Earnings Call: Q1 2020

May 6, 2020

We would like to welcome all of you in these very different times to the Fresenius Medical Care Earnings Call for the First Quarter twenty twenty. We hope you and your families are healthy and safe, and we appreciate you joining today. Now it is my pleasure, as always, to start out the call by mentioning our cautionary language that is in our safe harbor statement as well as in our presentation and in all the materials that we have distributed earlier today. For further details concerning risks, uncertainties, please refer to these documents as well as to our SEC filings. As we only have sixty minutes, I would like to limit the number of questions again to two in order to give everyone the chance to ask questions. It would be great if we could make this work. With us today is in a virtual way, Powell, our CEO and Chairman of the Management Board. Rice will give you some more color on the challenges with COVID-nineteen and the business development in the first quarter. And of course, also with us in a similar virtual way is Helen Geeter, our Chief Financial Officer, who will give you an update on the financials and the outlook. I will now hand over to Rice. The floor is yours. Thank you, Dominic. Hello, everyone. It's great to have you with us today, especially under these trying circumstances. I very much appreciate your interest in Fresenius Medical Care. And let me echo Dominic's comment. I hope that you and your families are safe and extremely healthy. Before I begin my prepared remarks on the business development in the quarter, allow me to say thank you to the Fresenius Medical Care employees that are on this call. For months now, more than 120,000 employees of FMC have been working tirelessly to ensure that our patients receive their life saving dialysis treatments in a safe environment and with the same high degree of quality that they've become accustomed to. For the FMC employees on this call, thank you. Please pass my thanks on to all your people. You are healthcare heroes. We could not do this without you. As Dominic says, we are doing something very unique today. He is in Bot Humber, Helen is in Chicago and I am in Boston. This is a new experience for us and I think it's probably one that we will continue with for another quarter or two. I will begin my prepared remarks on Slide four. In these unprecedented times, our business model has proven its resilience. Our first quarter results show that our business model is solid and our outstanding performance continued. We delivered strong revenue growth of 9% with contributions from each region. Our earnings grew despite the impacts from COVID-nineteen pandemic. Excluding this negative impact, the first quarter results are at the top end of our target range for 2020. Our cash flow development in the first quarter was extremely strong. Helen will have more commentary for you on that in her prepared remarks. I'm happy to confirm our targets for 2020. We excluded the impacts from COVID-nineteen in this. We'll talk more about this I'm sure as the course of the day progresses. Moving to Slide five, our first absolute priority are our patients. Providing the life saving, high quality treatments in the safest environment commands our undivided attention. An example of creativity and excellent performance at Fresenius Medical Care in the first quarter goes to our government relations team in Washington DC. We saw very early on in March that people that needed vascular access surgery didn't know what to do. Was it elective? Should we put it off? Can we get it? Can we not? And this team went to work, had very detailed conversations with Health and Human Services and CMS. And we were able to clear up a very troubling situation and have it very clearly communicated that dialysis patients need to have vascular access surgery and it is essential. It is not elective. Just the way that our people have risen above the confusion and the issues in this delicate time. Our global medical office, I thank them greatly. We've taken wide ranging measures across the Fresenius Medical Care enterprise and we took these measures at a very early stage. We initiated our pandemic protocol. We took protective measures such as PPE or personal protective equipment, masks for our patients. And everybody obviously understands that we would do this in our clinics, but we went a step further and we made these same conditions for our manufacturing facilities in order to make sure that we could protect the environment in which our products are made and we could continue supply to our patients and our customers. And despite countries locking their borders down and making moving products and goods difficult, we've been able to do so. Our manufacturing facilities have not had any disruptions and our supply chain is functioning and we're very thankful for that. Due to the pandemic, we had to absorb a sizably higher cost in the first quarter. This is fully reflected in our reported numbers. There is no benefit from the CARES Act included in the reported results for the first quarter. The benefits of the CARES Act were only initiated in April and I'm sure we'll have more discussion on that as we go through Helen's presentation and the Q and A. In The U. S, Fresenius Medical Care is cooperating with other dialysis providers to create isolation clinics and dedicated shifts for COVID positive patients. A critical aim of this collaboration is to keep dialysis patients out of the hospital whenever possible. In these times, it is so incredibly important to free up the limited hospital resources to deal with the severe cases of COVID that are not necessarily dialysis related. This is a way that we believe we are making a positive contribution to the healthcare situation in The U. S. In general. Moving on to Slide six, in the first quarter, we provided more than 13,000,000 treatments to more than 348,000 patients in more than 4,000 clinics worldwide. The slower growth of our clinical infrastructure, which you can see is at 1%, is the result of several things. Please recall, in 2019 we did a dedicated restructuring that optimized our clinical infrastructure specifically in The United States. We are growing our home business considerably. This requires fewer clinics to be built. And thirdly, in the Asia Pacific region, we had a legal interpretation that changed in one of our markets which led us to make the decision that we would deconsolidate some 20 odd clinics that we had consolidated for a number of years. But with the government change and a different view of this, we decided it made sense to deconsolidate these clinics, but we have kept the product business. But those three items have contributed to the 1% growth in clinics. We consistently deliver a very high quality level of quality and services and our products and our dialysis pay for our patients worldwide. Turning to Slide seven, if you would. This is our quality indicators. I think you see stable performance in the first quarter. You can see we have made progress in the number of hospital days per year on a patient basis. We will see what Q2 brings, but at this point, we feel good about what we are able to deliver from our quality standpoint and we like the sustained performance that we are contributing. Turning to Slide eight, our business performance in the first quarter was very strong despite the pandemic. Revenue increased by nine percent with solid organic growth of 3.8%. We delivered growth in both dialysis services and products. As already mentioned, despite the impact of the pandemic, we saw a positive operating performance with an increase in operating and net income. Helen, as she typically does, will take you through the details of that in her prepared remarks. Moving to Slide nine, all regions contributed to an overall organic growth rate of around 4%. The highest growth contribution in absolute terms came from North America with a 10% revenue increase. EMEA, Asia Pacific and Latin America followed with a 4% growth. Now please, if we take a look at the next slide, we'll focus on Healthcare Services. The COVID-nineteen pandemic did not affect revenues in our Healthcare Services business in the first quarter. As you can see, we delivered strong growth, organic as well as same market. The increase was supported by acquisitions and an increase in dialysis days as well. In North America, same market growth continued with a 3% increase. As planned and we've discussed, we did close a number of clinics as part of our 2019 cost optimization program and obviously that has a negative drag on the growth rate. In EMEA, we realized organic growth of 4% and Asia Pacific's growth of 6% was supported by an increase in the core dialysis business as well as care coordination. Moving to Slide 11, I am sorry, in my last prepared slide. The products business delivered strong reported growth of 10%. To be taken into account is the acquisition effect from NxStage that helped here. In the light of the COVID-nineteen pandemic, the organic growth of 2% is a solid number. The strong organic growth in dialysis products in North America was not only driven by higher revenues from renal pharmaceuticals, renal disposables and home hemodialysis products, but also by higher sales of products for acute care treatments in the intensive care units. At the same time, we saw a decrease in Asia Pacific mainly due to lower sales of dialysis machines in China in particular. This is a consequence of the pandemic. Here the higher sales of acute products cannot overcompensate for the lower sales of the dialysis equipment. Revenue from non dialysis products increased significantly year on year mainly due to the higher sales of NovoLog machines, which can be used to treat COVID patients in the intensive care units and this is from our Xenios acquisition of several years ago. At this point, I'll end my prepared remarks and gladly turn it over to you, Helen. Please. Thank you, Weed. Hi, everyone, and a warm welcome from Chicago. I hope you're all doing well wherever you may be dialed in from today as we embrace this new virtual world and ways of remote working. I would also like to echo Lisa's comments and extend my own thanks to our employees who have worked tirelessly and selflessly these past few months to ensure our patients continue to receive uninterrupted dialysis care. I'm so proud of our efforts and to be part of the FMC family. We've already outlined a very positive revenue development. I will focus my comments on giving you more flavor on the earnings side. I know we said it already, but I want to reinforce that we continue to deliver operating income growth despite the very challenging situation the world is in at the moment, and we are on track to deliver what we promised. In my first call to Fresenius Medical Care in February, which now feels like a lifetime ago, I outlined a couple of priorities that are important to me. One you're already aware of, which is simplify. In the spirit of that, and to leave more time for the q and a today, I summarized the regional developments for you in one slide without losing any relevant details, and this is shown on slide 13. In the bar chart on the left, you see the regional contributions and corresponding margins. The group operating income improved by more than €30,000,000 to €648,000,000 This number includes a sizable negative impact from the COVID-nineteen pandemic that we absorbed in the first quarter. There is no positive contribution from the CARES Act or any other government support included in these results. The decline in operating income margin for the quarter of 60 basis points is mainly driven by the cost impact of COVID-nineteen where there was varying impact across all the regions. These higher costs in our operations are driven by an increased spend for personal protective equipment for staff, as well as masks for patients, higher personnel expense due to additional shifts overtime, and emergency pay for our employees, along with childcare expenses in The US, and by increased patient transportation requirements and more difficult distribution logistics for our products. In addition to the direct costs impacting our business, the fear of a worldwide recession and the corresponding capital market reactions resulted in an unfavorable valuation impact on some of our investments. Our underlying business fundamentals are strong and we are performing remarkably well. One of the main positive drivers in the quarter was the reduced cost of pharmaceuticals. We have been able to benefit from improved pricing on some pharmaceuticals as well as higher percentage of generic drugs. Additionally, we are continuing to optimize our care coordination portfolio. As part of this process, we divested in January some clinics in the cardiovascular space in North America and realized a positive contribution of EUR24 million to the margin development. The 2019 prior year reduction of a contingent consideration liability related to Xenos was a known impact to reported performance in EMEA in the first quarter of this year. Some short key comments on our regional development. In North America, we realized growth on the top and bottom line despite the COVID-nineteen impact. This resulted in an improvement to the margin of 160 basis points. The most important drivers on the positive side were already mentioned, lower cost of pharmaceuticals, the divestiture of care coordination activities, but additionally, we saw continued improvement in our commercial mix contributing to the development along with higher sales of acute products. On the negative side, an unfavorable effect from costs for COVID-nineteen, which I outlined and a reminder that we have not received any compensation under the CARES Act in Q1. The compensation will be in effect we will be talking about in Q2. As we have previously discussed with you, we are seeing lower ESCO savings than last year. And additionally, we had a lower contribution from pharmacy services. In EMEA, the already mentioned effect from Xenios in over year growth the most. And we also have a COVID-nineteen cost impact here, but we benefited from positive contributions from acquisitions. The margin in Asia Pacific was affected by unfavorable foreign currency transaction effects by lower product sales in particular for dialysis machines in China due to COVID-nineteen, but they were partially offset by acute sales and by our continuous investments and ramp up of our dialysis service business in the region. Latin America includes some economies with a deteriorating and challenging macroeconomic environment, which is becoming worse due to the COVID-nineteen pandemic. Here we saw a margin decline, which is mainly due to unfavorable foreign currency impact. I will now move on to Slide 14. Our cash flow focus and deleverage targets are another key priority for me. The significant increase in our operating cash flow was largely driven by working capital improvements in the quarter. This was triggered by a couple of very actively managed tasks that resulted in a positive effect from cash collections with lower DSO and improved timing of payments as well as changes in year over year inventory levels. The strong cash flow development resulted in operating cash flows of EUR $584,000,000 or 13% of revenue. CapEx amounted to EUR $280,000,000 and is in line with our planning for the first quarter. As a result of the strong operating cash flow, free cash flow improved significantly year over year to $3.00 €4,000,000 And just as a reminder, the free cash flow after investing activities in Q1 twenty nineteen included the acquisition of Nextage. And lastly, when you look at the leverage ratios on the bottom left of the page, including IFRS 16, the leverage ratio was broadly stable with 3.3 times net debt to EBITDA. The ratings are unchanged and as you can see, Fitch reconfirmed its rating with us in April. Let's turn to Slide 15. Here you can see our targets for 2020, which remain unchanged and are confirmed. As previously guided, our 2020 targets excuse the impact of the COVID-nineteen pandemic and special items. Our current assessment of COVID-nineteen on our earnings is not so significant and is absorbed in our guidance range. Should the pandemic develop further, we will continue to review the impact on earnings and whether we utilize the use of special items. The net effect of the COVID-nineteen pandemic in the first quarter was not material in respect to the full year performance. Taking into account the committed support from the US government, in particular via the CARES Act, we anticipate most of these costs will be covered. Based on the definition of these targets, which means excluding the negative effects from the COVID-nineteen pandemic, our first quarter results are clearly at the top end of our net income guidance in the first quarter. This makes us very comfortable in terms of our underlying business performance. With that, I close my prepared remarks and turn it back to Dominik Heger in Bad Hamburg. Thank you from Chicago. So thank you, Rice. Thank you, Helen, for your presentation. And I'm happy to turn it over to the Q and A. And we have forty minutes left. That's great. Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. If you are using speaker equipment today, please lift the handset before making your selections. In the interest of time, please limit yourself to two questions only. Anyone who has a question may press star followed by one at this time. The first question is from the line of Veronika Dubajova from Goldman Sachs. Your question please. Good morning, good afternoon and thank you for taking my questions. I'll keep it to two. My first one is on guidance actually, Helen. I'd love to clarify the comment that you have just made in terms of saying that your current assessment of COVID is that it's not so significant and can be absorbed in your guidance range. Is this a comment inclusive or exclusive of the CARES Act funding? And kind of how are you thinking about how the incremental costs and the funding offset each other? That would be really helpful to understand on a full year basis. So that's my question number one. My question number two is the commercial mix in The U. S. I'd love to hear one, where you are with respect to fourth quarter, if you've seen any change sequentially? And two, kind of bigger picture, if we do go through a period of higher unemployment in The U. S, what are your thoughts on what might happen with commercial mix and what that could mean for your business in the second half of the year in 2021? Thank you. Helen, why don't you take number one? And, I'll take number two, the two parts. Yeah. Thanks, Lee. Thanks, Veronica. Hope you're well. Yes. With regards to the guidance, we have estimated what the, you know, the impact of these ongoing costs are for corona, particularly, you know, as we incur the increased costs in The US. We do feel that that guidance is inclusive of the CARES funding. We do expect to receive that and be, attest to the fact that these costs are in keeping with the intent of the CARES Act, which is to reimburse providers to keep, the clinic operational and to keep, the continuous continuous care for dialysis patients. I think we have proved that we have done that over the last two months, and we have kept our patients out of the ICU and out of hospitals, and we have an uninterrupted care in in our in our clinic. So I think we feel very proud of that. But, yes, our expectation is to benefit, with the receipt from the CARES funding, to cover the additional costs. You know, obviously, we're all reconciling how those costs are ongoing, and how the, the government aid will help us with that. We know that we, with the attestation, we have to reconcile it. So, yeah, on a full year basis, we still feel that we can absorb that within our our guidance range. What I would say is we don't know how like everybody, we don't know how long and how deep this is going to last. If we, if if we are facing a second surge towards the back half of the year, I think we have to evaluate the impact on earnings for that. And I think, you know, the whole world is gonna know more, when we come back to the round of earnings for Q2. But right now our assessment is pretty strong. Veronica, hi, it's Reese. One thing I would add, it probably gives you a little bit clarity. We saw the Q1 COVID expense at approximately around $40,000,000 in, Q1. So that probably gives you some help, in that regard. Commercial mix as it relates to sequential quarter Q4 to Q1 improved. We are still seeing improvement in our commercial mix and so we are pleased with that. Now unemployment is a big topic and let me try to address it this way, what we know and what we don't know. What we know is that in 2008 and 02/09, we had the financial crisis. We didn't know what to expect in terms of commercial mix and we didn't see a big shift there. So it was fairly stable through that period. Long time ago, different time. The way we think about this is it depends on who is unemployed. If these are people that are in the gig economy or they are not the type of people that are going to have company sponsored plans, if they were going to come to us, they are going to come to us as a Medicare patient anyway. People that are working, that have health plans, many of those people are getting furloughed and so their benefits are still intact. So that will have some impact as to what happens. And then lastly, obviously, people are getting laid off, there is the option for covert which you know about. So I think it's too early for us to prognosticate. We won't do that. But we know that there are different slices of unemployment. So we have to work that. We have to understand it and see where it goes. And keeping in mind that if we are seeing something go on, that gives us a trend, then we'll report on it. We'll talk about it. We'll figure it out. But right now, I think it's simply too early for us to understand that. But that's how we're thinking about it, if you will, a couple of different levels. That's very helpful. And if I can just clarify, Helen, that I understood your answer correctly. When you think about the guidance, including the additional COVID costs and including the CARES funding, you you say it's effectively unchanged. Is that a fair interpretation of what you've just said? That's correct, Veronica, as we see it right now. Yep. That's fantastic. Thank you guys very much, and stay safe out there. Yeah. You too. Thank you. Next question is from the line of Sebastian Walker with UBS. Your question, please. Hi there. Thanks for taking my questions. I've got two as well, if I could. So the first one is just thinking about volumes. The the great to hear what you're hearing from your chief medical office on how COVID may be impacting your your patient volumes going forward. The second one was on the products business. Could you maybe comment on how you've seen demand for both the dialyzer products but also the consumables used for acute kidney injury patients going forward? Thanks. Sure, Sebastian. I'll I'll take these two, Helen, and chime in whenever you would like. When our medical office and we talk about where does this go, patients, volumes, treatments, what's coming, We go back to what do we know versus what what do we not know. And we obviously know that looking today in Asia Pacific, I have to do this globally. If you look at it in Asia Pacific, it would look like China's come through and beginning to stabilize. We're seeing a rebound of the virus in Hong Kong and we don't know how big that rebound or what the duration will be. We're seeing some stability in France and Italy and Spain. You're seeing the the positive count is sort of plateauing, but we're not seeing it come down particularly quickly. We know that it has migrated into parts of Eastern Europe, Russia, Romania, etcetera. So it's still tracking up. In The US, largest market, you know, it does appear that we are seeing some tabling or tableau ing if you will. But what we are concerned about is simply the fact that how would that curve come down? It shot up very quickly. Now it's sort of plateaued. What happens? How long will it take for it to come down? That's really important to us because we get into the fall and influenza of the general kind is gonna come back. So what happens with that mixture? So it's these unknowns that keep us from being able to try to predict or prognosticate where the volumes will end up. But we are looking at it, but we just gotta have more time and see where this goes. And relative to the products business, we've not seen an impact on our disposable business. It's it's fairly as we have expected it to be. Obviously, the hemodialysis equipment is down, but we think that can come back at some point. We are seeing an upsurge in our acute business, but it's not enough to overcome everything. So we're going to see how this plays over time. The longer this pandemic continues, I think there could be more upside in the acute side of the house simply because we do know that roughly the COVID patients, non dialysis related, but about twenty percent of the COVID-nineteen patients end up with acute kidney injury and they need to be treated. So the longer this goes, there may be more volume that we see in our ICU business. Great. Thanks, Reese. The next question is from the line of Lisa Clive with Bernstein. Your question please. I'll start with North America Care Coordination, very robust growth at 9% organic. What is the main driver of that? Have you signed any integrated care contracts with private insurers or MAs this quarter? Second question, Asia Pac, the deconsolidation of, I think, 22 clinics, does that relate to a 2014 acquisition in the big market that cannot be named? And then just lastly, very quickly, Cura in Australia, just was wondering how that business is doing. Have they had to stop or slow down their procedure volumes given, the COVID situation? Thanks. Hey, Lisa. It's, Reese. I'll I'll take those. And, Helen, please jump in, when you like. So the biggest drivers in care coordination. It's really we've gotten the very best that we can get relative to reimbursement for vascular care. As you know, we were working very hard to get our site 11 sites moved We got better reimbursement rates than we had anticipated getting. So that's been helpful and driven some of that. Our pharmacy has worked as we thought it had. So it's not that we've done anything new if you will at this point in the game as it relates to Q1. Different part of Asia Pacific, I will just tell you that these clinics that are deconsolidated are coming out of South Korea. You know, there was a change there, some different view of the government and so we felt it was most prudent that we would deconsolidate those, maintain the product business and go from there. And then cure in Australia, there has been some impact and Helen will jump in here and help me. I want to say that there were some impact in the month of March on elective procedures. The government did not want people doing that. It moved into April for a week or two, I believe, and then went back. It's gonna click back. They're allowing it. But I may be off on the March comments. I'm gonna let Helen jump in. But beyond that, beyond electives being not allowed for a period of time, everything else is pretty much working as it needed to. Helen, am I wrong or, on the months, did I get him wrong? No. I think the cure, it was two weeks in early April. He may have struggled right at the March. But I think the first two weeks of April, where they the government had intervened and said no no elective, but that turned around very, very quickly, and we don't expect that to have a have an impact. Again, maybe what I would add as well, Lisa, is, you know, we've obviously talked about the CARES Act, but right now we have no, favorable reimbursement impact built in for rest of world. And as you can imagine, we are in discussions with, you know, other other other governments and care providers to make sure that, you know, the the the additional costs or, government interactions are not affecting us in a negative way. Thanks. Very helpful. The next question is with the line of Patrick Ward with Bank of America. Your question please. Perfect. Thank you very much. Just two quick ones for me. The first one, how should we think about you know, MA enrollment as as we, you know, move through the latter part of this year and into next? And does the current environment change anything associated with that? And then the other one would be equally similar sort of topic, but, how do we think that this might change the structural shift to home? Is this an accelerator for that trend and how are we thinking about that internally? Thanks. Hey Patrick, it's Reese. I feel like I should just give these to Helen because I'm doing all the talking, but I'll go ahead and Helen jump in what she would like. On the Medicare Advantage enrollment, as we talked, open enrollment is coming in the fourth quarter. So I can't tell you that we've really worked our way through what an impact may be or not. I think we're just going to have to play this out. And I keep saying it, but I mean it's the known and the unknown. So we'll get through Q2. We'll understand where this is going. We're going to have a pretty good idea. I hope for our global medical team about. Okay. What does Q3 Q4 look like in terms of the pandemic? And then we'll have to see where that is. I think it's just early for us at this point to have any more to contribute to trying to answer that question. And then on shift to home, I was asked this couple of weeks ago. We are in a place where we are currently training 400, 500 people to go home. They've got to complete that training. We have to move them to the system. We're not really in a position that just because of COVID today, what has been sized and money spent to be able to move those people through the system that we can just decide to go double that right now because doubling that concerns me to the quality of the training that they get. So we need to have this work at kind of the par value that we've looked at it for. I do think Post COVID and people learning and seeing what's going on in the pandemic. Certainly there may be more people that want to look at. Can I do training at home? Can I do my therapy at home? And we will react to that. But it's not like we can just flip a switch and say, hey. We're gonna do 425 over the next six weeks. Let's just double that. I think there's a quality concern with that. And secondly, we've got a lot of our manpower, going and doing things to attack COVID and helping out and moving around. We've had people come out of home training centers, nurses and be able to go help literally in ICU and things like that. So we're maintaining the growth and the plan, but it's not a time to rush it right now. I I think that would be ill advised. Understood. Thanks for the answers, and, stay safe from the murder hornets. Thank you. The next question is from the line of Michael Jungling with Morgan Stanley. Your question please. Great. Thank you and good afternoon. I had two questions. Firstly, on North America, can you comment on a relative basis how the calcimimetic profits compare in Q1 of this year versus Q4 of twenty nineteen? Some sort of relative comment on how the development has been. And then please, a question two is on the CARES Act. Can you comment on the degree you want to accept the benefits from the CARES Act and what limitations that may place on your business flexibility? And as part of the CARES Act, is sort of a CHF $250,000,000 benefit kind of similar proposed to what your main competitor proposed, is that a number that one could work with, with respect to what the CARES Act benefits could be in 2020? Thank you. Sure, Michael. Helen, do you want to take number one, please? Yes, sure. Yeah, yeah. Hi, Michael. I hope you're well. So calcimimetics, as you know, we have not guided on the calcimimetics impact in last year or this year either. What you do know, is that we do see a benefit in 2020 versus 2019 because of the timing of generic. So year over year for the quarter, you'd see a benefit. We won't disclose that. But, as the year goes on, it will continue to be the headwinds that we outlined when we did our guidance, at the end of last year. Lucy, you're gonna take the CARES Act question? Sure. So yeah. No. I I I'll comment. So, Michael, on CARES Act, we had made a decision back in March on these additional expenses and our pandemic protocol and what we were going to do. Elder care, child care, emergency pay, etcetera, emergency pay for our drivers that go into people's homes to deliver home product. We had several discussions with executive management at HHS. And it was very clear to us that Medicare providers that were incurring excessive expense. We're trying to do the right things here in the midst of COVID. That was exactly what cares was being developed to take care of. So I feel like we've done exactly what we needed to do. I think it's in the best interest of our patients, our employees and our shareholders that we take the availability of this. And the way we look at this is simply its reimbursement for the extraordinary expenses that we've incurred, no more, no less. We will attest to the nature of the expenses and how we generated them. And that attestation is due to start, I think it's in early in July. So we're pretty comfortable that this process is understood. We've stayed close to the folks that are administering the CARES Act, which is HHS, and so we feel good about that. I will comment on the benefit relative to what the other guys tell you they got. I don't see a lot of value in walking you through that. Of course, the other piece of this not related to CARES Act is simply that the fact sequestration is going to be put on hold from May 1 through December 31 that will have an impact for us, somewhere probably in the 50,000,000 to $50,000,000 range, dollars 50,000,000 to 55,000,000 But I think that is where we kind of stand on this. We think it's prudent activity for us. Great. Thanks for the clarity. With respect to CALSIMITIX, can I just understand how CALSIMITIX compared to the fourth quarter of twenty nineteen? Did it take a substantial hit or a little bit of a hit? Just some sort of high level guidance, please, on that. We we we did see go ahead. No. I was gonna say, you know we won't disclose the number, but we did see a reduction in that from Q4 to Q1. Great. Thank you so much. Next question is from Ed Ridley Day with Redburn. Your question, please. Hi. Yes, thank you. First of all, just on the acute care part of your business, we don't get to talk about this enough. Could you update us on what proportion of particularly your U. S. Revenues in the product side are related to CRRT and acute care? That'd be my first question. And secondly, a follow-up on, the questions related to revenue per treatment in The U. S. Looking at, you know, given the sort of puts and takes, revenue per treatment year on year was a little bit light of what I had. And I was just wondering if was that primarily the impact of the clinic closures or were there other given the positive update from Medicare and the slight improvement in mix even with the calcimimetic, negative, are there some other, pass and takes that we should be aware of? Helen, why don't I give you one and two and yeah. Please. Yes. Yeah. I'm sorry. The joys of remote working. We talked over each other. I'm sorry, Liz. I was gonna say on the, on the acute care revenue, we don't disclose that level of detail in our North America segment. And on revenue per treatment, as you know, when we gave guidance at the end of the year, we are not gonna disclose the detail of RPT and CPT, moving forward. But we do have, you know, we do have a positive trend on revenue, which was which was up up 2%. The so so I I don't know where you're getting a negative calculation from, but we could follow-up on that offline. No. No. No. It was obviously, it was positive, but I was just thinking it might have been slightly more positive. But, no. That Oh. Yeah. That's Yeah. Thank you. Okay. And just a quick follow-up as well on the timing of the support from the US government. Rice, you highlighted that obviously it's being discussed. Just in terms of how that comes through, it would presumably be lagging and therefore perhaps just in terms of modeling, it should be more second half weighted. No. I think there's been some fun flow that started in April, so it's not like it's all pent up and hasn't come in yet. So there's been some. I think there there'll be some lag. We'll have to true that up. But I think it's not going to be back half of the year before we see that. I think we will see relief reimbursement if you will in Q2. May not cover everything obviously, but I think it will get started and we'll be able to work our way through that process. The other thing, Ed, just real quick, two things I want to say. The acute business in The U. S. Is predominantly next stage business. We did not have an acute business in Fresenius pre that in The U. S. Rest of the world has had a very vibrant, acute business number one number two. Just so you guys understand we've gotten several emergency use authorizations from FDA. That have allowed us to also bring in XeniOS equipment so we could join the fight against Covid relative to doing ECMO membrane oxygenation for Covid patients in the ICU, and we're also getting some FMC if you will pre next stage European equipment like the multi field trade pro and the classic in all in an effort to be able to help. These institutions be able to treat these COVID patients when they end up in ICU and they've got, you know, this is that twenty percent I was speaking of that developed acute kidney injury. We're working very hard, handing glove with the U. S. Government to try to be able to support as much of that as we can. Great. Thank you. Great. Sure. The next question is from Tom Jones with Berenberg. Your question, please. Good morning, Rice and Helen. I had two questions, actually more about life after COVID-nineteen, to be honest. The first was just on all the various models that are floating about with KidneyCareFirst, chronic kidney care contracting model, and the ETC model. You know, where are we with all that stuff? Is it just kind of on hold and probably likely to stay that way until after the election and we'll see where we are? Or is there any possibility that anything can happen sooner than that? And then the second question was just on I'm not asking for too much in the way of specifics, but the nature of your commercial contracting discussions at the moment. From memory, you had one of your larger commercial contracts coming up for renewal this year. Maybe you could just make some comments about how those discussions are going in the context of what might happen with MA numbers next year. The different insurers seem to be making different noises. Some of them seem to think this is a bit of an opportunity and that they can manage these patients well. Others seem to be like rabbits in the headlight and terrified of a potential wave of dialysis patients. Some color around how those discussions are going, what the framework is, and potentially how that might influence your business going forward would be helpful. Sure, Tom. I'll take both of those. I have to say my hats off to you. You're the only person to ask me about anything life after COVID. We haven't seen that far in advance. But here's what I would say. It's a really fair question. Everything in Washington today is COVID focused, with the folks that we deal with CMS, HHS, FDA at the moment as well. There's been no official word coming out. My my gut tells me that the voluntary models are very likely to be pushed out. It is just such a gargantuan effort that everybody's been undertaking to try to make sure they're doing everything they can, in this COVID situation. We are still we're late with ASCO getting the last thing is third quarter report from plan year four. Just things like that. It is really everybody's focused on COVID. So when I have a better update for you, I'll let you know. But right now we're just keeping our heads down and going forward, but I suspect pragmatically it's going to end up getting pushed out. And on the contracting status, the very end of last year, the one big commercial contract we had to do this year got taken care of. So that was really done before COVID hit, if you will. And on the Medicare Advantage discussion, there are people all over the place. I think this is the way we view it. It's a rate negotiation. We are very comfortable with our capability and the outcomes that we are giving people and many of these payers have history with us and they know that we provide good outcomes and we can manage these patients in a tighter band than probably anyone else. So we're just going to have to see how it plays out over time. But I would confer to you that yes, you do see very different perspectives, one Medicare Advantage provider or commercial versus the other. It's a little bit of a smogger sport, if you will, but we think we can work our way through that. Okay, perfect. I did have one very quick follow-up on the previous question about Home HD. I know you're not going to be keen to expedite home training at this current time, but maybe just as a kind of predictor of the future, what kind of level of patient inquiry have you seen during the COVID outbreak? Has it created a spike in interest in home HD, or is it people just focused on staying alive at the moment? I would say, and this is from my opinion, I don't think that I can give you a perfect answer, but I think people are much more in the mode of don't want go out of house, but don't have to, don't want to start something new. I think ultimately we are going to see a lot more interest in home because as people begin to understand doing it at home, I can self isolate versus the clinic, etc. So I think that will come later. But I think right now, there's just a huge focus on people trying to stay healthy as they exist today, more so than they're thinking through, do I want to jump and start training right this day? I think folks are trying to understand where this is all going to go, because it's so vastly different from one part of the world to the next. Makes perfect sense. Thanks very much. The next question is from Oliver Metzger with Commerzbank. First one is also on the compensation from the CARES Act. So the benefit comes in the second quarter. However, we do not know how long all the safety measures have to last. But can you give us any indication for how long the CARES Act benefits would cover your incremental costs? My second question is on the nondialysis products. So the very strong growth, you already mentioned Xenios. So could you elaborate on the contribution of this ECMO console from Xenios to this development? So was it the major contributor? I'm asking because I have a cleanest business as comparatively small in mind and yes, would be really surprised by such a strong contribution. Sure, Oliver. So, again, it's a fair question on the CARES Act, and it's what we know versus what we don't know. So without knowing how long this is gonna go on, we we really haven't had discussion with the government about that. Everybody has their own opinion from the President all the way down to other people about how long this is going to go on. But the one thing we do know is the government has been extremely responsive. And so if we see there's a resurgence or this goes longer, then we would obviously engage and talk to them and see how it happens. I think the best way to think about this is, we think we know enough about Q2 and where it is that we'll be able you know, we'll update you when we get there, and then we're kinda looking at this quarter to quarter. I would say there's probably no more greater need for information than understanding anywhere in the world how long is this gonna go. And we're we're trying to do that, but we're not there today. So there's a little bit that we'll have to take this as it comes. But there's also comfort in my mind having been on the phone for hours with people in the US government, how much they want this to be taken care of and worked on appropriately. As Helen said earlier, we've got no assumption about the rest of the world and is there going to be help there or relief. It's been talked about, but we just haven't done anything with it because we don't know where it is at this point. So that's out there as well. And the one thing that I would remind people of is Latin America is trailing even The US in terms of the pickup of COVID and the rates beginning to climb in some of the markets Latin America. So I just think we're going to have to work our way through this in that regard. Now on Xenios, it's a small factory. They're doing great things. People are working very hard to try to crank up as much product as we can. I would never do it justice medically to try to explain to you the value of ECMO. But let me just say it as simply as I can. What you're doing is you're getting oxygen pushed through the body. You're getting it into places that helps speed the recovery if you will. And we can get you more information on that from the medical office. But we do believe in what we have seen in the work that's been done in Europe and we had discussion with FDA on this. We do think the ability for us to be pushing oxygen through the membrane and getting more oxygen into the body is what is making the difference. But let me stop there before I get way out over my skis And if you still have more questions, we can get you some better answer once I have a chance to coordinate with our medical people who understand that much better than me, obviously. Okay, great. Thank you very much. Stay healthy. Next question is from Hassan Al Baqir with Barclays. Your question please. Thank you for taking my questions. I have a couple. So firstly, on the product business, are you starting to see any signs of normalization in acute machine sales in the month of April? And what was the magnitude of the decline on the HD side in Q1? And secondly, could you talk about the ESCO patient population and how increased COVID related costs will be treated here, please? Thank you. PaySign. It's Reese. Sorry. I was writing really, really quickly. What what I would say on the acute side of the house, no. It's not normalized in April. There are there is a huge need in Europe and The US, and I suspect it's gonna end up being in Latin America as well, because none of these markets are as far along as Asia Pacific is. So it has not normalized. I suspect that will continue for a while. Then when you look at HD, I don't think we can really size that I'll size that for you. Obviously, as you know, just a couple of things to keep in mind, Asia Pacific, that region is a very product heavy region. China is a large market. It's essentially a product market today. And so when your machines you are not selling them just because you can't even get into the hospital and have a sales call, nobody wants to see you anyway. There is impact there, but I don't think I will take it much beyond that. We do think there is a chance that this will come back as we talk about capital equipment. You can miss a quarter or two and then pent up demand comes to you. Again, it's really around what we know versus we don't know and how big is the rebound potentially going to be in Asia and what challenges will that present. And on the ESCO, our ESCO population is pretty consistent in terms of number of patients on ESCO And I honestly don't know the detail on the interventions that we're making on them, but I don't think I have not heard that we've seen a big increase there in terms of ESCO patients that are COVID positive that we've got a big expense coming there. That would sort of fall in the same category, I think is just the general population in terms of dynamics there. A follow-up, were that to change, would you expect a change in the benchmark potentially? Well, that would result in us having some conversations with the government and at this point given that everybody is focused on COVID and we are well behind on getting that third quarter report for plan year four. I suppose it's possible we could have that discussion, but at this point, there's been nothing going on that I'm aware of. Thank you very much. The next question is from David Edlington with JPMorgan. Your question please. Hey guys, thanks for the questions. Most of them have been asked already, but one technical one and one follow follow-up on NovoLog. So just on the £40,000,000 additional costs in the first quarter, would you be able to kind of go back and kind of recall that back under the CARES Act? And if so, do you expect to recognize that in the second quarter? And then secondly, just on labor, I'm just wondering what interest you're getting in coming from health care, authorities across the world, and what sort of capacity could you ramp up to? Because I suspect there's quite a lot of demand out there for the moment for that. Thank you. Mhmm. Hi, David. I'll take the first question. Oh. Please. Sorry. Sorry, Liz. So, yeah, hey, David. On on the 40,000,000, just to clarify, and just make sure everybody on the call understands this, the 40,000,000 is EAT basis. It it it does cover a broad range of things, not just US costs. There are costs incurred elsewhere. Also, we know all of the costs incurred are not eligible for the CARES Act as well. And then there's also this investment impact, which is more to do with the market, kind of economy, if you like, that we expect to reverse as the year goes on. So anything that is eligible in direct cost in The US, we would expect to be reimbursed. And I would say between a half to two thirds of the cost incurred in q one falls into that category and will then get, reversed in q two when we get the benefits from the CARES Act. Perfect. Thank you. Yeah. David, on the on NovoLung, from a capacity standpoint, what I would tell you is we're ramping as quickly as we can think about this. You've got a piece of equipment, the console as we call it, then you've got disposables. You actually got the membrane that you do the oxygenation with. So all of those components are being worked on trying to be ramped up. Yes. There are a number of those those pieces of equipment in the supplies that were in Asia Pacific. Big market in Europe because it's been there. People understand the product, etcetera. And The US really came through some Herculean efforts that our people made to get FDA aware that we have some equipment. We want you to use it. We're trying to, you know, ramp up as quick as we can. And when FDA understood it from talking with our medical people, they were very interested. It's a great problem to have, but we're moving as fast as we can. But your instincts are good. This is not a factory where this stuff is being produced. It's anywhere of the size and scope of our dialyzer factories or our main machine factory in Swineford. So we're just going to have to continue to push to get our capacities up. Okay. Thank you. Next question is from the line of Falko Friedrichs with Deutsche Bank. Your question please. Thank you for taking my questions. I would have one quick question left. So you talked about the creation of these isolated clinics for COVID-nineteen patients. How occupied are these clinics currently and if everything's functioning smoothly so far? That's a really, really good question. The clinics are functioning well. They are all being used. They are maxed if you will. And, it is an incredible effort that we have people going into these COVID positive clinics every day delivering the care that they are. My hats are off to the entire industry, but particularly my team in North America that pushed hard to do this as a industry team and get this done. Bill Valley was instrumental in that, our CEO here in North America. So it has been probably one of the most significant things that we've done in order to make sure that we're trying to keep everybody as safe and well treated as we can. Okay. Thank you. And we have a follow-up question from Veronika Dubajova with Goldman Sachs. Your question please. Thank you so much for squeezing me at the end. Just have one please. Rich, just curious to get your thoughts. We've seen a pretty high incidence of acute kidney injury among the COVID-nineteen patients who aren't getting hospitalized. Are you seeing these folks arriving in your clinic now that they've recovered? And do you think this is something that could be permanent and drive some incremental volume growth for you guys over the next couple of quarters? Veronica, not at this point. As I understand this, and this is back to the twenty percent of the general COVID positive population. These folks have to be in the ICU and we are treating them there. We do any number of different or any number of derivations of dialysis. It can be slow flow, a whole bunch of different things as physicians believe it's best for that individual patient. I would say right now these patients aren't well enough to be considered to be coming out of an AKI situation in the ICU and then end up in the clinic. It's not to say that may ultimately end up happening, but I think we've got to see a real change in the severity, if you will, Veronica, of what we are understanding and what our nurses are seeing when they're going into these hospitals to work in the ICU to try to help, particularly in New York. We've had over 500 nurses just volunteer from all over the country to go to the hottest spots possible and treat patients because they thought it's what they want to do. I don't think they're capable of coming out of AKI in the ICU and continuing that right now. So we need a little more time on that. And if I'm completely off base, I will check with Frank Maddox and we'll come back to you. But I I think this is the right answer at the moment. Understood. Thanks. There are no further questions at this time. I hand back to Dominik for closing comments. Okay. Perfect. So thank you, everyone. We always made it in time. Three minutes over is close to perfect. Thank you so much for the discipline and your interest, that you had so many questions. And with that, I think, the three of us say thank you very much. Stay safe, and, goodbye.