Business Context and Reporting Period
Company: Surgery Partners, Inc. (SGRY)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Surgery Partners operates a national network of 176 surgical facilities (157 Ambulatory Surgery Centers and 19 surgical hospitals) across 30 states. The company partners with physicians and healthcare systems to provide outpatient surgical services, primarily in orthopedics, pain management, ophthalmology, and gastroenterology. As of December 31, 2025, the company consolidated 121 facilities for financial reporting purposes.
Key Financial Metrics
| Metric | 2025 | 2024 | Change |
|---|---|---|---|
| Total Revenues | $3,308.7 million | $3,114.3 million | +6.2% |
| Operating Income | $389.5 million | $348.8 million | +11.7% |
| Net Loss (Attributable to Surgery Partners) | $(77.9) million | $(168.1) million | Improvement of $90.2M |
| Adjusted EBITDA | $526.2 million | $508.2 million | +3.5% |
| Cash from Operating Activities | $274.3 million | $300.1 million | -8.6% |
| Total Debt (Principal) | ~$3.7 billion | ~$3.4 billion | Increased |
| Cash and Equivalents | $239.9 million | $269.5 million | -11.0% |
| Available Revolver Capacity | $692.8 million | $511.8 million (est.) | Increased |
Note: Net loss is driven by significant non-controlling interest allocations ($176.8 million in 2025) and interest expense ($272.6 million), despite positive operating income.
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 4.9% increase in days-adjusted same-facility revenues (3.4% volume growth, 1.4% revenue per case growth) and net acquisitions.
- Profitability Improvement: Net loss attributable to the company narrowed significantly from $168.1 million in 2024 to $77.9 million in 2025. This was aided by a reduction in income tax expense (from $134.6M to $18.0M) due to valuation allowance adjustments and lower executive incentive compensation.
- Debt Structure: The company refinanced its term loans in August 2025 ($1.4 billion tranche) and issued an additional $425 million in senior unsecured notes in December 2025. Interest expense increased to $272.6 million due to the maturity of prior interest rate swaps and higher debt levels.
- Acquisitions & Disposals: Acquired 12 surgical facilities for $162.1 million (net of cash) and sold controlling interests in three facilities for $42.4 million net proceeds.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Outlook
Management continues to focus on same-facility performance, selective acquisitions, and portfolio management. The company believes cash flows from operations, available cash, and revolver capacity are adequate to meet short- and long-term liquidity needs.
Legislative & Regulatory Risks
- One Big Beautiful Bill Act (OBBBA): Passed in July 2025, this act reduced federal Medicaid expenditures and tightened eligibility, potentially increasing the uninsured population. Management does not expect a material impact on 2025 financial statements but notes ongoing analysis.
- Affordable Care Act (ACA) Subsidies: ACA subsidies expired on December 31, 2025. Management anticipates this will lead to increased premiums, decreased enrollment, and a shift from commercial to government coverage, potentially reducing patient volumes and reimbursement rates in 2026.
- Anti-Kickback & Stark Law: The company notes its facilities do not fully satisfy safe harbors under the federal Anti-Kickback Statute due to management fee structures and physician ownership models, creating ongoing regulatory risk.
Unusual Items
- Transaction Costs: $73.9 million incurred in 2025 related to M&A and integration.
- Litigation: $7.3 million in litigation settlements recorded in 2025.
- Cybersecurity: A May 2023 incident in Idaho caused an estimated $8 million pre-tax impact; insurance recoveries of $6.5 million were recognized in 2024 and 2025.
Investor Verification Checklist
- Non-Controlling Interest (NCI) Impact: Verify the sustainability of the $176.8 million NCI allocation, which significantly reduces net income attributable to common shareholders despite strong operating cash flow.
- Debt Service Coverage: Assess the ability to service ~$3.7 billion in debt with $274.3 million in operating cash flow, particularly given the recent increase in interest expense.
- Payor Mix Sensitivity: Monitor the shift in payor mix (42.8% Government vs. 52.3% Private) and the potential impact of the OBBBA and ACA subsidy expiration on reimbursement rates in 2026.
- Regulatory Compliance: Review ongoing audits and the company's exposure to Anti-Kickback and Stark Law enforcement actions given the specific ownership and management fee structures.
- Idaho Concentration: Note that Idaho facilities represented approximately 28% of 2025 revenue; verify the stability of operations and regulatory environment in this key market.