What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-05 · 179 added, 90 removed, 191 unchanged (58% of the section changed)

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Many of these factors are beyond our ability to control or predict.

These factors include, without limitation, the duration and severity of the COVID-19 outbreak in the United States and the regions in which we operate;

the impact to the state and local economies of prolonged restrictive orders and the pandemic generally;

These factors include, without limitation, the continuing effects of the COVID-19 outbreak in the United States and the regions in which we operate;

the impact to the state and local economies of re-instituted restrictive orders and the pandemic generally;

our ability to respond nimbly to challenging economic conditions;

the unpredictability of our case volume both in the current environment and as restrictions are eased;

the unpredictability of our case volume in the current environment;

our ability to preserve or raise sufficient funds to continue operations throughout this period of uncertainty;

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Executive Overview

Total revenues for the first quarter of 2021 increased 16.2% to $512.4 million from $441.0 million for the first quarter of 2020.

Same-facility revenues for the first quarter of 2021 increased 15.3% from the same period last year, with a 7.6% increase in revenue per case and a 7.1% increase in same-facility cases.

The increase in same-facility revenues is attributable to the Company's recovery from the negative impacts of the COVID-19 pandemic in the first quarter of 2020.

For the first quarter of 2021, the Company’s net loss attributable to common stockholders and Adjusted EBITDA was $31.3 million and $72.9 million, respectively, compared to $37.0 million and $46.5 million for the same period last year.

A reconciliation of non-GAAP financial measures appears below under "Certain Non-GAAP Metrics." The increase in Adjusted EBITDA was primarily attributable to the Company's recovery from the negative impacts of the COVID-19 pandemic in the first quarter of 2020.

We had cash and cash equivalents of $541.9 million and $162.5 million of borrowing capacity under our revolving credit facility at March 31, 2021.

Operating cash flows were $50.2 million in the first quarter of 2021, an increase of $21.0 million as compared to the prior year period, primarily driven by an overall increase in net income.

Net operating cash inflows, including operating cash flows less distributions to non-controlling interests, were $18.9 million for the first quarter of 2021, compared to $5.2 million for the first quarter of 2020.

Total revenues for the second quarter of 2021 increased 45.0% to $543.3 million from $374.7 million for the second quarter of 2020.

Same-facility revenues for the second quarter of 2021 increased 44.8% from the same period last year, with a 14.0% decrease in revenue per case and a 68.3% increase in same-facility cases.

The increase in same-facility revenues is attributable to the Company's recovery from the negative impacts of the COVID-19 pandemic in the second quarter of 2020.

For the second quarter of 2021, the Company’s net loss attributable to common stockholders and Adjusted EBITDA was $26.9 million and $75.9 million, respectively, compared to $42.2 million and $58.2 million for the same period last year.

We had cash and cash equivalents of $464.8 million and $163.7 million of borrowing capacity under our revolving credit facility at June 30, 2021.

Operating cash inflows were $2.3 million in the second quarter of 2021, a decrease of $179.6 million compared to the prior year period.

Net operating cash flows, including operating cash flows less distributions to non-controlling interests, were an outflow of $29.8 million for the second quarter of 2021, compared to an inflow of $154.2 million for the second quarter of 2020.

The decrease in operating cash flows and net operating cash flows compared to the same period in 2020 is primarily due to the final DOJ settlement payment in the second quarter of 2021, receipts of government grants and Medicare advance payments provided through the CARES Act as well as actions taken to significantly reduce cash operating expenses and defer non-essential expenditures during the second quarter of 2020.

Impact of COVID-19

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economy and financial markets.

The COVID-19 pandemic materially impacted our financial performance for the year ending December 31, 2020, and has continued to impact our financial performance during the three months ended March 31, 2021.

The COVID-19 pandemic materially impacted our financial performance for the year ended December 31, 2020, and has continued to impact our financial performance during the six months ended June 30, 2021.

The length and severity of the pandemic continues to be difficult to predict and is dependent on factors beyond our control.

The impact of the COVID-19 pandemic on our surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures typically performed.

Although we cannot provide any certainty regarding the length and severity of

the impact of the COVID-19 pandemic, surgical case volumes continue to improve as states re-open and allow for non-emergent procedures.

The impact of the COVID-19 pandemic on our surgical facilities varies based on the market in which the facility operates, the type of

surgical facility and the procedures typically performed.

Although we cannot provide any certainty regarding the length and severity of the impact of the COVID-19 pandemic, surgical case volumes continue to improve as states re-open and allow for non-emergent procedures.

We cannot predict if or when utilization may return to pre-pandemic levels.

The Company is continuing to monitor legislative actions at federal and state levels, including the impact of the CARES Act and other governmental assistance that might be available.

Executive Order

On July 9, 2021, President Biden issued an executive order that is intended to promote competition in the American economy.

Among other things, the executive order encourages the Federal Trade Commission (“FTC”) to ban or limit non-compete agreements, encourages the DOJ and the FTC to review and revise their merger guidelines to ensure that patients are not harmed by healthcare mergers, and instructs HHS to support existing price transparency rules and implement the legislation that was recently adopted to address surprise billing.

We cannot predict how, if at all, the various initiatives set forth in the executive order will be implemented by the regulatory agencies involved or the impact that the executive order will have on operations.

Our revenues consist of patient service revenues and other service revenues.

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Other service revenues include management and administrative service fees derived from our non-consolidated facilities that we account for under the equity method, management of surgical facilities and physician practices in which we do not own an interest and management services we provide to physician practices for which we are not required to provide capital or additional assets.

For the three months ended March 31, 2020, other service revenues also includes optical service revenues, which consisted of handling charges billed to the members of our optical products purchasing organization, which was sold on December 31, 2020.

For the three and six months ended June 30, 2020, other service revenues also includes optical service revenues, which consisted of handling charges billed to the members of our optical products purchasing organization, which was sold on December 31, 2020.

The following table summarizes our revenues by service type as a percentage of total revenues for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Patient service revenues:

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The following table sets forth by type of payor the percentage of our patient service revenues generated at the surgical facilities which we consolidate for financial reporting purposes in the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Private insurance payors 50.9 % 54.0 % 49.8 % 52.9 %

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Other payors (1)

3.6 % 4.9 % 3.7 % 4.7 %

Total 100.0 % 100.0 % 100.0 % 100.0 %

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The following table sets forth the percentage of cases in each specialty performed at the surgical facilities which we consolidate for financial reporting purposes for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Orthopedic and pain management 35.2 % 44.0 % 36.3 % 40.9 %

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Results of Operations

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The following table summarizes certain results from the statements of operations for the three months ended March 31, 2021 and 2020 (dollars in millions):

Three Months Ended March 31,

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

The following table summarizes certain results from the statements of operations for the three months ended June 30, 2021 and 2020 (dollars in millions):

Three Months Ended June 30,

Revenues $ 543.3 $ 374.7

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Income from equity investments (3.0) (2.5)

(Gain) loss on disposals and deconsolidations, net (0.9) 3.5

Loss on disposals and deconsolidations, net 1.0 2.9

Transaction and integration costs 9.2 4.9

Grant funds (4.9) (43.1)

Litigation settlement — 1.2

Loss on debt extinguishment 9.6 —

Other income (2.8) (0.2)

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Income (loss) before income taxes 6.1 (4.5)

Income tax expense (benefit) 0.2 (15.2)

Income tax benefit (2.7) (0.6)

Net income (loss) 8.8 (3.9)

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$ (26.9) $ (32.5)

During the three months ended March 31, 2021, our revenues increased 16.2% to $512.4 million compared to $441.0 million for the three months ended March 31, 2020.

During the three months ended June 30, 2021, our revenues increased 45.0% to $543.3 million compared to $374.7 million for the three months ended June 30, 2020.

We incurred a net loss attributable to Surgery Partners, Inc.

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The increase in revenues was primarily attributable to increases in surgical case volumes as the Company continues to recover from the COVID-19 pandemic that began in the first quarter of 2020 and acquisitions completed in 2020.

Revenues for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows (dollars in millions):

Three Months Ended March 31,

Revenues for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 were as follows (dollars in millions):

Three Months Ended June 30,

Patient service revenues $ 535.9 $ 369.1

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Total revenues $ 543.3 $ 374.7

Patient service revenues increased 16.4% to $505.7 million for the three months ended March 31, 2021 compared to $434.6 million for the three months ended March 31, 2020.

The increase of 16.4% was driven by a 7.6% increase in same-facility revenue per case and a 7.1% increase in same-facility case volume primarily driven by case count and case mix recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020.

Patient service revenues increased 45.2% to $535.9 million for the three months ended June 30, 2021 compared to $369.1 million for the three months ended June 30, 2020.

The increase of 45.2% was driven by a 68.3% increase in same-facility case volume primarily resulting from case count and case mix recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020, offset by a 14.0% decrease in same-facility revenue per case.

Cost of Revenues.

Cost of revenues were $408.9 million for the three months ended March 31, 2021 compared to $366.2 million for the three months ended March 31, 2020.

The increase in costs was primarily attributable to acquisitions completed in 2020 and 2019 and an increase in supply costs associated with higher acuity surgical case volumes.

As a percentage of revenues, cost of revenues decreased to 79.8% for the 2021 period compared to 83.0% for the 2020 period, as lower acuity procedures with lower cost of sales returned from COVID-19 related lows experienced in the first quarter of 2020.

Cost of revenues were $425.0 million for the three months ended June 30, 2021 compared to $319.3 million for the three months ended June 30, 2020.

The increase was primarily driven by case count and case mix recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020.

As a percentage of revenues, cost of revenues decreased to 78.2% for the 2021 period compared to 85.2% for the 2020 period, as lower acuity procedures with lower cost of sales returned from COVID-19 related lows experienced in the second quarter of 2020.

General and Administrative Expenses.

General and administrative expenses were $26.8 million for the three months ended March 31, 2021 compared to $22.8 million for the three months ended March 31, 2020.

As a percentage of revenues, general and administrative expenses remained flat at 5.2% for both the 2021 and 2020 periods.

General and administrative expenses were $24.5 million for the three months ended June 30, 2021 compared to $25.3 million for the three months ended June 30, 2020.

As a percentage of revenues, general and administrative expenses decreased to 4.5% for the 2021 period compared to 6.8% for the 2020 period.

Depreciation and Amortization.

Depreciation and amortization was $25.7 million and $21.8 million for the three months ended March 31, 2021 and 2020, respectively.

The increase is primarily due to acquisitions completed in 2020.

Depreciation and amortization was $25.2 million and $23.4 million for the three months ended June 30, 2021 and 2020, respectively.

The increase is primarily due to acquisitions completed in 2021 and 2020.

As a percentage of revenues, depreciation and amortization expenses was 4.6% for the 2021 period compared to 6.2% for the 2020 period.

(Gain) Loss on Disposals and Deconsolidations, Net.

The net gain on disposals and deconsolidations was $0.9 million for the 2021 period, related to disposals of long-lived assets.

The net loss on disposals and deconsolidations was $3.5 million for the 2020 period, including a net loss of $3.1 million on the sale of interests in surgical facilities and $0.4 million on disposals of other long-lived assets.

Transaction and Integration Costs.

We incurred $5.3 million of transaction and integration costs for the three months ended March 31, 2021 compared to $5.5 million for the three months ended March 31, 2020.

During the three months ended March 31, 2021, the Company received approximately $7 million of additional grants from HHS.

Based on guidance from HHS and other authorities, the Company updated its estimate of the amount of grant funds received that qualify for recognition, resulting in the recognition of $15.1 million.

We incurred $9.2 million of transaction and integration costs for the three months ended June 30, 2021 compared to $4.9 million for the three months ended June 30, 2020.

The increase primarily relates to costs for ongoing development initiatives and the integration of acquisitions we completed in 2021 and 2020.

During the three months ended June 30, 2021, the Company received approximately $1 million of additional grants from HHS.

Based on guidance from HHS and other authorities, the Company updated its estimate of the amount of grant funds received that qualify for recognition, resulting in the recognition of $4.9 million during the three months ended June 30, 2021.

Grant funds were $43.1 million for the three months ended June 30, 2020.

For further discussion, see Note 1.

"Organization and Summary of Accounting Polices - COVID-19 Pandemic" to our condensed consolidated financial statements included elsewhere in this report.

There were no grant funds received for the 2020 period.

Loss on Debt Extinguishment.

We incurred a loss on debt extinguishment of $9.6 million for the 2021 period.

"Long-Term Debt" to our condensed consolidated financial statements included elsewhere in this report for further discussion.

Interest Expense, Net.

Interest expense, net, increased to $53.4 million for the three months ended June 30, 2021 compared to $49.2 million for the three months ended June 30, 2020.

The increase primarily relates to the 2020 Incremental Term Loans, which were fully drawn on April 22, 2020 and the issuance of additional 2027 Unsecured Notes in the amount of $115.0 million effective July 30, 2020.

As a percentage of revenues, interest expense, net was 9.8% for the 2021 period compared to 13.1% for the 2020 period.

Income Tax Benefit.

The income tax benefit was $2.7 million and $0.6 million for the three months ended June 30, 2021 and 2020, respectively.

The effective tax rate was (44.3)% for the three months ended June 30, 2021 compared to 13.3% for the three months ended June 30, 2020.

For the three months ended June 30, 2021, the effective tax rate differed from 21% primarily due to tax benefits of $3.0 million related to entity divestitures.

For the three months ended June 30, 2020, the effective tax rate differed from 21% primarily due to the reversal of the Company's earnings attributable to minority interest.

Based upon the application of interim accounting guidance, the tax rate as a percentage of net income after income attributable to non-controlling interests will vary based upon the relative net income from period to period.

Net Income Attributable to Non-Controlling Interests.

Net income attributable to non-controlling interests was $35.7 million for the three months ended June 30, 2021 compared to $28.6 million for the three months ended June 30, 2020.

As a percentage of revenues, net income attributable to non-controlling interests was 6.6% for the 2021 period and 7.6% for the 2020 period.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

The following table summarizes certain results from the statements of operations for the six months ended June 30, 2021 and 2020 (dollars in millions):

Six Months Ended June 30,

Revenues $ 1,055.7 $ 815.7

Operating expenses:

Cost of revenues 833.9 685.5

General and administrative expenses 51.3 48.1

Depreciation and amortization 50.9 45.2

Income from equity investments (5.6) (4.5)

Loss on disposals and deconsolidations, net 0.1 6.4

Transaction and integration costs 14.5 10.4

Grant funds (20.0) (43.1)

Loss on debt extinguishment 9.6 —

Litigation settlement — 1.2

Litigation settlement costs were $1.2 million for the three months ended March 31, 2020 related to the resolution of the government investigation, as discussed in Note 9.

"Commitments and Contingencies" to our condensed consolidated financial statements included elsewhere in this report.

There were no litigation settlements for the 2021 period.

Other income (2.8) (1.7)

Total operating expenses 931.9 747.5

Operating income 123.8 68.2

Interest expense, net (106.7) (96.3)

Interest expense, net, increased to $53.3 million for the three months ended March 31, 2021 compared to $47.1 million for the three months ended March 31, 2020.

Income (loss) before income taxes 17.1 (28.1)

Income tax benefit (2.5) (15.8)

Net income (loss) 19.6 (12.3)

Net income attributable to non-controlling interests (67.5) (47.7)

Net loss attributable to Surgery Partners, Inc.

$ (47.9) $ (60.0)

During the six months ended June 30, 2021, our revenues increased 29.4% to $1,055.7 million compared to $815.7 million for the six months ended June 30, 2020.

We incurred a net loss attributable to Surgery Partners, Inc.

of $47.9 million for the 2021 period, compared to $60.0 million for the 2020 period.

Revenues for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 were as follows (dollars in millions):

Six Months Ended June 30,

Patient service revenues $ 1,041.6 $ 803.7

Other service revenues 14.1 12.0

Total revenues $ 1,055.7 $ 815.7

Patient service revenues increased 29.6% to $1,041.6 million for the six months ended June 30, 2021 compared to $803.7 million for the six months ended June 30, 2020.

The increase of 29.6% was driven by a 32.7% increase in same-facility case volume partially offset by a 2.9% decrease in same-facility revenue per case.

The increase was primarily driven by case count and case mix recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020.

Cost of Revenues.

Cost of revenues were $833.9 million for the six months ended June 30, 2021 compared to $685.5 million for the six months ended June 30, 2020.

The increase was primarily driven by case count and case mix recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020.

As a percentage of revenues, cost of revenues decreased to 79.0% for the 2021 period compared to 84.0% for the 2020 period, as lower acuity procedures with lower cost of sales returned from COVID-19 related lows experienced in the second quarter of 2020.

General and Administrative Expenses.

General and administrative expenses were $51.3 million for the six months ended June 30, 2021 compared to $48.1 million for the six months ended June 30, 2020.

As a percentage of revenues, general and administrative expenses decreased to 4.9% for the 2021 period compared to 5.9% for the 2020 period.

Depreciation and Amortization.

Depreciation and amortization was $50.9 million and $45.2 million for the six months ended June 30, 2021 and 2020, respectively.

The increase is primarily due to acquisitions completed in 2021 and 2020.

As a percentage of revenues, depreciation and amortization expenses was 4.8% for the 2021 period compared to 5.5% for the 2020 period.

Loss on Disposals and Deconsolidations, Net.

The net loss on disposals and deconsolidations was $0.1 million for the 2021 period, related to disposals of other long-lived assets.

The net loss on disposals and deconsolidations was $6.4 million for the 2020 period, including a net loss of $3.1 million on the sale of interests in surgical facilities and $3.3 million related to disposals of other long-lived assets.

Transaction and Integration Costs.

We incurred $14.5 million of transaction and integration costs for the six months ended June 30, 2021 compared to $10.4 million for the six months ended June 30, 2020.

The increase primarily relates to costs for ongoing development initiatives and the integration of acquisitions we completed in 2021 and 2020.

During the six months ended June 30, 2021, the Company received approximately $8 million of additional grants from HHS.

Based on guidance from HHS and other authorities, the Company updated its estimate of the amount of grant funds received that qualify for recognition, resulting in the recognition of $20.0 million during the six months ended June 30, 2021.

Grant funds were $43.1 million for the six months ended June 30, 2020.

For further discussion, see Note 1.

"Organization and Summary of Accounting Polices - COVID-19 Pandemic" to our condensed consolidated financial statements included elsewhere in this report.

Loss on Debt Extinguishment.

The net loss on debt extinguishment was $9.6 million for the 2021 period.

"Long-Term Debt" to our condensed financial statements included elsewhere in this report.

Interest Expense, Net.

Interest expense, net, increased to $106.7 million for the six months ended June 30, 2021 compared to $96.3 million for the six months ended June 30, 2020.

As a percentage of revenues, interest expense, net was 10.1% for the 2021 period compared to 11.8% for the 2020 period.

Income Tax Expense (Benefit).

The income tax expense was $0.2 million for the three months ended March 31, 2021 compared to an income tax benefit of $15.2 million for the 2020 period.

The effective tax rate was 1.8% for the three months ended March 31, 2021 compared to 64.4% for the three months ended March 31, 2020.

For the three months ended March 31, 2021, the effective tax rate differed from 21% due to tax benefits of $2.2 million related to the vesting of restricted stock awards.

For the three months ended March 31, 2020, the effective tax rate differed from 21% due to tax benefits of $11.9 million attributable to (a) the release of federal and state valuation allowances on the Company’s Internal Revenue Code Section 163(j) interest carryforwards as a result of the increase in deductible interest expense allowed under the CARES Act, and (b) the Settlement Agreement, discussed in Note 9.

Income Tax Benefit.

The income tax benefit was $2.5 million for the six months ended June 30, 2021 compared to $15.8 million for the 2020 period.

The effective tax rate was (14.6)% for the six months ended June 30, 2021 compared to 56.2% for the six months ended June 30, 2020.

For the six months ended June 30, 2021, the effective tax rate differed from 21% due to tax benefits of $4.1 million related to the vesting of restricted stock awards, as well as tax benefits of $3.0 million related to entity divestitures.

For the six months ended June 30, 2020, the effective tax rate differed from 21% due to tax benefits of $11.9 million attributable to (a) the release of federal and state valuation allowances on the Company’s Internal Revenue Code Section 163(j) interest carryforwards as a result of the increase in deductible interest expense allowed under the CARES Act, and (b) the Settlement Agreement, discussed in Note 9.

"Commitments and Contingencies" to our condensed consolidated financial statements included elsewhere in this report.

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Net Income Attributable to Non-Controlling Interests.

Net income attributable to non-controlling interests was $31.8 million for the three months ended March 31, 2021 compared to $19.1 million for the three months ended March 31, 2020.

Net income attributable to non-controlling interests was $67.5 million for the six months ended June 30, 2021 compared to $47.7 million for the six months ended June 30, 2020.

As a percentage of revenues, net income attributable to non-controlling interests was 6.4% for the 2021 period and 5.8% for the 2020 period.

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The primary source of our operating cash flow is the collection of accounts receivable from federal and state agencies (under the Medicare and Medicaid programs), private insurance companies and individuals.

During the three months ended March 31, 2021, our cash flow provided by operating activities was $50.2 million compared to $29.2 million in the three months ended March 31, 2020 primarily due to the timing of certain payroll and trade payable payments.

During the six months ended June 30, 2021, our cash flow provided by operating activities was $52.5 million compared to $211.1 million in the six months ended June 30, 2020.

The decrease is primarily due to the final DOJ settlement payment in second quarter of 2021, receipts of government grants and Medicare advance payments provided through the CARES Act as well as actions taken to significantly reduce cash operating expenses and defer non-essential expenditures during the second quarter of 2020.

Investing Activities

Net cash used in investing activities during the three months ended March 31, 2021, was $14.3 million, which included $14.5 million related to purchases of property and equipment.

We paid $2.1 million in cash for acquisitions (net of cash acquired), which included two surgical facilities in existing markets that were merged into existing facilities.

Net cash used in investing activities during the six months ended June 30, 2021, was $40.7 million, which included $28.0 million related to purchases of property and equipment.

We paid $15.2 million in cash for acquisitions (net of cash acquired), which included one surgical facility in a new market and two surgical facilities in existing markets that were merged into existing facilities.

Additionally, we received cash proceeds of $2.5 million related to the disposal of certain long-lived assets.

Net cash used in investing activities during the three months ended March 31, 2020 was $7.7 million, which included $11.8 million related to purchases of property and equipment.

We paid $5.5 million in cash for acquisitions (net of cash acquired), which included a surgical facility in a new market and a surgical facility that was merged into an existing facility.

Additionally, we received cash proceeds of $9.4 million related to the sale of our interests in two surgery centers, one of which was previously accounted for as an equity method investment.

Net cash used in investing activities during the six months ended June 30, 2020, was $22.5 million, which included $19.9 million related to purchases of property and equipment.

We paid $12.4 million in cash for acquisitions (net of cash acquired), which included a surgical facility in a new market and three surgical facilities in existing markets that were merged into existing facilities.

Additionally, we

received cash proceeds of $9.4 million related to the sale of our interests in two surgery centers, one of which was previously accounted for as an equity method investment.

Financing Activities

Net cash provided by financing activities during the three months ended March 31, 2021 was $187.8 million.

Net cash provided by financing activities during the six months ended June 30, 2021 was $134.8 million.

During this period, we received gross proceeds of $260.9 million from an equity offering which was partially offset by equity offering costs paid of $12.7 million.

We made distributions to non-controlling interest holders of $63.4 million and received proceeds related to ownership transactions with consolidated affiliates of $3.4 million.

We made repayments on our long-term debt of $16.6 million, which was offset by borrowings of $0.6 million.

We made repayments on our long-term debt of $309.4 million and paid debt issuance costs of $8.7 million, which were partially offset by borrowings of $283.1 million.

We further paid a prepayment premium of $2.4 million related to the modification of the term loan.

We also paid a cash dividend of $5.1 million related to the Series A Preferred Stock.

Net cash provided by financing activities during the three months ended March 31, 2020 was $80.4 million.

Net cash provided by financing activities during the six months ended June 30, 2020 was $45.0 million.

During this period, we made distributions to non-controlling interest holders of $51.7 million and payments related to ownership transactions with consolidated affiliates of $1.9 million.

Additionally, we made repayments on our long-term debt of $52.8 million, which was offset by borrowings of $158.4 million.

On April 20, 2021, we announced that we sent notice to Bain Capital of our intent to convert all of the outstanding shares of Series A Preferred Stock into shares of common stock of the Company on May 17, 2021.

Following the conversion, no shares of Series A Preferred Stock will remain outstanding.

Additionally, on May 3, 2021, the Company entered into a sixth amendment to credit agreement, dated as of May 3, 2021 (the “Sixth Amendment”), which amended the credit agreement, originally dated as of August 31, 2017 (the “Credit Agreement”).

The Sixth Amendment provides for, among other things, a new tranche of term loans under the Credit Agreement in an aggregate original principal amount of approximately $1.545 billion (the “New Term Loans”), which New Term Loans replace or refinance in full all of the existing term loans outstanding under the Credit Agreement (as in effect immediately prior to the Sixth Amendment), all as further set forth in the Sixth Amendment.

"Subsequent Events" for further discussion.

As of March 31, 2021, the carrying value of our total indebtedness was $2.851 billion, which includes unamortized fair value discount of $3.4 million and unamortized deferred financing costs, issuance discount and premium of $15.7 million.

Additionally, we made repayments on our long-term debt of $182.8 million, which were offset by borrowings of $288.2 million.

On May 17, 2021, the Company issued 22,608,925 shares of its common stock, $0.01 par value per share (the “Common Stock”) to Bain Capital, as a result of the conversion of all outstanding shares of the Company’s Series A Preferred Stock at a conversion price of $19.00 per share.

As a result of such conversion, the Company currently has no shares of Series A Preferred Stock issued or outstanding.

As of June 30, 2021, the carrying value of our total indebtedness was $2.856 billion, which includes unamortized fair value discount of $3.2 million and unamortized deferred financing costs and issuance discount of $16.8 million.

Term Loan and Revolving Credit Facility

As of March 31, 2021, we had term loan borrowings with a carrying value of $1.536 billion, consisting of outstanding aggregate principal of $1.532 billion and unamortized fair value discount of $3.4 million (the "Term Loan").

The Term Loan matures on August 31, 2024.

The Term Loan amortizes in equal quarterly installments of 0.25% of the aggregate original principal amount of the Term Loan.

As of June 30, 2021, we had term loan borrowings with a carrying value of $1.538 billion, consisting of outstanding aggregate principal of $1.541 billion and unamortized fair value discount of $3.2 million.

On May 3, 2021, the Company entered into a sixth amendment to credit agreement, dated as of May 3, 2021 (the “Sixth Amendment”), which amended the credit agreement, originally dated as of August 31, 2017 (the “Credit Agreement”).

"Long-Term Debt" for further discussion.

On January 27, 2021, the Company entered into an amendment to the credit agreement governing its revolving credit facility (the "Revolver"), dated as of January 27, 2021, which amended and supplemented the credit agreement, dated as of August 31, 2017, to provide for an extension of the maturity date of the Revolver to February 1, 2026 and an increase in the outstanding commitments under the Revolver in an amount equal to $50.0 million.

The maturity extension and the additional commitments became operative on February 1, 2021.

As of March 31, 2021, the Company's availability on the Revolver was $162.5 million (including outstanding letters of credit of $7.5 million).

As of June 30, 2021, the Company's availability on the Revolver was $163.7 million (including outstanding letters of credit of $6.3 million).

The Revolver may be utilized for working capital, capital expenditures and general corporate purposes.

Subject to certain conditions and requirements set forth in the credit agreement, we may request one or more additional incremental term loan facilities or one or more increases in the commitments on the Revolver.

The Revolver and the Term Loan, together the "Senior Secured Credit Facilities" bear interest at a rate per annum equal to (x) LIBOR plus a margin ranging from 3.00% to 3.25% per annum, depending on our first lien net leverage ratio or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.5% per annum above the federal funds effective rate and (iii) one-month LIBOR plus 1.00%

per annum (solely with respect to the Term Loan, the alternate base rate shall not be less than 2.00% per annum)) plus a margin ranging from 2.00% to 2.25% per annum.

The Revolver and the Term Loans, together the "Senior Secured Credit Facilities" bear interest at a rate per annum equal to (x) LIBOR plus a margin ranging from 3.00% to 3.25% per annum, depending on our first lien net leverage ratio or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.5% per annum above the federal funds effective rate and (iii) one-month LIBOR plus 1.00% per annum (solely with respect to the Term Loan, the alternate base rate shall not be less than 2.00% per annum)) plus a margin ranging from 2.00% to 2.25% per annum.

In addition, we are required to pay a commitment fee of 0.50% per annum in respect of unused commitments on the Revolver.

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The 2025 Unsecured Notes bear interest at the rate of 6.750% per year, payable semi-annually on January 1 and July 1 of each year.

We and certain of our subsidiaries have other debt consisting of outstanding bank indebtedness of $131.2 million, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made, and right-of-use finance lease obligations of $284.5 million for which we are liable to various vendors for several property and equipment leases classified as finance leases.

We and certain of our subsidiaries have other debt consisting of outstanding bank indebtedness of $137.6 million, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made, and right-of-use finance lease

obligations of $281.7 million for which we are liable to various vendors for several property and equipment leases classified as finance leases.

Pursuant to the CARES Act, repayment of certain advanced payments and other deferrals received as part of relief during 2020 will begin in 2021.

During the six months ended June 30, 2021, we repaid approximately $20 million.

"Organization and Summary of Accounting Policies" to our condensed consolidated financial statements included elsewhere in this report, for further discussion on the repayment terms related to certain relief previously received by us.

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As previously noted in Note 1.

"Organization and Summary of Accounting Policies" to our condensed consolidated financial statements included elsewhere in this report, for the three months ended March 31, 2021, we received additional relief via the CARES Act, including approximately $7 million in direct grant payments, which are not required to be repaid, subject to certain terms and conditions,

"Organization and Summary of Accounting Policies" to our condensed consolidated financial statements included elsewhere in this report, for the six months ended June 30, 2021, we received additional relief via the CARES Act, including approximately $8 million in direct grant payments, which are not required to be repaid, subject to certain terms and conditions,

The COVID-19 pandemic has resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.

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Our calculation of Adjusted EBITDA and Adjusted EBITDA excluding grant funds may not be comparable to similarly titled measures reported by other companies.

We use Adjusted EBITDA and Adjusted EBITDA

excluding grant funds as measures of financial performance.

We use Adjusted EBITDA and Adjusted EBITDA excluding grant funds as measures of financial performance.

Adjusted EBITDA and Adjusted EBITDA excluding grant funds are key measures used by our management to assess operating performance, make business decisions and allocate resources.

The following table reconciles Adjusted EBITDA and Adjusted EBITDA excluding grant funds to gain (loss) before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited):

Three Months Ended March 31,

The following table reconciles Adjusted EBITDA and Adjusted EBITDA excluding grant funds to income (loss) before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited):

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Condensed Consolidated Statements of Operations Data:

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Transaction, integration and acquisition costs (1)

(Gain) loss on disposals and deconsolidations, net (0.9) 3.5

11.4 10.1 20.8 22.7

Loss on disposals and deconsolidations, net 1.0 2.9 0.1 6.4

Litigation settlement and other litigation costs (2)

0.8 2.3 1.8 3.8

Loss on debt extinguishment 9.6 — 9.6 —

Gain on escrow release (3)

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Impact of grant funds (4)

(2.9) (27.0) (13.7) (27.0)

Adjusted EBITDA excluding grant funds $ 73.0 $ 31.2 $ 135.1 $ 77.7

(1) This amount includes transaction and integration costs of $5.3 million and $5.5 million for the three months ended March 31, 2021 and 2020, respectively.

This amount further includes start-up costs related to a de novo surgical hospital of $4.1 million and $7.1 million for the three months ended March 31, 2021 and 2020, respectively.

(2) This amount includes other litigation costs of $1.0 million for the three months ended March 31, 2021.

This amount includes litigation settlement costs of $1.2 million and other litigation costs of $0.3 million for the three months ended March 31, 2020.

(3) Included in other income in the condensed consolidated statement of operations for the three months ended March 31, 2020, with no comparable gain in the same 2021 period.

(1) This amount includes transaction and integration costs of $9.2 million and $4.9 million for the three months ended June 30, 2021 and 2020, respectively.

This amount further includes start-up costs related to a de novo surgical hospital of $2.2 million and $5.2 million for the three months ended June 30, 2021 and 2020, respectively.

This amount includes transaction and integration costs of $14.5 million and $10.4 million for the six months ended June 30, 2021 and 2020, respectively.

This amount further includes start-up costs related to a de novo surgical hospital of $6.3 million and $12.3 million for the six months ended June 30, 2021 and 2020, respectively.

(2) This amount includes other litigation costs of $0.8 million and $2.3 million for the three months ended June 30, 2021 and 2020, respectively.

This amount includes other litigation costs of $1.8 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively.

This amount further includes litigation settlement costs of $1.2 million for the six months ended June 30,2020.

(3) Included in other income in the condensed consolidated statement of operations for the six months ended June 30, 2020, with no comparable gain in the same 2021 period.

(4) Represents the impact of grant funds recognized, net of amounts attributable to non-controlling interests.

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The following table reconciles Credit Agreement EBITDA to cash flows from operating activities, the most directly comparable GAAP financial measure (in millions and unaudited):

Twelve Months Ended March 31, 2021

Twelve Months Ended June 30, 2021

Cash flows from operating activities $ 88.3

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Credit Agreement EBITDA $ 372.9

(1) Represents impact of acquisitions as if each acquisition had occurred on April 1, 2020.

(1) Represents impact of acquisitions as if each acquisition had occurred on July 1, 2020.

Further this includes revenue synergies from other business initiatives, de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the Senior Secured Credit Facilities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis