Core Viewpoint - Surgery Partners reported mixed financial results for Q2 2025, with revenue exceeding expectations but non-GAAP EPS slightly missing consensus estimates, reflecting ongoing net losses and higher costs associated with network growth [1][2][5] Financial Performance - GAAP revenue reached $826.2 million, surpassing analyst estimates of $818.4 million, and showing an 8.4% increase from $762.1 million in Q2 2024 [2][5] - Non-GAAP EPS was $0.17, missing the consensus estimate of $0.18 and down 19.0% from $0.21 in Q2 2024 [2] - Adjusted EBITDA grew 9.0% year-over-year to $129.0 million, with an adjusted EBITDA margin of 15.6%, slightly above the prior year's margin [2][6] Business Overview - Surgery Partners operates over 160 ambulatory surgery centers (ASCs) and surgical hospitals, focusing on same-day, minimally invasive procedures [3] - The company aims to provide efficient, cost-effective, and high-quality outpatient settings for patients, physicians, and payors [3] Strategic Focus - Recent growth strategies include acquisitions, new site development, and optimizing the facility portfolio for improved profitability [4] - Key success factors involve expanding physician partnerships, negotiating favorable insurance contracts, and ensuring regulatory compliance [4] Operational Highlights - Total cases performed increased to 172,858, up 3.8% year-over-year, with same-facility revenue growth of 5.1% [5] - The company reduced its facility count to 162 from 167, reflecting acquisitions and targeted divestitures [8] - Net interest expense rose to $67.9 million due to higher debt and interest rates [9] Market Trends - Strong volume growth was noted in gastrointestinal and orthopedic surgeries, with outpatient GI endoscopy growing faster than the company average [7][10] - The company maintains low exposure to Medicaid or ACA plans, with over 70% of supply purchases through group purchasing contracts [11] Future Guidance - Surgery Partners reaffirmed its full-year revenue guidance of $3.30–3.45 billion and adjusted EBITDA of $555–565 million, projecting further EBITDA margin expansion [14] - Key areas to monitor include the integration and profitability of newly acquired facilities, elevated debt service costs, and operational execution in working capital management [15]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, and cash flow statements, with accompanying notes [Condensed Consolidated Financial Statements](index=4&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section provides key financial metrics, including total assets of $7.95 billion and Q2 2025 revenues of $826.2 million Financial Position (in millions) | Financial Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Total current assets | $1,105.3 | $1,119.4 | | Total assets | $7,954.8 | $7,890.0 | | **Liabilities & Equity** | | | | Total current liabilities | $573.3 | $624.4 | | Long-term debt, less current maturities | $3,465.2 | $3,268.9 | | Total stockholders' equity | $3,156.5 | $3,196.4 | Consolidated Statements of Operations (in millions, except EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $826.2 | $762.1 | $1,602.2 | $1,479.5 | | Operating income | $111.7 | $84.8 | $173.6 | $160.8 | | Net loss attributable to Surgery Partners, Inc. | $(2.5) | $(15.5) | $(40.2) | $(27.9) | | Basic and Diluted EPS | $(0.02) | $(0.12) | $(0.32) | $(0.22) | Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $87.3 | $123.5 | | Net cash used in investing activities | $(74.3) | $(327.2) | | Net cash (used in) provided by financing activities | $(32.4) | $221.3 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, segment reporting, acquisitions, and payor mix for the company's 162 surgical facilities - As of June 30, 2025, the company owned or operated a portfolio of **162 surgical facilities**, including 143 ambulatory surgery centers (ASCs) and 19 surgical hospitals, across 30 states[25](index=25&type=chunk) Patient Service Revenues by Payor (%) | Payor | % of Patient Service Revenues (H1 2025) | % of Patient Service Revenues (H1 2024) | | :--- | :--- | :--- | | Private insurance | 52.6% | 52.2% | | Government | 42.5% | 42.2% | | Self-pay | 2.7% | 2.8% | | Other | 2.2% | 2.8% | - During the first six months of 2025, the company acquired a controlling interest in **four surgical facilities and two physician practices** for aggregate cash consideration of **$48.0 million**, net of cash acquired[62](index=62&type=chunk) - Goodwill increased from **$5,068.0 million** at year-end 2024 to **$5,098.6 million** as of June 30, 2025, primarily due to acquisitions (**$76.1 million**) net of disposals (**$45.5 million**)[48](index=48&type=chunk) - The company operates as a single reportable segment, **"Surgical Facilities,"** which includes ASCs, surgical hospitals, anesthesia services, and physician practices, generating **$289.9 million** in Adjusted EBITDA for the six months ended June 30, 2025[89](index=89&type=chunk)[90](index=90&type=chunk)[94](index=94&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, including an 8.3% revenue increase in Q2 2025, liquidity, capital resources, and non-GAAP reconciliations [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section details Q2 2025 revenue growth of 8.3% to $826.2 million, driven by same-facility increases, and changes in net loss Consolidated Results (in millions) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $826.2 | $762.1 | 8.4% | | Cost of Revenues | $630.6 | $582.9 | 8.2% | | Operating Income | $111.7 | $84.8 | 31.7% | | Net Loss Attributable to Surgery Partners, Inc. | $(2.5) | $(15.5) | 83.9% improvement | - The increase in Q2 2025 patient service revenues was driven by a **5.1% increase** in days-adjusted same-facility revenues, resulting from a **3.4% increase** in same-facility case volumes and a **1.6% increase** in same-facility revenue per case[113](index=113&type=chunk) - Interest expense for Q2 2025 increased to **$67.9 million** from **$51.5 million** in Q2 2024, primarily due to 2024 financing activities, increased Revolver borrowings, and maturing interest rate swaps[119](index=119&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$250.1 million** in cash and **$394.9 million** available on its revolver, despite a decrease in operating cash flow Liquidity Metrics (in millions) | Liquidity Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $250.1 | $269.5 | | Revolver borrowing capacity | $394.9 | N/A | | Net working capital | $532.0 | $495.0 | - The decrease in operating cash flow for H1 2025 compared to H1 2024 was primarily driven by **higher cash interest payments** and the **timing of changes in working capital**[132](index=132&type=chunk) - Management believes that cash flows from operations, available cash, revolver capacity, and access to capital markets will be adequate to meet both short-term and long-term liquidity needs[139](index=139&type=chunk) [Certain Non-GAAP Measures](index=26&type=section&id=Certain%20Non-GAAP%20Measures) This section reconciles non-GAAP measures, showing Q2 2025 Adjusted EBITDA increased 9.0% to **$129.0 million** Adjusted EBITDA Reconciliation (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Income before income taxes | $43.8 | $33.3 | $43.5 | $62.0 | | Adjusted EBITDA | $129.0 | $118.3 | $232.9 | $215.8 | Credit Agreement EBITDA (in millions) | Metric | Twelve Months Ended June 30, 2025 | | :--- | :--- | | Cash flows from operating activities | $263.9 | | Credit Agreement EBITDA | $579.0 | [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk on its variable-rate debt through hedging strategies, anticipating no material impact on 2025 earnings - The company's main market risk is exposure to changes in interest rates on its **variable-rate debt**, primarily indexed to the prime rate or SOFR[149](index=149&type=chunk)[150](index=150&type=chunk) - To mitigate interest rate risk, the company uses a mix of debt maturities and types, and periodically enters into **interest rate swap and cap agreements**[149](index=149&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's **disclosure controls and procedures were effective** as of June 30, 2025[152](index=152&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter ended June 30, 2025[153](index=153&type=chunk) [PART II - OTHER INFORMATION](index=29&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, and other disclosures, including equity sales and trading arrangements [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) Management believes no current legal proceedings will have a material adverse effect on the company's business or financial condition - In management's opinion, the company is not currently a party to any proceedings that would have a **material adverse effect** on its business, financial condition, or results of operations[155](index=155&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred regarding the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There have been **no material changes** with respect to the risk factors discussed in the company's 2024 Annual Report on Form 10-K[156](index=156&type=chunk) [Other Information (Items 2-6)](index=29&type=section&id=Other%20Information%20%28Items%202-6%29) This section confirms no unregistered equity sales, no defaults on senior securities, and no Rule 10b5-1 trading arrangement changes - The company reports **no unregistered sales of equity securities** and **no defaults upon senior securities**[157](index=157&type=chunk)[158](index=158&type=chunk) - During the three months ended June 30, 2025, none of the company's directors or officers adopted or terminated any **Rule 10b5-1 trading arrangement**[160](index=160&type=chunk)

Company Performance - Surgery Partners reported quarterly earnings of $0.17 per share, exceeding the Zacks Consensus Estimate of $0.16 per share, but down from $0.21 per share a year ago, representing an earnings surprise of +6.25% [1] - The company posted revenues of $826.2 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.15%, and up from $762.1 million year-over-year [2] - Over the last four quarters, Surgery Partners has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Market Outlook - Surgery Partners shares have increased approximately 4.9% since the beginning of the year, compared to the S&P 500's gain of 7.6% [3] - The company's earnings outlook, including current consensus earnings expectations for upcoming quarters, will be crucial for investors [4] - The current consensus EPS estimate for the coming quarter is $0.21 on revenues of $841.4 million, and $0.95 on revenues of $3.39 billion for the current fiscal year [7] Industry Context - The Medical Services industry, to which Surgery Partners belongs, is currently ranked in the top 35% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Surgery Partners' stock performance [5][6]

Financial Data and Key Metrics Changes - Surgery Partners reported second quarter net revenue of $826 million, an increase of 8.4% compared to the previous year, and adjusted EBITDA of $129 million, reflecting a 9% growth [6][25][26] - The company achieved a same facility revenue growth of 5.1%, with same facility case growth at 3.4% and rate growth at 1.6% [25][26] - The adjusted EBITDA margin was 15.6%, which is 10 basis points higher than the prior year [26] Business Line Data and Key Metrics Changes - The company performed nearly 173,000 surgical cases in the second quarter, a 3.8% increase from the previous year, with significant growth in gastrointestinal (GI) and musculoskeletal (MSK) procedures [9][25] - Total joint procedures grew by 26% in the second quarter compared to the prior year, indicating strong demand for orthopedic surgeries [10] Market Data and Key Metrics Changes - The total addressable market for Surgery Partners is estimated to grow from $40 billion to over $150 billion in the near to medium term, driven by demographic trends and technological advancements [22] - The company has less than 5% exposure to Medicaid, indicating limited risk from changes in Medicaid reimbursement policies [18] Company Strategy and Development Direction - The company focuses on three growth pillars: organic growth, margin improvement, and capital deployment for mergers and acquisitions (M&A) [5][6] - Surgery Partners plans to deploy $200 million in acquisitions for the year, with a disciplined approach to ensure long-term value creation [15][31] - The company is actively evaluating its asset portfolio to optimize for growth and leverage reduction, including potential partnerships or sales of non-core facilities [22][80] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning within the current regulatory environment, noting minimal exposure to tariff-related price increases and a favorable outlook from CMS regarding outpatient rates [17][18] - The company anticipates continued growth in same facility revenue, expecting to reach the high end of its growth target of 6% for the full year [9][81] Other Important Information - Surgery Partners opened eight de novo facilities in 2024 and has a robust pipeline for future developments, particularly in higher acuity specialties [12][22] - The company recorded a 27% sequential decrease in transaction and integration costs, reflecting a more normalized M&A activity level [17] Q&A Session Summary Question: What is the expected pace of acquisitions for the year? - Management confirmed a strong pipeline and reiterated the target of at least $200 million in acquisitions, emphasizing the importance of timing and quality over rushing to meet targets [34][36] Question: How do de novo facilities impact margins? - Management explained that de novo facilities take time to reach full profitability, typically achieving breakeven within 6-12 months and full run rate earnings within three years [39][40] Question: Are there any service lines considered less core? - Management indicated that they are evaluating opportunities to optimize the portfolio, which may include divesting non-core facilities or expanding partnerships with local health systems [45][80] Question: What is the impact of the potential removal of the inpatient-only list? - Management expressed optimism about the potential for increased revenue from higher acuity procedures being performed in outpatient settings, although they cautioned against overestimating immediate impacts [51][72] Question: How is the company addressing payer behavior and revenue cycle standardization? - Management noted ongoing efforts to improve revenue cycle processes and maintain strong relationships with payers, which are crucial for optimizing cash flow and operational efficiency [62][63]

Financial Data and Key Metrics Changes - Surgery Partners reported Q2 2025 net revenue of $826 million, an increase of 8.4% compared to Q2 2024, and adjusted EBITDA of $129 million, reflecting a 9% growth year-over-year [6][25]. - The adjusted EBITDA margin improved to 15.6%, up 10 basis points from the previous year [25]. - The company ended the quarter with $250 million in cash and total liquidity of $645 million [25][26]. Business Line Data and Key Metrics Changes - Same facility revenue growth was 5.1%, driven by a 3.4% increase in surgical case volume and a 1.6% increase in rates [24][25]. - Total joint procedures grew by 26% year-over-year, indicating strong demand in orthopedic surgeries [9]. - The company performed nearly 173,000 surgical cases in Q2 2025, a 3.8% increase from the previous year [24]. Market Data and Key Metrics Changes - The total addressable market for Surgery Partners is estimated to exceed $150 billion, with a current market size of over $40 billion [21]. - The company has limited exposure to Medicaid, accounting for less than 5% of revenue, which mitigates risks from regulatory changes [17]. - Proposed changes by CMS could add 276 procedures to the ASC covered list, enhancing the company's market position [18]. Company Strategy and Development Direction - The company focuses on three growth pillars: organic growth, margin improvement, and M&A activities [5][14]. - Surgery Partners plans to deploy $200 million in acquisitions for 2025, with a disciplined approach to ensure long-term value [15][29]. - The company is actively evaluating its asset portfolio to optimize operations and reduce leverage [21][44]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current regulatory environment, with minimal exposure to tariff-related price increases [16][17]. - The company anticipates continued growth in same facility revenue, aiming for the high end of the 6% growth target for the full year [8][25]. - Management highlighted the importance of physician recruitment and the positive impact of new facilities on long-term growth [11][20]. Other Important Information - Surgery Partners opened eight de novo facilities in 2024 and has 10 more under construction, focusing on higher acuity specialties [12][20]. - The company recorded a 27% sequential decrease in transaction and integration costs, indicating improved efficiency in M&A activities [15][16]. - The strategic review process concluded with a reaffirmation of the company's value creation opportunities as a publicly traded entity [20][22]. Q&A Session Summary Question: What is the pace of acquisitions and how should it be modeled going forward? - Management indicated that while the pace of acquisitions has been slower, they remain confident in achieving the $200 million target for the year, emphasizing the importance of finding the best deals [32][34]. Question: What are the economics of de novo facilities and their impact on margins? - Management explained that de novo facilities take time to ramp up but are expected to contribute positively to margins as they focus on higher acuity procedures [35][39]. Question: Are there any service lines considered less core during portfolio optimization? - Management stated they are evaluating opportunities to maximize long-term shareholder value, which may include partnerships or sales in certain markets [42][44]. Question: What is the company's exposure to health exchange volume and its potential impact? - Management noted that their exposure to health exchange volume is limited and not a significant part of their business, indicating minimal risk from potential declines in exchange membership [97]. Question: What drove the increase in operating expenses and variability in other OpEx? - Management clarified that fluctuations in operating expenses are due to various miscellaneous items and that the increase in professional fees is related to newly acquired surgical facilities [84][86].

[Overview and Highlights](index=1&type=section&id=SURGERY%20PARTNERS%2C%20INC.%20ANNOUNCES%20SECOND%20QUARTER%202025%20RESULTS) Surgery Partners reported strong Q2 2025 financial results and reaffirmed its full-year guidance, reflecting confidence in its operational strategy [Second Quarter 2025 Financial Highlights & 2025 Guidance](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Highlights%20%26%202025%20Guidance) Surgery Partners reported strong Q2 2025 results with 8.4% revenue growth and 9.0% Adjusted EBITDA increase, reaffirming full-year guidance Q2 2025 Key Financial Metrics (in millions) | Metric | Q2 2025 | YoY Growth (%) | | :--- | :--- | :--- | | Revenue | $826.2 | 8.4 | | Same-facility Revenues | - | 5.1 | | Same-facility Cases | - | 3.4 | | Adjusted EBITDA | $129.0 | 9.0 | | Net Loss Attributable to SGRY | $2.5 | - | Full Year 2025 Guidance (Reaffirmed, in millions) | Metric | Guidance Range | | :--- | :--- | | Revenue | $3,300 - $3,450 | | Adjusted EBITDA | $555 - $565 | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management attributed strong growth to operational strategy and market momentum, reaffirming full-year guidance and expecting margin expansion - CEO Eric Evans highlighted the company's focus on maximizing portfolio performance, capitalizing on surgical trends, and evaluating opportunities to expedite **leverage reduction** and accelerate **cash flow generation**[2](index=2&type=chunk) - CFO Dave Doherty expressed confidence in achieving **full-year guidance**, citing ongoing operating system improvements and benefits from recent acquisitions and new facility openings[2](index=2&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) The company reported strong Q2 2025 financial performance with revenue growth, increased Adjusted EBITDA, and stable liquidity [Quarterly and Year-to-Date Results](index=1&type=section&id=Quarterly%20and%20Year-to-Date%20Results) Q2 2025 revenues grew 8.4% to $826.2 million, with year-to-date revenues up 8.3% to $1.6 billion Q2 2025 vs Q2 2024 Performance (in millions) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $826.2 | $762.1 | 8.4% | | Same-Facility Revenues | - | - | 5.1% | | Adjusted EBITDA | $129.0 | $118.3 | 9.0% | Year-to-Date 2025 vs 2024 Performance (in millions) | Metric | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,602.2 | $1,479.5 | 8.3% | | Same-Facility Revenues | - | - | 5.1% | | Adjusted EBITDA | $232.9 | $215.8 | 7.9% | [Liquidity and Financial Position](index=2&type=section&id=Liquidity) Surgery Partners reported $250.1 million cash, $394.9 million credit availability, and a 4.1x net debt to EBITDA ratio - The company had cash and cash equivalents of **$250.1 million** and a borrowing capacity of **$394.9 million** under its revolving credit facility at the end of Q2 2025[6](index=6&type=chunk) Cash Flow from Operating Activities (in millions) | Period | 2025 | 2024 | | :--- | :--- | :--- | | Second Quarter | $81.3 | $82.8 | | Year-to-Date | $87.3 | $123.5 | - The ratio of total net debt to EBITDA, calculated per the company's credit agreement, was approximately **4.1x** at the end of Q2 2025[8](index=8&type=chunk) [Detailed Financial Tables](index=4&type=section&id=Detailed%20Financial%20Tables) Detailed financial tables provide a comprehensive view of the company's financial performance and key operating metrics [Consolidated Financial Data (Income Statement)](index=4&type=section&id=Selected%20Consolidated%20Financial%20Data) The consolidated income statement highlights key financial results for Q2 2025, including revenues, operating income, and net loss Q2 2025 Consolidated Income Statement Highlights (in millions) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenues | $826.2 | $762.1 | | Operating Income | $111.7 | $84.8 | | Interest Expense, net | $(67.9) | $(51.5) | | Net Income | $44.9 | $28.4 | | Net Loss Attributable to SGRY | $(2.5) | $(15.5) | [Selected Financial and Operating Data](index=5&type=section&id=Selected%20Financial%20and%20Operating%20Data) This section presents key balance sheet data and operating metrics, including cases, revenue per case, and Adjusted EBITDA margin Balance Sheet Data at Period End (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $250.1 | $269.5 | | Total Assets | $7,954.8 | $7,890.0 | | Long-term debt, less current | $3,465.2 | $3,268.9 | | Total Liabilities | $4,375.9 | $4,254.8 | | Total SGRY Stockholders' Equity | $1,748.3 | $1,789.7 | Key Operating Metrics (Q2) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Cases | 172,858 | 166,520 | | Revenue per Case ($) | 4,780 | 4,577 | | Adjusted EBITDA Margin (%) | 15.6 | 15.5 | [Supplemental Information (Same-Facility Data)](index=6&type=section&id=Supplemental%20Information) Supplemental information details same-facility performance, including case growth, revenue per case, and days-adjusted revenue growth Same-Facility Performance (Q2) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Cases | 183,623 | 177,514 | | Case Growth (%) | 3.4 | N/A | | Revenue per Case ($) | 4,736 | 4,663 | | Revenue per Case Growth (%) | 1.6 | N/A | | Revenue Growth (days adjusted) (%) | 5.1 | N/A | [Non-GAAP Financial Measures](index=3&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) This section explains the company's non-GAAP financial measures and provides detailed reconciliations for key metrics [Explanation of Non-GAAP Measures](index=3&type=section&id=Explanation%20of%20Non-GAAP%20Measures) Surgery Partners uses non-GAAP measures like Adjusted EBITDA to supplement GAAP results, aiding performance evaluation - The company presents non-GAAP measures like **Adjusted EBITDA** and **Adjusted net income** as supplemental tools that management uses to assess operating performance, make business decisions, and allocate resources[15](index=15&type=chunk)[16](index=16&type=chunk)[26](index=26&type=chunk) - These measures are not intended to replace GAAP metrics and have limitations, as they exclude items that can be significant in evaluating financial performance[16](index=16&type=chunk)[27](index=27&type=chunk) [Reconciliation of Adjusted EBITDA](index=6&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) The company provides a detailed reconciliation of Adjusted EBITDA from income before income taxes for Q2 2025, totaling $129.0 million Adjusted EBITDA Reconciliation (Q2 2025, in millions) | Description | Amount | | :--- | :--- | | Income before income taxes | $43.8 | | Net income attributable to NCI | $(47.4) | | Interest expense, net | $67.9 | | Depreciation and amortization | $40.3 | | Transaction and integration costs | $18.1 | | Other Adjustments | $(0.5) | | **Adjusted EBITDA** | **$129.0** | Adjusted EBITDA from Unconsolidated Affiliates (Q2, in millions) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Management fee revenues | $8.6 | $6.8 | | Equity in earnings | $5.5 | $4.4 | | **Total** | **$15.2** | **$11.8** | [Reconciliation of Adjusted Net Income](index=7&type=section&id=Reconciliation%20of%20Adjusted%20Net%20Income) Adjusted net income attributable to common stockholders for Q2 2025 was $21.9 million, or $0.17 per diluted share Adjusted Net Income Reconciliation (Q2 2025, in millions) | Description | Amount | | :--- | :--- | | Net income | $44.9 | | Net income attributable to NCI | $(47.4) | | Transaction and integration costs | $18.1 | | Equity-based compensation expense | $6.8 | | Other Adjustments | $(0.5) | | **Adjusted net income** | **$21.9** | Adjusted Net Income Per Share (Diluted) | Period | 2025 ($) | 2024 ($) | | :--- | :--- | :--- | | Second Quarter | 0.17 | 0.21 | | Year-to-Date | 0.21 | 0.31 | [Additional Information](index=2&type=section&id=Additional%20Information) This section provides supplementary details including conference call information, company overview, and forward-looking statements [Conference Call Information](index=2&type=section&id=Conference%20Call%20Information) Surgery Partners held a conference call on August 5, 2025, to discuss quarterly results, with replay information available - A conference call was held on **August 5, 2025**, at 8:30 a.m. (Eastern Time) to discuss the results[9](index=9&type=chunk) - A replay of the call is available until **August 19, 2025**, and a webcast replay is accessible on the company's Investor Relations website[9](index=9&type=chunk)[10](index=10&type=chunk) [About Surgery Partners](index=2&type=section&id=About%20Surgery%20Partners) Surgery Partners is a leading healthcare services company operating over 200 short-stay surgical facilities across 30 states - Surgery Partners is a leading owner and operator of **short-stay surgical facilities**, with a model focused on high-quality, cost-effective outpatient care[1](index=1&type=chunk)[12](index=12&type=chunk) - The company operates more than **200 locations** in **30 states**, including ambulatory surgery centers, surgical hospitals, and physician practices[12](index=12&type=chunk) [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report includes forward-looking statements concerning growth and future results, which are subject to **risks and uncertainties**[13](index=13&type=chunk) - Factors that could affect results include **payment reductions** from payors, physician relationships, **competition**, **regulatory changes**, and other risks detailed in the company's Form 10-K[13](index=13&type=chunk)[14](index=14&type=chunk)

Core Viewpoint - Surgery Partners, Inc. reaffirms its full-year 2025 guidance for revenue and Adjusted EBITDA, reflecting strong growth in the ambulatory surgery industry and operational strategy [2][3]. Financial Highlights - Full-year 2025 revenue guidance is reaffirmed to be in the range of $3.30 billion to $3.45 billion, and Adjusted EBITDA guidance is set between $555 million and $565 million [2]. - Revenues for Q2 2025 increased by 8.4% to $826.2 million compared to $762.1 million in Q2 2024 [3][6]. - Same-facility revenues for Q2 2025 rose by 5.1%, with a 1.6% increase in revenue per case and a 3.4% increase in same-facility cases [3][4]. - Adjusted EBITDA for Q2 2025 was $129.0 million, a 9.0% increase from $118.3 million in Q2 2024 [3][6]. Year-to-Date Results - Year-to-date revenues for 2025 increased by 8.3% to $1,602.2 million compared to $1,479.5 million in the same period of 2024 [4]. - Year-to-date Adjusted EBITDA was $232.9 million, up from $215.8 million in the prior year [4]. Liquidity and Cash Flow - As of June 30, 2025, the company had cash and cash equivalents of $250.1 million and $394.9 million in borrowing capacity under its revolving credit facility [5]. - Cash flows from operating activities for Q2 2025 were $81.3 million, slightly down from $82.8 million in Q2 2024 [5][7]. Debt and Leverage - The ratio of total net debt to EBITDA was approximately 4.1x at the end of Q2 2025, while leverage calculated using consolidated debt divided by Adjusted EBITDA was 4.7x [8]. Operational Performance - The number of surgical facilities as of the end of the period was 162, down from 167 in the previous year [22]. - The company reported a net loss attributable to Surgery Partners, Inc. of $2.5 million for Q2 2025, compared to a net loss of $15.5 million in Q2 2024 [19].

Company Overview - Surgery Partners, Inc. is a leading healthcare services company focused on providing high-quality, cost-effective surgical and ancillary care solutions [3] - The company operates more than 200 locations across 30 states, including ambulatory surgery centers, surgical hospitals, multi-specialty physician practices, and urgent care facilities [3] - Founded in 2004, Surgery Partners is recognized as one of the largest and fastest-growing surgical services businesses in the United States [3] Upcoming Financial Results - Surgery Partners will release its second quarter 2025 results before the market opens on August 5, 2025 [1] - A conference call will follow at 8:30 a.m. Eastern Time on the same day [1] - Interested parties can access the call via a webcast on the company's Investor Relations website, with a replay available for a limited time [1][2] Investor Relations - The company provides material information through its website, ensuring easy access for investors [2] - Contact information for investor relations includes a dedicated phone line and email address for inquiries [4] - Live access to the conference call is available through specific dial-in numbers for domestic and international participants [4]

Core Viewpoint - Surgery Partners, Inc. has reaffirmed its confidence in its long-term growth prospects and reiterated its full-year 2025 financial guidance, indicating a strong outlook for the company as an independent entity [1][2]. Company Overview - Surgery Partners is a leading healthcare services company focused on outpatient surgical care, operating over 200 locations across 30 states [6][8]. - The company utilizes a joint venture model and has a strong track record in mergers and acquisitions, positioning it well in the high-growth outpatient surgical care market [3]. Financial Guidance - The company expects 2025 revenues to be in the range of $3.30 billion to $3.45 billion and Adjusted EBITDA to be between $555 million and $565 million [5]. Strategic Initiatives - Surgery Partners plans to host an Investor Day in the second half of 2025 to discuss its future growth plans, industry trends, and strategies for maximizing portfolio performance and operational efficiencies [4]. Board and Management Confidence - The Independent Committee of the Board, after reviewing a non-binding acquisition proposal from Bain Capital, concluded that remaining independent would better serve the long-term interests of the company and its shareholders [2][3]. - The management team, led by CEO Eric Evans, expressed confidence in achieving the financial guidance for 2025, supported by favorable surgical trends and a positive regulatory outlook [3].

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Surgery Partners, Inc., including detailed notes on accounting policies, acquisitions, debt, leases, and segment reporting [Condensed Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) The balance sheet shows a slight increase in total assets and total liabilities from December 31, 2024, to March 31, 2025, while total stockholders' equity decreased Condensed Consolidated Balance Sheets (Unaudited) | Metric | March 31, 2025 (Millions) | December 31, 2024 (Millions) | Change (Millions) | | :----------------------------- | :-------------------------- | :--------------------------- | :---------------- | | Total Assets | $7,949.2 | $7,890.0 | +$59.2 | | Total Liabilities | $4,362.3 | $4,184.8 | +$177.5 | | Total Stockholders' Equity | $3,156.0 | $3,196.4 | -$40.4 | | Cash and Cash Equivalents | $229.3 | $269.5 | -$40.2 | | Long-term debt, less current maturities | $3,446.9 | $3,268.9 | +$178.0 | [Condensed Consolidated Statements of Operations (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) For the three months ended March 31, 2025, the company reported increased revenues but a net loss attributable to Surgery Partners, Inc., primarily due to higher interest expense and transaction/integration costs Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2025 (Millions) | Three Months Ended March 31, 2024 (Millions) | Change (Millions) | Change (%) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------- | :--------- | | Revenues | $776.0 | $717.4 | +$58.6 | +8.2% | | Operating Income | $61.9 | $76.0 | -$14.1 | -18.6% | | Interest Expense, Net | $(62.2) | $(47.3) | -$(14.9) | +31.5% | | Net (Loss) Income | $(0.3) | $24.3 | -$(24.6) | -101.2% | | Net Loss Attributable to Surgery Partners, Inc. | $(37.7) | $(12.4) | -$(25.3) | +204.0% | | Basic Net Loss Per Share | $(0.30) | $(0.10) | -$(0.20) | +200.0% | [Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) The company reported a comprehensive loss for the three months ended March 31, 2025, significantly higher than the prior year, primarily due to derivative activity Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | Metric | Three Months Ended March 31, 2025 (Millions) | Three Months Ended March 31, 2024 (Millions) | Change (Millions) | Change (%) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------- | :--------- | | Net (Loss) Income | $(0.3) | $24.3 | -$(24.6) | -101.2% | | Other Comprehensive (Loss) Income, net of tax | $(16.6) | $(5.5) | -$(11.1) | +201.8% | | Comprehensive (Loss) Income | $(16.9) | $18.8 | -$(35.7) | -189.9% | | Comprehensive Loss Attributable to Surgery Partners, Inc. | $(54.3) | $(17.9) | -$(36.4) | +203.4% | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Total stockholders' equity decreased from December 31, 2024, to March 31, 2025, mainly due to net loss and other comprehensive loss, partially offset by equity-based compensation and non-controlling interest adjustments Condensed Consolidated Statements of Stockholders' Equity (Unaudited) | Metric | Balance as of March 31, 2025 (Millions) | Balance as of December 31, 2024 (Millions) | Change (Millions) | | :------------------------------------ | :-------------------------------------- | :--------------------------------------- | :---------------- | | Total Stockholders' Equity | $3,156.0 | $3,196.4 | -$40.4 | | Net (Loss) Income | $(37.7) | N/A | N/A | | Equity-based compensation | $7.6 | N/A | N/A | | Other comprehensive loss | $(16.6) | N/A | N/A | | Distributions to non-controlling interests | $(49.3) | N/A | N/A | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Cash flows from operating activities significantly decreased in Q1 2025 compared to Q1 2024, while net cash used in investing activities slightly decreased, and net cash provided by financing activities also saw a minor decrease Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric | Three Months Ended March 31, 2025 (Millions) | Three Months Ended March 31, 2024 (Millions) | Change (Millions) | Change (%) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------- | :--------- | | Net Cash Provided by Operating Activities | $6.0 | $40.7 | -$34.7 | -85.3% | | Net Cash Used in Investing Activities | $(76.4) | $(83.1) | +$6.7 | -8.1% | | Net Cash Provided by Financing Activities | $30.2 | $31.7 | -$1.5 | -4.7% | | Net Decrease in Cash and Cash Equivalents | $(40.2) | $(10.7) | -$29.5 | +275.7% | | Cash and Cash Equivalents at End of Period | $229.3 | $185.2 | +$44.1 | +23.8% | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes provide detailed explanations of the company's accounting policies, including revenue recognition, income taxes, goodwill, and financial instruments, along with significant activities such as acquisitions, debt, leases, derivatives, earnings per share, and segment reporting [1. Organization and Summary of Accounting Policies](index=9&type=section&id=1.%20Organization%20and%20Summary%20of%20Accounting%20Policies) This note outlines the company's business as a national network of surgical facilities and ancillary services, detailing its portfolio, financial statement presentation, revenue recognition, accounts receivable, income tax, goodwill, derivative instruments, redeemable non-controlling interests, fair value measurements, and variable interest entities - As of March 31, 2025, Surgery Partners owned or operated **164 surgical facilities** (145 ASCs and 19 surgical hospitals) in 30 states, with a majority interest in 83 facilities and consolidating 118 for financial reporting[23](index=23&type=chunk) Revenues by Service Type (Percentage of Total Revenues) | Service Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Patient service revenues | 97.8 % | 98.3 % | | Other service revenues | 2.2 % | 1.7 % | | Total revenues | 100.0 % | 100.0 % | Patient Service Revenues by Payor Type (Percentage of Total Patient Service Revenues) | Payor Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------- | :-------------------------------- | :-------------------------------- | | Private insurance | 53.6 % | 51.2 % | | Government | 41.7 % | 43.0 % | | Self-pay | 2.6 % | 2.8 % | | Other | 2.1 % | 3.0 % | | Total | 100.0 % | 100.0 % | - The effective tax rate was **0% for Q1 2025**, differing from the U.S. federal statutory rate of 21% primarily due to earnings attributable to non-controlling interests, an increase in valuation allowance for interest expense limitations, and permanent differences in stock compensation expense, a significant change from the **15.3% effective tax rate in Q1 2024**[45](index=45&type=chunk)[46](index=46&type=chunk) Goodwill Activity (Millions) | Metric | Amount (Millions) | | :---------------------------- | :---------------- | | Balance as of December 31, 2024 | $5,068.0 | | Acquisitions, including post acquisition adjustments | $69.6 | | Disposals | $(11.4) | | Balance as of March 31, 2025 | $5,126.2 | [2. Acquisitions, Disposals and Deconsolidations](index=13&type=section&id=2.%20Acquisitions,%20Disposals%20and%20Deconsolidations) In Q1 2025, the company acquired four surgical facilities and one physician practice for $44.0 million cash, recognizing $70.2 million in goodwill, and also disposed of interests in two surgical facilities, resulting in a net loss on deconsolidation and a net gain from other disposals - During Q1 2025, the Company acquired a controlling interest in four surgical facilities and one physician practice for **$44.0 million cash**, recognizing **$28.0 million in non-controlling interests** and **$70.2 million in goodwill**[61](index=61&type=chunk) - During Q1 2025, the Company sold a portion of its interests in one surgical facility, resulting in a pre-tax **net loss on deconsolidation of $3.0 million**, and disposed of controlling interests in two surgical facilities for **$4.3 million cash**, recognizing a pre-tax **net gain of $0.5 million**[67](index=67&type=chunk) - During Q1 2024, the Company acquired a controlling interest in two surgical facilities and several physician practices for **$66.0 million cash** and **$1.1 million non-cash consideration**, recognizing **$21.2 million in non-controlling interests** and **$77.2 million in goodwill**[60](index=60&type=chunk) - During Q1 2024, the Company sold a portion of its interests in a surgical facility, resulting in a pre-tax **net gain on deconsolidation of $2.7 million**[63](index=63&type=chunk) [3. Long-Term Debt](index=14&type=section&id=3.%20Long-Term%20Debt) Total debt increased to $3,550.8 million as of March 31, 2025, from $3,370.3 million at December 31, 2024, primarily due to increased borrowings on the senior secured revolving credit facility and finance lease obligations Long-Term Debt Summary (Millions) | Debt Type | March 31, 2025 | December 31, 2024 | | :------------------------------ | :------------- | :---------------- | | Senior secured term loan | $1,384.6 | $1,388.1 | | Senior secured revolving credit facility | $304.0 | $192.0 | | 7.250% senior unsecured notes due 2032 | $800.0 | $800.0 | | Notes payable and other secured loans | $227.5 | $224.4 | | Finance lease obligations | $866.6 | $798.7 | | Less: unamortized debt issuance costs and discounts | $(31.9) | $(32.9) | | Total debt | $3,550.8 | $3,370.3 | | Less: current maturities | $103.9 | $101.4 | | Total long-term debt | $3,446.9 | $3,268.9 | - Availability on the **$703.8 million senior secured revolving credit facility** was **$388.9 million** as of March 31, 2025, with the increase in outstanding borrowings primarily due to the timing of acquisitions[65](index=65&type=chunk) [4. Leases](index=14&type=section&id=4.%20Leases) The company's total leased assets increased to $994.5 million as of March 31, 2025, with a corresponding increase in total lease liabilities, and lease expenses also rose, driven by higher finance lease costs Total Leased Assets and Liabilities (Millions) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Total leased assets | $994.5 | $951.3 | | Total lease liabilities | $1,179.1 | $1,131.8 | Total Lease Costs (Millions) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------ | :-------------------------------- | :-------------------------------- | | Operating lease costs | $16.5 | $15.9 | | Finance lease costs | $34.2 | $24.8 | | Variable and short-term lease costs | $4.6 | $5.8 | | Total lease costs | $55.3 | $46.5 | [5. Derivatives and Hedging Activities](index=16&type=section&id=5.%20Derivatives%20and%20Hedging%20Activities) The company uses interest rate swaps and caps to manage interest rate risk, with several agreements maturing and new deferred premium interest rate cap agreements with a total notional amount of $1.4 billion becoming active on March 31, 2025, to limit interest rate exposure - The Company's interest rate swaps and caps are used to add stability to interest expense and manage exposure to interest rate movements[71](index=71&type=chunk) - As of March 31, 2025, five deferred premium interest rate cap agreements with a total notional amount of **$1.4 billion** became active, designated in cash flow hedging relationships to limit interest rate exposure on the term loan[74](index=74&type=chunk) - The fair value of derivatives in cash flow hedging relationships shifted from a net asset of **$10.8 million** at December 31, 2024, to a net liability of **$11.8 million** at March 31, 2025, primarily due to the maturity of previous swaps/caps and the new cap agreements[79](index=79&type=chunk) - An estimated **$5.6 million** will be reclassified as an increase to interest expense from accumulated OCI over the next 12 months[77](index=77&type=chunk) [6. Earnings Per Share](index=17&type=section&id=6.%20Earnings%20Per%20Share) Basic and diluted net loss per share attributable to common stockholders increased to $(0.30) for Q1 2025 from $(0.10) for Q1 2024, with potentially dilutive securities not included due to their anti-dilutive effect Net Loss Per Share Attributable to Common Stockholders | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to Surgery Partners, Inc. | $(37.7) | $(12.4) | | Basic Net Loss Per Share | $(0.30) | $(0.10) | | Diluted Net Loss Per Share | $(0.30) | $(0.10) | | Weighted Average Common Shares Outstanding (Basic/Diluted) | 126,602 | 125,972 | [7. Other Current Liabilities](index=18&type=section&id=7.%20Other%20Current%20Liabilities) Total other current liabilities decreased to $233.5 million at March 31, 2025, from $253.9 million at December 31, 2024, primarily due to a decrease in accrued expenses and other, partially offset by an increase in interest payable Other Current Liabilities (Millions) | Liability Type | March 31, 2025 | December 31, 2024 | | :------------------------------ | :------------- | :---------------- | | Right-of-use operating lease liabilities | $39.6 | $41.0 | | Cost report liabilities | $20.7 | $21.3 | | Amounts due to patients and payors | $38.6 | $31.8 | | Interest payable | $28.1 | $13.4 | | Interest rate swaps | $— | $3.5 | | Accrued expenses and other | $106.5 | $142.9 | | Total | $233.5 | $253.9 | [8. Commitments and Contingencies](index=18&type=section&id=8.%20Commitments%20and%20Contingencies) The company is subject to various claims and legal actions in the ordinary course of business, maintaining professional, general, workers' compensation, and cyber liability insurance, with management believing no current proceedings will have a material adverse effect - The Company is subject to claims and legal actions in the ordinary course of business, including patient treatment, employment practices, and personal injuries[85](index=85&type=chunk) - Total professional, general, and workers' compensation claim liabilities were **$19.7 million** as of March 31, 2025, with expected insurance recoveries of **$9.6 million**[85](index=85&type=chunk) [9. Segment Reporting](index=18&type=section&id=9.%20Segment%20Reporting) Surgery Partners operates as a single reportable segment: Surgical Facilities, which includes ASCs, surgical hospitals, anesthesia services, and multi-specialty physician practices, using Adjusted EBITDA to assess performance and allocate resources - Surgery Partners has one reportable segment: Surgical Facilities, which includes ASCs, surgical hospitals, anesthesia services, and multi-specialty physician practices[86](index=86&type=chunk)[87](index=87&type=chunk) - The operating segment previously defined as 'Ancillary services' was included with Surgical Facilities based on changes in operational management[88](index=88&type=chunk) Adjusted Surgical Facilities EBITDA (Millions) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------- | :-------------------------------- | :-------------------------------- | | Surgical Facilities Revenues | $776.0 | $717.4 | | Adjusted Surgical Facilities EBITDA | $132.0 | $125.3 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2025, highlighting revenue growth, increased net loss, and discussions on liquidity, capital resources, and non-GAAP financial measures [Cautionary Note Regarding Forward-Looking Statements](index=20&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section advises readers that the report contains forward-looking statements based on current expectations, estimates, and assumptions, which involve risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ from expectations[95](index=95&type=chunk) - Key risk factors include reductions in payments from government and private health care programs, ability to contract with private insurance payors, changes in payor or surgical case mix, and ability to maintain physician relationships[95](index=95&type=chunk) [Executive Overview](index=20&type=section&id=Executive%20Overview) As of March 31, 2025, Surgery Partners operated 164 surgical facilities, with total revenues increasing by 8.2% to $776.0 million, driven by same-facility revenue growth and acquisitions, while net loss attributable to Surgery Partners, Inc. increased significantly to $37.7 million, and Adjusted EBITDA grew by 6.6% to $103.9 million - As of March 31, 2025, Surgery Partners owned or operated **164 surgical facilities** (145 ASCs and 19 surgical hospitals) across 30 states[98](index=98&type=chunk) Key Financial Highlights (Q1 2025 vs. Q1 2024) | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | Change (Millions) | Change (%) | | :----------------------------------------- | :----------------- | :----------------- | :---------------- | :--------- | | Total Revenues | $776.0 | $717.4 | +$58.6 | +8.2% | | Days Adjusted Same-Facility Revenues Growth | 5.2% | N/A | N/A | N/A | | Same-Facility Cases Growth | 6.5% | N/A | N/A | N/A | | Net Loss Attributable to Surgery Partners, Inc. | $(37.7) | $(12.4) | -$(25.3) | +204.0% | | Adjusted EBITDA | $103.9 | $97.5 | +$6.4 | +6.6% | - The company acquired a controlling interest in four surgical facilities and one physician practice for **$44.0 million cash** during Q1 2025[99](index=99&type=chunk) - Cash and cash equivalents were **$229.3 million**, with **$388.9 million** borrowing capacity under the Revolver as of March 31, 2025[100](index=100&type=chunk) [Revenues](index=21&type=section&id=Revenues) Revenues are primarily derived from patient service revenues (97.8% in Q1 2025), which include fees for surgical procedures, physician visits, and anesthesia services, with other service revenues constituting a smaller portion - Patient service revenues accounted for **97.8% of total revenues** in Q1 2025, slightly down from **98.3% in Q1 2024**[102](index=102&type=chunk) - Other service revenues increased to **2.2% of total revenues** in Q1 2025 from **1.7% in Q1 2024**[102](index=102&type=chunk) [Payor Mix](index=21&type=section&id=Payor%20Mix) The payor mix for patient service revenues in Q1 2025 showed an increased reliance on private insurance payors (53.6%) and a decreased reliance on government payors (41.7%) compared to Q1 2024 Patient Service Revenues by Payor Type (Percentage) | Payor Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------- | :-------------------------------- | :-------------------------------- | | Private insurance payors | 53.6 % | 51.2 % | | Government payors | 41.7 % | 43.0 % | | Self-pay payors | 2.6 % | 2.8 % | | Other payors | 2.1 % | 3.0 % | | Total | 100.0 % | 100.0 % | [Surgical Case Mix](index=21&type=section&id=Surgical%20Case%20Mix) The company's surgical case mix remains diversified across multiple specialties, with Orthopedics and pain management, Ophthalmology, and Gastrointestinal procedures being the largest categories, showing a slight shift towards Orthopedics and pain management and Gastrointestinal cases in Q1 2025 Surgical Cases by Specialty (Percentage) | Specialty | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Orthopedics and pain management | 40.5 % | 40.0 % | | Ophthalmology | 21.9 % | 23.5 % | | Gastrointestinal | 24.3 % | 22.1 % | | General surgery | 2.2 % | 2.3 % | | Other | 11.1 % | 12.1 % | | Total | 100.0 % | 100.0 % | [Critical Accounting Policies](index=21&type=section&id=Critical%20Accounting%20Policies) There have been no material changes in the nature or application of the company's critical accounting policies since December 31, 2024 - No material changes in critical accounting policies or their application since December 31, 2024[106](index=106&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of operating results for Q1 2025 versus Q1 2024, showing revenues increased by 8.2%, driven by higher case volumes and acquisitions, but operating income decreased due to higher cost of revenues, transaction and integration costs, and significantly increased interest expense, leading to a substantial net loss attributable to Surgery Partners, Inc Summary of Operating Results (Millions) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (Millions) | Change (%) | | :----------------------------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :--------- | | Revenues | $776.0 | $717.4 | +$58.6 | +8.2% | | Cost of Revenues | $614.1 | $562.1 | +$52.0 | +9.2% | | General and Administrative Expenses | $36.0 | $33.2 | +$2.8 | +8.4% | | Depreciation and Amortization | $36.3 | $33.7 | +$2.6 | +7.7% | | Transaction and Integration Costs | $24.7 | $17.4 | +$7.3 | +42.0% | | Net Loss on Disposals, Consolidations and Deconsolidations | $6.4 | $1.5 | +$4.9 | +326.7% | | Operating Income | $61.9 | $76.0 | -$14.1 | -18.6% | | Interest Expense, Net | $(62.2) | $(47.3) | -$(14.9) | +31.5% | | Net Loss Attributable to Surgery Partners, Inc. | $(37.7) | $(12.4) | -$(25.3) | +204.0% | - Patient service revenues increased **7.5% to $758.4 million**, driven by a **5.2% increase in days adjusted same-facility revenues** (6.5% increase in case volumes, 1.2% decrease in revenue per case) and net impact from acquisitions/divestitures[107](index=107&type=chunk) - Cost of revenues as a percentage of revenues increased to **79.1% in Q1 2025** from **78.4% in Q1 2024**, driven by increased case volume and high acuity procedures[108](index=108&type=chunk) - Transaction and integration costs increased by **$7.3 million**, primarily due to higher severance, IT implementation, and revenue cycle standardization costs[111](index=111&type=chunk) - Interest expense, net, increased by **$14.9 million**, primarily due to financing activities in 2024 related to senior unsecured notes and increased borrowings on the Revolver[113](index=113&type=chunk) - Income tax expense was **$0.0 million in Q1 2025** (0% effective tax rate) compared to **$4.4 million in Q1 2024** (15.3% effective tax rate), mainly due to non-controlling interests, valuation allowance, and stock compensation differences[114](index=114&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased to $229.3 million at March 31, 2025, with operating cash flows significantly declining, while investing and financing cash flows saw minor changes, but the company believes its current cash, available credit, and access to capital markets are sufficient to meet short-term and long-term liquidity needs despite broad economic factors - Cash and cash equivalents decreased to **$229.3 million** at March 31, 2025, from **$269.5 million** at December 31, 2024[116](index=116&type=chunk) - Net cash provided by operating activities decreased by **$34.7 million to $6.0 million** in Q1 2025, primarily due to a decrease in net income and changes in other operating assets and liabilities[117](index=117&type=chunk) - Net cash used in investing activities decreased by **$6.7 million to $76.4 million**, driven by lower payments for acquisitions and increased proceeds from asset sales[118](index=118&type=chunk) - Net cash provided by financing activities decreased by **$1.5 million to $30.2 million**, mainly due to higher distributions to non-controlling interest holders, partially offset by increased long-term debt borrowings[119](index=119&type=chunk) - Net working capital increased to **$505.2 million** at March 31, 2025, from **$495.0 million** at December 31, 2024[120](index=120&type=chunk) - The company anticipates cash flows from operations, available cash, Revolver capacity, and capital market access will be adequate for short-term and long-term liquidity needs[124](index=124&type=chunk) [Certain Non-GAAP Measures](index=23&type=section&id=Certain%20Non-GAAP%20Measures) This section defines and reconciles non-GAAP financial measures, Adjusted EBITDA and Credit Agreement EBITDA, to their most directly comparable GAAP measures, with Adjusted EBITDA increasing by 6.6% to $103.9 million in Q1 2025, and Credit Agreement EBITDA at $588.7 million for the trailing twelve months ended March 31, 2025 - Adjusted EBITDA is a non-GAAP measure used by management to assess operating performance, make business decisions, and allocate resources[126](index=126&type=chunk) Adjusted EBITDA Reconciliation (Millions) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------------- | :-------------------------------- | :-------------------------------- | | (Loss) income before income taxes | $(0.3) | $28.7 | | Net income attributable to non-controlling interests | $(37.4) | $(36.7) | | Interest expense, net | $62.2 | $47.3 | | Depreciation and amortization | $36.3 | $33.7 | | Equity-based compensation expense | $7.6 | $4.9 | | Transaction and integration costs | $24.7 | $17.4 | | De novo start-up costs | $1.7 | $1.5 | | Net loss on disposals, consolidations and deconsolidations | $6.4 | $1.5 | | Litigation settlements and other litigation costs | $2.7 | $(1.2) | | Other | $— | $0.4 | | **Adjusted EBITDA** | **$103.9** | **$97.5** | - Credit Agreement EBITDA, used for liquidity and covenant compliance, was **$588.7 million** for the trailing twelve months ended March 31, 2025, including adjustments for acquisitions and synergies[129](index=129&type=chunk)[131](index=131&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risk primarily from interest rate changes, which it manages through a balanced mix of fixed and variable rate debt and the use of interest rate swap and cap agreements, and does not expect changes in interest rates to materially affect net earnings or cash flows in 2025 due to its hedging strategies - The Company is subject to market risk primarily from exposure to changes in interest rates[132](index=132&type=chunk) - Interest rate risk is managed using a balanced mix of maturities, fixed and variable rate debt, and interest rate swap and cap agreements[132](index=132&type=chunk) - Based on current indebtedness and effective hedging, the Company does not expect changes in interest rates to have a material effect on net earnings or cash flows in 2025[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of March 31, 2025[135](index=135&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025[136](index=136&type=chunk) [PART II - OTHER INFORMATION](index=26&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is routinely involved in claims and legal actions related to its business, but management believes no current proceedings would have a material adverse effect on its financial condition or results of operations - The Company is subject to claims and suits in the ordinary course of business, including those related to patient treatment, employment, and personal injuries[138](index=138&type=chunk) - Management believes no current legal proceedings would have a material adverse effect on the Company's business, financial condition, or results of operations[138](index=138&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously discussed in the company's 2024 Annual Report on Form 10-K - No material changes to the risk factors discussed in the 2024 Annual Report on Form 10-K[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds during the period - None[140](index=140&type=chunk) [Item 3. Defaults Upon Senior Securities](index=26&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - None[141](index=141&type=chunk) [Item 4. Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[142](index=142&type=chunk) [Item 5. Other Information](index=26&type=section&id=Item%205.%20Other%20Information) No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted or terminated by the company's directors or officers during the three months ended March 31, 2025 - No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during Q1 2025[143](index=143&type=chunk) [Item 6. Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and various XBRL taxonomy documents - Includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1)[144](index=144&type=chunk) - Includes Inline XBRL Taxonomy Extension documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) and the cover page formatted in Inline XBRL (Exhibit 104)[144](index=144&type=chunk)