Surgery Partners Q2 Earnings Call Highlights

Key Points

• Surgery Partners exceeded its internal Q2 expectations, reporting revenue of approximately $849 million, up 2.7% year over year, while adjusted EBITDA totaled about $125 million. Same-facility revenue grew 5%, driven primarily by pricing, higher-acuity procedures and a 4.8% increase in revenue per case.
• The planned sale of the Idaho Falls operations to Intermountain Health is expected to generate approximately $795 million in gross proceeds, which Surgery Partners intends to use mainly to repay debt and reduce leverage by about 0.3 turns. The divestiture would make more than 95% of the company’s remaining business outpatient or short-stay surgical care.
• The company reaffirmed 2026 guidance for revenue of $3.35 billion to $3.45 billion and adjusted EBITDA of at least $530 million, excluding the Idaho Falls transaction. Physician recruitment and facility development remain active, but management said 2026 M&A investment will fall short of its previously targeted $200 million average.

Surgery Partners NASDAQ: SGRY reported second-quarter 2026 revenue and adjusted EBITDA above its internal expectations, while reaffirming its full-year outlook ahead of the anticipated sale of its Idaho Falls market operations to Intermountain Health.

The company reported net revenue of approximately $849 million for the quarter, up 2.7% from a year earlier. Adjusted EBITDA was approximately $125 million, compared with approximately $129 million in the prior-year quarter, and adjusted EBITDA margin was 14.7%.

For the first half, net revenue rose 3.6% to approximately $1.66 billion, while adjusted EBITDA declined 2.3% to approximately $228 million. Year-to-date adjusted EBITDA margin was 13.7%, compared with 14.5% in the prior-year period.

Same-Facility Revenue Gains Driven by Acuity and Pricing

Chief Executive Officer Eric Evans said second-quarter same-facility net revenue increased 5% from the prior year, including 4.8% growth from rate. Same-facility case volume increased 0.3% during the quarter, while net revenue per case increased 4.8%.

The company performed about 168,000 surgical cases in the quarter. Evans cited orthopedic and vascular procedures as contributors to growth, and said the company continued to see higher-acuity activity in total joints, spine and vascular services.

For the first half, same-facility revenue rose 4.9%, reflecting a 0.8% increase in cases and 4% growth in net revenue per case.

Commercial payer mix represented about 49% of second-quarter net revenue, down approximately 350 basis points from the prior-year period. Chief Financial Officer Dave Doherty said the decline was accompanied by a corresponding increase in government payments, driven by shifts at larger surgical hospitals and case growth that skewed somewhat toward government pay.

Management characterized the payer-mix shift as anticipated and said it was reflected in the company’s full-year guidance. Chief Operating Officer Justin Oppenheimer said the moderation was somewhat greater at surgical hospitals than at ambulatory surgery centers. The company also said exposure to exchange coverage was relatively small and that its Medicaid mix is expected to fall further following the Idaho Falls transaction.

Physician Recruitment and Development Pipeline

Surgery Partners said 191 new physicians began using its facilities in the second quarter, bringing year-to-date recruits to 330. New physicians represented a range of specialties, including orthopedics, ophthalmology, gastrointestinal care and pain management.

Evans said revenue from the 2026 recruiting cohort was nearly 16% higher than revenue from the prior-year cohort. The company said recruited physicians generally build volume over multiple years, with a typical recruit doubling business in the second year as they become more established at a facility.

The company had six de novo facilities under construction at quarter-end and another seven in its pipeline. Management said these projects are supported by health systems and physician groups in selected markets.

While Surgery Partners continues to pursue acquisitions, Evans said the company completed an immaterial amount of M&A activity year-to-date and will not meet its previously discussed $200 million average annual M&A investment target in 2026. Management said it still expects to complete additional acquisitions before year-end and views the fragmented ASC industry as a continuing consolidation opportunity.

Idaho Falls Sale Would Reshape Portfolio

The company has signed definitive agreements in escrow to sell its interests in Mountain View Hospital and Idaho Falls Community Hospital, along with the broader Idaho Falls market operations, to partner Intermountain Health. The transaction remains subject to customary closing conditions, including physician member and physician governing board approvals.

Evans said the Idaho Falls facilities have expanded beyond Surgery Partners’ core short-stay surgical focus to include obstetrics, neonatology, pediatrics and other nonsurgical services. The sale includes the market’s ambulatory surgery centers, physician practices and ancillary businesses owned by Mountain View Hospital.

Doherty said Surgery Partners expects to receive approximately $795 million in gross consideration at closing. Final net cash proceeds will depend on indebtedness, cash and working-capital levels at closing. The company expects to use proceeds primarily to repay debt, reducing balance-sheet leverage by approximately 0.3 turns.

The Idaho Falls facilities represented about one-third of the company’s non-corporate debt and approximately 32% of total finance lease obligations, according to Doherty. Average annual capital expenditures for the facilities were approximately $17 million over the past three years. Although the gross consideration equates to about seven times the facilities’ trailing 12-month adjusted EBITDA, Doherty said it equates to roughly 17 times the average distributions received by Surgery Partners over the past three years.

Excluding Idaho Falls, Surgery Partners said it would have generated approximately $660 million in second-quarter revenue and $98 million in adjusted EBITDA. For the first half, revenue excluding the facilities would have been about $1.29 billion and adjusted EBITDA about $173 million.

Management said the divestiture would reduce exposure to Medicaid, emergency department activity, intensive care beds, nonsurgical admissions, inpatient pediatrics, retail pharmacy and compounding pharmacy operations. Doherty said the remaining company would have a more concentrated ASC and short-stay surgical profile, while Evans said more than 95% of the go-forward business would be outpatient or short-stay surgical cases.

Expenses, Liquidity and Outlook

Salaries and wages were 29.8% of revenue in the quarter, improving from 30.5% in the first quarter but exceeding 28.5% a year earlier. Supplies represented 26.7% of revenue, while professional fees and medical-related expenses were 12.1% of revenue. Management cited seasonal revenue improvement and operating discipline for sequential expense-rate improvements.

Operating cash flow totaled approximately $59 million in the second quarter. Surgery Partners distributed $46 million to physician partners and spent approximately $7 million on maintenance capital expenditures. Cash was approximately $217 million at quarter-end, with $75 million in revolver borrowings and approximately $618 million in available revolver capacity.

The company’s credit agreement net debt leverage was approximately 4.4 times at quarter-end, compared with 4.3 times at the end of the first quarter. Balance-sheet base net debt to EBITDA was approximately 5.1 times, consistent with the prior quarter.

Surgery Partners reaffirmed its 2026 guidance for revenue of $3.35 billion to $3.45 billion and adjusted EBITDA of at least $530 million. The outlook excludes any impact from the Idaho Falls transaction. Management said it expects to update guidance after the transaction closes.

About Surgery Partners (NASDAQ:SGRY)

Surgery Partners, Inc operates as a healthcare services provider specializing in the management and ownership of ambulatory surgery centers, surgical hospitals and multispecialty rehabilitation hospitals across the United States. Through its network of facilities, the company coordinates and delivers a broad range of outpatient surgical procedures in specialties such as orthopedics, ophthalmology, otolaryngology, gastroenterology, pain management and general surgery. Its integrated platform offers ancillary services including on-site imaging, laboratory testing, infusion therapy and physical, occupational and speech rehabilitation.

Since its establishment in 2010 and subsequent public listing in 2015, Surgery Partners has focused on strategic partnerships with physicians and health systems to expand access to cost-effective outpatient care.

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