What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-08 · 155 added, 249 removed, 457 unchanged (47% of the section changed)

3 unchanged sentences

(Dollars in millions, except per share amounts)

September 30,

2023 December 31,

17 unchanged sentences

Accrued payroll and benefits 67.8 68.9

Medicare accelerated payments and deferred governmental grants 7.9 64.4

Other current liabilities 200.0 210.1

13 unchanged sentences

Additional paid-in capital 2,478.1 2,478.0

Accumulated other comprehensive income (loss) 82.8 ( 31.5 )

Accumulated other comprehensive income 64.9 76.2

Retained deficit ( 582.3 ) ( 557.3 )

8 unchanged sentences

(Unaudited, dollars in millions, except per share amounts, shares in thousands)

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

2022 2021 2022 2021

Three Months Ended March 31,

Revenues $ 666.2 $ 596.2

10 unchanged sentences

Grant funds ( 1.1 ) ( 1.2 )

Loss on disposals and deconsolidations, net 2.2 1.9 3.2 2.0

Net loss (gain) on disposals, consolidations and deconsolidations 10.5 ( 0.1 )

Equity in earnings of unconsolidated affiliates ( 3.3 ) ( 3.1 )

Litigation settlement — — ( 32.8 ) —

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

Other income, net ( 2.4 ) ( 0.5 ) ( 7.4 ) ( 3.3 )

546.5 495.6 1,581.2 1,427.5

Litigation settlements 3.0 ( 32.8 )

Other expense (income), net 0.3 ( 2.4 )

Operating income 46.4 100.4

Interest expense, net ( 46.8 ) ( 56.3 )

Income before income taxes 13.4 9.4 77.1 26.5

Income tax (expense) benefit ( 7.8 ) ( 1.2 ) ( 13.4 ) 1.3

(Loss) income before income taxes ( 0.4 ) 44.1

Income tax benefit (expense) 1.6 ( 1.3 )

Net income 1.2 42.8

Net income attributable to non-controlling interests ( 26.1 ) ( 30.6 )

Net loss attributable to Surgery Partners, Inc.

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

$ ( 24.9 ) $ 12.2

Amounts attributable to participating securities — — — ( 10.3 )

Net loss attributable to common stockholders $ ( 25.0 ) $ ( 22.9 ) $ ( 31.2 ) $ ( 81.1 )

Net loss per share attributable to common stockholders

Net (loss) income per share attributable to common stockholders

Basic $ ( 0.20 ) $ 0.14

3 unchanged sentences

125,206 90,272

(1) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive.

(1) The impact of potentially dilutive securities for the three months ended March 31, 2023 was not considered because the effect would be anti-dilutive.

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(Unaudited, dollars in millions)

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

2022 2021 2022 2021

Three Months Ended March 31,

Net income $ 1.2 $ 42.8

Other comprehensive income, net of tax:

Derivative activity 38.5 6.5 114.3 13.1

Comprehensive income 44.1 14.7 178.0 40.9

Other comprehensive (loss) income, net of tax:

Derivative activity, net of tax of $ 0

( 11.3 ) 56.8

Comprehensive (loss) income ( 10.1 ) 99.6

Comprehensive income attributable to non-controlling interests ( 26.1 ) ( 30.6 )

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

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

$ ( 36.2 ) $ 69.0

14 unchanged sentences

Balance at March 31, 2022 89,905 $ 0.9 $ 1,625.2 $ 25.3 $ ( 490.5 ) $ 851.7 $ 2,012.6

Net (loss) income — — — — ( 18.4 ) 22.7 4.3

Equity-based compensation 30 — 4.4 — — — 4.4

Other comprehensive income — — — 19.0 — — 19.0

Acquisition and disposal of shares of non-controlling interests, net — — ( 10.8 ) — — 38.7 27.9

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 27.7 ) ( 27.7 )

Balance at June 30, 2022 89,935 $ 0.9 $ 1,618.8 $ 44.3 $ ( 508.9 ) $ 885.4 $ 2,040.5

Net (loss) income — — — — ( 25.0 ) 22.3 ( 2.7 )

Equity-based compensation 21 — 5.0 — — — 5.0

Other comprehensive income — — — 38.5 — — 38.5

Acquisition and disposal of shares of non-controlling interests, net — — ( 0.7 ) — — 49.8 49.1

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 25.0 ) ( 25.0 )

Balance at September 30, 2022 89,956 $ 0.9 $ 1,623.1 $ 82.8 $ ( 533.9 ) $ 932.5 $ 2,105.4

See notes to unaudited condensed consolidated financial statements.

SURGERY PARTNERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, dollars in millions, shares in thousands)

Common Stock Additional

Paid-in Capital Accumulated Other Comprehensive (Loss) Income Retained Deficit Non-Controlling Interests—

Non-Redeemable Total

Shares Amount

Balance at December 31, 2022 125,961 $ 1.3 $ 2,478.0 $ 76.2 $ ( 557.3 ) $ 942.7 $ 2,940.9

1 unchanged sentence

Equity-based compensation 519 — 3.7 — — — 3.7

Preferred dividends — — ( 10.3 ) — — — ( 10.3 )

Equity offering 8,625 0.1 248.2 — — — 248.3

Other comprehensive income — — — 6.4 — — 6.4

Other comprehensive loss — — — ( 11.3 ) — — ( 11.3 )

Acquisition and disposal of shares of non-controlling interests, net — — ( 3.6 ) — — 49.7 46.1

1 unchanged sentence

Balance at March 31, 2023 126,480 $ 1.3 $ 2,478.1 $ 64.9 $ ( 582.3 ) $ 980.5 $ 2,942.5

Net (loss) income — — — — ( 26.9 ) 22.0 ( 4.9 )

Equity-based compensation ( 29 ) — 3.7 — — — 3.7

Preferred share conversion 22,609 0.2 439.5 — — — 439.7

Other comprehensive income — — — 0.2 — — 0.2

Acquisition and disposal of shares of non-controlling interests, net — — 11.9 — — ( 6.3 ) 5.6

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 22.3 ) ( 22.3 )

Balance at June 30, 2021 82,479 $ 0.8 $ 1,298.4 $ ( 54.4 ) $ ( 479.7 ) $ 762.2 $ 1,527.3

Net (loss) income — — — — ( 22.9 ) 21.7 ( 1.2 )

Equity-based compensation ( 21 ) — 4.1 — — — 4.1

Other comprehensive income — — — 6.5 — — 6.5

Acquisition and disposal of shares of non-controlling interests, net — — 3.5 — — 33.6 37.1

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 21.8 ) ( 21.8 )

Balance at September 30, 2021 82,458 $ 0.8 $ 1,306.0 $ ( 47.9 ) $ ( 502.6 ) $ 795.7 $ 1,552.0

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(Unaudited, dollars in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization 33.7 27.4

Non-cash lease expense 9.0 8.6

Non-cash interest expense, net 6.5 6.1

Equity-based compensation expense 4.2 3.7

Loss on disposals and deconsolidations, net 3.2 2.0

Loss on debt extinguishment — 9.1

Net loss (gain) on disposals, consolidations and deconsolidations 10.5 ( 0.1 )

Deferred income taxes ( 1.8 ) 1.0

Equity in earnings of unconsolidated affiliates, net of distributions received ( 0.2 ) ( 0.9 )

Non-cash lease expense 26.8 30.3

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

1 unchanged sentence

Medicare accelerated payments and deferred governmental grants ( 1.2 ) ( 18.0 )

DOJ settlement payments — ( 32.2 )

Other operating assets and liabilities 3.8 7.2

12 unchanged sentences

Payments of debt issuance costs ( 1.3 ) —

Proceeds from equity offering — 260.9

Payments of equity offering costs — ( 12.7 )

Payment of preferred dividends — ( 5.1 )

Distributions to non-controlling interest holders ( 41.9 ) ( 36.2 )

(Payments) receipts related to ownership transactions with non-controlling interest holders ( 3.9 ) 2.4

Receipts (payments) related to ownership transactions with non-controlling interest holders 5.1 ( 3.1 )

Other financing activities ( 3.1 ) 0.7

Net cash (used in) provided by financing activities ( 151.0 ) 86.5

Net (decrease) increase in cash and cash equivalents ( 235.1 ) 12.2

Net cash used in financing activities ( 41.2 ) ( 43.7 )

Net decrease in cash and cash equivalents ( 37.4 ) ( 11.0 )

Cash and cash equivalents at beginning of period 282.9 389.9

10 unchanged sentences

and its subsidiaries are referred to herein as "Surgery Partners," "we," "us," "our" or the "Company."

As of September 30, 2022, the Company owned or operated a portfolio of 145 surgical facilities, comprised of 126 ASCs and 19 surgical hospitals in 32 states.

As of March 31, 2023, the Company owned or operated a portfolio of 145 surgical facilities, comprised of 127 ASCs and 18 surgical hospitals in 31 states.

The Company owns these facilities in partnership with physicians and, in some cases, health care systems in the markets and communities it serves.

The Company owned a majority interest in 92 of the surgical facilities and consolidated 117 of the facilities for financial reporting purposes.

The Company owned a majority interest in 92 of these surgical facilities and consolidated 118 of these facilities for financial reporting purposes.

Basis of Presentation

19 unchanged sentences

A summary of revenues by service type as a percentage of total revenues follows:

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

2022 2021 2022 2021

Three Months Ended March 31,

Patient service revenues:

18 unchanged sentences

Other service revenues.

Other service revenues include management and administrative service fees derived from the non-consolidated facilities that the Company accounts for under the equity method, management of surgical facilities in which it does not own an interest, and management services provided to physician practices for which the Company is not required to provide capital or additional assets.

These agreements typically require the Company to provide recurring management services over a multi-year period, which are billed and collected on a monthly basis.

The management agreements typically require the Company to provide recurring management services over a multi-year period, which are billed and collected on a monthly basis.

The fees derived from these management arrangements are based on a predetermined percentage of the revenues of each facility or practice and are recognized in the period in which management services are rendered and billed.

The following table sets forth patient service revenues by type of payor and as a percentage of total patient service revenues for the Company's consolidated surgical facilities (dollars in millions):

Three Months Ended September 30,

Amount % Amount %

Patient service revenues:

Private insurance $ 301.9 49.5 % $ 271.4 49.2 %

Government 269.5 44.2 % 248.0 45.0 %

Self-pay 16.0 2.6 % 15.9 2.9 %

22.7 3.7 % 16.1 2.9 %

Total patient service revenues 610.1 100.0 % 551.4 100.0 %

Other service revenues 10.5 7.8

Total revenues $ 620.6 $ 559.2

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30,

Three Months Ended March 31,

Amount % Amount %

10 unchanged sentences

Accounts receivable from third-party payors are recorded net of estimated implicit price concessions, which are estimated based on the historical trend of the Company's surgical hospitals’ cash collections and contractual write-offs, and for the Company's surgical facilities in general, established fee schedules, relationships with payors and procedure statistics.

While changes in estimated reimbursement from third-party payors remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on its financial condition or results of operations.

While changes in estimated reimbursement from

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

third-party payors remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on its financial condition or results of operations.

Accounts receivable consists of receivables from federal and state agencies (under the Medicare and Medicaid programs), private insurance organizations, employers and patients.

24 unchanged sentences

The remaining income or loss of each partnership and limited liability company is allocated to the other owners.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company's effective tax rate was 17.4 % for the nine months ended September 30, 2022 compared to ( 4.9 )% for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, the effective tax rate differed from the federal corporate tax rate of 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 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.

The Company's effective tax rate was 400.0 % for the three months ended March 31, 2023 compared to 2.9 % for the three months ended March 31, 2022.

For the three months ended March 31, 2023, the effective tax rate differed from the federal corporate tax rate of 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations, and a discrete tax benefit of $ 1.8 million related to the vesting of restricted stock awards.

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.

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.

1 unchanged sentence

Additions to goodwill include amounts resulting from new business combinations and incremental ownership purchases in the Company's subsidiaries.

A summary of the Company's acquisitions and disposals for the nine months ended September 30, 2022 is included in Note 2.

A summary of the Company's acquisitions and disposals for the three months ended March 31, 2023 is included in Note 2.

"Acquisitions and Disposals."

A summary of activity related to goodwill for the nine months ended September 30, 2022 is as follows (in millions):

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of activity related to goodwill for the three months ended March 31, 2023 is as follows (in millions):

Balance at December 31, 2022 $ 4,137.1

Acquisitions, including post acquisition adjustments 91.3

Disposals and deconsolidations ( 29.4 )

Balance at September 30, 2022 $ 4,145.3

A detailed evaluation of potential impairment indicators was performed as of September 30, 2022, which specifically considered the ongoing impact of the COVID-19 pandemic, recent increases in interest rates, inflation risk and market volatility.

On the basis of available evidence as of September 30, 2022, no indicators of impairment were identified.

Disposals ( 11.1 )

Balance at March 31, 2023 $ 4,217.3

A detailed evaluation of potential impairment indicators was performed as of March 31, 2023, which specifically considered recent increases in interest rates, inflation risk and market volatility.

On the basis of available evidence as of March 31, 2023, no indicators of impairment were identified.

Future estimates of fair value could be adversely affected if the actual outcome of one or more of the Company's assumptions changes materially in the future, including a material decline in the Company’s stock price and the fair value of its long-term debt, lower than expected surgical case volumes, higher market interest rates or increased operating costs.

4 unchanged sentences

Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The Company may enter into derivative contracts that are intended to economically hedge certain risks even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

3 unchanged sentences

The non-controlling interests — redeemable are reported outside of stockholders' equity in the condensed consolidated balance sheets.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of activity related to non-controlling interests—redeemable is as follows (in millions):

Nine Months Ended September 30,

Three Months Ended March 31,

Balance at beginning of period $ 342.0 $ 330.2

4 unchanged sentences

Medicare Accelerated Payments and Deferred Governmental Grants

The Company received grant funds distributed under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and other governmental assistance programs, including approximately $ 0.6 million and $ 2 million during the three and nine months ended September 30, 2022, respectively.

During nine months ended September 30, 2021, the Company received grant funds of approximately $ 8 million.

The Company did not receive any grant funds during the three months ended September 30, 2021.

The Company received grant funds distributed under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and other governmental assistance programs.

The recognition of amounts received is conditioned upon attestation with terms and conditions that funds will be used for COVID-19 related healthcare expenses or lost revenues.

Amounts received, but not recognized as a reduction to operating expenses, are reflected as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets.

Any currently unrecognized amounts may be recognized as a reduction in operating expenses in subsequent periods if the underlying conditions for recognition are met.

The Company estimates $ 0.5 million and $ 1.8 million of grant funds received qualified for recognition as a reduction in operating expenses for the three and nine months ended September 30, 2022, respectively.

During the nine months ended September 30, 2021, $ 20.0 million was recognized as a reduction in operating expenses.

During the three months ended September 30, 2021, the Company did not recognize any grant funds.

As of both September 30, 2022 and December 31, 2021, approximately $ 4 million of unrecognized grant funds received was reflected within the condensed consolidated balance sheets.

The Company estimates $ 1.1 million and $ 1.2 million of grant funds received qualified for recognition as a reduction in operating expenses for the three months ended March 31, 2023 and 2022, respectively.

There were no remaining unrecognized grant funds as of March 31, 2023.

As of December 31, 2022 approximately $ 3 million of unrecognized grant funds received was reflected as a component of other current liabilities within the condensed consolidated balance sheets.

The Company received accelerated payments under the Medicare Accelerated and Advance Payment Program.

The payments received were deferred and included in the condensed consolidated balance sheets.

During the three and nine months ended September 30, 2022, approximately $ 13 million and $ 56 million, respectively, has been repaid in accordance with the terms of the program.

As of March 31, 2023 and December 31, 2022, the remaining deferred accelerated payments was minimal.

During the three months ended March 31, 2022, approximately $ 18 million was repaid in

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

accordance with the terms of the program.

These repayments are included as a component of the change in Medicare accelerated payments and deferred government grants in the condensed consolidated statements of cash flows.

As of September 30, 2022 and December 31, 2021, the remaining deferred accelerated payments was approximately $ 4 million and $ 60 million, respectively, which was included as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets.

The Company does not expect to receive additional Medicare accelerated payments.

The Company’s accounting policies for relief received under the CARES Act and other governmental assistance programs, including the recognition of grant funds, is unchanged from the policies described in Note 1 to the Company’s consolidated financial statements included in the 2022 Annual Report on Form 10-K.

7 unchanged sentences

The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, restricted invested assets and accounts payable approximate their fair values under Level 3 calculations.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of the carrying amounts and estimated fair values of the Company's long-term debt follows (in millions):

Carrying Amount Fair Value

September 30,

2023 December 31,

2021 September 30,

2022 March 31,

2023 December 31,

10 unchanged sentences

Additionally, the Company would absorb the majority of the expected losses from any of these entities should such expected losses occur.

As of September 30, 2022, the Company's consolidated VIEs include six surgical facilities and five physician practices.

The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 were $ 67.9 million and $ 48.1 million, respectively, and the total liabilities of the consolidated VIEs were $ 41.9 million and $ 20.1 million, respectively.

As of March 31, 2023, the Company's consolidated VIEs include seven surgical facilities and five physician practices.

The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 were $ 69.9 million and $ 64.9 million, respectively, and the total liabilities of the consolidated VIEs were $ 44.5 million and $ 40.9 million, respectively.

Acquisitions and Disposals

During September 2022, the Company acquired a controlling interest in a surgical hospital for cash consideration of $ 64.3 million, net of cash acquired, and assumed debt of $ 39.4 million.

As of September 30, 2022, $ 61.0 million of the cash consideration was deferred and included as a component of other current liabilities in the accompanying condensed consolidated balance sheets.

In connection with the acquisition, the Company preliminarily recognized non-controlling interests of $ 45.3 million and goodwill of $ 146.3 million.

In October 2022, pursuant to the purchase agreement, the Company paid the deferred consideration and the debt previously assumed with available cash resources.

During the nine months ended September 30, 2022, the Company acquired a controlling interest in four other surgical facilities, two of which were merged into existing surgical facilities, and a practice for aggregate cash consideration of $ 79.3 million, net of cash acquired, and non-cash consideration of $ 5.3 million, which consisted of a non-controlling interest in two of the Company's existing surgical facilities.

In connection with the acquisitions, the Company preliminarily recognized non-controlling interests of $ 41.5 million and goodwill of $ 121.1 million.

During the nine months ended September 30, 2021, the Company acquired controlling interests in four surgical facilities in new markets and two surgical facilities in existing markets that were merged into existing facilities for aggregate cash consideration of $ 101.0 million, net of cash acquired.

During the three months ended March 31, 2023:

• The Company acquired a controlling interest in a surgical facility and a physician practice for aggregate cash consideration of $ 16.2 million, net of cash acquired, and non-cash consideration of $ 1.3 million, which consisted of a non-controlling interest in one of the Company's existing surgical facilities.

In connection with these acquisitions, the Company preliminarily recognized non-controlling interests of $ 12.0 million and goodwill of $ 25.7 million.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

• The Company acquired a controlling interest in two surgical facilities which were previously accounted for as equity method investments for cash consideration of $ 24.5 million, net of cash acquired.

As a result of these transactions, the Company obtained control of the previously non-controlled surgical facilities, resulting in the consolidation of the previously non-consolidated entities.

The previously held non-controlling were remeasured and recorded at fair value as of the dates of the transactions.

The fair value measurement utilizes Level 3 inputs, which includes unobservable data.

The acquisition date fair value of the previously held non-controlling interests was $ 8.3 million.

As a result of stepping up its ownership interest, the Company recognized a loss of $ 2.9 million included in net loss (gain) on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the three months ended March 31, 2023.

The net loss was determined based on the difference between the fair value of the Company's previously held non-controlling interests in the entities and the carrying values immediately prior to the transactions.

In connection with the acquisitions, the Company preliminarily recognized non-controlling interests of $ 34.2 million and goodwill of $ 65.6 million.

During the nine months ended September 30, 2022, no significant changes were made to the purchase price allocation of assets and liabilities, existing at the date of acquisition, related to individual acquisitions completed in 2021.

Other Acquisitions

During the nine months ended September 30, 2022, the Company acquired non-controlling interests in seven surgical facilities and seven in-development de novo surgical facilities for an aggregate cash purchase price of $ 95.1 million.

• The Company acquired non-controlling interests in an existing surgical facility and an in-development de novo surgical facility for an aggregate cash purchase price of $ 12.4 million, of which $ 2.8 million was deferred and will be paid in April 2023.

The non-controlling interests were accounted for as equity method investments and recorded as a component of investments in and advances to affiliates in the accompanying condensed consolidated balance sheets.

Disposals and Deconsolidations

During the nine months ended September 30, 2022, the Company sold its interests in a surgical facility, which was previously accounted for as an equity method investment, for net cash proceeds of $ 11.5 million.

The Company recognized a pre-tax loss on the sale of $ 0.4 million included in loss on disposals and deconsolidations, net in the condensed consolidated statements of operations for the nine months ended September 30, 2022.

During the nine months ended September 30, 2022, the Company contributed its interests in two surgical facilities as non-cash consideration for non-controlling interests in two new separate entities.

In April 2023, the Company obtained control of an existing non-controlled surgical facility due to an amendment to the facility operating agreement, resulting in the consolidation of the previously non-consolidated entity.

During the three months ended March 31, 2022, the Company acquired a controlling interest in two surgical facilities, one of which was merged into an existing surgical facility, for aggregate cash consideration of $ 31.1 million, net of cash acquired, and non-cash consideration of $ 2.6 million.

In connection with the acquisitions, the Company preliminarily recognized non-controlling interests of $ 10.6 million and goodwill of $ 42.7 million.

During the three months ended March 31, 2023, no significant changes were made to the purchase price allocation of assets and liabilities, existing at the date of acquisition, related to individual acquisitions completed in 2022.

During the three months ended March 31, 2023, the Company sold its interests in a surgical facility for a cash sales price of $ 8.8 million, a portion of which was held in escrow pursuant to the purchase agreement.

In connection with the sale, the Company recognized a pre-tax gain of $ 0.2 million included in net loss (gain) on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the three months ended March 31, 2023.

During the three months ended March 31, 2022:

• The Company sold its interests in a surgical facility, which was previously accounted for as an equity method investment, for net cash proceeds of $ 11.5 million, and recognized a pre-tax loss of $ 0.4 million included in loss (gain) on disposals and consolidations, net in the condensed consolidated statements of operations for the three months ended March 31, 2022.

• The Company contributed its interests in two surgical facilities as non-cash consideration for non-controlling interests in two new separate entities.

As a result of these transactions, the Company lost control of the previously controlled surgical facilities but retains a non-controlling interest in each, resulting in the deconsolidation of the previously consolidated entities.

The remaining non-controlling interests were accounted for as equity method investments, and initially measured and

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

recorded at fair value as of the dates of the transactions.

The remaining non-controlling interests were accounted for as equity method investments, and initially measured and recorded at fair value as of the dates of the transactions.

The fair value measurement utilizes Level 3 inputs, which includes unobservable data, to measure the fair value of the retained non-controlling interests.

The fair value determination was based on a combination of multiple valuation methods, which included discounted cash flow and market value approach, which incorporates estimates of future earnings and market valuation multiples for certain guideline companies.

The preliminary fair value of the investments of $ 9.8 million was recorded as a component of investments in and advances to affiliates in the accompanying condensed consolidated balance sheets.

Further, based on the preliminary valuation, the transactions resulted in a pretax net loss on deconsolidations of $ 5.6 million, which is included in loss on disposals and deconsolidations, net, in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2022.

The net loss was determined based on the difference between the fair value of the Company's retained interests in the entities and the carrying values of both the tangible and intangible assets of the entities immediately prior to the transactions.

The fair value of the investments of $ 9.8 million was recorded as a component of investments in and advances to affiliates in the accompanying condensed consolidated balance sheets.

Further, based on the valuation, the transactions resulted in a pretax net loss on deconsolidations of $ 5.6 million, which is included in net loss (gain) on disposals, consolidations and deconsolidations in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2022.

The gains were determined based on the difference between the fair value of the Company's retained interests in the entities and the carrying values of both the tangible and intangible assets of the entities immediately prior to the transactions.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

A summary of long-term debt follows (in millions):

September 30,

2023 December 31,

9 unchanged sentences

Total long-term debt $ 2,530.9 $ 2,559.0

(1) Includes unamortized fair value discount of $ 2.5 million and $ 3.0 million as of September 30, 2022 and December 31, 2021, respectively.

The increase in finance lease obligations is primarily a result of the modification of certain existing facility real estate leases that were previously classified as operating leases.

"Leases" for further discussion.

The increase in notes payable and other secured loans as well as current maturities includes certain debt assumed as part of the purchase price for a surgical hospital in September 2022.

"Acquisitions and Disposals" for further discussion.

(1) Includes unamortized fair value discount of $ 2.0 million and $ 2.1 million as of March 31, 2023 and December 31, 2022, respectively.

Revolving Credit Facility

On August 18, 2022, the Company entered into an amendment to the credit agreement governing its revolving credit facility (the "Revolver"), which amended and supplemented the credit agreement, dated as of August 31, 2017 (the "Credit Agreement"), to provide a $ 140.0 million increase in the outstanding commitments under the Revolver.

As of September 30, 2022, the Company's availability on its Revolver was $ 342.0 million (including outstanding letters of credit of $ 8.0 million).

There were no outstanding borrowings under the Revolver as of both September 30, 2022 and December 31, 2021.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On January 13, 2023, the Company entered into an amendment to the credit agreement governing its revolving credit facility (the "Revolver"), which amended and supplemented the credit agreement, dated as of August 31, 2017 (the "Credit Agreement"), to provide a $ 203.8 million increase in the outstanding commitments under the Revolver.

As of March 31, 2023, the Company's availability on its Revolver was $ 545.9 million (including outstanding letters of credit of $ 7.9 million).

There were no outstanding borrowings under the Revolver as of both March 31, 2023 and December 31, 2022.

The Company's operating leases are primarily for real estate, including medical office buildings, and corporate and other administrative offices.

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The following table presents the components of the Company's right-of-use assets and liabilities related to leases and their classification in the consolidated balance sheets (in millions):

Classification in Consolidated Balance Sheets September 30, 2022 December 31, 2021

Classification in Consolidated Balance Sheets March 31, 2023 December 31, 2022

Operating lease assets Right-of-use operating lease assets $ 274.0 $ 279.1

10 unchanged sentences

Total lease liabilities $ 860.3 $ 893.6

During the nine months ended September 30, 2022, the Company extended certain existing facility real estate leases, resulting in the reclassification of the leases from operating to finance.

The modifications resulted in an increase to finance lease liabilities and assets of $ 170.6 million and $ 169.1 million, respectively, including the reclassification of existing operating lease liabilities and assets of $ 65.7 million and $ 64.2 million, respectively.

The following table presents the components of the Company's lease expense and their classification in the condensed consolidated statement of operations (in millions):

Nine Months Ended September 30,

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the components of the Company's lease expense included in the condensed consolidated statement of operations (in millions):

Three Months Ended March 31,

Operating lease costs $ 16.4 $ 16.1

5 unchanged sentences

Total lease costs $ 43.3 $ 39.6

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents supplemental cash flow information (dollars in millions):

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid for amounts included in the measurement of lease liabilities:

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During 2023 and 2022, such derivatives have been used to hedge the variable cash flows associated with existing variable-rate debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income ("OCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings, as documented at hedge inception in accordance with the Company’s accounting policy election.

Amounts reported in accumulated OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

Over the next 12 months, the Company estimates that an additional $ 25.2 million will be reclassified as a decrease to interest expense.

As of September 30, 2022, the Company had nine interest rate swaps with a total net hedged notional amount of $ 1.2 billion and two interest rate caps with a total hedged notional amount of $ 322.0 million.

Of the nine interest rate swaps, three are pay-fixed, receive 1-Month LIBOR (subject to a minimum of 0.75 %) interest rate swaps designated in cash flow hedging relationships with a total notional amount of $ 1.2 billion and a termination date of March 31, 2025.

The remaining six interest rate swaps are undesignated and consist of three pay-fixed, receive 1-Month LIBOR (subject to a minimum of 1.00 %) interest rate swaps and three pay 1-Month LIBOR (subject to a minimum of 1.00 %), receive-fixed interest rate swaps with a termination date of November 30, 2023.

The pay-floating, receive-fixed swaps are designed to economically offset the undesignated pay-fixed, receive-floating swaps.

The interest rate caps each have a termination date of March 31, 2025.

The pay-fixed, receive floating interest rate swaps did not meet the requirements to be considered derivatives in their entirety as a result of the financing component.

Accordingly, the swaps are considered hybrid instruments, consisting of a financing element treated as a debt instrument and an embedded at-market derivative that was designated as a cash flow hedge.

Within the Company’s condensed consolidated balance sheets, the financing elements treated as debt instruments described above are carried at amortized cost and the embedded at-market derivatives and the undesignated swaps are recorded at fair value.

The cash flows related to the portion treated as debt are classified as financing activities in the condensed consolidated statements of cash flows while the portion treated as an at-market derivative are classified as operating activities.

Cash settlements related to the undesignated swaps will offset and are classified as operating activities in the condensed consolidated cash flows.

Within the Company’s condensed consolidated balance sheets, the interest rate caps are recorded at fair value.

The cash flows related to the interest rate caps are classified as operating activities in the condensed consolidated statements of cash flows.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The key terms of interest rate swaps and interest rate caps outstanding are presented below:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Description Effective Date Notional Amount (in millions) Status Notional Amount (in millions) Status Maturity Date

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$ 1,366.1 $ 1,518.2

As of March 31, 2023, the Company had nine interest rate swaps with a total net notional amount of $ 1.2 billion.

The remaining six interest rate

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

swaps are undesignated and consist of three pay-fixed, receive 1-Month LIBOR (subject to a minimum of 1.00 %) interest rate swaps and three pay 1-Month LIBOR (subject to a minimum of 1.00 %), receive-fixed interest rate swaps with a termination date of November 30, 2023.

The pay-floating, receive-fixed swaps are designed to economically offset the undesignated pay-fixed, receive-floating swaps.

As of March 31, 2023, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $ 166.1 million.

The interest rate caps each have a termination date of March 31, 2025.

During the three months ended March 31, 2023, the Company partially terminated a previously undesignated portion of one of its interest rate caps.

In connection with the termination, the Company received $ 8.6 million, which is included as a component of operating activities in the condensed consolidated statements of cash flows for the three months ended March 31, 2023.

The pay-fixed, receive floating interest rate swaps did not meet the requirements to be considered derivatives in their entirety as a result of the financing component.

Accordingly, the swaps are considered hybrid instruments, consisting of a financing element treated as a debt instrument and an embedded at-market derivative that was designated as a cash flow hedge.

Cash settlements related to the undesignated swaps will offset and are classified as operating activities in the condensed consolidated cash flows.

Within the Company’s condensed consolidated balance sheets, the interest rate caps, including the undesignated portion, are recorded at fair value.

The cash flows related to the interest rate caps, including the undesignated portion, are classified as operating activities in the condensed consolidated statements of cash flows.

Our interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the condensed consolidated balance sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.

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The interest rate caps are classified using Level 2 inputs within the fair value hierarchy.

Amounts reported in accumulated OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

Over the next 12 months, the Company estimates that an additional $ 33.6 million will be reclassified as a decrease to interest expense.

The following table presents the fair values of our derivatives and their location on the condensed consolidated balance sheets (in millions):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Location Assets Liabilities Assets Liabilities

Derivatives not designated as hedging instruments

Interest rate caps Other long-term assets $ — $ — $ 9.0 $ —

Interest rate swaps Other long-term assets 6.2 — 8.5 —

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Total $ 85.2 $ 34.5 $ 113.4 $ 40.4

(1) The balance as of September 30, 2022 and December 31, 2021 is related to the financing component of the pay-fixed, receive floating interest rate swaps.

(1) The balance is related to the financing component of the pay-fixed, receive floating interest rate swaps.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the pre-tax effect of the interest rate swaps and caps on the Company's accumulated OCI and condensed consolidated statement of operations (in millions):

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

Three Months Ended March 31,

Location 2023 2022

2 unchanged sentences

Derivatives in cash flow hedging relationships

Gain (loss) recognized in OCI (effective portion) $ 37.0 $ ( 0.1 ) $ 100.1 $ ( 5.0 )

Loss reclassified from accumulated OCI into income (effective portion) (1)

(Loss) gain recognized in OCI (effective portion) $ ( 5.2 ) $ 50.4

(Gain) loss reclassified from accumulated OCI into income (effective portion) (1)

Interest expense, net $ ( 6.1 ) $ 6.4

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 5.4 million for the three months ended September 30, 2022 and 2021.

Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 16.0 million and $ 8.6 million for the nine months ended September 30, 2022 and 2021, respectively.

(1) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 5.4 million and $ 5.3 million for the three months ended March 31, 2023 and 2022, respectively.

Earnings Per Share

Basic and diluted earnings per share are calculated based on the weighted-average number of shares outstanding in each period and dilutive stock options, unvested shares and warrants, to the extent such securities exist and have a dilutive effect on earnings per share.

The Company computes basic and diluted earnings per share using the two-class method.

The two-class method of computing earnings per share is an earnings allocation method that determines earnings per share for common shares and participating securities according to their participation rights in dividends and undistributed earnings.

A reconciliation of the numerator and denominator of basic and diluted earnings per share follows (dollars in millions, except per share amounts;

shares in thousands):

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

2022 2021 2022 2021

Net loss attributable to Surgery Partners, Inc.

$ ( 25.0 ) $ ( 22.9 ) $ ( 31.2 ) $ ( 70.8 )

amounts allocated to participating securities (1)

Three Months Ended March 31,

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

$ ( 24.9 ) $ 12.2

Net loss attributable to common stockholders $ ( 25.0 ) $ ( 22.9 ) $ ( 31.2 ) $ ( 81.1 )

Weighted average shares outstanding- basic 125,206 87,995

1 unchanged sentence

125,206 90,272

Loss per share:

(Loss) income per share:

Basic $ ( 0.20 ) $ 0.14

$ ( 0.20 ) $ 0.14

Dilutive securities outstanding not included in the computation of loss per share as their effect is antidilutive:

Dilutive securities outstanding not included in the computation of (loss) income per share as their effect is antidilutive:

Stock options 1,338 1,634

Restricted shares 67 643

(1) Includes dividends accrued for the Series A Preferred Stock for the nine months ended September 30, 2021.

The Series A Preferred Stock did not participate in undistributed losses and was converted to common stock during the second quarter of 2021.

There were no participating securities for the three and nine months ended September 30, 2022 and the three months ended Septemberer 30, 2021.

(2) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive.

(1) The impact of potentially dilutive securities for the three months ended March 31, 2023, was not considered because the effect would be anti-dilutive.

Other Current Liabilities

A summary of other current liabilities is as follows (in millions):

September 30,

2023 December 31,

Deferred consideration payable $ 61.0 $ —

Right-of-use operating lease liabilities $ 38.0 $ 36.5

Interest payable 38.3 29.2

Amounts due to patients and payors 30.0 31.9

Cost report liabilities 24.2 23.5

Tax receivable agreement liability 20.2 19.7

Interest payable 23.7 19.4

Acquisition escrow 17.4 28.8

Accrued expenses and other 66.7 70.0

9 unchanged sentences

The Company is not aware of any such proceedings that are reasonably possible to have a material adverse effect on the Company's business, financial position, results of operations or liquidity.

Total professional, general and workers' compensation claim liabilities as of September 30, 2022 and December 31, 2021 were $ 16.7 million and $ 19.8 million, respectively.

Expected insurance recoveries of $ 8.7 million as of both September 30, 2022 and December 31, 2021 are included as a component of other current assets and other long-term assets in the condensed consolidated balance sheets.

Total professional, general and workers' compensation claim liabilities as of March 31, 2023 and December 31, 2022 were $ 22.1 million and $ 20.8 million, respectively.

Expected insurance recoveries of $ 12.7 million as of both March 31, 2023 and December 31, 2022 are included as a component of other current assets and other long-term assets in the condensed consolidated balance sheets.

Laws and Regulations

16 unchanged sentences

The case is now closed.

Pursuant to the settlement, the Company received $ 32.8 million in March 2022, which was included in litigation settlement in the condensed consolidated statements of operations for the nine months ended September 30, 2022.

Acquired Facilities

The Company, through its wholly-owned subsidiaries or controlled partnerships and limited liability companies, has acquired and will continue to acquire surgical facilities with prior operating histories.

Such facilities may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations, such as billing and reimbursement laws and regulations, the Stark Law, the Anti-Kickback Statute, the FCA, and similar fraud and abuse laws.

Such facilities may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations, such as billing and reimbursement laws and regulations, the federal physician self-referral law, or Stark Law, the statute commonly known as the federal Anti-Kickback statute, the federal False Claims Act, and similar fraud and abuse laws.

Although the Company attempts to assure that no such liabilities exist, obtain indemnification from prospective sellers covering such matters and institute policies designed to conform centers to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for past activities that may later be asserted to be improper by private plaintiffs or government agencies.

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Management believes, however, that it will be able to adjust the Company's operations so as to be in compliance with any statutory or regulatory provision as may be applicable.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Potential Physician Investor Liability

4 unchanged sentences

In the event of an uninsured or underinsured loss, the value of an investment in the partnership interests or limited liability company membership units and the amount of distributions could be adversely affected.

Tax Receivable Agreement

On May 9, 2017, the Company entered into an agreement to amend that certain Income Tax Receivable Agreement, dated September 30, 2015 (as amended, the "TRA"), by and between the Company, and the other parties referred to therein, which amendment became effective on August 31, 2017.

Pursuant to the amendment to the TRA, the Company agreed to make payments to H.I.G., the Company's former controlling shareholder, in its capacity as the stockholders representative pursuant to a fixed payment schedule.

The amounts payable under the TRA are calculated as the product of (i) an annual base amount and (ii) the maximum corporate federal income tax rate for the applicable year plus three percent.

The amounts payable under the TRA are related to the Company’s projected realized tax savings over the next five years and are not dependent on the Company’s actual tax savings over such period.

The calculation of amounts payable pursuant to the TRA is thus dependent on the maximum corporate federal income tax rate.

To the extent that the Company is unable to make payments under the TRA, such payments will be deferred and will accrue interest at a rate of the LIBOR plus 500 basis points until paid.

If the terms of credit agreements and other debt documents cause the Company to be unable to make payments under the TRA and such terms are not materially more restrictive than those existing as of September 30, 2015, such payments will be deferred and will accrue interest at a rate of LIBOR plus 300 basis points until paid.

Assuming the Company's tax rate is 24 %, calculated as the maximum corporate federal tax rate plus three percent, throughout the remaining term of the TRA, the Company estimates the total remaining amounts payable under the TRA was approximately $ 22.0 million as of both September 30, 2022 and December 31, 2021.

As a result of the amendment to the TRA, the Company was required to value the liability under the TRA by discounting the fixed payment schedule using the Company’s incremental borrowing rate.

The carrying value of the liability under the TRA, reflecting the discount, was $ 21.3 million and $ 19.7 million as of September 30, 2022 and December 31, 2021, respectively.

The current portion of the liability was $ 20.2 million and $ 19.7 million as of September 30, 2022 and December 31, 2021, respectively, and is included as a component of other current liabilities in the condensed consolidated balance sheets.

The long-term portion is included as a component of other long-term liabilities in the condensed consolidated balance sheets.

SURGERY PARTNERS, INC.

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The Company currently operates in two major lines of business that are also the Company's reportable operating segments - the operation of surgical facilities and the operation of ancillary services.

The Surgical Facility Services segment consists of the operation of ASCs, surgical hospitals and anesthesia services.

The Surgical Facility Services segment includes the operation of ASCs, surgical hospitals and anesthesia services.

The Ancillary Services segment consists of multi-specialty physician practices.

1 unchanged sentence

The following tables present financial information for each reportable segment (in millions):

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

2022 2021 2022 2021

Three Months Ended March 31,

Surgical Facility Services $ 649.0 $ 578.8

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Reconciliation of Adjusted EBITDA:

Income before income taxes $ 13.4 $ 9.4 $ 77.1 $ 26.5

(Loss) income before income taxes $ ( 0.4 ) $ 44.1

Net income attributable to non-controlling interests ( 26.1 ) ( 30.6 )

Depreciation and amortization 29.8 25.2 85.2 76.1

Interest expense, net 46.8 56.3

Depreciation and amortization 33.7 27.4

Equity-based compensation expense 4.2 3.7

Transaction, integration and acquisition costs (1)

13.1 10.2 28.4 31.0

Loss on disposals and deconsolidations, net 2.2 1.9 3.2 2.0

Loss (gain) on litigation settlement and other litigation costs (2)

1.5 2.5 ( 27.6 ) 4.3

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

Hurricane-related impacts (3)

1.1 0.5 1.1 0.5

Net loss (gain) on disposals, consolidations and deconsolidations (2)

Litigation settlements and regulatory change impact (3)

Undesignated derivative activity 0.6 —

Adjusted EBITDA $ 90.1 $ 77.1

(1) This amount includes transaction and integration costs of $ 12.5 million and $ 10.2 million for the three months ended September 30, 2022 and 2021, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 0.6 million for the three months ended September 30, 2022.

This amount includes transaction and integration costs of $ 27.8 million and $ 24.7 million for the nine months ended September 30, 2022 and 2021, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 0.6 million and $ 6.3 million for the nine months ended September 30, 2022 and 2021, respectively.

(2) This amount includes other litigation costs of $ 1.5 million and $ 2.5 million for the three months ended September 30, 2022 and 2021, respectively.

This amount includes other litigation costs of $ 5.2 million and $ 4.3 million for the nine months ended September 30, 2022 and 2021, respectively.

This amount also includes gain on litigation settlement of $ 32.8 million for the nine months ended September 30, 2022.

(3) Reflects losses incurred, net of insurance proceeds received at certain surgical facilities that were closed following Hurricane Ida in September 2021 and Hurricane Ian in September 2022.

September 30,

(1) This amount includes transaction and integration costs of $ 12.5 million and $ 7.1 million for the three months ended March 31, 2023 and 2022, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 0.3 million for the three months ended March 31, 2023, with no comparable costs for the three months ended March 31, 2022.

(2) Includes an $ 8.5 million loss for the three months ended March 31, 2023 related to a surgical facility with a book value of the asset group in excess of the fair value based on a letter of intent.

(3) This amount includes a litigation settlement loss of $ 3.0 million and a gain of $ 32.8 million for the three months ended March 31, 2023 and 2022, respectively.

This amount also includes other litigation costs of $ 0.6 million and $ 2.0 million for the three months ended March 31, 2023 and 2022, respectively.

Additionally, the three months ended March 31, 2023, includes $ 4.4 million related to the impact of recent changes in Florida law regarding the use of letters of protection.

2023 December 31,

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30,

Three Months Ended March 31,

Cash purchases of property and equipment:

3 unchanged sentences

Total cash purchases of property and equipment $ 24.3 $ 18.2

Subsequent Events

In April 2023, the Company completed the sale of two surgical facilities for cash proceeds of $ 23.0 million.

In April 2023, the Company acquired non-controlling interests in an in-development de novo surgical facility for a purchase price of $ 6.1 million.

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 1. Financial Statements