Medline (MDLN) 2026 年第 3 季財報電話會議：上調營收指引，2027 年面臨利潤率壓力

重點摘要

• 2026 財年第三季淨銷售額年增 10% 至 79 億美元，幾乎完全由有機成長驅動。Medline 品牌業務成長 7%，而供應鏈解決方案業務成長 14%。
• 調整後 EBITDA 成長 12% 至 10 億美元，利潤率擴大 10 個基點至 12.2%。業績包含來自 IEEPA 關稅退稅及相關客戶還款的 8,100 萬美元收益。
• Medline 連續第三個季度上調 2026 財年全年有機銷售額成長預期，從 9%-10% 調升至 10%-10.5%。調整後 EBITDA 預期維持在 33 億至 34 億美元，管理層預計接近中點。
• 管理層的 2027 財年初步框架預計淨銷售額將實現高個位數成長，但由於通膨以及對產能、自動化與品質的投資壓迫利潤率，調整後 EBITDA 僅成長低至中個位數。
• 該公司前九個月產生了 18 億美元的自由現金流。現金與短期投資達 36 億美元，而淨槓桿率從上一季度的 2.9 倍降至 2.5 倍。
• Medline 授權了一項 10 億美元的股票回購計畫，並於 10 月預付了 7.5 億美元的定期貸款，同時將投資於本業及附屬收購（bolt-on acquisitions）列為其資本配置的首要任務。

重要財務業績

業務與營運表現

Medline 品牌在三個產品類別均錄得成長。外科解決方案銷售額受外科手術包與更廣泛的手術室需求支持，成長 8% 至 17 億美元。前線護理銷售額受檢驗手套與個人護理推動，成長 4% 至 17 億美元。實驗室與診斷在現有客戶需求與新導入項目的推動下成長 14% 至 2.72 億美元。

供應鏈解決方案銷售額成長 14% 至 42 億美元。成長來自新主要供應商導入與現有客戶，進一步擴大了隨著時間推移將客戶轉化為 Medline 品牌產品的機會。然而，該部門的調整後 EBITDA 利潤率為 4.4%，反映了利潤率較低的首年客戶回扣、續約及較高的營運費用。管理層預計 2026 年剩餘時間內，利潤率將保持在 4% 的中段水準。

該公司仍按計畫穩步邁向 2026 年新客戶簽約額達到 10 億美元的目標。在 2025 年創紀錄簽署的 24 億美元中，約 25% 在 2025 年確認為營收，預計 65% 在 2026 年確認，其餘將在 2027 年確認。

Medline 與 Mohawk Medline 在加拿大的首個主要供應商合作夥伴關係已在五家醫院上線。推廣預計將於 2027 年第一季末前完成。管理層將加拿大描述為具潛在重大意義的機會，但表示正採取循序漸進（「爬、走、跑」）的穩健方式進行。

位於加利福尼亞州特雷西的新物流中心仍按計畫將於年底前啟用。Medline 還透過在達拉斯-沃斯堡、南加州及密西根州規劃的設施增加物流產能。這些項目包含旨在提高產能、韌性及營運彈性的自動化設備。

管理層業績展望

Medline 將 2026 財年全年有機銷售額成長展望調升至 10%-10.5%。該展望包含前九個月減少銷售額的 7,800 萬美元關稅相關客戶退款。

該公司重申調整後 EBITDA 指引為 33 億至 34 億美元，並預計結果接近中點。管理層表示，強勁的銷售有助於抵銷通膨、業務組合變動以及對物流網路與全球品質行動計畫的持續投資。

針對 2027 財年，管理層提供了以下初步框架：

• 在同店銷售額、新客戶導入、適度調價及 Medline 品牌轉化的支持下，淨銷售額實現高個位數成長。
• 調整後 EBITDA 成長低至中個位數。
• 在第一季早期進行高於往常的價格調漲，以抵銷部分（而非全部）通膨成本。
• 重組計畫預計帶來約 8,000 萬至 9,000 萬美元的年化節省費用，主要在 2027 年實現。該公司預計 2026 年第四季會有 2,000 萬至 3,000 萬美元的相關費用，不計入調整後 EBITDA。
• 假設關稅稅率、柴油、原料及成品成本到 2027 年均維持在現有水準。

管理層繼續預期，在中東相關通膨或關稅未進一步增加且營運與品質投資未額外擴大的前提下，2028 年調整後 EBITDA 成長率將恢復至等於或高於淨銷售額成長率的水準。

風險與關注領域

通膨仍是近期的主要獲利壓力。Medline 將 2026 年中東相關成本的預估值從 7,000 萬美元提高至約 8,000 萬美元。該預估包含柴油、進口與國內運費、原料及成品，其中原料與成品佔大部分。管理層引用的柴油成本約為 6.25 美元。

隨著高成本庫存進入銷貨成本，預計對第四季業績的壓料將更加明顯。客戶與部門組合也限制了利潤率的擴大，因為利潤率較低的供應鏈解決方案成長速度快於 Medline 品牌。

全球品質行動計畫包含對 30 多個製造據點進行第三方評估，預計將是一項多年期計畫。管理層表示，隨著下半年投資年化以及新增項目的啟動，2027 年的品質支出將較 2026 年增加。

與 6 月特雷西物流中心火災相關的成本使第三季淨利減少了 8,000 萬美元，且已排除在調整後 EBITDA 之外。Medline 預計隨著時間推移將獲得全額保險理賠，截至第三季已確認 1 億美元。

分析師問答集錦

管理層表示，Medline 可以在其合約結構內實施價格調整。調漲價格通常於 1 月 1 日及 7 月 1 日生效，客戶會收到 30 至 60 天的通知。計畫中的 2027 年調漲將僅能抵銷部分增加的成本，Medline 打算利用品牌轉化機會幫助客戶減輕影響。

對於新導入的主要供應商客戶，管理層預計第一年 Medline 品牌轉化率約為 10%，之後每年額外增加 2%-4%。該公司認為，在合約生命週期內，這種轉化對於改善客戶經濟效益與 Medline 的利潤率至關重要。

管理層表示，重組計畫旨在精簡組織、減少重複性工作並為投資提供資金。管理層將該項計畫歸類為持續改進的一部分，而非重複發生的重組計畫。

10 億美元的回購授權可用於適時進行公開市場購買，或可能在次級交易中向贊助商收購股份。管理層未提供時間表，並重申在資本配置層級中，有機投資與策略性附屬併購仍優先於股東回報。

電話會議完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Good day, and thank you for standing by. Welcome to Medline's Third Quarter 2026 Results Conference Call. [Operator Instructions]. 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 2026 Earnings Conference Call. This morning, we issued our earnings release and shared supplemental materials. Joining me on today's call are Jim Boyle, our Chief Executive Officer; and Mike Drazin, our Chief Financial Officer.

During today's call, we may make forward-looking statements regarding our expectations for the future including our business plan, strategy and investments and expected timing and impact. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties.

Please see the cautionary statements and risk factors contained in our earnings release, which accompanies these remarks as well as our most recent 10-K and other SEC filings for more information regarding these risks and uncertainties.

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

With that, I will now turn the call over to our CEO, Jim Boyle.

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 2025. Net sales from Medlinee brand grew 7% with growth across all product categories and Supply Chain Solutions grew 14%, driven by new customer implementations and growth within existing customers.

Adjusted EBITDA rose 12% to $1 billion. Strong sales growth and tariff refunds drove the increase, partially offset by higher operating expenses, higher cost of goods sold from inflation and customer mix. With that backdrop, I'd like to highlight 5 areas that demonstrate the progress we're making across the business.

First, customer signings. We had another strong quarter of total new customer signs across multiple channels, including an agreement to supply physician offices for one of the largest health systems in the United States and a contract to serve the hospital labs of a large Midwest nonprofit integrated delivery network.

Based on our results so far this year and the strength of our pipeline, we're confident in reaching our full year goal of $1 billion.

Second, Canada. We're very encouraged by the progress we're making in Canada with our first prime vendor partnership with Mohawk Medline 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 2027, marking an important step in bringing our prime vendor model to Canada.

Third, Tracy, 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're making significant investments across our distribution network. We're 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, we now plan 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 800,000 square foot facility in Michigan to support customer demand in that region. Together, it will help make our supply chain more resilient and responsive.

Fifth, quality. I want to provide an update on the progress we're making under our Global Quality action plan. Patient safety and product quality remain paramount. As part of the plan, we have engaged independent third parties to conduct assessments across our more than 30 manufacturing sites worldwide.

Given the breadth of our global network, we expect these assessments to be a multiyear effort. We're also investing in people, processes and technology to strengthen our quality systems and capabilities while continuing to remediate any impacted products. These investments based on what we know today, are reflected in our 2026 guidance and our 2027 framework, which Mike will discuss here in a moment.

Overall, we're pleased by the momentum we're seeing and the progress we're making against our priorities. We're on track to achieve our total new customer signings goal, expand our distribution capacity and advance our global quality action plan. At the same time, we remain focused on navigating near-term margin pressure, as Mike will discuss shortly, while continuing to invest in the capabilities to support our customers and drive long-term growth.

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

Michael 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 Brands 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, one of our largest product divisions and broader demand for operating room products.

We continue to gain share by expanding kits with existing customers, helping them run more efficient operating rooms and by launching new kitting programs. Front Line 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.

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

Moving to sales by channel. U.S. acute care net sales grew 12% year-over-year at $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 margins, channel mix towards acute care sales and segment mix as Supply Chain Solutions continues to outgrow the higher margin at [ Lindblad.]

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 for the remainder of this year. Providing an update on the financial impact of the fire at our Tracy, California Distribution Center in June, related costs in the third quarter reduced net income by $80 million and are excluded from adjusted EBITDA. While we expect full insurance recovery over time, we have received and recognized $100 million through the third quarter.

Moving to free cash flow and the balance sheet. We generated strong free cash flow of $1.8 billion for the first 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 the business to drive sustainable organic growth through operational investments, capital expenditures and working capital. Pursuing strategic bolt-on acquisitions in products, channels and services or we can apply the midline 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 of $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 EPA tariff refunds in 2026 and including the $324 million in net refunds through the third quarter.

Turning to the initial framework for 2027. While we are now 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 IEEPA tariff refunds received or expected in '26 or '27. 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, mainline 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. Inflation. We assume diesel raw materials and finished good costs remain at current elevated levels through 2027.

Operations. We are investing in capacity, automation and capabilities to support our growth, as Jim mentioned previously. In quality, we are advancing our global quality action plan including investments in people, processes and technology as well as ongoing remediation.

Taken together, these factors explain why we expect adjusted EBITDA growth to trail net sales growth in 2027. We are deliberately investing to support future growth.

Importantly, our underlying commercial momentum remains strong. The slower adjusted EBITDA growth relative to sales in 2027 primarily reflects elevated costs and deliver investments in 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 net sales growth in 2028. We felt it was important to share our preliminary framework for 2027 today, and we will provide guidance on our fourth quarter and full year 2026 earnings call early next year.

In summary, strong demand allowed us to raise our sales guidance once again. While we manage near-term margin pressures, we continue to invest in the business to serve our customers and strengthen our competitive position. Together with a strong balance sheet and disciplined capital allocation, we believe this positions us to return to our earnings algorithm in 2028 and create long-term value for shareholders.

I'll now turn it back to Jim for closing remarks.

James Boyle

Thanks, Mike. In closing, we're confident in the strength of our business and the opportunities ahead. As Mike outlined, we're navigating some near-term margin pressures, but are confident that our long-term earnings power has not changed. Thereby industry-leading scale, a resilient, profitable business model and a healthy balance sheet.

Most importantly, our customers rely on us for service value, reliability and quality. These strengths differentiate Medline and it's why we're confident in our ability to drive sustainable growth over the long term.

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

Operator

[Operator Instructions]. Our first question today is from Glen Santangelo from Barclays.

分析師問答

Glen Santangelo

Jim, I just wanted to comment on -- I just want to ask a quick question about your margin commentary for 2027. I mean it seems like the raw material input costs were up materially since you guided last quarter on August 5. And I was wondering if you could just put some parameters around that to help us think about the magnitude?

And then I was interested by your comments that you're saying to input 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 do you have the ability to take price to offset some of this cost inflation? Or do you have to wait until your contracts come up for rebid before trying to pass some of those costs through? Any sort of detail to help us think about that dynamic would be helpful.

Michael Drazin

Thanks, Glen. So I'll take the first question and Jim will take the pricing question. So as it relates to the inflation from the Middle East, let's first start with 2026. We originally had called out about $70 million of inflationary pressures primarily from raw materials and finished goods in 2026.

In our last quarter call, we are now expecting close to $80 million of impact for the year. That's because we've seen elevated costs on the raw material antigen. We've also seen increased costs on the diesel side. We're now paying close to $6.25 per diesel.

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

James Boyle

Yes. And then from a pricing perspective, as you know, historically, whether that's during the pandemic, whether that's what's going on in straight or inflation, we've actually chosen to absorb and take time to understand the impact and see if it was going to be sustainable as opposed to pushing pricing to the market and price has never been a lever for growth.

It's been more of a market cap realization from a cost parameter perspective that is consistent and ongoing. And so when we look at pricing, pricing is not a lever for growth. It's a lever to actually impact real COGS that are impacting the business on a sustainable long-term basis. And that's where we are today. And the way our contracts are written is we have the opportunity to have those discussions with our customers.

And in these moments in time when we've been absorbing for as long as we have, you can see what happened with the tariff based on how much is refunding back to us and how much we pass on to our customers. We think it's important to be in the boat with our customers for as long as possible. And then when we see the pricing a new reality, that's when we put the price increase to the market and we have the ability to do that within our contract infrastructure.

Operator

Our next call is from Michael Cherny with Leerink Partners.

Michael Cherny

If I can maybe build a little bit on Glen's question. As you think through the planning process into next year, the high-level details are clearly helpful I 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're 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're focusing on relative to what obviously is a lot of pressures that are outside of your control.

James Boyle

Well, there's a couple of things. First and foremost is our business model. First and foremost, taking share and continuing to capture on that $1 billion prime member 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, to our customers, while we're also increasing the ability to grow margin on the left-hand side because it's a win for the customer and a win for Medline.

The other thing that's very important, as Mike mentioned, we did a restructuring is managing our SG&A to create the right leverage in the business so we can actually spend at a rate that actually yield a positive impact on the overall margin profile. And so if you look at what's happening in the market today, there's concerns around softening from a volume perspective, there's concerns about reimbursement.

And we have the best model to drive value and savings for our customers in that resonate. 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 to the right place at the right time at the best total value. And so I mean, your -- the real question is, if we do those things, it's going to generate what you're talking about is generating both top and bottom line games, which is what you should have expected of us.

Operator

Our next question is from [ Kevin Caliendo ] from UBS.

Andrea Zayco Narvaez Alfonso

This is Andrea Alfonso in for Kevin. So I appreciate the updates on the inputs for the second half cost base. So I guess, last quarter, you talked about the $200 million in incremental cost framing sort of what would be temporary versus structural you now are absorbing about $10 million in extra oil-related costs, but that's also netted now against this recently launched cost program.

So I guess how -- when you're thinking about framing that for 2027, how do you think about sort of that ratio of temporary versus structural?

Michael Drazin

Yes. Thanks for the question. So if you think about what we said last quarter, right, the one thing we called out specifically was the Middle East and the Middle East would be an incremental increase year-over-year and it's becoming more sizable than it was previously. We reseal thought that was going to be transitory in nature. And now we're sort of thinking it may not be so much transitory in nature.

So our full year '27 framework assumes it continues through the whole year at current rates. If you think about sort of that framework, right, we talked about previously, our strong top line sales growth, driven by sort of the continued new customer signings same-store sales growth and the price increase that Jim talked about previously.

On top of that, the Medline brand conversion that we are continue to generate as well as the favorability from tariffs year-over-year. At current rates, if we assume current rates for tariffs, you'll see some favorability year-over-year that we are seeing here in the second half plus the enterprise cost savings initiatives restructuring are the tailwinds for 2027.

And then ultimately, the pressures that we talked about are the inflation on Middle East, the operations and quality investments we continue to make in our business.

Operator

Our next question is from Sean Dodge with BMO Capital Markets.

Unknown Analyst

This is Thomas Keller on for Sean. 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 MedSurg categories?

James Boyle

It's important to remember, we're in lapping diagnostics in the acute. So the hospital market in the physician office market just for segmentation, so you can get that. And every single one of those customers purchase something from a lab perspective, they have an in-hospital lab. And so the opportunity set is where we are a prime vendor for MedSurg. There's also an opportunity for living diagnostics.

We have between [ Leping ] diagnostics right now with about 30% convertible opportunity and the run rate is fairly consistent from a penetration perspective, going back to we capture about 10% of that. We double the opportunity when we signed a new plant vendor and then we grow 3% to 4%.

So it looks and feels very, very similar to the playbook from a MedSurg distribution perspective. And as you know, the beautiful thing about that is the wheels in the truck that are delivering the med-surg supplies are the same wells on the truck that they're delivering the lab of 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.

Operator

Our next question is from Erin Wright with Morgan Stanley.

Erin Wilson Wright

Great. 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 them in terms of, I guess, Medline brand conversion.

And then just on the prime vendor wins this year, can you speak just to the nature of those from a profit perspective as we head into next year? I just want to make sure we're thinking about the cadence correctly, given some of the dynamics in terms of profitability on that front with the outside business wins last year.

Michael Drazin

Thanks, Erin. 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 recognizes revenue in 2025. We see about 65% of that recognized in 2026, and the remainder will flow into 2027.

As it relates to the new signings that we're having here in 2026, nothing really has changed relative to what they have seen previously as far as the overall profitability of that business. ultimately, we continue to sign those new deals, and they'll roll into our business and a similar sort of cadence as they historically do. And it's our job to continue to drive that Medline brand conversion.

And I would say the Medline brand converge story on those new implementations will be consistent with prior history, which is in that first year, we expect to get about 10% brand conversion and that, as Jim mentioned, 2% to 4% thereafter.

Operator

Our next question is from Matt Taylor with Jefferies.

Matthew Taylor

I just wanted to dig into the pricing comments and the cadence on pricing. I think historically, by memory, you notify customers around now of price increases next year, and they could start to come through in the beginning of the year. Is that the right way to think about it?

And given your philosophy to kind of be made whole on COGS versus drive growth, how much pricing is in this initial '27 framework that you've given?

James Boyle

A couple of things. You have the nail on the head. We do price increases January 1 and July 1. So we notified customers 30 to 60 days in advance, depending on the contract. We're not offsetting all the COGS or offsetting a portion of the COGS what we think is the right thing to do to actually kind of mitigate what's going on from the impact of the business but also do what's right by our customers. At the end of the day, that's the most important thing. How do we do it in a way that yields the right outcome for long-term sustainable growth. while also covering some of the impact from a COGS perspective.

Matthew Taylor

How much is in 27, if you can provide any color on that?

Michael Drazin

Yes, we're not going to comment on how much price we're going to take in '27 at this time.

Operator

The next question is from David Larsen with BTIG.

David Larsen

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

James Boyle

Well, you're asking me to predict what's going to happen in the political environment. So I'll start with that. I think you're right. I think there's -- the impacts have a favorable position to actually soften some of the impacts in customer Medicaid. So interesting to see that through from a hospital volume perspective, patient population and people that are sick really doesn't tie out to whether the Republic or Democrats are in-house. Depends on whether they need access to care. So I don't think volumes are going to change because it was recently happening.

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

Operator

Our next question is from Brandon Vazquez with William Blair.

Brandon Vazquez

Congrats on the quarter here. It's in a difficult macro environment. I wanted to ask about the Canada prime vendor model that has gone live now in the country. Can you maybe just spend a minute talking about what is the market opportunity in Canada, specifically, how large is the prime vendor market there?

And then just talk a little bit about is this essentially the same strategy that we've come -- that you guys have become known for within the U.S., primarily where you kind of get a foot in there with something like 10% of the business's Medline brand at the start and then as a prime vendor, you're looking to every year, convert those accounts more and more? Just kind of comparing your tracks to the U.S.

James Boyle

So first off, the contract in Mohawk going extremely well. We're -- we've got 5 hospitals implemented and we should have the rest of it done through March of 2027. So the real answer is this is still a learning moment, right? We're working with the market because of the reimbursement model, how they actually contract and how they convert product categories is different than the U.S.

Your general comment is correct. We're going in. We're offering better supply chain solutions, the right place, right time at the best value with additional Medline brand conversions to drive intrinsic value, but we got to live within the framework of how the Canadian reimbursement system works and how the actual 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 on the path we're on.

Candidly, we haven't defined the market itself yet because right now, we're understanding who do we think is going to be and this is really the first brand that are ever in Canada. I can tell you we do have other markets calling us asking for access to it, but we are intentionally going to this in a crawl, walk, run strategy because we want to make sure we build the right model that's going to yield the right outcome, both from the top line and a bottom line perspective. And make sure we understand the customers' needs hold before we launch this fully.

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

Operator

Our next question is from Michael Polark with Wolfe Research.

Michael Polark

I have a question on the Global Quality App and 2-parter. One, can you frame for 2027 in the totality of the spend that you have contemplated in your in your prelim comments for next year, that's part one.

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 has rolled out that we could have some smaller product exits like we saw in home care beds.

James Boyle

I'll start with the second part, and I'll let Mike walk through some of the financial impact. But listen, the bad thing is something we've been working and communicating with the FDA on for over a year. In October, as you know, we launched an exit of the business. And subsequently, we launched a program to offer repair replace 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 used in replaced. This is a capital piece of equipment that has electrical components on it. And we believe in consultation with the FDA, we made the right decision. It's not a giant -- in fact, it's roughly $60 million, so from a burden perspective, we don't see this as bad. We think it's the right thing to do for patients. We think it's the right thing to do for Medline and for our customers.

And our job is to make it as seamless as possible for the end user, and that's kind of what we're working on. But this is actually something the overall global quality action plan is looking at the entire book of business, making sure that we're taking good hygiene and assessing our organization, which is a good thing.

And I would look at it as a good thing as it probably when you receive the table. But this is this product we've been working on for over a year. So is it integrated into the global quality action plan? Yes. However, it's something we were already aware of and already working in concert with the FDA.

Michael Drazin

And Mike, on your first question about the financials, we've not quantified the impact of 2027 publicly, obviously, is a component of our overall 2027 framework. What I would say is it's incrementally growing relative to 2026, why as we have made investments in the second half of 2026 that will carry over on a full year basis in '27.

In addition to that, we are making some additional incremental investments in this area in '27 as well.

Operator

Our next question is from Charles Rhyee with TD Cowen.

Unknown Analyst

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?

Michael Drazin

So if you think about our growth of 10.5% overall organic, obviously, that's really strong growth. I would tell you that same-store sales, while I'm not going to quantify it for you, it still remains very strong as consistent with the prior quarters. And then if you think about the $2.4 billion of signings that we had last year that rolled into 2026, as I mentioned, 65% of that showing up in '26. So it is a portion of the overall organic growth in the year. Think about the framework for 2027.

Obviously, if we can communicate, we'll be at high single digits growth. Keep in mind, though, that we don't expect $2.4 billion of fundings like we had last year, that was a record year for us, but we still are on track to achieve $1 billion of signings this year. So we still expect strong same-store sales growth next year plus the new signings of $1 billion that we gain previously.

Operator

Our next question is from Navann Ty with BNP Paribas.

Navann Ty Dietschi

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 recall potentially. And also, we know that the impact was quantified, but could the could there be another impact on operational investments as your asset quality and safety issues?

And then secondly, if you can discuss trends in accurate versus nonacute term, we know that the latter did better than expected.

James Boyle

From a quality perspective, baked into our kind of numbers today, what we think is going to happen is already baked into there. But the reality is, our job is to assess the entire network. Could there be something else? Yes? Do I anticipate there would be something else now. However, our job any manufacturer's job is to make sure you're taking patient safety is the most important thing and you're assessing your entire organization and doing the right things every single time.

So from a global quality action plan, I can tell you, we have baked into our at least for '26 in our numbers the expense profile. And then when you think about acute and non-acute, we are growing faster in the queue this year because of the outsized signings we did last year.

But the actual market itself, we believe the non-acute market will grow faster over time just because of the aging population and where they're choosing to have access to care.

Operator

Your next question is from Eric Coldwell with Baird.

Eric Coldwell

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 in the next 2 quarters would be required. You reported lower in 3Q, you're guiding now to mid-4s.

We could debate ranges, but that's high tens, 100 million kind of impact on a full year basis. So I'm curious what changed versus the expectations that you had 90 days ago.

Michael Drazin

So thanks for the question. So if 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's a driver of 2 things. One, it is the margin on those new customer signings, that $2.4 billion assigned we had last year, those year 1 remakes as well as the economics of renewals that we've taken in 2026. And so we've seen a little bit of an acceleration in that front relative to our expectation.

In addition to that, we obviously have increased operating expenses and those have obviously gone up, as we mentioned, in the back half of the year and a 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 4. If you think about sort of 2027, we're not ready to tell you what '27 will look like.

The math is maybe a little bit less than what you quantified on a full year basis, but ultimately, it's our job to find different ways to offset that. The things like back-end funding and other vendor funding in that nature and we'll do those things to execute on those things in our plans for 2027 and beyond.

Operator

Our next question is from Andrew Obin with Bank of America.

David Ridley-Lane

This is David Ridley-Lane on for Andrew de I wanted to ask on the restructuring. It's not a huge amount of your SG&A, maybe it's 1.5% or so. But wondering how long has it been since you've taken a similar restructuring action like this? And then also, is this something in the way of a continuous improvement opportunity or do you view it as more of a discrete onetime action?

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 kind of reducing duplication and looking for sustainable earnings growth through funding some of the investments. So I mean this is an enterprise-wide focused. 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 a better, faster, stronger outcomes. This is an avenue to do it.

Operator

Our next question is from Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson

Obviously, you announced a new $1 billion share repurchase program today. Can you talk to us a little bit about the timing that you're expecting to use that over? And any other details you might have in terms of public market shares versus sponsor shares?

Michael Drazin

Thanks, Elizabeth. So yes, we're excited to announce our $1 billion share repurchase program that we're going to be put in place. This is the first obviously of Menin ever doing so. And so I think if you think about the intent behind this, obviously, we have excess cash on hand beyond the money we need to fund the business, invest in M&A. We obviously also paid down about $50 million of debt to reduce our leverage with our intent to over time. become investment grade. And so we will be opportunistic in how we step into the market and use these dollars.

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

Operator

Next question is from Stephen Baxter with Wells Fargo.

Stephen Baxter

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

James Boyle

We can't hear you I mean we can't hear you, sorry.

Stephen Baxter

Yes. Sorry about that. It might have been a microphone issue. I just wanted to follow up on the supply chain margin question. Just hoping you could discuss a little bit with the rebates like why they're coming in, I guess, higher, it seems like than maybe you initially forecast them to be? And then I guess, mechanically, how do we think about the rebates for this year's customers is impacting next year? Are we thinking that maybe at least from an SCS perspective, that margins for this year's new customer cohort are back on track to where you underwrote the business as we move into 2027?

Michael Drazin

I would think about it this way, Stephen. So we think about the fact that the supply chain margins are down year-over-year is a driver of those 2 components. I don't think that they're ultimately accelerating in that we're seeing greater margin reduction, greater rebate impact. I think we are ultimately seeing impact in the first year as it relates to the new customer signings and really the reality here is the model that we operate on is really all about signing a new customer, winning a prime lender deal and then over time, the lifetime economics of that customer are very positive for us to see Grid Thrive Medline brand conversion to drive savings for the customer.

We drive margin for Medline. So that does not change. That operating sort of power of the business model hasn't changed, and we'll continue to do that as we go before with those customers.

Operator

Our next question is from Jason Bednar with Piper Sandler.

Jason Bednar

One clarification, one question from us. On the clarification, that $80 million you referenced now assumed from inflation, does that include diesel? Or is diesel separate from that updated amount. And then for the question, going back to the comments around your pricing plans for 27, I'm assuming you're going to offer price buydowns for customers through faster Medline brand conversion. So can you just give us a sense as to how you're modeling things out internally around list price versus net price within that 27 framework you provided?

Michael Drazin

Yes. I'll cover -- thanks for the question, Jason. I'll cover the diesel question. So if you think about the overall $80 million of impact from the Middle East inflation, it is 3 components. It is the diesel cost to fuel our trucks and trailers. It is the inbound freight costs, fuel surcharges that we pay to bring containers from overseas to the U.S. along with the domestic freight that we incurred a new product around this country, and then it is the raw materials and the finished goods that is all in that $80 million number.

And as I mentioned previously, the majority of that cost is the raw materials and the finished goods.

James Boyle

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 investments with an opportunity set to accelerate and really drive value to offset the price increases. So that's absolutely the part of the strategy and something that we will continue to leverage.

Operator

[Operator Instructions] Our next question is from Ryan Halsted with RBC Capital Markets.

Ryan Halsted

Sticking with the operational investments you've made and looking ahead, are planning to make -- you've announced some new distribution centers. And certainly, you've commented in the past about the robust growth in the business and really, I guess, needing to expand your capacity, how do you feel about your capacity where it stands now? Do you feel like you need to add more distribution centers into next year?

James Boyle

Well, we've got 4 DCs on the docket that we mentioned right now. And the answer is we historically -- and it's been part of our DNA has always been invested in infrastructure in 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's always going to be a part of our strategy, both from a from a space and from an inventory position, we keep an outsized inventory position on it. As you know, we in were on hand to make sure we have best-in-class service levels and fill rates.

And do I think we'll need to add additional facilities in the coming years? Yes, the answer to that question. because we continue to have growth kind of outpaced this compared to the market itself. But we'll do that in the right way, in the right markets that yields the right outcome.

Operator

Our next question is from Jailendra Singh with Truist Securities.

Jailendra Singh

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

Michael Drazin

Well, so if you think about -- thanks for your question, first, if you think about the commentary about core underlying growth, it's hard to pull that apart because there's a lot of moving components from both the Middle East, the tariffs 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 we're going to have to change.

Ultimately, if you think about the 2028 framework, right, I really give that yet, but I would tell you that we don't expect at this point in time, assuming there's no more Middle East cost inflation, no more tariff cost inflation and we continue to execute on our operational and quality investments. We don't expect to see incremental increases in operations and quality.

So we expect to drive operating leverage in our business, which will lead to that growth at or greater than sales in 2028.

Operator

And our next question is from Rick Wise of Stifel.

Frederick Wise

Just wanted to follow up on your comments about share repurchase, and that 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&A? Is that deprioritized? Is it just -- this seems like the best investment right now. Just help us just update us on your latest thinking on that topic.

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. As Jim mentioned earlier, we invested in the long term. That's not going to change. We're building 4 new DCs in the coming year, and we'll look at more tics over time. We're adding new automation to our business. We're investing in our operations, investing in our sales force, we're investing in new product development. So that's our first and foremost priority. That's not changed.

Our M&A strategy has not changed either. We will continue to lean in on M&A, look for bolt-on opportunities that drive strategic growth for Medline and lead to attractive returns overall for the company. So that has not changed. What we step 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, investment M&A in the future that we're looking at doing as well as return capital to shareholders plus pay down some debt, and that's why we chose to be about $1.75 million overall.

So our first and foremost priority remains still invest in business, focus on M&A. And if we have excess cash beyond that, we will look at things like debt repayment or share repurchase returns to our investors.

Operator

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

James Boyle

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