Business Overview and History Surgery Partners, Inc. (SGRY) is a leading healthcare services company that owns and operates a national network of surgical facilities and ancillary services. The company's differentiated operating model, strategic focus, and strong execution have positioned it as a key player in the evolving outpatient care landscape.
Surgery Partners was founded in 2003 with the goal of providing high-quality, cost-effective surgical and related ancillary care. Headquartered in Brentwood, Tennessee, the company has grown over the past two decades to become one of the largest and fastest-growing surgical services businesses in the United States, with 161 surgical facilities across 31 states, including ambulatory surgery centers (ASCs), short-stay surgical hospitals, and multi-specialty physician practices.
In its early years, Surgery Partners focused on building up its portfolio of ASCs and surgical hospitals through an acquisition-driven growth strategy. This approach allowed the company to establish a presence in attractive markets and partner with high-quality physician groups. As the company expanded, it faced the challenge of navigating the complex regulatory environment for healthcare providers. To address this, Surgery Partners invested heavily in compliance programs and worked closely with legal and regulatory experts to ensure its facilities and operations complied with various federal and state laws.
During the late 2000s and early 2010s, Surgery Partners continued its expansion through additional acquisitions while also diversifying its service offerings. The company moved beyond surgical facilities to include physician practices, urgent care centers, and anesthesia services, aiming to create a more comprehensive continuum of care for patients.
Despite its growth, Surgery Partners encountered some difficulties along the way. In 2017, the company faced a shareholder lawsuit alleging issues with its corporate governance and management practices. The lawsuit was eventually settled in 2022, but the process was time-consuming and costly for the organization. Additionally, the company has had to navigate industry-wide challenges such as reimbursement pressures from government and private payers, as well as workforce shortages for key medical personnel like nurses.
The company's growth strategy has been multifaceted, incorporating organic initiatives, strategic acquisitions, and the development of new facilities. Since its inception, Surgery Partners has executed a disciplined M&A strategy, selectively acquiring established surgical facilities and integrating them into its platform. This approach has enabled the company to expand its geographic footprint, enhance its service offerings, and leverage operational efficiencies.
In addition to acquisitions, Surgery Partners has also focused on organic growth, investing in the expansion of existing facilities, the introduction of new service lines, and the recruitment of top-notch physicians. The company's physician engagement strategy has been a key driver of its success, as it has fostered strong partnerships with medical professionals who share its commitment to delivering exceptional patient care.
Financial Performance and Liquidity Surgery Partners has demonstrated a consistent track record of financial performance, with a focus on revenue growth, margin expansion, and disciplined capital deployment. In the fiscal year 2024, the company reported total revenues of $3.11 billion, representing a 13.5% increase from the prior year. This growth was driven by a combination of same-facility revenue increases, the positive impact of acquisitions, and continued strength in the company's service offerings.
The company's adjusted EBITDA for the fiscal year 2024 was $508.2 million, an increase of 16% year-over-year. This strong financial performance reflected the company's ability to drive operational efficiencies, optimize its cost structure, and effectively integrate acquired facilities. Surgery Partners' adjusted EBITDA margin expanded by 30 basis points to 16.3% in 2024, demonstrating its commitment to profitable growth.
For the fourth quarter of 2024, Surgery Partners reported revenue of $864.4 million, representing a 17.5% year-over-year increase. However, the company experienced a net loss of $108.5 million for the quarter. Despite this quarterly loss, the company's full-year net income for 2024 was $12.5 million.
Surgery Partners generated strong cash flows in 2024, with operating cash flow of $300.1 million and free cash flow of $209.7 million for the full year. This robust cash generation provides the company with financial flexibility to pursue its growth initiatives and strategic investments.
As of December 31, 2024, Surgery Partners had a strong liquidity position, with $269.5 million in cash and cash equivalents and $501.5 million in available borrowing capacity under its revolving credit facility. The company's net debt-to-EBITDA ratio, as calculated under its credit agreement, was 3.7x at the end of the fourth quarter of 2024, providing ample financial flexibility to pursue its growth initiatives.
The company's debt-to-equity ratio stood at 2.07 as of December 31, 2024, while its current ratio and quick ratio were both 1.79, indicating a solid short-term liquidity position.
Operational Highlights and Strategic Initiatives In 2024, Surgery Partners continued to execute on its comprehensive growth strategy, delivering impressive results across its key operational metrics. The company performed over 656,000 surgical cases during the year, an 8.4% increase from the prior year. Notably, the company experienced strong growth in its higher-acuity specialties, such as orthopedics and pain management, with a notable 11% increase in orthopedic cases and a 50% surge in total joint procedures.
To support its growth, Surgery Partners has invested significantly in its facilities and capabilities. In 2024, the company added 14 surgical robots to its portfolio, enabling its physician partners to perform increasingly complex and higher-acuity procedures. The company also opened 8 de novo facilities during the year, with an additional 12 facilities in various stages of development for 2025. These strategic investments in new facilities and advanced technologies have strengthened Surgery Partners' competitive positioning and enhanced its ability to attract top-tier physicians and serve growing patient demand.
The company operates primarily in one reportable segment, Surgical Facilities, which includes the operation of ASCs, surgical hospitals, anesthesia services, urgent care facilities, and multi-specialty physician practices. This segment generated $3.11 billion in total revenues for 2024, accounting for 98.1% of the company's total revenues. The Surgical Facilities segment's Adjusted EBITDA reached $610.0 million in 2024, up 14.2% from the prior year, with an Adjusted EBITDA margin of 19.6%.
Surgery Partners' facilities provide a variety of surgical procedures across many specialties, with a diversified revenue mix of 53.5% from private insurance payors, 41.1% from government payors, and 5.4% from self-pay and other payors in 2024.
Regulatory Landscape and Risk Factors The healthcare industry, including the ambulatory surgical care market, is subject to a complex regulatory environment. Surgery Partners operates in a highly regulated industry, with various federal and state laws and regulations governing its operations, including those related to licensing, certification, fraud and abuse, and reimbursement.
While the company remains vigilant in its compliance efforts, changes in laws and regulations, as well as potential shifts in government policies, can introduce uncertainty and risk. One area of focus has been the ongoing discussions around site-neutral payment policies, which aim to align reimbursement rates across different care settings. However, based on the company's analysis, it believes that any potential legislative changes in this regard are unlikely to have a material impact on its revenue or earnings, as the majority of its procedures are performed in lower-cost, higher-quality settings that are well-aligned with the objectives of such policies.
Additionally, broader economic factors, such as changes in interest rates, inflation, and market volatility, can potentially affect the company's payor mix, patient volumes, and the collectability of outstanding receivables. Surgery Partners closely monitors these macroeconomic trends and has implemented strategies to mitigate associated risks, including disciplined cost management and the maintenance of a conservative balance sheet.
Human Capital and Industry Trends As of December 31, 2024, Surgery Partners had approximately 15,000 employees, including both full-time and part-time staff. The company recognizes the importance of attracting and retaining skilled physicians, nurses, and other medical personnel in a competitive healthcare labor market.
The outpatient surgical facility market in the U.S. is estimated to be over $90 billion in annual revenue, with ASCs capturing an increasing share of total surgical procedures. Surgery Partners expects outpatient procedure volumes to grow by approximately 2% per year in hospital outpatient departments and 6% per year in ASCs, while inpatient procedures are expected to decline by around 2% per year. This trend aligns well with the company's strategic focus on outpatient care settings.
Outlook and Conclusion As Surgery Partners looks ahead, the company remains well-positioned to capitalize on favorable industry trends and continue its track record of consistent growth. The company's initial guidance for 2025 reflects its confidence in the core tenets of its business model, with projected revenue in the range of $3.3 billion to $3.45 billion and adjusted EBITDA in the range of $555 million to $565 million. This guidance implies continued margin expansion in line with the company's long-term growth algorithm.
Surgery Partners expects to deploy at least $200 million of capital on M&A in 2025, furthering its growth strategy. The company also anticipates an increase in cash flows from operations in 2025 based on forecasted adjusted EBITDA growth. Capital expenditures related to maintenance activities are expected to be between $40 million and $50 million, consistent with historical run rates. Distributions to partners are projected to grow in line with underlying earnings growth.
Surgery Partners' successful execution of its strategic priorities, combined with its strong financial position and liquidity, position the company as a leader in the evolving outpatient care landscape. By maintaining its focus on delivering exceptional patient care, driving organic growth, and pursuing strategic acquisitions, Surgery Partners is poised to continue creating value for its shareholders and contributing to the transformation of the healthcare industry.