What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-03 · 100 added, 213 removed, 161 unchanged (66% of the section changed)

14 unchanged sentences

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

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

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

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

18 unchanged sentences

Executive Overview

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.

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 third quarter of 2020 and acquisitions completed since the prior-year period.

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.

Total revenues for the first quarter of 2022 increased 16.4% to $596.2 million from $512.4 million for the first quarter of 2021.

Days adjusted same-facility revenues for the first quarter of 2022 increased 8.2% from the same period last year, with a 1.7% increase in revenue per case and a 6.3% increase in same-facility cases.

For the first quarter of 2022, the Company’s net income attributable to common stockholders and Adjusted EBITDA was $12.2 million and $77.1 million, respectively.

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.

A reconciliation of non-GAAP financial measures appears below under "Certain Non-GAAP Measures."

We had cash and cash equivalents of $378.9 million and $203.0 million of borrowing capacity under our revolving credit facility at March 31, 2022.

Operating cash inflows were $79.8 million in the first quarter of 2022, an increase of $29.6 million compared to the prior-year period.

Net operating cash flows, including operating cash flows less distributions to non-controlling interests, were an inflow of $43.6 million and $18.9 million for the first quarter of 2022 and 2021, respectively.

The increase in operating cash flows and net operating cash flows compared to the same period in 2021 is primarily due to proceeds received in the first quarter of 2022 from the settlement of a stockholder litigation matter.

Impact of COVID-19

The COVID-19 global pandemic has significantly affected our facilities, employees, patients, communities, business operations and financial performance, as well as the U.S.

The COVID-19 pandemic has significantly affected our facilities, employees, patients, communities, business operations and financial performance, as well as the U.S.

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 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.

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.

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

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.

2 unchanged sentences

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 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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Patient service revenues:

5 unchanged sentences

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Private insurance payors 51.1 % 48.7 %

2 unchanged sentences

Other payors (1)

2.9 % 4.9 % 3.5 % 4.7 %

Total 100.0 % 100.0 %

4 unchanged sentences

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Orthopedic and pain management 36.8 % 37.5 %

8 unchanged sentences

Results of Operations

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,

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The following table summarizes certain results from the statements of operations for the three months ended March 31, 2022 and 2021 (dollars in millions):

Three Months Ended March 31,

Revenues $ 596.2 $ 512.4

3 unchanged sentences

Depreciation and amortization 27.4 25.7

Income from equity investments (2.9) (3.1)

Loss on disposals and deconsolidations, net 1.9 0.7

Transaction and integration costs 7.1 5.3

Impairment charges — 33.5

Grant funds (1.2) (15.1)

Gain on debt extinguishment (0.5) —

Other income (0.5) —

Total operating expenses 495.6 477.6

Operating income 63.6 18.5

Interest expense, net (54.2) (51.5)

Income (loss) before income taxes 9.4 (33.0)

Income tax expense 1.2 1.3

Net income (loss) 8.2 (34.3)

Net income attributable to non-controlling interests (31.1) (27.3)

Net loss attributable to Surgery Partners, Inc.

$ (22.9) $ (61.6)

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 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

Other service revenues 7.8 6.3

Total revenues $ 559.2 $ 496.1

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 $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 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 $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 $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 $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.

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.

Interest Expense, Net.

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 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 $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.

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

Operating expenses:

Cost of revenues 1,270.6 1,067.4

General and administrative expenses 76.8 73.3

Depreciation and amortization 76.1 69.3

Gain on disposals and deconsolidations, net (0.1) (0.9)

Income from equity investments (3.1) (2.6)

Loss on disposals and deconsolidations, net 2.0 7.1

Transaction and integration costs 24.7 15.8

Impairment charges — 33.5

Grant funds (20.0) (33.2)

Loss on debt extinguishment 9.1 —

Litigation settlement (32.8) —

Other income (2.4) —

Total operating expenses 1,427.5 1,225.1

Operating income 100.4 64.3

Interest expense, net (56.3) (53.3)

Income (loss) before income taxes 26.5 (61.1)

Income tax benefit (1.3) (14.5)

Net income (loss) 27.8 (46.6)

Income before income taxes 44.1 11.0

Income tax expense (1.3) (0.2)

Net income 42.8 10.8

Net income attributable to non-controlling interests (30.6) (31.8)

Net loss attributable to Surgery Partners, Inc.

Net income (loss) attributable to Surgery Partners, Inc.

$ 12.2 $ (21.0)

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.

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 since the prior-year period.

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,

During the three months ended March 31, 2022, our revenues increased 16.4% to $596.2 million compared to $512.4 million for the three months ended March 31, 2021.

Net income attributable to Surgery Partners, Inc.

was $12.2 million for the 2022 period, compared to a net loss of $21.0 million for the 2021 period.

The increase in revenues was primarily attributable to increases in surgical case volumes and acquisitions completed since the prior-year period.

Revenues for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 were as follows (dollars in millions):

Three Months Ended March 31,

Patient service revenues $ 587.7 $ 505.7

1 unchanged sentence

Total revenues $ 596.2 $ 512.4

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 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.

Patient service revenues increased 16.2% to $587.7 million for the three months ended March 31, 2022 compared to $505.7 million for the three months ended March 31, 2021.

The increase of 16.2% was driven by a 6.3% increase in days adjusted same-facility case volume, a 1.7% increase in same-facility revenue per case and acquisitions completed since the prior-year period.

Cost of Revenues.

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.

Cost of revenues were $471.4 million for the three months ended March 31, 2022 compared to $408.9 million for the three months ended March 31, 2021.

The increase was primarily driven by continued case count recovery and acquisitions completed

since the prior-year period.

As a percentage of revenues, cost of revenues decreased to 79.1% for the 2022 period compared to 79.8% for the 2021 period.

General and Administrative Expenses.

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.

General and administrative expenses were $29.5 million for the three months ended March 31, 2022 compared to $26.8 million for the three months ended March 31, 2021.

As a percentage of revenues, general and administrative expenses decreased to 4.9% for the 2022 period compared to 5.2% for the 2021 period.

Depreciation and Amortization.

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.

As a percentage of revenues, depreciation and amortization expenses was 4.7% for the 2021 period compared to 5.3% for the 2020 period.

Loss on Disposals and Deconsolidations, Net.

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 $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.

Depreciation and amortization was $27.4 million and $25.7 million for the three months ended March 31, 2022 and 2021, respectively.

As a percentage of revenues, depreciation and amortization expenses decreased to 4.6% for the 2022 period compared to 5.0% for the 2021 period.

Transaction and Integration Costs.

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.

We incurred $7.1 million of transaction and integration costs for the three months ended March 31, 2022 compared to $5.3 million for the three months ended March 31, 2021.

The increase primarily relates to costs for ongoing development initiatives and the integration of acquisitions we completed in 2022 and 2021.

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.

During the three months ended March 31, 2022, 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 qualified for recognition, resulting in the recognition of $1.2 million during the three months ended March 31, 2022.

Grant funds recognized in the three months ended March 31, 2021 were $15.1 million.

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 $9.1 million for the 2021 period.

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

Litigation Settlement.

Gain on litigation settlement was $32.8 million for the three months ended March 31, 2022, related to the resolution of the stockholder litigation matter, as discussed in Note 9.

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

There was no comparable activity for the 2021 period.

Interest Expense, Net.

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.

As a percentage of revenues, interest expense, net was 10.0% for the 2021 period compared to 11.3% for the 2020 period.

Income Tax Benefit.

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.

Interest expense, net, increased to $56.3 million for the three months ended March 31, 2022 compared to $53.3 million for the three months ended March 31, 2021.

As a percentage of revenues, interest expense, net decreased to 9.4% for the 2022 period compared to 10.4% for the 2021 period.

Income Tax Expense.

The income tax expense was $1.3 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively.

The effective tax rate was 2.9% for the three months ended March 31, 2022 compared to 1.8% for the three months ended March 31, 2021.

For the three months ended March 31, 2022, the effective tax rate differed from 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations, and discrete tax benefits of (a) $4.6 million related to the vesting of restricted stock awards, (b) $1.8 million attributable to non-recurring earnings’ impact on the Company’s valuation allowance, and (c) $1.0 million related to entity divestitures.

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.

Net Income Attributable to Non-Controlling Interests.

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.

Net income attributable to non-controlling interests was $30.6 million for the three months ended March 31, 2022 compared to $31.8 million for the three months ended March 31, 2021.

As a percentage of revenues, net income attributable to non-controlling interests was 5.1% for the 2022 period and 6.2% for the 2021 period.

2 unchanged sentences

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 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.

During the three months ended March 31, 2022, our cash flow provided by operating activities was $79.8 million compared to $50.2 million in the three months ended March 31, 2021.

The increase is primarily due to settlement proceeds related to the resolution of a stockholder litigation matter.

Investing Activities

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.

Net cash used in investing activities during the three months ended March 31, 2022, was $47.1 million, which included $18.2 million related to purchases of property and equipment.

We paid $31.1 million in cash for acquisitions (net of cash acquired), which included controlling interests in two surgical facilities, one of which was merged into an existing surgical facility.

Additionally, we received cash proceeds of $11.5 million related to the sale of interests in a surgical facility, which was previously accounted for as an equity method investment.

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 controlling interests in two surgical facilities in existing markets that were merged into existing facilities.

Additionally, we received cash proceeds of $2.3 million related to the disposal of certain long-lived assets.

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 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.

Net cash used in financing activities during the three months ended March 31, 2022 was $43.7 million.

During this period, we made distributions to non-controlling interest holders of $36.2 million and made payments related to ownership transactions with consolidated affiliates of $3.1 million.

We repaid $17.0 million of our long-term debt and had borrowings on long-term debt of $11.9 million.

Net cash provided by financing activities during the three months ended March 31, 2021 was $187.8 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 $12.6 million.

We made distributions to non-controlling interest holders of $31.3 million and received proceeds related to ownership transactions with consolidated affiliates of $1.0 million.

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 repaid $16.6 million of our long-term debt, which was offset by borrowings of $0.6 million.

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

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 $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.

As of March 31, 2022, the carrying value of our total indebtedness was $3.093 billion, which includes unamortized fair value discount of $2.8 million and unamortized deferred financing costs and issuance discount of $15.8 million.

Term Loan and Revolving Credit Facility

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”).

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.

"Long-Term Debt" for further discussion.

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

As of March 31, 2022, we had term loan borrowings with a carrying value of $1.527 billion, consisting of outstanding aggregate principal of $1.530 billion and unamortized fair value discount of $2.8 million (the "Term Loan").

The Term Loan matures on August 31, 2026 (or, if at least $185 million of the Borrower’s 6.750% senior unsecured notes due 2025 shall have not either been repaid, repurchased or redeemed or refinanced with indebtedness having a maturity date not earlier than 91 days after August 31, 2026 by no later than April 1, 2025, then April 1, 2025) and amortizes in equal quarterly installments of 0.25% of the aggregate original principal amount.

We have a revolving credit facility providing for revolving borrowings of up to $210.0 million ("the Revolver" and, together with the Term Loan, the "Senior Secured Credit Facilities").

The Revolver will mature on February 1, 2026.

As of March 31, 2022, our availability on the Revolver was $203.0 million (including outstanding letters of credit of $7.0 million).

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

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 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.

The Senior Secured Credit Facilities bear interest at a rate per annum equal to (x) LIBOR plus a margin of 3.75% per annum (LIBOR with respect to the Term Loan shall be subject to a floor of 0.75%) 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 (the alternate base rate with respect to the Term Loan shall be subject to a floor of 1.75%)) plus a margin of 2.75% per annum.

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

Senior Unsecured Notes

2 unchanged sentences

We and certain of our subsidiaries have other debt consisting of outstanding bank indebtedness of $159.3 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 $507.7 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 began in 2021.

Material Cash Requirements

In addition to the cash requirements related to our long-term debt, operating lease obligations and the tax receivable agreement, pursuant to the CARES Act, repayment of certain advanced payments and other deferrals received as part of relief during 2020 will continue during 2022.

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).

Through March 31, 2022, approximately $78 million has been repaid including approximately $18 million during the three months ended March 31, 2022.

In addition to the continued repayment of the advanced payments received under the CARES Act, we anticipate additional cash outflows during 2022 for the repayment of the remaining payroll taxes deferred in 2020 pursuant to the CARES Act.

"Organization and Summary of Accounting Policies" for a further discussion of the accelerated payments and payroll tax deferral.

Capital Resources

In addition to cash flows from operations, available cash and capacity on our Revolver, other sources of capital include funds we have received under the CARES Act as well as continued access to the capital markets.

As previously noted in Note 7.

"Earning Per Share" to our condensed consolidated financial statements included elsewhere in this report, on February 1, 2021, we completed a public offering pursuant to which the Company sold 8,625,000 shares of common stock, resulting in net proceeds of $248.3 million.

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 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 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.

Although we have seen continued improvement in surgical case volumes as states re-opened and allowed for non-emergent procedures, broad economic factors resulting from the ongoing COVID-19 pandemic 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.

2 unchanged sentences

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

Certain Non-GAAP Measures

Adjusted EBITDA and Adjusted EBITDA excluding grant funds are not measurements of financial performance under GAAP and should not be considered in isolation or as a substitute for net income, operating income or any other measure calculated in accordance with GAAP.

4 unchanged sentences

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 income (loss) before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited):

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

2021 2020 2021 2020

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

Three Months Ended March 31,

Condensed Consolidated Statements of Operations Data:

Income (loss) before income taxes $ 9.4 $ (33.0) $ 26.5 $ (61.1)

Income before income taxes $ 44.1 $ 11.0

Plus (minus):

4 unchanged sentences

Transaction, integration and acquisition costs (1)

10.2 7.5 31.0 30.2

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

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

Gain on escrow release (3)

Hurricane-related operating losses (4)

Gain on disposals and deconsolidations, net (0.1) (0.9)

(Gain) loss on litigation settlement and other litigation costs (2)

Adjusted EBITDA $ 77.1 $ 72.9

Impact of grant funds (3)

— 5.4 (13.7) (21.9)

Adjusted EBITDA excluding grant funds $ 76.1 $ 62.2

(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.

(1) This amount includes transaction and integration costs of $7.1 million and $5.3 million for the three months ended March 31, 2022 and 2021, respectively.

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

(2) This amount includes other litigation costs of $2.0 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively.

This amount also includes a litigation settlement gain of $32.8 million for the three months ended March 31, 2022, with no comparable activity in the 2021 period.

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

1 unchanged sentence

Credit Agreement EBITDA is determined on a trailing twelve-month basis.

We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures.

We have included it because we believe that it

provides investors with additional information about our ability to incur and service debt and make capital expenditures.

Credit Agreement EBITDA is not a measurement of liquidity under GAAP and should not be considered in isolation or as a substitute for any other measure calculated in accordance with GAAP.

4 unchanged sentences

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 September 30, 2021

Twelve Months Ended March 31, 2022

Cash flows from operating activities $ 116.7

3 unchanged sentences

Deferred income taxes (10.0)

Income from equity investments, net of distributions received (1.7)

Equity in earnings of unconsolidated affiliates, net of distributions received 0.5

Changes in operating assets and liabilities, net of acquisitions and divestitures 188.4

Income tax benefit (6.9)

Income tax expense 11.6

Net income attributable to non-controlling interests (140.4)

2 unchanged sentences

Litigation settlement and other litigation costs (26.2)

Hurricane-related operating losses 0.5

Hurricane-related impacts (1)

Acquisitions and synergies (2)

Credit Agreement EBITDA $ 415.6

(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.

Recent Accounting Pronouncements

Please refer to Note 1.

"Organization and Summary of Accounting Policies - Recent Accounting Pronouncements" to our condensed consolidated financial statements included elsewhere in this report for a discussion of the impact of the adoption of recently issued accounting standards and accounting standards not yet adopted.

(1) Reflects the impact of insurance proceeds received net of operating losses incurred in the six months ended December 31, 2021, at a surgical facility that was closed following Hurricane Ida.

(2) Represents impact of acquisitions as if each acquisition had occurred on April 1, 2021.

Further this includes revenue and cost synergies from other business initiatives and 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.

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