What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-10 compared with 2026-05-05 · 123 added, 52 removed, 160 unchanged (52% of the section changed)

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Many of these factors are beyond our ability to control or predict.

These factors include, without limitation, reductions in payments from government health care programs and private insurance payors, such as health maintenance organizations, preferred provider organizations, and other managed care organizations and employers;

These factors include, without limitation, the risk that the potential sale transaction of our ownership interests in Mountain View Hospital and Idaho Falls Community Hospital to Intermountain Health may not be completed in a timely manner or at all, including the risk that required physician, regulatory and other approvals and consents are not obtained, are delayed, or are obtained subject to conditions that are not anticipated;

the failure to satisfy other closing conditions to the transaction;

the possibility that the anticipated benefits of the sale to us are not realized as expected, the potential adverse effect of the announcement or pendency of the transaction on the market price of, or trading in, our securities and on our business relationships, operating results, and business generally, including the ability to retain key personnel;

risks related to diverting management's attention from our ongoing business operations;

the amount of costs, fees, expenses, and charges related to the sale transaction;

potential litigation relating to the transaction that could be instituted against us or our affiliates, officers, or directors, and the effects of any outcomes related thereto;

reductions in payments from government health care programs and private insurance payors, such as health maintenance organizations, preferred provider organizations, and other managed care organizations and employers;

our ability to contract with private insurance payors;

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the social and economic impact of a pandemic, epidemic or outbreak of a contagious disease on our business;

and the risks and uncertainties set forth under the heading "Risk Factors" in our 2025 Annual Report on Form 10-K and discussed from time to time in our reports filed with the SEC.

and the risks and uncertainties set forth under the heading "Risk Factors" in our 2025 Annual Report on Form 10-K and discussed from time to time in our reports filed with the Securities and Exchange Commission.

Considering these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements.

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Executive Overview

As of March 31, 2026, we owned or operated, primarily in partnership with physicians, a portfolio of 180 surgical facilities comprised of 161 ASCs and 19 surgical hospitals across 30 states.

As of June 30, 2026, we owned or operated, primarily in partnership with physicians, a portfolio of 178 surgical facilities comprised of 159 ASCs and 19 surgical hospitals across 30 states.

We owned a majority interest in 87 of the surgical facilities and consolidated 120 of these facilities for financial reporting purposes.

Total revenues for the first quarter of 2026 increased 4.5% to $810.9 million from $776.0 million in the first quarter of 2025.

Total revenues for the second quarter of 2026 increased 2.7% to $848.9 million from $826.2 million in the second quarter of 2025.

The increase in revenues was attributable to same-facility revenue growth in 2026.

Days adjusted same-facility revenues for the first quarter of 2026 increased 4.4% from the first quarter of 2025, with a 3.8% increase in revenue per case and a 0.6% increase in same-facility cases.

Additionally, for the first quarter of 2026, net loss attributable to Surgery Partners, Inc.

was $35.9 million compared to $37.7 million for the first quarter of 2025.

For the first quarter of 2026, Adjusted EBITDA decreased 1.5% to $102.3 million compared to $103.9 million for the same period in 2025.

Days adjusted same-facility revenues for the second quarter of 2026 increased 5.0% from the second quarter of 2025, with a 4.8% increase in revenue per case and a 0.3% increase in same-facility cases.

Additionally, for the second quarter of 2026, net loss attributable to Surgery Partners, Inc.

was $15.0 million compared to $2.5 million for the second quarter of 2025.

For the second quarter of 2026, Adjusted EBITDA decreased 2.9% to $125.2 million compared to $129.0 million for the same period in 2025.

A reconciliation of non-GAAP financial measures appears below under the heading "Certain Non-GAAP Measures."

We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and pursuing other portfolio management initiatives.

During the first quarter of 2026, we acquired a controlling interest in one surgical facility for aggregate cash consideration of $4.2 million, net of cash acquired.

We had cash and cash equivalents of $182.3 million and $666.1 million of borrowing capacity under the Revolver as of March 31, 2026.

We had cash and cash equivalents of $216.7 million and $617.8 million of borrowing capacity under the Revolver as of June 30, 2026.

Our revenues consist of patient service revenues and other service revenues.

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The following table summarizes revenues by service type as a percentage of total revenues:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 2026 2025

Patient service revenues:

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The following table sets forth by type of payor the percentage of our patient service revenues generated at the surgical facilities that we consolidate for financial reporting purposes:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 2026 2025

Private insurance payors 48.6 % 52.1 % 49.5 % 52.0 %

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Other payors (1)

2.5 % 2.3 % 2.3 % 2.2 %

Total 100.0 % 100.0 % 100.0 % 100.0 %

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The following table sets forth the percentage of cases in each specialty performed at the surgical facilities that we consolidate for financial reporting purposes for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 2026 2025

Orthopedics and pain management 40.1 % 39.8 % 40.6 % 40.2 %

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Results of Operations

Comparison of Operating Results for the Three Months Ended March 31, 2026 to the Three Months Ended March 31, 2025

Comparison of Operating Results for the Three Months Ended June 30, 2026 to the Three Months Ended June 30, 2025

The following tables summarize certain results from the condensed consolidated statements of operations for the periods indicated (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Revenues $ 848.9 $ 826.2

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Transaction and integration costs 18.4 18.1

Net loss on disposals, consolidations and deconsolidations

Net (gain) loss on disposals, consolidations and deconsolidations 2.4 (3.0)

Equity in earnings of unconsolidated affiliates (6.4) (5.5)

Litigation settlements 2.5 2.2

Other income, net (1.9) (2.1)

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The following table sets forth patient service revenues (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Patient service revenues $ 826.1 $ 804.2

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Total revenues $ 848.9 $ 826.2

Patient service revenues increased 4.4% to $792.1 million for the three months ended March 31, 2026 compared to $758.4 million for the three months ended March 31, 2025.

Patient service revenues increased 2.7% to $826.1 million for the three months ended June 30, 2026 compared to $804.2 million for the three months ended June 30, 2025.

The increase was primarily driven by a 5.0% increase in days adjusted same-facility revenues.

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Cost of Revenues.

Cost of revenues was $650.7 million for the three months ended March 31, 2026 compared to $614.1 million for the three months ended March 31, 2025.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures completed during the three months ended March 31, 2026, and increased hospital provider taxes related to certain state supplemental programs.

As a percentage of revenues, cost of revenues was 80.2% and 79.1% for the three months ended March 31, 2026 and 2025, respectively.

Cost of revenues was $658.7 million for the three months ended June 30, 2026 compared to $630.6 million for the three months ended June 30, 2025.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures completed during the three months ended June 30, 2026, and increased hospital provider taxes related to certain state supplemental programs.

As a percentage of revenues, cost of revenues was 77.6% and 76.3% for the three months ended June 30, 2026 and 2025, respectively.

General and Administrative Expenses.

General and administrative expenses were $39.3 million and $36.0 million for the three months ended March 31, 2026 and 2025, respectively.

As a percentage of revenues, general and administrative expenses were 4.8% and 4.6% for the three months ended March 31, 2026 and 2025, respectively.

General and administrative expenses were $36.3 million and $36.1 million for the three months ended June 30, 2026 and 2025, respectively.

As a percentage of revenues, general and administrative expenses were 4.3% and 4.4% for the three months ended June 30, 2026 and 2025, respectively.

Depreciation and Amortization.

Depreciation and amortization expenses were $38.5 million and $36.3 million for the three months ended March 31, 2026 and 2025, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.7% for the three months ended March 31, 2026 and 2025.

Depreciation and amortization expenses were $39.3 million and $40.3 million for the three months ended June 30, 2026 and 2025, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.6% and 4.9% for the three months ended June 30, 2026 and 2025, respectively.

Transaction and Integration Costs.

The Company incurred $15.6 million of transaction and integration costs for the three months ended March 31, 2026 compared to $24.7 million for the three months ended March 31, 2025.

The Company incurred $18.4 million of transaction and integration costs for the three months ended June 30, 2026 compared to $18.1 million for the three months ended June 30, 2025.

The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions.

The decrease was primarily driven by reduced acquisition and divestiture activity and reduced severance, IT implementation, and revenue cycle standardization costs.

Net Loss on Disposals, Consolidations and Deconsolidations.

The net loss on disposals, consolidations and deconsolidations for the three months ended March 31, 2026 and 2025 includes activity discussed in Note 2.

Net (Gain) Loss on Disposals, Consolidations and Deconsolidations.

The net (gain) loss on disposals, consolidations and deconsolidations for the three months ended June 30, 2026 and 2025 includes activity discussed in Note 2.

"Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the condensed consolidated financial statements.

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Interest Expense, Net.

Interest expense, net was $69.1 million for the three months ended March 31, 2026 compared to $62.2 million for the three months ended March 31, 2025.

As a percentage of revenues, interest expense, net was 8.5% and 8.0% for the three months ended March 31, 2026 and 2025, respectively.

The increase was primarily driven by the maturity of prior interest rate swaps in March 2025 and increased interest related to the incremental senior unsecured notes raised in December 2025, partially offset by reduced borrowings on the Revolver.

Interest expense, net was $69.8 million for the three months ended June 30, 2026 compared to $67.9 million for the three months ended June 30, 2025.

As a percentage of revenues, interest expense, net was 8.2% for the three months ended June 30, 2026 and 2025.

Income Tax (Expense) Benefit .

Income tax (expense) benefit was $1.2 million and $0.0 million for the three months ended March 31, 2026 and 2025, respectively.

The effective tax rate was 36.4% and 0.0% for the three months ended March 31, 2026 and 2025, respectively.

Income tax expense was $2.6 million for the three months ended June 30, 2026 compared to an income tax benefit of $1.1 million for the three months ended June 30, 2025.

The effective tax rate was 8.0% and (2.5)% for the three months ended June 30, 2026 and 2025, respectively.

The Company’s effective tax rate for both periods differed from the U.S.

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Net Income Attributable to Non-Controlling Interests.

As a percentage of revenues, net income attributable to non-controlling interests was 4.2% and 4.8% for the three months ended March 31, 2026 and 2025, respectively.

As a percentage of revenues, net income attributable to non-controlling interests was 5.3% and 5.7% for the three months ended June 30, 2026 and 2025, respectively.

Comparison of Operating Results for the Six Months Ended June 30, 2026 to the Six Months Ended June 30, 2025

The following tables summarize certain results from the statements of operations for the periods indicated (dollars in millions):

Six Months Ended June 30,

Revenues $ 1,659.8 $ 1,602.2

Operating expenses:

Cost of revenues 1,309.4 1,244.7

General and administrative expenses 75.6 72.1

Depreciation and amortization 77.8 76.6

Transaction and integration costs 34.0 42.8

Net (gain) loss on disposals, consolidations and deconsolidations 6.7 3.4

Equity in earnings of unconsolidated affiliates (10.5) (11.1)

Litigation settlements 2.5 2.2

Other income, net (3.6) (2.1)

1,491.9 1,428.6

Operating income 167.9 173.6

Interest expense, net (138.9) (130.1)

Income (loss) before income taxes 29.0 43.5

Income tax (expense) benefit (1.4) 1.1

Net income (loss) 27.6 44.6

Net income attributable to non-controlling interests (78.5) (84.8)

Net income (loss) attributable to Surgery Partners, Inc.

$ (50.9) $ (40.2)

The following table sets forth patient service revenues (in millions):

Six Months Ended June 30,

Patient service revenues $ 1,618.2 $ 1,562.6

Other service revenues 41.6 39.6

Total revenues $ 1,659.8 $ 1,602.2

Patient service revenues increased 3.6% to $1,618.2 million for the six months ended June 30, 2026 compared to $1,562.6 million for the six months ended June 30, 2025.

The increase was primarily driven by a 4.9% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the six months ended June 30, 2026.

The increase in days adjusted same-facility revenues was attributable to a 0.8% increase in same-facility case volumes and a 4.0% increase in same-facility revenue per case.

Cost of Revenues.

Cost of revenues was $1.3 billion for the six months ended June 30, 2026 compared to $1.2 billion for the six months ended June 30, 2025.

The increase was primarily driven by an increase in case volume and the performance of high acuity procedures completed during the six months ended June 30, 2026, increased hospital provider taxes related to certain state supplemental programs, and acquisitions completed in late 2025.

As a percentage of revenues, cost of revenues was 78.9% and 77.7% for the six months ended June 30, 2026 and 2025, respectively.

General and Administrative Expenses.

General and administrative expenses were $75.6 million and $72.1 million for the six months ended June 30, 2026 and 2025, respectively.

As a percentage of revenues, general and administrative expenses were 4.6% and 4.5% for the six months ended June 30, 2026 and 2025, respectively.

Depreciation and Amortization.

Depreciation and amortization expenses were $77.8 million and $76.6 million for the six months ended June 30, 2026 and 2025, respectively.

As a percentage of revenues, depreciation and amortization expenses were 4.7% and 4.8% for the six months ended June 30, 2026 and 2025, respectively.

Transaction and Integration Costs.

The Company incurred $34.0 million of transaction and integration costs for the six months ended June 30, 2026 compared to $42.8 million for the six months ended June 30, 2025.

The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions.

The decrease was primarily driven by reduced transaction and integration costs related to acquisitions and divested facilities and a decrease in severance, IT implementation, and revenue cycle standardization costs.

Net (Gain) Loss on Disposals, Consolidations and Deconsolidations.

The net (gain) loss on disposals, consolidations and deconsolidations for the six months ended June 30, 2026 and 2025 includes activity discussed in Note 2.

"Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the condensed consolidated financial statements.

The remaining net loss in both periods was primarily attributable to sales and disposals of other assets.

Interest Expense, Net.

Interest expense, net was $138.9 million for the six months ended June 30, 2026 compared to $130.1 million for the six months ended June 30, 2025.

As a percentage of revenues, interest expense, net was 8.4% and 8.1% for the six months ended June 30, 2026 and 2025, respectively.

The increase was primarily driven by increased borrowings on the Revolver.

Income Tax (Expense) Benefit .

Income tax expense was $1.4 million for the six months ended June 30, 2026 compared to an income tax benefit of $1.1 million for the six months ended June 30, 2025.

The effective tax rate was 4.8% and (2.5)% for the six months ended June 30, 2026 and 2025, respectively.

"Income Taxes" for additional information related to the Company's effective tax rates for the six months ended June 30, 2026 and 2025, including why these rates differed from the U.S.

federal statutory rate of 21%.

Net Income Attributable to Non-Controlling Interests.

As a percentage of revenues, net income attributable to non-controlling interests was 4.7% and 5.3% for the six months ended June 30, 2026 and 2025, respectively.

Liquidity and Capital Resources

Cash and cash equivalents were $182.3 million at March 31, 2026 compared to $239.9 million at December 31, 2025.

Cash and cash equivalents were $216.7 million at June 30, 2026 compared to $239.9 million at December 31, 2025.

The primary source of our operating cash flows is the collection of accounts receivable from private insurance companies, federal and state agencies (under the Medicare and Medicaid programs) and individuals.

Our cash flows provided by operating activities was $11.7 million for the three months ended March 31, 2026 compared to $6.0 million for the three months ended March 31, 2025.

The $5.7 million increase was primarily driven by timing of changes in working capital partially offset by an increase in cash interest payments.

Net cash used in investing activities for the three months ended March 31, 2026 was $13.4 million compared to $76.4 million for the three months ended March 31, 2025.

The $63.0 million decrease was primarily driven by an aggregate net decrease of $43.6 million in payments for acquisitions and p urchases of equity investments (net of cash acquired), a $6.7 million decrease in purchases of property and equipment and a decrease in other investing activities.

Net cash used in financing activities for the three months ended March 31, 2026 was $55.9 million compared to net cash provided of $30.2 million for the three months ended March 31, 2025.

The decrease of $86.1 million was primarily driven by the paydown of long-term debt.

Our cash flows provided by operating activities was $71.0 million for the six months ended June 30, 2026 compared to $87.3 million for the six months ended June 30, 2025.

The $16.3 million decrease was primarily driven by an increase in cash interest payments and timing of changes in working capital.

Net cash used in investing activities for the six months ended June 30, 2026 was $33.2 million compared to $74.3 million for the six months ended June 30, 2025.

The $41.1 million decrease was primarily driven by an aggregate net decrease of $47.7 million in payments for acquisitions and purchases of equity investments (net of cash acquired), a $8.3 million decrease in purchases of property and equipment, and a $26.8 million decrease in other investing activities, partially offset by a $42.6 million decrease in proceeds from divestitures.

Net cash used in financing activities for the six months ended June 30, 2026 was $61.0 million compared to $32.4 million for the six months ended June 30, 2025.

The increase of $28.6 million was primarily driven by increased paydowns of long-term debt and reduced borrowings on long-term debt.

Capital Resources

Net working capital was approximately $500.8 million at March 31, 2026 compared to $535.2 million at December 31, 2025.

Net working capital was approximately $547.5 million at June 30, 2026 compared to $535.2 million at December 31, 2025.

In addition to cash flows from operations and available cash, other sources of capital include amounts available on our Revolver as well as anticipated continued access to the capital markets.

Material Cash Requirements

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended March 31, 2026 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Annual Report on Form 10-K.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the six months ended June 30, 2026 from those disclosed under “Material Cash Requirements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Annual Report on Form 10-K.

Broad economic factors, including recent changes in interest rates, inflation and supply chain risks and market volatility, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.

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The following table reconciles Adjusted EBITDA to income (loss) before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 2026 2025

Condensed Consolidated Statements of Operations Data:

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Transaction and integration costs (1)

18.4 18.1 34.0 42.8

De novo start-up costs 1.2 2.1 3.1 3.7

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Litigation settlements and other litigation costs (2)

2.7 0.4 6.9 3.2

Adjusted EBITDA $ 125.2 $ 129.0 $ 227.5 $ 232.9

(1) For the three months ended March 31, 2026, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $11.8 million and other costs, including severance, IT implementation, revenue cycle standardization of $3.8 million.

For the three months ended March 31, 2025, this amount includes M&A costs of $16.8 million and other costs, including severance, IT implementation, revenue cycle standardization of $7.9 million.

(2) This amount includes a litigation settlement loss of $2.5 million and $2.2 million for the three months ended March 31, 2026 and 2025, respectively.

This amount also includes other litigation costs of $1.7 million and $0.5 million for the three months ended March 31, 2026 and 2025, respectively.

(1) For the three months ended June 30, 2026, this amount includes due diligence, transaction and integration costs related to acquisitions (both completed and in the pipeline) and divested facilities (collectively “M&A costs”) of $12.5 million and other costs, including severance, IT implementation, revenue cycle standardization of $5.9 million.

For the three months ended June 30, 2025, this amount includes M&A costs of $14.1 million and other costs, including severance, IT implementation, revenue cycle standardization of $4.0 million.

For the six months ended June 30, 2026, this amount includes M&A costs of $24.3 million and other costs, including severance, IT implementation, revenue cycle standardization of $9.7 million.

For the six months ended June 30, 2025, this amount includes M&A costs of $30.9 million and other costs, including severance, IT implementation, revenue cycle standardization of $11.9 million.

(2) This amount includes other litigation costs of $2.7 million and $0.4 million for the three months ended June 30, 2026 and 2025, respectively.

This amount includes a litigation settlement loss of $2.5 million and $2.2 million for the six months ended June 30, 2026 and 2025, respectively.

This amount also includes other litigation costs of $4.4 million and $1.0 million for the six months ended June 30, 2026 and 2025, respectively.

We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our Credit Agreement, as amended.

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The following table reconciles Credit Agreement EBITDA to cash flows from operating activities, the most directly comparable GAAP financial measure (in millions and unaudited):

Twelve Months Ended March 31, 2026

Twelve Months Ended June 30, 2026

Cash flows from operating activities $ 258.0

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Credit Agreement EBITDA $ 580.6

(1) Represents impact of acquisitions as if each acquisition had occurred on April 1, 2025.

(1) Represents impact of acquisitions as if each acquisition had occurred on July 1, 2025.

Further this includes revenue and cost synergies from other business initiatives and de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the Credit Agreement, as amended.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis