Surgery Partners (NASDAQ:SGRY) executives told investors that 2025 results reflected “a tale of two halves,” with solid momentum early in the year giving way to second-half headwinds that culminated in a fourth-quarter earnings shortfall concentrated in a small set of surgical hospital markets.
Full-year results fell short of expectations as margins compressed
For the full year, the company reported net revenue of $3.3 billion, up 6.2% year-over-year and at the low end of management’s expectations. Same-facility revenue grew 4.9% for the year, according to CEO Eric Evans. Adjusted EBITDA was $526 million, up 3.5% versus 2024 but “significantly below” management’s expectations, with adjusted EBITDA margin of 15.9%, representing 40 basis points of compression.
Management emphasized that the earnings miss was not broad-based across the enterprise. Evans said the shortfall was “isolated to our surgical hospitals” and concentrated in three surgical hospital markets, where softer case growth, payer mix shifts, and anesthesia dynamics combined to create outsized pressure.
Case volumes grew, while payer mix pressures emerged in surgical hospitals
The company performed nearly 670,000 surgical cases in 2025, up from 656,000 in 2024, and completed over 170,000 cases in the fourth quarter. Doherty noted that 2025 growth occurred despite the loss of 41,000 surgical cases from facilities divested since the prior year.
High-acuity orthopedics remained a focal point. Evans said the company performed more than 42,000 orthopedic cases in the fourth quarter, driven by total joint replacements, which grew 15% in the quarter and 19% year-to-date. Surgery Partners ended 2025 with 74 surgical robots in service (including six added in 2025) and recruited nearly 700 physicians during the year.
However, management said payer mix softened during the second half of 2025, particularly in surgical hospital markets. Evans attributed part of the shift to physician transitions, including retirements and departures of physicians who historically generated higher commercial volumes, coupled with newer recruits serving a higher proportion of Medicare patients and ramping more slowly than expected. Doherty said most revenue is generated by commercial payers, but commercial represented a declining percentage of total revenue versus the prior year.
Three markets drove the fourth-quarter miss; anesthesia and cost structure added pressure
Evans said fourth-quarter margin pressure was driven by two primary factors in the same three surgical hospital markets: (1) slower case growth and a sharper-than-anticipated payer mix shift and (2) a cost structure that did not adjust quickly enough, including labor expenses and the cost of anesthesia coverage.
Doherty added that in those markets the company made unanticipated payments to anesthesiologists facing reimbursement pressure, and some facilities were unable to reduce costs quickly enough to preserve margins. Executives repeatedly described the issues as “identifiable, measurable, and addressable,” and said new facility leadership has been installed in certain locations. Evans said recently named COO Justin Oppenheimer is dedicating substantial time to support turnaround efforts.
In the Q&A, Evans provided additional context on the three markets, describing distinct local dynamics rather than a single common cause. He discussed one market where competitors changed access for Medicare Advantage patients and catered more to commercial patients, a second market where growth skewed heavily toward government payers requiring cost-basis adjustments, and a third, more rural market affected by physician departures and short-term access constraints in key service lines.
Capital deployment, de novos, and portfolio optimization remained central themes
In 2025, the company deployed $182 million toward acquisitions, modestly below its $200 million-plus target and back-end weighted, which management said reduced in-year contribution. Evans said acquisitions were completed at attractive valuations and support future growth, and both he and Doherty reiterated that M&A remains a critical strategy, though the company is not including incremental M&A in its initial 2026 guidance due to timing variability.
The company also expanded its de novo footprint. Evans said Surgery Partners opened four de novo facilities in the fourth quarter and eight in total during 2025. Doherty said the company has opened 27 de novos since 2022; two turned profitable in 2025, with more expected to contribute in 2026. The company has five additional de novos under construction and “more than a dozen” in development.
Management also highlighted an ongoing portfolio optimization strategy focused on “a small number of our larger surgical hospitals” that fall outside its core short-stay surgical strategy. Evans said some efforts are in active negotiations and that the company expects “a resolution on a key part of this effort within the first half of the year.” As an example, he cited the Baylor Scott & White joint venture involving the company’s surgical hospital in Bryan, Texas, noting the facility will no longer be consolidated (reducing reported revenue) but is expected to improve earnings contribution on a run-rate basis due to a more efficient capital structure and better strategic alignment.
2026 guidance: modest growth assumptions and quantified headwinds
For 2026, management issued preliminary guidance calling for net revenue of $3.35 billion to $3.45 billion, which Doherty said assumes same-facility revenue growth of 3% to 5%, driven by moderate organic growth and contributions from recent acquisitions, partially offset by “abating pressure” on payer mix. In response to an analyst question, management said the company’s same-store revenue outlook assumes price and volume are “roughly even.”
The company guided to at least $530 million of adjusted EBITDA, implying growth of at least 0.7%. Management outlined several specific items embedded in its planning assumptions, including:
- $9 million of full-year contributions from 2025 net acquisitions and divestitures;
- $15 million impact from funding annual cash incentives at target, which management described as a return to baseline G&A after lower incentive compensation in 2025;
- $8 million headwind from state-specific reimbursement changes and new or increased hospital provider taxes in three markets;
- $4 million estimated year-over-year supply-cost pressure from potential tariff exposure.
Doherty said the guidance implies “slight margin compression” in 2026, with a focus on operational efficiency initiatives across supply chain, revenue cycle operations, and targeted cost reductions to return to steady margin expansion.
On capital allocation, Evans said the board authorized up to $200 million of share repurchases, describing the move as providing flexibility to optimize capital allocation. Management said Bain Capital has informed the company it will not be a seller in the buyback program. Executives also stressed a continued focus on deleveraging and suggested the authorization was supported by increasing confidence in portfolio optimization progress.
On the balance sheet, Doherty reported $933 million of available liquidity at quarter-end, including $240 million of cash and $693 million of revolver capacity. The company ended the year with $2.6 billion of corporate debt and said it has no maturities until 2030. Net leverage was 4.3x under the credit agreement and 4.9x on a net debt-to-EBITDA basis.
Management also noted that operating cash flow in 2025 was $274 million and was lower than 2024, primarily due to higher interest costs following the expiration of interest rate swaps in early 2025 and increased interest related to incremental unsecured senior notes. The company also distributed $226 million to physician partners and spent $33 million on maintenance-related capital expenditures.
About Surgery Partners (NASDAQ:SGRY)
Surgery Partners, Inc operates as a healthcare services provider specializing in the management and ownership of ambulatory surgery centers, surgical hospitals and multispecialty rehabilitation hospitals across the United States. Through its network of facilities, the company coordinates and delivers a broad range of outpatient surgical procedures in specialties such as orthopedics, ophthalmology, otolaryngology, gastroenterology, pain management and general surgery. Its integrated platform offers ancillary services including on-site imaging, laboratory testing, infusion therapy and physical, occupational and speech rehabilitation.
Since its establishment in 2010 and subsequent public listing in 2015, Surgery Partners has focused on strategic partnerships with physicians and health systems to expand access to cost-effective outpatient care.
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