Earnings call transcript: Surgery Partners beats Q2 2025 earnings expectations

Surgery Partners Inc (SGRY) reported its Q2 2025 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $0.17, compared to the forecasted $0.16. The company also reported revenue of $826 million, slightly above the expected $819.45 million. Following the announcement, the stock saw a pre-market increase of 3.51%, reflecting positive investor sentiment. According to InvestingPro analysis, the company maintains a "GOOD" overall Financial Health score, though current trading prices suggest the stock is fairly valued based on their proprietary Fair Value model. InvestingPro offers 12+ additional insights about SGRY’s financial health and valuation metrics in their comprehensive Pro Research Report.

Key Takeaways

• Surgery Partners exceeded EPS and revenue forecasts for Q2 2025.
• The stock rose 3.51% in pre-market trading following the earnings release.
• The company reported a year-over-year net revenue increase of 8.4%.
• Adjusted EBITDA grew by 9% year-over-year, reaching $129 million.
• The company is focusing on expanding its surgical facilities and enhancing procedural capabilities.

Company Performance

Surgery Partners demonstrated strong performance in Q2 2025, driven by robust revenue growth and an increase in surgical cases. The company reported a net revenue increase of 8.4% year-over-year, supported by a 3.8% rise in total surgical cases. This performance aligns with the broader industry trend of shifting more procedures to outpatient settings, where Surgery Partners holds a competitive edge.

Financial Highlights

• Revenue: $826 million, up 8.4% year-over-year
• Earnings per share: $0.17, exceeding the forecast of $0.16
• Adjusted EBITDA: $129 million, up 9% year-over-year
• Cash and liquidity: $250 million in cash, $645 million total liquidity

Earnings vs. Forecast

Surgery Partners reported an EPS of $0.17, surpassing the forecasted $0.16 by 6.25%. The revenue also exceeded expectations, coming in at $826 million against a forecast of $819.45 million, marking a 0.82% surprise. This performance is a positive deviation from previous quarters, where the company has consistently met or slightly exceeded expectations.

Market Reaction

The company’s stock price increased by 3.51% in pre-market trading, reaching $23. This movement reflects investor confidence following the earnings beat. The stock is currently trading within its 52-week range, having a high of $33.97 and a low of $18.87. InvestingPro data shows the stock has been quite volatile, with a beta of 1.82, while analyst consensus remains bullish with a rating of 1.54 (where 1 is Strong Buy). Price targets range from $24 to $36, suggesting potential upside from current levels.

Outlook & Guidance

For the full year 2025, Surgery Partners expects revenue between $3.3 billion and $3.45 billion and adjusted EBITDA between $555 million and $565 million. The company aims to achieve same-facility growth near 6% and is targeting $200 million in acquisitions to expand its operational footprint.

Executive Commentary

CEO Eric Evans highlighted the company’s strategic focus on technology and partnerships, stating, "We have a lot of physicians who might be partners in our facilities who weren’t bringing their highest acuity procedures just due to a piece of technology." He emphasized the company’s value proposition, noting, "There are very few places in healthcare services where the physician, the patient, and the payer all have a strong preference for your side of care."

Risks and Challenges

• Market saturation in key regions could limit growth opportunities.
• Regulatory changes in healthcare reimbursement policies could impact financial performance.
• Economic downturns may affect patient volumes and elective procedures.
• Competition from hospital-based surgical centers remains a challenge.
• Managing integration and transaction costs from acquisitions could strain resources.

Q&A

During the earnings call, analysts inquired about the company’s portfolio optimization and potential partnerships with health systems. The management discussed the impact of removing the inpatient-only list and clarified their strategy for investing in surgical robotics to enhance procedural capabilities.

Full transcript - Surgery Partners Inc (SGRY) Q2 2025:

Conference Operator: Good day, and welcome to the Surgery Partners Inc. Second Quarter twenty twenty five Earnings Conference Call. All participants will be in the listen only mode. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad.

To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Dave Dougherty, chief financial officer. Please go ahead.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Good morning, and thank you for joining Surgery Partners’ second quarter twenty twenty five earnings call. I am joined today by Eric Evans, our CEO. During this call, we will make forward looking statements. There are risk factors that could cause future results to be materially different from these statements that are described in this morning’s press release and the reports we file with the SEC, each of which are available on our corporate website. The company does not undertake any duty to update these forward looking statements.

In addition, we reference certain financial measures that are non GAAP, which we believe can be useful in evaluating our performance. We reconcile these measures to the most applicable GAAP measure in this morning’s press release. With that, I will turn the call over to Eric. Eric?

Eric Evans, Chief Executive Officer, Surgery Partners: Thank you, Dave. Good morning and thank you all for joining us today. My opening comments will briefly highlight our second quarter results and the consistency in delivering on our long term growth algorithm. Then I will provide additional color on the strong business execution underpinning each of our three growth pillars: organic growth, margin improvement and deploying capital for M and A. I will also provide some initial reflections on our business coming out of the recent conclusion of our strategic review process.

Finally, I will share our views on how our business is positioned in the current regulatory environment, well as our outlook for the remainder of the year. We are pleased to report Surgery Partners’ second quarter net revenue of $826,000,000 and adjusted EBITDA of $129,000,000 both in line with our expectations. Our colleagues and physician partners continue to deliver on our mission to enhance patient quality of life through partnership, and the strong results we shared this morning are a testament to their unwavering dedication and tireless efforts. We are deeply grateful for their commitment and proud of their achievements. Compared to the prior year’s second quarter, adjusted EBITDA grew 9% and net revenue grew just under 8.5%, with contributions from each pillar of our long term growth algorithm.

Our growth in 2025 is attributed to continued strong organic results, including same facility revenue growth of over 5%. Same facility revenue growth was comprised of 3.4% surgical case growth and 1.6% rate growth. These components of our same facility revenue growth are consistent with the expectations that we shared on our prior earnings call. We continue to expect the full year 2025 same facility growth to be near the high end of our growth algorithm target of 6%, with balanced growth between volume and rate as the year progresses. Dave will elaborate on our financial results next, but the results of the 2025 underscore the consistency of the company’s core operating platform.

Let me touch on some of the initiatives that are critical to our sustained long term growth, starting with our organic growth activities. In our consolidated facilities, we performed nearly one hundred and seventy three thousand surgical cases in the 2025, compared to approximately one hundred and sixty seven thousand in 2024. In the second quarter, we experienced higher growth in GI and MSK procedures, including continued strong growth in orthopedics, driven by an increase in joint related surgeries. Total joint procedures grew 26% in the second quarter compared to the prior year. This increase in higher acuity orthopedic procedures is expected to be a continued trend that we are well positioned to capture.

As a reminder, approximately 80% of our surgical facilities have the capability to perform higher acuity orthopedic procedures and currently nearly half of our facilities perform total joint procedures. This capability provides significant additional growth opportunity as we continue to position our assets to meet the expanding orthopedic demand with targeted recruitment and investments in additional equipment, including robotics. Within our portfolio, we have invested in 69 surgical robots that enable our physician partners to perform increasingly more complex and higher acuity procedures. These investments also help support our strong physician recruitment process. Through the 2025, we’ve added nearly 300 new physicians to our facilities, many of which we expect to eventually become partners.

This recruiting class includes all our specialties, but skews toward orthopedic focused physicians. Based on our experience with prior recruiting classes, we fully expect twenty twenty five recruits to continue to grow and have a meaningful impact in 2025 and beyond. As I mentioned on our last call, we opened eight De Novo facilities in 2024. Since 2022, we’ve opened 20 De Novo facilities and we currently have 10 under construction, as well as a robust pipeline of future de novos we expect to begin development soon. The de novos under development are heavily weighted towards higher acuity specialties such as orthopedics.

Although they take time to develop and construct, the effective multiples on these assets are a fraction of traditional acquisition multiples. Typically, takes six-twelve months after opening to reach breakeven and another year or so to get to full run rate earnings. Of the 20 that have opened since 2022, 12 have turned profitable. De novos are a key component of our growth strategy. Moving to our second pillar, margin expansion.

During the quarter, we saw light margin expansion from continued growth in cost management discipline, as our cost of revenues including SWB and supplies and G and A expenses as a percentage of revenue all improved in the 2025 versus 2024. When we consider our continued growth, ongoing procurement and operating efficiency initiatives and synergies achieved on our previously acquired facilities, we have high confidence we will continue to deliver margin expansion, as our 2025 guidance implies. The third and final leg of our long term growth algorithm is acquiring and integrating accretive surgical facilities into our platform. We have a highly talented and experienced development team that manages and maintains a robust pipeline of attractive partnership opportunities. This dedicated team remains highly disciplined in its approach to diligence to ensure we invest in partnerships that bring sustained, long term accretive value to our portfolio.

To date in 2025, have deployed $66,000,000 and have added eight surgical facilities at an effective multiple under eight times adjusted EBITDA. Acquisitions are an important part of our growth algorithm, not only because of the immediate earnings they may contribute, but also the margin expansion we experience as we integrate these facilities into our platform. Upon integration, we expect to lower the purchase price multiple by at least one turn in the first eighteen months in our portfolio. Our pipeline of attractive investments is robust and we continue to target deploying $200,000,000 in acquisitions this year, which we now see as weighted toward the back half of the year versus the midyear convention our initial guidance would imply. We remain confident in the strategic value of these investments long term.

As a reminder, the twenty twenty five contributions from these acquisitions will be directly correlated to timing, which remains variable. The level of activity supporting our comprehensive M and A strategy requires incremental variable costs in terms of due diligence, transaction costs, and integration costs. As we discussed on our last call, transaction and integration efforts were higher than typical in 2024, but we said that we expected this level of spending to be significantly lower in 2025. In the second quarter, we recorded $18,000,000 in transaction and integration costs, representing a 27% sequential decrease in spending. This level of spending should continue to decline in the 2025 based on a more normalized volume of M and A, integration efforts and continuous improvements in our operating system.

Next, I would like to briefly comment on how Surgery Partners is positioned in the current regulatory environment. I will start with tariffs. We can confidently reiterate that we do not have material exposure to any tariff related price increases in the near to mid term, nor do we believe there is a substantial risk to our supply chains. The immediate impact of the One Big Beautiful Bill Act will be minimal for Surgery Partners. Given our small participation in Medicaid and exchange based reimbursement programs, changes to eligibility requirements, state directed payment programs and provider taxes are unlikely to have a noticeable impact on our business.

I would like to remind investors that our exposure to Medicaid payer groups is less than 5% of our revenue, and we do not consider changes to either program as a risk to our short- or long term growth prospects. Last month, CMS issued their proposed twenty twenty six rate and potential policy changes. The proposed outpatient rates that would affect our facilities were approximately 2.4%, but the rates will vary based on specialty. CMS proposed adding two seventy six procedures to the ASC Covered List and two seventy one more procedures to come off the inpatient only list in 2026. This underscores our advantageous position as a leading owner and operator of short stay surgical facilities, as CMS and other payers drive more procedures to this site of care.

They also proposed phasing out the inpatient only list over three years. We are currently performing several of these procedures in our facilities for commercial based patients, albeit in very small amounts. It’s too early to predict the potential opportunity that this change represents for our business, we are encouraged by the agency’s trust in the physician’s clinical experience in making safe decisions around the most appropriate sites to deliver high quality surgical care, and know that removing barriers for our surgeons to perform their full book of business in our facilities has a compounding positive impact. CMS is also evaluating specific rules on-site neutrality and price transparency. Their current requests for comments are based on proposals we have previously evaluated and discussed.

As a reminder of our last earnings call, when we went into detail on-site neutrality, we believe the approaches being discussed will have an immaterial to slightly positive impact on the company. We expect the final rules to come out in November, at which time we will share a forward looking view of the impact of these changes. We will continue to closely monitor all ongoing regulatory developments and remain prepared to adjust our approach as needed, given the fluid regulatory environment. Before I turn it over to Dave, I would like to take a moment to update you on a couple of key takeaways from the company’s extended review of strategic alternatives that concluded in June and comment briefly on our Executive Chairman Wayne DeVite’s recent announcement, Starting with our process learnings. First, and as previously shared, the Special Committee of Independent Directors’ decision not to proceed with the proposed acquisition of the company by Bain Capital highlights their belief in the significant value creation opportunity we have in front of us as a publicly traded company.

That belief is wholeheartedly shared by management and Bain Capital, who remains an active, engaged and highly supportive investor. Second, I am excited about both the operational clarity this decision has provided as well as the insights we gain through the entirety of our process. These insights include: A reaffirmation that Surgery Partners, as the leading independent short stay surgical provider, is incredibly well positioned in the highly attractive short stay surgical market. Our facilities are preferred by patients, physicians and payers, and deliver on value based care objectives within the fee for service system. Our market size is estimated to be over $40,000,000,000 today, and our total addressable market is projected to grow to over $150,000,000,000 in the near to medium term.

As I alluded to in my earlier remarks, our business is already capturing momentum posed by key trends unfolding across the surgical landscape, and we will continue to benefit from demographic, technology and price transparency tailwinds. As part of our commitment to continuing to deliver long term value to our shareholders, we will continue to strategically evaluate and look for opportunities for asset portfolio optimization. We plan to selectively partner or sell facilities that can expedite leverage reduction, accelerate cash flow generation, increase focus on our core ASC service lines, and provide increased flexibility to execute on and self fund our growth algorithm. We have already begun the work to execute on this opportunity. Finally, we recognize that the strategic process represented a period of extended uncertainty for our investment community, and we appreciate everyone’s patience as we carefully evaluated our options.

As we forge ahead with clarity as a public company, we know that many of you are eager to hear from us on our vision for positioning Surgery Partners for long term sustainable growth. As such, we will be holding an Investor Day later this year and look forward to the opportunity to provide additional information on our company’s long term outlook, discuss our detailed organic and inorganic growth strategy, and introduce our investment community to our broader leadership team. As announced on July 31, my friend and colleague and our current Executive Chairman, Wayne DeVite, will be joining UnitedHealth Group as CFO effective September 2. In his eight years with the company, Wayne has left an incredibly positive mark, helping transform the company into the fast growth market leader it is today. In a time of incredible transition in the healthcare industry, I am excited that Wayne’s deep experience and visionary leadership will continue to shape the future of healthcare in his new role and wish him nothing but continued success.

In the coming days, we will be announcing our Board Chairman transition plan. Overall, I am pleased with our performance in the 2025, as the company continues to deliver growth that is consistent with Surgery Partners’ long term growth algorithm and is well positioned to continue doing so over the rest of 2025 and beyond. With that, I will now turn the call over to Dave to provide more color on our financial results. Dave?

Dave Dougherty, Chief Financial Officer, Surgery Partners: Thanks, Eric. Starting with the top line, we performed nearly 173,000 surgical cases in our consolidated facilities in the second quarter, 3.8% higher than 2024. These cases spanned across all our specialties with higher relative growth in gastrointestinal and MSK procedures, including continued growth in orthopedic cases. This case growth drove our second quarter revenue to $826,000,000 8.4% higher than the 2024. Our same facility total revenue increased 5.1 for the second quarter, consistent with our growth algorithm target of 4% to 6% and in line with our expectations for the quarter.

In the quarter, same facility case growth was 3.4% and rate growth was 1.6%. Adjusted EBITDA was 129,000,000 for the second quarter, giving us a margin of 15.6%, 10 basis points higher than the prior year. We ended the quarter with $250,000,000 in cash. When combined with the available revolver capacity, we have six forty five million dollars in total liquidity. We reported operating cash flows of $81,000,000 in the 2025, distributed $54,000,000 to our physician partners and incurred $10,000,000 in maintenance related capital expenditures.

We are seeing incremental improvements in the cash conversion of our revenue, with the metric of days sales outstanding decreasing three days from the first quarter, which is critical to convert the company’s growing earnings. There were no unusual matters that affected operating cash flows in the quarter other than the change in interest rates on our corporate debt portfolio, which I will address shortly. We remain pleased with the disciplined management of our capital deployed for maintenance related purchases. Moving to the balance sheet. We have $2,200,000,000 in outstanding corporate debt with no maturity dates until 02/1930.

The effective interest rate on our corporate debt was approximately 7.4% in the quarter, approximately 140 basis points higher than in the first quarter. As we have noted in prior conversations, the fixed interest rate swaps that hedged the variable component of our $1,400,000,000 term loan expired in the first quarter. This interest rate exposure is now protected by interest rate caps that limit the variable component of the interest rate to 5%. That floating rate is currently 4.35%, but that could change throughout the year. Given these factors, along with making our biannual interest payment on the 7.25% senior notes in April, we saw an increase of $23,000,000 in interest payments in the 2025 over the same period in 2024, which is reflected in our operating cash flows.

Our second quarter ratio of total net debt to EBITDA as calculated under our credit agreement was 4.1 times, consistent with our expectations given recent acquisitions. Leverage calculated using consolidated debt from our balance sheet divided by adjusted EBITDA before reducing it for NCI was 4.7 times. We continue to have high conviction that our leverage will decrease based on our continued earnings growth. As Eric mentioned, as we continue to drive towards long term growth, we are assessing our asset portfolio with the goal of optimizing our portfolio to maximize exposure to our industry’s key tailwinds, expedite leverage reduction and accelerate earnings and cash flow growth. Regardless of any portfolio actions, our short and long term financial models highlight that we will have sufficient liquidity from our cash on hand, our revolver capacity and cash generated from operations to support future M and A levels that support our long term growth algorithm without having to access incremental capital from the debt or equity markets over the next five years.

Further, on an ongoing basis, we evaluate whether market conditions allow for opportunistic enhancements to our current capital structure. The results we reported today and all metrics are aligned with our internal expectations that support our guidance that we are reiterating this morning. Specifically, we are reaffirming full year 2025 revenue and adjusted EBITDA guidance to be in the range of 3,300,000,000.0 to $3,450,000,000 and $555,000,000 to $565,000,000 but given the timing of M and A, we may be at the lower end of this range. Our initial guidance was built on the expectation that we would deploy at least $200,000,000 of capital on M and A at acquisition multiples consistent with our historical experience of approximately eight times using a midyear convention. So far in 2025, we have deployed $66,000,000 As Eric noted, we enjoy a robust pipeline of future acquisition opportunities, but we will remain disciplined about acquiring the right asset for our portfolio and will not chase growth at the expense of this core discipline.

Our guidance implies continued margin expansion in line with our long term growth algorithm, reflecting our ongoing and accretive progress in supply chain and revenue cycle, as well as the integration benefits from recent acquisitions and contributions from de novo’s recently opened. We have high confidence in these growth areas based on our historical experience and the compounding effect of activity that has already occurred in areas like physician recruiting and managed care contracting. Coming out of the strategic review process that Eric touched upon, we have renewed conviction in the strength of our financial profile as a publicly traded company. And we remain focused on driving growth across our portfolio, while maintaining fiscal and operational discipline to continue delivering long term value to shareholders. Finally, I would like to echo Eric’s gratitude and congratulations to Wayne.

He is a great leader, mentor and friend, I wish him continued success in his new role. With that, I would like to turn the call back over to the operator for questions. Operator?

Conference Operator: We will now begin the question and answer session. Our first question comes from Brian Tanquilut with Jefferies. Please go ahead.

Eric Evans, Chief Executive Officer, Surgery Partners: Hey, good morning. Dave, maybe just your comment on the pace of acquisitions and the fact that you have a good pipeline there. How should we be thinking about maybe the cadence going forward for that for this year? Or should we also think about any residual that’s not deployed out of your typical goal for this year getting carried over into next year as we think about modeling that? Yes, Brian, it’s a great question.

We’ve been really consistent on M and A. And obviously, we have this target out there of at least $200,000,000 and we still believe that we can execute to that this year. Clearly, the pace has been a little slower. You’ll recall last year, the pace was a little faster. It’s always a little bit difficult to predict the timing of that.

And we obviously aren’t going to rush deals just to meet a guidance target. So we’re going to find the best deals possible. I do think as you think about M and A, that can certainly slide forward or backward in any given year from a timing perspective. You can imagine during the strategic process during the first half of the year, there were a lot of things happening and could have been some delays associated with that. So we look at the pipeline, it’s very, very strong.

We’re excited about it. We continue to believe that $200,000,000 is the right target every year. And as you know, many years we found more than that. It really just comes down to timing, but couldn’t be more pleased with the amount of opportunities that remain out there for us. Appreciate it.

Then Eric, you talked a little bit about ramping up your de novo pace. So maybe I’m just curious what that looks like in terms of how the economics ramp for de novos and what that does to the margins of the business going forward as you do more of these? Yes. No, I appreciate the question. Yes, we no, look, we’re excited about de novo as being a new lever of growth for us.

Obviously, it takes a bit of time to get the full kind of run rate going there. We’ve talked about having at any given time double digits in development, and we continue execute to that. Excited about those economics. I’ll maybe let Dave will kind of walk you through kind of the timing of how that happens, but we do see it as an important part of our growth lever,

Dave Dougherty, Chief Financial Officer, Surgery Partners: our growth opportunity. Yes. De novos are very exciting part of the company’s growth. And we’ve started to lay this groundwork a couple of years ago, as we started to kind of make these statements out there. And just a reminder, Brian, probably from the moment that you sign the papers with your physician partners, it’s up to eighteen months to get the facility open.

Within the first twelve months or so you’re getting all of the appropriate approvals from CMS and from commercial carriers, bringing that business in. And within the first eighteen months after ownership, you’re probably at run rate. So you say from the beginning to the end three years to get the full run rate. And as we as I think Eric talked about in his remarks earlier, we’ve opened up quite a few this past year and they’re starting to turn profitable. So you can see the way they come through our P and L, we show a little bit of this in our press release exhibits.

A majority of these right now are unconsolidated. So we have a minority ownership position in those de novos, not all of them, but for the most part they are an unconsolidated position. So the economics for us come through partly as management fee revenue, which is included as other revenue in our P and L. And the other part would come through equity earnings of affiliates. So you could see those two components.

Again, we break those details out in the tables in our press release. And Brian, I’d

Eric Evans, Chief Executive Officer, Surgery Partners: just add one thing we really like about these, they tend to be higher acuity, so these are very focused on orthopedics and maybe occasionally cardiology. So we like the fact that these are kind of purpose built higher acuity facilities. Also, it gives us a chance in all these cases to negotiate initial rates with payers based on the fact that this stuff is usually coming out of hospitals, right? So, we have a real opportunity to start these facilities off, kind of getting a better portion of that value from the get go.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Awesome. Thank you.

Conference Operator: Our next question comes from Matthew Gillmor with KeyBanc Capital Markets. Please go ahead.

Zach, Analyst Representative, KeyBanc Capital Markets: Hey, this is Zach on for Matt. Thanks for taking our question. So as your team looks to optimize the portfolio, are there any service lines that you see as less core or any color on

Eric Evans, Chief Executive Officer, Surgery Partners: the areas of growth that you

Zach, Analyst Representative, KeyBanc Capital Markets: guys are targeting through this optimization? Thanks.

Eric Evans, Chief Executive Officer, Surgery Partners: Yes, great question. I mean, we as we think about trying to maximize long term value for our shareholders, we will and are evaluating those opportunities where there’s a particular facility or market that can accelerate the reduction in leverage and increase our cash flow conversion, So, we think there are opportunities to do that. We’re actively exploring those. They could include sales or just expanded partnerships with local health systems to bring greater scale to some markets. Again, as we think about our growth algorithm and our plans, regardless of portfolio optimization show that we can self fund our growth over the foreseeable future.

But we also understand and think there are opportunities to even accelerate that further, and we’re going to be working on those in the coming months and we’ll continue to update the investors.

Zach, Analyst Representative, KeyBanc Capital Markets: Great. And then just in terms of leverage, with that optimization, is there a target that you guys have in mind?

Dave Dougherty, Chief Financial Officer, Surgery Partners: Our leverage target continues to be in the 3s. We should be at or close to the forge upper 3s at the end of this year and continue to kind of go down as we go forward. So our current target remains at three, but we’ll get there faster with some of these optimization opportunities that may sit in front of us. And that’ll definitely be one of our key considerations as we look to those opportunities. Yes.

Eric Evans, Chief Executive Officer, Surgery Partners: And to your service line question, the only thing I would reiterate is, look, there’s a lot of great tailwinds in the ASC space. We’re going to really be focused on growing faster. And so clearly, that will be where we focus our efforts service line wise.

Zach, Analyst Representative, KeyBanc Capital Markets: Great. Thank you.

Conference Operator: Our next question comes from Sarah James with Cantor Fitzgerald. Please go ahead.

Sarah James, Analyst, Cantor Fitzgerald: Thank you. I understand it’s early to size for the company what a removal of inpatient own list could look like, but is there any way you can give us some examples and some color of maybe what revenue per case would look like on things not currently on your list that may be able to happen in your facilities, or even for the surgeons that are credentials with you now, how much of their time and their book has to be done outside of your facilities that could potentially be done in your facilities in the future?

Eric Evans, Chief Executive Officer, Surgery Partners: Yes, Sarah, thanks for the question. I would just say, I’d start by saying we’re really pleased that CMS is leaning in on supporting ASC growth. They see the opportunity for cost savings, they see the opportunity for efficiency, and they’re leaving that choice to the physician. High level, as I said in my opening comments, putting this decision back in the hands of the physician to make the right choice for where a patient goes and removing obstacles for any of our physicians to bring their whole book of business is incredibly powerful. We saw that when the total joints were brought on, it was we always had done commercial, but we got more commercial after they removed that because they could do their Medicare cases along with that.

So there’s a lot of power in just simplifying where a physician doesn’t have to stop and think about, okay, can I do this in the ASC or not? They can make that choice. So I think that’s number one, we just say that’s powerful. As far as the initial list, these are higher acuity procedures, so certainly would be higher revenue in general than the population, but right now, we’re doing a limited number of commercial patients in those procedures. Again, when you allow Medicare and commercial, there should be some opportunity, but right now the end is pretty small.

What I would say with all of these things, you remove the inpatient only list, there are technology changes and there are safety changes that have happened over time that allow more and more things to be done safely in our facilities, and we see that as a really nice tailwind going forward, and we think that list only expands over time. And so if you take away the inpatient only list and you leave it to the physician, there’s a lot of things that can be done safely, with a great service, and in a way more effective and efficient way in our space in the coming years. We think CMS leaning in is the absolute right answer.

Joanna Gajuk, Analyst, Bank of America: Thank you.

Conference Operator: Our next question comes from Whit Mayo with Leerink Partners. Please go ahead.

Whit Mayo, Analyst, Leerink Partners: Yeah, my first question just on the recruiting efforts. Have you made any changes in any of specialties that you’re focused on? I don’t think so. But maybe also how much of the same store case growth do you think you can attribute to those efforts in the last two years?

Eric Evans, Chief Executive Officer, Surgery Partners: Yes. So first of all, no change in our approach there. We’re really pleased with our strong start recruiting this year. We remain optimistic that we’re going be in that 500 to 600 new recruits kind of number. And as you know, we’ve talked about many times, the power of our recruitment efforts are kind of that it’s a multi year return on that.

So, you if look at our for example, our doctors we recruited in the 2024 in the 2025, they brought 68% more cases and 121% more revenue. So, it’s a compounding effect. It used to be a big part of our growth algorithm. We have not changed the specialties we focus on. Certainly, there’s a real focus on orthopedics, but all of our key service lines are there.

And we’re opportunistic. I mean, every market has different service line opportunities that make sense for a given facility and what capacity they have available. As far as what percentage of our same store growth, I don’t think we’ve ever kind of covered that or at least that publicly, but it’s obviously meaningful to how we organically grow the business to add new docs, add new service lines, add new capabilities at all times for our facilities.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Yes. And just as a reminder, Whit, I know you know this, but the recruiting is both strategic to reposition the company and take advantage of these tailwinds and operational to make sure that the facilities are kind of appropriately cared for as doctors retire out of the system. So the goal for us here on recruiting is to be net positive after all of the kind of the natural life cycle of the ASC.

Whit Mayo, Analyst, Leerink Partners: Great. And then maybe my follow-up, just any changes with payer behavior, specifically MA plans? And really the corollary to this is just some revenue cycle and an update as to where you are in that initiative and standardization across the facilities. Thanks.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Yes, I appreciate you bringing that up. Last year, we did talk about some of the payer pressures that we saw in certain markets related to pre authorization and medical necessity requirements, which were not an excuse for us. It was just something that we had to keep pace with as we were addressing the standardization of our rev cycle across the entire enterprise. As we turned into the New Year, and you may recall this from our first quarter call, we felt we got in front of that. And now we’re just knee deep in the appropriate pacing of our rev cycle changes.

So about in the middle of our three year journey right now that approach. You could see that coming through, I talked a little bit about that in our DSO improvement, sequential improvement of three days this quarter. So we are seeing the team kind of staying really closely aligned with commercial carriers and making sure that we’re doing the right things on the front end and chasing claims on the back end if there are any issues that come through with payments.

Eric Evans, Chief Executive Officer, Surgery Partners: Yeah, Whit, I would just add that payers appreciate obviously our value position. And to the extent that we can remove obstacles together, we’re having those conversations because ultimately, in almost all markets, we’re driving dramatic savings for them. So I think that’s one where we’re going to continue to work on both sides of it, getting better on the revenue cycle, which Dave is absolutely driving. And then also having conversations about how do you take advantage of our position by removing obstacles.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Okay, thanks.

Conference Operator: Our next question comes from Benjamin Rossi with JPMorgan. Please go ahead.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Hey, good morning. Thanks for taking my question. Just as a follow-up to your comments on the potential inpatient only list phase out. So, just thinking about the total addressable market here, I think you’ve previously described your all in market at about $150,000,000,000 with maybe $60,000,000,000 of that encompassing these inpatient surgical cases that are capable of being shifted to the outpatient setting. Is that still a reasonable ballpark when thinking about the total market of cases that could open up here to the outpatient setting?

And if so, is there any way to think about how much of that market, the two seventy plus new procedures set to come off in 2026 would represent?

Eric Evans, Chief Executive Officer, Surgery Partners: Yeah, so let me start at high level. That’s still the right way to think about the market size. We certainly believe, I mean, it’s a combination of things. So let’s just start with orthopedics as an example. It’s still a very heavily acute care hospital, HOPD provided service.

So you think about total knees, total hips, while much of it has moved, the majority has moved to the outpatient setting, much of it is still done in traditional acute care HOPD setting. And so it’s like 3.5 to one, I think is roughly the statistic. You still see a ton of movement. So there’s the market share that still sits in the wrong side of care, which is pretty massive out of that 150, right? So we’ve got this just natural work we have to do to continue to move the patient to the right side of care for the right price, the right outcome.

So that’s a big part of it. And then the other part of it are these new things that can come into our setting of care. Now, I would say in these initial couple 100, I don’t want to say that there’s huge volume. I think again, they remove obstacles when it comes to being able to bring a doctor’s full book of business. But over the longer term, higher acuity orthopedics, higher acuity spine, cardiovascular, there are a bunch of service lines that can still come out.

And then within that $150,000,000,000 too, there’s a fair amount of business that are tied into some core service lines that you think about all the time, general surgery, OBGYN, urology that are still in hospitals due to a piece of technology. Again, those are things that we’re going to solve over time. So I think there’s a lot of ways to break it up, but I wouldn’t over index on these couple of 100 procedures being like a huge massive movement. I think it’s just part of the general trend that’s happening with technology. And as you start to remove that inpatient only list, I do think you’re going to see that there’s a bunch of stuff that physicians are going be more comfortable bringing to our side of care for all the reasons you can imagine.

More efficient, patient has a great experience, great quality outcomes, very focus factory like, and we’re excited about that. But it’s I wouldn’t over index to just this list because I think that is premature.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Got it. Appreciate the color there. I guess just following up here. For your robotics investments, you’ve been mentioning the increased investments here over the past several quarters. How would you characterize the benefit here in terms of maybe rates and volumes?

Is it fair to say that you’re getting more on the rate side here on presumably higher acuity case mix focus? Or do you also see some improved volume throughput in some of your DACs?

Eric Evans, Chief Executive Officer, Surgery Partners: Yeah, so the robotics for us, it’s an enabler, right? So we have a lot of what we found early on when I first came here is we had a lot of physicians who might be partners in our facilities who weren’t bringing their highest acuity procedures just due to a piece of technology. And we’ve worked really hard to address those things, understand why they would split business, bring the technology that’s appropriate into our setting to allow them to come, certainly does bring higher acuity cases. It also creates a ton of value for the health system because again, in subtle joints where they’re often coming from hospitals, especially where there’s technology involved. And so we’re driving dramatic savings while giving the physician more control over their schedule and letting them be an owner in growing that business.

So we have a levers lot there that we think over time continue to be powerful. And as I mentioned earlier, there’s a bunch of those joints that still remain in that HOPD setting, where we believe we can create value for both the physician and the health system.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Great. Thanks for your time.

Conference Operator: Our next question comes from Joanna Gajuk with Bank of America. Please go ahead.

Joanna Gajuk, Analyst, Bank of America: Hi. Good morning. Thanks so much for taking the question. So I guess a couple of follow ups on your comments about the portfolio optimization. So you said something about partnerships with systems.

Are you referring to maybe selling stakes in your asset to a hospital system? Is that how we should think about it?

Eric Evans, Chief Executive Officer, Surgery Partners: Yeah, so great question. I mean, do think there’s going be opportunities where the best natural owner or the best natural partnership for a particular market may not be us alone, right? And so we’re open to those ideas. Again, with caveat, we’re going to be very thoughtful on where can we use opportunities to accelerate our leverage reduction, accelerate our free cash flow growth to get closer, faster to self fund our growth. So yes, the answer is yes on that.

We’ll be selective on those things, but in some markets that very well might be the right answer for us and the health system.

Joanna Gajuk, Analyst, Bank of America: Right, and to that point also on the flip side, when you said you have I guess some plans already maybe in motion or partially in motion or you kind of reviewed some of these plans. But as part of this optimization strategy, are you also considering divesting some of your surgical hospitals or this is across the board?

Eric Evans, Chief Executive Officer, Surgery Partners: Yeah, I mean, we’re going to look at the whole portfolio, so I’m certainly not going to talk about individual assets or things we would sell. But I would say you should expect that across the portfolio, we’re going to look at where those opportunities arise. And I’m sure some of that could be in the surgical hospital setting.

Joanna Gajuk, Analyst, Bank of America: Okay. And then my question, so thanks for the follow-up. On your same store revenues, so you’re tracking around 5% in the first half of the year. And I want to say last time you talked about 6% for the year. So I don’t know whether I missed it.

Did you say that you’re still on track? And I guess, how do you want to how do you expect to get to that number in the second half? Assume it’s Q4 is the busiest quarter. So maybe that’s the answer there.

Eric Evans, Chief Executive Officer, Surgery Partners: Yes, great question. Look, we are pleased with our growth expectations. Our growth through the first part of the year, it’s just right on our expectations. And you’re we do expect that number to be at the upper end of our range of 4% to 6% by the end of the year. That’s based on a lot of things, a lot of growth initiatives, things we have in the pipeline, timing of de novos.

There’s a whole bunch of things that go into that. But by the end of the year, we expect to have balanced growth, volume and rate that’s at the upper end of our 4% to 6%. And we haven’t changed that at all. We still have good visibility to how we’re going get there.

Joanna Gajuk, Analyst, Bank of America: Great. Thank you so much for taking the question.

Eric Evans, Chief Executive Officer, Surgery Partners: Joanna, thanks.

Conference Operator: We have our next question from Andrew Mock with Barclays. Please go ahead.

Andrew Mock, Analyst, Barclays: Hi, good morning. Looks like other operating expenses and professional fees were each up $10,000,000 year over year and also up sequentially. Can you help us understand what drove the increase and why there’s so much variability on the other OpEx line that is typically more fixed in nature? Thanks.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Yes, happy to, Andrew. I don’t know if I agree that other is always going to be a relatively fixed cost, because other by its nature includes a number of miscellaneous items. So I think that would be included in there would be things like provider taxes, other fees that are incurred. And they do fluctuate from time to time. But the annual cost for 2024, if you were to try to anchor on something is how we look at that.

So from quarter to quarter, you may experience some of those pressure points related to things I just mentioned. But 2024, I think is an appropriate run rate for that. On the professional fees, professional and medical fees, yes, there is an increase $10,000,000 on a hard cost basis, but on a relative to revenue basis, you’re only up 30 basis points, so 12.1% to 12.4%. So just as a reminder, so professional medical fees includes costs for our medical directors, medical service contracts, marketing, legal accounting, vendor collections, laundry linen, medical waste, other things like that. The increase, if you were to focus on it, I don’t focus too hard on that because I’m not alarmed by 30 basis points, But that increase is directly correlated to the seven surgical facilities we acquired in 2024.

Several of them were supported by physician practices that employ some physicians and clinicians and those costs would be reflected in that prophy line.

Andrew Mock, Analyst, Barclays: Great. And then I heard you talk about the interest expense impacting cash flow in the quarter. Can you talk through some of the other working capital items and considerations for the balance of the year? Thanks.

Dave Dougherty, Chief Financial Officer, Surgery Partners: Yes. I think the big driver for the year is interest cost piece of it as we have to lapse the expiration of our interest rate swap. So remember that interest rate swap did close out in the first quarter replaced with a cap that puts us at 5%, which means we’re floating from where we were before. Where we were before was basically that SOFR rate was capped at 2.2%. So it’s created some pressure obviously on that interest rate that’ll still be there in the third and the fourth quarter of this year.

Those are the two big items or the one item really that I would call out as a headwind for us. Of course, the underlying growth of the organization is coming through that cash flow from operations line item. You can see it when you adjust out for that $23,000,000 I think pressure point that we’ve called out for interest costs. So that should continue to benefit us as we go throughout the year and assuming that we continue to eke out the benefits of our working capital efforts, which includes the biggest one being revenue cycle, but includes all aspects capital management, so capital expenditure deployment, control processes, and accounts payable, and really just making sure cash out and cash in are hedged as much as possible. So no major headwinds other than the interest cost.

Andrew. Great, thank you. The

Conference Operator: next question comes from Tao Qui with Macquarie. Please go ahead.

Tao Qui, Analyst, Macquarie: Hey, good morning. In terms of the same store case volume trend, I think your strength is still in contrast with the outpatient performance from some of the hospital peers. Could you remind us what other contributing factors there? Is it geography, portfolio, case mix or anything else you would point to?

Eric Evans, Chief Executive Officer, Surgery Partners: Hey, Tao, I appreciate the question. Look, we obviously can’t comment on our peers. I would say that this growth has been pretty consistent for us. We focus on lots of levers to drive that. As we’ve talked about earlier, we have a robust recruitment engine.

We do a lot of things to add new service lines. And so we’re constantly focused on that. Clearly, right now, it does seem differentiated from the peers, but we think about this and we talk about this in our core growth algorithm, 2% to 3% is where we expect this market to be on kind of just a normal organic basis and we continue to be within that or above that. And so our key there is just continue to execute. We feel good about our growth.

And again, it’s based on a lot of things, but it’s across all service lines with particular strength in GI and MSK. So, can’t comment on the others, but it’s been pretty consistent for us as far as how we approach it and how we expect to execute on it.

Tao Qui, Analyst, Macquarie: Got it. And second question, what percentage of your volume come from the Health exchange? I mean, given the potential decline in exchange membership next year, what is your view on the potential impact on surgery partners?

Eric Evans, Chief Executive Officer, Surgery Partners: Yes, interesting question. Say a lot of that volume appears to go from the health exchange, appears to go through the ER. When you look at the kind of acute care world, we have relatively limited exposure to health exchange. It’s not a big portion of our business immaterial really to core business, because it’s such an elective business. Our business is not typically coming through an ER or coming through other avenues like that.

And so our core doctors don’t see a ton of exchange business. We don’t have a ton of exposure to it. It’s a place where probably maybe we’d like to pick up market share over time, but in this case, it’s not an exposure for us going forward.

Tao Qui, Analyst, Macquarie: Great. Thank you.

Eric Evans, Chief Executive Officer, Surgery Partners: Of course.

Conference Operator: Our next question is from AJ Rice with UBS. Please go ahead.

AJ Rice, Analyst, UBS: If I heard the comments prepared remarks right, it sounded like Dave was saying you’re more comfortable in the lower half of your $10,000,000 guidance range for EBITDA. And it sounds like that was primarily because of the pace of acquisitions and development this year. I know your algorithm is to have 4% to 6% EBITDA growth on an ongoing basis from deals, but I wouldn’t have thought that the deals in year contribute that much to earnings growth. Can you maybe flesh out what you’re thinking in that comment a little more?

Dave Dougherty, Chief Financial Officer, Surgery Partners: Yeah, happy to AJ. And your conclusion is right. Let me see if I can give you data points that can support your reasoning. The reason why we’re kind of steering a little bit towards that lower half is because of the pace of M and A. So when we provide initial guidance at the beginning of the year, as we do every year, we assume that 4% to 6% comes from deploying $200,000,000 on capital on M and A rather at consistent historical multiples, so around eight times.

And if you were and you’ve assumed on mid year convention, that’s going to contribute around 12,500,000 or so of earnings. That’s how the math would imply if you were to use that. And again, timing is the risk that you have there. We’re not going to move things around just to hit an earnings target, we’re to do it when it makes We maintain a pipeline that can support that $200,000,000 statement on an ongoing basis. But the fact of the matter is we’ve only done $66,000,000 as we sit here today.

So that does put us behind that pace of $200,000,000 at a midyear convention. Now we still have line of sight to $200,000,000 But when that comes through naturally, at this point, the math won’t support you getting to that initial assumption. So you have to lower that point. It’s a timing issue. There’ll be some pressure on that earnings contribution in the year, but not earnings on a long term basis.

AJ Rice, Analyst, UBS: Okay. Thanks. And as mentioned earlier, your volumes have been stronger in the first half than a lot of the peers that report outpatient surgery volumes, and your rates have been more modest. I think there were some transactions, maybe a Texas deal or something, that was having some impact on that. I wonder when you say more balance in the back half of the year, do you think that’s just gonna somewhat reverse in Q3, Q4?

Do you think it will reverse enough that you’ll end up balanced for the whole year? Give us a little bit of flavor for how you expect volumes versus rates to trend in the back half of the year.

Eric Evans, Chief Executive Officer, Surgery Partners: Yes. Thanks, A. J. I appreciate the question. And there’s always some timing of transactions, you’re right.

Timing of transactions, when de nobos come in all affect this number. We’ve talked a lot about on these calls, like quarter to quarter, that same store metric moves around a lot. They can move around for a lot of things. If you look over the year, we’ve been really accurate at kind of forecasting where we’re going. So your question is right in direction, but it won’t be quite that extreme.

We still expect case growth in the second half of the year. But at the end of the year, when you think about that roughly 6%, we expect it to kind of be balanced between the 33%, somewhere in that range. And so, we still expect to have nice positive case growth in the second half of the year, but it will be moderated in how it contributes and still within our algorithm of 2% to 3%.

AJ Rice, Analyst, UBS: Okay. All right.

Zach, Analyst Representative, KeyBanc Capital Markets: Thanks a

Eric Evans, Chief Executive Officer, Surgery Partners: lot. Thanks, A. J.

Conference Operator: Thank you. Our last question comes from Ben Hendrix with RBC. Please go ahead.

Dave Dougherty, Chief Financial Officer, Surgery Partners0: Hi, thank you very much. Just wondering if you can expand a little bit on your commentary in your prepared remarks about the learnings and insights you gained from the conclusion of your strategic review and how it’s forming the broader strategy going forward. So, takeaways from the strategic review that’s changing your view of whether it be geographic footprint, ASC versus short stay mix, partnership strategies, or other facets of the business management going forward that’s changing or expanding, contracting, otherwise? Thanks.

Eric Evans, Chief Executive Officer, Surgery Partners: Hey, Ben, appreciate the question. Good way to wrap up. I think in my comments, reiterated the key takeaways, but maybe I’ll just quickly state them again and make sure that I add any clarifying comments I can. So first of all, going through this process, the one thing that as we looked at all the data, as we looked at where we’re going, part of why we’re still a public company is that the data is really, really clear on the opportunity in our space. So you think about health care services today, we’ve kind of talked about how different we are relative to regulatory risk, because really everything happening to us is neutral to a tailwind.

We think about the size of the marketplace, we think about our value proposition, which is supported by the government and payers. Again, I go back to this fundamental thing, there’s very few places in healthcare services where the physician, the patient and the payer all have a strong preference for your side of care, and you’ve got a great position to be in. So we reaffirm our excitement about where this business can go and how fast it can grow and how important it can be for the health system. So that was a big takeaway from us. As we talked about, I do think that while we will naturally delever and increase cash flow, I do think there’s opportunities to accelerate And we’ve reiterated that in the portfolio optimization.

I think that is something we’re going to be focused on and we’ll come back to you on. As far as changes in how we think about other things, look, health system partnerships, we’ve done a few of those over the last few years. I do think we’re open under the circumstances that it can help us accelerate where we want to go to those partnerships. Perhaps maybe we’ll be more open to that than historical, but I don’t think it’s a huge change. We’ve already been directionally heading that way for a while.

And again, in many markets that can be the right answer. Your other question around surgical hospitals, look, I would say that they’re going be part of this portfolio. We still surgical hospitals play an amazing role for us as a company, and many of them are just they give us the opportunity to be focused factories in our core service lines, right? And they are very much matched with an ASC portfolio around them. With that said, we certainly are focused on the core ASC service lines that have the biggest part of that TAM.

And so as we think through this, we can accelerate free cash flow, when we can delever, and when we can find a place where it allows us more flexibility in self funding our go forward on those ASC investments, we’ll do that.

Dave Dougherty, Chief Financial Officer, Surgery Partners0: Thank you.

Eric Evans, Chief Executive Officer, Surgery Partners: Of course. Thanks Ben.

Conference Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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