Healthcare company Surgery Partners (NASDAQ:SGRY) met Wall Streets revenue expectations in Q3 CY2025, with sales up 6.6% year on year to $821.5 million. On the other hand, the company’s full-year revenue guidance of $3.29 billion at the midpoint came in 2% below analysts’ estimates. Its non-GAAP profit of $0.13 per share was 19% below analysts’ consensus estimates.
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Surgery Partners (SGRY) Q3 CY2025 Highlights:
- Revenue: $821.5 million vs analyst estimates of $821.8 million (6.6% year-on-year growth, in line)
- Adjusted EPS: $0.13 vs analyst expectations of $0.16 (19% miss)
- Adjusted EBITDA: $136.4 million vs analyst estimates of $136.2 million (16.6% margin, in line)
- The company dropped its revenue guidance for the full year to $3.29 billion at the midpoint from $3.38 billion, a 2.6% decrease
- EBITDA guidance for the full year is $537.5 million at the midpoint, below analyst estimates of $556.1 million
- Operating Margin: 12.9%, up from 7.9% in the same quarter last year
- Sales Volumes rose 3.4% year on year (5.4% in the same quarter last year)
- Market Capitalization: $2.04 billion
StockStory’s Take
Surgery Partners’ third quarter was met with a significant negative market reaction, as investors digested a combination of in-line revenue but lower-than-expected non-GAAP earnings and a cautious full-year outlook. Management attributed the period’s underperformance primarily to softer-than-anticipated surgical volumes and shifts in payer mix, with CEO Eric Evans noting, “We are observing softer than expected same facility volume growth in recent months.” Additionally, delays in capital deployment and earnings lost from recent divestitures played a meaningful role in the quarterly results, adding to near-term operational headwinds.
Looking ahead, Surgery Partners’ management has taken a more cautious stance for the remainder of the year, reducing guidance to reflect both slower-than-planned capital deployment and persistent softness in commercial payer mix. CEO Eric Evans emphasized that these adjustments are largely timing-related, stating, “We are confident in the resilience of our growth algorithm...but believe it is appropriate to take a measured stance heading into the fourth quarter.” The company’s ability to redeploy capital from divestitures, ramp up newly opened facilities, and navigate ongoing trends in surgical demand will be key factors shaping its performance into 2026.
Key Insights from Management’s Remarks
Management pointed to several operational and strategic factors affecting the third quarter, including slower-than-expected growth in surgical case volumes, ongoing investment in high-acuity specialties, and capital allocation timing.
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Volume softness and payer mix: Leadership observed broad-based weaker trends in surgical case volumes and a higher proportion of government payers, which impacted margins and prompted the downward guidance revision. Evans described the softness as “broad enough and apparent enough to us that we had to react to it,” while maintaining that volume and rate growth are still anticipated in Q4.
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Orthopedics and robotics investment: Growth in total joint surgeries at ambulatory surgical centers (ASCs) remained a bright spot, with year-over-year case volume up 16% in Q3. The company’s ongoing investments in surgical robotics—now totaling 74 robots—are aimed at enabling more complex procedures and attracting high-acuity cases and physician recruits.
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M&A and divestiture timing: The majority of the $20 million guidance cut was attributed to delayed acquisition activity and the inability to quickly redeploy proceeds from three ASC divestitures. CFO Dave Doherty explained that only $71 million of the planned $250 million in capital has been deployed year-to-date, limiting earnings contributions in 2025.
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De novo facility ramp delays: New facility (de novo) openings, especially in orthopedics, are a key growth strategy but have faced construction and regulatory delays. While several recently opened de novos have turned profitable, some have not reached breakeven as quickly as anticipated, creating near-term earnings pressure.
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Strategic portfolio review underway: Management is actively reviewing its portfolio with the goal of focusing on core ASC service lines and divesting or partnering on larger, more capital-intensive surgical hospitals. Evans noted that these efforts are expected to accelerate leverage reduction and improve cash conversion, though details will be shared at a rescheduled Investor Day in 2026.
Drivers of Future Performance
Surgery Partners’ outlook for the next year is shaped by continued investment in high-acuity specialties, the pace of capital deployment, and evolving trends in surgical demand and payer mix.
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Capital deployment and M&A discipline: The company’s ability to accelerate acquisitions and efficiently redeploy divestiture proceeds will be central to achieving its long-term growth targets. Management highlighted a robust M&A pipeline, but acknowledged that execution timing remains unpredictable and is a key variable for 2026 earnings.
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Commercial payer mix trends: Shifts in the mix of commercial versus government payers have pressured margins and will be closely monitored. Management cited persistent softness in commercial volumes and emphasized the importance of the typical seasonal lift in these cases during the fourth quarter.
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Ramp and profitability of new facilities: The trajectory of newly opened de novo centers, especially those focused on orthopedics, will influence future revenue and margin expansion. Regulatory and construction delays have slowed some ramp-ups, but the company expects these facilities to be accretive over the medium term as they reach breakeven and scale.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be watching (1) the speed at which Surgery Partners redeploys divestiture proceeds into accretive acquisitions, (2) any improvement or further deterioration in surgical case volumes and commercial payer mix, and (3) the pace at which de novo facilities reach profitability. Progress on the strategic portfolio review and updates on regulatory or construction delays will also be key indicators of execution.
Surgery Partners currently trades at $16.18, down from $21.51 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).
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