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Option Care Health, Inc. - Annual Report: 2023 (Form 10-K)

  
As of December 31, 2023, there was $ million of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of 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 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 on a pro-rata basis over 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, 2023, 2022 and 2021, the Company recognized compensation expense related to restricted stock awards of $ million, $ million and $ million, respectively.
The grant-date fair value of restricted stock is valued as the closing price of the Company’s common stock on the date of the grant.
 $ Granted  $ Vested and issued()$ Forfeited and expired()$ Balance at December 31, 2023 $ 
During the years ended December 31, 2023 and 2022, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $ million and $ million, respectively. During the year ended December 31, 2021, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with an cost basis.
As of December 31, 2023, there was $ million in unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of years. The total fair value of restricted stock awards vested during the years ended December 31, 2023, 2022 and 2021 was $ million, $ million and $ million, respectively.
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-cliff vesting schedule. Each award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient. The 2023 PSU, 2022 PSU and 2021 PSU awards may be earned upon the completion of the -average performance periods ending December 31, 2024, 2023 and 2022, respectively.
Whether units are earned at the end of the performance period will be determined based on the achievement of certain performance objectives over the performance period. The performance objectives include achieving a target growth for adjusted EBITDA and revenue combined in addition to a target growth for cash flows from operations over the performance period. Depending on the results achieved during the performance period, the actual number of shares that a grant recipient receives at the end of the period may range from % to % of the Target Shares granted. Each period begins with % of the Target Shares and true-up or true-down adjustments are considered every quarter-end based on the forecasted performance period results.
The fair value of the Target Shares and performance stock unit awards are based on the fair value of the underlying shares as of market close on the grant date. Compensation expense for performance unit stock awards is recognized on a straight-line basis over the requisite service period. During the year ended December 31, 2023, the Company recognized compensation expense related to the 2023 PSU, 2022 PSU and 2021 PSU awards of $ million, $ million and $ million, respectively. During the year ended December 31, 2022, the Company recognized compensation expense related to the 2022 PSU and 2021 PSU awards of $ million and $ million, respectively. During the year ended December 31, 2021, the Company recognized compensation expense related to the 2021 PSU awards of $ million. As of December 31, 2023, there were $ million, $ million and $ million in unrecognized compensation expense related to unvested 2023 PSU, 2022 PSU and 2021 PSU awards, respectively, that are expected to be recognized over the period of years, years and years, respectively.

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16.
and shares of common stock, respectively. As of December 31, 2023, HC I no longer holds shares of the Company’s common stock.
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  million shares of common stock. The 2017 Warrants have a term and an exercise price of $ 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 $ million was recorded in paid-in capital as of the Merger Date. During the years ended December 31, 2023 and 2022, warrant holders exercised warrants to purchase and shares of common stock, respectively. proceeds were received from these exercises as the warrant holders elected to surrender shares to pay the exercise price. At December 31, 2023 and 2022, the remaining warrant holders are entitled to purchase and 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 million shares of common stock. The 2015 Warrants have a term and have exercise prices in a range of $ per share to $ 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 $ million was recorded in paid in capital as of the Merger Date. During the year ended December 31, 2023, warrant holders exercised an number of warrants to purchase shares of common stock. During the year ended December 31, 2022, warrant holders exercised warrants to purchase shares of common stock. During the year ended December 31, 2023, cash proceeds were received from warrant exercises. During the year ended December 31, 2022, $ million of cash was received as proceeds from warrant exercises. At December 31, 2023 and 2022, the remaining warrant holders are entitled to purchase and shares of common stock, respectively.
Share Repurchase Program — On February 20, 2023, the Company’s Board of Directors approved a share repurchase program of up to an aggregate $ million of common stock of the Company. On December 6, 2023, the Company’s Board of Directors approved an increase to its share repurchase program authorization from $ million to $ million. Under the share repurchase program, repurchases may occur in any number of methods depending on timing, market conditions, regulatory requirements, and other corporate considerations. The share repurchase program has no specified expiration date.
During the year ended December 31, 2023, the Company purchased shares of common stock for an average share price of $, totaling $ million. All repurchased shares became treasury stock. As of December 31, 2023, the Company is authorized to repurchase up to a remaining $ million of common stock of the Company.
Treasury Stock — As of December 31, 2023 and 2022, the Company held and shares of treasury stock, respectively.
Preferred Stock — The Company had preferred stock outstanding as of December 31, 2023 or 2022.
17.
million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, respectively. Management fees are recorded in net revenues in the accompanying consolidated statements of comprehensive income.
The Company had amounts due to its joint ventures of $ million and due from its joint ventures of $ million as of December 31, 2023. The Company had amounts due to its joint ventures of $ million as of December 31, 2022. 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.
Share Repurchase Agreement — On February 28, 2023, we entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with HC I, pursuant to which we agreed to repurchase, subject to the terms and conditions contained therein, up to $ million of our common stock then held by HC I at the same purchase price per share as the underwriter in a
concurrent underwritten public offering of our common stock held by HC I. On March 3, 2023, the transactions contemplated by the Share Repurchase Agreement closed, and we repurchased directly from HC I shares of our common stock.
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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
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act were effective as of December 31, 2023 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) 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 Annual 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) of 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, 2023. The Company’s independent registered public accounting firm, KPMG LLP, has issued an audit report on the Company’s internal control over financial reporting, which appears elsewhere in this Annual Report.
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 Control Over Financial Reporting
There has been no change during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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, 2023, 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, 2023, 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, 2023 and 2022, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2024 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 Annual 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.
/s/ KPMG LLP
Chicago, Illinois
February 22, 2024
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Item 9B.    Other Information
The Company previously announced the adoption of the Option Care Health, Inc. Executive Severance Plan (the “Severance Plan”), which provides severance benefits to certain key management personnel of the Company, including the Company’s Chief Executive Officer and Chief Financial Officer. As a result of their participation in the Severance Plan, our Chief Executive Officer and Chief Financial Officer entered into letter agreements on February 21, 2024 with the Company agreeing that they would no longer be eligible for the severance benefits in their employment agreements.
Adoption, Modification and Termination of Rule 10b5-1 Plans and Certain Other Trading Arrangements
No director or officer of the Company has , modified or a Rule 10b5-1 plan or non-Rule 10b5-1 trading arrangement during the three months ended December 31, 2023.
Item 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10.    Directors, Executive Officers and Corporate Governance
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 https://investors.optioncarehealth.com/corporate-governance/governance-resources. We intend to disclose future amendments to certain provisions of the Code of Business Conduct, and waivers of the Code of Business Conduct 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, 2023 in connection with our 2024 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, 2023 in connection with our 2024 Annual Meeting of Stockholders.
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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, 2023 in connection with our 2024 Annual Meeting of Stockholders.
Item 13.    Certain Relationships and Related Transactions, and Director Independence
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, 2023 in connection with our 2024 Annual Meeting of Stockholders.
Item 14.    Principal Accountant Fees and Services
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, 2023 in connection with our 2024 Annual Meeting of Stockholders.
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PART IV
Item 15.Exhibits and Financial Statement Schedules
Page
(a)(1) Financial Statements.
The following financial statements appear in Part II, Item 8:
Report of Independent Registered Public Accounting Firm (KPMG LLP, Chicago, IL, Auditor Firm ID: )
43
Consolidated Balance Sheets as of December 31, 2023 and 2022
45
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021
46
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
47
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021
48
Notes to Consolidated Financial Statements
49
All other schedules not listed above have been omitted since they are not applicable or are not required.
(a)(3) Exhibits.
Index to Exhibits
Exhibit Number Description
  2.1+
2.2
2.3
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
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4.9
4.10
4.11
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†
10.15†
10.16†
21.1
23.1
31.1
31.2
32.1
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32.2
97
101
The following financial information from the Company’s Form 10-K for the fiscal year ended December 31, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended December 31, 2023, 2022 and 2021, (ii) Consolidated Balance Sheets as of December 31, 2023 and 2022, (iii) Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 31, 2023, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2023, 2022 and 2021, and (v) Notes to Consolidated Financial Statements.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Labels Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104XBRL 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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 February 22, 2024.
                                                          OPTION CARE HEALTH, INC.
 
                                                        /s/ Michael Shapiro
Michael Shapiro
Chief Financial Officer and Executive 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.
SignatureTitle(s)Date
/s/ John C. Rademacher
John C. Rademacher
Chief Executive Officer, President and Director
 (Principal Executive Officer)
February 22, 2024
/s/ Michael Shapiro
Michael Shapiro
Chief Financial Officer and Executive Vice President
 (Principal Financial Officer and Principal Accounting Officer)
February 22, 2024
   
/s/ Harry M. Jansen Kraemer, Jr.
Harry M. Jansen Kraemer, Jr.
Non-Executive Chairman of the Board
February 22, 2024
/s/ John J. Arlotta
John J. Arlotta
Director
February 22, 2024
/s/ Elizabeth Q. Betten
Elizabeth Q. Betten
Director
February 22, 2024
/s/ Elizabeth D. Bierbower
Elizabeth D. Bierbower
Director
February 22, 2024
/s/ Barbara W. Bodem
Barbara W. Bodem
Director
February 22, 2024
/s/ Natasha Deckmann
Natasha Deckmann
Director
February 22, 2024
   
/s/ David W. Golding
David W. Golding
Director
February 22, 2024
/s/ R. Carter Pate
R. Carter Pate
Director
February 22, 2024
/s/ Timothy P. Sullivan
Timothy P. Sullivan
Director
February 22, 2024
/s/ Norman L. Wright
Norman L. Wright
Director
February 22, 2024
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