```markdown PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Surgery Partners, Inc. is a leading healthcare services company operating a national network of surgical facilities and ancillary services, focusing on high-quality, cost-effective surgical care with over 180 locations in 33 states [Overview](index=4&type=section&id=Overview) - Surgery Partners, Inc. operates a national network of surgical facilities and ancillary services, providing high-quality, cost-effective solutions for surgical and related care[17](index=17&type=chunk) - The company is one of the largest and fastest-growing surgical services businesses in the U.S., with over 180 locations in 33 states[17](index=17&type=chunk) [Our Growth Strategies](index=4&type=section&id=Our%20Growth%20Strategies) - Key growth strategies include physician engagement, organic growth at existing facilities, disciplined acquisitions, and strategic partnerships with payors and health systems[18](index=18&type=chunk)[21](index=21&type=chunk) - Favorable industry trends such as an aging population, advancements in medical technology, and payor/government encouragement for outpatient procedures are expected to drive further growth[18](index=18&type=chunk) [Total Addressable Market](index=4&type=section&id=Total%20Addressable%20Market) U.S. Outpatient Surgical Facility Market Estimates | Market Segment | Annual Revenue | Expected Annual Procedure Volume Growth | | :------------- | :------------- | :------------------------------------ | | Total Outpatient Surgical Facility Market | >$90 billion | | | Hospital Outpatient Department Procedures | >$55 billion | ~2% | | Ambulatory Surgical Center Procedures | $35 billion | ~6% | | Potential Inpatient Shift to Outpatient | ~$60 billion | | | Total Addressable Market | ~$150 billion | | - Inpatient procedures are expected to decline by approximately **2% annually**, while ASCs are projected to grow by **6%**[19](index=19&type=chunk) [Operations](index=4&type=section&id=Operations) - Surgery Partners, Inc. is a leading healthcare services company with an integrated outpatient delivery model, operating over 180 locations in 33 states[17](index=17&type=chunk) [Surgical Facility Services Segment](index=5&type=section&id=Surgical%20Facility%20Services%20Segment) The Surgical Facility Services segment, comprising ASCs and surgical hospitals, is the company's primary revenue driver, contributing approximately 98% of total revenue in 2023, providing non-emergency surgical procedures across various specialties through physician and healthcare system partnerships - The Surgical Facility Services segment, comprising ASCs and surgical hospitals, accounted for approximately **98% of total revenue in 2023**[23](index=23&type=chunk) Surgical Facilities as of December 31, 2023 | Type | Number | | :--- | :----- | | Total Surgical Facilities | 162 | | Ambulatory Surgery Centers (ASCs) | 144 | | Licensed Surgical Hospitals | 18 | [Surgical Facility Operations](index=5&type=section&id=Surgical%20Facility%20Operations) - ASCs are free-standing outpatient facilities, while surgical hospitals are larger, offering inpatient rooms and additional services like diagnostic imaging[24](index=24&type=chunk)[25](index=25&type=chunk) - The company operates both multi-specialty and single-specialty facilities, strategically diversifying procedure mix[26](index=26&type=chunk) [Surgical Facility Ownership Structure](index=5&type=section&id=Surgical%20Facility%20Ownership%20Structure) - Surgical facilities are owned and operated through partnerships or LLCs with physicians and health care systems[28](index=28&type=chunk) Surgical Facility Ownership (as of Dec 31, 2023) | Ownership Type | Number of Facilities | | :------------- | :------------------- | | Total Operational Facilities | 162 | | Majority Ownership | 90 | | Consolidated for Financial Reporting | 123 | [Strategic Relationships](index=5&type=section&id=Strategic%20Relationships) - Strategic relationships with payors, health care systems, and other providers are pursued to enhance physician attraction and access favorable private insurance contracts[29](index=29&type=chunk)[30](index=30&type=chunk) [Sources of Revenue](index=5&type=section&id=Sources%20of%20Revenue) - Revenue is primarily derived from facility fees for surgical services at consolidated facilities and management fees from non-consolidated facilities[31](index=31&type=chunk) - Reimbursement is highly dependent on government (Medicare, Medicaid) and private insurance payors, subject to regulatory changes and cost containment efforts[32](index=32&type=chunk) [Medicare Reimbursement - Hospital Inpatient Services](index=6&type=section&id=Medicare%20Reimbursement%20-%20Hospital%20Inpatient%20Services) - Hospital inpatient services are reimbursed by Medicare under the IPPS, based on MS-DRGs[35](index=35&type=chunk) - For FFY 2024, inpatient rates for qualifying hospitals increased by **3.1%**[36](index=36&type=chunk) [Medicare Reimbursement - Hospital Outpatient Departments](index=6&type=section&id=Medicare%20Reimbursement%20-%20Hospital%20Outpatient%20Departments) - HOPD services are reimbursed under the OPPS, with a **3.1% payment rate increase for 2024**[37](index=37&type=chunk) - Off-campus HOPDs established after November 2, 2015, are generally paid under the lower Medicare Physician Fee Schedule (MPFS)[38](index=38&type=chunk) [Medicare Reimbursement - ASCs](index=6&type=section&id=Medicare%20Reimbursement%20-%20ASCs) - ASC payments are based on the OPPS, receiving a percentage of HOPD payments[39](index=39&type=chunk) - ASC reimbursement rates are set to increase by **3.1% for 2024**, with full updates tied to the ASCQR Program[39](index=39&type=chunk) [Annual Cost Reports](index=7&type=section&id=Annual%20Cost%20Reports) - Hospitals must submit annual cost reports for Medicare/Medicaid, which are subject to audits and potential payment adjustments[40](index=40&type=chunk) - ASCs are not currently required to submit federal cost reports, but this could change[40](index=40&type=chunk) [Ancillary Services Segment](index=7&type=section&id=Ancillary%20Services%20Segment) The Ancillary Services segment complements outpatient surgical facilities by providing multi-specialty physician practices, urgent care, and anesthesia services, contributing approximately 2% of total revenue in 2023 through wholly-owned practices or management service agreements - The Ancillary Services segment, including multi-specialty physician practices, urgent care, and anesthesia, contributed approximately **2% of total revenue in 2023**[41](index=41&type=chunk) [Ancillary Services Operations](index=7&type=section&id=Ancillary%20Services%20Operations) - The company operates physician practices through wholly-owned models (where permitted by state law) and long-term management service agreements with physician-owned professional corporations[42](index=42&type=chunk) [Sources of Revenue](index=7&type=section&id=Sources%20of%20Revenue) - Ancillary service fees are influenced by service type, location, and provider, and are subject to government and private insurance reimbursement policies[43](index=43&type=chunk) [Acquisition and Development Programs](index=7&type=section&id=Acquisition%20and%20Development%20Programs) [Acquisition Program](index=7&type=section&id=Acquisition%20Program) - The company has a dedicated acquisition team that targets prominent surgical facilities with growth potential, favorable specialty mix, and strong private insurance penetration[45](index=45&type=chunk) [Development Program](index=7&type=section&id=Development%20Program) - New surgical facilities are developed in high-interest markets, with the company providing comprehensive services from partnership structuring and financing to design and operational support[46](index=46&type=chunk) [Marketing](index=7&type=section&id=Marketing) - Marketing focuses on attracting physicians by highlighting facility benefits like convenience, quality, efficiency, and advanced equipment[47](index=47&type=chunk) - Direct marketing to private insurance payors emphasizes high-quality care, cost advantages, and convenience to secure approved provider status[49](index=49&type=chunk) [Competition](index=8&type=section&id=Competition) - The company faces intense competition from hospitals and other surgical facilities for physicians and patients, with competitive factors including location, quality of care, and insurance participation[50](index=50&type=chunk) - Competition also arises from large national healthcare companies (e.g., HCA Healthcare, Tenet Healthcare) and the trend of physicians performing procedures in office-based settings[51](index=51&type=chunk) [Seasonality](index=8&type=section&id=Seasonality) - Revenue is subject to seasonality, fluctuating with business days and often increasing in Q4 due to patients meeting deductibles and utilizing benefits[52](index=52&type=chunk) [Human Capital Resources](index=8&type=section&id=Human%20Capital%20Resources) Employee Count (as of Dec 31, 2023) | Category | Number | | :------- | :----- | | Total Employees | ~13,500 | | Part-time Employees | ~3,000 | - The company prioritizes attracting, developing, and retaining a diverse workforce through competitive compensation, benefits, and a culture of diversity and inclusion[54](index=54&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) - Rising labor costs and competition for qualified nurses and medical support personnel are significant operating challenges, leading to initiatives to improve engagement, retention, and compensation[56](index=56&type=chunk) [Environmental](index=9&type=section&id=Environmental) - The company complies with environmental and health/safety laws regarding hazardous materials and believes it has no material adverse environmental liabilities[59](index=59&type=chunk) [Insurance](index=9&type=section&id=Insurance) - The company maintains various liability insurance policies, including professional, general, workers' compensation, and cyber insurance, in amounts considered appropriate for its operations[60](index=60&type=chunk) - Physicians utilizing the company's surgical facilities are required to maintain their own separate malpractice coverage[61](index=61&type=chunk) [Private Insurance Payors](index=9&type=section&id=Private%20Insurance%20Payors) - Most private insurance reimbursements are based on written contracts with negotiated discounts[62](index=62&type=chunk) - For out-of-network services, the company charges patients in-network co-payment amounts and fully discloses these adjustments to private insurance payors[62](index=62&type=chunk) [Governmental Regulation](index=9&type=section&id=Governmental%20Regulation) [General](index=9&type=section&id=General) - The company is subject to a wide array of federal, state, and local laws and regulations, including those related to occupational safety, employment, and medical waste[63](index=63&type=chunk) - Expanding regulatory requirements may increase operating costs and reduce profitability[63](index=63&type=chunk) [Continuing Obligations with Respect to COVID-19 Regulatory Responses](index=9&type=section&id=Continuing%20Obligations%20with%20Respect%20to%20COVID-19%20Regulatory%20Responses) - The CARES Act provided temporary regulatory waivers and federal funding to healthcare providers during the COVID-19 pandemic[64](index=64&type=chunk) - The company's facilities have materially complied with auditing and reporting requirements for COVID-19 related funding[65](index=65&type=chunk) [Waivers or Temporary Suspension of Certain Regulatory Requirements](index=9&type=section&id=Waivers%20or%20Temporary%20Suspension%20of%20Certain%20Regulatory%20Requirements) - Temporary waivers and suspensions of healthcare facility licensure and reimbursement requirements during the COVID-19 public health emergency have ended[67](index=67&type=chunk)[68](index=68&type=chunk) [Expiration of Public Health Emergency](index=10&type=section&id=Expiration%20of%20Public%20Health%20Emergency) - The COVID-19 public health emergency ended on May 11, 2023, resulting in the termination of many associated Medicare and Medicaid waivers[69](index=69&type=chunk) - Facilities have largely reverted to pre-pandemic operating models following the emergency's expiration[69](index=69&type=chunk) [Certificates of Need, Licensure and Accreditation](index=10&type=section&id=Certificates%20of%20Need,%20Licensure%20and%20Accreditation) - States may require Certificates of Need (CON) for healthcare facility construction, acquisition, or expansion, with the company operating in **24 CON states**[70](index=70&type=chunk) - Most facilities are accredited by The Joint Commission or AAAHC, which exempts them from routine state surveys for CMS compliance and is often required by private insurance plans[72](index=72&type=chunk) [Executive Order](index=10&type=section&id=Executive%20Order) - A 2021 executive order encourages the FTC to limit non-compete agreements and the DOJ/FTC to review merger guidelines to promote competition in healthcare[73](index=73&type=chunk) - The impact of these initiatives on the company's operations is uncertain, but federal agencies are increasing enforcement against perceived anti-competitiveness[73](index=73&type=chunk) [Affordable Care Act Repeal Efforts](index=10&type=section&id=Affordable%20Care%20Act%20Repeal%20Efforts) - Persistent efforts to repeal or modify the Affordable Care Act (ACA) have not fully succeeded, but the individual mandate tax penalty was reduced to zero[74](index=74&type=chunk) - Future changes to the ACA or court rulings could negatively impact the company's financial condition by potentially increasing the uninsured population[74](index=74&type=chunk)[75](index=75&type=chunk) [Medicare and Medicaid Private Contractor Audits](index=11&type=section&id=Medicare%20and%20Medicaid%20Private%20Contractor%20Audits) - CMS utilizes private contractors (RACs, ZPICs, MICs) to conduct post-payment and pre-payment audits of Medicare and Medicaid claims[76](index=76&type=chunk) - These audits can result in repayment requests and associated expenses, with a backlog in appeals often delaying resolution for years[76](index=76&type=chunk) [Medicare and Medicaid Participation](index=11&type=section&id=Medicare%20and%20Medicaid%20Participation) - Participation in Medicare and Medicaid requires compliance with HHS 'conditions for coverage' or 'conditions of participation,' including requirements for facilities, equipment, personnel, and medical care standards[78](index=78&type=chunk) - Hospitals must provide basic emergency care, and non-compliance with these regulations could jeopardize facility participation in government programs[78](index=78&type=chunk) [Utilization Review](index=11&type=section&id=Utilization%20Review) - Utilization review by quality improvement organizations is mandated for Medicare and Medicaid patients to ensure services meet professional standards and are medically necessary[80](index=80&type=chunk) - Reviews can lead to payment denials, fines, or recommendations for exclusion from the Medicare program[80](index=80&type=chunk) [Federal Anti-Kickback Statute and Medicare Fraud and Abuse Laws](index=11&type=section&id=Federal%20Anti-Kickback%20Statute%20and%20Medicare%20Fraud%20and%20Abuse%20Laws) - The federal Anti-Kickback Statute prohibits remuneration for referrals of services covered by federal healthcare programs, with violations leading to severe criminal and civil penalties[81](index=81&type=chunk) - The company's surgical facility ownership and operations do not fully fit within Anti-Kickback safe harbors, requiring careful structuring to avoid violations[85](index=85&type=chunk)[87](index=87&type=chunk) [Eliminating Kickbacks in Recovery Act](index=14&type=section&id=Eliminating%20Kickbacks%20in%20Recovery%20Act) - The Eliminating Kickbacks in Recovery Act (EKRA) prohibits kickbacks for referrals to recovery homes, clinical treatment facilities, or laboratories, extending beyond federal healthcare programs[98](index=98&type=chunk) - EKRA's exceptions are narrower than those of the Anti-Kickback Statute, potentially impacting the company's clinical laboratory operations[98](index=98&type=chunk) [Federal Physician Self-Referral Law](index=14&type=section&id=Federal%20Physician%20Self-Referral%20Law) - The Stark Law prohibits physician self-referrals for 'designated health services' to entities with which they have a financial relationship, absent an exception[99](index=99&type=chunk) - Surgical services in ASCs are generally not considered 'designated health services' under Stark Law if not separately billed, but referrals to hospitals with physician ownership are subject to the 'Whole Hospital Exception' with recent restrictions[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) [Other Fraud and Abuse Laws](index=15&type=section&id=Other%20Fraud%20and%20Abuse%20Laws) - HIPAA and the False Claims Act (FCA) impose civil and criminal penalties for fraud, abuse, and false claims in federal healthcare programs[105](index=105&type=chunk)[228](index=228&type=chunk) - The FCA includes 'qui tam' (whistleblower) provisions, allowing private parties to bring actions on behalf of the government, increasing the risk of investigations and significant penalties[231](index=231&type=chunk) [Federal and State Privacy and Security Requirements](index=15&type=section&id=Federal%20and%20State%20Privacy%20and%20Security%20Requirements) - The company must comply with HIPAA, HITECH Act, and HIPAA Omnibus Rule regarding the privacy and security of PHI, facing significant penalties for violations[106](index=106&type=chunk)[110](index=110&type=chunk) - State laws may impose stricter privacy requirements and penalties than HIPAA, and the company must comply with these more restrictive provisions[112](index=112&type=chunk)[200](index=200&type=chunk) [HIPAA Administrative Simplification Requirements](index=16&type=section&id=HIPAA%20Administrative%20Simplification%20Requirements) - HIPAA requires the use of standard transaction code sets and identifiers for electronic healthcare transactions, including billing, necessitating continuous compliance efforts[113](index=113&type=chunk)[196](index=196&type=chunk) [Emergency Medical Treatment and Active Labor Act](index=16&type=section&id=Emergency%20Medical%20Treatment%20and%20Active%20Labor%20Act) - EMTALA mandates Medicare-participating hospitals to screen and stabilize emergency conditions or transfer patients, irrespective of their ability to pay[114](index=114&type=chunk) - Off-campus facilities without emergency departments are generally exempt but must have policies for emergency patient transfers[114](index=114&type=chunk) [State Regulation](index=16&type=section&id=State%20Regulation) - Many states have laws similar to federal anti-kickback, self-referral, and False Claims Acts, with varying scopes and applications[115](index=115&type=chunk)[116](index=116&type=chunk) - Non-compliance with state healthcare laws or insurance regulations can result in civil/criminal penalties, recoupment actions, and adverse financial impacts[116](index=116&type=chunk)[117](index=117&type=chunk) [Fee Splitting; Corporate Practice of Medicine](index=17&type=section&id=Fee%20Splitting;%20Corporate%20Practice%20of%20Medicine) - State laws often prohibit fee splitting, corporate practice of medicine by non-physician entities, and referrals to facilities with physician financial interests[118](index=118&type=chunk) - The company structures its management service agreements to comply with these laws, but future interpretations or changes could require modifications[118](index=118&type=chunk) [Clinical Laboratory Regulation](index=17&type=section&id=Clinical%20Laboratory%20Regulation) - Clinical laboratories are federally regulated under CLIA, requiring certification and compliance with quality, control, and personnel standards based on test complexity[119](index=119&type=chunk) - State and local laboratory regulations also apply, potentially imposing additional requirements[119](index=119&type=chunk) [Regulatory Compliance Program](index=17&type=section&id=Regulatory%20Compliance%20Program) - The company maintains a comprehensive regulatory compliance program covering billing, reimbursement, cost reporting, and contractual arrangements[120](index=120&type=chunk) - The program includes employee training, ongoing monitoring, and a mechanism for reporting suspected violations, though it cannot guarantee detection of all violations[121](index=121&type=chunk)[122](index=122&type=chunk) [Where You Can Find More Information](index=18&type=section&id=Where%20You%20Can%20Find%20More%20Information) - SEC filings (10-K, 10-Q, 8-K) are available free on the company's investor relations website[123](index=123&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) This section outlines the significant risks that could adversely affect Surgery Partners' business, financial condition, and operating results, categorized into business and operational, financial and accounting, cybersecurity and data, legal and regulatory, and governance risks, highlighting the speculative nature of investing in the company's common stock - The summary highlights principal factors making common stock investment speculative, advising investors to review all detailed risks in the report[125](index=125&type=chunk) [Risk Factors Summary](index=19&type=section&id=Risk%20Factors%20Summary) - The summary highlights principal factors making common stock investment speculative, advising investors to review all detailed risks in the report[125](index=125&type=chunk) [Business and Operational Risks](index=19&type=section&id=Business%20and%20Operational%20Risks) - Key business and operational risks include reliance on third-party payors, challenges in physician relationships, integration of acquisitions, supply chain disruptions, and intense competition[128](index=128&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[143](index=143&type=chunk)[146](index=146&type=chunk)[153](index=153&type=chunk)[155](index=155&type=chunk) - Risks also encompass changes in payor/case mix, increased labor costs, unenforceability of non-compete agreements, and the potential loss of facility accreditation[128](index=128&type=chunk)[139](index=139&type=chunk)[158](index=158&type=chunk)[160](index=160&type=chunk)[163](index=163&type=chunk) [Financial and Accounting Risks](index=26&type=section&id=Financial%20and%20Accounting%20Risks) - Financial risks include a history of net losses, high leverage impacting capital raising and economic responsiveness, and substantial cash needs for debt servicing[128](index=128&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - Restrictive debt covenants, dependence on subsidiary earnings as a holding company, and limitations on net operating loss carryforwards also pose significant financial risks[128](index=128&type=chunk)[178](index=178&type=chunk)[183](index=183&type=chunk)[190](index=190&type=chunk) [Cybersecurity and Data Risks](index=29&type=section&id=Cybersecurity%20and%20Data%20Risks) - Cybersecurity attacks or intrusions pose risks of operational disruption, data loss, reputational damage, and financial penalties[129](index=129&type=chunk)[192](index=192&type=chunk) - Non-compliance with federal and state privacy and security regulations (HIPAA, HITECH Act) regarding personally identifiable and protected health information could lead to significant liability[129](index=129&type=chunk)[195](index=195&type=chunk)[198](index=198&type=chunk)[200](index=200&type=chunk) [Legal and Regulatory Risks](index=30&type=section&id=Legal%20and%20Regulatory%20Risks) - The company faces significant legal and regulatory risks due to extensive federal and state laws governing healthcare operations, including licensing, fraud and abuse, and self-referral[129](index=129&type=chunk)[202](index=202&type=chunk) - Risks include potential non-compliance with Anti-Kickback and Stark Laws, changes in healthcare reform, fee-splitting regulations, and obligations to purchase physician ownership interests due to regulatory shifts[129](index=129&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[215](index=215&type=chunk)[224](index=224&type=chunk) - The company is subject to ongoing federal and state audits, investigations (including False Claims Act actions), and litigation, which can result in penalties and reputational harm[129](index=129&type=chunk)[227](index=227&type=chunk)[231](index=231&type=chunk)[239](index=239&type=chunk) [Governance Risks](index=36&type=section&id=Governance%20Risks) - Bain Capital affiliates' significant ownership (**39.5%**) grants them substantial influence over company decisions, potentially limiting other stockholders' impact[130](index=130&type=chunk)[251](index=251&type=chunk) - Charter documents and Delaware law contain provisions (e.g., classified board, preferred stock issuance rights) that could deter beneficial takeover efforts[130](index=130&type=chunk)[252](index=252&type=chunk) - The certificate of incorporation designates Delaware courts as the exclusive forum for certain stockholder actions, potentially limiting forum choice[130](index=130&type=chunk)[253](index=253&type=chunk) [Item 1B. Unresolved Staff Comments](index=38&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section states that there are no unresolved staff comments - There are no unresolved staff comments[256](index=256&type=chunk) [Item 1C. Cybersecurity](index=38&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity strategy and risk management are overseen by management and the Board's Audit Committee, employing various tools, third-party vendors, and mandatory employee training to identify, assess, and manage cyber risks, with quarterly governance committee meetings and annual CISO updates - Management is responsible for the company's cybersecurity policy, strategy, and incident management, utilizing risk assessment tools and third-party vendors[257](index=257&type=chunk) - A quarterly cybersecurity and privacy governance committee, including executive leadership, discusses threats and prioritizes roadmap items[258](index=258&type=chunk) - All team members undergo ongoing cybersecurity training and awareness programs[257](index=257&type=chunk) - The Board of Directors, via its Audit Committee, oversees cybersecurity risks, reviewing policies and management's preparedness plans[260](index=260&type=chunk) - The CISO, an experienced professional, provides annual updates to the Audit Committee on cybersecurity threats, risks, and program status[260](index=260&type=chunk) [Item 2. Properties](index=38&type=section&id=Item%202.%20Properties) The company's corporate headquarters is leased in Brentwood, Tennessee, and the majority of its 162 surgical facilities (159) operate on leased real estate, typically with 10-year initial terms and renewal options, with the company generally guaranteeing these lease obligations - The company's corporate headquarters is leased in Brentwood, Tennessee[261](index=261&type=chunk) - **159 of 162** surgical facilities operate on leased real estate, typically with 10-year initial terms and renewal options, with the company generally guaranteeing these lease obligations[261](index=261&type=chunk) [Item 3. Legal Proceedings](index=38&type=section&id=Item%203.%20Legal%20Proceedings) The company is routinely involved in various claims and lawsuits, including those related to patient treatment, employment practices, and personal injuries, but management believes no current proceedings are expected to have a material adverse effect on the company's business, financial condition, or results of operations - The company is routinely involved in claims and lawsuits related to patient treatment, employment, and contracts[262](index=262&type=chunk) - Management believes no current legal proceedings are expected to have a material adverse effect on the company's business, financial condition, or results of operations[262](index=262&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[263](index=263&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=39&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the Nasdaq Global Select Market under the symbol 'SGRY', with 179 holders of record as of February 19, 2024, and no cash dividends have ever been paid or are currently planned, while a $50.0 million share repurchase program authorized in 2017 has $46.0 million remaining but no further repurchases are intended - The company's common stock (SGRY) is traded on the Nasdaq Global Select Market[265](index=265&type=chunk) - The company has never paid cash dividends on its common stock and has no current plans to do so in the foreseeable future[267](index=267&type=chunk) - A **$50.0 million** share repurchase program was authorized in December 2017, with **$46.0 million** remaining as of December 31, 2023. The company does not intend to make further repurchases under this program[270](index=270&type=chunk) [Market Information for Common Stock](index=39&type=section&id=Market%20Information%20for%20Common%20Stock) - The company's common stock (SGRY) is traded on the Nasdaq Global Select Market[265](index=265&type=chunk) [Stockholders](index=39&type=section&id=Stockholders) Common Stock Holders of Record (as of Feb 19, 2024) | Metric | Count | | :----- | :---- | | Holders of Record | 179 | [Dividends](index=39&type=section&id=Dividends) - The company has never paid cash dividends on its common stock and has no current plans to do so in the foreseeable future[267](index=267&type=chunk) [Stock Performance Graph](index=39&type=section&id=Stock%20Performance%20Graph) Cumulative Total Stockholder Return (Dec 31, 2018 = $100) | Index | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | | :-------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Surgery Partners, Inc. | $100.00 | $159.91 | $296.32 | $545.56 | $284.58 | $326.76 | | Dow Jones U.S. Health Care Providers Index | $100.00 | $118.05 | $132.14 | $172.51 | $174.53 | $226.24 | | Nasdaq Composite Index | $100.00 | $135.23 | $194.24 | $235.78 | $157.74 | $167.73 | [Purchases of Equity Securities by the Issuer and Affiliated Purchasers](index=40&type=section&id=Purchases%20of%20Equity%20Securities%20by%20the%20Issuer%20and%20Affiliated%20Purchasers) - A **$50.0 million** share repurchase program was authorized in December 2017, with **$46.0 million** remaining as of December 31, 2023[270](index=270&type=chunk) - The company did not repurchase any shares in Q4 2023 and does not intend to make further repurchases under the program[270](index=270&type=chunk) [Item 6. [Reserved]](index=40&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - This item is reserved and contains no information[271](index=271&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Surgery Partners' financial performance and condition, with total revenues increasing **8.0% to $2.7 billion** in 2023, driven by strong same-facility revenue growth and strategic acquisitions, Adjusted EBITDA growing by **15.2% to $438.1 million**, and net loss attributable to common stockholders significantly improving to **$11.9 million**, supported by operating cash flows and available credit despite a decrease in cash and cash equivalents - The company completed significant acquisition and divestiture activities in 2023, including acquiring controlling interests in **11 surgical facilities** and **4 physician practices**, and divesting **6 surgical facilities**[275](index=275&type=chunk) [Executive Overview](index=40&type=section&id=Executive%20Overview) - As of December 31, 2023, Surgery Partners owned or operated **162 surgical facilities** (**144 ASCs, 18 surgical hospitals**) across **33 states**, with majority interest in **90** and consolidating **123**[272](index=272&type=chunk) Key Financial and Operational Highlights (2023 vs. 2022) | Metric | 2023 | 2022 | Change (%) | | :-------------------------------- | :--------- | :--------- | :--------- | | Total Revenues | $2.7 billion | $2.5 billion | +8.0% | | Days Adjusted Same-Facility Revenues | +11.3% | | | | Same-Facility Case Volumes | +3.9% | | | | Same-Facility Revenue per Case | +7.1% | | | | Adjusted EBITDA | $438.1 million | $380.2 million | +15.2% | | Net Loss Attributable to Common Stockholders | $(11.9) million | $(54.6) million | Improved | [Revenues](index=40&type=section&id=Revenues) Revenue Breakdown (2023 vs. 2022) | Revenue Type | 2023 (Millions) | 2022 (Millions) | Change (%) | | :--------------------- | :-------------- | :-------------- | :--------- | | Patient service revenues | $2,700.4 | $2,502.1 | +7.9% | | Other service revenues | $42.9 | $37.2 | +15.3% | | Total revenues | $2,743.3 | $2,539.3 | +8.0% | - The increase in patient service revenues was primarily due to an **11.3% increase** in days adjusted same-facility revenues, comprising a **3.9% increase** in same-facility case volumes and a **7.1% increase** in same-facility revenue per case[307](index=307&type=chunk) [Payor Mix](index=41&type=section&id=Payor%20Mix) Patient Service Revenues by Payor Type (Consolidated Surgical Facilities) | Payor Type | 2023 (%) | 2022 (%) | 2021 (%) | | :---------------- | :------- | :------- | :------- | | Private Insurance | 52.5% | 51.5% | 50.6% | | Government | 41.8% | 42.3% | 43.3% | | Self-pay | 2.5% | 2.6% | 2.8% | | Other | 3.2% | 3.6% | 3.3% | | **Total** | **100.0%** | **100.0%** | **100.0%** | [Surgical Case Mix](index=41&type=section&id=Surgical%20Case%20Mix) Surgical Case Mix by Specialty (Consolidated Surgical Facilities) | Specialty | 2023 (%) | 2022 (%) | 2021 (%) | | :-------------------------- | :------- | :------- | :------- | | Orthopedics and pain management | 36.1% | 36.4% | 35.7% | | Ophthalmology | 24.4% | 24.3% | 26.3% | | Gastrointestinal | 23.7% | 22.9% | 22.3% | | General surgery | 2.6% | 3.0% | 3.0% | | Other | 13.2% | 13.4% | 12.7% | | **Total** | **100.0%** | **100.0%** | **100.0%** | [Segment Information](index=42&type=section&id=Segment%20Information) Segment Revenues and Adjusted EBITDA (2023 vs. 2022) | Segment | 2023 Revenues (Millions) | 2022 Revenues (Millions) | 2023 Adjusted EBITDA (Millions) | 2022 Adjusted EBITDA (Millions) | | :---------------------- | :----------------------- | :----------------------- | :------------------------------ | :------------------------------ | | Surgical Facility Services | $2,675.8 | $2,470.4 | $544.0 | $473.6 | | Ancillary Services | $67.5 | $68.9 | $(3.9) | $(2.3) | | All other | | | $(102.0) | $(91.1) | | **Total** | **$2,743.3** | **$2,539.3** | **$438.1** | **$380.2** | [Critical Accounting Policies](index=42&type=section&id=Critical%20Accounting%20Policies) [Revenue Recognition](index=42&type=section&id=Revenue%20Recognition) - Patient service revenues are recognized net of estimated contractual allowances, based on existing contracts and historical collection trends[286](index=286&type=chunk)[287](index=287&type=chunk) - Other service revenues, primarily management fees, are recognized in the period services are rendered[288](index=288&type=chunk) - The company recognized **$34.4 million** in variable consideration and **$10.4 million** in corresponding provider tax for supplemental Medicaid reimbursement programs in 2023, related to UPL Gap revisions in Idaho[429](index=429&type=chunk) [Accounts Receivable](index=43&type=section&id=Accounts%20Receivable) - Accounts receivable are recorded net of estimated implicit price concessions, based on historical collection trends and payor relationships[290](index=290&type=chunk)[434](index=434&type=chunk) Average Days Sales Outstanding | Year | Days | | :--- | :--- | | 2023 | 60 | | 2022 | 64 | [Income Taxes](index=43&type=section&id=Income%20Taxes) - The company uses the asset and liability method for income taxes, recognizing deferred tax assets and liabilities based on temporary differences[294](index=294&type=chunk) Net Operating Loss (NOL) Carryforwards (as of Dec 31, 2023) | Type | Amount (Millions) | Expiration | | :--- | :---------------- | :--------- | | Federal NOLs | $533.6 | $438.9M expire 2030-2037; remainder do not expire | | State NOLs | $588.7 | 2024-2042 | | Section 163(j) Interest Limitation | $652.8 | Do not expire | Valuation Allowance Against Deferred Tax Assets | Year | Amount (Millions) | | :--- | :---------------- | | 2023 | $150.1 | | 2022 | $114.7 | [Impairment of Goodwill](index=44&type=section&id=Impairment%20of%20Goodwill) - Goodwill is tested annually for impairment at the reporting unit level (Surgical Facilities and Ancillary Services)[300](index=300&type=chunk)[473](index=473&type=chunk) - As of October 1, 2023, the fair value for the Surgical Facilities reporting unit (where all goodwill is allocated) was substantially in excess of its carrying value, with no non-cash impairment charges in 2021-2023[302](index=302&type=chunk)[304](index=304&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk) [Results of Operations](index=45&type=section&id=Results%20of%20Operations) [Year Ended December 31, 2023 Compared to Year Ended December 31, 2022](index=45&type=section&id=Year%20Ended%20December%2031,%202023%20Compared%20to%20Year%20Ended%20December%2031,%202022) Consolidated Statements of Operations Highlights (2023 vs. 2022) | Metric | 2023 (Millions) | 2022 (Millions) | Change (%) | | :-------------------------------------- | :-------------- | :-------------- | :--------- | | Revenues | $2,743.3 | $2,539.3 | +8.0% | | Cost of Revenues | $2,095.8 | $1,964.4 | +6.7% | | Cost of Revenues (% of Revenues) | 76.4% | 77.4% | -1.0 ppt | | General and Administrative Expenses | $120.9 | $102.2 | +18.3% | | Depreciation and Amortization | $118.1 | $114.8 | +2.9% | | Transaction and Integration Costs | $61.7 | $47.5 | +29.9% | | Interest Expense, Net | $(193.0) | $(234.9) | -17.8% | | Net Loss Attributable to Surgery Partners, Inc. | $(11.9) | $(54.6) | Improved | - Income tax benefit was **$0.3 million** in 2023 compared to an expense of **$23.3 million** in 2022, with the effective tax rate changing from **21.0% to (0.2)%**[317](index=317&type=chunk) [Year Ended December 31, 2022 Compared to Year Ended December 31, 2021](index=46&type=section&id=Year%20Ended%20December%2031,%202022%20Compared%20to%20Year%20Ended%20December%2031,%202021) - The comparison of 2022 to 2021 financial results is incorporated by reference from the company's Annual Report on Form 10-K for the year ended December 31, 2022[319](index=319&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) [Debt](index=47&type=section&id=Debt) Total Indebtedness (Carrying Value as of Dec 31, 2023) | Debt Type | Amount (Millions) | | :-------------------------------- | :---------------- | | Senior Secured Term Loan | $1,398.4 | | 6.750% Senior Unsecured Notes due 2025 | $185.0 | | 10.000% Senior Unsecured Notes due 2027 | $320.0 | | Notes Payable and Other Secured Loans | $205.2 | | Finance Lease Obligations | $693.6 | | Less: Unamortized Debt Issuance Costs & Discounts | $(27.1) | | **Total Debt** | **$2,775.1** | | Less: Current Maturities | $73.3 | | **Total Long-Term Debt** | **$2,701.8** | [Term Loan and Revolver](index=47&type=section&id=Term%20Loan%20and%20Revolver) - New Credit Facilities were established on December 19, 2023, including a **$1.4 billion** Term Loan (due Dec 2030) and a **$703.8 million** Revolver (due Dec 2028)[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk)[483](index=483&type=chunk) - The Term Loan amortizes in quarterly installments of **0.25%** of the original principal, starting June 30, 2024[326](index=326&type=chunk)[486](index=486&type=chunk) - As of December 31, 2023, **$694.3 million** was available under the Revolver, after accounting for **$9.5 million** in outstanding letters of credit[327](index=327&type=chunk)[487](index=487&type=chunk) [Senior Unsecured Notes](index=47&type=section&id=Senior%20Unsecured%20Notes) Senior Unsecured Notes Outstanding (as of Dec 31, 2023) | Note Type | Principal Amount (Millions) | Interest Rate | Maturity Date | | :-------------------------------- | :-------------------------- | :------------ | :------------ | | 6.750% Senior Unsecured Notes | $185.0 | 6.750% | July 1, 2025 | | 10.000% Senior Unsecured Notes | $320.0 | 10.000% | April 15, 2027 | [Other Debt](index=47&type=section&id=Other%20Debt) - Other debt includes **$205.2 million** in bank indebtedness and **$693.6 million** in right-of-use finance lease obligations[331](index=331&type=chunk)[503](index=503&type=chunk) [Capital Resources](index=47&type=section&id=Capital%20Resources) Net Working Capital | Year | Amount (Millions) | | :--- | :---------------- | | Dec 31, 2023 | $372.0 | | Dec 31, 2022 | $427.6 | - The decrease in net working capital was mainly due to lower cash and higher accounts payable/current debt maturities, partially offset by increased accounts receivable[332](index=332&type=chunk) [Material Cash Requirements](index=48&type=section&id=Material%20Cash%20Requirements) Material Cash Requirements (as of Dec 31, 2023, in millions) | Obligation Type | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | | :------------------------------ | :---- | :--------------- | :-------- | :-------- | :---------------- | | Long-term debt obligations, including interest | $4,727.7 | $303.3 | $761.0 | $787.0 | $2,876.4 | | Operating lease obligations, including interest | $409.7 | $59.1 | $105.2 | $75.7 | $169.7 | | **Total contractual obligations** | **$5,137.4** | **$362.4** | **$866.2** | **$862.7** | **$3,046.1** | [Summary](index=48&type=section&id=Summary) - Economic factors like rising interest rates, inflation, and supply chain risks could adversely affect payor mix, patient volumes, and receivable collection[336](index=336&type=chunk) - The company believes its cash flows, available cash, Revolver capacity, and capital market access are sufficient for both short-term and long-term liquidity needs[338](index=338&type=chunk) [Certain Non-GAAP Measures](index=48&type=section&id=Certain%20Non-GAAP%20Measures) - Adjusted EBITDA and Credit Agreement EBITDA are non-GAAP measures used by management to assess operating performance and liquidity[339](index=339&type=chunk)[344](index=344&type=chunk) Adjusted EBITDA Reconciliation (Millions) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :----- | :----- | :----- | | Income before income taxes | $135.0 | $110.3 | $81.2 | | Net income attributable to non-controlling interests | (147.2) | (141.6) | (141.6) | | Depreciation and amortization | 118.1 | 114.8 | 98.8 | | Interest expense, net | 193.0 | 234.9 | 221.0 | | Equity-based compensation expense | 17.7 | 18.4 | 17.4 | | Transaction, integration and acquisition costs | 64.9 | 48.6 | 46.1 | | Net loss on disposals, consolidations and deconsolidations | 14.4 | 11.1 | 2.2 | | Litigation settlements and regulatory change impact | 17.5 | (24.7) | 5.6 | | Loss on debt extinguishment | 15.5 | 14.9 | 9.1 | | Undesignated derivative activity | 0.6 | (8.0) | — | | Other | 8.6 | 1.5 | (0.2) | | **Adjusted EBITDA** | **$438.1** | **$380.2** | **$339.6** | | Less: Impact of grant funds | (1.1) | (1.7) | (25.3) | | **Adjusted EBITDA excluding grant funds** | **$437.0** | **$378.5** | **$314.3** | Credit Agreement EBITDA Reconciliation (Millions) | Metric | 2023 | | :---------------------------------------------------- | :----- | | Cash flows from operating activities | $293.8 | | Non-cash interest expense, net | (25.0) | | Non-cash lease expense | (35.2) | | Deferred income taxes | 1.7 | | Equity in earnings of unconsolidated affiliates, net of distributions received | 2.2 | | Changes in operating assets and liabilities, net of acquisitions and divestitures | 63.5 | | Income tax expense | (0.3) | | Net income attributable to non-controlling interests | (147.2) | | Interest expense, net | 193.0 | | Transaction, integration and acquisition costs | 64.9 | | Litigation settlements and other litigation costs | 17.5 | | Undesignated derivative activity | 0.6 | | Other | 8.6 | | Acquisitions and synergies | 73.6 | | **Credit Agreement EBITDA** | **$511.7** | [Inflation](index=50&type=section&id=Inflation) - Inflation and changing prices have not materially impacted the company's operating results or markets[349](index=349&type=chunk) [Item 7A. Quantitative and Qualitative Disclosure About Market Risk](index=50&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company is exposed to market risk primarily from changes in interest rates on its variable rate debt, which is managed through a balanced mix of fixed and variable rate debt, along with interest rate swap and cap agreements, with no material impact on net earnings or cash flows anticipated from interest rate changes in 2024 - The company is exposed to interest rate risk from variable rate debt and uses a balanced mix of fixed/variable debt and interest rate derivatives (swaps and caps) to manage this exposure[350](index=350&type=chunk) - No material effect on net earnings or cash flows is expected in 2024 due to changes in interest rates[351](index=351&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=50&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item directs readers to the consolidated financial statements and supplementary data, which begin on page F-1 of the Annual Report - Consolidated financial statements and related notes are provided starting on page F-1 of the Annual Report[353](index=353&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=50&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This section states that there were no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[354](index=354&type=chunk) [Item 9A. Controls and Procedures](index=51&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023, with Deloitte & Touche LLP also issuing an unqualified opinion on the effectiveness of internal control over financial reporting, and no material changes in internal control identified during Q4 2023 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2023[355](index=355&type=chunk) - Management determined that internal control over financial reporting was effective as of December 31, 2023[357](index=357&type=chunk) - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[363](index=363&type=chunk) [Disclosure Controls and Procedures and Limitations on the Effectiveness of Controls](index=51&type=section&id=Disclosure%20Controls%20and%20Procedures%20and%20Limitations%20on%20the%20Effectiveness%20of%20Controls) - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2023[355](index=355&type=chunk) [Management's Report on Internal Control Over Financial Reporting](index=51&type=section&id=Management's%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) - Management is responsible for internal control over financial reporting and assessed its effectiveness as of December 31, 2023[356](index=356&type=chunk) - Based on the evaluation, management determined that internal control over financial reporting was effective as of December 31, 2023[357](index=357&type=chunk) [Changes in Internal Control over Financial Reporting](index=51&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023[359](index=359&type=chunk) [Report of Independent Registered Public Accounting Firm](index=52&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[363](index=363&type=chunk) [Item 9B. Other Information](index=53&type=section&id=Item%209B.%20Other%20Information) This section confirms that no Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted or terminated by the company's directors or officers during the fourth quarter ended December 31, 2023 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the three months ended December 31, 2023[370](index=370&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=53&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - This item is not applicable[371](index=371&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=54&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding the company's directors, executive officers, and corporate governance is incorporated by reference from its definitive Proxy Statement for the 2024 annual meeting of stockholders - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2024 Definitive Proxy Statement[374](index=374&type=chunk) [Item 11. Executive Compensation](index=54&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - Information regarding executive compensation is incorporated by reference from the Definitive Proxy Statement[375](index=375&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=54&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, as well as related stockholder matters, is incorporated by reference from the company's definitive Proxy Statement - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the Definitive Proxy Statement[376](index=376&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=54&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Definitive Proxy Statement[377](index=377&type=chunk) [Item 14. Principal Accounting Fees and Services](index=54&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's definitive Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the Definitive Proxy Statement[378](index=378&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=55&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section details the financial statements and schedules included in the Annual Report, along with a comprehensive list of exhibits, with consolidated financial statements and their notes provided starting on page F-1, and other financial schedules omitted as their information is already presented - Consolidated Financial Statements and Notes are presented starting on page F-1[381](index=381&type=chunk) - All financial schedules are omitted as either not applicable or their information is included within the Consolidated Financial Statements and Notes[382](index=382&type=chunk) - The report includes a comprehensive list of exhibits, such as organizational documents, credit agreements, and compensation plans[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk) [Financial Statements and Financial Statement Schedules](index=55&type=section&id=Financial%20Statements%20and%20Financial%20Statement%20Schedules) - Consolidated Financial Statements and Notes are presented starting on page F-1[381](index=381&type=chunk) - All financial schedules are omitted as either not applicable or their information is included within the Consolidated Financial Statements and Notes[382](index=382&type=chunk) [Exhibits](index=55&type=section&id=Exhibits) - The report includes a comprehensive list of exhibits, such as organizational documents, credit agreements, and compensation plans[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk) [Item 16. Form 10-K Summary](index=57&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - This item is not applicable[387](index=387&type=chunk) [Signatures](index=58&type=section&id=Signatures) The Annual Report is duly signed by the Chief Executive Officer, Chief Financial Officer, Chairman of the Board, and other Directors, affirming its submission on February 26, 2024 - The Annual Report is signed by the Chief Executive Officer, Chief Financial Officer, Chairman of the Board, and other Directors on February 26, 2024[590](index=590&type=chunk)[591](index=591&type=chunk) [Index to Financial Statements](index=58&type=section&id=Index%20to%20Financial%20Statements) This section provides an index to the consolidated financial statements, including the Report of Independent Registered Public Accounting Firm, balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and detailed notes to the financial statements [Report of Independent Registered Public Accounting Firm](index=59&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - Deloitte & Touche LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting for the year ended December 31, 2023[394](index=394&type=chunk)[395](index=395&type=chunk) - The critical audit matter identified was the estimation of accounts receivable, specifically price concessions at surgical hospitals, due to significant management estimates and auditor judgment[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk) [Consolidated Balance Sheets](index=61&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (Millions) | Item | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | **ASSETS** | | | | Cash and cash equivalents | $195.9 | $282.9 | | Accounts receivable | $496.4 | $456.3 | | Total current assets | $895.0 | $921.0 | | Property and equipment, net | $968.7 | $876.6 | | Goodwill | $4,326.0 | $4,137.1 | | Total assets | $6,876.7 | $6,682.1 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Accounts payable | $171.8 | $151.6 | | Total current liabilities | $523.0 | $493.4 | | Long-term debt, less current maturities | $2,701.8 | $2,559.0 | | Total liabilities and stockholders' equity | $6,876.7 | $6,682.1 | [Consolidated Statements of Operations](index=62&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (Millions, except per share amounts) | Item | 2023 | 2022 | 2021 | | :-------------------------------------- | :----- | :----- | :----- | | Revenues | $2,743.3 | $2,539.3 | $2,225.1 | | Operating income | $328.0 | $345.2 | $302.2 | | Interest expense, net | $(193.0) | $(234.9) | $(221.0) | | Net income | $135.3 | $87.0 | $70.7 | | Net loss attributable to Surgery Partners, Inc. | $(11.9) | $(54.6) | $(70.9) | | Basic Net loss per share | $(0.09) | $(0.59) | $(1.12) | | Diluted Net loss per share | $(0.09) | $(0.59) | $(1.12) | [Consolidated Statements of Comprehensive Income (Loss)](index=63&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Consolidated Statements of Comprehensive Income (Loss) (Millions) | Item | 2023 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | :----- | | Net income | $135.3 | $87.0 | $70.7 | | Other comprehensive (loss) income, net of tax | $(18.7) | $107.7 | $29.5 | | Comprehensive income | $116.6 | $194.7 | $100.2 | | Comprehensive (loss) income attributable to Surgery Partners, Inc. | $(30.6) | $53.1 | $(41.4) | [Consolidated Statements of Stockholders' Equity](index=64&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Consolidated Statements of Stockholders' Equity Highlights (Millions, except shares) | Item | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | | :------------------------------------------ | :----------- | :----------- | :----------- | | Total Surgery Partners, Inc. stockholders' equity | $1,987.2 | $1,998.2 | $1,969.6 | | Non-controlling interests—non-redeemable | $1,047.3 | $942.7 | $880.6 | | Total stockholders' equity | $3,034.5 | $2,940.9 | $1,969.6 | | Shares Outstanding (thousands) | 126,594 | 125,961 | 89,333 | [Consolidated Statements of Cash Flows](index=65&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Millions) | Activity | 2023 | 2022 | 2021 | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $293.8 | $158.8 | $87.1 | | Net cash used in investing activities | $(225.6) | $(307.9) | $(331.7) | | Net cash (used in) provided by financing activities | $(155.2) | $42.1 | $316.3 | | Net (decrease) increase in cash and cash equivalents | $(87.0) | $(107.0) | $71.7 | | Cash and cash equivalents at end of period | $195.9 | $282.9 | $389.9 | [Notes to Consolidated Financial Statements](index=66&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on the company's accounting policies, financial instruments, and significant transactions, covering revenue recognition, accounts receivable, income taxes, goodwill and intangible assets, long-term debt, leases, derivatives, equity-based compensation, employee benefits, and commitments and contingencies [1. Organization and Summary of Accounting Policies](index=66&type=section&id=1.%20Organization%20and%20Summary%20of%20Accounting%20Policies) - Surgery Partners operates **162 surgical facilities** (**144 ASCs, 18 hospitals**) in **33 states**, consolidating **123** for financial reporting[420](index=420&type=chunk) - Key accounting policies include revenue recognition (patient service and other service revenues), accounts receivable, impairment of assets, derivative instruments, and non-controlling interests[423](index=423&type=chunk)[434](index=434&type=chunk)[438](index=438&type=chunk)[439](index=439&type=chunk)[441](index=441&type=chunk) - The company recognized **$34.4 million** in variable consideration from supplemental Medicaid reimbursement programs in 2023[429](index=429&type=chunk) - No remaining unrecognized grant funds from COVID-19 governmental assistance programs as of December 31, 2023[450](index=450&type=chunk) [2. Acquisitions, Disposals and Deconsolidations](index=71&type=section&id=2.%20Acquisitions,%20Disposals%20and%20Deconsolidations) - In 2023, the company acquired controlling interests in **11 surgical facilities** and **4 physician practices** for **$80.0 million** cash (net of cash acquired) and **$1.3 million** non-cash consideration[275](index=275&type=chunk)[463](index=463&type=chunk) - The company also acquired non-controlling interests in **5 surgical facilities** and **2 in-development de novo facilities** for **$50.3 million** cash in 2023[275](index=275&type=chunk)[463](index=463&type=chunk) - In 2023, the company sold interests in **6 surgical facilities** for **$30.4 million** net cash proceeds, recognizing a pre-tax gain of **$26.9 million**[275](index=275&type=chunk)[465](index=465&type=chunk) [3. Property and Equipment](index=72&type=section&id=3.%20Property%20and%20Equipment) - Property and equipment are recorded at cost or fair value and depreciated using the straight-line method[466](index=466&type=chunk) Property and Equipment, Net (Millions) | Year | Amount | | :--- | :----- | | Dec 31, 2023 | $968.7 | | Dec 31, 2022 | $876.6 | Depreciation Expense (Millions) | Year | Amount | | :--- | :----- | | 2023 | $112.8 | | 2022 | $112.1 | | 2021 | $94.5 | [4. Goodwill and Intangible Assets](index=73&type=section&id=4.%20Goodwill%20and%20Intangible%20Assets) - Goodwill is tested annually for impairment at the reporting unit level (Surgical Facilities and Ancillary Services), with no impairment charges in 2021-2023[473](index=473&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk) Goodwill Carrying Amount (Millions) | Year | Amount | | :--- | :----- | | Dec 31, 2023 | $4,326.0 | | Dec 31, 2022 | $4,137.1 | Intangible Assets, Net (Millions) | Type | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Finite-lived intangible assets | $40.2 | $27.3 | | Indefinite-lived intangible assets | $14.6 | $15.0 | | **Total intangible assets** | **$54.8** | **$42.3** | [5. Long-Term Debt](index=74&type=section&id=5.%20Long-Term%20Debt) Long-Term Debt (Millions) | Item | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Senior secured term loan | $1,398.4 | $1,370.0 | | 6.750% senior unsecured notes due 2025 | $185.0 | $185.0 | | 10.000% senior unsecured notes due 2027 | $320.0 | $320.0 | | Notes payable and other secured loans | $205.2 | $171.3 | | Finance lease obligations | $693.6 | $585.7 | | Less: unamortized debt issuance costs and discounts | $(27.1) | $(10.2) | | **Total debt** | **$2,775.1** | **$2,621.8** | | Less: current maturities | $73.3 | $62.8 | | **Total long-term debt** | **$2,701.8** | **$2,559.0** | - The company entered into new credit facilities on December 19, 2023, comprising a **$1.4 billion** Term Loan (maturing Dec 2030) and a **$703.8 million** Revolver (maturing Dec 2028)[483](index=483&type=chunk)[485](index=485&type=chunk)[487](index=487&type=chunk) - The company incurred **$34.5 million** in debt issuance costs and d

Exhibit 99.1 SURGERY PARTNERS, INC. ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 RESULTS; SETS 2024 GUIDANCE BRENTWOOD, Tenn., February 26, 2024 (GLOBE NEWSWIRE) - Surgery Partners, Inc. (NASDAQ:SGRY) ("Surgery Partners" or the "Company"), a leading short-stay surgical facility owner and operator, today announced results for the fourth quarter and full year ended December 31, 2023. Wayne DeVeydt, Chairman of the Board of Surgery Partners, noted, "We are pleased to report another year of mid-teens growth with ...

Surgery Partners, Inc. (NASDAQ:SGRY) Q3 2023 Earnings Call Transcript November 7, 2023 8:30 AM ET Company Participants Dave Doherty - CFO Wayne DeVeydt - Executive Chairman Eric Evans - CEO Conference Call Participants Kevin Fischbeck - Bank of America Jason Cassorla - Citi Whit Mayo - Leerink Partners Brian Tanquilut - Jefferies Sarah James - Cantor Fitzgerald Ann Hynes - Mizuho Securities Bill Sutherland - Benchmark Company Ben Hendrix - RBC Capital Markets Operator Good morning, ladies and gentlemen, and ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) Presents unaudited condensed consolidated financial statements and management's analysis for Surgery Partners, Inc [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements and detailed notes for Surgery Partners, Inc. for specified periods [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Presents the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights (Dollars in millions) | Item | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :----- | :------- | | **Assets:** | | | | | | Total current assets | $876.2 | $921.0 | $(44.8) | -4.86% | | Property and equipment, net | $939.7 | $876.6 | $63.1 | 7.20% | | Goodwill and other intangible assets, net | $4,301.0 | $4,179.4 | $121.6 | 2.91% | | Total assets | $6,780.1 | $6,682.1 | $98.0 | 1.47% | | **Liabilities & Equity:** | | | | | | Total current liabilities | $501.4 | $493.4 | $8.0 | 1.62% | | Long-term debt, less current maturities | $2,640.2 | $2,559.0 | $81.2 | 3.17% | | Total stockholders' equity | $2,986.5 | $2,940.9 | $45.6 | 1.55% | | Total liabilities and stockholders' equity | $6,780.1 | $6,682.1 | $98.0 | 1.47% | [Condensed Consolidated Statements of Operations (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) Details the unaudited condensed consolidated statements of operations, including revenues, operating income, net income, and earnings per share Condensed Consolidated Statements of Operations Highlights (Dollars in millions, except per share amounts) | Item | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | YoY Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | YoY Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Revenues | $674.1 | $620.6 | 8.62% | $2,007.9 | $1,832.2 | 9.69% | | Operating income | $82.6 | $74.1 | 11.47% | $226.6 | $251.0 | -9.72% | | Income before income taxes | $32.8 | $13.4 | 144.78% | $82.3 | $77.1 | 6.74% | | Net income | $29.7 | $5.6 | 430.36% | $88.6 | $63.7 | 39.09% | | Net loss attributable to Surgery Partners, Inc. | $(4.9) | $(25.0) | 80.40% | $(10.9) | $(31.2) | 65.06% | | Basic Net loss per share | $(0.04) | $(0.28) | 85.71% | $(0.09) | $(0.35) | 74.29% | [Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) Outlines the unaudited condensed consolidated statements of comprehensive income (loss), including net income and other comprehensive income Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (Dollars in millions) | Item | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | YoY Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | YoY Change | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Net income | $29.7 | $5.6 | 430.36% | $88.6 | $63.7 | 39.09% | | Other comprehensive income (loss), net of tax | $(1.8) | $38.5 | -104.68% | $0.8 | $114.3 | -99.30% | | Comprehensive income | $27.9 | $44.1 | -36.73% | $89.4 | $178.0 | -49.77% | | Comprehensive (loss) income attributable to Surgery Partners, Inc. | $(6.7) | $13.5 | -149.63% | $(10.1) | $83.1 | -112.15% | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Summarizes unaudited consolidated stockholders' equity, detailing changes in common stock, paid-in capital, and retained deficit Stockholders' Equity Changes (Dollars in millions, shares in thousands) | Item | Dec 31, 2022 | Sep 30, 2023 | Change | | :-------------------------------------------------- | :----------- | :----------- | :----- | | Common Stock (Shares) | 125,961 | 126,489 | 528 | | Common Stock (Amount) | $1.3 | $1.3 | $0.0 | | Additional Paid-in Capital | $2,478.0 | $2,494.5 | $16.5 | | Accumulated Other Comprehensive Income | $76.2 | $77.0 | $0.8 | | Retained Deficit | $(557.3) | $(568.2) | $(10.9) | | Non-Controlling Interests—Non-Redeemable | $942.7 | $981.9 | $39.2 | | Total Stockholders' Equity | $2,940.9 | $2,986.5 | $45.6 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Presents unaudited consolidated cash flow statements, categorizing cash activities into operating, investing, and financing Condensed Consolidated Statements of Cash Flows Highlights (Dollars in millions) | Cash Flow Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | YoY Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $231.2 | $151.6 | 52.51% | | Net cash used in investing activities | $(167.5) | $(235.7) | 28.93% | | Net cash used in financing activities | $(110.6) | $(151.0) | 26.75% | | Net decrease in cash and cash equivalents | $(46.9) | $(235.1) | 80.05% | | Cash and cash equivalents at end of period | $236.0 | $154.8 | 52.45% | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Provides detailed notes explaining accounting policies and specific financial statement items for the unaudited consolidated statements [1. Organization and Summary of Accounting Policies](index=10&type=section&id=1.%20Organization%20and%20Summary%20of%20Accounting%20Policies) Describes the Company's organizational structure, operational footprint, and key accounting policies, including revenue and goodwill - As of September 30, 2023, Surgery Partners, Inc. owned or operated a portfolio of **154 surgical facilities** (136 ASCs and 18 surgical hospitals) in 31 states, with a majority interest in 90 and consolidating 117 for financial reporting[26](index=26&type=chunk) Revenues by Service Type (% of Total Revenues) | Service Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Surgical facilities revenues | 95.8% | 95.6% | 95.9% | 95.7% | | Ancillary services revenues | 2.4% | 2.7% | 2.5% | 2.8% | | Total patient service revenues | 98.2% | 98.3% | 98.4% | 98.5% | | Other service revenues | 1.8% | 1.7% | 1.6% | 1.5% | | Total revenues | 100.0% | 100.0% | 100.0% | 100.0% | Patient Service Revenues by Payor Type (% of Total Patient Service Revenues) | Payor Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Private insurance | 52.4% | 49.5% | 51.8% | 50.4% | | Government | 41.0% | 44.2% | 42.4% | 43.0% | | Self-pay | 2.6% | 2.6% | 2.5% | 2.7% | | Other | 4.0% | 3.7% | 3.3% | 3.9% | | Total | 100.0% | 100.0% | 100.0% | 100.0% | - The effective tax rate for the nine months ended September 30, 2023, was **(7.7)%**, a significant decrease from **17.4%** in the prior year, primarily due to earnings attributable to non-controlling interests, an increase in valuation allowance for interest expense limitations, and discrete tax benefits from restricted stock awards (**$1.6 million**) and entity divestitures (**$15.8 million**)[47](index=47&type=chunk) Goodwill Activity (Dollars in millions) | Item | Amount | | :------------------------------------ | :------- | | Balance at December 31, 2022 | $4,137.1 | | Acquisitions, including post acquisition adjustments | $145.0 | | Disposals | $(37.0) | | Balance at September 30, 2023 | $4,245.1 | - No indicators of goodwill impairment were identified as of September 30, 2023, despite considering recent increases in interest rates, inflation risk, and market volatility[48](index=48&type=chunk) - The Company recognized **$1.1 million** in grant funds as a reduction in operating expenses for the nine months ended September 30, 2023, with no remaining unrecognized grant funds as of that date[54](index=54&type=chunk) [2. Acquisitions and Disposals](index=15&type=section&id=2.%20Acquisitions%20and%20Disposals) Details the Company's acquisition and disposal activities of surgical facilities and physician practices during the period - During the nine months ended September 30, 2023, the Company acquired controlling interests in five surgical facilities, one de novo facility, and one physician practice for **$50.0 million** cash and **$1.3 million** non-cash consideration[61](index=61&type=chunk) - It also acquired non-controlling interests in five surgical facilities and two de novo facilities for **$50.2 million** cash, including **$21.0 million** for management rights[61](index=61&type=chunk) - In the same period, the Company sold interests in six surgical facilities for **$30.4 million** net cash proceeds, recognizing a pre-tax gain of **$26.9 million**[63](index=63&type=chunk) - It also disposed of non-controlling interests in a surgical facility and a de novo facility for **$1.5 million** cash, resulting in a pre-tax loss of **$13.7 million**[63](index=63&type=chunk) [3. Long-Term Debt](index=16&type=section&id=3.%20Long-Term%20Debt) Summarizes the Company's long-term debt, including senior secured term loans, unsecured notes, and finance lease obligations Long-Term Debt Summary (Dollars in millions) | Item | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Senior secured term loan | $1,370.4 | $1,370.0 | | 6.750% senior unsecured notes due 2025 | $185.0 | $185.0 | | 10.000% senior unsecured notes due 2027 | $320.0 | $320.0 | | Notes payable and other secured loans | $194.2 | $171.3 | | Finance lease obligations | $641.2 | $585.7 | | Less: unamortized debt issuance costs and discounts | $(8.5) | $(10.2) | | Total debt | $2,702.3 | $2,621.8 | | Less: Current maturities | $62.1 | $62.8 | | Total long-term debt | $2,640.2 | $2,559.0 | - The Company increased its revolving credit facility by **$203.8 million** in January 2023, with **$544.9 million** available as of September 30, 2023[64](index=64&type=chunk) - In June 2023, the interest benchmark for the Credit Agreement transitioned from LIBOR to SOFR[65](index=65&type=chunk) [4. Leases](index=17&type=section&id=4.%20Leases) Presents the Company's lease assets and liabilities, distinguishing between operating and finance leases, and total lease costs Lease Assets and Liabilities (Dollars in millions) | Item | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Operating lease assets | $244.5 | $279.1 | | Finance lease assets | $571.8 | $529.6 | | Total leased assets | $816.3 | $808.7 | | Total operating lease liabilities | $276.6 | $307.9 | | Total finance lease liabilities | $641.2 | $585.7 | | Total lease liabilities | $917.8 | $893.6 | - During the nine months ended September 30, 2023, the Company reclassified certain facility real estate leases from operating to finance, increasing finance lease liabilities by **$97.1 million** and assets by **$95.7 million**[67](index=67&type=chunk) Total Lease Costs (Dollars in millions) | Item | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease costs | $48.7 | $49.5 | | Total finance lease costs | $64.9 | $58.8 | | Variable and short-term lease costs | $16.3 | $13.7 | | Total lease costs | $129.9 | $122.0 | [5. Derivatives and Hedging Activities](index=18&type=section&id=5.%20Derivatives%20and%20Hedging%20Activities) Discusses the Company's use of interest rate derivatives for hedging variable cash flows and their fair values - As of September 30, 2023, the Company had nine interest rate swaps with a total net notional amount of **$1.2 billion** and two interest rate caps with a total notional amount of **$162.1 million**, primarily to hedge variable cash flows from existing variable-rate debt[72](index=72&type=chunk)[73](index=73&type=chunk) Fair Values of Derivatives (Dollars in millions) | Item | Sep 30, 2023 Assets | Sep 30, 2023 Liabilities | Dec 31, 2022 Assets | Dec 31, 2022 Liabilities | | :------------------------------------ | :------------------ | :--------------------- | :------------------ | :--------------------- | | Derivatives not designated as hedging instruments | $2.0 | $2.0 | $17.5 | $8.5 | | Derivatives in cash flow hedging relationships | $80.3 | $21.3 | $95.9 | $31.9 | | Total | $82.3 | $23.3 | $113.4 | $40.4 | - The Company estimates that an additional **$53.8 million** will be reclassified as a decrease to interest expense from accumulated OCI over the next 12 months due to derivatives designated as cash flow hedges[79](index=79&type=chunk) [6. Earnings Per Share](index=20&type=section&id=6.%20Earnings%20Per%20Share) Provides details on the calculation of basic and diluted net loss per share attributable to Surgery Partners, Inc Net Loss Attributable to Surgery Partners, Inc. and EPS (Dollars in millions, shares in thousands) | Item | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to Surgery Partners, Inc. | $(4.9) | $(25.0) | $(10.9) | $(31.2) | | Weighted average shares outstanding- basic | 125,747 | 88,907 | 125,559 | 88,604 | | Basic Loss per share | $(0.04) | $(0.28) | $(0.09) | $(0.35) | | Diluted Loss per share | $(0.04) | $(0.28) | $(0.09) | $(0.35) | [7. Other Current Liabilities](index=20&type=section&id=7.%20Other%20Current%20Liabilities) Itemizes the components of other current liabilities, including right-of-use operating lease liabilities and accrued expenses Other Current Liabilities (Dollars in millions) | Item | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Right-of-use operating lease liabilities | $35.7 | $36.5 | | Amounts due to patients and payors | $27.1 | $31.9 | | Cost report liabilities | $23.4 | $23.5 | | Interest payable | $22.7 | $19.4 | | Acquisition escrow | $17.4 | $28.8 | | Accrued expenses and other | $81.9 | $70.0 | | Total | $208.2 | $210.1 | [8. Commitments and Contingencies](index=20&type=section&id=8.%20Commitments%20and%20Contingencies) Outlines significant commitments and contingencies, including a cybersecurity incident and a stockholder litigation settlement - In May 2023, the Company experienced a cybersecurity incident that temporarily disrupted facilities in its Idaho market, resulting in an estimated adverse pre-tax impact of approximately **$7 million** for the nine months ended September 30, 2023[87](index=87&type=chunk) - In March 2022, the Company received **$32.8 million** from the settlement of a stockholder litigation matter (Delaware Action)[88](index=88&type=chunk) [9. Segment Reporting](index=21&type=section&id=9.%20Segment%20Reporting) Presents financial information by reportable segment, including Surgical Facility Services and Ancillary Services revenues and Adjusted EBITDA - The Company operates in two reportable segments: Surgical Facility Services (ASCs, surgical hospitals, anesthesia) and Ancillary Services (multi-specialty physician practices)[89](index=89&type=chunk) Segment Revenues (Dollars in millions) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Surgical Facility Services | $657.3 | $603.9 | $1,956.5 | $1,780.6 | | Ancillary Services | $16.8 | $16.7 | $51.4 | $51.6 | | Total | $674.1 | $620.6 | $2,007.9 | $1,832.2 | Segment Adjusted EBITDA (Dollars in millions) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Surgical Facility Services | $138.6 | $110.2 | $384.1 | $319.9 | | Ancillary Services | $(1.2) | $(1.5) | $(2.7) | $(2.2) | | All other | $(31.9) | $(12.5) | $(85.6) | $(58.3) | | Total Adjusted EBITDA | $105.5 | $96.2 | $295.8 | $259.4 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition and operational results, covering revenue, expenses, liquidity, and non-GAAP measures [Cautionary Note Regarding Forward-Looking Statements](index=23&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) Highlights that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ - The report contains forward-looking statements based on current expectations, estimates, and assumptions, which involve risks and uncertainties that could cause actual results to differ materially[99](index=99&type=chunk) [Executive Overview](index=23&type=section&id=Executive%20Overview) Provides a high-level summary of the Company's operations, key performance indicators, and strategic focus for the period - As of September 30, 2023, Surgery Partners operated **154 surgical facilities** (136 ASCs, 18 surgical hospitals) across 31 states, consolidating 117 of these facilities[102](index=102&type=chunk) Q3 2023 Key Performance Indicators (Dollars in millions) | Metric | Q3 2023 | Q3 2022 | YoY Change | | :------------------------------------ | :------ | :------ | :--------- | | Total revenues | $674.1 | $620.6 | 8.6% | | Days adjusted same-facility revenues | | | 14.2% | | - Revenue per case | | | 11.0% | | - Same-facility cases | | | 2.9% | | Adjusted EBITDA | $105.5 | $96.2 | 9.7% | | Net loss attributable to Surgery Partners, Inc. | $(4.9) | $(25.0) | 80.4% | | Operating cash inflows | $104.6 | $29.7 | 252.2% | | Net operating cash inflows (less distributions) | $70.5 | $(5.6) | -1357.1% | - The Company's strategic focus includes improving same-facility performance, selective acquisitions, developing new facilities, and other portfolio management initiatives[103](index=103&type=chunk) [Revenues](index=24&type=section&id=Revenues) Analyzes the primary drivers of the Company's total revenues, predominantly patient service revenues from surgical facility services - Patient service revenues, primarily from surgical facility services, constitute the vast majority of total revenues (**98.2%** for Q3 2023 and **98.4%** for 9M 2023), with other service revenues contributing a smaller portion[106](index=106&type=chunk)[107](index=107&type=chunk) [Payor Mix](index=24&type=section&id=Payor%20Mix) Details the distribution of patient service revenues across different payor types, including private insurance and government payors Patient Service Revenues by Payor Type (% of Total Patient Service Revenues) | Payor Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Private insurance payors | 52.4% | 49.5% | 51.8% | 50.4% | | Government payors | 41.0% | 44.2% | 42.4% | 43.0% | | Self-pay payors | 2.6% | 2.6% | 2.5% | 2.7% | | Other payors | 4.0% | 3.7% | 3.3% | 3.9% | | Total | 100.0% | 100.0% | 100.0% | 100.0% | [Surgical Case Mix](index=24&type=section&id=Surgical%20Case%20Mix) Presents the breakdown of surgical cases by specialty, such as orthopedic, ophthalmology, and gastrointestinal procedures Surgical Case Mix by Specialty (% of Total Cases) | Specialty | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Orthopedic and pain management | 35.7% | 35.7% | 35.4% | 36.0% | | Ophthalmology | 24.8% | 24.4% | 24.5% | 24.5% | | Gastrointestinal | 23.6% | 23.4% | 24.0% | 23.1% | | General surgery | 2.5% | 3.0% | 2.7% | 3.0% | | Other | 13.4% | 13.5% | 13.4% | 13.4% | | Total | 100.0% | 100.0% | 100.0% | 100.0% | [Critical Accounting Policies](index=25&type=section&id=Critical%20Accounting%20Policies) Confirms that there have been no material changes to the Company's critical accounting policies since the last annual report - There have been no material changes in the nature or application of the Company's critical accounting policies since December 31, 2022[111](index=111&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Analyzes the Company's financial performance, including revenues, expenses, and net income, for the reported periods [Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022](index=25&type=section&id=Three%20Months%20Ended%20September%2030,%202023%20Compared%20to%20Three%20Months%20Ended%20September%2030,%202022) Compares the Company's financial performance for the third quarter of 2023 against the same period in the prior year Q3 2023 vs Q3 2022 Financial Performance (Dollars in millions) | Item | Q3 2023 | Q3 2022 | YoY Change | YoY % Change | | :------------------------------------ | :------ | :------ | :--------- | :----------- | | Revenues | $674.1 | $620.6 | $53.5 | 8.6% | | Patient service revenues | $662.3 | $610.1 | $52.2 | 8.6% | | Cost of revenues | $508.3 | $489.4 | $18.9 | 3.9% | | General and administrative expenses | $36.8 | $17.9 | $18.9 | 105.6% | | Operating income | $82.6 | $74.1 | $8.5 | 11.5% | | Interest expense, net | $(49.8) | $(60.7) | $10.9 | -17.9% | | Net loss attributable to Surgery Partners, Inc. | $(4.9) | $(25.0) | $20.1 | 80.4% | - The **8.6%** increase in patient service revenues was driven by a **14.2%** increase in days adjusted same-facility revenues, comprising an **11.0%** increase in revenue per case and a **2.9%** increase in same-facility case volumes, partially offset by divestitures[113](index=113&type=chunk) - Cost of revenues as a percentage of total revenues improved to **75.4%** in Q3 2023 from **78.9%** in Q3 2022, despite an absolute increase due to acquisitions[114](index=114&type=chunk) [Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022](index=27&type=section&id=Nine%20Months%20Ended%20September%2030,%202023%20Compared%20to%20Nine%20Months%20Ended%20September%2030,%202022) Compares the Company's financial performance for the nine months ended September 30, 2023, against the same period in the prior year 9M 2023 vs 9M 2022 Financial Performance (Dollars in millions) | Item | 9M 2023 | 9M 2022 | YoY Change | YoY % Change | | :------------------------------------ | :------ | :------ | :--------- | :----------- | | Revenues | $2,007.9 | $1,832.2 | $175.7 | 9.6% | | Patient service revenues | $1,976.7 | $1,805.1 | $171.6 | 9.5% | | Cost of revenues | $1,554.0 | $1,441.6 | $112.4 | 7.8% | | General and administrative expenses | $100.0 | $73.5 | $26.5 | 36.1% | | Operating income | $226.6 | $251.0 | $(24.4) | -9.7% | | Interest expense, net | $(144.3) | $(173.9) | $29.6 | -17.0% | | Net loss attributable to Surgery Partners, Inc. | $(10.9) | $(31.2) | $20.3 | 65.1% | - The **9.5%** increase in patient service revenues was driven by a **10.6%** increase in days adjusted same-facility revenues, consisting of a **6.9%** increase in revenue per case and a **3.5%** increase in same-facility case volumes[122](index=122&type=chunk) - The Company recorded an income tax benefit of **$6.3 million** for 9M 2023, compared to an expense of **$13.4 million** for 9M 2022, with the effective tax rate shifting from **17.4%** to **(7.7)%**[130](index=130&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the Company's ability to meet its financial obligations, focusing on cash flows, cash equivalents, and capital management - Cash and cash equivalents decreased to **$236.0 million** at September 30, 2023, from **$282.9 million** at December 31, 2022[132](index=132&type=chunk) - Net cash provided by operating activities increased by **$79.6 million** to **$231.2 million** for 9M 2023, primarily due to non-repeating 2022 items (Medicare repayments, litigation proceeds) and reduced interest paid[133](index=133&type=chunk) - Net cash used in investing activities decreased to **$167.5 million** for 9M 2023 from **$235.7 million** for 9M 2022, driven by lower acquisition payments and higher proceeds from asset sales[134](index=134&type=chunk) - Net cash used in financing activities decreased to **$110.6 million** for 9M 2023 from **$151.0 million** for 9M 2022, mainly due to increased long-term debt borrowings and decreased payments related to non-controlling interest ownership transactions[134](index=134&type=chunk) [Capital Resources](index=29&type=section&id=Capital%20Resources) Examines the Company's working capital and its strategies for securing both short-term and long-term funding needs - Net working capital decreased to **$374.8 million** at September 30, 2023, from **$427.6 million** at December 31, 2022, primarily due to the decrease in cash[135](index=135&type=chunk) - The Company anticipates meeting its short-term and long-term liquidity needs through cash flows from operations, available cash, capacity on its Revolver, and continued access to capital markets[139](index=139&type=chunk) [Material Cash Requirements](index=29&type=section&id=Material%20Cash%20Requirements) Confirms no material changes to the Company's future cash obligations since the previous annual report - There have been no material changes to the Company's upcoming cash obligations during the nine months ended September 30, 2023, from those disclosed in its 2022 Annual Report on Form 10-K[136](index=136&type=chunk) [Summary](index=29&type=section&id=Summary) Summarizes potential negative impacts of broad economic factors on the Company's financial performance and operations - Broad economic factors such as increased interest rates, inflation, and supply chain risks could negatively impact payor mix, increase lower-margin services, reduce patient volumes, and diminish the ability to collect receivables[137](index=137&type=chunk) [Certain Non-GAAP Measures](index=29&type=section&id=Certain%20Non-GAAP%20Measures) Explains the Company's use of non-GAAP financial measures like Adjusted EBITDA for performance assessment and credit compliance - Adjusted EBITDA and Adjusted EBITDA excluding grant funds are non-GAAP measures used by management to assess operating performance and make business decisions, with reconciliations provided to GAAP income before income taxes[140](index=140&type=chunk)[141](index=141&type=chunk) - Credit Agreement EBITDA is a non-GAAP measure used for liquidity assessment and compliance with credit facility covenants, further adjusted for acquisitions and synergies[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses the Company's exposure to market risk, primarily interest rate fluctuations, and its hedging strategies - The Company manages interest rate risk through a balanced mix of fixed and variable rate debt and periodically uses interest rate swap and cap agreements[150](index=150&type=chunk) - Variable rate debt is primarily indexed to the prime rate or SOFR[151](index=151&type=chunk) - As of September 30, 2023, changes in interest rates are not expected to have a material effect on net earnings or cash flows in 2023[152](index=152&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of the Company's disclosure controls and internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[153](index=153&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2023[154](index=154&type=chunk) [PART II - OTHER INFORMATION](index=32&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) Presents other information not included in the financial statements, such as legal proceedings, risk factors, and equity security details [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) States that the Company is not currently involved in any legal proceedings expected to have a material adverse effect - Management believes there are no current legal proceedings that would have a material adverse effect on the Company's business, financial condition, or results of operations[157](index=157&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) Indicates no material changes to the risk factors previously disclosed in the Company's annual report - No material changes have occurred with respect to the risk factors discussed in the Company's 2022 Annual Report on Form 10-K[158](index=158&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Reports on the Company's equity security transactions, including no common stock repurchases during the period - The Company did not repurchase any shares of common stock during the nine months ended September 30, 2023[159](index=159&type=chunk) - As of September 30, 2023, the Company had authority to repurchase up to **$46.0 million** of common stock under its board-authorized share repurchase program[159](index=159&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[160](index=160&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable to the Company[161](index=161&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) Notes the absence of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by the Company's directors or officers during the three months ended September 30, 2023[162](index=162&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) Lists the exhibits accompanying the Form 10-Q filing, including required certifications and XBRL documents - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL Taxonomy Extension documents[164](index=164&type=chunk) [Signatures](index=34&type=section&id=Signatures) Contains the certification signature of the Company's Executive Vice President and Chief Financial Officer - The report is signed by David T. Doherty, Executive Vice President and Chief Financial Officer, on November 7, 2023[168](index=168&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________ Form 10-Q _____________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-37576 _____________________________________ Surgery Partners, Inc. (Exact name of regi ...

Surgery Partners, Inc. (NASDAQ:SGRY) Q2 2023 Earnings Conference Call August 1, 2023 8:30 AM ET Company Participants Dave Doherty - CFO Wayne DeVeydt - Executive Chairman Eric Evans - CEO Conference Call Participants Jason Cassorla - Citigroup Kevin Fischbeck - Bank of America Gary Taylor - Cowen Brian Tanquilut - Jefferies Whit Mayo - Leerink Partners Lisa Gill - JPMorgan Operator Good morning, and welcome to the Surgery Partners Second Quarter 2023 Earnings Conference Call. At this time, all participants ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________ Form 10-Q _____________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-37576 _____________________________________ Surgery Partners, Inc. (Exact name of reg ...

Surgery Partners, Inc. (NASDAQ:SGRY) Q1 2023 Earnings Conference Call May 1, 2023 5:00 PM ET Company Participants Dave Doherty - Executive Vice President and Chief Financial Officer Wayne DeVeydt - Executive Chairman Eric Evans - Chief Executive Officer Conference Call Participants Jason Cassorla - Citi Nabil Gutierrez - Bank of America Brian Tanquilut - Jefferies Lisa Gill - JPMorgan Whit Mayo - SVB Securities Bill Sutherland - The Benchmark Company Stephen Valiquette - Barclays Operator Greetings, and wel ...

Surgery Partners, Inc. (NASDAQ:SGRY) Q4 2022 Earnings Conference Call March 1, 2023 10:00 AM ET Company Participants Dave Doherty – Executive Vice President and Chief Financial Officer Wayne DeVeydt – Executive Chairman Eric Evans – Chief Executive Officer Conference Call Participants Ben Rossi – Citigroup Kevin Fischbeck – Bank of America Tao Qiu – Stifel Ben Hendrix – RBC Capital Markets Bill Sutherland – Benchmark Lisa Gill – JPMorgan Gary Taylor – Cowen and Company Whit Mayo – SVB Securities Brian Tanqu ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________________ Form 10-K ☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2022 OR ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 001-37576 Surgery Partners, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction ...