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” and in Item 1A. “Risk Factors” 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 provide infusion therapy and other ancillary healthcare services through a national network of 196 locations around the United States. Our national footprint enables us to collaborate with health systems and national payers to provide high quality care at an appropriate cost in a comfortable setting. We have established key relationships that allow us access to local resources to ensure responsiveness to our patients’ needs. At the center of everything we do is the patient. This is the driving force behind all of our actions and the partnerships that we have broadly across the healthcare ecosystem.
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Composition of Results of Operations
The following results of operations include the accounts of Option Care Health and our subsidiaries for the years ended December 31, 2025 and 2024.
Gross Profit
Gross profit represents our net revenue less cost of revenue.
Net Revenue . Infusion and related healthcare 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 healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record revenue and accounts receivable at their net realizable values at the time goods or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payers may result in adjustments to amounts originally recorded.
Cost of Revenue. Cost of revenue consists of the actual cost of pharmaceuticals and other medical supplies dispensed to patients. In addition to product costs, cost of revenue includes warehousing costs, purchasing costs, depreciation expense relating to revenue-generating assets, such as infusion pumps, shipping and handling costs, and wages and related costs for the pharmacists, nurses, and all other employees and contracted workers directly involved in providing service to the patient.
The Company receives volume-based rebates and prompt payment discounts from some of its pharmaceutical and medical supplies vendors. These payments are recorded as a reduction of inventory and are accounted for as a reduction of cost of revenue when the related inventory is sold.
Operating Costs and Expenses
Selling, General and Administrative Expenses . Selling, general and administrative expenses consist principally of salaries for administrative employees that directly and indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees.
Depreciation and Amortization Expense. Depreciation within this caption relates to property and equipment and amortization relates to intangibles. Depreciation of revenue-generating assets, such as infusion pumps, is included in cost of revenue.
Other Income (Expense)
Interest Expense, Net . Interest expense consists principally of interest and fee payments on the Company’s outstanding borrowings under the First Lien Term Loan, Revolver Facility, Senior Notes, amortization of discount and deferred financing fees, payments associated with the interest rate cap, and interest income earned on cash and cash equivalents. Refer to the “Liquidity and Capital Resources” section below for further discussion of these outstanding borrowings.
Equity in Earnings of Joint Ventures . Equity in earnings of joint ventures consists of our proportionate share of equity earnings or losses from equity investments in two infusion joint ventures with health systems.
Other, Net . Other (expense) income primarily includes activity related to non-operating income and expenses.
Income Tax Expense . The Company is subject to taxation in the United States and various states. The Company’s income tax expense is reflective of the current federal and state tax rates.
Change in Unrealized (Loss) Gain on Cash Flow Hedge, Net of Income Tax Benefit (Expense) . Change in unrealized (loss) gain on cash flow hedge, net of income tax benefit (expense), consists of the (loss) gain associated with the changes in the fair value of derivatives designated as hedging instruments related to the interest rate cap, net of income taxes.
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Results of Operations
The following table presents Option Care Health’s consolidated results of operations for the years ended December 31, 2025 and 2024 (in thousands, except for percentages). For a discussion of Option Care Health’s consolidated results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2025.
Year Ended December 31,
Amount
% of Revenue
Amount
% of Revenue
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
OTHER INCOME (EXPENSE):
Interest expense, net
Equity in earnings of joint ventures
Other, net
Total other (expense) income
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit (expense) of $2,272 and $1,284, respectively
OTHER COMPREHENSIVE (LOSS) INCOME
NET COMPREHENSIVE INCOME
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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
The following table presents selected consolidated comparative results of operations for the years ended December 31, 2025 and 2024:
Gross Profit
Year Ended December 31,
Variance
(in thousands, except for percentages)
Net revenue
Cost of revenue
Gross profit
Gross profit margin
The increase in net revenue during the year ended December 31, 2025 was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had mid-teens growth relative to the prior year while chronic revenue grew in the low double-digits. Acute growth was largely driven by the impact of shifts in the competitive landscape, which increased the volume of patient service. The increase in cost of revenue was primarily driven by the growth in revenue and therapy mix. The decrease in gross profit margin was primarily due to mix, including certain higher cost therapies included within chronic growth (including rare and orphan therapies) as well as biosimilar adoption, partially offset by certain mitigation efforts executed in the first quarter of 2025. Management expects these dynamics to negatively impact gross profit by $25 million to $35 million in 2026.
Operating Expenses
Year Ended December 31,
Variance
(in thousands, except for percentages)
Selling, general and administrative expenses
Depreciation and amortization expense
Total operating expenses
The increase in selling, general and administrative expenses during the year ended December 31, 2025 was primarily due to investment in internal resources and other general costs to support both ongoing business needs as well as future business growth. Selling, general and administrative expenses have declined as a percentage of revenue to 12.1% for the year ended December 31, 2025 compared to 12.6% for the year ended December 31, 2024, due to the Company’s focus on leveraging existing infrastructure to control spending. The increase in depreciation and amortization expense was primarily due to the Intramed Plus acquisition. See Note 3, Business Acquisitions , of the consolidated financial statements for further information.
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Other Income (Expense)
Year Ended December 31,
Variance
(in thousands, except for percentages)
Interest expense, net
Equity in earnings of joint ventures
Other, net
Total other (expense) income
(1) Not meaningful
The increase in interest expense, net during the year ended December 31, 2025 was primarily attributable to less interest income generated from our cash and cash equivalents due to lower interest rates, partially offset by a decrease in the interest rate on the Company’s First Lien Term Loan, compared to the year ended December 31, 2024. See Note 11, Indebtedness , of the consolidated financial statements for further information.
The change in other, net during the year ended December 31, 2025 was primarily attributable to accruals for an abandoned or unclaimed property voluntary disclosure agreement program related to the pre-merger operations of BioScrip, Inc. (“BioScrip”), which was entered into by BioScrip prior to its merger with the Company in 2019. As of December 31, 2025, the matters related to this program are ongoing. Additionally, the change in other, net was attributable to the $4.7 million loss on extinguishment of debt from the Company’s debt refinancing during the year ended December 31, 2025 with no comparable activity during the year ended December 31, 2024.
Income Tax Expense
Year Ended December 31,
Variance
(in thousands, except for percentages)
Income tax expense
The Company recorded income tax expense of $75.3 million and $71.8 million, which represents an effective tax rate of 26.6% and 25.3% for the years ended December 31, 2025 and 2024, respectively. The income tax expense for the year ended December 31, 2025 includes the release of $0.4 million of state valuation allowance, compared to a $2.2 million release in 2024. The variance in the Company’s effective tax rate of 26.6% and 25.3% for the years ended December 31, 2025 and 2024, respectively, compared to the federal statutory rate of 21%, as well as year-over-year changes, was primarily attributable to the inclusion of state taxes in multiple jurisdictions, various non-deductible expenses, and changes in state valuation allowance.
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Net Income and Other Comprehensive (Loss) Income
Year Ended December 31,
Variance
(in thousands, except for percentages)
Net income
Other comprehensive income (loss), net of tax:
Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit (expense)
Other comprehensive (loss) income
Net comprehensive income
The change in net income was attributable to the factors described in the above sections.
For the years ended December 31, 2025 and 2024, the change in unrealized (loss) gain on cash flow hedge, net of income tax benefit (expense) was related to the change in fair market value of the $300.0 million interest rate cap hedge executed in October 2021.
Net comprehensive income decreased to $200.6 million for the year ended December 31, 2025, compared to net comprehensive income of $207.9 million for the year ended December 31, 2024, primarily as a result of the factors described in the above sections.
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Liquidity and Capital Resources
For the years ended December 31, 2025 and 2024, the Company’s primary sources of liquidity were cash and cash equivalents of $232.6 million and $412.6 million, respectively. As of December 31, 2025, the Company had $396.0 million of borrowings available under its credit facilities (net of $4.0 million undrawn letters of credit issued and outstanding), described further below. During the years ended December 31, 2025 and 2024, the Company’s positive cash flows from operations have enabled investments in pharmacy, infusion suites, and information technology infrastructure to support growth and create additional capacity in the future, as well as to pursue acquisitions and repurchases of Company shares.
The Company’s primary uses of cash and cash equivalents include supporting our ongoing business activities, internal investment in resources to support future growth, investment in capital expenditures in both facilities and technology, the pursuit of acquisitions, and the pursuit of share repurchases.
Ongoing operating cash outflows are associated with procuring and dispensing drugs, personnel and other costs associated with servicing patients, as well as paying cash interest on outstanding debt and cash taxes. Ongoing investing cash flows are primarily associated with capital projects and 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, along with potential future share repurchases.
Our business strategy includes strategic deployment of capital to internal investments in resources, infrastructure, and technologies to support future growth, the pursuit of strategic tuck-in and adjacent acquisitions that complement our existing operations and the pursuit of share repurchases. We continue to evaluate acquisition opportunities and view acquisitions as a key part of our growth strategy. The Company has generally funded its acquisitions with cash and cash equivalents. 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 and cash equivalents 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 and cash equivalents balances, expected cash flows generated from operations, and credit facility will be sufficient to meet our operating requirements over the next 12 months and beyond. We may require additional borrowings under our credit facilities and alternative forms of financings or investments to achieve our longer-term strategic plans.
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Credit Facilities
On September 22, 2025, the Company entered into the fourth amendment (“the Fourth Amendment”) to the amended and restated First Lien Credit Agreement (the “Credit Agreement”) dated as of October 27, 2021. The Fourth Amendment, among other things, (i) refinances the existing term loans with a new class of term loans (the “First Lien Term Loan”), reduces the interest rate on the First Lien Term Loan from Term Secured Overnight Financing Rate (“SOFR”) plus 2.25% to Term SOFR plus 1.75% and extends the maturity date of the First Lien Term Loan to September 22, 2032, (ii) provides for an additional $49.6 million of incremental First Lien Term Loan indebtedness, and (iii) extends the maturity date of the revolving credit commitments under the Credit Agreement (the “Revolver Facility”) to September 22, 2030.
Under the Fourth Amendment, the principal balance of the First Lien Term Loan is repayable in quarterly installments of $1.7 million plus interest, with a final payment of all remaining outstanding principal due on September 22, 2032. Interest on the First Lien Term Loan is payable monthly on either (i) the SOFR plus an applicable margin of 1.75% for Term SOFR Loans; or (ii) a base rate, plus 0.75% for Base Rate Loans.
The Senior Notes bear interest at a rate of 4.375% per annum, which are payable semi-annually in arrears on October 31 and April 30 of each year, and which began on April 30, 2022. The Senior Notes mature on October 31, 2029.
The Company’s Revolver Facility provides for borrowings up to $400.0 million pursuant to which such lenders have agreed to make Revolving Credit Loans to the Company. The Revolver Facility matures on the date that is the earlier of (i) September 22, 2030 and (ii) the date that is 91 days prior to the stated maturity date applicable to the Senior Notes to the extent any amount of the Senior Notes remains unpaid and outstanding as of the date that is 91 days prior to the stated maturity date applicable to the Senior Notes. Borrowings under the Revolver Facility will bear interest at a rate equal to, at the option of the Company, either (i) the Term SOFR applicable thereto plus the Applicable Rate or (ii) the then-applicable Base Rate plus the Applicable Rate, which Applicable Rate shall be, subject to certain caveats thereto, as follows (i) until delivery of financial statements and related Compliance Certificate for the first full fiscal quarter ending after the effective date of the Fourth Amendment, (A) for Term SOFR Loans, 1.75%, or (B) for Base Rate Loans, 0.75% and (ii) thereafter, the Applicable Rate for Term SOFR Loans and Base Rate Loans, based upon the Total Net Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to the terms of the Credit Agreement. As of December 31, 2025, the Company had $4.0 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the Revolver Facility of $396.0 million.
Interest payments over the course of long-term debt obligations total an estimated $338.1 million based on final maturity dates of the Company’s credit facilities. Interest payments are calculated based on current rates as of December 31, 2025. Actual payments are based on changes in SOFR and exclude the interest rate cap derivative instrument.
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Cash Flows
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
The following table presents selected data from Option Care Health’s consolidated statements of cash flows for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Variance
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents - beginning of period
Cash and cash equivalents - end of period
Cash Flows from Operating Activities
The change in cash provided by operating activities during the year ended December 31, 2025 was primarily due to increases in inventories due to strategic purchases and a focus on maximizing the impact from volume based rebates and prompt pay purchase discounts. The change was also largely related to an increase in accounts receivable driven by revenue growth. The change in cash provided by operating activities for the year ended December 31, 2024 was largely driven by an increase in accounts payable due to timing of strategic purchases in inventories ahead of expected future price increases on certain drugs.
Cash Flows from Investing Activities
The increase in cash used in investing activities during the year ended December 31, 2025 was primarily related to the Intramed Plus acquisition activity with no comparable activity during the year ended December 31, 2024.
Cash Flows from Financing Activities
The increase in cash used in financing activities was primarily related to the Company’s $310.0 million repurchase of common stock and related excise taxes during the year ended December 31, 2025, compared to $252.7 million repurchase of common stock and related excise taxes during the year ended December 31, 2024. The increase was partially offset by the Company’s debt refinancing in September 2025, in which $49.6 million in net proceeds from issuance of debt was received.
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Critical Accounting Estimates
The Company prepares its consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”), which require the Company to make estimates and assumptions. The Company evaluates its estimates and assumptions on an ongoing basis. Estimates and assumptions 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 assumptions 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 assumptions 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.
Due to the nature of the healthcare 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.
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 Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“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 are 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 healthcare 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.
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. As of December 31, 2025 and 2024, the Company had an immaterial allowance for doubtful accounts. 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, current over/under payments which had not yet been applied to an account, historical contractual adjustments, and historical payments. Contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled.
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Business Acquisitions
The Company accounts for business acquisitions in accordance with ASC Topic 805, Business Combinations (“ASC 805”), 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. See Note 3, Business Acquisitions , for further discussion of business acquisitions.
