Medline Inc. (MDLN) Earnings Call Transcript & Summary

Good morning, and thank you for standing by. Welcome to Medline Second Quarter 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to now hand the conference over to your first speaker today, Karen King.

Welcome to Medline's Second Quarter and Half Year 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 plans, 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 accompany these remarks as well as our most recent 10-K and other SEC filings for more information regarding these risks and uncertainties. We may 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 on our website at ir.medline.com under Quarterly Results. With that, I will now turn the call over to our CEO, Jim Boyle.

Thank you, Karen, and thank you all for joining Medline's second quarter earnings call. I'll begin with a brief performance update. Mike will review our financial results and outlook, and I'll return with closing remarks before opening up the call for questions. Medline delivered strong top line growth of 12% in the second quarter, reflecting positive momentum across our business. Medline brand grew 7% for the quarter, including the impact of an IEEPA tariff price refund to customers. Supply Chain Solutions exceeded our expectations, growing 16%, driven by new customer signings and growth within existing customers. This segment remains central to our long-term strategy because it strengthens customer relationships and creates opportunities to deliver savings and value over time through conversion to higher-margin Medline brand products. We are pleased with the continued momentum across the business and are raising our fiscal year organic sales outlook to reflect stronger demand and solid execution by our team. Adjusted EBITDA increased 13% year-over-year to $1.1 billion as strong sales growth was partially offset by higher cost of goods sold, increased operational expenses and net tariff release impacts. This includes a net benefit of $243 million from IEEPA tariff refund. As we look to the second half of the year, several external and internal factors have led us to moderate our adjusted EBITDA outlook. Our outlook reflects several headwinds, including the Middle East conflict, the Tracy warehouse fire, growth-related operational investments, quality remediation efforts and softness in our retail business. Mike will walk through the details, but we believe these investments will strengthen the business and position Medline to capture the significant growth opportunities that we see ahead. I will turn now to several key developments during the quarter. First, we secured multiple new private and customer partnerships across several channels, including acute care, physician office, lab, skilled nursing, senior living, home health and hospice. Through the first half of the year, we achieved more than $650 million in total new customer signings, representing over 65% of our annual goal of $1 billion. Among those wins, we announced our expanded presence in the Upper Midwest, including a new prime binder agreement with Allina Health. This agreement expands our existing relationship across their acute care and physician office settings. While new signings vary quarter-to-quarter, these wins underscore the opportunity we have to gain share across the continuum of care. Second, I'm incredibly proud of our employees who demonstrate agility, grit and determination and responding to the mid-June fire at our Tracy, California distribution center. Their resilience is core to who we are and guide the commitments we make every day to our customers and to one another to make health care run better. Our team responded quickly to the fire by leveraging our outsized inventory position broad distribution network and MedTrans transportation fleet to continue delivering products and minimize customer disruption. Employees are our Tracy DC went above and beyond to support the effort and quickly transitioned to near by Medline sites over the first few weeks. Within a month, we secured 1.6 million square feet across 2 distribution centers, expanding our customer-facing Northern California footprint by 45%. We have already taken occupancy of the new Tracy distribution center, which we expect to begin serving customers out of in the fourth quarter and plan to occupy our new stocking facility in January 2027. Together, these facilities will restore capacity and support customers across to other California. But our teams have accomplished in such a short period of time is truly remarkable, and Medline is stronger because of their efforts. I also want to thank our customers for their continued trust and our suppliers for helping us maintain continuity as we build an even stronger network going forward. Next, in addition to our Northern California expansion, we announced plans to open a new 1 million square foot distribution center in Southern California to enhance the flexibility and resiliency of our supply chain and reinforce our commitment to health care providers across the state. With this announcement in our Northern California expansion, our California footprint is expected to reach nearly 5 million square feet by mid-2027 and how many of the same automation technologies already in use at other mainline facilities. This is about more than scale. It reinforces resiliency and redundancy across our network and reflects our dedication to anticipating customer needs, supporting future growth and investing ahead of demand. Finally, as I mentioned last quarter, our goal is a vertically integrated manufacturer and distributor of medical surgical products is to operate the broadest and most robust supply chain in the industry. Achieving that requires continued investment along with rigorous supply chain, quality and regulatory discipline. Patient safety and product quality remain our highest priority. We continue to undertake remediation activities, strengthen our quality organization, enhance our manufacturing processes and work to reintroduce recall of products to market. For the past couple of months, we are proactively engaged with the FDA to discuss and launch our global quality action plan. To further strengthen our quality organization, we are investing in people, processes and technology and accelerating these initiatives to support growth and better position Medline for future demand. As part of this work, we have also modified our complaint review process which we expect will increase medical device reporting or MDR submissions in the second half of the year. Our updated guidance reflects our current expectations of these investments and remediation efforts. Overall, I am pleased with our commercial execution this quarter. Our top line momentum strengthens our confidence in the opportunities ahead. Prime vendor signings are tracking ahead of the pace needed to reach our $1 billion annual signings goal, and the team showed tremendous result in continuing to serve customers despite the Tracy fire. While we are encouraged by our commercial momentum, we are not satisfied with the margin challenges we are currently facing, and we are focused on addressing them. We believe continued execution of our growth strategy along with disciplined cost savings initiatives to address incremental cost pressures will position us to return to our long-term objective of growing earnings at or above the rate of sales growth. With that, I will turn the call over to Mike for a deeper look at the financials and an update on our 2026 outlook.

Thank you, Jim, and good morning, everyone. Before walking through the results, I want to thank our employees, particularly the Tracy teams, distribution team members across the network and everyone who supported our California customers for their extraordinary effort and commitment this quarter. As I discuss our performance, I'd highlight that our results include several notable items this quarter, including IEEPA tariff refunds and impacts related to the Tracy fire. Looking through these items, underlying performance was strong. Second quarter net sales increased 12% year-over-year to $7.7 billion, driven primarily by organic growth, minimal foreign currency impact. The customer repayments tied to IEEPA tariff refunds reduced growth by approximately 1 percentage point. For the first half, net sales were $15 billion, up 11% year-over-year. The Medline Brands segment delivered second quarter net sales of $3.5 billion, up 7%. The customer repayments tied to IEEPA tariff refunds reduced growth by approximately 3 percentage points. For the first half, net sales were $7 billion, up 6% year-over-year. Turning to Medline brand sales by product category. Surgical Solutions generated second quarter net sales of $1.6 billion, up 9%. The customer repayments tied to IEEPA tariff refunds reduced growth by approximately 3 percentage points. The strong growth was due to continued strength in surgical kitting, one of our largest product divisions and the operating room. We continue to gain share by delivering differentiated solutions, onboarding new kitting programs and helping customers improve efficiency in existing programs. These kits provide deeper insights into facility needs in the operating room and create a form discussed product conversions, providing opportunity to drive additional Medline brand growth. First half net sales were $3.2 million, up 8%. Front Line Care net sales were $1.7 million in the second quarter, up 4%. The customer repayments associated with IEEPA tariff refunds reduced growth by approximately 3 percentage points. Strong demand across multiple product divisions, especially in exam gloves and personal care, was partially offset by unplanned retail channel softness. Unlike our prime vendor business, which is based on long-term contracts, retail is a shorter demand cycle business and sales products directly to consumers through major retailers. While retail represents less than 2% of our overall sales, it is almost entirely Medline brand, creating a disproportionate headwind to growth and profitability. To better support this channel and improve competitiveness, we have realigned our sales organization around retail customers and their specific needs. For the first half of 2026, Front Line Care net sales were $3.3 billion, up 5%. Lab and Diagnostics generated second quarter net sales of $248 million, up 12%, driven by new customer implementations and existing customer demand. Many of our new prime vendor agreements are multichannel, including lab, driving strong core acute care lab growth. First half net sales were $541 million, up 6%. The Supply Chain Solutions segment delivered second quarter net sales of $4.1 billion, up 16%, supported by new customer implementations and growth with existing customers. First half net sales were $8 billion, up 16%, expanding the opportunity for Medline brand conversion. Moving to sales by channel. U.S. acute care net sales grew 15% year-over-year to $5.4 billion, driven by new Prime Vendor customers and existing customer growth. The customer repayments tied to IEEPA tariff refunds reduced growth by approximately 1 percentage point. For the first half, acute care net sales were $10.5 billion, up 13% year-over-year. U.S. non-acute care net sales grew 4% year-over-year to $1.7 billion. The customer repayments tied to IEEPA tariff refunds reduced growth by approximately 2 percentage points. Growth was primarily driven by existing customers and new customer signings in physician office and post-acute channels, including skilled nursing, long-term care and home health, partially offset by retail softness. For the first half, nonacute net sales were $3.5 billion, up 5% year-over-year. International net sales grew 9% to $533 million in the second quarter and 10% to $1 billion for the first half, driven by volume growth in Canada and Europe. Turning to adjusted EBITDA. Second quarter results were $1.1 billion, up 13% year-over-year. This includes $243 million of net IEEPA tariff refund benefit. Without giving effect to these benefits, higher net sales volumes were partially offset by increased operating costs, including head count to support sales growth and higher cost of goods sold, including the impact of tariff costs. Adjusted EBITDA margin increased 20 basis points to 13.8%. Expenses from the Tracy distribution center fire are excluded from adjusted EBITDA that reduced net income by $336 million, primarily reflecting inventory and fixed asset losses and other related costs. We believe we have sufficient insurance coverage and expect future recoveries related to property, inventory and general liability. Moving to free cash flow and the balance sheet. We generated strong free cash flow of $920 million in the first 6 months of the year, as in the past, working capital with the usage. This reflected the IEEPA tariff refund receivable and higher trade accounts receivable from sales growth. CapEx for the first 6 months was $207 million, reflecting investments in distribution center enhancements and automation as well as capacity expansion of our Mexico citing facility. Cash and cash equivalents were $2.3 billion and short-term investments were $350 million, reducing net leverage to 2.9x. We are pleased to have reached our long-term leverage goal of less than 3x, providing flexibility as we continue investing in growth. Let me now transition to our updated 2026 guidance. Given strong demand, continued commercial execution and broad-based momentum, we are raising our full year organic sales guidance for the second time this year to 9% to 10% from our previous range of 8.5% to 9.5%. This guidance includes the $89 million of IEEPA tariff refunds we plan to provide to our customers. The higher outlook reinforces our confidence in our business model, resilient health care demand and our ability to continue gaining share. At the same time, we are lowering our full year adjusted EBITDA look to $3.3 billion to $3.4 billion from $3.5 billion to $3.6 billion. The revised outlook does not reflect IEEPA tariff refund received or expected but includes several other internal and external factors. Externally, we are seeing slightly higher-than-expected inflationary pressure related to the Middle East conflict as discussed on our Q1 earnings call as well as costs related to Tracy fire. Internally, the outlook reflects increased operational investments to support customer demand, the quality investments Jim discussed earlier and softness in our retail channel. In total, we estimate that roughly half of the incremental earnings impact and these factors is transitory roughly half is more permanent and will become part of our future cost base. I'll walk through this component shortly, but first, let me update you on our tariff cost assumptions. As discussed on our last earnings call, the lower tariff rate from Section 122 tariffs in February through July of this year created favorability versus our prior guidance. Section 122 tariffs have now been replaced by Section 301 force labor tariffs. Based on this, we now estimate full year 2026 net tariff impacts of approximately $350 million, down $140 million from the $490 million we provided during our fourth quarter earnings call last February. Given our significant inventory on hand, any tariff rate changes from this point forward are expected to have an immaterial impact on our financial results in 2026 and to primarily affect 2027. Now moving to the drivers of the adjusted EBITDA guidance change. Starting with the Middle East conflict, consistent with our discussion during our Q1 earnings call, most of the inflationary pressures, including fuel and product costs are offset by the tariff benefit I just mentioned. Consistent with our long-standing practice of supporting long-term customer relationships, we have chosen to absorb these costs at this time rather than broadly pass them on to our customers and approach to this serve both Medline and our customers well over time. As I mentioned earlier, our first half results include $336 million of costs related to the Tracy fire. These costs are excluded from our adjusted EBITDA and therefore, not included in our guidance. In the second half of 2026, we currently expect to incur an additional $50 million to $100 million of Tracy-related costs. A portion of these costs such as cleanup costs, product rerouting and airfreight will be excluded from adjusted EBITDA. Other costs, including lease expenses and labor inefficiencies as we operate without automation will remain in our base. Consistent with our Q1 earnings call, some operational costs are expected to be offset by tariff benefits. However, since last quarter, these costs have increased as we invest in staffing, technology and scaling efforts to meet faster-than-anticipated demand growth. While these investments are creating near-term inefficiencies, they position Medline to become more efficient over time as our team ramps and new technology is optimized. As Jim mentioned in his opening remarks, we discussed our global quality action plan with the FDA. We have identified and quantified expected remediation costs, which include enhancements in our quality organization and investments in our manufacturing network. In addition, a portion of the impact relates to products that were taken off the market due to recalls and/or FDA inspection findings. Based on our latest assessment, some of those products, including our CHG lives, manufactured at our [ Waukegan ] facility are taking slightly longer than originally expected to complete the necessary work to bring back online, which results in earnings loss. The final component is related to the unplanned retail channel softness we discussed earlier. This is impacting Front Line Care and U.S. non-acute sales and margins. While we are taking steps to improve retail, we expect it to remain a headwind for the balance of the year. To help frame the impact of this overall reduction in adjusted EBITDA guidance, the external factors, including the Middle East and the Tracy fire account for approximately 25% with the internal factors, including operational investment, quality remediation efforts and softness in retail remaining 75%. We will provide our 2027 outlook during our Q4 and full year 2026 call in the first quarter of 2027. However, the fundamental drivers of earnings growth remain the same and include sales volume growth, Medline brand conversion, approximately $5 billion of conversion opportunity, leveraging our scale to drive savings in sourcing, manufacturing and distribution and operational efficiency initiatives. We continue to monitor the impact of our business from both the Middle East conflict and tariff rates, and we'll execute on the playbook we have discussed previously to mitigate the impact to our customers and to Medline. Finally, we remain focused on disciplined execution of enterprise-wide productivity and cost savings initiatives designed to offset incremental cost pressures that will enable us to mitigate the additional costs we are incurring to achieve our long-term objective of delivering sustainable and strong earnings growth at or greater than sales growth over time. If you look at quarterly cadence for the remainder of the year, the third quarter of 2026 has 63 days, 1 fewer than Q2. Our the fourth quarter 2026 at 66 days, 1 more than Q4 2025. As a result, we expect sequential sales to be relatively flat in Q3 before increasing in Q4 and due to the seasonality and days. Adjusted EBITDA is expected to increase sequentially each quarter with the strongest contribution in Q4. With respect to the $200 million of incremental costs, we expect approximately 130 to be incurred in Q3 and the remaining 2/3 in Q4. Turning to the rest of our outlook assumptions. All of the ranges remain consistent with our prior outlook, with the exception of tax distributions, which we have narrowed at $250 million to $300 million, the bottom end of the guidance range, reflecting sponsor sale activities in the first half of the year. And CapEx, which we updated to a range of $500 million to $600 million to [indiscernible] Tracy fire. While we anticipate receiving insurance coverage from the incremental $100 million in capital, the timing of recovery is uncertain. In summary, we delivered strong top line performance with double-digit sales growth in both the second quarter and first half, demonstrating broad-based momentum across the business and continued commercial execution. Our organic growth-driven strategy continues to deliver results and create significant opportunity ahead. This performance supports our decision to raise full year organic sales guidance for the second time this year. In spite of the near-term pressures we are managing, we remain confident in the underlying long-term earnings power of the business. While we are absorbing higher costs in certain areas that create near-term margin pressure, they support the priority that matter most to our customers: reliability, quality, service and scale. We believe these investments strengthen Medline's competitive position and support long-term value creation. I'll now turn it back to Jim for closing remarks.

Thanks, Mike. In closing, we are encouraged with the top line momentum we continue to see across the business. We are executing with discipline and investing decisively to support our growing customer base. Medline is well positioned for durable long-term growth, supported by a deep commitment to our customers, industry-leading scale a resilient, profitable business model, a healthy balance sheet and a compelling long-term opportunity. We remain highly confident in our market position and ability to create sustainable shareholder value by delivering the service, value, reliability and quality our customers expect that continues to differentiate Medline in the marketplace. Thank you for joining us. We will now open the call up for questions.

[Operator Instructions] Our first question comes from the line of Michael Cherny from Leerink Partners.

Mike, I want to dive a little bit into some of these expenses and whatnot that you discussed relative to the future baseline thought process. A lot of it, clearly, as we can hear is tied towards outperforming a new business. So as you think philosophically about your pathway forward for share gains over time, is the general philosophy that the idea of overspending if you want to use it that relative to your baseline is part of the pathway forward for how you plan to drive new business? And I guess along those lines, what are the market conditions that you need to see? I'm not trying to get to '27 guidance, but the changes that you need to see to get back towards that EBITDA leverage above revenue growth.

Yes. Thanks, Michael. So yes, the answer is actually, yes. If you think about our business, we've been intentional for many, many years of investing in our business for growth ahead of the growth. And so if you go back in the history of the performance of the business, we would invest in things like new distribution centers, new manufacturing sites. We'd add digital sales team members support the growth in the future. And that's no different than what we're doing here today in areas like operations and quality as we called out. I think, overall, for our business, we're very happy with our underlying performance of the business, delivering top line sales growth in the second quarter of 11.6% on a reported basis, but really 13% if you exclude the tariff IEEPA refund customer payment is really, really solid performance. So overall, the underlying performance of the business is strong and remains strong, and we expect to see that continue as head out in the rest of the year given our overall waiving our sales guidance. From the standpoint of the future of the business, I think we need to see continued execution of our overall performance relative to things like operational investments and our quality remediation efforts. We continue to see continued signings -- new signings, and we're proud about the signs we've had so far this year, $659 million to date. So those are the types of things that we need to continue to see, but we are seeing in our business that suggests that our overall performance will be strong going into the future period of time. I want to take a minute before we go to the next question, just to clarify one thing that I think is causing a little bit of confusion for people. And that's -- so if you think about how we've approached this, we took a conservative approach to how we handle the tariff refunds in our guidance. Most importantly, we wanted to maintain transparency in our results. And so if you think about what we've done, we've excluded from our adjusted EBITDA guidance, the net tariff refunds of $243 million to show you the true underlying performance of the business. So we took down our EBITDA guidance of $3.3 billion to $3.4 billion, our original guidance did not include this $243 million of tariff refunds. In addition, on the revenue side, we kept the $89 million of customer repayment in our sales guidance, just to maintain simplicity how we show the numbers. And even with that $89 million in our sales guidance, we were still able to raise our overall sales growth to 9% to 10% for the year.

Our next question comes from Elizabeth Anderson from Evercore ISI.

I appreciate the clarification that you just gave, Mike. And I realize a lot of these factors are not necessarily entirely in your control. But as we kind of think about this new guidance and being kind of like the new baseline, can you help people understand the level of conservatism that you've baked in about some of these like longer-term macro factors like oil and tubing and those kind of items.

Yes. So the external factors that we think about are the Middle East and the Tracy fire. On the Middle East side, just to give you a number, we have a $70 million of estimated expected impact for 2026 in our overall guide. That includes the inclusion of what I've talked about before, both the diesel fuel cost to fuel our transportation [indiscernible] fleet and third-party trailers. In addition, it also includes a lot of the product and raw material costs that we're purchasing. So overall, we've assumed roughly diesel prices around $5 in that guide. And we've essentially used our costs of our raw materials and finished goods as of probably 2 weeks ago. So that's the $70 million in the Middle East. As it relates to the tariffs that we talked about, we have assumed that tariff rates do not change essentially for the rest of the year. If tariff rates were to change at this point in time, it would be a very immaterial impact to our overall results, what would impact 2027.

Our next question comes from Sean Dodge from BMO Capital Markets.

Yes. Maybe just kind of staying on the guidance and just to clarify, last quarter, you talked about increasing the operational investments and important customer demand. It sounds like you're stepping those up even more now. Is that right? And how much is the step-up related to those? And then just any examples of what these new investments are? And if I'm hearing right, it sounds like we should be thinking about these being kind of more of the kind of the inclusive of the runner additive to the run rate?

Yes. So the operations investments that we're making are not new. We talked about them last quarter. We had -- as we talked about bringing this $2.4 billion of new business online, we had to invest in additional digital people to support that. If you think about the investments we made, we invested in people to support the new customer signings plus existing customer growth as well. And the example we gave last quarter was, as we saw these new customers not just come online. You start happening in a couple of we didn't have automation and we had inefficiencies. And so you're seeing inefficient labor at the moment. But what we're doing is we're making investments in our auto stores in those facilities. And we're also expanding our network capacity by adding new distribution centers. Jim talked about it previously, we were adding a DC in Texas, righting in D.C. in California. We're also talking biting a couple more D.C., in the Midwest to help support this current growth. So as we add new distribution centers, as we add automation, we expect to see those inefficiencies subside and ultimately see some savings in our business.

You also have to remember that when we add -- think about the $2.4 billion we're adding we're adding the labor burden in advance of the revenue realization. So in some cases, we're adding it 3 to 6 months. So this year, because we had such an outsized growth last year, that's being realized this year from a prime enter perspective, we're seeing an outsized pre-add of labor in advance of the distribution. So that's weighing the number down as well.

Our next question comes from the line of Daniel Grosslight with Citi.

This is Bernard on for Daniel. Just a quick question on the overall tariff refund. You guys grew around $89 million this quarter. I'm curious as what's overall like customer response to that and whether all repayments have been accounted for? And if there are potential for additional payments to be made in the future and if we'll receive the same accounting measures?

Yes. So as we've called out, the total tariff refund that's available to us is $507 million. We recorded in our financials for the first half of this year, a net tariff benefit to $240 million. That is basically $330 million of Phase 1 tariffs that have what we believe we are going to collect or have collected net of the $90 million roughly of customer repayments. That $90 million of customer repayment is for the full amount of the $507 million of tariffs. We expect to receive all that over time. We have not yet made that payment. We booked that as an accrual on our balance sheet as of today. Our expectation is to make that payment to our customers in the latter part of this year. And we have communicated that we are making this payment to our customers not yet quantified that for the individual, but we're going to do so in the coming months.

Yes. You have to remember, we absorbed the vast majority of that $500 million. The only thing we pass through to the customers is the $89 million, and that's the full accounting of the prices. That's why it's fully accounted for.

Our next call comes from Pito Chickering from Deutsche Bank.

I just wanted to sort of dig back into that $200 million of inflationary pressure. You said a quarter is external, 3/4 of it is internal the impact is in 3Q and 2/3 is in the fourth quarter. Can you just help us think about the internal external pressures as we use fourth quarter as a launchpad for 2027. So what continue into next year and what pays which ones stayed away.

Yes. So if you think about, we roughly have estimated about half of the cost or the impact of margin is transitory and about half of it is really permanent will roll into our base overall. And if you think about what the drivers of that are, obviously, we believe the Middle East is a bit transitory. The fire -- Tracy fire impact is transitory and will have some impact really in '27. But over time, we'll subside as we stand up the new distribution center and Tracy and Stockton and add automation to those facilities. Obviously, the operational investments and some of the quality investments will be more permanent in nature, and we'll roll into our base in 2027. Some of the product-related costs as it relates to quality, we're not so as we talked about before, we took our time to delay a little bit to going live a couple of products. We'll go back live in 2027. So those are more temporary or transitory in nature. And then lastly, on the retail side of the house, those are probably more permanent in the short term. But as Jim mentioned, we do expect to -- we have realigned our organization to go after that business initially drive growth again in that market.

Our next call comes from Steven from Mizuho Securities.

It's Steven Valiquette from Mizuho. Just a quick financial question here. This may be pretty obvious, but I guess just to confirm, the EBITDA -- the adjusted EBITDA in the June quarter of the $1.060 billion -- I mean I'm assuming it includes the $243 million benefit from tariff refund. But when thinking about trying to model out for the full year, should we think of that as I think, in trying to arrive at EBITDA for the full year within the $3.3 billion to $3.4 billion. I'm just thinking ahead here, there could be some confusion within the consensus numbers for EBITDA for the back half. If -- some people are treating it differently, et cetera. Hopefully, that question makes sense.

Yes, it does. Thank you, Steven. That doesn't make sense. So yes, we do -- the true performance -- the true underlying performance of the business in the second quarter for adjusted EBITDA was $870 million that we beat versus consensus. We're very proud of that result, given the strong performance in the quarter. But yes, for purposes of that $243 million, we are isolating that and calling that out separately. We don't think you should include that in our overall guidance number. We're not cleaning our overall guidance numbers, so you just not included in your consensus.

Yes. We just -- we think it's responsible to be conservative in our approach and just based on the actual results of the business, not on the refund.

Our next call comes from Matthew Taylor with Jefferies.

I actually wanted to ask one about the customer signing. So you said you're $650 million towards your $1 billion goal halfway through the year. Could you talk about the achievability of $1 billion or more this year, maybe giving an eye to the signings that could happen in the second half, if you have any visibility there, et cetera? And maybe just talk about the trends that you've seen so far this year?

Yes, Matt, thanks for the question. First, we're pleased with the $650 million in the first quarter. We're ahead of pace to achieve the $1 billion, and we're confident that we're going to hit the $1 billion plus. I mean, that is the goal that we believe we can control. It's within the framework of what we have visibility to. And we do see a line of sight as it relates to what's available in the marketplace to achieve that goal. Just for context, that $650 million is made of a bunch of singles to doubles. Last year, we had several home runs. That's what actually led to the $2.4 billion. And each year, the signings makeup looks different, right, and they can be lumpy from quarter-to-quarter, which is part of the reason why we didn't give a number in the first quarter because if I would have said, we signed $50 million in Prime Vendor closings in the first quarter. Everybody would said, oh, no, what's going on with Medline said $500 million in the first quarter and you guys with a judge of $2 billion. So we think it's important to give you a context mid-year at $650 million gets us on track, actually ahead of pace of achieving it. And we feel confident we're headed in the right direction from that perspective.

Our next call comes from David Larsen with BTIG.

Can you talk a little bit about the line win and how much sort of incremental revenue that could be tied to that? What led to that win? And then just also with the IEEPA tariffs, was there a drag in 3Q '25, 4Q '25 and 1Q '26 related to the IEEPA tariffs that I guess are going to remain on the books, though the reverse sort of benefit will not be recognized as we progress through the rest of the year?

I'll take Allina on. I'll let Mike handle the IEEPA perspective. So Allina is a great win in the Upper Midwest. It is expanding our relationship across multiple classes of trade, acute care physician office and several others. We don't actually give kind of the numbers as it relates to each individual deal. It was a sizable deal. The next question would be, do we think something is going to change with the Sutter acquisition? The answer is no. We actually happen to be the prime interest help as well. But I can just tell you, it is a -- it went live about 3 weeks ago and went live very, very well. We see them as a tremendous partner and an opportunity to expand the relationship even further over time. but it was a good win and it's something we're proud of.

And on the tariff question, David, the IEEPA tariffs hit us in the second half of last year. and our peak quarter was really the fourth quarter as well as the first half of this year. So -- and this year, overall so far in 2026, we've seen about $230 million of total tariff headwinds in our results. Now to your question, as the IEEPA tariffs were ruled illegal and they put 122 in place essentially in the back half of this year, you're going to see our P&L and burdened by the 10% roughly rate, which is a benefit to what we called out in our guidance originally. So we originally called out $90 million of impact, which was including all IEEPA tariff impact. So now we're looking at $350 million at the new 10% rate.

Our next caller is Kevin Caliendo with UBS.

So I want to kind of go a little bit further on Peter's question. If we take the guidance for the second half of the year, adjust for the one-timers that you called out, the expenses that are some are going to be consistent, some are not. If we take that run rate understanding there's some seasonality -- adjust for those one-timers, is there any reason to not take that run rate, think about the new business wins and the sort of normalized growth in come up with sort of a number for '27. Is there any other headwinds or tailwinds we should be thinking about there as we sort of -- because I think that's where there's a lot of confusion as to what the real run rate is and how to how to think about what it should look like for next year? Like what's the baseline that we're operating off of. So any help there would be great.