What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-04 · 126 added, 122 removed, 248 unchanged (50% of the section changed)

15 unchanged sentences

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;

the impact to the state and local economies of restrictive orders, vaccine and other mandates and the pandemic generally;

our ability to respond nimbly to challenging economic conditions;

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Executive Overview

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.

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 second quarter of 2020.

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.

Total revenues for the third quarter of 2021 increased 12.7% to $559.2 million from $496.1 million for the third quarter of 2020.

Same-facility revenues for the third quarter of 2021 increased 8.3% from the same period last year, with a 2.0% increase in revenue per case and a 6.2% 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 third quarter of 2020.

For the third quarter of 2021, the Company’s net loss attributable to common stockholders and Adjusted EBITDA was $22.9 million and $76.4 million, respectively, compared to $71.6 million and $61.1 million for the same period last year.

We had cash and cash equivalents of $330.4 million and $163.0 million of borrowing capacity under our revolving credit facility at September 30, 2021.

Operating cash inflows were $14.9 million in the third quarter of 2021, a decrease of $12.0 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 $19.2 million for the third quarter of 2021, compared to an outflow of $3.7 million for the third 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 receipts of government grants provided through the CARES Act and actions taken to significantly reduce cash operating expenses and defer non-essential expenditures during the third quarter of 2020 and the repayment of funds under the Medicare Accelerated and Advance Payment Program in 2021.

Impact of COVID-19

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economy and financial markets.

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 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 nine months ended September 30, 2021.

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, which is difficult to predict and is dependent on factors beyond our control, we continue to see improvement in surgical case volumes 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.

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

Executive Order

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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 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.

For the three and nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Results of Operations

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,

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

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

Three Months Ended September 30,

Revenues $ 559.2 $ 496.1

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Transaction and integration costs 10.2 5.4

Impairment charges — 33.5

Grant funds — 9.9

Loss on debt extinguishment 9.6 —

Gain on debt extinguishment (0.5) —

Other income (0.5) —

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Income (loss) before income taxes 9.4 (33.0)

Income tax benefit (2.7) (0.6)

Income tax expense 1.2 1.3

Net income (loss) 8.2 (34.3)

2 unchanged sentences

$ (22.9) $ (61.6)

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.

During the three months ended September 30, 2021, our revenues increased 12.7% to $559.2 million compared to $496.1 million for the three months ended September 30, 2020.

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

of $22.9 million for the 2021 period, compared to $61.6 million for the 2020 period.

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

Three Months Ended June 30,

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

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

Three Months Ended September 30,

Patient service revenues $ 551.4 $ 489.8

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Total revenues $ 559.2 $ 496.1

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.

Patient service revenues increased 12.6% to $551.4 million for the three months ended September 30, 2021 compared to $489.8 million for the three months ended September 30, 2020.

The increase of 12.6% was driven by a 6.2% increase in same-facility case volume and a 2.0% increase in same-facility revenue per case, primarily resulting from case count and case mix recovery from the impacts of the COVID-19 pandemic that we began experiencing in the first quarter of 2020 and acquisitions completed since the prior-year period.

Cost of Revenues.

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.

Cost of revenues were $436.7 million for the three months ended September 30, 2021 compared to $381.9 million for the three months ended September 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.

As a percentage of revenues, cost of revenues increased to 78.1% for the 2021 period compared to 77.0% for the 2020 period.

General and Administrative Expenses.

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.

General and administrative expenses were $25.5 million for the three months ended September 30, 2021 compared to $25.2 million for the three months ended September 30, 2020.

As a percentage of revenues, general and administrative expenses decreased to 4.6% for the 2021 period compared to 5.1% for the 2020 period.

Depreciation and Amortization.

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.

Depreciation and amortization was $25.2 million and $24.1 million for the three months ended September 30, 2021 and 2020, respectively.

As a percentage of revenues, depreciation and amortization expenses was 4.5% for the 2021 period compared to 4.9% for the 2020 period.

Transaction and Integration Costs.

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.

We incurred $10.2 million of transaction and integration costs for the three months ended September 30, 2021 compared to $5.4 million for the three months ended September 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.

Impairment Charges.

For the three months ended September 30, 2020, we recorded non-cash impairment charges of $28.6 million and $4.9 million for the Ancillary Services and Alliance reporting units, respectively.

The impairment charges were the result of a September 30, 2020 valuation which determined the carrying value for both the Ancillary Services and Alliance reporting units exceeded the fair value.

There were no impairment charges in the 2021 period.

Grant funds were $9.9 million for the three months ended September 30, 2020, representing recognition of government grants provided through the CARES Act in the 2020 period.

For further discussion on grant fund recognition, 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.

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.

Interest expense, net, increased to $54.2 million for the three months ended September 30, 2021 compared to $51.5 million for the three months ended September 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 9.7% for the 2021 period compared to 10.4% 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.

Income Tax Expense.

The income tax expense was $1.2 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively.

The effective tax rate was 12.8% for the three months ended September 30, 2021 compared to (3.9)% for the three months ended September 30, 2020.

For the three months ended September 30, 2021, the effective tax rate differed from 21% primarily due to the reversal of the Company's earnings attributable to minority interest.

For the three months ended September 30, 2020, the effective tax rate differed from 21% primarily due to the discrete tax expense attributable to the impairment of goodwill.

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.

Net income attributable to non-controlling interests was $31.1 million for the three months ended September 30, 2021 compared to $27.3 million for the three months ended September 30, 2020.

As a percentage of revenues, net income attributable to non-controlling interests was 5.6% for the 2021 period and 5.5% 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,

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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

Nine Months Ended September 30,

Revenues $ 1,614.9 $ 1,311.8

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Transaction and integration costs 24.7 15.8

Impairment charges — 33.5

Grant funds (20.0) (33.2)

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$ (70.8) $ (121.6)

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.

During the nine months ended September 30, 2021, our revenues increased 23.1% to $1,614.9 million compared to $1,311.8 million for the nine months ended September 30, 2020.

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

of $70.8 million for the 2021 period, compared to $121.6 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,

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

Nine Months Ended September 30,

Patient service revenues $ 1,593.0 $ 1,293.5

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Total revenues $ 1,614.9 $ 1,311.8

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.

Patient service revenues increased 23.2% to $1,593.0 million for the nine months ended September 30, 2021 compared to $1,293.5 million for the nine months ended September 30, 2020.

The increase of 23.2% was driven by a 22.4% increase in same-facility case volume partially offset by a 1.1% 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.

The increase was primarily driven by case count recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020 and acquisitions completed since the prior-year period.

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.

Cost of revenues were $1,270.6 million for the nine months ended September 30, 2021 compared to $1,067.4 million for the nine months ended September 30, 2020.

The increase was primarily driven by case count and recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020 and acquisitions completed since the prior-year period.

As a percentage of revenues, cost of revenues decreased to 78.7% for the 2021 period compared to 81.4% for the 2020 period, as lower acuity procedures with lower cost of sales returned from COVID-19 related lows experienced in the 2020 period.

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.

General and administrative expenses were $76.8 million for the nine months ended September 30, 2021 compared to $73.3 million for the nine months ended September 30, 2020.

As a percentage of revenues, general and administrative expenses decreased to 4.8% for the 2021 period compared to 5.6% 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.

Depreciation and amortization was $76.1 million and $69.3 million for the nine months ended September 30, 2021 and 2020, respectively.

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

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The net loss on disposals and deconsolidations was $2.0 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.

The net loss on disposals and deconsolidations was $7.1 million for the 2020 period, including a $5.1 million gain on the sale of certain assets related to our anesthesia business, offset by a $6.6 million loss on the sale of interests in surgical facilities and the closure of a diagnostic laboratory and $5.6 million primarily 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.

We incurred $24.7 million of transaction and integration costs for the nine months ended September 30, 2021 compared to $15.8 million for the nine months ended September 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.

During the nine months ended September 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 nine months ended September 30, 2021.

Grant funds were $33.2 million for the nine months ended September 30, 2020.

For further discussion, see Note 1.

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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.

Interest expense, net, increased to $160.9 million for the nine months ended September 30, 2021 compared to $147.8 million for the nine months ended September 30, 2020.

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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.

The income tax benefit was $1.3 million for the nine months ended September 30, 2021 compared to $14.5 million for the 2020 period.

The effective tax rate was (4.9)% for the nine months ended September 30, 2021 compared to 23.7% for the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, the effective tax rate differed from 21% primarily due to discrete tax benefits of (a) $4.4 million related to the vesting of restricted stock awards, and (b) $3.0 million related to entity divestitures.

For the nine months ended September 30, 2020, the effective tax rate differed from 21% primarily due to (a) discrete tax benefits of $6.9 million attributable to 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 $5.0 million attributable to a portion of the payments under the Settlement Agreement, as defined in Note 9.

"Commitments and Contingencies," being classified as “restitution” for income tax purposes, and (b) a discrete tax expense of $5.0 million attributable to the impairment of goodwill.

Net Income Attributable to Non-Controlling Interests.

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.

Net income attributable to non-controlling interests was $98.6 million for the nine months ended September 30, 2021 compared to $75.0 million for the nine months ended September 30, 2020.

As a percentage of revenues, net income attributable to non-controlling interests was 6.1% for the 2021 period and 5.7% 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 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.

During the nine months ended September 30, 2021, our cash flow provided by operating activities was $67.4 million compared to $238.0 million in the nine months ended September 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 2020 period and the repayment of Medicare advance payments in the 2021 period.

Investing Activities

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.

Net cash used in investing activities during the nine months ended September 30, 2021, was $141.7 million, which included $43.5 million related to purchases of property and equipment.

We paid $101.0 million in cash for acquisitions (net of cash acquired), which included four surgical facilities in a new markets 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 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.

Net cash provided by investing activities during the nine months ended September 30, 2020, was $6.8 million, which included $27.8 million related to purchases of property and equipment.

We paid $14.2 million in cash for acquisitions (net of cash acquired), which included a surgical facility in a new market and four surgical facilities in existing markets that were merged into existing facilities.

Additionally, we received cash proceeds of $48.3 million related to the sale of certain assets related to our anesthesia business and the sale of 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 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.

Net cash provided by financing activities during the nine months ended September 30, 2021 was $86.5 million.

During this period, we received net proceeds of $248.2 million from an equity offering.

We made distributions to non-controlling interest holders of $97.5 million and received proceeds related to ownership transactions with consolidated affiliates of $2.4 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 made repayments on our long-term debt of $328.4 million and paid debt issuance costs of $11.7 million, which were partially offset by borrowings of $293.0 million (see Note 3.

"Long-Term Debt").

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 six months ended June 30, 2020 was $45.0 million.

On May 17, 2021, we issued 22.609 million shares of our common stock, $0.01 par value per share to Bain Capital, as a result of the conversion of all outstanding shares of our Series A Preferred Stock at a conversion price of $19.00 per share.

As a result of such conversion, we currently have no shares of Series A Preferred Stock issued or outstanding.

Net cash provided by financing activities during the nine months ended September 30, 2020 was $112.5 million.

During this period, we made distributions to non-controlling interest holders of $82.3 million and payments related to ownership transactions with consolidated affiliates of $27.3 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.

Additionally, we made repayments on our long-term debt of $197.3 million, which was offset by borrowings of $428.0 million.

In connection with 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, we paid debt issuance costs of $8.3 million.

As of September 30, 2021, the carrying value of our total indebtedness was $2.853 billion, which includes unamortized fair value discount of $3.1 million and unamortized deferred financing costs and issuance discount of $17.2 million.

Term Loan and Revolving Credit Facility

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.

As of September 30, 2021, we had term loan borrowings with a carrying value of $1.535 billion, consisting of outstanding aggregate principal of $1.538 billion and unamortized fair value discount of $3.1 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”).

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"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.

On January 27, 2021, the Company entered into an amendment to the Credit Agreement with respect to the revolving credit facility (the "Revolver"), 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 June 30, 2021, the Company's availability on the Revolver was $163.7 million (including outstanding letters of credit of $6.3 million).

As of September 30, 2021, the Company's availability on the Revolver was $163.0 million (including outstanding letters of credit of $7.0 million).

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

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Senior Unsecured Notes

We have $545.0 million aggregate principal amount of senior unsecured notes due April 15, 2027 (the "2027 Unsecured Notes").

The 2027 Unsecured Notes bear interest at the rate of 10.000% per year, payable semi-annually on April 15 and October 15 of each year.

We have $370.0 million aggregate principal amount of senior unsecured notes due July 1, 2025 outstanding (the "2025 Unsecured Notes").

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 $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.

We have $545.0 million aggregate principal amount of senior unsecured notes due April 15, 2027, which bear interest at the rate of 10.000% per year, payable semi-annually on April 15 and October 15 of each year.

We have $370.0 million aggregate principal amount of senior unsecured notes due July 1, 2025, which 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 $140.5 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 $279.9 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 began in 2021.

We received approximately $120 million of accelerated payments during the year ended December 31, 2020.

During the nine months ended September 30, 2021, approximately $38 million has been repaid.

"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.

In addition to the continued repayment of the advanced payments received under the CARES Act, we anticipate additional cash outflows during the fourth quarter of 2021 from the partial repayment of payroll taxes deferred in 2020 pursuant to the CARES Act (see Note 1.

"Organization and Summary of Accounting Policies" for further discussion of the amounts deferred and repayment terms) and a scheduled payment related to the tax receivable agreement (see Note 9.

"Commitments and Contingencies" for further discussion of the tax receivable agreement).

Capital Resources

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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 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,

"Organization and Summary of Accounting Policies" to our condensed consolidated financial statements included elsewhere in this report, for the nine months ended September 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.

Additionally, while we have received grants and accelerated payments under the CARES Act and other government assistance programs and may receive additional amounts in the future, there is no assurance regarding the extent to which anticipated negative impacts arising from the COVID-19 pandemic will be offset by amounts and benefits received under the CARES Act or future legislation.

Although we have seen continued improvement in surgical case volumes as states begin to re-open and allow for non-emergent procedures, broad economic factors resulting from the current COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.

Although we have seen continued improvement in surgical case volumes as states continue to re-open and allow for non-emergent procedures, broad economic factors resulting from the current COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.

Business closings and layoffs in the areas in which we operate may lead to increases in the uninsured and underinsured populations and adversely affect demand for our services, as well as the ability of payors to pay for services as rendered.

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If general economic conditions continue to deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be harmed.

Based on our current level of operations, we believe cash flow from operations, available cash, available capacity on our Revolver, funds we have received under the CARES Act, funds we may receive in the future and continued access to capital markets, will be adequate to meet our short-term (i.e., 12 months) and long-term (beyond 12 months) liquidity needs.

Based on our current level of operations, we believe cash flows from operations, available cash, available capacity on our Revolver, funds we have received under the CARES Act, funds we may receive in the future and continued access to capital markets, will be adequate to meet our short-term (i.e., 12 months) and long-term (beyond 12 months) liquidity needs.

Certain Non-GAAP Metrics

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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,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Loss on disposals and deconsolidations, net 1.9 0.7 2.0 7.1

Impairment charges — 33.5 — 33.5

Litigation settlement and other litigation costs (2)

2.5 1.1 4.3 4.9

Loss on debt extinguishment 9.6 — 9.6 —

(Gain) loss on debt extinguishment (0.5) — 9.1 —

Gain on escrow release (3)

Hurricane-related operating losses (4)

Adjusted EBITDA $ 76.4 $ 61.1 $ 225.2 $ 165.8

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Adjusted EBITDA excluding grant funds $ 76.4 $ 66.5 $ 211.5 $ 143.9

(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.

(1) This amount includes transaction and integration costs of $10.2 million and $5.4 million for the three months ended September 30, 2021 and 2020, respectively.

This amount further includes start-up costs related to a de novo surgical hospital of $2.1 million for the three months ended September 30, 2020.

This amount includes transaction and integration costs of $24.7 million and $15.8 million for the nine months ended September 30, 2021 and 2020, respectively.

This amount further includes start-up costs related to a de novo surgical hospital of $6.3 million and $14.4 million for the nine months ended September 30, 2021 and 2020, respectively.

(2) This amount includes other litigation costs of $2.5 million and $1.1 million for the three months ended September 30, 2021 and 2020, respectively.

This amount includes other litigation costs of $4.3 million and $3.7 million for the nine months ended September 30, 2021 and 2020, respectively.

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

(3) Included in other income in the condensed consolidated statement of operations for the nine months ended September 30, 2020.

(4) Reflects losses incurred in the month of September 2021 at a surgical facility that was closed following Hurricane Ida.

(5) 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 June 30, 2021

Twelve Months Ended September 30, 2021

Cash flows from operating activities $ 76.3

Plus (minus):

Non-cash interest income, net (8.0)

Non-cash interest expense, net (13.4)

Non-cash lease expense (40.3)

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Changes in operating assets and liabilities, net of acquisitions and divestitures 173.9

Income tax expense (6.8)

Income tax benefit (6.9)

Net income attributable to non-controlling interests (141.0)

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Litigation settlement and other litigation costs 5.8

Hurricane-related operating losses 0.5

Acquisitions and synergies (1)

Credit Agreement EBITDA $ 383.0

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

(1) Represents impact of acquisitions as if each acquisition had occurred on October 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