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    SGRY
    Earnings call· Jun 2026(Q2 FY26)

    Surgery Partners Q2 FY26 earnings call SGRY

    Aug 10, 2026 Source

    Executive summary

    Surgery Partners Q2 FY26 — Strong Same-Facility Growth and Strategic Portfolio Optimization

    Surgery Partners delivered strong Q2 FY26 results, exceeding revenue and adjusted EBITDA expectations, driven by robust same-facility growth and higher acuity procedures. The company is undergoing a significant portfolio optimization with the divestiture of its Idaho Falls market, aiming to streamline operations, enhance cash conversion, and strengthen its balance sheet. Management reaffirmed full-year guidance, anticipating updated figures post-transaction closing, and remains focused on disciplined capital allocation and organic growth.

    Highlights

    5

    • Net revenue of $849 million, up 2.7% year-over-year, and adjusted EBITDA of $125 million, both ahead of expectations.

    • Same-facility net revenue increased 5% year-over-year, driven by a 4.8% increase in net revenue per case due to higher acuity procedures.

    • Successful recruitment of 191 new physicians in Q2, with the 2026 cohort's initial revenue contribution up nearly 16% compared to last year.

    • Strategic divestiture of Idaho Falls market for $795 million gross proceeds, expected to simplify operations, improve cash conversion, and reduce leverage by 0.3 turns.

    • Operating expenses improved sequentially as a percentage of revenue from Q1 to Q2, reflecting seasonal step-up and operating discipline.

    Concerns

    5

    • Adjusted EBITDA of $125 million was down from $129 million in the prior year period, and year-to-date adjusted EBITDA was down 2.3%.

    • Commercial payer mix moderated by approximately 350 basis points year-over-year to 49% of net revenue, with a correspondingly higher government mix.

    • Salaries and wages as a percentage of revenue increased to 29.8% in Q2 FY26 from 28.5% in Q2 FY25, primarily due to payer mix changes.

    • M&A investment year-to-date has been immaterial, and the company will not reach its $200 million average annual M&A investment target for 2026.

    • Credit agreement net debt leverage increased to 4.4x in Q2 FY26 from 4.1x in the prior year quarter.

    Guidance & targets

    3
    CategoryTargetConfidence
    Full-year 2026 Revenue
    $3.35 billion to $3.45 billion
    high materiality
    High
    Full-year 2026 Adjusted EBITDA
    at least $530 million
    high materiality
    High
    Updated Guidance Post-Idaho Falls Transaction
    Updated guidance to be provided
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Idaho Falls Market (Historical Contribution)
    This market includes traditional acute care services like obstetrics, neonatology, pediatrics, ICU beds, and emergency departments, extending beyond the core short-stay surgical focus. It is more capital-intensive and complex than the rest of the portfolio.
    LTM Adjusted EBITDA: 7x transaction proceedsAverage annual capital expenditures (past 3 years): $17MProportion of total finance lease obligations: 32%Distributions received (average over 3 years): <50% of adjusted EBITDA
    		Approximately $189M——Approximately $27M
    Core Business (Ex-Idaho Falls)
    This represents the go-forward portfolio, with a clearer ASC and short-stay surgical profile, significantly lower Medicaid mix, and reduced exposure to traditional acute care services.
    		Approximately $660M——Approximately $98M

    Operational metrics

    33
    Net Revenue
    $849MUp 2.7% YoY
    Q2 FY26

    Ahead of expectations.

    Adjusted EBITDA
    $125MCompared to $129M in prior year period
    Q2 FY26

    In line with expectations.

    Adjusted EBITDA Margin
    14.7%
    Q2 FY26
    Net Revenue (Year-to-Date)
    $1.66BUp 3.6% YoY
    YTD FY26
    Adjusted EBITDA (Year-to-Date)
    $228MDown 2.3% YoY
    YTD FY26
    Adjusted EBITDA Margin (Year-to-Date)
    13.7%Compared to 14.5% in prior year period
    YTD FY26
    Commercial Payer Mix
    49%Approximately 350 bps lower than last year
    Q2 FY26

    This dynamic was primarily isolated to larger surgical hospitals and was consistent with full year guidance assumptions.

    Salaries and Wages as % of Revenue
    29.8%Improving sequentially from 30.5% in Q1 FY26, higher than 28.5% in Q2 FY25
    Q2 FY26

    No abnormal pressures from per unit cost or labor cost; labor market has recovered.

    Suppliers as % of Revenue
    26.7%Improving sequentially from 27.2% in Q1 FY26, higher than 26.0% in Q2 FY25
    Q2 FY26
    Professional Fees and Medical-Related Expenses as % of Revenue
    12.1%Improving from 12.5% sequentially and 12.4% in prior year quarter
    Q2 FY26

    Expected to change noticeably post-Idaho Falls divestiture due to nonsurgical procedures.

    Other Operating Expenses as % of Revenue
    6.1%Compared to 7.3% in Q1 FY26 and 6.7% in prior year quarter
    Q2 FY26
    G&A Expenses as % of Revenue
    4.3%Compared to 4.8% in Q1 FY26 and 4.4% in prior year quarter
    Q2 FY26
    Interest Payments
    $90MCompared to $81M in prior year quarter
    Q2 FY26
    Cash Balance
    $217M
    Quarter end
    Revolver Borrowings
    $75M
    Quarter end
    Available Revolver Capacity
    $618M
    Quarter end
    M&A Investment Target (Annual)
    $200MWill not reach in 2026
    Annual

    Immaterial amount of acquisitions completed year-to-date.

    Medicaid Mix (Post-Divestiture)
    Less than 2%
    Go-forward

    Significantly lower Medicaid mix expected after Idaho Falls divestiture.

    Same-Facility Net Revenue Growth
    5%YoY
    Q2 FY26

    One of the clearest indicators of underlying performance, capturing case volume, acuity, and rate.

    Same-Facility Net Revenue Growth (Year-to-Date)
    4.9%
    YTD FY26
    Same-Facility Cases Growth
    0.3%
    Q2 FY26
    Same-Facility Cases Growth (Year-to-Date)
    0.8%
    YTD FY26
    Net Revenue Per Case Growth
    4.8%
    Q2 FY26
    Net Revenue Per Case Growth (Year-to-Date)
    4%
    YTD FY26
    New Physician Revenue Contribution Growth
    Nearly 16%
    2026 cohort vs 2025 cohort

    Reflects the compounding effect of recruiting cohorts over time.

    Surgical Cases Performed
    Approximately 168,000
    Q2 FY26

    Reflecting continued robust growth in both acuity and joint-related surgeries.

    New Physicians Recruited
    191
    Q2 FY26
    New Physicians Recruited (Year-to-Date)
    330
    YTD FY26
    De Novo Facilities Under Construction
    6
    Quarter end

    Anchored by high-quality health systems and physician groups in attractive markets.

    De Novo Facilities in Pipeline
    7
    Quarter end
    Nonsurgical Admissions (Post-Divestiture)
    Majority reduction
    Go-forward

    Simplifies the business and reduces exposure to traditional acute care.

    ICU Beds Exposure (Post-Divestiture)
    Meaningfully smaller
    Go-forward

    Simplifies the business and reduces exposure to traditional acute care.

    Outpatient/Short-Stay Surgical Cases as % of Business (Post-Divestiture)
    Over 95%
    Go-forward

    Reflects the pure-play short-stay surgery focus after the Idaho Falls divestiture.

    Industry KPIs

    4
    MetricValueDetails
    Utilization trendsSame-facility cases increased 0.3% (Q2 FY26)%
    Same facility volumesApproximately 168,000 surgical casescases
    Payer mix supplemental paymentsCommercial mix approximately 49%%
    Adjusted EPS EBITDA leverage guidanceFY26 Revenue: $3.35B-$3.45B; FY26 Adjusted EBITDA: at least $530MUSD

    Deals & partnerships

    1
    Intermountain HealthSale of interest in Idaho Falls market, including Mountain View Hospital and Idaho Falls Community Hospital.Approximately $795M gross proceeds

    This transaction represents the vast majority of planned portfolio optimization, aiming to sharpen focus on core short-stay surgical facilities, simplify operations, drive growth, and strengthen the balance sheet. It eliminates obstetrics, neonatology, pediatric, and retail/compounding pharmacy services, and significantly reduces exposure to ICU beds, emergency department visits, and nonsurgical admissions.

    Risks & headwinds

    4
    Moderation in commercial payer mixQ2 FY26

    Approximately 350 basis points lower year-over-year to 49% of net revenue in Q2 FY26

    Mitigation: Management views this as an expected revenue mix item, primarily isolated to larger surgical hospitals, and consistent with full-year guidance assumptions. Focus remains on driving acute clinical quality and appropriate reimbursement. Specific initiatives were taken in H2 FY25 in certain markets to address this.

    Failure to meet average annual M&A investment targetFY26

    Will not reach $200 million average annual M&A investment target in 2026; immaterial amount of acquisitions year-to-date.

    Mitigation: Significant focus this year has been on optimizing the existing portfolio and divesting non-core assets. The company maintains an active pipeline and remains disciplined, expecting to close additional acquisitions before year-end, and is confident in its long-term M&A strategy.

    Increase in credit agreement net debt leverageQ2 FY26

    Increased to 4.4x in Q2 FY26 from 4.1x in the prior year quarter.

    Mitigation: The Idaho Falls divestiture is expected to reduce consolidated debt and lower balance sheet leverage by approximately 0.3 turns. Post-transaction, capital allocation will prioritize deleveraging.

    Exposure to acute care volatility and headwinds from non-core servicesHistorical (prior to Idaho Falls divestiture)

    Idaho Falls market included business lines like ED, ICU, obstetrics, neonatology, pediatrics, and other nonsurgical services, representing over 3/4 of total nonsurgical admissions and majority of ICU beds.

    Mitigation: The divestiture of the Idaho Falls market greatly simplifies the business and dramatically reduces exposure to traditional acute care pressures, such as Medicaid changes and infusion site-of-care issues, making the company a pure-play short-stay surgical provider.

    What to watch in Q3 FY26

    5

    Updated Full-Year Guidance

    Near term
    CurrentReaffirmed $3.35B-$3.45B revenue and at least $530M adjusted EBITDA (excluding Idaho Falls)
    TargetNew guidance reflecting the Idaho Falls divestiture

    Why it matters

    Provides the definitive financial outlook for the streamlined, go-forward business, crucial for valuation and future growth projections.

    Given this fact, we believe the cleanest approach is to reaffirm our existing guidance at this time and provide updated guidance as soon as the transaction closes, which we expect to occur in the near term.

    Q&A highlights

    6

    Inquiring about current market trends for surgical volumes, especially given broader concerns, and the progression of the higher acuity procedures strategy.

    Management is pleased with acuity growth in orthopedics (total joints, spine) and vascular procedures, which drives same-store net revenue growth. They expect total case numbers to increase over time but are actively prioritizing high-acuity procedures.

    “we're seeing strong acuity growth across total joints. I'd also say we're seeing it in spine in a big way within the MSK bucket and also in vascular procedures.”

    asked by Brian Tanquilut · answered by J. Evans

    2 min read7 chapters

    Detailed Narrative

    01

    Idaho Falls Divestiture and Strategic Rationale

    The company announced the sale of its interest in the Idaho Falls market (Mountain View Hospital and Idaho Falls Community Hospital) for approximately $795 million in gross proceeds. This transaction represents the vast majority of planned portfolio optimization, aiming to sharpen focus on core short-stay surgical facilities, simplify operations, drive growth, and strengthen the balance sheet. The Idaho Falls facilities had evolved beyond short-stay surgical focus to include traditional acute care services, making them more complex and capital-intensive than the rest of the portfolio.

    02

    Financial Impact of Divestiture

    The $795 million gross proceeds represent approximately 7x LTM adjusted EBITDA for Idaho Falls, or 17x the distributions received over the past three years, reflecting the high capital intensity of these assets. The transaction is expected to reduce consolidated debt and lower balance sheet leverage by approximately 0.3 turns. Historically, excluding Idaho Falls, Q2 FY26 revenue would have been $660 million and adjusted EBITDA $98 million, providing a clearer view of the go-forward company profile.

    03

    Q2 FY26 Performance Highlights

    Surgery Partners reported net revenue of $849 million, up 2.7% year-over-year, and adjusted EBITDA of $125 million, both exceeding expectations. Same-facility net revenue increased 5% year-over-year, driven by a 4.8% increase in net revenue per case, reflecting a focus on higher acuity orthopedic and vascular procedures. Same-facility cases increased 0.3%.

    04

    Payer Mix Dynamics

    Commercial payer mix moderated to approximately 49% of net revenue in Q2, a 350 basis point decrease year-over-year, with a corresponding increase in government mix. This shift was primarily isolated to larger surgical hospitals and was consistent with full-year guidance assumptions, viewed as an expected revenue mix item rather than a change in underlying patient demand. The divestiture of Idaho Falls is expected to further reduce Medicaid exposure.

    05

    Physician Recruiting and De Novo Growth

    The company recruited 191 new physicians in Q2, bringing the year-to-date total to 330. The initial revenue contribution from the 2026 cohort increased nearly 16% compared to the 2025 cohort, highlighting the compounding effect of recruiting. Additionally, 6 de novo facilities are under construction, with 7 more in the pipeline, representing important long-term growth opportunities.

    06

    M&A Strategy and Capital Allocation

    While M&A activity has been immaterial year-to-date and the $200 million average annual investment target will not be met in 2026, the company maintains an active pipeline and remains disciplined. The focus is on strategic fit, return potential, and balance sheet objectives. Post-transaction, capital allocation will prioritize deleveraging, high-return organic growth, de novo development, and strategic acquisitions.

    07

    Cost Management and Operational Efficiency

    Operating expenses, including salaries and wages and supplies, showed sequential improvement as a percentage of revenue from Q1 to Q2, reflecting seasonal revenue step-up and continued operating discipline. Management emphasized ongoing focus on cost management, labor, supplies, and eliminating systematic inefficiencies.

    AI-generated summary of the company’s earnings call. Not investment advice.