Surgery Partners Inc

Previous wording

As of March 31, 2024, we owned or operated, primarily in partnership with physicians, a portfolio of 165 surgical facilities comprised of 147 ASCs and 18 surgical hospitals across 33 states. We owned a majority interest in 92 of the surgical facilities and consolidated 124 of these facilities for financial reporting purposes.

Current wording

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. We owned a majority interest in 92 of the surgical facilities and consolidated 127 of these facilities for financial reporting purposes.

Previous wording

Total revenues for the first quarter of 2024 increased 7.7% to $717.4 million from $666.2 million for the first 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 last twelve months ended March 31, 2024. Days adjusted same-facility revenues for the first quarter of 2024 increased 10.2% from the first quarter of 2023, with an 8.8% increase in revenue per case and a 1.3% increase in same-facility cases. Additionally, for the first quarter of 2024, Adjusted EBITDA increased 8.2% to $97.5 million compared to $90.1 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 first quarter of 2024, net loss attributable to common stockholders was $12.4 million compared to $24.9 million for the same period in 2023. A reconciliation of non-GAAP financial measures appears below under the heading "Certain Non-GAAP Measures."

Current wording

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

Previous wording

We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and other portfolio management initiatives. During the first quarter of 2024 we completed the following:

Current wording

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:

Previous wording

•We 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. 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.

Current wording

•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.

Previous wording

•We sold a portion of our interests in a surgical facility for net cash proceeds of $1.5 million. As a result of the transaction, we no longer control the previously controlled surgical facility but retain a non-controlling interest, resulting in the deconsolidation of the previously consolidated entity.

Current wording

•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.

Previous wording

We had cash and cash equivalents of $185.2 million and $607.3 million of borrowing capacity under our Revolver as of March 31, 2024.

Current wording

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.

Previous wording

Comparison of Operating Results for the Three Months Ended March 31,2024 to the Three Months Ended March 31, 2023

Current wording

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

Previous wording

Patient service revenues increased 7.4% to $705.3 million for the three months ended March 31, 2024 compared to $656.4 million for the three months ended March 31, 2023. The increase was primarily driven by a 10.2% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the last twelve months ended March 31, 2024. The increase in days adjusted same-facility revenues was attributable to a 1.3% increase in same-facility case volumes and a 8.8% increase in same-facility revenue per case.

Current wording

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. The increase in days adjusted same-facility revenues was attributable to a 3.9% increase in same-facility case volumes and a 5.7% increase in same-facility revenue per case.

Previous wording

Cost of Revenues. Cost of revenues was $562.1 million for the three months ended March 31, 2024 compared to $532.2 million for the three months ended March 31, 2023. The increase was primarily driven by increased performance of high acuity procedures and acquisitions completed during the last twelve months ended March 31, 2024. As a percentage of revenues, cost of revenues was 78.4% and 79.9% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

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.

Previous wording

General and Administrative Expenses. General and administrative expenses were $33.2 million and $32.0 million for the three months ended March 31, 2024 and 2023, respectively. As a percentage of revenues, general and administrative expenses were 4.6% in the first quarter of 2024 compared to 4.8% in the first quarter of 2023.

Current wording

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.

Previous wording

Depreciation and Amortization. Depreciation and amortization expenses were $33.7 million for each of the three months ended March 31, 2024 and 2023. As a percentage of revenues, depreciation and amortization expenses were 4.7% and 5.1% for the three months ended March 31, 2024 and 2023, respectively

Current wording

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.

Previous wording

Transaction and Integration Costs. We incurred $17.4 million of transaction and integration costs for the three months ended March 31, 2024 compared to $12.5 million for the three months ended March 31, 2023. The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions.

Current wording

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

Previous wording

Net Loss on Disposals, Consolidations and Deconsolidations. The net loss on disposals, consolidations and deconsolidations for the three months ended March 31, 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 in both periods was primarily attributable to sales and disposals of other assets.

Current wording

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. "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.

Previous wording

Interest Expense, Net. Interest expense, net was $47.3 million for the three months ended March 31, 2024 compared to $46.8 million for the three months ended March 31, 2023. As a percentage of revenues, interest expense, net was 6.6% and 7.0% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

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.

Previous wording

Income Tax (Expense) Benefit. Income tax expense was $4.4 million for the three months ended March 31, 2024 as compared to income tax benefit of $1.6 million for the three months ended March 31, 2023. The effective tax rate was 15.3% and 400.0% for the three months ended March 31, 2024 and 2023, respectively. See Note 1. "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 March 31, 2024 and March 31, 2023, including why these rates differed from the U.S. federal statutory rate of 21%.

Current wording

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. See Note 1. "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. federal statutory rate of 21%.

Previous wording

Net Income Attributable to Non-Controlling Interests. As a percentage of revenues, net income attributable to non-controlling interests was 5.1% and 3.9% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

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.

Previous wording

Cash and cash equivalents were $185.2 million at March 31, 2024 compared to $195.9 million at December 31, 2023.

Current wording

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

Previous wording

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 $40.7 million for the three months ended March 31, 2024 compared to $74.5 million for the three months ended March 31, 2023. The $33.8 million decrease was primarily driven by the timing of routine transactions involving working capital and accrued payroll and benefits.

Current wording

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.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 was $83.1 million compared to $70.7 million for the three months ended March 31, 2023. The $12.4 million increase was primarily driven by an aggregate net increase of $6.3 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $6.5 million decrease in proceeds from sales of facilities.

Current wording

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. The $185.3 million increase was primarily driven by an aggregate net increase of $174.4 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $24.6 million decrease in proceeds from sales of facilities.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $31.7 million compared to net cash used of $41.2 million for the three months ended March 31, 2023. The increase of $72.3 million was primarily driven by net borrowings on the Revolver due to the timing of acquisitions completed during the first quarter of 2024.

Current wording

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.

Previous wording

On April 10, 2024, we completed the issuance and sale of $800.0 million in aggregate principal amount of 2032 Notes. 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 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.

Current wording

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"). 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 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.

Previous wording

Net working capital was approximately $372.5 million at March 31, 2024 compared to $372.0 million at December 31, 2023.

Current wording

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

Previous wording

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended March 31, 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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

(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.

Current wording

(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.

Previous wording

(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.

Current wording

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.

Previous wording

We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our New Credit Facilities. Credit Agreement EBITDA is determined on a trailing twelve-month basis. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. Credit Agreement EBITDA is not a measurement of liquidity under GAAP and should not be considered in isolation or as a substitute for any other measure calculated in accordance with GAAP. The items excluded from Credit Agreement EBITDA are significant components in understanding and evaluating our liquidity. Our calculation of Credit Agreement EBITDA may not be comparable to similarly titled measures reported by other companies.

Current wording

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. Credit Agreement EBITDA is determined on a trailing twelve-month basis. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. Credit Agreement EBITDA is not a measurement of liquidity under GAAP and should not be considered in isolation or as a substitute for any other measure calculated in accordance with GAAP. The items excluded from Credit Agreement EBITDA are significant components in understanding and evaluating our liquidity. Our calculation of Credit Agreement EBITDA may not be comparable to similarly titled measures reported by other companies.

Previous wording

(2)Represents impact of acquisitions as if each acquisition had occurred on April 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 New Credit Facilities.

Current wording

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