sgry-20200930
000163883312/312020Q3false1us-gaap:LongTermDebtAndCapitalLeaseObligationsus-gaap:LongTermDebtAndCapitalLeaseObligationsus-gaap:OtherLiabilitiesCurrentus-gaap:OtherLiabilitiesCurrent1100016388332020-01-012020-09-30xbrli:shares00016388332020-10-29iso4217:USD00016388332020-09-3000016388332019-12-31iso4217:USDxbrli:shares00016388332020-07-012020-09-3000016388332019-07-012019-09-3000016388332019-01-012019-09-300001638833us-gaap:CommonStockMember2019-12-310001638833us-gaap:AdditionalPaidInCapitalMember2019-12-310001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001638833us-gaap:RetainedEarningsMember2019-12-310001638833us-gaap:NoncontrollingInterestMember2019-12-310001638833us-gaap:RetainedEarningsMember2020-01-012020-03-310001638833us-gaap:NoncontrollingInterestMember2020-01-012020-03-3100016388332020-01-012020-03-310001638833us-gaap:CommonStockMember2020-01-012020-03-310001638833us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001638833us-gaap:CommonStockMember2020-03-310001638833us-gaap:AdditionalPaidInCapitalMember2020-03-310001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001638833us-gaap:RetainedEarningsMember2020-03-310001638833us-gaap:NoncontrollingInterestMember2020-03-3100016388332020-03-310001638833us-gaap:RetainedEarningsMember2020-04-012020-06-300001638833us-gaap:NoncontrollingInterestMember2020-04-012020-06-3000016388332020-04-012020-06-300001638833us-gaap:CommonStockMember2020-04-012020-06-300001638833us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001638833us-gaap:CommonStockMember2020-06-300001638833us-gaap:AdditionalPaidInCapitalMember2020-06-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001638833us-gaap:RetainedEarningsMember2020-06-300001638833us-gaap:NoncontrollingInterestMember2020-06-3000016388332020-06-300001638833us-gaap:RetainedEarningsMember2020-07-012020-09-300001638833us-gaap:NoncontrollingInterestMember2020-07-012020-09-300001638833us-gaap:CommonStockMember2020-07-012020-09-300001638833us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001638833us-gaap:CommonStockMember2020-09-300001638833us-gaap:AdditionalPaidInCapitalMember2020-09-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001638833us-gaap:RetainedEarningsMember2020-09-300001638833us-gaap:NoncontrollingInterestMember2020-09-300001638833us-gaap:CommonStockMember2018-12-310001638833us-gaap:AdditionalPaidInCapitalMember2018-12-310001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001638833us-gaap:RetainedEarningsMember2018-12-310001638833us-gaap:NoncontrollingInterestMember2018-12-3100016388332018-12-310001638833us-gaap:RetainedEarningsMember2019-01-012019-03-310001638833us-gaap:NoncontrollingInterestMember2019-01-012019-03-3100016388332019-01-012019-03-310001638833us-gaap:CommonStockMember2019-01-012019-03-310001638833us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310001638833us-gaap:RetainedEarningsMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310001638833srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310001638833us-gaap:CommonStockMember2019-03-310001638833us-gaap:AdditionalPaidInCapitalMember2019-03-310001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310001638833us-gaap:RetainedEarningsMember2019-03-310001638833us-gaap:NoncontrollingInterestMember2019-03-3100016388332019-03-310001638833us-gaap:RetainedEarningsMember2019-04-012019-06-300001638833us-gaap:NoncontrollingInterestMember2019-04-012019-06-3000016388332019-04-012019-06-300001638833us-gaap:CommonStockMember2019-04-012019-06-300001638833us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300001638833us-gaap:CommonStockMember2019-06-300001638833us-gaap:AdditionalPaidInCapitalMember2019-06-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300001638833us-gaap:RetainedEarningsMember2019-06-300001638833us-gaap:NoncontrollingInterestMember2019-06-3000016388332019-06-300001638833us-gaap:RetainedEarningsMember2019-07-012019-09-300001638833us-gaap:NoncontrollingInterestMember2019-07-012019-09-300001638833us-gaap:CommonStockMember2019-07-012019-09-300001638833us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-07-012019-09-300001638833us-gaap:CommonStockMember2019-09-300001638833us-gaap:AdditionalPaidInCapitalMember2019-09-300001638833us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001638833us-gaap:RetainedEarningsMember2019-09-300001638833us-gaap:NoncontrollingInterestMember2019-09-3000016388332019-09-30sgry:surgical_facilities0001638833sgry:FacilitiesAmbulatorySurgeryCentersMember2020-09-300001638833sgry:FacilitiesSurgicalHospitalsMember2020-09-30sgry:state00016388332020-01-012020-06-30sgry:physician_practice0001638833us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001638833us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-12-310001638833us-gaap:CarryingReportedAmountFairValueDisclosureMembersgry:A2017TermLoanMaturing2024Memberus-gaap:SecuredDebtMember2020-09-300001638833us-gaap:CarryingReportedAmountFairValueDisclosureMembersgry:A2017TermLoanMaturing2024Memberus-gaap:SecuredDebtMember2019-12-310001638833us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Membersgry:A2017TermLoanMaturing2024Memberus-gaap:SecuredDebtMember2020-09-300001638833us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Membersgry:A2017TermLoanMaturing2024Memberus-gaap:SecuredDebtMember2019-12-31xbrli:pure0001638833us-gaap:SeniorNotesMembersgry:SeniorUnsecuredNotesDue2025Member2020-09-300001638833us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:SeniorNotesMembersgry:SeniorUnsecuredNotesDue2025Member2020-09-300001638833us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:SeniorNotesMembersgry:SeniorUnsecuredNotesDue2025Member2019-12-310001638833us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMembersgry:SeniorUnsecuredNotesDue2025Member2020-09-300001638833us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMembersgry:SeniorUnsecuredNotesDue2025Member2019-12-310001638833sgry:SeniorUnsecuredNotesDue2027Memberus-gaap:SeniorNotesMember2020-09-300001638833sgry:SeniorUnsecuredNotesDue2027Memberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:SeniorNotesMember2020-09-300001638833sgry:SeniorUnsecuredNotesDue2027Memberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:SeniorNotesMember2019-12-310001638833sgry:SeniorUnsecuredNotesDue2027Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMember2020-09-300001638833sgry:SeniorUnsecuredNotesDue2027Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMember2019-12-310001638833us-gaap:ProductConcentrationRiskMembersgry:SurgicalFacilityServicesMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:SurgicalFacilityServicesMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:SurgicalFacilityServicesMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:SurgicalFacilityServicesMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833sgry:AncillaryServicesMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833sgry:AncillaryServicesMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833sgry:AncillaryServicesMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833sgry:AncillaryServicesMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OpticalServicesMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OpticalServicesMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OpticalServicesMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OpticalServicesMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OtherServicesMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OtherServicesMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OtherServicesMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:OtherServicesMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:HealthcareOrganizationOtherServiceMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:HealthcareOrganizationOtherServiceMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:HealthcareOrganizationOtherServiceMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833us-gaap:ProductConcentrationRiskMembersgry:HealthcareOrganizationOtherServiceMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833sgry:PrivateInsuranceMember2020-07-012020-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:PrivateInsuranceMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833sgry:PrivateInsuranceMember2019-07-012019-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:PrivateInsuranceMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833us-gaap:GovernmentContractMember2020-07-012020-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:GovernmentContractMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833us-gaap:GovernmentContractMember2019-07-012019-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:GovernmentContractMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833sgry:SelfPayRevenueMember2020-07-012020-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:SelfPayRevenueMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833sgry:SelfPayRevenueMember2019-07-012019-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:SelfPayRevenueMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833sgry:OtherPatientServiceRevenueSourcesMember2020-07-012020-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMembersgry:OtherPatientServiceRevenueSourcesMember2020-07-012020-09-300001638833sgry:OtherPatientServiceRevenueSourcesMember2019-07-012019-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMembersgry:OtherPatientServiceRevenueSourcesMember2019-07-012019-09-300001638833sgry:HealthcareOrganizationPatientServiceMember2020-07-012020-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300001638833sgry:HealthcareOrganizationPatientServiceMember2019-07-012019-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001638833sgry:OpticalServicesMember2020-07-012020-09-300001638833sgry:OpticalServicesMember2019-07-012019-09-300001638833sgry:OtherServicesMember2020-07-012020-09-300001638833sgry:OtherServicesMember2019-07-012019-09-300001638833sgry:PrivateInsuranceMember2020-01-012020-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:PrivateInsuranceMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833sgry:PrivateInsuranceMember2019-01-012019-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:PrivateInsuranceMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833us-gaap:GovernmentContractMember2020-01-012020-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:GovernmentContractMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833us-gaap:GovernmentContractMember2019-01-012019-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:GovernmentContractMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833sgry:SelfPayRevenueMember2020-01-012020-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:SelfPayRevenueMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833sgry:SelfPayRevenueMember2019-01-012019-09-300001638833us-gaap:CustomerConcentrationRiskMembersgry:SelfPayRevenueMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833sgry:OtherPatientServiceRevenueSourcesMember2020-01-012020-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMembersgry:OtherPatientServiceRevenueSourcesMember2020-01-012020-09-300001638833sgry:OtherPatientServiceRevenueSourcesMember2019-01-012019-09-300001638833us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMembersgry:OtherPatientServiceRevenueSourcesMember2019-01-012019-09-300001638833sgry:HealthcareOrganizationPatientServiceMember2020-01-012020-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-01-012020-09-300001638833sgry:HealthcareOrganizationPatientServiceMember2019-01-012019-09-300001638833sgry:HealthcareOrganizationPatientServiceMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001638833sgry:OpticalServicesMember2020-01-012020-09-300001638833sgry:OpticalServicesMember2019-01-012019-09-300001638833sgry:OtherServicesMember2020-01-012020-09-300001638833sgry:OtherServicesMember2019-01-012019-09-30sgry:surgery_center0001638833sgry:SurgicalFacilitiesExistingMarketsMember2020-01-012020-09-300001638833sgry:SurgicalFacilitiesMember2020-01-012020-09-300001638833sgry:SurgicalFacilitiesMember2020-09-300001638833sgry:DisposalGroupOneMember2020-01-012020-09-300001638833sgry:DisposalGroupTwoMember2020-01-012020-09-300001638833sgry:DisposalGroupTwoMember2020-07-012020-09-300001638833sgry:DisposalGroupThreeMember2020-07-012020-09-300001638833sgry:DisposalGroupThreeMember2020-01-012020-09-300001638833sgry:SurgicalFacilitiesNewMarketMember2020-01-012020-09-30sgry:reporting_unit0001638833sgry:AncillaryServicesMember2020-01-012020-09-300001638833sgry:AllianceMember2020-01-012020-09-300001638833sgry:A2017TermLoanMaturing2024Memberus-gaap:SecuredDebtMember2020-09-300001638833sgry:A2017TermLoanMaturing2024Memberus-gaap:SecuredDebtMember2019-12-310001638833sgry:A2017SeniorSecuredCreditFacilityMemberus-gaap:SecuredDebtMember2020-09-300001638833sgry:A2017SeniorSecuredCreditFacilityMemberus-gaap:SecuredDebtMember2019-12-310001638833us-gaap:SeniorNotesMembersgry:SeniorUnsecuredNotesDue2025Member2019-12-310001638833sgry:SeniorUnsecuredNotesDue2027Memberus-gaap:SeniorNotesMember2019-12-310001638833sgry:NotesPayableAndSecuredLoansMember2020-09-300001638833sgry:NotesPayableAndSecuredLoansMember2019-12-310001638833us-gaap:RevolvingCreditFacilityMember2020-09-300001638833us-gaap:LetterOfCreditMember2020-09-300001638833sgry:A2020IncrementalLoansMember2020-04-220001638833sgry:A2020IncrementalLoansMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-04-222020-04-220001638833sgry:A2020IncrementalLoansMemberus-gaap:FederalFundsEffectiveSwapRateMember2020-04-222020-04-220001638833sgry:OneMonthLondonInterbankOfferedRateLIBORMembersgry:A2020IncrementalLoansMember2020-04-222020-04-220001638833sgry:A2020IncrementalLoansMember2020-04-222020-04-220001638833sgry:A2020IncrementalLoansMemberus-gaap:BaseRateMember2020-04-222020-04-220001638833sgry:SeniorUnsecuredNotesDue2027Memberus-gaap:SeniorNotesMember2020-07-300001638833us-gaap:SeriesAPreferredStockMemberus-gaap:MajorityShareholderMember2017-08-312017-08-310001638833us-gaap:SeriesAPreferredStockMemberus-gaap:MajorityShareholderMember2017-08-310001638833us-gaap:SeriesAPreferredStockMember2019-12-310001638833us-gaap:SeriesAPreferredStockMember2020-01-012020-09-300001638833us-gaap:SeriesAPreferredStockMember2020-09-30sgry:swap0001638833us-gaap:InterestRateSwapMember2020-09-300001638833us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001638833us-gaap:EmployeeStockOptionMember2019-07-012019-09-300001638833us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001638833us-gaap:EmployeeStockOptionMember2019-01-012019-09-300001638833us-gaap:RestrictedStockMember2020-07-012020-09-300001638833us-gaap:RestrictedStockMember2019-07-012019-09-300001638833us-gaap:RestrictedStockMember2020-01-012020-09-300001638833us-gaap:RestrictedStockMember2019-01-012019-09-3000016388332020-04-142020-04-1400016388332020-04-152020-05-12sgry:business_day0001638833srt:ScenarioForecastMember2021-04-012021-04-0100016388332018-01-012018-12-310001638833sgry:TampaPainMember2020-04-142020-04-140001638833sgry:LoganLabsMember2020-04-142020-04-140001638833us-gaap:FederalFundsEffectiveSwapRateMember2020-01-012020-09-300001638833sgry:MateriallyMoreRestrictiveMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-09-300001638833sgry:NotMateriallyMoreRestrictiveMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-09-30sgry:segment0001638833us-gaap:OperatingSegmentsMembersgry:SurgicalFacilityServicesMember2020-07-012020-09-300001638833us-gaap:OperatingSegmentsMembersgry:SurgicalFacilityServicesMember2019-07-012019-09-300001638833us-gaap:OperatingSegmentsMembersgry:SurgicalFacilityServicesMember2020-01-012020-09-300001638833us-gaap:OperatingSegmentsMembersgry:SurgicalFacilityServicesMember2019-01-012019-09-300001638833us-gaap:OperatingSegmentsMembersgry:AncillaryServicesMember2020-07-012020-09-300001638833us-gaap:OperatingSegmentsMembersgry:AncillaryServicesMember2019-07-012019-09-300001638833us-gaap:OperatingSegmentsMembersgry:AncillaryServicesMember2020-01-012020-09-300001638833us-gaap:OperatingSegmentsMembersgry:AncillaryServicesMember2019-01-012019-09-300001638833us-gaap:OperatingSegmentsMembersgry:OpticalServicesMember2020-07-012020-09-300001638833us-gaap:OperatingSegmentsMembersgry:OpticalServicesMember2019-07-012019-09-300001638833us-gaap:OperatingSegmentsMembersgry:OpticalServicesMember2020-01-012020-09-300001638833us-gaap:OperatingSegmentsMembersgry:OpticalServicesMember2019-01-012019-09-300001638833us-gaap:CorporateNonSegmentMember2020-07-012020-09-300001638833us-gaap:CorporateNonSegmentMember2019-07-012019-09-300001638833us-gaap:CorporateNonSegmentMember2020-01-012020-09-300001638833us-gaap:CorporateNonSegmentMember2019-01-012019-09-300001638833us-gaap:OperatingSegmentsMembersgry:SurgicalFacilityServicesMember2020-09-300001638833us-gaap:OperatingSegmentsMembersgry:SurgicalFacilityServicesMember2019-12-310001638833us-gaap:OperatingSegmentsMembersgry:AncillaryServicesMember2020-09-300001638833us-gaap:OperatingSegmentsMembersgry:AncillaryServicesMember2019-12-310001638833us-gaap:OperatingSegmentsMembersgry:OpticalServicesMember2020-09-300001638833us-gaap:OperatingSegmentsMembersgry:OpticalServicesMember2019-12-310001638833us-gaap:CorporateNonSegmentMember2020-09-300001638833us-gaap:CorporateNonSegmentMember2019-12-310001638833sgry:ASCAndSurgicalFacilitiesExistingMarketsMemberus-gaap:SubsequentEventMember2020-10-012020-10-310001638833sgry:ASCExistingMarketsMemberus-gaap:SubsequentEventMember2020-10-012020-10-310001638833us-gaap:SubsequentEventMembersgry:SurgicalFacilitiesExistingMarketsMember2020-10-012020-10-31

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, 2020
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.)

310 Seven Springs Way, Suite 500
Brentwood, Tennessee 37027
(Address of principal executive offices and zip code)
(615) 234-5900
(Registrant’s telephone number, including area code)
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each 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  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer o
 
Accelerated filer ☒
Non-accelerated filer o
 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  x
As of October 29, 2020, there were 50,494,790 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
(Unaudited, dollars in millions, except per share amounts)
September 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$450.0 $92.7 
Accounts receivable
337.0 326.9 
Inventories50.9 46.3 
Prepaid expenses19.2 17.8 
Other current assets36.3 41.8 
Total current assets893.4 525.5 
Property and equipment, net of accumulated depreciation of $170.7 and $110.7, respectively
497.7 523.3 
Goodwill and other intangible assets, net3,389.4 3,449.7 
Investments in and advances to affiliates91.8 93.2 
Right-of-use operating lease assets314.9 297.7 
Long-term deferred tax assets105.5 98.7 
Other long-term assets20.2 30.8 
Total assets$5,312.9 $5,018.9 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$90.3 $96.7 
Accrued payroll and benefits65.6 54.2 
Medicare accelerated payments and deferred governmental grants141.0  
Other current liabilities232.9 191.2 
Current maturities of long-term debt61.1 56.0 
Total current liabilities590.9 398.1 
Long-term debt, less current maturities2,761.3 2,524.7 
Right-of-use operating lease liabilities306.1 283.1 
Other long-term liabilities124.9 113.6 
Non-controlling interests—redeemable304.7 321.0 
Redeemable preferred stock - Series A; shares authorized, issued and outstanding - 310,000; redemption value - $424.2 and $395.0, respectively
424.2 395.0 
Stockholders' equity:
Preferred stock, $0.01 par value; shares authorized - 20,000,000; shares issued or outstanding - none
  
Common stock, $0.01 par value; shares authorized - 300,000,000; shares issued and outstanding - 50,494,605 and 49,298,940, respectively
0.5 0.5 
Other stockholders' equity100.7 296.3 
Total Surgery Partners, Inc. stockholders' equity101.2 296.8 
Non-controlling interests—non-redeemable699.6 686.6 
Total stockholders' equity800.8 983.4 
Total liabilities and stockholders' equity$5,312.9 $5,018.9 

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,
2020201920202019
Revenues$496.1 $452.0 $1,311.8 $1,314.2 
Operating expenses:
Salaries and benefits141.7 139.3 398.2 401.2 
Supplies142.8 126.2 382.2 364.6 
Professional and medical fees46.3 38.5 138.4 110.0 
Lease expense21.9 21.4 64.7 63.0 
Other operating expenses29.2 27.7 83.9 80.8 
Cost of revenues381.9 353.1 1,067.4 1,019.6 
General and administrative expenses25.2 19.9 73.3 64.9 
Depreciation and amortization24.1 18.4 69.3 56.3 
Income from equity investments(3.1)(2.4)(7.6)(6.6)
Loss (gain) on disposals and deconsolidations, net0.7 0.6 7.1 (7.0)
Transaction and integration costs5.4 3.4 15.8 11.6 
Impairment charges33.5  33.5  
Grant funds9.9  (33.2) 
Litigation settlement  1.2  
Loss on debt extinguishment   11.7 
Other income  (1.7)(0.4)
Total operating expenses477.6 393.0 1,225.1 1,150.1 
Operating income 18.5 59.0 86.7 164.1 
Tax receivable agreement expense   (2.4)
Interest expense, net(51.5)(45.7)(147.8)(134.1)
(Loss) income before income taxes(33.0)13.3 (61.1)27.6 
Income tax expense (benefit)1.3 2.4 (14.5)5.1 
Net (loss) income(34.3)10.9 (46.6)22.5 
Less: Net income attributable to non-controlling interests(27.3)(26.6)(75.0)(78.1)
Net loss attributable to Surgery Partners, Inc.(61.6)(15.7)(121.6)(55.6)
Less: Amounts attributable to participating securities(10.0)(9.1)(29.2)(26.4)
Net loss attributable to common stockholders$(71.6)$(24.8)$(150.8)$(82.0)
Net loss per share attributable to common stockholders
Basic$(1.46)$(0.51)$(3.09)$(1.70)
Diluted (1)
$(1.46)$(0.51)$(3.09)$(1.70)
Weighted average common shares outstanding
Basic 48,883 48,310 48,736 48,265 
Diluted (1)
48,883 48,310 48,736 48,265 
(1) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive in those periods.

See notes to unaudited condensed consolidated financial statements.


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,
2020201920202019
Net (loss) income$(34.3)$10.9 $(46.6)$22.5 
Other comprehensive income (loss), net of tax:
Derivative activity3.3 (6.8)(14.6)(35.1)
Comprehensive (loss) income(31.0)4.1 (61.2)(12.6)
Less: Comprehensive income attributable to non-controlling interests(27.3)(26.6)(75.0)(78.1)
Comprehensive loss attributable to Surgery Partners, Inc.$(58.3)$(22.5)$(136.2)$(90.7)
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 LossRetained DeficitNon-Controlling Interests—
Non-Redeemable
Total
SharesAmount
Balance at December 31, 201949,299 $0.5 $662.7 $(50.7)$(315.7)$686.6 $983.4 
Net (loss) income— — — — (27.5)13.6 (13.9)
Equity-based compensation1,219 — 2.8 — — — 2.8 
Preferred dividends— — (9.5)— — — (9.5)
Other comprehensive loss— — — (25.2)— — (25.2)
Acquisition and disposal of shares of non-controlling interests, net (1)
— — (0.7)— — 1.4 0.7 
Distributions to non-controlling interests—non-redeemable holders— — — — — (14.9)(14.9)
Balance at March 31, 202050,518 0.5 655.3 (75.9)(343.2)686.7 923.4 
Net (loss) income— — — — (32.5)22.8 (9.7)
Equity-based compensation33 — 3.8 — — — 3.8 
Preferred dividends— — (9.7)— — — (9.7)
Other comprehensive income— — — 7.3 — — 7.3 
Acquisition and disposal of shares of non-controlling interests, net (1)
— — (1.2)— — 2.9 1.7 
Distributions to non-controlling interests—non-redeemable holders— — — — — (20.9)(20.9)
Balance at June 30, 202050,551 0.5 648.2 (68.6)(375.7)691.5 895.9 
Net (loss) income— — — — (61.6)19.3 (42.3)
Equity-based compensation(56)— 3.0 — — — 3.0 
Preferred dividends— — (10.0)— — — (10.0)
Other comprehensive income— — — 3.3 — — 3.3 
Acquisition and disposal of shares of non-controlling interests, net (1)
— — (37.9)— — 7.6 (30.3)
Distributions to non-controlling interests—non-redeemable holders— — — — — (18.8)(18.8)
Balance at September 30, 202050,495 $0.5 $603.3 $(65.3)$(437.3)$699.6 $800.8 
(1)Includes post acquisition date adjustments.

See notes to unaudited condensed consolidated financial statements.




























4

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 LossRetained DeficitNon-Controlling Interests—
Non-Redeemable
Total
SharesAmount
Balance at December 31, 201848,869 $0.5 $673.5 $(22.4)$(247.0)$694.3 $1,098.9 
Net (loss) income— — — — (20.1)16.0 (4.1)
Equity-based compensation517 — 0.9 — — — 0.9 
Preferred dividends— — (8.5)— — — (8.5)
Other comprehensive loss— — — (11.5)— — (11.5)
Net effect of adoption of new accounting standard— — — — 18.0 — 18.0 
Acquisition and disposal of shares of non-controlling interests, net (1)
— — 8.0 — — 6.1 14.1 
Distributions to non-controlling interests—non-redeemable holders— — — — — (23.5)(23.5)
Balance at March 31, 201949,386 0.5 673.9 (33.9)(249.1)692.9 1,084.3 
Net (loss) income— — — — (19.8)18.7 (1.1)
Equity-based compensation117 — 3.1 — — — 3.1 
Preferred dividends— — (8.8)— — — (8.8)
Other comprehensive loss— — — (16.8)— — (16.8)
Acquisition and disposal of shares of non-controlling interests, net (1)
— — 9.6 — — (7.6)2.0 
Distributions to non-controlling interests—non-redeemable holders— — — — — (17.7)(17.7)
Balance at June 30, 201949,503 0.5 677.8 (50.7)(268.9)686.3 1,045.0 
Net (loss) income— — — — (15.7)19.3 3.6 
Equity-based compensation3 — 2.7 — — — 2.7 
Preferred dividends— — (9.1)— — — (9.1)
Other comprehensive loss— — — (6.8)— — (6.8)
Acquisition and disposal of shares of non-controlling interests, net (1)
— — (1.1)— — (7.9)(9.0)
Distributions to non-controlling interests—non-redeemable holders— — — — — (19.9)(19.9)
Balance at September 30, 201949,506 $0.5 $670.3 $(57.5)$(284.6)$677.8 $1,006.5 

(1)Includes post acquisition date adjustments.

See notes to unaudited condensed consolidated financial statements.


5

Table of Contents
SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in millions)
Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net (loss) income$(46.6)$22.5 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization69.3 56.3 
Non-cash interest expense, net3.1 0.6 
Equity-based compensation expense9.9 7.6 
Loss (gain) on disposals and deconsolidations, net7.1 (7.0)
Impairment charges33.5  
Loss on debt extinguishment 11.7 
Deferred income taxes(15.3)4.1 
Income from equity investments, net of distributions received(1.0)0.5 
Non-cash lease expense29.4 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 grants141.0  
Other operating assets and liabilities19.5 (28.7)
Net cash provided by operating activities238.0 104.1 
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 assets48.3 17.6 
Purchases of equity investments  (15.2)
Other investing activities0.5 (0.2)
Net cash provided by (used in) investing activities6.8 (61.8)
Cash flows from financing activities:
Principal payments on long-term debt(197.3)(436.1)
Borrowings of long-term debt428.0 442.5 
Payments of debt issuance costs(8.3)(8.8)
Payment of premium on debt extinguishment  (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)(1.0)
Net cash provided by (used in) financing activities112.5 (115.3)
Net increase (decrease) in cash, cash equivalents and restricted cash357.3 (73.0)
Cash, cash equivalents and restricted cash at beginning of period93.0 184.6 
Cash, cash equivalents and restricted cash at end of period$450.3 $111.6 
See notes to unaudited condensed consolidated financial statements.

6

Table of Contents
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, 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

7

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

8

Table of Contents
SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 AmountFair Value
September 30,
2020
December 31,
2019
September 30,
2020
December 31,
2019
Senior secured term loan$1,543.1 $1,434.1 $1,455.2 $1,434.1 
6.750% senior unsecured notes due 2025
$370.0 $370.0 $363.1 $368.2 
10.000% senior unsecured notes due 2027
$545.0 $430.0 $577.0 $471.4 
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.

9

Table of Contents
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,
2020201920202019
Patient service revenues:
   Surgical facilities revenues95.4 %93.9 %95.0 %94.0 %
   Ancillary services revenues3.4 %4.4 %3.6 %4.6 %
98.8 %98.3 %98.6 %98.6 %
Other service revenues:
   Optical services revenues0.2 %0.2 %0.2 %0.2 %
   Other revenues1.0 %1.5 %1.2 %1.2 %
1.2 %1.7 %1.4 %1.4 %
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. 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.

10

Table of Contents
SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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,
20202019
Amount%Amount%
Patient service revenues:
Private insurance$257.4 52.6 %$236.3 53.2 %
Government188.8 38.5 %175.4 39.5 %
Self-pay19.4 4.0 %11.8 2.7 %
Other (1)
24.2 4.9 %21.0 4.6 %
Total patient service revenues489.8 100.0 %444.5 100.0 %
Other service revenues:
Optical services revenues0.9 0.9 
Other revenues5.4 6.6 
Total revenues$496.1 $452.0 
Nine Months Ended September 30,
20202019
Amount%Amount%
Patient service revenues:
Private insurance$682.6 52.8 %$682.1 52.7 %
Government505.4 39.1 %518.4 40.0 %
Self-pay43.4 3.4 %32.1 2.5 %
Other (1)
62.1 4.7 %62.2 4.8 %
Total patient service revenues1,293.5 100.0 %1,294.8 100.0 %
Other service revenues:
Optical services revenues2.2 3.0 
Other revenues16.1 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

11

Table of Contents
SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 interestsredeemable 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):
20202019
Balance at beginning of period$321.0 $326.6 
Net income attributable to non-controlling interests—redeemable19.3 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

12

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

13

Table of Contents
SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. 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