What changed in this filing

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Item 1A. Risk Factors

2024-02-26 compared with 2023-03-01 · 34 added, 64 removed, 583 unchanged (14% of the section changed)

35 unchanged sentences

• If we fail to comply with physician self-referral laws as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur substantial monetary penalties and a significant loss of revenue.

• Federal law restricts the ability of our surgical hospitals to expand surgical capacity.

• Federal law restricts the ability of our surgical hospitals to expand capacity.

• Companies within the health care industry continue to be the subject of federal and state audits and investigations, including actions for false and other improper claims.

94 unchanged sentences

We also face significant competition from local, regional and national health systems and other owners of surgical facilities in pursuing attractive acquisition candidates.

The limited number of surgical facilities we develop typically incur losses in their early months of operation (more so in the case of surgical hospitals) and, until their caseloads grow, they generally experience lower total revenue and operating margins than established surgical facilities, and we expect this trend to continue.

The surgical facilities we develop typically incur losses in their early months of operation and, until their caseloads grow, they generally experience lower total revenue and operating margins than established surgical facilities, and we expect this trend to continue.

If we are not successful in integrating the operations and personnel of newly acquired surgical facilities in a timely and efficient manner, then the potential benefits of the transaction may not be realized and our operations and earnings could be materially adversely impacted.

54 unchanged sentences

Other states are reluctant to strictly enforce non-compete agreements and restrictive covenants against physicians and other health care professionals.

Furthermore, the Federal Trade Commission ("FTC") recently published a proposed rule that would prohibit employers from entering into non-compete agreements and nullifying existing non-competes.

Furthermore, the FTC published a proposed rule that would prohibit employers from entering into non-compete agreements and nullifying existing non-competes.

Therefore, there can be no assurance that our non-compete agreements related to employed or otherwise contracted physicians and other health professionals will be enforceable if challenged in certain states or if the proposed FTC rule is adopted in its current form.

3 unchanged sentences

Our revenue is particularly sensitive to regulatory, economic and other conditions in the states of Texas and Idaho.

As of December 31, 2022, we owned and operated eleven consolidated surgical facilities in Texas.

As of December 31, 2023, we owned and operated three consolidated surgical hospitals and seven consolidated ASCs in Texas.

The Texas facilities represented approximately 11% of our revenue in fiscal 2023.

In addition, we own and operate three consolidated surgical facilities in Idaho, representing approximately 26% of our revenue during fiscal 2022.

In addition, we own and operate three consolidated surgical hospitals and four consolidated ASCs in Idaho, representing approximately 28% of our revenue during fiscal 2023.

These surgical facilities also provide ancillary services, including physician practices, radiation oncology and anesthesia services.

47 unchanged sentences

A pandemic, epidemic or outbreak of a contagious disease in the markets in which we operate or that otherwise impacts our facilities could adversely impact our business.

If a pandemic, epidemic or outbreak of an infectious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus known as COVID-19, or other public health crisis were to affect the areas in which we operate, our business, including our revenue, profitability and cash flows, could be adversely affected.

If a pandemic, epidemic or outbreak of an infectious disease, including another outbreak of respiratory illness caused by the coronavirus known as COVID-19, or other public health crisis were to affect the areas in which we operate, our business, including our revenue, profitability and cash flows, could be adversely affected.

If any of our facilities were involved, or perceived to be involved, in treating patients with a highly contagious disease, or there was an outbreak of a highly contagious disease in areas in which our surgical centers are located, our patients might cancel or defer elective procedures or otherwise avoid medical treatment.

2 unchanged sentences

We may be unable to locate replacement supplies, and ongoing delays could require us to reduce procedure volume or cause temporary shutdowns of our facilities.

Although we have disaster plans in place and operate pursuant to infectious disease protocols, the extent to which COVID-19 or other public health crisis will impact our business is difficult to predict and will depend on many factors beyond our control, including the speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.

Although we have disaster plans in place and operate pursuant to infectious disease protocols, the extent to which COVID-19 or another public health crisis will impact our business is difficult to predict and will depend on many factors beyond our control, including the speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.

Financial and Accounting Risks

9 unchanged sentences

As of December 31, 2023, we and our subsidiaries had approximately $2.8 billion aggregate principal amount of indebtedness outstanding, which includes approximately $1.4 billion principal amount of senior secured term loans (the "Term Loan") outstanding, $185.0 million senior unsecured notes due 2025 (the "2025 Unsecured Notes") and $320.0 million senior unsecured notes due 2027 (the "2027 Unsecured Notes").

As of December 31, 2022, we had no outstanding borrowings under our $350.0 million senior secured revolving credit facility (the "Revolver" and, together with the Term Loan, the "Senior Secured Credit Facilities" and, together with the 2025 Unsecured Notes and the 2027 Unsecured Notes, the "Senior Indebtedness").

As of December 31, 2023, we had no outstanding borrowings under our $703.8 million senior secured revolving credit facility (the "Revolver") and, together with the Term Loan, the "New Secured Credit Facilities" and, together with the 2025 Unsecured Notes and the 2027 Unsecured Notes, the "Senior Indebtedness").

After giving effect to the $9.5 million principal amount of outstanding letters of credit issued under our Revolver, we had $694.3 million of unused commitments available to be borrowed under the Revolver.

30 unchanged sentences

• consolidate, merge or sell all or substantially all of our assets.

As a result of these and other covenants and restrictions, we are and will be limited in how we conduct our business, and we may be unable to raise additional capital to compete effectively or to take advantage of new business opportunities.

In addition, we may be required to maintain specified financial maintenance ratios and satisfy other financial condition tests in connection with the Senior Indebtedness.

As a result of these and other covenants and restrictions, we may be limited in how we conduct our business.

In addition, we may be required to maintain a specified financial maintenance ratio in connection with the Senior Indebtedness if the Revolver is utilized in excess of a specified threshold.

The terms of any future indebtedness we may incur could include more restrictive covenants.

We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as others contained in our future debt instruments from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay

these borrowings before their maturity.

If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected.

4 unchanged sentences

We and our subsidiaries may be able to incur additional indebtedness in the future, including secured indebtedness.

Although the credit agreement governing the Senior Secured Credit Facilities and the indentures governing each of the 2025 Unsecured Notes and 2027 Unsecured Notes, respectively, contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.

Although the credit agreement governing the New Credit Facilities and the indentures governing each of the 2025 Unsecured Notes and 2027 Unsecured Notes, respectively, contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.

In addition, as of December 31, 2023, we had approximately $694.3 million available for additional borrowings under the Revolver (after giving effect to the $9.5 million aggregate principal amount of outstanding letters of credit issued under our Revolver at such time).

2 unchanged sentences

We are a holding company, and our ability to service our debt is dependent upon the earnings from the business conducted by our subsidiaries that operate the surgical facilities.

The effect of this structure is that we depend on the earnings of our subsidiaries, and the distribution or payment to us of a portion of these earnings to meet our obligations, including those under the Term Loans and Revolving Facility and any of our other debt obligations.

The distributions of those earnings, advances or other distributions of funds by these entities to us, all of which are contingent upon our subsidiaries’ earnings, are subject to various business considerations.

14 unchanged sentences

Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

Borrowings under the Senior Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk.

Borrowings under the New Credit Facilities are at variable rates of interest and expose us to interest rate risk.

If interest rates increase, our debt service obligations on variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

3 unchanged sentences

Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

The Term Loan bears interest at a rate per annum equal to (x) the London Interbank Offered Rate ("LIBOR") plus a margin 3.75% per annum (LIBOR shall be subject to a floor of 0.75%) or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.50% per annum above the federal funds effective rate and (iii) one-month LIBOR plus 1.00% per annum (the alternative base rate shall be subject to a floor of 1.75%)) plus a margin of 2.75% per annum.

The Revolver bears interest at a non-default rate per annum equal to (x) the Secured Overnight Financing Rate ("SOFR") (plus a customary SOFR adjustment) plus a margin of up to 3.25% per annum or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.5% per annum above the federal funds effective rate and (iii) one-month SOFR (plus a customary SOFR adjustment) plus 1.00% per annum) plus a margin of up to 2.25% per annum.

Discontinuation, reform or replacement of LIBOR may adversely affect our business.

The credit agreement governing the Senior Secured Credit Facilities permits interest on our Term Loan borrowings to be calculated based on LIBOR.

LIBOR and certain other interest "benchmarks" may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences.

The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to phase out LIBOR by June 2023.

If the phase out occurs as planned, the interest rate applicable to our Term Loan may be calculated based on an alternative, comparable or successor rate which may have a material adverse impact on the cost of the variable rate portion of our indebtedness.

The timing and result of the phase out of LIBOR are unclear, and efforts of industry groups to develop a suitable successor are not guaranteed to result in a viable or widely adopted replacement for LIBOR.

If LIBOR becomes unavailable before a suitable replacement is widely adopted, it could have a material adverse impact on the availability of variable rate financing.

As of December 31, 2022, we also had interest rate swap agreements based on LIBOR.

If LIBOR becomes unavailable, it is unclear how payments under those agreements would be calculated.

Relevant industry groups are seeking to create a standard protocol addressing the expected discontinuation of LIBOR, but there can be no assurance that such a protocol will be developed or implemented with respect to our swap agreements.

The Term Loan bears interest at a rate per annum equal to (x) the forward-looking term rate based on Secured Overnight Financing Rate (“Term SOFR”) plus 3.50% per annum or (y) an alternate base rate (which will be the highest of (i) the prime rate plus, (ii) 0.50% per

annum above the federal funds effective rate and (iii) Term SOFR plus 1.00% per annum (the alternate base rate shall be subject to a floor of 1.00%)) (the "Base Rate") plus 2.50% per annum.

The Revolver bears interest at a rate per annum equal to (x) Term SOFR plus 3.25% per annum or (y) the Base Rate plus 2.25% per annum.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

As of December 31, 2023, we had U.S.

federal net operating loss ("NOL") carryforwards of approximately $540.9 million and state NOL carryforwards of approximately $581.1 million, which may be limited annually due to certain change in ownership provisions of Section 382 of the Internal Revenue Code of 1986, as amended (the "Code").

federal net operating loss ("NOL") carryforwards of approximately $533.6 million and state NOL carryforwards of approximately $588.7 million, which may be limited annually due to certain change in ownership provisions of Section 382 of the Internal Revenue Code of 1986 ("Section 382"), as amended (the "Code").

In addition, as a result of the Symbion acquisition, approximately $111.8 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million, and, as a result of the Novamed acquisition, approximately $6.8 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million.

9 unchanged sentences

Future ownership changes may subject our NOL carryforwards to further annual limitations, which could restrict our ability to use them to offset our taxable income in periods following the ownership changes.

Our stock price could be volatile, and, as a result, our stockholders may not be able to resell their shares at or above the price paid for them.

Since our initial public offering, the price of our common stock as reported on The Nasdaq Global Select Market has ranged from a low of $4.00 on March 18, 2020 to a high of $69.58 on June 25, 2021.

The price of our common stock could be subject to fluctuations in response to a number of factors, including those described elsewhere in this Annual Report and others such as:

• variations in our operating performance and the performance of our competitors;

• actual or anticipated fluctuations in our quarterly or annual operating results;

• publication of research reports by securities analysts about us or our competitors or our industry;

• announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;

• our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

• strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

• the passage of legislation or other regulatory developments affecting us or our industry;

• speculation in the press or investment community;

• changes in accounting principles;

• terrorist acts, acts of war or periods of widespread civil unrest;

• natural disasters and other calamities;

• changes in general market and economic conditions.

Securities class action litigation is often initiated against companies following periods of volatility in their stock price.

This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

Cybersecurity and Data Risks

4 unchanged sentences

As a result, cybersecurity and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us.

We and our third-party vendors have been and likely will continue to be subject to attempted cybersecurity attacks.

We and our third-party vendors have been and likely will continue to be subject to cybersecurity attacks.

Although there has been no material impact on our business or operations from these attempted attacks, there can be no assurance that we or our third-party vendors will not be subject to cybersecurity incidents that bypass our security measures, impact the integrity, availability or privacy of personal health information or other data subject to privacy laws or disrupt our information systems, devices or business, including our ability to provide various health care services.

For example, in May 2023, we experienced an immaterial cybersecurity incident that temporarily disrupted certain facilities in our Idaho market.

The market for cybersecurity insurance is relatively new and coverage available for cybersecurity events may evolve as the industry matures.

6 unchanged sentences

HIPAA also requires our surgical facilities to use standard transaction code sets and identifiers for certain standardized health care transactions, including billing and other claim transactions.

We have undertaken significant efforts involving substantial time and expense to implement these requirements, and we anticipate that continual time and expense will be required to submit standardized transactions and to ensure that any newly acquired facilities can submit HIPAA-compliant transactions.

We have undertaken significant efforts involving substantial time and expense

to implement these requirements, and we anticipate that continual time and expense will be required to submit standardized transactions and to ensure that any newly acquired facilities can submit HIPAA-compliant transactions.

HIPAA requires covered entities to report breaches of unsecured protected health information to affected individuals without unreasonable delay and in no case later than 60 days after the discovery of the breach by the covered entity or its agents.

40 unchanged sentences

Different interpretations or enforcement of existing or new laws and regulations could subject our current practices to allegations of impropriety or illegality, or require us to make changes in our operations, facilities, equipment, personnel, services, capital expenditure programs or operating expenses to comply with the evolving rules.

Any enforcement

action against us, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

Any enforcement action against us, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

A number of initiatives have been proposed during the past several years to reform various aspects of the health care system in the U.S.

62 unchanged sentences

The Eliminating Kickbacks in Recovery Act may affect our financial relationships with referral sources utilizing our clinical laboratories.

In addition to the Anti-Kickback Statute, the U.S.

recently enacted a new law known as the Eliminating Kickbacks in Recovery Act, or the EKRA, discussed in greater detail above.

While the EKRA does contain certain exceptions similar to the Anti-Kickback Statute Safe Harbors, those exceptions are more narrow than the Anti-Kickback Statute Safe Harbors.

In addition to the Anti-Kickback Statute, the Eliminating Kickbacks in Recovery Act, or EKRA, contains certain exceptions similar to the Anti-Kickback Statute Safe Harbors, those exceptions are more narrow than the Anti-Kickback Statute Safe Harbors.

As a result, the operations at our clinical laboratories may be impacted by the EKRA.

1 unchanged sentence

The Stark Law prohibits certain self-referrals for health care services unless an exception applies.

Under the current Stark Law and related regulations, services provided at an ASC are not covered by the statute, even if those services include imaging, laboratory services

or other Stark designated health services, provided that (i) the ASC does not bill for these services separately, or (ii) if the center is permitted to bill separately for these services, they are specifically exempted from Stark Law prohibitions.

Under the current Stark Law and related regulations, services provided at an ASC are not covered by the statute, even if those services include imaging, laboratory services or other Stark designated health services, provided that (i) the ASC does not bill for these services separately, or (ii) if the center is permitted to bill separately for these services, they are specifically exempted from Stark Law prohibitions.

These are generally radiology and other imaging services integral to performance of surgical procedures that meet certain requirements and certain outpatient prescription drugs.

7 unchanged sentences

If future rules modify the provisions of the Stark Law regulations that are applicable to our business, our revenue and profitability could be materially adversely affected and could require us to modify our relationships with our physician and health care system partners.

Federal law restricts the ability of our surgical hospitals to expand surgical capacity.

Federal law restricts the ability of our surgical hospitals to expand capacity.

The Affordable Care Act dramatically curtailed the Whole Hospital Exception and prohibits physician ownership in hospitals that did not have a Medicare provider agreement by December 31, 2010.

19 unchanged sentences

Violators of the FCA are subject to severe financial penalties, including treble damages and per claim penalties in excess of $10,000.

Because our facilities perform hundreds or thousands of similar procedures each year for which they are paid by Medicare, and since the statute of limitations for such claims extends for six years under normal circumstances (and possibly as long as ten years in the event of failure to discover material facts), a repetitive billing error or cost reporting error could result in significant, material repayments and civil or criminal penalties.

Because our facilities perform hundreds or thousands of similar

procedures each year for which they are paid by Medicare, and since the statute of limitations for such claims extends for six years under normal circumstances (and possibly as long as ten years in the event of failure to discover material facts), a repetitive billing error or cost reporting error could result in significant, material repayments and civil or criminal penalties.

Moreover, another trend impacting health care providers is the increased use of the FCA, particularly by individuals who bring actions under that law.

2 unchanged sentences

These private parties, often referred to as relators, are entitled to share in any amounts recovered by the government through trial or settlement.

Both direct enforcement activity by the government and whistleblower lawsuits under the FCA have increased

significantly in recent years;

Both direct enforcement activity by the government and whistleblower lawsuits under the FCA have increased significantly in recent years;

thus, the risk that we will have to defend a false claims action, pay significant fines or be excluded from the Medicare and Medicaid programs has increased.

23 unchanged sentences

From time-to-time we are involved in lawsuits, claims, audits and investigations, including those arising out of services provided, personal injury claims, professional liability claims, billing and marketing practices, employment disputes and contractual claims.

We may become subject to future lawsuits, claims, audits and investigations that could result in substantial costs and divert our attention and resources and adversely affect our business condition.

become subject to future lawsuits, claims, audits and investigations that could result in substantial costs and divert our attention and resources and adversely affect our business condition.

In addition, since our current growth strategy includes acquisitions, among other things, we may become exposed to legal claims for the activities of an acquired business prior to our acquisition of such business.

40 unchanged sentences

In addition, at the time we acquire a surgical facility, we may agree to replace or expand the acquired facility.

If we are unable to obtain required approvals,

we may not be able to acquire additional surgical facilities, expand health care services we provide at these facilities or replace or expand acquired facilities.

If we are unable to obtain required approvals, we may not be able to acquire additional surgical facilities, expand health care services we provide at these facilities or replace or expand acquired facilities.

If antitrust enforcement authorities conclude that our market share in any particular market is too concentrated, that our or our health system partners’ commercial payor contract negotiating practices are illegal, or that we other violate antitrust laws, we could be subject to enforcement actions that could have a material adverse effect on our business, prospects, results of operations and financial condition.

7 unchanged sentences

As of December 31, 2023, affiliates of Bain Capital owned approximately 39.5% of our outstanding common stock.

Although we are no longer a “controlled company” within the meaning of the corporate governance standards of Nasdaq, affiliates of Bain Capital continue to be able to strongly influence or effectively control our decisions.

Although we are no longer a “controlled company” within the meaning of the corporate governance standards of Nasdaq, affiliates of Bain Capital continue to be able to significantly influence our decisions.

Provisions in our charter documents and Delaware law may deter takeover efforts that could be beneficial to stockholder value.

10 unchanged sentences

Under such circumstances, our Certificate of Incorporation holds that such actions may properly be filed in a court other than the Court of Chancery.

Any person or entity purchasing or otherwise acquiring any interest in shares of our stock shall be deemed to have notice of and to have consented to these provisions in our Certificate of Incorporation.

Any person or entity purchasing or otherwise acquiring any

interest in shares of our stock shall be deemed to have notice of and to have consented to these provisions in our Certificate of Incorporation.

These provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees.

Unresolved Staff Comments

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-K

Item 1A. Risk Factors