SGRY

Surgery Partners, Inc. (SGRY) - Q2 2026 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2026. Surgery Partners, Inc. owns and operates a national network of 178 surgical facilities (159 Ambulatory Surgery Centers and 19 surgical hospitals) across 30 states. The company operates primarily in partnership with physicians, consolidating 120 facilities for financial reporting purposes. The company is a large accelerated filer.

Key Financial Metrics

Note: Net income attributable to Surgery Partners, Inc. is negative due to significant net income attributable to non-controlling interests ($44.7M in Q2 2026), which exceeds the consolidated net income of $29.7M.

Material Changes vs. Prior Period

• Revenue Growth: Q2 2026 revenues increased 2.7% year-over-year, driven by a 5.0% increase in days-adjusted same-facility revenues. This growth was composed of a 4.8% increase in revenue per case and a 0.3% increase in same-facility case volumes.
• Cost Pressures: Cost of revenues increased to 77.6% of revenue in Q2 2026 (from 76.3% in Q2 2025), driven by higher case volumes, high-acuity procedures, and increased hospital provider taxes.
• Profitability: Operating income declined 8.6% to $102.1M. Adjusted EBITDA decreased 2.9% to $125.2M, primarily due to higher transaction and integration costs and litigation settlements.
• Debt & Liquidity: The company increased borrowings on its Revolver to $75.0M (from $0 at year-end 2025) to manage working capital needs. Total debt increased slightly to $3.75B.
• Payor Mix: Government payor mix increased to 46.1% of patient service revenues (from 42.9% in Q2 2025), while private insurance decreased to 48.6% (from 52.1%).

Outlook, Risks, and Unusual Items

• Major Transaction: In July 2026 (subsequent to period end), the company announced definitive agreements to sell its controlling interest in two hospitals for approximately $795 million. Final net cash proceeds are subject to adjustments and closing conditions.
• Share Repurchase: A new $200 million share repurchase program was authorized in February 2026; no repurchases were made in Q2 2026.
• Unusual Items: The company incurred $18.4M in transaction and integration costs and $2.7M in litigation settlements during Q2 2026. A $4.0M pre-tax loss was recognized on the disposal of a non-controlling interest in a surgical facility.
• Risks: Key risks include the potential failure to close the announced hospital sale, changes in government reimbursement rates, interest rate volatility, and the ability to retain physician partners. The company maintains a full valuation allowance on deferred tax assets due to cumulative pre-tax losses.

Investor Verification Checklist

• Non-Controlling Interests: Verify the impact of the $44.7M net income attributable to non-controlling interests on the reported net loss to Surgery Partners, Inc.
• Hospital Sale Closing: Monitor the status of the $795M sale of two hospitals announced in July 2026, including regulatory approvals and final purchase price adjustments.
• Debt Covenants: Review Credit Agreement EBITDA ($580.6M for trailing twelve months) to ensure compliance with debt covenants given the high leverage profile.
• Payor Mix Shift: Assess the long-term margin impact of the increasing reliance on government payors (46.1% vs 42.9% prior year).
• Transaction Costs: Evaluate the sustainability of transaction and integration costs ($18.4M in Q2) as the company continues M&A and integration activities.