Hi, everybody. Thanks for joining us this afternoon. My name is Brandon Vazquez. For those of you who haven't met, I'm one of the medical device analysts here at William Blair. We're excited to have Medline with us here. First, I am required to inform you that if you would like a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. We have with us Mike Drazin, CFO of Medline, and also Amanda Laabs, EVP and Chief Product Officer. We're going to do a fireside chat here. As normal, when we do these fireside chats, because a lot of people are new to the story, I'm going to keep things pretty high level for the most part, maybe ask one or two pertinent questions at some point. Mike, maybe let's just start off.
Let's literally just start at the basic here. Talk to us about what Medline is and give a little bit of I think what's interesting here, too, is that you have a very long history of building this company, what it is today. What do you do, and what was it about maybe needing to be a private company for so long to get to where you can to do what you do today?
Medline is the largest provider, largest manufacturer and distributor of medical surgical supplies. We've been around since 1966, and our mission really is to make healthcare run better. We do that by offering the Medline brand, which is very broad, with 190,000 of our Medline branded items. We support that with our distribution capabilities, which are best in class, probably the best service levels in the industry. If you go back in history, what's important to know about Medline is we started as a manufacturer first. Our roots of our company are products which we manufacture or sourced the best quality, low cost products in the industry to support our customers, like a healthcare provider or acute care hospital. Over time, we got into distribution because our customers asked us to. They wanted one supplier, we call a prime vendor, for all their medical surgical supplies.
We got into that business, invested in distribution to become the best in class with the highest service levels in the industry. The combination of the two, which is our vertically integrated business model, is what makes us unique and makes us the value player in the industry today.
Spend a minute. Let's deep dive into, you mentioned highest service levels in the industry. What does that mean?
Yeah.
What kind of investment in CapEx, what kind of investment in distribution do you need to be able to reach that? This feels like to me, part of what I like about this story is a lot of times in med tech, people ask, what's the competitive moat? You have soft points, but you have very hard, tangible moats here of what it is to reach the service levels you're talking about.
Yeah. If you think about our business, we've invested billions of dollars to build out our distribution network over the many years. We have 45 distribution centers in the U.S., 29 million sq ft of space. We carry almost $5 billion of inventory. We have our own trucks and trailers, 2,000 of our own trucks and trailers. We invest in automation, both AutoStore robotics for lowest unit of measure. We're now in the process of investing in a new bulk automation with a product called Symbotic. We've invested for growth. We've invested for the future. We've invested to build what we call best in class service levels or fill rates. We want to provide that customer with the product next day. The customer places an order today, we want to have the highest level of availability the next day to arrive in their facilities.
The business has been built to provide service and products to the customer, the best supply chain, the best supply chain resiliency to the customer. We do that through our broad product portfolio, where we add value and save money for that customer. We guarantee 5%-10% savings every time we sell the Medline brand to that customer. The best service levels by offering them the best product the next day. We deliver next day 95% of our customers across the U.S. We also serve the entire continuum of care. What I mean by that is we serve all points of healthcare. We serve hospitals, nursing homes, home health, hospice, physician office, surgery centers. No other distribution competitor serves all points of care like we do. We're the only provider that can do that.
We built a scaled organization, our sales force of over 4,000 employees who are segmented by channel, focused on those customers every single day. They're in those facilities every single day to add value and provide the best offerings to those customers as well. We've invested in our business through scale, which we are able to leverage, by what I mentioned, our distribution network, our vast manufacturing footprint. We have 30 of our own manufacturing sites all over the world, where we manufacture about a third of our own products. Our 600 suppliers across the globe, where we source about two-thirds of our Medline branded items every single day. The scale enables us to be successful and drive value for our customer.
You made a comment earlier that you started, you're one of the largest. You're the largest distributor in medical devices. I'll ask you, because I don't remember the number off the top of my head, but what percent of the top hospitals in the country already use you as a prime vendor or you're already a customer of? Part of the question, too, also, again, level set everybody here. You are this large. You've been this successful. How much room is there left for you to grow over time?
We still think there's plenty of room left for us to grow. If you think about the business, the top 150 hospital systems in America, we are the prime vendor at about half of those hospital systems today, which means there's still 50 more percent for us to go gain share. If you think about that space, the non-acute space where we also serve, so physician office as an example, we do about $1.8 billion in a $9 billion+ market. Plenty of room to grow. In the nursing home space, we are about 1/3 of the market. In the surgery center space, we're also about 1/3 of the market. There's plenty of room still to grow, both in our acute care setting, which where we're the largest, as well as in the non-acute space.
Okay. The scale and the distribution you guys have built over time has allowed you, as you were talking about this prime vendor model. Let's dive into that for a second. I think just so everybody understands, because this feels like it's an integral part of the thesis here. What is a prime vendor? How do you become a prime vendor, and why are they selecting you to be this?
A provider wants one supplier for all their medical surgical supplies. That's called a prime vendor. We enter into a prime vendor contract. Typically, it's a five-year deal where we are providing the vast majority of their supplies to them every single day. The objective there is to provide them one truck a day, essentially, one delivery a day versus having multiple different deliveries from multiple different fragmented suppliers. If you think about our business, we segment our business into two segments, the Medline brand and supply chain solutions. Medline brand are our 190,000 Medline-branded items that we source or manufacture every single day. Supply chain solutions are someone else's third-party products that we distribute on behalf of those suppliers to those customers.
We leverage both the Medline brand and the supply chain to be best in class as it relates to being a prime vendor for those customers every single day. Now we offer value and drive value through our brand. As we talked about earlier, when we deliver, when we sell the Medline brand, we drive value and savings by guaranteeing 5%-10% savings every single day. Our model, very simply, is this. Win that prime vendor customer, where on day one when we sign that prime vendor customer, it's typically 90% supply chain solutions and 10% Medline brand. We go in and we drive value by converting them to the Medline brand over time. If you think about our curve, typically on day one, it's 90% supply chain, 10% Medline brand.
The average penetration can get up to 60% in a hospital setting today, or 80% in a nursing home, and in the acute care setting, where it's up to 60%. Today, we average about 32% across our entire prime vendor portfolio. If you think about that, it's typically 10% in year one. We get an extra 10% in that first year of conversions, and then about 2%-3% thereafter. If you look at our cohort curve by year 10, we're at about 42% Medline brand penetration.
As you are coming into these accounts, there's an upfront benefit from the prime vendor just streamlining supply chain and distribution a little bit for them. The other part now is giving them a little bit of cost savings. Talk a little bit on your end, on the Medline side, as you convert and you go from 10% to 60% of the products in the account being Medline branded, what are the benefits you see as a company at Medline?
I think overall, when you think about that transition to Medline brand, you're going from supply chain solutions margin of roughly 5% to Medline brand margin of roughly 20+%. For us, it's really helping them to go along that chain to continue to have the benefit of better margin for Medline. I think at the same time, as we're converting more customers, we're also gaining more scale, which then helps us to continue to develop those products and continue to drive costs down.
Sure. I had one time naively asked someone over at Medline, "Why does it take so long to convert from 10% to 90%?" I had someone very patiently explain to me.
Yeah
about how just changing a surgeon's gloves is a big deal. Let's start. I want to have a little bit of a Medline-branded conversation specifically, but first start with, help frame for all of us, why is this a 10-year process to convert to Medline brand?
Yeah. First, I think when you think about that 60%, for us, it's 190,000 different products across several different categories. For a customer, when you're going in and having that conversation, you're having to take category by category to a clinician, to a different part of the facility, and make sure that you're talking about the value. In some cases, it's very simple items that we can make a change and nobody really knows the difference, and those are things we typically handle up front. When Mike talks about you start out at 10% and you go on each year, we're handling a lot of those commodity items up front. As you get into items like drapes, as you get into items like urologicals, those require trials. There's only so much a hospital can absorb at a time.
We've found there are some facilities who are very aggressive, and they come to us and say, "We would like to do 20 categories this year." If they have the right buy-in, we can do that. Most facilities, though, you're looking at the 190,000 different products, you're giving them choices in terms of what they would like to convert, and you're handling one or two categories per quarter and going at their pace. I think the great news about our broad portfolio is you're really putting it in front of a customer and saying, "What's your priority?" That's our focus. Mike talks about a customer-focused organization. We really are focused on, "Hey, listen, there's a lot of ways we can deliver value for you. You choose, and we'll help you, and we'll go at your pace." In the long run, that helps.
It's the big things and it's also the small things. You think about these are in a lot of storerooms. You have to change a lot of labels. There's a lot to it.
Okay. Amanda, maybe we'll stick with you on the product side. As you think of Medline brand, clearly you've gotten to the SKUs that you have over time.
Yep.
Internally, how do you guys think about developing new products? When you enter markets, maybe not always, but it seems like there are a lot of examples in your portfolio that you may try to bring a little bit of differentiation. Talk to us about that process and where you focus on.
We do. I think it goes back to the customer. I think we're incredibly customer-focused. We spend a lot of time in the field. We have 450 product managers who we really empower to spend time at the bedside, to spend time in the OR, to learn these products. When you think about some of the recent products we've introduced, there's a dressing product called OptiView, and it's a transparent dressing. What happened is we had a product manager who went out and was at the bedside in-servicing our foam dressing. They noticed that clinicians were lifting the foam dressing to look at the wound and to look at the site underneath. They quickly understood that we could make something different that allowed them to still have the protection but had transparency to it, so they didn't have to lift the site.
Of course, when you lift the site, you maybe have utilization issues, but you also have an issue of potentially having that not work for the patient anymore. The great news about our product managers is they own that customer relationship. They also understand what's happening at our factories and the technologies we can leverage. He was able to go back, create samples that he then brought back to that customer and say, "Hey, I noticed this is happening in the trial. Would you consider something like this?" Now it's a really important product for us in advanced wound care that's helping us grow. It's also then helping us to go back and look at traditional foam spend, where we didn't necessarily have that kind of conversation in the future. I think that's really how we look at it.
We have product managers who are really empowered. They are across all of these categories. They're thinking about the investments we need to make to continue to expand our products.
If I remember correctly, you have a product portfolio in the Medline brand that can reach or service about 60% of the market.
Correct.
What's the thought process on, is 60% the right number? Are there more opportunities to take that higher?
Yeah, we definitely believe that there's close in opportunities to continue to expand. When you think about our product management team, there's a handful of things that are really big products that we'll introduce, but we do a lot of singles that expand our TAM in that way that are important to us.
How do you think about doing those organic versus inorganic?
It's mostly organic right now, but certainly we're looking for opportunities, and with the Microtek acquisition, that was a good example. When it's the right opportunity, at the right price, we go for that.
Okay. Let's stick on Medline for a second, the Medline brand, and talk about something topical now that we've received a lot of questions on. There was an FDA warning letter disclosed yesterday.
Yeah.
Let's first maybe hit on that FDA warning letter. This flows into this conversation, right? You're a manufacturer as well. Let's talk about quality and start on that warning letter.
We did receive an FDA warning letter that was publicly released yesterday. That letter relates to our CHG wipe manufacturing at our ReadyCare Waukegan facility, and it also is associated with the active ingredient that we make at our Hartland, Wisconsin, manufacturing facility. Really what this goes back to is we had a matter that happened in October of 2025 that we identified, that the FDA was aware of obviously, and we made them aware of. Ultimately we took the action immediately to stop manufacturing that product in October of last year. We continue to work with the FDA to remediate the matter. We've invested and continue to invest in remediating the matter, and we intend to, over time, put this product back on the market when we are ready to do so and the FDA has approved us doing so.
We take product quality very very seriously. This is not something that we look beyond. We are very intent on making sure that our product quality is at the highest level. We will continue to invest in our product quality and our quality management systems and our quality people to ensure that we provide the best quality products to the industry.
Maybe two more questions on this topic. We'll move on. One, just homework on that one. Any financial impact that we should think about this warning letter?
Yeah. As we talked about in our first quarter earnings call, we highlighted the fact that when we have things like product recalls, which we've had in the past, so far none of those have been material to our overall financial statements.
Okay. The other one to close this up, because I've had a couple questions on this as well, that there was another warning letter a month or two ago on a different facility, I believe. The question just essentially being, overall, you kind of hit on this, but how do you guys feel about quality? Are these linked at all? Is there some recurring theme here that you guys think you need to invest in for quality?
There's no recurring theme. There's nothing systemic at all that we would be worried about. We do, as I mentioned earlier, we are taking product quality very seriously. We are investing in product quality matters. We've invested, like I mentioned, in the specific facility to remediate this CHG wipe matter. We're also investing in broader quality management systems. We're investing in technology and people to ensure we have the right processes, the right people in the right places. I want to just maybe comment on a higher level, just to give you a perspective. For us, we have the broadest product portfolio in the industry. There are going to be, from time to time, product challenges that we're all going to face. Not to minimize this at all, but the ultimate fact of the matter is we have a broad product portfolio.
The other thing I think it's important to understand is that because we sell our own products as well as someone else's products, when we do have situations like this, it may show up as a larger quantity of recalls than it really is. What do I mean by that? If we have an item that is, make it up, a surgical instrument that gets recalled. If it's in our kit, it's in 12 kits, it'll show up 12 times as a product recall when the reality is that it's only one recall. The other fact of the matter is that when there's a third-party provider that has a recall, we help them with their recalls as well. That might also show up if it's in our kit as a recall as well.
The reality of the matter is we are focused on improving our quality, making sure we have the highest quality. We're investing in it, but we do not think this is systemic.
Good. Great. Let's go back to the prime vendor contracts. Historically, you guys have talked about, I think the expectation is that every year you'll sign about $1 billion of new prime vendor contracts. I want to go back to 2025 because it'll let us hit a bunch of topics where you guys actually signed $2.4 billion-
Yeah
of prime vendor contracts. Let's start at the high level, and I think that's going to bleed us into some other important concepts and topics here, but why did you sign such an elevated level in 2025?
If you think about our business, we are very focused on gaining share every single day. We gain share through these new customer signings. We signed, like you said, $2.4 billion. We're really pleased with those signings last year. The market dynamics allowed us to do so. Part of it is our business model. Part of it is our value proposition that we've created and the value we provide for our customers. Part of it is the competitive landscape that's going on in the marketplace today. Part of it was, I think, the way that we handled the tariffs. If you think about the tariff situation, we were slow to respond intentionally. We intentionally monitored the situation. We didn't overreact when they first came out.
We waited to take our time to understand what was really going on in the marketplace, we took a price increase in August of last year. We were very transparent with our customers on what that meant and why we were doing what we were doing. In fact, we only absorbed a portion of the overall tariff impact. I think the combination of those three things, our value proposition, the market competitive dynamics, and the way we handle tariffs, have enabled us to really gain some additional share, and that's why you saw $2.4 billion. Probably your next question, not to take your next question, but it's going to be, well, how much are you setting as a goal for this year? Our goal this year, our goal every year, is to sign $1 billion. Why? Because that's what we can control.
That's what we know is available to be controlled by us to win in the marketplace. There might be some years where we win more when the market dynamics allow us to do so. Ultimately for us, we have line of sight and confidence in signing $1 billion of new customer signings every single year.
Okay. When you're signing these relationships, what do they typically look like in terms of duration? Maybe talk to us a little about retention over time?
Yeah
with your prime vendors.
Typically, they're five-year contracts with rights for multiple years of renewals. The retention rate is 98% over the past 5+ years. We focus on our existing customers and take care of our existing customers. They're as important to us, if not more important to us, than new customers, right? If you lose existing customers, you can't grow the business. For us, we want to make sure we retain our existing customers first and then sign new customers.
Sure. As you signed a larger mix of the prime vendors or a larger amount of prime vendors in 2025, talk to us about what is the short-term financial impact of that, and then what should be the medium to long-term impact of it as well.
When we sign a new prime vendor, a new customer signing, as I mentioned earlier, typically in year one, it's 90% supply chain. That's at a 5% EBITDA margin. Over time, as we convert to Medline brand, it moves to 22% EBITDA margin when you convert to the Medline brand item. In year one, it is margin percent dilutive to sign a new customer, essentially, right, because it's more supply chain. Over time, it drives margin accretion. Really how we think about this is we don't care about margin percent. We're focused on margin dollar growth. They will be margin percent dilutive when we sign a prime vendor, and over time, as we grow the business and we convert them to more Medline brand, it's margin dollar accretive and growth-oriented for us.
Okay. Let's move a little bit into today, into 2026. You talked about how Medline, one of the benefits to the customers is that you move slowly in the sense that you move thoughtfully.
Yeah. That word
is maybe a better word than slowly. You move thoughtfully. You don't take price increases right away. What does that mean for 2026? We have exposures to the Middle East, inflation, et cetera.
Yeah.
Just talk to us about the moving pieces in the 2026 guide now as you think about that again?
At the end of the first quarter, we raised our sales guidance to 8.5%- 9.5%, given the strong first quarter growth. We grew 11% overall in the first quarter. We grew about 10.1% organically. Because of that strong performance in the first quarter, we've raised our sales guidance 8.5%- 9.5% for the year. On the bottom line, we achieved our EBITDA goal that we had set out. We are facing some headwinds, as you know, from the Middle East. We have reconfirmed our EBITDA guidance of $3.5 billion- $3.6 billion for the year in the face of the Middle East headwinds and some additional investment in our business. Offsetting that is favorability from the tariffs. Let me take them one by one.
On the tariff side of the house, we initially called out at the end of last year or end of February, when we reported guidance, we communicated that there would be $490 million of tariff headwinds to our business overall, $200 million incrementally from 2025. That was prior to the Supreme Court ruling against the IEEPA tariffs. The tariffs changed to 122s at 10%. With that change to 10% at 122s, we will see some favorability in that number in the second half of this year. There's favorability from the tariffs. The offset to that is the Middle East, in which we are starting to experience cost increases. Let me talk about that. In the Middle East, there's two real factors. One is the bigger impact is raw materials and finished goods.
When we buy nitrile exam gloves, we buy resins and plastics to manufacture or source our own goods, we're seeing elevated costs for those products. In addition to that, we have 2,000 of our own trucks and trailers. We spend money on diesel every single day to fuel those trucks and trailers. We're seeing those cost increases as well on the diesel side. We were paying $3.89 just two months ago. Diesel now, if you look outside, is close to $6. It is costing us some dollars. The combination of those two are impacting us in the second half of this year, but we're offsetting that again with the tariffs. In addition to that, we've made a concerted effort to invest further in our business this year, beyond what we initially had planned on, to support the growth from our new customers and our existing customers.
The combination of all those, we're maintaining our guidance for the year.
Okay. That's great. On the pricing side, you had made a comment that in 2025, and correct me if I'm wrong, that maybe you don't pass through 100% of the price at the end of the day. Talk to us about where you decide you can and can't, or maybe can and can't isn't the right word.
Yeah
and choose not to.
Yeah. We made a decision in 2025 when the tariffs first hit to study the situation, to be thoughtful, not slow, to be thoughtful about how we manage the situation. We made sure we understood what was going on before we reacted, because we think about the customer first. Once we had a better understanding of where the tariffs were going to land, we made a decision to eventually raise prices for a portion of the cost increases. We raised prices a certain percentage to still maintain our competitive advantage in the marketplace as a value provider. We absorb a good portion of the tariffs. We also believe we gain share from that action, and we'll continue to focus on that going forward. Fast-forward now to 2026, the Middle East costs have started to inflate.
We'll see that the second half of the year. Today, we have no plans to raise prices, but we are evaluating the same situation based upon what we see. If this continues to persist and it continues to elevate, we'll make a decision later this year if and when we should choose to raise prices.
Okay, great. Maybe in the last five minutes here, I realize actually I'll take us to the beginning, because what I didn't talk about is just the growth algorithm for Medline.
Yeah.
Let's finish on that so that everybody has that information as well. What do you expect this to be as a top-line grower? Talk about the algorithm that you've communicated to hit that number, and then talk about how you compound that on the EBITDA line.
Yeah. Our long-term goal is to deliver high single-digit organic sales growth, and we've done that historically for the past many years. How we do that is both through same-store sales, so existing customer growth. We think the market is growing at 3%- 4%. We think we can grow faster than the market. In addition to that, new customer signings. As I talked about before, we signed $2.4 billion of new customer signings last year. Our goal is $1 billion again, once again this year. We're well on our way to achieving that goal. The combination of same-store sales plus new customer signings will get you that high single-digit growth.
Okay. As it relates to the bottom line?
Yeah. Bottom line. Our long-term target there is EBITDA growth at or greater than sales. Again, we are not a margin percent accretion. We're not focused on expansion. We're focused on dollar growth. For us, EBITDA growth at or greater than sales. Now, you won't see that in 2026 because of the tariffs in the Middle East, but as we move further out, we expect to see EBITDA growing at or greater than sales.
Okay. As you were talking about end market growth and existing customer growth, one of the big topics, and I'm sure a lot of people here have been asking about as well, is kind of the ACA subsidy headwinds, well, in potential headwinds, Medicaid cuts coming up. What are you guys seeing so far from these, and are they impacting growth at all? What are you baking into guidance for them as well?
When we gave our full-year guidance back in February after full-year earnings, we basically guided to 8%-9% organic growth. In that guidance, we basically said that we expect to see some moderation in same-store sales in the back half of 2026 because our customers were telling us they expected some impact to utilization and procedure volumes given the ACA enrollment, given the Medicare Medicaid cuts. We didn't see that in the first quarter. Our first quarter results are very strong. Top-line growth, as I mentioned, about 11%. We have not seen that so far. We've maintained that assumption in our guide. We maintain an assumption in our back half of the year there'll be some moderation, not significant, but some moderation sequentially in the same-store sales because of it. If that doesn't happen, there's further upside in our numbers.
Okay. To what degree, maybe the last question I'll leave here, and then we'll go out to the breakout room. I think there's a little bit of push and pull as you think about this backdrop, and this isn't just the U.S. If you look internationally, it might even be worse there with the budget constraints. There's a little bit of a push here where it's just a tough market, and maybe in some of your other lines, you can't take price to offset. Maybe arguably you're a part of the solution because you can drive more Medline brand. How do those two net out one another as you look at the market that we're in today?
I think if you go back to history and even to this day, we tend to outperform in times of crisis and times of strife. If you go back to the pandemic, we performed extremely well during that time. We performed really well during 2022, coming out of 2022 into 2023, when there was an inflationary environment. I think we've done very well in Section 122 with the tariffs, if you go back, even way back in the days with recessions. I think what really matters here is that our business model, our value proposition, the fact that we are the value player in the marketplace is what differentiates us. Our customers, in times of challenge, are looking for that low-cost solution. They're looking for supply chain resiliency.
We offer both of those things because of our scale, because of our diversified network, because of our product portfolio, because of our long-standing relationships being a product company first, we built that supply chain resiliency that I think really matters. Because of all this that as well and then some additional stuff, our ability to provide the lowest cost product and adding value and savings for them is what really differentiates us.
Okay, great. Well, thank you, Mike. Thank you, Amanda. We are going to go up to Mayer breakout room, and we'll have a little more Q&A there. Thanks, everyone.
Thank you.