Net operating revenues of $8.55 billion came in against a $2.80 billion estimate, a 205.1% difference; adjusted EPS of $(0.48) missed the $(0.29) expected by 63.5%.
Full-year guidance was cut: net revenue to $11.3-11.5 billion, adjusted EBITDA to $1.225-1.275 billion, a 6.5% reduction at the midpoint, and cash flow from operations to $100-300 million.
Volume was not the problem. Same-store adjusted admissions rose 3.6% and admissions 2.2%, while same-store net revenue per adjusted admission rose 0.2% - the shortfall is payer and service mix, with almost half the adjusted-admission growth from uninsured patients.
Adjusted EBITDA of $280 million carried a 10.2% margin against 12.2% a year earlier, an approximate 7% core decline once divestitures and prior-year out-of-period items are excluded.
The one thing that matters: this is an earnings-power reset with a balance sheet that cannot absorb one - leverage rose to 7.2 times from 6.6 times at year-end despite $810 million of debt repaid, because the denominator shrank.
Guidance & KPIs
Item
New guidance
Prior guidance
FY2026 net revenue
$11.3 billion-$11.5 billion
—
FY2026 adjusted EBITDA
$1.225 billion-$1.275 billion, or a 6.5% reduction at the midpoint
—
FY2026 cash flow from operations
$100 million-$300 million
—
Rural Health Transformation Program year one awards
$25 million-$30 million
—
Management commentary
Hammons attributed the shortfall to elevated uninsured volumes and temporary softness in commercial elective procedures, the same factors peers are reporting.
Management argued care is being deferred rather than lost to competitors, citing same-store commercial adjusted admissions excluding exchanges up 2.7% and clinic visits up 7.9%.
Cost actions already taken this year are sized at over $100 million of projected annual savings, with further structural reductions planned.
Capacity is still being added: physician turnover down over 40% and bedside nurse turnover down 10% year over year, with the employed provider base up 2.5%.
Johnson said contract labour spend fell 1.6% on a same-store basis with average hourly rates up 2.1%, both below expectations coming into the year.
Quality of earnings
The margin loss is mix, not cost control. Same-store operating expense per adjusted admission rose 2.1%, and 1.3% excluding provider taxes, against same-store revenue per adjusted admission up 0.2%; adjusted EBITDA margin still fell to 10.2% from 12.2%.
Nothing propped the quarter up. No out-of-period benefits from new or existing state-directed payment programmes were recognised, and nothing for the 2026 Florida programme, so the $280 million is clean of those items.
Cash improved while earnings fell. Cash from operations of $168 million, excluding taxes on divestiture gains, was up from $121 million on better payables management and receivable collections, yet leverage still rose to 7.2 times from 6.6 times.
Gotchas & watch items
Almost half the adjusted-admission growth came from uninsured patients, which is why 3.6% volume growth produced only 0.2% revenue per adjusted admission.
Leverage rose despite $810 million of debt retired year to date - the trailing EBITDA denominator did the damage - with no amounts drawn on the ABL and the next significant maturity in 2029.
Medical specialties expense is still running 13% higher year over year on a same-store basis against an initial plan of 5-8% for the year, improved from the 19% increase in the second quarter, with anesthesia and radiology the pressure points.
The Rural Health Transformation money is smaller and later than its billing suggests: $25-30 million of year-one awards, mostly capital expenditure and software, with funds received and spent in 2027 and income recognised over multiple periods from 2027.
Last quarter's watch items: what happened
No watch items on file from a prior quarter - this is the first tracked quarter for this company.
Next quarter: the 2-3 things that matter
Whether commercial elective volume and payer mix recover Baseline: Q3 2026 same-store net revenue per adjusted admission up 0.2% on adjusted admissions up 3.6%, almost half from uninsured patients Confirms: Revenue per adjusted admission above 2% with same-store surgeries growing faster than 2% Breaks: Another quarter at or below 0.5% revenue per adjusted admission Check in: Q4 2026. Source: Johnson remarks on payer and service mix
Whether the cut full-year EBITDA range holds Baseline: Full-year adjusted EBITDA guidance of $1.225-1.275 billion after a 6.5% midpoint reduction; Q3 adjusted EBITDA $280 million Confirms: Fourth quarter adjusted EBITDA that lands the year inside $1.225-1.275 billion with cash flow inside $100-300 million Breaks: A further reduction to the range, or cash flow below $100 million Check in: Q4 2026. Source: Johnson full-year outlook remarks
Leverage trajectory now that EBITDA is the driver Baseline: Total net leverage 7.2 times at quarter end against 6.6 times at year-end 2025, after $810 million of debt reduction Confirms: Leverage flat or lower at year end with adjusted EBITDA stabilised sequentially Breaks: Leverage above 7.5 times or further EBITDA decline Check in: Q4 2026. Source: Johnson balance sheet and leverage remarks