The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. For additional information regarding certain of the risks and uncertainties that affect our business and the industry in which we operate, please see Item 1A. "Risk Factors" and Item 9A. "Controls and Procedures" found elsewhere in this report. 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.
Executive Overview
As ofDecember 31, 2021 , we owned or operated, primarily in partnership with physicians, a portfolio of 126 surgical facilities comprised of 108 ASCs and 18 surgical hospitals across 31 states. We owned a majority interest in 88 of the surgical facilities and consolidated 109 of these facilities for financial reporting purposes. Total revenues for 2021 increased 19.6% to$2.2 billion from$1.9 billion in 2020. Days adjusted same-facility revenues for 2021 increased 18.1% from 2020, with a 0.5% increase in revenue per case and a 17.6% increase in same-facility cases. Additionally, for 2021, Adjusted EBITDA increased 32.3% to$339.6 million compared to$256.6 million for 2020. The increase in days adjusted same-facility revenues and Adjusted EBITDA is primarily attributable to the Company's recovery from the negative impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020 and acquisitions completed in 2021 and 2020. For 2021, the net loss attributable to common stockholders was$81.2 million compared to$155.6 million for 2020. A reconciliation of non-GAAP financial measures appears below under "Certain Non-GAAP Measures." We continue to focus on improving our same-facility performance, selectively acquiring established facilities and developing new facilities. During 2021, we acquired controlling interests in eight surgical facilities, including a surgical hospital, and two physician practices for aggregate cash consideration of$285.8 million , net of cash acquired. Two of the surgical facilities were in existing markets and were merged into existing facilities. The cash consideration was funded through available resources.
During 2021, we sold our interests in three surgery centers, one physician
practice and certain other assets for combined net cash proceeds of
We had cash and cash equivalents of$389.9 million and$203.0 million of borrowing capacity under our revolving credit facility atDecember 31, 2021 . Operating cash flows were$87.1 million in 2021, a decrease of$159.8 million compared to the prior year, primarily attributable to Medicare accelerated payments and other funds received under the CARES Act and actions taken to significantly reduce operating expenses and defer non-essential capital expenditures during 2020 and the repayment of Medicare accelerated payments in 2021. Net operating cash outflows, including operating cash flows less distributions to non-controlling interests, were$43.9 million for 2021.
Impact of COVID-19
The COVID-19 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 continued to impact our financial performance during the year ended December, 31, 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 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 saw improvement in surgical case volumes as states re-opened and allowed for non-emergent procedures. We cannot predict if or when utilization may return to pre-pandemic levels.
Executive Order
OnJuly 9, 2021 ,President Biden issued an executive order that is intended to promote competition in theU.S. 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 40
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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 years endedDecember 31, 2020 and 2019, 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 revenues by service type as a percentage of total revenues: Year Ended December 31, 2021 2020 2019
Patient service revenues:
Surgical facilities revenues 95.7 %
95.3 % 94.1 %
Ancillary services revenues 3.0 %
3.4 % 4.3 %
Total patient service revenues 98.7 %
98.7 % 98.4 %
Other service revenues 1.3 %
1.3 % 1.6 % Total revenues 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 that we consolidate for financial reporting purposes: Year Ended December 31, 2021 2020 2019 Private insurance payors 50.6 % 53.9 % 53.8 % Government payors 43.3 % 38.6 % 38.9 % Self-pay payors 2.8 % 3.2 % 2.6 % Other payors (1) 3.3 % 4.3 % 4.7 % Total 100.0 % 100.0 % 100.0 %
(1)Other is comprised of anesthesia service agreements, auto 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.
The following table sets forth the percentage of cases in each specialty performed at the surgical facilities that we consolidate for financial reporting purposes for the periods indicated:
Year Ended December 31, 2021 2020 2019
Orthopedics and pain management 35.7 %
39.3 % 38.3 % Ophthalmology 26.3 % 25.3 % 24.8 % Gastrointestinal 22.3 % 19.4 % 20.9 % General surgery 3.0 % 3.1 % 3.2 % Other 12.7 % 12.9 % 12.8 % Total 100.0 % 100.0 % 100.0 % 41
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Segment Information
Our business is currently comprised of two segments: (1) Surgical Facility Services and (2) Ancillary Services. OnDecember 31, 2020 , we sold the remaining assets of the Optical Services segment. For more information about the components of each segment, please see Part I, Item 1. Business-Operations included elsewhere in this Annual Report. The "All other" line item below primarily consists of amounts attributable to the Company's corporate general and administrative functions. The following tables present financial information for each reportable segment (in millions): Year Ended December 31, 2021 2020 2019 Revenues: Surgical Facility Services$ 2,157.8 $ 1,793.4 $ 1,748.2 Ancillary Services 67.3 63.6 79.4 Optical Services - 3.1 3.8 Total revenues$ 2,225.1 $ 1,860.1 $ 1,831.4 Adjusted EBITDA: Surgical Facility Services$ 422.0 $ 339.3 $ 328.9 Ancillary Services 1.7 (3.4) 2.6 Optical Services - 1.4 1.4 All other (84.1) (80.7) (74.3) Total Adjusted EBITDA (1)$ 339.6 $ 256.6 $ 258.6 Supplemental Information:
Cash purchases of property and equipment, net:
Surgical Facility Services$ 55.0 $ 38.7 $ 65.9 Ancillary Services 0.5 0.4 1.1 All other 2.1 3.8 6.6
Total cash purchases of property and equipment, net
42.9
(1)For a reconciliation of Adjusted EBITDA to income before income taxes as reflected in the audited consolidated statements of operations see "Certain Non-GAAP Measures" below. December 31, 2021 2020 Assets: Surgical Facility Services$ 5,552.8 $ 4,962.4 Ancillary Services 47.5 35.0 All other 517.3 415.8 Total assets$ 6,117.6 $ 5,413.2
Critical Accounting Policies
In preparing our consolidated financial statements in conformity withU.S. Generally Accepted Accounting Principles ("GAAP"), we must use estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures and the reported amounts of revenue and expenses. In general, our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates.
We consider our critical accounting policies to be those that involve significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions.
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Revenue Recognition
Our patient service revenues are derived primarily from surgical procedures performed at our ASCs and surgical hospitals, patient visits to physician practices, anesthesia services provided to patients, pharmacy services and diagnostic screens ordered by our physicians. The fees for such services are billed either to the patient or a third-party payor, including Medicare and Medicaid. We recognize patient service revenues, net of contractual allowances, which we estimate based on existing contracts or the historical trend of our cash collections and contractual write-offs. Prior to its sale onDecember 31, 2020 , our optical products purchasing organization negotiated volume buying discounts with optical product manufacturers. The buying discounts and any handling charges billed to the members of the purchasing organization represented the revenues recognized for financial reporting purposes. Revenue is recognized as orders are shipped to members. Other service revenues consist of management and administrative service fees derived from non-consolidated surgical facilities that we account for under the equity method, management of surgical facilities in which we do not own an interest and management services we provide to physician networks for which we are not required to provide capital or additional assets. The fees we derive from these management arrangements are based on a predetermined percentage of the revenues of each surgical facility and physician network. We recognize other service revenues in the period in which services are rendered.
There were no material impacts on our financial condition or results of
operations due to changes in assumptions or conditions related to revenue
recognition during the years ended
Accounts Receivable
Our patient service revenues and other receivables from third-party payors are recorded net of estimated implicit price concessions which are estimated based on the historical trend of our surgical hospitals' cash collections and contractual write-offs, and for our surgical facilities in general, established fee schedules, relationships with payors and procedure statistics. While changes in estimated reimbursement from third-party payors remain a possibility, we expect that any such changes would be minimal and, therefore, would not have a material effect on our financial condition or results of operations. Our collection policies and procedures are based on the type of payor, size of claim and estimated collection percentage for each patient account. The operating systems used to manage our patient accounts provide for an aging schedule in 30-day increments, by payor, physician and patient. We analyze accounts receivable at each of our surgical facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients, written correspondence and the use of legal or collection agency assistance, as required. Our average days sales outstanding was 67 and 69 days for the years endedDecember 31, 2021 and 2020, respectively. We recognize that final reimbursement of outstanding accounts receivable is subject to final approval by each third-party payor. However, because we have contracts with our third-party payors and we verify the insurance coverage of the patient before services are rendered, the amounts that are pending approval from third-party payors are minimal. Amounts are classified outside of self-pay if we have an agreement with the third-party payor or we have verified a patient's coverage prior to services rendered. It is our policy to collect co-payments and deductibles prior to providing services, where possible. It is also our policy to verify a patient's insurance 72 hours prior to the patient's procedure. Because our services are primarily non-emergency, our surgical facilities have the ability to control these procedures.
There were no material impacts on our financial condition or results of
operations due to changes in assumptions or conditions related to accounts
receivable during the years ended
Income Taxes
We use the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If a NOL and/or interest limitation ("163(j)") carryforward exists, we make a determination as to whether that NOL and/or 163(j) carryforward will be utilized in the future. A valuation allowance will be established for certain NOL and 163(j) carryforwards and other deferred tax assets where their recoverability is deemed to be uncertain. The carrying value of the net deferred tax assets is based upon estimates and assumptions related to our ability to generate sufficient future taxable income in certain tax jurisdictions. If these estimates and related assumptions change in the future, we will be required to adjust our deferred tax valuation allowances. As ofDecember 31, 2021 , we had unused federal NOL carryforwards of approximately$573.0 million . Such losses expire in various amounts at varying times beginning in 2029. Unless they expire, these NOL carryforwards may be used to offset future taxable income and thereby reduce our income taxes otherwise payable. We recorded a valuation allowance against our deferred tax assets atDecember 31, 2021 and 2020 totaling$113.0 million and$91.1 million , respectively. The valuation allowance has been established for certain deferred tax assets for which we believe it is more likely than not that the tax benefits will not be realized, which are primarily Section 163(j) interest carryforwards and certain state net operating losses and state credit carryforwards. If our expectations for future operating results on a consolidated basis or at the state jurisdiction level 43
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vary from actual results due to changes in health care regulations, general economic conditions, or other factors, we may need to adjust the valuation allowance, for all or a portion of our deferred tax assets. Our income tax expense in future periods will be reduced or increased to the extent of offsetting decreases or increases, respectively, in our valuation allowance in the period when the change in circumstances occurs. These changes could have a significant impact on our future earnings. Section 382 of the Internal Revenue Code of 1986 ("Section 382"), as amended (the "Code") imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its NOLs to reduce its tax liability. An "ownership change" is generally defined as any change in ownership of more than 50.0% of a corporation's "stock" by its "5-percent shareholders" (as defined in Section 382) over a rolling three-year period based upon each of those shareholder's lowest percentage of stock owned during such period. As a result of the Symbion acquisition in 2014, approximately$146.9 million in NOL carryforwards are subject to an annual Section 382 base limitation of$4.9 million , and, as a result of theNovaMed acquisition in 2011, approximately$11.0 million in NOL carryforwards are subject to an annual Section 382 base limitation of$4.9 million . As a result of the acquisition of NSH, approximately$24.7 million in NOL carryforwards are subject to an annual Section 382 base limitation of$2.8 million . The acquisition of shares of the Company byBain Capital in 2017 to become the controlling stockholder resulted in an ownership change as defined in Section 382. As a result, approximately$448.0 million in NOL carryforwards are subject to an annual Section 382 base limitation of$14.2 million . At this time, we do not believe this limitation, when combined with amounts allowable due to net unrecognized built in gains, will affect our ability to use any NOLs before they expire. However, no such assurances can be provided. If our ability to utilize our NOLs to offset taxable income generated in the future is subject to this limitation, it could have an adverse effect on our business, prospects, results of operations and financial condition.
There were no material impacts on our financial condition or results of
operations due to changes in assumptions or conditions related to income taxes
during the years ended
Impairment of
Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired.Goodwill is reviewed for impairment at the reporting unit level, which is defined as one level below an operating segment, on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit. During 2021, the Company had identified two reporting units, which include the following: 1) Surgical Facilities and 2) Ancillary Services. Prior to 2021, the Company had a third reporting unit, Alliance, which was a component of the Optical Services operating segment. The Company tests its goodwill and indefinite-lived intangible assets for impairment at least annually, as ofOctober 1 , or more frequently if certain indicators arise. A detailed evaluation of potential impairment indicators was performed, which specifically considered the volatility observed in the prices of the Company's outstanding debt securities and common stock, as well as the decline in surgical case volumes following the emergence of the COVID-19 pandemic, all of which improved in the second half of 2020 and throughout 2021 as states re-opened and allowed for non-emergent procedures.
As of
Subsequent to the date of our annual impairment test, the Company considered its operating results for the fourth quarter of 2021, macroeconomic, industry and market conditions, and other market indicators including its market capitalization. Based on its evaluation of all such factors, the Company concluded that an event had not occurred or circumstances had not changed that would more likely than not reduce the fair value of its reporting units below their carrying values.
In 2021 there were no non-cash impairment charges.
During the year ended
During the year endedDecember 31, 2019 , as a result of its impairment testing, the Company recorded non-cash impairment charges of$2.5 million related to the Alliance reporting unit.
See Note 4. "
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Results of Operations
The following tables summarize certain results from the statements of operations for the periods indicated (dollars in millions):
Year Ended December 31, 2021 2020 2019 Revenues$ 2,225.1 $ 1,860.1 $ 1,831.4 Operating expenses: Cost of revenues 1,733.7 1,480.3 1,407.6 General and administrative expenses 104.0 97.1 88.6 Depreciation and amortization 98.8 94.8 76.5 Income from equity investments (11.3) (10.8) (10.2) Loss (gain) on disposals, net 2.2 5.7 (4.4) Transaction and integration costs 39.8 23.2 19.0 Impairment charges - 33.5 7.9 Grant funds (37.9) (46.2) - Loss on debt extinguishment 9.1 - 11.7 Litigation settlement - 1.2 0.2 Other income (15.5) (1.7) (1.4) Total operating expenses 1,922.9 1,677.1 1,595.5 Operating income 302.2 183.0 235.9 Tax receivable agreement expense - - (2.4) Interest expense, net (221.0) (201.8) (178.9) Income (loss) before income taxes 81.2 (18.8) 54.6 Income tax expense (benefit) 10.5 (20.1) 9.5 Net income 70.7 1.3 45.1 Less: Net income attributable to non-controlling interests (141.6) (117.4) (119.9) Net loss attributable to Surgery Partners, Inc.$ (70.9)
Year Ended
Overview. During 2021, our revenues increased 19.6% to$2.2 billion compared to$1.9 billion in 2020. We incurred a net loss attributable toSurgery Partners, Inc. of$70.9 million in 2021, compared to$116.1 million in 2020. The increase in revenues was primarily attributable to increases in surgical case volumes as the Company recovered from the COVID-19 pandemic that began in the first quarter of 2020 and acquisitions completed in 2021 and 2020.
Revenues. Revenues for 2021 and 2020 were as follows (dollars in millions):
Year Ended December 31, 2021 2020 Patient service revenues$ 2,195.0 $ 1,836.1 Other service revenues 30.1 24.0 Total revenues$ 2,225.1 $ 1,860.1 Patient service revenues increased 19.5% to$2.2 billion in 2021 compared to$1.8 billion in 2020. The increase was driven by a 17.6% increase in days adjusted same-facility case volume, a 0.5% increase in same-facility revenue per case and acquisitions completed in 2021 and 2020. The increase in same-facility revenues 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. Cost of Revenues. Cost of revenues were$1.7 billion in 2021 compared to$1.5 billion in 2020. 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 in 2021 and 2020. As a percentage of revenues, cost of revenues was 77.9% and 79.6% for 2021 and 2020, respectively, as lower acuity procedures with lower cost of sales returned from COVID-19 pandemic-related lows experienced in 2020. General and Administrative Expenses. General and administrative expenses were$104.0 million and$97.1 million in 2021 and 2020, respectively. As a percentage of revenues, general and administrative expenses were 4.7% in 2021 compared to 5.2% in 2020. The decrease 45
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as a percentage of revenues is primarily the result of increased revenues driven by the recovery in surgical case volume from the impacts of the COVID-19 pandemic that the Company began experiencing in the first quarter of 2020.
Depreciation and Amortization. Depreciation and amortization was$98.8 million and$94.8 million in 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 were 4.4% in 2021 and 5.1% in 2020. Loss (gain) on Disposals, Net. The net loss on disposals was$2.2 million in 2021, including a$4.0 million net gain on the sale of three surgery centers, a physician practice and certain other assets, offset by a net loss of$6.2 million related to disposals of other long-lived assets. The net loss on disposals was$5.7 million in 2020, including a$2.5 million net gain on the sale of three surgical facilities, certain assets related to the Company's anesthesia business, certain imaging assets, the Company's optical products purchasing organization and the closure of a diagnostic laboratory, offset by a net loss of$8.2 million primarily related to disposals of other long-lived assets.
Transaction and Integration Costs. We incurred
Impairment Charges. In 2020 we recorded non-cash impairment charges of$28.6 million and$4.9 million for goodwill assigned to theAncillary Services and Alliance reporting units, respectively. See Note 4. "Goodwill and Intangibles" to our consolidated financial statements included elsewhere in this report for further discussion. There were no impairment charges in 2021. Grant Funds. During 2021, the Company received approximately$27.0 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$37.9 million during 2021. Grant funds recognized were$46.2 million in 2020. For further discussion, see Note 1. "Organization and Summary of Accounting Polices - COVID-19 Pandemic" to our consolidated financial statements included elsewhere in this report.
Loss on Debt Extinguishment. The net loss on debt extinguishment was
Interest Expense, Net. Interest expense, net, was$221.0 million in 2021 compared to$201.8 million in 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 9.9% in 2021 compared to 10.8% in 2020. Income Tax Expense (Benefit). The income tax expense was$10.5 million and income tax benefit was$20.1 million in 2021 and 2020, respectively. The effective tax rate was 12.9% for 2021 compared to 106.9% in 2020. The decrease from 2020 primarily relates to discrete items occurring in 2020. In 2020, the Company's effective tax rate was impacted by (i) 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; (ii) the release of federal and state valuation allowances on the Company's deferred tax assets related to debt financing costs as a result of the finalization of the Internal Revenue Code Section 163(j) interest regulations, for which the deductions of such debt financing costs that are incurred in years 2021 and forward are not considered interest expense for income tax purposes; and (iii) the Settlement Agreement, as discussed in Note 14. "Commitments and Contingencies" to our consolidated financial statements included elsewhere in this Annual Report, which provided that a portion of the final settlement amount was "restitution" for income tax purposes. For 2021, the effective tax rate is primarily impacted by income tax benefits related to (i) the 2021 vesting of certain restricted stock awards, and (ii) certain 2021 entity divestitures.
Net Income Attributable to Non-Controlling Interests. Net income attributable to
non-controlling interests was
Year Ended
Our discussion regarding the comparison of the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was previously disclosed beginning on page 47 in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed onMarch 10, 2021 , under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 " and is hereby incorporated herein by reference.
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. Cash flow provided by operating activities was$87.1 million and$246.9 million in 2021 and 2020, respectively. The decrease is primarily due to the final DOJ settlement payment in the second quarter of 2021, receipts of government grants and Medicare advance payments provided through the CARES Act, as well as actions taken 46
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to significantly reduce cash operating expenses and defer non-essential expenditures during 2020 and the repayment of Medicare advance payments during 2021.
Investing Activities Net cash used in investing activities in 2021 was$331.7 million , which included$57.6 million related to purchases of property and equipment. We paid$285.8 million in cash for acquisitions (net of cash acquired) which included a controlling interest in eight surgical facilities, including a surgical hospital, and two physician practices. Additionally, we received cash proceeds of$6.0 million related to the sale of interests in three surgery centers, a physician practice and certain other assets. Further, we received cash proceeds of$5.4 million related to the sale of interests in a non-consolidated surgical facility accounted for as an equity method investment. Net cash used in investing activities in 2020 was$88.4 million , which included$42.9 million related to purchases of property and equipment. We paid$104.6 million in cash for acquisitions (net of cash acquired), which included a controlling interest in three surgical facilities, including a surgical hospital, a controlling interest in five surgical facilities in existing markets that were merged into existing facilities and a physician practice. Additionally, we received cash proceeds of$58.5 million related to the sale of interests in three surgery centers, certain assets related to our anesthesia business, certain imaging assets and an optical products purchasing organization
Financing Activities
Net cash provided by financing activities in 2021 was$316.3 million . During the year endedDecember 31, 2021 , we made distributions to non-controlling interest holders of$131.0 million and payments related to ownership transactions with consolidated affiliates of$28.4 million . Further, we made repayments on our long-term debt of$343.2 million and paid debt issuance costs of$11.7 million , which were partially offset by borrowings of$299.4 million . We also received net proceeds of$554.2 million from two equity offerings during the year and 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 in 2020 was$66.7 million . During the year endedDecember 31, 2020 , we made distributions to non-controlling interest holders of$109.6 million and payments related to ownership transactions with consolidated affiliates of$27.4 million . Further, we made repayments on our long-term debt of$216.3 million , which was offset by borrowings of$429.4 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$8.5 million . Discussion of the operating, investing and financing activities for the year endedDecember 31, 2019 was previously disclosed beginning on page 49 in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed onMarch 10, 2021 , under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and is hereby incorporated herein by reference.
Debt
As of
Term Loan and Revolving Credit Facility
As ofDecember 31, 2021 , we had term loan borrowings with a carrying value of$1.531 billion , consisting of outstanding aggregate principal of$1.534 billion and unamortized fair value discount of$3.0 million (the "Term Loan"). The Term Loan matures onAugust 31, 2026 (or, if at least$185 million of the Borrower's 6.750% senior unsecured notes due 2025 shall have not either been repaid, repurchased or redeemed or refinanced with indebtedness having a maturity date not earlier than 91 days afterAugust 31, 2026 by no later thanApril 1, 2025 , thenApril 1, 2025 ) and amortizes in equal quarterly installments of 0.25% of the aggregate original principal amount. We have a revolving credit facility providing for revolving borrowings of up to$210.0 million (the "Revolver" and, together with the Term Loan, the "Senior Secured Credit Facilities"). The Revolver will mature onFebruary 1, 2026 . As ofDecember 31, 2021 , our availability on the Revolver was$203.0 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 Senior Secured Credit Facilities bear interest at a rate per annum equal to (x) LIBOR plus a margin of 3.75% per annum (LIBOR with respect to the Term Loan shall be subject to a floor of 0.75%) 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 (the alternate base rate with respect to the Term Loan shall be subject to a floor of 1.75%)) plus a margin of 2.75% per annum. In addition, we are required to pay a commitment fee of 0.50% per annum in respect of unused commitments under the Revolver. See Note 5. "Long-Term Debt" to our consolidated financial statements included elsewhere in this report for a further discussion of the Senior Secured Credit Facilities. 47
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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
See Note 5. "Long-Term Debt" to our consolidated financial statements included elsewhere in this report for a further discussion of the senior unsecured notes.
Other Debt
We and certain of our subsidiaries have other debt consisting of outstanding bank indebtedness of$145.0 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$364.6 million for which we are liable to various vendors for several property and equipment leases classified as finance leases.
Material Cash Requirements
The following table summarizes our material cash requirements by period as of
Payments Due by Period Less than 1 More than 5 Total year 1-3 years 4-5 years years Long-term debt obligations, including interest (1)$ 4,035.3 $ 244.1
532.3 71.5 133.0 109.1 218.7 Tax receivable agreement (3) 22.0 20.2 1.8 - - Total contractual obligations$ 4,589.6 $ 335.8
(1)Included in long-term debt obligations are principal and interest owed on our outstanding debt obligations. These amounts exclude our unamortized fair value adjustments related non-cash amortization for the Term Loan. These obligations are explained further in Note 5. "Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report. We used the applicable annual interest rate as ofDecember 31, 2021 of 4.50%, based on LIBOR plus the applicable margin, for our$1.5 billion outstanding Term Loan to estimate interest payments on this variable rate debt instrument. (2)This reflects our future operating lease payments. We enter into operating leases in the normal course of business. Substantially all of our operating lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to renew the lease. Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease agreements. These obligations are explained further in Note 6. "Leases" to our consolidated financial statements included elsewhere in this Annual Report. Operating lease obligations do not include common area maintenance, insurance or tax payments for which we are also obligated to pay. (3)This reflects payments made pursuant to the terms of the TRA, as described further in Note 14 to the consolidated financial statements included elsewhere in this report. In addition to the cash requirements above, 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 year endedDecember 31, 2021 , approximately$60 million was repaid. See Note 1. "Organization and Summary of Accounting Policies" to our 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 2022 for the repayment of the remaining 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).
Capital Resources
In addition to cash flows from operations, available cash and capacity on our Revolver, other sources of capital available to the Company include funds received under the CARES Act and continued access to the capital markets.
As previously noted in Note 9. "Earning Per Share" to our consolidated financial statements included elsewhere in this report, in 2021, we completed two public offerings pursuant to which the Company sold 15,525,000 shares of common stock, resulting in net proceeds of$554.2 million . As noted in Note 1. "Organization and Summary of Accounting Policies" to our consolidated financial statements included elsewhere in this report, the Company received approximately$27 million of the grant funds distributed under the CARES Act and other governmental assistance programs during the year endedDecember 31, 2021 , which are not required to be repaid, subject to certain terms and conditions. 48
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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 re-opened and allowed 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 Measures
Adjusted EBITDA is not a measurement 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 this non-GAAP metric 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 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. 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): Year
Ended
2021 2020 2019 Consolidated Statements of Operations Data: Income (loss) before income taxes$ 81.2 $ (18.8) $ 54.6 Plus (minus): Net income attributable to non-controlling interests (141.6) (117.4) (119.9) Depreciation and amortization 98.8 94.8 76.5 Interest expense, net 221.0 201.8 178.9 Equity-based compensation expense 17.4 13.2 10.2 Transaction and integration related costs (1) 46.1 38.2 36.1 Impairment charges - 33.5 7.9 Loss (gain) on disposals, net 2.2 5.7 (4.4) Litigation settlement and other litigation costs (2) 5.6 6.4 4.6 Gain on escrow release (3) - (0.8) - Loss on debt extinguishment 9.1 - 11.7 Hurricane-related impacts (4) (0.2) - - Tax receivable agreement expense - - 2.4 Adjusted EBITDA$ 339.6 $ 256.6 $ 258.6 Less: Impact of grant funds (5) (25.3) (31.1) - Adjusted EBITDA excluding grant funds$ 314.3
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(1)For the year endedDecember 31, 2021 , this amount includes transaction and integration costs of$39.8 million and start-up costs related to a de novo surgical hospital of$6.3 million . For the year endedDecember 31, 2020 , this amount includes transaction and integration costs of$23.2 million and start-up costs related to a de novo surgical hospital of$15.0 million . For the year endedDecember 31, 2019 , this amount includes transaction and integration costs of$19.0 million and other acquisition costs and start-up costs related to a de novo surgical hospital of$17.1 million . (2)This amount includes litigation settlement costs of$1.2 million and$0.2 million for the years endedDecember 31, 2020 and 2019, respectively, with no comparable costs in 2021. This amount also includes other litigation costs of$5.6 million ,$5.2 million and$4.4 million for the years endedDecember 31, 2021 , 2020 and 2019, respectively.
(3)Included in other income in the consolidated statement of operations for the
year ended
(4)Reflects the impact of insurance proceeds received net of operating losses incurred in the six months endedDecember 31, 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 management and calculated in conformance with the definition of "Consolidated EBITDA" used in the credit agreements governing our credit facilities. The following table reconciles Credit Agreement EBITDA to cash flows from operating activities, the most directly comparable GAAP financial measure (in millions and unaudited): Year Ended December 31, 2021 Cash flows from operating activities $ 87.1 Plus (minus): Non-cash interest income, net (22.0) Non-cash lease expense (39.1) Deferred income taxes (8.9) Income from equity investments, net of distributions received (0.2)
Changes in operating assets and liabilities, net of acquisitions and divestitures
75.5 Medicare accelerated payments and deferred governmental grants 73.6 Income tax benefit 10.5 Net income attributable to non-controlling interests (141.6) Interest expense, net 221.0 Transaction and integration related costs 46.1 Litigation settlement and other litigation costs 5.6 DOJ settlement payment 32.2 Hurricane-related impacts (0.2) Acquisitions and synergies (1) 84.7 Credit Agreement EBITDA $ 424.3 (1)Represents impact of acquisitions as if each acquisition had occurred onJanuary 1, 2021 . Further this includes revenue synergies from other business initiatives, de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the Senior Secured Credit Facilities.
Inflation
Inflation and changing prices have not significantly affected our operating results or the markets in which we operate.
Recent Accounting Pronouncements
Please refer to Note 1. "Organization and Summary of Accounting Policies - Recent Accounting Pronouncements" to our consolidated financial statements included elsewhere in this Annual Report for a discussion of the impact of the adoption of recently issued accounting standards and accounting standards not yet adopted. 50
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