SGRY

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report and our 2025 Annual Report on Form 10-K. Unless the context otherwise indicates, the terms "Surgery Partners," "we," "us," "our" or the "Company," as used herein, refer to Surgery Partners, Inc. and its subsidiaries, and the term "affiliates" means direct and indirect subsidiaries of Surgery Partners, Inc. and partnerships and joint ventures in which such subsidiaries are partners. The terms "facilities" or "hospitals" refer to entities owned and operated by affiliates of Surgery Partners, Inc. and the term "employees" refers to employees of affiliates of Surgery Partners, Inc. Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements, which are based on our current expectations, estimates and assumptions about future events. All statements other than statements of current or historical fact contained in this report are forward-looking statements. These statements include, but are not limited to, statements regarding our future financial position, business strategy, budgets, effective tax rate, projected costs and plans and objectives of management for future operations. The words "projections," "believe," "continue," "drive," "estimate," "expect," "intend," "may," "plan," "will," "could," "would" and similar expressions are generally intended to identify forward-looking statements. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ from the expectations expressed in the statements. Many of these factors are beyond our ability to control or predict. 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; changes in our payor mix or surgical case mix; failure to maintain or develop relationships with physicians on beneficial or favorable terms, or at all; the impact of payor controls designed to reduce the number of surgical procedures; our efforts to integrate operations of acquired businesses and surgical facilities, attract new physician partners, or acquire additional surgical facilities; supply chain issues, including shortages or quality control issues with surgery-related products, equipment and medical supplies; competition for physicians, nurses, strategic relationships, acquisitions and managed care contracts; our ability to attract and retain qualified health care professionals; our ability to enforce non-compete restrictions against our physicians; our ability to manage material liabilities whether known or unknown incurred as a result of acquiring surgical facilities; the impact of current and future legislation and other health care public policy changes, and the effect of that legislation and other regulatory actions on our business; our ability to comply with current health care laws and regulations; the outcome of legal and regulatory proceedings that have been or may be brought against us; the impact of cybersecurity attacks or intrusions; changes in the regulatory, economic and other conditions of the states where our surgical facilities are located; our indebtedness; 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 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. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this report. These forward-looking statements speak only as of the date made. Other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. Executive Overview 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 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 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. 18 Table of Contents 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. Revenues Our revenues consist of patient service revenues and other service revenues. Patient service revenues consist of revenue from our Surgical Facilities reportable segment. Specifically, patient service revenues include fees for surgical or diagnostic procedures performed at surgical facilities that we consolidate for financial reporting purposes, as well as for patient visits to our physician practices, anesthesia services, pharmacy services and diagnostic screens ordered by our physicians. Other service revenues include management and administrative service fees derived from our non-consolidated facilities that we account for under the equity method, management of surgical facilities and physician practices in which we do not own an interest, management services we provide to physician practices for which we are not required to provide capital or additional assets and other non-patient services. The following table summarizes revenues by service type as a percentage of total revenues: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Patient service revenues: Patient service revenues 97.3 % 97.3 % 97.5 % 97.5 % Other service revenues 2.7 % 2.7 % 2.5 % 2.5 % Total revenues 100.0 % 100.0 % 100.0 % 100.0 % Payor Mix 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 June 30, Six Months Ended June 30, 2026 2025 2026 2025 Private insurance payors 48.6 % 52.1 % 49.5 % 52.0 % Government payors 46.1 % 42.9 % 45.6 % 43.1 % Self-pay payors 2.8 % 2.7 % 2.6 % 2.7 % Other payors (1) 2.5 % 2.3 % 2.3 % 2.2 % Total 100.0 % 100.0 % 100.0 % 100.0 % (1)Comprised of automobile liability, letters of protection and other payor types. Surgical Case Mix We primarily operate multi-specialty surgical facilities where physicians perform a variety of procedures in various specialties. We believe this diversification helps to protect us from adverse pricing and utilization trends in any individual procedure type and results in greater consistency in our case volume. 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 June 30, Six Months Ended June 30, 2026 2025 2026 2025 Orthopedics and pain management 40.1 % 39.8 % 40.6 % 40.2 % Ophthalmology 20.8 % 22.2 % 20.7 % 22.1 % Gastrointestinal 23.7 % 24.8 % 23.7 % 24.6 % General surgery 1.9 % 1.8 % 1.9 % 2.0 % Other 13.5 % 11.4 % 13.1 % 11.1 % Total 100.0 % 100.0 % 100.0 % 100.0 % 19 Table of Contents Critical Accounting Policies A summary of significant accounting policies is disclosed in our 2025 Annual Report on Form 10-K under the caption “Critical Accounting Policies” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section. There have been no material changes in the nature of our critical accounting policies or the application of those policies since December 31, 2025. Results of Operations 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 June 30, 2026 2025 Revenues $ 848.9 $ 826.2 Operating expenses: Cost of revenues 658.7 630.6 General and administrative expenses 36.3 36.1 Depreciation and amortization 39.3 40.3 Transaction and integration costs 18.4 18.1 Net (gain) loss on disposals, consolidations and deconsolidations 2.4 (3.0) Equity in earnings of unconsolidated affiliates (6.4) (5.5) Other income, net (1.9) (2.1) 746.8 714.5 Operating income 102.1 111.7 Interest expense, net (69.8) (67.9) Income (loss) before income taxes 32.3 43.8 Income tax (expense) benefit (2.6) 1.1 Net income (loss) 29.7 44.9 Less: Net income attributable to non-controlling interests (44.7) (47.4) Net income (loss) attributable to Surgery Partners, Inc. $ (15.0) $ (2.5) Revenues. The following table sets forth patient service revenues (in millions): Three Months Ended June 30, 2026 2025 Patient service revenues $ 826.1 $ 804.2 Other service revenues 22.8 22.0 Total revenues $ 848.9 $ 826.2 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. The increase in days adjusted same-facility revenues was attributable to a 0.3% increase in same-facility case volumes and a 4.8% increase in same-facility revenue per case. Cost of Revenues. 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 $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 $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. 20 Table of Contents Transaction and Integration Costs. 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. 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. The remaining net loss in both periods was primarily attributable to sales and disposals of other assets. Interest Expense, Net. 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 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. federal statutory rate of 21% primarily due to earnings attributable to non-controlling interests, an increase in the Company’s valuation allowance attributable to interest expense limitations and permanent differences resulting from share-based payment awards. Net Income Attributable to Non-Controlling Interests. 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, 2026 2025 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 Less: Net income attributable to non-controlling interests (78.5) (84.8) Net income (loss) attributable to Surgery Partners, Inc. $ (50.9) $ (40.2) Revenues. The following table sets forth patient service revenues (in millions): Six Months Ended June 30, 2026 2025 Patient service revenues $ 1,618.2 $ 1,562.6 Other service revenues 41.6 39.6 Total revenues $ 1,659.8 $ 1,602.2 21 Table of Contents 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. See Note 7. "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 $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 $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 $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. 22 Table of Contents Material Cash Requirements 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. Summary 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. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital. If general economic conditions, including recent changes in interest rates, inflation risk and market volatility, continue to deteriorate or remain uncertain for an extended period of time, our ability to access capital could be harmed, which could negatively affect our liquidity and ability to repay our outstanding debt. Based on our current level of operations, we believe cash flows from operations, available cash, available capacity on our Revolver and continued anticipated access to capital markets, will be adequate to meet our short-term (i.e., 12 months) and long-term (beyond 12 months) liquidity needs. Certain Non-GAAP Measures Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered in isolation or as a substitute for net income, operating income or any other measure calculated in accordance with GAAP. The items excluded from this non-GAAP metric are significant components in understanding and evaluating our financial performance. We believe such adjustments are appropriate, as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA as a measure of financial performance. Adjusted EBITDA is a key measure used by our management to assess operating performance, make business decisions and allocate resources. 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 June 30, Six Months Ended June 30, 2026 2025 2026 2025 Condensed Consolidated Statements of Operations Data: Income (loss) before income taxes $ 32.3 $ 43.8 $ 29.0 $ 43.5 Plus (minus): Net income attributable to non-controlling interests (44.7) (47.4) (78.5) (84.8) Interest expense, net 69.8 67.9 138.9 130.1 Depreciation and amortization 39.3 40.3 77.8 76.6 Equity-based compensation expense 3.8 6.8 9.6 14.4 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 Net loss on disposals, consolidations and deconsolidations 2.4 (3.0) 6.7 3.4 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 23 Table of Contents (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. Credit Agreement EBITDA is determined on a trailing twelve-month basis. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. Credit Agreement EBITDA is not a measurement of liquidity under GAAP and should not be considered in isolation or as a substitute for any other measure calculated in accordance with GAAP. The items excluded from Credit Agreement EBITDA are significant components in understanding and evaluating our liquidity. Our calculation of Credit Agreement EBITDA may not be comparable to similarly titled measures reported by other companies. When we use the term "Credit Agreement EBITDA," we are referring to Adjusted EBITDA, as defined above, further adjusted for acquisitions and synergies. These adjustments do not relate to our historical financial performance and instead relate to estimates compiled by management and calculated in conformance with the definition of "Consolidated EBITDA" used in the credit agreements governing our credit facilities. 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 June 30, 2026 Cash flows from operating activities $ 258.0 Plus (minus): Non-cash interest expense, net (10.1) Non-cash lease expense (38.6) Deferred income taxes (19.4) Equity in earnings of unconsolidated affiliates, net of distributions received (0.4) Changes in operating assets and liabilities, net of acquisitions and divestitures 114.6 Income tax expense 20.5 Net income attributable to non-controlling interests (170.5) Interest expense, net 281.4 Transaction and integration costs 65.1 De novo start-up costs 6.1 Litigation settlements and other litigation costs 14.1 Acquisitions and synergies (1) 59.8 Credit Agreement EBITDA $ 580.6 (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.