What changed in this filing

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Item 1. Financial Statements

2024-11-12 compared with 2024-08-06 · 139 added, 106 removed, 540 unchanged (31% of the section changed)

3 unchanged sentences

(Dollars in millions, except per share amounts)

September 30,

2024 December 31,

45 unchanged sentences

shares in thousands)

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

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

2024 2023 2024 2023

10 unchanged sentences

Transaction and integration costs 29.4 12.8 66.1 37.3

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

Net loss on disposals, consolidations and deconsolidations 14.7 5.8 21.5 7.5

Equity in earnings of unconsolidated affiliates ( 5.2 ) ( 3.5 ) ( 12.3 ) ( 9.4 )

9 unchanged sentences

Net income attributable to non-controlling interests ( 38.1 ) ( 34.6 ) ( 118.7 ) ( 99.5 )

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

Net loss attributable to Surgery Partners, Inc.

$ ( 31.7 ) $ ( 4.9 ) $ ( 59.6 ) $ ( 10.9 )

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

Net loss per share attributable to common stockholders:

Basic $ ( 0.25 ) $ ( 0.04 ) $ ( 0.47 ) $ ( 0.09 )

3 unchanged sentences

126,172 125,747 126,093 125,559

(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.

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

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(Unaudited, dollars in millions)

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

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

2024 2023 2024 2023

3 unchanged sentences

( 26.6 ) ( 1.8 ) ( 47.0 ) 0.8

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) income attributable to Surgery Partners, Inc.

Comprehensive (loss) income ( 20.2 ) 27.9 12.1 89.4

Comprehensive income attributable to non-controlling interests ( 38.1 ) ( 34.6 ) ( 118.7 ) ( 99.5 )

Comprehensive loss attributable to Surgery Partners, Inc.

$ ( 58.3 ) $ ( 6.7 ) $ ( 106.6 ) $ ( 10.1 )

14 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 income — — — — 19.0 27.6 46.6

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

Equity-based compensation 22 — 15.1 — — — 15.1

Other comprehensive income — — — 13.9 — — 13.9

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

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

1 unchanged sentence

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

Net (loss) income — — — — ( 31.7 ) 34.7 3.0

Equity-based compensation 4 — 7.0 — — — 7.0

Other comprehensive loss — — — ( 26.6 ) — — ( 26.6 )

Acquisition and disposal of shares of non-controlling interests, net — — ( 4.6 ) — — ( 11.7 ) ( 16.3 )

Distributions to non-controlling interests—non-redeemable holders — — — — — ( 31.5 ) ( 31.5 )

Balance as of September 30, 2024 127,128 $ 1.3 $ 2,513.5 $ 10.5 $ ( 628.8 ) $ 1,215.4 $ 3,111.9

See notes to unaudited condensed consolidated financial statements.

SURGERY PARTNERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, dollars in millions, shares in thousands)

Common Stock Additional

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

Non-Redeemable Total

Shares Amount

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

5 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

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

3 unchanged sentences

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

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

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

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(Unaudited, dollars in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

43 unchanged sentences

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

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.

As of September 30, 2024, the Company owned or operated a portfolio of 166 surgical facilities, comprised of 147 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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

30 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Amount % Amount %

7 unchanged sentences

Total revenues $ 770.4 $ 674.1

Six Months Ended June 30,

Nine Months Ended September 30,

Amount % Amount %

40 unchanged sentences

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

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

The Company's effective tax rate was 18.9 % for the nine months ended September 30, 2024 compared to ( 7.7 )% for the nine months ended September 30, 2023.

For the nine months ended September 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 $ 1.5 million related to the valuation allowance impact of the Company’s impairment to an equity method investment.

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

2 unchanged sentences

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

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

"Acquisitions and Disposals."

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

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

"Acquisitions, Disposals and Deconsolidations."

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

Balance as of December 31, 2023 $ 4,326.0

Acquisitions, including post acquisition adjustments 495.4

Disposals ( 6.0 )

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.

Balance as of September 30, 2024 $ 4,815.4

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

On the basis of available evidence as of September 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.

11 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.

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

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

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

Balance at beginning of period $ 327.4 $ 342.0

13 unchanged sentences

Carrying Amount Fair Value

September 30,

2024 December 31,

2023 June 30,

2023 September 30,

2024 December 31,

9 unchanged sentences

Variable Interest Entities

The condensed consolidated financial statements include the accounts of variable interest entities ("VIE") in which the Company is the primary beneficiary under the provisions of the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification 810, " Consolidation" .

The Company has the power to direct the activities that most significantly impact a VIE's economic performance.

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

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

As of September 30, 2024, the Company's consolidated VIEs consisted of nine surgical facilities and 26 physician practices.

The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, were $ 86.2 million and $ 65.3 million, respectively, and the total liabilities of the consolidated VIEs were $ 57.9 million and $ 41.2 million, respectively.

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

8 unchanged sentences

Acquisitions, Disposals and Deconsolidations

During the six months ended June 30, 2024:

During the nine months ended September 30, 2024:

• The Company acquired a controlling interest in six surgical facilities and several physician practices for aggregate cash consideration of $ 291.2 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 $ 293.2 million, goodwill of $ 506.7 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.

During the nine months ended September 30, 2023:

• The Company acquired a controlling interest in two surgical facilities and one physician practice for aggregate cash consideration of $ 23.1 million, net of cash acquired, and non-cash consideration of $ 1.3 million, which consisted of non-controlling interest in one of the Company's existing surgical facilities.

In connection with these acquisitions, the Company preliminarily recognized non-controlling interests of $ 20.4 million and goodwill of $ 39.7 million.

• 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 acquired a controlling interest in two surgical facilities and one in-development de novo surgical facility, 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.

3 unchanged sentences

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

As a result of increasing its ownership interest, the Company recognized a net loss of $ 7.1 million included in net 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 $ 55.1 million and goodwill of $ 106.3 million.

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

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

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

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

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

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

1 unchanged sentence

Disposals and Deconsolidations

During the six months ended June 30, 2024:

During the nine months ended September 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.

1 unchanged sentence

• The Company sold a portion of its interests in one surgical facility for net cash proceeds of $ 2.5 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 six months ended June 30, 2024.

As a result of the transaction, the Company no longer controlled the previously controlled surgical facility but retained a non-controlling interest, resulting in the deconsolidation of the previously consolidated entity.

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 sold its interests in one surgical facility for a nominal amount of cash proceeds.

In connection with the sale, the Company recognized a pre-tax loss of $ 3.4 million, which is included in net loss on disposals, consolidations and deconsolidations in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2024.

• The Company recognized a pre-tax loss of $ 10.0 million related to an equity investment previously held at cost, which is included in net loss on disposals, consolidations and deconsolidations in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2024.

During the nine months ended September 30, 2023:

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

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

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

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

Long-Term Debt

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

September 30,

2024 December 31,

11 unchanged sentences

Total long-term debt $ 3,094.2 $ 2,701.8

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

(1) Includes unamortized fair value discount of $ 1.5 million and $ 1.6 million as of September 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.

As of September 30, 2024, the Company's availability on its $ 703.8 million senior secured revolving credit facility (the "Revolver") was $ 595.8 million (including letters of credit of $ 10.0 million).

The increase in outstanding borrowings on the Revolver compared to December 31, 2023 was primarily due to the timing of acquisitions completed during 2024.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.250 % Senior Unsecured Notes Due 2032

3 unchanged sentences

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

In connection with this financing transaction, the Company recorded debt issuance costs and discount of $ 12.5 million, and a debt extinguishment loss of $ 2.8 million, which is included in loss on debt extinguishment in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2024.

First Amendment to Credit Agreement

1 unchanged sentence

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 2024 Refinancing Term Loans 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.

In connection with the Amendment, the Company recorded debt issuance costs and discount of $ 2.4 million, and a debt extinguishment loss of $ 2.3 million, which is included in loss on debt extinguishment in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2024.

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

1 unchanged sentence

The Company's finance leases are primarily for medical equipment and information technology and telecommunications assets.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2024 December 31, 2023

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

Operating lease assets Right-of-use operating lease assets $ 297.5 $ 255.3

10 unchanged sentences

Total lease liabilities $ 1,051.4 $ 980.1

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating lease costs $ 50.1 $ 48.7

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

7 unchanged sentences

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.

To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.

To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

interest rate risk management strategy.

During 2024 and 2023, such derivatives have been used to hedge the variable cash flows associated with existing variable-rate debt.

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

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

10 unchanged sentences

$ 2,739.9 $ 1,360.1

As of June 30, 2024, the Company had three interest rate swaps with a total net notional amount of $ 1.2 billion.

As of September 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.

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.

As of September 30, 2024, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $ 153.9 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.

In connection with the termination, the Company received $ 8.6 million, which is included as a component of operating activities in the condensed consolidated statements of cash flows for the six months ended June 30, 2023.

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

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

1 unchanged sentence

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.

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 September 30, 2024.

As of September 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.

11 unchanged sentences

Over the next 12 months, the Company estimates that an additional $ 19.0 million will be reclassified as a decrease to interest expense.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Assets Liabilities Assets Liabilities

6 unchanged sentences

Interest rate swaps (2) (3)

— 10.7 — 17.8

Total $ 21.7 $ 18.4 $ 57.4 $ 17.8

(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.

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

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

(3) 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 June 30, Six Months Ended June 30,

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

Location 2024 2023 2024 2023

5 unchanged sentences

Interest expense, net $ ( 14.8 ) $ ( 9.2 ) $ ( 44.3 ) $ ( 23.3 )

(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.

(1) Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $ 5.3 million and $ 16.0 million for the three and nine months ended September 30, 2023, respectively.

There were no corresponding amounts for the three and nine months ended September 30, 2024.

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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;

Basic and diluted earnings (loss) per share is 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 (loss) per share.

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

shares in thousands):

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

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

2024 2023 2024 2023

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

Net loss attributable to Surgery Partners, Inc.

$ ( 31.7 ) $ ( 4.9 ) $ ( 59.6 ) $ ( 10.9 )

8 unchanged sentences

Restricted shares 281 208 264 202

SURGERY PARTNERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Other Current Liabilities

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

September 30,

2024 December 31, 2023

13 unchanged sentences

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

Total professional, general and workers' compensation claim liabilities as of June 30, 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.

Total professional, general and workers' compensation claim liabilities as of September 30, 2024 and December 31, 2023 were $ 18.1 million and $ 18.2 million, respectively.

Expected insurance recoveries of $ 10.2 million as of both September 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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

15 unchanged sentences

31.5 13.0 71.2 38.8

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

Net loss on disposals, consolidations and deconsolidations 14.7 5.8 21.5 7.5

Litigation settlements and regulatory change impact (2)

4 unchanged sentences

Adjusted EBITDA $ 128.6 $ 105.5 $ 344.4 $ 295.8

(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.

(1) This amount includes transaction and integration costs of $ 29.4 million and $ 12.8 million for the three months ended September 30, 2024 and 2023, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 2.1 million and $ 0.2 million for the three months ended September 30, 2024 and 2023, respectively.

This amount includes transaction and integration costs of $ 66.1 million and $ 37.3 million for the nine months ended September 30, 2024 and 2023, respectively.

This amount further includes start-up costs related to de novo surgical facilities of $ 5.1 million and $ 1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

(2) This amount includes a litigation settlement loss of $ 0.5 million and $ 3.6 million for the three months ended September 30, 2024 and 2023, respectively.

This amount also includes other litigation costs of $ 1.1 million and $ 0.6 million for the three months ended September 30, 2024 and 2023, respectively.

This amount includes a litigation settlements gain of $ 0.8 million and a loss of $ 8.1 million for the nine months ended September 30, 2024 and 2023, respectively.

This amount also includes other litigation costs of $ 2.3 million and $ 1.4 million for the nine months ended September 30, 2024 and 2023, respectively.

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

(3) For the three months ended September 30, 2024, this amount includes hurricane-related impacts.

For the three months ended September 30, 2023, this amount includes estimates for the net impact of a cyber event.

For the nine months ended September 30, 2024, this amount includes hurricane-related impacts in the third quarter of 2024, net of insurance proceeds related to cyber event losses predominantly incurred in 2023.

For the nine months ended September 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

September 30,

2024 December 31, 2023

3 unchanged sentences

Total assets $ 7,534.4 $ 6,876.7

Six Months Ended June 30,

Nine Months Ended September 30,

Cash purchases of property and equipment:

3 unchanged sentences

Total cash purchases of property and equipment $ 68.1 $ 69.0

Subsequent Events

On November 8, 2024, the Company purchased a controlling interest in two ASCs for $87.0 million.

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