$2.10
$14.10
bear $2.10
base $11.50
bull $14.10
margin of safety $5.00
market price* $14.61
Surgery Partners owns and operates more than 200 locations in 30 states, mostly ambulatory surgery centers and short-stay surgical hospitals, usually in partnership with local physicians who hold minority stakes. Revenue was $3,308.7 million in 2025, up 6.2% from $3,114.3 million. Same-facility revenue rose 4.9% on 3.4% more cases and 1.4% higher revenue per case. Private insurance was 52.3% of patient revenue and government programs 42.8%. How we measure earnings. We start from operating cash flow ($274.3 million in 2025), remove working-capital swings, and subtract stock compensation and maintenance capital spending. We also subtract cash paid to the physician partners who own minority stakes in the facilities ($226.0 million in 2025, up from $170.5 million in 2024 and $146.1 million in 2023). That money leaves the company before common shareholders see it, so leaving it in would overstate what belongs to the shares. On this basis 2025 earnings were about $70.9 million, or $0.56 per share on 127.2 million diluted shares. Earlier years per share: $0.27 in 2022, $0.88 in 2023 and $1.08 in 2024. 2019 to 2021 were earned on a much smaller and changing share base (48 to 72 million shares) and are shown in the record but not used as the anchor. Earnings level used. The median of 2022 to 2025 is about $0.72, but 2023 and 2024 carried much lower interest costs. Interest expense rose to $272.6 million in 2025 from $201.7 million, cash interest paid to $256.8 million from $199.7 million, after interest rate swaps matured in March 2025, and total debt rose to $3.70 billion from $3.37 billion during the year. Those higher costs are now permanent features, so we start from the 2025 level of $0.56, not the median. The 2025 owner earnings fell 48% from 2024. For year one we assume no further change and no growth, because we cannot point to a dated event that would reverse that fall. Base case, $11.50 per share. Earnings start at $0.56, are flat in year one, then grow 3% a year for nine years, and then hold flat. Growth of 3% is below the 4.9% same-facility revenue growth reported in 2025 and below revenue growth in every year from 2019 to 2025, and it comes from patient volume at existing facilities, not new acquisitions. We did not credit acquisitions: the company spent $162.1 million, $378.8 million and $80.0 million on them in 2025, 2024 and 2023, but the sizes are uneven and were funded with borrowing. Earnings holding flat after year ten rests on the long operating history of surgical facilities; no growth is assumed there. Bull case, $14.10. Same starting point, but 6% growth for nine years after a flat first year, reflecting the same-facility volume growth of 3.4% plus pricing of 1.4% already reported in 2025 continuing, with interest costs largely fixed. Flat afterward. Bear case, $2.10. In every year from 2019 to 2025 working capital absorbed cash, $594.7 million in total, including $110.4 million in 2025. Our earnings measure removes it, which flatters the result. The bear case assumes half of the 2025 drain ($55.2 million) is a permanent cost of running the business, leaving about $0.12 per share, flat forever. Without any working-capital adjustment, 2025 cash left for shareholders after partner distributions would have been negative. Debt of $3.70 billion (including $935.5 million of finance leases) adds to the downside, though nothing matures before the revolver in December 2028, the term loan in December 2030 and $1,225.0 million of 7.25% notes in 2032. What would make this wrong. Working capital may be a genuine recurring cost, in which case the base case is too high. Government programs pay 42.8% of patient revenue, so reimbursement cuts would hit earnings directly. Partner distributions grew faster than the business in 2025. A further rise in interest costs when debt is refinanced would lower earnings. The company reports a net loss attributable to shareholders ($77.9 million in 2025), so our value rests on cash flow, not reported profit. Margin-of-safety price. Given leverage, the sensitivity to working capital and partner payouts, and a bear-to-base range of $2.10 to $11.50, the margin-of-safety price is about $5.00, well below the base case.