Medline Inc. (MDLN) Q3 2026 Earnings Call Transcript

DATE

Nov. 4, 2026

CALL PARTICIPANTS

• Global Head of Investors - Karen King
• Chief Executive Officer - James Boyle
• Chief Financial Officer - Michael Drazen

TAKEAWAYS

• Net Sales -- $7.9 billion, representing a 10.4% increase driven by new customer implementations and existing customer growth.
• Adjusted EBITDA -- $1.0 billion, increasing 11.8% due to strong sales growth and tariff refunds.
• Organic Sales Growth -- 10.5%, reflecting consistent commercial execution and minimal impact from foreign currency.
• Medline Brand Net Sales -- $3.6 billion, growing 6.6% with expansion across all three product categories.
• Supply Chain Solutions Net Sales -- $4.2 billion, increasing 13.9% due to new customer implementations.
• Surgical Solutions Sales -- $1.7 billion, growing 8% driven by surgical kitting and demand for operating room products.
• Frontline Care Sales -- $1.7 billion, increasing 4% due to demand for exam gloves and personal care items.
• Lab and Diagnostics Sales -- $272 million, representing 14% growth fueled by existing customer demand and new implementations.
• U.S. Acute Care Sales -- $5.5 billion, increasing 12% following new prime vendor customer wins.
• U.S. Nonacute Care Sales -- $1.9 billion, growing 6% driven by physician office and surgery center signings.
• International Net Sales -- $518 million, increasing 8% behind volume growth in Canada and Europe.
• SCS Adjusted EBITDA Margin -- 4.4%, reflecting lower initial margins on new prime vendor contracts due to first-year rebates.
• Free Cash Flow -- $1.8 billion for the first nine months, supported by favorable working capital and tariff benefits.
• Capital Expenditures -- $348 million for the first nine months, focused on distribution network automation and facility construction.
• Net Leverage -- 2.5x, improving from 2.9x in the prior quarter through cash generation and debt reduction.
• Organic Sales Guidance -- 10% to 10.5% for the full year, raised from a previous range of 9% to 10%.
• Adjusted EBITDA Guidance -- $3.3 billion to $3.4 billion, reaffirmed for the full year 2026.
• Middle East Conflict Costs -- $80 million, estimated for the full year due to elevated diesel prices of $6.25 per gallon.
• Restructuring Savings -- $80 million to $90 million, expected annually starting in 2027 following a organizational streamlining program.
• New Customer Signings -- $1 billion, targeted for the full year with 65% of 2025 signings now recognized as revenue.
• Tracy Fire Impact -- $80 million reduction in net income for the third quarter, representing costs net of insurance proceeds.
• Distribution Capacity -- 3 million square feet of space, being added across new facilities in California, Texas, and Michigan.

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RISKS

• Michael Drazen stated, "higher sales volumes were partially offset by higher operating costs higher cost of goods sold from inflation, due to elevated oil prices, and mix," regarding factors that constrained third quarter margins.
• Michael Drazen warned that "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.
• James Boyle warned that "investments in the global quality action plan, including independent assessments of more than 30 manufacturing sites, will be a multiyear effort," that contributes to near-term margin pressure.

SUMMARY

Medline Inc. (NASDAQ:MDLN) reported double-digit revenue growth for the third quarter, driven by the successful implementation of new customer contracts and sustained demand across its acute and nonacute care channels. Management raised its full-year organic sales guidance while navigating inflationary pressures tied to elevated energy and raw material costs. The company is actively expanding its distribution network with three million square feet of new capacity and advanced automation to improve supply chain resiliency. Furthermore, a newly authorized $1 billion share repurchase program and a $750 million term loan prepayment highlight a capital allocation strategy focused on debt reduction and shareholder returns.

• James Boyle stated, "We think it is a game changer for the Canadian market and could lead to accelerated or outsized growth in the market," regarding the expansion of the company's prime vendor model into five Canadian hospitals.
• Michael Drazen indicated that the company expects "adjusted EBITDA growth to return to at or above our net sales growth" in 2028 once the current cycle of operational and quality investments matures.
• Management launched a restructuring program expected to incur $20 million to $30 million in fourth quarter costs to streamline the organizational structure and fund future growth initiatives.
• The company intends to implement a price increase early in the first quarter of 2027 to offset sustained inflationary pressures in the cost of goods sold.
• The new distribution center in Tracy, California, will feature the company's largest Auto Store installation to date to automate the picking of small items.
• James Boyle noted that "patient safety and product quality remain paramount," as the company executes its global quality action plan across its manufacturing footprint.

INDUSTRY GLOSSARY

• Medline Brand: The company's division for proprietary medical products it manufactures or sources directly.
• Supply Chain Solutions (SCS): The business segment providing distribution, logistics, and supply chain optimization for third-party products.
• Prime Vendor: A partnership model where Medline serves as the primary distributor for a healthcare provider's medical-surgical supplies.
• Kitting: The process of assembling multiple medical products into a single, sterile procedure tray or kit for specific surgical procedures.
• Auto Store: An automated storage and retrieval system used in distribution centers to improve the speed and efficiency of picking less-than-case items.
• IEEPA: The International Emergency Economic Powers Act, under which certain tariffs were levied before a court ruling mandated refunds to the company.
• Integrated Delivery Network (IDN): A formal system of healthcare providers and sites that offer a full range of services to a specific geographic area.

Full Conference Call Transcript

Operator: Good day and thank you for standing by. Welcome to Medline's third quarter 26 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 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 Investors.

Karen King: Welcome to Medline's Third Quarter 26 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-Ks 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.

James Boyle: 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 25. Net sales for 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 would like to highlight 5 areas that demonstrate the progress we are making. Across the business. First, customer signings.

With another strong quarter of total new customer signings across multiple channels, including an agreement to supply physician offices for 1 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 are confident in reaching our full year goal of $1 billion. Second, Canada. We are very encouraged by the progress we are making in Canada with our first prime vendor partnership with Mohawk Medbuy. We are now live at 5 hospitals delivering strong service levels and receiving positive customer feedback.

We expect to finish the rollout by the end of the first quarter of 27 marking an important step in bringing our prime vendor model to Canada. Third, Tracy. We are 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 auto store 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 are making significant investments across our distribution network.

We are adding millions of square feet of distribution space at 3 new facilities with auto store automation, increasing capacity, and operational flexibility across our distribution network. In March, 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 health care providers across the state. And recently, we announced that we are building an 800 thousand-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 are 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 multiyear effort. We are also investing in people, processes, 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 2027 framework which Mike will discuss here in a moment.

Overall, we are pleased by the momentum we are seeing and the progress we are making against our priorities. We are 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 capability to support our customers and drive long term growth. With that, I will turn the call over to Mike to walk through our financial performance and outlook.

Michael Drazin: 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 Brandon segment generated third quarter net sales of $3.6 billion an increase of 7% with growth across all 3 product categories. Surgical Solutions generated net sales of $1.7 billion up 8%. Growth was driven by surgical kitting, 1 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 the strong growth. 1 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, US 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. Nonacute 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 billion and margins increased 10 basis points to 12.2%. Results included an $81 million benefit from IEEPA 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 at 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 a $100 million through the third quarter. Moving to free cash flow on the balance sheet.

We generated strong free cash flow of $1.8 billion for the first 9 months of the year, This reflects net tariff benefits and favorable working capital partially offset by investments in CapEx. CapEx for the first 9 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 2.5x, down from 2.9x last quarter. Our cash generation gives us meaningful capital allocation flexibility, Our priorities remain investing in our business to drive sustainable organic growth, through operational investments, capital expenditures, and working capital.

Pursuing strategic bolt on acquisitions and products channels, and services, or 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 IEEPA tariff related customer repayments, which reduced sales by $78 million in the first 9 months. We are reaffirming our adjusted EBITDA guidance $3.3 billion 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 IEEPA 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 onetime 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 million 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. First, inflation. We assume diesel, raw materials, and finished good costs remain at current elevated levels, through 2027. Second, operations. We are investing in capacity automation, and capabilities to support our growth. As Jim mentioned previously. And third, quality. We are advancing our global quality action plan, including investments in people, process, 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 to capacity, automation, and quality, to strengthen the business. Our review of Medline's long term earnings power remains unchanged. We continue to expect adjusted EBITDA growth to return to at or above our 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, continue to invest in the business to serve our customers and strengthen our competitive position. Together with a strong balance sheet, disciplined capital allocation, we believe this positions us to return to our earnings algorithm in 2028. and create long term value for shareholders. I will now turn it back to Jim for closing remarks.

James Boyle: Thanks, Mike. In closing, we are confident in the strength of our business. And the opportunities ahead. As Mike outlined, we are navigating some near term margin pressures, but are confident that our long term earnings power has not changed. Medline is 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 is why we are 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 standby while we compile the Q and A roster. Our first question today is from Glenn Santangelo from Barclays. Your line is open.

Glenn Fantangelo: Jim, I just wanted to comment on I just want to ask a quick question about your margin commentary. For 2027. I mean, seems like the raw material input cost 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 and then I was interested by your comments that you are saying you are imputing a pretty sizable price increase on the first of next year. How much latitude do you have to sort of raise prices just sort of given the longer term nature of your contracts?

I mean, you have the ability to take price to offset some of this cost inflation, or 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 Drazin: Thanks, Glenn. So I will 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 are now expecting close to $80 million of impact for the year. that is because we have seen elevated costs on the on the raw materials and finished goods side. We have also seen increased costs on the diesel side. We are now paying close to $6.25 for diesel.

Think about 2027 and our 2027 framework, we are expecting we are assuming that the cost will remain elevated at current rates, So diesel at $6.25, oil where it is 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 our guide, which gets us to that low to mid single digits. For 2027 as it relates to overall framework.

James Boyle: Yeah. And then from a pricing perspective, as you know, historically, that is during the pandemic, whether that is with what is going on in the Strait Of Hormuz, or inflation. We have 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 is 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 is a lever to actually impact real COGS that are impacting the business on a sustainable long term basis, and that is 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 have 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 is 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 is when we make the price increase to the market, and we have the ability to do that within our contract. Structure. Thanks for the comments.

Operator: Thank you. Our next call is from Michael Cherny with Leerink Partners. Your line is open.

Michael Cherny: Good morning, and thanks for taking the question. If I can maybe build a little bit on Glenn's question, As you think through the planning process into next year, the high level details are clearly helpful. We heard you on price. How else are you thinking about the strategic opportunities you have to continue to find ways to accelerate the business?

Are there pushes and pulls that you have, be it on business mix, be it on how you are focused on brand, conversion, that you would do above and beyond what would be normal course of business and how does that all factor into the desire, the push to drive the shareholder returns you are focusing on relative to what obviously is a lot of pressures that are outside of your control.

James Boyle: Well, there is a couple things. First and foremost is our business model. First and foremost, taking share and continuing to capture on that billion dollar vendor signings because volume 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, our customers while we are also increasing the ability to grow margin on the left hand side because it is a win for the customer and a win for Medline.

The other thing that is very important, as Mike mentioned, we did a restructuring, is managing our SG&A 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 I. If you look at what is happening in the market today, there is concerns around softening from a volume perspective. there is concerns about reimbursement. And we have the best model to drive value and savings for our customers in that res So I look at the market very, very similar to what I have in the past. We are the value player in the marketplace.

We are the player that can also get the right product at the right place at the right time at the best total value. And so I mean, your answer. The answer to the real question is if we do those things, it is going to generate what you are talking about. it is 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.

Andrew Alfonso: Thanks so much for taking the question. This is Andrew Alfonso in for Kevin. So I appreciate, you know, the updates, on the inputs for the second half cost base. So I guess 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 is also netted now against this recently launched cost program. So I guess how when you are thinking about framing that for 2027, how do you think about sort of that ratio of temporary versus structural?

Michael Drazin: Yeah. Thanks for the question. So think about what we said last quarter, right, the 1 thing we called out specifically was The Middle East, and The Middle East would be incremental increase year over year. And it is becoming more sizable than it was previously. We previously thought that would be transit in nature, and now we are 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.

You think about sort of that framework, right, we talked about previously, our strong top line sales growth, driven by sort of a 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. We continue to generate. As well as the favorability from tariffs year over year at current rates. If we assume current rates for tariffs, you will see some favorability year over year that we are seeing here in the second half. 26. Plus the enterprise cost initiative that we are structuring, are the are the tailwinds for 2027.

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: 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.

James Boyle: it is important to remember we are in lab and diagnostics in the acute, the hospital market and the physician office market just for segmentation so you can get that in. And every single 1 of those customers purchases something from a lab perspective. They have a in hospital lab, and so there. The opportunity set is where we are prime 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 product vendor, and then we grow 3 to 4%. So it looks and feels very, very similar to the playbook from that sort of distribution perspective.

And as you know, the beautiful thing about that is the wheels on the truck that are delivering the MedSurg supplies 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. Great. Thank you very much.

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

Erin Wilson Wright: 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 and in terms of you know, 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 wanna make sure we are thinking about the cadence correctly given some of the dynamics in terms of on that front with outsized business wins last year? Thanks.

Michael Drazin: Thanks, Karen. So, if you think about the $2.4 billion that we signed in 2025, by now, all of that has gone live and has been implemented. And as we talked about previously, we saw about 25% of that recognized as revenue in 2025. See about 65% of that recognized in 2026. And the remainder will flow into 2027. As it relates to the new signings that we are having here in 2026, nothing really has changed relative to what they have seen. You have seen previously as far as the overall profitability of those. Of that business. Ultimately, we continue to sign those new deals.

And they will roll into our business in a similar sort of cadence that they historically have. And it is 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%, in. On brand conversion, and then Jim mentioned, 2 to 4% thereafter. Thank you for your question.

Operator: Alright. Our next question is from Matthew Taylor with Jefferies. Your line is open.

Matthew Taylor: Hi, thanks for taking the question. 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 be made whole on COGS versus drive, growth. How much pricing is in this initial 2027 framework that you have given?

James Boyle: A couple things. You hit the nail on the head. We do price increases January 1 and July 1, so we notify customers 30 to 60 days in advance of on the contract. We are not offsetting all the COGS. We are offsetting a portion of the COGS. What we think is the right thing to do to actually mitigate what is going on from an impact to the business, but also do what is right by our customers. At the end of the day, that is 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.

Analyst: Great.

Michael Drazin: How much is in 2027? if you can provide any color on that. Yeah. We are not gonna comment on how much price we are gonna take in 2027 at this time.

James Boyle: Okay. Alright. Thank you very much.

Operator: Thank you. The next question is from David Larsen with BTIG. Your line is open.

David Larsen: Congratulations on the good quarter. Can you maybe talk about the hospital buying environment? It looks like the Democrats have won the Senate and the House. What does that mean for your business? If anything, I think there is some chatter around potentially improving 43 b reimbursement, possibly, which would 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.

James Boyle: Well, you are asking me to predict what is gonna happen in a political environment. So I will start with that. I think you are right. I think there is the Democrats have a favorable position to actually soften some of the impacts in customary Medicaid. So we will just need to see if they can get that through. From a hospital volume perspective, patient population and people that are sick, really does not tie out to whether the Republicans or the Democrats are in the house. it is depends on whether they need access to care. So I do not think volumes are gonna change because of what recently happened. So you have heard from some of the.

I am sure you have heard from some of the earnings calls some of our providers are sharing that they are seeing softness in surgical volume. I can tell you whether it is 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 are not feeling the burden of that pain. Okay. Thanks very much.

Operator: Thank you. Our next question is from Brandon Vazquez with William Blair. Your line is open.

Brandon Douglas: Congrats on the quarter here. it is in a difficult macro environment. 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 US primarily where you kinda get a foot in there, something like 10% of the business as Medline Brand at the start. And then as a prime vendor, you are looking to every year convert those accounts more and more?

Just kinda comparing your strategy to the US. Thanks.

James Boyle: So first off, the contract with Mohawk Medbuy is going well. We have got 5 hospitals implemented, and we should have the rest of it done through March 2027. So the real answer is this is still a learning moment. Right? We are working with the market because it is. Because the reimbursement model and how they actually contract and how they convert product categories is different than the US. Your general comment is correct. We are going in. We are offering better supply chain solutions, right product, right place, right time with the best value with additional Medline Brand versions to drive intrinsic value.

But we have got to live with 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 are on. Candidly, we have not defined the market itself yet, because right now, we are understanding who we think is going to be. And this is really 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 are intentionally going at this in a crawl, walk, run strategy because we wanna make sure we build the right model that can yield the right outcome both from a top line and a bottom line perspective. And make sure we understand the customer's needs whole before we launch this fully. But we are extremely optimistic about it. We think it is a game changer for the Canadian market and could lead to accelerated or outsized growth in the market. Thank you for your question.

Operator: Our next question is Michael Polark with Wolfe Research. Your line is open.

Michael Polark: Good morning. I have a question on the Global Quality Action Plan. 2 parter. 1, can you frame for 2027 that totality of the spend that you have contemplated in your prelim comments for next year. that is part 1. And then part 2 is I saw the home care bed exit recently. And my question is, is that 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.

James Boyle: I will start with the second part, and I will let Mike walk through some financial impact. But listen. The bed thing is something we have been working communicating with the FDA on for over a year. In October, as you know, we launched an exit of the business we launched a program to offer repair or replace option for the market. Why exit the market? I mean, we would not characterize this as kind of representative of our broader portfolio. Most of what we sell is a used to 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 is not a giant impact. it is roughly $60 million. And so from a burden perspective, we do not see this as bad. We think it is the right thing to do for patients. We think it is 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 is kind of what we are 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 are taking good hygiene assessing prioritization, which is a good thing. And I would look at it as a good thing as if I was on in your seat at the table. But this is a product we have been working on for over a year. So is it integrated in the global quality action plan? Yes. However, it is something we were already aware of and already in concert with the FDA.

Michael Drazin: And, Michael, on your first question about the financials, we have not quantified the impact of 2027 publicly. Obviously, it is a component of our overall 2027 framework. What I would say is it is incrementally growing relative to 2026. Why? Because we have made investments in the second half of 26. That will carry over on a full year basis in 2027. so 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 Rhyee with TD Cowen. Your line is open.

Mitchell: 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 Drazin: Yeah. Thanks, Mitchell. So, if you think about our growth at 10 and a half percent, overall organic, obviously, that is really strong growth. I would tell you that same store sales I am not gonna quantify it for you, it still remains very strong. it is 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, points 65% of that is showing up in 2026. So it is you know, it is a portion of the overall organic growth in the year. About the framework for 2027. Obviously, if we could communicate it, we will be at high single digits growth.

Keep in mind, though, that we do not expect $2.4 billion of signings like we had last year. 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 gave previously. Thank you for your question.

Operator: Our next question is from Navann Ty with BNP Paribas. Your line is open.

Naban Thai: I just wanted to clarify a previous point on the global 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 quantified, but could the 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 nonacute. We know that the latter did better than expected. Thank you.

James Boyle: From a quality perspective baked into our numbers today, we think is gonna 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 are taking patient safety as the most important thing, and you are assessing your entire organization and doing the right thing every time. So from a global quality action plan, I can tell you we have baked into at least for 2026, into our numbers, the expense profile.

And then when you think about acute and nonacute, 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 nonacute market will grow faster over time. Just because of the aging population and where they are choosing to have access to care. Thank you.

Operator: Thank you. Your next question is from Eric Coldwell with Baird. Your line is open.

Eric Kovlow: 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 than the next 2 quarters would be required. You reported lower in 3Q. You are guiding now to mid fours. We could debate ranges, but, you know, that is high tens, 100 million impact on a full year basis. So I am curious what changed versus the expectations that you had 90 days ago. Thanks very much.

Michael Drazin: Hi, Eric. So thanks for the question. So you think about the 2 components that are driving the Supply Chain Solutions margin in the third quarter, The first 1 is customer mix, and the second 1 is an increased operations investment. Operating expenses. On the customer mix side, it is a driver of 2 things. 1, it is the margin on those new customers signing that $2.4 billion in signings we had last year, those year-1 rebates, as well as the economics of renewals that we have taken in 2026. And so we have seen a little bit of an acceleration in that front relative to our expectation. In addition to that, we obviously have increased operating expense.

And those have obviously gone up as we mentioned. In the back half of the year and everything we called out in our prior call. So the combination of those 2 are what are driving supply chain solutions margins. In the third quarter at 4.4%. If you think about sort of 2027, we are 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 is our job to find different ways to offset that. Things like back end funding and other vendor funding and things of that nature.

We will do those things, execute on those things in our plan for 2027 and beyond. Okay, very much. Thank you.

Operator: Our next question is from Andrew Obin with Bank of America. Your line is open.

David Ridley Lane: This is David Ridley Lane on for Andrew Obin. Wanted to ask on the restructuring. it is not a huge amount of your SG and A. Maybe it is 1.5% or so. But wondering how long has it been since you have 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 1-time action. Thank you.

James Boyle: So 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 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 something I plan on doing all the time. However, when you look at your business, 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. Thank you for your question.

Operator: Our next question is from Elizabeth Anderson with Evercore ISI. Your line is open.

Elizabeth Anderson: Hi, guys. Good morning, and thanks so much for the question. Obviously, you announced a new $1 billion share repurchase program today. Can you talk to us a little bit about the timing that you are expecting to use that over, and any other details you might have in terms of public market shares versus, sponsor shares? Thank you.

Michael Drazin: Thanks, Elizabeth. So yes, we are excited to announce our billion dollar share repurchase program that we are gonna 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 and a, We obviously also paid down about $700 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 has not mentioned or not communicated at time period by which we are 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 market, we could buy back some shares from their sponsors as well. And we will look at all those opportunities as they come about in the near term. Thanks.

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

Steven Baxter: 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 am wondering what is the reason that We cannot hear you. I mean, we cannot hear you. Sorry. 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 are 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 impacting next year?

Are we thinking that, you know, maybe at least from an SCS perspective that margins for this year's new customer cohort are back on track to where you underwrote the business as we move into 2027? Thank you.

Michael Drazin: I would think about it this way, Steven. So we think about the fact that the supply chain margins are down. Year over year. It is the driver of those 2 components. I do not think that they are ultimately accelerating, and that we are seeing greater margin reduction, greater rebate impact. I think we are ultimately seeing impact in the first year. It relates to those new customer signings. And then, really, the reality here is the model that we operate on is really all about signing a new customer, putting that prime vendor deal, and then over time, lifetime economics of that customer are very positive for us as we drive, Medline Brand conversion.

Drive savings to the customer. We drive margin for Medline. So that does not change. That operating sort of power of a business model has not changed, and we will continue to do that as we go forward with those customers. Thank you.

Operator: Our next question is from Jason Bednar with Piper Sandler. Your line is open.

Analyst: Hey. Good morning. Thanks for taking the questions. 1 clarification, and 1 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 question going back to the comments around your pricing plans, for 2027, I am assuming you are 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 are modeling things out internally around, list price versus net price? Within that 2027 framework you provided? Thank you.

Michael Drazin: Yeah. So I will cover. Thanks for the question, Jason. I will cover the diesel question. So if you think about the overall $80 million of impact on the Middle East inflation, it is 3 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 incurred to move product around this country. And then it is the raw materials and the finished goods. That is all in that $80 million As I mentioned previously, the majority of that cost is the raw materials and the finished goods.

James Boyle: And, 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 is that is absolutely a part of the strategy. something to move and need to leverage. Thank you for your question.

Operator: As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. And our next question is from Ryan Halstead with RBC Capital Markets. Your line is open.

Ryan Halstead: Sticking with the operational investments you have made and looking ahead, are planning to make. You have announced some, new distribution centers and certainly, you have commented in the past about, you know, 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?

James Boyle: Well, we have got 4 DCs on the docket that we mentioned right now, and the answer is we historically and it is been part of our DNA, is always invested in infrastructure and advance of the growth. So we had space to actually take on the additional capacity and meet the service requirements of our customers, and that will not change that is always gonna 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 can provide 80 days of on hand to make sure we have best in class service levels and fill rates.

And do I think we will need to add additional facilities in the coming years? Yes. The answer to that question. Because we continue to have growth kind of outpace as compared to the market itself. But we will do that in the right way, in the right markets that yields the right outcome. Thank you.

Operator: Thank you. Our next question is from Jailendra Singh with Truist Securities. Your line is open.

Jailendra Singh: 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 for 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 our level growth?

Michael Drazin: Well, so if you think about. Thanks for your question, Jailendra. If you think about the commentary about core underlying growth, it is hard to pull that apart because there is a lot of moving components from both The Middle East, the tariffs, 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 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?

I did not give that yet, but I would tell you that we do not expect at this point in time, assuming there is no more Middle East cost inflation, no more tariff cost inflation, inflation, and we continue to execute on our operational and quality investments. We do not 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. Okay. Thank you.

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

Rick Wise: 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 related to is going to be focused on share repurchase. And what, if anything, does it say on a related basis about further m and a? Is that deprioritized? Is it is it just that this seemed like the best investment right now. Just help us. Just update us on your latest thinking on that topic. Thank you.

Michael Drazin: 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. Jim mentioned earlier, we invest in the long term. that is not gonna change. We are building 4 new DCs in the coming year. We will look at more DCs over time. We are adding new automation to our business. Investing in our operations. We are investing in our Salesforce. Investing in new product development. that is our first and foremost priority. that is not changed. Our m and a strategy has not changed either.

We will continue to lean in on m and look for bolt on opportunities that drive strategic growth for Medline, and lead to attractive returns for the company. So that has not changed. When 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 are looking at doing, as well as return capital to shareholders plus pay down some debt. that is why we chose to do about $1.75 billion overall. So our first and foremost priority remains still invest in business. Focus on m and a.

And then if we have excess cash beyond that, we will look at things like debt prepayment or share repurchase returns to our investors. Thanks so much. Thank you.

Operator: I am showing no further questions at this time. Would like to turn it back to Jim Boyle for closing remarks.

James Boyle: First, thank you very much for joining our call today. We are pleased with our third quarter results. Our business is strong and growing. We are prioritizing investments for future growth, and the end of the day, I think we are headed in the right direction. So we appreciate the time. 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.

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