All right, great. Good afternoon, everyone, and welcome. My name is Lisa Gill, and I head up Healthcare Services here at JPMorgan. It is with great pleasure this afternoon that I introduce Medline for their first JPMorgan Healthcare Conference as a publicly traded company. So we're incredibly happy to have them here with us today. Presenting for the company will be Jim Boyle, their CEO. Mike Drazin, their CFO, is going to join us for the Q&A portion. But before we get started, Karen King, who is Head of Investor Relations, is just going to read an opening remarks.
Thanks, everybody, for attending. During the following remarks, we will make forward-looking statements regarding our expectations for the future, including those related to our long-term financial targets. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please refer to today's presentation deck, which accompanies these remarks, as well as our most recent SEC filing for more information regarding these risks and uncertainties. Additionally, we will refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP. Please refer to the non-GAAP information contained in today's presentation that accompanies these remarks, which is available on our website at ir.medline.com under Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. And with that, I will turn it over to Jim.
Thanks, Karen, and thank you, Lisa, and thank you to JPMorgan for having us here for our first presentation as a publicly traded company. We are a company that's 59 years old, 60 years this year. Been a privately held company for the entire life of the organization, so this is a new chapter, and I'm excited to talk about kind of where we're headed and what we're doing. My name is Jim Boyle. I'm the CEO. I started in 1996. I'm going on my 30th year. And when I started with the company, it was roughly $450 million in total revenue. And our trailing 12 months is about, in September, it's about $27 billion. So it's been an amazing journey. I feel very, very fortunate to have been a part of it, and I'm excited to tell you the story.
First and foremost, our mission is to make healthcare run better. Our job is to deliver the best total value to our customers, and we do that by improving clinical, financial, and operational outcomes. The way we drive financial, first and foremost, comes from the depth and breadth of our brand. Medline brand can represent up to 60% of what a hospital buys in their medical surgical budget, and we guarantee savings on that. We understand the cost, and healthcare is one of the number one challenges, and we have a mission to be in the boat with our customers to drop down cost. Second, we have clinical solutions that solve for those never events: hospital-acquired infections, hospital-acquired conditions. Think about catheter-associated UTIs. Think about falls prevention, wrong-side surgery, hospital-acquired pressure ulcers.
Our clinicians will go out and train and educate caregivers, paired with intelligent design products to yield better patient outcomes, and third, our job is to deliver improved operational outcomes, and that is derived by delivering the right product to the right place at the right time at the lowest delivered cost, and that is empowered by the depth and breadth of our supply chain. When you think about Medline, I mentioned this just a minute ago. Through September, our TTM is $27.4 billion. We finished 2024 at $25.5 billion. For perspective, we have over 335,000 products that go through our supply chain. 190,000 of those Medline brand products. We have 43,000 employees. For context, IM employees are 1,117, so it's grown a little bit from when I started.
We have 29 million sq ft of distribution space empowered by $4.5 billion of inventory on hand that enables us to fill at 99% service levels. Our customers need products at the right time at the right place, and our distribution network enables that. We also own our fleet of trucks. We employ our drivers, which creates a differentiated experience, especially in times of crisis. Our history is pretty amazing. We have 58 years of consecutive growth. Every year since inception, since 1966, we have grown at a pace of 18% CAGR. Pretty amazing to be a part of. In 1966, Jim Mills and Jon Mills started the business to solve for the number one challenge in healthcare, which at the time was cost, which ironically still happens to be the challenge in healthcare from a number one cost perspective.
Their perspective was, we want to be a manufacturer that brings low-cost goods, high-quality low-cost goods into the environment to drive down the cost of healthcare. And the first 30 years of the company, from 1966, from 1996, we were solely a manufacturer of medical supplies. The roots and the core DNA of who we are as a company is a manufacturer first. We didn't get into Prime Vendor distribution until 1996. And if you're not familiar with what Prime Vendor distribution is, it's where a healthcare system, regardless of care setting, chooses a single consolidated logistics partner to buy the vast majority of their medical supplies. They're looking for fewer fuller trucks delivering in the modality that actually best fits the care setting. We got into that in 1996 at the request of a customer.
I can tell you most of what we have was by listening to our customers and expanding the depth and breadth of our offering by actually paying attention to what their opportunities were and what their challenges are. When we got into Prime Vendor distribution, that is really the engine that created the explosive growth over the next 30 years. It gave us the opportunity to own 100% of the supply chain and have visibility to what our customers' challenges are, what the opportunity set was, and our Medline brand product divisions could mine that data to look for Medline brand categories to expand the depth and breadth of our offering. When I started in 1996, when we got our first Prime Vendor deal, up to 20% of what a hospital buys had a convertible opportunity to our brand.
Today, it's 60%, and then the next five years it'll be somewhere around 75%. Every single year, we expand our brand by leveraging that data and working in conjunction with our customers to make sure we're delivering the right value to them. In addition, over the next 30 years, we built a specialization based on every single care setting. What we learned is when you specialize by care setting and you narrow the bag and you narrow the call point for the sales force, you just do better. We built the right supply chain solution, the right product formulary, the right data and analytics, and the right clinical engagement platform based on every single care setting. So physician office, home health, hospice, nursing home. We have 11 primary sales forces.
Every single point of care across the continuum of care from cradle to grave, we built specialization based on that individual care setting. Sometimes it's better to be lucky than good. It forced kind of us to understand the expertise of each care setting, and then the Affordable Care Act hit, and it forced that convergence of care and the creation of integrated delivery networks. Now what you see is hospitals owning the physician offices, owning the surgery, owning the surgery centers, owning the home health agencies, and what they're looking for is one consolidated logistics partner that can serve every point of care they have to drive consistency, to create SKU rationalization and SKU consolidation, to leverage the price parity of that acute care business to drive down the cost, and the non-acute business.
Medline is the only supply chain provider in healthcare today that serves every single point of care. That's something we're pretty proud of and something we're pretty excited about. In October of 2021, after 55 years of being owned by the Mills family, we partnered with Carlyle, Blackstone, and H&F in the largest LBO from a healthcare perspective in history. That was October of 2021. In December 17th of last year, we entered into the public markets, and we're embarking on the next chapter of the company. We serve a large and growing TAM of over $375 billion, $200 billion internationally, and $175 billion in the United States. What I'm more excited about is healthcare in and of itself is going to grow organically. Those of us age 50 and older are going to double in terms of populace in the United States in the next 30 years.
Healthcare in and of itself, from a need and access to care, is going to grow 3%-4% just because. So we all have a responsibility to figure out how do we solve for that from a cost perspective to enable our customers to do it in a much, much more efficient way. When you think about the shifting sites of care, you're starting to see the non-acute care market. Think about your surgery centers, your physician offices. That's in, candidly, your traditional SNF and nursing homes. That segment's going to grow faster than your acute care market. What you're seeing is some of the more complex procedures leaving the four walls of the hospital. You see total hips, total knees, in some cases, spine and hearts actually leaving the four walls of the hospital and going into the surgery center space.
So we're going to see a growth in that, and that is an area we see as a growth factor for Medline. In addition, you see cuts in Medicare, Medicaid, cuts in reimbursement, concerns around the Affordable Care Act, concerns around the One Big Beautiful Bill. Our job is to work in conjunction with our customers to leverage really the overall value prop we have to bring down COGS in advance of the cuts in reimbursement. We see that as a tailwind. Then finally, I think consolidation in healthcare is going to speed up. In order for healthcare systems to continue to, I would say, survive, they're going to have to leverage more assets to do more across the continuum.
The fact that we are the only provider in healthcare that serves the entire continuum of care could be a tailwind for growth on a go-forward basis. Our business model is split almost 50/50. This is 24 revenue, $12.5 billion Medline brand, over 190,000 SKUs in Medline brand, 26% EBITDA margins. That is paired with those distributed products, the third-party manufacturers we push through our channel at the request of our customers, $13 billion in revenue, 5% EBITDA margins, 145,000 products. It really is a force multiplier. Owning that distribution channel and leveraging the 29 million sq ft in our overall network and empowering that with our brand, we work in conjunction with our customers to make sure we're getting the right product to the right place at the right time at the lowest delivered cost every single time. That is empowered by our culture.
I mean, we have a healthy sense of paranoia. We understand we have to earn the right to serve our customers every single day. And that is the secret sauce of Medline, right? You don't take an existing customer for granted. You treat your existing business as if they're more important than your new customers because they're the ones who got you there. And if you think about Prime Vendor, Prime Vendor as a definition in this book is acute and acute affiliated. And the reason we do that is we define and really have a magnifying glass on the convertible opportunity within that business. That's where we drive the savings and value to our customers. And that's what we work with our customers on to convert.
If all we did was convert that $4 billion and didn't grow another dollar, there's a billion dollars in potential incremental margin gain just by focusing on that within our existing business. $16 billion was 2024. So that $25.5 billion, $16 billion of the $25.5 billion was in Prime Vendor acute and acute affiliated. In 2025, through the first three quarters of the year, we closed $2.1 billion in new Prime Vendor business, and that doesn't include the fourth quarter. Our commitment is a billion dollars in new Prime Vendor closings. What I can tell you is the way we handled the tariff situation, concerns around the viability of some of the competitors in the marketplace, concerns around reimbursement and looking for savings has accelerated the conversion curve to Medline across the different customer base, and it's something we're pretty excited about.
That $2.1 billion that we just added an additional convertible opportunity in that $1 billion. So it's about $5 billion now in convertible opportunity, which is something that we will mine and actually leverage to drive value to our customers. We have a 98% retention rate. Again, I go back to treating existing customers and always driving value and earning the right to serve them every day is a core function of who we are as an organization, and it's a responsibility that we take seriously. When you think about kind of when we earn a new Prime Vendor customer, up to 60% of the medical surgical spend in the hospital is convertible to our brand. Day one, about 13% when we switch from yesterday, the truck was maroon. Today, the truck is blue from a consolidated logistics partner. 13% of that is already in our brand.
We sell $1.2 billion of our brand through competitive distributors, through Owens, through Cardinal, through McKesson, through Schein. Our brand stands on its own. Our salesforce is incented to call on customers, whether we're the Prime Vendor or not, and sell our brand. In the first year, we normally see a doubling of that, getting closer to 24%, so a 10%-12% lift in conversions. That first year, we convert that commodity stuff. Think about the easy stuff: tongue depressors, Q-tips, exam gloves, things that are easy for the clinical team to accept, and then over the next kind of conversion curve, we see 3%-4% lift in Medline brand conversions, and that rate of change, we've learned over many years of trial and tribulation.
When you go too fast, that pace of change gets to a point where the clinical team can't accept the pace of change in a positive manner. We work with our customers, and we build roadmaps for conversions. So we are always driving intrinsic value and savings on a go-forward basis. We are an innovative company. We have over 400 510(k)s, 2,100 granted patents, 600 pending patent applications. I go back to, we've been in manufacturing and sourcing literally for 59 years. This is what we do for a living. One of the ways we expand is understanding and mining that data as a distributor to look for those opportunities that fit within the framework of a Class I and Class II device that we can actually do better than the competition. So both one is creating markets.
The other thing is looking at what's out there and research, duplicate, improve upon at a better value to drive savings for our customer. And that's something we do in a pretty robust fashion. And this is just a few examples of that. From an M&A perspective, 90% of our growth as a company has been through organic, right? Internal muscle and creativity. Only 10% has been through M&A. So M&A for us historically has been a nice to have, not a need to have. However, we do have the muscle to actually push it through our channel and actually bolt on M&A in a very, very creative fashion. And I'll give you a few examples. We buy in product categories, service channel or market, or some kind of solution we think that differentiates us.
If you look at DiaMed on the bottom left in 2010, that was a $50 million physician office distributor that we bought out of Columbus, Ohio. It was our first entree into the physician office market. We bought it because the leader had a tremendous knowledge of that market, and we wanted to glean that knowledge from him. He actually still works for us 15 years later, and that business is $1.8 billion. So it was a decent kind of growth from $50 million to $1.8 billion in 15 years, and we think that's a way to actually kind of build the market and leverage our existing strategy as it relates to a medical surgical manufacturer and distributor across different segments. Ecolab on the top right was our largest acquisition ever. It was a $900 million acquisition of the surgical solution business from Ecolab.
That didn't necessarily fit with their strategy, but it fit perfectly within what we do and how we do it, and these are things that we think will continue to create a creative growth on a go-forward basis, and I am actually optimistic on a go-forward basis from an opportunity set perspective. Our culture, if you were to say, what's the one thing that keeps you up at night? It is maintaining and protecting the culture that got us where we are. That relentless focus on the customer, that healthy sense of paranoia, the agility and flexibility. I like to describe Medline as an aircraft carrier that we drive like an 18 ft speedboat. When our customer asks us to change, it's important you change quickly, and you don't have some slow pace to change. We operate with a gritty infrastructure to make sure that everyone rolls their sleeves up.
We have an extreme ownership culture across our business. The first 18 months of the company, when someone comes in, has a pretty high turnover rate because a lot of folks are afraid to have 100% control and extreme ownership. We follow a concept called DRI, Directly Responsible Individual, and when that person is identified, they own 100% of whatever it is, and the entire organization works with them, including me. After 18 months, people stay forever, and it's something that I think is healthy because I'd rather have people self-select out if they don't fit within the culture and the framework of who we are. And the folks that want to stay forever, we're very, very proud of, so this is something that we, as a leadership, walk, engage, and train, and set an expectation.
That's one thing that we hold very, very dear to our hearts and something that we have to take forward on a go-forward basis. From a financials perspective, I'll give you perspective on what our top line and margin growth vectors are. First and foremost is to grow with our existing Prime Vendor customers. I'd love to tell you we pick up 100% day one. We sign a Prime Vendor. That's not the case. We normally sign 85%-90% of the business. And then we follow a process called sweeping the corners where we pick up those non-traditional distributors, those items that are being bought direct that can fit through that consolidated logistics model where we can deliver it on a truck in the modality that that customer needs it in the care setting they need it. That's number one.
Number two is growing with those non-Prime Vendor customers and selling our brand direct. That's where that $1.2 billion comes from that we're selling to our customers kind of outside of the distribution model. Our brand stands on its own. Our reps are paid Medline brand, and that's what their job is to actually communicate the value to our customers. Winning new Prime Vendor customers is we commit $1 billion in new Prime Vendor closings each and every year. And that's both in the acute and the non-acute segment. I mentioned the definition of Prime Vendor is acute and acute affiliated. In the non-acute segment, we have something that looks very, very similar to our Prime Vendor model, but in a skilled nursing facility or a nursing home, up to 80% of what they buy can be in our brand, and the conversion curve is much, much faster.
So we committed $1 billion in new customer signings each and every year. We will continue to expand the depth and breadth of our brand. Our team, our product divisions have two jobs. First and foremost is to make sure our existing categories are best in class from a cost perspective and best in class from a future advantage and benefit so we don't become complacent, and second, to look for new opportunities for innovation and expansion in new categories we can get into. We always look for new channels to expand in. I mentioned physician office in 2010. In this past year, we bought a company called Sinclair Dental on the Canadian market to test out the dental space. If you were to ask me, "Jim, do you want to do dental the same way the current competition does in the States?" the answer would be no.
But if we're able to mimic really the savings model that we do in MedSurg, which we're testing in the Canadian space, can we actually create Medline brand convertible opportunity to drive savings for our customers and margin for Medline? We would absolutely deploy that. I can tell you that that deal model is being outperformed and that business is performing extremely well. We also expanded into animal health. In the last year, that's a $4 billion market. We're not interested in distribution. It's more of a product market. The gauze they use on animals is the same gauze they use on humans, exam gloves. It's a very, very product-centric market and something we're pretty excited about. From an M&A perspective, I mentioned 90% of our growth has been organic. 10% has been through M&A.
However, I do think there's opportunistic M&A that's going to come to market in the near future that we're pretty excited about, both in-country and international. International is about 7% of our total revenue. It's $1.8 billion in a $200 billion market. This is a channel that we are excited about that we see tremendous opportunity for growth. About 85% of that business is in Canada and Europe. We do have a LATAM and Asia-Pac business, but most of it is Canada and Europe. From a margin perspective, first and foremost Medline brand conversions. That's how we drive value to our customers, and that's how we drive a greater margin to Medline. And that is how we fuel that CapEx investment to make sure we have the right distribution platform, the right product mix. How do we continue to expand what we're doing?
That's how we fund M&A so we can continue to drive value for our customers. And then finally, managing your checkbook in a way that creates positive leverage, right? Managing that SG&A and the operational excellence to make sure we're doing more with less from an expense perspective so we can always drive value and increase margin. From a capital allocation perspective, we're very disciplined in how we look at it. First and foremost, and really the most important thing is investing in the business to make sure we have the tools, the resources, and the assets to fuel the growth on a go-forward basis. We don't wait until we need it. We invest today for tomorrow's growth, which has been a differentiator for Medline. We've done that for the entire life of the company. We will continue to look at bolt-on M&A.
As I mentioned, I'm pretty excited about the potential opportunities that are coming to market in the near future. We will focus on debt repayment at the IPO. We raised $5.2 billion of primary. A billion of that went to, excuse me, $4 billion of that went to buy down debt. And we're sub 3.3x and a quarter now from a debt ratio perspective. And our commitment is to go below 3x. And then finally, very, very end of this thing, and not anytime soon, if there's some reason why we had excess cash in the future where we don't need to invest it in the business, we would either do share repurchases or dividends. But that's down the road. That's not in the near future. With that said, the last and final thing I think that people want to know is what are we committing to long term?
First and foremost is single-digit, high single-digit top-line revenue growth. Second would be $1 billion in new Prime Vendor signings each and every year. Third would be adjusted EBITDA growth at or in line with sales growth. That'll start in 2027. We're actually overcoming some of the tariff burden in 2026 because we chose to actually participate in the burden with our customers and took a pretty big hit this year just like they did, and then our commitment is to get to below 3x from a net leverage ratio perspective so this is kind of what our playbook is and what our commitment to the market is on a go-forward basis, and we're pretty excited about it so with that, I'll turn it over to Lisa.
Thanks so much, Jim. Thanks for all the comments. We really appreciate it. We'll give you a minute to get your breath, and I'm going to start with Mike, so as a new publicly traded company, maybe just spend a minute talking us through how you're thinking about your philosophy around guidance and when you'll give guidance and some of the key metrics and things to think about.
Yeah. So we as a company, as Jim mentioned, we are long-term focused. We don't run the business for a quarter or for the month. We run the business for the year and for the long term. So from our standpoint, we plan to give annual guidance. Our annual guidance will be driven by giving you organic growth of our business. There'll be total revenue growth if we do acquisitions. And we'll share with you adjusted EBITDA growth of the business. In addition to that, we are going to report our results every quarter. Our quarterly results will be very transparent and clear about what drove the results of the business. And we will be very clear to share with you the performance of the business from a segment perspective as well as from a channel perspective. So you have a better understanding of what drove the business.
We'll also be able to tell you how the quarter is playing out relative to the year, relative to our annual guidance.
As I think about the billion dollars a year that you've committed to signing for Prime Vendor relationships, this year, thus far, we haven't heard about the fourth quarter yet, but $2.1 billion. From our perspective, it seems to set you up really well for 2026 and 2027. Really two questions there. One, was there anything that's changed in the market that allowed you to drive that incremental billion-plus dollars than what you've normally done? And then secondly, you've talked a little bit about the conversion, but will it run along the same timeline of what you've seen historically? Or again, is there anything different in these new Prime Vendor relationships?
Yeah. Listen, the reason we commit to $1 billion is we believe that's what's going to come available every year that we can actually engage our customers and control. So we have a pretty good visibility into what that is. And then we take advantage of those market conditions that come into play by listening and actually learning from our customers. So this year, a few things actually accelerated the growth. First and foremost, how we handled the tariff situation. We ate the tariffs for the first seven months of the year because we did not want to act in a time of chaos and crisis and a lack of understanding of what reality was. So we waited until August to do anything. And we did not push all the tariffs that we ate, a significant portion of them, even after the price increase. So that's first.
Second, we have customers that are looking to accelerate value. And we are the value player in the marketplace. And they're trying to get in front of what's going to come with the cuts and reimbursement. How do we get the value play faster so we're ready for what's to come in the future from a cuts and reimbursement perspective? Third, there's concerns, I mean, just bluntly said, of the long-term viability of some of the competitors in the marketplace where our customers are saying, "Hey, we want to be with a supplier who we know is going to be around for the long term." And I say those three things have been accelerators for growth. And then finally, I think consolidation in healthcare and customers looking for one supply chain solution provider that can serve every care setting that they own has also been a tailwind.
Those aren't going away in 2026. However, we're not committing to anything that we don't control. We have to work with our customers to earn that, which is why it's still a billion. From a conversion perspective, there's two ways to look at the conversion. One is revenue realization from that $2.1 billion. The way that works is 20%. We realized in the first year. So in 2025, we realized 20% of that $2.1 billion. The second year, we realized about 60%. So in 2025 was 20%. In 2026, we'll realize 60%. In 2027, we'll realize 20%. So there is a pretty good confidence in what our potential growth is because we have visibility into what's going to be realized. And then finally, that conversion curve Medline brand will be consistent.
However, we do have a very large customer that we signed this year who said, "Hey, we want to convert all of Medline brand before we actually convert the Prime Vendor distribution because we want to get to the savings now to prepare for tomorrow." So we're seeing some acceleration happening.
Jim, is that unusual in the marketplace for them to want to convert first before the Prime Vendor relationship? Do you think that sets a precedent? I mean, clearly, we've heard this, right? Affordability. I thought I'd heard about costs consistently over the last few days at this conference where hospitals are really battling right now. You talked about cuts to the ACA. You talked about cuts to Medicaid. And so do you think that this sets a precedent for others to do something similar as we move into the next few years?
You know, I think that's an end of one that I just described, right? It's not like this. But you do have customers that are accelerating value streams. And they're looking for how do we get the best value day one and day 365 because you can't do it once. You have to do it on a consistent basis. And so do I think this could actually be an accelerator for growth from that perspective? The answer is yes. But I also, and candidly, we tend to be the barometer at pace of change because too fast can actually create more problems than it actually yields from a value perspective.
You've captured a lot of market share in the acute market over the last several years. When I think about the non-acute market, what are some of the opportunities there? You touched on it a little bit that the Prime Vendor is primarily in the acute and the adjacent to the acute, but what are some of the opportunities in the non-acute market?
Yeah. So Prime Vendor, we'll use the term, and we call it supply deals in the non-acute market. It exists in surgery centers. It exists in physician offices. When you sign a nursing home or a skilled nursing facility, you normally get 100% of the business. We just don't call them Prime Vendor deals because we have a focus around maximizing the conversion curve. And it's a much slower pace of change in the acute care market. But I think those markets will grow, candidly, probably twice as fast as the acute care market because of the shifting sites of care. So it is an opportunity. And the integrated delivery networks are starting to own much more of those and really owning kind of where does that patient get the best care for the lowest cost of care, right?
The worst place for you to go if you have a cold is the emergency room. It's the highest cost of care. You may get the worst outcome. The best place is actually to do a call and, right, to say, "Hey, doc, can you call a Z-Pak in for me?" and so we have to work in conjunction with our customers to figure out how do we actually navigate that change and do it in a way that yields the best outcome.
When I think about your model as being really differentiated in the marketplace, it's really about this vertical integration that you've pulled together. When we think about competition in the marketplace, you talked about the fact that this company is nearly 60 years old. We've seen a lot of different iterations of medical supply companies over the years, whether it's distributors trying to get into private label or the manufacturers trying to self-distribute in some way. Can you maybe just spend a minute talking about the competitive landscape and the moat that you believe that you have within Medline?
Yeah. I think one of the major differentiators is we started as a manufacturer first. We have 33 manufacturing facilities that we own and operate. So that represents about a third of Medline brand. two-thirds is actually leveraged through 500 global sourcing partnerships, 300 of which are exclusive to Medline. Some of them are 30-40-year relationships. And the fact that we built that muscle and that DNA first before we got into distribution is a major differentiator between us and the competition. And then when we got into Prime Vendor distribution, we didn't get into it to compete with healthcare. Healthcare needs to evolve and actually, I mean, my first job was in grocery store supply chain in 1994. And I can tell you the grocery store supply chain in 1994 was better than the healthcare supply chain as of 2025.
How do we actually bring them forward into the future and create a supply chain that competes with any industry? The CapEx allocation that we've invested in supply chain is literally 5x-6x the competition. That's why we have 29 million sq ft. We have robotics. We have over 2,000 AutoStore robotics throughout our network that picks less than case. We just invested in Symbotic, if you're not familiar with that, that actually automates the bulk side of the distribution center and actually shrinks the internal footprint and cuts the labor by about 50%. I think we have great competition on the manufacturing side, and we have good competition on the distribution side. What we don't have is a competitor that actually does both in an effective way. The way we look at it is we're a best-in-class manufacturer.
We're a best-in-class distributor, leveraging both sides of the whole to actually do a complete solution for our customers, and that is the difference between us and all of our competition.
Let's spend a few minutes on Medline brand. if we look at surgical solutions, it's been a real standout, the driver of the top-line growth. You've had solid utilization backdrop, unfortunate for my managed care companies. But beyond the end market strength, what's really been driving that double-digit growth in that business line?
Yeah. Our largest product category is kitting. And kitting is what you, when you go into a surgical procedure, call it a lap chole, an open heart, a total knee, we actually bundle the supplies that they actually pick for that procedure into a surgical kit. And this is our largest growth conversion year ever. And I think it specifically has to do with we handled some of the really trade compliance guidelines and some of the tariff situation from a USMCA perspective different than the competition in a way that we were actually able to drive savings when competition was raising prices. And so that led to an exponential growth in that segment. And what's amazing about that business is there's so much greenfield. And when you meet with a customer and you find that they're pulling 100 items for a specific procedure, it creates an opportunity.
Instead of them opening 100 items for a procedure, you can actually build it in a way where you sterilize it one time instead of 100 times, and you build it in a sequential way where they open it up on the back table and they can do the procedure and turn the room over and actually add extra cases, which generates revenue and income for the organization, so the number one reason why Surgical Solution is performing is we are outgrowing and outpacing both in the operating room, and there's also kits in the nursing procedure area. Think about laceration trays, suture removal trays, bloodstream infection kits. I mean, all those things are growing in a pretty robust fashion.
I know we've met several times and we've talked about different Medline products and expansion into other areas within Medline products. Can you maybe just talk to the group around where you see opportunities for incremental products within Medline and where your focus is right now?
You know, we follow a process called growth vectors. Everyone in the company knows what it is, and every product division, every commercial division, and every support function is empowered to actually suggest, "Really, here's a new category we should get in. Here's a new service we can get in, and here's a new market we can get in." That's how we ended up in animal health is we had a sales leader do some research, came to us and said, "Hey, we're interested in animal health." We said, "All right, go check it out and come back and tell us the why," and that's how we launched into the space. We just launched into forced air warming. If you know much about Bair Hugger, it's a forced air warming that actually increases the core temperature of the body before you go into surgery.
We followed the same kind of playbook: research, duplicate, and improve upon. Our competitors, think about a hose that you connect to something. Didn't have a click. So sometimes that would pop off in surgery. We actually put a securement device on that. So it's things like that that we continue to do. But I would tell you, we're going to stay in Class I and Class II device manufacturing. We're not interested in getting into Class III and IV. I get asked that all the time. We know who we are, and we know who we're not. And there's tremendous opportunity within the existing categories or landscapes that we actually go after.
When we think about your ability to take price increases, I noted that you've talked several times about tariffs and that you waited some period of time to take some amount of price increase. How do you approach balancing price increases with the value proposition versus other manufacturers? How did it shake out? Is that usually when you take a price increase? Is the beginning of each year like we see in pharma?
Yeah. So pricing has never been a lever for growth. It's less than 50 basis points in our history. So that has not been a lever that we've kind of maximized because we focus on how do we mitigate the price increase by working with our partners to actually convert Medline brand? because I would rather get Medline brand, drive the savings and the value, and mitigate the cost increase to our customers. However, I would tell you, and we did have to push price increases last year. Our normal pricing cycle is January 1st and July 1st. We call it smart pricing.
Those are categories that are either kind of negative margin that we have to do something in order to continue to manufacture it or things that are significantly below the market that we can actually increase to actually put money back in the bucket for us to invest in the business. That's how we look at it.
When I think about Medline brand margin on the surface level, when we think about 2025, it's getting stepped down from 2024. Our expectation is that it steps down a little bit again in 2026. After your anniversary, the new tariffs, how do I think about the timeline and the margin recovery and what the key components of that are?
Yeah. So if you think about Medline brand margin, it's adjusted EBITDA of 26%. That is going to come down with the tariffs. The impact from the tariffs are impacting Medline brand margins. The things that drive Medline brand margin are the following things: our ability to leverage our sourcing relationships that Jim talked about, our ability to operate our manufacturing sites more efficiently, our ability to leverage our existing SG&A, our fixed costs that drive our overall margin improvement, and lastly, our ability to Medline brand product mix. If you think about our margin goals, we're not driven by margin percent. We're focused on delivering to the company overall, EBITDA growth at or greater than sales.
Just, Mike, as a reminder, it's been a few months when we think about the actual impact from the tariff. So do you want to remind us what's in your expectations?
It wouldn't be a meeting without a tariff question, right? So if you think about the tariff impact to us, as I mentioned earlier, Medline brand is really what's been impacted. We have quantified that impact to us. It's a $525 million impact. That is a net of mitigation impact. That's a net number. That $525 million has impacted us in 2025 to the tune of $325 million. And it will impact us by an incremental $200 million in 2026. The vast majority of the impact to us happened in the second half of 2025 and into the first half of 2026. You see the tariffs start to normalize into our base as you get into the back half of 2026. So mitigation impacts are favorable, right? We've driven a number of impacts to drive down that cost. Let me talk about a few of them.
One, and this is not new to us. We have a very strong muscle to be able to generate supplier diversification. We're very focused on moving our production to lower-cost, lower-tariff countries. It's something we've been doing for many, many years. We did this during the pandemic. We did it in 2022. We continue to do it today. In addition to that, we are leveraging nearshoring and the USMCA exemptions. Third, we are leveraging our operating, our manufacturing footprint to drive operational efficiencies. Four, we raise prices, as Jim talked about on August 1st. And lastly, we have the benefit of being able to go to our customers and say, "There's a million-dollar price increase. However, if you convert to these Medline brand categories, you can offset the cost of that price increase." We continue to do that today to offer those value savings to our customers.
As we sit here today, we're waiting for the Supreme Court to make a decision on the tariffs. Really two questions here. One, if they were to be struck down, does the government give you a check back? No. Okay.
No, expect a refund.
And then secondly, as we think about Section 232, if they do strike the tariffs, do you think that they look at that more closely and try to come at it from 232? And if it stays, is there an incremental tariff that could happen with Section 232?
We do expect that once if the Supreme Court were to strike down the IEEPA tariffs, there would be a follow-on tariff set from the government, which would ultimately then lead to possibly 232s. The 232s, the benefit of 232s has been the fact that we've been able to share information with the government. We gave them a lot of information. If you go back in the prior Trump administration, we had a lot of products that were exempted from tariffs. And so we are hopeful that as we share that information again, we'll have the opportunity to get exemptions on healthcare products. If you think about the current IEEPA rules, we're not able to get exemptions.
We only have a minute left. I can't believe how fast this went. I generally like to end these sessions to make sure that investors walk away with the right message from the management team. So Jim, as we're sitting here a year from now, what do you hope that investors will appreciate and understand better about Medline than perhaps they do today?
I think the number one question I keep getting asked is, "What's going to change about the company?" And the answer is nothing. We do town halls. I did town halls when we did the LBO, telling our employees and our staff that yesterday your job was to deliver results. Tomorrow, your job is to deliver results. And the way we built the company is intentional, and how we plan to go forward is in the same way. First and foremost, focus on the customer, listening to our customer, creating innovative solutions, and driving value to our customers. And so we, as a company, are going to, Mike, Karen, and I are going to shield the organization from all of you. And we're going to focus on doing the right things for our customers, which I believe will yield consistent growth on a go-forward basis.
Great. Well, we look forward to seeing you next year and hearing about what happens here in 2026. Thank you, everyone, for joining us. And thank you to Medline for your first presentation. Great job. Thank you.