What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-07 compared with 2023-08-01 · 133 added, 99 removed, 538 unchanged (30% of the section changed)

3 unchanged sentences

(Dollars in millions, except per share amounts)

September 30,

2023 December 31,

43 unchanged sentences

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

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

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

2023 2022 2023 2022

11 unchanged sentences

Grant funds — ( 0.5 ) ( 1.1 ) ( 1.8 )

Net (gain) loss on disposals, consolidations and deconsolidations ( 8.8 ) 1.1 1.7 1.0

Net loss on disposals, consolidations and deconsolidations 5.8 2.2 7.5 3.2

Equity in earnings of unconsolidated affiliates ( 3.5 ) ( 2.4 ) ( 9.4 ) ( 8.1 )

5 unchanged sentences

Income before income taxes 32.8 13.4 82.3 77.1

Income tax benefit (expense) 7.8 ( 4.3 ) 9.4 ( 5.6 )

Income tax (expense) benefit ( 3.1 ) ( 7.8 ) 6.3 ( 13.4 )

Net income 29.7 5.6 88.6 63.7

Net income attributable to non-controlling interests ( 34.6 ) ( 30.6 ) ( 99.5 ) ( 94.9 )

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

Net loss attributable to Surgery Partners, Inc.

$ ( 4.9 ) $ ( 25.0 ) $ ( 10.9 ) $ ( 31.2 )

Net income (loss) per share attributable to common stockholders

Net loss per share attributable to common stockholders

Basic $ ( 0.04 ) $ ( 0.28 ) $ ( 0.09 ) $ ( 0.35 )

3 unchanged sentences

125,747 88,907 125,559 88,604

(1) The impact of potentially dilutive securities for the three months ended June 30, 2022 and the six months ended June 30, 2023 and 2022, was not considered because the effect would be anti-dilutive.

(1) The impact of potentially dilutive securities for all periods 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

5 unchanged sentences

Comprehensive income attributable to non-controlling interests ( 34.6 ) ( 30.6 ) ( 99.5 ) ( 94.9 )

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

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

$ ( 6.7 ) $ 13.5 $ ( 10.1 ) $ 83.1

4 unchanged sentences

Common Stock Additional

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

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

Non-Redeemable Total

1 unchanged sentence

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

Net income — — — — 12.2 20.0 32.2

Net (loss) income — — — — ( 25.0 ) 18.3 ( 6.7 )

Equity-based compensation 519 — 3.7 — — — 3.7

Other comprehensive income — — — 56.8 — — 56.8

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 — — — — ( 18.4 ) 22.7 4.3

Net income — — — — 19.0 27.6 46.6

Equity-based compensation 13 — 4.5 — — — 4.5

3 unchanged sentences

Balance at June 30, 2023 126,493 $ 1.3 $ 2,501.4 $ 78.8 $ ( 563.3 ) $ 964.6 $ 2,982.8

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

Net (loss) income — — — — ( 4.9 ) 28.0 23.1

3 unchanged sentences

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 23.8 ) ( 23.8 )

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

Balance at September 30, 2023 126,489 $ 1.3 $ 2,494.5 $ 77.0 $ ( 568.2 ) $ 981.9 $ 2,986.5

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, 2021 89,333 $ 0.9 $ 1,622.3 $ ( 31.5 ) $ ( 502.7 ) $ 880.6 $ 1,969.6

Net income — — — — 12.2 20.0 32.2

3 unchanged sentences

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 24.6 ) ( 24.6 )

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.

2 unchanged sentences

(Unaudited, dollars in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

37 unchanged sentences

Surgery Partners, Inc., a Delaware corporation, acting through its subsidiaries, owns and operates a national network of surgical facilities and ancillary services.

The surgical facilities, which include ambulatory surgery centers ("ASCs") and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, among others, gastroenterology, general surgery, ophthalmology, orthopedics and pain management.

The surgical facilities, which include ambulatory surgery centers ("ASCs") and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, among others, orthopedics and pain management, gastroenterology, ophthalmology, and general surgery.

The Company's surgical hospitals also provide services such as diagnostic imaging, laboratory, obstetrics, oncology, pharmacy, physical therapy and wound care.

2 unchanged sentences

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

As of June 30, 2023, the Company owned or operated a portfolio of 152 surgical facilities, comprised of 134 ASCs and 18 surgical hospitals in 32 states.

As of September 30, 2023, the Company owned or operated a portfolio of 154 surgical facilities, comprised of 136 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.

21 unchanged sentences

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

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

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

2023 2022 2023 2022

23 unchanged sentences

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 June 30,

Three Months Ended September 30,

Amount % Amount %

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30,

Nine Months Ended September 30,

Amount % Amount %

39 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company's effective tax rate was ( 19.0 )% for the six months ended June 30, 2023 compared to 8.8 % for the six months ended June 30, 2022.

For the six months ended June 30, 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 discrete tax benefits of (i) $ 1.8 million related to the vesting of restricted stock awards, and (ii) $ 15.9 million related to entity divestitures.

For the six months ended June 30, 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 (i) $ 4.6 million related to the vesting of restricted stock awards, (ii) $ 1.8 million attributable to non-recurring earnings’ impact on the Company’s valuation allowance, and (iii) $ 1.0 million related to entity divestitures.

The Company's effective tax rate was ( 7.7 )% for the nine months ended September 30, 2023 compared to 17.4 % for the nine months ended September 30, 2022.

For the nine months ended September 30, 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 discrete tax benefits of (i) $ 1.6 million related to the vesting of restricted stock awards, and (ii) $ 15.8 million related to entity divestitures.

For the nine months ended September 30, 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 (i) $ 4.6 million related to the vesting of restricted stock awards, (ii) $ 1.8 million attributable to non-recurring earnings’ impact on the Company’s valuation allowance, and (iii) $ 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 six months ended June 30, 2023 is included in Note 2.

A summary of the Company's acquisitions and disposals for the nine months ended September 30, 2023 is included in Note 2.

"Acquisitions and Disposals."

A summary of activity related to goodwill for the six months ended June 30, 2023 is as follows (in millions):

A summary of activity related to goodwill for the nine months ended September 30, 2023 is as follows (in millions):

Balance at December 31, 2022 $ 4,137.1

1 unchanged sentence

Disposals ( 37.0 )

Balance at June 30, 2023 $ 4,235.9

A detailed evaluation of potential impairment indicators was performed as of June 30, 2023, which specifically considered recent increases in interest rates, inflation risk and market volatility.

On the basis of available evidence as of June 30, 2023, no indicators of impairment were identified.

Balance at September 30, 2023 $ 4,245.1

A detailed evaluation of potential impairment indicators was performed as of September 30, 2023, which specifically considered recent increases in interest rates, inflation risk and market volatility.

On the basis of available evidence as of September 30, 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.

13 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Balance at beginning of period $ 342.0 $ 330.2

Net income attributable to non-controlling interests—redeemable 25.6 29.9

Acquisition of shares of non-controlling interests, net—redeemable ( 10.0 ) 12.9

(Disposal) acquisition of shares of non-controlling interests, net—redeemable ( 2.2 ) 11.9

Distributions to non-controlling interest—redeemable holders ( 33.2 ) ( 33.2 )

3 unchanged sentences

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

During the three and six months ended June 30, 2023, the Company recognized grant funds received as a reduction in operating expenses in the amount of none and $ 1.1 million, respectively.

During the three and six months ended June 30, 2022, the Company recognized grant funds received as a reduction in operating expenses in the amount of $ 0.1 million and $ 1.3 million, respectively.

There were no remaining unrecognized grant funds as of June 30, 2023.

During the three months ended September 30, 2023, the Company did no t recognize any grant funds as a reduction in operating expenses.

During the nine months ended September 30, 2023, the Company recognized grant funds as a reduction in operating expenses in the amount of $ 1.1 million.

During the three and nine months ended September 30, 2022, the Company recognized grant funds received as a reduction in operating expenses in the amount of $ 0.5 million and $ 1.8 million, respectively.

There were no remaining unrecognized grant funds as of September 30, 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.

1 unchanged sentence

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

As of June 30, 2023 and December 31, 2022, the remaining deferred accelerated payments was minimal.

During the three and six months ended June 30, 2022, approximately $ 25 million and $ 43 million, respectively, was repaid in accordance with the terms of the program.

There were no remaining deferred accelerated payments as of September 30, 2023, and remaining deferred accelerated payments were minimal as of December 31, 2022.

During the three and nine months ended September 30, 2022, approximately $ 13 million and $ 56 million, respectively, was repaid in 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.

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.

Fair Value of Financial Instruments

8 unchanged sentences

Carrying Amount Fair Value

September 30,

2023 December 31,

2022 June 30,

2022 September 30,

2023 December 31,

12 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 June 30, 2023, the Company's consolidated VIEs consisted of 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 June 30, 2023 and December 31, 2022 were $ 65.6 million and $ 64.9 million, respectively, and the total liabilities of the consolidated VIEs were $ 38.4 million and $ 40.9 million, respectively.

As of September 30, 2023, the Company's consolidated VIEs consisted of 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 September 30, 2023 and December 31, 2022 were $ 64.7 million and $ 64.9 million, respectively, and the total liabilities of the consolidated VIEs were $ 38.2 million and $ 40.9 million, respectively.

Acquisitions and Disposals

During the six months ended June 30, 2023:

• The Company acquired a controlling interest in a surgical facility and a physician practice for aggregate cash consideration of $ 17.9 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.

During the nine months ended September 30, 2023:

• The Company acquired a controlling interest in two surgical facilities and a physician practice for aggregate cash consideration of $ 23.1 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 $ 20.4 million and goodwill of $ 39.7 million.

5 unchanged sentences

The acquisition date fair value of the previously held non-controlling interests was $ 27.3 million.

As a result of increasing its ownership interest, the Company recognized a net loss of $ 7.1 million included in net (gain) loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the six months ended June 30, 2023.

As a result of increasing its ownership interest, the Company recognized a net loss of $ 7.1 million included in net loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the nine months ended September 30, 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 consolidation of these facilities, the Company preliminarily recognized non-controlling interests of $ 55.1 million and goodwill of $ 106.3 million.

• The Company acquired non-controlling interests in four surgical facilities and two in-development de novo surgical facilities for aggregate cash consideration of $ 48.4 million.

• The Company acquired non-controlling interests in five surgical facilities and two in-development de novo surgical facilities for aggregate cash consideration of $ 50.2 million.

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.

The Company also paid cash consideration of $ 20.0 million to acquire management rights from the prior management service provider related to three of the aforementioned surgical facilities.

The Company also paid cash consideration of $ 21.0 million to acquire management rights from the prior management service provider related to four of the aforementioned surgical facilities.

Management rights agreements are accounted for and recorded as a component of intangible assets, net in the accompanying condensed consolidated balance sheets.

The cash paid to acquire the management rights is presented as a component of other investing activities on the condensed consolidated statements of cash flows.

During the six months ended June 30, 2022:

• The Company acquired a controlling interest in four surgical facilities, two of which were merged into existing surgical facilities, for aggregate cash consideration of $ 74.9 million, net of cash acquired, and non-cash consideration of $ 2.6 million, which consisted of a non-controlling interest in one of the Company's existing surgical facilities.

During the nine months ended September 30, 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.

• The Company acquired a controlling interest in four other surgical facilities, two of which were merged into existing surgical facilities, and a physician 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.

• The Company acquired non-controlling interests in five surgical facilities and four in-development de novo surgical facilities for aggregate cash consideration of $ 65.8 million.

• The Company acquired non-controlling interests in seven surgical facilities and seven in-development de novo surgical facilities for aggregate cash consideration of $ 95.1 million.

During the six months ended June 30, 2023:

• The Company sold its interests in four surgical facilities for aggregate net cash proceeds of $ 30.4 million, a portion of which was held in escrow pursuant to the purchase agreements for such transactions.

In connection with these transactions, the Company recognized a pre-tax gain of $ 26.7 million included in net (gain) loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the six months ended June 30, 2023.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

• The Company disposed of its non-controlling interests in a surgical facility and in-development de novo surgical facility, which were previously accounted for as equity method investments, for cash proceeds of $ 1.5 million.

In connection with these transactions, the Company recognized a pre-tax loss of $ 13.7 million included in net (gain) loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the six months ended June 30, 2023.

During the six months ended June 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, and recognized a pre-tax loss of $ 0.4 million included in net (gain) loss on disposals and consolidations in the condensed consolidated statements of operations for the six months ended June 30, 2022.

During the nine months ended September 30, 2023:

• The Company sold its interests in six surgical facilities for aggregate net cash proceeds of $ 30.4 million, a portion of which was held in escrow pursuant to the purchase agreements for such transactions.

In connection with these transactions, the Company recognized a pre-tax gain of $ 26.9 million included in net loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the nine months ended September 30, 2023.

• The Company disposed of its non-controlling interests in a surgical facility and an in-development de novo surgical facility, which were previously accounted for as equity method investments, for cash proceeds of $ 1.5 million.

In connection with these transactions, the Company recognized a pre-tax loss of $ 13.7 million included in net loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the nine months ended September 30, 2023.

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, and recognized a pre-tax loss of $ 0.4 million included in net loss on disposals and consolidations in the condensed consolidated statements of operations for 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.

4 unchanged sentences

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 (gain) loss on disposals, consolidations and deconsolidations in the accompanying condensed consolidated statement of operations for the six months ended June 30, 2022.

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 on disposals, consolidations and deconsolidations 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.

1 unchanged sentence

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

September 30,

2023 December 31,

9 unchanged sentences

Total long-term debt $ 2,640.2 $ 2,559.0

(1) Includes unamortized fair value discount of $ 1.9 million and $ 2.1 million as of June 30, 2023 and December 31, 2022, respectively.

(1) Includes unamortized fair value discount of $ 1.8 million and $ 2.1 million as of September 30, 2023 and December 31, 2022, respectively.

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

As of June 30, 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 June 30, 2023 and December 31, 2022.

On June 8, 2023, the Company entered into an amendment to the Credit Agreement to transition the interest benchmark from LIBOR to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023.

As of September 30, 2023, the Company's availability on its Revolver was $ 544.9 million (including outstanding letters of credit of $ 8.9 million).

There were no outstanding borrowings under the Revolver as of both September 30, 2023 and December 31, 2022.

On June 8, 2023, the Company entered into an amendment to the Credit Agreement to transition the interest benchmark from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023.

SURGERY PARTNERS, INC.

3 unchanged sentences

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 June 30, 2023 December 31, 2022

Classification in Consolidated Balance Sheets September 30, 2023 December 31, 2022

Operating lease assets Right-of-use operating lease assets $ 244.5 $ 279.1

10 unchanged sentences

Total lease liabilities $ 917.8 $ 893.6

During the nine months ended September 30, 2023, 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 $ 97.1 million and $ 95.7 million, respectively, including the reclassification of existing operating lease liabilities and assets of $ 38.4 million and $ 36.9 million, respectively.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating lease costs $ 48.7 $ 49.5

8 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

10 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

11 unchanged sentences

$ 1,362.1 $ 1,518.2

As of June 30, 2023, the Company had nine interest rate swaps with a total net notional amount of $ 1.2 billion.

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.

As of September 30, 2023, the Company had nine interest rate swaps with a total net notional amount of $ 1.2 billion.

Of the nine interest rate swaps, three are pay-fixed, receive 1-Month SOFR (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 SOFR (subject to a minimum of 1.00 %) interest rate swaps and three pay 1-Month SOFR (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 June 30, 2023, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $ 164.1 million.

The Company's interest rate derivative agreements were indexed to LIBOR prior to permanent cessation on June 30, 2023 and automatically transitioned to SOFR in accordance with their respective fallback provisions.

As of September 30, 2023, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $ 162.1 million.

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

During the six months ended June 30, 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 six months ended June 30, 2023.

During the nine months ended September 30, 2023, the Company partially terminated a previously undesignated portion of one of its interest rate caps.

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.

1 unchanged sentence

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

The cash flows

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

offset and are classified as operating activities in the condensed consolidated 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, 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.

The Company's 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.

The fair value of the interest rate caps is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps.

5 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Location Assets Liabilities Assets Liabilities

11 unchanged sentences

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 June 30, Six Months Ended June 30,

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

Location 2023 2022 2023 2022

5 unchanged sentences

Interest expense, net $ ( 9.2 ) $ 1.5 $ ( 23.3 ) $ 14.2

(1) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 5.3 million for each of the three months ended June 30, 2023 and 2022, respectively.

Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 10.7 million and $ 10.6 million for the six months ended June 30, 2023 and 2022, respectively.

(1) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 5.3 million and $ 5.4 million for the three months ended September 30, 2023 and 2022, respectively.

Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 16.0 million for each of the nine months ended September 30, 2023 and 2022.

SURGERY PARTNERS, INC.

4 unchanged sentences

shares in thousands):

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

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

2023 2022 2023 2022

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

Net loss attributable to Surgery Partners, Inc.

$ ( 4.9 ) $ ( 25.0 ) $ ( 10.9 ) $ ( 31.2 )

2 unchanged sentences

125,747 88,907 125,559 88,604

Income (loss) per share:

Loss per share:

Basic $ ( 0.04 ) $ ( 0.28 ) $ ( 0.09 ) $ ( 0.35 )

3 unchanged sentences

Restricted shares 208 604 202 669

(1) The impact of potentially dilutive securities for all periods 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,

13 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 June 30, 2023 and December 31, 2022 were $ 22.5 million and $ 20.8 million, respectively.

Expected insurance recoveries of $ 12.7 million as of both June 30, 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.

Total professional, general and workers' compensation claim liabilities as of September 30, 2023 and December 31, 2022 were $ 23.6 million and $ 20.8 million, respectively.

Expected insurance recoveries of $ 12.7 million as of both September 30, 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.

SURGERY PARTNERS, INC.

1 unchanged sentence

In May 2023, we experienced a cybersecurity incident that temporarily disrupted certain facilities in our Idaho market.

We estimate that this incident had an adverse pre-tax impact of approximately $ 5 million during the three months ended June 30, 2023.

We estimate that this incident had an adverse pre-tax impact of approximately $ 7 million during the nine months ended September 30, 2023.

This estimate includes lost revenue from the associated business interruption and other related expenses.

We have filed a claim with the insurance carrier related to this incident.

No insurance recoveries were recognized during the three months ended June 30, 2023.

No insurance recoveries were recognized during the nine months ended September 30, 2023.

Stockholder Litigation

10 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 six months ended June 30, 2022.

Segment Reporting

4 unchanged sentences

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

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

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

2023 2022 2023 2022

15 unchanged sentences

13.0 13.1 38.8 28.4

Net (gain) loss on disposals, consolidations and deconsolidations ( 8.8 ) 1.1 1.7 1.0

Net loss on disposals, consolidations and deconsolidations 5.8 2.2 7.5 3.2

Litigation settlements and regulatory change impact (2)

1 unchanged sentence

Undesignated derivative activity — — 0.6 —

1.2 1.1 7.7 1.1

Adjusted EBITDA $ 105.5 $ 96.2 $ 295.8 $ 259.4

(1) This amount includes transaction and integration costs of $ 12.8 million and $ 12.5 million for the three months ended September 30, 2023 and 2022, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 0.2 million and $ 0.6 million for the three months ended September 30, 2023 and 2022, respectively.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) This amount includes transaction and integration costs of $ 12.0 million and $ 8.2 million for the three months ended June 30, 2023 and 2022, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 1.0 million for the three months ended June 30, 2023, with no comparable costs for the three months ended June 30, 2022.

This amount includes transaction and integration costs of $ 24.5 million and $ 15.3 million for the six months ended June 30, 2023 and 2022, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 1.3 million for the six months ended June 30, 2023, with no comparable costs for the six months ended June 30, 2022.

(2) This amount includes a litigation settlement loss of $ 1.5 million for the three months ended June 30, 2023, with no comparable costs for the three months ended June 30, 2022.

This amount also includes other litigation costs of $ 0.2 million and $ 1.7 million for the three months ended June 30, 2023 and 2022, respectively.

This amount includes a litigation settlement loss of $ 4.5 million and a gain of $ 32.8 million for the six months ended June 30, 2023 and 2022, respectively.

This amount also includes other litigation costs of $ 0.8 million and $ 3.7 million for the six months ended June 30, 2023 and 2022, respectively.

Additionally, the six months ended June 30, 2023, includes $ 4.4 million related to the impact of recent changes in Florida law regarding the use of letters of protection.

(3) This amount includes estimates for the net impact of a cyber event and losses from a divested business.

This amount includes transaction and integration costs of $ 37.3 million and $ 27.8 million for the nine months ended September 30, 2023 and 2022, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 1.5 million and $ 0.6 million for the nine months ended September 30, 2023 and 2022, respectively.

(2) This amount includes a litigation settlement loss of $ 3.6 million for the three months ended September 30, 2023.

This amount also includes other litigation costs of $ 0.6 million and $ 1.5 million for the three months ended September 30, 2023 and 2022, respectively.

This amount includes a litigation settlement loss of $ 8.1 million and a gain of $ 32.8 million for the nine months ended September 30, 2023 and 2022, respectively.

This amount also includes other litigation costs of $ 1.4 million and $ 5.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Additionally, the nine months ended September 30, 2023, includes $ 4.4 million related to the impact of recent changes in Florida law regarding the use of letters of protection.

(3) This amount includes estimates for the net impact of the May 2023 cyber event for the three months ended September 30, 2023.This amount includes estimates for the net impact of a cyber event and losses from a divested business for the nine months ended September 30, 2023.

Amounts presented for the three and nine months ended September 30, 2022 reflect losses incurred, net of insurance proceeds received, related to certain surgical facilities that were closed following Hurricane Ian.

September 30,

2023 December 31,

3 unchanged sentences

Total assets $ 6,780.1 $ 6,682.1

Six Months Ended June 30,

Nine Months Ended September 30,

Cash purchases of property and equipment:

4 unchanged sentences

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