Medline Q3 2026 Earnings Call Transcript

Medline (NASDAQ:MDLN) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Medline Industries, LP reported strong financial performance for Q3 2026, with net sales up 10% year-over-year to $7.9 billion and adjusted EBITDA increasing 12% to $1 billion.

The company highlighted strategic initiatives including new customer signings, expansion in Canada, new distribution centers, and ongoing investments in their Global Quality Action Plan.

Medline raised its full-year 2026 organic sales guidance to 10%-10.5% and reaffirmed adjusted EBITDA guidance, with expectations of continued margin pressures due to inflation and mix.

Operational highlights include the opening of a new distribution center in Tracy, California, and investments in automation and additional distribution facilities across the U.S.

Management emphasized the company’s focus on customer relationships, strategic investments, and the potential for share repurchases under a newly authorized $1 billion program.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to Medline’s third quarter 2026 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you’ll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Karen King, Global Head of Investor Relations.

Karen King (Global Head of Investor Relations)

Welcome to Medline’s third quarter 2026 earnings conference call. This morning we issued our earnings release and shared supplemental materials. Joining me on today’s call are Jim Boyle, our Chief Executive Officer, and Mike Drazen, our Chief Financial Officer. During today’s call, we may make forward-looking statements regarding our expectations for the future, including our business plans, strategy and investments, and expected timing and impact. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in our earnings release, which accompanies these remarks, as well as our most recent 10-K and other SEC filings for more information regarding these risks and uncertainties.

We will also reference non-GAAP financial measures, which exclude certain items from our financial results calculated in accordance with GAAP. You can find a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP measures in the earnings release and the disclosures and non-GAAP reconciliations that accompany these remarks, which are available at our website at ir.medline.com under quarterly results. With that, I will now turn the call over to our CEO, Jim Boyle.

Jim Boyle (Chief Executive Officer)

Thank you, Karen, and good morning, everyone. We executed well during the quarter, delivering strong, broad-based growth. Third quarter net sales increased 10% as compared to the third quarter of 2025. Net sales from Medline brand grew 7%, with growth across all product categories, and supply chain solutions grew 14% driven by new customer implementations and growth within existing customers. Adjusted EBITDA rose 12% to $1 billion. Strong sales growth and tariff refunds drove the increase, partially offset by higher operating expenses, higher cost of goods sold from inflation, and customer mix.

With that backdrop, I’d like to highlight five areas that demonstrate the progress we’re making across the business. First, Customer Signings. We had another strong quarter of total new customer signings across multiple channels, including an agreement to supply physician offices for one of the largest health systems in the United States and a contract to serve the hospital labs of a large Midwest nonprofit integrated delivery network. Based on our results so far this year and the strength of our pipeline, we’re confident in reaching our full-year goal of $1 billion.

Second, Canada. We’re very encouraged by the progress we’re making in Canada with our first prime vendor partnership with Mohawk Medbuy. We’re now live at five hospitals, delivering strong service levels and receiving positive customer feedback. We expect to finish the rollout by the end of the first quarter of 2027, marking an important step in bringing our prime vendor model to Canada. Third, Tracy. We’re nearing an important milestone in Northern California. Following the fire at our previous facility, our new distribution center in Tracy is on track to open by year-end, adding capacity to serve customers across the region. The facility will include our largest single AutoStore installation to date, automating the picking of less-than-case items, which we expect to improve throughput and efficiency in mid-2027.

Fourth, network capacity. Beyond Tracy, we’re making significant investments across our distribution network. We’re adding millions of square feet of distribution space at three new facilities, with AutoStore automation increasing capacity and operational flexibility across our distribution network. In March, we announced plans to construct a 1.2 million square foot distribution center in Dallas–Fort Worth. In July, we announced plans to open a new distribution center in Southern California, adding another 1 million square feet to support healthcare providers across the state.

And recently we announced that we are building an 800,000 square foot facility in Michigan to support customer demand in that region. Together, it will help make our supply chain more resilient and responsive. Fifth, Quality. I want to provide an update on the progress we’re making under our Global Quality Action Plan. Patient safety and product quality remain paramount. As part of the plan, we have engaged independent third parties to conduct assessments across our more than 30 manufacturing sites worldwide. Given the breadth of our global network, we expect these assessments to be a multi-year effort. We’re also investing in people, processes, and technology to strengthen our quality systems and capabilities while continuing to remediate any impacted products.

These investments, based on what we know today, are reflected in our 2026 guidance and our 2027 framework, which Mike will discuss here in a moment. Overall, we’re pleased by the momentum we’re seeing and the progress we’re making against our priorities. We’re on track to achieve our total new customer signings goal, expand our distribution capacity, and advance our Global Quality Action Plan. At the same time, we remain focused on navigating near-term margin pressure, as Mike will discuss shortly, while continuing to invest in the capabilities to support our customers and drive long-term growth.

With that, I’ll turn the call over to Mike to walk through our financial performance and outlook.

Michael Tierney (Chief Financial Officer)

Thank you, Jim, and good morning, everyone. We delivered another strong quarter with every segment and channel contributing to growth. Third quarter net sales increased 10% year over year to $7.9 billion, driven almost entirely by organic growth with minimal impact from foreign currency. The Medline brand segment generated third quarter net sales of $3.6 billion, an increase of 7%, with growth across all three product categories. Surgical Solutions generated net sales of $1.7 billion, up 8%.

Growth was driven by Surgical Kitting, one of our largest product divisions, and broader demand for operating room products. We continue to gain share by expanding kits with existing customers, helping them run more efficient operating rooms, and by launching new kitting programs. Frontline Care net sales were $1.7 billion, up 4%, driven by healthy demand in exam gloves and personal care. Lab and Diagnostics generated net sales of $272 million, up 14%, driven by growth with existing customers and new customer implementations.

Many of the multichannel agreements we signed this year include Lab, contributing to this strong growth. One recent example is the acute care lab business of a large Midwest nonprofit health system that Jim mentioned earlier. The Supply Chain Solutions segment delivered third quarter net sales of $4.2 billion, up 14%, driven by new customer implementations and growth with existing customers. This growth expands our opportunity for customer conversions to Medline brand products over time.

Moving to sales by channel. U.S. acute care net sales grew 12% year over year to $5.5 billion, driven by new prime vendor customers and existing customer growth. U.S. non-acute care net sales grew 6% year over year to $1.9 billion, driven by existing customers and new customer signings, primarily in physician offices, surgery centers, and post-acute care. International net sales grew 8% to $518 million, driven by volume growth in Canada and Europe.

Turning to adjusted EBITDA, third quarter was up 12% year over year to $1.0 billion, and margins increased 10 basis points to 12.2%. Results included an $81 million benefit from IEPA tariff refunds and associated customer repayments. Without giving effect to these benefits, higher sales volumes were partially offset by higher operating costs, higher cost of goods sold from inflation due to elevated oil prices, and mix. This includes customer mix of prime vendor relationships that lower margin, channel mix towards acute care sales, and segment mix as Supply Chain Solutions continues to outgrow the higher-margin Medline brand.

Looking at the segments, Supply Chain Solutions adjusted EBITDA margin was 4.4% in the quarter, primarily due to the customer mix I just discussed as well as an increase in operating expenses. We have had success winning and implementing new prime vendor business, and those relationships have lower initial margin due to first-year rebates. This can also apply to existing customer renewals, where we believe there are additional opportunities over time for greater Medline brand conversion.

We anticipate Supply Chain Solutions margin will remain in the mid-4s the remainder of this year. Providing an update on the financial impact of the fire at our Tracy, California distribution center in June. Related costs in the third quarter reduced net income by $80 million and are excluded from adjusted EBITDA. While we expect full insurance recovery over time, we have received and recognized $100 million through the third quarter. Moving to free cash flow and the balance sheet, we generated strong free cash flow of $1.8 billion for the first nine months of the year.

This reflects net tariff benefits and favorable working capital, partially offset by investments in capex. Capex for the first nine months was $348 million, reflecting investments in automation across our distribution network, construction of new distribution centers, and expansion of our Mexico kitting facility. Cash and short-term investments were $3.6 billion and net leverage improved to 2.5 times, down from 2.9 times last quarter. Our cash generation gives us meaningful capital allocation flexibility.

Our priorities remain investing in the business to drive sustainable organic growth through operational investments, capital expenditures, and working capital; pursuing strategic bolt-on acquisitions in products, channels, and services where we can apply the Medline business model to drive attractive returns; maintaining a strong balance sheet and a disciplined approach to leverage, as demonstrated by the $750 million term loan prepayment we made in October; and returning capital to shareholders when supported by our cash generation, balance sheet capacity, and valuation. Our newly authorized $1 billion share repurchase program gives us flexibility to do so opportunistically.

Moving to 2026 guidance. Given continued strong demand and consistent commercial execution, we are raising our full-year 2026 organic sales guidance for the third consecutive quarter to 10% to 10.5% from 9% to 10%. As a reminder, this guidance reflects the impact of IEPA tariff-related customer repayments, which reduced sales by $78 million in the first nine months. We are reaffirming our adjusted EBITDA guidance of $3.3 to $3.4 billion and expect to land at approximately the midpoint.

Strong sales are helping us offset cost pressures that have intensified through the year, primarily inflation tied to elevated oil prices, which has increased our estimate of Middle East conflict costs from $70 million to $80 million, and mix, as well as continued investments in our distribution network and Global Quality Action Plan. We now expect the timing of inflation to weigh more heavily in the fourth quarter than the third, as higher-cost inventory flows through the cost of goods sold.

As a reminder, this guidance does not reflect the benefit of IEPA tariff refunds in 2026, including the $324 million in net refunds through the third quarter. Turning to the initial framework for 2027. While we are not providing 2027 guidance today, we want to share how we currently see next year shaping up. This preliminary framework reflects our current view and is subject to change. We expect 2027 net sales growth in the high single digits driven by the same factors that have historically fueled our growth—same-store sales, new customer implementations, and modest pricing. In addition, we plan to implement a larger-than-usual price increase early in the first quarter to offset a portion of inflationary cost pressures.

Moving to earnings, we expect adjusted EBITDA growth in the low to mid-single digits, consistent with our 2026 guidance. This 2027 framework does not reflect IEPA tariff refunds received or expected in 2026 or 2027. Our goal is to give you a clear view of the underlying earnings of the business without the distortion of one-time refund benefits. Several factors support earnings growth next year. First, sales growth—the underlying drivers I just outlined: same-store sales, new customer implementations, and price. Second, Medline brand conversion, which generates savings for our customers and margin dollar growth for Medline. Third, tariff favorability—we are assuming tariff rates remain at current levels through 2027. And fourth, continuous improvement—we recently launched a restructuring program to improve our productivity and deliver cost savings.

This program is designed to streamline our organizational structure, reduce duplication, and sharpen our enterprise-wide focus, helping to fund additional investments. Through this program, we expect to incur approximately $20 to $30 million in restructuring costs to be recorded in the fourth quarter and excluded from adjusted EBITDA. We expect these actions to generate approximately $80 million to $90 million in annualized savings, primarily realized in 2027.

At the same time, several factors will put pressure on margin. Inflation—we assume diesel, raw materials, and finished goods costs remain at current elevated levels through 2027. Operations—we are investing in capacity, automation, and capabilities to support our growth, as Jim mentioned previously. And quality—we are advancing our Global Quality Action Plan, including investments in people, processes, and technology as well as ongoing remediation.

Taken together, these factors explain why we expect adjusted EBITDA growth to trail net sales growth in 2027. We are deliberately investing to support future growth. Importantly, our underlying commercial momentum remains strong. The slower adjusted EBITDA growth relative to sales in 2027 primarily reflects elevated costs and deliberate investments in capacity, automation, and quality to strengthen the business. Our view of Medline’s long-term earnings power remains unchanged.

We continue to expect adjusted EBITDA growth to return to at or above net sales growth in 2028. We felt it was important to share our preliminary framework for 2027 today, and we will provide guidance on our fourth quarter and full-year 2026 earnings call early next year. In summary, strong demand allowed us to raise our sales guidance once again. While we manage near-term margin pressures, we continue to invest in the business to serve our customers and strengthen our competitive position. Together with a strong balance sheet and disciplined capital allocation, we believe this positions us to return to our earnings algorithm in 2028 and create long-term value for shareholders. I’ll now turn it back to Jim for closing remarks.

Jim Boyle (Chief Executive Officer)

Thanks, Mike. In closing, we’re confident in the strength of our business and the opportunities ahead. As Mike outlined, we’re navigating some near-term margin pressures but are confident that our long-term earnings power has not changed. Medline has industry-leading scale, a resilient and profitable business model, and a healthy balance sheet. Most importantly, our customers rely on us for service, value, reliability, and quality. These strengths differentiate Medline, and it’s why we’re confident in our ability to drive sustainable growth over the long term.

Thank you for joining us. We will now open up the call for questions.

OPERATOR

Thank you. As a reminder, to ask a question, you will need to press star-1-1 on your telephone and then wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please stand by while we compile the Q&A roster. Our first question today is from Glenn Santangelo from Barclays. Your line is open.

Glenn Santangelo (Analyst)

Oh yeah, good morning, and thanks for taking my question. Hey Jim, I just want to ask a quick question about your margin commentary for 2027. I mean, it seems like the raw material input costs are up materially since you guided last quarter on August 5th, and I was wondering if you could just put some parameters around that to help us think about the magnitude. And then I was interested by your comments that you’re planning a pretty sizable price increase on the first of next year.

How much latitude do you have to raise prices just given the longer-term nature of your contracts? I mean, do you have the ability to take price to offset some of this cost inflation, or do you have to wait until your contracts come up for rebid before trying to pass some of those costs through? Any sort of detail to help us think about that dynamic would be helpful. Thanks so much.

Michael Tierney (Chief Financial Officer)

Thanks, Glenn. So I’ll take the first question and Jim will take the pricing question. So as it relates to the inflation from the Middle East, let’s first start with 2026. We originally had called out about $70 million of inflationary pressures, primarily from raw materials and finished goods in 2026. In our last quarter call, we’re now expecting close to $80 million of impact for the year. That’s because we’ve seen elevated costs on the raw materials and finished goods side.

We’ve also seen increased costs on the diesel side. We’re now paying close to $6.25 for diesel. If you think about 2027, in our 2027 framework, we are assuming that the cost will remain elevated at current rates. So diesel at $6.25, oil where it’s at today, and our raw materials and finished goods at our current cost today. And that would mean that we will see that for the whole year of 2027. That will mean elevated costs on a full-year basis in our guide, which gets us to that low- to mid-single digits for 2027 as it relates to overall framework.

Jim Boyle (Chief Executive Officer)

Yeah. And then from a pricing perspective, as you know historically, whether that’s during the pandemic, whether that’s with what’s going on in the Strait of Hormuz or inflation, we’ve actually chosen to absorb and take time to understand the impact and see if it was going to be sustainable as opposed to pushing pricing to the market. And price has never been a lever for growth. It’s been more of a market capitalization from a cost parameter perspective that is consistent and ongoing.

And so when we look at pricing, pricing is not a lever for growth. It’s a lever to actually impact real COGS that are impacting the business on a sustainable long-term basis. And that’s where we are today. And the way our contracts are written is we have the opportunity to have those discussions with our customers. And in these moments in time, when we’ve been absorbing for as long as we have, you can see what happened with the tariff based on how much is refunding back to us and how much we pass on to our customers.

We think it’s important to be in the boat with our customers for as long as possible. And then when we see the pricing a new reality, that’s when we push the price increase to the market and we have the ability to do that within our contract infrastructure.

Glenn Santangelo (Analyst)

Thanks for the comments.

OPERATOR

Thank you. Our next question is from Michael Tierney with Leerink Partners. Your line is open.

Jim Boyle (Chief Executive Officer)

Well, there’s a couple things. First and foremost is our business model, first and foremost taking share and continuing to capture on that billion dollar private signings. Because while actually yields both top line revenue and the opportunity for margin lift, you hit the nail on the head making sure we continue to drive value and savings to our brand to our customers while we’re also increasing the ability to grow margin on the left hand side because it’s a win for the customer and a win for Medline.

The other thing that’s very important, as Mike mentioned, we did a restructuring is managing our SGA to create the right leverage in the business so we can actually spend at a rate that actually yields a positive impact on the overall margin profile. And so if you look at what’s happening in the market today, there’s concerns around softening from a volume perspective, there’s concerns about reimbursement and we have the best model to drive value and savings for our customers and that resonates.

So I look at the market very, very similar to I have in the past. We are the value player in the marketplace. We are the player that can also get the right product to the right place at the right time at the best total value. And so I mean the real question is if we do those things, it’s going to generate what you’re talking about. It’s going to generate both top and bottom line gains, which is what you should have expected of us.

OPERATOR

Thank you very much for your question. Our next question is from Kevin Caliendo from UBS. Your line is open.

Andrea Alfonso (Analyst)

Thanks so much for taking the question. This is Andrea Alfonso in for Kevin. So I appreciate the updates on the inputs for the second half cost base. So I guess you know last quarter you talked about the 200 million in incremental costs framing sort of what would be temporary versus structural. You now are absorbing about 10 million in extra oil-related costs, but that’s also netted now against this recently launched cost program. So I guess how when you’re thinking about structural framing that for 2027, you know, how do you think about sort of that ratio of temporary versus structural?

Michael Tierney (Chief Financial Officer)

Yeah, thanks for the question. So if you think about what we said last quarter, right. The one thing we called out specifically was the Middle East. And the Middle East would be incremental increase year over year and it’s becoming more sizable than it was previously. We recently thought that would be transitory in nature and now we’re sort of thinking it may not be so much transitory in nature. So our full-year 2027 framework assumes it continues through the whole year at current rates.

If you think about sort of that framework. Right. We talked about previously our strong top-line sales growth driven by sort of the continued new customer signings, same-store sales growth and the price increase that Jim talked about previously. On top of that, the Medline brand conversion that we are continuing to generate as well as the favorability from tariffs year over year at current rates. If we assume current rates for tariffs, you’ll see some favorability year over year that we are seeing here in the second half of 2026.

Plus the enterprise cost savings initiatives and restructuring are the tailwinds for 2027. Then ultimately the pressures that we talked about are the inflation on Middle East, the operations and quality investments we continue to make in our business.

OPERATOR

Thank you for your question. Our next question is from Sean Dodge with BMO Capital Markets. Your line is open.

Thomas Keller (Analyst)

Good morning, this is Thomas Keller on for Sean. Thanks for taking our question. On the lab and diagnostic side, what percent of your prime vendor partners are also buying lab and diagnostic supplies? And is there anything different about the rate at which those customers will convert to Medline branded products within their portfolio relative to the broader med surg categories? Thanks.

Jim Boyle (Chief Executive Officer)

It’s important to remember we’re in lab and diagnostics in the acute. So the hospital market and the physician office market just for segmentation so you can get that, and every single one of those customers purchases something from a lab perspective. They have an in-hospital lab. And so the opportunity set is where we are a prime vendor for Med Surg, there’s also an opportunity for lab and diagnostics. We have between lab and diagnostics right now we have about 30% convertible opportunity and the run rate is fairly consistent from a penetration perspective, going back to we capture about 10% of that, we double the opportunity when we sign a new prime vendor, and then we grow 3% to 4%. So it looks and feels very, very similar to the playbook from a Med Surg distribution perspective. And as you know, the beautiful thing about that is the wheels on the truck that are delivering the Med Surg supplies are the same wheels on the truck that are delivering the lab and diagnostics.

So the incremental cost of distribution is very minimal and it allows us to drive an outsized service model for our customers at a better total value.

Thomas Keller (Analyst)

Great. Thank you very much.

OPERATOR

Thank you. Our next question is from Erin Wright with Morgan Stanley. Your line is open.

Erin Wright (Analyst)

Great, thanks. So on prime vendor wins. So first, how are some of the outsized wins from last year flowing through now relative to your expectations? Anything you can do on that front in terms of escalating in terms of, I guess, Medline brand conversion and then just on the prime vendor wins this year? Can you speak just to the nature of those from a profit perspective as we head into next year, I just want to make sure we’re thinking about the cadence correctly, given some of the dynamics in terms of profitability on that front with outsized business wins last year.

Michael Tierney (Chief Financial Officer)

Thanks, Aaron. So if you think about the $2.4 billion that we signed in 2025, by now all of that has gone live and it’s been implemented. And as we talked about previously, we saw about 25% of that recognized as revenue in 2025. We see about 65% of that recognized in 2026, and the remainder will flow into 2027. As it relates to the new signings that we’re having here in 2026, nothing really has changed relative to what they have seen, we’ve seen previously as far as the overall overall profitability of that business.

Ultimately, we continue to sign those new deals and they’ll roll into our business in a similar sort of cadence as they historically do. And it’s our job to continue to drive that Medline brand conversion. And I would say the Medline brand conversion story on those new implementations will be consistent with prior history, which is in that first year, we expect to get about 10% Medline brand conversion and then as Jim mentioned, 2% to 4% there.

OPERATOR

Thank you for your question. Our next question is from Matt Taylor with Jefferies. Your line is open.

Matt Taylor (Analyst)

Hi. Thanks for taking the question. I just wanted to dig into the pricing comments and the cadence on pricing. I think historically, by memory, you notify customers around now of price increases next year and they could start to come through in the beginning of the year. Is that the right way to think about it and, given your philosophy to kind of be made whole on COGS versus drive growth, how much pricing is in this initial 2027 framework that you’ve given?

Jim Boyle (Chief Executive Officer)

A couple things, you hit the nail on the head. We do price increases January 1st and July 1st. So we notify customers 30 to 60 days in advance, depending on the contract. We’re not offsetting all the COGS, we’re offsetting a portion of the COGS. What we think is the right thing to do, to actually kind of mitigate what’s going on from an impact to the business, but also do what’s right by our customers. At the end of the day, that’s the most important thing.

How do we do it in a way that yields the right outcome for long-term sustainable growth while also covering some of the impact from a COGS perspective.

Matt Taylor (Analyst)

How much is in 2027? If you can provide any color on that?

Jim Boyle (Chief Executive Officer)

Yeah, we’re not going to comment on how much price we’re going to take in 2027 at this time.

Matt Taylor (Analyst)

Okay. All right, thank you very much.

OPERATOR

Thank you. The next question is from David Larson with BTIG. Your line is open.

David Larson (Analyst)

Hey, congratulations on the good quarter. Can you maybe talk about, you know, the hospital buying environment? It looks like the Democrats have won in the Senate and the House. What does that mean for your business, if anything? I think there’s some chatter around potentially improving 340B reimbursement, possibly, which would obviously be a relief to some hospitals. Generally, I think the Democrats are perceived as being more favorable towards reimbursement for the health care system.

Just any color there would be very helpful. Thank you.

Jim Boyle (Chief Executive Officer)

Well, you’re asking me to predict what’s going to happen in a political environment, so I’ll start with that. I think you’re right. I think the Democrats have a favorable position to actually soften some of the impacts in cost of Medicare, Medicaid. So it’ll be interesting to see if they can get that through. From a hospital volume perspective, patient population and people that are sick really doesn’t tie out to whether the Republicans or the Democrats are in the House. It depends on whether they need access to care. So I don’t think volumes are going to change because of what recently happened.

I’m sure you’ve heard on some of the earnings calls, some of our providers are sharing that they’re seeing softness in surgical volume. I can tell you we, whether it’s through growing same-store sales or being partners with the ones that continue to have outsized growth in that volume, are seeing nice growth in Surgical Solutions. So we’re not feeling the burden of that pain.

OPERATOR

Thank you. Our next question is from Brandon Vasquez with William Blair. Your line is open.

Brandon Vasquez (Analyst at William Blair)

Hey everyone. Thanks for the question, and congrats on the quarter here in a difficult macro environment. I wanted to ask about the Canada prime vendor model that has gone live now in the country. Can you maybe just spend a minute talking about what is the market opportunity in Canada specifically? How large is the prime vendor market there? And then just talk a little bit about, is this essentially the same strategy that you guys have become known for within the U.S., primarily where you kind of get a foot in there with something like 10% of the business as Medline brand at the start, and then as a prime vendor you’re looking to every year convert those accounts more and more? Just kind of compare and contrast to the U.S. Thanks.

Jim Boyle (Chief Executive Officer)

So first off, the contract with Mohawk Medbuy is going extremely well. We’ve got five hospitals implemented, and we should have the rest of it done through March of 2027. So the real answer is this is still a learning moment, right? We’re working with the market because the reimbursement model, how they actually contract, and how they convert product categories is different than the U.S. Your general comment is correct: we’re going in, we’re offering better supply chain solutions—right product, right place, right time—at the best value, with additional Medline brand conversions to drive intrinsic value.

But we’ve got to live within the framework of how the Canadian reimbursement system works and how they actually contract, which we think we can do in a way that actually yields tremendous value to the customers, lives within the framework of the reimbursement model, and actually helps us continue down the path we’re on. Candidly, we haven’t defined the market itself yet because right now we’re understanding who we think is going to be—and this is literally the first prime vendor ever in Canada. I can tell you we do have other markets calling us, asking for access to it, but we’re intentionally going to do this in a crawl-walk-run strategy because we want to make sure we build the right model that’s going to yield the right outcome both from a top line and a bottom line perspective and make sure we understand the customer’s needs wholly before we launch this fully.

But we are extremely optimistic about it. We think it’s a game changer for the Canadian market and can lead to accelerated or outsized growth in the.

OPERATOR

Thank you for your question. Our next question is from Michael Polark with Wolfe Research. Your line is open.

Michael Polark (Analyst)

Good morning. I have a question on the Global Quality Action Plan—two-parter. One, can you frame 2027, the totality of the spend that you have contemplated in your prelim comments for next year? That’s probably. And then part two is I saw the home care bed exit recently, and my question is, is that an output of the Quality Action Plan or was that an independent decision? Is there risk in the next few years, as the Global Quality Action Plan is rolled out, that we could have some smaller product exits like we saw in home care beds?

Thank you.

Jim Boyle (Chief Executive Officer)

I’ll start with the second part and I’ll let Mike walk through some of the financial impact. But listen, the beds thing is something we’ve been working and communicating with the FDA on for over a year. In October, as you know, we launched an exit of the business, and subsequently we launched a program to offer repair/replace options for the market. Why exit the market? I mean, we would not characterize this as kind of representative of a broader portfolio.

Most of what we sell is a use-and-replace. This is a capital piece of equipment that has electrical components on it. And we believe, in consultation with the FDA, we made the right decision. It’s not a giant impact. It’s roughly $60 million. And so from a burden perspective, we don’t see this as bad. We think it’s the right thing to do for patients. We think it’s the right thing to do for Medline and for our customers. And our job is to make it as seamless as possible for the end user, and that’s kind of what we’re working on.

But this is actually something—the overall Global Quality Action Plan is looking at the entire book of business, making sure that we’re taking good hygiene and assessing our organization, which is a good thing. And I would look at it as a good thing if I was in your seat at the table. But this product we’ve been working on for over a year. So is it integrated into the Global Quality Action Plan? Yes. However, it’s something we were already aware of and already working in concert with the FDA on.

Michael Tierney (Chief Financial Officer)

And on your first question about the financials, we’ve not quantified the impact for 2027 publicly. Obviously it’s a component of our overall 2027 framework. What I would say is it’s incrementally growing relative to 2026. Why? Because we have made investments in the second half of 2026 that will carry over on a full-year basis in 2027. In addition to that, we are making some additional incremental investments in this area in 2027 as well. Thank you.

OPERATOR

Thank you for your question. Our next question is from Charles Rhee with TD Cowen. Your line is open.

Mitchell (Analyst at TD Cowen)

Hey, this is Mitchell on for Charles. Just on the growth, how much of the 10.5% organic growth in 3Q came from existing customer growth versus customers implemented during 2026? And how would you expect the contribution from new customer implementations versus existing customer growth to evolve into 2027? Thank you.

Michael Tierney (Chief Financial Officer)

Thanks, Mitchell. So if you think about our growth at 10.5% overall organic, obviously that’s really strong growth. I would tell you that same-store sales—while I’m not going to quantify for you—still remain very strong and are consistent with the prior quarters. And then if you think about the $2.4 billion of signings that we had last year that rolled into 2026, as I mentioned, 65% of that is showing up in 2026. So it is a portion of the overall organic growth in the year.

Think about the framework for 2027. Obviously, as we communicated, we’ll be at high-single-digits growth. Keep in mind though that we don’t expect $2.4 billion of signings like we had last year. That was a record year for us. But we still are on track to achieve a billion dollars of signings this year. So we still expect strong same-store sales growth next year plus the new signings of a billion dollars that we communicated previously.

OPERATOR

Thank you for your question. Our next question is from Navon Thai with BNP Paribas. Your line is open.

Navon Thai (Analyst)

Hi, good morning. Thanks for taking my question. I just wanted to clarify a previous point on the Global Quality Action Plan. I mean, first, is there any other product at risk of warning letters and recalls, potentially? And also, we know that the impact was not quantified, but could there be another impact on operational investments as you assess quality and safety issues? And then secondly, if you can discuss trends in acute versus non-acute—we know that the latter did better than expected.

Thank you.

Jim Boyle (Chief Executive Officer)

From a quality perspective, baked into our kind of numbers today, what we think is going to happen is already baked into there. But the reality is our job is to assess the entire network. Could there be something else? Yes. Do I anticipate there to be something else? No. However, our job—any manufacturer’s job—is to make sure you’re taking patient safety as the most important thing and you’re assessing your entire organization and doing the right things every single time.

So from a Global Quality Action Plan, I can tell you we have baked into our—at least for 2026—into our numbers, the expense profile. And then when you think about acute and non-acute, we are growing faster in acute this year because of the outsized signings we did last year. But the actual market itself, we believe the non-acute market will grow faster over time just because of the aging population and where they’re choosing to have access to care.

OPERATOR

Thank you. Your next question is from Eric Caldwell with Baird. Your line is open.

Eric Caldwell (Analyst at Baird)

Thanks very much. Good morning. I wanted to circle back to the Supply Chain EBITDA margin. Last quarter you suggested that EBITDA margin in SCs would be 4.95%. That actually indicated an increase versus the first half—something in the zip code of about 5% margin—then the next two quarters would be required. You reported lower in 3Q. You’re guiding now to mid-fours. We could debate ranges, but you know that’s high tens, hundred-million kind of impact on a full-year basis.

So I’m curious what changed versus the expectations that you had 90 days ago? Thanks very much.

Michael Tierney (Chief Financial Officer)

Hi Eric. So thanks for the question. So if you think about the two components that are driving the Supply Chain Solutions margin in the third quarter, the first one is customer mix and the second one is increased operating expenses. On the customer mix side, it’s a driver of two things. One, it is the margin on those new customer signings—that $2.4 billion of signings we had last year—their year-one rebates, as well as the economics of renewals that we’ve taken in 2026.

And so we’ve seen a little bit of an acceleration on that front relative to our expectation. In addition to that, we obviously have increased operating expenses, and those have gone up as mentioned in the back half of the year and that we called out in our prior call. So the combination of those two are what are driving Supply Chain Solutions margins in the third quarter—4.4%. If you think about 2027, we’re not ready to tell you what 2027 will look like. The math is maybe a little bit less than what you quantified on a full-year basis. But ultimately it’s our job to find different ways to offset that with things like back-end funding, other vendor funding, and things of that nature. And we’ll execute on those things in our plan for 2027 and beyond.

Eric Caldwell (Analyst at Baird)

Okay, thanks very much.

OPERATOR

Thank you. Our next question is from Andrew Oban with Bank of America. Your line is open.

David Ridley Lane (Analyst)

Yes, thank you. Good morning, this is David Ridley Lane on for Andrew Oban. I wanted to ask on the restructuring. It’s not a huge amount of your SG&A—maybe it’s one and a half percent or so—but wondering, how long has it been since you’ve taken a similar restructuring action like this? And then also, is this something along the way of a continuous improvement opportunity, or do you view it as more of a discrete one-time action? Thank you.

Jim Boyle (Chief Executive Officer)

We look at our business all the time from a continuous improvement perspective and making sure that we take deliberate steps to streamline both the organizational structure and kind of reducing duplication and looking for sustainable earnings growth through funding some of the investments. So this is an enterprise-wide focus. This is not something that is, it’s something I plan on doing all the time. However, when you look at your business and you find opportunities to streamline the business and actually make the business more efficient and get to better, faster, stronger outcomes, this is an avenue to do it.

OPERATOR

Thank you for your question. Our next question is from Elizabeth Anderson with Evercore ISI. Your line is open.

Elizabeth Anderson (Analyst)

Hi guys. Good morning and thanks so much for the question. Obviously, you announced a new billion dollar share repurchase program today. Can you talk to us a little bit about the timing that you’re expecting to use that over and any other details you might have in terms of public market shares versus sponsor shares? Thank you.

Michael Tierney (Chief Financial Officer)

Thanks, Elizabeth. So yes, we’re excited to announce our billion dollar share repurchase program that we’re going to be put in place. This is the first, obviously, of Medline ever doing so. And so I think if you think about the intent behind this, obviously we have excess cash on hand beyond the money we need to fund the business, invest in M&A. We obviously also paid down about $750 million of debt to reduce our leverage with our intent to over time become investment grade.

And so we will be opportunistic in how we step into the market and use these dollars. We’ve not mentioned or not communicated a time period by which we’re going to use this, but it gives us the flexibility to step in and buy shares on the open market that we feel are undervalued and allow us to do so. It also gives us the flexibility that should there be a secondary in the open market, we could buy back some shares from the sponsors as well. And we’ll look at all those opportunities as they come about in the near term.

OPERATOR

Thank you. The next question is from Steven Baxter with Wells Fargo. Your line is open.

Steven Baxter (Analyst)

Hi. Thanks. I just wanted to follow up on the supply chain margin question. I guess I hear you on the rebates. I guess I’m wondering what is the reason.

OPERATOR

Stephen, we can’t hear you. Stephen, we can’t hear you. Sorry.

Steven Baxter (Analyst)

Yeah, sorry about that. Might have been a microphone issue. I just wanted to follow up on the supply chain margin question. Just hoping you could discuss a little bit with the rebates, like why they’re coming in, I guess higher, it seems like, than maybe you initially forecast them to be. And then I guess mechanically, how do we think about the rebates for this year’s customers as impacting next year? Are we thinking that maybe, at least from an SCS perspective, that margins for this year’s new customer cohort are back on track to where.

Where you underwrote the business as we move into 2027? Thank you.

Michael Tierney (Chief Financial Officer)

I would think about it this way, Steven. So we think about the fact that the supply chain margins are down year over year is the driver of those two components. I don’t think that they’re ultimately accelerating in that we’re seeing greater margin reduction, greater rebate impact. I think we are ultimately seeing impact in the first year as it relates to the new customer signings. And then really the reality here is the model that we operate on is really all about signing that new customer, winning that prime vendor deal.

And then over time, the lifetime economics of that customer are very positive for us. As we drive Medline brand conversion, we drive savings for the customer, we drive margin for Medline. So that does not change. That operating sort of power of a business model hasn’t changed. And we will continue to do that as we go forward with those customers.

OPERATOR

Thank you. Our next question is from Jason Bednar with Piper Sandler. Your line is open.

Jason Bednar (Analyst at Piper Sandler)

Good morning. Thanks for taking the questions. One clarification, one question from us on the clarification. That 80 million you referenced now assumed from inflation, does that include diesel or is diesel separate from that updated amount? And then for the client, going back to the comments around your pricing plans for 27, I’m assuming you’re going to offer price buy downs for customers through faster Medline brand conversion. So can you just give us a sense as to how you’re modeling things out internally around list price versus net price within that 27 framework you provided.

Thank you.

Michael Tierney (Chief Financial Officer)

Yeah, so I’ll cover. I’ll cover. Thanks for the question, Jason. I’ll cover the diesel question. So if you think about the overall $80 million of impact from the Middle East inflation, it is three components. It is the diesel cost to fuel our trucks and trailers. It is the inbound freight cost, fuel surcharges that we pay to bring containers from overseas to the US along with the domestic freight that we incur to move product around this country.

And then it is the raw materials and the finished goods. That is all in that $80 million number. As I mentioned previously, the majority of that cost is the raw materials and the finished goods.

Jim Boyle (Chief Executive Officer)

Jason, thank you for bringing that up. As I missed it in my commentary earlier, we will absolutely leverage the Medline brand to help mitigate the price increases and offer an offset when we go to our customers with what the impact is. We also go to our customers with an opportunity set to accelerate and really drive value to offset the price increases. So that’s absolutely a part of the strategy and something that we will continue to leverage.

OPERATOR

Thank you for your question. As a reminder, if you would like to ask a question, please press star 11 on your telephone. And our next question is from Ryan Halsted with RBC Capital Markets. Your line is open.

Ryan Halsted (Analyst)

Morning. Thanks for taking the question. Sticking with the operational investments you’ve made and looking ahead or planning to make. You’ve announced some new distribution centers and certainly you’ve commented in the past about the robust growth in the business and really I guess needing to expand your capacity. How do you feel about your capacity where it stands now? Do you feel like you need to add more distribution centers into next year?

Jim Boyle (Chief Executive Officer)

Well, we’ve got four DCs on the docket that we mentioned right now. And the answer is we, historically—and it’s been part of our DNA—have always invested in infrastructure in advance of the growth. So we had space to actually take on the additional credit, have capacity and meet the service requirements of our customers, and that will not change. That’s always going to be a part of our strategy both from a space and from an inventory position. We keep an outsized inventory position on hand, as you know. We keep about 80 days of inventory on hand to make sure we have best-in-class service levels and fill rates. And do I think we’ll need to add additional facilities in the coming years? Yes, is the answer to that question, because we continue to have growth kind of outpaced as compared to the market itself. But we’ll do that in the right way, in the right markets, that yields the right outcome.

OPERATOR

Thank you. Thank you. Our next question is from Jalendra Singh with Truist Securities. Your line is open.

Jalendra Singh (Analyst)

Yeah, thank you. And thanks for taking my questions. I really appreciate the initial 2027 framework. But if you exclude all the headwinds you called out and some tailwinds around tariff and cost actions, can you provide more color on the underlying core EBITDA growth assumed in that framework, how that compares with Q4 guidance kind of core growth? If underlying growth remains below your long term target, what specifically inflects in 2028 to bring that EBITDA growth back to at or above revenue growth?

Michael Tierney (Chief Financial Officer)

Well, so if you think about. Thanks for your question. If you think about the commentary about core underlying growth, it’s hard to pull that apart because there’s a lot of moving components from both the Middle East, the tariffs, the price increases. And so I would just say to you the following. If you think about sort of 2027, we set up a framework that we believe we can deliver on based upon what we’ve told you today. And ultimately it could change based on what happens in the marketplace going forward.

But we will work very hard to deliver on that if things were not to change. Ultimately, if you think about the 2028 framework—right, not ready to give that yet—but I would tell you that we don’t expect at this point in time, assuming there’s no more Middle East cost inflation, no more tariff cost inflation, and we continue to execute on our operational and quality investments, we don’t expect to see incremental increases in operations and quality. So we expect to drive operating leverage in our business which will lead to that growth at or greater than sales in 2028.

Jalendra Singh (Analyst)

Great. Thank you.

OPERATOR

Thank you. And our next question is from Rick Wise of Stifel. Your line is open.

Rick Wise (Analyst)

Good morning, gentlemen. Just wanted to follow up on your comments about share repurchase and I just was reflecting on it as you talked about it. Should we imagine that, going forward, your primary use of excess cash is going to be focused on share repurchase and what, if anything, does it say on a related basis about further M&A? Is that deprioritized? Is it just this seems like the best investment right now. Just help us, just update us on your latest thinking on that topic.

Thank you.

Michael Tierney (Chief Financial Officer)

Thanks, Rick. So nothing has changed as it relates to our capital allocation priorities. As I mentioned earlier, we will invest in the business first, and we do that every single day. As Jim mentioned earlier, we invest in the long term. That’s not going to change. We’re building four new DCs in the coming year, and we’ll look at more DCs over time. We’re adding new automation to our business. We’re investing in our operations, we’re investing in our salesforce, we’re investing in new product development.

That’s our first and foremost priority. That’s not changed. Our M&A strategy has not changed either. We will continue to lean in on M&A, look for bolt-on opportunities that drive strategic growth for Medline and lead to attractive returns for the company. So that has not changed. What we sat back and saw was, given we had $3.6 billion of capital on hand at the end of the third quarter, we had plenty of cash left over to fund the business, invest in M&A in the future that we’re looking at doing, as well as return capital to shareholders, plus pay down some debt.

And that’s why we chose to do about $1.75 billion overall. So our first and foremost priority remains: still invest in the business, focus on M&A. And if we have excess cash beyond that, we will look at things like debt repayment or share repurchase—returns of cash to our investors.

Rick Wise (Analyst)

Thanks so much.

OPERATOR

Thank you. I am showing no further questions at this time. I would like to turn it back to Jim Boyle for closing remarks.

Jim Boyle (Chief Executive Officer)

First, thank you very much for joining our call today. We’re pleased with our third quarter results. Our business is strong and growing. We’re prioritizing investments for future growth and at the end of the day I think we’re heading in the right direction. So we appreciate the time, the questions and we hope you have a great rest of your week.

OPERATOR

Thank you for your participation in today’s conference. This does conclude the program and you may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.