Company Overview - Surgery Partners, Inc. (NASDAQ:SGRY) operates surgical facilities across the United States, providing outpatient surgery, diagnostic imaging, and laboratory services, focusing on cost-effective surgical solutions [1] Price Targets and Analyst Ratings - Mizuho Securities set a price target of $22 for SGRY, indicating a potential upside of 44.74% from its current trading price of $15.20 [2] - Cantor Fitzgerald maintains an "overweight" rating with a price target of $36, while the Royal Bank of Canada has set a $31 target with an "outperform" rating [3] - Benchmark adjusted its price target for SGRY from $35 to $30, maintaining a "buy" rating, whereas Weiss Ratings reaffirmed a "sell (d-)" rating [4] Stock Performance and Trading Activity - SGRY's stock price has decreased to $15.06, a drop of 1.47% or $0.22, with fluctuations between $15.01 and $15.57 [2] - The stock has experienced a 52-week high of $26.16 and a low of $15.01, indicating its volatile nature [5] - There has been a significant surge in options trading activity, with a 498% increase in put options, suggesting investor uncertainty or hedging strategies [3][6] Market Capitalization and Trading Volume - The stock's market capitalization is approximately $1.95 billion, with a trading volume of 1,356,144 shares on the NASDAQ exchange [4]

Financial Performance - Total revenues for Q3 2025 increased by 6.6% to $821.5 million from $770.4 million in Q3 2024, driven by same-facility revenue growth and acquisitions [105]. - Adjusted EBITDA for Q3 2025 rose by 6.1% to $136.4 million compared to $128.6 million in Q3 2024, attributed to revenue growth and cost management initiatives [105]. - Patient service revenues increased by 6.0% to $798.5 million in Q3 2025 from $753.2 million in Q3 2024, supported by a 3.4% increase in same-facility case volumes [116]. - Revenues for the nine months ended September 30, 2025, increased by 7.7% to $2,423.7 million compared to $2,249.9 million for the same period in 2024 [125]. - Patient service revenues rose by 7.0% to $2,361.1 million for the nine months ended September 30, 2025, driven by a 5.4% increase in days adjusted same-facility revenues [125]. - Adjusted EBITDA for the nine months ended September 30, 2025, was $369.3 million, an increase from $344.4 million in 2024 [145]. Costs and Expenses - Cost of revenues for Q3 2025 was $626.2 million, representing 76.2% of total revenues, compared to 77.0% in Q3 2024 [117]. - General and administrative expenses decreased to $22.4 million in Q3 2025 from $29.2 million in Q3 2024, accounting for 2.7% of revenues [118]. - Cost of revenues was $1,870.9 million for the nine months ended September 30, 2025, maintaining a consistent percentage of revenues at 77.2% [126]. - General and administrative expenses decreased to $94.5 million, representing 3.9% of revenues for the nine months ended September 30, 2025, down from 4.6% in 2024 [127]. Interest and Debt - Interest expense for Q3 2025 was $74.9 million, or 9.1% of revenues, up from $50.0 million and 6.5% in Q3 2024, due to increased borrowings [122]. - Interest expense, net increased to $205.0 million for the nine months ended September 30, 2025, accounting for 8.5% of revenues, up from 6.6% in 2024 [132]. - The total interest expense, net, is reported at $257.9 million, with transaction and integration costs at $89.4 million [152]. - The company utilizes a balanced mix of maturities and both fixed and variable rate debt to manage interest rate exposure [153]. - Interest rate swap and cap agreements are in place to mitigate exposure to interest rate fluctuations, with low credit risk associated with these agreements [153]. Acquisitions and Investments - The company acquired a controlling interest in four surgical facilities and five physician practices for $52.6 million during Q3 2025 [105]. - The impact of acquisitions and synergies is estimated at $43.6 million, as if each acquisition had occurred on October 1, 2024 [152]. - Net cash used in investing activities decreased significantly to $120.5 million for the nine months ended September 30, 2025, down from $376.8 million in 2024 [137]. Net Income and Loss - Net loss attributable to Surgery Partners, Inc. was $22.7 million in Q3 2025, an improvement from a net loss of $31.7 million in Q3 2024 [115]. - The company reported a net loss attributable to Surgery Partners, Inc. of $62.9 million for the nine months ended September 30, 2025, compared to a loss of $59.6 million in 2024 [125]. - Net income attributable to non-controlling interests was 5.5% of revenues for the nine months ended September 30, 2025, compared to 5.3% in 2024 [134]. Cash Flow - Cash flows from operating activities were $170.9 million for the nine months ended September 30, 2025, a decrease of $17.8 million from $188.7 million in 2024 [136]. - Cash flows from operating activities for the same period amount to $282.3 million [152]. - Changes in operating assets and liabilities, net of acquisitions and divestitures, contributed $123.5 million [152]. Payor Mix and Operations - The payor mix for Q3 2025 showed private insurance payors at 50.6%, government payors at 43.5%, and self-pay at 3.3% [111]. - The company operated a portfolio of 165 surgical facilities, including 146 ASCs and 19 surgical hospitals across 30 states as of September 30, 2025 [104]. Other Financial Metrics - Non-cash interest expense, net, is reported at $(7.9) million, while non-cash lease expense is $(38.8) million [152]. - The company expects no material effect on net earnings or cash flows in 2025 due to interest rate changes, based on current indebtedness and interest rate cap agreements [154]. - The company recognizes changes in the fair value of derivatives designated as cash flow hedges in other comprehensive income [153].

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Core Insights - Surgery Partners (SGRY) reported quarterly earnings of $0.13 per share, missing the Zacks Consensus Estimate of $0.19 per share, and down from $0.19 per share a year ago, representing an earnings surprise of -31.58% [1] - The company posted revenues of $821.5 million for the quarter ended September 2025, missing the Zacks Consensus Estimate by 0.31%, but up from $770.4 million year-over-year [2] - The stock has added about 1.6% since the beginning of the year, underperforming the S&P 500's gain of 14.4% [3] Earnings Outlook - The current consensus EPS estimate for the coming quarter is $0.46 on revenues of $940.87 million, and for the current fiscal year, it is $0.92 on revenues of $3.36 billion [7] - The estimate revisions trend for Surgery Partners was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Medical Services industry, to which Surgery Partners belongs, is currently in the top 38% of over 250 Zacks industries, suggesting that companies in the top 50% outperform those in the bottom 50% by more than 2 to 1 [8] - Another company in the same industry, Auna S.A. (AUNA), is expected to report quarterly earnings of $0.20 per share, reflecting a year-over-year change of -23.1%, with revenues expected to be $330.33 million, up 8.7% from the previous year [9]

Financial Data and Key Metrics Changes - Net revenue for Q3 2025 was $821.5 million, reflecting a 6.6% year-over-year increase [4][17] - Adjusted EBITDA was $136.4 million, up 6.1% year-over-year, with an adjusted EBITDA margin of 16.6% [4][17] - Same facility revenue grew by 6.3%, with same facility case growth of 3.4% and rate growth of 2.8% [17][22] Business Line Data and Key Metrics Changes - Over 166,000 surgical cases were performed in Q3, representing a 2.1% growth, with significant increases in GI and MSK procedures [5][17] - Total joint surgeries in ASC facilities grew by 16% in Q3 and 23% year-to-date compared to the same period last year [5][17] - The payer mix showed commercial payers at 50.6% of revenues, down 160 basis points year-over-year, while governmental sources increased by 120 basis points [7][17] Market Data and Key Metrics Changes - The company observed softer-than-expected same facility volume growth in recent months, prompting adjustments to the fourth quarter outlook [7][15] - The revised guidance for full-year revenue is now expected to be in the range of $3.275 billion to $3.3 billion [12][21] Company Strategy and Development Direction - The company is focused on three growth pillars: organic growth, margin improvement, and capital deployment for M&A [4] - A strategic portfolio optimization process is underway to enhance flexibility and streamline operations, with a focus on divesting larger surgical hospitals [11][12] - The company plans to open two new DeNovo facilities in Q3, with nine under construction and more than a dozen in the development pipeline, primarily targeting higher acuity specialties [9][10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged recent trends in surgical demand and payer mix, particularly among commercial patients, which have led to a more cautious outlook for Q4 [15][22] - The company remains confident in its long-term growth algorithm and the resilience of its business model despite near-term challenges [15][22] Other Important Information - The company has deployed approximately $71 million in capital for acquisitions in 2025 and anticipates a return to normal levels of annual capital investment moving into 2026 [8][9] - The cash balance at the end of the quarter was $203.4 million, with total available liquidity exceeding $600 million [18] Q&A Session Summary Question: What is causing the weakness in demand or procedure volumes as you think through Q4? - Management noted broad-based weakness in volumes and payer mix, with higher government payer mix than expected entering Q4, but still anticipates growth in cases and rates [24][25] Question: Is the low level of spend on acquisitions due to deal timing or evaluation? - Management confirmed strong deal flow but emphasized a disciplined approach to acquisitions, indicating that timing is a factor [26] Question: Can you elaborate on the payer mix commentary? - Management indicated that while there is always pressure from payers, the current issue is more about a weaker growth trend rather than systematic problems [30][31] Question: How do you expect free cash flow to land in Q4 and the year ahead? - Management refrained from providing specific guidance on free cash flow but noted strong operating cash flow and improvements in working capital [76][80] Question: What are the implications of the portfolio review process? - Management is focused on optimizing the portfolio to enhance cash flow and reduce leverage, with potential partnerships or divestitures being considered [55][60]

Financial Data and Key Metrics Changes - Net revenue for Q3 2025 was $821.5 million, reflecting a year-over-year increase of 6.6% [4][17] - Adjusted EBITDA for the quarter was $136.4 million, up 6.1% year-over-year, with an adjusted EBITDA margin of 16.6% [4][17] - Same facility revenue grew by 6.3%, with same facility case growth of 3.4% and rate growth of 2.8% [17][22] Business Line Data and Key Metrics Changes - Over 166,000 surgical cases were performed in Q3, representing a 2.1% growth, with significant increases in GI and MSK procedures [5][17] - Total joint surgeries in ASC facilities grew by 16% in Q3 and 23% year-to-date compared to the same period last year [5][17] - The payer mix showed commercial payers at 50.6% of revenues, down 160 basis points year-over-year, while governmental sources increased by 120 basis points [7] Market Data and Key Metrics Changes - The company observed softer-than-expected same facility volume growth in recent months, prompting adjustments to the fourth quarter outlook [7][15] - The revised guidance for full-year revenue is now expected to be in the range of $3.275 billion to $3.3 billion, with adjusted EBITDA between $535 million and $540 million [12][21] Company Strategy and Development Direction - The company is focused on three growth pillars: organic growth, margin improvement, and capital deployment for M&A [4] - A strategic portfolio optimization review is underway to enhance flexibility and streamline operations, with a focus on divesting larger surgical hospitals that do not align with the core ASC service lines [10][11] - The company plans to open two new de novo facilities in Q3, with nine under construction and more than a dozen in the development pipeline, primarily targeting higher acuity specialties [9][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged recent trends in surgical demand and payer mix, particularly among commercial patients, and is taking a cautious approach heading into Q4 [15][22] - The company remains confident in its long-term growth algorithm and the resilience of its business model despite near-term challenges [15][22] - Management emphasized the importance of disciplined capital employment and operational excellence for sustainable growth beyond 2025 [15] Other Important Information - The company has deployed approximately $71 million in capital for acquisitions in 2025 and anticipates a robust M&A pipeline with over $300 million in opportunities under evaluation [8][9] - The cash balance at the end of Q3 was $203.4 million, with total available liquidity exceeding $600 million [18] Q&A Session Summary Question: What is causing the weakness in demand or procedure volumes as you think through Q4? - Management noted broad-based weakness in volumes and payer mix, with higher government payer mix than expected entering Q4, but still anticipates growth in cases and rates [24][25] Question: Is the low level of spend on acquisitions due to deal timing or evaluation? - Management confirmed strong deal flow and a disciplined approach to acquisitions, indicating that timing is a factor but they expect to return to normal M&A flow [26] Question: Can you clarify the payer mix commentary regarding commercial volumes? - Management indicated that while there is always pressure from payers, the current issue is not due to systematic changes but rather a weaker growth trend than expected [30][31] Question: How do you expect free cash flow to land in Q4 and the year ahead? - Management refrained from providing specific guidance on free cash flow but indicated strong operating cash flow and improvements in working capital [76][80] Question: What are the expectations for de novo facilities going into next year? - Management expressed excitement about de novo opportunities, emphasizing that they are primarily focused on higher acuity facilities and have a strong pipeline [46][48]

Financial Data and Key Metrics Changes - Net revenue for Q3 2025 was $821.5 million, reflecting a 6.6% year-over-year increase [3][15] - Adjusted EBITDA was $136.4 million, up 6.1% year-over-year, with an adjusted EBITDA margin of 16.6% [3][15] - Same facility revenue grew by 6.3%, with same facility case growth of 3.4% and rate growth of 2.8% [15][20] Business Line Data and Key Metrics Changes - Over 166,000 surgical cases were performed in Q3, representing a 2.1% growth [15] - Growth in total joint surgeries was robust, with a 16% increase in Q3 and a 23% increase year-to-date compared to the same period last year [4][15] - Volume growth in gastrointestinal (GI) and musculoskeletal (MSK) procedures was relatively high, while ophthalmology procedures were slightly lower this quarter [4][5] Market Data and Key Metrics Changes - Payer mix showed commercial payers at 50.6% of revenues, down 160 basis points year-over-year, while governmental sources, primarily Medicare, increased by 120 basis points [5] - Same facility revenue growth for the full year is now expected to align with the midpoint of the long-term target range of 4%-6% [12][20] Company Strategy and Development Direction - The company is focused on organic growth, margin improvement, and capital deployment for M&A [3] - A strategic portfolio optimization process is underway to enhance flexibility and streamline operations [9][10] - The company plans to continue investing in DeNovo facilities, with two opened in Q3 and nine under construction [8][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged softer-than-expected same facility volume growth in recent months, prompting adjustments to the fourth quarter outlook [5][12] - The company remains confident in its long-term growth algorithm and the resilience of its business despite near-term challenges [13][21] - Revised full-year guidance expects revenue in the range of $3.275 billion to $3.3 billion and adjusted EBITDA between $535 million and $540 million [11][19] Other Important Information - The company has deployed approximately $71 million in capital for acquisitions in 2025, with a robust M&A pipeline of over $300 million under evaluation [6][8] - The company completed divestitures of three ASCs, generating cash proceeds of $45 million [18][40] - The inaugural investor day has been shifted to spring 2026 to provide a comprehensive update on portfolio optimization efforts [11] Q&A Session Summary Question: What is causing the weakness in demand or procedure volumes as you think through Q4? - Management noted broad-based weakness in volumes and payer mix, with higher government payer mix than expected [23][24] Question: Is the low level of spend on acquisitions due to deal timing or evaluation? - Management confirmed strong deal flow but emphasized a disciplined approach to acquisitions [25] Question: Can you clarify the payer mix commentary regarding commercial volumes being weaker? - Management indicated that while there is always pressure from payers, the current issue is more about the growth trend not being as strong as expected [29][30] Question: Can you break down the $20 million pressure on EBITDA guidance? - Management stated that approximately 60% of the pressure is related to development or capital timing, with the rest due to recent trend changes [31][32] Question: What are the expectations for free cash flow in Q4 and the year ahead? - Management does not provide specific guidance on free cash flow but noted strong operating cash flow and improvements in working capital [75][78]

Core Insights - Surgery Partners (NASDAQ:SGRY) met Wall Street's revenue expectations for Q3 CY2025, reporting a 6.6% year-on-year sales increase to $821.5 million, although its full-year revenue guidance of $3.29 billion was 2% below analysts' estimates [1][6] - The company's non-GAAP profit of $0.13 per share was 19% lower than analysts' consensus estimates [1][6] Company Overview - Surgery Partners operates a national network of outpatient surgical facilities, including over 180 locations across 33 states, providing alternatives to traditional hospital settings [3] Revenue Growth - The company has demonstrated solid long-term sales performance with a 12.4% annualized revenue growth over the last five years, outperforming the average healthcare company [4] - In the last two years, Surgery Partners achieved an annualized revenue growth of 10%, which is below its five-year trend but still considered respectable [5] Financial Performance - Q3 CY2025 revenue was $821.5 million, slightly below analyst estimates of $821.8 million, with a 6.6% year-on-year growth [6] - Adjusted EPS was $0.13, missing analyst expectations of $0.16 by 19% [6] - Adjusted EBITDA was $136.4 million, in line with analyst estimates, with a margin of 16.6% [6] - The company revised its full-year revenue guidance down to $3.29 billion from $3.38 billion, reflecting a 2.6% decrease [6] - Full-year EBITDA guidance is set at $537.5 million, below analyst estimates of $556.1 million [6] - Operating margin improved to 12.9%, up from 7.9% in the same quarter last year [6] - Free cash flow margin increased to 7.8%, compared to 5.8% in the same quarter last year [6] Sales Volumes - Sales volumes rose by 3.4% year on year, compared to a 5.4% increase in the same quarter last year [6] - Over the last two years, units sold averaged a 3.8% year-on-year growth, indicating that revenue growth was supported by price increases [7]

Revenue Performance - Third quarter 2025 revenues increased by 6.6% to $821.5 million compared to $770.4 million in the third quarter of 2024[3] - Same-facility revenues for the third quarter of 2025 rose by 6.3%, with a 2.8% increase in revenue per case and a 3.4% increase in same-facility cases[3] - Year-to-date 2025 revenues increased by 7.7% to $2,423.7 million compared to $2,249.9 million for the same period in 2024[4] - Full year 2025 revenue guidance is projected to be between $3.275 billion and $3.30 billion[2] Adjusted EBITDA - Adjusted EBITDA for the third quarter of 2025 was $136.4 million, reflecting a 6.1% increase from $128.6 million in the same period last year[5] - Year-to-date Adjusted EBITDA was $369.3 million, up from $344.4 million in the prior year[4] - Adjusted EBITDA for the three months ended September 30, 2025, was $136.4 million, up from $128.6 million in 2024, representing a growth of 6.1%[20] - Adjusted EBITDA guidance of $535 million to $540 million[2] Net Income and Loss - The company reported a net loss attributable to Surgery Partners, Inc. of $22.7 million for the third quarter of 2025, compared to a net loss of $31.7 million in the same quarter of 2024[5] - Net income for Q3 2025 was $25.3 million, compared to $6.4 million in Q3 2024, representing a significant increase[28] - Adjusted net income attributable to common stockholders for Q3 2025 was $16.5 million, down from $23.9 million in Q3 2024, indicating a decrease of approximately 30.5%[28] - For the nine months ended September 30, 2025, net income was $69.9 million, compared to $59.1 million for the same period in 2024, an increase of 18.8%[28] Cash and Debt - Cash and cash equivalents stood at $203.4 million, with an additional $405.9 million available under the revolving credit facility as of September 30, 2025[5] - The ratio of total net debt to EBITDA was approximately 4.2x at the end of the third quarter of 2025[7] Assets and Liabilities - As of September 30, 2025, total assets increased to $7,946.6 million from $7,890.0 million as of December 31, 2024, reflecting a growth of 0.7%[20] - Total liabilities increased to $4,393.6 million as of September 30, 2025, from $4,254.8 million at the end of 2024, reflecting a rise of 3.3%[20] Case Volume and Facilities - Case volume for the three months ended September 30, 2025, was 166,106, an increase from 162,635 in 2024, marking a growth of 2.9%[20] - The number of surgical facilities remained stable at 165 as of September 30, 2025, compared to 166 in the previous year[20] - For the nine months ended September 30, 2025, the company reported a total of 499,264 cases, an increase from 482,547 cases in 2024, representing a growth of 3.4%[20] Operating Activities - The company reported a net cash provided by operating activities of $83.6 million for the three months ended September 30, 2025, compared to $65.2 million in 2024, indicating a 28.5% increase[20] Transaction Costs and Expenses - Transaction and integration costs for Q3 2025 amounted to $12.6 million, down from $29.4 million in Q3 2024, a decrease of 57.3%[28] - Equity-based compensation expense decreased to $2.6 million in Q3 2025 from $7.1 million in Q3 2024, a reduction of 63.4%[28] Shareholder Information - Adjusted net income per share (diluted) for the three months ended September 30, 2025, was $0.13, down from $0.19 in 2024, a decrease of 31.6%[20] - Diluted adjusted net income per share for the nine months ended September 30, 2025 was $0.34, compared to $0.49 in 2024, a decline of 30.6%[28] - Weighted average common shares outstanding (basic) increased to 127,206 in Q3 2025 from 126,172 in Q3 2024, an increase of 0.8%[28] M&A and Portfolio Optimization - The company continues to evaluate M&A opportunities and portfolio optimization to drive sustained success[2]

Core Insights - Surgery Partners, Inc. reported a 6.6% increase in revenues for Q3 2025, reaching $821.5 million compared to $770.4 million in Q3 2024, with same-facility revenues up 6.3% [3][4] - The company adjusted its full-year 2025 revenue guidance to a range of $3.275 billion to $3.30 billion and Adjusted EBITDA guidance to $535 million to $540 million, reflecting a cautious outlook due to softer volume and payor mix trends [2][4] - Adjusted EBITDA for Q3 2025 was $136.4 million, a 6.1% increase from $128.6 million in Q3 2024, indicating operational resilience despite challenges [3][7] Financial Performance - Year-to-date revenues for 2025 increased by 7.7% to $2,423.7 million compared to $2,249.9 million in the same period of 2024, with same-facility revenues up 5.4% [4][6] - The company reported a net loss attributable to Surgery Partners, Inc. of $22.7 million for Q3 2025, an improvement from a loss of $31.7 million in Q3 2024 [7][19] - Operating cash flows for Q3 2025 were $83.6 million, up from $65.2 million in Q3 2024, driven by operational growth and reduced transaction-related costs [5][6] Operational Metrics - The number of surgical cases increased by 2.1% in Q3 2025, with same-facility cases rising by 3.4% [7][25] - Revenue per case for Q3 2025 was $4,946, reflecting a 2.8% increase from the previous year [25][27] - As of September 30, 2025, Surgery Partners operated 165 surgical facilities, maintaining the same number as the previous year [25][21] Liquidity and Debt - As of September 30, 2025, the company had cash and cash equivalents of $203.4 million and $405.9 million in borrowing capacity under its revolving credit facility [5][21] - The ratio of total net debt to EBITDA was approximately 4.2x at the end of Q3 2025, indicating a stable leverage position [8][21]