Surgery Partners (SGRY) Q2 Revenue Up 8%

Surgery Partners (SGRY 1.22%), a leading operator of ambulatory surgical facilities, announced its results for the second quarter on August 5, 2025. The company reported GAAP revenue of $826.2 million, surpassing analyst GAAP estimates of $818.4 million, while Non-GAAP earnings per share (EPS) came in at $0.17, slightly missing the $0.18 consensus (non-GAAP). Adjusted EBITDA grew 9.0% year-over-year as Surgery Partners reaffirmed its full-year 2025 guidance. Despite continued top-line expansion and improved EBITDA, ongoing net losses and higher costs tied to network growth weighed on the bottom line, making it an eventful quarter with a mixed financial picture.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Strategic Focus

Surgery Partners operates a nationwide network of over 160 ambulatory surgery centers (ASCs) and surgical hospitals, providing facilities where surgeons perform same-day, minimally invasive procedures. Its business is built on serving patients, physicians, and payors seeking alternatives to traditional hospital surgery through efficient, cost-effective, and high-quality outpatient settings.

Recent years have seen the company focus on growing its facility network through acquisitions, new site (de novo) development, and optimizing its portfolio for improved profitability. Key success factors include expanding physician partnerships, negotiating favorable insurance contracts, ensuring regulatory compliance, and controlling costs amid changing healthcare trends. Operations depend heavily on strong relationships with doctors and payors, as well as agility in responding to regulatory and industry developments.

Quarter Highlights: Growth, Mix Shifts, and Margin Efforts

Revenue (GAAP) rose 8.4% over the prior year, helped by strong case growth across the network and favorable relationships with managed care payors. Same-facility revenue, which measures growth at facilities owned for at least a year, climbed 5.1%. Total cases performed grew to 172,858, up 3.8% year over year. The revenue increase (GAAP) came in ahead of analyst expectations and reflected continued momentum in both organic and acquired facilities.

Adjusted EBITDA margin held largely flat at 15.6%, just above the prior-year rate. Margin improvement was supported by ongoing operational efficiency efforts, including enhanced revenue cycle management (billing and collections), optimized supply chain contracts, and scheduling improvements at the facility level. Integration of recent acquisitions contributed to profitability, but transition and IT costs remained elevated, amounting to $18.1 million.

Notable trends in procedures included strong volume in gastrointestinal (GI) and total joint orthopedic surgeries. Outpatient GI endoscopy, a lower-cost and lower-reimbursement service, continued to grow faster than the company average over the last 6 months, driving up volumes but holding down blended revenue per case. Orthopedics, particularly total joint replacement procedures, saw year-over-year case growth, supporting higher revenue per physician. Recent M&A added new ophthalmology and orthopedic practices, with acquired facilities generally bringing immediate EBITDA benefits when consolidated, according to management statements.

The company reduced its facility count to 162 from 167 a year ago, reflecting both acquisitions and targeted divestitures as part of an ongoing portfolio optimization strategy. Five new facilities were acquired year-to-date. De novo center launches, which offer higher long-term returns due to lower acquisition costs, continued at a target rate of about 10 annually, with several more in development or syndication at quarter end.

Net interest expense (GAAP) rose compared to Q2 2024, reaching $67.9 million, as the company carried higher overall debt and faced increases in interest rates following the expiration of a prior rate swap. Operating cash flow (GAAP) remained nearly flat at $81.3 million, while Year-to-date operating cash flow (GAAP) fell from $123.5 million to $87.3 million. Management said these declines reflected both higher interest costs and timing of partner payments, an issue it aimed to address through better working capital management. Transaction and integration expenses also remained high, though management expects them to normalize in future quarters as acquisition activity levels out.

Industry, Regulatory, and Product Mix Commentary

The shift from inpatient to outpatient settings continues to benefit Surgery Partners. Case volume growth was especially notable in GI (gastroenterology) endoscopy, while orthopedic surgery, especially total joints, performed well. Cardiac procedures, including work in new catheterization lab ASCs, remain a smaller but promising part of the business. Ophthalmology continued its positive contribution, bolstered by acquisitions like the Key-Whitman brand in Texas.

Management stated its exposure to Medicaid or Affordable Care Act plans remains under 5% of revenue. It also highlighted robust protections against potential tariff increases due to over 70% of its supply purchases coming through group purchasing contracts.

Continuous investments in process improvement and IT have begun to pay off through more standardized revenue cycle operations, which help accelerate collections and reduce payment denials from insurers. Physician recruiting also remained a major priority, with about 150 new physicians added and Net revenue per physician is up about 14%. These recruiting trends are important as new physicians generate recurring case volume growth over multiple years.

Management reported no material negative shifts in payor mix or commercial reimbursement, and characterized its insurance contract negotiations as stable and constructive due to its low-cost, high-efficiency surgery model.

Looking Ahead: Guidance and Watch Points

Surgery Partners reaffirmed its full-year revenue guidance of $3.30–3.45 billion and adjusted EBITDA of $555–565 million. Management continues to project further EBITDA margin expansion as efficiency initiatives and integration of recent acquisitions gain traction in the second half. No changes were made to forward guidance during the quarter, reflecting management’s stated confidence in its business model and growth pipeline.

Looking forward, investors will want to keep a close eye on the pace of integration and profitability of newly acquired and de novo facilities, and the impact of elevated debt service costs. Another key area to monitor is the balance between facility growth and divestitures, which may affect reported metrics. Operational execution, especially in working capital management and cash flow, will remain under scrutiny as management seeks to strengthen cash flow and reduce leverage.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.