Medline Inc. (MDLN) September 2026 Conference Transcript

Good afternoon, everyone. My name is Erin Wright. I'm the lead healthcare services analyst at Morgan Stanley, and welcome to the 24th annual Global Morgan Stanley Healthcare Conference. We're happy to have Medline with us today. A recent IPO in this space, CEO Jim Boyle, thank you so much for joining us, as well as CFO Mike Drazen. I appreciate the time today. So we'll kick it off with a bigger picture question. There's a lot on people's minds, obviously. But we've always thought of Medline as this sort of critical solutions provider across the broader health care system. The supply chain sits underneath this, like, bigger, you know, health system, and you do everything from the Medline brand to the services component. And some of that framing gets compressed into an organic growth number or an EBITDA number on a quarter-to-quarter basis every 90 days. And, you know, Medline has an extensive history of a private business, right, and a private company. And, you know, you're three months into being a public company. What has changed, what has preserved from your private company days? And, you know, what has changed or what has surprised you since December?

Yeah, I would say, listen, we're a 60-year-old company. Not much about what we've done has changed. When you have 60 years of consecutive growth and you have a playbook that works, changing it isn't the right thing to do. it's always evolving. So change is part of business, but adding additional levers for growth, adding additional arrows in our quiver as it relates to value props to our customers is just a core tenet of who we are. But investing in the business in advance of demand will continue to be something we do. Having a very relentless focus on our customer and listening to them to what their needs and challenges are so we can make sure we're meeting that expectation. Right product, right place, right time as it relates to our distribution service offering at the best value will continue to be a leading indicator and maximizing the value we deliver to our customers, to our brand, and we'll continue to do that. So I think the biggest kind of change is our business isn't sequential, right? It's lumpy. And when we win, new prime vendor business is different by quarter. How we grow as a lagging indicator margin to revenue is something I think the markets are going to have to learn. We'll capture revenue and take share. And then kind of the marginal pickup in the following kind of pathway as it relates to the Medline brand penetration and conversion curve. I think it's going to take a little while for the public markets to understand the cadence of our business and how it flows through. But what we look at is long-term sustainable growth, first and foremost taking share, then maximizing the brand and delivering value over time. I think it's going to take a little bit of time for the public markets to know that. I will tell you it's easier being a private company than it is a public company, because I have all of you asking 95 questions as opposed to the family asking a few questions. And so I think it's more about getting familiar and consistent as it relates to what the right kind of macro factors to communicate to you all is to make sure you understand kind of the long-term health of the business.

Okay. Speaking of some of those macro factors, let's talk about the most recent quarter and the guide. So organic sales guidance was increased in the second quarter, but adjusted EBITDA guidance moved a little bit lower here. Can you walk us through the bridge from the original EBITDA guide to the new guide range, and how much of that is attributable to the Middle East inflation, the Tracy Fire operational investments, as well as some of the quality remediation and retail softness as well?

So let's first start with the quarter. The quarter was really strong, top-line growth of about 11.6% on a reported basis. If you actually adjusted out the impact from the tariff refunds, customer repayments, we actually grew close to 13%. So really, really strong top-line growth, really strong top-line demand, growth across both of our segments and all of our channels. And so we're really proud of the great sales growth that we're seeing in our business. It reflects the strong market share gains that we're taking. From an earnings perspective, you're right. We did take down earnings by about $200 million in totality for the full year, for our full-year guidance. Our new guidance for EBITDA is $3.3 to $3.4 billion from $3.5 to $3.6. So $200 million at the midpoint of the range. Really made up of a couple of internal factors and a couple of external factors. So on the external side of the house, the Middle East is impacting us, as you can imagine. We quantify that in totality for the year of about $70 million of impact. That $70 million of impact is primarily made up of the cost of raw materials and finished goods, like things like polyethylene, polystyrene, NBR, that's used to manufacture and source certain products that we make. In addition to that, the cost of diesel is obviously up as well. Diesel fuel was at $3.89 heading into the – before the conflict. Diesel fuel is now closer to $5.50, $6.00. So you're seeing that impact on the cost of our transportation is we ship about 80% of our products on our own trucks here in the U.S. The other external impact was a fire. We had a fire in our Tracy facility back in June, unplanned, obviously, and very devastating, lost a million square feet of space. The great thing about that is the team rose to the occasion, and within six weeks we were able to bring product back to our customers at a similar level to what they were receiving previously, and so really proud of the work the team has done to really drive for a great outcome for our customers. The combination of those two are about 25% of that $200 million or $50 million. The remaining $150 million is primarily made up of what we'll call internal factors, and they're about equal, with the third one being retail being slightly less. So we are continuing to invest in our business on the operations side of the house. As you all know, we signed $2.4 billion of new customer signings last year. that that signing was a record year for us, really, really strong signings in the year. That led to us implementing a lot of that in 2026, and so what we're seeing is, in certain cases, we're having to make investments in operations to support those new signings. For instance, in a facility like Romulus, Michigan, where we have pretty much the entire Detroit market that we've ultimately won through our signings, we're having to invest in people without automation at the current point in time to support that growth. As we put automation in those facilities and expand that facility, as an example, you'll see those costs start to come down. But ultimately, right now, we're inefficient in our Romulus facility. That's the operational side of the house. We also are making investments in quality. We have decided, and Jim has decided, the right thing to do for us is to further lean in on quality and to focus on a global action plan to drive quality across the organization. That's not to say our quality is not good. Our quality is good. However, we want to continue to invest in driving the improvements in our quality across the globe. And so we are taking action to invest in quality in that space as well. And then lastly, the third impact to us was the retail business. On the retail business, that's about 2% of our sales, so a smaller piece of our overall business. The business is a little bit lumpy, as you can imagine, right? It's from day to day. It can bounce around. It's not like our typical prime vendor business where it's a five-year contract. And so we saw a lost product, lost product of one of our customers in that space that has impacted us. That's all Medline brands, so the margin was more impactful than it would be if it was a prime vendor deal. But our objective is to go get that back over time here. It's just in the near term it's going to be a loss for us. So the combination of all that is about $250 million, those three external factors overall.

Okay, and you characterized roughly half of the $340 million impact as transitory and half as permanent. I guess as we think about the launch pad for 2027, what do we think about as the right baseline? I think consensus is that $3.7 billion for 2027 EBITDA, is that the right framework to think about as we kind of normalize for some of these impacts, whether it's permanent or temporary?

Yeah, I think what we were trying to signal to the market was roughly half of the cost that we believe that we're incurring is sort of permanent will remain in our base. Things like some of these ops costs, some of these quality costs are investments in people, so those will remain in our base. Obviously, the retail business is sort of a loss. We'll get it back over time, but that's in our base. Whereas we expect that over time the Middle East will at some point hopefully subside. But I would tell you that right now, as we sit here today, we expect the Middle East will continue, unfortunately, into 2027. It will be a cost headwind for us into 2027. I think overall we're not ready to guide for you yet what 2027 will look like. We'll give you some better view of what that might look like in the future. But I think the best way for us to tell you this is, you know, our landing spot for 2026 is $3.35 billion, and we'll grow off of that. It's the midpoint of our range. We'll grow off of that. And the components of the 2027, just to make it simple, are sales volume, Medline brand conversion. Middle East should be a headwind for us, unfortunately, if costs remain. Tariffs, right now, if tariffs don't change, will be a tailwind for us. And then quality and ops investments will continue to some extent as they're actually annualized into 2027 as well. But more to come in the future on that.

Okay, and you're annualizing some of the outside business wins or prime vendor wins from last year with you have $650 million in new customer signings through the first half of this year. Can you speak to the nature of a lot of those relationships and how does the quality and composition of the pipeline, what does it look like now, and how do you think about that playing forward in terms of those?

Yeah, as I talked about, each market we commit to a billion dollars in new prime vendor signings. That's what we believe we can control and we have complete visibility to. So that's what we get tied to every year. Last year, $2.4 billion in signings. We did that because we took advantage of market conditions. We took advantage of some competitors struggling in the marketplace or getting out of the business. We took advantage of how we handled the tariffs in terms of price increases. We delayed price increases until August 1st, which is different than the competition did, which opened up doors. Customers are looking for sustainable, resilient supply team partners that can support them in tides of crisis or need. 29 million square feet, $5 billion of inventory, completely different than what you might think our competitor set is, and customers are looking for folks that actually want to be in the business run. Those are all tailwinds that we're hitting last year that are still hitting this year. Last year, we had the good fortune of signing some very, very large home run deals. This year, the 650 is made of singles, doubles, and triples. There's not a giant deal in there. We'll continue to take share at the pace we expected to take it at. I feel optimistic about what's in front of us, And so I think the market looks very, very similar as it relates to what we believe we can control, and we will continue to take advantage of those market conditions that actually are favorable for us. So I just think we're sitting in a position with a different playbook to offer value to our customers as compared to the competition, and that's what customers are looking for. And then finally, they're looking for speed to value. They're concerned about what's happening with LBBA. They're concerned about cuts in Medicare and Medicaid, and we are the value player in the marketplace. And whenever inflation happens and the ability to actually kind of increase their margin profile, they look to us as the value player in the marketplace to actually drive significant savings to them.

Okay. I think that's a good segue into my next question, which is just on broader utilization trends. And what have you incorporated, I guess, into guidance from an underlying utilization trend standpoint in terms of volume that you're seeing from the acute side as well as kind of other markets? How would you care?

Yeah, we haven't seen softness. So we talked about softness in our guidance because we're listening to our customers. But it's important to say this out loud. I just had lunch with a large hospital CEO on Friday, and her comment to me was, you're continuing to see outsized growth even though we're starting to feel the pain of indigent care. I don't actually think you're going to see a slowness of patient volume, which you're going to see is an increase of indigent care in folks that actually can't pay their bills. Because guess what? Whether you have insurance or not, you need access to health care, you're still going to go in the hospital, and you're still going to need access to care. As it relates to us, we're still selling those supplies. It actually burdens, unfortunately, the health care ecosystem from a provider perspective. Second, when you think about folks that don't have access to insurance, what they do is they wait until they're sicker before they actually go to get care. So they have the cold, they have the flu, they don't go to the primary care doctor, they end up in the emergency room with pneumonia, they end up in the ICU. And for us, that's a higher acuity of product and a higher utilization of supplies. So in an odd way, it can actually be more supplies rather than less. So when I look at what's happening in health care, I'm less worried about, because we don't measure patient volume, we measure flow of goods. And I can tell you that the first half of the year, we've had fantastic same-store sales. And so that's maybe different than you're in the marketplace, but what I believe is happening is we're going to see an elevation in folks that don't have access to insurance that creates kind of negative income for the health care ecosystem.

So in reality, how do you think about your even sensitivity to hospital volumes or elective procedures? What did you see in prior macro cycles on that front?

Very similar. I mean, we're consistent as it relates to kind of growth from that perspective from same-store sales. I mean, we're heading in the right direction. I think there's some talk about potential softness in surgical volume. We haven't seen that. Our supply team, excuse me, our surgical solutions business was up 9% through the first half of the year, And that's including custom trades that go into open arts and total hits and total needs. So we have not seen the softness.

Okay, great. And so once the current macro and some of the idiosyncredic kind of dynamics play out and normalize, what would a typical medline year look like from an organic growth, EBITDA growth, and margin progression standpoint as we think about the long-term growth algo?

Yeah, I mean, our long-term targets are very simply a billion dollars of new customer signings every year, which we're on track to achieve this year, organic sales growth at high single digits, and earnings growth at or greater than sales. And then ultimately the last one would be for that leverage target would be less than three times. So the combination of those four things, what we think will continue to drive over the long term in our business.

So switching gears to Medline Brand, you've discussed about $5 billion of Medline Brand conversion opportunity within that existing prime vendor base. how should we think about the piece of that conversion?

Yeah, so it's important to frame that out. When we talk about the $5 billion in Prime Vendor, the definition of Prime Vendor, our definition of Prime Vendor, is acute and acute-affiliated. So it's specific to that channel. Take the non-acute out of it. That's an $18 billion segment of our total sales. $5 billion of that within that existing $18 billion has a Metline brand equivalent that we can convert to for our customers. And when you think about the conversion curve of the brand, we sell about $1.8 billion of our brand through competitive distributors, through Owens, through Cardinal, through Shine. Our brand stands on its own. So when we sign a new prime vendor deal, about 10% of that business is already in our brand. So we sign a new prime vendor deal, 90% is third-party products, 10% is in our brand. In the first year, we normally double the penetration rate going from 10% to 20%. That's a lot of the commodities. Think about gauze, think about underpads, think about tongue depressors, things that are very easy from a clinical acuity perspective to convert. And then every year thereafter, we see a 3% to 4% penetration rate of our brand. That's intentional by design. through many years of trials and tribulation. If you go too fast, you can create pain for the clinical team because they can only handle so much change at a given time. And if you go too slow, you don't deliver enough value for the CFO from a savings perspective. So 3% to 4% is what we do. We literally have a roadmap with every single customer. This quarter we're going to do incontinence and surgical drapes and gowns. This quarter we're going to do DME and capital equipment. This quarter we're going to do exam gloves. So we have a very consistent roadmap to value and savings for our customers. So we never get to that, what have you done for me lately? The maximum penetration rate is about 60% of the total spend. So Medline brand, if you have a $100 million MedSearch customer, 60% of that can convert to our brand. If you take the entire book of business right now, we have about 35% of it in our brand, which is why we still have $5 billion in convertible opportunities. So that is the focus of our sales force. That is what our sales force is paid on. They are paid on the brand alone, and their job is to communicate the value to the customer to ultimately deliver incremental savings for them and accretive margin growth for us.

And as you expand your own brand into more categories, how do you evaluate some of those potential new categories and new opportunities when is an acquisition preferable relative to internal investment?

Yeah, if you think about the history of the company, 90% of our growth has been internal and organic creativity. We built it ourselves, so you buy or build. So we have a tremendous muscle to actually leverage our internal resources to build something, research, duplicate, and improve upon it at a better value. We do that very, very well. That doesn't mean we don't buy things. We have bought things, and we've integrated them very well, but we look for things that we think we can create incremental value and something that actually might be – I'll give you an example. We tried to get into respiratory many years ago competing with Hudson RCI. That is a very broad-based set of SKUs, and it takes a while to actually get 100% of the SKU mix. We were about 60% to 70% of it, and it's hard to compete with the competition when you don't have the entire SKU mix. Hudson came up for sale. That was an example of better to buy it than it is to build it, folded that into our ecosystem, and all of a sudden we had 100% of the line and we were actually able to produce their products in our factories at a lower cost. We got some leverage and some synergy there. So when I think about a go-forward basis, when I started in 1996, about 20% of what a hospital buys had a Medline brand equivalent. Today it's 60%. A nursing home today, 80% of what we sell. 80% of what they buy has a Medline brand equivalent. Over the next several years, my aspiration is to get somewhere between 70% to 75% convertible opportunity because every year we add new Medline brands to our category. A recent example is a forced air warming system. If you know much about it, Self-Intham sells a product called Bearhugger. They were the only product on the market. It's an SMS material that you blow hot air in, and you increase the core temperature of the body in surgery. There was no competition. We went out, actually created a product, competed with it, and just launched it. So now all of a sudden we have a $400 million TAM that we didn't have access to yesterday. So every year we're adding lining extensions to the existing categories, and we're looking for new categories to get into it to expand the brand. We normally look first, can we build it ourselves? Because I'd rather take the business for free. And if we can't, then we'll go out and see what the acquisition profile looks like.

Can you talk a little bit about the lab and diagnostic space? It's now a billion-dollar business, estimated, I think, $25 billion market, which is what you've quantified in the past. I think you've mentioned about 30% of that can be converted to Medline brand. Is that still the case? Do you still see a significant opportunity there? Has your thoughts changed on that market? How do you think about your deeper push into that channel and the competitive landscape as well?

Yeah, that's probably the most exciting new market that we're in. We started getting into it about 10 years ago, and I think we had the fully baked solution started about three years ago. So we really started competing about three years ago in this space. And for us, when we look at new market entry, we look at how can we leverage our existing playbook to maximize the value and actually leverage some of our existing infrastructure to create incremental gains. What I mean by that is lab and hospitals and lab and physician offices, we're able to leverage the same wheels in the truck to deliver the med surge supplies to deliver the lab supplies. So the incremental cost of distribution is almost zero. So we get some tremendous synergies in value for us as it relates to adding to our existing infrastructure ecosystem, and it actually drives value for the customer. So for lab and diagnostics, it looks and feels very, very much like MedSource distribution. It just happens to be microscope slides, pipettes, and things like that, as opposed to gauze and underpads. So what our job was, first and foremost, to see could we create Medline brand equivalents to actually create that incremental value for savings for our customers and an incremental gain and margin for Medline. And the answer is yes, to your point. We have 30% convertible opportunity, and every year we're adding new categories to that line. We're in acute care and physician office lab. We're not in reference labs and things like that. But for us, those are markets we're already in. Our supply chain is way more robust and offers way more optionality than the competitive landscape in lab and diagnostic distribution today. So we can do unique, differentiated things for our customers as it relates to the modality of delivery coming into their ecosystem. And we can give them a differentiated experience from a cost to serve because we're adding it to a truck that's already backing up to the dock. So to your point, it's a $25 billion market. It's about a billion dollars. We were, through second quarter, I think we were up 11%. First quarter, it was a one, but it was burdened by the lack of flu. The base business was up 9%, so the business is growing very well. It's outpacing the growth of the overall organization, which I expect to happen on a go-forward basis.

Okay, and then what about other areas, like dental? You did a transaction, Sinclair Dental, in the past as somewhat of a test case for going into this market. What have you learned so far from that experience? what is the opportunity for you there, and is there a playbook in dental or animal health or other verticals as you think about your business?

Yeah, I don't want to be what the current dental landscapes from a supplier look like today. I want to be who we are in med service distribution and dental, and I need to prove that out before we can do it, because I want to make sure the margin profile isn't diluted to who we are. So what I mean by that, and when we bought Sinclair, The base case was, can we serve this market from a supply chain and a brand perspective and create Medline brand alternatives? Today, we're already up to 30% convertible Medline brand in the dental space in the Canadian market. And really, the dental space, it's two halves of a whole. First and foremost, can you be the supply chain provider? And second, can you be the service provider, which is something that we've never done before. It's something we got with the acquisition of Sinclair in Canada, so we had both halves of the whole, and we're learning and understanding that. So the question we have to ask ourselves before we deploy outside of Canada is the service model we think is something we can build and do it extremely well because it's critical to the importance of the overall dental office that you do that extremely well. So we're assessing is that something we want to be on, and if it is, do we buy or build that expertise? Because the left-hand side we have in spades. We have the distribution. We don't have to build a new distribution center. We own the trucks. We have the products. That part's easy. The question is can we build the service model? I can tell you that the Sinclair acquisition is outperforming the Dill model and doing extremely well. I'm optimistic about the business, but we're currently assessing the overall landscape as it relates to how we would potentially deploy in the U.S. From an animal health perspective, that is a brand business. I have no interest in the VNFV and tick collar distributor or dog food distributor. It's more of gauze, exam gloves. Think about the things that you use in a doctor's office. They're using the same thing in a veterinary office, and we're leveraging partnerships with VetCo, MWI, and CoVetress for access to those markets. It's a $4 billion market just in our brand today that we continue to expand as we add new categories.

Yes, and as we see consolidation across that space, too, you could see some of these consolidators like DSOs or vet clinics kind of then go for a hybrid approach and procure kind of consumables from a Medline brand perspective and maybe equipment and some of the high-touch stuff or brand therapeutics elsewhere. Is that kind of the right way to think about it?

We think we can reach that market through an e-commerce platform, to your point, to create almost a double-edged sword, because we have the ability to get the products to them if they're willing to buy it direct. And we think we can actually give them some access in a different way that will create differentiation.

Yep, yep. Okay, so I want to shift gears a little bit to some of the macro. I know we talked about it before, but underlying fuel cost dynamics, again, you embed about $70 million in terms of mid-ecent-related inflationary impact in your 2026 guide. But remind us of what you pegged oil price to. I think you mentioned your diesel price, but what about the input cost component of it, too, as well? Could you comment on that?

Yeah, so when we gave our guidance back in, I think it was July or August, at the time diesel was around $5. Today it's obviously higher than that. The reality of the fuel impact, the Middle East impact to us is the vast majority of the impact is not really diesel-related. It's more the raw materials and the finished goods. There are a number of raw materials and finished goods that we purchase for either our own finished goods purposes or we source for manufacturing our finished good product that are impacted. And I would tell you that as of the time we gave our guidance back in August, the costs have bounced around but are somewhat similar to what they were back at that point in time. So right now, as you sit here in 2026, I can't tell you what's going to happen as far as guidance, but ultimately we don't expect anything impactful as far as 2026 related to the fuel or the raw materials or finished goods on the Middle East impact. If you think about going into 2027, I think we're not ready to give you that obviously yet. Everyone wants to know that. We're not ready to share that with you yet. Obviously, as you sit here right now, we do expect it to continue, and I ultimately would tell you that that will be a headwind to our overall 27 numbers. That being said, we are looking at ways in which to mitigate the impact to our business, one of which would be obviously a possible price increase. And so more to come on that as we get further out in the year.

That was my second part of the question is when do you start to reassess that? How much, and I think you give them, your customers usually a little bit of time ahead of sort of those price increases. Have you given them that window yet? How do you think about when you kind of pull the trigger from a pricing perspective?

So we have an annual pricing cycle. Every January and every July we push price increases. So it's not something that's unexpected, and we normally give our customers 60 days' notice. On November 1st, we'll tell our customers what the burden will be. And to Mike's point, we'll assess our normal pricing model, and then we'll bolt on what we think the actual long-term impact of what's going on right now from a COG's perspective is. And so think about the straight-over moves, think about what's happening. I think this is here. I mean, the reason we haven't raised it through the rest of the year, very, very similar to what we did last year with tariffs, is we wanted to get to what was happening, why was it happening, and how are we mitigating it before we explain that to our customers. I think we're at a point now where we can have that conversation.

I want to move to technology, automation, AI. I think one of the more impressive things when you visit one of your facilities is really how integrated it is on that front. And you introduced Empower, an AI-enabled digital supply chain control tower kind of built in collaboration with Microsoft. You are expanding the pilot kind of to the broader acute care rollout. Can you talk a little bit about some of the KPIs that you're tracking to measure Empower's impact across the inventory landscape and what you're excited about there.

Yeah, I think Empower is something me personally I'm very excited about because when I came into health care in 1996, my degrees in supply chain, I managed a frozen foods distributor, ATB, a grocery store chain. I managed a frozen food distribution center for my first job, and I can tell you grocery store supply chain in 1994 is better than health care hospital supply chain is in 2026. It just hasn't evolved. And so when I first came in, I couldn't understand why it was so broken. If you think about what happens today, a tech goes to a supply room in every department, we'll call it labor and delivery. They do cycle counts. They don't actually count it. They're like, I need 10 of these, 4 of these, 5 of these. They push an order in, and it goes to a buyer. A buyer places the PO. They end up with obsolescence. They end up with expiration. They have no clue what their inventory on hand is. They end up with wasted space, and it's a very antiquated old model that doesn't get you what you need. And so our aspiration was how do we displace that and actually do it in a way that leverages AI automation and infrastructure and creates a hub-and-spoke model all the way from that supply room to our distribution center where we could actually take ownership and management of the flow of goods. So future state, not too far from now, there will be a camera in that room. We actually have five betas going on from a camera perspective. The control tower is already built, and I'll explain that to you. But future state, there will be a camera in that room. The camera will decrement the inventory. It will create both demand and replenishment signals. It will tell you these 14 bins are about to expire in the next 60 days. You better do something about it before you have to throw it away. It will tell you these 10 bins are obsolete. You need to remove them from the room because you're wasting real estate. It'll tell you your caregiver is walking 47 steps to the high-velocity items. You need to move those items closer to the door. And that supply room, we can become a spoke to our distribution center and actually place the orders directly with us, and we will finish those. So you don't need the human to do cycle counts anymore. You don't need the buyer to place POs anymore. And you can reallocate those resources as a health care system to higher value functions. 80% of the physical movement of goods is only represented by 20% of the spend. That's where we live, tongue depressors, gauze, underpads. 80% of the spin is in 20% of the physical movement of goods. So if they could take those assets and redeploy them to stents, to total hips, to total knees, the higher value expense items, they can get more value out of those resources, and we could manage the supply chain in a much more efficient fashion. It also gives you visibility across the entire landscape. So you can say, hey, did you know across your physician offices, your surgery centers, and your hospitals you're buying 19 different exam gloves? If you consolidate to these three that make up 90% of your aggregate volume, you'll save 7% and you'll actually get better service over time. It's going to have complete visibility, give suggestive kind of improvements in the business, and the buyers in the healthcare east coast system will be able to treat it like ChadGPT and ask questions of it, and it'll give answers based on their real data and their real throughput. It also is going to have visibility from raw materials to that supply room. So one of the big asks healthcare wants, especially over the last several years, is tell me that there's going to be a problem before there's a problem so I can get ready before it happens. So this system will say, hey, there's a hurricane about to hit Puerto Rico. Here's the five vendors that currently have a plan in Puerto Rico. Here's the three things that you've authorized as a sub. I suggest you order these today in advance of the disruption that's coming tomorrow. So it's going to create a major differentiation in how the overall connectivity between us and them and, candidly, the overall environment understands predictive analytics. And it's something we're very excited about. It's been launched. There's 20 customers currently using it. It's about to be launched more robustly from a supply chain control tower perspective. We've taken five camera systems, narrowed it down to two, and I'm very optimistic that that will happen in, I don't know, I'll call it six, seven months because I want to make sure we're proving it out. But it's something that we think will create a major differentiation between us and the competition and create much more continuity for the healthcare ecosystem from a supply chain perspective and evolve them from 1994 to 2026.

So one of the one of the advantages as well kind of that we see in terms of Medline is how much you've invested in your own facilities and own infrastructure in things like auto store, pick impact pro, symbiotic, you know, robotics is a big theme at Morgan Stanley, if you haven't heard. So can you talk a little bit about where you are at in that evolution, how much you've implemented that across your distribution centers and what opportunity that brings?

Yeah, AutoStore, we were the first installation in the U.S. for AutoStore, and we're the largest installation of AutoStore. AutoStore is a less-than-case goods-to-person pick system. And so anything out of the case, whether that's box or eats that fits in the tote, will go into the system. It takes half the labor it takes in the manual pick, and it's about 250% more efficient. You get 2.5 more throughput for half the labor burden. So it's a fantastic ROI, and it does a phenomenal job. It also shrinks the internal footprint of the building by about a third of the space. So you get a third of your asset infrastructure to utilize for something different. And so we have about 2,100 robots, an auto store deployed across our network. We're adding another couple hundred in the next couple years. We'll continue to invest in that as we see needs, right? You have to have a market that actually has less than case volume to justify the expense. We just had another market pop up last year with Romulus Michigan. We won almost all the business in the Detroit Medical Center market. We didn't have auto store in there before. Or we're going to have an auto store in it tomorrow because we have such a robust installation. The biggest owner of real estate in a warehouse is bulk distribution. So you think about our distribution centers are built in a way that serves every care setting and the modality. They need to be served from a supply chain perspective. Physician offices are different than surgery centers, different than hospital, 53-foot truck, box van, parcel delivery. You have to be able to do all those things. When you think about production in a distribution center, the production in our distribution center is about 25% to 30% of the space, and the rest of it is storage of bulk goods. The best way to actually create throughput automation and maximization is figure out how do we actually automate and shrink the internal footprint of the bulk side of the house, and that's what Symbiq is going to do. It's going to do something very similar to what AutoStore did for less than case to the bulk side of the house, shrink the internal footprint, decrease the labor burden, and increase the throughput, which we're pretty excited about. We have our first installation going in in Columbus, Ohio. I'm telling you what I believe will happen. I'll tell you what actually happens once we get it installed and actually justify the why. And then PicPack Pro creates an automation for our health care and health plans business. If you know much about that, that is a very high volume in a very given month. At the end of a quarter, you get so many lines that no human can pick it. Without automation, you can't actually meet the demands of the customer. So we've built an automated system that will actually lift in those high-spike environments across multiple branches. So we will continue to invest in that infrastructure. We will continue to invest in automation and differentiation because it allows us to create leverage for our customers, increase the throughput and the quality of the delivery we'll have to go into this.

Lastly, just capital deployment. You've talked about willingness in terms of bolt-on, M&A. What about larger-scale transactions? What does the M&A pipeline look like now? What size of deal is your sweet spot? And kind of what are some of that primary criteria that you're looking for?

Yeah, listen, the nice thing is we have plenty of cash, right? So there needs to be assets to buy for us to buy something. So there needs to be an attractive asset on the market that we think we're interested in. I do think some of the MedTech competitors are going to start dumping some of their non-core assets that don't fit within what they're trying to become. We'll be ready for that. That hasn't happened yet, but I see it's on the horizon. I think there's some distribution assets in the marketplace that are attractive that we can buy. Internationally, I think there's some opportunities for us to buy some things as well. So the key is for us to find an asset that is available, that is able for us to purchase. So the reality is, are we ambitious and willing? There needs to be something that's interesting first. If we don't get to a point where there's something on the market and we continue to build our cash basis, we'll do things like share repurchase. We will buy down debt further. We're already below 3x right now. So we'll do the right things with money at a given time. But right now, we're assessing a few potential acquisitions. And so we're not looking for things that are going to change or transformation or things that look within the framework of who we are.

Would you be biased in terms of distribution versus products?

No, we buy and distribution ask. So there's a couple of different places. First and foremost, we're looking at products, right? What are products that can expand our brand? Second, markets or channels. About 10 years ago, we bought a physician office distributor to get into that space. Last year, we bought dental in Sinclair. So markets are channels. Distribution assets are some kind of service offering that will create differentiation for us. I'll give you an example. About three years ago, we bought a system called PrefConnect that ties out the doctor preference cards in the surgical environment with Epic or Cerner, so they have connectivity, so we can always update the preference card so it's right when the doctor is actually doing the procedure every single time. and that ties out with our kitting facility so we're always picking and building the right system so those are the four areas we buy it perfect okay great thank you so much for your time yeah thank you appreciate it