Medline (MDLN) Q3 FY2026 Earnings Call: Q&A Summary

Q: Glen Santangelo from Barclays asked about the magnitude of raw material and diesel cost increases and how much latitude Medline has to raise prices given the multi-year nature of their customer contracts.

A: Mike Drazin and Jim Boyle explained that 2026 inflation expectations rose to $80 million due to elevated raw materials and diesel at $6.25 per gallon, which are assumed to continue through 2027. Jim Boyle noted that price increases are used to realize sustainable real costs rather than act as a primary growth lever, and that contracts permit these discussions.

Q: Michael Cherny from Leerink Partners asked how Medline plans to accelerate the business and drive shareholder returns amidst pressures outside their control.

A: Jim Boyle highlighted the core business model of capturing share through new customer signings, driving value and savings for customers, and managing SG&A expenses via restructuring to generate top and bottom-line gains.

Q: Andrea Alfonso from UBS asked about the ratio of temporary versus structural costs in the second half and 2027 framework, considering recent oil costs and the restructuring program.

A: Mike Drazin stated that Middle East inflation is now viewed as non-transitory and is assumed to continue through 2027 at current rates, offset by top line sales growth, Medline brand conversion, tariff favorability, and enterprise restructuring savings.

Q: Matt Taylor from Jefferies asked if customers are notified of price increases around now for next year and how much pricing is embedded in the 2027 framework.

A: Jim Boyle confirmed that customers are notified 30 to 60 days in advance of January 1 and July 1 price increases, covering a portion of COGS while maintaining customer alignment. Mike Drazin declined to comment on the specific amount of price taken in 2027.

Q: Jason Bednar from Piper Sandler asked if the $80 million inflation figure includes diesel and how list versus net prices are modeled for 2027.

A: Mike Drazin clarified that the $80 million includes diesel for trucks, inbound freight surcharges, domestic freight, and raw materials and finished goods. Jim Boyle added that the Medline brand will be leveraged to help mitigate price increases and offer offsets to customers.

Q: Jailendra Singh from Truist Securities asked about the underlying core EBITDA growth assumed in the 2027 framework and what factors will inflect growth in 2028.

A: Mike Drazin noted that while 2027 core growth is difficult to isolate due to moving parts, 2028 is expected to benefit from the absence of incremental operational and quality investment increases, driving operating leverage at or above sales growth.

Q: Thomas Keller from BMO Capital Markets asked what percentage of prime vendor partners buy lab supplies and how conversion rates compare to broader MedSurg categories.

A: Jim Boyle explained that lab and diagnostics in acute care has about a 30% convertible opportunity, with run rates and playbook execution looking very similar to MedSurg distribution, utilizing the same delivery trucks for minimal incremental distribution cost.

Q: Erin Wright from Morgan Stanley asked about the financial flow-through of 2025 customer wins and the profit profile of 2026 prime vendor wins heading into next year.

A: Mike Drazin stated that 100% of the $2.4 billion signed in 2025 is live, with 25% recognized in 2025 and 65% in 2026, while 2026 signings follow a similar profitability cadence and brand conversion timeline of 10% in year one.

Q: David Larsen from BTIG asked how the hospital buying environment and recent political shifts might impact Medline's business.

A: Jim Boyle responded that patient volumes depend on access to care rather than political party control, and while some peers noted surgical volume softness, Medline's growth in Surgical Solutions has insulated them from that pain.

Q: Brandon Vazquez from William Blair asked about the market opportunity and strategy for the newly live Canadian prime vendor model with Mohawk Medline.

A: Jim Boyle shared that the Mohawk contract is going well with 5 hospitals live and completion expected by March 2027, utilizing a crawl-walk-run strategy that adapts to Canadian reimbursement frameworks while bringing supply chain solutions and brand conversions.

Q: Michael Polark from Wolfe Research asked for the total 2027 spend contemplated for the Global Quality Action Plan and whether the home care bed exit is a sign of further product exits.

A: Jim Boyle explained that the home care bed exit was a joint decision with the FDA for a capital electrical product and represents about $60 million, distinct from standard single-use portfolio items, though part of overall quality hygiene. Mike Drazin added that 2027 quality investments will grow incrementally relative to 2026.

Q: Navann Ty from BNP Paribas asked if other products are at risk of warning letters and recalls, and inquired about acute versus non-acute trends.

A: Jim Boyle stated that quality expenses for 2026 are baked into numbers and while they assess the network continuously, no other issues are anticipated. He added that acute is growing faster due to past signings, but non-acute will grow faster over time due to aging demographics.

Q: Eric Coldwell from Baird asked what changed in Supply Chain Solutions margins to drive guidance down to the mid-4s compared to previous expectations.

A: Mike Drazin explained that SCS margins were impacted by customer mix, including year-one rebates on new customer signings and renewal economics, combined with higher operating expenses, with management focused on finding backend vendor funding offsets.

Q: Stephen Baxter from Wells Fargo asked why rebates are higher than initially forecast and whether new customer cohort margins are back on track for 2027.

A: Mike Drazin clarified that the lower SCS margins are driven by first-year customer implementation economics rather than accelerating rebate impacts, maintaining that the long-term model of customer conversion and lifetime economics remains intact.

Q: Ryan Halsted from RBC Capital Markets asked how management feels about current capacity and the need for additional distribution centers next year.

A: Jim Boyle noted that Medline historically invests in infrastructure ahead of growth, currently has 4 distribution centers on the docket, maintains outsized inventory for high fill rates, and will continue adding facilities as growth outpaces the market.

Q: Elizabeth Anderson from Evercore ISI asked about the expected timing and details of the newly announced $1 billion share repurchase program.

A: Mike Drazin stated there is no specific time period set for the $1 billion repurchase program, which will be used opportunistically alongside debt paydown toward investment grade, bolt-on M&A, and ongoing business investments.

Q: Rick Wise from Stifel asked whether the share repurchase program changes their priority on M&A or investing in the business.

A: Mike Drazin affirmed that capital allocation priorities remain unchanged, with primary focus on investing in the business and bolt-on M&A, utilizing excess cash for debt repayment or share repurchases when available.