sgry-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

Form 10-Q

_____________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-37576

_____________________________________

Surgery Partners, Inc.

(Exact name of registrant as specified in its charter)

_____________________________________


Delaware						47-3620923
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

310 Seven Springs Way, Suite 500

Brentwood, Tennessee 37027

(Address of principal executive offices and zip code)

(615) 234-5900

(Registrant’s telephone number, including area code)

_____________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SGRY

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o						Accelerated filer ☒
Non-accelerated filer o						Smaller reporting company ☐
						Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of April 28, 2021, there were 59,890,985 shares of the registrant’s common stock outstanding.

SURGERY PARTNERS, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	3
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

Signatures		30

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SURGERY PARTNERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)


	(Unaudited)
	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	541.9	$	317.9
Accounts receivable	367.0		382.2
Inventories	56.1		56.4
Prepaid expenses	21.1		17.6
Other current assets	31.7		27.4
Total current assets	1,017.8		801.5
Property and equipment, net of accumulated depreciation of $215.6 and $189.3, respectively	544.3		544.6
Goodwill and other intangible assets, net	3,517.5		3,514.9
Investments in and advances to affiliates	90.4		90.3
Right-of-use operating lease assets	305.4		310.1
Long-term deferred tax assets	127.4		124.8
Other long-term assets	36.2		27.0
Total assets	$	5,639.0	$	5,413.2

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	96.0	$	100.2
Accrued payroll and benefits	67.3		65.4
Medicare accelerated payments and deferred governmental grants	109.0		109.8
Other current liabilities	241.3		217.0
Current maturities of long-term debt	61.2		64.4
Total current liabilities	574.8		556.8
Long-term debt, less current maturities	2,789.5		2,792.4
Right-of-use operating lease liabilities	295.4		300.9
Other long-term liabilities	126.1		139.7

Non-controlling interests—redeemable	308.2		306.8
Redeemable preferred stock - Series A; shares authorized, issued and outstanding - 310,000; redemption value - $439.7 and $434.5, respectively	439.7		434.5

Stockholders' equity:
Preferred stock, $0.01 par value; shares authorized - 20,000,000; shares issued or outstanding - none	—		—
Common stock, $0.01 par value; shares authorized - 300,000,000; shares issued and outstanding - 59,898,730 and 50,461,706, respectively	0.6		0.5
Additional paid-in capital	843.3		607.9
Accumulated other comprehensive loss	(54.6)		(61.0)
Retained deficit	(452.8)		(431.8)
Total Surgery Partners, Inc. stockholders' equity	336.5		115.6
Non-controlling interests—non-redeemable	768.8		766.5
Total stockholders' equity	1,105.3		882.1
Total liabilities and stockholders' equity	$	5,639.0	$	5,413.2

See notes to unaudited condensed consolidated financial statements.

Table of Contents

SURGERY PARTNERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, dollars in millions, except per share amounts, shares in thousands)


	Three Months Ended March 31,
	2021		2020

Revenues	$	512.4	$	441.0
Operating expenses:
Salaries and benefits	151.7		140.4
Supplies	147.3		129.3
Professional and medical fees	55.5		46.8
Lease expense	22.8		21.3
Other operating expenses	31.6		28.4
Cost of revenues	408.9		366.2
General and administrative expenses	26.8		22.8
Depreciation and amortization	25.7		21.8
Income from equity investments	(2.6)		(2.0)
(Gain) loss on disposals and deconsolidations, net	(0.9)		3.5
Transaction and integration costs	5.3		5.5
Grant funds	(15.1)		—
Litigation settlement	—		1.2
Other income	—		(1.5)
Total operating expenses	448.1		417.5
Operating income	64.3		23.5
Interest expense, net	(53.3)		(47.1)
Income (loss) before income taxes	11.0		(23.6)
Income tax expense (benefit)	0.2		(15.2)
Net income (loss)	10.8		(8.4)
Less: Net income attributable to non-controlling interests	(31.8)		(19.1)
Net loss attributable to Surgery Partners, Inc.	(21.0)		(27.5)
Less: Amounts attributable to participating securities	(10.3)		(9.5)
Net loss attributable to common stockholders	$	(31.3)	$	(37.0)

Net loss per share attributable to common stockholders
Basic	$	(0.57)	$	(0.76)
Diluted (1)	$	(0.57)	$	(0.76)
Weighted average common shares outstanding
Basic	54,773		48,472
Diluted (1)	54,773		48,472

(1) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive in those periods.

See notes to unaudited condensed consolidated financial statements.

Table of Contents

SURGERY PARTNERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, dollars in millions)


	Three Months Ended March 31,
	2021		2020

Net income (loss)	$	10.8	$	(8.4)
Other comprehensive income (loss), net of tax:
Derivative activity	6.4		(25.2)
Comprehensive income (loss)	17.2		(33.6)
Less: Comprehensive income attributable to non-controlling interests	(31.8)		(19.1)
Comprehensive loss attributable to Surgery Partners, Inc.	$	(14.6)	$	(52.7)

See notes to unaudited condensed consolidated financial statements.

Table of Contents

SURGERY PARTNERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, dollars in millions, shares in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Deficit		Non-Controlling Interests— Non-Redeemable		Total
	Shares	Amount

Balance at December 31, 2019	49,299	$	0.5	$	662.7	$	(50.7)	$	(315.7)	$	686.6	$	983.4
Net (loss) income	—	—		—		—		(27.5)		13.6		(13.9)
Equity-based compensation	1,219	—		2.8		—		—		—		2.8
Preferred dividends	—	—		(9.5)		—		—		—		(9.5)
Other comprehensive loss	—	—		—		(25.2)		—		—		(25.2)
Acquisition and disposal of shares of non-controlling interests, net (1)	—	—		(0.7)		—		—		1.4		0.7
Distributions to non-controlling interests—non-redeemable holders	—	—		—		—		—		(14.9)		(14.9)
Balance at March 31, 2020	50,518	$	0.5	$	655.3	$	(75.9)	$	(343.2)	$	686.7	$	923.4



Balance at December 31, 2020	50,462	$	0.5	$	607.9	$	(61.0)	$	(431.8)	$	766.5	$	882.1
Net (loss) income	—	—		—		—		(21.0)		21.1		0.1
Equity-based compensation	812	—		(2.8)		—		—		—		(2.8)
Preferred dividends	—	—		(10.3)		—		—		—		(10.3)
Equity offering	8,625	0.1		248.2		—		—		—		248.3
Other comprehensive loss	—	—		—		6.4		—		—		6.4
Acquisition and disposal of shares of non-controlling interests, net (1)	—	—		0.3		—		—		2.0		2.3
Distributions to non-controlling interests—non-redeemable holders	—	—		—		—		—		(20.8)		(20.8)
Balance at March 31, 2021	59,899	$	0.6	$	843.3	$	(54.6)	$	(452.8)	$	768.8	$	1,105.3

(1)Includes post acquisition date adjustments.

See notes to unaudited condensed consolidated financial statements.

Table of Contents

SURGERY PARTNERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, dollars in millions)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	10.8	$	(8.4)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	25.7		21.8
Non-cash interest expense, net	1.6		1.3
Equity-based compensation expense	5.2		3.5
(Gain) loss on disposals and deconsolidations, net	(0.9)		3.5
Deferred income taxes	(0.1)		(15.5)
Income from equity investments, net of distributions received	(0.2)		0.5
Non-cash lease expense	9.8		9.4
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable	3.9		15.5
Medicare accelerated payments and deferred governmental grants	(7.2)		—
Other operating assets and liabilities	1.6		(2.4)
Net cash provided by operating activities

SEC Form 10-Q filed by Surgery Partners, Inc.