Surgery Partners, Inc. Common Stock 2026 Q2 Earnings Call
Review the key takeaways and the transcript of this earnings call.
- Surgery Partners reported second quarter 2026 net revenue of approximately $849 million, up 2.7% year over year, and adjusted EBITDA of approximately $125 million, slightly below the prior year's $129 million.
- Year to date, net revenue was approximately $1.66 billion, up 3.6%, and adjusted EBITDA was approximately $228 million, down 2.3% year over year, with an adjusted EBITDA margin of 13.7%.
- Same facility net revenue increased 5% in Q2, driven by 0.3% case growth and 4.8% net revenue per case growth, reflecting higher acuity procedures, particularly in orthopedics and vascular surgeries.
- Physician recruiting remains strong with 191 new physicians in Q2 and 330 year to date, contributing to a 16% increase in initial revenue compared to last year's cohort.
- The company has six de novo facilities under construction and seven in the pipeline, while M&A activity has been limited in 2026, with expectations of some acquisitions before year-end but below the $200 million annual target.
- The company announced a definitive agreement to sell its interests in the Idaho Falls Market, including Mountain View Hospital and Idaho Falls Community Hospital, to Intermountain Health, representing the majority of its planned portfolio optimization.
- Idaho Falls facilities have evolved beyond short stay surgical focus to include acute care services such as obstetrics, neonatology, pediatrics, and nonsurgical lines, with high capital intensity and lower cash conversion.
- Excluding Idaho Falls, the company would have generated approximately $660 million in Q2 revenue and $98 million in adjusted EBITDA, and $1.29 billion revenue and $173 million adjusted EBITDA year to date.
- The Idaho Falls transaction is expected to close in the near term, providing approximately $795 million gross proceeds, primarily to pay down debt and reduce leverage by about 0.3 turns.
- Operating expenses improved sequentially in Q2, with salaries and wages at 29.8% of revenue, supplies at 26.7%, professional fees at 12.1%, other operating expenses at 6.1%, and G&A at 4.3%.
- Operating cash flow was approximately $59 million in Q2, with $46 million distributed to physician partners and $7 million in maintenance capital expenditures.
- Interest payments increased to approximately $90 million in Q2 from $81 million in the prior year quarter.
- The company ended Q2 with $217 million in cash, $75 million in revolver borrowings, and $618 million in available revolver capacity, with net debt leverage at 4.4 times and net debt to EBITDA at 5.1 times.
- Management reaffirmed full year 2026 guidance for revenue of $3.35 billion to $3.45 billion and adjusted EBITDA of at least $530 million, excluding Idaho Falls transaction impact.
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Transcript
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Greetings. Welcome to Surgery Partners second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Dave Doherty, Chief Financial Officer. Thank you. You may begin.
Good morning. Thank you for joining Surgery Partners second quarter 2026 earnings call. I am joined today by Eric Evans, our Chief Executive Officer, and Justin Oppenheimer, our Chief Operating Officer. During this call, we will make forward-looking statements. There are risk factors that could cause future results to be materially different from these statements, as described in this morning's press release and in the reports we file with the SEC. The company does not undertake any duty to update these forward-looking statements. In addition, we will reference certain non-GAAP financial measures which we believe can be useful in evaluating our performance. We have reconciled these measures to the most applicable GAAP measures in this morning's press release and in the supplemental materials posted to our investor relations website. With that, I will turn the call over to Eric Evans.
Eric? Thank you, Dave. Good morning, everyone.
Before discussing our quarterly results, I want to address a significant portfolio optimization milestone we announced last month. As we noted, we have signed definitive agreements in escrow for the sale of our interests in the Idaho Falls market, Mountain View Hospital and Idaho Falls Community Hospital, to our partner, Intermountain Health. We have had a successful and longstanding partnership with Intermountain, not only in Idaho, but also in 15 ASCs across Utah and Montana that remain in our portfolio. The Idaho Falls facilities have built an exceptional reputation as preferred providers and leaders in delivering high-quality, affordable care for the Idaho Falls region. At the same time, they have evolved in ways that today extend well beyond our core short-stay surgical focus to include more traditional acute care services such as obstetrics, neonatology, pediatrics, and other non-surgical service lines.
We are confident these facilities will continue to grow and serve the healthcare needs of this community with the strength of Intermountain's partnership. This pending transaction is the most impactful part of our strategic review process to date and represents the vast majority of planned portfolio optimization. Our objectives in this process were to further sharpen our focus on our core short-stay surgical facility portfolio to simplify our operations, drive growth, and strengthen our balance sheet. We believe we have been successful in achieving this. To help investors evaluate the company on a comparable basis, in the supplemental financial information we posted on our investor relations website this morning, we provide key financial and non-financial metrics about this market to help illustrate the change in our business mix, assuming this transaction closes. Dave will speak to the transaction financials in greater detail shortly.
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