Medline Inc.
02/25/2026 | Press release | Distributed by Public on 02/25/2026 15:52
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help you understand the financial condition, results of operations, and present business of Medline and Medline Holdings (f/k/a, Mozart Holdings, LP, the predecessor of Medline). This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes in Part II, "Item 8-Financial Statements and Supplemental Data" of this Annual Report. Some of the information included in this MD&A or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. Our future results and financial condition may differ materially from those we currently anticipate. You should review the "Cautionary Note Regarding Forward-Looking Statements" and Part I,"Item 1A-Risk Factors" sections of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For purposes of the MD&A, references to the "Company," "Medline," "we," "us," and "our" mean Medline Inc. and its consolidated subsidiaries.
Overview
Medline is the largest provider of med-surg products and supply chain solutions serving all points of care, based on total net sales of med-surg products. We deliver mission-critical products used daily across the full range of care settings, from hospitals and surgery centers to physicianoffices and post-acute facilities. We operate under two reportable segments, Medline Brand and Supply Chain Solutions. Both segments are supported by our Prime Vendor model, differentiated distribution network, and robust commercial platform. See Part I, "Item 1-Business" for a more detailed description of each of our segments, our Prime Vendor model, distribution network, and commercial platform.
For the year ended December 31, 2025, our financial results were as follows:
•We generated net sales of $28.4 billion, net income of $1.2 billion, and Adjusted EBITDA of $3.5billion, representing a net income margin of 4.1%and an Adjusted EBITDA Margin of 12.2%.
•During that period, Medline Brand segment net sales and Segment Adjusted EBITDA were $13.7 billion and $3.3billion, respectively, which represented 48.3% of total net sales and 80.6% of Segment Adjusted EBITDA, respectively. Supply Chain Solutions segment net sales and Segment Adjusted EBITDA were $14.7 billion and $0.8billion, respectively, which represented 51.7% of total net sales and 19.4% of Segment Adjusted EBITDA, respectively.
For a reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable GAAP financial measures, information about why we consider Adjusted EBITDA and Adjusted EBITDA Margin useful, and a discussion of the material risks and limitations of these measures, see "-Non-GAAP Financial Information" below.
Key Factors and Trends
Aging Population and Increased Healthcare Utilization
We continue to operate against a backdrop of stable demographic and healthcare utilization trends, including an aging population and the growing prevalence of chronic conditions, which are expected to drive elevated volumes, steady demand for med-surg products, and increased health expenditures over the long term. As our customers' underlying patient volumes increase, we expect continued demand for our broad portfolio of products across the continuum of care.
End Market Dynamics Including Shifting Sites of Care and Consolidation
Our business is positively impacted by the ongoing shift of higher acuity procedures to lower-cost sites of care and consolidation of healthcare providers into IDNs. These factors have led to increased volumes across non-acute care delivery settings and drive customers to seek partners with reliable manufacturing and distribution capabilities who can serve their various end markets. Because of our comprehensive capabilities and offerings, we view these industry changes as advantageous and reflective of the broad strengths embedded in our business model. By continuing to enhance our product portfolio and tailor our service offerings, we aim to expand the value we provide to our customers across the entire continuum of care.
Prime Vendor Growth
Our historical track record of earning new Prime Vendor customers has been a key driver of sustained growth and share gains for Medline. Our differentiated capabilities have enabled us to grow and scale our Prime Vendor model over time. As of December 31, 2025, we have over 1,600 Prime Vendor relationships, representing $18.0 billion of net sales for the year ended December 31, 2025. Our Prime Vendor relationships, combined with our strong customer retention, supports a highly recurring business model.
Non-Prime Vendor Growth
Our customer base includes those who purchase products through us but with whom we do not currently have a Prime Vendor relationship. We expect Medline Brand net sales to non-Prime Vendor customers to continue to grow as we deepen our relationships with these customers and expand our Medline Brand product portfolio. Furthermore, we believe as these customers recognize the value proposition of our Medline Brand and distribution network, we will have the opportunity to earn Prime Vendor agreements from them.
Medline Brand Growth
Our ability to sell Medline Brand products has impacted and will continue to impact our financial performance. These products represent approximately 50% of our net sales for the fiscal year ending December 31, 2025, or $13.7billion. The product categories that comprise our Medline Brand offerings serve large and diversified med-surg markets, which provide meaningful long-term growth opportunities relative to our current net sales volume.
We sell these Medline Brand products to both our Prime Vendor and non-Prime Vendor customers. As of December 31, 2025, our Prime Vendor agreements have an approximate average mix of 65% Supply Chain Solutions and 35% Medline Brand, presenting a significant opportunity to drive customer savings through further Medline Brand adoption in the years ahead. A portion of Supply Chain Solutions products sold to existing Prime Vendor customers has like-for-like Medline Brand product equivalents, representing a potential gross profit uplift if such products were converted for Medline Brand products. While we historically have earned higher margins upon conversion from third-party national brand products to like-for-like Medline Brand products, because of the lower average prices for Medline Brand products, there is typically a negative impact on net sales upon the conversion of Supply Chain Solutions products to like-for-like Medline Brand products if volume is assumed to be constant.
Our product development relies on actively gathering and incorporating customer feedback to address their needs. By carefully examining customer pain points, our teams are encouraged to respond with well-informed product innovations that address these issues directly and effectively. Close collaboration across product teams, salesforce and regulatory experts supports our ability to introduce high-quality products that meet customers' needs. Our scaled go-to-market strategy and entrepreneurial culture allows us to quickly introduce new products across our customer base and serve as a dependable partner and resource for our customers, increasing the likelihood of commercial success. This collaborative approach has been well received by customers and has facilitated the development of robust relationships with customers. It supports the customer retention and conversion to available like-for-like Medline Brand products.
Mergers and Acquisitions
Our disciplined, global mergers and acquisitions strategy is focused on pursuing adjacent products and services as well as expanding into new channels and new markets. During 2024, we acquired the global surgical solutions business of Ecolab, Inc., including industry-leading Microtek product lines ("Microtek"), and Sinclair Dental Co. Ltd ("Sinclair"), the largest independent distributor of dental supplies and equipment in Canada. The acquisition of the Microtek business provides us with innovative sterile drape solutions for surgeons, patients, and operating room equipment, as well as Ecolab's fluid temperature management system. The acquisition of Sinclair helps diversify our dental products portfolio and expand our footprint in Canada.
As industry consolidation continues, we believe we are well-positioned to capitalize on this trend to continue to grow and gain share in this global market. See Part I, "Item 1A-Risk Factors-Risks Related to Our Business, Industry and Operations-We may be unable to derive fully the anticipated benefits from our existing or future acquisitions, joint ventures, investments, dispositions, or other strategic transactions."
Trade Relations and Impacts of Tariffs on our Business
The current U.S. and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy. While the global tariff environment is unpredictable, as a global company with strategically located and owned manufacturing, combined with a broadly diversified sourcing footprint, we believe we are well-positioned to mitigate potential supply chain challenges. We have multiple mitigation levers at our disposal, which include strategically re-allocating production to other parts of the world, leveraging our new and existing supplier base, optimizing procurement and sourcing of key inputs and raw materials, driving efficiencies and optimizing our own manufacturing footprint, pursuing available tariff mitigation measures, such as qualified exclusions, engaging with relevant industry and policy partners, and lastly, enacting selective price increases in a thoughtful and strategic way where needed. For the year ended December 31, 2025, the net adverse impact to income before taxes from tariffs and tariff developments was approximately $290 million. For fiscal year 2026, we estimate an incremental net adverse impact to income before taxes from tariffs and tariff developments (based upon the latest published tariffs in effect and tariff-related developments as of December 31, 2025) of approximately $200 million. The actual impact may vary based on changes in tariff rates, duration of tariffs, scope of tariffs, and potential mitigation levers.
We are actively monitoring developments in the global tariff environment and will continue to evaluate the potential impact of the announced tariffs and related developments on our business and financial condition, as well as on our customers and suppliers, and the actions we may take to mitigate any impact. We have taken steps to establish alternative sources of supply and to otherwise mitigate the financial impact of tariffs. However, we may not be able to establish alternative sources of supply or fully mitigate the financial impact of tariffs across all of the products we source or manufacture.
Cost and Supply Chain Factors
Our business is impacted by supply chain disruptions, including but not limited to labor shortages, raw material shortages, and third-party supplier issues. Additionally, inflation has had, and may continue to have, a material impact on the cost to source materials or produce and distribute finished goods to customers. In these periods of disruption, our costs typically increase, and our operations may be constrained. While these factors can impact profitability, we have established the capabilities and infrastructure designed to mitigate the associated impact on our financial performance. Our globally diversified sourcing partnerships, robust domestic manufacturing footprint, and owned distribution network are designed to enable us to provide reliable product availability and maintain competitive pricing, supporting our strong customer service levels.
Seasonality
Seasonal factors inherent in our business change the demand for products, including illness or disease patterns, the timing of elective medical procedures, and customer spending patterns. Historically, we have experienced higher net sales in the fourth quarter as a result of certain of these factors.
IPO
On December 18, 2025, we completed our IPO of 248,439,654 shares of Class A common stock, including 32,405,172 shares issued pursuant to the full exercise of the underwriters' option to purchase additional shares, at a price to the public of $29.00 per share. Our Class A common stock began trading on the Nasdaq Global Select Market under the trading symbol "MDLN" on December 17, 2025. The IPO generated net proceeds of approximately $7,048 million after deducting underwriting discounts and commissions of approximately $157 million, but before deducting offering expenses of approximately $40 million. See Note 1-Nature of Business and Significant Accounting Policies to our audited consolidated financial statements, included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report for additional information.
Public Company Costs
We incurred additional costs associated with preparing to become a public company during fiscal years 2025 and 2024, and we expect to continue to incur additional costs associated with operating as a public company. We expect that these costs will include additional personnel, legal, consulting, regulatory, insurance, accounting, investor relations, and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules adopted by the SEC and national securities exchanges, requires public companies to implement specified corporate governance practices that were not inapplicable to us as a private company. These additional rules and regulations will increase our legal, regulatory, financial, and insurance compliance costs and will make some activities more time-consuming and costly.
Reorganization Transactions
Prior to the completion of the IPO, we executed the Reorganization, resulting in Medline Inc. becoming the sole general partner of Medline Holdings, with its sole material asset being a controlling equity interest in Medline Holdings. As the general partner of Medline Holdings, Medline Inc. now operates and controls all of the business and affairs of Medline Holdings, and has the obligation to absorb losses and receive benefits from Medline Holdings and, through Medline Holdings and its subsidiaries, operate the business. The Reorganization has been accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Medline Inc. recognize the assets and liabilities received in the Reorganization at their historical carrying amounts, as presented in the historical financial statements of Medline Holdings. Medline Inc. consolidates Medline Holdings on its consolidated financial statements and records a noncontrolling interest, which pertains to partnership interests in Medline Holdings held by pre-IPO owners.
Medline Inc. is a corporation for U.S. federal and state income tax purposes. Medline Holdings is treated as a flow-through entity for U.S. federal and state income tax purposes, and, as such, has generally not been subject to U.S. federal income tax at the entity level. Accordingly, unless otherwise specified, the historical results of operations and other financial information set forth in this Annual Report do not include any provision for U.S. federal income tax for Medline Holdings except with respect to subsidiary corporations that are subject to U.S. federal income tax. Following the IPO, Medline Inc. is required to pay U.S. federal and state income taxes as a corporation on its share of Medline Holdings' taxable income.
In connection with the Reorganization and the IPO, we also entered into a tax receivable agreement with certain pre-IPO owners. See "-Liquidity and Capital Resources-Tax Receivable Agreement" for additional information.
Key Components of Our Results of Operations
Net Sales
We generate net sales principally from the sales of products. The majority of the sales transactions are supported by an underlying agreement or a formal purchase order. Net sales are recognized with the transfer of control that is generally when a product is shipped to a customer, the customer has legal title to the product, and we have a right to payment for such product. Although products are generally sold at fixed prices, our contracts have variable consideration, which we estimate at the point when net sales are recognized, based on the expected value to be provided to the customer.
Cost of Goods Sold
Cost of goods sold consists of product costs, including the cost of materials, direct and indirect labor costs, overhead, depreciation of manufacturing assets, inbound shipping and handling costs, and import expenses, net of any applicable third-party supplier rebates.
Selling, General, and Administrative Expenses
Selling, general, and administrative ("SG&A") expenses include corporate management and support functions, such as general management, legal, accounting, finance, human resources, sales, marketing, and other functions not directly associated with net sales generating activities. SG&A expenses include salaries, bonuses and other payroll-related benefits, general operating expenses such as occupancy costs, information technology infrastructure, travel, outbound freight, advertising, research and development, marketing expenses, and credit losses.
Amortization of Intangible Assets
Intangible assets are initially measured at fair value and consist of trade names, customer relationships, and developed technology from acquisitions. The definite lived intangible assets are amortized using the straight-line method over their estimated useful lives.
Other Operating Expenses
Other operating expenses includes restructuring costs, impairment, litigation settlement charges, loss (gain) on sale of assets, acquisition-related costs, and costs incurred in contemplation of a potential offering of company shares.
Interest Expense, net
Interest expense, net includes interest expense incurred on borrowings, amortization expense of deferred financing costs, and gain or loss from cash flow hedge transactions, as well as interest income generated on recognition of an embedded derivative bifurcated from the credit agreement, overdue customer receivable balances, bank deposits, and money market investments.
Other (Expense) Income, net
Other (expense) income, net includes investment income or loss from market value changes on undesignated derivatives, pro-rata income or loss of equity investment, debt extinguishment loss, debt refinancing/issuance cost, and other non-operating income or expense.
Foreign Exchange (Loss) Gain, net
Foreign exchange (loss) gain, net is generated by trade balances and loans denominated in currencies other than U.S. dollars, the reporting currency, as well as settlements of intercompany balances.
Provision for Income Taxes
The provision for income taxes consists primarily of income taxes related to our U.S. corporate and foreign subsidiaries in jurisdictions in which we conduct business. The majority of our income is generated within U.S. pass-through entities, in which federal and some state income taxes are not assessed at the entity level. As such, our effective tax rate will vary based on the level of income earned by tax paying and non-tax paying entities as well as the geographic mix of profits and other items.
Consolidated Results of Operations
The following discussion represents our analysis of results of operations for the year ended December 31, 2025 as compared to the year ended December 31, 2024. For a detailed discussion of our results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023, refer to the section Management's Discussion and Analysis of Financial Condition and Results of Operations in our prospectus dated December 16, 2025, filed with the SEC pursuant to Rule 424(b) under the Securities Act on December 18, 2025 in connection with our IPO, which is incorporated herein by reference.
For the year ended December 31, 2025 compared to the year ended December 31, 2024
| Year ended | |||||||||||||||||||||||
| December 31, 2025 | December 31, 2024 | 2025 vs 2024 | |||||||||||||||||||||
| $ Change | % Change | ||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Net sales | $ | 28,432 | $ | 25,507 | $ | 2,925 | 11.5% | ||||||||||||||||
| Cost of goods sold | 20,914 | 18,531 | 2,383 | 12.9% | |||||||||||||||||||
| Gross profit | 7,518 | 6,976 | 542 | 7.8% | |||||||||||||||||||
| Operating expense | |||||||||||||||||||||||
| Selling, general, and administrative expenses | 4,524 | 4,108 | 416 | 10.1% | |||||||||||||||||||
| Amortization of intangible assets | 704 | 685 | 19 | 2.8% | |||||||||||||||||||
| Other operating expenses | 78 | 37 | 41 |
NM(1)
|
|||||||||||||||||||
| Total operating expense | 5,306 | 4,830 | 476 | 9.9% | |||||||||||||||||||
| Operating income | 2,212 | 2,146 | 66 | 3.1% | |||||||||||||||||||
| Other expense | |||||||||||||||||||||||
| Interest expense, net | (812) | (864) | 52 | (6.0)% | |||||||||||||||||||
| Other expense, net | (64) | (43) | (21) | 48.8% | |||||||||||||||||||
|
Foreign exchange (loss) gain, net
|
(88) | 7 | (95) |
NM(1)
|
|||||||||||||||||||
| Total other expense | (964) | (900) | (64) | 7.1% | |||||||||||||||||||
| Income before income taxes | 1,248 | 1,246 | 2 | 0.2% | |||||||||||||||||||
| Provision for income taxes | 91 | 46 | 45 | 97.8% | |||||||||||||||||||
| Net income | $ | 1,157 | $ | 1,200 | $ | (43) | (3.6)% | ||||||||||||||||
(1) Not Meaningful
Net Sales
Net sales for the year ended December 31, 2025 increased $2,925million, or 11.5%, to $28,432million, compared to $25,507 million for the respective period in 2024. Net sales for the year ended December 31, 2025 increased $2,676 million, or 10.5% from organic growth and $237 million, or 0.9% from acquisitions with foreign currency exchange rates having an immaterial impact on net sales. Organic net sales growth was substantially all related to increased volumes with pricing having an immaterial impact.
Net sales for the U.S. business for the year ended December 31, 2025 increased $2,732 million, or 11.5%, to $26,479 million, compared to $23,747 million for the respective period in 2024, primarily driven by volume growth in Prime Vendor net sales, which for the year ended December 31, 2025increased $2,000million, or 12.5%, to $18,033million, compared to $16,033 million for the respective period in 2024.
The increase in Prime Vendor net sales was comprised primarily of $1,229 million related to new Prime Vendor relationships and $998 million related to existing Prime Vendor relationships, partially offset by a decrease of $227 million related to lost Prime Vendor relationships. Acquisitions also contributed $189million incremental net sales in 2025. Net sales for the U.S. acute care business, which includes both Prime Vendor and non-Prime Vendor customers, increased $2,015 million, or 11.5%, to $19,506 million, compared to $17,491 million for the respective period in 2024, primarily driven byvolume growth. Net sales for the U.S. non-acute care business increased $717 million, or 11.5%, to $6,973 million, compared to $6,256 million for the respective period in 2024, primarily driven byvolume growth in post-acute care business of $290 million, physician offices of $218 million, and ambulatory surgical centers of $117 million.
Net sales for the International business for the year ended December 31, 2025 increased $193 million, or 11.0%, to $1,953 million, compared to $1,760 million for the respective period in 2024, primarily driven by volume growth. Organic growth and acquisitions contributed $133million and $48million of incremental net sales, respectively, for the year ended December 31, 2025, with foreign currency exchange rates having an immaterial impact.
Cost of Goods Sold and Gross Profit
Cost of goods sold for the year ended December 31, 2025 increased $2,383million, or 12.9%, to $20,914 million, compared to $18,531 million for the respective period in 2024, primarily driven by the growth in net sales, including the impact of acquisitions as noted above. Gross profit margin was impacted negatively by sales to new Prime Vendor customers that typically have lower margins in early periods and impacted positively by increased sales to existing Prime Vendor customers as we shift sales from Supply Chain Solutions third-party national brand products to Medline Brand products. Gross profit as a percentage of sales decreased from 27.3% for the year ended December 31, 2024 to 26.4% for the year ended December 31, 2025, primarily driven by 115basis points from higher import costs due to tariffs.
Selling, General, and Administrative Expenses
SG&A expenses for the year ended December 31, 2025 increased $416 million, or 10.1%, to $4,524 million, compared to $4,108 million for the respective period in 2024, primarily due to $204 million related to higher compensation and benefit expenses related to investments in headcount, $70 million of incremental cost from acquisitions, $67 million related to higher distribution expense, including outbound freight, and $47million related to higher selling and marketing expenses, partially offset by $43 million related to a favorable settlement of an intellectual property dispute.
Amortization of Intangible Assets
Amortization of intangible assets for the year ended December 31, 2025increased $19 million, or 2.8%, to $704 million, compared to $685 million for the respective period in 2024, primarily due to the addition of intangible assets related to the acquisitions in the second half of 2024.
Amortization of intangible assets for the year ended December 31, 2025increased $19 million, or 2.8%, to $704 million, compared to $685 million for the respective period in 2024, primarily due to the addition of intangible assets related to the acquisitions in the second half of 2024.
Other Operating Expenses
Other operating expenses for the year ended December 31, 2025increased $41 million to $78 million, compared to $37 million for the respective period in 2024, primarily due to higher expenses associated with our IPO.
Other operating expenses for the year ended December 31, 2025increased $41 million to $78 million, compared to $37 million for the respective period in 2024, primarily due to higher expenses associated with our IPO.
Interest Expense, net
Interest expense, net for the year ended December 31, 2025decreased $52 million, or 6.0%, to $812 million, compared to $864 million for the respective period in 2024, primarily due to the recognition of an embedded derivative related to the Dollar Term Loans.
Interest expense, net for the year ended December 31, 2025decreased $52 million, or 6.0%, to $812 million, compared to $864 million for the respective period in 2024, primarily due to the recognition of an embedded derivative related to the Dollar Term Loans.
Other Expense, net
Other expense, netfor the year ended December 31, 2025 increased $21 million, or 48.8%, to $64 million, compared to $43million for the respective period in 2024, primarily due to higher debt extinguishment and other refinancing costs and fees in 2025.
Other expense, netfor the year ended December 31, 2025 increased $21 million, or 48.8%, to $64 million, compared to $43million for the respective period in 2024, primarily due to higher debt extinguishment and other refinancing costs and fees in 2025.
Foreign Exchange (Loss) Gain, net
Foreign exchange (loss) gain, net for the year ended December 31, 2025decreased $95 million to a loss of $88 million, compared to a gain of $7million for the respective period in 2024, primarily driven by larger unfavorable foreign exchange rate movement on certain borrowings denominated in the Euro in 2025.
Provision for Income Taxes
Provision for income taxes for the year ended December 31, 2025 increased $45million to $91million, compared to $46million for the respective period in 2024, primarily driven by the global minimum tax under Pillar Two rules.
Business Segment Results of Operations
The following table compares business segment net sales, Segment Adjusted EBITDA, and Segment Adjusted EBITDA margin for the year ended December 31, 2025 and 2024.
| Year ended | |||||||||||||||||||||||
| December 31, 2025 | December 31, 2024 | 2025 vs 2024 | |||||||||||||||||||||
| $ change | % change | ||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Medline Brand | |||||||||||||||||||||||
| Net sales | $ | 13,720 | $ | 12,515 | $ | 1,205 | 9.6% | ||||||||||||||||
| Segment Adjusted EBITDA | 3,334 | 3,269 | 65 | 2.0% | |||||||||||||||||||
|
Segment Adjusted EBITDA margin(1)
|
24.3 | % | 26.1 | % | |||||||||||||||||||
| Supply Chain Solutions | |||||||||||||||||||||||
| Net sales | 14,712 | 12,992 | 1,720 | 13.2% | |||||||||||||||||||
| Segment Adjusted EBITDA | 805 | 647 | 158 | 24.4% | |||||||||||||||||||
|
Segment Adjusted EBITDA margin(1)
|
5.5 | % | 5.0 | % | |||||||||||||||||||
(1) We define Segment Adjusted EBITDA margin as the Segment Adjusted EBITDA divided by segment net sales.
See Note 20-Segment Information to our audited consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report for additional information on our segments.
Medline Brand
Medline Brand segment net sales for the year ended December 31, 2025 increased $1,205 million, or 9.6%, to $13,720 million, compared to $12,515 million for the respective period in 2024. The increase was primarily driven by volume growth in Prime Vendor sales of Medline Brand products for the year ended December 31, 2025, which increased $574 million, or 10.6%, to $5,984 million, compared to $5,410 million for the respective period in 2024. Acquisitions also contributed $221million in incremental net sales in 2025.
Surgical Solutions net sales for the year ended December 31, 2025 increased $695 million, or 12.7%, to $6,166 million, compared to $5,471 million for the respective period in 2024, primarily driven byvolume growth of $574million related to kitting and operating room products, including the impact of an acquisition. Front Line Care net sales for the year ended December 31, 2025 increased $426 million, or 7.0%, to $6,514 million, compared to $6,088 million for the respective period in 2024, primarily driven byvolume growth, including $308million related to ReadyCare products, wound care products, personal care products, environmental services products, exam gloves, and repositioning and offloading products. Laboratory and Diagnostics net sales for the year ended December 31, 2025 increased $84 million, or 8.8%, to $1,040 million, compared to $956 million for the respective period in 2024, primarily driven by volume growth in laboratory products of $65 million.
Medline Brand Segment Adjusted EBITDA for the year ended December 31, 2025 increased$65 million, or 2.0%, to $3,334 million, compared to $3,269 million for the respective period in 2024, primarily driven by net sales growth, including the impact of acquisitions as noted above. Medline Brand Segment Adjusted EBITDA margin decreasedto 24.3% from 26.1%, primarily driven by 235basis points from higher import costs due to tariffs, partially offset by 47basis points from lower freight costs.
Supply Chain Solutions
Supply Chain Solutions segment net sales for the year ended December 31, 2025 increased $1,720 million, or 13.2%, to $14,712 million, compared to$12,992 million for the respective period in 2024. The increase was primarily driven by volume growth in Prime Vendor sales for the year ended December 31, 2025, which increased $1,426 million, or 13.4%, to $12,049 million, compared to $10,623million for the respective period in 2024, including implementation of new relationships and growth with existing customers.
Supply Chain Solutions Segment Adjusted EBITDA for the year ended December 31, 2025 increased $158 million, or 24.4%, to $805 million, compared to $647 million for the respective period in 2024. Supply Chain Solutions Segment Adjusted EBITDA margin increased to 5.5% from 5.0%, primarily due to operating leverage.
Non-GAAP Financial Information
Management believes that certain financial measures that are not presented in accordance with GAAP provide management and investors useful supplemental information that provides a meaningful view of our financial condition and results of operations across periods by removing the impact of items that management believes do not directly reflect our ongoing operating performance. Adjusted EBITDA and Adjusted EBITDA Margin are supplemental measures that are not required by or presented in accordance with GAAP. In evaluating our performance as measured by Adjusted EBITDA and Adjusted EBITDA Margin, management recognizes and considers the limitations of these measures. Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should not be considered in isolation or as substitutes for net income (loss), or any other measure calculated in accordance with GAAP, as applicable, and should be considered together with our GAAP financial measures and the reconciliations to the corresponding GAAP financial measures set forth below.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as net income (loss) adjusted for (i) interest expense, net, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) inventory-related adjustments, (v) stock-based compensation, (vi) litigation (gains) charges, net, (vii) transaction-related costs, and (viii) other non-core (gains) charges. Management defines Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales. Adjusted EBITDA and Adjusted EBITDA Margin are key performance measures that our management uses to assess our financial performance as well as for internal planning and forecasting purposes. We consider Adjusted EBITDA and Adjusted EBITDA Margin to be meaningful performance measures to investors to evaluate our operating performance and to compare the financial results between periods.
The following table sets forth a reconciliation of net income, the most comparable GAAP measure, to Adjusted EBITDA and Adjusted EBITDA Margin:
| Year ended | |||||||||||
| (in millions, except percentages) | December 31, 2025 | December 31, 2024 | |||||||||
|
Net income
|
$ | 1,157 | $ | 1,200 | |||||||
| Interest expense, net | 812 | 864 | |||||||||
| Provision for income taxes | 91 | 46 | |||||||||
|
Depreciation and amortization
|
1,011 | 977 | |||||||||
|
Inventory-related adjustments (1)
|
83 | 78 | |||||||||
|
Stock-based compensation expense
|
79 | 61 | |||||||||
|
Litigation (gains) charges, net (2)
|
(33) | 2 | |||||||||
|
Transaction-related costs (3)
|
58 | 18 | |||||||||
|
Other non-core charges (4)
|
209 | 115 | |||||||||
| Adjusted EBITDA | $ | 3,467 | $ | 3,361 | |||||||
|
Net income margin (5)
|
4.1 | % | 4.7 | % | |||||||
|
Adjusted EBITDA Margin (5)
|
12.2 | % | 13.2 | % | |||||||
(1)Includes inventory adjustment associated with non-cash last-in, first-out ("LIFO") reserves. Inventory adjustments were $83 million and $53 million for the years ended December 31, 2025 and 2024, respectively. The year ended December 31, 2024 also includes $25 million of amortization of the inventory step-up resulting from acquisitions.
(2)For the year ended December 31, 2025, represents a settlement adjustment of $(8) million related to the EtO litigation, $(43) million related to settlement of an intellectual property dispute, and $18 million related to other legal settlements. For the year ended December 31, 2024, represents $2 million one-time legal costs.
(3)For the years ended December 31, 2025 and 2024, respectively, includes $28 million and $22 million of acquisition and integration-related costs and adjustments; and $30 million and $9 million of expenses related to our IPO, consisting of legal, accounting, and advisory fees, as well as one-time employee bonuses, including those with an ongoing service requirement. The year ended December 31, 2024 also includes $(13) million one-time gain related to acquisition of equity investment.
(4)For the years ended December 31, 2025 and 2024, respectively, includes $87 million and $(6) million of realized and unrealized foreign exchange and investment losses (gains); $64 million and $56 million of loss on debt extinguishment and other refinancing costs and fees; $31 million and $38 million credit loss expense related to certain customer receivables; and $20 million and $23 million of other project costs.
(5)Net income margin represents net income divided by net sales and Adjusted EBITDA Margin represents Adjusted EBITDA divided by net sales.
Liquidity and Capital Resources
Our primary sources of liquidity are our cash and cash equivalents, our cash flows from operations, and our revolving credit facility. As of December 31, 2025, we had cash and cash equivalents of $1,939 millionand available liquidity under our Revolving Credit Facility of $947 million.
Our primary uses of cash include product purchases, operating costs, personnel-related costs, capital expenditures related to property and equipment, acquisitions, payments of interest under our indebtedness, and distributions to partners. In the fourth quarter of 2025, we completed our IPO and used the proceeds (net of underwriting discounts and commissions) from the issuance of 179,000,000shares ($5,078 million) in the IPO to purchase an equivalent number of newly issued Common Units from Medline Holdings, which Medline Holdings has in turn used $731million (including interest of $1million) of which to repay in full all outstanding Euro Term Loans and $3,292million (including interest of $11million) of which to repay a portion of the outstanding Dollar Term Loans. We will use the remaining net proceeds for general corporate purposes and to bear all of the expenses of the IPO. We have used the proceeds (net of underwriting discounts and commissions) from the issuance of 37,034,482shares ($1,051million) and the issuance of 32,405,172shares ($919 million) pursuant to the exercise in full by the underwriters of their option to purchase additional shares in the IPO to purchase or redeem an equivalent aggregate number of shares of Class A Common Stock and Common Units from certain of our pre-IPO owners.
Our net capital expenditures were $447 million and$354 million for the years ended December 31, 2025 and 2024, respectively. These include the continued enhancements and automation in our distribution centers and investments in our manufacturing facilities in Mexico and other regions. We anticipate the net capital expenditures for the fiscal year 2026 to be approximately $500million, primarily related to the expansion of manufacturing facilities and distribution centers and further investment in automation.
We believe that our cash and cash equivalents on hand, cash flows from operations, and borrowing availability under our Revolving Credit Facility will fund our ongoing working capital, investing and financing requirements sufficiently for at least the next year and the foreseeable future thereafter. Our ability to generate sufficient cash flows from operations is, however, subject to many risks and uncertainties, including future economic trends and conditions, demand for our products and services, foreign currency exchange rates and other risks and uncertainties applicable to our business.
After completion of the IPO, Medline Inc. became our holding company and has no material assets other than its ownership of Common Units in Medline Holdings. Medline Inc. has no independent means of generating net sales. Medline Inc. intends to cause Medline Holdings to make distributions and payments to its holders of Units, including Medline Inc. and the Continuing Unitholders, in an amount sufficient to cover all applicable taxes at assumed tax rates, expenses, payments under the tax receivable agreement and dividends, if any, declared by it. Deterioration in the financial condition, earnings or cash flow of Medline Holdings and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, the terms of our financing arrangements, including the credit agreement that governs the Senior Secured Credit Facilities and the indentures governing the Senior Notes (as defined herein), contain covenants that may restrict Medline Holdings and its subsidiaries from paying such distributions, subject to certain exceptions. Further, Medline Holdings is generally prohibited under Delaware law from making a distribution to a limited partner to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Medline Holdings (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Medline Holdings are generally subject to similar legal limitations on their ability to make distributions to Medline Holdings. See Part I, "Item 1A-Risk Factors-Risks Related to Our Organizational Structure-Medline Inc. is a holding company and its only material assets are its equity interests held directly or indirectly through wholly owned subsidiaries in Medline Holdings, and it is accordingly dependent upon distributions from Medline Holdings to pay taxes, make payments under the tax receivable agreement and pay any dividends."
As market conditions warrant, we and our equity holders, including our Principal Stockholders, their respective affiliates and members of our management, may from time to time seek to repurchase our outstanding debt securities or loans, including the Senior Notes and borrowings under our Senior Secured Credit Facilities, in privately negotiated or open market transactions, by tender offer or otherwise, and such repurchases may be at prices below par and may constitute a material portion of the tranche of debt being repurchased. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchases made at prices below the "adjusted issue price" (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, and in related adverse tax consequences to us.
Cash Flows
The following table sets forth the major components of our Consolidated Statements of Cash Flows for the periods presented:
| Year ended | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| (in millions) | |||||||||||
| Net cash and cash equivalents and restricted cash provided by (used in): | |||||||||||
| Operating activities | $ | 1,744 | $ | 1,769 | |||||||
| Investing activities | (474) | (1,493) | |||||||||
| Financing activities | 399 | (1,613) | |||||||||
| Effect of exchange rate changes | 23 | 2 | |||||||||
| Net change in cash and cash equivalents and restricted cash | $ | 1,692 | $ | (1,335) | |||||||
Cash Flows provided by Operating Activities
Net cash provided by operating activities was $1,744 million and $1,769 million for the years ended December 31, 2025 and 2024, respectively.
Net cash provided by operating activities for the year ended December 31, 2025 was primarily driven by net income excluding non-cash items, partially offset by changes in working capital. Changes in working capital resulted in net cash used of $783million, which is primarily driven by an increase in trade accounts receivable of $355million, an increase in inventories of $264million including tariff impacts, and payment of a litigation accrual of $166million.
Net cash provided by operating activities for the year ended December 31, 2024 was primarily from net income excluding non-cash items as well as changes in working capital. An increase in inventory due to customer demands reduced cash by $545 million. An increase in trade accounts receivable due to sales growth reduced cash by $256 million. These were partially offset by $106 million change in accounts payable driven by higher inventory purchases.
Cash Flows used in Investing Activities
For the year ended December 31, 2025, net cash used in investing activities was primarily driven by net capital expenditures of $447 million and payments for asset acquisitions of $33 million.
For the year ended December 31, 2024, net cash used in investing activities primarily relates to payments for acquisitions of business and assets of $1,136 million and net capital expenditures of $354 million.
Cash Flows used in Financing Activities
For the year ended December 31, 2025, net cash provided by financing activities was primarily driven by net proceeds from the issuance of Class A common stock sold in our IPO of $7,048 million, offset by $4,092 million net repayment of long-term borrowings, $1,970 million used to purchase or redeem an equivalent aggregate number of shares of Class A common stock and Common Units from certain pre-IPO owners, and distributions to pre-IPO partners of $518 million.
For the year ended December 31, 2024, net cash used in financing activities primarily relates to a $1,210 million payment of additional tax distributions to certain partners to catch up on a pro-rata basis tax distribution previously paid to pre-IPO partners, distributions to pre-IPO partners of $308 million, and $63 million net repayment of long-term borrowings.
Indebtedness
The long-term borrowings and the effective interest rates, are summarized as follows:
| December 31, 2025 | |||||||||||||||||
| Maturity dates by fiscal year |
Amount
(In millions)
|
Average effective interest rate | |||||||||||||||
| Long-term borrowings | |||||||||||||||||
| Unsecured debt | |||||||||||||||||
| Fixed | 2029 | $ | 2,500 | 5.61 | % | ||||||||||||
| Total unsecured debt | 2,500 | ||||||||||||||||
| Secured debt | |||||||||||||||||
| Fixed | 2029 | 6,000 | 4.79 | % | |||||||||||||
| Variable | 2026 - 2030 | $ | 4,255 | 7.10 | % | ||||||||||||
| Total secured debt | $ | 10,255 | |||||||||||||||
| Total debt | 12,755 | ||||||||||||||||
| Less: amounts due within one year | $ | (76) | |||||||||||||||
|
Total other(1)
|
$ | (195) | |||||||||||||||
| Total Long-term borrowings | $ | 12,484 | |||||||||||||||
(1)Includes $41 million of embedded derivative related to the Dollar Term Loans and deferred financing costs.
Senior Secured and Unsecured Notes
During 2021, we issued senior secured notes with a principal amount of $4,500 million, at a fixed rate of 3.875% and maturity date of April 1, 2029 and senior unsecured notes with a principal amount of $2,500 million at a fixed rate of 5.250% with a maturity date of October 1, 2029.
During 2024, we issued senior secured notes with a principal amount of $1,500 million at a fixed rate of 6.250% and a maturity date of April 1, 2029.
Interest on all aforementioned secured and unsecured notes (collectively, the "Senior Notes") is payable in cash on a semi-annual basis, with payments made in arrears on April 1 and October 1 of each calendar year.
Term Loan Facilities
During 2021, we borrowed $7,270 million under a senior secured term loan facility (the "Dollar Term Loans"), in addition to €435 million under a separate euro-denominated senior secured term loan facility (the "Euro Term Loans"), both established under a credit agreement (the "Credit Agreement"). The Credit Agreement permits us, at any time, subject to customary conditions, to request incremental term loans or incremental revolving credit commitments in an aggregate principal amount of up to (a) the greater of (1) $2,375 million and (2) an amount equal to 100% of our trailing consolidated EBITDA (as defined in the Credit Agreement) for the most recently ended period of four consecutive fiscal quarters for which financial statements are internally available, on a pro forma basis plus (b) certain additional amounts based on satisfaction of a certain consolidated first lien net leverage ratio and subject to certain other customary conditions.
During 2024, the Credit Agreement underwent three separate amendments. These amendments resulted in an increase of $520 million in the principal amount of the Dollar Term Loans, as well as an increase of €185 million in the aggregate principal amount of the Euro Term Loans. In addition, pursuant to the amendments, the applicable interest rate margins were lowered, resulting in a variable interest rate of Secured Overnight Financing Rate ("SOFR") plus a spread of 2.25% for the Dollar Term Loans, and a variable interest rate of EURO Interbank offer Rate plus an applicable spread ranging from 2.25% to 2.75% based on certain of our debt ratios for the Euro Term Loans.
On July 31, 2025, the Credit Agreement was amended to reduce the margin spread and to extend the maturity of certain obligations. Upon the amendment, all of the Dollar Term Loans are subject to a margin spread of SOFR plus 2.00%. The principal amount of the outstanding Dollar Term Loans equal to $4,074 million will mature on October 21, 2028, which remained unchanged, while an aggregate principal amount of the outstanding Dollar Term Loans equal to $3,500 million will mature on October 23, 2030, extended from the original maturity date.
On December 18, 2025, we used a portion of the proceeds from the IPO to prepay a portion of the Dollar Term Loans with a maturity date of October 21, 2028 in the amount of $3,281 million and all of the outstanding principal of the Euro Term Loans, equivalent to $730 million. Per the terms of the Credit Agreement, the completion of the IPO also triggered a reduction in variable interest rate of 0.25%, resulting in a variable interest rate of SOFR plus 1.75% for the remaining Dollar Term Loans.
In connection with Credit Agreement amendments and the debt prepayments, the Company paid debt modification expenses of $6 and $24 for the years ended December 31, 2025 and 2024, respectively. The Company also incurred debt extinguishment losses of $58 and $32 for writing off unamortized issuing discounts and deferred financing costs associated with the debts repaid, for the years ended December 31, 2025 and 2024, respectively. These costs were included in Other (expense) income, net on the Consolidated Statements of Comprehensive Income.
The Dollar Term Loans require quarterly amortization payments of 0.25% of the amended principal due at each calendar quarter-end. These amortization payments were $76 million and $50 million for the years ended December 31, 2025 and 2024, respectively. The Euro Term Loans did not have any mandatory amortization payments.
Revolving Credit Facilities
During 2021, certain lenders have provided us with commitments under a $1,000 million senior secured revolving credit facility under the Credit Agreement (the "Revolving Credit Facility," together with the Dollar Term Loans, the "Senior Secured Credit Facilities").
The amendment to the Credit Agreement in 2024 extended the maturity date of the Revolving Credit Facility from October 21, 2026 to July 8, 2029 (subject to a springing maturity 91 days inside of the maturity date of all secured and unsecured notes and term loan facilities) and did not change the maximum borrowing capacity of $1,000 million or any other terms.
On March 28, 2025, we amended the Credit Agreement to permit letter of credit issuers to issue letters of credit in excess of their respective letter of credit commitments and to obligate the other lenders under our Revolving Credit Facility to participate in such letters of credit, subject to other customary limitations.
As of December 31, 2025 and 2024, the Revolving Credit Facility had several financial institutions as lenders for a maximum borrowing capacity of $1,000 million. The Revolving Credit Facility accrues commitment fees in respect of unfunded commitments thereunder. Letters of credit issued under the Revolving Credit Facility reduce availability under the Revolving Credit Facility dollar-for-dollar. As of December 31, 2025 and 2024, availability under the Revolving Credit Facility was $947 million and $951 million, respectively, after taking into account outstanding letters of credit of $53 million and $49 million, respectively. We borrowed and repaid $179 million and $166 million under the Revolving Credit Facility during the years ended December 31, 2025 and 2024, respectively, which resulted in no amounts outstanding as of December 31, 2025 or 2024.
Borrowings under the Revolving Credit Facility may be repaid and borrowed again, partially or wholly at any time, from time to time, as elected by us and interest is typically paid on a monthly or quarterly basis, depending on the interest period elected.
Financial Covenant
Our springing financial covenant in the Credit Agreement and other ratios related to incurrence-based covenants (measured only upon the taking of certain actions, including the incurrence of additional indebtedness) under the Credit Agreement and the indentures governing our outstanding senior secured and unsecured notes are calculated in part based on financial measures similar to Adjusted EBITDA presented herein, which financial measures are determined at the Medline Borrower, LP (a fully-owned subsidiary of Medline Holdings) level and adjust for certain additional items such as contribution from acquisitions and the run-rate impact of signed contracts, cost savings and customer losses. These incremental adjustments, as calculated pursuant to such agreements, provide us with a net benefit to Adjusted EBITDA for ratio calculation purposes of $230 million and $197 million for the years ended December 31, 2025 and 2024, respectively. The springing financial covenant in the Credit Agreement requires compliance with a maximum ratio of consolidated first lien net indebtedness to Consolidated EBITDA (as defined in the Credit Agreement) of 8.3x and is applicable solely to the Revolving Credit Facility, which ratio is tested on the last day of any fiscal quarter only if the aggregate principal amount of borrowings (excluding outstanding letters of credit (whether or not cash collateralized)) under the Revolving Credit Facility exceeds 35% of the greater of (a) the total amount of commitments under the Revolving Credit Facility on such day and (b) $1,000 million. While the springing financial covenant was not subject to testing as of December 31, 2025 as we did not have any outstanding borrowings under the Revolving Credit Facility at such time, our ratio of consolidated first lien net indebtedness to consolidated EBITDA as of the last day of any applicable fiscal quarter has not exceeded the maximum ratio permitted under the springing financial covenant. The failure to satisfy this ratio would impact our ability to borrow amounts committed under our Revolving Credit Facility which could have a material impact on our liquidity.
Cash Flow Hedges of Interest Rate Risk
We use interest rate derivatives to add stability to interest expense and to manage our exposure to interest rate movements. We primarily use interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for a premium. As of December 31, 2025, we held interest rate swaps with a notional value of $1,000 million and interest rate caps with a notional value of $2,000 million, both with a maturity date of December 2026.
Tax Receivable Agreement
In connection with the Reorganization, we entered into a tax receivable agreement with certain of our pre-IPO owners that provides for the payment by Medline to such pre-IPO owners of 90% of certain tax benefits, if any, that Medline actually realizes, or is deemed to realize (calculated using certain assumptions), as a result of (i) our allocable share of existing tax basis in Medline Holdings' assets acquired in the IPO, (ii) increases in our allocable share of existing tax basis and tax basis adjustments to the tangible and intangible assets of Medline Holdings as a result of sales or exchanges of Common Units (including Common Units issued upon conversion of vested Incentive Units) in connection with or after the IPO, (iii) our utilization of certain tax attributes (including any existing tax basis) of the Blocker Companies, which we acquired in connection with the IPO, and (iv) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Sales or exchanges of Common Units by Unitholders to Medline are expected to result in increases in the tax basis of the assets of Medline Holdings. The existing tax basis, increases in existing tax basis, and the tax basis adjustments generated over time may increase (for tax purposes) depreciation and amortization deductions available to us and, therefore, may reduce the amount of tax that we would otherwise be required to pay in the future. Changes in the estimate of expected tax benefits Medline would realize and the amount payable under the tax receivable agreement as a result of changes in tax rates will be reflected in our Consolidated Statements of Comprehensive Income. As of December 31, 2025, we had recorded a tax receivable agreement liability of $3,542 million.
We expect that the payments that we make under the tax receivable agreement will be substantial. Assuming: (i) a price of $42.00 per share of our Class A common stock, which was the closing price on December 31, 2025; (ii) a constant corporate tax rate of 25.7%; (iii) we had sufficient taxable income to fully utilize the tax benefits; and (iv) no material changes in tax law, if the Unitholders had exchanged all of the Common Units that they held on December 31, 2025, and assuming all Incentive Units had been converted to Common Units and subsequently exchanged for shares of Class A common stock at a price of $42.00 per share of Class A common stock as of such date, we would, as a result of such hypothetical exchange, have recorded an additional tax receivable agreement liability of approximately $7,458 million, generally payable over a 15-year period. We intend to fund the required payments under the tax receivable agreement from our pro rata share of distributions from Medline Holdings. Our ability to achieve benefits from existing tax basis, tax basis adjustments, or other tax attributes, and the payments to be made under the tax receivable agreement, will depend upon a number of factors, including the timing and amount of our future income.
See Part I, "Item 1A-Risk Factors-Risks Related to Our Organizational Structure-Our tax receivable agreement confers benefits upon certain of our pre-IPO owners", "-In certain cases, payments under the tax receivable agreement may significantly exceed the actual benefits Medline Inc. realizes in respect of the tax attributes subject to the tax receivable agreement," and "-In certain cases, payments under the tax receivable agreement may significantly exceed the actual benefits Medline Inc. realizes in respect of the tax attributes subject to the tax receivable agreement," Note 11-Tax Receivable Agreement, and Note 19-Related Party to our consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report.
Contractual Obligations
The following table summarizes the approximate principal contractual obligations as of December 31, 2025:
| Total | Current | Noncurrent | |||||||||||||||
| Long-term borrowings | $ | 12,755 | $ | 76 | $ | 12,679 | |||||||||||
|
Interest on borrowings (1)
|
2,536 | 643 | 1,893 | ||||||||||||||
|
Operating lease obligations (2)
|
903 | 92 | 811 | ||||||||||||||
|
Unconditional purchase obligations (3)
|
849 | 172 | 677 | ||||||||||||||
| Pension obligations | 72 | 5 | 67 | ||||||||||||||
| Total contractual obligations | $ | 17,115 | $ | 988 | $ | 16,127 | |||||||||||
(1)Interest payments on debt obligations are calculated for future periods using interest rates in effect as of December 31, 2025. Certain of these projected interest payments may differ in the future based on changes in reference rate index for variable debt or other factors or events. The projected interest payments only pertain to obligations and agreements outstanding at December 31, 2025. See Note 7-Credit Agreements and Borrowings to our audited consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report for additional information.
(2)We have operating leases for corporate offices, manufacturing and distribution facilities, vehicles, and equipment. Our leases have remaining terms ranging from less than 12 months to approximately 14 years, some of which may include options to extend or terminate the lease when it is reasonably certain and there is a significant economic incentive to exercise that option. As of December 31, 2025, our right-of-use assets related to operating leases were $432 million and our current and non-current operating lease liabilities were $66 million and $386 million, respectively. Also includes our future lease payments for executed operating lease agreements related to office spaces that have not yet commenced.
(3)Includes our significant contractual unconditional purchase obligations. These commitments do not exceed our projected requirements and are in the normal course of business. Examples include firm commitments for goods and service contracts.
Additionally, we have the contractual obligations under the tax receivable agreement to make payments to applicable pre-IPO owners of 90% of certain tax benefits, which are not reflected in the table set forth above. For further discussion of the tax receivable agreement, see Part II, "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Tax Receivable Agreement."
Off Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, of a magnitude that we believe could have a material impact on our financial condition or liquidity. See our audited Consolidated Financial Statements and related notes included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with U.S. GAAP, which often require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, expenses, and related disclosures. Our estimates are based on historical experience, current conditions, and various other assumptions that we believe to be reasonable under the circumstances. We evaluate our critical estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are described below. This discussion is provided to supplement the descriptions of our accounting policies contained in Note 1-Nature of Business and Significant Accounting Policies to our audited consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report.
Revenue Recognition
Our net sales are generated principally from the sale of products. The amount of net sales recognized is adjusted for variable consideration, including sales rebates, distributor chargebacks, return allowances, scrap allowances, and other rights, which may require significant judgment in determining the amounts by which to reduce net sales. Our estimate of variable consideration and ultimate determination of the estimated amounts to include in the transaction price are based upon the contractual terms between us and our customers, products subject to a rebate, the lag between the sale and the payment of the rebate, and historical rebate payment trends. We estimate these amounts at the point net sales is recognized based on the expected value to be provided to the customer and reduces net sales accordingly. Our estimate of variable consideration and ultimate determination of the estimated amounts to include in the transaction price is based primarily on assessments of anticipated performance and historical information that is reasonably available to us. We have not made any material adjustments to our variable consideration estimates historically and in all periods presented.
Allowances for Refunds and Credit Losses
We maintain an allowance for doubtful accounts for estimated losses in the collection of amounts owed by customers. The allowance for credit losses reflects the best estimate of future losses over the contractual life of outstanding accounts receivable and is determined on the basis of historical experience, specific allowances for known troubled accounts, other currently available information including customer's financial condition, and both current and forecasted economic conditions. Changes in these factors, among others, may lead to adjustments in our allowance for credit losses. The calculation of the required allowance requires significant judgment by management. If the financial condition of our customers worsens, or economic conditions change, we may be required to make changes to our allowance for credit losses.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined primarily by the LIFO cost method. For certain foreign subsidiaries, cost is determined using the first-in, first-out method. A LIFO charge is recognized when the net effect of price increases on products held in inventory exceeds the impact of price declines, including the effect of products that have lost market exclusivity. A LIFO credit is recognized when the net effect of price declines exceeds the impact of price increases on products held in inventory. On a periodic basis, we also write down inventories that are considered to be excess and obsolete. Our evaluation is based on historical and forecasted sales trends. Rebates received from vendors relating to the purchase or distribution of inventory are considered product discounts and are accounted for as reductions in the cost of inventory.
Impairment of Goodwill and Indefinite-Lived Intangible Assets
We make certain estimates and judgments in impairment assessments of goodwill and indefinite-lived intangible assets. For the qualitative review, we consider the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that impairment has occurred.
To perform a quantitative review for goodwill, we first estimate the fair value of our reporting unit. We consider all generally accepted valuation approaches to value a business or an entity, and rely on approach(es) that are deemed most suitable to estimate value as of the measurement date. We have generally used a combination of the market approach and the income approach. Under the market approach, we estimate fair value by comparing the reporting unit to similar businesses, or guideline companies whose securities are actively traded in public markets and select market multiple(s) deemed appropriate, and apply the selected multiple(s) to the reporting unit's financial metric. Under the income approach, we use a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate that is commensurate with the risk inherent within the reporting unit. The fair value is then estimated as a weighted average of the values indicated by the valuation approaches relied upon.
To perform a quantitative review for indefinite-lived intangible assets, we utilize the relief-from-royalty method for indefinite-lived trade names. The relief-from-royalty method assumes trade names have value to the extent their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate, and the weighted average cost of capital. If the net book values of the assets exceed fair value, an impairment charge will be recognized in an amount equal to that excess.
The annual impairment testing performed did not indicate any impairment of goodwill or indefinite-lived intangible assets for the years ended December 31, 2025 and 2024. For further information on the impairment test of goodwill or indefinite-lived intangible assets, see Note 1-Nature of Business and Significant Accounting Policies to our audited consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report.
Business Combination
We account for business combinations using the acquisition method of accounting, whereby the identifiable assets and liabilities of the acquired business, including contingent consideration, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Significant estimates may be used to determine the fair value of assets acquired and liabilities assumed. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisitions, as additional information about conditions existing at the acquisition date becomes available.
Tax Receivable Agreement
As detailed in Note 11-Tax Receivable Agreement to our audited consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report, we are party to a tax receivable agreement which provides for the payment by Medline Inc. to applicable pre-IPO owners of 90% of certain tax benefits, if any, that Medline Inc. actually realizes, or is deemed to realize, as a result of (i) Medline Inc.'s allocable share of existing tax basis in Medline Holdings' assets acquired in the IPO, (ii) increases in Medline Inc.'s allocable share of existing tax basis and tax basis adjustments to the tangible and intangible assets of Medline Holdings as a result of sales or exchanges of Common Units (including Common Units issued upon conversion of vested Incentive Units) in connection with or after the IPO, (iii) Medline Inc.'s utilization of certain tax attributes (including any existing tax basis) of the Blocker Companies, which Medline Inc. acquired in connection with the Reorganization, and (iv) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.
As of December 31, 2025, we have recognized a tax receivable agreement liability of $3,542 million for amounts due under the tax receivable agreement. The liability is determined based on the timing and amount of aggregate payments due under the tax receivable agreement, considering the income tax rates then applicable and the timing and terms of purchases or exchanges of Common Units (including the price of shares of Class A common stock at the time of any such purchase or exchange and the extent to which such transactions result in tax basis adjustments).If we do not generate sufficient taxable income in the aggregate over the term of the tax receivable agreement to utilize the tax benefits, then we are not required to make the related tax receivable agreement payments. Therefore, we would only recognize a liability for tax receivable agreement payments if we determine it is probable that we will generate sufficient future taxable income over the term of the tax receivable agreement to utilize the related tax benefits.
Deferred Income Taxes
In connection with the Reorganization and IPO, Medline Inc. acquired equity interest in Medline Holdings, the flow-through entity for U.S. federal tax purposes, and recognized a deferred tax liability for the difference between the U.S. GAAP financial reporting basis and the tax basis of our investment in Medline Holdings. In addition, we acquired certain tax attributes, including net operating loss and credit carryforwards, as well as interest expense carryforwards, and have recognized deferred tax assets relating to these amounts. A deferred tax asset was also recognized for the future tax benefits from tax receivable agreement payments.
Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period in which the enactment date occurs.
We are required to evaluate the realizability of our deferred tax assets by assessing the likelihood that our deferred tax assets will be recovered based on all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, estimates of future taxable income, tax planning strategies and results of operations. When we determine that it is more likely than not that all or a portion of a deferred tax asset will not be realized, we record a valuation allowance against our deferred tax assets. Estimating future taxable income is inherently uncertain and requires judgment. As of December 31, 2025, we have recorded an immaterial valuation allowance against our deferred tax assets.
For further information on deferred income taxes and provision for income taxes, see Note 12-Income Taxes to our audited consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report.
Recently Adopted Accounting Standards and Recently Issued Accounting Standards Not Yet Adopted
For a discussion of recently adopted accounting standards and recently issued accounting standards not yet adopted, please see Note 1-Nature of Business and Significant Accounting Policies to our audited consolidated financial statements included under Part II, "Item 8-Financial Statements and Supplementary Data" of this Annual Report..
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