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SP

Surgery Partners, Inc. (SGRY)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $776.0M (+8.2% y/y) and Adjusted EBITDA was $103.9M; management reaffirmed FY25 guidance of $3.30–$3.45B revenue and $555–$565M Adjusted EBITDA .
  • Same‑facility revenue grew 5.2% on 6.5% case growth and a 1.2% decline in revenue per case, reflecting mix (higher GI volumes and de novo ramp) that pressured rate; management expects more balanced rate/volume through the year .
  • Liquidity remains solid with $229.3M cash and $388.9M revolver capacity; CFO reiterated no need to access debt/equity markets over the next five years to fund M&A under the long‑term plan .
  • Results versus estimates: modest revenue miss ($777.1M est.* vs $776.0M actual) and EPS miss ($0.054 est.* vs $0.04 actual), while FY25 guide was maintained; narrative catalysts include orthopedics growth, rev‑cycle improvement (DSO −2 days q/q), and tariff/macro exposure viewed as limited .
  • Strategic update: Board concluded Bain Capital discussions in June and reaffirmed confidence in standalone growth; FY25 guidance reiterated post‑Q1 .

What Went Well and What Went Wrong

What Went Well

  • Volume strength across core specialties; consolidated cases rose to 160,300 (+4.5% y/y in consolidated facilities) and same‑facility cases +6.5% .
  • Orthopedics momentum: 29,000 orthopedic cases (+3.4% y/y) with total joints +22% y/y; 68 surgical robots deployed to support higher acuity growth .
  • Rev‑cycle execution improving: days sales outstanding decreased by 2 days q/q; denials trends stabilized/improved after prior tightening by payers .

What Went Wrong

  • Rate pressure: same‑facility revenue per case declined 1.2% on mix (higher GI volumes and de novo ramp), driving Adjusted EBITDA margin to 13.4% vs 16.7% in Q3 and 18.9% in Q4 .
  • Operating cash flow seasonality and timing: Q1 operating cash flow was $6.0M vs $40.7M y/y due to working capital timing and doubled NCI distributions (~$62–63M) early in the quarter .
  • Transaction/integration costs remained elevated ($24.7M) on 2024/early‑2025 deal activity, weighing on GAAP results (net loss attributable of $(37.7)M; GAAP EPS $(0.30)) .

Financial Results

Consolidated P&L and Margins (chronological: Q3 2024 → Q4 2024 → Q1 2025)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$770.4 $864.4 $776.0
Adjusted EBITDA ($USD Millions)$128.6 $163.8 $103.9
Adjusted EBITDA Margin (%)16.7% 18.9% 13.4%
Adjusted EPS (Basic/Diluted) ($)$0.19 / $0.19 $0.44 / $0.44 $0.04 / $0.04
GAAP Net Loss Attributable ($USD Millions)$(31.7) $(108.5) $(37.7)
GAAP EPS (Basic/Diluted) ($)$(0.25) / $(0.25) $(0.86) / $(0.86) $(0.30) / $(0.30)

KPIs and Operating Metrics

KPIQ3 2024Q4 2024Q1 2025
Consolidated Cases162,635 174,185 160,300
Revenue per Case ($)$4,737 $4,963 $4,841
Same‑Facility Revenue Growth (days‑adjusted)4.2% 5.6% 5.2%
Same‑Facility Case Growth (days‑adjusted)3.7% 5.1% 6.5%
Same‑Facility Rev/Case Growth (days‑adjusted)0.5% 0.5% (1.2)%
Total Facilities / Consolidated Facilities166 / 123 161 / 118 164 / 118
Cash and Equivalents ($M)$221.8 $269.5 $229.3
Revolver Capacity ($M)$595.8 $501.5 $388.9
Operating Cash Flow ($M)$65.2 $111.4 $6.0

Results vs. S&P Global Consensus (Select Metrics)

MetricQ1 2024 Estimate*Q1 2024 ActualQ4 2024 Estimate*Q4 2024 ActualQ1 2025 Estimate*Q1 2025 Actual
Revenue ($USD Millions)$698.2*$717.4 $828.1*$864.4 $777.1*$776.0
Primary EPS ($)$0.078*$0.10 $0.377*$0.44 $0.054*$0.04

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY 2025$3.30–$3.45 $3.30–$3.45 Maintained (reaffirmed)
Adjusted EBITDA ($USD Millions)FY 2025$555–$565 $555–$565 Maintained (reaffirmed)
Leverage (Credit Agreement, x)FY 2025 trajectory~3.7x exit Q4 2024 ~4.1x at Q1; model to decline through 2025 Trajectory to decline (management commentary)
Maintenance Capex ($M)FY 2025$40–$50 (call) $40–$50 (call) Maintained (commentary)

Earnings Call Themes & Trends

TopicQ3 2024 (Prior‑2)Q4 2024 (Prior‑1)Q1 2025 (Current)Trend
Same‑facility mix and rateBalanced growth; 0.5% rev/case Rate moderated H2; balance for full year GI and de novo mix pressured rate (rev/case −1.2%) Near‑term rate pressure; expected to balance through year
Orthopedics & total jointsHigh‑acuity focus; acquisitions support MSK Total joints +50% in 2024; strong pipeline Total joints +22% y/y in Q1; 48% facilities perform joints Sustained growth in higher acuity MSK
Rev‑cycle standardizationCyber recovery; OCF impacted by timing Multi‑year standardization; integrations ongoing DSO −2 days; denials improved; continued standardization Execution improving
Tariffs/supply chainHurricane Helene impact disclosed Procurement scale and efficiency highlighted Minimal tariff exposure via HealthTrust; visibility to contracts Risk assessed as limited
Regulatory (site neutrality/Medicaid)Not centralWorst‑case revenue impact ~1%; Medicaid/state <5% revenue Mix unchanged; commercial strong; outlook benign Minimal direct headwind; potential tailwind
M&A cadence & costsPipeline robust; segment growth $400M 2024 deals; integration costs elevated, to abate in 2025 $55M deployed; 5 facilities added; costs still present Normalizing spend 2H25

Management Commentary

  • CEO: “Strong start to 2025… positioned to continue delivering industry leading earnings growth in 2025 and beyond.”
  • CFO: “Results… aligned with our internal expectations and give us increased confidence in reaffirming our guidance… sufficient liquidity… without having to access incremental capital… over the next five years.”
  • On mix: “Volume growth in GI… resulted in rate pressure in our same‑facility rate metric… expect full‑year 2025 same‑facility growth to be at or above the high end of our growth algorithm target.”
  • On rev‑cycle: “We are seeing incremental improvements… DSO decreasing 2 days from the fourth quarter… denials did not adversely change… now seeing more positive trends.”
  • On tariffs: “We don’t have material exposure in the near to midterm to any tariff‑related price increases.”

Q&A Highlights

  • Utilization and pricing: Rate headwind driven by GI/de novo mix; management expects balance later in 2025; payer mix remained strong commercially with no adverse changes .
  • Free cash flow seasonality: Q1 weaker on timing and double distributions; interest swap expired and replaced by cap (SOFR differential ~220 bps headwind vs prior swap) .
  • Labor/professional fees: Elevated professional fees aligned with expectations due to acquisitions; anesthesia availability/cost not a major headwind .
  • M&A and de novos: 5 acquisitions YTD (mostly ASCs) and ~10 de novos under construction; de novos often unconsolidated initially, ramp to breakeven within ~6–12 months .
  • Leverage/governance: Path to mid‑3x credit agreement leverage over time; special committee process regarding Bain proposal not impacting M&A pipeline .

Estimates Context

  • Q1 2025 revenue modest miss: $777.1M est.* vs $776.0M actual; Q1 EPS miss: $0.054 est.* vs $0.04 actual .
  • Prior quarter beat: Q4 2024 revenue $828.1M est.* vs $864.4M actual; EPS $0.377 est.* vs $0.44 actual .
  • Note: Company reports Adjusted EBITDA ($103.9M) which is not directly comparable to S&P Global “EBITDA” definitions; use revenue and EPS for estimate benchmarking .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix‑driven rate pressure is transitory; underlying volume growth remains robust across GI and MSK, with total joints +22% y/y and continued physician recruiting momentum—a setup for margin normalization in 2H25 .
  • Rev‑cycle standardization is yielding measurable cash conversion gains (DSO −2 days); expect further benefits as integrations complete in 1H25 .
  • Liquidity and capital structure are supportive of ongoing M&A without external financing under the plan; credit‑agreement leverage expected to trend down through 2025 despite near‑term uptick from acquisitions .
  • Tariff and regulatory headwinds are limited; management frames site neutrality as a potential tailwind for ASC migration, with Medicaid/state exposure <5% of revenue .
  • Near‑term trading: modest Q1 revenue/EPS miss vs consensus*, but reaffirmed FY25 guide and constructive call tone may temper downside; watch Q2 mix/rate trajectory and cash flow normalization post Q1 seasonality .
  • Medium‑term thesis: de novo pipeline (higher‑acuity), orthopedics expansion, procurement/operations scale, and rev‑cycle standardization underpin multi‑year margin expansion and cash generation .

Values retrieved from S&P Global.*