SGRY Q2 Deep Dive: Orthopedics and De Novo Expansion Drive Steady Growth

Healthcare company Surgery Partners (NASDAQ:SGRY) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 8.4% year on year to $826.2 million. The company expects the full year’s revenue to be around $3.38 billion, close to analysts’ estimates. Its non-GAAP profit of $0.17 per share was 25.8% above analysts’ consensus estimates.

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StockStory’s Take

Surgery Partners delivered a second quarter that was broadly in line with Wall Street’s expectations, with modest year-on-year growth in both revenue and profit. Management cited consistent execution across its three growth pillars: organic case growth, margin expansion, and disciplined M&A activity. CEO Eric Evans attributed much of the performance to higher-acuity orthopedic procedures and ongoing investments in new facilities, stating, “Our colleagues and physician partners continue to deliver on our mission to enhance patient quality of life through partnership.”

Looking ahead, Surgery Partners’ management expects continued momentum from its focus on higher-acuity specialties, de novo facility development, and portfolio optimization. Evans noted that demographic trends, technological advances, and evolving payer policies will likely support further migration of procedures to outpatient settings. The company is also preparing for potential regulatory changes, with Evans stating, “We are encouraged by the agency’s trust in the physician’s clinical experience in making safe decisions around the most appropriate site to deliver high-quality surgical care.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to growth in orthopedic procedures, successful physician recruitment, and disciplined cost control, while also highlighting ongoing M&A and facility expansion as essential to the company’s strategy.

• Orthopedic case growth: The company saw strong increases in higher-acuity orthopedic procedures, particularly joint surgeries, which grew 26% versus last year. Management emphasized that nearly half of its facilities now perform total joint procedures, with investments in robotic equipment supporting this trend.
• Physician recruitment impact: Adding nearly 300 new physicians so far in 2025 has boosted procedure volumes and is expected to drive ongoing growth. Evans highlighted that recruits from the prior year brought 68% more cases and 121% more revenue, demonstrating a compounding effect.
• De novo facility expansion: The company continues to develop new surgical centers, with 10 facilities under construction and a robust pipeline. These new sites are heavily weighted toward orthopedic and other high-acuity specialties, and more than half of the 20 facilities opened since 2022 have already turned profitable.
• Margin improvement initiatives: Cost management and efficiency measures contributed to higher operating margins. Management cited procurement savings, improved supply chain operations, and revenue cycle standardization as key factors.
• M&A and portfolio optimization: Surgery Partners remains disciplined in pursuing acquisitions, deploying $66 million so far in 2025 and targeting $200 million for the year. The company is also reviewing its asset portfolio for potential divestitures or partnerships to accelerate leverage reduction and enhance cash flow.

Drivers of Future Performance

Surgery Partners’ outlook is shaped by ongoing growth in orthopedic procedures, new facility launches, and efforts to optimize its asset portfolio.

• Orthopedic and specialty expansion: Management expects the continued shift of higher-acuity surgeries, such as joint replacements, from hospitals to outpatient settings to fuel revenue growth. Investments in robotics and targeted physician recruiting are designed to capture this demand and expand market share.
• De novo and M&A contributions: New facility openings and acquisitions will play a significant role, though timing remains a variable. Management reiterated its annual M&A deployment target but noted that the pace of deals could impact short-term earnings contribution, with more activity expected in the latter half of the year.
• Portfolio optimization and regulatory changes: The company is actively assessing its asset base for potential sales or partnerships to accelerate deleveraging and cash generation. Upcoming Medicare policy changes, particularly the expansion of the outpatient procedure list, could also present incremental growth opportunities, though management views the initial impact as gradual.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be tracking (1) the pace of new de novo facility openings and their ramp to profitability, (2) execution of the targeted $200 million in acquisitions and timing of integration, and (3) progress on portfolio optimization initiatives, including any asset sales or strategic partnerships. We will also monitor regulatory developments around Medicare’s outpatient procedure list and their effect on case mix and revenue.

Surgery Partners currently trades at $22.51, up from $22.22 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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