Surgery Partners Inc.

source: coverage-next-full ticker: SGRY step: "01" title: Business Overview — Surgery Partners, Inc. created: 2026-05-29

SGRY — Business Overview

Company Summary

Surgery Partners, Inc. is one of the largest operators of ambulatory surgery centers (ASCs) and surgical hospitals in the United States. Founded in 2004 and headquartered in Brentwood, Tennessee, the company went public in September 2015. Surgery Partners operates on a joint venture model, partnering with physicians and health systems to develop and manage outpatient surgical facilities.

As of FY2025, the company operated approximately 180+ facilities across ~30 states, with roughly 16,000 employees. FY2025 revenue was $3.314B, making Surgery Partners the second-largest publicly traded ASC operator in the US.

Business Model

Surgery Partners derives revenue primarily from facility fees — charges for the use of its surgical facilities, surgical suites, equipment, nursing staff, and post-operative recovery. The company does not employ surgeons; rather, physicians are equity partners in individual ASCs through a joint venture (JV) structure:

• Surgery Partners typically holds a majority or controlling interest (often 51–75%) in each JV facility
• Surgeon-partners hold the remaining equity, typically 25–49% (classified as noncontrolling interest on the balance sheet)
• This alignment model incentivizes physicians to drive volume and maintain quality, while Surgery Partners provides capital, management, supply chain, and payer contracting expertise

Revenue is recognized at the individual facility level; intercompany fees between SGRY corporate and the JVs are eliminated in consolidation.

Business Segments

Surgery Partners reports under one operating segment (Surgical Facility Services) but provides detail across facility types:

Ambulatory Surgery Centers (ASCs)

• Primary asset type; outpatient procedures, patients admitted and discharged same-day
• Lower overhead vs. hospital outpatient departments (HOPDs); typically no overnight beds, smaller footprint
• Specialty mix: orthopedics (including total joints), ophthalmology (cataract), pain management (spine/injections), GI (endoscopy), and general surgery
• ~170+ ASC locations as of FY2025

Surgical Hospitals

• Inpatient or short-stay surgical hospitals; licensed as hospitals, can handle more complex cases
• Fewer locations (~10+), but higher revenue per case vs. ASCs
• Often co-located with or adjacent to affiliated ASC campuses

Ancillary Services

• Optical services (dispensing eyewear/lenses post-cataract surgery)
• Pharmacy and implant/device procurement (supply chain leverage across the network)
• Historically included physician practices (divested in recent years as a non-core activity)

Geographic Footprint

Surgery Partners operates in approximately 30 states, with concentrations in:

• Southeast / Mid-Atlantic: Tennessee, Florida, Georgia, North Carolina, Virginia
• Midwest: Indiana, Ohio, Michigan
• Southwest: Texas, Arizona, Nevada
• West: California, Oregon, Washington

No single state accounts for a majority of revenue. Geographic diversification reduces exposure to any single state's Medicaid/payor mix or regulatory environment.

Revenue Composition

Revenue is primarily facility fees (estimated 90%+ of total), with smaller contributions from:

• Optical products/services at ophthalmology facilities
• Pharmacy and supplies distributed to JV facilities

Payer mix (approximate, FY2025):

• Commercial insurers: ~50–55% of net revenue (highest reimbursement rates)
• Medicare: ~30–35% of net revenue
• Medicaid/Self-pay/Other: ~10–15%

The shift toward Medicare Advantage (MA) penetration is a watched variable — MA plans typically reimburse at or near traditional Medicare rates for ASC services but add administrative friction.

Strategic Position

Surgery Partners has positioned itself as a consolidator in the highly fragmented ASC industry, where the majority of the ~6,000 ASCs in the US are independently owned or physician-owned. The company grows through three channels:

1. Acquisitions: Buying independent ASCs or divesting non-core facilities
2. De novo development: Building new ASC facilities, often in partnership with a health system or physician group
3. Organic volume growth: Same-facility revenue growth through procedure volume, case mix enrichment, and operational efficiency

Recent Corporate Events

• Bain Capital Take-Private Proposal (2025): Bain Capital (39% shareholder) proposed taking SGRY private at $25.75/share in mid-2025. The Special Committee engaged advisors and rejected the offer in December 2025 as undervaluing the company. This overhang weighed on the stock throughout H2 2025.
• Portfolio Optimization (2025–2026): Post-rejection, management shifted to selective facility divestitures and balance sheet discipline, prioritizing free cash flow conversion and leverage reduction.
• Leadership: Wayne DeVeydt has served as CEO since July 2019, providing operational continuity through the post-COVID recovery, Bain Capital conflict, and strategic repositioning.

source: coverage-next-full ticker: SGRY step: "04" title: Financial Snapshot — 3-Year P&L Summary created: 2026-05-29

SGRY — Financial Snapshot

Income Statement Summary (FY2023–FY2025)

Note on Gross Margin: SGRY's reported gross margin is compressed because cost of revenues includes physician/surgeon payments and all facility-level operating costs. The metric is less comparable to traditional healthcare gross margins; EBITDA margin is the primary street metric.

Note on FY2024 Net Loss: The $168M net loss in FY2024 includes non-cash charges related to goodwill impairment and debt refinancing costs associated with the acquisition of NovaBay / ASC portfolio expansion and related debt issuance. The FY2024 balance sheet shows debt rose from $2.804B to $3.405B.

Key Profitability Metrics

Cash Flow Statement Summary

FCF Note: FCF declined slightly in FY2025 vs. FY2024 despite EBITDA growth, reflecting higher interest expense on expanded debt load and some working capital headwinds. Management has guided to improving FCF conversion in FY2026 through lower CapEx (post-acquisition integration) and reduced deal costs.

Balance Sheet Summary

Goodwill Note: $5.195B in goodwill (FY2025) represents ~64% of total assets. Goodwill is not amortized under GAAP but must be tested annually for impairment. Any significant impairment charge would flow through the P&L and further depress reported net income.

Leverage Profile

Leverage is the primary credit/equity risk. At 6.6x net debt/EBITDA, SGRY operates with limited margin for error. The debt maturity schedule, refinancing risk, and ability to service interest out of operating cash flow are key investor watch items.

Debt Structure (FY2025, Estimated)

Note: SGRY refinanced portions of its debt during 2024 to extend maturities; specific terms from FY2025 10-K.

Per-Share Metrics

Profitability Outlook

Management's FY2026 guidance (reaffirmed Q1 2026):

• Revenue: $3.35B–$3.45B (+1–4% YoY)
• Adj. EBITDA: ≥$530M (+0.8%+ YoY)
• Implied Adj. EBITDA margin: ~15.4–15.8% (slight compression at midpoint)

Consensus FY2026 estimates (May 2026): Revenue $3.48B; EPS $0.46

source: coverage-next-full ticker: SGRY step: "12" title: Catalysts — Near-Term Drivers and Bull/Bear Cases created: 2026-05-29

SGRY — Catalysts

Near-Term Catalysts (12-Month Horizon)

Positive Catalysts

1. Portfolio Optimization / Divestiture Proceeds Surgery Partners has been executing a portfolio optimization program since late 2025, divesting non-core and underperforming facilities. Proceeds are being used to pay down debt. If divestiture activity generates $100–200M+ in proceeds and reduces net leverage from 6.6x toward 5.5x, this would be a significant rerating catalyst. Market participants have been waiting for visible leverage reduction progress.

• Timeline: Ongoing throughout 2026; updates expected at each quarterly earnings call
• Market impact: A 0.5x reduction in leverage could re-rate the stock from ~10x EBITDA toward 11–12x, implying 15–25% upside

2. Bain Capital Resolution Bain Capital's 39% stake overhang is the single largest discount to intrinsic value in the SGRY story. A resolution — whether through Bain selling to a strategic buyer at a premium, a new go-private attempt at a fair price ($18–22/share), or Bain exiting via secondary offering — would remove the governance uncertainty and likely re-rate the stock significantly.

• Timeline: Unpredictable; likely driven by Bain's fund lifecycle requirements (10-year+ funds, ~2029 horizon)
• Market impact: Positive resolution could add $3–6/share to the stock; negative resolution (predatory buyout) would be destructive to minority shareholders

3. Q2/Q3 2026 Earnings Recovery Q1 2026 was seasonally weak and affected by divestiture noise. Q2 and Q3 are historically the strongest quarters for ASC operators. A clean beat-and-raise on Q2 2026 (revenue ~$850M+, EBITDA ~$140M+) would demonstrate organic growth momentum and validate full-year guidance.

• Timeline: Q2 2026 earnings expected early August 2026
• Market impact: A meaningful beat could add 10–15% to the stock near-term

4. CMS 2027 ASC Fee Schedule Rule The annual CMS proposed rule for ASC payment rates (typically released in July–August, finalized in November) impacts roughly one-third of SGRY's revenue base. A constructive 2027 rule (2–3% rate increase + favorable procedural additions) would support the long-term revenue trajectory.

• Timeline: Proposed rule expected July 2026; final rule November 2026
• Market impact: Incremental positive; removes a known risk rather than driving upside

5. Total Joint Replacement Volume Acceleration Total knee and hip replacement migration to ASCs continues to accelerate. CMS data and commercial payer coverage confirmations are expanding. SGRY's orthopedic-weighted portfolio is positioned well to capture incremental TJR volume.

• Timeline: Ongoing; quarterly case volume data provides updates
• Market impact: Revenue per case improvement as TJR procedures carry higher facility fees than legacy ASC procedures

Negative Catalysts

1. Covenant Breach or Credit Concern At 6.6x net leverage, SGRY is 1–2 quarters of EBITDA miss away from approaching covenant thresholds. Any unexpected EBITDA shortfall (labor spike, procedural volume miss, payer rate cut) could trigger covenant concerns and raise credit risk premia.

• Timeline: Ongoing watch; most acute risk if Q2 or Q3 2026 underperforms
• Market impact: Covenant concerns could drive 20–30% downside in the stock and spread widening on the bonds

2. Medicare Advantage Rate Renegotiation Disclosure If SGRY's Q2 or Q3 commentary reveals material deterioration in commercial/MA rate negotiations (e.g., contract renewals coming in below CPI), this could compress the EBITDA margin outlook and reduce forward estimates.

• Timeline: Commercial contract renewals typically disclosed in late-year earnings calls
• Market impact: Every 50bps of EBITDA margin compression represents ~$17M of EBITDA at current revenue levels

3. Bain Capital Forced Sale at Discount If Bain's fund cycle forces a sale of its 39% stake via a secondary offering at a significant discount to market (e.g., $11–12/share), the stock would face downward pressure. Alternatively, a new take-private attempt at a below-intrinsic-value price would disadvantage public shareholders.

• Timeline: Unpredictable; 12–24 month tail
• Market impact: Secondary offering at discount = -10–15%; predatory buyout at current levels = forced liquidity at bad price for long-term holders

Upcoming Events Calendar

Bull Case

• Bain Capital's overhang resolves positively (strategic buyer acquires SGRY at $20+/share premium or Bain exits via secondary), unlocking a 40–50% re-rating from the discount to intrinsic value; simultaneously, portfolio divestitures deliver $150–200M in proceeds that reduce leverage below 5.5x and improve free cash flow conversion, generating an additional re-rating on EBITDA multiples from ~10x toward 12–13x
• Total joint replacement and spine ASC migration accelerates meaningfully in 2026–2027, with SGRY's orthopedic-heavy facility mix capturing incremental TJR cases at ~$2,800–3,200 net revenue per case (vs. current ~$2,350 average), driving same-facility revenue growth to 6–7% and EBITDA margins toward 17–18%, exceeding current consensus estimates by 10–15%
• Interest rate cycle continues favorably, enabling SGRY to refinance its Term Loan B at materially lower spreads in 2026–2027, reducing annual interest expense by $40–60M and generating GAAP profitability for the first time since IPO, triggering multiple expansion as the company crosses from "chronic GAAP loss" to reported earnings positive

Bear Case

• Medicare Advantage penetration accelerates beyond management's assumption, with MA plans renegotiating contracts toward traditional Medicare rates on 30–40% of commercial volume at renewal; combined with CMS rate freeze, EBITDA margins compress 150–200bps below guidance, pushing net leverage toward 7x and triggering credit covenant concerns that force an expensive refinancing or dilutive equity issuance
• Labor market re-tightens in 2026 (another nursing shortage driven by demographic retirements or competing health system wage wars), adding $50–75M to SGRY's annual cost base and compressing EBITDA margins back toward 14–15%, eliminating the FCF improvement that investors are pricing in at current levels, and sending the stock toward $9–10 (8x EBITDA on reduced estimates)
• Bain Capital successfully executes a take-private at $14–16/share (small premium to current ~$13.65), forcing minority shareholders to accept a price below the $17–24 analyst consensus target range, crystallizing losses for recent holders and eliminating the public equity value creation opportunity that justifies the operational risk undertaken in holding a leveraged ASC consolidator