.1)%

(3.3)%

(0.3)%

(3.6)%

OTHER COMPREHENSIVE LOSS, NET OF TAX:

Change in unrealized losses on cash flow hedges, net of income
taxes of $0 and $259, respectively

OTHER COMPREHENSIVE LOSS

NET COMPREHENSIVE LOSS

(3,977)

(12,053)

(1) 2020 includes the results of operations from BioScrip for the full year. 2019 includes the results of operations of BioScrip
from the August 6, 2019 Merger Date onward and are, therefore, not comparable.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The following tables present selected consolidated comparative results of operations for the years ended December 31,

2020 and 2019:

Gross Profit

Net revenue

Cost of revenue

Gross profit

Gross profit margin

Year Ended December 31,

2020

2019

Variance

(in thousands, except for percentages)

$ 3,032,610

$ 2,310,417

$ 722,193

2,350,346

1,797,418

552,928

$ 682,264

$ 512,999

$ 169,265

31.3 %

30.8 %

33.0 %

22.5 %

22.2 %

The 31.3% increase in net revenue was primarily driven by additional revenue following the Merger, as the prior year
included the results of BioScrip from the August 6, 2019 Merger Date, along with organic growth in the Company’s portfolio of
therapies. For the year ended December 31, 2020, the revenue results reflect flat revenues for acute therapies relative to the
prior year due to the impact of the COVID-19 pandemic, while revenue for chronic therapies grew in the mid-teens. The
increase in cost of revenue was driven by the impact of the Merger and revenue growth. The increase in gross profit was
primarily related to contribution margin from additional revenue from the Merger. The slight increase in gross profit margin
was primarily driven by the positive impact from the merger integration net cost synergies, partially offset by the incremental
wage costs and personal protective equipment costs related to the COVID-19 pandemic and mix shift toward lower profit
chronic therapies.

Operating Expenses

Year Ended December 31,

2020

2019

Variance

(in thousands, except for percentages)

Selling, general and administrative expenses

$ 500,199 $ 459,628 $

40,571

Depreciation and amortization expense

71,310

53,690

17,620

Total operating expenses

$ 571,509 $ 513,318 $

58,191

8.8 %

32.8 %

11.3 %

Selling, general and administrative expenses increased for the year ended December 31, 2020 primarily due to the impact

of the Merger, but has decreased as a percentage of revenue to 16.5% for the year ended December 31, 2020 as compared to
19.9% for the year ended December 31, 2019 primarily due to synergy realization from Merger integration activities as well as
spending reductions to offset the negative impacts of the COVID-19 pandemic.

The increase in depreciation and amortization was primarily related to the deprecation of fixed assets acquired and the
amortization of intangibles acquired from the Merger along with depreciation of additional investments in our pharmacies and
infrastructure.

Other Income (Expense)

Year Ended December 31,

2020

2019

Variance

(in thousands, except for percentages)

Interest expense, net

$ (107,770) $

(73,724) $

(34,046)

Equity in earnings of joint ventures

Other, net

3,313

(11,541)

2,840

(6,991)

473

(4,550)

Total other expense

$ (115,998) $

(77,875) $

(38,123)

46.2 %

16.7 %

65.1 %

49.0 %

The increase in interest expense was primarily attributable to the additional expense related to the new debt issued at the
close of the Merger, partially offset by the savings from the combined $174.0 million prepayment of principal on the Second
Lien Notes in the third and fourth quarters of 2020. The prior year included interest expense on the new debt from the Merger
Date. See Note 11, Indebtedness, of the consolidated financial statements.

The increase in other, net of was the result of the loss on extinguishment of debt of $11.5 million incurred during the year

ended December 31, 2020 in conjunction with the $174.0 million prepayment of principal on the Second Lien Notes, compared
to the loss on extinguishment of debt of $5.5 million incurred during the year ended December 31, 2019 in conjunction with the
extinguishment of debt related to the Merger.

Income Tax Expense (Benefit)

Year Ended December 31,

2020

2019

Variance

(in thousands, except for percentages)

Income tax expense (benefit)

2,833 $

(2,274) $

5,107

(224.6) %

The Company’s tax expense for the year ended December 31, 2020 is comprised of a change in deferred tax assets and
liabilities, partially offset by a change in valuation allowance, and state tax liabilities, resulting in a negative effective tax rate of
54.0%. The Company’s tax benefit for the year ended December 31, 2019 is comprised of a deferred tax benefit partially offset
by a change in valuation allowance and state tax liabilities. This results in an effective tax rate of 2.9% for the year ended
December 31, 2019. These effective tax rates differ from the Company’s 21% federal statutory rate primarily due to a change in
valuation allowance, certain state and local taxes and non-deductible costs.

Net Loss and Other Comprehensive Loss

Year Ended December 31,

2020

2019

Variance

(in thousands, except for percentages)

Net loss

(8,076) $

(75,920) $

67,844

(89.4) %

Other comprehensive loss, net of tax:

Changes in unrealized losses on cash flow
hedges, net of income taxes

Other comprehensive loss

Net comprehensive loss

(3,977)

(8,039)

4,062

(12,053) $

(83,959) $

71,906

(50.5) %

(85.6) %

Net loss decreased primarily driven by the growth in gross profit, which more than offset the incremental operating
expenses and interest expense incurred in conjunction with the Merger. The decrease in net loss is also impacted by the full
realization of $60 million of Merger synergies in 2020 following the Merger, which more than offset the negative impacts of
the COVID-19 pandemic during 2020.

Changes in unrealized losses on cash flow hedges, net of income taxes, decreased as the interest rate swap nears maturity in

August 2021.

Net comprehensive loss decreased for the year ended December 31, 2020 as a result of the changes in net loss, discussed

above, further reduced by the impact of the hedging instruments.

Liquidity and Capital Resources

For the years ended December 31, 2020 and 2019, the Company’s primary sources of liquidity were cash on hand of $99.3

million and $67.1 million, respectively, as well as borrowings under its credit facilities, described further below. During the
years ended December 31, 2020 and 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, integration efforts, 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. In addition to these ongoing investing and financing activities, during the year ended December 31, 2020, the
Company prepaid $174.0 million of outstanding debt principal balance. During the year ended December 31, 2019, the
Company entered into the Merger Agreement, and the Merger resulted in cash used in investing activities of $700.2 million and
net cash provided by financing activities for net proceeds of indebtedness of $724.3 million.

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.

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

During 2015, Option Care entered into two credit arrangements administered by Bank of America, N.A. and U.S. Bank.
The agreements provided for up to $645.0 million in senior secured credit facilities through an $80.0 million revolving credit
facility (the “Previous Revolving Credit Facility”), a $415.0 million first lien term loan (the “Previous First Lien Term Loan”),
and a $150.0 million second lien term loan (the “Previous Second Lien Term Loan”, and together with the Previous First Lien
Term Loan, the “Previous Term Loans”, and the Previous Term Loans, together with the Previous Revolving Credit Facility,
the “Previous Credit Facilities”). Amounts borrowed under the credit agreements were secured by substantially all of the assets
of the Company.

On August 6, 2019, the Company repaid the outstanding balance of the Previous Term Loans and retired the outstanding

credit arrangements for $551.7 million. Proceeds of $575.0 million from the two new credit arrangements and indenture,
discussed below, were also used, in part, to repay the outstanding debt of BioScrip as of the Merger.

In conjunction with the Merger, the Company entered into two credit agreements and an indenture that initially provided

for up to $1,475.0 million in senior secured credit facilities through a $150.0 million asset-based lending revolving credit
facility (the “ABL Facility”), a $925.0 million first lien term loan facility (the “First Lien Term Loan”, and together with the
ABL Facility, the “Loan Facilities”), and a $400.0 million senior secured second lien PIK toggle floating rate notes due 2027
(the “Second Lien Notes”). Amounts borrowed under the credit agreements are secured by substantially all of the assets of the
Company.

The ABL Facility credit agreement initially provided for borrowings up to $150.0 million, and matures on August 6, 2024.
During the year ended December 31, 2020, the Company increased the borrowing capacity to $175.0 million. 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 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 2.50%. The Company did not borrow against the ABL Facility at any time during 2020, and had no
outstanding borrowings under the ABL Facility at December 31, 2020. The Company had $9.6 million of undrawn letters of
credit issued and outstanding, resulting in net borrowing availability under the ABL of $165.4 million as of December 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 4.40% as of December 31, 2020.

The Second Lien Notes mature on August 6, 2027. Interest on the Second Lien Notes is payable quarterly at LIBOR, plus

8.75%. The Company elected to pay-in-kind the 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. The Company paid the second
and third quarterly interest payments, due in February 2020 and May 2020. The Company elected to pay-in-kind the quarterly
interest payment due in August 2020, which resulted in the Company capitalizing the interest payment to the principal balance
on the interest payment date. In August 2020, the Company used the proceeds from a stock offering to prepay $125.0 million of
the outstanding principal balance. In December 2020, the Company utilized available cash on hand to prepay an additional
$49.0 million of the outstanding principal balance. As a result of these actions, the outstanding principal balance of the Second
Lien Notes is $245.8 million as of December 31, 2020. The interest rate on the Second Lien Notes was 8.98% as of
December 31, 2020.

In January 2021, the Company entered into an amendment on the First Lien Term Loan (the “First Lien Credit Agreement
Amendment”). The First Lien Credit Agreement Amendment resulted in an additional $250.0 million of incremental First Lien
Term Loan indebtedness being issued and reduced the interest rate on all outstanding First Lien Term Loan indebtedness from
LIBOR plus 4.25% to LIBOR plus 3.75%. The proceeds of the $250.0 million incremental First Lien Term Loan indebtedness
were used to prepay the remaining $245.8 million outstanding balance of the Second Lien Notes. Following the First Lien
Credit Agreement Amendment, the First Lien Term Loan is repayable in quarterly installments of $2.9 million plus interest,
with a final payment of all remaining outstanding principal due on August 6, 2026.

Cash Flows

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The following table presents selected data from Option Care Health’s consolidated statements of cash flows for the years

ended December 31, 2020 and 2019:

Year Ended December 31,

2020

2019

Variance

(in thousands)

Net cash provided by operating activities

$ 127,392 $

39,467 $

87,925

Net cash used in investing activities

(26,334)

(727,826)

701,492

Net cash (used in) provided by financing activities

(68,849)

719,024

(787,873)

Net increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

32,209

67,056

30,665

36,391

1,544

30,665

Cash and cash equivalents - end of period

99,265 $

67,056 $

32,209

Cash Flows from Operating Activities

The increase in cash provided by operating activities for the year ended December 31, 2020 was primarily driven by the
improvement in net loss during 2020. In addition, working capital efficiencies also contributed to this increase, as additional
investment in accounts receivable and inventories in conjunction with the growth in business volumes were more than offset by
increases in accounts payable due to the timing of vendor payments.

Cash Flows from Investing Activities

The decrease in cash flows used in investing activities is primarily due to the Merger completed in the prior year.

Cash Flows from Financing Activities

The decrease in cash (used in) provided by financing activities is related to the prior year proceeds from the issuance of
new debt of $981.1 million, which was partially offset by the retirement of the Company’s previous debt of $226.7 million and
the payment of deferred financing costs of $30.0 million related to the Merger. In 2020, the cash used in financing activities
consisted of the $174.0 million prepayment of the Second Lien Notes, which was partially offset by $118.9 million of proceeds
from the issuance of common stock, as well as principal payments on the First Lien Term Loan.

Commitments and Contractual Obligations

The following table presents Option Care Health’s commitments and contractual obligations as of December 31, 2020, as

well as its long-term obligations:

Payments Due by Period

Total

Less than 1
year

1 - 3 years

3-5 years

More than 5
years

(in thousands)

Long-term debt obligations (1)
Interest payments on long-term debt obligations (2)

Operating lease obligations

Total

$ 1,161,531 $

9,250 $

18,500 $

18,500 $ 1,115,281

391,301

110,011

63,039

23,770

124,840

123,191

35,020

21,053

80,231

30,168

$ 1,662,843 $

96,059 $

178,360 $

162,744 $ 1,225,680

(1) Includes aggregate principal payment on the indebtedness from the First Lien Term Loan and the Second Lien Notes

incurred in 2019.

(2) Interest payments calculated based on LIBOR rate as of December 31, 2020. Actual payments are based on changes in

LIBOR. Calculated interest payments exclude interest rate swap agreements the Company entered into in connection
with the new indebtedness incurred in 2019.

Off-Balance Sheet Arrangements

As of December 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 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.

The following discussion is not intended to be a comprehensive list of all the accounting policies, estimates or judgments

made in the preparation of our financial statements. A discussion of our significant accounting policies, including further
discussion of the accounting policies described below, can be found in Note 2, Summary of Significant Accounting Policies,
within the notes to the consolidated financial statements included in Item 8 of this Annual Report.

Revenue Recognition and Accounts Receivable

Net revenue is reported at the net realizable value amount that reflects the consideration the Company expects to receive in

exchange for providing services. Revenues are from commercial payers, government payers, and patients for goods and
services provided and are based on a gross price based on payer contracts, fee schedules, or other arrangements less any implicit
price concessions.

The Company assesses the expected consideration to be received at the time of patient acceptance based on the verification

of the patient’s insurance coverage, historical information with the patient, similar patients, or the payer. Performance
obligations are determined based on the nature of the services provided by the Company. The majority of the Company’s
performance obligations are to provide infusion services to deliver medicine, nutrients, or fluids directly into the body.

The Company provides a variety of infusion-related therapies to patients, which frequently include multiple deliverables of

pharmaceutical drugs and related nursing services. After applying the criteria from ASC 606, the Company concluded that
multiple performance obligations exist in its contracts with its customers. Revenue is allocated to each performance obligation
based on relative standalone price, determined based on reimbursement rates established in the third-party payer contracts.
Pharmaceutical drug revenue is recognized at the time the pharmaceutical drug is delivered to the patient, and nursing revenue
is recognized on the date of service.

The Company’s accounts receivable is reported at the net realizable value amount that reflects the consideration the
Company expects to receive in exchange for providing services, which is inclusive of adjustments for price concessions. The
majority of accounts receivable are due from private insurance carriers and governmental health care programs, such as
Medicare and Medicaid.

Included in accounts receivable are earned but unbilled gross receivables. Delays ranging from one day up to several weeks
between the date of service and billing can occur due to delays in obtaining certain required payer-specific documentation from
internal and external sources.

After applying the criteria from ASC 606, an allowance for doubtful accounts is established only as a result of an adverse
change in the payers’ ability to pay outstanding billings. The Company did not have an allowance for doubtful accounts as of
December 31, 2020 or 2019. The Company recorded an allowance for implicit price concessions based on its historical
experience of additional revenue being recorded or revenue being written off when amounts received are greater than or less
than the originally estimated net realizable value. The detailed assessments included, among other factors, (i) current over/under
payments which had not yet been applied to an account, (ii) historical contractual adjustments, and (iii) an estimate for
contractual adjustments expected to be realized in the future. Contractual allowance estimates are adjusted to actual amounts as
cash is received and claims are settled.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The

Company tests goodwill for impairment annually, or more frequently whenever events or circumstances indicate impairment
may exist. Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test
annually in the fourth quarter.

Circumstances that could trigger an interim impairment test include: a significant adverse change in the business climate or

legal factors; an adverse action or assessment by a regulator; unanticipated competition; the loss of key personnel; a change in
reporting units; the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed
of; and the results of testing for recoverability of a significant asset group within a reporting unit.

A qualitative impairment analysis was performed in the fourth quarter of 2020 and 2019 to assess whether it is more likely

than not that the fair value of the Company’s reporting unit is less than its carrying value. The Company assessed relevant
events and circumstances including macroeconomic conditions, industry and market considerations, overall financial
performance, entity-specific events, and changes in the Company’s stock price. The Company determined that there was no
goodwill impairment in 2020 or 2019.

A quantitative impairment analysis was performed in the fourth quarter of 2018, and the Company estimated the fair value
of its reporting unit using an income approach. The income approach requires the Company to estimate a number of factors for
its reporting unit, including projected future operating results, economic projections, anticipated future cash flows, and discount
rates. The fair value determined using the income approach was then compared to marketplace fair value data from within a
comparable industry grouping for reasonableness. The Company determined that there was no goodwill impairment in 2018.

The determination of fair value and the allocation of that value to individual assets and liabilities within the reporting unit
requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but
are not limited to, the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the
industries in which the Company competes; the discount rate; terminal growth rates; and forecasts of revenue, operating
income, depreciation and amortization, and capital expenditures. Actual financial results could differ from those estimates due
to inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other
underlying assumptions could have a significant impact on either the fair value of the reporting unit, the amount of the goodwill
impairment charge, or both.

Business Acquisitions

The Company accounts for business acquisitions in accordance with ASC Topic 805 (“ASC 805”), Business Combinations,
with assets and liabilities being recorded at their acquisition date fair values and goodwill being calculated as the purchase price
in excess of the net identifiable assets. The application of ASC 805 requires management to make estimates and assumptions
when determining the acquisition date fair values of acquired assets and assumed liabilities. Management’s estimates and
assumptions include, but are not limited to, the future cash flows an asset is expected to generate and the weighted-average cost
of capital.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The Company’s primary market risk exposure is changing LIBOR‑based interest rates. Interest rate risk is highly sensitive

due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond
our control. Our First Lien Term Loan bears interest at the Eurocurrency Rate, as defined, plus 4.25%, based on our leverage
ratio as of December 31, 2020. Our Second Lien Notes bear interest at LIBOR, plus 8.75%. Our ABL Facility bears interest at
the greater of the Eurocurrency Rate, as defined, or 0.25% plus 1.25% to 1.75%. At December 31, 2020, we had total
outstanding debt of $915.8 million under our First Lien Term Loan and $245.8 million under our Second Lien Notes. We had
no outstanding borrowings under the ABL Facility as of December 31, 2020.

To minimize interest rate risk, the Company entered into two interest rate swap contracts to hedge against fluctuations in

LIBOR rates on the First Lien Term Loan and Second Lien Term Loan. 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 indexed to one-month LIBOR through August 2021. The second interest rate swap for $400.0 million
notional was effective in November 2019 and was designated as a cash flow hedge against the underlying interest rate on the
Second Lien Notes interest payment indexed to three-month LIBOR through November 2020. In May 2020, upon electing to
pay-in-kind the Second Lien Notes’ quarterly interest payment, the Company discontinued hedge accounting on the $400.0
million notional interest rate swap. The $400.0 million notional interest rate swap matured in November 2020 and as of
December 31, 2020 the Company does not maintain a hedge against the underlying interest rate on the Second Lien Notes.

Based on the amounts outstanding coupled with interest rate swaps, a 100-basis point increase or decrease in market
interest rates over a twelve-month period would result in a change to interest expense of $6.4 million. We do not anticipate a
significant impact from a change in market interest rates through the period of the interest rate swaps, discussed further in Note
12, Derivative Instruments, of the consolidated financial statements and the notes related thereto included in Item 8 of this
report. Subsequent to December 31, 2020, the Company entered into an amendment on the First Lien Term Loan, which
resulted in an additional $250.0 million of incremental First Lien Term Loan indebtedness being issued. The proceeds of the
$250.0 million incremental First Lien Term Loan indebtedness were used to prepay the remaining $245.8 million outstanding
balance of the Second Lien Notes. See Note 19, Subsequent Events, of the consolidated financial statements and the notes
related thereto included in Item 8 of this report for further discussion.

Inflation Rate Risk

Based on its analysis of the periods presented, the Company believes that inflation has not had a material effect on its
operating results. There can be no assurance that future inflation will not have an adverse impact on the Company’s operating
results and financial condition.

Item 8.

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Option Care Health, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Option Care Health, Inc. and subsidiaries (the Company) as
of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting
principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 11, 2021 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 8 to the consolidated financial statements, the Company has changed its method of accounting for leases
as of January 1, 2019 due to the adoption of the Financial Acccounting Standards Board’s Accounting Standards Codification
Topic 842 Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Evaluation of transaction price adjustments

As discussed in Notes 2 and 4 to the consolidated financial statements, net revenue is reported at the net realizable value
amount that reflects the consideration the Company expects to receive in exchange for providing services. Revenues are
from government payers, commercial payers, and patients for infusion therapy and other ancillary health care services. The
Company estimates the transaction price adjustments based on the verification of the patient’s insurance coverage and
historical price concessions, historical payments, and management’s manual price concession adjustments.

We identified the evaluation of the transaction price adjustments related to recognizing revenue as a critical audit matter.
Subjective and complex auditor judgment was required to evaluate the transaction price adjustments. Specifically, auditor
judgment was required to evaluate the relevance and reliability of historical price concessions, historical payments, and
management’s manual price concession adjustments.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls over the Company’s transaction price adjustment process,
including controls related to the historical price concessions, historical payments, and management’s manual price
concession adjustments. We tested the relevance and reliability of the underlying data that served as the basis for the
transaction price adjustments which included the historical price concessions and historical payments within the classes of
payors by selecting certain historical price concessions and historical payments and agreeing to underlying support. We
evaluated management’s manual price concession adjustments by comparing management’s prior-year recorded balance to
actual write-offs during the current year.

/s/ KPMG LLP

We have served as the Company’s auditor since 2015.

Chicago, Illinois
March 11, 2021

OPTION CARE HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

Accounts receivable, net

Inventories

Prepaid expenses and other current assets

Total current assets

NONCURRENT ASSETS:

Property and equipment, net

Operating lease right-of-use asset

Intangible assets, net

Goodwill

Other noncurrent assets

Total noncurrent assets

TOTAL ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

Accrued compensation and employee benefits

Accrued expenses and other current liabilities

Current portion of operating lease liability

Current portion of long-term debt

Total current liabilities

NONCURRENT LIABILITIES:

December 31,

2020

2019

99,265 $

328,340

158,601

70,806

657,012

121,149

68,795

351,052

1,428,610

20,821

1,990,427

2,647,439 $

67,056

324,416

115,876

51,306

558,654

133,198

63,502

385,910

1,425,542

22,741

2,030,893

2,589,547

282,913 $

221,060

58,899

64,075

18,886

9,250

434,023

45,765

33,538

20,391

9,250

330,004

Long-term debt, net of discount, deferred financing costs and current portion

1,115,103

1,277,246

Operating lease liability, net of current portion

Deferred income taxes

Other noncurrent liabilities

Total noncurrent liabilities

Total liabilities

STOCKHOLDERS’ EQUITY:

Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as
of December 31, 2020 and 2019, respectively.

Common stock; $0.0001 par value: 250,000,000 shares authorized, 180,178,308 shares
issued and 179,794,586 shares outstanding as of December 31, 2020; 176,975,628 shares
issued and 176,591,907 shares outstanding as of December 31, 2019.

Treasury stock; 383,722 shares outstanding, at cost, as of December 31, 2020 and 2019,
respectively.

Paid-in capital

Accumulated deficit

Accumulated other comprehensive loss

Total stockholders’ equity

70,776

3,339

8,474

1,197,692

1,631,715

—

58,242

2,143

15,085

1,352,716

1,682,720

—

(2,403)

1,129,312

(100,031)

(11,172)

1,015,724

1,008,362

(91,955)

(7,195)

906,827

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

2,647,439 $

2,589,547

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

OPTION CARE HEALTH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NET REVENUE

COST OF REVENUE

GROSS PROFIT

OPERATING COSTS AND EXPENSES:

Selling, general and administrative expenses

Depreciation and amortization expense

Total operating expenses

OPERATING INCOME (LOSS)

OTHER INCOME (EXPENSE):

Interest expense, net

Equity in earnings of joint ventures

Other, net

Total other expense

LOSS BEFORE INCOME TAXES

INCOME TAX EXPENSE (BENEFIT)

Year Ended December 31,

2020

2019

2018

$ 3,032,610 $ 2,310,417 $ 1,939,791

2,350,346

1,797,418

1,517,576

682,264

512,999

422,215

500,199

71,310

571,509

110,755

459,628

53,690

513,318

(319)

345,884

38,062

383,946

38,269

(107,770)

(73,724)

(45,824)

3,313

(11,541)

(115,998)

2,840

(6,991)

1,020

(2,233)

(77,875)

(47,037)

(5,243)

2,833

(78,194)

(2,274)

(8,768)

(2,653)

NET LOSS

(8,076) $

(75,920) $

(6,115)

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:

Change in unrealized (losses) gains on cash flow hedges, net of income taxes of $0,
$259 and $234, respectively

OTHER COMPREHENSIVE (LOSS) INCOME

NET COMPREHENSIVE LOSS

(3,977)

(8,039)

774

(12,053) $

(83,959) $

(5,341)

LOSS PER COMMON SHARE

Net loss per share, basic and diluted

(0.04) $

(0.49) $

(0.04)

Weighted average common shares outstanding, basic and diluted

180,971

156,280

142,614

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

OPTION CARE HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

Adjustments to reconcile net loss to net cash provided by operations:

Depreciation and amortization expense

Non-cash operating lease costs

Deferred income taxes - net

Loss on sale of assets

Business casualty loss

Loss on extinguishment of debt

Amortization of deferred financing costs

Loss on interest rate swaps upon discontinuing hedge accounting

Paid-in-kind interest capitalized as principal

Equity in earnings of joint ventures

Stock-based incentive compensation expense

Interest on management notes receivable

Capital distribution from equity method investments

Change in contingent consideration liability

Changes in operating assets and liabilities:

Accounts receivable, net

Inventories

Prepaid expenses and other current assets

Accounts payable

Accrued compensation and employee benefits

Accrued expenses and other current liabilities

Operating lease liabilities

Other noncurrent assets and liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment

Proceeds from sale of assets

Insurance proceeds from business casualty loss

Business acquisitions, net of cash acquired

Other investing cash flows

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Redemptions to related parties

Sale of management notes receivable

Exercise of stock options, vesting of restricted stock, and related tax withholdings

Net proceeds from issuance of common stock

Proceeds from debt

Repayments of debt principal

Retirement of debt obligations

Deferred financing costs

Debt prepayment fees

Year Ended December 31,

2020

2019

2018

(8,076) $

(75,920) $

(6,115)

77,896

18,814

1,196

742

—

11,545

5,517

3,746

7,525

(3,313)

2,920

—

3,250

(1,500)

57,869

19,719

41,055

—

(4,607)

(3,595)

3,269

(626)

5,469

4,544

—

12,256

(2,840)

4,170

(62)

500

(300)

1,123

3,549

3,107

—

(1,020)

2,139

(78)

2,000

—

(3,924)

82,285

(21,012)

(42,725)

(19,500)

59,215

13,134

22,809

(12,853)

(2,940)

(30,856)

2,671

(317)

(18,089)

(17,253)

(3,790)

127,392

(4,711)

39,467

2,965

(4,715)

10,965

(5,586)

(1,740)

—

1,314

24,428

(26,875)

(28,292)

(26,276)

—

541

626

—

(700,170)

(10,727)

—

(26,334)

(727,826)

(37,003)

—

(904)

118,934

(2,000)

1,310

(2,501)

—

981,050

(9,250)

(2,075)

(174,000)

(226,738)

(149)

(30,022)

(3,480)

—

1,000

(5,150)

—

Net cash (used in) provided by financing activities

(68,849)

719,024

(4,150)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents - beginning of the period

CASH AND CASH EQUIVALENTS - END OF PERIOD

Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for income taxes

Cash paid for operating leases

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

32,209

67,056

30,665

36,391

(16,725)

53,116

99,265 $

67,056 $

36,391

97,640 $

50,808 $

47,173

2,884 $

2,405 $

1,600

26,809 $

18,992

OPTION CARE HEALTH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS)

Balance -
December 31,
2017

Stockholders'
contributions

Interest on
management
notes receivable

Stock-based
incentive
compensation

Net loss

Other
comprehensive
income

Balance -
December 31,
2018

Purchase of
BioScrip, Inc.

Interest on
management
notes receivable

Repayment of
management
notes receivable

Stockholders'
redemptions

Stock-based
incentive
compensation

Exercise of
stock options,
vesting of
restricted stock,
and related tax
withholdings

Net loss

Other
comprehensive
loss

Balance -
December 31,
2019

Stock-based
incentive
compensation

Exercise of
stock options,
vesting of
restricted stock,
and related tax
withholdings

Preferred
Stock

Common
Stock

Treasury
Stock

Paid-in
Capital

Management
Notes
Receivable

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity

— $

14 $

— $ 617,057 $

(1,116) $

(9,920) $

70 $

606,105

—

425

(425)

—

(78)

2,139

—

(6,115)

—

(78)

2,139

(6,115)

—

774

— $

14 $

— $ 619,621 $

(1,619) $

(16,035) $

844 $

602,825

—

387,040

—

(62)

1,310

(2,371)

371

4,170

—

(2,403)

—

(98)

—

(75,920)

—

387,044

(62)

1,310

(2,000)

4,170

(2,501)

(75,920)

—

(8,039)

— $

18 $ (2,403) $ 1,008,362 $

— $

(91,955) $

(7,195) $

906,827

—

2,920

—

2,920

—

(904)

—

(904)

Net proceeds
from the
issuance of
common stock

Cancellation of
common stock -
see Note 16

Net loss

Other
comprehensive
loss

Balance -
December 31,
2020

—

118,933

(1)

—

(8,076)

—

118,934

—

(8,076)

—

(3,977)

— $

18 $ (2,403) $ 1,129,312 $

— $

(100,031) $

(11,172) $

1,015,724

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

OPTION CARE HEALTH, INC.
NOTES TO 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

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 were set aside to prevent dilution related to potential additional vesting on certain
share-based instruments. See Note 16, Stockholders’ Equity, for additional discussion of these shares set aside. 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 held approximately 19.2% of the combined
company, and HC I held approximately 80.8% 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 December 31, 2020. See Note 3, Business Acquisitions, for further discussion of the
Merger.

Option Care Health, and its wholly-owned subsidiaries, provides infusion therapy and other ancillary health care services

through a national network of 99 full service pharmacies and 46 stand-alone ambulatory infusion sites. 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 consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (“GAAP”) in the United States. These principals require management to make certain
estimates and assumptions in determining assets, liabilities, revenue, expenses, and related disclosures. Actual amounts could
differ materially from those estimates.

Principles of Consolidation — The Company’s 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 “Equity-Method Investments” within Note 2,
Summary of Significant Accounting Policies, for further discussion of the Company’s equity-method investments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three

months or less to be cash equivalents.

Accounts Receivable — The Company’s accounts receivable is reported at the net realizable value amount that reflects the

consideration the Company expects to receive in exchange for providing services, which is inclusive of adjustments for price
concessions. The majority of accounts receivable are due from private insurance carriers and governmental health care
programs, such as Medicare and Medicaid.

Price concessions may result from patient hardships, patient uncollectible accounts sent to collection agencies, lack of
recovery due to not receiving prior authorization, differing interpretations of covered therapies in payer contracts, different
pricing methodologies, or various other reasons. In accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), an allowance
for doubtful accounts is established only as a result of an adverse change in the Company’s payers’ ability to pay outstanding
billings. The allowance for doubtful accounts balance is $0 as of December 31, 2020 and 2019, respectively.

Included in accounts receivable are earned but unbilled gross receivables of $79.0 million and $68.7 million as of

December 31, 2020 and 2019, respectively. Delays ranging from one day up to several weeks between the date of service and
billing can occur due to delays in obtaining certain required payer-specific documentation from internal and external sources.

See Revenue Recognition for a further discussion of the Company’s revenue recognition policy.

Inventory — Inventory, which consists primarily of pharmaceuticals, is stated at the lower of first‑in, first‑out cost or net

realizable value basis, which the Company believes is reflective of the physical flow of inventories.

During the year ended December 31, 2018, one Company location was destroyed by a hurricane, resulting in a loss of $2.9

million of inventory. This business casualty loss was recorded as a component of operating costs and expenses within the
consolidated statements of comprehensive income (loss). The Company received insurance proceeds of $0.8 million during the
year ended December 31, 2018, and recorded a receivable of $1.0 million. Both of these amounts were recorded as a partial
offset to the business casualty loss in the consolidated statements of comprehensive income (loss). The $0.8 million of
insurance proceeds were reflected as a component of cash flows from operating activities in the consolidated statements of cash
flows. During the year ended December 31, 2019, $3.0 million in proceeds were received related to recovery of inventory and
business interruption and was included as a component of cash flows from operating activities in the consolidated statements of
cash flows. These proceeds resulted in a gain on business casualty loss of $2.0 million recorded as a component of selling,
general and administrative expense in the consolidated statement of comprehensive income (loss).

Prepaid expenses and other current assets — Included in prepaid expenses and other current assets are rebates
receivable from pharmaceutical and medical supply manufacturers of $35.2 million and $13.9 million for the years ended
December 31, 2020 and 2019, respectively. There were no other items included in prepaid expenses and other current assets
that comprised 5% or more of the balance.

Leases — The Company has lease agreements for facilities, warehouses, office space and property and equipment.
Effective as of January 1, 2019, at the inception of a contract, the Company determines if the contract is a lease or contains an
embedded lease arrangement. Operating leases are included in the operating lease right-of-use asset (“ROU asset”) and
operating lease liabilities in the consolidated financial statements.

ROU assets, which represent the Company’s right to use the leased assets, and operating lease liabilities, which represent

the present value of unpaid lease payments, are both recognized by the Company at the lease commencement date. The
Company utilizes its estimated incremental borrowing rate at the lease commencement date to determine the present value of
unpaid lease obligations. The rates are estimated primarily using a methodology dependent on the Company’s
financial condition, creditworthiness, and availability of certain observable data. In particular, the Company considers its actual
cost of borrowing for collateralized loans and its credit rating, along with the corporate bond yield curve in estimating its
incremental borrowing rates. ROU assets are recorded as the amount of operating lease liability, adjusted for prepayments,
accrued lease payments, initial direct costs, lease incentives, and impairment of the ROU asset. Tenant improvement allowances
used to fund leasehold improvements are recognized when earned and reduce the related ROU asset. Tenant improvement
allowances are recognized through the ROU asset as a reduction of expense over the term of the lease.

Leases may contain rent escalations, however the Company recognizes the lease expense on a straight-line basis over the
expected lease term. The Company reviews the terms of any lease renewal options to determine if it is reasonably certain that
the renewal options will be exercised. The Company has determined that the expected lease term is typically the minimum non-
cancelable period of the lease.

The Company has lease agreements that contain both lease and non-lease components which the Company has elected to
account for as a single lease component for all asset classes. Leases with an initial term of 12 months or less are not recorded on
the consolidated balance sheet and are expensed on a straight-line basis over the term of the lease. The Company’s lease
agreements do not contain any material residual value guarantees or material restrictive covenants. See Note 8, Leases, for
further discussion of leases.

Goodwill, Intangible Assets, and Property and Equipment — Goodwill represents the excess of the purchase price

over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under ASC Topic 350,
Intangibles-Goodwill and Other. The Company tests goodwill for impairment annually, or more frequently whenever events or
circumstances indicate impairment may exist. Goodwill is stated at cost less accumulated impairment losses. The Company
completes its goodwill impairment test annually in the fourth quarter. See Note 10, Goodwill and Other Intangible Assets, for
further discussion of the Company’s goodwill and other intangible assets.

Intangible assets arising from the Company’s acquisitions are amortized on a straight‑line basis over the estimated useful
life of each asset. Referral sources have a useful life of 15-20 years. Trademarks/names have a useful life ranging from two to
fifteen years. The useful lives for other amortizable intangible assets range from approximately two to nine years. The
Company does not have any indefinite‑lived intangible assets.

Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation on owned property and
equipment is provided for on a straight‑line basis over the estimated useful lives of owned assets. Leasehold improvements are
amortized over the estimated useful life of the property or over the term of the lease, whichever is shorter. Estimated useful
lives are seven years for infusion pumps and three years to thirteen years for equipment. Major repairs, which extend the useful
life of an asset, are capitalized in the property and equipment accounts. Routine maintenance and repairs are expensed as
incurred. Computer software is included in property and equipment and consists of purchased software and internally-
developed software. The Company capitalizes application-stage development costs for significant internally-developed software
projects. Once the software is ready for its intended use, these costs are amortized on a straight‑line basis over the software’s
estimated useful life, generally five years. Costs recognized in the preliminary project phase and the post-implementation phase,
as well as maintenance and training costs, are expensed as incurred.

The Company tests long‑lived assets for impairment whenever events or circumstances indicate that a certain asset or

asset group may be impaired. Once identified, the amount of the impairment is computed by comparing the carrying value of
the respective asset or asset group to its fair value, which is based on the discounted estimated future cash flows.

Equity-Method Investments — The Company’s investments in certain unconsolidated entities are accounted for under
the equity method. The balance of these investments is included in other noncurrent assets in the accompanying consolidated
balance sheets. As of December 31, 2020 and 2019, the balance of the investments was $17.0 million and $17.0 million,
respectively. The investments are increased to reflect the Company’s capital contributions and equity in earnings of the
investees. The investments are decreased to reflect the Company’s equity in losses of the investees and for distributions
received that are not in excess of the carrying amount of the investments. The Company’s proportionate share of earnings or
losses of the investees is recorded in equity in earnings of joint ventures in the accompanying consolidated statements of
comprehensive income (loss). The Company’s proportionate share of earnings was $3.3 million, $2.8 million and $1.0 million
for the years ended December 31, 2020, 2019 and 2018, respectively. Distributions from the investees are treated as cash
inflows from operating activities in the consolidated statements of cash flows. During the years ended December 31, 2020,
2019 and 2018, the Company received distributions from the investees of $3.3 million, $0.5 million and $2.0 million,
respectively. See Footnote 17, Related-Party Transactions, for discussion of related-party transactions with these investees.

Hedging Instruments — The Company uses derivative financial instruments to limit its exposure to increases in the

interest rate of its variable rate debt instruments. The derivative financial instruments are recognized on the consolidated
balance sheets at fair value. See Note 12, Derivative Instruments, for additional information.

At inception of the hedge, the Company designated the derivative instruments as a hedge of the cash flows related to the
interest on the variable rate debt. For all instruments designated as hedges, the Company documents the hedging relationships
and its risk management objective of the hedging relationship. For all hedging instruments, the terms of the hedge perfectly
offset the hedged expected cash flows.

Revenue Recognition — Net revenue is reported at the net realizable value amount that reflects the consideration the
Company expects to receive in exchange for providing services. Revenues are from government payers, commercial payers,
and patients for goods and services provided and are based on a gross price based on payer contracts, fee schedules, or other
arrangements less any implicit price concessions.

The Company assesses the expected consideration to be received at the time of patient acceptance based on the
verification of the patient’s insurance coverage, historical information with the patient, similar patients, or the payer.
Performance obligations are determined based on the nature of the services provided by the Company. The majority of the
Company’s performance obligations are to provide infusion services to deliver medicine, nutrients, or fluids directly into the
body.

The Company provides a variety of infusion-related therapies to patients, which frequently include multiple deliverables
of pharmaceutical drugs and related nursing services. After applying the criteria from ASC 606, the Company concluded that
multiple performance obligations exist in its contracts with its customers. Revenue is allocated to each performance obligation
based on relative standalone price, determined based on reimbursement rates established in the third-party payer contracts.
Pharmaceutical drug revenue is recognized at the time the pharmaceutical drug is delivered to the patient, and nursing revenue
is recognized on the date of service.

The Company's outstanding performance obligations relate to contracts with a duration of less than one year. Therefore, the

Company has elected to apply the practical expedient provided by ASC 606 and is not required to disclose the aggregate
amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the
reporting period. Any unsatisfied or partially unsatisfied performance obligations at the end of a reporting period are generally
completed prior to the patient being discharged. See Note 4, Revenue for a further discussion of revenue.

Cost of Revenue — Cost of revenue consists of the actual cost of pharmaceuticals and other medical supplies dispensed

to patients, as well as all other costs directly related to the production of revenue. These costs include warehousing costs,
purchasing costs, freight costs, cash discounts, wages and related costs for pharmacists and nurses, along with depreciation
expense relating to revenue-generating assets, such as infusion pumps.

The Company receives prompt payment discounts from some of its pharmaceutical and medical supplies vendors. These
prompt payment discounts are recorded as a reduction of inventory and are accounted for as a reduction of cost of goods sold
when the related inventory is sold.

The Company also receives rebates from pharmaceutical and medical supply manufacturers. Rebates are generally
volume-based incentives and are recorded as a reduction of inventory and are accounted for as a reduction of cost of goods sold
when the related inventory is sold.

Selling, General and Administrative Expenses — Selling, general and administrative expenses mainly consist of

salaries for administrative employees that directly and indirectly support the operations, occupancy costs, marketing
expenditures, insurance, and professional fees.

Stock Based Incentive Compensation - The Company accounts for stock-based incentive compensation expense in

accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). Stock-based incentive compensation
expense is based on the grant date fair value. The Company estimates the fair value of stock option awards using a Black-
Scholes option pricing model and the fair value of restricted stock unit awards using the closing price of the Company’s
common stock on the grant date. For awards with a service-based vesting condition, the Company recognizes expense on a
straight-line basis over the service period of the award. For awards with performance-based vesting conditions, the Company
will recognize expense when it is probable that the performance-based conditions will be met. When the Company determines
that it is probable that the performance-based conditions will be met, a cumulative catch-up of expense will be recorded as if the
award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line
basis through the remainder of the vesting period and will be updated if the Company determines that there has been a change
in the probability of achieving the performance-based conditions. The Company records the impact of forfeited awards in the
period in which the forfeiture occurs.

Prior to the Merger, HCI issued incentive units to certain employees of Option Care, who remained employees of the

Company following the Merger. In accordance with ASC 718, the Company recognizes compensation expense on a straight-
line basis over the shorter of the vesting period of the award or the employee’s expected eligibility date. HC I also issued equity
incentive units to certain members of the Option Care Board of Directors, who remained members of the Board of Directors
following the Merger. See Note 15, Stock-Based Incentive Compensation, for a further discussion of equity incentive plans.

Business Acquisitions - The Company accounts for business acquisitions in accordance with ASC Topic 805, Business
Combinations, with assets and liabilities being recorded at their acquisition date fair value and goodwill being calculated as the
purchase price in excess of the net identifiable assets. See Note 3, Business Acquisitions, for further discussion of the
Company’s business acquisitions.

Income Taxes — The Company accounts for income taxes using the asset and liability method. Deferred tax assets and

liabilities are reported for book-tax basis differences and are measured based on currently enacted tax laws using rates expected
to apply to taxable income in the years in which the differences are expected to reverse. The effect of a change in tax rate on
deferred taxes is recognized in income tax expense in the period that includes the enactment date of the change.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts more likely than not to be realized.

The Company recognizes income tax positions that are more likely than not to be sustained on their technical merits. The
Company measures recognized income tax positions at the maximum benefit that is more likely than not, based on cumulative
probability, realizable upon final settlement of the position. Interest and penalties related to unrecognized tax benefits are
reported in income tax expense.

Concentrations of Business Risk — The Company generates revenue from managed care contracts and other agreements
with commercial third-party payers. Revenue related to the Company’s largest payer was approximately 15%, 16% and 17% for
the years ended December 31, 2020, 2019 and 2018, 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 years
presented.

For the years ended December 31, 2020, 2019 and 2018, approximately 15%, 12% and 12%, respectively, of the

Company’s revenue was reimbursable through direct government healthcare programs such as Medicare and Medicaid. As of
December 31, 2020 and 2019, approximately 15% 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, concentrations 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 years ended December 31, 2020 and 2019, approximately 70% and 70%, respectively, of the Company’s

pharmaceutical and medical supply purchases were from three vendors. For the year ended December 31, 2018, approximately
66% of the Company’s pharmaceutical and medical supply purchases were from two 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
December 31, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its
operations.

Fair Value Measurements — The fair value measurement accounting standard, ASC Topic 820, Fair Value Measurement
(“ASC 820”), provides a framework for measuring fair value and defines fair value as the price that would be received to sell an
asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that
market participants would use in pricing an asset or liability. The standard establishes a valuation hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring
that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing
the asset or liability developed based on independent market data sources. Unobservable inputs are inputs that reflect the
Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon
the best information available. The valuation hierarchy is composed of three categories. The categorization within the valuation
hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the
valuation hierarchy are described as follows:

•

Level 1 - Inputs to the fair value measurement are quoted prices in active markets for identical assets or
liabilities.
Level 2 - Inputs to the fair value measurement include quoted prices in active markets for similar assets or
liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other
than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3 - Inputs to the fair value measurement are unobservable inputs or valuation techniques.

While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of

different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different
fair value measurement at the reporting date.

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 created 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):

Number of BioScrip common shares outstanding at time of the Merger (1)

Common shares issued to warrant and preferred stockholders at time of the Merger (1)

Total shares of BioScrip common stock outstanding at time of the Merger (1)

BioScrip share price as of August 6, 2019

Fair value of common shares

Fair value of share-based instruments

Cash paid in conjunction with the Merger included in purchase consideration

Fair value of total consideration transferred

Less: cash acquired

Fair value of total consideration acquired, net of cash acquired

Amount

129,181

3,458

132,639

2.67

354,146

32,898

714,957

1,102,001

14,787

1,087,214

(1) These shares were not adjusted for the one share for four share reverse stock split, which occurred on February 3, 2020.

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, which is discussed in
Note 11, Indebtedness.

The Company’s allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities

assumed, net of cash acquired, in the Merger is as follows (in thousands):

Accounts receivable, net (1)

Inventories (2)

Property and equipment, net (3)

Intangible assets, net (4)

Deferred tax assets, net of deferred tax liabilities (5)

Operating lease right-of-use asset (6)

Operating lease liability (6)

Accounts payable (7)

Other assumed liabilities, net of other acquired assets (7)

Total acquired identifiable assets and liabilities

Goodwill (8)

Amount

96,532

19,683

48,732

193,245

26,731

22,378

(28,897)

(66,668)

(20,663)

291,073

796,141

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

Trademarks/Names

Patient referral sources

Licenses

Total intangible assets, net

Fair Value

Weighted Average
Estimated Life (in years)

12,536

180,329

380

193,245

1.5

18.8

The Company 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 6, 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 resulted in $796.1 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 following tables provide estimated unaudited pro forma results of operations for the years
ended December 31, 2019 and 2018 (in thousands). The estimated pro forma net income 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.

Net revenue

Net loss

Year Ended December 31,

2019

2018

2,755,361 $

2,648,694

(49,566)

(70,932)

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.

For the periods subsequent to the Merger Date that are included in the results of operations for the year ended

December 31, 2019, BioScrip had net revenue of $308.9 million and a net loss of $30.1 million.

Acquisition-related costs were expensed as incurred, with the exception of BioScrip success-based fees that are included in

consideration transferred. The Company recorded transaction costs that are expensed in selling, general and administrative
expenses during the year ended December 31, 2019 of approximately $25.8 million. Transaction expenses consisted of
professional fees for advisory, consulting and underwriting services as well as other incremental costs directly related to the
acquisition.

Baptist Health Asset Acquisition — In August 2018, pursuant to the Purchase and Sale Agreement dated August 8,
2018, Option Care completed the acquisition of certain assets of Baptist Health in Little Rock, Arkansas for a purchase price of
$1.0 million.

Home I.V. Specialists, Inc. Acquisition — In September 2018, pursuant to the Stock Purchase Agreement dated
September 18, 2018, Option Care completed the acquisition of 100% of the outstanding shares of Home I.V. Specialists, Inc.
(“Home I.V.”) for a purchase price of $11.6 million, net of cash acquired. The total consideration was comprised of cash paid of
$9.8 million and a contingent payment of $1.8 million payable one year after the acquisition date. During the year ended
December 31, 2019, the Company reduced the contingent liability by $0.3 million. During the year ended December 31, 2020,
the Company determined that the contingent payment was not payable and reduced the remaining contingent liability by
$1.5 million.

4. REVENUE

The following table sets forth the net revenue earned by category of payer for the years ended December 31, 2020, 2019

and 2018 (in thousands):

Commercial payers

Government payers

Patients

Net revenue

5. EMPLOYEE BENEFIT PLANS

Year Ended December 31,

2020

2019

2018

$ 2,542,985

2,001,105

1,699,450

450,067

39,558

285,128

24,184

217,876

22,465

$ 3,032,610

2,310,417

1,939,791

The Company maintains a 401(k) plan and matches 100% of employee contributions, up to 4% of employee compensation.
The Company recorded expense for the defined contribution plan of $9.7 million, $6.4 million and $6.3 million for the years
ended December 31, 2020, 2019 and 2018, respectively. In the years ended December 31, 2020, 2019 and 2018, Company
contributions of $8.9 million, $6.6 million and $6.3 million, respectively, were paid.

6. INCOME TAXES

The income tax expense (benefit) consists of the following for the years ended December 31, 2020, 2019 and 2018 (in

thousands):

US federal income tax expense (benefit):

Current

Deferred

State income tax expense (benefit):

Current

Deferred

2020

2019

2018

(69) $

—

996

927

1,707

199

1,906

(3,072)

2,074

(1,276)

798

—

(2,688)

1,176

(1,141)

Total income tax expense (benefit)

2,833

(2,274) $

(2,653)

The difference between the statutory federal income tax rate and the effective tax rate is as follows for the years ended

December 31, 2020, 2019 and 2018:

US federal statutory tax rate

State and local income taxes net of federal tax benefit

Valuation allowance

Stock-based compensation

Non-deductible compensation

Changes in uncertain tax positions

Non-deductible expenses

Other, net

Effective income tax rate

2020

2019

2018

21.0 %

(29.5)

(29.9)

6.7

(16.3)

0.0

(8.2)

2.2

21.0 %

(0.5)

(13.4)

0.0

(0.7)

0.0

(2.8)

(0.7)

(54.0) %

2.9 %

21.0 %

2.4

0.0

14.7

(7.5)

(0.3)

30.3 %

The components of deferred income tax assets and liabilities using the 21% U.S. Federal statutory tax rate were as follows

as of December 31, 2020 and 2019 (in thousands):

Deferred tax assets:

Price concessions

Compensation and benefits

Interest limitation carryforward

Operating lease liability

Net operating losses

Other

Deferred tax assets before valuation allowance

Valuation allowance

Deferred tax assets net of valuation allowance

Deferred tax liabilities:

Accelerated depreciation

Operating lease right-of-use asset

Intangible assets

Goodwill

Other

Deferred tax liabilities

Net deferred tax liabilities

2020

2019

6,907

4,058

39,094

22,644

155,922

8,682

237,307

12,302

3,672

38,623

19,462

147,749

5,506

227,314

(112,085)

(109,531)

125,222

117,783

(12,593)

(17,186)

(67,127)

(28,976)

(2,679)

(10,376)

(15,442)

(71,204)

(20,250)

(2,654)

(128,561)

(119,926)

(3,339) $

(2,143)

As a result of the Merger, the Company recorded a full valuation allowance against all of its net U.S. federal and state

deferred tax assets except for certain state net operating losses (“NOL”) which were estimated to be $0.4 million as of
December 31, 2020. The initial recognition of this valuation allowance by the Company was reflected in the opening balance
sheet of BioScrip and, to that extent, did not impact the Company’s tax expense (benefit) for the years ended December 31,
2020 and 2019. The valuation allowance for deferred tax assets as of December 31, 2020 was $112.1 million.

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 the positive
and negative evidence in determining if the valuation allowance is fairly stated.

The Company is subject to taxation in the United States and various states. As a result of the Merger, BioScrip carried over

$458.9 million of federal net operating losses, $479.6 million of state net operating losses, and $85.0 million of interest
limitation carryforwards. At December 31, 2020, the Company had $577.9 million of gross federal NOL carryforwards of
which $438.1 million are available to offset future taxable income in the United States. These NOL’s will begin to expire in
2026 if not utilized. The remaining gross federal NOL’s of $139.8 million at December 31, 2020 are expected to expire
unutilized due to limitations under Internal Revenue Code Section 382. At December 31, 2019, the Company had $548.0
million of gross federal NOL’s. At December 31, 2020 and 2019, the Company had $154.8 million and $145.6 million of
interest limitation carryforwards. At December 31, 2020 and 2019, the Company also had $600.1 million and $578.5 million of
cumulative gross state NOL carryforwards available to offset future taxable income in various states. These state NOL’s will
begin to expire starting in 2021 if not utilized.

At December 31, 2020 and 2019, the unrecognized tax benefits for uncertain tax positions was $0.

The following table presents the valuation allowance for deferred tax assets for the years ended December 31, 2020, 2019

and 2018 (in thousands):

Description

Additions

Balance at
Beginning of
Period

Charged
(Benefit) to
Costs and
Expenses

Charged to
Other Accounts

Balance at End
Period

2018: Valuation allowance for deferred tax assets

2019: Valuation allowance for deferred tax assets

2020: Valuation allowance for deferred tax assets

1,263 $

110 $

— $

1,373

1,373 $

15,395 $

92,763 $

109,531

109,531 $

1,549 $

1,005 $

112,085

Currently, the Company is not subject to any U.S. Federal income tax audits. The Company is subject to various state tax

audits, and believes that the outcome of these audits will not have a material impact on the Company.

The Company recorded no income tax expense or benefit for the year ended December 31, 2020 associated with the tax
provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). However, certain adjustments were
made to the Company’s components of deferred tax assets and liabilities to reflect the tax provisions of the CARES Act. These
adjustments were the result of the CARES Act’s tax provisions associated with interest expense limitations and bonus
depreciation on leasehold improvements. These adjustments to the Company’s components of deferred tax assets and liabilities
were offset by one another or the Company’s valuation allowance.

7. (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, 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 years ended December 31, 2020 and 2019 excludes the effect of
shares that would be issued in connection with warrants, stock options and restricted stock awards, as their inclusion would be
anti-dilutive to the loss per share. As of December 31, 2020 there were 2,285,784 warrants, 412,831 stock options and 549,650
restricted stock awards outstanding that were excluded from the calculation as they would be anti-dilutive. As of December 31,
2019 there were 2,328,120 warrants, 644,975 stock options and 231,562 restricted stock awards outstanding that were excluded
from the calculation as they were anti-dilutive. There were no dilutive potential common shares for the years ended
December 31, 2018.

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

thousands, except per share data):

Numerator:

Net loss

Denominator:

Year Ended December 31,

2020

2019

2018

(8,076) $

(75,920) $

(6,115)

Weighted average number of common shares outstanding

180,971

156,280

142,614

Loss per Common Share:

Loss per common share, basic and diluted

(0.04) $

(0.49) $

(0.04)

8. LEASES

On January 1, 2018, the Company adopted ASC 842, Leases, using an optional transition method that permitted application
of the standards as of the effective date without requiring the standard to be applied to the comparative periods presented in the
consolidated financial statements. The Company elected the transition package of three practical expedients, which allowed the
Company not to reassess prior conclusions about lease identification, lease classification and initial, direct costs. The Company
did not elect the practical expedient to use hindsight and accordingly, the initial lease term did not differ under the new
standards versus prior accounting practice.

During the years ended December 31, 2020 and 2019, the Company incurred operating lease expenses of $30.8 million and

$25.8 million including short-term lease expenses, which were included as a component of selling, general and administrative
expenses in the consolidated statements of comprehensive income (loss). As of December 31, 2020, the weighted-average
remaining lease term was 6.7 years and the weighted-average discount rate was 5.18%.

Operating leases mature as follows (in thousands):

Year Ending December 31

Minimum Payments

2021

2022

2023

2024

2025

2026 and beyond

Total lease payments

Less: Interest

Present value of lease liabilities

23,770

19,216

15,804

11,684

9,369

30,168

110,011

(20,349)

89,662

During the year ended December 31, 2020, the Company commenced new leases, extensions and amendments, resulting in
non-cash investing and financing activities in the consolidated statements of cash flows of $29.1 million related to the increases
in the operating lease right-of-use asset and operating lease liabilities, respectively. During the year ended December 31, 2019,
the Company did not enter into any significant new operating or financing leases. As of December 31, 2020, the Company did
not have any significant operating or financing leases that had not yet commenced.

During the year ended December 31, 2018, the Company incurred rent expense of $17.3 million, under ASC Topic 840,
Leases, which was included as a component of selling, general and administrative expenses in the consolidated statements of
comprehensive income (loss).

9. PROPERTY AND EQUIPMENT

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

December 31, 2020

December 31, 2019

Infusion pumps
Equipment, furniture and other
Leasehold improvements

Computer software, purchased and internally developed
Assets under development

Less: accumulated depreciation
Property and equipment, net

31,678 $
47,886
87,483

27,799
10,793
205,639
84,490
121,149 $

30,416
51,454
80,916

34,884
14,150
211,820
78,622
133,198

Depreciation expense is recorded within cost of revenue and operating expenses within the 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 years
ended December 31, 2020, 2019 and 2018 (in thousands):

Year ended December 31,

2020

2019

2018

Depreciation expense in cost of revenue

Depreciation expense in operating expenses

Total depreciation expense

6,586 $

4,179 $

36,180

27,629

42,766 $

31,808 $

2,993

18,490

21,483

During the year ended December 31, 2018, one company location was destroyed by a hurricane, resulting in a loss of $0.6

million of property and equipment. A business casualty loss was recorded as a component of operating costs and expenses
within the consolidated statements of comprehensive income (loss). During the year ended December 31, 2019, $0.6 million in
proceeds were received related to recovery of property and equipment. These proceeds resulted in a gain on business casualty
loss of $0.6 million recorded as a component of selling, general, and administrative expenses in the consolidated statements of
comprehensive income (loss) during the year ended December 31, 2019. These proceeds were reflected as a component of cash
flows from investing activities in the consolidated statement of cash flows.

10. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is not amortized, but is evaluated for impairment annually in the fourth quarter of the fiscal year, or more
frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying value.

Circumstances that could trigger an interim impairment test include: a significant adverse change in the business climate or

A qualitative impairment analysis was performed in the fourth quarter of 2020 and 2019 to assess whether it is more likely

A quantitative impairment analysis was performed in the fourth quarter of 2018, and the Company estimated the fair value
of its reporting unit using an income approach. The income approach requires management to estimate a number of factors for
its reporting unit, including projected future operating results, economic projections, anticipated future cash flows, and discount
rates. The fair value determined using the income approach was then compared to marketplace fair value data from within a
comparable industry grouping for reasonableness. The Company determined that there was no goodwill impairment in 2018.

The determination of fair value and the allocation of that value to individual assets and liabilities within the reporting unit
requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but
are not limited to, the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the
industries in which the Company competes; the discount rate; terminal growth rates; and forecasts of revenue, operating
income, depreciation and amortization, and capital expenditures. Actual financial results could differ from those estimates due
to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or
other underlying assumptions could have a significant impact on either the fair value of the reporting unit, the amount of the
goodwill impairment charge, or both.

Changes in the carrying amount of goodwill consist of the following activity for the years ended December 31, 2020, 2019

and 2018 (in thousands):

Balance at December 31, 2017

Acquisitions

Balance at December 31, 2018

Acquisitions

Balance at December 31, 2019

Purchase accounting adjustments

Balance at December 31, 2020

627,392

5,077

632,469

793,073

1,425,542

3,068

1,428,610

The carrying amount and accumulated amortization of intangible assets consists of the following as of December 31, 2020

and 2019 (in thousands):

Gross intangible assets:

Referral sources

Trademarks/names

Other amortizable intangible assets

Total gross intangible assets

Accumulated amortization:

Referral sources

Trademarks/names

Other amortizable intangible assets

Total accumulated amortization

December 31, 2020

December 31, 2019

438,121 $

44,536

402

483,059

(110,498)

(21,146)

(363)

(132,007)

438,121

44,536

402

483,059

(84,295)

(12,748)

(106)

(97,149)

385,910

Total intangible assets, net

351,052 $

Amortization expense for intangible assets was $35.1 million, $26.1 million and $19.6 million for the years ended

December 31, 2020, 2019 and 2018, respectively.

Expected future amortization expense for intangible assets recorded at December 31, 2020, is as follows (in thousands):

2021

2022

2023

2024

2025

2026 and beyond

Total

32,015

28,338

205,685

351,052

11. INDEBTEDNESS

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

ABL Facility

First Lien Term Loan

Second Lien Notes

Less: current portion

Total long-term debt

Principal Amount

Discount

Debt Issuance
Costs

Net Balance

— $

915,750

245,781

(7,253)

(6,102)

1,161,531 $

(13,355) $

(19,710)

(4,113)

(23,823)

—

888,787

235,566

1,124,353

(9,250)

1,115,103

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

ABL Facility

First Lien Term Loan

Second Lien Notes

Less: current portion

Total long-term debt

Principal Amount

Discount

Debt Issuance
Costs

Net Balance

— $

925,000

412,256

(8,399)

(11,672)

1,337,256 $

(20,071) $

(22,825)

(7,864)

(30,689)

—

893,776

392,720

1,286,496

(9,250)

1,277,246

Retired Debt Obligations — Prior to the Merger, the Company had two credit arrangements that provided for up to
$645.0 million in senior secured credit facilities through an $80.0 million revolving credit facility (the “Previous Revolving
Credit Facility”), a $415.0 million first lien term loan (the “Previous First Lien Term Loan”), and a $150.0 million second lien
term loan (the “Previous Second Lien Term Loan”, and together with the Previous First Lien Term Loan, the “Previous Term
Loans”, and the Previous Term Loans, together with the Previous Revolving Credit Facility, the “Previous Credit Facilities”).
The principal balance on the Previous First Lien Term Loan was repayable in quarterly installments of $1.0 million.

On August 6, 2019, the Company repaid the outstanding balance of Previous Term Loans and retired the outstanding
Previous Credit Facilities by entering into two new credit arrangements and a notes indenture, described below under “New
Debt Obligations”. The weighted average interest rate paid on the Previous First Lien Term Loan was 6.20% for the year ended
December 31, 2019, prior to the retirement of the debt obligations. The weighted average interest paid on the Previous Second
Lien Term Loan was 11.36% for the year ended December 31, 2019, prior to the retirement of the debt obligations.

New Debt Obligations — In conjunction with the Merger, the Company entered into an asset-based-lending revolving
credit facility administered by Bank of America, N.A. The Company also issued senior secured second lien PIK toggle floating
rate notes due 2027 (the “Second Lien Notes”) under an indenture with Ankura Trust Company, LLC. The two new credit
agreements and the indenture were entered into on August 6, 2019 and initially provided for up to $1,475.0 million in senior
secured credit facilities through a $150.0 million asset-based-lending revolving credit facility (the “ABL Facility”), a $925.0
million first lien term loan (the “First Lien Term Loan”, and together with the ABL Facility, the “Loan Facilities”), and a
$400.0 million issuance of Second Lien Notes.

The ABL Facility initially provided for borrowings up to $150.0 million, which matures on August 6, 2024. During the

year ended December 31, 2020, the Company increased the borrowing capacity of its ABL Facility from $150.0 million to
$175.0 million. The ABL Facility bears interest at a per annum rate initially provided that is determined by the Company’s
periodic selection of rate type, either the Base Rate or the Eurocurrency Rate. Interest on the ABL Facility is charged on Base
Rate loans at the greater of Base Rate, as defined, or 0.25% plus 1.25% to 1.75%, depending on the historical excess
availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement. Interest on the ABL Facility is
charged on Eurocurrency Rate Loans at the Eurocurrency Rate, as defined, plus 2.25% to 2.75%, depending on the historical
excess availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement. The ABL Facility contains
commitment fees payable on the unused portion 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 2.50%. Borrowings under the ABL Facility are
secured by a first priority security interest in the Company’s and each of its subsidiaries’ inventory, accounts receivable, cash,
deposit accounts and certain assets and property related thereto (the “ABL Priority Collateral”), in each case subject to certain
exceptions, and a third priority security interest in the Term Loan Priority Collateral, as defined below. The Company had no
outstanding borrowings under the ABL Facility at December 31, 2020 and 2019. The Company had $9.6 million of undrawn
letters of credit issued and outstanding, resulting in net borrowing availability under the ABL of $165.4 million as of
December 31, 2020.

The principal balance of the First Lien Term Loan is repayable in quarterly installments which commenced in March 2020
of $2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026. 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 4.40% and 6.20% as of
December 31, 2020 and 2019, respectively. The weighted average interest rate incurred was 5.09% for the year ended
December 31, 2020. The weighted average interest rate incurred was 6.47% for the period August 6, 2019 through
December 31, 2019. Amounts borrowed under the First Lien Term Loan are secured by a first priority security interest in each
of the Company’s subsidiaries’ capital stock (subject to certain exceptions) and substantially all of the Company’s property and
assets (other than the ABL Priority Collateral), (the “Term Loan Priority Collateral”), in each case subject to certain exceptions,
and a second priority security interest in the ABL Priority Collateral.

The Second Lien Notes mature on August 6, 2027. Interest on the Second Lien Notes is payable quarterly and is at London

Interbank Offered Rate (“LIBOR”), plus 8.75%. The Company elected to pay-in-kind (“PIK”) the first quarterly interest
payment, due in November 2019, which resulted in the Company capitalizing $12.3 million in interest to the principal balance
on the interest payment date. The Company also elected to PIK the quarterly interest payment due in August 2020, which
resulted in the Company capitalizing $7.5 million in interest expense to the principal balance of the Second Lien Notes on the
interest payment date. In connection with the PIK elections, the Company was charged an additional 1.00% in interest expense
on those quarterly interest payments. The interest rate on the Second Lien Notes was 8.98% and 10.66% as of December 31,
2020 and 2019. The weighted average interest incurred was 9.39% for the year ended December 31, 2020. The weighted
average interest incurred was 11.45% for the period August 6, 2019 through December 31, 2019.

During the year ended December 31, 2020, the Company completed a public offering of stock for proceeds of

$118.9 million. Those proceeds, along with additional cash on hand, were used to prepay $174.0 million of the Second Lien
Notes, which is reflected as a cash outflow from financing activities in the Company’s consolidated statements of cash flows.
The Company recognized a loss on extinguishment of debt of $11.5 million, of which $3.5 million related to the prepayment
penalty and $8.0 million related to deferred financing fees which were written off upon extinguishment. The $3.5 million
prepayment penalty was reflected as a cash outflow from financing activities in the Company’s consolidated statements of cash
flows. The loss on extinguishment was recorded as a component of other, net in the Company’s consolidated statements of
comprehensive income (loss). See Note 16, Stockholders’ Equity, for further discussion of the public offering.

During the year ended December 31, 2019, the Company assessed whether the repayment of the Previous Term Loans and

subsequent issuance of the First Lien Term Loan and the Second Lien Notes resulted in an insubstantial modification or an
extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows: (i) Lenders participating in
both the Previous Credit Facilities and the new Loan Facilities and Second Lien Notes; (ii) previous lenders that exited; and (iii)
new lenders. The Company determined that $226.7 million of the Previous First Lien Term Loan was extinguished and none of
the Previous Second Lien Term Loan was extinguished, which is disclosed as an outflow from financing activities in the
consolidated statements of cash flows. The Company determined that $752.4 million of new debt was issued related to the First
Lien Term Loan and $250.0 million of new debt was issued related to the Second Lien Notes, which is disclosed as an inflow
from financing activities in the consolidated statements of cash flows. In connection with the issuance of the First Lien Term
Loan, the Second Lien Notes, and the ABL Facility, the Company incurred $52.6 million in debt issuance costs and third-party
fees, of which $48.1 million was capitalized, $1.3 million was expensed as a component of other expense and $3.2 million was
expensed as a loss on extinguishment as a component of other expense. Further, $21.3 million of the total fees incurred of $52.6
million was netted against the $981.1 million of proceeds from debt as a component of the cash flows from financing activities,
$30.0 million was presented as deferred financing costs as a component of cash flows from financing activities, and the
remaining $1.3 million was included in cash flows from operating activities.

During the year ended December 31, 2019, the Company recognized a loss on extinguishment of debt of $5.5 million, of

which $3.2 million related to debt issue costs incurred with the issuance of the Loan Facilities and Second Lien Notes, as
discussed above, and $2.3 million related to deferred financing fees on the Previous Credit Facilities, which were written off
upon extinguishment. All remaining deferred financing fees related to the Previous Credit Facilities of $7.6 million were
attributed to modified loans, which are capitalized and will be amortized over the remaining term of the Loan Facilities and
Second Lien Notes.

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

Year Ending December 31,

Minimum Payments

2021

2022

2023

2024

2025

2026 and beyond

Total

9,250

1,115,281

1,161,531

In January 2021, the Company entered into an amendment on the First Lien Term Loan, which resulted in an additional
$250.0 million of incremental First Lien Term Loan indebtedness being issued, which was used to prepay the remaining $245.8
million outstanding balance of the Second Lien Notes. See Note 19, Subsequent Events, for further discussion.

During the year ended December 31, 2020, 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 December 31, 2020 (in

thousands):

Financial Instrument

First Lien Note Facility

Second Lien Note Facility

Total debt instruments

Carrying Value as
of December 31,
2020

Markets for
Identical Item
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs (Level 3)

888,787 $

235,566

1,124,353 $

— $

—

— $

913,461 $

—

913,461 $

—

266,438

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

Second Lien Notes fair value as of January 1, 2020

Principal prepayment

Interest rate PIK

Change in fair value

Second Lien Notes fair value as of December 31, 2020

Level 3 Measurements

411,119

(174,000)

7,525

21,794

266,438

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

12. DERIVATIVE INSTRUMENTS

The Company utilizes derivative financial instruments for hedging and non-trading purposes to limit the Company’s
exposure to its variable interest rate risk. Use of derivative financial instruments in hedging strategies 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. 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 rising
interest rates. 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 and received cash proceeds of $1.7 million, net of
early termination fees. In conjunction with the termination of the interest rate caps, Option Care discontinued the hedge
accounting associated with the 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 LIBOR through August 2021. In accordance with ASU 2017-12, Targeted Improvements to
Accounting for Hedges, the Company has determined that the $911.1 million designated cash flow hedge is perfectly effective.
The remaining $13.9 million notional amount of the first interest rate swap is not designated as a hedging instrument. The
second interest rate swap for $400.0 million notional was effective in November 2019 and was designated as a cash flow hedge
against the underlying interest rate on the Second Lien Notes interest payment indexed to three-month LIBOR through
November 2020.

In May 2020, the Company elected to PIK the Second Lien Notes’ quarterly interest payment due in August 2020. Upon

making the PIK election, the Company determined that the hedged interest payment would no longer occur, resulting in an
ineffective hedge, so the Company discontinued hedge accounting on its $400.0 million notional interest rate swap. As a result,
the Company reclassified accumulated comprehensive loss of $3.7 million to interest expense, net in the consolidated
statements of comprehensive income (loss). The gains and losses associated with the $400.0 million notional swap were
recognized in net income (loss) through interest expense until the swap expired in November 2020. See Note 11, Indebtedness,
for further discussion of the PIK.

The following table summarizes the amount and location of the Company’s derivative instruments in the consolidated

balance sheets (in thousands):

Derivative

Interest rate swaps designated as cash flow hedges

Interest rate swaps not designated as hedges

Interest rate swaps designated as cash flow hedges

Interest rate swaps not designated as hedges

Total derivatives

Fair value - Derivatives in liability position

Balance Sheet
Caption

Accrued expenses
and other current
liabilities

Other noncurrent
liabilities

December 31, 2020

December 31, 2019

11,172 $

170

—

11,342 $

1,275

—

5,920

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 $400.0
million notional swap and 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 consolidated statements of comprehensive income (loss) (in
thousands):

Derivative

Years Ended December 31,

2020

2019

2018

Interest rate caps designated as cash flow hedges

— $

(1,103) $

1,008

Interest rate swaps designated as cash flow hedges

(7,723)

(7,195)

Interest rate swaps that discontinued hedge accounting

3,746

—

Total

(3,977) $

(8,298) $

1,008

The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s consolidated

statement of comprehensive income (loss) related to the Company’s derivative instruments (in thousands):

Derivative

Income Statement Caption

2020

2019

2018

Interest rate caps designated as cash flow hedges

Interest rate swaps designated as cash flow hedges

Interest rate swaps not designated as hedges

Interest expense

Interest rate swaps that discontinued hedge accounting

Interest expense

Total

$ —

(125) $

300

(12,799)

(115)

(34)

(3,746)

(92)

—

$ (16,579) $

(332) $

300

Year Ended December 31,

The Company expects to reclassify $11.2 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 three levels of inputs within the fair value hierarchy are defined in Note 2, Summary of Significant
Accounting Policies. While the Company believes its valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting date.

First Lien Term Loan: The fair value of the First Lien Term Loan is derived from a broker quote on the loans in the

syndication (Level 2 inputs). See Note 11, Indebtedness, for further discussion of 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 of 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 of the fair value of the
interest rate swaps.

Interest rate caps: The fair values of interest rate caps 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. In April 2019, Option Care terminated its interest rate caps. See Note 12, Derivative
Instruments, for further discussion of the fair value of the interest rate caps.

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

Stock Options — Options granted under the 2018 Plan typically vest over a three- or four-year period and, in certain
instances, may fully vest upon a change in control of the Company. The options also typically have an exercise price that may
not be less than 100% of its fair market value on the date of grant and are exercisable seven to ten years after the date of grant,
subject to earlier termination in certain circumstances.

Compensation expense from stock options is recognized on a straight-line basis over the requisite service period. During

the years ended December 31, 2020 and 2019, the Company recognized compensation expense related to stock options of $0.4
million and $0.4 million. The Company did not recognize any compensation expense related to stock options prior to the
Merger.

The weighted average grant-date fair value of options granted during the year ended December 31, 2020 was $5.94. The
Company did not grant any options during the years ended December 31, 2019 or 2018. The fair value of stock options granted
was estimated on the date of grant using a Black-Scholes pricing model. The assumptions used to compute the fair value of
options for the year ended December 31, 2020 are as follows:

Expected volatility

Risk-free interest rate

Expected life of options

Dividend rate

45.7 %

0.53 %

6.3 years

—

A summary of stock option activity for the year ended December 31, 2020 is as follows:

Options

Weighted Average
Exercise Price

Aggregate Intrinsic
Value (thousands)

Weighted Average
Remaining
Contractual Life

Balance at December 31, 2019

Granted

Exercised

Forfeited and expired

Balance at December 31, 2020

Exercisable at December 31, 2020

644,975 $

204,928 $

(266,065) $

(171,007) $

412,831 $

197,735 $

15.36 $

13.34 $

7.63 $

26.36 $

14.77 $

16.51 $

2,754

471

2,548

1,320

789

6.7 years

4.2 years

During the year ended December 31, 2020, shares were surrendered to satisfy tax withholding obligations on the exercise

of stock options with a cost basis of $2.7 million. During the year ended December 31, 2019, shares were surrendered to satisfy
tax withholding obligations on the exercise of stock options with a cost basis of $0.4 million, which are all held as treasury
stock as of December 31, 2020. During the year ended December 31, 2020, $0.4 million of cash was received from stock option
exercises under share-based payment arrangements. No cash was received from stock option exercises under share-based
payment arrangements for the years ended December 31, 2019 or 2018.

The maximum term of stock options under these plans is ten years. Options outstanding as of December 31, 2020 expire on

various dates ranging from January 2021 through March 2030. The following table outlines the outstanding and exercisable
stock options as of December 31, 2020:

Range of Option
Exercise Price

Outstanding
Options

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Life

Options
Exercisable

Weighted Average
Exercise Price

Options Outstanding

Options Exercisable

$0.00 - $8.24

$8.24 - $16.52

$16.52 - $24.76

$24.76 - $33.00

$33.00 - $41.28

$41.28 - $49.52

$49.52 - $57.76

$57.76 - $66.00

$66.00 - $74.28

All options

9,901 $

345,180 $

25,500 $

15,000 $

— $

12,500 $

3,500 $

— $

1,250 $

412,831

6.52

12.08

22.61

30.41

—

44.16

56.24

—

66.52

6.1 years

7.5 years

2.7 years

2.3 years

0.0 years

1.3 years

2.0 years

0.0 years

2.6 years

9,901 $

130,084 $

25,500 $

15,000 $

— $

12,500 $

3,500 $

— $

1,250 $

197,735

6.52

10.27

22.61

30.41

—

44.16

56.24

—

66.52

As of December 31, 2020, there was $1.0 million of unrecognized compensation expense related to unvested option grants

that is expected to be recognized over a weighted-average period of 1.8 years.

Restricted Stock — Restricted stock grants subject solely to an employee’s continued service with the Company generally
will become fully vested within one to four years from the grant date and, in certain instances, may fully vest upon a change in
control of the Company. Restricted stock grants subject solely to a Director’s continued service with the Company generally
will become fully vested within one year from the date of grant.

Compensation expense from restricted stock is recognized on a straight-line basis over the requisite service period. During

the years ended December 31, 2020 and 2019, the Company recognized compensation expense related to restricted stock
awards of $2.3 million and $1.9 million, respectively. The Company did not recognize any compensation expense related to
restricted stock awards prior to the Merger.

A summary of restricted stock award activity for the year ended December 31, 2020 is as follows:

Balance at December 31, 2019

Granted

Vested and issued

Forfeited and expired

Balance at December 31, 2020

Restricted Stock

Weighted Average
Grant Date Fair Value

231,562 $

490,557 $

(120,782) $

(51,687) $

549,650 $

10.68

13.32

12.15

12.92

13.26

During the year ended December 31, 2020, shares were surrendered to satisfy tax withholding obligations on the vesting of
restricted stock awards with a cost basis of $0.3 million. During the year ended December 31, 2019, shares were surrendered to
satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $2.1 million, of which $2.0
million is held as treasury stock as of December 31, 2019.

As of December 31, 2020, there was $6.0 million in unrecognized compensation expense related to unvested restricted
stock awards that is expected to be recognized over a weighted average period of 1.7 years. The total fair value of restricted
stock awards vested during the years ended December 31, 2020, 2019 and 2018 was $1.5 million, $1.9 million and $0,
respectively.

HC I Incentive Units — Beginning in October 2015, HC I implemented an equity incentive plan for certain officers and
employees of the Company. Incentive units are equity-based awards subject to time and performance vesting restrictions. The
compensation expense related to this plan has been reflected in the Company’s financial statements.

In accordance with ASC Topic 718, Compensation-Stock Compensation, compensation expense is recognized on a
straight-line basis over the vesting period of the award or the employee’s retirement eligible date, if earlier. During the years
ended December 31, 2020, 2019 and 2018, the Company recognized compensation expense related to the HC I incentive units
of $0.2 million, $1.9 million and $2.1 million, respectively.

No awards were issued during the year ended December 31, 2020. The fair value of each award was determined using a

Monte-Carlo simulation with the following weighted average assumptions:

Risk-free interest rate (1)

Average time to liquidity (years) (2)

Volatility (3)

Discount for lack of marketability (4)

Weighted-average grant-date fair value per share

2.25 %

2.1 years

47.00 %

30.00 %

$1.13

(1) Represents the US Treasury security rate for the expected time to liquidity event.

(2) Represents the period of time expected prior to liquidity event.

(3) Based on historical volatility of comparable public companies.

(4) Represents a discount taken to reflect the private nature of the investment.

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 consolidated financial statements, which was retrospectively applied to all periods presented in the financial
statements. All common shares, warrants and stock awards presented in the consolidated financial statements have been
retrospectively adjusted for the reverse stock split.

During the year ended December 31, 2020, the Company completed a public offering of 20,700,000 shares of the

Company’s common stock at a price of $12.50 per share, consisting of 10,000,000 shares of common stock issued and sold by
the Company and 10,700,000 shares of common stock sold by HC I. The Company received net proceeds from the offering of
$118.9 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the
Company. Also, during the year ended December 31, 2020, HC I completed an additional secondary offering of 10,600,000
shares of common stock. Following the offerings, HC I holds approximately 63.6% of the common stock of the Company. The
Company used the proceeds from the offering, along with additional cash on hand, to repay $174.0 million on the principal
balance of its Second Lien Notes outstanding. See Note 11, Indebtedness, for further discussion of the repayment of the Second
Lien Notes.

2017 Warrants — Prior to the Merger, BioScrip issued warrants to certain debt holders pursuant to a Warrant Purchase

Agreement dated as of June 29, 2017. In conjunction with the Merger, the 2017 Warrants were amended to entitle the
purchasers of the warrants to purchase 2.1 million shares of common stock. The 2017 Warrants have a 10-year term and an
exercise price of $8.00 per share and may be exercised by payment of the exercise price in cash or surrender of shares of
common stock into which the 2017 Warrants are being converted in an aggregate amount sufficient to pay the exercise price.
The 2017 Warrants are classified as equity instruments, and the fair value of these warrants of $14.1 million was recorded in
paid-in capital as of the Merger Date. During the years ended December 31, 2020 and 2019, warrant holders exercised warrants
to purchase 0.0 million and 0.7 million shares of common stock. No proceeds were received from these exercises as the warrant
holders elected to surrender shares to pay the exercise price. At December 31, 2020 and 2019, the remaining warrant holders
are entitled to purchase 1.4 million shares of common stock, respectively.

2015 Warrants — Prior to the Merger, BioScrip issued warrants pursuant to a Common Stock Warrant Agreement dated

as of March 9, 2015 which entitle the holders to purchase 0.9 million shares of common stock. The 2015 Warrants have a 10-
year term and have exercise prices in a range of $20.68 per share to $25.80 per share. The 2015 Warrants were assumed by the
Company in conjunction with the Merger and are classified as equity instruments, and the fair value of these warrants of $4.6
million was recorded in paid in capital as of the Merger Date.

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 were set aside to prevent dilution related to the vesting of the Home Solutions restricted stock.
During the year ended December 31, 2020, this matter was resolved with no common shares being issued to Home Solutions,
Inc., and the 7,048,357 shares, at $0.0001 par value, set aside were cancelled as unvested and removed from the Company’s
common shares issued and outstanding.

Treasury Stock — During the year ended December 31, 2019, 290,117 shares were surrendered to satisfy tax withholding
obligations on the exercise of stock options and the vesting of restricted stock awards with a cost basis of $2.5 million, of which
$2.4 million remains held in treasury as of December 31, 2020 and 2019. At December 31, 2020 and 2019, the Company held
383,722 shares of treasury stock.

Preferred Stock — In conjunction with the Merger, all legacy BioScrip preferred stock was settled, and no preferred stock

is outstanding as of December 31, 2020 or 2019.

17. RELATED-PARTY TRANSACTIONS

Management Services — In conjunction with the Option Care acquisition from Walgreen Co. in 2015, the Company

entered into two separate Management Services Agreements with Madison Dearborn Partners VI-B, L.P. and Walgreen Co.
Each Management Services Agreement required the Company to pay $0.3 million to each party quarterly beginning July 1,
2015 for on-going management, consulting and financial services provided to the Company. Following the close of the Merger,
both Management Services Agreements were terminated. The Company did not incur any management services expense during
the year ended December 31, 2020. In 2019, prior to the Merger, the Company incurred $1.5 million of management services
expense, which has been reflected as a component of selling, general and administrative expense in the consolidated statements
of comprehensive income (loss) for the year ended December 31, 2019. During the year ended December 31, 2018,
management services expense of $2.0 million was recorded as a component of selling, general, and administrative expense in
the consolidated statements of comprehensive income (loss).

Management Equity Ownership Plan — In October 2015, HC I implemented an equity ownership and incentive plan for

certain officers and employees of Option Care. The officers were able to purchase membership units in HC I and could fund a
portion of the purchase with a loan from Option Care. These loans were treated as a shareholder contribution in Option Care.
For the years ended December 31, 2020, 2019 and 2018, $0, $0 and $0.4 million, respectively, were credited to paid-in capital
related to HC I membership units purchased with a loan from Option Care. There were no shareholder redemptions during the
year ended December 31, 2020. During the year ended December 31, 2019, shareholder redemptions totaled $2.4 million,
comprised of a cash distribution to HC I of $2.0 million and notes redeemed of $0.4 million. There were no shareholder
redemptions during the year ended December 31, 2018.

During the year ended December 31, 2019, prior to the Merger, Option Care sold its notes receivable from management,

along with all accrued interest expense, to a third-party bank. Option Care received cash proceeds of $1.3 million, which
represented payment of $1.1 million in outstanding notes receivable from management and payment of $0.2 million in accrued
interest expense. There were no notes receivable from management outstanding as of December 31, 2020 and 2019. As of
December 31, 2018, notes receivable from management and associated interest receivable of $1.6 million are recorded in
management notes receivable as a reduction to equity in the Company’s consolidated statements of stockholders’ equity.

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 $2.9 million, $2.5 million and $2.2 million for the years ended December 31,
2020, 2019 and 2018, respectively. Management fees are recorded in net revenues in the accompanying consolidated statements
of comprehensive income (loss).

The Company had amounts due from its joint ventures of $2.4 million as of December 31, 2020. The Company had

amounts due to its joint ventures of $4.3 million as of December 31, 2019. These receivables were included in prepaid expenses
and other current assets in the accompanying balance sheets and these payables were included in accrued expenses and other
current liabilities in the accompanying 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.

18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of unaudited quarterly financial information for the years ended December 31, 2020 and 2019 is as follows (in

thousands except per share amounts).

Year ended December 31, 2020

Net revenue

Gross profit

Operating income

Net (loss) income

(Loss) earnings per share, basic

(Loss) earnings per share, diluted

Year ended December 31, 2019

Net revenue

Gross profit

Operating income (loss)

Net loss

Loss per share, basic

Loss per share, diluted

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

705,440 $

740,848 $

781,609 $

158,029

8,648

166,320

23,208

174,153

34,556

(19,910) $

(7,668) $

1,663 $

(0.11) $

(0.04) $

0.01 $

804,713

183,762

44,343

17,839

0.10

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

476,492 $

497,266 $

615,880 $

98,194

5,438

101,390

(8,005)

137,773

(11,725)

720,779

175,642

13,973

(3,712) $

(13,603) $

(42,794) $

(15,811)

(0.03) $

(0.10) $

(0.1) $

(0.26) $

(0.09)

The net loss in the third quarter of 2019 included transaction expenses, integration costs and loss on extinguishment of debt

incurred in conjunction with the Merger.

19. SUBSEQUENT EVENTS

The Company has evaluated whether any subsequent events occurred since December 31, 2020 and noted the following

subsequent event:

In January 2021, the Company entered into an amendment on the First Lien Term Loan (the “First Lien Credit Agreement
Amendment”). The First Lien Credit Agreement Amendment resulted in an additional $250.0 million of incremental First Lien
Term Loan indebtedness being issued and reduced the interest rate on all outstanding First Lien Term Loan indebtedness from
LIBOR plus 4.25% to LIBOR plus 3.75%. The proceeds of the $250.0 million incremental First Lien Term Loan indebtedness
were used to prepay the remaining $245.8 million outstanding balance of the Second Lien Notes. In connection with the First
Lien Credit Agreement Amendment and prepayment of the Second Lien Notes the Company incurred debt prepayment
penalties of $4.9 million, third party fees of $1.3 million and original issue discount of $1.0 million. Following the First Lien
Credit Agreement Amendment, the First Lien Term Loan is repayable in quarterly installments of $2.9 million plus interest,
with a final payment of all remaining outstanding principal due on August 6, 2026.

In February 2021, HC I completed a secondary offering of 17,250,000 shares of the Company’s common stock. Following

the offering, HC I holds approximately 54% of the Company’s common stock.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

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 (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding
required disclosure.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the

Company, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial
statements for external purposes in accordance with U.S. GAAP.

Our management, with the participation of the CEO and CFO, assessed the effectiveness of the Company’s internal control

over financial reporting. Based on the criteria for effective internal control over financial reporting established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”), management concluded that the internal control over financial reporting was effective as of December 31, 2020.

All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate.

Changes in Internal Controls over Financial Reporting

As described in Part II, Item 9a of our Annual Report on form 10-K for the year ended December 31, 2019, the Merger
with BioScrip was completed on August 6, 2019, and represented a change in internal control over financial reporting. During
the year ended December 31, 2020 management consolidated and integrated BioScrip’s system of controls. The processes and
controls for significant areas, including business combinations, intangibles and goodwill valuations, income taxes, treasury,
consolidations and the preparation of financial statements and related disclosures, compensation and benefits, procure to pay,
inventory and order to receipt have all been substantially impacted by the integration activities. The primary changes in these
areas are related to the consolidation of process owner leadership and control owners, and where required, the modification of
inputs, processes and associated systems. For all areas of change noted, management believes the control design and
implementation thereof are being appropriately modified to address underlying risks.

There were no other changes during the year ended December 31, 2020 that have materially affected, or reasonably likely

to materially affect, our internal controls over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Option Care Health, Inc.:

Opinion on Internal Control Over Financial Reporting
We have audited Option Care Health, Inc.and subsidiaries (the Company) internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related
consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements),
and our report dated March 11, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Chicago, Illinois
March 11, 2021

/s/ KPMG LLP

Item 9B.

Other Information

None.

Item 10.

Directors, Executive Officers and Corporate Governance

PART III

We have adopted a Code of Ethics that applies to all of our directors, officers and employees, including our principal
executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Ethics is
posted on our website located at http://investors.optioncarehealth.com/corporate-governance/highlights. We intend to disclose
future amendments to certain provisions of the Code of Ethics, and waivers of the Code of Ethics granted to executive officers
and directors, on our website.

The other information required by this item is incorporated by reference from the information contained in our definitive
proxy statement to be filed with the SEC no later than 120 days after December 31, 2020 in connection with our 2021 Annual
Meeting of Stockholders.

Item 11.

Executive Compensation

The information required by this item is incorporated by reference from the information contained in our definitive proxy
statement to be filed with the SEC no later than 120 days after December 31, 2020 in connection with our 2021 Annual Meeting
of Stockholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accountant Fees and Services

Item 15.

Exhibits, Financial Statement Schedules

PART IV

(a)(1) Financial Statements.

The following financial statements appear in Part II, Item 8:

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements

All other schedules not listed above have been omitted since they are not applicable or are not required.

Page

(a)(3) Exhibits.

Exhibit
Number

2.1+

2.2+

2.3

2.4

2.5

2.6

2.7+

3.1

3.2

3.3

3.4

4.1

4.2

4.3

4.4

Index to Exhibits

Description

Agreement and Plan of Merger, dated as of January 24, 2010, by and among BioScrip, Inc. (the “Company”), and the
parties set forth on the signature page (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on
Form 8-K filed on January 27, 2010, SEC File Number 0-28740).

Stock Purchase Agreement, dated as of December 12, 2012, by and among HomeChoice Partners, Inc., DaVita
HealthCare Partners Inc., Mary Ann Cope, R.Ph., Kathy F. Puglise, RN, CRNI, Joseph W. Boyd, R.Ph., Barbara J. Exum,
PharmD and the Company (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed
on February 4, 2013, SEC File Number 0-28740).

Asset Purchase Agreement, dated June 11, 2016, by and among HS Infusion Holdings, Inc., the direct and indirect
subsidiaries of HS Infusion Holdings, Inc. set forth on the signature pages, the Company and HomeChoice Partners, Inc.
(the “Home Solutions Agreement”). (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form
8-K filed on June 13, 2016, SEC File Number 000-28740).

First Amendment, dated June 16, 2016, to the Home Solutions Agreement (Incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K/A filed on June 20, 2016, SEC File Number 000-28740).

Second Amendment, dated September 2, 2016, to the Home Solutions Agreement (Incorporated by reference to Exhibit
2.1 to the Company’s Current Report on Form 8-K filed on September 7, 2016, SEC File Number 001-11993).

Third Amendment, dated September 9, 2016, to the Home Solutions Agreement (Incorporated by reference to Exhibit 2.1
to the Company’s Current Report on Form 8-K filed on September 12, 2016, SEC File Number 001-11993).

Agreement and Plan of Merger, dated as of March 14, 2019, by and among BioScrip, Inc., Beta Sub, Inc., Beta Sub, LLC,
HC Group Holdings I, LLC, HC Group Holdings II, Inc. and HC Group Holdings III, Inc. (incorporated by reference to
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 15, 2019, SEC File Number 001-11993).
Third Amended and Restated Certificate of Incorporation of BioScrip, Inc. (incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed on August 7, 2019, SEC File Number 001-11993).
Certificate of Amendment to Certificate of Incorporation, amending the Third Amended and Restated Certificate of
Incorporation of BioScrip, Inc. (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K
filed on August 7, 2019, SEC File Number 001-11993).

Amended and Restated Bylaws of Option Care Health, Inc., formerly known as BioScrip, Inc. (incorporated by reference
to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on August 7, 2019, SEC File Number 001-11993).

Certificate of Amendment of the Certificate of Incorporation, filed January 30, 2020.

Registration Rights Agreement, dated as of March 9, 2015, by and among the Company, Coliseum Capital Partners, L.P.,
Coliseum Capital Partners II, L.P., and Blackwell Partners, LLC, Series A. (Incorporated by reference to Exhibit 4.1 to
the Company’s Current Report on Form 8-K filed on March 10, 2015, SEC File Number 000-28740).

Amendment No. 1 to the Registration Rights Agreement dated June 10, 2016, by and among the Company, Coliseum
Capital Partners, L.P., Coliseum Capital Partners II, L.P. and Blackwell Partners, LLC Series A. (Incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 13, 2016, SEC File Number
000-28740).

Amendment No. 2 to the Registration Rights Agreement dated June 14, 2016, by and among the Company and the PIPE
Investors. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 14,
2016, SEC File Number 000-28740).

Form of Subscription Rights Certificate. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration
Statement on Form S-3/A filed on May 29, 2015, SEC File Number 000-28740).

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

10.1†

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9†

10.10†

10.11†

10.12†

10.13†

10.14

Common Stock Warrant Agreement, dated July 28, 2015, by and between the Company and the American Stock Transfer
& Trust Company, LLC. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
on July 28, 2015, SEC File Number 000-28740).

Registration Rights Agreement, dated March 1, 2017, by and among the Company and the investors named
therein. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 2, 2017,
SEC File Number 001-11993).

Registration Rights Agreement, dated June 29, 2017, by and among the Company and the parties signatory
thereto (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 29, 2017,
SEC File Number 001-11993).

Amendment No. 1 to Registration Rights Agreement by and between BioScrip, Inc. and the stockholders of the Company
signatory thereto (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on
March 15, 2019, SEC File Number 001-11993).

Warrant Agreement, dated June 29, 2017, by and among the Company and the subscribers signatory thereto (Incorporated
by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number
001-11993).
Second Lien Notes Indenture, dated as of August 6, 2019, among HC Group Holdings II, LLC, as the Initial Issuer,
BioScrip, Inc., as the Parent Issuer, subsidiary issuers and guarantors party thereto from time to time, and Ankura Trust
Company, LLC, as the Trustee and Collateral Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on August 7, 2019, SEC File Number 001-11993).

Supplemental Indenture, dated November 18, 2019, by and between Option Care Health, Inc., as parent issuer, and
Ankura Trust Company, LLC, as trustee and collateral agent (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on November 19, 2019, SEC File Number 001-11993).

Description of Option Care Health Inc.’s registered securities.

BioScrip, Inc. 2018 Equity Incentive Plan (Incorporated by reference to Appendix A to the definitive proxy statement
filed on April 4, 2018).

Amended and Restated Warrant Agreement, dated as of March 14, 2019, by and among BioScrip, Inc. and the Holders
(as defined therein) signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed on March 15, 2019, SEC File Number 001-11993).

Form of Letter Agreement, dated March 14, 2019, by and among BioScrip, Inc. and each of the Holders (incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 15, 2019, SEC File Number
001-11993).
Registration Rights Agreement, dated as of August 6, 2019, by and among BioScrip, Inc. and HC Group Holdings I, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 7, 2019, SEC
File Number 001-11993).

Director Nomination Agreement, dated as of August 6, 2019, by and among the BioScrip, Inc. and HC Group Holdings I,
LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 7, 2019,
SEC File Number 001-11993).

First Lien Credit Agreement, dated as of August 6, 2019, among HC Group Holdings II, LLC, as the Initial Borrower,
BioScrip, Inc., as the Parent Borrower, the guarantors party thereto from time to time, Bank of America, N.A., as the
Administrative Agent, the lenders party thereto from time to time, BofA Securities, Inc., as Lead Arranger and
Bookrunner and as Syndication Agent and Documentation Agent (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on August 7, 2019, SEC File Number 001-11993).

ABL Credit Agreement, dated as of August 6, 2019, among HC Group Holdings II, LLC, as the Initial Borrower,
BioScrip, Inc., as the Parent Borrower, and Bank of America N.A., as the Administrative Agent, Issuing Bank and Swing
Line Lender, the other lenders party thereto from time to time and Bank of America, N.A. and ACF Finco I LP as Joint
Lead Arrangers and Joint Lead Bookrunners (incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on August 7, 2019, SEC File Number 001-11993).

Note Purchase Agreement, dated as of August 6, 2019, among HC Group Holdings II, LLC, as the Initial Issuer,
BioScrip, Inc., as the Parent Issuer, subsidiary issuers and guarantors party thereto from time to time, and the several
initial purchasers party thereto (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
filed on August 7, 2019, SEC File Number 001-11993).

John Rademacher Amended and Restated Employment Agreement entered into on February 23, 2018 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 7, 2019, SEC File Number
001-11993).
Michael Shapiro Employment Agreement entered into on October 13, 2015 (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed on August 7, 2019, SEC File Number 001-11993).

Harriet Booker Employment Agreement entered into on June 3, 2019 (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on August 7, 2019, SEC File Number 001-11993).

Rich Denness Employment Agreement entered into on June 8, 2019 (filed herewith).

Cliff Berman Employment Agreement entered into on August 3, 2015 (filed herewith).

First Amendment to ABL Credit Agreement, dated as of October 5, 2020, among Option Care Health, Inc. (f/k/a
BioScrip, Inc.), each Guarantor party hereto, each lender party hereto and Bank of America, N.A., as administrative
agent.

21.1

List of subsidiaries of Option Care Health, Inc. (filed herewith).

23.1

31.1

31.2

32.1

32.2

101

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

104

†
+

Consent of Independent Registered Public Accounting Firm (filed herewith).

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.
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.

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.

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.

The following financial information from the Company’s Form 10-K for the fiscal year ended December 31, 2020,
formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Comprehensive Income
(Loss) for the fiscal years ended December 31, 2020, 2019 and 2018, (ii) Consolidated Balance Sheets as of December
31, 2020 and 2019, (iii) Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 31, 2020,
2019 and 2018, (iv) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2020, 2019 and
2018, and (v) Notes to Consolidated Financial Statements.
XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Labels Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

XBRL Formatted Cover Page

Designates the Company’s management contracts or compensatory plan or arrangement.

Certain schedules attached to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Company will furnish copies of the omitted schedules to the Securities and Exchange Commission
upon request by the Commission.

Item 16.

Form 10-K Summary

None.

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, on March 11, 2021.

OPTION CARE HEALTH, INC.

SIGNATURES

/s/ Michael Shapiro
Michael Shapiro
Chief Financial Officer and Senior Vice President (Principal Financial Officer and Duly Authorized Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities on the dates indicated.

Signature

/s/ John C. Rademacher
John C. Rademacher

/s/ Michael Shapiro
Michael Shapiro

Title(s)

Chief Executive Officer, President and Director
(Principal Executive Officer)

Date

March 11, 2021

Chief Financial Officer and Senior Vice President
(Principal Financial Officer)

March 11, 2021

/s/ Robert R. Kampstra
Robert R. Kampstra

Senior Vice President, Finance and Chief Accounting Officer
(Principal Accounting Officer)

March 11, 2021

/s/ Harry M. Jansen Kraemer, Jr.
Harry M. Jansen Kraemer, Jr.

Non-Executive Chairman of the Board

March 11, 2021

/s/ John J. Arlotta
John J. Arlotta

/s/ Elizabeth Q. Betten
Elizabeth Q. Betten

/s/ David W. Golding
David W. Golding

/s/ Alan Nielsen
Alan Nielsen

/s/ R. Carter Pate
R. Carter Pate

/s/ Nitin Sahney
Nitin Sahney

/s/ Timothy P. Sullivan
Timothy P. Sullivan

/s/ Mark Vainisi
Mark Vainisi

March 11, 2021

Director

[This Page Intentionally Left Blank]

Option Care 21OCH00117 2020 Annual Report Wrap_MARKS.pdf

Clinical excellence

infused with

compassionate

care.

Option Care Health® is the largest

independent provider of infusion

therapy in the nation. For over 40 years,

we’ve delivered cutting-edge infusion

medications, nursing support and seamless

transitional care for patients of all ages in

their homes and at conveniently located

Dear Shareholders,

For all of us, 2020 was an unprecedented and extraordinary year. And for Option

Care Health®, this was no exception. Managing through a global pandemic, extreme

weather events and enabling a remote workforce in a single year was something we

never predicted. Despite these challenges, I am incredibly proud of how our team

rose to the occasion and continued to provide extraordinary care to patients across

the country. Our 6,000 team members – with nearly 4,000 front-line workers - are

truly superheroes for the courage, compassion and perseverance they demonstrated.

This year they allowed us to service more than 220,000 patients and conduct nearly

500,000 nursing visits in the home or at one of our infusion suites. No matter what

obstacles we face, I can say with confidence that our patients are always at the center

- and the heart - of everything we do.

In spite of the challenges, we completed the vast majority of our integration efforts

following our merger with BioScrip in 2019 and achieved our goal of more than

$60 million in cost synergies. This included optimizing and consolidating facilities,

harmonizing our policies and procedures, deploying a comprehensive suite of

technology applications, and creating a cohesive and inclusive high-performance

Ambulatory Infusion Suites (AIS).

culture.

Through our long-term partnerships with

payers, biopharmaceutical manufacturers,

healthcare systems, physicians and other

referral sources, we deliver advanced

There were definitely unforeseen benefits in 2020 as we quickly responded to the

COVID-19 crisis. The strength of our technology platform and the inherently mobile

design of our applications provided agility as we moved a significant number of team

members to remote work. We capitalized on collaboration tools we had previously

deployed to maximize the engagement of our team. Moreover, we innovated and

intravenous treatments available for a wide

updated our procedures to ensure the safety of our team members and our patients;

range of acute and chronic conditions.

But the relationships that truly drive our

commitment to clinical excellence are those

between our team of more than 2,900¹

clinicians and the patients they serve.

including the accelerated development, deployment and adoption of telehealth/virtual

discharge and virtual visit capabilities.

In addition to demonstrating our ability to respond, recover and prosper in the face of

the COVID-19 pandemic, we made great progress delivering on our strategic priorities

that resulted in a very solid financial performance. Meanwhile, we never took our eye

off the safety of our employees and the needs of our patients.

Some additional achievements in 2020 included:

• Accelerating our top line growth

• Providing consistent high-quality care

• Strengthening our balance sheet

I’d like to express my gratitude for the excellent nursing and customer service I received while

I was a patient with Option Care Health. From the confident and experienced nursing staff, prompt

delivery and knowledgeable pharmacy assistance to the informed and compassionate customer service…

• And, improving our effectiveness in converting every claim to cash

Option Care Health is my recommendation as the very best provider.

Thank you for making a stressful and difficult time in my life a little easier and manageable.

Derek, Option Care Health patient, Crohn’s disease

This strong financial performance has allowed us to continue to invest in our people,

processes and technology.

Looking ahead, Option Care Health is poised to continue the momentum we created

during a very difficult year. We will capitalize on the favorable market trends placing

the home at the center of care, and our unparalleled platform and clinical expertise in

order to help transform healthcare and the patient experience.

Our purpose is to provide extraordinary care that changes lives – and 2020

demonstrated that this is in high demand now more than ever.

Best regards,

John C. Rademacher

President and Chief Executive Officer

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March 15, 2021 11:33:51

Testimonials are utilized with the express written consent of the individual patient. Extraordinary care

throughout an

extraordinary year

Option Care 21OCH00117 2020 Annual Report Wrap_MARKS.pdf

The numbers tell the story

2020 ANNUAL REPORT

2,900 1+

multidisciplinary clinicians

95 1+

pharmacies

125 1+

Ambulatory Infusion Suites

We provide service coverage to

96%1

of all insured lives

A MARKET LEADER

in providing access to specialty infusion therapies
in open and limited distribution networks

More than

Licensed to treat patients in

220,000 2

patients cared for annually

ALL 50 1

states

95% 3

overall patient satisfaction

References: 1. Data on file, Option Care Health. 2. January-December 2019, total Option Care Health unique patients serviced.3. January-December 2019 patient satisfaction data.
Survey of 9,878 patients.

Investor Relations:

OPTION CARE HEALTH

TRANSFER AGENT

Corporate Office
3000 Lakeside Drive | Suite 300N | Bannockburn, IL 60015
Phone: 866.827.8203

American Stock Transfer & Trust Co.
59 Maiden Lane | New York, NY 10038
Phone: 718.921.8124

PRIMARY IR CONTACT

Mike Shapiro, Chief Financial Officer
Phone: 312.940.2538
Email: investor.relations@optioncare.com

ACCOUNTANTS

KPMG LLP
200 E. Randolph Street | Suite 5500 | Chicago, IL 60601
Phone: 312.665.1000

optioncarehealth.com

Option Care Health locations are ACHC accredited. HHA numbers are available to view at optioncarehealth.com.

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March 15, 2021 11:33:51