Cover Page
Cover Page - shares | 9 Months Ended | |
Sep. 30, 2020 | Oct. 29, 2020 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 30, 2020 | |
Document Transition Report | false | |
Entity File Number | 001-37576 | |
Entity Registrant Name | Surgery Partners, Inc. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 47-3620923 | |
Entity Address, Address Line One | 310 Seven Springs Way, Suite 500 | |
Entity Address, City or Town | Brentwood | |
Entity Address, State or Province | TN | |
Entity Address, Postal Zip Code | 37027 | |
City Area Code | 615 | |
Local Phone Number | 234-5900 | |
Title of 12(b) Security | Common Stock, par value $0.01 per share | |
Trading Symbol | SGRY | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 50,494,790 | |
Entity Central Index Key | 0001638833 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 450 | $ 92.7 |
Accounts receivable | 337 | 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 |
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 |
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 |
Redeemable preferred stock - Series A; shares authorized, issued and outstanding - 310,000; redemption value - $424.2 and $395.0, respectively | 424.2 | 395 |
Stockholders' equity: | ||
Preferred stock, $0.01 par value; shares authorized - 20,000,000; shares issued or outstanding - none | 0 | 0 |
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 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Accumulated depreciation | $ 170.7 | $ 110.7 |
Redeemable preferred stock, shares authorized (shares) | 310,000 | 310,000 |
Redeemable preferred stock, shares issued (shares) | 310,000 | 310,000 |
Redeemable preferred stock, shares outstanding (shares) | 310,000 | |
Redeemable preferred stock, redemption value | $ 424.2 | $ 395 |
Preferred stock, par value (in USD per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (shares) | 20,000,000 | 20,000,000 |
Preferred stock, shares issued (shares) | 0 | 0 |
Preferred stock, shares outstanding (shares) | 0 | 0 |
Common stock, par value (in USD per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (shares) | 300,000,000 | 300,000,000 |
Common stock, shares issued (shares) | 50,494,605 | 49,298,940 |
Common stock, shares outstanding (shares) | 50,494,605 | 49,298,940 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | ||
Income Statement [Abstract] | |||||
Revenues | $ 496,100,000 | $ 452,000,000 | $ 1,311,800,000 | $ 1,314,200,000 | |
Operating expenses: | |||||
Salaries and benefits | 141,700,000 | 139,300,000 | 398,200,000 | 401,200,000 | |
Supplies | 142,800,000 | 126,200,000 | 382,200,000 | 364,600,000 | |
Professional and medical fees | 46,300,000 | 38,500,000 | 138,400,000 | 110,000,000 | |
Lease expense | 21,900,000 | 21,400,000 | 64,700,000 | 63,000,000 | |
Other operating expenses | 29,200,000 | 27,700,000 | 83,900,000 | 80,800,000 | |
Cost of revenues | 381,900,000 | 353,100,000 | 1,067,400,000 | 1,019,600,000 | |
General and administrative expenses | 25,200,000 | 19,900,000 | 73,300,000 | 64,900,000 | |
Depreciation and amortization | 24,100,000 | 18,400,000 | 69,300,000 | 56,300,000 | |
Income from equity investments | (3,100,000) | (2,400,000) | (7,600,000) | (6,600,000) | |
Loss (gain) on disposals and deconsolidations, net | 700,000 | 600,000 | 7,100,000 | (7,000,000) | |
Transaction and integration costs | 5,400,000 | 3,400,000 | 15,800,000 | 11,600,000 | |
Impairment charges | 33,500,000 | 0 | 33,500,000 | 0 | |
Grant funds | 9,900,000 | 0 | (33,200,000) | 0 | |
Litigation settlement | 0 | 0 | 1,200,000 | 0 | |
Loss on debt extinguishment | 0 | 0 | 0 | 11,700,000 | |
Other income | 0 | 0 | (1,700,000) | (400,000) | |
Total operating expenses | 477,600,000 | 393,000,000 | 1,225,100,000 | 1,150,100,000 | |
Operating income | 18,500,000 | 59,000,000 | 86,700,000 | 164,100,000 | |
Tax receivable agreement expense | 0 | 0 | 0 | (2,400,000) | |
Interest expense, net | (51,500,000) | (45,700,000) | (147,800,000) | (134,100,000) | |
(Loss) income before income taxes | (33,000,000) | 13,300,000 | (61,100,000) | 27,600,000 | |
Income tax expense (benefit) | 1,300,000 | 2,400,000 | (14,500,000) | 5,100,000 | |
Net (loss) income | (34,300,000) | 10,900,000 | (46,600,000) | 22,500,000 | |
Less: Net income attributable to non-controlling interests | (27,300,000) | (26,600,000) | (75,000,000) | (78,100,000) | |
Net loss attributable to Surgery Partners, Inc. | (61,600,000) | (15,700,000) | (121,600,000) | (55,600,000) | |
Less: Amounts attributable to participating securities | (10,000,000) | (9,100,000) | (29,200,000) | (26,400,000) | |
Net loss attributable to common stockholders | $ (71,600,000) | $ (24,800,000) | $ (150,800,000) | $ (82,000,000) | |
Net loss per share attributable to common stockholders | |||||
Basic (in USD per share) | $ (1.46) | $ (0.51) | $ (3.09) | $ (1.70) | |
Diluted (in USD per share) | [1] | $ (1.46) | $ (0.51) | $ (3.09) | $ (1.70) |
Weighted average common shares outstanding | |||||
Basic (shares) | 48,883 | 48,310 | 48,736 | 48,265 | |
Diluted (shares) | [1] | 48,883 | 48,310 | 48,736 | 48,265 |
[1] | The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive in those periods. |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Statement of Comprehensive Income [Abstract] | ||||
Net (loss) income | $ (34.3) | $ 10.9 | $ (46.6) | $ 22.5 |
Other comprehensive income (loss), net of tax: | ||||
Derivative activity | 3.3 | (6.8) | (14.6) | (35.1) |
Comprehensive (loss) income | (31) | 4.1 | (61.2) | (12.6) |
Less: Comprehensive income attributable to non-controlling interests | (27.3) | (26.6) | (75) | (78.1) |
Comprehensive loss attributable to Surgery Partners, Inc. | $ (58.3) | $ (22.5) | $ (136.2) | $ (90.7) |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Millions | Total | Net effect of adoption of new accounting standard | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Deficit | Retained DeficitNet effect of adoption of new accounting standard | Non-Controlling Interests— Non-Redeemable | |
Beginning Balance, stockholders' equity (shares) at Dec. 31, 2018 | 48,869,000 | ||||||||
Beginning Balance, stockholders' equity at Dec. 31, 2018 | $ 1,098.9 | $ 18 | $ 0.5 | $ 673.5 | $ (22.4) | $ (247) | $ 18 | $ 694.3 | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net (loss) income | (4.1) | (20.1) | 16 | ||||||
Equity-based compensation (shares) | 517,000 | ||||||||
Equity-based compensation | 0.9 | 0.9 | |||||||
Preferred dividends | (8.5) | (8.5) | |||||||
Other comprehensive income (loss) | (11.5) | (11.5) | |||||||
Acquisition and disposal of shares of non-controlling interests, net | [1] | 14.1 | 8 | 6.1 | |||||
Distributions to non-controlling interests—non-redeemable holders | (23.5) | (23.5) | |||||||
Ending Balance, stockholders' equity (shares) at Mar. 31, 2019 | 49,386,000 | ||||||||
Ending Balance, stockholders' equity at Mar. 31, 2019 | 1,084.3 | $ 0.5 | 673.9 | (33.9) | (249.1) | 692.9 | |||
Beginning Balance, stockholders' equity (shares) at Dec. 31, 2018 | 48,869,000 | ||||||||
Beginning Balance, stockholders' equity at Dec. 31, 2018 | 1,098.9 | $ 18 | $ 0.5 | 673.5 | (22.4) | (247) | $ 18 | 694.3 | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Other comprehensive income (loss) | (35.1) | ||||||||
Ending Balance, stockholders' equity (shares) at Sep. 30, 2019 | 49,506,000 | ||||||||
Ending Balance, stockholders' equity at Sep. 30, 2019 | 1,006.5 | $ 0.5 | 670.3 | (57.5) | (284.6) | 677.8 | |||
Beginning Balance, stockholders' equity (shares) at Mar. 31, 2019 | 49,386,000 | ||||||||
Beginning Balance, stockholders' equity at Mar. 31, 2019 | 1,084.3 | $ 0.5 | 673.9 | (33.9) | (249.1) | 692.9 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net (loss) income | (1.1) | (19.8) | 18.7 | ||||||
Equity-based compensation (shares) | 117,000 | ||||||||
Equity-based compensation | 3.1 | 3.1 | |||||||
Preferred dividends | (8.8) | (8.8) | |||||||
Other comprehensive income (loss) | (16.8) | (16.8) | |||||||
Acquisition and disposal of shares of non-controlling interests, net | [1] | 2 | 9.6 | (7.6) | |||||
Distributions to non-controlling interests—non-redeemable holders | (17.7) | (17.7) | |||||||
Ending Balance, stockholders' equity (shares) at Jun. 30, 2019 | 49,503,000 | ||||||||
Ending Balance, stockholders' equity at Jun. 30, 2019 | 1,045 | $ 0.5 | 677.8 | (50.7) | (268.9) | 686.3 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net (loss) income | 3.6 | (15.7) | 19.3 | ||||||
Equity-based compensation (shares) | 3,000 | ||||||||
Equity-based compensation | 2.7 | 2.7 | |||||||
Preferred dividends | (9.1) | (9.1) | |||||||
Other comprehensive income (loss) | (6.8) | (6.8) | |||||||
Acquisition and disposal of shares of non-controlling interests, net | [1] | (9) | (1.1) | (7.9) | |||||
Distributions to non-controlling interests—non-redeemable holders | (19.9) | (19.9) | |||||||
Ending Balance, stockholders' equity (shares) at Sep. 30, 2019 | 49,506,000 | ||||||||
Ending Balance, stockholders' equity at Sep. 30, 2019 | $ 1,006.5 | $ 0.5 | 670.3 | (57.5) | (284.6) | 677.8 | |||
Beginning Balance, stockholders' equity (shares) at Dec. 31, 2019 | 49,298,940 | 49,299,000 | |||||||
Beginning Balance, stockholders' equity at Dec. 31, 2019 | $ 983.4 | $ 0.5 | 662.7 | (50.7) | (315.7) | 686.6 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net (loss) income | (13.9) | (27.5) | 13.6 | ||||||
Equity-based compensation (shares) | 1,219,000 | ||||||||
Equity-based compensation | 2.8 | 2.8 | |||||||
Preferred dividends | (9.5) | (9.5) | |||||||
Other comprehensive income (loss) | (25.2) | (25.2) | |||||||
Acquisition and disposal of shares of non-controlling interests, net | [1] | 0.7 | (0.7) | 1.4 | |||||
Distributions to non-controlling interests—non-redeemable holders | (14.9) | (14.9) | |||||||
Ending Balance, stockholders' equity (shares) at Mar. 31, 2020 | 50,518,000 | ||||||||
Ending Balance, stockholders' equity at Mar. 31, 2020 | $ 923.4 | $ 0.5 | 655.3 | (75.9) | (343.2) | 686.7 | |||
Beginning Balance, stockholders' equity (shares) at Dec. 31, 2019 | 49,298,940 | 49,299,000 | |||||||
Beginning Balance, stockholders' equity at Dec. 31, 2019 | $ 983.4 | $ 0.5 | 662.7 | (50.7) | (315.7) | 686.6 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Other comprehensive income (loss) | $ (14.6) | ||||||||
Ending Balance, stockholders' equity (shares) at Sep. 30, 2020 | 50,494,605 | 50,495,000 | |||||||
Ending Balance, stockholders' equity at Sep. 30, 2020 | $ 800.8 | $ 0.5 | 603.3 | (65.3) | (437.3) | 699.6 | |||
Beginning Balance, stockholders' equity (shares) at Mar. 31, 2020 | 50,518,000 | ||||||||
Beginning Balance, stockholders' equity at Mar. 31, 2020 | 923.4 | $ 0.5 | 655.3 | (75.9) | (343.2) | 686.7 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net (loss) income | (9.7) | (32.5) | 22.8 | ||||||
Equity-based compensation (shares) | 33,000 | ||||||||
Equity-based compensation | 3.8 | 3.8 | |||||||
Preferred dividends | (9.7) | (9.7) | |||||||
Other comprehensive income (loss) | 7.3 | 7.3 | |||||||
Acquisition and disposal of shares of non-controlling interests, net | [1] | 1.7 | (1.2) | 2.9 | |||||
Distributions to non-controlling interests—non-redeemable holders | (20.9) | (20.9) | |||||||
Ending Balance, stockholders' equity (shares) at Jun. 30, 2020 | 50,551,000 | ||||||||
Ending Balance, stockholders' equity at Jun. 30, 2020 | 895.9 | $ 0.5 | 648.2 | (68.6) | (375.7) | 691.5 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net (loss) income | (42.3) | (61.6) | 19.3 | ||||||
Equity-based compensation (shares) | (56,000) | ||||||||
Equity-based compensation | 3 | 3 | |||||||
Preferred dividends | (10) | (10) | |||||||
Other comprehensive income (loss) | 3.3 | 3.3 | |||||||
Acquisition and disposal of shares of non-controlling interests, net | [1] | (30.3) | (37.9) | 7.6 | |||||
Distributions to non-controlling interests—non-redeemable holders | $ (18.8) | (18.8) | |||||||
Ending Balance, stockholders' equity (shares) at Sep. 30, 2020 | 50,494,605 | 50,495,000 | |||||||
Ending Balance, stockholders' equity at Sep. 30, 2020 | $ 800.8 | $ 0.5 | $ 603.3 | $ (65.3) | $ (437.3) | $ 699.6 | |||
[1] | Includes post acquisition date adjustments. |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Cash flows from operating activities: | ||||
Net (loss) income | $ (34.3) | $ 10.9 | $ (46.6) | $ 22.5 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||
Depreciation and amortization | 24.1 | 18.4 | 69.3 | 56.3 |
Non-cash interest expense, net | 3.1 | 0.6 | ||
Equity-based compensation expense | 3 | 2.7 | 9.9 | 7.6 |
Loss (gain) on disposals and deconsolidations, net | 0.7 | 0.6 | 7.1 | (7) |
Impairment charges | 33.5 | 0 | 33.5 | 0 |
Loss on debt extinguishment | 0 | 0 | 0 | 11.7 |
Deferred income taxes | (15.3) | 4.1 | ||
Income from equity investments, net of distributions received | (1) | 0.5 | ||
Non-cash lease expense | 29.4 | 28.8 | ||
Changes in operating assets and liabilities, net of acquisitions and divestitures: | ||||
Accounts receivable | (11.9) | 7.7 | ||
Medicare accelerated payments and deferred governmental grants | 141 | 0 | ||
Other operating assets and liabilities | 19.5 | (28.7) | ||
Net cash provided by operating activities | 238 | 104.1 | ||
Cash flows from investing activities: | ||||
Purchases of property and equipment | (27.8) | (50.2) | ||
Payments for acquisitions, net of cash acquired | (14.2) | (13.8) | ||
Proceeds from disposals of facilities and other assets | 48.3 | 17.6 | ||
Purchases of equity investments | 0 | (15.2) | ||
Other investing activities | 0.5 | (0.2) | ||
Net cash provided by (used in) investing activities | 6.8 | (61.8) | ||
Cash flows from financing activities: | ||||
Principal payments on long-term debt | (197.3) | (436.1) | ||
Borrowings of long-term debt | 428 | 442.5 | ||
Payments of debt issuance costs | (8.3) | (8.8) | ||
Payment of premium on debt extinguishment | 0 | (17.8) | ||
Distributions to non-controlling interest holders | (82.3) | (89.5) | ||
Payments related to ownership transactions with non-controlling interest holders | (27.3) | (4.6) | ||
Other financing activities | (0.3) | (1) | ||
Net cash provided by (used in) financing activities | 112.5 | (115.3) | ||
Net increase (decrease) in cash, cash equivalents and restricted cash | 357.3 | (73) | ||
Cash, cash equivalents and restricted cash at beginning of period | 93 | 184.6 | ||
Cash, cash equivalents and restricted cash at end of period | $ 450.3 | $ 111.6 | $ 450.3 | $ 111.6 |
Organization and Summary of Acc
Organization and Summary of Accounting Policies | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Summary of Accounting Policies | Organization and Summary of Accounting Policies Organization Surgery Partners, Inc., a Delaware corporation, acting through its subsidiaries, owns and operates a national network of surgical facilities and ancillary services. The surgical facilities, which include ambulatory surgery centers ("ASCs") and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, among others, gastroenterology, general surgery, ophthalmology, orthopedics and pain management. The Company's surgical hospitals also provide services such as diagnostic imaging, laboratory, obstetrics, oncology, pharmacy, physical therapy and wound care. Ancillary services are comprised of multi-specialty physician practices, urgent care facilities, anesthesia services and optical services. Unless the context otherwise indicates, Surgery Partners, Inc. and its subsidiaries are referred to herein as "Surgery Partners," "we," "us," "our" or the "Company." As of September 30, 2020, the Company owned or operated a portfolio of 126 surgical facilities, comprised of 110 ASCs and 16 surgical hospitals in 30 states. The Company owns these facilities in partnership with physicians and, in some cases, health care systems in the markets and communities it serves. The Company owned a majority interest in 84 of the surgical facilities and consolidated 106 of these facilities for financial reporting purposes. Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation of the Company's financial position and results of operations have been included. The Company’s fiscal year ends on December 31 and interim results are not necessarily indicative of results for a full year or any other interim period. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report on Form 10-K"). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as interests in partnerships and limited liability companies controlled by the Company through its ownership of a majority voting interest or other rights granted to the Company by contract to manage and control the affiliate's business. All significant intercompany balances and transactions are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and footnotes. Examples include, but are not limited to, estimates of accounts receivable allowances, professional and general liabilities and the estimate of deferred tax assets or liabilities. Actual results could differ from those estimates. COVID-19 Pandemic The COVID-19 global pandemic has significantly affected the Company's facilities, employees, patients, communities, business operations and financial performance, as well as the United States economy and financial markets. Beginning mid-March, the COVID-19 pandemic began to negatively affect the Company's net revenue and business operations. Due in part to local, state and federal guidelines, as well as recommendations from major medical societies, requiring social distancing and self-quarantines in response to the COVID-19 pandemic, surgical case volumes across most of the Company's surgical facilities were significantly impacted in the second quarter. The impact of COVID-19 on the Company's surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures that are typically performed. Although the Company cannot provide any certainty regarding the length and severity of the impact of the COVID-19 pandemic, surgical case volumes improved throughout the second and third quarters as states began to re-open and allow for non-emergent procedures. The Company's operating structure naturally enables some flexibility in the cost structure according to the volume of surgical procedures performed, including much of its cost of revenues. In addition to the natural variability of these costs, the Company and its partners in the surgical facilities have undertaken additional steps to preserve financial flexibility. Beginning in mid-March, and into the second and third quarters, the Company took actions that included significantly reducing cash operating expenses and deferring non-essential expenditures at the height of the crisis. CARES Act On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law to provide stimulus funding for the United States economy. As part of the CARES Act, the United States government initially announced that it would offer $100 billion of relief to eligible health care providers. On April 7, 2020, Centers for Medicare and Medicaid Services ("CMS") officials indicated they would distribute $30 billion of direct grants to hospitals, ASCs and other health care providers based on how much they bill Medicare. Payments received from these grants are not required to be repaid provided the recipients attest to and comply with certain terms and conditions, including limitations on balance billing and not using funds received from the grants to reimburse expenses or losses that other sources are obligated to reimburse. The Company received approximately $53 million of the grant funds distributed under the CARES Act and other governmental assistance programs during the nine months ended September 30, 2020, including approximately $5 million received during the three months ended September 30, 2020. The recognition of amounts received is conditioned upon attestation with terms and conditions that funds will be used for COVID-19 related healthcare expenses or lost revenues. The Company previously recognized approximately $43.1 million as a reduction in operating expenses under the caption Grant funds in the condensed consolidated statements of operations during the six months ended June 30, 2020. Amounts are recognized as a reduction to operating costs and expenses only to the extent the Company is reasonably assured that underlying conditions are met. On September 19, 2020, the U.S. Department of Health and Human Services ("HHS") issued a Post-Payment Notice of Reporting Requirements (the “September Notice”), which revised previous guidance. The September Notice substantially altered the definition of lost revenues eligible to be claimed in a manner less favorable to recipients of grant funds received through the CARES Act and other governmental assistance programs. During the three months ended September 30, 2020, the Company updated its estimate of the amount of grant funds received that qualify for recognition based on, among other things, the September Notice, the Company’s results of operations and receipt of additional payments during such period. Based on the revised guidance, for the three months ended September 30, 2020, the Company reversed approximately $9.9 million of amounts previously recognized in the second quarter. As a result, the Company estimates approximately $33.2 million of grant funds received qualified for recognition as a reduction in operating expenses under the caption Grant funds in the condensed consolidated statements of operations for the nine months ended September 30, 2020. Amounts received, but not recognized as a reduction to operating expenses as of September 30, 2020, are reflected as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets as of September 30, 2020, and such unrecognized amounts may be recognized as a reduction in operating expenses in future periods if the underlying conditions for recognition are met. HHS’ interpretation of the underlying terms and conditions of grant funds received through the CARES Act and other governmental assistance programs, including auditing and reporting requirements, continues to evolve. For example, in October 2020, HHS issued updated guidance that revised the September Notice. Please refer to Note 12. "Subsequent Events" for additional information. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such payments may result in the Company’s inability to recognize certain payments, changes in the estimate of amounts recognized, or the derecognition of amounts previously recognized, which may be material. As a way to increase cash flow to Medicare providers impacted by the COVID-19 pandemic, the CARES Act expanded the Medicare Accelerated and Advance Payment Program, which allows for most providers and suppliers, including the Company’s surgical hospitals and ASCs to request an advance payment of anticipated Medicare revenues. ASCs can request up to 100% of the Medicare Fee-for-Service payment amount for a three-month period. Hospitals can request up to 100% of the payment amount for a six-month period, with certain critical access hospitals able to request up to 125% of the payment for a six-month period. Under the original terms of the program, the repayment of these accelerated/advanced payments would have begun 120 days after the date of the issuance of the payment and the amounts advanced to our facilities would have been recouped from new Medicare claims as a 100% offset. Our ASCs would have had 210 days from the date the accelerated or advance payment was made to repay the amounts that they owe and our hospitals would have had one year to repay the advance payment. On October 1, 2020, Congress amended the terms of the Accelerated and Advance Payment Program to extend the term of the loan and adjust the repayment process. Under the new terms of the program, all providers will have 29 months from the date of their first program payment to repay the full amount of the accelerated or advance payments they have received. The revised terms extend the period before repayment begins from 210 days to one year from the date that payment under the program was received. Once the repayment period begins, the offset will be limited to 25% of new claims during the first 11 months of repayment and 50% of new claims during the final 6 months. The revised program terms also lower the interest rate on outstanding amounts due at the end of the repayment period from 10% to 4%.The Company received approximately $120 million of accelerated payments during the nine months ended September 30, 2020. These accelerated payments received were deferred and included as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets as of September 30, 2020. The Company did not receive any Medicare accelerated payments during the three months ended September 30, 2020, and does not expect to receive additional Medicare accelerated payments. The CARES Act also provides for the deferral of the Company's portion of social security payroll taxes for the remainder of 2020. Under the CARES Act, half of the deferred amount will have to be paid in each of December 2021 and December 2022. The Company began deferring the social security payroll tax match in April 2020. As of September 30, 2020, the Company has deferred approximately $7.3 million, included as a component of accrued payroll and benefits in the condensed consolidated balance sheets as of September 30, 2020. The Company is continuing to closely monitor legislative actions and regulatory guidance at the federal, state and local levels with respect to the CARES Act as other governmental assistance might become available to the Company. Variable Interest Entities The condensed consolidated financial statements include the accounts of variable interest entities ("VIE") in which the Company is the primary beneficiary under the provisions of the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification 810, " Consolidation ". The Company has the power to direct the activities that most significantly impact a VIEs economic performance. Additionally, the Company would absorb the majority of the expected losses from any of these entities should such expected losses occur. As of September 30, 2020, the Company's consolidated VIEs include four surgical facilities and three physician practices. The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, were $28.2 million and $36.2 million, respectively, and the total liabilities of the consolidated VIEs were $22.2 million and $25.2 million, respectively. Fair Value of Financial Instruments The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on inputs classified into the following hierarchy: • Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These may include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, depending on the nature of the item being valued. The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, restricted invested assets and accounts payable approximate their fair values under Level 3 inputs. A summary of the carrying amounts and estimated fair values of the Company's long-term debt follows (in millions): Carrying Amount Fair Value September 30, December 31, September 30, December 31, 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 The fair values in the table above were based on a Level 2 inputs using quoted prices for identical liabilities in inactive markets. The carrying amounts related to the Company's other long-term debt obligations, including finance lease obligations, approximate their fair values under Level 3 inputs. The Company has entered into certain interest rate swap agreements (see Note 7. "Derivatives and Hedging Activities"). The fair value of these derivative instruments was $65.3 million and $50.7 million at September 30, 2020 and December 31, 2019, respectively, and was included in other long-term liabilities in the condensed consolidated balance sheets. The fair value of these derivative financial instruments was based on a quoted market price, or a Level 2 input. Revenues The Company's revenues generally relate to contracts with patients in which the performance obligations are to provide health care services. The Company recognizes revenues in the period in which our obligations to provide health care services are satisfied and reports the amount that reflects the consideration the Company expects to be entitled to receive. The contractual relationships with patients, in most cases, also involve a third-party payor (e.g., Medicare, Medicaid and private insurance organizations, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by or negotiated with the third-party payors. The payment arrangements with third-party payors for the services provided to the related patients typically specify payments at amounts less than the Company's standard charges. The Company continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. A summary of revenues by service type as a percentage of total revenues follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Patient service revenues: Surgical facilities revenues 95.4 % 93.9 % 95.0 % 94.0 % Ancillary services revenues 3.4 % 4.4 % 3.6 % 4.6 % 98.8 % 98.3 % 98.6 % 98.6 % Other service revenues: Optical services revenues 0.2 % 0.2 % 0.2 % 0.2 % Other revenues 1.0 % 1.5 % 1.2 % 1.2 % 1.2 % 1.7 % 1.4 % 1.4 % Total revenues 100.0 % 100.0 % 100.0 % 100.0 % Patient service revenues. This revenue is related to charging facility fees in exchange for providing patient care. The fee charged for health care procedures performed in surgical facilities varies depending on the type of service provided, but usually includes all charges for usage of an operating room, a recovery room, special equipment, medical supplies, nursing staff and medications. The fee does not normally include professional fees charged by the patient’s surgeon, anesthesiologist or other attending physician, which are billed directly by such physicians to the patient or third-party payor. However, in several surgical facilities, the Company charges for anesthesia services. Ancillary service revenues include fees for patient visits to the Company's physician practices, pharmacy services and diagnostic tests ordered by physicians. Patient service revenues are recognized as performance obligations are satisfied. Performance obligations are based on the nature of services provided. Typically, the Company recognizes revenue at a point in time in which services are rendered and the Company has no obligation to provide further patient services. As the Company primarily performs outpatient procedures, performance obligations are generally satisfied same day and revenue is recognized on the date of service. The Company determines the transaction price based on gross charges for services provided, net of estimated contractual adjustments and discounts from third-party payors. The Company estimates its contractual adjustments and discounts based on contractual agreements, its discount policies and historical experience. Changes in estimated contractual adjustments and discounts are recorded in the period of change. Other service revenues. Optical service revenues consist of handling charges billed to the members of the Company's optical products purchasing organization. The Company's optical products purchasing organization negotiates volume buying discounts with optical products manufacturers. The buying discounts and any handling charges billed to the members of the buying group represent the revenue recognized for financial reporting purposes. The Company satisfies the performance obligation and recognizes revenue when the orders are shipped to members. The Company bases its estimates for sales returns and discounts on historical experience and has not experienced significant fluctuations between estimated and actual return activity and discounts given. Other revenues include management and administrative service fees derived from the non-consolidated facilities that the Company accounts for under the equity method, management of surgical facilities in which it does not own an interest, and management services provided to physician practices for which the Company is not required to provide capital or additional assets. These agreements typically require the Company to provide recurring management services over a multi-year period, which are billed and collected on a monthly basis. The fees derived from these management arrangements are based on a predetermined percentage of the revenues of each facility or practice and are recognized in the period in which management services are rendered and billed. The following table sets forth patient service revenues by type of payor and as a percentage of total patient service revenues for the Company's consolidated surgical facilities (dollars in millions): 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 (1) Other is comprised of anesthesia service agreements, automobile liability, letters of protection and other payor types. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalent balances at high credit quality financial institutions. Cash, cash equivalents and restricted cash reported within the consolidated statement of cash flows includes $0.3 million of restricted investments, which are reflected in other long-term assets in the consolidated balance sheet at both September 30, 2020 and December 31, 2019. These restricted investments represent restricted cash held in accordance with the provisions of a long-term operating lease agreement held as security for performance under the Company's covenants and obligations within the agreement through January 2024. Accounts Receivable Accounts receivable from third-party payors are recorded net of estimated implicit price concessions, which are estimated based on the historical trend of the Company's surgical facilities’ cash collections and contractual write-offs, established fee schedules, relationships with payors and procedure statistics. While changes in estimated reimbursement from third-party payors remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on its financial condition or results of operations. Accounts receivable consists of receivables from federal and state agencies (under the Medicare and Medicaid programs), private insurance organizations, employers and patients. Management recognizes that revenues and receivables from government agencies are significant to the Company's operations, but it does not believe that there is significant credit risk associated with these government agencies. Concentration of credit risk with respect to other payors is limited because of the large number of such payors. As of September 30, 2020 and December 31, 2019, the Company had a net third-party Medicaid settlements liability of $15.7 million and $5.6 million, respectively, included in other current liabilities in the condensed consolidated balance sheets. The Company recognizes that final reimbursement of accounts receivable is subject to final approval by each third-party payor. However, because the Company has contracts with its third-party payors and also verifies insurance coverage of the patient before medical services are rendered, the amounts that are pending approval from third-party payors are not considered significant. Amounts are classified outside of self-pay if the Company has an agreement with the third-party payor or has verified a patient’s coverage prior to services rendered. The Company's policy is to collect co-payments and deductibles prior to providing medical services. Patient services of the Company are primarily non-emergency, which allows the surgical facilities to control the procedures for which third-party reimbursement is sought and obtained. The Company does not require collateral from self-pay patients. The Company's 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 patient accounts provide for an aging schedule in 30-day increments, by payor, physician and patient. The Company analyzes accounts receivable at each of its 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 third-party payors or patients, written correspondence and the use of legal or collection agency assistance, as required. The receivables related to the Company's optical products purchasing organization are recognized separately from patient accounts receivable, as discussed above, and are included in other current assets in the condensed consolidated balance sheets. Such receivables were $9.7 million and $8.6 million as of September 30, 2020 and December 31, 2019, respectively. Derivative Instruments and Hedging Activities The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Non-Controlling Interests—Redeemable Each partnership and limited liability company through which the Company owns and operates its surgical facilities is governed by a partnership or operating agreement, respectively. In certain circumstances, the applicable partnership or operating agreements for the Company's surgical facilities provide that the facilities will purchase all of the physician limited partners’ or physician minority members’, as applicable, ownership if certain adverse regulatory events occur, such as it becoming illegal for the physician(s) to own an interest in a surgical facility, refer patients to a surgical facility or receive cash distributions from a surgical facility. The non-controlling interests — redeemable are reported outside of stockholders' equity in the condensed consolidated balance sheets. A summary of activity related to non-controlling interests—redeemable for the nine months ended September 30, 2020 and 2019 is as follows (in millions): 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 Income Taxes The Company uses 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If a carryforward exists, the Company makes a determination as to whether the carryforward will be utilized in the future. A valuation allowance is established for certain carryforwards when their recoverability is deemed to be uncertain. The carrying value of the net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If our expectations for future operating results on a consolidated basis or at the state jurisdiction level 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. The Company and certain of its subsidiaries file a consolidated federal income tax return. The partnerships, limited liability companies, and certain non-consolidated physician practice corporations also file separate income tax returns. The Company's allocable portion of each partnership's and limited liability company's income or loss is included in taxable income of the Company. The remaining income or loss of each partnership and limited liability company is allocated to the other owners. The Company's effective tax rate was 23.7% for the nine months ended September 30, 2020 compared to 18.5% for the nine months ended September 30, 2019. The higher effective tax rate for the 2020 period was primarily due to (a) discrete tax benefits of approximately $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 10. "Commitments and Contingencies," being classified as "restitution" for income tax purposes; and (b) a discrete tax expense of approximately $5.0 million attributable to the Company's 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. Recent Accounting Pronouncements In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04 Reference Rate Reform (Topic 848) . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the nine months ended September 30, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Interbank Offered Rate ("LIBOR") indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In June 2016, the FASB |
Acquisitions and Disposals
Acquisitions and Disposals | 9 Months Ended |
Sep. 30, 2020 | |
Business Combinations [Abstract] | |
Acquisitions and Disposals | Acquisitions and Disposals Acquisitions During the nine months ended September 30, 2020, the Company acquired a controlling interest in a surgical facility in a new market and a controlling interest in four surgical facilities in existing markets, that were merged into existing facilities for cash consideration of $14.2 million, net of cash acquired, and non-cash consideration of $3.2 million. The non-cash consideration consisted of non-controlling interests in the Company's existing surgical facilities. The cash consideration was funded through cash from operations. The total consideration was allocated to the assets acquired and liabilities assumed based upon the respective acquisition date fair values. The aggregate amounts preliminarily recognized for each major class of assets acquired and liabilities assumed for the acquisitions are as follows (in millions): 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 The fair values assigned to certain assets acquired and liabilities assumed by the Company have been estimated on a preliminary basis and are subject to change as new facts and circumstances emerge that were present at the date of acquisition. During the nine months ended September 30, 2020, no significant changes were made to the purchase price allocation of assets and liabilities, existing at the date of acquisition, related to individual acquisitions completed in 2019. The goodwill acquired was allocated to the Company's Surgical Facility services reportable segment. The results of operations of the acquisitions were included in the Company’s results of operations beginning on the dates of acquisition and were not considered significant for the nine months ended September 30, 2020. Disposals During the nine months ended September 30, 2020, the Company sold its interests in two surgery centers, one of which was previously accounted for as an equity method investment, for net cash proceeds of $9.4 million, and recognized a net pre-tax loss of $3.1 million included in loss on disposals and deconsolidations, net in the condensed consolidated statement of operations for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, the Company sold certain assets related to its anesthesia business for net cash proceeds of $38.9 million, and recognized a net pre-tax gain of $5.1 million included in loss on disposals and deconsolidations, net in the condensed consolidated statement of operations for the three and nine months ended September 30, 2020. |
Goodwill
Goodwill | 9 Months Ended |
Sep. 30, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill | Goodwill Goodwill represents the fair value of the consideration provided in an acquisition over the fair value of net assets acquired and is not amortized. Additions to goodwill include amounts resulting from new business combinations and incremental ownership purchases in the Company's subsidiaries. The Company tests its goodwill and indefinite-lived intangible assets for impairment at least annually, as of October 1, or more frequently if certain indicators arise. The Company tests for goodwill impairment at the reporting unit level, which is defined as one level below an operating segment. A detailed evaluation of potential impairment indicators was performed as of September 30, 2020, 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 throughout the second and third quarters as states began to re-open and allow for non-emergent procedures. As of September 30, 2020, the Company has identified three reporting units, which include the following: 1) Surgical Facilities, 2) Ancillary Services, and 3) Alliance, which is a component of the Optical Services operating segment. On the basis of available evidence as of September 30, 2020, no indicators of impairment were identified for the Company's Surgical Facilities reporting unit. The Company did identify indicators of impairment related to its Ancillary Services and Alliance reporting units, including the impacts of the COVID-19 pandemic and the closure of its diagnostic laboratory (as discussed in Note 2. "Acquisitions and Disposals"). Based on the impairment indicators for these reporting units, the Company performed an impairment analysis as of September 30, 2020. The Company compares the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit. To determine the fair value of the reporting units, the Company obtained valuations at the reporting unit level prepared by third-party valuation specialists which utilized a combination of the income and market approaches. The discounted cash flow model is projected based on a year-by-year assessment that considers historical results, estimated market conditions, internal projections, and relevant publicly available statistics. Determining fair value requires the exercise of significant judgment, including assumptions about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The significant judgments are typically based upon Level 3 inputs, generally defined as unobservable inputs representing the Company's own assumptions. The cash flows employed in the discounted cash flow analysis are based on the Company's most recent budgets and business plans aligned with provided guidance and, when applicable, various growth rates are assumed for years beyond the current business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. The variables within the discount rate, many of which are outside of the Company's control, provide the best estimate of all assumptions applied within the discounted cash flow model. There can be no assurance that operations will achieve the future cash flows reflected in the projections. In determining the fair value under the market approaches, the analysis includes a control premium, which was based on observable market data and a review of selected transactions of companies that operate in the Company's sector. While the Company believes that all assumptions utilized in the testing were appropriate, they may not reflect actual outcomes that could occur. Specific factors that could negatively impact the assumptions used include changes to the discount and growth rates and a change in the equity and enterprise premiums being realized in the market. As of the September 30, 2020 valuation, carrying value for both the Ancillary Services and Alliance reporting units exceeded the fair value, resulting in non-cash impairment charges of $28.6 million and $4.9 million, respectively. Future estimates of fair value could be adversely affected if the actual outcome of one or more of the Company's assumptions changes materially in the future, including a decline in the Company’s stock price and the fair value of its long-term debt, lower than expected surgical case volumes, higher market interest rates or increased operating costs. Such changes impacting the calculation of fair value, the risks of which are amplified by the COVID-19 pandemic, could result in a material impairment charge in the future. A summary of activity related to goodwill for the nine months ended September 30, 2020 is as follows (in millions): 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 A summary of the Company's acquisitions and dispositions for the nine months ended September 30, 2020 is included in Note 2. "Acquisitions and Disposals." |
Long-Term Debt
Long-Term Debt | 9 Months Ended |
Sep. 30, 2020 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | Long-Term Debt A summary of long-term debt follows (in millions): September 30, December 31, 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 (1) Includes unamortized fair value discount of $3.9 million and $4.6 million as of September 30, 2020 and December 31, 2019, respectively. Revolving Credit Facility On March 18, 2020, the Company drew down its available capacity under its revolving credit facility (the “Revolver”), as a precautionary measure in order to increase liquidity and preserve financial flexibility in light of current uncertainty resulting from the COVID-19 pandemic. During the second quarter, the Company fully repaid the outstanding balance. As of September 30, 2020, the Company's availability on the Revolver was $112.5 million (including outstanding letters of credit of $7.5 million). Third Amendment to Credit Agreement On April 16, 2020, SP Holdco I, Inc., a Delaware corporation (“Holdings”), and Surgery Center Holdings, Inc., a Delaware corporation (the “Borrower”), each a wholly-owned subsidiary of the Company, entered into a third amendment to credit agreement governing the Revolver, dated as of April 16, 2020 (the “Third Amendment”), with Jefferies Finance LLC, as administrative agent and collateral agent, and the other financial institutions party thereto, which amended and supplemented financial covenants applicable to the Revolver under the credit agreement, dated as of August 31, 2017, by and among the Borrower, Holdings, certain subsidiaries of the Borrower party thereto from time to time, Jefferies Finance LLC, as administrative agent and collateral agent, and the other financial institutions party thereto from time to time (as previously amended) (the “Credit Agreement”). Pursuant to the Third Amendment, the Company's requirement to comply with a maximum consolidated total net leverage ratio will be waived for the remainder of 2020. Additionally, for the first three quarters of 2021, the Third Amendment provides for an alternative calculation for the maximum consolidated total net leverage ratio where the trailing four quarter basis may be negatively impacted by the impacts of the COVID-19 pandemic. The Third Amendment became effective concurrently with the funding of the 2020 Incremental Term Loans on April 22, 2020, and are discussed in more detail below. Second Incremental Term Loan Amendmen t On April 22, 2020, Holdings and the Borrower, together with certain subsidiaries of the Borrower, entered into a second incremental term loan amendment, dated as of April 22, 2020 (the “Second Incremental Term Loan Amendment”), with Jefferies Finance LLC, as administrative agent and collateral agent, and the other financial institutions party thereto, which further amended and supplemented the Credit Agreement to provide for a $120.0 million senior secured incremental term loan (the “2020 Incremental Term Loans”). The 2020 Incremental Term Loans were fully drawn on April 22, 2020 and bear interest at a rate per annum equal to (x) LIBOR plus a margin of 8.00% per annum 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, (iii) one-month LIBOR plus 1.00% per annum and (iv) 2.00% per annum) plus a margin of 7.00% per annum. The 2020 Incremental Term Loans were incurred as a separate tranche of term loans under the Credit Agreement, and are subject to maturity, amortization and mandatory prepayment provisions consistent with the existing terms loans outstanding under the Credit Agreement. Voluntary prepayments of the 2020 Incremental Term Loans are permitted, in whole or in part, with prior notice, without premium or penalty (except LIBOR breakage costs and a make-whole and call premium, as applicable, in the case of certain prepayments or events within a specified period of time after April 22, 2020, as set forth in the Second Incremental Term Loan Amendment). In connection with the 2020 Incremental Term Loans borrowings, the Company recorded debt issuance costs and discount of $6.5 million. 10.000% Senior Unsecured Notes due 2027 |
Leases
Leases | 9 Months Ended |
Sep. 30, 2020 | |
Leases [Abstract] | |
Leases | Leases The Company's operating leases are primarily for real estate, including medical office buildings, and corporate and other administrative offices. The Company's finance leases are primarily for medical equipment and information technology and telecommunications assets. Due to the COVID-19 pandemic, the Company received concessions for certain of its leases primarily consisting of deferral of rental payments. The Company has elected to account for these COVID-19 related concessions as though the enforceable rights and obligations for those concessions are explicit within the underlying contract. The Company accounts for the deferred rentals as a component of other current liabilities within the condensed consolidated balance sheets. In a few instances the Company modified the terms of the lease in exchange for lease concessions. These modifications resulted in an increase to the Company's right-of-use operating lease assets and liabilities of $26.4 million during the nine months ended September 30, 2020, respectively. The following table presents the components of the Company's lease expense and their classification in the condensed consolidated statement of operations (in millions): Nine Months Ended September 30, 2020 2019 Operating lease costs $ 54.9 $ 50.8 Finance lease costs: Amortization of leased assets 19.0 15.3 Interest on lease liabilities 15.7 10.9 Total finance lease costs 34.7 26.2 Variable and short-term lease costs 12.6 10.6 Total lease costs $ 102.2 $ 87.6 The following table presents supplemental cash flow information (dollars in millions): Nine Months Ended September 30, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 49.8 $ 48.7 Operating cash outflows from finance leases $ 15.7 $ 10.9 Financing cash outflows from finance leases $ 12.9 $ 9.4 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 53.9 $ 48.0 Finance leases $ 11.5 $ 9.1 |
Leases | Leases The Company's operating leases are primarily for real estate, including medical office buildings, and corporate and other administrative offices. The Company's finance leases are primarily for medical equipment and information technology and telecommunications assets. Due to the COVID-19 pandemic, the Company received concessions for certain of its leases primarily consisting of deferral of rental payments. The Company has elected to account for these COVID-19 related concessions as though the enforceable rights and obligations for those concessions are explicit within the underlying contract. The Company accounts for the deferred rentals as a component of other current liabilities within the condensed consolidated balance sheets. In a few instances the Company modified the terms of the lease in exchange for lease concessions. These modifications resulted in an increase to the Company's right-of-use operating lease assets and liabilities of $26.4 million during the nine months ended September 30, 2020, respectively. The following table presents the components of the Company's lease expense and their classification in the condensed consolidated statement of operations (in millions): Nine Months Ended September 30, 2020 2019 Operating lease costs $ 54.9 $ 50.8 Finance lease costs: Amortization of leased assets 19.0 15.3 Interest on lease liabilities 15.7 10.9 Total finance lease costs 34.7 26.2 Variable and short-term lease costs 12.6 10.6 Total lease costs $ 102.2 $ 87.6 The following table presents supplemental cash flow information (dollars in millions): Nine Months Ended September 30, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 49.8 $ 48.7 Operating cash outflows from finance leases $ 15.7 $ 10.9 Financing cash outflows from finance leases $ 12.9 $ 9.4 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 53.9 $ 48.0 Finance leases $ 11.5 $ 9.1 |
Redeemable Preferred Stock
Redeemable Preferred Stock | 9 Months Ended |
Sep. 30, 2020 | |
Temporary Equity Disclosure [Abstract] | |
Redeemable Preferred Stock | Redeemable Preferred Stock On August 31, 2017, the Company issued 310,000 shares of Series A Preferred Stock to Bain Capital Private Equity, L.P. at a purchase price of $1,000 per share for an aggregate purchase price of $310.0 million. A summary of activity related to the Series A Preferred Stock follows (in millions): Balance at December 31, 2019 $ 395.0 Dividends accrued (there were no cash dividends declared) 29.2 Balance at September 30, 2020 $ 424.2 There were no unpaid cash dividends declared at both September 30, 2020 and December 31, 2019. The aggregate and per share amounts of unpaid cumulative preferred dividends as of September 30, 2020 was $98.7 million and $318.30, respectively. |
Derivatives and Hedging Activit
Derivatives and Hedging Activities | 9 Months Ended |
Sep. 30, 2020 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivatives and Hedging Activities | Derivatives and Hedging Activities The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During 2020, such derivatives have been used to hedge the variable cash flows associated with existing variable-rate debt. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income ("OCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings, as documented at hedge inception in accordance with the Company’s accounting policy election. Amounts reported in accumulated OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Over the next 12 months, the Company estimates that an additional $21.8 million will be reclassified as an increase to interest expense. As of September 30, 2020, the Company had four interest rate swaps with a notional amount of $1.2 billion and a termination date of November 30, 2023. The derivatives are recorded at fair value (see Note 1. "Organization and Summary of Accounting Policies") and classified as a long-term liability included in other long-term liabilities in the condensed consolidated balance sheets. The following table presents the pre-tax effect of the interest rate swaps on the Company's accumulated OCI and condensed consolidated statement of operations (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Derivatives in cash flow hedging relationships: Loss recognized in OCI (effective portion) $ 2.3 $ 8.5 $ 29.2 $ 39.6 Loss reclassified from accumulated OCI to interest expense (effective portion) $ 5.6 $ 1.7 $ 14.6 $ 4.5 |
Earnings Per Share
Earnings Per Share | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
Earnings Per Share | Earnings Per Share Basic and diluted earnings per share are calculated based on the weighted-average number of shares outstanding in each period and dilutive stock options, unvested shares and warrants, to the extent such securities exist and have a dilutive effect on earnings per share. The Company computes basic and diluted earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation method that determines earnings per share for common shares and participating securities according to their participation rights in dividends and undistributed earnings. A reconciliation of the numerator and denominator of basic and diluted earnings per share follows (dollars in millions, except per share amounts; shares in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net loss attributable to Surgery Partners, Inc. $ (61.6) $ (15.7) $ (121.6) $ (55.6) Less: amounts allocated to participating securities (1) (10.0) (9.1) (29.2) (26.4) Net loss attributable to common stockholders $ (71.6) $ (24.8) $ (150.8) $ (82.0) Denominator: Weighted average shares outstanding- basic and diluted (2) 48,883 48,310 48,736 48,265 Loss per share: Basic and diluted (2) $ (1.46) $ (0.51) $ (3.09) $ (1.70) Dilutive securities outstanding not included in the computation of loss per share as their effect is antidilutive: Stock options 810 — 285 — Restricted shares 986 10 848 24 (1) Includes dividends accrued during all periods for the Series A Preferred Stock. The Series A Preferred Stock does not participate in undistributed losses. (2) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive in each period. |
Other Current Liabilities
Other Current Liabilities | 9 Months Ended |
Sep. 30, 2020 | |
Balance Sheet Related Disclosures [Abstract] | |
Other Current Liabilities | Other Current Liabilities A summary of other current liabilities is as follows (in millions): September 30, December 31, Right-of-use operating lease liabilities $ 38.3 $ 37.3 Accrued legal settlement (1) 32.3 35.1 Interest payable 31.8 21.8 Amounts due to patients and payors 20.4 16.5 Accrued expenses and other 110.1 80.5 Total $ 232.9 $ 191.2 (1) See Note 10. "Commitments and Contingencies" for further discussion. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Professional, General and Workers' Compensation Liability Risks The Company is subject to claims and legal actions in the ordinary course of business, including claims relating to patient treatment, employment practices and personal injuries. The Company maintains professional, general and workers' compensation liability insurance in excess of self-insured retentions, through third party commercial insurance carriers. Although management believes the coverage is sufficient for the Company's operations, some claims may potentially exceed the scope of coverage in effect. Plaintiffs in these matters may request punitive or other damages that may not be covered by insurance. The Company is not aware of any such proceedings that are reasonably possible to have a material adverse effect on the Company's business, financial position, results of operations or liquidity. Total professional, general and workers' compensation claim liabilities as of September 30, 2020 and December 31, 2019 were $21.8 million and $19.4 million, respectively. The Company had expected insurance recoveries of $12.1 million as of both September 30, 2020 and December 31, 2019. Laws and Regulations Laws and regulations governing the Company's business, including those relating to the Medicare and Medicaid programs, are complex and subject to interpretation. These laws and regulations govern every aspect of how the Company's surgical facilities conduct their operations, from licensing requirements to how and whether the Company's facilities may receive payments pursuant to the Medicare and Medicaid programs. Compliance with such laws and regulations can be subject to future government agency review and interpretation as well as legislative changes to such laws. Noncompliance with such laws and regulations may subject the Company to significant regulatory sanctions including fines, penalties, and exclusion from the Medicare, Medicaid and other federal health care programs. From time to time, governmental regulatory agencies will conduct inquiries of the Company's practices, including, but not limited to, the Company's compliance with federal and state fraud and abuse laws, billing practices and relationships with physicians. On October 23, 2017, the Company received several civil investigative demands ("CIDs") from the federal government under the False Claims Act (the "FCA") for documents and information dating back to January 1, 2010 relating to the medical necessity of certain drug tests conducted by the Company’s physicians and submitted to laboratories owned and operated by the Company. In addition, the Company was informed by CMS that payments to its diagnostic laboratory, Logan Laboratories, LLC ("Logan Labs"), a toxicology laboratory based in Tampa, Florida, that provides urine testing services, were suspended for a period of time, pending further investigations by CMS. CMS lifted the suspension as of December 18, 2019. On January 23, 2020, the United States District Court for the Middle District of Florida unsealed the Complaint in the case of Cho et al. ex rel. United States v. Surgery Partners et al., which we understand to be related to the investigation that gave rise to the CIDs. On April 14, 2020, Logan Labs and Tampa Pain Relief Centers, Inc. ("Tampa Pain" and, together with Logan Labs, the "Companies"), a pain management medical practice based in Tampa, Florida, both indirect wholly-owned subsidiaries of the Company, entered into a settlement agreement (the "Settlement Agreement") with the United States of America, acting through the United States Department of Justice (“DOJ”) and on behalf of the Office of Inspector General of the Department of Health and Human Services ("OIG"), the Defense Health Agency, acting on behalf of the TRICARE Program, the Office of Personnel Management, as the administrator of the Federal Employees Health Benefits Program, the Office of Workers Compensation Programs of the United States Department of Labor, which administers federal workers compensation claims for federal employees, including the United States Postal Service, and the United States Department of Veterans Affairs (collectively, the "U.S. Parties") and certain other parties to resolve the pending DOJ investigation. As part of the Settlement Agreement, the DOJ asserted that certain urine tests ordered by Tampa Pain’s physicians and conducted at Tampa Pain and Logan Labs for patients receiving opioid therapy to manage pain were not medically necessary and the resulting claims submitted to the U.S. Parties violated the federal False Claims Act (the "Covered Conduct"). Under the terms of the Settlement Agreement, the Companies will pay a total of $40.0 million plus accrued interest from March 14, 2019, at the rate of 2.75% per annum to the U.S. Parties and participating states. The Settlement Amount is expected to be paid on the following schedule: the forfeiture of $7.5 million of approved, paid claims currently held in suspense by the U.S. Parties and the payment of $1.8 million plus accrued interest within 20 business days of the date of the Settlement Agreement and the payment of $30.7 million plus accrued interest on April 1, 2021. The Company previously recorded a litigation-related charge of $46.0 million relating to an anticipated resolution of the Covered Conduct on the consolidated statements of operations for the year ended December 31, 2018. During the nine months ended September 30, 2020, the Company recorded an additional litigation-related charge of $1.2 million relating to the resolution of the Covered Conduct on the condensed consolidated statement of operations. Under the Settlement Agreement, the U.S. Parties agree to release the Companies from any civil or administrative monetary liability arising from the Covered Conduct. Additionally, under the Settlement Agreement, the OIG agrees, conditioned upon the Companies’ full payment of the Settlement Amount, and in consideration of Logan Labs’ and Tampa Pain’s obligations under their respective Corporate Integrity Agreements (as defined and described below), to release its permissive exclusion rights and refrain from instituting any administrative action seeking to exclude the Companies from participating in Medicare, Medicaid or other Federal health care programs as a result of the Covered Conduct. The Settlement Agreement contains no admissions of liability on the part of the Companies or the Company. In connection with the resolution of this matter and in exchange for the OIG’s agreement not to exclude the Companies from participating in the federal health care programs, on April 14, 2020, Tampa Pain entered into a five-year corporate integrity agreement with the OIG and Logan Labs entered into a three-year corporate integrity agreement with the OIG (together, the “Corporate Integrity Agreements”). Acquired Facilities The Company, through its wholly-owned subsidiaries or controlled partnerships and limited liability companies, has acquired and will continue to acquire surgical facilities with prior operating histories. Such facilities may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations, such as billing and reimbursement laws and regulations, the Stark Law, the Anti-Kickback Statute, the FCA, and similar fraud and abuse laws. Although the Company attempts to assure that no such liabilities exist, obtain indemnification from prospective sellers covering such matters and institute policies designed to conform centers to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for past activities that may later be asserted to be improper by private plaintiffs or government agencies. There can be no assurance that any such matter will be covered by indemnification or, if covered, that the liability sustained will not exceed contractual limits or the financial capacity of the indemnifying party. The Company cannot predict whether federal or state statutory or regulatory provisions will be enacted that would prohibit or otherwise regulate relationships which the Company has established or may establish with other health care providers or have materially adverse effects on its business or revenues arising from such future actions. Management believes, however, that it will be able to adjust the Company's operations so as to be in compliance with any statutory or regulatory provision as may be applicable. Potential Physician Investor Liability A majority of the physician investors in the partnerships and limited liability companies which operate the Company's surgical facilities carry general and professional liability insurance on a claims-made basis. Each partnership or limited liability company may, however, be liable for damages to persons or property arising from occurrences at the surgical facilities. Although the various physician investors and other surgeons generally are required to obtain general and professional liability insurance with tail coverage that extends beyond the period of any claims-made policies, such individuals may not be able to obtain coverage in amounts sufficient to cover all potential liability. Since most insurance policies contain exclusions, the physician investors will not be insured against all possible occurrences. In the event of an uninsured or underinsured loss, the value of an investment in the partnership interests or limited liability company membership units and the amount of distributions could be adversely affected. Tax Receivable Agreement On May 9, 2017, the Company entered into an agreement to amend that certain Income Tax Receivable Agreement, dated September 30, 2015 (as amended, the "TRA"), by and between the Company, and the other parties referred to therein, which amendment became effective on August 31, 2017. Pursuant to the amendment to the TRA, the Company agreed to make payments to H.I.G. Capital, LLC., the Company's former controlling shareholder, in its capacity as the stockholders representative pursuant to a fixed payment schedule. The amounts payable under the TRA are calculated as the product of (i) an annual base amount and (ii) the maximum corporate federal income tax rate for the applicable year plus three percent. The amounts payable under the TRA are related to the Company’s projected realized tax savings over the next five years and are not dependent on the Company’s actual tax savings over such period. The calculation of amounts payable pursuant to the TRA is thus dependent on the maximum corporate federal income tax rate. To the extent that the Company is unable to make payments under the TRA, such payments will be deferred and will accrue interest at a rate of the LIBOR plus 500 basis points until paid. If the terms of credit agreements and other debt documents cause the Company to be unable to make payments under the TRA and such terms are not materially more restrictive than those existing as of September 30, 2015, such payments will be deferred and will accrue interest at a rate of LIBOR plus 300 basis points until paid. |
Segment Reporting
Segment Reporting | 9 Months Ended |
Sep. 30, 2020 | |
Segment Reporting [Abstract] | |
Segment Reporting | Segment Reporting The Company operates in three major lines of business that are also the Company's reportable operating segments - the operation of surgical facilities, the operation of ancillary services and the operation of optical services. The Surgical Facility Services segment consists of the operation of ASCs and surgical hospitals and includes anesthesia services. The Ancillary Services segment consists of multi-specialty physician practices and a diagnostic laboratory, which was closed during the third quarter of 2020. The Optical Services segment consists of an optical products group purchasing organization. "All other" primarily consists of the Company's corporate general and administrative functions. The following tables present financial information for each reportable segment (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Surgical Facility Services $ 478.6 $ 431.1 $ 1,262.8 $ 1,250.9 Ancillary Services 16.7 20.0 46.9 60.3 Optical Services 0.8 0.9 2.1 3.0 Total $ 496.1 $ 452.0 $ 1,311.8 $ 1,314.2 Adjusted EBITDA: Surgical Facility Services $ 82.5 $ 77.1 $ 229.7 $ 223.9 Ancillary Services (0.6) 0.9 (3.9) 3.5 Optical Services 0.4 0.4 1.0 1.3 All other (21.2) (16.2) (61.0) (54.5) Total $ 61.1 $ 62.2 $ 165.8 $ 174.2 Reconciliation of Adjusted EBITDA: (Loss) income before income taxes $ (33.0) $ 13.3 $ (61.1) $ 27.6 Net income attributable to non-controlling interests (27.3) (26.6) (75.0) (78.1) Depreciation and amortization 24.1 18.4 69.3 56.3 Interest expense, net 51.5 45.7 147.8 134.1 Equity-based compensation expense 3.0 2.7 9.9 7.6 Transaction, integration and acquisition costs (1) 7.5 5.3 30.2 16.8 Impairment charges 33.5 — 33.5 — Loss (gain) on disposals and deconsolidations, net 0.7 0.6 7.1 (7.0) Litigation settlement and other litigation costs (2) 1.1 2.8 4.9 2.8 Gain on escrow release (3) — — (0.8) — Loss on debt extinguishment — — — 11.7 Tax receivable agreement expense — — — 2.4 Adjusted EBITDA 61.1 62.2 165.8 174.2 Less: Impact of grant funds (4) 5.4 — (21.9) — Adjusted EBITDA excluding grant funds $ 66.5 $ 62.2 $ 143.9 $ 174.2 (1) This amount includes transaction and integration costs of $5.4 million and $3.4 million for the three months ended September 30, 2020 and 2019, respectively. This amount further includes other acquisition costs and start-up costs related to a de novo surgical hospital of $2.1 million and $1.9 million for the three months ended September 30, 2020 and 2019, respectively. This amount includes transaction and integration costs of $15.8 million and $11.6 million for the nine months ended September 30, 2020 and 2019, respectively. This amount further includes other acquisition costs and start-up costs related to a de novo surgical hospital of $14.4 million and $5.2 million for the nine months ended September 30, 2020 and 2019, respectively. (2) This amount includes other litigation costs of $1.1 million and $2.8 million for the three months ended September 30, 2020 and 2019, respectively. This amount includes litigation settlement costs of $1.2 million for the nine months ended September 30, 2020, with no comparable settlement costs in the same 2019 period. This amount further includes other litigation costs of $3.7 million and $2.8 million for the nine months ended September 30, 2020 and 2019, respectively. (3) Included in other income in the condensed consolidated statement of operations for the nine months ended September 30, 2020, with no comparable gain in the same 2019 period. (4) Represents the impact of grant funds recognized, net of amounts attributable to non-controlling interests. September 30, December 31, 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 Nine Months Ended September 30, 2020 2019 Cash purchases of property and equipment: Surgical Facility Services $ 24.1 $ 42.8 Ancillary Services 0.3 0.5 All other 3.4 6.9 Total cash purchases of property and equipment $ 27.8 $ 50.2 |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On October 22, 2020, HHS issued an updated Post-Payment Notice of Reporting Requirements and a Reporting Requirements Policy Update (collectively, the "October Notice") which, among other changes, provides that grant funds may be applied to patient care lost revenues, net of other reimbursed sources, up to the amount of the difference between the Company’s 2019 and 2020 actual patient care revenue. The October Notice modified the September Notice, which limited the definition of lost revenue to a year-over-year decrease in net patient operating income. As a non-recognizable subsequent event, GAAP does not permit amounts recognized as of September 30, 2020 to be updated on the basis of new information in the October Notice. The Company’s evaluation of the October Notice is ongoing and the amount of unrecognized grant funds received as of September 30, 2020 that may be recognized as a result of the October Notice is not yet known. However, based on the more favorable definition of lost revenues, the October Notice is expected to result in the recognition of additional grant funds in future periods as compared to the September Notice. During October 2020, the Company purchased an ASC and a surgical hospital in existing markets for a combined purchase price of $79.8 million. The Company funded the purchase price with proceeds from its recent divestitures and available resources. As of the date of this filing, the Company has not completed its preliminary estimation of the fair values assigned to the assets acquired and liabilities assumed. |
Organization and Summary of A_2
Organization and Summary of Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation of the Company's financial position and results of operations have been included. The Company’s fiscal year ends on December 31 and interim results are not necessarily indicative of results for a full year or any other interim period. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report on Form 10-K"). |
Principles of Consolidation | The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as interests in partnerships and limited liability companies controlled by the Company through its ownership of a majority voting interest or other rights granted to the Company by contract to manage and control the affiliate's business. All significant intercompany balances and transactions are eliminated in consolidation. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and footnotes. Examples include, but are not limited to, estimates of accounts receivable allowances, professional and general liabilities and the estimate of deferred tax assets or liabilities. Actual results could differ from those estimates. |
Variable Interest Entities | Variable Interest Entities The condensed consolidated financial statements include the accounts of variable interest entities ("VIE") in which the Company is the primary beneficiary under the provisions of the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification 810, " Consolidation |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on inputs classified into the following hierarchy: • Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These may include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, depending on the nature of the item being valued. The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, restricted invested assets and accounts payable approximate their fair values under Level 3 inputs. The fair values in the table above were based on a Level 2 inputs using quoted prices for identical liabilities in inactive markets. The carrying amounts related to the Company's other long-term debt obligations, including finance lease obligations, approximate their fair values under Level 3 inputs. The Company has entered into certain interest rate swap agreements (see Note 7. "Derivatives and Hedging Activities"). The fair value of these derivative instruments was $65.3 million and $50.7 million at September 30, 2020 and December 31, 2019, respectively, and was included in other long-term liabilities in the condensed consolidated balance sheets. The fair value of these derivative financial instruments was based on a quoted market price, or a Level 2 input. |
Revenues | Revenues The Company's revenues generally relate to contracts with patients in which the performance obligations are to provide health care services. The Company recognizes revenues in the period in which our obligations to provide health care services are satisfied and reports the amount that reflects the consideration the Company expects to be entitled to receive. The contractual relationships with patients, in most cases, also involve a third-party payor (e.g., Medicare, Medicaid and private insurance organizations, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by or negotiated with the third-party payors. The payment arrangements with third-party payors for the services provided to the related patients typically specify payments at amounts less than the Company's standard charges. The Company continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. Patient service revenues. This revenue is related to charging facility fees in exchange for providing patient care. The fee charged for health care procedures performed in surgical facilities varies depending on the type of service provided, but usually includes all charges for usage of an operating room, a recovery room, special equipment, medical supplies, nursing staff and medications. The fee does not normally include professional fees charged by the patient’s surgeon, anesthesiologist or other attending physician, which are billed directly by such physicians to the patient or third-party payor. However, in several surgical facilities, the Company charges for anesthesia services. Ancillary service revenues include fees for patient visits to the Company's physician practices, pharmacy services and diagnostic tests ordered by physicians. Patient service revenues are recognized as performance obligations are satisfied. Performance obligations are based on the nature of services provided. Typically, the Company recognizes revenue at a point in time in which services are rendered and the Company has no obligation to provide further patient services. As the Company primarily performs outpatient procedures, performance obligations are generally satisfied same day and revenue is recognized on the date of service. The Company determines the transaction price based on gross charges for services provided, net of estimated contractual adjustments and discounts from third-party payors. The Company estimates its contractual adjustments and discounts based on contractual agreements, its discount policies and historical experience. Changes in estimated contractual adjustments and discounts are recorded in the period of change. Other service revenues. Optical service revenues consist of handling charges billed to the members of the Company's optical products purchasing organization. The Company's optical products purchasing organization negotiates volume buying discounts with optical products manufacturers. The buying discounts and any handling charges billed to the members of the buying group represent the revenue recognized for financial reporting purposes. The Company satisfies the performance obligation and recognizes revenue when the orders are shipped to members. The Company bases its estimates for sales returns and discounts on historical experience and has not experienced significant fluctuations between estimated and actual return activity and discounts given. Other revenues include management and administrative service fees derived from the non-consolidated facilities that the Company accounts for under the equity method, management of surgical facilities in which it does not own an interest, and management services provided to physician practices for which the Company is not required to provide capital or additional assets. These agreements typically require the Company to provide recurring management services over a multi-year period, which are billed and collected on a monthly basis. The fees derived from these management arrangements are based on a predetermined percentage of the revenues of each facility or practice and are recognized in the period in which management services are rendered and billed. |
Cash, Cash Equivalents and Restricted Cash | Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalent balances at high credit quality financial institutions. Cash, cash equivalents and restricted cash reported within the consolidated statement of cash flows includes $0.3 million of restricted investments, which are reflected in other long-term assets in the consolidated balance sheet at both September 30, 2020 and December 31, 2019. These restricted investments represent restricted cash held in accordance with the provisions of a long-term operating lease agreement held as security for performance under the Company's covenants and obligations within the agreement through January 2024. |
Accounts Receivable | Accounts Receivable Accounts receivable from third-party payors are recorded net of estimated implicit price concessions, which are estimated based on the historical trend of the Company's surgical facilities’ cash collections and contractual write-offs, established fee schedules, relationships with payors and procedure statistics. While changes in estimated reimbursement from third-party payors remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on its financial condition or results of operations. Accounts receivable consists of receivables from federal and state agencies (under the Medicare and Medicaid programs), private insurance organizations, employers and patients. Management recognizes that revenues and receivables from government agencies are significant to the Company's operations, but it does not believe that there is significant credit risk associated with these government agencies. Concentration of credit risk with respect to other payors is limited because of the large number of such payors. As of September 30, 2020 and December 31, 2019, the Company had a net third-party Medicaid settlements liability of $15.7 million and $5.6 million, respectively, included in other current liabilities in the condensed consolidated balance sheets. The Company recognizes that final reimbursement of accounts receivable is subject to final approval by each third-party payor. However, because the Company has contracts with its third-party payors and also verifies insurance coverage of the patient before medical services are rendered, the amounts that are pending approval from third-party payors are not considered significant. Amounts are classified outside of self-pay if the Company has an agreement with the third-party payor or has verified a patient’s coverage prior to services rendered. The Company's policy is to collect co-payments and deductibles prior to providing medical services. Patient services of the Company are primarily non-emergency, which allows the surgical facilities to control the procedures for which third-party reimbursement is sought and obtained. The Company does not require collateral from self-pay patients. The Company's 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 patient accounts provide for an aging schedule in 30-day increments, by payor, physician and patient. The Company analyzes accounts receivable at each of its 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 third-party payors or patients, written correspondence and the use of legal or collection agency assistance, as required. |
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. |
Non-Controlling Interests—Redeemable | Non-Controlling Interests—Redeemable Each partnership and limited liability company through which the Company owns and operates its surgical facilities is governed by a partnership or operating agreement, respectively. In certain circumstances, the applicable partnership or operating agreements for the Company's surgical facilities provide that the facilities will purchase all of the physician limited partners’ or physician minority members’, as applicable, ownership if certain adverse regulatory events occur, such as it becoming illegal for the physician(s) to own an interest in a surgical facility, refer patients to a surgical facility or receive cash distributions from a surgical facility. The non-controlling interests — redeemable are reported outside of stockholders' equity in the condensed consolidated balance sheets. |
Income Taxes | Income Taxes The Company uses 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If a carryforward exists, the Company makes a determination as to whether the carryforward will be utilized in the future. A valuation allowance is established for certain carryforwards when their recoverability is deemed to be uncertain. The carrying value of the net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If our expectations for future operating results on a consolidated basis or at the state jurisdiction level 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. The Company and certain of its subsidiaries file a consolidated federal income tax return. The partnerships, limited liability companies, and certain non-consolidated physician practice corporations also file separate income tax returns. The Company's allocable portion of each partnership's and limited liability company's income or loss is included in taxable income of the Company. The remaining income or loss of each partnership and limited liability company is allocated to the other owners. The Company's effective tax rate was 23.7% for the nine months ended September 30, 2020 compared to 18.5% for the nine months ended September 30, 2019. The higher effective tax rate for the 2020 period was primarily due to (a) discrete tax benefits of approximately $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 10. "Commitments and Contingencies," being classified as "restitution" for income tax purposes; and (b) a discrete tax expense of approximately $5.0 million attributable to the Company's 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. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04 Reference Rate Reform (Topic 848) . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the nine months ended September 30, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Interbank Offered Rate ("LIBOR") indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses , which introduced a new model for recognizing credit losses on financial instruments based on an estimate of the current expected credit losses. The new current expected credit losses (“CECL”) model generally calls for the immediate recognition of all expected credit losses and applies to financial instruments and other assets, which is primarily applicable to accounts receivable for the Company. This ASU was effective for the Company on January 1, 2020. The adoption of this ASU did not have a material impact on its consolidated financial position and results of operations. |
Goodwill | Goodwill represents the fair value of the consideration provided in an acquisition over the fair value of net assets acquired and is not amortized. Additions to goodwill include amounts resulting from new business combinations and incremental ownership purchases in the Company's subsidiaries. The Company tests its goodwill and indefinite-lived intangible assets for impairment at least annually, as of October 1, or more frequently if certain indicators arise. The Company tests for goodwill impairment at the reporting unit level, which is defined as one level below an operating segment. A detailed evaluation of potential impairment indicators was performed as of September 30, 2020, 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 throughout the second and third quarters as states began to re-open and allow for non-emergent procedures. As of September 30, 2020, the Company has identified three reporting units, which include the following: 1) Surgical Facilities, 2) Ancillary Services, and 3) Alliance, which is a component of the Optical Services operating segment. On the basis of available evidence as of September 30, 2020, no indicators of impairment were identified for the Company's Surgical Facilities reporting unit. The Company did identify indicators of impairment related to its Ancillary Services and Alliance reporting units, including the impacts of the COVID-19 pandemic and the closure of its diagnostic laboratory (as discussed in Note 2. "Acquisitions and Disposals"). Based on the impairment indicators for these reporting units, the Company performed an impairment analysis as of September 30, 2020. The Company compares the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit. To determine the fair value of the reporting units, the Company obtained valuations at the reporting unit level prepared by third-party valuation specialists which utilized a combination of the income and market approaches. The discounted cash flow model is projected based on a year-by-year assessment that considers historical results, estimated market conditions, internal projections, and relevant publicly available statistics. Determining fair value requires the exercise of significant judgment, including assumptions about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The significant judgments are typically based upon Level 3 inputs, generally defined as unobservable inputs representing the Company's own assumptions. The cash flows employed in the discounted cash flow analysis are based on the Company's most recent budgets and business plans aligned with provided guidance and, when applicable, various growth rates are assumed for years beyond the current business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. The variables within the discount rate, many of which are outside of the Company's control, provide the best estimate of all assumptions applied within the discounted cash flow model. There can be no assurance that operations will achieve the future cash flows reflected in the projections. In determining the fair value under the market approaches, the analysis includes a control premium, which was based on observable market data and a review of selected transactions of companies that operate in the Company's sector. While the Company believes that all assumptions utilized in the testing were appropriate, they may not reflect actual outcomes that could occur. Specific factors that could negatively impact the assumptions used include changes to the discount and growth rates and a change in the equity and enterprise premiums being realized in the market. |
Organization and Summary of A_3
Organization and Summary of Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Schedule of Carrying Amounts and Fair Values of Long-Term Debt | A summary of the carrying amounts and estimated fair values of the Company's long-term debt follows (in millions): Carrying Amount Fair Value September 30, December 31, September 30, December 31, 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 |
Schedule of Revenues | A summary of revenues by service type as a percentage of total revenues follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Patient service revenues: Surgical facilities revenues 95.4 % 93.9 % 95.0 % 94.0 % Ancillary services revenues 3.4 % 4.4 % 3.6 % 4.6 % 98.8 % 98.3 % 98.6 % 98.6 % Other service revenues: Optical services revenues 0.2 % 0.2 % 0.2 % 0.2 % Other revenues 1.0 % 1.5 % 1.2 % 1.2 % 1.2 % 1.7 % 1.4 % 1.4 % Total revenues 100.0 % 100.0 % 100.0 % 100.0 % The following table sets forth patient service revenues by type of payor and as a percentage of total patient service revenues for the Company's consolidated surgical facilities (dollars in millions): 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 |
Schedule of Rollforward of Noncontrolling Interest - Redeemable | A summary of activity related to non-controlling interests—redeemable for the nine months ended September 30, 2020 and 2019 is as follows (in millions): 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 |
Acquisitions and Disposals (Tab
Acquisitions and Disposals (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Business Combinations [Abstract] | |
Schedule of Assets Acquired and Liabilities Assumed | The aggregate amounts preliminarily recognized for each major class of assets acquired and liabilities assumed for the acquisitions are as follows (in millions): 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 |
Goodwill (Tables)
Goodwill (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Rollforward of Goodwill | A summary of activity related to goodwill for the nine months ended September 30, 2020 is as follows (in millions): 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 |
Long-Term Debt (Tables)
Long-Term Debt (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Debt Disclosure [Abstract] | |
Summary of Long-term Debt | A summary of long-term debt follows (in millions): September 30, December 31, 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 (1) Includes unamortized fair value discount of $3.9 million and $4.6 million as of September 30, 2020 and |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Leases [Abstract] | |
Schedule of Lease Expense and Cash Flow Information | The following table presents the components of the Company's lease expense and their classification in the condensed consolidated statement of operations (in millions): Nine Months Ended September 30, 2020 2019 Operating lease costs $ 54.9 $ 50.8 Finance lease costs: Amortization of leased assets 19.0 15.3 Interest on lease liabilities 15.7 10.9 Total finance lease costs 34.7 26.2 Variable and short-term lease costs 12.6 10.6 Total lease costs $ 102.2 $ 87.6 The following table presents supplemental cash flow information (dollars in millions): Nine Months Ended September 30, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 49.8 $ 48.7 Operating cash outflows from finance leases $ 15.7 $ 10.9 Financing cash outflows from finance leases $ 12.9 $ 9.4 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 53.9 $ 48.0 Finance leases $ 11.5 $ 9.1 |
Redeemable Preferred Stock (Tab
Redeemable Preferred Stock (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Temporary Equity Disclosure [Abstract] | |
Activity Related to Redeemable Preferred Stock | A summary of activity related to the Series A Preferred Stock follows (in millions): Balance at December 31, 2019 $ 395.0 Dividends accrued (there were no cash dividends declared) 29.2 Balance at September 30, 2020 $ 424.2 |
Derivatives and Hedging Activ_2
Derivatives and Hedging Activities (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Schedule of Effect of Interest Rate Swaps | The following table presents the pre-tax effect of the interest rate swaps on the Company's accumulated OCI and condensed consolidated statement of operations (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Derivatives in cash flow hedging relationships: Loss recognized in OCI (effective portion) $ 2.3 $ 8.5 $ 29.2 $ 39.6 Loss reclassified from accumulated OCI to interest expense (effective portion) $ 5.6 $ 1.7 $ 14.6 $ 4.5 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
Schedule of Earnings Per Share, Basic and Diluted | A reconciliation of the numerator and denominator of basic and diluted earnings per share follows (dollars in millions, except per share amounts; shares in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net loss attributable to Surgery Partners, Inc. $ (61.6) $ (15.7) $ (121.6) $ (55.6) Less: amounts allocated to participating securities (1) (10.0) (9.1) (29.2) (26.4) Net loss attributable to common stockholders $ (71.6) $ (24.8) $ (150.8) $ (82.0) Denominator: Weighted average shares outstanding- basic and diluted (2) 48,883 48,310 48,736 48,265 Loss per share: Basic and diluted (2) $ (1.46) $ (0.51) $ (3.09) $ (1.70) Dilutive securities outstanding not included in the computation of loss per share as their effect is antidilutive: Stock options 810 — 285 — Restricted shares 986 10 848 24 (1) Includes dividends accrued during all periods for the Series A Preferred Stock. The Series A Preferred Stock does not participate in undistributed losses. (2) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive in each period. |
Other Current Liabilities (Tabl
Other Current Liabilities (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Balance Sheet Related Disclosures [Abstract] | |
Summary of Other Current Liabilities | A summary of other current liabilities is as follows (in millions): September 30, December 31, Right-of-use operating lease liabilities $ 38.3 $ 37.3 Accrued legal settlement (1) 32.3 35.1 Interest payable 31.8 21.8 Amounts due to patients and payors 20.4 16.5 Accrued expenses and other 110.1 80.5 Total $ 232.9 $ 191.2 (1) See Note 10. "Commitments and Contingencies" for further discussion. |
Segment Reporting (Tables)
Segment Reporting (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Segment Reporting [Abstract] | |
Schedule of Segment Revenue and Operating Income | The following tables present financial information for each reportable segment (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Surgical Facility Services $ 478.6 $ 431.1 $ 1,262.8 $ 1,250.9 Ancillary Services 16.7 20.0 46.9 60.3 Optical Services 0.8 0.9 2.1 3.0 Total $ 496.1 $ 452.0 $ 1,311.8 $ 1,314.2 Adjusted EBITDA: Surgical Facility Services $ 82.5 $ 77.1 $ 229.7 $ 223.9 Ancillary Services (0.6) 0.9 (3.9) 3.5 Optical Services 0.4 0.4 1.0 1.3 All other (21.2) (16.2) (61.0) (54.5) Total $ 61.1 $ 62.2 $ 165.8 $ 174.2 Reconciliation of Adjusted EBITDA: (Loss) income before income taxes $ (33.0) $ 13.3 $ (61.1) $ 27.6 Net income attributable to non-controlling interests (27.3) (26.6) (75.0) (78.1) Depreciation and amortization 24.1 18.4 69.3 56.3 Interest expense, net 51.5 45.7 147.8 134.1 Equity-based compensation expense 3.0 2.7 9.9 7.6 Transaction, integration and acquisition costs (1) 7.5 5.3 30.2 16.8 Impairment charges 33.5 — 33.5 — Loss (gain) on disposals and deconsolidations, net 0.7 0.6 7.1 (7.0) Litigation settlement and other litigation costs (2) 1.1 2.8 4.9 2.8 Gain on escrow release (3) — — (0.8) — Loss on debt extinguishment — — — 11.7 Tax receivable agreement expense — — — 2.4 Adjusted EBITDA 61.1 62.2 165.8 174.2 Less: Impact of grant funds (4) 5.4 — (21.9) — Adjusted EBITDA excluding grant funds $ 66.5 $ 62.2 $ 143.9 $ 174.2 (1) This amount includes transaction and integration costs of $5.4 million and $3.4 million for the three months ended September 30, 2020 and 2019, respectively. This amount further includes other acquisition costs and start-up costs related to a de novo surgical hospital of $2.1 million and $1.9 million for the three months ended September 30, 2020 and 2019, respectively. This amount includes transaction and integration costs of $15.8 million and $11.6 million for the nine months ended September 30, 2020 and 2019, respectively. This amount further includes other acquisition costs and start-up costs related to a de novo surgical hospital of $14.4 million and $5.2 million for the nine months ended September 30, 2020 and 2019, respectively. (2) This amount includes other litigation costs of $1.1 million and $2.8 million for the three months ended September 30, 2020 and 2019, respectively. This amount includes litigation settlement costs of $1.2 million for the nine months ended September 30, 2020, with no comparable settlement costs in the same 2019 period. This amount further includes other litigation costs of $3.7 million and $2.8 million for the nine months ended September 30, 2020 and 2019, respectively. (3) Included in other income in the condensed consolidated statement of operations for the nine months ended September 30, 2020, with no comparable gain in the same 2019 period. (4) Represents the impact of grant funds recognized, net of amounts attributable to non-controlling interests. |
Reconciliation of Assets from Segment to Consolidated | September 30, December 31, 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 |
Schedule of Financial Information by Reportable Segment | Nine Months Ended September 30, 2020 2019 Cash purchases of property and equipment: Surgical Facility Services $ 24.1 $ 42.8 Ancillary Services 0.3 0.5 All other 3.4 6.9 Total cash purchases of property and equipment $ 27.8 $ 50.2 |
Organization and Summary of A_4
Organization and Summary of Accounting Policies - Organization (Details) | Sep. 30, 2020surgical_facilitiesstate |
Products And Services [Line Items] | |
Number of surgical facilities owned | 126 |
Number of states in which entity operates | state | 30 |
Number of surgical facilities owned, majority interest | 84 |
Number of surgical facilities owned, consolidated | 106 |
Facilities, Ambulatory Surgery Centers | |
Products And Services [Line Items] | |
Number of surgical facilities owned | 110 |
Facilities, Surgical Hospitals | |
Products And Services [Line Items] | |
Number of surgical facilities owned | 16 |
Organization and Summary of A_5
Organization and Summary of Accounting Policies - CARES ACT (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Jun. 30, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Proceeds from grants received | $ 5,000,000 | $ 53,000,000 | |||
Grant funds | (9,900,000) | $ 0 | $ 43,100,000 | 33,200,000 | $ 0 |
Accelerated payments | 0 | 120,000,000 | |||
Deferred accrued payroll and benefits | $ 7,300,000 | $ 7,300,000 |
Organization and Summary of A_6
Organization and Summary of Accounting Policies - Variable Interest Entities (Details) $ in Millions | Sep. 30, 2020USD ($) | Sep. 30, 2020surgical_facilities | Sep. 30, 2020physician_practice | Dec. 31, 2019USD ($) |
Variable Interest Entity [Line Items] | ||||
Number of facilities included in VIE | 4 | 3 | ||
Assets | $ 5,312.9 | $ 5,018.9 | ||
Variable Interest Entity, Primary Beneficiary | ||||
Variable Interest Entity [Line Items] | ||||
Assets | 28.2 | 36.2 | ||
Liabilities | $ 22.2 | $ 25.2 |
Organization and Summary of A_7
Organization and Summary of Accounting Policies - Carrying Amount and Fair Value of Long-Term Debt (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Jul. 30, 2020 | Dec. 31, 2019 |
Secured Debt | Senior secured term loan | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | $ 1,543.1 | $ 1,434.1 | |
Secured Debt | Senior secured term loan | Carrying Amount | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | 1,543.1 | 1,434.1 | |
Secured Debt | Senior secured term loan | Fair Value | Fair Value, Inputs, Level 2 | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | 1,455.2 | 1,434.1 | |
Senior Notes | 6.750% senior unsecured notes due 2025 | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | $ 370 | 370 | |
Stated interest rate | 6.75% | ||
Senior Notes | 6.750% senior unsecured notes due 2025 | Carrying Amount | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | $ 370 | 370 | |
Senior Notes | 6.750% senior unsecured notes due 2025 | Fair Value | Fair Value, Inputs, Level 2 | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | 363.1 | 368.2 | |
Senior Notes | 10.000% senior unsecured notes due 2027 | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | $ 545 | 430 | |
Stated interest rate | 10.00% | 10.00% | |
Senior Notes | 10.000% senior unsecured notes due 2027 | Carrying Amount | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | $ 545 | 430 | |
Senior Notes | 10.000% senior unsecured notes due 2027 | Fair Value | Fair Value, Inputs, Level 2 | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Long-term debt | $ 577 | $ 471.4 |
Organization and Summary of A_8
Organization and Summary of Accounting Policies - Fair Value of Financial Instruments, Narrative (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Interest rate swap agreement | $ 65.3 | $ 50.7 |
Organization and Summary of A_9
Organization and Summary of Accounting Policies - Schedule of Revenues by Service Type (Details) - Revenue Source - Revenue | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Revenue from External Customer [Line Items] | ||||
Service revenues as a percentage of total revenues | 100.00% | 100.00% | 100.00% | 100.00% |
Patent service revenues | ||||
Revenue from External Customer [Line Items] | ||||
Service revenues as a percentage of total revenues | 98.80% | 98.30% | 98.60% | 98.60% |
Surgical Facility Services | ||||
Revenue from External Customer [Line Items] | ||||
Service revenues as a percentage of total revenues | 95.40% | 93.90% | 95.00% | 94.00% |
Ancillary Services | ||||
Revenue from External Customer [Line Items] | ||||
Service revenues as a percentage of total revenues | 3.40% | 4.40% | 3.60% | 4.60% |
Other service revenues | ||||
Revenue from External Customer [Line Items] | ||||
Service revenues as a percentage of total revenues | 1.20% | 1.70% | 1.40% | 1.40% |
Optical services revenues | ||||
Revenue from External Customer [Line Items] | ||||
Service revenues as a percentage of total revenues | 0.20% | 0.20% | 0.20% | 0.20% |
Other revenues | ||||
Revenue from External Customer [Line Items] | ||||
Service revenues as a percentage of total revenues | 1.00% | 1.50% | 1.20% | 1.20% |
Organization and Summary of _10
Organization and Summary of Accounting Policies - Schedule of Revenues by Sources (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 496.1 | $ 452 | $ 1,311.8 | $ 1,314.2 |
Total patient service revenues | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 489.8 | $ 444.5 | $ 1,293.5 | $ 1,294.8 |
Total patient service revenues | Customer | Revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Service revenues as a percentage of total revenues | 100.00% | 100.00% | 100.00% | 100.00% |
Private insurance | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 257.4 | $ 236.3 | $ 682.6 | $ 682.1 |
Private insurance | Customer | Revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Service revenues as a percentage of total revenues | 52.60% | 53.20% | 52.80% | 52.70% |
Government | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 188.8 | $ 175.4 | $ 505.4 | $ 518.4 |
Government | Customer | Revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Service revenues as a percentage of total revenues | 38.50% | 39.50% | 39.10% | 40.00% |
Self-pay | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 19.4 | $ 11.8 | $ 43.4 | $ 32.1 |
Self-pay | Customer | Revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Service revenues as a percentage of total revenues | 4.00% | 2.70% | 3.40% | 2.50% |
Other | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 24.2 | $ 21 | $ 62.1 | $ 62.2 |
Other | Customer | Revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Service revenues as a percentage of total revenues | 4.90% | 4.60% | 4.70% | 4.80% |
Optical services revenues | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 0.9 | $ 0.9 | $ 2.2 | $ 3 |
Other revenues | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 5.4 | $ 6.6 | $ 16.1 | $ 16.4 |
Organization and Summary of _11
Organization and Summary of Accounting Policies - Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Restricted invested assets included in other long-term assets | $ 0.3 | $ 0.3 |
Organization and Summary of _12
Organization and Summary of Accounting Policies - Accounts Receivable (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Third-party Medicaid settlement liability | $ 15.7 | $ 5.6 |
Optical products receivable | $ 9.7 | $ 8.6 |
Organization and Summary of _13
Organization and Summary of Accounting Policies - Schedule of Non-Controlling Interests - Redeemable (Details) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Non-Controlling Interests - Redeemable [Roll Forward] | ||
Balance at beginning of period | $ 321 | $ 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 |
Organization and Summary of _14
Organization and Summary of Accounting Policies - Income Taxes (Details) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Effective tax rate | 23.70% | 18.50% |
Discrete tax benefit related to CARES Act | $ 6.9 | |
Discrete tax benefit related to tax settlement | 5 | |
Discrete tax expense attributable to impairment of goodwill | $ 5 |
Acquisitions and Disposals - Ac
Acquisitions and Disposals - Acquisitions (Details) $ in Millions | 9 Months Ended | ||
Sep. 30, 2020USD ($)surgery_center | Sep. 30, 2019USD ($) | Dec. 31, 2019USD ($) | |
Business Acquisition [Line Items] | |||
Payments for acquisitions, net of cash acquired | $ 14.2 | $ 13.8 | |
Net assets acquired: | |||
Goodwill | 3,344.6 | $ 3,402.4 | |
Surgical Facilities | |||
Business Acquisition [Line Items] | |||
Payments for acquisitions, net of cash acquired | 14.2 | ||
Noncash consideration | 3.2 | ||
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) | ||
Long-term debt, less current maturities | (4.6) | ||
Right-of-use operating lease liabilities | (10.3) | ||
Aggregate acquisition date fair value | $ 25.3 | ||
Surgical Facilities, New Market | |||
Business Acquisition [Line Items] | |||
Number of facilities acquired | surgery_center | 1 | ||
Surgical Facilities, Existing Markets | |||
Business Acquisition [Line Items] | |||
Number of facilities acquired | surgery_center | 4 |
Acquisitions and Disposals - Di
Acquisitions and Disposals - Disposals (Details) $ in Millions | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2020USD ($) | Sep. 30, 2020USD ($)surgery_center | Sep. 30, 2019USD ($) | |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Proceeds from disposals of facilities and other assets | $ 48.3 | $ 17.6 | |
Surgery Centers | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Number of surgery centers sold | surgery_center | 2 | ||
Proceeds from disposals of facilities and other assets | $ 9.4 | ||
Pre-tax gain (loss) | (3.1) | ||
Certain Assets Related to Anesthesia Business | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Proceeds from disposals of facilities and other assets | 38.9 | ||
Pre-tax gain (loss) | $ 5.1 | 5.1 | |
Diagnostic Laboratory | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Pre-tax gain (loss) | $ (3.5) | $ (3.5) |
Goodwill - Narrative (Details)
Goodwill - Narrative (Details) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)reporting_unit | Sep. 30, 2019USD ($) | |
Accounting Policies [Abstract] | ||||
Number of reporting units | reporting_unit | 3 | |||
Goodwill [Line Items] | ||||
Impairment charges | $ 33.5 | $ 0 | $ 33.5 | $ 0 |
Ancillary Services | ||||
Goodwill [Line Items] | ||||
Impairment charges | 28.6 | |||
Alliance | ||||
Goodwill [Line Items] | ||||
Impairment charges | $ 4.9 |
Goodwill - Rollforward of Goodw
Goodwill - Rollforward of Goodwill (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Goodwill [Roll Forward] | ||||
Goodwill, beginning of period | $ 3,402.4 | |||
Acquisitions, including post acquisition adjustments | 24.9 | |||
Divestitures | (49.2) | |||
Impairment charges | $ (33.5) | $ 0 | (33.5) | $ 0 |
Goodwill, end of period | $ 3,344.6 | $ 3,344.6 |
Long-Term Debt - Summary of Lon
Long-Term Debt - Summary of Long-Term Debt (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Jul. 30, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | |||
Finance Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List] | us-gaap:LongTermDebtAndCapitalLeaseObligations | us-gaap:LongTermDebtAndCapitalLeaseObligations | |
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 | |
Total long-term debt | 2,761.3 | 2,524.7 | |
Secured Debt | Senior secured term loan | |||
Debt Instrument [Line Items] | |||
Long-term debt | 1,543.1 | 1,434.1 | |
Unamortized fair value discount (premium) | (3.9) | 4.6 | |
Secured Debt | Senior secured revolving credit facility | |||
Debt Instrument [Line Items] | |||
Long-term debt | 0 | 0 | |
Senior Notes | 6.750% senior unsecured notes due 2025 | |||
Debt Instrument [Line Items] | |||
Long-term debt | $ 370 | 370 | |
Stated interest rate | 6.75% | ||
Senior Notes | 10.000% senior unsecured notes due 2027 | |||
Debt Instrument [Line Items] | |||
Long-term debt | $ 545 | 430 | |
Less: unamortized debt issuance costs, discount and premium, net | $ (1) | ||
Stated interest rate | 10.00% | 10.00% | |
Notes payable and other secured loans | |||
Debt Instrument [Line Items] | |||
Long-term debt | $ 138.4 | $ 104 |
Long-Term Debt - Narrative (Det
Long-Term Debt - Narrative (Details) - USD ($) | Apr. 22, 2020 | Sep. 30, 2020 | Jul. 30, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | ||||
Debt issuance costs and discount, net of issuance premium | $ 16,800,000 | $ 10,800,000 | ||
Federal Funds Rate | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, basis spread on variable rate | 3.00% | |||
2020 Incremental Term Loans | ||||
Debt Instrument [Line Items] | ||||
Maximum borrowing capacity | $ 120,000,000 | |||
Alternate base rate, floor | 2.00% | |||
Debt issuance costs and discount, net of issuance premium | $ 6,500,000 | |||
2020 Incremental Term Loans | LIBOR | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, basis spread on variable rate | 8.00% | |||
2020 Incremental Term Loans | Federal Funds Rate | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, basis spread on variable rate | 0.50% | |||
2020 Incremental Term Loans | One-month LIBOR | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, basis spread on variable rate | 1.00% | |||
2020 Incremental Term Loans | Base Rate | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, basis spread on variable rate | 7.00% | |||
10.000% senior unsecured notes due 2027 | Senior Notes | ||||
Debt Instrument [Line Items] | ||||
Debt issuance costs and discount, net of issuance premium | $ 1,000,000 | |||
Stated interest rate | 10.00% | 10.00% | ||
Face value of debt issued | $ 115,000,000 | |||
Percentage of principal | 100.75% | |||
Revolving Credit Facility | ||||
Debt Instrument [Line Items] | ||||
Availability on line of credit instrument | $ 112,500,000 | |||
Letter of Credit | ||||
Debt Instrument [Line Items] | ||||
Availability on line of credit instrument | $ 7,500,000 |
Leases - Components of Right-of
Leases - Components of Right-of-us Assets and Liabilities Related to Leases (Details) $ in Millions | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Leases [Abstract] | |
Increase in right-of-use operating lease assets | $ 26.4 |
Increase in operating lease liabilities | $ 26.4 |
Leases - Lease Expense and Cash
Leases - Lease Expense and Cash Flow Information (Details) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Leases [Abstract] | ||
Operating lease costs | $ 54.9 | $ 50.8 |
Finance lease costs: | ||
Amortization of leased assets | 19 | 15.3 |
Interest on lease liabilities | 15.7 | 10.9 |
Total finance lease costs | 34.7 | 26.2 |
Variable and short-term lease costs | 12.6 | 10.6 |
Total lease costs | 102.2 | 87.6 |
Cash paid for amounts included in the measurement of lease liabilities: | ||
Operating cash outflows from operating leases | 49.8 | 48.7 |
Operating cash outflows from finance leases | 15.7 | 10.9 |
Financing cash outflows from finance leases | 12.9 | 9.4 |
Right-of-use assets obtained in exchange for operating lease obligations | 53.9 | 48 |
Right-of-use assets obtained in exchange for finance lease obligations | $ 11.5 | $ 9.1 |
Redeemable Preferred Stock - Ad
Redeemable Preferred Stock - Additional Information (Details) - USD ($) | Aug. 31, 2017 | Sep. 30, 2020 | Dec. 31, 2019 |
Temporary Equity [Line Items] | |||
Dividends payable | $ 0 | $ 0 | |
Series A Preferred Stock | |||
Temporary Equity [Line Items] | |||
Cumulative preferred dividends | $ 98,700,000 | ||
Preferred dividends payable (in USD per share) | $ 318.30 | ||
Bain Capital Private Equity, L.P. | Series A Preferred Stock | |||
Temporary Equity [Line Items] | |||
Stock issued during period (shares) | 310,000 | ||
Purchase price per share (in USD per share) | $ 1,000 | ||
Proceeds from issuance of preferred shares | $ 310,000,000 |
Redeemable Preferred Stock - Re
Redeemable Preferred Stock - Redeemable Preferred Stock Activity (Details) $ / shares in Units, $ in Millions | 9 Months Ended |
Sep. 30, 2020USD ($)$ / shares | |
Increase (Decrease) in Temporary Equity [Roll Forward] | |
Beginning balance | $ 395 |
Dividends declared (in USD per share) | $ / shares | $ 0 |
Ending balance | $ 424.2 |
Series A Preferred Stock | |
Increase (Decrease) in Temporary Equity [Roll Forward] | |
Beginning balance | 395 |
Dividends accrued (there were no cash dividends declared) | 29.2 |
Ending balance | $ 424.2 |
Derivatives and Hedging Activ_3
Derivatives and Hedging Activities (Details) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020USD ($)swap | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)swap | Sep. 30, 2019USD ($) | |
Reclassification Adjustment out of Accumulated Other Comprehensive Income on Derivatives [Line Items] | ||||
Cash Flow Hedge Gain (Loss) to be Reclassified within Twelve Months | $ 21.8 | |||
Number of interest rate swaps | swap | 4 | 4 | ||
Loss recognized in OCI (effective portion) | $ 2.3 | $ 8.5 | $ 29.2 | $ 39.6 |
Loss reclassified from accumulated OCI to interest expense (effective portion) | 5.6 | $ 1.7 | 14.6 | $ 4.5 |
Interest Rate Swap | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income on Derivatives [Line Items] | ||||
Derivative notional amount | $ 1,200 | $ 1,200 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Numerator: | ||||
Net loss attributable to Surgery Partners, Inc. | $ (61.6) | $ (15.7) | $ (121.6) | $ (55.6) |
Less: Amounts attributable to participating securities | (10) | (9.1) | (29.2) | (26.4) |
Net loss attributable to common stockholders | $ (71.6) | $ (24.8) | $ (150.8) | $ (82) |
Denominator: | ||||
Weighted average shares outstanding- basic and diluted (shares) | 48,883 | 48,310 | 48,736 | 48,265 |
Loss per share: | ||||
Basic and diluted (in USD per share) | $ (1.46) | $ (0.51) | $ (3.09) | $ (1.70) |
Stock options | ||||
Loss per share: | ||||
Dilutive securities outstanding not included in the computation of loss per share as their effect is antidilutive (shares) | 810 | 0 | 285 | 0 |
Restricted shares | ||||
Loss per share: | ||||
Dilutive securities outstanding not included in the computation of loss per share as their effect is antidilutive (shares) | 986 | 10 | 848 | 24 |
Other Current Liabilities - Oth
Other Current Liabilities - Other Current Liabilities (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Balance Sheet Related Disclosures [Abstract] | ||
Right-of-use operating lease liabilities | $ 38.3 | $ 37.3 |
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List] | us-gaap:OtherLiabilitiesCurrent | us-gaap:OtherLiabilitiesCurrent |
Accrued legal settlement | $ 32.3 | $ 35.1 |
Interest payable | 31.8 | 21.8 |
Amounts due to patients and payors | 20.4 | 16.5 |
Accrued expenses and other | 110.1 | 80.5 |
Total | $ 232.9 | $ 191.2 |
Commitments and Contingencies (
Commitments and Contingencies (Details) | Apr. 01, 2021USD ($) | Apr. 14, 2020USD ($)business_day | May 12, 2020USD ($) | Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Dec. 31, 2018USD ($) | Dec. 31, 2019USD ($) |
Guarantor Obligations [Line Items] | |||||||||
Professional, general and workers' compensation insurance reserve | $ 21,800,000 | $ 21,800,000 | $ 19,400,000 | ||||||
Expected insurance recoveries | 12,100,000 | 12,100,000 | 12,100,000 | ||||||
Payment under settlement agreement | $ 40,000,000 | $ 1,800,000 | |||||||
Interest rate | 2.75% | ||||||||
Approved paid claims | $ 7,500,000 | ||||||||
Payment schedule, initial payment, number of business days post Settlement Agreement date | business_day | 20 | ||||||||
Litigation settlement | 0 | $ 0 | $ 1,200,000 | $ 0 | $ 46,000,000 | ||||
Projected tax savings period | 5 years | ||||||||
Federal effective tax rate | 24.00% | ||||||||
Long-term tax receivable agreement liability | 60,100,000 | $ 60,100,000 | 60,100,000 | ||||||
Net long-term tax receivable agreement liability | 52,500,000 | 52,500,000 | 48,700,000 | ||||||
Current portion of tax liability | $ 16,900,000 | $ 16,900,000 | $ 16,900,000 | ||||||
Federal Funds Rate | |||||||||
Guarantor Obligations [Line Items] | |||||||||
Debt instrument, basis spread on variable rate | 3.00% | ||||||||
Collaborative tax agreement, basis spread on variable rate | 3.00% | ||||||||
LIBOR | Materially More Restrictive | |||||||||
Guarantor Obligations [Line Items] | |||||||||
Debt instrument, basis spread on variable rate | 5.00% | ||||||||
LIBOR | Not Materially More Restrictive | |||||||||
Guarantor Obligations [Line Items] | |||||||||
Debt instrument, basis spread on variable rate | 3.00% | ||||||||
Tampa Pain | |||||||||
Guarantor Obligations [Line Items] | |||||||||
Corporate integrity agreement term | 5 years | ||||||||
Logan Labs | |||||||||
Guarantor Obligations [Line Items] | |||||||||
Corporate integrity agreement term | 3 years | ||||||||
Forecast | |||||||||
Guarantor Obligations [Line Items] | |||||||||
Payment under settlement agreement | $ 30,700,000 |
Segment Reporting - Revenues an
Segment Reporting - Revenues and Operating Income by Reportable Segment (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)segment | Sep. 30, 2019USD ($) | Dec. 31, 2018USD ($) | |
Segment Reporting [Abstract] | |||||
Number of operating segments | segment | 3 | ||||
Segment Reporting Information [Line Items] | |||||
Revenues | $ 496,100,000 | $ 452,000,000 | $ 1,311,800,000 | $ 1,314,200,000 | |
Adjusted EBITDA | 61,100,000 | 62,200,000 | 165,800,000 | 174,200,000 | |
Reconciliation of Adjusted EBITDA: | |||||
(Loss) income before income taxes | (33,000,000) | 13,300,000 | (61,100,000) | 27,600,000 | |
Net income attributable to non-controlling interests | (27,300,000) | (26,600,000) | (75,000,000) | (78,100,000) | |
Depreciation and amortization | 24,100,000 | 18,400,000 | 69,300,000 | 56,300,000 | |
Interest expense, net | 51,500,000 | 45,700,000 | 147,800,000 | 134,100,000 | |
Equity-based compensation expense | 3,000,000 | 2,700,000 | 9,900,000 | 7,600,000 | |
Transaction, integration and practice acquisition costs | 7,500,000 | 5,300,000 | 30,200,000 | 16,800,000 | |
Impairment charges | 33,500,000 | 0 | 33,500,000 | 0 | |
Loss (gain) on disposals and deconsolidations, net | 700,000 | 600,000 | 7,100,000 | (7,000,000) | |
Litigation settlement and other litigation costs | 1,100,000 | 2,800,000 | 4,900,000 | 2,800,000 | |
Gain on escrow release | 0 | 0 | (800,000) | 0 | |
Loss on debt extinguishment | 0 | 0 | 0 | 11,700,000 | |
Tax receivable agreement expense | 0 | 0 | 0 | 2,400,000 | |
Impact of grant funds | 5,400,000 | 0 | (21,900,000) | 0 | |
Adjusted EBITDA excluding grant funds | 66,500,000 | 62,200,000 | 143,900,000 | 174,200,000 | |
Transaction and integration costs | 5,400,000 | 3,400,000 | 15,800,000 | 11,600,000 | |
Acquisition costs | 2,100,000 | 1,900,000 | 14,400,000 | 5,200,000 | |
Other litigation costs | 1,100,000 | 2,800,000 | 3,700,000 | 2,800,000 | |
Litigation settlement | 0 | 0 | 1,200,000 | 0 | $ 46,000,000 |
Operating Segments | Surgical Facility Services | |||||
Segment Reporting Information [Line Items] | |||||
Revenues | 478,600,000 | 431,100,000 | 1,262,800,000 | 1,250,900,000 | |
Adjusted EBITDA | 82,500,000 | 77,100,000 | 229,700,000 | 223,900,000 | |
Operating Segments | Ancillary Services | |||||
Segment Reporting Information [Line Items] | |||||
Revenues | 16,700,000 | 20,000,000 | 46,900,000 | 60,300,000 | |
Adjusted EBITDA | (600,000) | 900,000 | (3,900,000) | 3,500,000 | |
Operating Segments | Optical services revenues | |||||
Segment Reporting Information [Line Items] | |||||
Revenues | 800,000 | 900,000 | 2,100,000 | 3,000,000 | |
Adjusted EBITDA | 400,000 | 400,000 | 1,000,000 | 1,300,000 | |
All other | |||||
Segment Reporting Information [Line Items] | |||||
Adjusted EBITDA | $ (21,200,000) | $ (16,200,000) | $ (61,000,000) | $ (54,500,000) |
Segment Reporting - Assets and
Segment Reporting - Assets and Cash Purchases of Property and Equipment by Operating Segment (Details) - USD ($) $ in Millions | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Segment Reporting Information [Line Items] | |||
Total assets | $ 5,312.9 | $ 5,018.9 | |
Total cash purchases of property and equipment | 27.8 | $ 50.2 | |
Operating Segments | Surgical Facility Services | |||
Segment Reporting Information [Line Items] | |||
Total assets | 4,745 | 4,580.4 | |
Total cash purchases of property and equipment | 24.1 | 42.8 | |
Operating Segments | Ancillary Services | |||
Segment Reporting Information [Line Items] | |||
Total assets | 34.8 | 69.6 | |
Total cash purchases of property and equipment | 0.3 | 0.5 | |
Operating Segments | Optical services revenues | |||
Segment Reporting Information [Line Items] | |||
Total assets | 14.2 | 17.7 | |
All other | |||
Segment Reporting Information [Line Items] | |||
Total assets | 518.9 | $ 351.2 | |
Total cash purchases of property and equipment | $ 3.4 | $ 6.9 |
Subsequent Events (Details)
Subsequent Events (Details) $ in Millions | 1 Months Ended | 9 Months Ended |
Oct. 31, 2020USD ($)surgery_center | Sep. 30, 2020surgery_center | |
Surgical Facilities, Existing Markets | ||
Subsequent Event [Line Items] | ||
Number of facilities acquired | 4 | |
Subsequent Event | ASC and Surgical Facility, Existing Markets | ||
Subsequent Event [Line Items] | ||
Combined purchase price | $ | $ 79.8 | |
Subsequent Event | ASC, Existing Markets | ||
Subsequent Event [Line Items] | ||
Number of facilities acquired | 1 | |
Subsequent Event | Surgical Facilities, Existing Markets | ||
Subsequent Event [Line Items] | ||
Number of facilities acquired | 1 |