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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 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
bios-20200930_g1.jpg
OPTION CARE HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware05-0489664
(State of incorporation)(I.R.S. Employer Identification No.)
3000 Lakeside Dr.Suite 300N, Bannockburn, IL60015
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:
312-940-2443
Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareOPCHNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

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

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

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

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

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

On October 30, 2020, there were 186,758,939 shares of the registrant’s Common Stock outstanding.
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TABLE OF CONTENTS
  Page
Number
PART I
PART II 
 
 
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PART I
FINANCIAL INFORMATION
Item 1.Financial Statements
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OPTION CARE HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(unaudited)
September 30, 2020December 31, 2019
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents$140,047 $67,056 
   Accounts receivable, net320,920 324,416 
   Inventories155,478 115,876 
   Prepaid expenses and other current assets60,030 51,306 
Total current assets676,475 558,654 
NONCURRENT ASSETS:
   Property and equipment, net113,017 133,198 
   Operating lease right-of-use asset70,344 63,502 
   Intangible assets, net359,766 385,910 
   Goodwill1,428,610 1,425,542 
   Other noncurrent assets20,278 22,741 
Total noncurrent assets1,992,015 2,030,893 
TOTAL ASSETS $2,668,490 $2,589,547 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$290,206 $221,060 
Accrued compensation and employee benefits51,226 45,765 
Accrued expenses and other current liabilities63,239 33,538 
Current portion of operating lease liability19,252 20,391 
Current portion of long-term debt9,250 9,250 
Total current liabilities433,173 330,004 
NONCURRENT LIABILITIES:
Long-term debt, net of discount, deferred financing costs and current portion1,162,836 1,277,246 
Operating lease liability, net of current portion67,471 58,242 
Deferred income taxes3,040 2,143 
Other noncurrent liabilities8,474 15,085 
Total noncurrent liabilities1,241,821 1,352,716 
Total liabilities1,674,994 1,682,720 
STOCKHOLDERS’ EQUITY:
Preferred stock; $0.0001 par value; 12,500,000 shares authorized, no shares outstanding as of September 30, 2020 and December 31, 2019, respectively
  
Common stock; $0.0001 par value: 250,000,000 shares authorized, 187,141,475 shares issued and 186,757,753 shares outstanding as of September 30, 2020; 176,975,628 shares issued and 176,591,907 shares outstanding as of December 31, 2019
19 18 
Treasury stock; 383,722 shares outstanding, at cost, as of September 30, 2020 and December 31, 2019, respectively
(2,403)(2,403)
Paid-in capital1,128,979 1,008,362 
Accumulated deficit(117,870)(91,955)
Accumulated other comprehensive loss(15,229)(7,195)
Total stockholders’ equity993,496 906,827 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,668,490 $2,589,547 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
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OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2020201920202019
NET REVENUE$781,609 $615,880 $2,227,897 $1,589,638 
COST OF REVENUE607,456 478,107 1,729,395 1,252,281 
GROSS PROFIT174,153 137,773 498,502 337,357 
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses123,000 133,475 377,198 315,815 
Depreciation and amortization expense16,597 16,023 54,892 36,142 
      Total operating expenses139,597 149,498 432,090 351,957 
OPERATING INCOME (LOSS)34,556 (11,725)66,412 (14,600)
OTHER INCOME (EXPENSE):
Interest expense, net(24,583)(21,509)(84,102)(44,117)
Equity in earnings of joint ventures790 826 2,364 2,018 
Other, net(8,344)(6,810)(8,322)(6,679)
      Total other expense(32,137)(27,493)(90,060)(48,778)
INCOME (LOSS) BEFORE INCOME TAXES2,419 (39,218)(23,648)(63,378)
INCOME TAX EXPENSE (BENEFIT)756 3,576 2,267 (3,269)
NET INCOME (LOSS)$1,663 $(42,794)$(25,915)$(60,109)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gains (losses) on cash flow hedges, net of income tax expense (benefit) of $0, $32, $0 and $259, respectively
4,022 (8,249)(8,034)(8,727)
OTHER COMPREHENSIVE INCOME (LOSS)4,022 (8,249)(8,034)(8,727)
NET COMPREHENSIVE INCOME (LOSS)$5,685 $(51,043)$(33,949)$(68,836)
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per share, basic$0.01 $(0.26)$(0.14)$(0.40)
Earnings (loss) per share, diluted$0.01 $(0.26)$(0.14)$(0.40)
Weighted average common shares outstanding, basic184,232 162,894 179,220 149,448 
Weighted average common shares outstanding, diluted184,822 162,894 179,220 149,448 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
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OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended September 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(25,915)$(60,109)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization expense60,054 38,997 
Non-cash operating lease costs13,020 15,246 
Deferred income taxes - net897 (5,252)
Loss on extinguishment of debt8,349 5,469 
Amortization of deferred financing costs4,153 3,057 
Paid-in-kind interest capitalized as principal7,525  
Loss on interest rate swaps upon discontinuing hedge accounting3,746  
Equity in earnings of joint ventures(2,364)(2,018)
Stock-based incentive compensation expense2,588 3,898 
Other adjustments1,589 1,046 
Changes in operating assets and liabilities:
Accounts receivable, net3,496 71,029 
Inventories(39,602)(6,212)
Prepaid expenses and other current assets(8,724)1,447 
Accounts payable66,508 (36,157)
Accrued compensation and employee benefits5,461 5,312 
Accrued expenses and other current liabilities16,768 (3,846)
Operating lease liabilities(11,976)(11,922)
Other noncurrent assets and liabilities(3,845)(3,415)
Net cash provided by operating activities101,728 16,570 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment(12,871)(13,150)
Other investing cash flows541 636 
Business acquisitions, net of cash acquired (700,170)
Net cash used in investing activities(12,330)(712,684)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions to related parties (2,000)
Sale of management notes receivable 1,310 
Exercise of stock options, vesting of restricted stock, and related tax withholdings(904)(2,497)
Proceeds from debt 981,050 
Repayments of debt principal(6,937)(2,075)
Retirement of debt obligations(125,000)(226,738)
Deferred financing costs (36,538)
Net proceeds from issuance of common stock118,934  
Other financing cash flows(2,500) 
Net cash (used in) provided by financing activities(16,407)712,512 
NET INCREASE IN CASH AND CASH EQUIVALENTS72,991 16,398 
Cash and cash equivalents - beginning of the period67,056 36,391 
CASH AND CASH EQUIVALENTS - END OF PERIOD$140,047 $52,789 
Supplemental disclosure of cash flow information:
   Cash paid for interest$73,224 $35,531 
   Cash paid for income taxes$2,373 $1,617 
Cash paid for operating leases$19,941 $15,248 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
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OPTION CARE HEALTH, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
Preferred StockCommon StockTreasury StockPaid-in CapitalManagement Notes ReceivableAccumulated DeficitAccumulated Other Comprehensive (Loss)
Income
Total Stockholders’ Equity
Balance - December 31, 2018$ $14 $ $619,621 $(1,619)$(16,035)$844 $602,825 
Interest on management notes receivable— — — — (21)— — (21)
Stockholders' redemption— — — (2,000)— — — (2,000)
Stock-based incentive compensation— — — 584 — — — 584 
Net loss— — — — — (3,712)— (3,712)
Other comprehensive loss— — — — — — (505)(505)
Balance - March 31, 2019$ $14 $ $618,205 $(1,640)$(19,747)$339 $597,171 
Interest on management notes receivable— — — — (18)— — (18)
Stockholders' redemption— — — (371)371 — —  
Stock-based incentive compensation— — — 569 — — — 569 
Net loss— — — — — (13,603)— (13,603)
Other comprehensive income— — — — — — 27 27 
Balance - June 30, 2019$ $14 $ $618,403 $(1,287)$(33,350)$366 $584,146 
Interest on management notes receivable— — — — (23)— — (23)
Repayment of management notes receivable— — — — 1,310 — — 1,310 
Purchase of BioScrip, Inc.— 4 — 387,040 — — — 387,044 
Stock-based incentive compensation— — — 2,745 — — — 2,745 
Exercise of stock options, vesting of restricted stock and related tax withholdings— — (2,399)(98)— — — (2,497)
Net loss— — — — — (42,794)— (42,794)
Other comprehensive loss— — — — — — (8,249)(8,249)
Balance - September 30, 2019$ $18 $(2,399)$1,008,090 $ $(76,144)$(7,883)$921,682 
Balance - December 31, 2019$ $18 $(2,403)$1,008,362 $ $(91,955)$(7,195)$906,827 
Exercise of stock options, vesting of restricted stock and related tax withholdings— — — (549)— — — (549)
Stock-based incentive compensation— — — 757 — — — 757 
Net loss— — — — — (19,910)— (19,910)
Other comprehensive loss— — — — — — (16,632)(16,632)
Balance - March 31, 2020$ $18 $(2,403)$1,008,570 $ $(111,865)$(23,827)$870,493 
Exercise of stock options, vesting of restricted stock and related tax withholdings— — — (96)— — — (96)
Stock-based incentive compensation— — — 661 — — — 661 
Net loss— — — — — (7,668)— (7,668)
Other comprehensive income— — — — — — 4,576 4,576 
Balance - June 30, 2020$ $18 $(2,403)$1,009,135 $ $(119,533)$(19,251)$867,966 
Exercise of stock options, vesting of restricted stock and related tax withholdings— — — (259)— — — (259)
Stock-based incentive compensation— — — 1,170 — — — 1,170 
Net proceeds from the issuance of common stock— 1 — 118,933 — — — 118,934 
Net income— — — — — 1,663 — 1,663 
Other comprehensive income— — — — — — 4,022 4,022 
Balance - September 30, 2020$ $19 $(2,403)$1,128,979 $ $(117,870)$(15,229)$993,496 
The notes to unaudited condensed consolidated financial statements are an integral part of these statements.
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OPTION CARE HEALTH, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS
Corporate Organization and Business — HC Group Holdings II, Inc. (“HC II”) was incorporated under the laws of the State of Delaware on January 7, 2015, with its sole shareholder being HC Group Holdings I, LLC. (“HC I”). On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion Services, Inc. and its subsidiaries from Walgreen Co., and the business was rebranded as Option Care (“Option Care”).
On March 14, 2019, HC I and HC II entered into a definitive agreement (the “Merger Agreement”) to merge with and into a wholly-owned subsidiary of BioScrip, Inc. (“BioScrip”), a national provider of infusion and home care management solutions, along with certain other subsidiaries of BioScrip and HC II. The merger contemplated by the Merger Agreement (the “Merger”) was completed on August 6, 2019 (the “Merger Date”). The Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations with Option Care being considered the accounting acquirer and BioScrip being considered the legal acquirer.
Under the terms of the Merger Agreement, shares of HC II common stock issued and outstanding immediately prior to the Merger Date were converted into 135,565,392 shares of BioScrip common stock, par value $0.0001 (the “BioScrip common stock”). BioScrip also issued an additional 7,048,357 shares to HC I in respect of certain outstanding unvested contingent restricted stock units of BioScrip, which are held in escrow to prevent dilution related to potential additional vesting on certain share-based instruments. See Note 15, Stockholders’ Equity, for additional discussion of these shares held in escrow. In conjunction with the Merger, holders of BioScrip preferred shares and certain warrants received 864,603 additional shares of BioScrip common stock and preferred shares were repurchased for $125.8 million of cash. In addition, all legacy BioScrip debt was settled for $575.0 million. As a result of the Merger, BioScrip’s stockholders held approximately 19.3% of the combined company, and HC I held approximately 80.7% of the combined company. Following the close of the transaction, BioScrip was rebranded as Option Care Health, Inc. (“Option Care Health”, or the “Company”). The combined company’s stock is listed on the Nasdaq Global Select Market as of September 30, 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 102 full service pharmacies. The Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other nonhospital settings. The Company operates in one segment, infusion services.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States and contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for interim financial reporting. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire year. These unaudited condensed consolidated financial statements do not include all of the information and notes to the financial statements required by GAAP for complete financial statements and should be read in conjunction with the 2019 audited consolidated financial statements, including the notes thereto, as presented in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2020.
Principles of Consolidation — The Company’s unaudited condensed consolidated financial statements include the accounts of Option Care Health, Inc. and its subsidiaries. The BioScrip results have been included in the consolidated financial results since the Merger Date. All intercompany transactions and balances are eliminated in consolidation.
The Company has investments in companies that are 50% owned and are accounted for as equity-method investments. The Company’s share of earnings from equity-method investments is included in the line entitled “Equity in earnings of joint ventures” in the consolidated statements of comprehensive income (loss).
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
In April 2020, the Company received $11.7 million in Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) grant funds from the federal government, which was reflected in the second quarter as a cash inflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of cash flows. During the third quarter, the Company returned the funds as unused to the federal government, which was reflected as a cash outflow from financing activities within other financing cash flows in the unaudited condensed consolidated statements of 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 condensed consolidated balance sheets. As of September 30, 2020 and December 31, 2019, the balance of the investments were $16.6 million and $17.0 million, respectively. The investments are increased to reflect the Company’s capital contributions and equity in earning 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 are recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). The Company’s proportionate share of earnings was $0.8 million and $2.4 million for the three and nine months ended September 30, 2020. The Company’s proportionate share of earnings was $0.8 million and $2.0 million for the three and nine months ended September 30, 2019. Distributions from the investees are treated as cash inflows from operating activities within other adjustments in the unaudited condensed consolidated statements of cash flows. During the three and nine months ended September 30, 2020, the Company received distributions from the investees of $2.3 million and $2.8 million, respectively. During the three and nine months ended September 30, 2019, the Company received distributions from the investees of $0.5 million and $0.5 million, respectively. See Footnote 16, Related-Party Transactions, for discussion of related-party transactions with these investees.
Concentrations of Business Risk — The Company generates revenue from managed care contracts and other agreements with commercial third-party payers. Revenue related to the Company’s largest payer was approximately 16% and 15% for the three and nine months ended September 30, 2020. Revenue related to the Company’s largest payer was approximately 15% and 13% for the three and nine months ended September 30, 2019, respectively. In December 2019, the Company renewed and expanded its multi-year contract with this payer. The contract renewal was effective in February 2020 for a two-year term and auto-renews at the end of that term. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.
For the three and nine months ended September 30, 2020, approximately 16% and 14%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. For the three and nine months ended September 30, 2019, approximately 13% and 12%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of September 30, 2020 and December 31, 2019, respectively, approximately 13% and 12%, respectively, of the Company’s accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules and rates that are determined by the related governmental agency. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term.
The Company does not require its patients nor other payers to carry collateral for any amounts owed for goods or services provided. Other than as discussed above, concentration of credit risk relating to trade accounts receivable is limited due to the Company’s diversity of patients and payers. Further, the Company generally does not provide charity care.
For the three and nine months ended September 30, 2020, approximately 71% and 72%, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors. For the three and nine months ended September 30, 2019, approximately 69% and 72%, respectively, of the Company’s pharmaceutical and medical supply purchases were from three vendors. Although there are a limited number of suppliers, the Company believes that other vendors could provide similar products on comparable terms. However, a change in suppliers could cause delays in service delivery and possible losses in revenue, which could adversely affect the Company’s financial condition or operating results. Although there is uncertainty regarding the COVID-19 pandemic, as of September 30, 2020 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.

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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):
Amount
Number of BioScrip common shares outstanding at time of the Merger (1)129,181 
Common shares issued to warrant and preferred stockholders at time of the Merger (1)3,458 
Total shares of BioScrip common stock outstanding at time of the Merger (1)132,639 
BioScrip share price as of August 6, 2019$2.67 
Fair value of common shares$354,146 
Fair value of share-based instruments$32,898 
Cash paid in conjunction with the Merger included in purchase consideration$714,957 
Fair value of total consideration transferred$1,102,001 
Less: cash acquired$14,787 
Fair value of total consideration acquired, net of cash acquired$1,087,214 
(1) These shares were not adjusted for the one share for four share reverse stock split effective on February 3, 2020. See Note 15, Stockholders’ Equity, for further discussion of the one share for four share reverse stock split.
Cash paid in conjunction with the Merger includes payments made for settlement of $575.0 million in legacy BioScrip debt, $125.8 million in existing BioScrip preferred shares, and $14.1 million in legacy BioScrip success-based fees owed to third-party advisors. HC II financed these payments primarily through cash on hand and debt financing.

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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):
Amount
Accounts receivable, net (1)$96,532 
Inventories (2)19,683 
Property and equipment, net (3)48,732 
Intangible assets, net (4)193,245 
Deferred tax assets, net of deferred tax liabilities (5)26,731 
Operating lease right-of-use asset (6)22,378 
Operating lease liability (6)(28,897)
Accounts payable (7)(66,668)
Other assumed liabilities, net of other acquired assets (7)(20,663)
Total acquired identifiable assets and liabilities291,073 
Goodwill (8)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):
Fair ValueWeighted Average Estimated Life (in years)
Trademarks/Names$12,536 2
Patient referral sources180,329 20
Licenses380 1.5
Total intangible assets, net$193,245 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.
(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 unaudited pro forma results of operations for the three and nine months ended September 30, 2019 were net revenue of $690.4 million and $2,034.6 million, respectively, and net loss of $18.7 million and $54.2 million, respectively. The pro forma net loss adjusts for the effect of fair value adjustments related to the Merger, transaction costs and other non-recurring costs directly attributable to the Merger and the impact of the additional debt to finance the Merger. Unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or the future operating results.
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4. REVENUE
The following table sets forth the net revenue earned by category of payer for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Commercial payers$644,385 $525,927 $1,893,105 $1,373,481 
Government payers127,435 80,280 308,830 194,875 
Patients9,789 9,673 25,962 21,282 
Net revenue$781,609 $615,880 $2,227,897 $1,589,638 
5. INCOME TAXES
During the three and nine months ended September 30, 2020, the Company recorded tax expense of $0.8 million and $2.3 million, respectively, which represents an effective tax rate of 31.3% and (9.6)%, respectively. During the three and nine months ended September 30, 2019 the Company recorded a tax expense (benefit) of $3.6 million and $(3.3) million, respectively, which represents an effective tax rate of (9.1)% and 5.2%, respectively.
The Company maintains a full valuation allowance against all of its net U.S. federal and state deferred tax assets with the exception of $0.6 million of estimated state net operating losses (“NOL”). In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities, including the effect in available carryback and carryforward periods, projected taxable income and tax-planning strategies, in making this assessment. On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated.
Based on the Company’s full valuation allowance, as noted above, the Company’s tax expense for the three and nine months ended September 30, 2020 of $0.8 million and $2.3 million consists of quarterly tax liabilities attributable to specific state taxing authorities as well as recognized deferred tax expense.
The Company recorded no income tax expense or benefit for the three or nine months ended September 30, 2020 and 2019 associated with the tax provisions of the CARES Act.

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6. EARNINGS (LOSS) PER SHARE
The Company presents basic and diluted earnings (loss) per share for its common stock. Basic earnings (loss) per share is calculated by dividing the net income (loss) of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the profit or loss and the weighted average number of shares of common stock outstanding for the effects of all potentially dilutive securities.
As a result of the Merger, which has been accounted for as a reverse merger, all historical per share data and number of shares and equity awards were retroactively adjusted. The earnings (loss) is used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. The computation of diluted shares for the three months ended September 30, 2020 includes the effect of shares that would be issued in connection with warrants, stock options and restricted stock awards, as these common stock equivalents are dilutive to the earnings per share recorded in the quarter. The computation of diluted shares for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019 excludes the effect of these common stock equivalents as their inclusion would be anti-dilutive to the loss per share recorded in those periods. As of September 30, 2020 there were 2,328,120 warrants, 424,878 stock options and 600,483 restricted stock awards outstanding that were excluded from the calculation of earnings (loss) per share for the nine months ended September 30, 2020 as they would be anti-dilutive. As of September 30, 2019, there were 2,987,336 warrants, 657,846 stock options and 109,905 restricted stock awards outstanding that were excluded from the calculation of earnings (loss) per share for the three and nine months ended September 30, 2019 as they would be anti-dilutive.
The following table presents the Company’s basic earnings (loss) per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Numerator:
Net income (loss)$1,663 $(42,794)$(25,915)$(60,109)
Denominator:
Weighted average number of common shares outstanding184,232 162,894 179,220 149,448 
Earnings (loss) per common share:
Earnings (loss) per common share, basic$0.01 $(0.26)$(0.14)$(0.40)
The following table presents the Company’s diluted earnings (loss) per share and shares outstanding (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Numerator:  
Net income (loss)$1,663 $(42,794)$(25,915)$(60,109)
Denominator:  
Weighted average number of common shares outstanding184,232 162,894 179,220 149,448 
Effect of dilutive securities590    
Weighted average number of common shares outstanding, diluted184,822 162,894 179,220 149,448 
Earnings (loss) per common share:
Earnings (loss) per common share, diluted$0.01 $(0.26)$(0.14)$(0.40)

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7. LEASES
During the three and nine months ended September 30, 2020, the Company incurred operating lease expenses of $7.6 million and $23.0 million, respectively, including short-term lease expense, which were included as a component of selling, general and administrative expense in the unaudited condensed consolidated statements of comprehensive income (loss). During the three and nine months ended September 30, 2019, the Company incurred operating lease expense of $7.4 million and $21.5 million, respectively, including short-term lease expenses, which were included as a component of selling, general and administrative expenses in the unaudited condensed consolidated statements of comprehensive income (loss). As of September 30, 2020, the weighted-average remaining lease term was 6.8 years and the weighted-average discount rate was 5.30%.
Operating leases mature as follows (in thousands):
Fiscal Year Ending December 31,Minimum Payments
2020$8,688 
202122,799 
202217,417 
202313,698 
202410,177 
Thereafter36,473 
Total lease payments$109,252 
Less: Interest22,529 
Present value of lease liabilities$86,723 
During the three and nine months ended September 30, 2019, the Company did not enter into any significant new operating or financing leases. During the three and nine months ended September 30, 2020, the Company commenced new leases, extensions and amendments, resulting in non-cash investing and financing activities in the unaudited condensed consolidated statements of cash flow of $20.1 million related to increases in the operating lease right-of-use asset and operating lease liabilities, respectively. As of September 30, 2020, the Company did not have any significant operating or financing leases that had not yet commenced.

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8. PROPERTY AND EQUIPMENT
Property and equipment was as follows as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Infusion pumps$33,368 $30,416 
Equipment, furniture and other49,931 51,454 
Leasehold improvements79,828 80,916 
Computer software, purchased and internally developed36,567 34,884 
Assets under development7,284 14,150 
206,978 211,820 
Less: accumulated depreciation93,961 78,622 
Property and equipment, net$113,017 $133,198 
Depreciation expense is recorded within cost of revenue and operating expenses within the unaudited condensed consolidated statements of comprehensive income (loss), depending on the nature of the underlying fixed assets. The depreciation expense included in cost of revenue relates to revenue-generating assets, such as infusion pumps. The depreciation expense included in operating expenses is related to infrastructure items, such as furniture, computer and office equipment, and leasehold improvements. The following table presents the amount of depreciation expense recorded in cost of revenue and operating expenses for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Depreciation expense in cost of revenue$1,643 $1,384 $5,161 $2,855 
Depreciation expense in operating expenses7,814 8,522 28,546 18,849 
Total depreciation expense$9,457 $9,906 $33,707 $21,704 

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9. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill consists of the following activity for the three and nine months ended September 30, 2020 (in thousands):
Balance at December 31, 2019$1,425,542 
Purchase accounting adjustments2,341 
Balance at March 31, 2020$1,427,883 
Purchase accounting adjustments727
Balance at June 30, 2020$1,428,610 
Changes
Balance at September 30, 2020$1,428,610 
Changes in the carrying amount of goodwill consists of the following activity for the three and nine months ended September 30, 2019 (in thousands):
Balance at December 31, 2018$632,469 
Changes
Balance at March 31, 2019$632,469 
Changes
Balance at June 30, 2019$632,469 
Acquisitions786,904 
Balance at September 30, 2019$1,419,373 
The carrying amount and accumulated amortization of intangible assets consists of the following as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Gross intangible assets:
Referral sources$438,121 $438,121 
Trademarks/names44,536 44,536 
Other amortizable intangible assets402 402 
Total gross intangible assets483,059 483,059 
Accumulated amortization:
Referral sources(103,947)(84,295)
Trademarks/names(19,046)(12,748)
Other amortizable intangible assets(300)(106)
Total accumulated amortization(123,293)(97,149)
Total intangible assets, net$359,766 $385,910 
Amortization expense for intangible assets was $8.8 million and $26.3 million for the three and nine months ended September 30, 2020, respectively. Amortization expense for intangible assets was $7.5 million and $17.3 million for the three and nine months ended September 30, 2019, respectively.


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10. INDEBTEDNESS
Long-term debt consisted of the following as of September 30, 2020 (in thousands):
Principal AmountDiscountDebt Issuance CostsNet Balance
ABL facility$ $ $ $