SGRY 10-K & 10-Q changes, risk factors and insider trading

We depend upon private and governmental third-party sources of payment for the services provided by physicians in our physician network and to patients in our surgical facilities, including surgical hospitals. We derived approximately 43%, 41% and 42% of our revenue from government payors, including Medicare and Medicaid programs in 2025, 2024 and 42%2023, in both 2023 and 2022.respectively. The amounts that we receive from the Medicare and Medicaid programs for our services are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or reimbursements, among other things; refinements to the Medicare Ambulatory Surgery Center payment system and refinements made by CMS to Medicare’s reimbursement policies; requirements for utilization review; and federal and state funding restrictions; any of which could materially adversely affect payments we receive from these government programs, as well as affect the timing of payments to our facilities.

AAdditionally, a significant shift in our case mix toward a higher percentage of lower revenue cases, which could occur for reasons beyond our control, could result in a material adverse effect on our business, prospects, results of operations and financial condition.

As we operate in multiple markets, each with a different competitive landscape, shifts within our payor mix or case mix may not be uniform across all of our affiliated facilities. Rather, these shifts may be concentrated within certain markets due to local competitive factors. In addition, we are unable to predict the results of an increasing trend towards value based payment on our reimbursement.Therefore,reimbursement. Therefore, the results of our individual affiliated facilities, including facilities that are material to our results, may be volatile, which could result in a material adverse effect on our business, prospects, results of operations and financial condition.

Our business depends, among other things, upon the efforts and success of affiliated physicians who provide medical services at our surgical facilities and the strength of our relationships with these physicians. We generally do not enter into contracts with physicians who use our surgical facilities, other than partnership and operating agreements with physicians who own interests in our surgical facilities, agreements for anesthesiology services and medical director agreements. Most physicians are not employees of our surgical facilities and are not contractually required to use our facilities. Physicians who use our surgical facilities also use other facilities or hospitals and may choose to perform procedures in an office-based setting that might otherwise be performed at our surgical facilities. In recent years, pain management and gastrointestinal procedures have been performed increasingly in an office-based setting because of potential cost savings or better access for patients and physicians. Although physicians who own interests in our surgical facilities are subject to agreements restricting ownership of competing facilities, these agreements may not restrict procedures performed in a physician office or in other unrelated facilities. Also, these agreements restricting ownership of competing facilities are difficult to enforce, and we may be unsuccessful in preventing physicians who own interests in our surgical facilities from acquiring interests in competing facilities.

Certain of the agreements governing the limited partnerships ("LPs"), limited liability partnerships ("LLPs"), general partnerships ("GPs") and limited liability companies ("LLCs") through which we own and operate our facilities contain provisions that give our partners or other members rights that may, in certain circumstances, be adverse to our interests. These rights include, but are not limited to, rights to purchase our interest in the partnership or LLC, rights to require us to purchase the interests of our partners or other members, or rights requiring the consent of our partners and other members prior to our transferring our ownership interest in a facility or prior to a change in control of us or certain of our subsidiaries. With respect to these purchase rights, the agreements generally include a specified formula or methodology to determine the applicable purchase price, which may or may not reflect fair market value.

We generally hold our ownership interests in facilities through LPs, LLPs, GPs, and LLCs or limited liability partnerships ("LLPs") in which we maintain an ownership interest along with physicians and, in some cases, both physicians and health systems. As general partner and manager of most of these entities, we may have a fiduciary duty, to manage these entities in the best interests of the other owners. We also have a duty to operate our business for the benefit of our stockholders. As a result, we may encounter conflicts between our responsibility to the other owners and our responsibility to our stockholders. For example, we have entered into some management agreements to provide management services to our surgical facilities in exchange for a fee. Disputes may arise as to the nature of the services to be provided or the amount of the fee to be paid. In these cases, we may be obligated to exercise reasonable, good faith judgment to resolve the disputes and may not be free to act solely in our own best interests or the stockholders best interest. Disputes may also arise between us and our physician investors with respect to a particular business decision or regarding the interpretation of the provisions of the applicable partnership or limited liability company agreement. We seek to avoid these disputes but have not implemented any measures to resolve these conflicts if they arise. If we are unable to resolve a dispute on terms favorable or satisfactory to us, it could have a material adverse effect on our business, prospects, results of operations and financial condition.

As of December 31, 2024,2025, we and our subsidiaries had approximately $3.4$3.7 billion aggregate principal amount of indebtedness outstanding, which includes approximately $1.4 billion principal amount of senior secured term loans (the "Term Loan") outstanding and $800.0$1,225.0 million senior unsecured notes due 2032 (the "2032 Unsecured Notes"). As of December 31, 2024,2025, we had $192.0 million ofno outstanding borrowings under our $703.8 million senior secured revolving credit facility (the "Revolver" and, together with the Term Loan, the "New Secured Credit Facilities" and, together with the 2032 Unsecured Notes, the "Senior Indebtedness"). After giving effect to the $10.3$11.0 million principal amount of outstanding letters of credit issued under our Revolver, we had $501.5$692.8 million of unused commitments available to be borrowed under the Revolver. In addition to the Senior Indebtedness, our aggregate principal amount of indebtedness outstanding includes approximately $1.0$1.1 billion of notes payable and finance lease obligations primarily related to property and equipment for operations. Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. In addition, subject to applicable restrictions under our Senior Indebtedness, we may incur significant additional indebtedness, which may be secured, from time to time, which could have important consequences, including:

We and our subsidiaries may be able to incur additional indebtedness in the future, including secured indebtedness. Although the credit agreement governing the NewSecured Credit Facilities and the indentures governing the 2032 Unsecured Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.

We are a holding company, and our ability to service our debt is dependent upon the earnings from the business conducted by our subsidiaries that operate the surgical facilities. The effect of this structure is that we depend on the earnings of our subsidiaries, and the distribution or payment to us of a portion of these earnings to meet our obligations, including those under the TermSenior Loans and RevolverIndebtedness and any of our other debt obligations. The distributions of those earnings, advances or other distributions of funds by these entities to us, all of which are contingent upon our subsidiaries’ earnings, are subject to various business considerations. In addition, distributions by our subsidiaries could be subject to statutory restrictions, including state laws requiring that such subsidiaries be solvent, or contractual restrictions. Some of our subsidiaries may become subject to agreements that restrict the sale of assets and significantly restrict or prohibit the payment of dividends or the making of distributions, loans or other payments to stockholders, partners or members.

We own and operate our surgical facilities through limited partnerships and limited liability companies. Local physicians, physician groups and health care systems also own an interest many of these partnerships and limited liability companies. For some of our surgical facilities, indebtedness at the partnershippartnership, or LLC level is funded through intercompany loans that we provide. At December 31, 2024,2025, our intercompany loans totaled $35.7$44.2 million. Through these loans we may have a security interest in the partnership’s or limited liability company’sLLC's assets, depending upon the terms thereof in each instance. However, our financial condition and results of operations would be materially adversely affected if our surgical facilities are unable to repay these intercompany loans, or such loans are challenged under certain health care laws. Additionally, at December 31, 2024,2025, our global intercompany note, which we use to transfer debt balances between our subsidiaries, had a zero balance.

Although most of our intercompany loans are secured by the assets of the partnership or limited liability company,LLC, the physicians and physician groups that own an interest in these partnerships and limited liability companiesLLCs generally do not guarantee a pro rata amount of this debt or the other obligations of these partnerships and limited liability companies.LLCs.

From time to time, we may guarantee our pro-rata share of the third-party debts and other obligations of our non-wholly owned non-consolidated partnerships and limited liability companiesLLCs in which we own an interest in an amount proportionate to our pro rata share of the equity interests issued by such entity. In such instances, the physicians and/or physician groups typically also guarantee their pro-rata share of such indebtedness.

Borrowings under the Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. We periodically enter into interest rate swap agreements and interest rate cap agreements to manage our exposure to these fluctuations. Our interest rate swap agreements and interest rate cap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates. The notional amounts of the swap and cap agreements represent balances used to calculate the exchange of cash flows and are not our assets or liabilities.

Many states in which we operate may impose supplemental laws that are more protective of the privacy and security of PII than HIPAA. Where these state laws are more protective than HIPAA, we have to comply with their stricter provisions. Only some of these state laws impose fines and penalties upon violators, but some may afford private rights of action to individuals who believe their PII has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. Both state and federal laws are subject to modification or enhancement of privacy protection at any time. For example, HHS issued a Notice of Proposed Rulemaking on January 6, 2025, which proposes changes to the HIPAA security regulations aimed at enhancing cybersecurity protections in the healthcare sector.sector; however, as of December 31, 2025, HHS had yet to publish a final rule formalizing the January 2025 proposals. Our facilities will continue to remain subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA. These statutes vary and could impose additional requirements on us and more severe penalties for disclosures of confidential health information. New health information standards could have a significant effect on the manner in which we do business, and the cost of complying with new standards could be significant. We may not remain in compliance with the diverse privacy requirements in all of the jurisdictions in which we do business. If we fail to comply with HIPAA or similar state laws, we could incur substantial civil monetary or criminal penalties.

We attempt to structure our relationship with physicians who refer to our surgical hospitals to meet an exception to the Stark Law where required, but the regulations implementing the exceptions are detailed and complex, and we cannot guarantee that every relationship complies fully with the Stark Law. We also believe that certain services provided by our managed physician network are covered by the Stark Law, but referrals for those services are exempt from the Stark Law under its "in-office ancillary services exception," among others.

Violations of these self-referral laws may result in substantial civil or criminal penalties, including treble damages for amounts improperly claimed, civil monetary penalties of up to $15,000 per prohibited service billed, up to $100,000 per prohibited circumvention scheme and exclusion from participation in the Medicare and Medicaid and other federal and state health care programs. Violations of the Stark Law will also create liability under the federal False Claims Act. Exclusion of our ASCs or surgical hospitals from these programs through judicial or agency interpretation of existing laws or additional legislative restrictions on physician ownership or investments in health care entities could result in a significant loss of reimbursement revenue. We cannot provide assurances that CMS will not undertake other rulemaking to address additional revisions to or interpretations of the Stark Law regulations. If future rules modify the provisions of the Stark Law regulations that are applicable to our business, our revenue and profitability could be materially adversely affected and could require us to modify our relationships with our physician and health care system partners.

Total revenues for 20242025 increased 13.5%6.2% to $3.3 billion from $3.1 billion from $2.7 billion in 2023.2024. The increase in revenues was attributable to same-facility revenue growth and the net impact from acquisitions and divestitures completed in 2024.2025. Days adjusted same-facility revenues for 20242025 increased 8.0%4.9% from 2023,2024, with a 4.0%1.4% increase in revenue per case and a 3.9%3.4% increase in same-facility cases. Additionally, for 2024,2025, net loss attributable to Surgery Partners, Inc. was $77.9 million compared to $168.1 million for 2024. For 2025, Adjusted EBITDA increased 16.0%3.5% to $526.2 million compared to $508.2 million compared to $438.1 million for 2023.2024. The increase in Adjusted EBITDA was primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed insince 2024the andprior 2023. For 2024, net loss attributable to Surgery Partners, Inc. was $168.1 million compared to $11.9 million for 2023.year. A reconciliation of non-GAAP financial measures appears below under the heading "Certain Non-GAAP Measures."

We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and pursuing other portfolio management initiatives. During 2024,2025, we acquired a controlling interest in eighttwelve surgical facilities and several physician practices and other ancillary businesses for aggregate cash consideration of $378.8$162.1 million, net of cash acquired, and non-cash consideration of $1.1 million.acquired.

Our patient service revenues are derived primarily from surgical procedures performed at our surgical facilities, patient visits to physician practices, anesthesia services provided to patients, pharmacy services and diagnostic screens ordered by our physicians. The fees for such services are billed either to the patient or a third-party payor, including Medicare and Medicaid. We recognize patient service revenues, net of contractual allowancesadjustments and implicit price concessions,concessions. whichContractual weadjustments estimateand implicit price concessions are estimated based on existingcontractual contractsagreements, ordiscount thepolicies and historical trendexperience of our cash collections and contractualhistorical write-offs. ContractualThe allowancesestimated contractual adjustments are recordedrecognized at the time of paymentservices being performed, with ASCs typically based on contractual agreements and surgical hospitals typically based on historical experience of cash collections and write-offs. Changes in estimated contractual adjustments are recorded in the period of change, with final adjustments, if any, typically at the time of billing for surgical hospitals and ASCs, respectively.payment.

Other service revenues consist of management and administrative service fees derived from non-consolidated surgical facilities that we account for under the equity method, management of surgical facilities in which we do not own an interest and management services we provide to physician networks for which we are not required to provide capital or additional assets. The fees we derive from these management arrangements are generally based on a predetermined percentage of the revenues of each surgical facility and physician network. We recognize other service revenues in the period in which services are rendered.rendered and billed.

We recognize that final reimbursement of outstanding accounts receivable is subject to final approval by each third-party payor. However, because we have contracts with our third-party payors and we verify the insurance coverage of the patient before services are rendered, the amounts that are pending approval from third-party payors are minimal. Amounts are classified outside of self-pay if we have an agreement with the third-party payor or we have verified a patient’s coverage prior to services rendered. It is our policy to collect co-payments and deductibles prior to providing services, where possible. It is also our policy to verify a patient’s insurance 72 hours prior to the patient’s procedure. Because our services are primarily non-emergency, our surgical facilities have the ability to control thesethe procedures.procedures for which third-party reimbursement is sought and obtained.

Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired. Goodwill is reviewed for impairment at the reporting unit level, which is defined as one level below an operating segment or at the operating segment level, on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit. During 2024,2025, the Company hadhas identified two reporting units, American Group and National Group.

General and Administrative Expenses. General and administrative expenses were $138.7$118.2 million and $120.9$138.7 million for the years ended December 31, 20242025 and 2023,2024, respectively. As a percentage of revenues, general and administrative expenses were 4.5%3.6% and 4.4%4.5% for the years ended December 31, 20242025 and 2023,2024, respectively. The decrease in general and administrative expenses as a percentage of revenues was due to a decrease in executive incentive compensation during the year ended December 31, 2025.

Depreciation and Amortization. Depreciation and amortization expenses were $152.6$176.0 million and $118.1$152.6 million for the years ended December 31, 20242025 and 2023,2024, respectively. This increase was primarily due to accelerateaccelerated depreciation recorded on certain long-lived assets as a result of the Company's portfolio management activities. As a percentage of revenues, depreciation and amortization expenses were 4.9%5.3% and 4.3%4.9% for the years ended December 31, 20242025 and 2023,2024, respectively.

Interest Expense, Net. Interest expense, net was $272.6 million for the year ended December 31, 2025 compared to $201.7 million for the year ended December 31, 2024 compared to $193.0 million for the year ended December 31, 2023.2024. As a percentage of revenues, interest expense, net was 6.5%8.2% and 7.0%6.5% for the years ended December 31, 20242025 and 2023,2024, respectively. The increase in interest expense was primarily driven by the maturity of prior interest rate swaps in March 2025 and increased interest related to the incremental senior unsecured notes raised in 2024.

The effective tax rate was 91.5%15.4% and (0.2)%91.5% for the years ended December 31, 20242025 and 2023,2024, respectively. See Note 9. "Income Taxes" for additional information related to the Company's effective tax rates for the years ended December 31, 20242025 and December 31, 2023,2024, including why these rates differed from the U.S. federal statutory rate of 21%.

Our discussion regarding the comparison of the year ended December 31, 20232024 compared to the year ended December 31, 20222023 was previously disclosed beginning on page 4235 in our Annual Report on Form 10-K for the year ended December 31, 2023,2024, which was filed on FebruaryMarch 26,7, 2024,2025, under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Year Ended December 31, 20232024 Compared to Year Ended December 31, 20222023" and is hereby incorporated herein by reference.

The primary source of our operating cash flows is the collection of accounts receivable from private insurance companies, federal and state agencies (under the Medicare and Medicaid programs) and individuals. Our cash flows provided by operating activities was $274.3 million for the year ended December 31, 2025 compared to $300.1 million for the year ended December 31, 20242024. comparedThe to $293.8$25.8 million for the year ended December 31, 2023. The $6.3 million increasedecrease was primarily driven by operational growth, partially offset by increased spend on acquisition and integration related costsgrowth and the timing of routine working capital.

Net cash used in investing activities for the year ended December 31, 20242025 was $488.5$246.6 million compared to $225.6$488.5 million for the year ended December 31, 2023.2024. The $262.9$241.9 million increasedecrease was primarily driven by an aggregate net increasedecrease of $250.2$205.1 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $23.2$43.9 million decreaseincrease in proceeds from sales of facilities.

Net cash providedused byin financing activities for the year ended December 31, 20242025 was $262.0$57.3 million compared to net cash usedprovided by financing activities of $155.2$262.0 million for the year ended December 31, 2023.2024. The increasedecrease of $417.2$319.3 million was primarily driven by the difference in the amount of net proceeds received from the issuance and sale of $425.0 million and $800.0 million in senior unsecured notes,notes partially offset byfor the redemptionyears ofended allDecember the31, Existing2025 Notesand (as2024, discussed in the following section).respectively. The remaining increasedecrease was due to netan borrowingsincrease onin the Revolver useddistributions to fundnon-controlling acquisitionsinterest completedholders duringof the$55.5 year ended December 31, 2024.million.

Discussion of the operating, investing and financing activities for the year ended December 31, 20232024 was previously disclosed beginning on page 4336 in our Annual Report on Form 10-K for the year ended December 31, 2023,2024, which was filed on FebruaryMarch 26,7, 2024,2025, under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and is hereby incorporated herein by reference.

On JuneAugust 20,13, 2024,2025, the Company entered into the Second Amendment to the Credit Agreement (as definedefined below), towhich provideprovides for a new tranche of term loans under the Credit Agreement in an aggregate principal amount of $1.4 billion. The 20242025 Refinancing Term Loans replace or refinance in full all of the existing term loans outstanding under the Credit Agreement (as in effect immediately prior to the Second Amendment), and refinance in full all of the existing revolving credit commitments and outstanding revolving loans under the Credit Agreement (as in effect immediately prior to the Second Amendment), all as further set forth in the Second Amendment. The 20242025 Refinancing Term Loans mature on December 19, 2030.2030 and the refinanced revolving credit commitments and refinanced revolving loans mature on December 19, 2028. The 20242025 Refinancing Term Loans shall bear interest at a rate per annum equal to (x) the forward-looking term rate based on Term SOFR plus 2.75%2.50% per annum or (y) an alternate base rate (which will be the highest of (i) the prime raterate, plus 0.5% per annum above(ii) the federal funds effective rate plus 0.5% per annum and (iiiii) Term SOFR plus 1.00% per annum (which shall not be less than 1.00%)) plus 1.75%1.50% per annum. The 20242025 Refinancing Term Loans amortize in equal quarterly installments of 0.25% of the aggregate original principal amount of the 20242025 Refinancing Term Loans. Voluntary prepayments of the 20242025 Refinancing Term Loans are permitted, in whole or in part, with prior notice, without premium or penalty.

Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered in isolation or as a substitute for net income, operating income or any other measure calculated in accordance with GAAP. The items excluded from this non-GAAPnon- GAAP metric are significant components in understanding and evaluating our financial performance. We believe such adjustments are appropriate, as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA as a measure of financial performance. Adjusted EBITDA is a key measure used by our management to assess operating performance, make business decisions and allocate resources.

(21)This amount includes adiligence, nettransaction litigationand settlementsintegration costs related to acquisitions (gainboth completed and in the pipeline) lossand divested facilities (collectively "M&A costs") of $0.8$55.2 million, $10.6$76.4 million and $29.3$49.3 million for the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively. This amount also includes other litigationcosts, costsincluding severance, IT implementation, and revenue cycle standardization of $3.9$18.7 million, $2.5$23.7 million and $4.6$12.4 million for the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively. Additionally, the year ended December 31, 2023, includes $4.4 million related to the impact of recent changes in Florida law regarding the use of letters of protection.

(4)For the year ended December 31, 2024, this amount includes hurricane-related impacts, net of insurance proceeds related to cyber event losses predominantly incurred in 2023. For the year ended December 31, 2023, this amount includes estimates for the net impact of the May 2023 cyber event and losses from a divested business.

We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our NewSecured Credit Facilities. Credit Agreement EBITDA is determined on a trailing twelve-month basis. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. Credit Agreement EBITDA is not a measurement of liquidity under GAAP, and should not be considered in isolation or as a substitute for any other measure calculated in accordance with GAAP. The items excluded from Credit Agreement EBITDA are significant components in understanding and evaluating our liquidity. Our calculation of Credit Agreement EBITDA may not be comparable to similarly titled measures reported by other companies.

(21)Represents impact of acquisitions as if each acquisition had occurred on January 1, 2024.2025. Further this includes revenue and cost synergies from other business initiatives and de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the NewSecured Credit Facilities.

By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ from the expectations expressed in the statements. Many of these factors are beyond our ability to control or predict. These factors include, without limitation, the risk that the potential sale transaction of our ownership interests in Mountain View Hospital and Idaho Falls Community Hospital to Intermountain Health may not be completed in a timely manner or at all, including the risk that required physician, regulatory and other approvals and consents are not obtained, are delayed, or are obtained subject to conditions that are not anticipated; the failure to satisfy other closing conditions to the transaction; the possibility that the anticipated benefits of the sale to us are not realized as expected, the potential adverse effect of the announcement or pendency of the transaction on the market price of, or trading in, our securities and on our business relationships, operating results, and business generally, including the ability to retain key personnel; risks related to diverting management's attention from our ongoing business operations; the amount of costs, fees, expenses, and charges related to the sale transaction; potential litigation relating to the transaction that could be instituted against us or our affiliates, officers, or directors, and the effects of any outcomes related thereto; reductions in payments from government health care programs and private insurance payors, such as health maintenance organizations, preferred provider organizations, and other managed care organizations and employers; our ability to contract with private insurance payors; changes in our payor mix or surgical case mix; failure to maintain or develop relationships with physicians on beneficial or favorable terms, or at all; the impact of payor controls designed to reduce the number of surgical procedures; our efforts to integrate operations of acquired businesses and surgical facilities, attract new physician partners, or acquire additional surgical facilities; supply chain issues, including shortages or quality control issues with surgery-related products, equipment and medical supplies; competition for physicians, nurses, strategic relationships, acquisitions and managed care contracts; our ability to attract and retain qualified health care professionals; our ability to enforce non-compete restrictions against our physicians; our ability to manage material liabilities whether known or unknown incurred as a result of acquiring surgical facilities; the impact of current and future legislation and other health care public policy changes, and the effect of that legislation and other regulatory actions on our business; our ability to comply with current health care laws and regulations; the outcome of legal and regulatory proceedings that have been or may be brought against us; the impact of cybersecurity attacks or intrusions; changes in the regulatory, economic and other conditions of the states where our surgical facilities are located; our indebtedness; the social and economic impact of a pandemic, epidemic or outbreak of a contagious disease on our business; and the risks and uncertainties set forth under the heading "Risk Factors" in our 2025 Annual Report on Form 10-K and discussed from time to time in our reports filed with the SEC.Securities and Exchange Commission.

As of MarchJune 31,30, 2026, we owned or operated, primarily in partnership with physicians, a portfolio of 180178 surgical facilities comprised of 161159 ASCs and 19 surgical hospitals across 30 states. We owned a majority interest in 8987 of the surgical facilities and consolidated 122120 of these facilities for financial reporting purposes.

Total revenues for the firstsecond quarter of 2026 increased 4.5%2.7% to $810.9$848.9 million from $776.0$826.2 million in the firstsecond quarter of 2025. The increase in revenues was attributable to same-facility revenue growth in 2026. Days adjusted same-facility revenues for the firstsecond quarter of 2026 increased 4.4%5.0% from the firstsecond quarter of 2025, with a 3.8%4.8% increase in revenue per case and a 0.6%0.3% increase in same-facility cases. Additionally, for the firstsecond quarter of 2026, net loss attributable to Surgery Partners, Inc. was $35.9$15.0 million compared to $37.7$2.5 million for the firstsecond quarter of 2025. For the firstsecond quarter of 2026, Adjusted EBITDA decreased 1.5%2.9% to $102.3$125.2 million compared to $103.9$129.0 million for the same period in 2025. A reconciliation of non-GAAP financial measures appears below under the heading "Certain Non-GAAP Measures."

We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and pursuing other portfolio management initiatives. During the first quarter of 2026, we acquired a controlling interest in one surgical facility for aggregate cash consideration of $4.2 million, net of cash acquired.

We had cash and cash equivalents of $182.3$216.7 million and $666.1$617.8 million of borrowing capacity under the Revolver as of MarchJune 31,30, 2026.

Comparison of Operating Results for the Three Months Ended MarchJune 31,30, 2026 to the Three Months Ended MarchJune 31,30, 2025

Patient service revenues increased 4.4%2.7% to $792.1$826.1 million for the three months ended MarchJune 31,30, 2026 compared to $758.4$804.2 million for the three months ended MarchJune 31,30, 2025. The increase was primarily driven by a 4.4%5.0% increase in days adjusted same-facility revenues. The increase in days adjusted same-facility revenues was attributable to a 0.6%0.3% increase in same-facility case volumes and a 3.8%4.8% increase in same-facility revenue per case.

Cost of Revenues. Cost of revenues was $650.7$658.7 million for the three months ended MarchJune 31,30, 2026 compared to $614.1$630.6 million for the three months ended MarchJune 31,30, 2025. The increase was primarily driven by an increase in case volume and the performance of high acuity procedures completed during the three months ended MarchJune 31,30, 2026, and increased hospital provider taxes related to certain state supplemental programs. As a percentage of revenues, cost of revenues was 80.2%77.6% and 79.1%76.3% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

General and Administrative Expenses. General and administrative expenses were $39.3$36.3 million and $36.0$36.1 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. As a percentage of revenues, general and administrative expenses were 4.8%4.3% and 4.6%4.4% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Depreciation and Amortization. Depreciation and amortization expenses were $38.5$39.3 million and $36.3$40.3 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. As a percentage of revenues, depreciation and amortization expenses were 4.7%4.6% and 4.9% for the three months ended MarchJune 31,30, 2026 and 2025.2025, respectively.

Transaction and Integration Costs. The Company incurred $15.6$18.4 million of transaction and integration costs for the three months ended MarchJune 31,30, 2026 compared to $24.7$18.1 million for the three months ended MarchJune 31,30, 2025. The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions. The decrease was primarily driven by reduced acquisition and divestiture activity and reduced severance, IT implementation, and revenue cycle standardization costs.

Net (Gain) Loss on Disposals, Consolidations and Deconsolidations. The net (gain) loss on disposals, consolidations and deconsolidations for the three months ended MarchJune 31,30, 2026 and 2025 includes activity discussed in Note 2. "Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the condensed consolidated financial statements. The remaining net loss in both periods was primarily attributable to sales and disposals of other assets.

Interest Expense, Net. Interest expense, net was $69.1$69.8 million for the three months ended MarchJune 31,30, 2026 compared to $62.2$67.9 million for the three months ended MarchJune 31,30, 2025. As a percentage of revenues, interest expense, net was 8.5% and 8.0%8.2% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase was primarily driven by the maturity of prior interest rate swaps in March 2025 and increased interest related to the incremental senior unsecured notes raised in December 2025, partially offset by reduced borrowings on the Revolver.2025.

Income Tax (Expense) Benefit. Income tax (expense) benefit was $1.2 million and $0.0$2.6 million for the three months ended MarchJune 31,30, 2026 andcompared 2025,to respectively.an income tax benefit of $1.1 million for the three months ended June 30, 2025. The effective tax rate was 36.4%8.0% and 0.0%(2.5)% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The Company’s effective tax rate for both periods differed from the U.S. federal statutory 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 permanent differences resulting from share-based payment awards.

Net Income Attributable to Non-Controlling Interests. As a percentage of revenues, net income attributable to non-controlling interests was 4.2%5.3% and 4.8%5.7% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Cash and cash equivalents were $182.3$216.7 million at MarchJune 31,30, 2026 compared to $239.9 million at December 31, 2025.

The primary source of our operating cash flows is the collection of accounts receivable from private insurance companies, federal and state agencies (under the Medicare and Medicaid programs) and individuals. Our cash flows provided by operating activities was $11.7$71.0 million for the threesix months ended MarchJune 31,30, 2026 compared to $6.0$87.3 million for the threesix months ended MarchJune 31,30, 2025. The $5.7$16.3 million increasedecrease was primarily driven by timing of changes in working capital partially offset by an increase in cash interest payments.payments and timing of changes in working capital.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 was $13.4$33.2 million compared to $76.4$74.3 million for the threesix months ended MarchJune 31,30, 2025. The $63.0$41.1 million decrease was primarily driven by an aggregate net decrease of $43.6$47.7 million in payments for acquisitions and purchases of equity investments (net of cash acquired), a $6.7$8.3 million decrease in purchases of property and equipmentequipment, and a $26.8 million decrease in other investing activities.activities, partially offset by a $42.6 million decrease in proceeds from divestitures.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 2026 was $55.9$61.0 million compared to net cash provided of $30.2$32.4 million for the threesix months ended MarchJune 31,30, 2025. The decreaseincrease of $86.1$28.6 million was primarily driven by theincreased paydownpaydowns of long-term debt and reduced borrowings on long-term debt.

Net working capital was approximately $500.8$547.5 million at MarchJune 31,30, 2026 compared to $535.2 million at December 31, 2025.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the threesix months ended MarchJune 31,30, 2026 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Annual Report on Form 10-K.

(1)For the three months ended MarchJune 31,30, 2026, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $11.8$12.5 million and other costs, including severance, IT implementation, revenue cycle standardization of $3.8$5.9 million. For the three months ended MarchJune 31,30, 2025, this amount includes M&A costs of $16.8$14.1 million and other costs, including severance, IT implementation, revenue cycle standardization of $7.9$4.0 million.

(2)This amount includes aother litigation settlement losscosts of $2.5$2.7 million and $2.2$0.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. This amount also includes other litigation costs of $1.7 million and $0.5 million for the three months ended March 31, 2026 and 2025, respectively.

(1)Represents impact of acquisitions as if each acquisition had occurred on AprilJuly 1, 2025. Further this includes revenue and cost synergies from other business initiatives and de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the Credit Agreement, as amended.