What changed in this filing

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Item 9A. Controls and Procedures

2024-02-26 compared with 2023-03-01 · 255 added, 242 removed, 1103 unchanged (31% of the section changed)

25 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated March 1, 2023, expressed an unqualified opinion on those financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 26, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

16 unchanged sentences

Nashville, TN

March 1, 2023

February 26, 2024

Other Information

From time to time, certain of our executive officers and directors have, and we expect they will in the future, enter into, amend and terminate written trading arrangements pursuant to Rule 10b5-1 of the Securities and Exchange Act of 1934 or otherwise.

During the three months ended December 31, 2023, none of the Company's directors or officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

19 unchanged sentences

3.2 Amended and Restated Bylaws of Surgery Partners, Inc., dated August 31, 2017 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed September 1, 2017).

4.1 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.

4.1 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated herein by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed March 1, 2023) .

4.2 Indenture, dated June 30, 2017, among SP Finco, LLC and Wilmington Trust, National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 6, 2017).

22 unchanged sentences

10.12 Sixth Amendment to the Credit Agreement, dated as of May 3, 2021, by and among SP Holdco I, Inc., Surgery Center Holdings, Inc., the other Guarantors party thereto, Jefferies Finance LLC and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 5, 2021).

10.13 Seventh Amendment to the Credit Agreement, dated as of November 19, 2021, by and among SP Holdco I, Inc., Surgery Center Holdings, Inc., the other Guarantors party thereto, Jefferies Finance LLC and the other lenders party thereto (incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 22, 2021).

10.13 Seventh Amendment to the Credit Agreement, dated as of November 19, 2021, by and among SP Holdco I, Inc., Surgery Center Holdings, Inc., the other Guarantors party thereto, Jefferies Finance LLC and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 22, 2021).

10.14 Eighth Amendment to the Credit Agreement, dated as of August 18, 2022, by and among SP Holdco I, Inc., Surgery Center Holdings, Inc., the other Guarantors party thereto, Jefferies Finance LLC and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 8, 2022).

10.15 Ninth Amendment to the Credit Agreement, dated as of January 13, 2023, by and among SP Holdco I, Inc., Surgery Center Holdings, Inc., the other Guarantors party thereto, Jefferies Finance LLC and the other lenders party thereto.

10.16 Tenth Amendment to the Credit Agreement, dated as of June 8, 2023, by and among SP Holdco I, Inc., Surgery Center Holdings, Inc., the other Guarantors party thereto, Jefferies Finance LLC and the other lenders party thereto (incorporated herein by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q filed August 1, 2023).

10.17 Tax Receivable Agreement, dated as of September 30, 2015, among Surgery Partners, Inc., H.I.G.

51 unchanged sentences

10.42 (a) Employment Agreement, dated July 25, 2022, by and between Surgery Partners, Inc.

and Harrison Bane.

and Harrison Bane (inc orporated herein by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K filed on March 1, 2023) .

10.43 Credit Agreement, dated as of December 19, 2023, by and among SP Holdco I, Inc., Surgery Center Holdings, Inc., Jefferies Finance LLC and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20,2023).

21.1 List of Subsidiaries of the Registrant.

4 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

97 Surgery Partners, Inc.

Executive Compensation Recovery Policy

101.INS Inline XBRL Taxonomy Extension Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

21 unchanged sentences

We have audited the accompanying consolidated balance sheets of Surgery Partners, Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

8 unchanged sentences

Accounts receivable are recorded net of estimated price concessions at both surgical hospitals and ambulatory surgical centers.

At surgical hospitals, the estimation process is based on historical trend of cash collections and contractual write-offs.

At surgical hospitals, the estimation process is based on historical trends of cash collections and contractual write-offs.

The inputs used to determine the estimated price concessions are based on objective data.

7 unchanged sentences

• We tested the underlying data related to the recognition of patient level charges and the subsequent activities, including cash collections and contractual write-offs.

• We tested the mathematical accuracy of the estimates applied to period-end accounts receivable.

• We developed independent estimates of the price concessions using historical collections by payor and location and compared the independent estimates to the price concession estimate developed by management to evaluate accounts receivable.

2 unchanged sentences

Nashville, Tennessee

March 1, 2023

February 26, 2024

We have served as the Company's auditor since 2018.

21 unchanged sentences

Accrued payroll and benefits 73.8 68.9

Medicare accelerated payments and deferred governmental grants 3.2 64.4

Other current liabilities 204.1 210.1

13 unchanged sentences

Additional paid-in capital 2,497.6 2,478.0

Accumulated other comprehensive income (loss) 76.2 ( 31.5 )

Accumulated other comprehensive income 57.5 76.2

Retained deficit ( 569.2 ) ( 557.3 )

23 unchanged sentences

Grant funds ( 1.1 ) ( 2.4 ) ( 37.9 )

Loss on disposals and deconsolidations, net 11.1 2.2 5.7

Net loss on disposals, consolidations and deconsolidations 14.4 11.1 2.2

Equity in earnings of unconsolidated affiliates ( 14.2 ) ( 12.5 ) ( 11.3 )

1 unchanged sentence

Loss on debt extinguishment 15.5 14.9 9.1

Impairment charges — — 33.5

Other income, net ( 6.4 ) ( 16.6 ) ( 15.5 )

2 unchanged sentences

Interest expense, net ( 193.0 ) ( 234.9 ) ( 221.0 )

Income (loss) before income taxes 110.3 81.2 ( 18.8 )

Income tax (expense) benefit ( 23.3 ) ( 10.5 ) 20.1

Income before income taxes 135.0 110.3 81.2

Income tax benefit (expense) 0.3 ( 23.3 ) ( 10.5 )

Net income 135.3 87.0 70.7

4 unchanged sentences

Net loss attributable to common stockholders $ ( 11.9 ) $ ( 54.6 ) $ ( 81.2 )

Net loss per share attributable to common stockholders - basic and diluted (1)

Net loss per share attributable to common stockholders:

Basic $ ( 0.09 ) $ ( 0.59 ) $ ( 1.12 )

$ ( 0.09 ) $ ( 0.59 ) $ ( 1.12 )

Weighted average common shares outstanding - basic and diluted (1)

Weighted average common shares outstanding:

Basic 125,613 91,952 72,427

125,613 91,952 72,427

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

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

See notes to consolidated financial statements.

5 unchanged sentences

Net income $ 135.3 $ 87.0 $ 70.7

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Derivative activity, net of tax of $ 0

( 18.7 ) 107.7 29.5

Comprehensive income (loss) 194.7 100.2 ( 9.0 )

Comprehensive income 116.6 194.7 100.2

Comprehensive income attributable to non-controlling interests ( 147.2 ) ( 141.6 ) ( 141.6 )

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

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

$ ( 30.6 ) $ 53.1 $ ( 41.4 )

12 unchanged sentences

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

Other comprehensive loss — — — ( 10.3 ) — — ( 10.3 )

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

Equity offering 15,525 0.2 554.0 — — — 554.2

Other comprehensive income — — — 29.5 — — 29.5

Acquisition and disposal of shares of non-controlling interests, net — — 22.2 — — 109.0 131.2

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 87.6 ) ( 87.6 )

Other — — — — — ( 0.2 ) ( 0.2 )

Balance as of December 31, 2021 89,333 0.9 1,622.3 ( 31.5 ) ( 502.7 ) 880.6 1,969.6

1 unchanged sentence

Equity-based compensation 590 — 22.5 — — — 22.5

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

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

Equity offering 36,038 0.4 857.3 — — — 857.7

5 unchanged sentences

Equity-based compensation 633 — 18.5 — — — 18.5

Equity offering 36,038 0.4 857.3 — — — 857.7

Other comprehensive income — — — 107.7 — — 107.7

Other comprehensive loss — — — ( 18.7 ) — — ( 18.7 )

Acquisition and disposal of shares of non-controlling interests, net — — 1.1 — — 98.2 99.3

14 unchanged sentences

Equity-based compensation expense 17.7 18.4 17.4

Loss on disposals and deconsolidations, net 11.1 2.2 5.7

Net loss on disposals, consolidations and deconsolidations 14.4 11.1 2.2

Loss on debt extinguishment 15.5 14.9 9.1

1 unchanged sentence

Equity in earnings of unconsolidated affiliates, net of distributions received ( 2.2 ) ( 1.8 ) 0.2

Impairment charges — — 33.5

Other non-cash income — ( 7.5 ) —

16 unchanged sentences

Borrowings of long-term debt 826.6 217.8 299.4

Payments of debt issuance costs ( 24.3 ) — ( 11.7 )

Payment of premium on debt extinguishment — ( 11.3 ) —

2 unchanged sentences

Distributions to non-controlling interest holders ( 146.1 ) ( 146.8 ) ( 131.0 )

Payments related to ownership transactions with non-controlling interest holders ( 3.4 ) ( 28.4 ) ( 27.4 )

Payments of debt issuance costs — ( 11.7 ) ( 8.5 )

Proceeds (payments) related to ownership transactions with non-controlling interest holders 8.2 ( 3.4 ) ( 28.4 )

Payments of preferred dividends — — ( 5.1 )

Other financing activities ( 12.5 ) ( 9.9 ) ( 17.9 )

Net cash provided by financing activities 42.1 316.3 66.7

Net cash (used in) provided by financing activities ( 155.2 ) 42.1 316.3

Net (decrease) increase in cash and cash equivalents ( 87.0 ) ( 107.0 ) 71.7

10 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, orthopedics and pain management, ophthalmology, gastroenterology and general surgery .

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

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, oncology, pharmacy, physical therapy and wound care.

Ancillary services are comprised of multi-specialty physician practices, urgent care facilities and anesthesia services.

3 unchanged sentences

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 93 of the surgical facilities and consolidated 118 of the facilities for financial reporting purposes.

The Company owned a majority interest in 90 of these surgical facilities and consolidated 123 surgical facilities for financial reporting purposes.

Basis of Presentation

9 unchanged sentences

The Company continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

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

The following table presents a summary of revenues by service type as a percentage of total revenues:

Year Ended December 31,

21 unchanged sentences

Changes in estimated contractual adjustments and discounts are recorded in the period of change.

Currently, several states utilize supplemental Medicaid reimbursement programs for the purpose of providing reimbursement to providers to increase base rates to the levels that Medicare would have paid for the same service or for payments that offsets a portion of the cost of providing care to Medicaid and indigent patients.

These programs are designed with input from the Centers for Medicare & Medicaid Services (“CMS”) and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers.

We account for payments under these supplemental programs as variable consideration and estimate the amount using the most likely amount method.

The Company recognizes this variable consideration only when it is deemed probable that a significant reversal of the cumulative revenue recognized will not occur when uncertainties associated with the variable consideration are resolved.

The Company reassess its variable consideration related to these supplemental reimbursement programs when new information becomes available, such as when there are program changes or receipt of final payments.

Reimbursement under these programs, including the recognition of variable consideration, is reflected in patient service revenues.

Taxes or other program-related costs are reflected in other operating expenses.

During the year ended December 31, 2023, the State of Idaho revised its calculation of the Upper Payer Limit ("UPL") Gap.

In connection with this revision, during the year ended December 31, 2023, the Company recognized revenue and the corresponding provider tax of $ 17.2 million and $ 3.1 million, respectively, based on notification received from the State of Idaho related to the cost report year ended December 31, 2021, which reflected the revision in calculation of the UPL Gap.

Since the UPL program is an ongoing program in the State of Idaho and the revised calculation has been approved by CMS for the current and future periods, during the year ended December 31, 2023, the Company recognized variable consideration and the corresponding provider tax of $ 34.4 million and $ 10.4 million, respectively, for the cost report years ended December 31, 2023 and 2022.

As of December 31, 2023, the Company has recorded amounts due from third-party payors related to these supplemental reimbursement programs of $ 17.2 million, included in other current assets and $ 17.2 million, included in other long-term assets in the accompanying consolidated balance sheets.

As of December 31, 2023, the Company has recorded amounts due to third-party payors related to these supplemental reimbursement programs of $ 5.2 million, included in other current liabilities and $ 5.2 million included in other long-term liabilities.

There were no amounts recorded as of December 31, 2022, related to these supplemental reimbursement programs.

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, management services provided to physician practices for which the Company is not required to provide capital or additional assets and other non-patient services.

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 and other non-patient services.

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.

For the year ended December 31, 2020, other service revenues also includes optical service revenues, which consisted of handling charges billed to the members of the Company's optical products purchasing organization.

The Company sold its optical products purchasing organization on December 31, 2020.

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):

11 unchanged sentences

Total revenues $ 2,743.3 $ 2,539.3 $ 2,225.1

(1) Other is comprised of anesthesia service agreements, auto liability, letters of protection and other payor types.

(1) Other is comprised of anesthesia service agreements, automobile liability, letters of protection and other payor types.

(2) Includes amounts attributable to related parties of $ 18.4 million, $ 15.7 million and $ 9.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accounts Receivable

13 unchanged sentences

Collection efforts include direct contact with third-party payors or patients, written correspondence and the use of legal or collection agency assistance, as required.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Impairment of Long-Lived Assets, Goodwill and Intangible Assets

10 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.

9 unchanged sentences

Certain transactions with non-controlling interests are classified within financing activities in the consolidated statements of cash flows.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The consolidated financial statements of the Company include all assets, liabilities, revenues and expenses of surgical facilities in which the Company has sufficient ownership and rights to allow the Company to consolidate the surgical facilities.

3 unchanged sentences

In certain circumstances, the applicable partnership or operating agreements for the Company's surgical facilities provide that the facilities will purchase all of the physician limited partners’ or physician minority members’, as applicable, ownership if certain adverse regulatory events occur, such as it becoming illegal for the physician(s) to own an interest in a surgical facility, refer patients to a surgical facility or receive cash distributions from a surgical facility.

The Company believes the likelihood of an event occurring that would trigger such purchases was remote as of December 31, 2023.

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

A summary of activity related to the non-controlling interests—redeemable for the years ended December 31, 2022 and 2021 is as follows (in millions):

A summary of activity related to redeemable non-controlling interests for the years ended December 31, 2023 and 2022 is as follows (in millions):

Balance at beginning of period $ 342.0 $ 330.2

3 unchanged sentences

Balance at end of period $ 327.4 $ 342.0

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Cash and Cash Equivalents

5 unchanged sentences

Investments in unconsolidated affiliates in which the Company exerts significant influence but does not control or otherwise consolidate are accounted for using the equity method.

Equity method investments are initially recorded at cost, unless there is a deconsolidation where the investments are a result of the Company losing control of a previously controlled entity but still retaining a non-controlling interest.

Equity method investments are initially recorded at cost, unless there is a deconsolidation where the investments are a result of the Company no longer having control of a previously controlled entity but still retaining a non-controlling interest.

The Company had two such deconsolidations during the year ended December 31, 2022 but none during the year ended December 31, 2023.

3 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 $ 2 million and $ 27 million during the years ended December 31, 2022 and 2021, respectively.

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 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 $ 2.4 million of grant funds received qualified for recognition as a reduction in operating expenses for the year ended December 31, 2022.

During the years ended December 31, 2021 and 2020, the Company recognized $ 37.9 million and $ 46.2 million, respectively, as a reduction in operating expenses.

As of December 31, 2022 and 2021, approximately $ 3 million and $ 4 million, respectively, of unrecognized grant funds received was reflected within the consolidated balance sheets.

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

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 were used for COVID-19 related healthcare expenses or lost revenues.

During the years ended December 31, 2023, 2022 and 2021, the Company recognized grant funds as a reduction in operating expenses in the amount of $ 1.1 million, $ 2.4 million and $ 37.9 million, respectively.

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

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

In addition, the Company previously received accelerated payments under the Medicare Accelerated and Advance Payment Program.

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

During each of the years ended December 31, 2022 and 2021, the Company repaid approximately $ 60 million in accordance with the terms of the program.

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

During each of the years ended December 31, 2022 and 2021, approximately $ 60 million 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 consolidated statements of cash flows.

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

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

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

The CARES Act also provided for the deferral of the Company's portion of social security payroll taxes during 2020.

Under the CARES Act, half of the deferred amount was paid in December 2021 and the remaining portion was paid in December 2022.

There was no remaining deferred balance as of December 31, 2022.

As of December 31, 2021, the Company had deferred approximately $ 8.5 million, which was included as a component of accrued payroll and benefits in the consolidated balance sheets.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value of Financial Instruments

6 unchanged sentences

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

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

7 unchanged sentences

$ 320.0 $ 320.0 $ 321.2 $ 326.8

The fair values in the table above were based on a Level 2 inputs using quoted prices for identical liabilities in inactive markets.

The fair values in the table above were based on Level 2 inputs using quoted prices for identical liabilities in inactive markets.

The carrying amounts related to the Company's other long-term debt obligations, including finance lease obligations, approximate their fair values based on Level 3 inputs.

3 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 December 31, 2022, the Company's consolidated VIEs include six surgical facilities and five physician practices.

As of December 31, 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 consolidated balance sheets as of December 31, 2023 and 2022, were $ 65.3 million and $ 64.9 million, respectively, and the total liabilities of the consolidated VIEs were $ 41.2 million and $ 40.9 million, respectively.

6 unchanged sentences

Reserves for professional, general and workers' compensation claim liabilities are determined with no regard for expected insurance recoveries and are presented gross on the consolidated balance sheets.

Acquisitions and Dispositions

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures , which requires enhanced disclosures of significant segment expenses.

The ASU is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024.

The amendments in this ASU must be applied retrospectively to all periods presented and early adoption is permitted.

The Company is evaluating the impact of this ASU on its consolidated financial statements.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures , which establishes new requirements for the categorization and disaggregation of information in the rate reconciliation as well as for disaggregation of income taxes paid.

The ASU is effective for annual periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025.

The amendments in this ASU may be applied prospectively or retrospectively to all periods presented and early adoption is permitted.

The Company is evaluating the impact of this ASU on its consolidated financial statements.

Acquisitions, Disposals and Deconsolidations

The Company accounts for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquired entity are recognized and measured at their fair values on the date the Company obtains control in the acquiree.

2 unchanged sentences

Goodwill is determined as the excess of the fair value of the consideration conveyed plus the fair value of any non-controlling interests in the acquisition over the fair value of the net assets acquired.

During the year ended December 31, 2022, the Company acquired controlling interests in seven surgical facilities, two of which were merged into existing facilities, and a physician practice for aggregate cash consideration of $ 146.4 million, net of cash acquired, non-cash consideration of $ 5.6 million and assumed debt of $ 39.4 million.

During the year ended December 31, 2023:

• The Company acquired a controlling interest in five surgical facilities, four physician practices and an in-development denovo surgical facility for aggregate cash consideration of $ 55.5 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 $ 38.7 million and goodwill of $ 84.7 million.

• The Company acquired a controlling interest in six surgical facilities and an in-development de novo surgical facility, which were previously accounted for as equity method investments, for aggregate cash consideration of $ 24.3 million, net of cash acquired.

The Company also amended the operating agreement of a previously non-controlled surgical facility resulting in the Company obtaining a controlling interest in the facility.

These transactions resulted in the consolidation of the previously non-consolidated entities.

The previously held non-controlling interests 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 $ 38.7 million.

As a result of increasing its ownership interest, the Company recognized a net loss of $ 9.3 million included in net loss on disposals, consolidations and deconsolidations in the consolidated statements of operations for the year ended December 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 consolidation of these facilities, the Company preliminarily recognized non-controlling interests of $ 84.5 million and goodwill of $ 142.5 million.

• The Company acquired a non-controlling interest in five surgical facilities and two in-development de novo surgical facilities for aggregate cash consideration of $ 50.3 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 consolidated balance sheets.

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 consolidated balance sheets.

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

During the year ended December 31, 2022:

• The Company acquired a controlling interest in seven surgical facilities, two of which were merged into existing surgical facilities, and a physician practice for aggregate cash consideration of $ 146.4 million, net of cash acquired, non-cash consideration of $ 5.6 million and assumed debt of $ 39.4 million.

The non-cash consideration 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 $ 89.1 million and goodwill of $ 271.7 million.

• The Company acquired a non-controlling interest in seven surgical facilities and seven in-development de novo surgical facilities for aggregate cash consideration of $ 95.1 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 consolidated balance sheets.

During the year ended December 31, 2021:

• The Company acquired controlling interests in eight surgical facilities, two of which were merged into existing facilities, and two physician practices for aggregate cash consideration of $ 285.8 million, net of cash acquired.

In connection with the acquisitions, the Company preliminarily recognized non-controlling interests of $ 185.9 million and goodwill of $ 446.1 million.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

During the year ended December 31, 2021, the Company acquired controlling interests in eight surgical facilities, two of which were merged into existing facilities, and two physician practices for aggregate cash consideration of $ 285.8 million, net of cash acquired.

In connection with the acquisitions, the Company preliminarily recognized non-controlling interests of $ 185.9 million and goodwill of $ 446.1 million.

During the year ended December 31, 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 year ended December 31, 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 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 consolidated balance sheets.

Disposals and Deconsolidations

During the year ended December 31, 2022, the Company sold its interests in two surgical facilities, one of which was previously accounted for as an equity method investment, for net cash proceeds of $ 25.7 million.

In connection with the sales, the Company recognized a pre-tax loss of $ 4.5 million included in loss on disposals and deconsolidations, net in the consolidated statements of operations for the year ended December 31, 2022.

During the year ended December 31, 2022, the Company contributed its interests in two surgical facilities as non-cash consideration for non-controlling interests in two new separate entities.

During the year ended December 31, 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 consolidated statements of operations for the year ended December 31, 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 consolidated statements of operations for the year ended December 31, 2023.

During the year ended December 31, 2022:

• The Company sold its interests in two surgical facilities, one of which was previously accounted for as an equity method investment, for net cash proceeds of $ 25.7 million.

In connection with the sales, the Company recognized a pre-tax loss of $ 4.5 million included in net loss on disposals, consolidations and deconsolidations in the consolidated statements of operations for the year ended December 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.

3 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 consolidated balance sheets.

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 consolidated statements of operations for the year ended December 31, 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 consolidated statements of operations for the year ended December 31, 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.

During the year ended December 31, 2021, the Company sold its interests in three surgery centers, one physician practice and certain other assets for combined net cash proceeds of $ 6.0 million.

In connection with the sales, the Company recognized a net pre-tax gain of $ 4.0 million included in loss on disposals and deconsolidations, net in the consolidated statements of operations for the year ended December 31, 2021.

During the year ended December 31, 2020, the Company sold its interests in three surgery centers, one of which was previously accounted for as an equity method investment, sold certain assets related to its anesthesia business, certain imaging assets and its optical products purchasing organization for combined net cash proceeds of $ 58.5 million.

In connection with the sales, the Company recognized a net pre-tax gain of $ 5.2 million included in loss on disposals and deconsolidations, net in the consolidated statements of operations for the year ended December 31, 2020.

Additionally, the Company closed its diagnostic laboratory and recognized a net pre-tax loss of $ 3.5 million included in loss on disposals deconsolidations, net in the consolidated statements of operations for the year ended December 31, 2020.

During the year ended December 31, 2021:

• The Company sold its interests in three surgery centers, one physician practice and certain other assets for combined net cash proceeds of $ 6.0 million.

In connection with the sales, the Company recognized a net pre-tax gain of $ 4.0 million included in net loss on disposals, consolidations and deconsolidations in the consolidated statements of operations for the year ended December 31, 2021.

Property and Equipment

28 unchanged sentences

1) Surgical Facilities and 2) Ancillary Services.

Prior to 2021, the Company had a third reporting unit, Alliance, which was a component of the Optical Services operating segment.

On December 31, 2020, the Company sold the remaining assets of the Optical Services operating segment.

The Company compares the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit.

2 unchanged sentences

As of the October 1, 2023 valuation, the fair value for the Surgical Facilities reporting unit was substantially in excess of its carrying value.

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

A detailed evaluation of potential impairment indicators was performed, which specifically considered changes in interest rates, inflation risk and market volatility.

While the Company believes that all assumptions utilized in the testing were appropriate, they may not reflect actual outcomes that could occur.

2 unchanged sentences

In 2023, 2022 and 2021, there were no non-cash impairment charges.

During the year ended December 31, 2020, as a result of its impairment testing, the Company recorded non-cash impairment charges of $ 28.6 million and $ 4.9 million related to the Ancillary Services and Alliance reporting units, respectively.

The fair values were determined using the adjusted book value for the Ancillary Services reporting unit and the discounted cash flow model for the Alliance reporting unit.

The discounted cash flow model is projected based on a year-by-year assessment that considers historical results, estimated market conditions, internal projections, and relevant publicly available statistics.

Determining fair value requires the exercise of significant judgment, including assumptions about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows.

The significant judgments are typically based upon Level 3 inputs, generally defined as unobservable inputs representing the Company's own assumptions.

The cash flows employed in the discounted cash flow analysis are based on the Company's most recent budgets and business plans aligned with provided guidance and, when applicable, various growth rates are assumed for years beyond the current business plan period.

Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units.

The variables within the discount rate, many of which are outside of the Company's control, provide the best estimate of all assumptions applied within the discounted cash flow model.

There can be no assurance that operations will achieve the future cash flows reflected in the projections.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the changes in the carrying amount of goodwill follows (in millions):

5 unchanged sentences

"Acquisitions and Dispositions."

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Intangible Assets

2 unchanged sentences

The Company also has finite-lived intangible assets related to physician guarantee agreements, non-compete agreements and management rights agreements.

Physician guarantees are amortized into salaries and benefits costs in the consolidated statements of operations over the commitment period of the contract, generally three to four years .

Physician guarantees are amortized into salaries and benefits costs in the consolidated statements of operations over the commitment period of the contract, generally two to four years .

Non-compete agreements and management rights agreements are amortized into depreciation and amortization expense in the consolidated statements of operations over the service lives of the agreements, typically ranging from two to five years for non-compete agreements and 15 years for the management rights agreements.

11 unchanged sentences

Thereafter 17.0

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Long-Term Debt

7 unchanged sentences

Finance lease obligations 693.6 585.7

Unamortized debt issuance costs ( 10.2 ) ( 16.5 )

unamortized debt issuance costs and discounts ( 27.1 ) ( 10.2 )

Total debt 2,775.1 2,621.8

2 unchanged sentences

(1) Includes unamortized fair value discount of $ 1.6 million and $ 2.1 million as of December 31, 2023 and 2022, respectively.

Senior Secured Credit Facilities

The Company has a credit agreement (the "Credit Agreement") providing for a $ 1.545 billion senior secured term loan (the "Term Loan") and a $ 350.0 million senior secured revolving credit facility (the "Revolver" and together with the Term Loan, the “Senior Secured Credit Facilities").

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

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

New Credit Facilities

On December 19, 2023, the Company entered into a credit agreement (the “Credit Agreement”), which provided for a $ 1.4 billion senior secured term loan (the "Term Loan") and a $ 703.8 million revolving credit facility (the "Revolver" and, together with the Term Loan, the "New Credit Facilities").

Subject to certain conditions and requirements set forth in the Credit Agreement, the Company may request one or more additional incremental term loan facilities or one or more increases in the commitments under the Revolver.

During 2022, the Company entered into an amendment to the Credit Agreement, which increased the outstanding commitments under the Revolver.

The Term Loan will mature on August 31, 2026.

In connection with 2025 Notes Redemption (defined below), the Term Loan is no longer subject to accelerated maturity.

Voluntary prepayments of the Term Loan are permitted, in whole or in part, with prior notice, without premium or penalty (except LIBOR breakage costs and a call premium in the case of certain repricing events within a specified period of time after May 3, 2021).

During 2022, the Company made a voluntary prepayment of $ 150.0 million without premium or penalty.

As a result of the prepayment, the Term Loan is no longer subject to quarterly amortization payments prior to maturity.

In connection with prepayment, the Company wrote-off a portion of unamortized debt issuance costs and discounts, resulting in a debt extinguishment loss of $ 1.0 million, included in loss on debt extinguishment in the accompanying consolidated statements of operations.

The Term Loan bears interest at a rate per annum equal to (x) LIBOR plus a margin of 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) 0.5 % per annum above the federal funds effective rate and (iii) one-month LIBOR plus 1.00 % per annum (the alternate base rate shall be subject to a floor of 1.75 %)) plus a margin of 2.75 % per annum.

The Revolver matures on February 1, 2026.

With respect to the Revolver, the Company is required to comply with a maximum consolidated total net leverage ratio of 9.50 :1.00, which covenant will be tested quarterly on a trailing four quarter basis only if, as of the last day of the applicable fiscal quarter the Revolver is drawn in an aggregate amount greater than 35 % of the total commitments under the Revolver.

Such financial maintenance covenant is subject to an equity cure.

The Revolver bears interest at a non-default rate per annum equal to (x) 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.

The margin applicable to the Revolver may be reduced depending on the first lien leverage ratio of the Company as defined in the Credit Agreement.

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

As of both December 31, 2022 and 2021, the Company had no outstanding borrowings on the Revolver.

In connection with entering the New Credit Facilities, the Company terminated the then-existing senior secured credit facilities, originally dated as of August 31, 2017 and, as amended thereafter (the "2017 Credit Agreement").

Proceeds from the 2023 Term Loan were used to repay in full the amounts previously outstanding under the 2017 Credit Agreement and pay fees and expenses in connection with the New Credit Facilities.

The Term Loan matures on December 19, 2030.

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, subject to a 1.00 % floor) (the “Base Rate”) plus 2.50 % per annum.

The Term Loan amortizes in equal quarterly installments of 0.25 % of the aggregate original principal amount outstanding on the Term Loan, which will commence on or around the last business day of the fiscal quarter ending June 30, 2024.

Subject to the right of reinvestment and certain other exceptions, the Term Loan requires mandatory prepayments upon the occurrence of certain events as defined in the Credit Agreement.

Commencing in the year ended December 31, 2024, the Term Loan is also subject to an annual mandatory prepayment in an amount equal to a percentage of excess cash flow as determined based on the first lien net leverage ratio as of the last day of the applicable fiscal year.

The Revolver matures on December 19, 2028.

Interest on any loans drawn under the Revolver shall bear 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.

In addition, the Company is required to pay a commitment fee ranging from 0.50 % to 0.25 % per annum, depending on the Company’s first lien net leverage ratio, in respect of unused commitments under the Revolver.

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

As of December 31, 2023, the Company's availability on the Revolver was $ 694.3 million (including outstanding letters of credit of $ 9.5 million).

The Senior Secured Credit Facilities are guaranteed, on a joint and several basis, by SP Holdco I, Inc.

With respect to the Revolver, the Company is required to comply with a maximum first lien net leverage ratio of 5.00 :1.00, which covenant will be tested quarterly on a trailing four quarter basis only if, as of the last day of the applicable fiscal quarter the Revolver is drawn in an aggregate amount greater than 40 % of the total commitments under the Revolver.

Such financial maintenance covenant is subject to an equity cure.

The New Credit Facilities are guaranteed, on a joint and several basis, by SP Holdco I, Inc.

and each of Surgery Center Holdings, Inc.'s current and future wholly-owned domestic restricted subsidiaries (subject to certain exceptions) (the "Subsidiary Guarantors") and are secured by a first priority security interest in substantially all of Surgery Center Holdings, Inc.'s, SP Holdco I, Inc.'s and the Subsidiary Guarantors’ assets (subject to certain exceptions).

The Credit Agreement includes customary negative covenants restricting or limiting the ability of the Company and its restricted subsidiaries, to, among other things, sell assets, alter its business, engage in mergers, acquisitions and other business combinations, declare dividends or redeem or repurchase equity interests, incur additional indebtedness or guarantees, make loans and investments, incur liens, enter into transactions with affiliates, prepay certain junior debt, and modify or waive certain material agreements and organizational

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

documents, in each case, subject to customary and other agreed upon exceptions.

The Credit Agreement also contains customary affirmative covenants and events of default.

The New Credit Facilities includes customary negative covenants restricting or limiting the ability of the Company and its restricted subsidiaries, to, among other things, sell assets, alter its business, engage in mergers, acquisitions and other business combinations, declare dividends or redeem or repurchase equity interests, incur additional indebtedness or guarantees, make loans and investments, incur liens, enter into transactions with affiliates, prepay certain junior debt, and modify or waive certain material agreements and organizational documents, in each case, subject to customary and other agreed upon exceptions.

The New Credit Facilities also contain customary affirmative covenants and events of default.

As of December 31, 2023, the Company was in compliance with the covenants contained in the Credit Agreement.

In connection with the aforementioned financing transactions, the Company recorded debt issuance costs and discount of $ 34.5 million, and a debt extinguishment loss of $ 15.5 million, included in loss on debt extinguishment in the accompanying consolidated statement of operations for the year ended December 31, 2023.

The loss includes the partial write-off of unamortized debt issuance costs and discounts related to the prior existing term loans, and a portion of debt issuance costs incurred with entering the New Credit Facilities.]

Prior to the New Credit Facilities, the 2017 Credit Agreement provided for a $ 1.545 billion senior secured term loan (the "2017 Term Loan") and a $ 350.0 million senior secured revolving credit facility.

During 2022, the Company made a voluntary prepayment of $ 150.0 million without premium or penalty.

During 2021, in connection with certain amendments to the 2017 Credit Agreement, the Company recorded a debt extinguishment loss of $ 9.1 million, included in loss on debt extinguishment in the accompanying consolidated statements of operations for the year ended December 31, 2021, related to the partial write-off of unamortized debt issuance costs and discounts and a portion of debt issuance costs incurred with the amendments.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.750 % Senior Unsecured Notes due 2025

2 unchanged sentences

The 2025 Unsecured Notes are a senior unsecured obligation of Surgery Center Holdings, Inc.

and are guaranteed on a senior unsecured basis by each of Surgery Center Holdings, Inc.'s existing and future domestic wholly-owned restricted subsidiaries that guarantees the Senior Secured Credit Facilities (subject to certain exceptions).

and are guaranteed on a senior unsecured basis by each of Surgery Center Holdings, Inc.'s existing and future domestic wholly-owned restricted subsidiaries that guarantees the New Credit Facilities (subject to certain exceptions).

The Company may redeem the 2025 Unsecured Notes, in whole or in part, at any time, at 100.0 % of the principal amount to be redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption.

8 unchanged sentences

The 2027 Unsecured Notes are a senior unsecured obligation of Surgery Center Holdings, Inc.

The Company may redeem the 2027 Unsecured Notes, in whole or in part, at any time on or after April 15, 2022, at the redemption prices set forth below (expressed as a percentage of the principal amount of notes to be redeemed), plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption:

April 15, 2022 to April 14, 2023 105.000 %

and are guaranteed on a senior unsecured basis by each of Surgery Center Holdings, Inc.'s existing and future domestic wholly-owned restricted subsidiaries that guarantees the New Credit Facilities (subject to certain exceptions).

The Company may redeem the 2027 Unsecured Notes, in whole or in part, at the redemption prices set forth below (expressed as a percentage of the principal amount of notes to be redeemed), plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption:

April 15, 2023 to April 14, 2024 102.500 %

8 unchanged sentences

Certain of the Company’s subsidiaries have outstanding indebtedness under notes payable and other secured loans, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made, and right-of-use finance lease obligations for which the Company is liable to various vendors for several property and equipment leases classified as finance leases.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

various bank indebtedness agreements contain covenants to maintain certain financial ratios and also restrict encumbrance of assets, creation of indebtedness, investing activities and payment of distributions.

The various bank indebtedness agreements contain covenants to maintain certain financial ratios and also restrict encumbrance of assets, creation of indebtedness, investing activities and payment of distributions.

At December 31, 2023, the Company was in compliance with its covenants contained in the credit agreements.

1 unchanged sentence

"Leases" for further discussion.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of maturities for the Company's long-term debt, excluding unamortized debt issuance costs and the unamortized fair value discount discussed above, for the next five years and thereafter as of December 31, 2023 follows (in millions):

57 unchanged sentences

Payments are allocated to principal adjustments of the finance lease liability and interest expense.

The change from prior year is primarily a result of the modification of certain existing facility real estate leases that were reclassified from operating to finance as discussed above.

SURGERY PARTNERS, INC.

24 unchanged sentences

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

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

6 unchanged sentences

Interest rate cap September 30, 2021 8.7 Active 159.1 Active March 31, 2025

Pay-fixed swap November 30, 2018 165.0 Active 165.0 Active November 30, 2023

Pay-fixed swap November 30, 2018 120.0 Active 120.0 Active November 30, 2023

Pay-fixed swap June 28, 2019 150.0 Active 150.0 Active November 30, 2023

Receive-fixed swap April 30, 2021 ( 165.0 ) Active ( 165.0 ) Active November 30, 2023

Receive-fixed swap April 30, 2021 ( 120.0 ) Active ( 120.0 ) Active November 30, 2023

Receive-fixed swap April 30, 2021 ( 150.0 ) Active ( 150.0 ) Active November 30, 2023

Pay-fixed swap November 30, 2018 — Matured 165.0 Active November 30, 2023

Pay-fixed swap November 30, 2018 — Matured 120.0 Active November 30, 2023

Pay-fixed swap June 28, 2019 — Matured 150.0 Active November 30, 2023

Receive-fixed swap April 30, 2021 — Matured ( 165.0 ) Active November 30, 2023

Receive-fixed swap April 30, 2021 — Matured ( 120.0 ) Active November 30, 2023

Receive-fixed swap April 30, 2021 — Matured ( 150.0 ) Active November 30, 2023

$ 1,360.1 $ 1,518.2

As of December 31, 2022, 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

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

As of December 31, 2022, the Company had two interest rate caps with a total notional amount of $ 318.2 million, of which, $ 170.0 million is designated in a cash flow hedging relationship and $ 148.2 million is undesignated.

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

The interest rate swaps are pay-fixed, receive 1-Month SOFR (subject to a minimum of 0.75 %) designated in cash flow hedging relationships with a termination date of March 31, 2025.

The six matured interest rate swaps were undesignated and consisted of three pay-fixed, received 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.

The interest rate swaps matured effective November 30, 2023.

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

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 December 31, 2023, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $ 160.1 million.

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

4 unchanged sentences

No cash was exchanged between the Company and the counterparties due to the de-designation, therefore the non-cash transactions had no impact on the consolidated statements of cash flows.

During the year ended December 31, 2023, the Company partially terminated the previously de-designated 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 consolidated statements of cash flows for the year ended December 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.

5 unchanged sentences

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

Our interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the 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 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 are 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.

2 unchanged sentences

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 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 $ 30.4 million will be reclassified as an decrease to interest expense.

Amounts reported in

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 $ 53.8 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 consolidated balance sheets (in millions):

12 unchanged sentences

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

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

Year Ended December 31,

1 unchanged sentence

Derivatives not designated as hedging instruments

Gain recognized in income Other income $ ( 0.4 ) $ ( 0.1 ) $ —

(Gain) loss recognized in income Other income, net $ 0.6 $ ( 0.4 ) $ ( 0.1 )

Gain reclassified from accumulated OCI into income (1)

Other income $ ( 7.5 ) $ — $ —

Other income, net $ — $ ( 7.5 ) $ —

Derivatives in cash flow hedging relationships

Gain (loss) recognized in OCI (effective portion) $ 16.0 $ 104.9 $ 4.8

Loss reclassified from accumulated OCI into income (effective portion) (2)

(Gain) loss reclassified from accumulated OCI into income (effective portion) (2)

Interest expense, net $ ( 34.7 ) $ 10.3 $ 24.7

(1) Gain reclassified from accumulated OCI upon de-desigation of a portion of one of the Company's interest rate caps.

(2) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 21.4 million and $ 14.0 million for the years ended December 31, 2022 and 2021, respectively.

There was no comparable amortization in 2020.

(2) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 19.6 million, $ 21.4 million and $ 14.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Earnings Per Share

9 unchanged sentences

Amounts allocated to participating securities (1)

— ( 10.3 ) ( 39.5 )

Net loss attributable to common stockholders $ ( 11.9 ) $ ( 54.6 ) $ ( 81.2 )

Weighted average shares outstanding- basic and diluted (2)

Weighted average common shares outstanding:

Basic 125,613 91,952 72,427

125,613 91,952 72,427

Basic and diluted loss per share (2)

Net loss per share attributable to common stockholders:

Basic $ ( 0.09 ) $ ( 0.59 ) $ ( 1.12 )

$ ( 0.09 ) $ ( 0.59 ) $ ( 1.12 )

4 unchanged sentences

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

There were no participating securities for the year ended December 31, 2022.

(2) The impact of potentially dilutive securities for all periods were not considered because the effect would be anti-dilutive in each of those periods.

There were no participating securities for the years ended December 31, 2023 and 2022.

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

Public Offerings

16 unchanged sentences

On December 15, 2017, the Company's Board of Directors authorized a share repurchase program of up to $ 50.0 million of the Company's issued and outstanding common stock from time to time.

The timing and size of repurchases will be determined based on market conditions and other factors.

The authorization does not obligate the repurchase of any shares and the Company may repurchase shares of common stock at any time without prior notice.

The share repurchases will be made in accordance with applicable securities laws in open market or privately negotiated transactions.

The authorization does not have a specified expiration date, and the share repurchase program may be suspended, recommenced or discontinued at any time or from time to time without prior notice.

At December 31, 2023, the Company had $ 46.0 million of repurchase authorization available under the December 2017 authorization.

The authorization does not obligate the Company to repurchase any shares, and the Company does not intend to make further repurchases.

The Company uses the asset and liability method to account for income taxes.

15 unchanged sentences

The Company made income tax payments of $ 1.4 million, $ 1.8 million and $ 1.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Income tax expense (benefit) is comprised of the following (in millions):

5 unchanged sentences

State ( 0.2 ) 4.3 1.1

Total income tax expense (benefit) $ 23.3 $ 10.5 $ ( 20.1 )

Total income tax (benefit) expense $ ( 0.3 ) $ 23.3 $ 10.5

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A reconciliation of the provision for income taxes as reported in the consolidated statements of operations and the amount of income tax expense (benefit) computed by multiplying consolidated income (loss) in each year by the U.S.

federal statutory rate of 21% (2022, 2021 and 2020) follows (in millions):

federal statutory rate of 21% follows (in millions):

Year Ended December 31,

2023 2022 2021

Tax expense (benefit) at U.S.federal statutory rate $ 23.2 $ 17.1 $ ( 4.0 )

Tax expense at U.S.federal statutory rate $ 28.4 $ 23.2 $ 17.1

State income tax, net of U.S.

7 unchanged sentences

Tax Receivable Agreement liability — 0.4 0.7

Goodwill impairment — — 4.3

Litigation settlement — — ( 3.7 )

Adjustments to unrealized attributes — — 2.3

Other ( 0.4 ) 0.2 0.1

Total income tax expense (benefit) $ 23.3 $ 10.5 $ ( 20.1 )

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Total income tax (benefit) expense $ ( 0.3 ) $ 23.3 $ 10.5

The components of temporary differences and the approximate tax effects that give rise to the Company’s net deferred tax asset are as follows (in millions):

4 unchanged sentences

Allowance for bad debts 1.2 2.9

Amortization of intangible assets — 1.2

Capital loss carryforwards 1.8 —

Deferred financing costs 3.3 5.1

19 unchanged sentences

The remaining federal NOL carryforwards, which were generated after 2017, do not expire.

The Company had state NOL carryforwards of $ 581.1 million as of December 31, 2022, which expire between 2023 and 2042.

The Company had state NOL

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

carryforwards of $ 588.7 million as of December 31, 2023, which expire between 2024 and 2042.

The Company had Section 163(j) interest limitation carryforwards of $ 652.8 million as of December 31, 2023, which do not expire.

1 unchanged sentence

The valuation allowance continues to be provided for certain deferred tax assets for which the Company believes it is more likely than not that the tax benefits will not be realized, which are primarily Section 163(j) interest carryforwards and certain state NOL carryforwards.

The current year change in the Company’s valuation allowance is comprised of an increase of $ 35.7 million recorded to income tax expense, offset by a decrease of $ 34.0 million attributable to changes in deferred taxes on the Company’s interest rate derivatives, which was recorded to other comprehensive income.

The current year change in the Company’s valuation allowance is comprised of an increase of $ 27.1 million recorded to income tax expense and an increase of $ 8.3 million attributable to changes in deferred taxes on the Company’s interest rate derivatives, which was recorded to other comprehensive income.

The Company has evaluated the realizability of its deferred tax assets based on sources of positive and negative evidence, and determined that it is more likely than not that its federal NOL carryforwards, as well as certain state NOL carryforwards, will be realized.

3 unchanged sentences

These changes could have a significant impact on the Company's future earnings.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A reconciliation of the beginning and ending liability for gross unrecognized tax benefits for the years ended December 31, 2023 and 2022 is as follows (in millions):

Unrecognized tax benefits at beginning of year $ 0.1 $ 0.1

Additions for tax provisions of current year — —

Reductions for tax positions of prior years ( 0.1 ) —

Unrecognized tax benefits at end of year $ — $ 0.1

The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes in the consolidated statements of operations.

For the years ended December 31, 2022 and 2021, the Company had approximately $ 0.1 million of accrued interest and penalties related to uncertain tax positions.

The total amount of accrued liabilities related to uncertain tax positions that would affect the Company's effective tax rate, if recognized, is $ 0.1 million as of December 31, 2022 and 2021.

For the years ended December 31, 2023 and 2022, the Company had accrued interest and penalties related to uncertain tax positions of approximately zero and $ 0.1 million, respectively.

The total amount of accrued liabilities related to uncertain tax positions that would affect the Company's effective tax rate, if recognized, is zero and $ 0.1 million as of December 31, 2023 and 2022, respectively.

The reserves are included in long-term taxes payable in the consolidated balance sheet as of December 31, 2023.

71 unchanged sentences

1,845,219 $ 12.68 5.0

(1) Of the outstanding stock options, 1,898,360 were exercisable as of December 31, 2022.

(1) All of the outstanding stock options were exercisable as of December 31, 2023.

Stock Appreciation Rights

3 unchanged sentences

The SAR Awards have an exercise price of $ 12.90 , and a remaining contractual term of 4.0 years.

Fifty percent ( 50 %) of the SAR Awards will vest in five equal annual installments on each of the first five anniversaries of the date of grant, generally subject to continued employment on each vesting date.

Twenty-five percent ( 25 %) of the award will vest based on satisfaction of the time condition and the achievement by the Company of an average closing price of a share of Common Stock on the Nasdaq Stock Market of $ 25.00 over a period of sixty ( 60 ) consecutive trading days, and twenty-five percent ( 25 %) of the award will vest based on satisfaction of the time condition and the achievement by the Company of an average closing price of a share of Common Stock on the Nasdaq Stock Market of $ 35.00 over a period of sixty ( 60 ) consecutive trading days, in each case, generally subject to continued employment on each vesting date.

Fifty percent ( 50 %) of the SAR Awards vested in five equal annual installments on each of the first five anniversaries of the date of grant, generally subject to continued employment on each vesting date.

Twenty-five percent ( 25 %) of the award vested based on satisfaction of the time condition and the achievement by the Company of an average closing price of a share of Common Stock on the Nasdaq Stock Market of $ 25.00 over a period of sixty ( 60 ) consecutive trading days, and twenty-five percent ( 25 %) of the award vested based on satisfaction of the time condition and the achievement by the Company of an average closing price of a share of Common Stock on the Nasdaq Stock Market of $ 35.00 over a period of sixty ( 60 ) consecutive trading days, in each case, generally subject to continued employment on each vesting date.

Forfeitures are recognized as incurred.

Of the outstanding SAR Awards, 160,000 were exercisable as of December 31, 2022.

All of the outstanding SAR Awards were exercisable as of December 31, 2023.

Other information pertaining to equity-based compensation

17 unchanged sentences

Amounts due to patients and payors 23.9 31.9

Acquisition escrow 28.8 1.2

Cost report liabilities 23.9 23.5

Acquisition escrow 10.2 28.8

Interest payable 17.8 19.4

Tax receivable agreement liability 1.3 19.7

Accrued expenses and other 90.7 70.0

1 unchanged sentence

Commitments and Contingencies

Professional, General and Workers' Compensation Liability Risks

Professional, General and Workers' Compensation and Cyber Liability Risks

The Company is subject to claims and legal actions in the ordinary course of business, including claims relating to patient treatment, employment practices and personal injuries.

The Company maintains professional, general and workers' compensation liability insurance in excess of self-insured retentions, through third party commercial insurance carriers.

The Company maintains professional, general and workers' compensation and cyber liability insurance in excess of self-insured retentions, through third party commercial insurance carriers.

Although management believes the coverage is sufficient for the Company's operations, some claims may potentially exceed the scope of coverage in effect.

3 unchanged sentences

Expected insurance recoveries of $ 10.2 million and $ 12.7 million as of December 31, 2023 and 2022, respectively, are included as a component of other current assets and other long-term assets in the consolidated balance sheets.

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 $ 8 million as of December 31, 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 as of December 31, 2023.

Laws and Regulations

12 unchanged sentences

Capital, L.L.C., et al., C.A.

The plaintiff in the Delaware Action asserted claims against (i) certain current and former members of the Company’s Board of Directors (together, the "Directors");

The plaintiff in the Delaware Action asserted claims

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

against (i) certain current and former members of the Company’s Board of Directors (together, the "Directors");

Capital, LLC and certain of its affiliates (collectively, "H.I.G.");

2 unchanged sentences

The parties to the Delaware Action negotiated a final stipulation of

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

settlement (the “Settlement Stipulation”), which governs the terms of the settlement of the Delaware Action, and which they filed with the Court of Chancery on November 22, 2021.

16 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.

Capital, LLC and certain of its affiliates (collectively, “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 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 $ 1.9 million and $ 22.0 million as of December 31, 2022 and 2021, respectively.

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 a discount, was $ 1.6 million and $ 19.7 million as of December 31, 2022 and 2021, respectively.

The current portion of the liability was $ 1.3 million and $ 19.7 million as of December 31, 2022 and 2021, respectively, and is included as a component of other current liabilities in the consolidated balance sheets.

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

SURGERY PARTNERS, INC.

4 unchanged sentences

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

Prior to 2021, the Ancillary Services segment also included a diagnostic laboratory, which was closed during the third quarter of 2020.

The Optical Services segment for the year ended December 31, 2020 reflected in the table below consisted of an optical products group purchasing organization, which was sold on December 31, 2020.

The "All other" line item primarily consists of amounts attributable to the Company's corporate general and administrative functions.

4 unchanged sentences

Ancillary Services 67.5 68.9 67.3

Optical Services — — 3.1

Total $ 2,743.3 $ 2,539.3 $ 2,225.1

2 unchanged sentences

Ancillary Services ( 3.9 ) ( 2.3 ) 1.7

Optical Services — — 1.4

All other ( 102.0 ) ( 91.1 ) ( 84.1 )

8 unchanged sentences

64.9 48.6 46.1

Loss on disposals and deconsolidations, net 11.1 2.2 5.7

Litigation settlements and other litigation costs (2)

Net loss on disposals, consolidations and deconsolidations 14.4 11.1 2.2

Litigation settlements and regulatory change impact (2)

17.5 ( 24.7 ) 5.6

1 unchanged sentence

Undesignated derivative activity (3)

Hurricane-related impacts (4)

0.6 ( 8.0 ) —

Impairment charges — — 33.5

Gain on escrow release (5)

8.6 1.5 ( 0.2 )

Adjusted EBITDA $ 438.1 $ 380.2 $ 339.6

1 unchanged sentence

This amount further includes start-up costs related to de novo surgical facilities of $ 3.2 million, $ 1.1 million and $ 6.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(2) This amount includes a net litigation settlements gain of $ 29.3 million and a loss of $ 1.2 million for the years ended December 31, 2022 and 2020, respectively, with no comparable costs in 2021.

(2) This amount includes a litigation settlements loss of $ 10.6 million and a net gain of $ 29.3 million for the years ended December 31, 2023 and 2022, respectively, with no comparable costs in 2021.

This amount also includes other litigation costs of $ 2.5 million, $ 4.6 million and $ 5.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(3) This amount includes the reclassification of $ 7.5 million of unrealized gains out of accumulated OCI into income related to the de-designation of a portion of one of the Company's interest rate caps.This amount further includes fair value changes of undesignated derivatives.

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

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

This amount further includes fair value changes of undesignated derivatives for the years ended December 31, 2023 and 2022, with no comparable activity in 2021.

(4) This amount includes estimates for the net impact of the May 2023 cyber event and losses from a divested business for the year ended December 31, 2023.

Amounts presented for the years ended December 31, 2022 and 2021 reflect losses incurred, net of insurance proceeds received, related to certain surgical facilities that were closed following Hurricane Ian and Hurricane Ida, respectively.

SURGERY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(5) Included in other income in the consolidated statement of operations for the year ended December 31, 2020, with no comparable gain in 2022 and 2021.

Surgical Facility Services $ 6,347.4 $ 6,001.1

10 unchanged sentences

Subsequent Events

On January 3, 2023, the Company terminated a portion of one of its interest rate caps.

In connection with the termination, the Company received $ 8.6 million from the counterparty.

On January 13, 2023, the Company entered into an amendment to the Credit Agreement to provide an increase a $ 203.8 million increase in the outstanding commitments under the Revolver.

During January 2024, the Company purchased a controlling interest in two ASCs and nine physician practices for $ 58.6 million.

The Company funded the cash purchase price with available resources.

As of the date of this filing, the Company has not completed its preliminary estimation of the fair values assigned to the assets acquired and liabilities assumed.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

2 unchanged sentences

(Principal Executive Officer)

March 1, 2023

February 26, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

1 unchanged sentence

Chief Executive Officer, Director

(Principal Executive Officer) March 1, 2023

(Principal Executive Officer) February 26, 2024

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer) March 1, 2023

Chairman of the Board March 1, 2023

Director March 1, 2023

(Principal Financial and Accounting Officer) February 26, 2024

Chairman of the Board February 26, 2024

Director February 26, 2024

Devin O'Reilly

Director March 1, 2023

Director February 26, 2024

/s/ Teresa DeLuca

Teresa DeLuca

Director March 1, 2023

Director February 26, 2024

/s/ Brent Turner

Director March 1, 2023

Director February 26, 2024

/s/ Andrew Kaplan

Andrew Kaplan

Director March 1, 2023

Director February 26, 2024

/s/ Clifford G.

Director March 1, 2023

Director February 26, 2024

/s/ Patricia A.

2 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-K

Item 9A. Controls and Procedures