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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
Form 10-Q
_____________________________________
(Mark One)
☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:  001-37576
_____________________________________
Surgery Partners, Inc.
(Exact name of registrant as specified in its charter)
_____________________________________
Delaware 47-3620923
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
340 Seven Springs Way, Suite 600
Brentwood, Tennessee
 37027
(Address of Principal Executive Offices)
(Zip Code)

(615) 234-5900
(Registrant’s telephone number, including area code)
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSGRYThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒ No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ☒
 
Accelerated filer ☐
Non-accelerated filer ☐
 
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No  ☒
As of October 31, 2023, there were 126,493,279 shares of the registrant’s common stock outstanding.


SURGERY PARTNERS, INC.
FORM 10-Q
TABLE OF CONTENTS
Page


Table of Contents
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)

(Unaudited)
September 30,
2023		December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents$236.0 $282.9 
Accounts receivable
462.8 456.3 
Inventories69.4 71.4 
Prepaid expenses34.7 31.4 
Other current assets73.3 79.0 
Total current assets876.2 921.0 
Property and equipment, net of accumulated depreciation of $425.5 and $374.3, respectively
939.7 876.6 
Goodwill and other intangible assets, net4,301.0 4,179.4 
Investments in and advances to affiliates196.3 190.3 
Right-of-use operating lease assets244.5 279.1 
Long-term deferred tax assets105.0 91.5 
Other long-term assets117.4 144.2 
Total assets$6,780.1 $6,682.1 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$148.8 $151.6 
Accrued payroll and benefits82.3 68.9 
Other current liabilities208.2 210.1 
Current maturities of long-term debt62.1 62.8 
Total current liabilities501.4 493.4 
Long-term debt, less current maturities2,640.2 2,559.0 
Right-of-use operating lease liabilities240.9 271.4 
Other long-term liabilities78.9 75.4 
Non-controlling interests—redeemable332.2 342.0 
Stockholders' equity:
Preferred stock, $0.01 par value; shares authorized - 20,310,000; shares issued or outstanding - none
— — 
Common stock, $0.01 par value; shares authorized - 300,000,000; shares issued and outstanding - 126,488,626 and 125,960,834, respectively
1.3 1.3 
Additional paid-in capital2,494.5 2,478.0 
Accumulated other comprehensive income77.0 76.2 
Retained deficit(568.2)(557.3)
Total Surgery Partners, Inc. stockholders' equity2,004.6 1,998.2 
Non-controlling interests—non-redeemable981.9 942.7 
Total stockholders' equity2,986.5 2,940.9 
Total liabilities and stockholders' equity$6,780.1 $6,682.1 

See notes to unaudited condensed consolidated financial statements.

1
Table of Contents
SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in millions, except per share amounts, shares in thousands)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenues$674.1 $620.6 $2,007.9 $1,832.2 
Operating expenses:
Salaries and benefits195.0 185.5 592.4 546.3 
Supplies179.2 173.2 549.8 518.3 
Professional and medical fees72.4 68.1 219.9 198.4 
Lease expense21.1 21.6 64.3 61.8 
Other operating expenses40.6 41.0 127.6 116.8 
Cost of revenues508.3 489.4 1,554.0 1,441.6 
General and administrative expenses36.8 17.9 100.0 73.5 
Depreciation and amortization28.9 29.8 87.0 85.2 
Transaction and integration costs12.8 12.5 37.3 27.8 
Grant funds— (0.5)(1.1)(1.8)
Net loss on disposals, consolidations and deconsolidations5.8 2.2 7.5 3.2 
Equity in earnings of unconsolidated affiliates(3.5)(2.4)(9.4)(8.1)
Litigation settlements3.6 — 8.1 (32.8)
Other income, net(1.2)(2.4)(2.1)(7.4)
591.5 546.5 1,781.3 1,581.2 
Operating income 82.6 74.1 226.6 251.0 
Interest expense, net(49.8)(60.7)(144.3)(173.9)
Income before income taxes32.8 13.4 82.3 77.1 
Income tax (expense) benefit(3.1)(7.8)6.3 (13.4)
Net income29.7 5.6 88.6 63.7 
Less: Net income attributable to non-controlling interests(34.6)(30.6)(99.5)(94.9)
Net loss attributable to Surgery Partners, Inc.$(4.9)$(25.0)$(10.9)$(31.2)
Net loss per share attributable to common stockholders
Basic$(0.04)$(0.28)$(0.09)$(0.35)
Diluted (1)
$(0.04)$(0.28)$(0.09)$(0.35)
Weighted average common shares outstanding
Basic 125,747 88,907 125,559 88,604 
Diluted (1)
125,747 88,907 125,559 88,604 
(1) The impact of potentially dilutive securities for all periods was not considered because the effect would be anti-dilutive.

See notes to unaudited condensed consolidated financial statements.


2
Table of Contents
SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, dollars in millions)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income$29.7 $5.6 $88.6 $63.7 
Other comprehensive income, net of tax:
Derivative activity, net of tax of $0
(1.8)38.5 0.8 114.3 
Comprehensive income27.9 44.1 89.4 178.0 
Less: Comprehensive income attributable to non-controlling interests(34.6)(30.6)(99.5)(94.9)
Comprehensive (loss) income attributable to Surgery Partners, Inc.$(6.7)$13.5 $(10.1)$83.1 

See notes to unaudited condensed consolidated financial statements.


3
Table of Contents
SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, dollars in millions, shares in thousands)

Common StockAdditional
Paid-in Capital		Accumulated Other Comprehensive Income (Loss)Retained DeficitNon-Controlling Interests—
Non-Redeemable		Total
SharesAmount
Balance at December 31, 2022125,961 $1.3 $2,478.0 $76.2 $(557.3)$942.7 $2,940.9 
Net (loss) income— — — — (25.0)18.3 (6.7)
Equity-based compensation519 — 3.7 — — — 3.7 
Other comprehensive loss— — — (11.3)— — (11.3)
Acquisition and disposal of shares of non-controlling interests, net— — (3.6)— — 49.7 46.1 
Distributions to non-controlling interests—non-redeemable holders— — — — — (30.2)(30.2)
Balance at March 31, 2023126,480 $1.3 $2,478.1 $64.9 $(582.3)$980.5 $2,942.5 
Net income— — — — 19.0 27.6 46.6 
Equity-based compensation13 — 4.5 — — — 4.5 
Other comprehensive income— — — 13.9 — — 13.9 
Acquisition and disposal of shares of non-controlling interests, net— — 18.8 — — (19.7)(0.9)
Distributions to non-controlling interests—non-redeemable holders— — — — — (23.8)(23.8)
Balance at June 30, 2023126,493 $1.3 $2,501.4 $78.8 $(563.3)$964.6 $2,982.8 
Net (loss) income— — — — (4.9)28.0 23.1 
Equity-based compensation(4)— 4.5 — — — 4.5 
Other comprehensive loss— — — (1.8)— — (1.8)
Acquisition and disposal of shares of non-controlling interests, net— — (11.4)— — 13.1 1.7 
Distributions to non-controlling interests—non-redeemable holders— — — — — (23.8)(23.8)
Balance at September 30, 2023126,489 $1.3 $2,494.5 $77.0 $(568.2)$981.9 $2,986.5 


See notes to unaudited condensed consolidated financial statements.

































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SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, dollars in millions, shares in thousands)


Common StockAdditional
Paid-in Capital		Accumulated Other Comprehensive (Loss) IncomeRetained DeficitNon-Controlling Interests—
Non-Redeemable		Total
SharesAmount
Balance at December 31, 202189,333 $0.9 $1,622.3 $(31.5)$(502.7)$880.6 $1,969.6 
Net income— — — — 12.2 20.0 32.2 
Equity-based compensation572 — 7.7 — — — 7.7 
Other comprehensive income— — — 56.8 — — 56.8 
Acquisition and disposal of shares of non-controlling interests, net— — (4.8)— — (24.3)(29.1)
Distributions to non-controlling interests—non-redeemable holders— — — — — (24.6)(24.6)
Balance at March 31, 202289,905 $0.9 $1,625.2 $25.3 $(490.5)$851.7 $2,012.6 
Net (loss) income— — — — (18.4)22.7 4.3 
Equity-based compensation30 — 4.4 — — — 4.4 
Other comprehensive income— — — 19.0 — — 19.0 
Acquisition and disposal of shares of non-controlling interests, net— — (10.8)— — 38.7 27.9 
Distributions to non-controlling interests—non-redeemable holders— — — — — (27.7)(27.7)
Balance at June 30, 202289,935 $0.9 $1,618.8 $44.3 $(508.9)$885.4 $2,040.5 
Net (loss) income— — — — (25.0)22.3 (2.7)
Equity-based compensation21 — 5.0 — — — 5.0 
Other comprehensive income— — — 38.5 — — 38.5 
Acquisition and disposal of shares of non-controlling interests, net— — (0.7)— — 49.8 49.1 
Distributions to non-controlling interests—non-redeemable holders— — — — — (25.0)(25.0)
Balance at September 30, 202289,956 $0.9 $1,623.1 $82.8 $(533.9)$932.5 $2,105.4 


See notes to unaudited condensed consolidated financial statements.
















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SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in millions)

Nine Months Ended September 30,
20232022
Cash flows from operating activities:
Net income$88.6 $63.7 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization87.0 85.2 
Non-cash lease expense26.4 26.8 
Non-cash interest expense, net19.8 19.0 
Equity-based compensation expense13.2 13.0 
Net loss on disposals, consolidations and deconsolidations7.5 3.2 
Deferred income taxes(10.8)12.4 
Equity in earnings of unconsolidated affiliates, net of distributions received(2.7)(0.5)
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable(18.2)3.4 
Medicare accelerated payments and deferred governmental grants(1.2)(53.7)
Other operating assets and liabilities21.6 (20.9)
Net cash provided by operating activities231.2 151.6 
Cash flows from investing activities:
Purchases of property and equipment(69.0)(57.9)
Payments for acquisitions, net of cash acquired(48.8)(82.6)
Proceeds from disposals of facilities and other assets25.8 — 
Purchases of equity investments(50.2)(95.1)
Proceeds from sales of equity investments1.0 11.5 
Other investing activities(26.3)(11.6)
Net cash used in investing activities(167.5)(235.7)
Cash flows from financing activities:
Principal payments on long-term debt(107.1)(81.5)
Borrowings of long-term debt119.4 51.2 
Payments of debt issuance costs(1.5)— 
Distributions to non-controlling interest holders(111.0)(110.5)
Receipts (payments) related to ownership transactions with non-controlling interest holders0.7 (3.9)
Other financing activities(11.1)(6.3)
Net cash used in financing activities(110.6)(151.0)
Net decrease in cash and cash equivalents(46.9)(235.1)
Cash and cash equivalents at beginning of period282.9 389.9 
Cash and cash equivalents at end of period$236.0 $154.8 
See notes to unaudited condensed consolidated financial statements.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. 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, orthopedics and pain management, gastroenterology, ophthalmology, and general surgery. 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 and anesthesia 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, 2023, the Company owned or operated a portfolio of 154 surgical facilities, comprised of 136 ASCs and 18 surgical hospitals in 31 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 90 of these surgical facilities and consolidated 117 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, 2022 (the "2022 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.
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 its 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.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of revenues by service type as a percentage of total revenues follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Patient service revenues:
   Surgical facilities revenues95.8 %95.6 %95.9 %95.7 %
   Ancillary services revenues2.4 %2.7 %2.5 %2.8 %
Total patient service revenues98.2 %98.3 %98.4 %98.5 %
Other service revenues1.8 %1.7 %1.6 %1.5 %
Total revenues100.0 %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. Other service 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 and other non-patient services. The management 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,
20232022
Amount%Amount%
Patient service revenues:
Private insurance$347.1 52.4 %$301.9 49.5 %
Government271.6 41.0 %269.5 44.2 %
Self-pay16.9 2.6 %16.0 2.6 %
Other (1)
26.7 4.0 %22.7 3.7 %
Total patient service revenues662.3 100.0 %610.1 100.0 %
Other service revenues11.8 10.5 
Total revenues$674.1 $620.6 

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30,
20232022
Amount%Amount%
Patient service revenues:
Private insurance$1,024.3 51.8 %$910.5 50.4 %
Government837.6 42.4 %776.5 43.0 %
Self-pay49.6 2.5 %49.2 2.7 %
Other (1)
65.2 3.3 %68.9 3.9 %
Total patient service revenues1,976.7 100.0 %1,805.1 100.0 %
Other service revenues31.2 27.1 
Total revenues$2,007.9 $1,832.2 
(1)Other is comprised of anesthesia service agreements, automobile liability, letters of protection and other payor types.
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 hospitals’ cash collections and contractual write-offs, and for the Company's surgical facilities in general, established fee schedules, relationships with payors and procedure statistics. While changes in estimated reimbursement from third-party payors remain a possibility, 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.
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 Company analyzes accounts receivable at each of its surgical facilities to ensure the proper collection and aged category. Collection efforts include direct contact with third-party payors or patients, written correspondence and the use of legal or collection agency assistance, as required.
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.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company's effective tax rate was (7.7)% for the nine months ended September 30, 2023 compared to 17.4% for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, the effective tax rate differed from the federal corporate tax rate of 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations, and discrete tax benefits of (i) $1.6 million related to the vesting of restricted stock awards, and (ii) $15.8 million related to entity divestitures. For the nine months ended September 30, 2022, the effective tax rate differed from 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations, and discrete tax benefits of (i) $4.6 million related to the vesting of restricted stock awards, (ii) $1.8 million attributable to non-recurring earnings’ impact on the Company’s valuation allowance, and (iii) $1.0 million related to entity divestitures. 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.
Goodwill
Goodwill represents the excess of the fair value of the consideration provided in an acquisition plus the fair value of any non-controlling interests 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. A summary of the Company's acquisitions and disposals for the nine months ended September 30, 2023 is included in Note 2. "Acquisitions and Disposals."
A summary of activity related to goodwill for the nine months ended September 30, 2023 is as follows (in millions):
Balance at December 31, 2022$4,137.1 
Acquisitions, including post acquisition adjustments145.0 
Disposals(37.0)
Balance at September 30, 2023$4,245.1 
A detailed evaluation of potential impairment indicators was performed as of September 30, 2023, which specifically considered recent increases in interest rates, inflation risk and market volatility. On the basis of available evidence as of September 30, 2023, no indicators of impairment were identified. 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 material 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 could result in a material impairment charge in the future.
Derivative Instruments and Hedging Activities
The Company records all derivatives on the balance sheet at fair value and any financing elements treated as debt instruments are recorded at amortized cost. 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 risks 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.

10
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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of activity related to non-controlling interests—redeemable is as follows (in millions):
Nine Months Ended September 30,
20232022
Balance at beginning of period$342.0 $330.2 
Net income attributable to non-controlling interests—redeemable25.6 29.9 
(Disposal) acquisition of shares of non-controlling interests, net—redeemable(2.2)11.9 
Distributions to non-controlling interest—redeemable holders(33.2)(33.2)
Balance at end of period$332.2 $338.8 
Medicare Accelerated Payments and Deferred Governmental Grants
The Company received grant funds distributed under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and other governmental assistance programs. The recognition of amounts received is conditioned upon attestation with terms and conditions that funds were used for COVID-19 related healthcare expenses or lost revenues. During the three months ended September 30, 2023, the Company did not recognize any grant funds as a reduction in operating expenses. During the nine months ended September 30, 2023, the Company recognized grant funds as a reduction in operating expenses in the amount of $1.1 million. During the three and nine months ended September 30, 2022, the Company recognized grant funds received as a reduction in operating expenses in the amount of $0.5 million and $1.8 million, respectively. There were no remaining unrecognized grant funds as of September 30, 2023. As of December 31, 2022 approximately $3 million of unrecognized grant funds received was reflected as a component of other current liabilities within the condensed consolidated balance sheets.
The Company received accelerated payments under the Medicare Accelerated and Advance Payment Program. The payments received were deferred and included in the condensed consolidated balance sheets. There were no remaining deferred accelerated payments as of September 30, 2023, and remaining deferred accelerated payments were minimal as of December 31, 2022. During the three and nine months ended September 30, 2022, approximately $13 million and $56 million, respectively, was repaid in accordance with the terms of the program. These repayments are included as a component of the change in Medicare accelerated payments and deferred government grants in the condensed consolidated statements of cash flows.
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 calculations.
A summary of the carrying amounts and estimated fair values of the Company's long-term debt follows (in millions):
Carrying AmountFair Value
September 30,
2023		December 31,
2022		September 30,
2023		December 31,
2022
Senior secured term loan$1,370.4 $1,370.0 $1,370.4 $1,359.7 
6.750% senior unsecured notes due 2025
$185.0 $185.0 $183.2 $183.4 
10.000% senior unsecured notes due 2027
$320.0 $320.0 $323.6 $326.8 
The fair values in the table above were based on 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 based on Level 3 inputs.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 VIE's 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, 2023, the Company's consolidated VIEs consisted of seven surgical facilities and five 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, 2023 and December 31, 2022 were $64.7 million and $64.9 million, respectively, and the total liabilities of the consolidated VIEs were $38.2 million and $40.9 million, respectively.
2. Acquisitions and Disposals
Acquisitions
During the nine months ended September 30, 2023:
•The Company acquired a controlling interest in two surgical facilities and a physician practice for aggregate cash consideration of $23.1 million, net of cash acquired, and non-cash consideration of $1.3 million, which consisted of a non-controlling interest in one of the Company's existing surgical facilities. In connection with these acquisitions, the Company preliminarily recognized non-controlling interests of $20.4 million and goodwill of $39.7 million.
•The Company acquired a controlling interest in two surgical facilities and an in-development de novo surgical facility, which were previously accounted for as equity method investments, for aggregate cash consideration of $26.9 million, net of cash acquired. The Company also amended the operating agreement of a previously non-controlled surgical facility resulting in the Company obtaining a controlling interest in the facility. These transactions resulted in the consolidation of the previously non-consolidated entities. The previously held non-controlling interests were remeasured and recorded at fair value as of the dates of the transactions. The fair value measurement utilizes Level 3 inputs, which includes unobservable data. The acquisition date fair value of the previously held non-controlling interests was $27.3 million. As a result of increasing its ownership interest, the Company recognized a net loss of $7.1 million included in net loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the nine months ended September 30, 2023. The net loss was determined based on the difference between the fair value of the Company's previously held non-controlling interests in the entities and the carrying values immediately prior to the transactions. In connection with the consolidation of these facilities, the Company preliminarily recognized non-controlling interests of $55.1 million and goodwill of $106.3 million.
•The Company acquired non-controlling interests in five surgical facilities and two in-development de novo surgical facilities for aggregate cash consideration of $50.2 million. The non-controlling interests were accounted for as equity method investments and recorded as a component of investments in and advances to affiliates in the accompanying condensed consolidated balance sheets. The Company also paid cash consideration of $21.0 million to acquire management rights from the prior management service provider related to four of the aforementioned surgical facilities. Management rights agreements are accounted for and recorded as a component of intangible assets, net in the accompanying condensed consolidated balance sheets. The cash paid to acquire the management rights is presented as a component of other investing activities on the condensed consolidated statements of cash flows.
During the nine months ended September 30, 2022:
•The Company acquired a controlling interest in a surgical hospital for cash consideration of $64.3 million, net of cash acquired, and assumed debt of $39.4 million. As of September 30, 2022, $61.0 million of the cash consideration was deferred and included as a component of other current liabilities in the accompanying condensed consolidated balance sheets. In connection with the acquisition, the Company preliminarily recognized non-controlling interests of $45.3 million and goodwill of $146.3 million. In October 2022, pursuant to the purchase agreement, the Company paid the deferred consideration and the debt previously assumed with available cash resources.
•The Company acquired a controlling interest in four other surgical facilities, two of which were merged into existing surgical facilities, and a physician practice for aggregate cash consideration of $79.3 million, net of cash acquired, and non-cash consideration of $5.3 million, which consisted of a non-controlling interest in two of the Company's existing surgical facilities. In connection with the acquisitions the Company preliminarily recognized non-controlling interests of $41.5 million and goodwill of $121.1 million.
•The Company acquired non-controlling interests in seven surgical facilities and seven in-development de novo surgical facilities for aggregate cash consideration of $95.1 million. The non-controlling interests were accounted for as equity method investments and recorded as a component of investments in and advances to affiliates in the accompanying condensed consolidated balance sheets.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Disposals
During the nine months ended September 30, 2023:
•The Company sold its interests in six surgical facilities for aggregate net cash proceeds of $30.4 million, a portion of which was held in escrow pursuant to the purchase agreements for such transactions. In connection with these transactions, the Company recognized a pre-tax gain of $26.9 million included in net loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the nine months ended September 30, 2023.
•The Company disposed of its non-controlling interests in a surgical facility and an in-development de novo surgical facility, which were previously accounted for as equity method investments, for cash proceeds of $1.5 million. In connection with these transactions, the Company recognized a pre-tax loss of $13.7 million included in net loss on disposals, consolidations and deconsolidations in the condensed consolidated statements of operations for the nine months ended September 30, 2023.
During the nine months ended September 30, 2022:
•The Company sold its interests in a surgical facility, which was previously accounted for as an equity method investment, for net cash proceeds of $11.5 million, and recognized a pre-tax loss of $0.4 million included in net loss on disposals and consolidations in the condensed consolidated statements of operations for the nine months ended September 30, 2022.
•The Company contributed its interests in two surgical facilities as non-cash consideration for non-controlling interests in two new separate entities. As a result of these transactions, the Company lost control of the previously controlled surgical facilities but retains a non-controlling interest in each, resulting in the deconsolidation of the previously consolidated entities. The remaining non-controlling interests were accounted for as equity method investments, and initially measured and recorded at fair value as of the dates of the transactions. The fair value measurement utilizes Level 3 inputs, which includes unobservable data, to measure the fair value of the retained non-controlling interests. The fair value determination was based on a combination of multiple valuation methods, which included discounted cash flow and market value approach, which incorporates estimates of future earnings and market valuation multiples for certain guideline companies. The fair value of the investments of $9.8 million was recorded as a component of investments in and advances to affiliates in the accompanying condensed consolidated balance sheets. Further, based on the valuation, the transactions resulted in a pretax net loss on deconsolidations of $5.6 million, which is included in net loss on disposals, consolidations and deconsolidations in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2022. The net loss was determined based on the difference between the fair value of the Company’s retained interests in the entities and the carrying values of both the tangible and intangible assets of the entities immediately prior to the transactions.
3. Long-Term Debt
A summary of long-term debt follows (in millions):
September 30,
2023		December 31,
2022
Senior secured term loan (1)
$1,370.4 $1,370.0 
6.750% senior unsecured notes due 2025
185.0 185.0 
10.000% senior unsecured notes due 2027
320.0 320.0 
Notes payable and other secured loans194.2 171.3 
Finance lease obligations641.2 585.7 
Less: unamortized debt issuance costs and discounts(8.5)(10.2)
Total debt2,702.3 2,621.8 
Less: Current maturities62.1 62.8 
Total long-term debt$2,640.2 $2,559.0 
(1)Includes unamortized fair value discount of $1.8 million and $2.1 million as of September 30, 2023 and December 31, 2022, respectively.
On January 13, 2023, the Company entered into an amendment to its credit agreement, dated as of August 31, 2017 (the "Credit Agreement"), to provide a $203.8 million increase in the outstanding commitments under its revolving credit facility (the "Revolver").
As of September 30, 2023, the Company's availability on its Revolver was $544.9 million (including outstanding letters of credit of $8.9 million). There were no outstanding borrowings under the Revolver as of both September 30, 2023 and December 31, 2022.
On June 8, 2023, the Company entered into an amendment to the Credit Agreement to transition the interest benchmark from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. 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.
The following table presents the components of the Company's right-of-use assets and liabilities related to leases and their classification in the consolidated balance sheets (in millions):
Classification in Consolidated Balance SheetsSeptember 30, 2023December 31, 2022
Assets:
Operating lease assetsRight-of-use operating lease assets$244.5 $279.1 
Finance lease assetsProperty and equipment, net of accumulated depreciation571.8 529.6 
Total leased assets$816.3 $808.7 
Liabilities:
Operating lease liabilities:
CurrentOther current liabilities$35.7 $36.5 
Long-termRight-of-use operating lease liabilities240.9 271.4 
Total operating lease liabilities276.6 307.9 
Finance lease liabilities:
CurrentCurrent maturities of long-term debt24.7 20.9 
Long-termLong-term debt, less current maturities616.5 564.8 
Total finance lease liabilities641.2 585.7 
Total lease liabilities$917.8 $893.6 
During the nine months ended September 30, 2023, the Company extended certain existing facility real estate leases, resulting in the reclassification of the leases from operating to finance. The modifications resulted in an increase to finance lease liabilities and assets of $97.1 million and $95.7 million, respectively, including the reclassification of existing operating lease liabilities and assets of $38.4 million and $36.9 million, respectively.
The following table presents the components of the Company's lease expense included in the condensed consolidated statement of operations (in millions):
Nine Months Ended September 30,
20232022
Operating lease costs$48.7 $49.5 
Finance lease costs:
Amortization of leased assets29.0 28.2 
Interest on lease liabilities35.9 30.6 
Total finance lease costs64.9 58.8 
Variable and short-term lease costs16.3 13.7 
Total lease costs$129.9 $122.0 

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents supplemental cash flow information (dollars in millions):
Nine Months Ended September 30,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases $47.2 $47.9 
Operating cash outflows from finance leases$34.1 $30.2 
Financing cash outflows from finance leases$19.3 $18.1 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$39.9 $45.3 
Finance leases$108.7 $172.5 
5. 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 and interest rate caps as part of its interest rate risk management strategy. During 2023 and 2022, such derivatives have been used to hedge the variable cash flows associated with existing variable-rate debt.
The key terms of interest rate swaps and interest rate caps outstanding are presented below:
September 30, 2023December 31, 2022
DescriptionEffective DateNotional Amount (in millions)StatusNotional Amount (in millions)StatusMaturity Date
Pay-fixed swapMay 7, 2021$435.0 Active$435.0 ActiveMarch 31, 2025
Pay-fixed swapMay 7, 2021330.0 Active330.0 ActiveMarch 31, 2025
Pay-fixed swapMay 7, 2021435.0 Active435.0 ActiveMarch 31, 2025
Interest rate capSeptember 30, 2021153.3 Active159.1 ActiveMarch 31, 2025
Interest rate capSeptember 30, 20218.8 Active159.1 ActiveMarch 31, 2025
Pay-fixed swapNovember 30, 2018165.0 Active165.0 ActiveNovember 30, 2023
Pay-fixed swapNovember 30, 2018120.0 Active120.0 ActiveNovember 30, 2023
Pay-fixed swapJune 28, 2019150.0 Active150.0 ActiveNovember 30, 2023
Receive-fixed swapApril 30, 2021(165.0)Active(165.0)ActiveNovember 30, 2023
Receive-fixed swapApril 30, 2021(120.0)Active(120.0)ActiveNovember 30, 2023
Receive-fixed swapApril 30, 2021(150.0)Active(150.0)ActiveNovember 30, 2023
$1,362.1 $1,518.2 
As of September 30, 2023, the Company had nine interest rate swaps with a total net notional amount of $1.2 billion. Of the nine interest rate swaps, three are pay-fixed, receive 1-Month SOFR (subject to a minimum of 0.75%) interest rate swaps designated in cash flow hedging relationships with a total notional amount of $1.2 billion and a termination date of March 31, 2025. The remaining six interest rate swaps are undesignated and consist of three pay-fixed, receive 1-Month SOFR (subject to a minimum of 1.00%) interest rate swaps and three pay 1-Month SOFR (subject to a minimum of 1.00%), receive-fixed interest rate swaps with a termination date of November 30, 2023. The pay-floating, receive-fixed swaps are designed to economically offset the undesignated pay-fixed, receive-floating swaps. The Company's interest rate derivative agreements were indexed to LIBOR prior to permanent cessation on June 30, 2023 and automatically transitioned to SOFR in accordance with their respective fallback provisions.
As of September 30, 2023, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $162.1 million. The interest rate caps each have a termination date of March 31, 2025. During the nine months ended September 30, 2023, the Company partially terminated a previously undesignated portion of one of its interest rate caps. In connection with the termination, the Company received $8.6 million, which is included as a component of operating activities in the condensed consolidated statements of cash flows for the nine months ended September 30, 2023.
The pay-fixed, receive floating interest rate swaps did not meet the requirements to be considered derivatives in their entirety as a result of the financing component. Accordingly, the swaps are considered hybrid instruments, consisting of a financing element treated as a debt instrument and an embedded at-market derivative that was designated as a cash flow hedge.
Within the Company’s condensed consolidated balance sheets, the financing elements treated as debt instruments described above are carried at amortized cost and the embedded at-market derivatives and the undesignated swaps are recorded at fair value. The cash flows

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
related to the portion treated as debt are classified as financing activities in the condensed consolidated statements of cash flows while the portion treated as an at-market derivative are classified as operating activities. Cash settlements related to the undesignated swaps will offset and are classified as operating activities in the condensed consolidated cash flows. Within the Company’s condensed consolidated balance sheets, the interest rate caps, including the undesignated portion, are recorded at fair value. The cash flows related to the interest rate caps, including the undesignated portion, are classified as operating activities in the condensed consolidated statements of cash flows.
The Company's interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the condensed consolidated balance sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy. The fair value of the interest rate caps is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the caps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The interest rate caps are classified using Level 2 inputs within the fair value hierarchy.
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 $53.8 million will be reclassified as a decrease to interest expense.
The following table presents the fair values of our derivatives and their location on the condensed consolidated balance sheets (in millions):
September 30, 2023December 31, 2022
LocationAssetsLiabilitiesAssetsLiabilities
Derivatives not designated as hedging instruments
Interest rate capsOther long-term assets$— $— $9.0 $— 
Interest rate swapsOther long-term assets2.0 — 8.5 — 
Interest rate swapsOther long-term liabilities— 2.0 — 8.5 
Derivatives in cash flow hedging relationships
Interest rate capsOther long-term assets8.5 — 10.4 — 
Interest rate swapsOther long-term assets71.8 — 85.5 — 
Interest rate swaps
Other long-term liabilities (1)
— 21.3 — 31.9 
Total$82.3 $23.3 $113.4 $40.4 
(1)The balance is related to the financing component of the pay-fixed, receive floating interest rate swaps.
The following table presents the pre-tax effect of the interest rate swaps and caps on the Company's accumulated OCI and condensed consolidated statement of operations (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
Location2023202220232022
Derivatives not designated as hedging instruments
Loss recognized in incomeOther income, net$— $0.1 $0.6 $0.2 
Derivatives in cash flow hedging relationships
Gain recognized in OCI (effective portion)$7.4 $37.0 $24.1 $100.1 
(Gain) loss reclassified from accumulated OCI into income (effective portion) (1)
Interest expense, net$(9.2)$1.5 $(23.3)$14.2 
(1)Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $5.3 million and $5.4 million for the three months ended September 30, 2023 and 2022, respectively. Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $16.0 million for each of the nine months ended September 30, 2023 and 2022.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. 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. 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,
2023202220232022
Numerator:
Net loss attributable to Surgery Partners, Inc.$(4.9)$(25.0)$(10.9)$(31.2)
Denominator:
Weighted average shares outstanding- basic125,747 88,907 125,559 88,604 
Weighted average shares outstanding- diluted (1)
125,747 88,907 125,559 88,604 
Loss per share:
Basic$(0.04)$(0.28)$(0.09)$(0.35)
Diluted (1)
$(0.04)$(0.28)$(0.09)$(0.35)
Dilutive securities outstanding not included in the computation of income (loss) per share as their effect is antidilutive:
Stock options1,421 1,323 1,412 1,527 
Restricted shares208 604 202 669 
(1)The impact of potentially dilutive securities for all periods was not considered because the effect would be anti-dilutive.
7. Other Current Liabilities
A summary of other current liabilities is as follows (in millions):
September 30,
2023		December 31,
2022
Right-of-use operating lease liabilities$35.7 $36.5 
Amounts due to patients and payors27.1 31.9 
Cost report liabilities23.4 23.5 
Interest payable22.7 19.4 
Acquisition escrow17.4 28.8 
Accrued expenses and other81.9 70.0 
Total$208.2 $210.1 
8. Commitments and Contingencies
Professional, General, Workers' Compensation and Cyber 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, workers' compensation and cyber 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, 2023 and December 31, 2022 were $23.6 million and $20.8 million, respectively. Expected insurance recoveries of $12.7 million as of both September 30, 2023 and December 31, 2022 are included as a component of other current assets and other long-term assets in the condensed consolidated balance sheets.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In May 2023, we experienced a cybersecurity incident that temporarily disrupted certain facilities in our Idaho market. We estimate that this incident had an adverse pre-tax impact of approximately $7 million during the nine months ended September 30, 2023. This estimate includes lost revenue from the associated business interruption and other related expenses. We have filed a claim with the insurance carrier related to this incident. No insurance recoveries were recognized during the nine months ended September 30, 2023.
Stockholder Litigation
On December 4, 2017, a purported Company stockholder filed an action in the Delaware Court of Chancery (the "Delaware Action"). That action is captioned Witmer v. H.I.G. Capital, L.L.C., et al., C.A. No. 2017-0862. The plaintiff in the Delaware Action asserted claims against (i) certain current and former members of the Company’s Board of Directors (together, the "Directors"); (ii) H.I.G. Capital, LLC and certain of its affiliates (collectively, "H.I.G."); and (iii) Bain Capital Private Equity, L.P. and certain of its affiliates (collectively, "Bain Capital" and, together with the Directors and H.I.G., the "Defendants"). The parties to the Delaware Action negotiated a final stipulation of settlement (the “Settlement Stipulation”), which governs the terms of the settlement of the Delaware Action, and which they filed with the Court of Chancery on November 22, 2021. On February 11, 2022, the Court of Chancery approved the settlement of the Delaware Action as memorialized in the Settlement Stipulation. That decision became final and non-appealable on March 14, 2022. The case is now closed. Pursuant to the settlement, the Company received $32.8 million in March 2022, which was included in litigation settlement in the condensed consolidated statements of operations for the nine months ended September 30, 2022.
9. Segment Reporting
The Company currently operates in two major lines of business that are also the Company's reportable operating segments - the operation of surgical facilities and the operation of ancillary services. The Surgical Facility Services segment includes the operation of ASCs, surgical hospitals and anesthesia services. The Ancillary Services segment consists of multi-specialty physician practices. The "All other" line item 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,
2023202220232022
Revenues:
Surgical Facility Services$657.3 $603.9 $1,956.5 $1,780.6 
Ancillary Services16.8 16.7 51.4 51.6 
Total$674.1 $620.6 $2,007.9 $1,832.2 
Adjusted EBITDA:
Surgical Facility Services$138.6 $110.2 $384.1 $319.9 
Ancillary Services(1.2)(1.5)(2.7)(2.2)
All other(31.9)(12.5)(85.6)(58.3)
Total$105.5 $96.2 $295.8 $259.4 
Reconciliation of Adjusted EBITDA:
Income before income taxes$32.8 $13.4 $82.3 $77.1 
Net income attributable to non-controlling interests(34.6)(30.6)(99.5)(94.9)
Interest expense, net49.8 60.7 144.3 173.9 
Depreciation and amortization28.9 29.8 87.0 85.2 
Equity-based compensation expense4.4 5.0 13.2 13.0 
Transaction, integration and acquisition costs