Surgery Partners, Inc 10-Q for FY2020 Q3

Surgery Partners, Inc. (SGRY)

10-Q 2020-11-04 For: 2020-09-30

Added on April 07, 2026

About this 10-Q

Surgery Partners, Inc filed this 10-Q on November 4, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $496.1M; up 9.8% from $452M a year earlier
Net loss: $61.6M; compared with a net loss of $15.7M a year earlier
Diluted EPS: -$1.46; compared with -$0.51 a year earlier

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


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


		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)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

Signatures		40


	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	450.0	$	92.7
Accounts receivable	337.0		326.9
Inventories	50.9		46.3
Prepaid expenses	19.2		17.8
Other current assets	36.3		41.8
Total current assets	893.4		525.5
Property and equipment, net of accumulated depreciation of $170.7 and $110.7, respectively	497.7		523.3
Goodwill and other intangible assets, net	3,389.4		3,449.7
Investments in and advances to affiliates	91.8		93.2
Right-of-use operating lease assets	314.9		297.7
Long-term deferred tax assets	105.5		98.7
Other long-term assets	20.2		30.8
Total assets	$	5,312.9	$	5,018.9

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	90.3	$	96.7
Accrued payroll and benefits	65.6		54.2
Medicare accelerated payments and deferred governmental grants	141.0		—
Other current liabilities	232.9		191.2
Current maturities of long-term debt	61.1		56.0
Total current liabilities	590.9		398.1
Long-term debt, less current maturities	2,761.3		2,524.7
Right-of-use operating lease liabilities	306.1		283.1
Other long-term liabilities	124.9		113.6

Non-controlling interests—redeemable	304.7		321.0
Redeemable preferred stock - Series A; shares authorized, issued and outstanding - 310,000; redemption value - $424.2 and $395.0, respectively	424.2		395.0

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 - 50,494,605 and 49,298,940, respectively	0.5		0.5
Other stockholders' equity	100.7		296.3
Total Surgery Partners, Inc. stockholders' equity	101.2		296.8
Non-controlling interests—non-redeemable	699.6		686.6
Total stockholders' equity	800.8		983.4
Total liabilities and stockholders' equity	$	5,312.9	$	5,018.9


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Revenues	$	496.1	$	452.0	$	1,311.8	$	1,314.2
Operating expenses:
Salaries and benefits	141.7		139.3		398.2		401.2
Supplies	142.8		126.2		382.2		364.6
Professional and medical fees	46.3		38.5		138.4		110.0
Lease expense	21.9		21.4		64.7		63.0
Other operating expenses	29.2		27.7		83.9		80.8
Cost of revenues	381.9		353.1		1,067.4		1,019.6
General and administrative expenses	25.2		19.9		73.3		64.9
Depreciation and amortization	24.1		18.4		69.3		56.3
Income from equity investments	(3.1)		(2.4)		(7.6)		(6.6)
Loss (gain) on disposals and deconsolidations, net	0.7		0.6		7.1		(7.0)
Transaction and integration costs	5.4		3.4		15.8		11.6
Impairment charges	33.5		—		33.5		—
Grant funds	9.9		—		(33.2)		—
Litigation settlement	—		—		1.2		—
Loss on debt extinguishment	—		—		—		11.7
Other income	—		—		(1.7)		(0.4)
Total operating expenses	477.6		393.0		1,225.1		1,150.1
Operating income	18.5		59.0		86.7		164.1
Tax receivable agreement expense	—		—		—		(2.4)
Interest expense, net	(51.5)		(45.7)		(147.8)		(134.1)
(Loss) income before income taxes	(33.0)		13.3		(61.1)		27.6
Income tax expense (benefit)	1.3		2.4		(14.5)		5.1
Net (loss) income	(34.3)		10.9		(46.6)		22.5
Less: Net income attributable to non-controlling interests	(27.3)		(26.6)		(75.0)		(78.1)
Net loss attributable to Surgery Partners, Inc.	(61.6)		(15.7)		(121.6)		(55.6)
Less: Amounts attributable to participating securities	(10.0)		(9.1)		(29.2)		(26.4)
Net loss attributable to common stockholders	$	(71.6)	$	(24.8)	$	(150.8)	$	(82.0)

Net loss per share attributable to common stockholders
Basic	$	(1.46)	$	(0.51)	$	(3.09)	$	(1.70)
Diluted (1)	$	(1.46)	$	(0.51)	$	(3.09)	$	(1.70)
Weighted average common shares outstanding
Basic	48,883		48,310		48,736		48,265
Diluted (1)	48,883		48,310		48,736		48,265


	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
Net (loss) income	—	—		—		—		(32.5)		22.8		(9.7)
Equity-based compensation	33	—		3.8		—		—		—		3.8
Preferred dividends	—	—		(9.7)		—		—		—		(9.7)
Other comprehensive income	—	—		—		7.3		—		—		7.3
Acquisition and disposal of shares of non-controlling interests, net (1)	—	—		(1.2)		—		—		2.9		1.7
Distributions to non-controlling interests—non-redeemable holders	—	—		—		—		—		(20.9)		(20.9)
Balance at June 30, 2020	50,551	0.5		648.2		(68.6)		(375.7)		691.5		895.9
Net (loss) income	—	—		—		—		(61.6)		19.3		(42.3)
Equity-based compensation	(56)	—		3.0		—		—		—		3.0
Preferred dividends	—	—		(10.0)		—		—		—		(10.0)
Other comprehensive income	—	—		—		3.3		—		—		3.3
Acquisition and disposal of shares of non-controlling interests, net (1)	—	—		(37.9)		—		—		7.6		(30.3)
Distributions to non-controlling interests—non-redeemable holders	—	—		—		—		—		(18.8)		(18.8)
Balance at September 30, 2020	50,495	$	0.5	$	603.3	$	(65.3)	$	(437.3)	$	699.6	$	800.8


	Carrying Amount				Fair Value
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019

Senior secured term loan	$	1,543.1	$	1,434.1	$	1,455.2	$	1,434.1
6.750% senior unsecured notes due 2025	$	370.0	$	370.0	$	363.1	$	368.2
10.000% senior unsecured notes due 2027	$	545.0	$	430.0	$	577.0	$	471.4


	2020		2019

Balance at beginning of period	$	321.0	$	326.6
Net income attributable to non-controlling interests—redeemable	19.3		24.1
Acquisition and disposal of shares of non-controlling interests, net—redeemable	(7.9)		(7.8)
Distributions to non-controlling interest—redeemable holders	(27.7)		(28.4)
Balance at end of period	$	304.7	$	314.5


Total consideration	$	18.6
Fair value of non-controlling interests	6.7
Aggregate acquisition date fair value	$	25.3
Net assets acquired:
Current assets	$	1.9
Property and equipment	5.8
Goodwill	23.8
Right-of-use operating lease assets	10.7
Current liabilities	(2.0)
Long-term debt, less current maturities	(4.6)
Right-of-use operating lease liabilities	(10.3)
Aggregate acquisition date fair value	$	25.3


Balance at December 31, 2019	$	3,402.4
Acquisitions, including post acquisition adjustments	24.9
Divestitures	(49.2)
Impairment charges	(33.5)
Balance at September 30, 2020	$	3,344.6


	September 30, 2020		December 31, 2019

Senior secured term loan (1)	$	1,543.1	$	1,434.1
Senior secured revolving credit facility	—		—
6.750% senior unsecured notes due 2025	370.0		370.0
10.000% senior unsecured notes due 2027	545.0		430.0
Notes payable and other secured loans	138.4		104.0
Finance lease obligations	242.7		253.4
Less: unamortized debt issuance costs, discount and premium, net	(16.8)		(10.8)
Total debt	2,822.4		2,580.7
Less: Current maturities	61.1		56.0
Total long-term debt	$	2,761.3	$	2,524.7


Balance at December 31, 2019	$	395.0
Dividends accrued (there were no cash dividends declared)	29.2
Balance at September 30, 2020	$	424.2


	September 30, 2020		December 31, 2019
Assets:
Surgical Facility Services	$	4,745.0	$	4,580.4
Ancillary Services	34.8		69.6
Optical Services	14.2		17.7
All other	518.9		351.2
Total assets	$	5,312.9	$	5,018.9


	Twelve Months Ended September 30, 2020

Cash flows from operating activities	$	263.4
Plus (minus):
Non-cash interest income, net	(5.0)
Non-cash lease expense	(40.6)
Deferred income taxes	10.9
Income from equity investments, net of distributions received	1.2
Changes in operating assets and liabilities, net of acquisitions and divestitures	(100.8)
Income tax expense	(10.1)
Net income attributable to non-controlling interests	(116.8)
Interest expense, net	192.6
Transaction, integration and acquisition costs	49.5
Litigation settlement and other litigation costs	6.7
Gain on escrow release	(0.8)
Acquisitions and synergies (1)	71.8
Credit Agreement EBITDA	$	322.0


	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(dollars in millions, except per share amounts)
July 1, 2020 to July 31, 2020	—	$	—	—	$	46.0
August 1, 2020 to August 31, 2020	—	$	—	—	$	46.0
September 1, 2020 to September 30, 2020	2,125	$	20.02	—	$	46.0
Total	2,125	$	20.02	—	$	46.0


	Three Months Ended September 30,
	2020				2019
	Amount		%		Amount		%
Patient service revenues:
Private insurance	$	257.4	52.6	%	$	236.3	53.2	%
Government	188.8		38.5	%	175.4		39.5	%
Self-pay	19.4		4.0	%	11.8		2.7	%
Other (1)	24.2		4.9	%	21.0		4.6	%
Total patient service revenues	489.8		100.0	%	444.5		100.0	%
Other service revenues:
Optical services revenues	0.9				0.9
Other revenues	5.4				6.6
Total revenues	$	496.1			$	452.0

	Nine Months Ended September 30,
	2020				2019
	Amount		%		Amount		%
Patient service revenues:
Private insurance	$	682.6	52.8	%	$	682.1	52.7	%
Government	505.4		39.1	%	518.4		40.0	%
Self-pay	43.4		3.4	%	32.1		2.5	%
Other (1)	62.1		4.7	%	62.2		4.8	%
Total patient service revenues	1,293.5		100.0	%	1,294.8		100.0	%
Other service revenues:
Optical services revenues	2.2				3.0
Other revenues	16.1				16.4
Total revenues	$	1,311.8			$	1,314.2


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Private insurance payors	52.6	%	53.2	%	52.8	%	52.7	%
Government payors	38.5	%	39.5	%	39.1	%	40.0	%
Self-pay payors	4.0	%	2.7	%	3.4	%	2.5	%
Other payors (1)	4.9	%	4.6	%	4.7	%	4.8	%
Total	100.0	%	100.0	%	100.0	%	100.0	%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Orthopedic and pain management	38.3	%	36.7	%	39.9	%	37.1	%
Ophthalmology	26.7	%	25.5	%	25.4	%	24.7	%
Gastrointestinal	19.6	%	20.9	%	18.8	%	21.0	%
General surgery	2.9	%	2.9	%	3.1	%	2.9	%
Other	12.5	%	14.0	%	12.8	%	14.3	%
Total	100.0	%	100.0	%	100.0	%	100.0	%


No.						Description

4.1						Second Supplemental Indenture, dated July 30, 2020, among Surgery Center Holdings, Inc., the guarantors party thereto and Wilmington Trust, National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 31, 2020).
31.1						Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Taxonomy Extension Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL (included in Exhibit 101).


SURGERY PARTNERS, INC.

By:			/s/ Thomas F. Cowhey Thomas F. Cowhey Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)