Surgery Partners, Inc. Q2 FY2025 earnings call

Organic Growth

• Performed nearly 173,000 surgical cases in Q2 2025, up from ~167,000 in 2024. Higher growth in GI and MSK procedures, with total joint procedures up 26% y-o-y.
• Added nearly 300 new physicians, skewing toward orthopedic-focused physicians. Opened 8 de novo facilities in 2024, 20 since 2022, with 10 under construction.

Margin Expansion

• Saw light margin expansion due to growth and cost management. Cost of revenues, SWB, supplies, and G&A expenses as a percentage of revenue improved. Confident in continuing margin expansion.

M&A Deployments

• Deployed $66 million in 2025, added 8 surgical facilities. Pipeline of attractive investments remains robust but disciplined in acquisitions. Transaction and integration costs decreased 27% sequentially in Q2 2025.

Regulatory Environment

• No material tariff exposure. Minimal impact from Medicaid and exchange-based programs. CMS proposed 2026 rates and policy changes, with potential for more procedures in ASCs. Monitoring site neutrality and price transparency rules.

Strategic Review Insights

• Special Committee's decision not to proceed with Bain Capital acquisition reaffirms value creation opportunity. Process provided operational clarity and reaffirmed position in the short-stay surgical market. Assessing asset portfolio for optimization to expedite leverage reduction and cash flow growth.

Surgery Partners reported second quarter net revenue of $826 million and adjusted EBITDA of $129 million. Compared to the prior year second quarter, adjusted EBITDA grew 9% and net revenue grew just under 8.5%. Organic growth contributed with same-facility revenue growth of over 5%, consisting of 3.4% surgical case growth and 1.6% rate growth. Revenue was driven by organic growth, margin improvement, and M&A deployments.

• Reaffirmed full year 2025 revenue guidance of $3.3 billion to $3.45 billion and adjusted EBITDA guidance of $555 million to $565 million.
• Guidance impacted by M&A pace, with potential to be at the lower end of the range. Continues to expect margin expansion from supply chain, revenue cycle, and integration benefits.

• Regulatory: Uncertainty around CMS site neutrality and price transparency rules.
• Tariffs: No material exposure in the near to midterm.
• Supply Chain: No substantial risk currently identified.
• Medicaid: Exposure less than 5% of revenue, not a major risk factor.

Q: Brian Tanquilut with Jefferies on the pace of acquisitions.

A: J. Eric Evans on the disciplined approach to M&A, emphasizing a robust pipeline of opportunities but not rushing deals to meet targets.

Q: Zachary Haggerty with KeyBanc on portfolio optimization.

A: J. Eric Evans on evaluating opportunities to accelerate leverage reduction and increase cash flow through asset portfolio optimization.

Q: Sarah James with Cantor Fitzgerald on the impact of the inpatient-only list removal.

A: J. Eric Evans on CMS supporting ASC growth, with potential for higher revenue cases and physicians having more flexibility in site of care.

Q: Benjamin Whitman Mayo with Leerink on recruiting and payer behavior.

A: J. Eric Evans on recruiting's compounding effect and David T. Doherty on progress in revenue cycle management.

Q: Andrew Mok with Barclays on other operating expenses.

A: David T. Doherty on variability in other operating expenses and professional fees impact from recent acquisitions.

Q: Tao Qiu with Macquarie on same-store volume and exchange impact.

A: J. Eric Evans on consistent organic growth and limited exposure to health exchange volume.

Q: A.J. Rice with UBS on EBITDA guidance.

A: David T. Doherty on M&A pace affecting the guidance range and the importance of disciplined acquisitions.

Q: Benjamin Hendrix with RBC on strategic review learnings.

A: J. Eric Evans on reaffirmed opportunity in the short-stay surgical market and focus on portfolio optimization to drive long-term value.