SURGERY PARTNERS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report and our 2020 Annual Report on Form 10-K. Unless the context otherwise indicates, the terms "Surgery Partners ," "we," "us," "our" or the "Company," as used herein, refer toSurgery Partners, Inc. and its subsidiaries. Unless the context implies otherwise, the term "affiliates" means direct and indirect subsidiaries ofSurgery Partners, Inc. and partnerships and joint ventures in which such subsidiaries are partners. The terms "facilities" or "hospitals" refer to entities owned and operated by affiliates ofSurgery Partners, Inc. and the term "employees" refers to employees of affiliates ofSurgery Partners, Inc. Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements, which are based on our current expectations, estimates and assumptions about future events. All statements other than statements of current or historical fact contained in this report are forward-looking statements. These statements include, but are not limited to, statements regarding our future financial position, business strategy, budgets, effective tax rate, projected costs and plans and objectives of management for future operations. The words "projections," "believe," "continue," "drive," "estimate," "expect," "intend," "may," "plan," "will," "could," "would" and similar expressions are generally intended to identify forward-looking statements. These statements involve risks, uncertainties and other factors that may cause actual results to differ from the expectations expressed in the statements. Many of these factors are beyond our ability to control or predict. These factors include, without limitation, the continuing effects of the COVID-19 outbreak inthe United States and the regions in which we operate; the impact to the state and local economies of restrictive orders, vaccine and other mandates and the pandemic generally; our ability to respond nimbly to challenging economic conditions; the unpredictability of our case volume in the current environment; our ability to preserve or raise sufficient funds to continue operations throughout this period of uncertainty; the impact of our cost-cutting measures on our future performance; our ability to cause distributions from our subsidiaries; the responsiveness of our payors, including Medicaid and Medicare, to the challenging operating conditions, including their willingness and ability to continue paying in a timely manner and to advance payments in a timely manner, if at all; the impact of COVID-19 related stimulus programs, including the CARES Act, and uncertainty in how these programs may be administered, monitored and modified in the future; our ability to execute on our operational and strategic initiatives; the timing and impact of our portfolio optimization efforts; our ability to continue to improve same-facility volume and revenue growth on the timeline anticipated, if at all; our ability to successfully integrate acquisitions; the anticipated impact and timing of our ongoing efficiency efforts; the impact of adverse weather conditions and other events outside of our control; and the risks and uncertainties set forth under the heading "Risk Factors" in our 2020 Annual Report on Form 10-K and discussed from time to time in our reports filed with theSEC . Considering these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this report. These forward-looking statements speak only as of the date made. Other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. Executive Overview Total revenues for the third quarter of 2021 increased 12.7% to$559.2 million from$496.1 million for the third quarter of 2020. Same-facility revenues for the third quarter of 2021 increased 8.3% from the same period last year, with a 2.0% increase in revenue per case and a 6.2% increase in same-facility cases. The increase in same-facility revenues is attributable to the Company's recovery from the negative impacts of the COVID-19 pandemic in the third quarter of 2020. For the third quarter of 2021, the Company's net loss attributable to common stockholders and Adjusted EBITDA was$22.9 million and$76.4 million , respectively, compared to$71.6 million and$61.1 million for the same period last year. A reconciliation of non-GAAP financial measures appears below under "Certain Non-GAAP Metrics." The increase in Adjusted EBITDA was primarily attributable to the Company's recovery from the negative impacts of the COVID-19 pandemic in the third quarter of 2020 and acquisitions completed since the prior-year period. We had cash and cash equivalents of$330.4 million and$163.0 million of borrowing capacity under our revolving credit facility atSeptember 30, 2021 . Operating cash inflows were$14.9 million in the third quarter of 2021, a decrease of$12.0 million compared to the prior-year period. Net operating cash flows, including operating cash flows less distributions to non-controlling interests, were an outflow of$19.2 million for the third quarter of 2021, compared to an outflow of$3.7 million for the third quarter of 2020. The decrease in operating cash flows and net operating cash flows compared to the same period in 2020 is primarily due to receipts of government grants provided through the CARES Act and actions taken to significantly reduce cash operating expenses and defer non-essential expenditures during the third quarter of 2020 and the repayment of funds under the Medicare Accelerated and Advance Payment Program in 2021. Impact of COVID-19 The COVID-19 global pandemic has significantly affected our facilities, employees, patients, communities, business operations and financial performance, as well as theU.S. economy and financial markets. The COVID-19 pandemic materially impacted our financial performance for the year endedDecember 31, 2020 , and has continued to impact our financial performance during the nine months endedSeptember 30, 2021 . The impact of the COVID-19 pandemic on our surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures typically performed. Although we cannot provide any certainty regarding the 22
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length and severity of the impact of the COVID-19 pandemic, which is difficult to predict and is dependent on factors beyond our control, we continue to see improvement in surgical case volumes as states re-open and allow for non-emergent procedures. We cannot predict if or when utilization may return to pre-pandemic levels. The Company is monitoring legislative actions at federal and state levels, including the impact of the CARES Act and other governmental assistance that might be available. Executive Order OnJuly 9, 2021 ,President Biden issued an executive order that is intended to promote competition in the American economy. Among other things, the executive order encourages theFederal Trade Commission ("FTC") to ban or limit non-compete agreements, encourages the DOJ and theFTC to review and revise their merger guidelines to ensure that patients are not harmed by healthcare mergers, and instructs HHS to support existing price transparency rules and implement the legislation that was recently adopted to address surprise billing. We cannot predict how, if at all, the various initiatives set forth in the executive order will be implemented by the regulatory agencies involved or the impact that the executive order will have on operations. Revenues Our revenues consist of patient service revenues and other service revenues. Patient service revenues consist of revenue from our surgical facility services and ancillary services segments. Specifically, patient service revenues include fees for surgical or diagnostic procedures performed at surgical facilities that we consolidate for financial reporting purposes, as well as for patient visits to our physician practices, anesthesia services, pharmacy services and diagnostic screens ordered by our physicians. Other service revenues include management and administrative service fees derived from our non-consolidated facilities that we account for under the equity method, management of surgical facilities and physician practices in which we do not own an interest and management services we provide to physician practices for which we are not required to provide capital or additional assets. For the three and nine months endedSeptember 30, 2020 , other service revenues also includes optical service revenues, which consisted of handling charges billed to the members of our optical products purchasing organization, which was sold onDecember 31, 2020 . The following table summarizes our revenues by service type as a percentage of total revenues for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Patient service revenues: Surgical facilities revenues 95.6 % 95.4 % 95.5 % 95.0 % Ancillary services revenues 3.0 % 3.4 % 3.1 % 3.6 % Total patient service revenues 98.6 % 98.8 % 98.6 % 98.6 % Other service revenues 1.4 % 1.2 % 1.4 % 1.4 % Total revenues 100.0 % 100.0 % 100.0 % 100.0 % Payor Mix The following table sets forth by type of payor the percentage of our patient service revenues generated at the surgical facilities which we consolidate for financial reporting purposes in the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Private insurance payors 49.2 % 52.6 % 49.6 % 52.8 % Government payors 45.0 % 38.5 % 44.0 % 39.1 % Self-pay payors 2.9 % 4.0 % 2.9 % 3.4 % Other payors (1) 2.9 % 4.9 % 3.5 % 4.7 % Total 100.0 % 100.0 % 100.0 % 100.0 % (1)Other is comprised of anesthesia service agreements, automobile liability, letters of protection and other payor types. Surgical Case Mix We primarily operate multi-specialty surgical facilities where physicians perform a variety of procedures in various specialties. We believe this diversification helps to protect us from adverse pricing and utilization trends in any individual procedure type and results in greater consistency in our case volume. 23
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The following table sets forth the percentage of cases in each specialty performed at the surgical facilities which we consolidate for financial reporting purposes for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Orthopedic and pain management 34.8 % 38.3 % 35.8 % 39.9 %
Ophthalmology 27.1 % 26.7 % 26.5 % 25.4 %
Gastrointestinal 22.6 % 19.6 % 22.1 % 18.8 %
General surgery 3.0 % 2.9 % 3.0 % 3.1 %
Other 12.5 % 12.5 % 12.6 % 12.8 %
Total 100.0 % 100.0 % 100.0 % 100.0 %
Critical Accounting Policies
A summary of significant accounting policies is disclosed in our 2020 Annual
Report on Form 10-K under the caption "Critical Accounting Policies" in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section. There have been no material changes in the nature of our
critical accounting policies or the application of those policies since December
31, 2020 .
Results of Operations
Three Months Ended September 30, 2021 Compared to Three Months Ended
September 30, 2020
The following table summarizes certain results from the statements of operations
for the three months ended September 30, 2021 and 2020 (dollars in millions):
Three Months Ended
2021 2020
Revenues $ 559.2 $ 496.1
Operating expenses:
Cost of revenues 436.7 381.9
General and administrative expenses 25.5 25.2
Depreciation and amortization 25.2 24.1
Income from equity investments (2.9) (3.1)
Loss on disposals and deconsolidations, net 1.9 0.7
Transaction and integration costs 10.2 5.4
Impairment charges - 33.5
Grant funds - 9.9
Gain on debt extinguishment (0.5) -
Other income (0.5) -
Total operating expenses 495.6 477.6
Operating income 63.6 18.5
Interest expense, net (54.2) (51.5)
Income (loss) before income taxes 9.4 (33.0)
Income tax expense 1.2 1.3
Net income (loss) 8.2 (34.3)
Less: Net income attributable to non-controlling interests (31.1) (27.3)
Net loss attributable to Surgery Partners, Inc. $
(22.9)
Overview. During the three months endedSeptember 30, 2021 , our revenues increased 12.7% to$559.2 million compared to$496.1 million for the three months endedSeptember 30, 2020 . We incurred a net loss attributable toSurgery Partners, Inc. of$22.9 million for the 2021 period, compared to$61.6 million for the 2020 period. The increase in revenues was primarily attributable to increases in surgical case volumes and case mix recovery as the Company continues to recover from the COVID-19 pandemic that began in the first quarter of 2020 and acquisitions completed since the prior-year period. 24
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Revenues. Revenues for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 were as follows (dollars in millions): Three Months Ended September 30, 2021 2020 Patient service revenues $ 551.4$ 489.8 Other service revenues 7.8 6.3 Total revenues $ 559.2$ 496.1 Patient service revenues increased 12.6% to$551.4 million for the three months endedSeptember 30, 2021 compared to$489.8 million for the three months endedSeptember 30, 2020 . The increase of 12.6% was driven by a 6.2% increase in same-facility case volume and a 2.0% increase in same-facility revenue per case, primarily resulting from case count and case mix recovery from the impacts of the COVID-19 pandemic that we began experiencing in the first quarter of 2020 and acquisitions completed since the prior-year period. Cost of Revenues. Cost of revenues were$436.7 million for the three months endedSeptember 30, 2021 compared to$381.9 million for the three months endedSeptember 30, 2020 . The increase was primarily driven by case count and case mix recovery from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020. As a percentage of revenues, cost of revenues increased to 78.1% for the 2021 period compared to 77.0% for the 2020 period. General and Administrative Expenses. General and administrative expenses were$25.5 million for the three months endedSeptember 30, 2021 compared to$25.2 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, general and administrative expenses decreased to 4.6% for the 2021 period compared to 5.1% for the 2020 period. Depreciation and Amortization. Depreciation and amortization was$25.2 million and$24.1 million for the three months endedSeptember 30, 2021 and 2020, respectively. As a percentage of revenues, depreciation and amortization expenses was 4.5% for the 2021 period compared to 4.9% for the 2020 period. Transaction and Integration Costs. We incurred$10.2 million of transaction and integration costs for the three months endedSeptember 30, 2021 compared to$5.4 million for the three months endedSeptember 30, 2020 . The increase primarily relates to costs for ongoing development initiatives and the integration of acquisitions we completed in 2021 and 2020. Impairment Charges. For the three months endedSeptember 30, 2020 , we recorded non-cash impairment charges of$28.6 million and$4.9 million for theAncillary Services and Alliance reporting units, respectively. The impairment charges were the result of aSeptember 30, 2020 valuation which determined the carrying value for both theAncillary Services and Alliance reporting units exceeded the fair value. There were no impairment charges in the 2021 period. Grant Funds. Grant funds were$9.9 million for the three months endedSeptember 30, 2020 , representing recognition of government grants provided through the CARES Act in the 2020 period. For further discussion on grant fund recognition, see Note 1. "Organization and Summary of Accounting Polices - COVID-19 Pandemic" to our condensed consolidated financial statements included elsewhere in this report. Interest Expense, Net. Interest expense, net, increased to$54.2 million for the three months endedSeptember 30, 2021 compared to$51.5 million for the three months endedSeptember 30, 2020 . The increase primarily relates to the 2020 Incremental Term Loans, which were fully drawn onApril 22, 2020 and the issuance of additional 2027 Unsecured Notes in the amount of$115.0 million effectiveJuly 30, 2020 . As a percentage of revenues, interest expense, net was 9.7% for the 2021 period compared to 10.4% for the 2020 period. Income Tax Expense. The income tax expense was$1.2 million and$1.3 million for the three months endedSeptember 30, 2021 and 2020, respectively. The effective tax rate was 12.8% for the three months endedSeptember 30, 2021 compared to (3.9)% for the three months endedSeptember 30, 2020 . For the three months endedSeptember 30, 2021 , the effective tax rate differed from 21% primarily due to the reversal of the Company's earnings attributable to minority interest. For the three months endedSeptember 30, 2020 , the effective tax rate differed from 21% primarily due to the discrete tax expense attributable to the impairment of goodwill. Based upon the application of interim accounting guidance, the tax rate as a percentage of net income after income attributable to non-controlling interests will vary based upon the relative net income from period to period. Net Income Attributable to Non-Controlling Interests. Net income attributable to non-controlling interests was$31.1 million for the three months endedSeptember 30, 2021 compared to$27.3 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, net income attributable to non-controlling interests was 5.6% for the 2021 period and 5.5% for the 2020 period. 25
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Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 The following table summarizes certain results from the statements of operations for the nine months endedSeptember 30, 2021 and 2020 (dollars in millions):
Nine Months Ended
2021 2020
Revenues $ 1,614.9 $ 1,311.8
Operating expenses:
Cost of revenues 1,270.6 1,067.4
General and administrative expenses 76.8 73.3
Depreciation and amortization 76.1 69.3
Income from equity investments (8.5) (7.6)
Loss on disposals and deconsolidations, net 2.0 7.1
Transaction and integration costs 24.7 15.8
Impairment charges - 33.5
Grant funds (20.0) (33.2)
Loss on debt extinguishment 9.1 -
Litigation settlement - 1.2
Other income (3.3) (1.7)
Total operating expenses 1,427.5 1,225.1
Operating income 187.4 86.7
Interest expense, net (160.9) (147.8)
Income (loss) before income taxes 26.5 (61.1)
Income tax benefit (1.3) (14.5)
Net income (loss) 27.8 (46.6)
Less: Net income attributable to non-controlling interests (98.6) (75.0)
Net loss attributable to Surgery Partners, Inc. $
(70.8)
Overview. During the nine months endedSeptember 30, 2021 , our revenues increased 23.1% to$1,614.9 million compared to$1,311.8 million for the nine months endedSeptember 30, 2020 . We incurred a net loss attributable toSurgery Partners, Inc. of$70.8 million for the 2021 period, compared to$121.6 million for the 2020 period. The increase in revenues was primarily attributable to increases in surgical case volumes as the Company continues to recover from the COVID-19 pandemic that began in the first quarter of 2020 and acquisitions completed since the prior-year period. Revenues. Revenues for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 were as follows (dollars in millions): Nine Months Ended September 30, 2021 2020 Patient service revenues$ 1,593.0 $
1,293.5
Other service revenues 21.9 18.3
Total revenues $ 1,614.9 $ 1,311.8
Patient service revenues increased 23.2% to $1,593.0 million for the nine months
ended September 30, 2021 compared to $1,293.5 million for the nine months ended
September 30, 2020 . The increase of 23.2% was driven by a 22.4% increase in
same-facility case volume partially offset by a 1.1% decrease in same-facility
revenue per case. The increase was primarily driven by case count recovery from
the impacts of the COVID-19 pandemic that the Company began experiencing in the
first quarter of 2020 and acquisitions completed since the prior-year period.
Cost of Revenues. Cost of revenues were $1,270.6 million for the nine months
ended September 30, 2021 compared to $1,067.4 million for the nine months ended
September 30, 2020 . The increase was primarily driven by case count and recovery
from the impacts of the COVID-19 pandemic that the Company began experiencing in
the first quarter of 2020 and acquisitions completed since the prior-year
period. As a percentage of revenues, cost of revenues decreased to 78.7% for the
2021 period compared to 81.4% for the 2020 period, as lower acuity procedures
with lower cost of sales returned from COVID-19 related lows experienced in the
2020 period.
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General and Administrative Expenses. General and administrative expenses were$76.8 million for the nine months endedSeptember 30, 2021 compared to$73.3 million for the nine months endedSeptember 30, 2020 . As a percentage of revenues, general and administrative expenses decreased to 4.8% for the 2021 period compared to 5.6% for the 2020 period. Depreciation and Amortization. Depreciation and amortization was$76.1 million and$69.3 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The increase is primarily due to acquisitions completed in 2021 and 2020. As a percentage of revenues, depreciation and amortization expenses was 4.7% for the 2021 period compared to 5.3% for the 2020 period. Loss on Disposals and Deconsolidations, Net. The net loss on disposals and deconsolidations was$2.0 million for the 2021 period, related to disposals of other long-lived assets. The net loss on disposals and deconsolidations was$7.1 million for the 2020 period, including a$5.1 million gain on the sale of certain assets related to our anesthesia business, offset by a$6.6 million loss on the sale of interests in surgical facilities and the closure of a diagnostic laboratory and$5.6 million primarily related to disposals of other long-lived assets. Transaction and Integration Costs. We incurred$24.7 million of transaction and integration costs for the nine months endedSeptember 30, 2021 compared to$15.8 million for the nine months endedSeptember 30, 2020 . The increase primarily relates to costs for ongoing development initiatives and the integration of acquisitions we completed in 2021 and 2020. Grant Funds. During the nine months endedSeptember 30, 2021 , the Company received approximately$8 million of additional grants from HHS. Based on guidance from HHS and other authorities, the Company updated its estimate of the amount of grant funds received that qualify for recognition, resulting in the recognition of$20.0 million during the nine months endedSeptember 30, 2021 . Grant funds were$33.2 million for the nine months endedSeptember 30, 2020 . For further discussion, see Note 1. "Organization and Summary of Accounting Polices - COVID-19 Pandemic" to our condensed consolidated financial statements included elsewhere in this report. Loss on Debt Extinguishment. The net loss on debt extinguishment was$9.1 million for the 2021 period. See Note 3. "Long-Term Debt" to our condensed financial statements included elsewhere in this report. Interest Expense, Net. Interest expense, net, increased to$160.9 million for the nine months endedSeptember 30, 2021 compared to$147.8 million for the nine months endedSeptember 30, 2020 . The increase primarily relates to the 2020 Incremental Term Loans, which were fully drawn onApril 22, 2020 and the issuance of additional 2027 Unsecured Notes in the amount of$115.0 million effectiveJuly 30, 2020 . As a percentage of revenues, interest expense, net was 10.0% for the 2021 period compared to 11.3% for the 2020 period. Income Tax Benefit. The income tax benefit was$1.3 million for the nine months endedSeptember 30, 2021 compared to$14.5 million for the 2020 period. The effective tax rate was (4.9)% for the nine months endedSeptember 30, 2021 compared to 23.7% for the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , the effective tax rate differed from 21% primarily due to discrete tax benefits of (a)$4.4 million related to the vesting of restricted stock awards, and (b)$3.0 million related to entity divestitures. For the nine months endedSeptember 30, 2020 , the effective tax rate differed from 21% primarily due to (a) discrete tax benefits of$6.9 million attributable to the release of federal and state valuation allowances on the Company's Internal Revenue Code Section 163(j) interest carryforwards as a result of the increase in deductible interest expense allowed under the CARES Act, and$5.0 million attributable to a portion of the payments under the Settlement Agreement, as defined in Note 9. "Commitments and Contingencies," being classified as "restitution" for income tax purposes, and (b) a discrete tax expense of$5.0 million attributable to the impairment of goodwill. Based upon the application of interim accounting guidance, the tax rate as a percentage of net income after income attributable to non-controlling interests will vary based upon the relative net income from period to period. Net Income Attributable to Non-Controlling Interests. Net income attributable to non-controlling interests was$98.6 million for the nine months endedSeptember 30, 2021 compared to$75.0 million for the nine months endedSeptember 30, 2020 . As a percentage of revenues, net income attributable to non-controlling interests was 6.1% for the 2021 period and 5.7% for the 2020 period. Liquidity and Capital Resources Operating Activities The primary source of our operating cash flow is the collection of accounts receivable from federal and state agencies (under the Medicare and Medicaid programs), private insurance companies and individuals. During the nine months endedSeptember 30, 2021 , our cash flow provided by operating activities was$67.4 million compared to$238.0 million in the nine months endedSeptember 30, 2020 . The decrease is primarily due to the final DOJ settlement payment in second quarter of 2021, receipts of government grants and Medicare advance payments provided through the CARES Act, as well as actions taken to significantly reduce cash operating expenses and defer non-essential expenditures, during the 2020 period and the repayment of Medicare advance payments in the 2021 period. Investing Activities Net cash used in investing activities during the nine months endedSeptember 30, 2021 , was$141.7 million , which included$43.5 million related to purchases of property and equipment. We paid$101.0 million in cash for acquisitions (net of cash acquired), which included four surgical facilities in a new markets and two surgical facilities in existing markets that were merged into existing facilities. Additionally, we received cash proceeds of$2.5 million related to the disposal of certain long-lived assets. Net cash provided by investing activities during the nine months endedSeptember 30, 2020 , was$6.8 million , which included$27.8 million related to purchases of property and equipment. We paid$14.2 million in cash for acquisitions (net of cash acquired), which included a surgical facility in a new market and four surgical facilities in existing markets that were merged into existing facilities. 27
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Additionally, we received cash proceeds of$48.3 million related to the sale of certain assets related to our anesthesia business and the sale of interests in two surgery centers, one of which was previously accounted for as an equity method investment. Financing Activities Net cash provided by financing activities during the nine months endedSeptember 30, 2021 was$86.5 million . During this period, we received net proceeds of$248.2 million from an equity offering. We made distributions to non-controlling interest holders of$97.5 million and received proceeds related to ownership transactions with consolidated affiliates of$2.4 million . We made repayments on our long-term debt of$328.4 million and paid debt issuance costs of$11.7 million , which were partially offset by borrowings of$293.0 million (see Note 3. "Long-Term Debt"). We also paid a cash dividend of$5.1 million related to the Series A Preferred Stock. OnMay 17, 2021 , we issued 22.609 million shares of our common stock,$0.01 par value per share toBain Capital , as a result of the conversion of all outstanding shares of our Series A Preferred Stock at a conversion price of$19.00 per share. As a result of such conversion, we currently have no shares of Series A Preferred Stock issued or outstanding. Net cash provided by financing activities during the nine months endedSeptember 30, 2020 was$112.5 million . During this period, we made distributions to non-controlling interest holders of$82.3 million and payments related to ownership transactions with consolidated affiliates of$27.3 million . Additionally, we made repayments on our long-term debt of$197.3 million , which was offset by borrowings of$428.0 million . In connection with the 2020 Incremental Term Loans, which were fully drawn onApril 22, 2020 , and the issuance of additional 2027 Unsecured Notes in the amount of$115.0 million effectiveJuly 30, 2020 , we paid debt issuance costs of$8.3 million . Debt As ofSeptember 30, 2021 , the carrying value of our total indebtedness was$2.853 billion , which includes unamortized fair value discount of$3.1 million and unamortized deferred financing costs and issuance discount of$17.2 million . Term Loan and Revolving Credit Facility As ofSeptember 30, 2021 , we had term loan borrowings with a carrying value of$1.535 billion , consisting of outstanding aggregate principal of$1.538 billion and unamortized fair value discount of$3.1 million . OnMay 3, 2021 , the Company entered into a sixth amendment to credit agreement, dated as ofMay 3, 2021 (the "Sixth Amendment"), which amended the credit agreement, originally dated as ofAugust 31, 2017 (the "Credit Agreement"). The Sixth Amendment provides for, among other things, a new tranche of term loans under the Credit Agreement in an aggregate original principal amount of approximately$1.545 billion (the "New Term Loans"), which New Term Loans replace or refinance in full all of the existing term loans outstanding under the Credit Agreement (as in effect immediately prior to the Sixth Amendment), all as further set forth in the Sixth Amendment. See Note 3. "Long-Term Debt" for further discussion. OnJanuary 27, 2021 , the Company entered into an amendment to the Credit Agreement with respect to the revolving credit facility (the "Revolver"), to provide for an extension of the maturity date of the Revolver toFebruary 1, 2026 and an increase in the outstanding commitments under the Revolver in an amount equal to$50.0 million . The maturity extension and the additional commitments became operative onFebruary 1, 2021 . As ofSeptember 30, 2021 , the Company's availability on the Revolver was$163.0 million (including outstanding letters of credit of$7.0 million ). The Revolver may be utilized for working capital, capital expenditures and general corporate purposes. Subject to certain conditions and requirements set forth in the credit agreement, we may request one or more additional incremental term loan facilities or one or more increases in the commitments on the Revolver. The Revolver and the Term Loans, together the "Senior Secured Credit Facilities" bear interest at a rate per annum equal to (x) LIBOR plus a margin ranging from 3.00% to 3.25% per annum, depending on our first lien net leverage ratio or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.5% per annum above the federal funds effective rate and (iii) one-month LIBOR plus 1.00% per annum (solely with respect to the Term Loan, the alternate base rate shall not be less than 2.00% per annum)) plus a margin ranging from 2.00% to 2.25% per annum. In addition, we are required to pay a commitment fee of 0.50% per annum in respect of unused commitments on the Revolver. Senior Unsecured Notes We have$545.0 million aggregate principal amount of senior unsecured notes dueApril 15, 2027 , which bear interest at the rate of 10.000% per year, payable semi-annually onApril 15 andOctober 15 of each year. We have$370.0 million aggregate principal amount of senior unsecured notes dueJuly 1, 2025 , which bear interest at the rate of 6.750% per year, payable semi-annually onJanuary 1 andJuly 1 of each year. Other Debt We and certain of our subsidiaries have other debt consisting of outstanding bank indebtedness of$140.5 million , which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made, and right-of-use finance lease obligations of$279.9 million for which we are liable to various vendors for several property and equipment leases classified as finance leases. 28
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Pursuant to the CARES Act, repayment of certain advanced payments and other deferrals received as part of relief during 2020 began in 2021. We received approximately$120 million of accelerated payments during the year endedDecember 31, 2020 . During the nine months endedSeptember 30, 2021 , approximately$38 million has been repaid. See Note 1. "Organization and Summary of Accounting Policies" to our condensed consolidated financial statements included elsewhere in this report, for further discussion on the repayment terms related to certain relief previously received by us. In addition to the continued repayment of the advanced payments received under the CARES Act, we anticipate additional cash outflows during the fourth quarter of 2021 from the partial repayment of payroll taxes deferred in 2020 pursuant to the CARES Act (see Note 1. "Organization and Summary of Accounting Policies" for further discussion of the amounts deferred and repayment terms) and a scheduled payment related to the tax receivable agreement (see Note 9. "Commitments and Contingencies" for further discussion of the tax receivable agreement). Capital Resources In addition to cash flows from operations, available cash and capacity on our Revolver, other sources of capital include funds we have received under the CARES Act as well as continued access to the capital markets. As previously noted in Note 7. "Earning Per Share" to our condensed consolidated financial statements included elsewhere in this report, onFebruary 1, 2021 , we completed a public offering pursuant to which the Company sold 8,625,000 shares of common stock, resulting in net proceeds of$248.3 million . As previously noted in Note 1. "Organization and Summary of Accounting Policies" to our condensed consolidated financial statements included elsewhere in this report, for the nine months endedSeptember 30, 2021 , we received additional relief via the CARES Act, including approximately$8 million in direct grant payments, which are not required to be repaid, subject to certain terms and conditions. Summary The COVID-19 pandemic has resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. Additionally, while we have received grants and accelerated payments under the CARES Act and other government assistance programs and may receive additional amounts in the future, there is no assurance regarding the extent to which anticipated negative impacts arising from the COVID-19 pandemic will be offset by amounts and benefits received under the CARES Act or future legislation. Although we have seen continued improvement in surgical case volumes as states continue to re-open and allow for non-emergent procedures, broad economic factors resulting from the current COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables. Business closings and layoffs in the areas in which we operate may lead to increases in the uninsured and underinsured populations and adversely affect demand for our services, as well as the ability of payors to pay for services as rendered. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital. If general economic conditions continue to deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be harmed. Based on our current level of operations, we believe cash flows from operations, available cash, available capacity on our Revolver, funds we have received under the CARES Act, funds we may receive in the future and continued access to capital markets, will be adequate to meet our short-term (i.e., 12 months) and long-term (beyond 12 months) liquidity needs. Certain Non-GAAP Metrics Adjusted EBITDA and Adjusted EBITDA excluding grant funds are not measurements of financial performance under GAAP and should not be considered in isolation or as a substitute for net income, operating income or any other measure calculated in accordance with GAAP. The items excluded from these non-GAAP metrics are significant components in understanding and evaluating our financial performance. We believe such adjustments are appropriate, as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Our calculation of Adjusted EBITDA and Adjusted EBITDA excluding grant funds may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA and Adjusted EBITDA excluding grant funds as measures of financial performance. Adjusted EBITDA and Adjusted EBITDA excluding grant funds are key measures used by our management to assess operating performance, make business decisions and allocate resources. 29
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The following table reconciles Adjusted EBITDA and Adjusted EBITDA excluding
grant funds to income (loss) before income taxes, the most directly comparable
GAAP financial measure (in millions and unaudited):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Condensed Consolidated Statements of
Operations Data:
Income (loss) before income taxes $ 9.4 $ (33.0) $ 26.5 $ (61.1)
Plus (minus):
Net income attributable to non-controlling
interests (31.1) (27.3) (98.6) (75.0)
Depreciation and amortization 25.2 24.1 76.1 69.3
Interest expense, net 54.2 51.5 160.9 147.8
Equity-based compensation expense 4.1 3.0 13.4 9.9
Transaction, integration and acquisition
costs (1) 10.2 7.5 31.0 30.2
Loss on disposals and deconsolidations, net 1.9 0.7 2.0 7.1
Impairment charges - 33.5 - 33.5
Litigation settlement and other litigation
costs (2) 2.5 1.1 4.3 4.9
(Gain) loss on debt extinguishment (0.5) - 9.1 -
Gain on escrow release (3) - - - (0.8)
Hurricane-related operating losses (4) 0.5 - 0.5 -
Adjusted EBITDA $ 76.4 $ 61.1 $ 225.2 $ 165.8
Less: Impact of grant funds (5) - 5.4 (13.7) (21.9)
Adjusted EBITDA excluding grant funds $ 76.4 $
66.5
(1)This amount includes transaction and integration costs of$10.2 million and$5.4 million for the three months endedSeptember 30, 2021 and 2020, respectively. This amount further includes start-up costs related to a de novo surgical hospital of$2.1 million for the three months endedSeptember 30, 2020 . This amount includes transaction and integration costs of$24.7 million and$15.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. This amount further includes start-up costs related to a de novo surgical hospital of$6.3 million and$14.4 million for the nine months endedSeptember 30, 2021 and 2020, respectively. (2)This amount includes other litigation costs of$2.5 million and$1.1 million for the three months endedSeptember 30, 2021 and 2020, respectively. This amount includes other litigation costs of$4.3 million and$3.7 million for the nine months endedSeptember 30, 2021 and 2020, respectively. This amount further includes litigation settlement costs of$1.2 million for the nine months endedSeptember 30, 2020 . (3)Included in other income in the condensed consolidated statement of operations for the nine months endedSeptember 30, 2020 . (4)Reflects losses incurred in the month ofSeptember 2021 at a surgical facility that was closed following Hurricane Ida. (5)Represents the impact of grant funds recognized, net of amounts attributable to non-controlling interests. We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our credit facilities. Credit Agreement EBITDA is determined on a trailing twelve-month basis. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. Credit Agreement EBITDA is not a measurement of liquidity under GAAP and should not be considered in isolation or as a substitute for any other measure calculated in accordance with GAAP. The items excluded from Credit Agreement EBITDA are significant components in understanding and evaluating our liquidity. Our calculation of Credit Agreement EBITDA may not be comparable to similarly titled measures reported by other companies. When we use the term "Credit Agreement EBITDA," we are referring to Adjusted EBITDA, as defined above, further adjusted for acquisitions and synergies. These adjustments do not relate to our historical financial performance and instead relate to estimates compiled by our management and calculated in conformance with the definition of "Consolidated EBITDA" used in the credit agreements governing our credit facilities. 30
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