What changed in this filing

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Item 1. Financial Statements

2024-08-06 compared with 2024-05-07 · 181 added, 106 removed, 465 unchanged (38% of the section changed)

12 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 519.1 and $ 454.4 , respectively

1,005.8 968.7

Goodwill and other intangible assets, net 4,858.5 4,380.8

35 unchanged sentences

shares in thousands)

Three Months Ended March 31,

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

2024 2023 2024 2023

Revenues $ 762.1 $ 667.6 $ 1,479.5 $ 1,333.8

9 unchanged sentences

Transaction and integration costs 19.3 12.0 36.7 24.5

Net loss on disposals, consolidations and deconsolidations 1.5 10.5

Net loss (gain) on disposals, consolidations and deconsolidations 5.3 ( 8.8 ) 6.8 1.7

Equity in earnings of unconsolidated affiliates ( 4.4 ) ( 2.6 ) ( 7.1 ) ( 5.9 )

Litigation settlements 0.5 1.5 ( 1.3 ) 4.5

Loss on debt extinguishment 5.1 — 5.1 —

Other income, net ( 6.5 ) ( 1.2 ) ( 8.5 ) ( 2.0 )

677.3 570.0 1,318.7 1,189.8

Operating income 84.8 97.6 160.8 144.0

Interest expense, net ( 51.5 ) ( 47.7 ) ( 98.8 ) ( 94.5 )

Income (loss) before income taxes 28.7 ( 0.4 )

Income before income taxes 33.3 49.9 62.0 49.5

Income tax (expense) benefit ( 4.9 ) 7.8 ( 9.3 ) 9.4

1 unchanged sentence

Net income attributable to non-controlling interests ( 43.9 ) ( 38.8 ) ( 80.6 ) ( 64.9 )

Net loss attributable to Surgery Partners, Inc.

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

$ ( 15.5 ) $ 18.9 $ ( 27.9 ) $ ( 6.0 )

Net loss per share attributable to common stockholders:

Net (loss) income per share attributable to common stockholders:

Basic $ ( 0.12 ) $ 0.15 $ ( 0.22 ) $ ( 0.05 )

3 unchanged sentences

126,134 127,370 126,053 125,463

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

(1) The impact of potentially dilutive securities for the three months ended June 30, 2024 and the six months ended June 30, 2024 and 2023 was not considered because the effect would be anti-dilutive.

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(Unaudited, dollars in millions)

Three Months Ended March 31,

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

2024 2023 2024 2023

Net income $ 28.4 $ 57.7 $ 52.7 $ 58.9

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Derivative activity, net of tax of $ 0

( 14.9 ) 13.9 ( 20.4 ) 2.6

Comprehensive income (loss) 18.8 ( 10.1 )

Comprehensive income 13.5 71.6 32.3 61.5

Comprehensive loss attributable to non-controlling interests ( 43.9 ) ( 38.8 ) ( 80.6 ) ( 64.9 )

Comprehensive loss attributable to Surgery Partners, Inc.

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

$ ( 30.4 ) $ 32.8 $ ( 48.3 ) $ ( 3.4 )

14 unchanged sentences

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

Net income — — — — 19.0 27.6 46.6

Equity-based compensation 13 — 4.5 — — — 4.5

Other comprehensive income — — — 13.9 — — 13.9

Acquisition and disposal of shares of non-controlling interests, net — — 18.8 — — ( 19.7 ) ( 0.9 )

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

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

Balance as of December 31, 2023 126,594 $ 1.3 $ 2,497.6 $ 57.5 $ ( 569.2 ) $ 1,047.3 $ 3,034.5

5 unchanged sentences

Balance as of March 31, 2024 127,102 $ 1.3 $ 2,495.6 $ 52.0 $ ( 581.6 ) $ 1,070.6 $ 3,037.9

Net (loss) income — — — — ( 15.5 ) 35.5 20.0

Equity-based compensation 22 — 15.1 — — — 15.1

Other comprehensive loss — — — ( 14.9 ) — — ( 14.9 )

Acquisition and disposal of shares of non-controlling interests, net — — 0.4 — — 147.4 147.8

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 29.6 ) ( 29.6 )

Balance as of June 30, 2024 127,124 $ 1.3 $ 2,511.1 $ 37.1 $ ( 597.1 ) $ 1,223.9 $ 3,176.3

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(Unaudited, dollars in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

6 unchanged sentences

Net loss on disposals, consolidations and deconsolidations 6.8 1.7

Loss on debt extinguishment 5.1 —

Deferred income taxes 7.6 ( 11.5 )

2 unchanged sentences

Accounts receivable ( 12.1 ) ( 5.1 )

Medicare accelerated payments and deferred governmental grants — ( 1.2 )

Other operating assets and liabilities ( 47.1 ) ( 13.3 )

5 unchanged sentences

Purchases of equity investments ( 1.7 ) ( 48.4 )

Proceeds from sales of equity investments 4.0 —

Other investing activities ( 18.5 ) ( 26.0 )

8 unchanged sentences

Net cash provided by (used in) financing activities 221.3 ( 90.2 )

Net decrease in cash and cash equivalents ( 10.7 ) ( 37.4 )

Net increase (decrease) in cash and cash equivalents 17.6 ( 105.5 )

Cash and cash equivalents at beginning of period 195.9 282.9

10 unchanged sentences

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

As of March 31, 2024, the Company owned or operated a portfolio of 165 surgical facilities, comprised of 147 ASCs and 18 surgical hospitals in 33 states.

As of June 30, 2024, the Company owned or operated a portfolio of 167 surgical facilities, comprised of 148 ASCs and 19 surgical hospitals in 33 states.

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

22 unchanged sentences

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Patient service revenues:

29 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Amount % Amount %

7 unchanged sentences

Total revenues $ 762.1 $ 667.6

Six Months Ended June 30,

Amount % Amount %

Patient service revenues:

Private insurance $ 759.0 52.2 % $ 677.2 51.5 %

Government 613.7 42.2 % 566.0 43.1 %

Self-pay 40.5 2.8 % 32.7 2.5 %

40.2 2.8 % 38.5 2.9 %

Total patient service revenues 1,453.4 100.0 % 1,314.4 100.0 %

Other service revenues 26.1 19.4

Total revenues $ 1,479.5 $ 1,333.8

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

16 unchanged sentences

Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred tax assets and liabilities are measured using enacted tax rates expected

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

9 unchanged sentences

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

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company's effective tax rate was 15.3 % for the three months ended March 31, 2024 compared to 400.0 % for the three months ended March 31, 2023.

For the three months ended March 31, 2024, the effective tax rate differed from the U.S.

The Company's effective tax rate was 15.0 % for the six months ended June 30, 2024 compared to ( 19.0 )% for the six months ended June 30, 2023.

For the six months ended June 30, 2024, the effective tax rate differed from the U.S.

federal statutory rate of 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations, state tax expense, and a discrete tax expense of $ 0.6 million related to the vesting of restricted stock awards.

For the three months ended March 31, 2023, the effective tax rate differed from the U.S.

federal statutory rate of 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations, and a discrete tax benefit of $ 1.8 million related to the vesting of restricted stock awards.

For the six months ended June 30, 2023, the effective tax rate differed from the U.S.

federal statutory rate of 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations, and discrete tax benefits of (i) $ 1.8 million related to the vesting of restricted stock awards and (ii) $ 15.9 million related to entity divestitures.

Based upon the application of interim accounting guidance, the tax rate as a percentage of net income after income attributable to non-controlling interests will vary based upon the relative net income from period to period.

1 unchanged sentence

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

A summary of the Company's acquisitions and disposals for the three months ended March 31, 2024 is included in Note 2.

A summary of the Company's acquisitions and disposals for the six months ended June 30, 2024 is included in Note 2.

"Acquisitions and Disposals."

A summary of activity related to goodwill for the three months ended March 31, 2024 is as follows (in millions):

A summary of activity related to goodwill for the six months ended June 30, 2024 is as follows (in millions):

Balance at December 31, 2023 $ 4,326.0

1 unchanged sentence

Disposals ( 6.0 )

Balance at March 31, 2024 $ 4,397.5

A detailed evaluation of potential impairment indicators was performed as of March 31, 2024, which specifically considered recent increases in interest rates, inflation risk and market volatility.

On the basis of available evidence as of March 31, 2024, no indicators of impairment were identified.

Balance at June 30, 2024 $ 4,806.3

A detailed evaluation of potential impairment indicators was performed as of June 30, 2024, which specifically considered recent increases in interest rates, inflation risk and market volatility.

On the basis of available evidence as of June 30, 2024, no indicators of impairment were identified.

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

6 unchanged sentences

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.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Non-Controlling Interests—Redeemable

1 unchanged sentence

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.

Management believes the likelihood of an event occurring that would trigger such purchases was remote as of March 31, 2024.

Management believes the likelihood of an event occurring that would trigger such purchases was remote as of June 30, 2024.

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

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended March 31,

Six Months Ended June 30,

Balance at beginning of period $ 327.4 $ 342.0

14 unchanged sentences

2024 December 31,

2023 March 31,

2023 June 30,

2024 December 31,

4 unchanged sentences

$ — $ 320.0 $ — $ 321.2

7.250 % senior unsecured notes due 2032

$ 800.0 $ — $ 808.0 $ —

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

4 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 March 31, 2024, the Company's consolidated VIEs consisted of seven surgical facilities and fourteen physician practices.

The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023, were $ 67.0 million and $ 65.3 million, respectively, and the total liabilities of the consolidated VIEs were $ 39.1 million and $ 41.2 million, respectively.

As of June 30, 2024, the Company's consolidated VIEs consisted of nine surgical facilities, eighteen physician practices, and one anesthesia practice.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, were $ 71.9 million and $ 65.3 million, respectively, and the total liabilities of the consolidated VIEs were $ 43.0 million and $ 41.2 million, respectively.

Recent Accounting Pronouncements

3 unchanged sentences

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

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

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

2 unchanged sentences

Acquisitions, Disposals and Deconsolidations

During the three months ended March 31, 2024:

• The Company acquired a controlling interest in two surgical facilities and several physician practices for aggregate cash consideration of $ 66.0 million, net of cash acquired, and non-cash consideration of $ 1.1 million, which consisted of a non-controlling interest in one of the Company's existing surgical facilities.

As of March 31, 2024, $ 11.4 million of the cash consideration was deferred and included as a component of current liabilities in the condensed consolidated balance sheets.

In connection with these acquisitions, the Company preliminarily recognized non-controlling interests of $ 21.2 million and goodwill of $ 77.2 million.

During the three months ended March 31, 2023:

During the six months ended June 30, 2024:

• The Company acquired a controlling interest in six surgical facilities and several physician practices for aggregate cash consideration of $ 264.6 million, net of cash acquired, and non-cash consideration of $ 1.1 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 $ 290.7 million, goodwill of $ 483.0 million and investments and advances to affiliates of $ 44.6 million related to an acquired surgical facility accounted for as an equity method investment.

During the six months ended June 30, 2023:

• The Company acquired a controlling interest in one surgical facility and one physician practice for aggregate cash consideration of $ 17.9 million, net of cash acquired and non-cash consideration of $ 1.3 million, which consisted of non-controlling interest in one of the Company's existing surgical facilities.

1 unchanged sentence

• The Company acquired a controlling interest in two surgical facilities, which were previously accounted for as equity method investments, for aggregate cash consideration of $ 26.9 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.

2 unchanged sentences

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

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

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

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

In connection with the consolidation of these facilities, the Company preliminarily recognized non-controlling interests of $ 55.2 million and goodwill of $ 106.3 million.

• The Company acquired a non-controlling interest in one existing surgical facility and one in-development de novo surgical facility for aggregate cash consideration of $ 12.4 million.

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

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

During the three months ended March 31, 2024, the Company sold a portion of its interests in a surgical facility for net cash proceeds of $ 1.5 million.

As a result of the transaction, the Company lost control of the previously controlled surgical facility but retains a non-controlling interest, resulting in the deconsolidation of the previously consolidated entity.

This transaction resulted in a pretax net gain on deconsolidation of $ 2.7 million, which is included in net loss on disposals, consolidations and deconsolidations in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2024.

The net loss was determined based on the difference between the net cash proceeds plus the fair value of the Company’s retained interests in the entity and the carrying values of both the tangible and intangible assets of the entity immediately prior to the transaction.

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

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

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

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

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

Disposals and Deconsolidations

During the six months ended June 30, 2024:

• The Company disposed of its non-controlling interests in one surgical facility, which was previously accounted for as an equity method investment, for cash proceeds of $ 2.0 million.

In connection with this transaction, the Company recognized a pre-tax loss of $ 3.7 million, which is included in net loss on disposals, consolidations and deconsolidations in the accompanying condensed consolidated statements of operations for the six months ended June 30, 2024.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

• The Company sold a portion of its interests in one surgical facility for net cash proceeds of $ 2.5 million.

The net gain was determined based on the difference between the net cash proceeds plus the fair value of the Company’s retained interests in the entity and the carrying values of both the tangible and intangible assets of the entity immediately prior to the transaction.

During the six months ended June 30, 2023:

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

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

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

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

Long-Term Debt

6 unchanged sentences

10.000 % senior unsecured notes due 2027

7.250 % senior unsecured notes due 2032

Notes payable and other secured loans 210.0 205.2

4 unchanged sentences

Total long-term debt $ 3,039.7 $ 2,701.8

(1) Includes unamortized fair value discount of $ 1.6 million as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, the Company's availability on its Revolver was $ 607.3 million (including letters of credit of $ 9.5 million).

(1) Includes unamortized fair value discount of $ 1.5 million and $ 1.6 million as of June 30, 2024 and December 31, 2023, respectively.

Revolving Credit Facility

As of June 30, 2024, the Company's availability on its $ 703.8 million senior secured revolving credit facility (the "Revolver") was $ 647.8 million (including letters of credit of $ 10.0 million).

The increase in outstanding borrowings on the Revolver, was primarily due to the timing of acquisitions completed during the first quarter of 2024.

"Subsequent Events" for additional information related to the Company's debt obligations.

7.250 % Senior Unsecured Notes Due 2032

On April 10, 2024, the Company completed the issuance and sale of $ 800.0 million in aggregate principal amount of senior unsecured notes due 2032 (the "2032 Notes").

The 2032 Notes were issued pursuant to an Indenture dated April 10, 2024 by and among Surgery Center Holdings, Inc., certain subsidiaries of Surgery Center Holdings, Inc., as guarantors, and Wilmington Trust, National Association, as trustee.

The 2032 Notes bear interest at an annual rate of 7.250 % per year, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2024.

Proceeds from the sale of the 2032 Notes were used (i) to redeem all of the outstanding 6.750 % senior unsecured notes due 2025 (the "2025 Notes") and the 10.000 % senior unsecured notes due 2027 (the "2027 Notes," together with the 2025 Notes, the "Existing Notes"), (ii) to pay accrued interest on the Existing Notes through, but not including, April 25, 2024, (iii) to pay related fees and expenses in connection with the offering of the 2032 Notes and redemption of the Existing Notes and (iv) for general corporate purposes, including to fund future acquisitions.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

First Amendment to Credit Agreement

On June 20, 2024, the Company entered into a first amendment (the "Amendment") to its credit agreement, dated as of December 19, 2023, by and among Surgery Center Holdings, Inc., the Borrower, Jefferies Finance LLC, as administrative agent and collateral agent, and the other financial institutions party thereto from time to time (the "Credit Agreement") to provide for a new tranche of term loans under the Credit Agreement in an aggregate principal amount of $ 1,400 million (the “2024 Refinancing Term Loans”), which 2024 Refinancing Term Loans replace or refinance in full all of the existing term loans outstanding under the Credit Agreement (as in effect immediately prior to the Amendment), all as further set forth in the Amendment.

The 2024 Refinancing Term Loans mature on December 19, 2030.

The 2024 Refinancing Term Loans shall bear interest at a rate per annum equal to (x) the forward-looking term rate based on Secured Overnight Financing Rate (“Term SOFR”) plus 2.75 % per annum or (y) an alternate base rate (which will be the highest of (i) the prime rate plus 0.5 % per annum above the federal funds effective rate and (ii) Term SOFR plus 1.00 % per annum (which shall not be less than 1.00 %)) plus 1.75 % per annum.

The 2024 Refinancing Term Loans amortize in equal quarterly installments of 0.25 % of the aggregate original principal amount of the 2024 Refinancing Term Loans (such amortization payments will commence on or around the last business day of the fiscal quarter ending June 30, 2024).

Voluntary prepayments of the 2024 Refinancing Term Loans are permitted, in whole or in part, with prior notice, without premium or penalty (except a 1.00 % call premium in the case of certain repricing events occurring prior to the sixth month anniversary of the Amendment Effective Date).

In connection with the Amendment, the Company recorded debt issuance costs and discount of $ 2.4 million, and a debt extinguishment loss of $ 5.1 million which is included in loss on debt extinguishment in the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2024.

The loss on debt extinguishment includes the partial write-off of unamortized debt issuance costs and discounts.

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

1 unchanged sentence

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

Classification in Condensed Consolidated Balance Sheets March 31, 2024 December 31, 2023

Classification in Condensed Consolidated Balance Sheets June 30, 2024 December 31, 2023

Operating lease assets Right-of-use operating lease assets $ 266.9 $ 255.3

13 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

Operating lease costs $ 32.3 $ 33.2

6 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

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

10 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

4 unchanged sentences

Interest rate cap September 30, 2021 8.4 Active 8.7 Active March 31, 2025

Deferred premium cap March 31, 2025 396.0 Active — N/A December 31, 2028

Deferred premium cap March 31, 2025 198.0 Active — N/A December 31, 2028

Deferred premium cap March 31, 2025 396.0 Active — N/A December 31, 2028

Deferred premium cap March 31, 2025 198.0 Active — N/A December 31, 2028

$ 2,741.9 $ 1,360.1

As of March 31, 2024, the Company had three interest rate swaps with a total net notional amount of $ 1.2 billion.

As of June 30, 2024, 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 Secured Overnight Financing Rate ("SOFR") (subject to a minimum of 0.75 %) designated in cash flow hedging relationships and have a termination date of March 31, 2025.

As of March 31, 2024, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $ 157.9 million.

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

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

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

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2024, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $ 155.9 million.

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

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

On April 9, 2024, the Company entered into five deferred premium interest rate cap agreements, each with an effective date of March 31, 2025.

The interest rate caps are designated in cash flow hedging relationships with a total notional amount of $ 1.4 billion.

The deferred premium interest rate caps each have a termination date of December 31, 2028.

These financial instruments are designed to limit the Company's interest rate exposure on its term loan concurrent with the expected maturity of positions held as of June 30, 2024.

As of June 30, 2024, the Company's deferred premium interest rate caps had a total notional amount of $ 1.4 billion.

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

The fair value of the interest rate caps 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.

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

The variable interest rates used in the calculation of projected receipts on the caps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

4 unchanged sentences

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

March 31, 2024 December 31, 2023

Location Assets Liabilities Assets Liabilities

June 30, 2024 December 31, 2023

Assets Liabilities Assets Liabilities

Derivatives in cash flow hedging relationships

Interest rate caps Other long-term assets $ 5.4 $ — $ 6.0 $ —

Interest rate swaps Other long-term assets 46.4 — 51.4 —

Interest rate swaps Other long-term liabilities (1)

Interest rate caps (1)

$ 4.2 $ — $ 6.0 $ —

Interest rate swaps (1)

36.1 — 51.4 —

Interest rate caps — 3.4 — —

Interest rate swaps (2) (3)

— 10.7 — 17.8

Total $ 40.3 $ 14.1 $ 57.4 $ 17.8

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

(1) Amounts were included in other current assets and other long-term assets on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively.

(2) Amounts related to the financing component of the pay-fixed interest rate swaps.

(3) Amounts were included in other current liabilities and other long-term liabilities on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended March 31,

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

Location 2024 2023 2024 2023

5 unchanged sentences

Interest expense, net $ ( 14.8 ) $ ( 8.0 ) $ ( 29.5 ) $ ( 14.1 )

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

There was no corresponding amount for the three months ended March 31, 2024.

"Subsequent Events" for additional information related to the Company's cash flow hedging relationships.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 5.3 million and $ 10.7 million for the three and six months ended June 30, 2023, respectively.

There were no corresponding amounts for the three and six months ended June 30, 2024.

Earnings Per Share

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

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

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

shares in thousands):

Three Months Ended March 31,

Net loss attributable to Surgery Partners, Inc.

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

2024 2023 2024 2023

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

$ ( 15.5 ) $ 18.9 $ ( 27.9 ) $ ( 6.0 )

Weighted average common shares outstanding:

7 unchanged sentences

Restricted shares 110 — 154 147

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

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Current Liabilities

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

March 31, 2024 December 31, 2023

2024 December 31, 2023

Right-of-use operating lease liabilities $ 39.3 $ 37.6

2 unchanged sentences

Interest payable 16.7 17.8

Interest rate swaps 10.7 —

Accrued expenses and other 104.3 100.9

7 unchanged sentences

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

Total professional, general and workers' compensation claim liabilities as of March 31, 2024 and December 31, 2023 were $ 19.1 million and $ 18.2 million, respectively.

Expected insurance recoveries of $ 10.2 million as of March 31, 2024 and December 31, 2023, respectively, are included as a component of other current assets and other long-term assets in the condensed consolidated balance sheets.

Total professional, general and workers' compensation claim liabilities as of June 30, 2024 and December 31, 2023 were $ 18.3 million and $ 18.2 million, respectively.

Expected insurance recoveries of $ 10.2 million as of both June 30, 2024 and December 31, 2023 are included as a component of other current assets and other long-term assets in the condensed consolidated balance sheets.

SURGERY PARTNERS, INC.

6 unchanged sentences

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Surgical Facility Services $ 730.4 $ 650.2 $ 1,423.1 $ 1,299.2

7 unchanged sentences

Reconciliation of Adjusted EBITDA:

Income (loss) before income taxes $ 28.7 $ ( 0.4 )

Income before income taxes $ 33.3 $ 49.9 $ 62.0 $ 49.5

Net income attributable to non-controlling interests ( 43.9 ) ( 38.8 ) ( 80.6 ) ( 64.9 )

3 unchanged sentences

Transaction, integration and acquisition costs (1)

Net loss on disposals, consolidations and deconsolidations 1.5 10.5

20.8 13.0 39.7 25.8

Net loss (gain) on disposals, consolidations and deconsolidations 5.3 ( 8.8 ) 6.8 1.7

Litigation settlements and regulatory change impact (2)

1.1 1.7 ( 0.1 ) 9.7

Loss on debt extinguishment 5.1 — 5.1 —

Undesignated derivative activity — — — 0.6

( 4.8 ) 6.5 ( 4.4 ) 6.5

Adjusted EBITDA $ 118.3 $ 100.2 $ 215.8 $ 190.3

(1) This amount includes transaction and integration costs of $ 17.4 million and $ 12.5 million for the three months ended March 31, 2024 and 2023, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 1.5 million and $ 0.3 million for the three months ended March 31, 2024 and 2023, respectively.

(2) This amount includes a litigation settlements gain of $ 1.8 million and a loss of $ 3.0 million for the three months ended March 31, 2024 and 2023, respectively.

This amount also includes other litigation costs of $ 0.6 million and $ 0.6 million for the three months ended March 31, 2024 and 2023, respectively.

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

(1) This amount includes transaction and integration costs of $ 19.3 million and $ 12.0 million for the three months ended June 30, 2024 and 2023, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 1.5 million and $ 1.0 million for the three months ended June 30, 2024 and 2023, respectively.

This amount includes transaction and integration costs of $ 36.7 million and $ 24.5 million for the six months ended June 30, 2024 and 2023, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 3.0 million and $ 1.3 million for the six months ended June 30, 2024 and 2023, respectively.

(2) This amount includes a litigation settlement loss of $ 0.5 million and $ 1.5 million for the three months ended June 30, 2024 and 2023, respectively.

This amount also includes other litigation costs of $ 0.6 million and $ 0.2 million for the three months ended June 30, 2024 and 2023, respectively.

This amount includes a litigation settlements gain of $ 1.3 million and a loss of $ 4.5 million for the six months ended June 30, 2024 and 2023, respectively.

This amount also includes other litigation costs of $ 1.2 million and $ 0.8 million for the six months ended June 30, 2024 and 2023, respectively.

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

(3) For the three and six months ended June 30, 2024, this amount includes insurance proceeds related to cyber event losses predominantly incurred in 2023.

For the three and six months ended June 30, 2023, this amount includes estimates for the net impact of the same cyber event and losses from a divested business.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 December 31, 2023

2024 December 31, 2023

Surgical Facility Services $ 6,874.7 $ 6,347.4

2 unchanged sentences

Total assets $ 7,488.6 $ 6,876.7

Three Months Ended March 31,

Six Months Ended June 30,

Cash purchases of property and equipment:

3 unchanged sentences

Total cash purchases of property and equipment $ 47.9 $ 50.1

Subsequent Events

On April 9, 2024, the Company entered into five deferred premium interest rate cap agreements, each with an effective date of March 31, 2025.

The interest rate caps are designated in cash flow hedging relationships with a total notional amount of $ 1.4 billion.

The interest rate caps each have a termination date of December 31, 2028.

These financial instruments are designed to limit the Company's interest rate exposure on its term loan concurrent with the expected maturity of positions held as of March 31, 2024.

"Derivatives and Hedging Activities" for additional information.

On April 10, 2024, the Company completed the issuance and sale of $ 800.0 million in aggregate principal amount of senior unsecured notes due 2032 (the "2032 Notes").

The 2032 Notes were issued pursuant to an Indenture dated April 10, 2024 among Surgery Center Holdings, Inc., certain subsidiaries of Surgery Center Holdings, Inc., as guarantors, and Wilmington Trust, National Association, as trustee.

The 2032 Notes bear interest at an annual rate of 7.250 % per year, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2024.

On April 30, 2024, the Company purchased a controlling interest in a surgical hospital and two physician practices and a non-controlling interest in an ASC for $ 188.2 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements