Option Care Health, Inc. (OPCH) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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 185 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 non-hospital 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, therapies for neurological disorders and chronic inflammatory disorders, immunoglobulin therapy, and other therapies for chronic and acute conditions. The Company operates in one segment, infusion services.
Update on the Impact of the Change Healthcare Cybersecurity Incident
As previously disclosed, on February 21, 2024, Change Healthcare, a subsidiary of UnitedHealth Group, experienced an incident in which a cybersecurity threat actor gained access to some of its information technology systems (“Change Healthcare Cybersecurity Incident”). Since the time of the system disruption, Option Care Health has worked continuously to find alternative processes to help maintain patient care and overall operations.
As of December 31, 2024, the Company has not identified any compromise or unauthorized access of its systems or networks due to this third party incident. As of the end of the second quarter of 2024, the Company reconnected to key applications maintained by Change Healthcare and as of the end of the fourth quarter of 2024, the Company has fully recovered.
During the fourth quarter of 2024, the Company did not experience a material financial impact from the Change Healthcare Cybersecurity Incident on the financial results as reported. The Company continues to maintain strong liquidity and, having resumed submission of all claims to payers, has determined that the Change Healthcare Cybersecurity Incident did not materially impact the Company, including its business operations, financial condition or results of operations.
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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, 2024 and 2023.
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.
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Other Income (Expense)
Interest Expense, Net. Interest expense consists principally of interest and fee payments on the Company’s outstanding borrowings under the ABL Facility, 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. During the year ended December 31, 2024, other income (expense) primarily includes activity related to non-operating income and expenses. During the year ended December 31, 2023, other income (expense) primarily includes the termination fee, net of merger-related expenses, received on behalf of Amedisys, Inc. (“Amedisys”). On May 3, 2023, the Company entered into a definitive merger agreement (the “Amedisys Merger Agreement”) with Amedisys, a leading provider of healthcare in home health and hospice settings. On June 26, 2023, the Company entered into an agreement to terminate the Amedisys Merger Agreement (the “Mutual Termination Agreement”). Under the terms of the Mutual Termination Agreement, the Company received a payment of $106.0 million in cash on behalf of Amedisys (the “Termination Fee”).
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 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, 2024 and 2023 (in thousands, except for percentages). For a discussion of Option Care Health’s consolidated results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2024.
| Year Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | ||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | ||||||||||
| NET REVENUE | $ | 4,998,202 | 100.0 | % | $ | 4,302,324 | 100.0 | % | |||||
| COST OF REVENUE | 3,985,209 | 79.7 | % | 3,321,101 | 77.2 | % | |||||||
| GROSS PROFIT | 1,012,993 | 20.3 | % | 981,223 | 22.8 | % | |||||||
| OPERATING COSTS AND EXPENSES: | |||||||||||||
| Selling, general and administrative expenses | 630,251 | 12.6 | % | 607,427 | 14.1 | % | |||||||
| Depreciation and amortization expense | 60,909 | 1.2 | % | 59,201 | 1.4 | % | |||||||
| Total operating expenses | 691,160 | 13.8 | % | 666,628 | 15.5 | % | |||||||
| OPERATING INCOME | 321,833 | 6.4 | % | 314,595 | 7.3 | % | |||||||
| OTHER INCOME (EXPENSE): | |||||||||||||
| Interest expense, net | (49,029) | (1.0) | % | (51,248) | (1.2) | % | |||||||
| Equity in earnings of joint ventures | 5,964 | 0.1 | % | 5,530 | 0.1 | % | |||||||
| Other, net | 4,831 | 0.1 | % | 89,865 | 2.1 | % | |||||||
| Total other (expense) income | (38,234) | (0.8) | % | 44,147 | 1.0 | % | |||||||
| INCOME BEFORE INCOME TAXES | 283,599 | 5.7 | % | 358,742 | 8.3 | % | |||||||
| INCOME TAX EXPENSE | 71,776 | 1.4 | % | 91,652 | 2.1 | % | |||||||
| NET INCOME | $ | 211,823 | 4.2 | % | $ | 267,090 | 6.2 | % | |||||
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX: | |||||||||||||
| Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit (expense) of $1,284 and $2,158, respectively | (3,931) | (0.1) | % | (6,181) | (0.1) | % | |||||||
| OTHER COMPREHENSIVE (LOSS) INCOME | (3,931) | (0.1) | % | (6,181) | (0.1) | % | |||||||
| NET COMPREHENSIVE INCOME | $ | 207,892 | 4.2 | % | $ | 260,909 | 6.1 | % |
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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The following table presents selected consolidated comparative results of operations for the years ended December 31, 2024 and 2023:
Gross Profit
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Variance | |||||||||
| (in thousands, except for percentages) | |||||||||||
| Net revenue | $ | 4,998,202 | $ | 4,302,324 | $ | 695,878 | 16.2 | % | |||
| Cost of revenue | 3,985,209 | 3,321,101 | 664,108 | 20.0 | % | ||||||
| Gross profit | $ | 1,012,993 | $ | 981,223 | $ | 31,770 | 3.2 | % | |||
| Gross profit margin | 20.3% | 22.8% |
The increase in net revenue during the year ended December 31, 2024 was primarily driven by organic growth in the Company’s portfolio of therapies, consisting of acute revenue that had high single digits growth relative to the prior year while chronic revenue grew in the high teens. The increase in cost of revenue was primarily driven by the growth in revenue, therapy mix, and acute drug supply chain disruption, as well as the comparable impact of certain temporary favorable therapy procurement dynamics in the prior year. The decrease in gross profit margin was primarily due to the launch of certain new higher cost therapies included within chronic growth (including rare and orphan therapies) and to the same comparable impact of certain temporary favorable procurement dynamics in the prior year that did not continue into 2024. Additionally, the Company received notice of a manufacturer’s intention to significantly reduce the spread at which the Company procures a certain therapy relative to drug reference prices beginning in early 2025, which is expected to negatively impact gross profit by approximately $60 million to $70 million in 2025.
Operating Expenses
| Year Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Variance | |||||||||||
| (in thousands, except for percentages) | |||||||||||||
| Selling, general and administrative expenses | $ | 630,251 | $ | 607,427 | $ | 22,824 | 3.8 | % | |||||
| Depreciation and amortization expense | 60,909 | 59,201 | 1,708 | 2.9 | % | ||||||||
| Total operating expenses | $ | 691,160 | $ | 666,628 | $ | 24,532 | 3.7 | % |
The increase in selling, general and administrative expenses during the year ended December 31, 2024 was primarily due to an increase in salaries, benefits, and general costs to support the business; however, these expenses have declined as a percentage of revenue to 12.6% for the year ended December 31, 2024 compared to 14.1% for the year ended December 31, 2023, due to the Company’s focus on leveraging existing infrastructure to control spending.
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Other Income (Expense)
| Year Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Variance | |||||||||||
| (in thousands, except for percentages) | |||||||||||||
| Interest expense, net | $ | (49,029) | $ | (51,248) | $ | 2,219 | (4.3) | % | |||||
| Equity in earnings of joint ventures | 5,964 | 5,530 | 434 | 7.8 | % | ||||||||
| Other, net | 4,831 | 89,865 | (85,034) | (94.6) | % | ||||||||
| Total other (expense) income | $ | (38,234) | $ | 44,147 | $ | (82,381) | (186.6) | % |
The decrease in interest expense, net during the year ended December 31, 2024 was primarily attributable to additional interest income generated from our cash and cash equivalents, partially offset by an increase in the Company’s First Lien Term Loan principal balance, compared to the year ended December 31, 2023. See Note 11, Indebtedness, of the consolidated financial statements for further information.
The decrease in other, net during the year ended December 31, 2024 was due to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses during the year ended December 31, 2023. There was no comparable activity during the year ended December 31, 2024.
Income Tax Expense
| Year Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Variance | |||||||||||
| (in thousands, except for percentages) | |||||||||||||
| Income tax expense | $ | 71,776 | $ | 91,652 | $ | (19,876) | 21.7 | % |
The Company recorded income tax expense of $71.8 million and $91.7 million, which represents an effective tax rate of 25.3% and 25.5% for the years ended December 31, 2024 and 2023, respectively. The variance in the Company’s effective tax rate of 25.3% and 25.5% for the years ended December 31, 2024 and 2023, respectively, was primarily attributable to the difference in state taxes, various non-deductible expenses, and a change in state valuation allowance. The variance in the Company’s effective tax rate of 25.3% for the year ended December 31, 2024, compared to the federal statutory rate of 21%, was also primarily attributable to state taxes, various non-deductible expenses, and a change in state valuation allowance. The income tax expense for the year ended December 31, 2023 includes $21.8 million of tax expense related to the Termination Fee received, under the terms of the Mutual Termination Agreement, net of merger-related expenses, and the release of $5.8 million of state valuation allowance in September 2023.
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Net Income and Other Comprehensive (Loss) Income
| Year Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Variance | |||||||||||
| (in thousands, except for percentages) | |||||||||||||
| Net income | $ | 211,823 | $ | 267,090 | $ | (55,267) | (20.7) | % | |||||
| Other comprehensive (loss) income, net of tax: | |||||||||||||
| Change in unrealized (loss) gain on cash flow hedges, net of income tax benefit (expense) | (3,931) | (6,181) | 2,250 | (36.4) | % | ||||||||
| Other comprehensive (loss) income | (3,931) | (6,181) | 2,250 | (36.4) | % | ||||||||
| Net comprehensive income | $ | 207,892 | $ | 260,909 | $ | (53,017) | (20.3) | % |
The change in net income for the year ended December 31, 2024 was attributable to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses during the year ended December 31, 2023. There was no comparable activity during the year ended December 31, 2024.
For the years ended December 31, 2024 and 2023, 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 $207.9 million for the year ended December 31, 2024, compared to net comprehensive income of $260.9 million for the year ended December 31, 2023, primarily as a result of the changes in net income discussed above.
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Liquidity and Capital Resources
For the years ended December 31, 2024 and 2023, the Company’s primary sources of liquidity were cash and cash equivalents of $412.6 million and $343.8 million, respectively. As of December 31, 2024, the Company had $395.9 million of borrowings available under its credit facilities (net of $4.1 million undrawn letters of credit issued and outstanding), described further below. During the year ended December 31, 2023, 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 share repurchases.
The Company’s primary uses of cash and cash equivalents include supporting our ongoing business activities, investment in capital expenditures in both facilities and technology, and the pursuit of acquisitions and 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 its outstanding debt, along with potential future share repurchases.
Our business strategy includes the deployment of capital to pursue acquisitions that complement our existing operations. 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 and cash equivalents 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 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 and expected cash flows generated from operations will be sufficient to meet our operating requirements for at least 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 May 8, 2024, the Company entered into the third amendment to the amended and restated First Lien Credit Agreement dated as of October 27, 2021 (the “Third Amendment”). The Third Amendment, among other things, (i) provides for an additional $50.0 million of incremental First Lien Term Loan indebtedness and (ii) reduces the interest rate on the First Lien Term Loan from Term Secured Overnight Financing Rate (“SOFR”) (including a credit spread adjustment) plus 2.75% to Term SOFR plus 2.25% and removes the credit spread adjustment with respect to such First Lien Term Loan.
The principal balance of the First Lien Term Loan is repayable in quarterly installments of $1.6 million plus interest, with a final payment of all remaining outstanding principal due on October 27, 2028. The quarterly principal payments commenced in March 2022. Under the Third Amendment, interest on the First Lien Term Loan is payable monthly on either (i) SOFR (with a floor of 0.50% per annum) plus an applicable margin of 2.25% for Term SOFR Loans (as such term is defined in the Third Amendment); or (ii) a base rate determined in accordance with the Third Amendment, plus 1.25% for Base Rate Loans (as such term is defined in the Third Amendment).
On December 7, 2023, the Company entered into the second amendment to the amended and restated First Lien Credit Agreement dated as of October 27, 2021 (the “Second Amendment”). The Second Amendment, among other things, provides for revolving credit commitments by the applicable Revolving Credit Lenders in an aggregate amount of $400.0 million (the “Revolver Facility”) 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) December 7, 2028 and (ii) the date that is 91 days prior to the stated maturity date applicable to any Term B Loans. 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 Second 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, 2024, the Company had $4.1 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the Revolver Facility of $395.9 million.
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.
Interest payments over the course of long-term debt obligations total an estimated $271.1 million based on final maturity dates of the Company’s credit facilities. Interest payments are calculated based on current rates as of December 31, 2024. 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, 2024 Compared to Year Ended December 31, 2023
The following table presents selected data from Option Care Health’s consolidated statements of cash flows for the years ended December 31, 2024 and 2023:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Variance | ||||||||
| (in thousands) | ||||||||||
| Net cash provided by operating activities | $ | 323,392 | $ | 371,295 | $ | (47,903) | ||||
| Net cash used in investing activities | (36,470) | (56,506) | 20,036 | |||||||
| Net cash used in financing activities | (218,206) | (265,126) | 46,920 | |||||||
| Net increase in cash and cash equivalents | 68,716 | 49,663 | 19,053 | |||||||
| Cash and cash equivalents - beginning of period | 343,849 | 294,186 | 49,663 | |||||||
| Cash and cash equivalents - end of period | $ | 412,565 | $ | 343,849 | $ | 68,716 |
Cash Flows from Operating Activities
The decrease in cash provided by operating activities during the year ended December 31, 2024 was primarily due to the $106.0 million payment received on behalf of Amedisys, under the terms of the Mutual Termination Agreement, net of merger-related expenses during the year ended December 31, 2023, changes in accounts receivable and accrued compensation and employee benefits. Additionally, changes in accounts payable and inventory were driven by organic growth in the Company as well as strategic supply chain purchases.
Cash Flows from Investing Activities
The decrease in cash used in investing activities during the year ended December 31, 2024 was primarily due to prior year acquisition activity with no comparable activity during the year ended December 31, 2024. See Note 3, Business Acquisitions and Divestitures, of the consolidated financial statements for more information.
Cash Flows from Financing Activities
The decrease in cash used in financing activities was primarily related to the Company’s debt refinancing in May 2024, in which $50.0 million in proceeds from issuance of debt was received, which partially offset $250.0 million in repurchase of common stock during the year ended December 31, 2024, whereas the cash used in financing activities during the year ended December 31, 2023 was primarily related to the Company’s $250.0 million repurchase of common stock.
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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 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.
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, 2024 and 2023, the Company had no 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 and Divestitures, for further discussion of business acquisitions.