Surgery Partners, Inc. (SGRY) Cash Flow Statement

The consistent gap between net income and operating cash flow is driven by large depreciation and amortization charges, which averaged around $38M per quarter, and significant working capital swings. In 2026Q2, working capital contributed $49.6M to cash flow, reversing the prior quarter's $49.6M outflow, suggesting timing effects in payables and receivables. This pattern indicates that reported losses are not cash-consuming, but the reliance on working capital timing warrants monitoring for sustainability.

Excluding acquisition-related outflows, FCF has been consistently positive, averaging roughly $50M per quarter over the last year. The negative FCF quarters (2025Q1 and 2026Q1) coincide with large working capital outflows, not capex increases, suggesting that core operations are cash-generative. However, FCF margins remain thin at 4.4% in 2026Q2, below the 10%+ seen in late 2025, indicating that margin expansion is not yet translating into proportional cash flow growth.

The relatively low capital intensity is consistent with an asset-light ASC model, but the uptick in CapEx in recent quarters (e.g., $21.8M in 2026Q2) may indicate investments in higher-acuity capabilities like robotics. Given the company's high fixed-cost base, these investments could enhance operating leverage if case volumes grow, but they also increase depreciation, which already exceeds CapEx in some quarters, implying that replacement needs are being met. Investors should monitor whether CapEx growth is matched by revenue per case improvements.

The volatility in working capital is likely due to the timing of insurance reimbursements and the settlement of payables related to acquisitions. The large positive contribution in 2026Q2 reversed the prior quarter's outflow, suggesting that collections improved or payables were extended. However, the recurring pattern of large swings (e.g., -$37.7M in 2024Q1, -$56.9M in 2025Q1) indicates that management may be using working capital levers to smooth cash flow, which could reverse in future quarters. This warrants close monitoring of days sales outstanding and days payable outstanding.

The company's cash flow statement shows no dividends or share repurchases, with all excess cash directed toward acquisitions and debt reduction. The acquisition outflows are lumpy, with $210M in 2024Q2 and $109.5M in 2025Q4, which likely explains the periodic negative FCF. This strategy aligns with the roll-up model, but it also means that organic cash flow is insufficient to fund growth, necessitating debt or equity raises. Investors should assess whether the returns on these acquisitions are materializing, given the persistent net losses.

The cumulative gap between net income and operating cash flow is approximately $942M, primarily due to depreciation, amortization, and other non-cash items. This suggests that the company's losses are largely accounting-driven, not cash-consuming, which is typical for acquisition-heavy businesses with significant intangible amortization. However, the persistence of GAAP losses raises questions about the economic profitability of the business, as adjusted EBITDA may be masking true cash returns. The divergence also implies that the company's cash flow is more robust than its income statement suggests, but investors should be cautious about the quality of those earnings.