Surgery Partners revises 2025 outlook to $3.275B-$3.3B revenue amid capital deployment delays and volume softness

Earnings Call Insights: Surgery Partners (SGRY) Q3 2025

MANAGEMENT VIEW

* CEO J. Evans highlighted third quarter net revenue of $821.5 million, a 6.6% year-over-year rise, and adjusted EBITDA of $136.4 million, up 6.1% year-over-year. He stated that "same facility revenue grew 6.3%. These results are a testament to the focus of our colleagues and physician partners who serve our communities with valuable, high quality and convenient care." Evans emphasized robust growth in joint surgeries, noting "growth in total joint surgeries in our ASC facilities continues to be robust with these cases growing 16% in the third quarter and 23% on a year-to-date basis."
* Evans shared that the company invested in 74 surgical robots and recruited over 500 new physicians through September 30, anticipating many will become partners. He acknowledged "softer-than-expected same-facility volume growth in recent months," prompting a revised Q4 outlook. Evans discussed a "strategic portfolio review designed to enhance our flexibility, streamline our portfolio and self-fund our long-term growth algorithm," focusing on divesting or partnering on larger surgical hospitals to expedite leverage reduction and cash flow generation.
* The CEO reported $71 million in capital deployed for acquisitions year-to-date, along with the divestiture of interests in three ASCs for $50 million. He said, "the near and midterm M&A pipeline remains robust with well over $300 million in opportunities under active evaluation."
* Evans stated, "we now expect revenue in the range of $3.275 billion to $3.3 billion and adjusted EBITDA in the range of $535 million to $540 million" for full-year 2025, with guidance revised due to "delayed capital investments and lost earnings from the 3 ASC divestitures in the first half of the year."
* CFO David Doherty reported, "total consolidated net revenue for the quarter was $821.5 million, up 6.6% from the third quarter of 2024." He also cited "operating cash flow for the third quarter was $83.6 million" and a quarter-end cash balance of $203.4 million, with $405.9 million in revolver capacity. Doherty added, "supply costs were 25.4% of net revenue, down 70 basis points from last year, reflecting ongoing procurement and efficiency initiatives."

OUTLOOK

* Full-year 2025 revenue guidance is now $3.275 billion to $3.3 billion and adjusted EBITDA is $535 million to $540 million. Management expects same-facility revenue growth to align with the midpoint of the long-term 4% to 6% target range. Evans explained that "this adjustment reflects our prudent approach as we monitor recent shifts in surgical demand and payer mix, particularly among commercial patients."
* Guidance revision was attributed to timing delays in capital deployment, lost earnings from ASC divestitures, and a cautious stance on commercial payer mix and volume in Q4. Evans said, "while our updated outlook acknowledges some near-term challenges, we are confident in the resilience of our growth algorithm."

FINANCIAL RESULTS

* Net revenue for Q3 was $821.5 million, adjusted EBITDA was $136.4 million with a margin of 16.6%. Same-facility total revenue increased 6.3%, with same-facility case growth of 3.4% and rate growth of 2.8%.
* Year-to-date adjusted EBITDA reached $369.3 million and year-to-date margin was 15.2%. Operating cash flow for Q3 was $83.6 million; $52.5 million was distributed to physician partners. Maintenance capital expenditures were $10 million for the quarter.
* The company completed a repricing of term loan and revolving credit facility, reducing rates to SOFR plus 250 basis points. Doherty stated, "interest payments for the quarter increased by $9 million compared to the third quarter of 2024, primarily due to the favorable swaps that matured earlier this year."

Q&A

* Brian Tanquilut, Jefferies: Asked about demand weakness and whether it was specific to procedures or geographies. Evans responded, "in Q3, we saw to our internal expectations, some weakness on both volumes and payer mix...relatively broad-based, higher government payer mix than we would expect entering Q4 and just a bit softer on the growth."
* Joanna Gajuk, BofA: Inquired about the payer mix and commercial volume. Evans clarified, "there's always pressure from payers, but there's nothing that we would call out that's systematically different for us...it's just really the commercial flip in growth trend is not as quite as strong as we expected."
* Benjamin Rossi, JPMorgan: Asked about de novo cadence and market prioritization. Evans said, "de novos are primarily higher acuity facilities...they offer us the opportunity to kind of reset our discussions with payers because they're often -- they're moving stuff out of the hospitals."
* Andrew Mok, Barclays: Queried about the timing and acceleration of payer mix issues. Evans noted, "we started to see this in the third quarter...it continued in the fourth quarter at a consistent basis to that pressure."
* Sarah James, Cantor Fitzgerald: Asked about ramping of recruited surgeons. Evans stated, "over 500 physicians recruited to our facilities year-to-date...that mix is about the same as we talked in May, certainly higher on the orthopedic recruiting than the overall mix."

SENTIMENT ANALYSIS

* Analysts conveyed slightly negative sentiment, focusing on volume softness, payer mix trends, acquisition timing, and the impact of divestitures. Questions frequently probed the rationale behind guidance reductions and the sustainability of current trends.
* Management maintained a measured and prudent tone, especially regarding forward guidance and portfolio optimization. Evans repeatedly emphasized discipline and long-term confidence, using phrases such as "we remain disciplined and confident" and "we are confident in the resilience of our growth algorithm."
* Compared to the previous quarter, there was a shift from optimism about hitting the upper range of growth guidance to a more cautious and defensive approach, as seen in the revised guidance and explanations for timing-related pressures.

QUARTER-OVER-QUARTER COMPARISON

* The company’s revenue guidance was reduced from a prior range of $3.3 billion to $3.45 billion to $3.275 billion to $3.3 billion. Adjusted EBITDA guidance was also lowered. In Q2, management expected same-facility revenue growth near the high end of the 4% to 6% range, but now expects it closer to the midpoint.
* Strategic focus has shifted toward portfolio optimization and divestitures, with active evaluation of larger surgical hospitals for potential partnership or sale. The pace of acquisitions slowed, and capital deployment did not reach planned levels.
* Management’s confidence remained but was more tempered, reflecting near-term challenges and emphasizing discipline. Analyst tone became more probing and cautious, reflecting concern over guidance revisions and emerging trends in payer mix.

RISKS AND CONCERNS

* Management cited risks from "softer-than-expected same-facility volume growth" and a "higher government payer mix than we would expect entering Q4."
* Delays in de novo facility construction and regulatory approvals were identified as contributing to slower earnings ramp.
* The timing of capital deployment and the inability to redeploy cash from divestitures impacted earnings. Management is monitoring market dynamics and payer mix, particularly given recent shifts among commercial patients.

FINAL TAKEAWAY

Surgery Partners management revised 2025 guidance to reflect timing-related impacts from acquisitions, divestitures, and recent softness in volume and payer mix, particularly among commercial patients. The company maintains confidence in its long-term growth algorithm, citing robust M&A and de novo pipelines, but has adopted a more cautious near-term outlook as it navigates market variability and streamlines its portfolio for future growth.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/sgry/earnings/transcripts]

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