What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-06 · 95 added, 96 removed, 203 unchanged (48% of the section changed)

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our indebtedness;

the social and economic impact of a pandemic, epidemic or outbreak of a contagious disease, such as COVID-19, on our business.;

the social and economic impact of a pandemic, epidemic or outbreak of a contagious disease on our business;

and the risks and uncertainties set forth under the heading "Risk Factors" in our 2023 Annual Report on Form 10-K and discussed from time to time in our reports filed with the SEC.

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Executive Overview

As of June 30, 2024, we owned or operated, primarily in partnership with physicians, a portfolio of 167 surgical facilities comprised of 148 ASCs and 19 surgical hospitals across 33 states.

As of September 30, 2024, we owned or operated, primarily in partnership with physicians, a portfolio of 166 surgical facilities comprised of 147 ASCs and 19 surgical hospitals across 33 states.

We owned a majority interest in 89 of the surgical facilities and consolidated 123 of these facilities for financial reporting purposes.

Total revenues for the second quarter of 2024 increased 14.2% to $762.1 million from $667.6 million for the second quarter of 2023.

The increase in revenues was attributable to same-facility revenue growth and the net impact from acquisitions and divestitures completed during the twelve months ended June 30, 2024.

Days adjusted same-facility revenues for the second quarter of 2024 increased 9.9% from the second quarter of 2023, with an 5.7% increase in revenue per case and a 3.9% increase in same-facility cases.

Additionally, for the second quarter of 2024, Adjusted EBITDA increased 18.1% to $118.3 million compared to $100.2 million for the same period in 2023.

Total revenues for the third quarter of 2024 increased 14.3% to $770.4 million from $674.1 million for the third quarter of 2023.

The increase in revenues was attributable to same-facility revenue growth and the net impact from acquisitions and divestitures completed during the twelve months ended September 30, 2024.

Days adjusted same-facility revenues for the third quarter of 2024 increased 4.2% from the third quarter of 2023, with an 0.5% increase in revenue per case and a 3.7% increase in same-facility cases.

Additionally, for the third quarter of 2024, Adjusted EBITDA increased 21.9% to $128.6 million compared to $105.5 million for the same period in 2023.

The increase in Adjusted EBITDA was primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed since the prior year period.

For the second quarter of 2024, net loss attributable to common stockholders was $15.5 million compared to net income attributable to common stockholders of $18.9 million for the same period in 2023.

For the third quarter of 2024, net loss attributable to Surgery Partners, Inc.

was $31.7 million compared to $4.9 million for the same period in 2023.

A reconciliation of non-GAAP financial measures appears below under the heading "Certain Non-GAAP Measures."

We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and other portfolio management initiatives.

During the second quarter of 2024, we completed the following:

• We 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.

• We sold a non-controlling interest in a surgical facility for net cash proceeds of $2.0 million.

• We sold a portion of our interests in a surgical facility for net cash proceeds of $2.5 million.

In connection with this transaction, we no longer hold a controlling interest in the surgical facility but did retain a non-controlling interest, which resulted in the deconsolidation of the previously consolidated entity.

We had cash and cash equivalents of $213.5 million and $647.8 million of borrowing capacity under the Revolver as of June 30, 2024.

During the third quarter of 2024, we acquired a controlling interest in several physician practices for aggregate cash consideration of $26.6 million, net of cash acquired.

We had cash and cash equivalents of $221.8 million and $595.8 million of borrowing capacity under the Revolver as of September 30, 2024.

Our revenues consist of patient service revenues and other service revenues.

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The following table summarizes 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

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The following table sets forth by type of payor the percentage of our patient service revenues generated at the surgical facilities that we consolidate for financial reporting purposes:

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

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

2024 2023 2024 2023

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The following table sets forth the percentage of cases in each specialty performed at the surgical facilities that we consolidate for financial reporting purposes for the periods indicated:

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

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

2024 2023 2024 2023

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Results of Operations

Comparison of Operating Results for the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023

Comparison of Operating Results for the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023

The following tables summarize certain results from the statements of operations for the periods indicated (in millions):

Three Months Ended June 30,

Three Months Ended September 30,

Revenues $ 770.4 $ 674.1

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Transaction and integration costs 29.4 12.8

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

Net loss on disposals, consolidations and deconsolidations 14.7 5.8

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

Litigation settlements 0.5 3.6

Loss on debt extinguishment 5.1 —

Other income, net (2.2) (1.2)

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Income before income taxes 10.9 32.8

Income tax (expense) benefit (4.9) 7.8

Income tax expense (4.5) (3.1)

Net income 6.4 29.7

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

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

Net loss attributable to Surgery Partners, Inc.

$ (31.7) $ (4.9)

The following table sets forth patient service revenues (in millions):

Three Months Ended June 30,

Three Months Ended September 30,

Patient service revenues $ 753.2 $ 662.3

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Total revenues $ 770.4 $ 674.1

Patient service revenues increased 13.7% to $748.1 million for the three months ended June 30, 2024 compared to $658.0 million for the three months ended June 30, 2023.

The increase was primarily driven by a 9.9% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the twelve months ended June 30, 2024.

Patient service revenues increased 13.7% to $753.2 million for the three months ended September 30, 2024 compared to $662.3 million for the three months ended September 30, 2023.

The increase was primarily driven by a 4.2% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the twelve months ended September 30, 2024.

The increase in days adjusted same-facility revenues was attributable to a 3.7% increase in same-facility case volumes and a 0.5% increase in same-facility revenue per case.

Cost of Revenues.

Cost of revenues was $582.9 million for the three months ended June 30, 2024 compared to $513.5 million for the three months ended June 30, 2023.

The increase was primarily driven by increased performance of high acuity procedures and acquisitions completed during the twelve months ended June 30, 2024.

As a percentage of revenues, cost of revenues was 76.5% and 76.9% for the three months ended June 30, 2024 and 2023, respectively.

Cost of revenues was $592.9 million for the three months ended September 30, 2024 compared to $508.3 million for the three months ended September 30, 2023.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures as well as acquisitions completed during the twelve months ended September 30, 2024.

As a percentage of revenues, cost of revenues was 77.0% and 75.4% for the three months ended September 30, 2024 and 2023, respectively.

General and Administrative Expenses.

General and administrative expenses were $40.3 million and $31.2 million for the three months ended June 30, 2024 and 2023, respectively.

As a percentage of revenues, general and administrative expenses were 5.3% and 4.7% for the three months ended June 30, 2024 and 2023, respectively.

General and administrative expenses were $29.2 million and $36.8 million for the three months ended September 30, 2024 and 2023, respectively.

As a percentage of revenues, general and administrative expenses were 3.8% and 5.5% for the three months ended September 30, 2024 and 2023, respectively.

Depreciation and Amortization.

Depreciation and amortization expenses were $34.8 million and $24.4 million for the three months ended June 30, 2024 and 2023, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.6% and 3.7% for the three months ended June 30, 2024 and 2023, respectively.

Depreciation and amortization expenses were $50.2 million and $28.9 million for the three months ended September 30, 2024 and 2023, respectively.

As a percentage of revenues, depreciation and amortization expenses were 6.5% and 4.3% for the three months ended September 30, 2024 and 2023, respectively.

Transaction and Integration Costs.

The Company incurred $19.3 million of transaction and integration costs for the three months ended June 30, 2024 compared to $12.0 million for the three months ended June 30, 2023.

The Company incurred $29.4 million of transaction and integration costs for the three months ended September 30, 2024 compared to $12.8 million for the three months ended September 30, 2023.

The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions.

Net Loss (Gain) on Disposals, Consolidations and Deconsolidations.

The net loss (gain) on disposals, consolidations and deconsolidations for the three months ended June 30, 2024 and 2023 includes activity discussed in Note 2.

Net Loss on Disposals, Consolidations and Deconsolidations.

The net loss on disposals, consolidations and deconsolidations for the three months ended September 30, 2024 and 2023 includes activity discussed in Note 2.

"Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the condensed consolidated financial statements.

The remaining net loss (gain) in both periods was primarily attributable to sales and disposals of other assets.

The remaining net loss in both periods was primarily attributable to sales and disposals of other assets.

Interest Expense, Net.

Interest expense, net was $51.5 million for the three months ended June 30, 2024 compared to $47.7 million for the three months ended June 30, 2023.

As a percentage of revenues, interest expense, net was 6.8% and 7.1% for the three months ended June 30, 2024 and 2023, respectively.

Income Tax (Expense) Benefit .

Income tax expense was $4.9 million for the three months ended June 30, 2024 compared to income tax benefit of $7.8 million for the three months ended June 30, 2023.

The effective tax rate was 14.7% and (15.6)% for the three months ended June 30, 2024 and 2023, respectively.

"Organization and Summary of Accounting Policies" under the heading Income Taxes for additional information related to the Company's effective tax rates for the three months ended June 30, 2024 and June 30, 2023, including why these rates differed from the U.S.

Interest expense, net was $50.0 million for the three months ended September 30, 2024 compared to $49.8 million for the three months ended September 30, 2023.

As a percentage of revenues, interest expense, net was 6.5% and 7.4% for the three months ended September 30, 2024 and 2023, respectively.

Income Tax Expense .

Income tax expense was $4.5 million and $3.1 million for the three months ended September 30, 2024 and 2023, respectively.

The effective tax rate was 41.3% and 9.5% for the three months ended September 30, 2024 and 2023, respectively.

"Organization and Summary of Accounting Policies" under the heading Income Taxes for additional information related to the Company's effective tax rates for the three months ended September 30, 2024 and September 30, 2023, including why these rates differed from the U.S.

federal statutory rate of 21%.

Net Income Attributable to Non-Controlling Interests.

As a percentage of revenues, net income attributable to non-controlling interests was 5.8% for each of the three months ended June 30, 2024 and 2023.

Comparison of Operating Results for the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023

As a percentage of revenues, net income attributable to non-controlling interests was 4.9% and 5.1% for the three months ended September 30, 2024 and 2023, respectively.

Comparison of Operating Results for the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

The following tables summarize certain results from the statements of operations for the periods indicated (dollars in millions):

Six Months Ended June 30,

Nine Months Ended September 30,

Revenues $ 2,249.9 $ 2,007.9

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The following table sets forth patient service revenues (in millions):

Six Months Ended June 30,

Nine Months Ended September 30,

Patient service revenues $ 2,206.6 $ 1,976.7

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Total revenues $ 2,249.9 $ 2,007.9

Patient service revenues increased 10.6% to $1.5 billion for the six months ended June 30, 2024 compared to $1.3 billion for the six months ended June 30, 2023.

The increase was primarily driven by a 10.0% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed in 2024.

Patient service revenues increased 11.6% to $2.2 billion for the nine months ended September 30, 2024 compared to $2.0 billion for the nine months ended September 30, 2023.

The increase was primarily driven by an 8.7% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed in 2024.

The increase in days adjusted same-facility revenues was attributable to a 3.4% increase in same-facility case volumes and a 5.2% increase in same-facility revenue per case.

Cost of Revenues.

Cost of revenues was $1.1 billion for the six months ended June 30, 2024 compared to $1.0 billion for the six months ended June 30, 2023.

The increase was primarily driven by increased performance of high acuity procedures and acquisitions completed in 2024.

As a percentage of revenues, cost of revenues was 77.4% and 78.4% for the six months ended June 30, 2024 and 2023, respectively.

Cost of revenues was $1.7 billion for the nine months ended September 30, 2024 compared to $1.6 billion for the nine months ended September 30, 2023.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures as well as acquisitions completed in 2024.

As a percentage of revenues, cost of revenues was 77.2% and 77.4% for the nine months ended September 30, 2024 and 2023, respectively.

General and Administrative Expenses.

General and administrative expenses were $73.5 million and $63.2 million for the six months ended June 30, 2024 and 2023, respectively.

As a percentage of revenues, general and administrative expenses were 5.0% and 4.7% for the six months ended June 30, 2024 and 2023, respectively.

General and administrative expenses were $102.7 million and $100.0 million for the nine months ended September 30, 2024 and 2023, respectively.

As a percentage of revenues, general and administrative expenses were 4.6% and 5.0% for the nine months ended September 30, 2024 and 2023, respectively.

Depreciation and Amortization.

Depreciation and amortization expenses were $68.5 million and $58.1 million for the six months ended June 30, 2024 and 2023, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.6% and 4.4% for the six months ended June 30, 2024 and 2023, respectively.

Depreciation and amortization expenses were $118.7 million and $87.0 million for the nine months ended September 30, 2024 and 2023, respectively.

As a percentage of revenues, depreciation and amortization expenses were 5.3% and 4.3% for the nine months ended September 30, 2024 and 2023, respectively.

Transaction and Integration Costs.

The Company incurred $36.7 million of transaction and integration costs for the six months ended June 30, 2024 compared to $24.5 million for the six months ended June 30, 2023.

The Company incurred $66.1 million of transaction and integration costs for the nine months ended September 30, 2024 compared to $37.3 million for the nine months ended September 30, 2023.

The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions.

Net Loss (Gain) on Disposals, Consolidations and Deconsolidations.

The net loss (gain) on disposals, consolidations and deconsolidations for the six months ended June 30, 2024 and 2023 includes activity discussed in Note 2.

Net Loss on Disposals, Consolidations and Deconsolidations.

The net loss on disposals, consolidations and deconsolidations for the nine months ended September 30, 2024 and 2023 includes activity discussed in Note 2.

"Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the condensed consolidated financial statements.

The remaining net loss (gain) in both periods was primarily attributable to sales and disposals of other assets.

The remaining net loss in both periods was primarily attributable to sales and disposals of other assets.

Interest Expense, Net.

Interest expense, net was $98.8 million for the six months ended June 30, 2024 compared to $94.5 million for the six months ended June 30, 2023.

As a percentage of revenues, interest expense, net was 6.7% and 7.1% for the six months ended June 30, 2024 and 2023, respectively.

Interest expense, net was $148.8 million for the nine months ended September 30, 2024 compared to $144.3 million for the nine months ended September 30, 2023.

As a percentage of revenues, interest expense, net was 6.6% and 7.2% for the nine months ended September 30, 2024 and 2023, respectively.

Income Tax (Expense) Benefit .

Income tax expense was $9.3 million for the six months ended June 30, 2024 compared to income tax benefit of $9.4 million for the six months ended June 30, 2023.

The effective tax rate was 15.0% and (19.0)% for the six months ended June 30, 2024 and 2023, respectively.

"Organization and Summary of Accounting Policies" under the heading Income Taxes for additional information related to the Company's effective tax rates for the six months ended June 30, 2024 and 2023, including why these rates differed from the U.S.

Income tax expense was $13.8 million for the nine months ended September 30, 2024 compared to income tax benefit of $6.3 million for the nine months ended September 30, 2023.

The effective tax rate was 18.9% and (7.7)% for the nine months ended September 30, 2024 and 2023, respectively.

"Organization and Summary of Accounting Policies" under the heading Income Taxes for additional information related to the Company's effective tax rates for the nine months ended September 30, 2024 and 2023, including why these rates differed from the U.S.

federal statutory rate of 21%.

Net Income Attributable to Non-Controlling Interests.

As a percentage of revenues, net income attributable to non-controlling interests was 5.4% and 4.9% for the six months ended June 30, 2024 and 2023, respectively.

As a percentage of revenues, net income attributable to non-controlling interests was 5.3% and 5.0% for the nine months ended September 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

Cash and cash equivalents were $213.5 million at June 30, 2024 compared to $195.9 million at December 31, 2023.

Cash and cash equivalents were $221.8 million at September 30, 2024 compared to $195.9 million at December 31, 2023.

The primary source of our operating cash flows is the collection of accounts receivable from private insurance companies, federal and state agencies (under the Medicare and Medicaid programs) and individuals.

Our cash flows provided by operating activities was $123.5 million for the six months ended June 30, 2024 compared to $126.6 million for the six months ended June 30, 2023.

The $3.1 million decrease was primarily driven by the timing of routine transactions involving working capital and accrued payroll and benefits.

Net cash used in investing activities for the six months ended June 30, 2024 was $327.2 million compared to $141.9 million for the six months ended June 30, 2023.

Our cash flows provided by operating activities was $188.7 million for the nine months ended September 30, 2024 compared to $231.2 million for the nine months ended September 30, 2023.

The $42.5 million decrease was primarily driven by increased transaction-related costs, the timing of routine transactions involving working capital and the impact of Hurricane Helene on collections.

Net cash used in investing activities for the nine months ended September 30, 2024 was $376.8 million compared to $167.5 million for the nine months ended September 30, 2023.

The $209.3 million increase was primarily driven by an aggregate net increase of $193.9 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $24.3 million decrease in proceeds from sales of facilities.

Net cash provided by financing activities for the six months ended June 30, 2024 was $221.3 million compared to net cash used of $90.2 million for the six months ended June 30, 2023.

The increase of $311.5 million was primarily driven by net proceeds received from the issuance and sale of $800.0 million in senior unsecured notes, partially offset by the redemption all the Existing Notes (as discussed in the following section).

The remaining increase was due to net borrowings on the Revolver used to fund acquisitions completed during the six months ended June 30, 2024.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $214.0 million compared to net cash used of $110.6 million for the nine months ended September 30, 2023.

The increase of $324.6 million was primarily driven by net proceeds received from the issuance and sale of $800.0 million in senior unsecured notes, partially offset by the redemption of all the Existing Notes (as discussed in the following section).

The remaining increase was due to net borrowings on the Revolver used to fund acquisitions completed during the nine months ended September 30, 2024.

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

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Proceeds from sale of the 2032 Notes were used (i) to redeem all of the outstanding 2025 Notes and 2027 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.

On June 20, 2024, the Company entered into a first 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 to provide for a new tranche of term loans under the Credit Agreement in an aggregate principal amount of $1.4 billion, 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.

On June 20, 2024, the Company entered into the Amendment to the Credit Agreement, to provide for the 2024 Refinancing Term Loans in an aggregate principal amount of $1.4 billion.

The 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).

The 2024 Refinancing Term Loans shall bear interest at a rate per annum equal to (x) the forward-looking term rate based on 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.

Capital Resources

Net working capital was approximately $460.7 million at June 30, 2024 compared to $372.0 million at December 31, 2023.

Net working capital was approximately $460.6 million at September 30, 2024 compared to $372.0 million at December 31, 2023.

In addition to cash flows from operations and available cash, other sources of capital include amounts available on our Revolver as well as anticipated continued access to the capital markets.

Material Cash Requirements

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the six months ended June 30, 2024 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Annual Report on Form 10-K.

Broad economic factors, including recent increases in interest rates, inflation and supply chain risks and market volatility, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the nine months ended September 30, 2024 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Annual Report on Form 10-K.

Broad economic factors, including recent changes in interest rates, inflation and supply chain risks and market volatility, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.

Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital.

If general economic conditions, including recent increases in interest rates, inflation risk and market volatility, continue to deteriorate or remain uncertain for an extended period of time, our ability to access capital could be harmed, which could negatively affect our liquidity and ability to repay our outstanding debt.

If general economic conditions, including recent changes in interest rates, inflation risk and market volatility, continue to deteriorate or remain uncertain for an extended period of time, our ability to access capital could be harmed, which could negatively affect our liquidity and ability to repay our outstanding debt.

Based on our current level of operations, we believe cash flows from operations, available cash, available capacity on our Revolver and continued anticipated access to capital markets, will be adequate to meet our short-term (i.e., 12 months) and long-term (beyond 12 months) liquidity needs.

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The following table reconciles Adjusted EBITDA to income before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited):

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

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

2024 2023 2024 2023

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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)

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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 aforementioned cyber event and losses from a divested business.

We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our Credit Agreement, as amended.

7 unchanged sentences

The following table reconciles Credit Agreement EBITDA to cash flows from operating activities, the most directly comparable GAAP financial measure (in millions and unaudited):

Twelve Months Ended June 30, 2024

Twelve Months Ended September 30, 2024

Cash flows from operating activities $ 251.3

12 unchanged sentences

Credit Agreement EBITDA $ 551.6

(1) This amount includes estimates for the impact of a cyber event and losses from divested business that occurred in 2023.

(2) Represents impact of acquisitions as if each acquisition had occurred on July 1, 2023.

(1) This amount includes estimates for the impact of hurricanes, a cyber event and losses from divested business that occurred in 2023.

(2) Represents impact of acquisitions as if each acquisition had occurred on October 1, 2023.

Further this includes revenue and cost synergies from other business initiatives and de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the Credit Agreement, as amended.

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 2. Management’s Discussion and Analysis