What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-05-12 · 134 added, 56 removed, 158 unchanged (55% of the section changed)

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our ability to manage material liabilities whether known or unknown incurred as a result of acquiring surgical facilities;

the impact of future legislation and other health care regulatory reform actions, and the effect of that legislation and other regulatory actions on our business;

the impact of current and future legislation and other health care public policy changes, and the effect of that legislation and other regulatory actions on our business;

our ability to comply with current health care laws and regulations;

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Executive Overview

As of March 31, 2025, we owned or operated, primarily in partnership with physicians, a portfolio of 164 surgical facilities comprised of 145 ASCs and 19 surgical hospitals across 30 states.

As of June 30, 2025, we owned or operated, primarily in partnership with physicians, a portfolio of 162 surgical facilities comprised of 143 ASCs and 19 surgical hospitals across 30 states.

We owned a majority interest in 83 of the surgical facilities and consolidated 115 of these facilities for financial reporting purposes.

Total revenues for the first quarter of 2025 increased 8.2% to $776.0 million from $717.4 million for the first quarter of 2024.

The increase in revenues was attributable to same-facility revenue growth and the net impact from acquisitions and divestitures completed during the last twelve months ended March 31, 2025.

Days adjusted same-facility revenues for the first quarter of 2025 increased 5.2% from the first quarter of 2024, with a 1.2% decrease in revenue per case and a 6.5% increase in same-facility cases.

Additionally, for the first quarter of 2025, net loss attributable to Surgery Partners, Inc.

was $37.7 million compared to $12.4 million for 2024.

For the first quarter of 2025, Adjusted EBITDA increased 6.6% to $103.9 million compared to $97.5 million for the same period in 2024.

Total revenues for the second quarter of 2025 increased 8.3% to $826.2 million from $762.1 million for the second quarter of 2024.

The increase in revenues was attributable to same-facility revenue growth and the net impact from acquisitions and divestitures completed during the last twelve months ended June 30, 2025.

Days adjusted same-facility revenues for the second quarter of 2025 increased 5.1% from the second quarter of 2024, with a 1.6% increase in revenue per case and a 3.4% increase in same-facility cases.

Additionally, for the second quarter of 2025, net loss attributable to Surgery Partners, Inc.

was $2.5 million compared to $15.5 million for the 2024 period.

For the second quarter of 2025, Adjusted EBITDA increased 9.0% to $129.0 million compared to $118.3 million for the same period in 2024.

The increase in Adjusted EBITDA was primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed since the prior year period.

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We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and pursuing other portfolio management initiatives.

During the first quarter of 2025, we acquired a controlling interest in four surgical facilities and one physician practice for aggregate cash consideration of $44.0 million, net of cash acquired.

We had cash and cash equivalents of $229.3 million and $388.9 million of borrowing capacity under the Revolver as of March 31, 2025.

During the second quarter of 2025, we acquired a controlling interest in four surgical facilities and two physician practice for aggregate cash consideration of $48.0 million, net of cash acquired.

We had cash and cash equivalents of $250.1 million and $394.9 million of borrowing capacity under the Revolver as of June 30, 2025.

Recent Legislation

On July 4, 2025, Congress passed the One Big Beautiful Bill Act (the “OBBBA”), which introduced significant changes to federally funded healthcare programs, including Medicaid, Medicare, and the Affordable Care Act.

While such changes are projected to reduce overall healthcare spending and increase regulatory burdens in certain jurisdictions in which the Company operates, they are not expected to materially impact the Company's financial statements.

The OBBBA also makes permanent key elements of the Tax Cuts and Jobs Act including, among others, 100% bonus depreciation and the business interest expense limitations.

The Company is currently assessing the implications of these tax law changes.

Since the OBBBA Act was enacted subsequent to the balance sheet date, the Company’s tax provision for the three and six months ended June 30, 2025, does not incorporate the effects of these tax law changes.

Our revenues consist of patient service revenues and other service revenues.

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The following table summarizes revenues by service type as a percentage of total revenues:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Patient service revenues:

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The following table sets forth by type of payor the percentage of our patient service revenues generated at the surgical facilities that we consolidate for financial reporting purposes:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Private insurance payors 51.8 % 53.2 % 52.6 % 52.2 %

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Other payors (1)

2.2 % 2.5 % 2.2 % 2.8 %

Total 100.0 % 100.0 % 100.0 % 100.0 %

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The following table sets forth the percentage of cases in each specialty performed at the surgical facilities that we consolidate for financial reporting purposes for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Orthopedics and pain management 39.8 % 39.9 % 40.2 % 40.0 %

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Results of Operations

Comparison of Operating Results for the Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024

Comparison of Operating Results for the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024

The following tables summarize certain results from the condensed consolidated statements of operations for the periods indicated (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Revenues $ 826.2 $ 762.1

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Transaction and integration costs 18.1 19.3

Net (gain) loss on disposals, consolidations and deconsolidations (3.0) 5.3

Equity in earnings of unconsolidated affiliates (5.5) (4.4)

Litigation settlements — 0.5

Loss on debt extinguishment — 5.1

Other income, net (2.1) (6.5)

Operating income 111.7 84.8

Interest expense, net (67.9) (51.5)

Income before income taxes 43.8 33.3

Income tax benefit (expense) 1.1 (4.9)

Net income 44.9 28.4

Net income attributable to non-controlling interests (47.4) (43.9)

Net loss attributable to Surgery Partners, Inc.

$ (2.5) $ (15.5)

The following table sets forth patient service revenues (in millions):

Three Months Ended June 30,

Patient service revenues $ 804.2 $ 748.1

Other service revenues 22.0 14.0

Total revenues $ 826.2 $ 762.1

Patient service revenues increased 7.5% to $804.2 million for the three months ended June 30, 2025 compared to $748.1 million for the three months ended June 30, 2024.

The increase was primarily driven by a 5.1% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the twelve months ended June 30, 2025.

The increase in days adjusted same-facility revenues was attributable to a 3.4% increase in same-facility case volumes and a 1.6% increase in same-facility revenue per case.

Cost of Revenues.

Cost of revenues was $630.6 million for the three months ended June 30, 2025 compared to $582.9 million for the three months ended June 30, 2024.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures as well as acquisitions completed during the twelve months ended June 30, 2025.

As a percentage of revenues, cost of revenues was 76.3% and 76.5% for the three months ended June 30, 2025 and 2024, respectively.

General and Administrative Expenses.

General and administrative expenses were $36.1 million and $40.3 million for the three months ended June 30, 2025 and 2024, respectively.

As a percentage of revenues, general and administrative expenses were 4.4% and 5.3% for the three months ended June 30, 2025 and 2024, respectively.

Depreciation and Amortization.

Depreciation and amortization expenses were $40.3 million and $34.8 million for the three months ended June 30, 2025 and 2024, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.9% and 4.6% for the three months ended June 30, 2025 and 2024, respectively.

Transaction and Integration Costs.

The Company incurred $18.1 million of transaction and integration costs for the three months ended June 30, 2025 compared to $19.3 million for the three months ended June 30, 2024.

The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions.

The decrease was primarily driven by reduced transaction and integration costs related to acquisitions and divested facilities, partially offset by an increase in severance, IT implementation, and revenue cycle standardization costs.

Net (Gain) Loss on Disposals, Consolidations and Deconsolidations.

The net loss on disposals, consolidations and deconsolidations for the three months ended June 30, 2025 and 2024 includes activity discussed in Note 2.

"Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the condensed consolidated financial statements.

The remaining net loss in both periods was primarily attributable to sales and disposals of other assets.

Interest Expense, Net.

Interest expense, net was $67.9 million for the three months ended June 30, 2025 compared to $51.5 million for the three months ended June 30, 2024.

As a percentage of revenues, interest expense, net was 8.2% and 6.8% for the three months ended June 30, 2025 and 2024, respectively.

The increase was primarily driven by financing activities in 2024 related to the senior unsecured notes, increased borrowings on the Revolver and the maturity of certain interest rate swaps in the first quarter of 2025.

Income Tax Benefit (Expense) .

Income tax benefit was $1.1 million for the three months ended June 30, 2025 compared to income tax expense of $4.9 million for the three months ended June 30, 2024.

The effective tax rate was (2.5)% and 14.7% for the three months ended June 30, 2025 and 2024, respectively.

"Income Taxes" for additional information related to the Company's effective tax rates for the three months ended June 30, 2025 and 2024, including why these rates differed from the U.S.

federal statutory rate of 21%.

Net Income Attributable to Non-Controlling Interests.

As a percentage of revenues, net income attributable to non-controlling interests was 5.7% and 5.8% for the three months ended June 30, 2025 and 2024, respectively.

Comparison of Operating Results for the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024

The following tables summarize certain results from the statements of operations for the periods indicated (dollars in millions):

Six Months Ended June 30,

Revenues $ 1,602.2 $ 1,479.5

Operating expenses:

Cost of revenues 1,244.7 1,145.0

General and administrative expenses 72.1 73.5

Depreciation and amortization 76.6 68.5

Transaction and integration costs 42.8 36.7

Net loss on disposals, consolidations and deconsolidations 3.4 6.8

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Litigation settlements 2.2 (1.3)

Loss on debt extinguishment — 5.1

Other income, net (2.1) (8.5)

1,428.6 1,318.7

Operating income 173.6 160.8

Interest expense, net (130.1) (98.8)

(Loss) income before income taxes (0.3) 28.7

Income tax expense — (4.4)

Net (loss) income (0.3) 24.3

Income before income taxes 43.5 62.0

Income tax benefit (expense) 1.1 (9.3)

Net income 44.6 52.7

Net income attributable to non-controlling interests (84.8) (80.6)

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The following table sets forth patient service revenues (in millions):

Three Months Ended March 31,

Six Months Ended June 30,

Patient service revenues $ 1,562.6 $ 1,453.4

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Total revenues $ 1,602.2 $ 1,479.5

Patient service revenues increased 7.5% to $758.4 million for the three months ended March 31, 2025 compared to $705.3 million for the three months ended March 31, 2024.

The increase was primarily driven by a 5.2% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the twelve months ended March 31, 2025.

The increase in days adjusted same-facility revenues was attributable to a 6.5% increase in same-facility case volumes and a 1.2% decrease in same-facility revenue per case.

Patient service revenues increased 7.5% to $1.6 billion for the six months ended June 30, 2025 compared to $1.5 billion for the six months ended June 30, 2024.

The increase was primarily driven by an 5.1% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the twelve months ended June 30, 2025 .

The increase in days adjusted same-facility revenues was attributable to a 4.7% increase in same-facility case volumes and a 0.4% increase in same-facility revenue per case.

Cost of Revenues.

Cost of revenues was $614.1 million for the three months ended March 31, 2025 compared to $562.1 million for the three months ended March 31, 2024.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures as well as acquisitions completed during the twelve months ended March 31, 2025.

As a percentage of revenues, cost of revenues was 79.1% and 78.4% for the three months ended March 31, 2025 and 2024, respectively.

Cost of revenues was $1.2 billion for the six months ended June 30, 2025 compared to $1.1 billion for the six months ended June 30, 2024.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures as well as acquisitions completed during the twelve months ended June 30, 2025 .

As a percentage of revenues, cost of revenues was 77.7% and 77.4% for the six months ended June 30, 2025 and 2024, respectively.

General and Administrative Expenses.

General and administrative expenses were $36.0 million and $33.2 million for the three months ended March 31, 2025 and 2024, respectively.

As a percentage of revenues, general and administrative expenses were 4.6% for the three months ended March 31, 2025 and 2024.

General and administrative expenses were $72.1 million and $73.5 million for the six months ended June 30, 2025 and 2024, respectively.

As a percentage of revenues, general and administrative expenses were 4.5% and 5.0% for the six months ended June 30, 2025 and 2024, respectively.

Depreciation and Amortization.

Depreciation and amortization expenses were $36.3 million and $33.7 million for the three months ended March 31, 2025 and 2024, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.7% for the three months ended March 31, 2025 and 2024.

Depreciation and amortization expenses were $76.6 million and $68.5 million for the six months ended June 30, 2025 and 2024, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.8% and 4.6% for the six months ended June 30, 2025 and 2024, respectively.

Transaction and Integration Costs.

The Company incurred $24.7 million of transaction and integration costs for the three months ended March 31, 2025 compared to $17.4 million for the three months ended March 31, 2024.

The Company incurred $42.8 million of transaction and integration costs for the six months ended June 30, 2025 compared to $36.7 million for the six months ended June 30, 2024.

The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions.

The increase was primarily driven by an increase in severance, IT implementation, and revenue cycle standardization costs.

The increase was primarily driven by an increase in severance, IT implementation, and revenue cycle standardization costs, partially offset by reduced transaction and integration costs related to acquisitions and divested facilities.

Net Loss on Disposals, Consolidations and Deconsolidations.

The net loss on disposals, consolidations and deconsolidations for the three months ended March 31, 2025 and 2024 includes activity discussed in Note 2.

The net loss on disposals, consolidations and deconsolidations for the six months ended June 30, 2025 and 2024 includes activity discussed in Note 2.

"Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the condensed consolidated financial statements.

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Interest Expense, Net.

Interest expense, net was $62.2 million for the three months ended March 31, 2025 compared to $47.3 million for the three months ended March 31, 2024.

As a percentage of revenues, interest expense, net was 8.0% and 6.6% for the three months ended March 31, 2025 and 2024, respectively.

Interest expense, net was $130.1 million for the six months ended June 30, 2025 compared to $98.8 million for the six months ended June 30, 2024.

As a percentage of revenues, interest expense, net was 8.1% and 6.7% for the six months ended June 30, 2025 and 2024, respectively.

The increase was primarily driven by financing activities in 2024 related to the senior unsecured notes and increased borrowings on the Revolver.

Income Tax Expense .

Income tax expense was $0.0 million and $4.4 million for the three months ended March 31, 2025 and 2024, respectively.

The effective tax rate was 0% and 15.3% for the three months ended March 31, 2025 and 2024, respectively.

"Organization and Summary of Accounting Policies" under the heading Income Taxes for additional information related to the Company's effective tax rates for the three months ended March 31, 2025 and March 31, 2024, including why these rates differed from the U.S.

Income Tax Benefit (Expense) .

Income tax benefit was $1.1 million for the six months ended June 30, 2025 compared to income tax expense of $9.3 million for the six months ended June 30, 2024.

The effective tax rate was (2.5)% and 15.0% for the six months ended June 30, 2025 and 2024, respectively.

"Income Taxes" for additional information related to the Company's effective tax rates for the six months ended June 30, 2025 and 2024, including why these rates differed from the U.S.

federal statutory rate of 21%.

Net Income Attributable to Non-Controlling Interests.

As a percentage of revenues, net income attributable to non-controlling interests was 4.8% and 5.1% for the three months ended March 31, 2025 and 2024, respectively.

As a percentage of revenues, net income attributable to non-controlling interests was 5.3% and 5.4% for the six months ended June 30, 2025 and 2024, respectively.

Liquidity and Capital Resources

Cash and cash equivalents were $229.3 million at March 31, 2025 compared to $269.5 million at December 31, 2024.

Cash and cash equivalents were $250.1 million at June 30, 2025 compared to $269.5 million at December 31, 2024.

The primary source of our operating cash flows is the collection of accounts receivable from private insurance companies, federal and state agencies (under the Medicare and Medicaid programs) and individuals.

Our cash flows provided by operating activities was $6.0 million for the three months ended March 31, 2025 compared to $40.7 million for the three months ended March 31, 2024.

The $34.7 million decrease was primarily driven by a decrease in net income and changes in other operating assets and liabilities.

Net cash used in investing activities for the three months ended March 31, 2025 was $76.4 million compared to $83.1 million for the three months ended March 31, 2024.

Our cash flows provided by operating activities was $87.3 million for the six months ended June 30, 2025 compared to $123.5 million for the six months ended June 30, 2024.

The $36.2 million decrease was primarily driven by driven by higher cash interest payments and timing of changes in working capital.

Net cash used in investing activities for the six months ended June 30, 2025 was $74.3 million compared to $327.2 million for the six months ended June 30, 2024.

The $252.9 million decrease was primarily driven by an aggregate net decrease of $214.5 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $41.4 million increase in proceeds from sales of facilities.

Net cash provided by financing activities for the three months ended March 31, 2025 was $30.2 million compared to $31.7 million for the three months ended March 31, 2024.

The decrease of $1.5 million was primarily driven by distributions to non-controlling interest holders substantially offset by increased borrowing on long-term debt.

Net cash used in financing activities for the six months ended June 30, 2025 was $32.4 million compared to net cash provided of $221.3 million for the six months ended June 30, 2024.

The decrease of $253.7 million was primarily driven by net proceeds from borrowings on long-term debt during the six months ended June 30, 2024 and a $35.6 million increase in distributions to non-controlling interest holders in the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Capital Resources

Net working capital was approximately $505.2 million at March 31, 2025 compared to $495.0 million at December 31, 2024.

Net working capital was approximately $532.0 million at June 30, 2025 compared to $495.0 million at December 31, 2024.

In addition to cash flows from operations and available cash, other sources of capital include amounts available on our Revolver as well as anticipated continued access to the capital markets.

Material Cash Requirements

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended March 31, 2025 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Annual Report on Form 10-K.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the six months ended June 30, 2025 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Annual Report on Form 10-K.

Broad economic factors, including recent changes in interest rates, inflation and supply chain risks and market volatility, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.

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Adjusted EBITDA is a key measure used by our management to assess operating performance, make business decisions and allocate resources.

The following table reconciles Adjusted EBITDA to (loss) income before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited):

Three Months Ended March 31,

The following table reconciles Adjusted EBITDA to income before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited):

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Condensed Consolidated Statements of Operations Data:

(Loss) income before income taxes $ (0.3) $ 28.7

Income before income taxes $ 43.8 $ 33.3 $ 43.5 $ 62.0

Plus (minus):

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Transaction and integration costs (1)

18.1 19.3 42.8 36.7

De novo start-up costs 2.1 1.5 3.7 3.0

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Litigation settlements and other litigation costs (2)

0.4 1.1 3.2 (0.1)

Loss on debt extinguishment — 5.1 — 5.1

Other — (4.8) — (4.4)

Adjusted EBITDA $ 129.0 $ 118.3 232.9 215.8

(1) For the three months ended March 31, 2025, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $16.8 million and other costs, including severance, IT implementation, revenue cycle standardization of $7.9 million.

For the three months ended March 31, 2024, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $16.1 million and other costs, including severance, IT implementation, revenue cycle standardization of $1.3 million.

(2) This amount includes a litigation settlement loss of $2.2 million and a litigation settlement gain of $1.8 million for the three months ended March 31, 2025 and 2024, respectively.

This amount also includes other litigation costs of $0.5 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively.

(1) For the three months ended June 30, 2025, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $14.1 million and other costs, including severance, IT implementation, revenue cycle standardization of $4.0 million For the three months ended June 30, 2024, this amount includes M&A costs of $16.2 million and other costs, including severance, IT implementation, revenue cycle standardization of $3.1 million.

For the six months ended June 30, 2025, this amount includes M&A costs of $30.9 million and other costs, including severance, IT implementation, revenue cycle standardization of $11.9 million For the six months ended June 30, 2024, this amount includes M&A costs of $32.1 million and other costs, including severance, IT implementation, revenue cycle standardization of $4.6 million.

(2) This amount includes a litigation settlement loss of $0.5 million for the three months ended June 30, 2024.

This amount also includes other litigation costs of $0.4 million and $0.6 million for the three months ended June 30, 2025 and 2024, respectively.

This amount includes a litigation settlement loss of $2.2 million and a gain of $1.3 million for the six months ended June 30, 2025 and 2024, respectively.

This amount also includes other litigation costs of $1.0 million and $1.2 million for the six months ended June 30, 2025 and 2024, respectively.

We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our Credit Agreement, as amended.

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The following table reconciles Credit Agreement EBITDA to cash flows from operating activities, the most directly comparable GAAP financial measure (in millions and unaudited):

Twelve Months Ended March 31, 2025

Twelve Months Ended June 30, 2025

Cash flows from operating activities $ 263.9

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Credit Agreement EBITDA $ 579.0

(1) Represents impact of acquisitions as if each acquisition had occurred on April 1, 2024.

(1) Represents impact of acquisitions as if each acquisition had occurred on July 1, 2024.

Further this includes revenue and cost synergies from other business initiatives and de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the Credit Agreement, as amended.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis