Surgery Partners, Inc.

Previous wording

By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ from the expectations expressed in the statements. Many of these factors are beyond our ability to control or predict. These factors include, without limitation, reductions in payments from government health care programs and private insurance payors, such as health maintenance organizations, preferred provider organizations, and other managed care organizations and employers; our ability to contract with private insurance payors; changes in our payor mix or surgical case mix; failure to maintain or develop relationships with physicians on beneficial or favorable terms, or at all; the impact of payor controls designed to reduce the number of surgical procedures; our efforts to integrate operations of acquired businesses and surgical facilities, attract new physician partners, or acquire additional surgical facilities; supply chain issues, including shortages or quality control issues with surgery-related products, equipment and medical supplies; competition for physicians, nurses, strategic relationships, acquisitions and managed care contracts; our ability to attract and retain qualified health care professionals; our ability to enforce non-compete restrictions against our physicians; our ability to manage material liabilities whether known or unknown incurred as a result of acquiring surgical facilities; the impact of future legislation and other health care regulatory reform actions, and the effect of that legislation and other regulatory actions on our business; our ability to comply with current health care laws and regulations; the outcome of legal and regulatory proceedings that have been or may be brought against us; the impact of cybersecurity attacks or intrusions; changes in the regulatory, economic and other conditions of the states where our surgical facilities are located; our indebtedness; 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 2024 Annual Report on Form 10-K and discussed from time to time in our reports filed with the SEC.

Current wording

By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ from the expectations expressed in the statements. Many of these factors are beyond our ability to control or predict. These factors include, without limitation, reductions in payments from government health care programs and private insurance payors, such as health maintenance organizations, preferred provider organizations, and other managed care organizations and employers; our ability to contract with private insurance payors; changes in our payor mix or surgical case mix; failure to maintain or develop relationships with physicians on beneficial or favorable terms, or at all; the impact of payor controls designed to reduce the number of surgical procedures; our efforts to integrate operations of acquired businesses and surgical facilities, attract new physician partners, or acquire additional surgical facilities; supply chain issues, including shortages or quality control issues with surgery-related products, equipment and medical supplies; competition for physicians, nurses, strategic relationships, acquisitions and managed care contracts; our ability to attract and retain qualified health care professionals; our ability to enforce non-compete restrictions against our physicians; our ability to manage material liabilities whether known or unknown incurred as a result of acquiring surgical facilities; the impact of current and future legislation and other health care public policy changes, and the effect of that legislation and other regulatory actions on our business; our ability to comply with current health care laws and regulations; the outcome of legal and regulatory proceedings that have been or may be brought against us; the impact of cybersecurity attacks or intrusions; changes in the regulatory, economic and other conditions of the states where our surgical facilities are located; our indebtedness; 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 2024 Annual Report on Form 10-K and discussed from time to time in our reports filed with the SEC.

Previous wording

As of March 31, 2025, we owned or operated, primarily in partnership with physicians, a portfolio of 164 surgical facilities comprised of 145 ASCs and 19 surgical hospitals across 30 states. We owned a majority interest in 83 of the surgical facilities and consolidated 118 of these facilities for financial reporting purposes.

Current wording

As of June 30, 2025, we owned or operated, primarily in partnership with physicians, a portfolio of 162 surgical facilities comprised of 143 ASCs and 19 surgical hospitals across 30 states. We owned a majority interest in 83 of the surgical facilities and consolidated 115 of these facilities for financial reporting purposes.

Previous wording

Total revenues for the first quarter of 2025 increased 8.2% to $776.0 million from $717.4 million for the first quarter of 2024. 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, 2025. Days adjusted same-facility revenues for the first quarter of 2025 increased 5.2% from the first quarter of 2024, with a 1.2% decrease in revenue per case and a 6.5% increase in same-facility cases. Additionally, for the first quarter of 2025, net loss attributable to Surgery Partners, Inc. was $37.7 million compared to $12.4 million for 2024. For the first quarter of 2025, Adjusted EBITDA increased 6.6% to $103.9 million compared to $97.5 million for the same period in 2024. The increase in Adjusted EBITDA was primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed since the prior year period. 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 2025 increased 8.3% to $826.2 million from $762.1 million for the second quarter of 2024. 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 June 30, 2025. Days adjusted same-facility revenues for the second quarter of 2025 increased 5.1% from the second quarter of 2024, with a 1.6% increase in revenue per case and a 3.4% increase in same-facility cases. Additionally, for the second quarter of 2025, net loss attributable to Surgery Partners, Inc. was $2.5 million compared to $15.5 million for the 2024 period. For the second quarter of 2025, Adjusted EBITDA increased 9.0% to $129.0 million compared to $118.3 million for the same period in 2024. The increase in Adjusted EBITDA was primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed since the prior year period. 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 pursuing other portfolio management initiatives. During the first quarter of 2025, we acquired a controlling interest in four surgical facilities and one physician practice for aggregate cash consideration of $44.0 million, net of cash acquired.

Current wording

We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and pursuing other portfolio management initiatives. During the second quarter of 2025, we acquired a controlling interest in four surgical facilities and two physician practice for aggregate cash consideration of $48.0 million, net of cash acquired.

Previous wording

We had cash and cash equivalents of $229.3 million and $388.9 million of borrowing capacity under the Revolver as of March 31, 2025.

Current wording

We had cash and cash equivalents of $250.1 million and $394.9 million of borrowing capacity under the Revolver as of June 30, 2025.

Previous wording

Patient service revenues increased 7.5% to $758.4 million for the three months ended March 31, 2025 compared to $705.3 million for the three months ended March 31, 2024. The increase was primarily driven by a 5.2% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the twelve months ended March 31, 2025. The increase in days adjusted same-facility revenues was attributable to a 6.5% increase in same-facility case volumes and a 1.2% decrease in same-facility revenue per case.

Current wording

Patient service revenues increased 7.5% to $804.2 million for the three months ended June 30, 2025 compared to $748.1 million for the three months ended June 30, 2024. The increase was primarily driven by a 5.1% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the twelve months ended June 30, 2025. The increase in days adjusted same-facility revenues was attributable to a 3.4% increase in same-facility case volumes and a 1.6% increase in same-facility revenue per case.

Previous wording

Cost of Revenues. Cost of revenues was $614.1 million for the three months ended March 31, 2025 compared to $562.1 million for the three months ended March 31, 2024. 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 March 31, 2025. As a percentage of revenues, cost of revenues was 79.1% and 78.4% for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Cost of Revenues. Cost of revenues was $630.6 million for the three months ended June 30, 2025 compared to $582.9 million for the three months ended June 30, 2024. 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 June 30, 2025. As a percentage of revenues, cost of revenues was 76.3% and 76.5% for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

General and Administrative Expenses. General and administrative expenses were $36.0 million and $33.2 million for the three months ended March 31, 2025 and 2024, respectively. As a percentage of revenues, general and administrative expenses were 4.6% for the three months ended March 31, 2025 and 2024.

Current wording

General and Administrative Expenses. General and administrative expenses were $36.1 million and $40.3 million for the three months ended June 30, 2025 and 2024, respectively. As a percentage of revenues, general and administrative expenses were 4.4% and 5.3% for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

Depreciation and Amortization. Depreciation and amortization expenses were $36.3 million and $33.7 million for the three months ended March 31, 2025 and 2024, respectively. As a percentage of revenues, depreciation and amortization expenses were 4.7% for the three months ended March 31, 2025 and 2024.

Current wording

Depreciation and Amortization. Depreciation and amortization expenses were $40.3 million and $34.8 million for the three months ended June 30, 2025 and 2024, respectively. As a percentage of revenues, depreciation and amortization expenses were 4.9% and 4.6% for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

Transaction and Integration Costs. The Company incurred $24.7 million of transaction and integration costs for the three months ended March 31, 2025 compared to $17.4 million for the three months ended March 31, 2024. The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions. The increase was primarily driven by an increase in severance, IT implementation, and revenue cycle standardization costs.

Current wording

Transaction and Integration Costs. The Company incurred $18.1 million of transaction and integration costs for the three months ended June 30, 2025 compared to $19.3 million for the three months ended June 30, 2024. The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions. The decrease was primarily driven by reduced transaction and integration costs related to acquisitions and divested facilities, partially offset by an increase in severance, IT implementation, and revenue cycle standardization costs.

Previous wording

Net Loss on Disposals, Consolidations and Deconsolidations. The net loss on disposals, consolidations and deconsolidations for the three months ended March 31, 2025 and 2024 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 (Gain) Loss on Disposals, Consolidations and Deconsolidations. The net loss on disposals, consolidations and deconsolidations for the three months ended June 30, 2025 and 2024 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.

Previous wording

Income Tax Expense. Income tax expense was $0.0 million and $4.4 million for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate was 0% and 15.3% for the three months ended March 31, 2025 and 2024, 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, 2025 and March 31, 2024, including why these rates differed from the U.S. federal statutory rate of 21%.

Current wording

Income Tax Benefit (Expense). Income tax benefit was $1.1 million for the three months ended June 30, 2025 compared to income tax expense of $4.9 million for the three months ended June 30, 2024. The effective tax rate was(2.5)% and 14.7% for the three months ended June 30, 2025 and 2024, respectively. See Note 7. "Income Taxes" for additional information related to the Company's effective tax rates for the three months ended June 30, 2025 and 2024, 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 4.8% and 5.1% for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Net Income Attributable to Non-Controlling Interests. As a percentage of revenues, net income attributable to non-controlling interests was 5.7% and 5.8% for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

Interest Expense, Net. Interest expense, net was $62.2 million for the three months ended March 31, 2025 compared to $47.3 million for the three months ended March 31, 2024. As a percentage of revenues, interest expense, net was 8.0% and 6.6% for the three months ended March 31, 2025 and 2024, respectively. The increase was primarily driven by financing activities in 2024 related to the senior unsecured notes and increased borrowings on the Revolver.

Current wording

Interest Expense, Net. Interest expense, net was $130.1 million for the six months ended June 30, 2025 compared to $98.8 million for the six months ended June 30, 2024. As a percentage of revenues, interest expense, net was 8.1% and 6.7% for the six months ended June 30, 2025 and 2024, respectively. The increase was primarily driven by financing activities in 2024 related to the senior unsecured notes and increased borrowings on the Revolver.

Previous wording

Cash and cash equivalents were $229.3 million at March 31, 2025 compared to $269.5 million at December 31, 2024.

Current wording

Cash and cash equivalents were $250.1 million at June 30, 2025 compared to $269.5 million at December 31, 2024.

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 $6.0 million for the three months ended March 31, 2025 compared to $40.7 million for the three months ended March 31, 2024. The $34.7 million decrease was primarily driven by a decrease in net income and changes in other operating assets and liabilities.

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 $87.3 million for the six months ended June 30, 2025 compared to $123.5 million for the six months ended June 30, 2024. The $36.2 million decrease was primarily driven by driven by higher cash interest payments and timing of changes in working capital.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2025 was $76.4 million compared to $83.1 million for the three months ended March 31, 2024. The $6.7 million decrease was primarily driven by an aggregate net decrease of $8.8 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $3.3 million increase in proceeds from sales of facilities.

Current wording

Net cash used in investing activities for the six months ended June 30, 2025 was $74.3 million compared to $327.2 million for the six months ended June 30, 2024. The $252.9 million decrease was primarily driven by an aggregate net decrease of $214.5 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $41.4 million increase in proceeds from sales of facilities.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2025 was $30.2 million compared to $31.7 million for the three months ended March 31, 2024. The decrease of $1.5 million was primarily driven by distributions to non-controlling interest holders substantially offset by increased borrowing on long-term debt.

Current wording

Net cash used in financing activities for the six months ended June 30, 2025 was $32.4 million compared to net cash provided of $221.3 million for the six months ended June 30, 2024. The decrease of $253.7 million was primarily driven by net proceeds from borrowings on long-term debt during the six months ended June 30, 2024 and a $35.6 million increase in distributions to non-controlling interest holders in the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Previous wording

Net working capital was approximately $505.2 million at March 31, 2025 compared to $495.0 million at December 31, 2024.

Current wording

Net working capital was approximately $532.0 million at June 30, 2025 compared to $495.0 million at December 31, 2024.

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, 2025 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 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, 2025 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Annual Report on Form 10-K.

Previous wording

The following table reconciles Adjusted EBITDA to (loss) income 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)For the three months ended March 31, 2025, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $16.8 million and other costs, including severance, IT implementation, revenue cycle standardization of $7.9 million. For the three months ended March 31, 2024, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $16.1 million and other costs, including severance, IT implementation, revenue cycle standardization of $1.3 million.

Current wording

(1)For the three months ended June 30, 2025, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $14.1 million and other costs, including severance, IT implementation, revenue cycle standardization of $4.0 million For the three months ended June 30, 2024, this amount includes M&A costs of $16.2 million and other costs, including severance, IT implementation, revenue cycle standardization of $3.1 million.

Previous wording

(2)This amount includes a litigation settlement loss of $2.2 million and a litigation settlement gain of $1.8 million for the three months ended March 31, 2025 and 2024, respectively. This amount also includes other litigation costs of $0.5 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively.

Current wording

This amount includes a litigation settlement loss of $2.2 million and a gain of $1.3 million for the six months ended June 30, 2025 and 2024, respectively. This amount also includes other litigation costs of $1.0 million and $1.2 million for the six months ended June 30, 2025 and 2024, respectively.