Earnings Call: Q3 2018

Oct 30, 2018

Ladies and gentlemen, thank you for standing by. I'm Hayley, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the Third Quarter twenty eighteen. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. I would now like to turn the conference over to Dominic, Head of Investor Relations. Please go ahead. Thank you, Haley. We would like to welcome all of you to the Fresenius Medicare earnings call for the third quarter twenty eighteen. We appreciate you joining today. I know you had a long call already. As always, I'm happy 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 and uncertainties, please refer to these documents as well as our SEC filings. I'm outstandingly aware that everyone was waiting for this call for quite a while, and therefore, we do not limit it to sixty minutes. Nevertheless, I would like to limit the number of questions to two in order to give everyone the chance to ask questions. If there are further questions, we are happy to go a second round. I hope this works for everyone. With us today is, of course, Ruiz Powell, our CEO and Chairman of the Management Board. Ruiz will give you some more color around the business development, go through some of the major topics of the quarter. Of course, also with us is Mike Brotson, our Chief Financial Officer, who will give you an update on the financials and the outlook. I will now hand over to Rees. The floor is yours. Thank you, Dominic. Welcome to the FMC third quarter earnings call. I do appreciate your interest in our business and the company. Before I begin my formal presentation, I would like just to make a comment that I understand that some of you were disappointed that we did not have a conference call immediately after the October 1617 ad hoc. We made the decision, Mike and I, to stay within our process and take the two weeks to get clarity and as much detail as we possibly could in order to answer your questions today and give you our commentary. I also imagine that there will be questions regarding guidance for 2019 today. Please understand we are just beginning the budget process for 2019, and we are not in a position today to discuss 2019 and to try to give you guidance several months ahead of the normal process that we go through. So I do ask for your understanding and forbearance on this. But that's where we sit at the moment. Moving to Slide four to begin my prepared remarks. This is a new chart for you. We wanted to do the very best that we could to give you a sense of the growth trend, particularly looking at North America on the parameters of organic growth and volume growth on the services business, and then also to give you a view of the dialysis products organic growth for the larger regions in the product business, which are EMEA and Asia Pacific. And we did this in an attempt to make sure people did not think that the basic fundamentals of the service business in North America were fractured or broken, something to that nature. Did we meet the expectations that we had for ourselves? No. We'll take you through that. But the underlying fundamentals in that business, in that region of the world, are still there. We have issues to deal with as any business does, but not to the degree I was concerned. Mike and I felt some of you thought the world was ending, and it's not. Looking at this slide, if you look at the dialysis services organic growth, what we've done is given you the group view at the broken line with the broken line. Then we gave you North America, and we backed calcimimetics out of that to give you a picture of the organic growth across three quarters of the year. Now looking at dialysis services and the volume growth, we've done a similar thing. And to give you the full group view for FMC and to highlight specifically North America at 2.5 volume growth. And then lastly, when you look at the products growth on an organic basis, you see the reddish or brown line for EMEA. They're down 2.1%. Then you see the broken line for the group, and you see better performance coming from Asia Pacific. We will address a number of the questions I know that you have about the product business, in particular EMEA, in a couple of slides as I traditionally do on my product slide. Now moving to Slide five. The growth continues as we always have done. We show for you the progression in our clinic growth, our patient growth, and our treatment growth. I won't belabor those. They're there for you to see as we typically do. Looking at Slide six, our quality outcomes in the quarter remain at a very high level. We continue to operate in a very tight clinical band. Any of these parameters you'd like to look at for any region, you can see that we're very close and we're in a very tight band here. Happy to address any of this in Q and A if you like, but I'm going to move on to get to more substantive discussion topics. Looking at Slide seven, our update within the quarter, key for you to know. We've seen improved sequential quarterly growth in the dialysis business in North America. We'll talk more about that in Mike's presentation and on the Q and A. But the business acceleration has been muted due to a couple of factors. Lower revenue from commercial payers as a result of seeing some drop out of the ordinary range in our commercial mix, And Mike and I will take you through that. And also delayed de novos have created an issue for us. Remember this number, 79 delayed de novos. It's a significant number. We'll come back to that. And I will go ahead and say now that we do not expect in the fourth quarter to get 79 de novo clinic certified. Roughly, there are forty one working days left in the quarter. So this is going to be a knock on effect in Q4, and it's obviously colored our view of what we can do in the quarter. Please remember that the Bipartisan Budget Act of 2018 allows us January 1 to use third party surveyors to get our clinic certified. And we've already contracted with someone to do that. So this will help us get out of this situation that we're in with the US government where they cannot get us certified in any sort of timely manner. We have seen a lower than expected contribution from the vascular access business in our care coordination book. If you recall, we told you we had planned to try to convert 40 Site-eleven facilities to ambulatory surgical centers in this calendar year. Today, it appears to us that 29, perhaps 30, will be all that we get done in this time frame. And much of that issue sits in the state to state requirements for certification that we must get done in order for us to bring those facilities up into the new classification. And that is not going according to our expectations. We've talked every quarter about the difficult environment in the emerging economies. Obviously, things have gotten worse. Hyperinflation in Argentina, a couple of other countries where we've seen issues, and we'll talk about that. But this continues to be a drag and interrupt the expectations that we've had for the business. We do have some good news. Our Care Coordination margin has improved. Looking at our tables in the back, you'll see that it was 12.1% in the quarter. Keeping in mind, we want you to know that there's a transaction effect on the sound gain that makes that 12.1%. But looking at the real margin, the way we look at it, we're standing right around 9%, a little bit more on a constant currency basis, I think 9.4%. So we're within the range and the guidance that Mike had given you earlier in the year. And we're happy with that. We have and continue to have, and it will get bigger, our commitment to home. We're at 12.4% in terms of home penetration at the September. That is up from 11.8% at the end of Q2. So very good progress there. NxStage will close. We are later in the year than any of us imagined we would be, but we still believe that it will close. And you'll notice probably sometime in the next day or two that we've extended the agreement with Nextage to February 5 in order to allow ourselves ample time to get this done with the Federal Trade Commission and then finally get on with integration of NxStage into Fresenius Medical Care. Moving to slide eight, we are trying to give you as simple a look as we can on a comparable basis. If you'll note at the bottom right of the page, we have slide twenty five and twenty six giving you the same fulsome accounting of everything we've done in the reconciliation process. But Mike and I feel that we've done enough of that that we wanted to give you a simple slide to look at. And as you can see, on this comparable basis, we are at 3% constant currency growth on revenue, EBIT at 4%, and then you see the net income on the comparable at 2019 and then the adjustment. Okay? So hopefully, that's easier for you to see, but we do have the detail should you require it. Moving to Slide nine and looking at our organic growth in the services side of the business, what you are just in the organic growth, I'm sorry, I went short ahead of myself. Asia Pacific at 4% constant currency revenue growth and organic growth of 5%. Obviously, Latin America, those are pretty large numbers you see there. That's driven from the hyperinflation, obviously. We're going to want to talk some about EMEA at a 1% constant currency revenue growth and no organic growth. You're going to have questions on that. We understand it. And North America, I think we've talked about extensively as to what's driving the organic growth and then the constant currency drop in the revenue growth. But we're happy to go through that in the Q and A. Now turning to Slide 10 and looking at the Services side of the business. On the organic growth, I tend to focus my commentary on the two right columns, organic growth for the total group at 4%, same market treatment at 3%. And I won't read those to you detail to detail. But we will get into more color on this as we look at your questions. And I think Mike's going to cover some of that in his slides as well. Moving to Products on Slide 11. Let's go directly to EMEA. As you can see, 2% constant currency growth down in the quarter. A couple of things are driving this. We saw a high single digit million euro impact with a lack of sales in Egypt. We addressed the Egyptian market through The United Arab Emirates. That's our hub. And we saw a significant drop off in sales in that particular country. We also had good growth in Libya in the second quarter. It did not materialize as to our expectations in the third quarter. And in the case of Saudi Arabia, we have slowed down the sales because they simply are not addressing the day sales outstanding as quickly or significantly as we think they should. So we've slowed that down ourselves. If you look at Asia Pacific, good growth there at 6% constant currency growth, predominantly driven from their chronic and their acute product lines. And then looking at North America, 1% constant currency growth. Quickly, good job in renal drugs, up 24%. PD is up 8%. Let me just remind you that with IFRS 15, we had a high single digit million dollar impact on our HD machine business. And if we had done that on a like for like basis, we would have seen about 5% growth, just I think 4.9% in our hemodialysis equipment. So I'd point that out just to give you some better clarity on what's going on, the product book of business. Lastly, Slide 12 in conclusion. Again, I don't think I have anything more to add to what's on the slide other than to say to you we have adjusted Q3 based on not getting to the expectations that we wanted, and we see the knock on effect in the fourth quarter. There truly are, if you count them, forty to forty one working days left in the quarter. So we have to be pragmatic and realistic about how quickly and deeply our countermeasures are going to turn some of these issues around. And we'll talk more about that. The patient growth and the market dynamics, we do not think the fundamentals are disruptive or destroyed, particularly in North America. And yes, where we've been able to get at what has gone wrong, we have got countermeasures in place. We're working on those. But again, forty to forty one days, and that assumes I don't take plankslipping off in The U. S, we will still be working to get that done, but it's not quite enough time in our estimation. And with that, I'll turn it over to Mike. Thank you, Rice, and hi, everybody. I'll continue on Chart 14, the usual comparison with regard to our revenue growth that walks you from reported numbers to the basis we use for guidance. You can see the high level reference to the revised guidance at the top of the chart, 2% to 3% constant currency revenue growth. And as you work through the chart, we've got the blue box in the middle, which is what we believe is the comparable measure for the quarter. So we are at the 3% and you see the items that we've considered outside of that to the left and the right. Turning to Chart 15, we do continue to show you two views with regard to our earnings. This was initially, we had guided only to the top view at the beginning of the year. And having listened to the feedback from some of you on the call, we then supplemented that with the second view, which became the more operational view. That's why we've continued to show both sets of earnings and performance metrics as the year has progressed. So you can see on the top of the chart the details about what's in and what's out. And as Rice indicated, the detailed reconciliation for that both for the three months and the nine months is in the back of material that was distributed with the slides today. Business growth at $57,000,000 produces about 19% on a constant currency basis for after tax earnings. That 19% obviously influenced by a benefit that we took in the third quarter related to some true ups on the opening balance sheet associated with the tax reform in The U. S. End of twenty seventeen. There were certain aspects of that that needed further research and study, which is very common. We see a number of companies U. S. Companies taking adjustments to the opening balance as 2018 has progressed. So that's in the comparable of reported earnings at 19%. When you look at the bottom of the page, you see again in the blue box, a decline in earnings minus two percent constant currency. That is in part for some of the things that we're talking about today overall. But I would say, more specifically, what drove that against the revised targeted growth for the year was the fact that we took an adjustment for the hyperinflationary accounting in Argentina. And as a reminder, that is not tax effective. That's in the operational numbers that you see there on the page. Turning to the following chart, Chart 16, and starting to talk about the margin performance in the regions around the world. I would say that if you looked at margin on an adjusted basis for all of the elements that we detail out routinely, you would see for total company globally, our margins would be flat year over year at about 15.1% compared to 15.2% in the prior quarter. But these charts are shown and explained on an as reported basis with nothing taken out beyond what you see on the page. So for North America, the reported operating income was up EUR42 million to EUR525 million, 9% in current or 2% in constant currency. The EBIT margin, as you can see, was 18.5% and the operating income includes €17,000,000 currency translation gains from the divestiture of the Care Coordination activities and also cost of €23,000,000 associated with spending we had on the ballot initiative in California in the third quarter. We did see in total personnel costs growing at a slower rate than revenues, which obviously has a beneficial effect on the margins. That includes some adjustment, true ups of accruals with regard to our healthcare costs and our other employee related insurance matters in the quarter. It also includes payment we received with regard to our consent and that contributed to the margin improvement in the third quarter. I typically comment a little bit about the dialysis business margins even though it doesn't appear on the page. Those margins increased from 18.1% to 19.2%. Again, that was largely driven by the consent agreement and by the effect of personnel costs growing at a lower rate than revenues. Also, these figures were impacted by the natural disasters in the base last year, the implementation of IFRS 15 and the state ballot initiative. Calcimimetics also plays a role in the margin performance in the dialysis service business in North America. In terms of revenue per treatment, what you see here on the page is the sequential revenue and cost per treatment. If you think in terms of year over year and you adjust for the, VA agreement and the implementation of IFRS in the base period, you see you would see an increase of $15 per treatment from $341 in 2017 to $356 in 2018. And the cost per treatment would increase by $19 from $271 to $290 On the revenue side, the drivers for the increase in revenue are roughly $17,000,000 for the calcimimetics, a Medicare rate increase, an increase in Medicare Advantage treatments, and this was partly offset by lower commercial revenues, which we've had in our guidance for the year and a relatively small effect with regard to other items. On the cost per treatment side, the increase was driven largely again by the calcimimetic drugs at $16 a treatment. I'll remind you that I had indicated that we probably have a relatively minimal margin effect associated with calcimimetics this year as we sort out both the billing side and the operational side in terms of utilization of the various drugs and patient dosing. That's continued to be the case as the year has progressed. We did see higher occupancy costs in the cost for treatment and higher costs associated with medical supplies and ancillaries. In care coordination, the margins, you know, do get a bit distorted as a consequence of the translation into euros and also the fact that as you progress through the year, you have to revise your operating results to the year to date weighted average exchange rates. When you have an unusual gain, which we did in the second quarter, that tends to distort the impacts when you're converting dollars to euros. I think the important thing on a dollar basis, as Rice has already commented, we indicated that we would see an improvement in Care Coordination margins this year. We are seeing that. Frankly, nine approaching the 10% range potentially for the year. That said, in Care Coordination, the drivers of the margin improvement were a favorable impact in the pharmacy because we continue to see good pricing on products that we're distributing to patients through the pharmacy. The rebasing of calcimimetics through services also helped the pharmacy margins. This was offset a bit in the quarter due to lower earnings related to the ESCOs. And just to remind folks, this is principally because we had the initial recognition of revenues in Q3 last year associated with the new ESCO locations that were approved in 2017. So the earnings recognition for the first nine months associated with those new locations was recognized in the third quarter. And as Rice already mentioned, with regard to the Vascular Access business, we are seeing a delay associated with our plan to convert Site-11s to ASCs. We And did have some pricing pressure with regards to reimbursement on the NCP side of the business, the cardiovascular and endovascular business. In talking about care coordination and in particular the ESCOs, I would say in Q3 last year we also had received the final reconciliations from the government on the first year, which was 10/01/2015 through December 16. These reports were in line with our expectations for year one. We have not yet received those reports for year two, so that reconciliation will be forthcoming either in Q4 or possibly spilling over into 2019. You know we've grown the program. We continue to work closely with CMMI to ensure the program develops appropriately. We believe in the value based care initiative for services in The U. S. And we've shown our commitment to this approach by significantly growing our ESCO site participation in 2017 and then our patient enrollments for all of our locations in 2018. Turning to the next chart and continuing the margin analysis. For EMEA, operating income was down EUR18 million, about 16% on a constant currency basis. The margin decrease was driven by a favorable impact that we had last year. We had a settlement in the third quarter of last year, so that obviously impacted the decline this year. We did see higher personnel costs in some countries, particularly on the services side of the business and we did have one less dialysis day as we aggregate the region. We had unfavorable foreign currency transaction effects, which have been a headwind for us this year. And we did see higher bad debt expense, and this is the case in a number of the regions, partly driven by our economic circumstances and the currency volatilities that drives credit default swap rates, which is what we base our bad debt provisions on in many countries around the world. So you see an uptick in bad debt expense because the swap rates have increased. In Asia Pacific, operating income decreased from $77,000,000 to $66,000,000 about 14% both in current and constant currencies. The decrease in margin was principally attributable to foreign currency transactions effect again and also an unfavorable impact associated with our business growth in the region as we continue to invest for growth in the mid and the long term. This was partly offset by some favorable effects of translation in the quarter. In Asia, the Care Coordination operating margins declined a bit from 17.7% to 16.2 but still our investment in Cora in Australia is performing very nicely. Latin America operating income declined from EUR 18,000,000 to about EUR 1,000,000, margin decrease, as you can see on the page. This was, as you can imagine, mainly due to the hyperinflation in Argentina, which was recorded for the first time in the third quarter. I'll come back and comment on that further later in my presentation. Corporate costs increased by $76,000,000 from $75,000,000 in 2017 to 151,000,000 obviously, largely driven by the fact that we increased our reserves for our settlement discussions with the U. S. Government by $75,000,000 in the third quarter. So turning to Chart 18 and cash flows. In terms of absolute dollars, very little change over the period, $6.00 9,000,000 this year versus EUR $612,000,000 as a percentage of revenue, a little bit better at 15% compared to 14% last year. That's a combination of several effects. We did have higher tax payments in The U. S. Because we did make a tax payment associated with the gain we took on Sound in the second quarter. That was partly offset by lower tax payments in the current year, obviously driven by the new lower tax rate associated with tax reform. We took the opportunity and made an incremental contribution to our pension plan in The U. S. For US50 million dollars or EUR42 million. And these effects were nearly fully offset by a decrease in accounts receivable due to our collection efforts in a number of countries around the world. But in particular in The U. S, seeing payments coming in on the calcimimetics, which reduced our overall AR. The result, as I indicated, gives you a sense, strong cash flow revenues in the quarter. The DSO days sales outstanding does reflect an increase in receivables of a couple of days from year end. This is in part associated with calcimimetics, in part associated with just the normal practice on the ESCOs, and has been helped a bit by the divestiture of sound because Sound overall had higher DSOs than the rest of North America. There was a benefit in North America associated with that. CapEx for the third quarter is about 6% of revenues, so in line, and free cash flow just over €350,000,000 As a result of the developments in our operating cash flows, our net debt has continued to decrease from December 2017 and our leverage ratio is slightly down from the 2017 at 2x. Turning to the next chart, Chart 19, you see what we've tried to do here is give you an appreciation of the relative impact, both in terms of revenues and in terms of net income on a comparable basis. So the first line of net income, if you will, going back to the charts I showed at the beginning of our discussion. And I'll walk through each of these and try to give you some additional perspective. So starting on the left and just working down the page, we have North American dialysis business. And what we had indicated in our earlier release and what Rice commented on is we did see lower growth in the commercial dialysis services revenues. We saw a drop in our commercial mix, which is influenced in part by higher growth in Medicare Advantage relative to commercial growth. But when you look at our commercial mix on a sequential quarter basis, Q2 to Q3, we did see a lower number of commercial treatments in the third quarter. And this was not our expectation with regard to the guidance that we confirmed in the second quarter. So when you think in terms of commercial mix and the commercial book of business, obviously, when we're reporting year over year, you have one effect. When you're looking at it against what our expectations were for the back half of this year, we were disappointed. So Rice has commented a bit on countermeasures. I would add my voice in that we have had this experience in the past. We believe that we can refocus the business and regain some of the ground that we've lost. Our de novo plan development also impacted our expectations, and that's represented in the chart that you see in terms of the relative size of the effects we've been discussing. The second one, mergers and acquisitions. We continue to actively evaluate opportunities, and we're always focused on doing what makes good business sense to us. We had started the year with guidance in the 1,000,000,000 range. So we had anticipated we would tick up a bit our acquisition activities this year. We took that down to about EUR 600 to 800 in the second quarter, and we've now dropped it further to EUR 400 to 500 for the year. This still would allow us to achieve what you're used to seeing, roughly about 1% growth associated with acquisitions. But this was something that we had hoped to get a little bit more out of in fiscal twenty eighteen. We have worked on deals this year, make no mistake, some that we think would have been very attractive and they just didn't proceed to close. Also, it's not a bubble on the page, but I'll just reiterate the because it's slightly different than what I had indicated at the beginning of the year. Rice mentioned the impact of IFRS 15 relative to the machine business in North America. And when we adopted IFRS 15 at the beginning of the year, we anticipated the fact that that accounting pronouncement would require the installation and the training of people prior to the recognition of revenues to be a de minimis effect on 2018. As we've gone through the year and as we've been monitoring this, we do see that it creates a bit more of a pipeline. So machines that have been sold and have been delivered, but have not yet been installed. So that created a little bit of softness, particularly as you're getting into Q3 in the back half of the year. Reese referenced North America specifically. We see a similar effect in particular in Asia, which not surprising also has much longer lead times in terms of getting the equipment on-site. In care coordination excuse me, that machine influence does have an impact in terms of the emerging countries. The other thing I would say with regards to the emerging countries, which I've commented on already, is with these currency volatilities, you saw in the first quarter, we indicated a relatively strong effect associated with transaction losses given currency volatilities, particularly in emerging markets. You saw increases in bad debt, which I've explained. That moderated a bit in the second quarter, which gave us some optimism associated with what we might see in the back half when we saw the preliminary figures for Q3 and we saw an effect on earnings similar to what we saw in the first quarter that also contributed to our decision to revise the guidance. The Care Coordination, lower revenues and earnings in our Vascular Access and Cardiovascular business was considered. In the Vascular business, it does relate to the conversion from Site-eleven to ASCs being a bit slower than we had anticipated and lower revenue rates in the cardiovascular business. Hyperinflation, you see, is indicated as a positive effect in a different color on the left hand side of the chart. That's because with the accounting associated with hyperinflation, you actually have an uplift in your revenues. I wish it were also the case on the earnings side of the business, but you get an uplift in revenues and typically there's a cost associated with the earnings side. These are the factors and a little bit more of an explanation in terms of what led to the revision in our revenue guidance a couple of weeks ago. Going on the right hand side of the page and looking at net income reported on a comparable basis, you see that the emerging countries takes on a larger effect, and that is principally due to the fact that the hyperinflationary adjustment that we took in Argentina is not tax deductible. So that contributed to the quarter. In addition to that, I would tell you that our expectation coming into the third quarter was that under the accounting guidelines, we would be required to only address the hyperinflationary effect as it developed in the quarter. And that was clarified as the and actually was definitively clarified just after the close of the quarter that you have to get the full year effect associated with conversion to a hyperinflationary accounting. So we took a nine month effect in the third quarter where we had anticipated a much smaller adjustment only relating to the three months. So that contributes to the size of that bubble. We do have when we look at the inflationary expectations coming into the fourth quarter, we have considered that we expect we'll see a similar effect in the fourth quarter that we saw in Q3. I've already commented that we saw the currency volatilities and resurgence of the transaction losses in the third quarter, and I've already commented on the influence of the credit default swaps with regard to our provisioning of bad debts, all of that contributes to why you see the emerging countries reflected proportionally higher than some of the other impacts. North American Dialysis Services business. You're seeing effectively the earnings effect associated where I've already discussed on the revenue side relative to commercial mix, some of the other effects in services. I would take the opportunity here talking on the earnings side to say that at the beginning of the year, I had guided on revenue per treatment for the services business in The U. S. This was adjusted for the Veterans Administration, IFRS 15 and calcimimetics, to be flat to slightly down. I would expect that we'll be down around 1% to 1.5% for the year. So within the range of guidance, but on the wrong end of that guidance, if you will, I would have preferred to be flat. On the cost per treatment, I guided to cost to be flat to slightly up. This was also adjusted for IFRS 15 and the twenty seventeen natural disasters as well as Sensipar. I expect it will be up around 1% to 1.5%. So there is a little bit of pressure in the services business in The U. S. Because you're dealing with the spread. And then last, again, a different color indicating a positive effect. Obviously, you get a beneficial effect on the minorities associated with the lower earnings. And you also get a benefit in the comparable net income associated with the additional benefit we took for tax reform in the third quarter. So turning to my last chart. The top of the chart reflects the revised outlook that we previously published and I think I've just described the drivers that contributed to our decision to do that. I will just take a moment to talk about the bottom part of the chart, for the most part, highlighting some of the things that we've carried in the footnotes for some time. And I'm doing it in principle because Rice also indicated that we're just not going to comment on the 2019. Now we'll do that in accordance with our normal process. We are just beginning our budget cycle. We have obviously, a number of items that are relevant to that process. On the footnotes, we do anticipate the closing of NxStage soon, albeit later than we had hoped. Frankly, NxStage has continued to develop very nicely since we announced the transaction last August of seventeen. So we will refresh our expectations once that deal closes, and that will take us some time as a part of our process to come out with guidance for these periods. In addition, we'll update for the changes we've made in our peer coordination portfolio the sale of Sound and Shield, but also as well for the fact that we've expanded Care Coordination in Australia with Kura. We'll address the implementation of both IFRS 15 and also IFRS 16, the new leasing standard, which we're continuing to work on in order to meet the deadlines that we have related to announcing 2019 guidance. And we'll also provide a more current view with regard to currencies. A couple of things just to keep in mind, particularly as it relates to the fourth quarter coming back to 2018. We will have some additional spend on the ballot in the fourth quarter and that will also not be tax affected. I've already commented that from a hyper inflationary perspective in Argentina, I expect a similar consequence in the fourth quarter that I've seen in Q3. And last year, 2017, from time to time, I commented on Latin America and just with the volatility we have down there with some of the economies, we always have to be thinking about whether any of this contributes to the possibility of an impairment charge. We do not have an impairment at the end of Q3. But obviously, this is something that we'll have to watch closely as we finish off the year and move into 2019. So thank you. I appreciate it. That's the end of my remarks. Back to you, Dominic. Thank you, Rice. Thank you, Mike, the presentation. I'm happy to open the Q and A for more insights now. Hailey, can you open the Q and A, please? Thank you. The first question is from the line of Veronika Dobrejova of Goldman Sachs. Please go ahead. Good afternoon and thank you for taking my questions. I will keep it to two please. My first question is on the North America revenue per treatment and commercial mix. I appreciate there are a lot of moving parts, but Rice and Mike, can you maybe comment on what exactly has gone wrong with the commercial business and why you are seeing a worsening of the mix above and beyond what you had anticipated this year? And is this in any way related to some of the escalators you had previously guided to for in the fourth quarter? So that's my first question. My second question is actually on the EMEA margin. Also lots of moving parts, but I'd like to understand what impact in the margin was underlying this quarter versus what was driven by currency? And is this a new margin level that we should be assuming for your EMEA business going forward? Or are there things you can do to improve the profitability? Thank you. Okay. So relative to revenue per treatment and commercial mix in North America, and Rice may want to comment as well. I would say that there's always there's always some volatility in commercial mix that we manage year in and year out, quarter to quarter. You know, our thinking frankly at the moment is, you know, the midyear open enrollments are frankly becoming more popular. And what drove the surprise to us was not something that we were seeing organically as every quarter moved. The surprise was we just saw a bigger reduction in our commercial book coming out of those July 1 open enrollments. Yeah. Monica, what I would tell you is as well, we see a couple of things going on that I don't think we put the proper detail into. We did see some of our transient commercial patients, travelers, vacation ers, we saw a drop off in those volume of treatments that we would normally see in the third quarter. That concerned us trying to understand that. So we're ripping that apart. But as I've always told you guys, your whole approach to the commercial book is a process. You figure out how best to take new patients on, do that effectively, quickly, and and and make it attractive for those patients to come into your clinic. So we're gonna go back and relook at that. We've already figured some things out that we want to do differently. And I have to be honest and say, we've also made a management change. We made a change in the senior executive that was running the Kidney Care business in North America in order to do some things, I think, in a more focused way around our commercial book and perhaps not have too many initiatives that our people are focused on. We wanna kinda skinny that down. I'm a big believer in three or four key things, not eight or nine or 10. And so we're kinda going back to basics on this, and we will get this sorted out. But as Mike says, we have seen chatter every year, every quarter, up and down a little bit, but this was a move that was different than what we expected. And so we've we've done what we've done. Go ahead, Mike. Okay. Thanks. So yes, so we don't attribute it at all to any kind of pricing consideration. It's more of the open enrollment. On the EMEA margins, if I think in terms of what I just presented, last year was enhanced by the gain, which is nonrecurring. So that would probably put you down in the range of 16% in terms of the base period. And if I think of the currency influence this year, I think 14% has been on the low side, maybe a normalized expectation might be along maybe 100 basis points higher. Okay. That's clear. And can I just confirm, I think there's been a little bit of speculation that part of the reason why the commercial business deteriorated is that one of your smaller competitors has renewed their relationship with one of the private insurers? Did that have any impact in your opinion on your commercial growth? Veronica, we don't think so. I get asked that question a lot. We can't answer it with absolute clarity, but as we rip apart what we're doing and we look at it from a geographic standpoint, obviously, we don't see that. So I'm gonna tell you I don't think so, but I can't bet my two children on it, you know, explicitly. But we do go at it from a market to market view. And given what we know about that competitor and where they were in that relationship, we don't think that's the case. Very clear. Thank you. The next question is from the line of Ian Douglas Pellen of UBS. Please go ahead. Yes. Thanks very much. Could you just add just a quick question. The clinic counts that you give in the press release, is that before or after the certifications, just before I start? It's after they've been certified. Okay. In that case, so we saw that the total clinic actually up 5.2% year over year. I mean, that's twice the long term run or over twice the long term run rate of around 2%. I'm so surprised you're calling out the lack of new centers or the lack of acquisitions as a headwind. It feels like certainly in terms of de novo, it could have been a tailwind. And if you'd actually had those additional clinics certified, it would have been a huge tailwind. So maybe you could comment on that. And then I'm afraid I am going to ask about 2019 guidance, but I think a question you can answer. What format do you think you'll give that in? May I suggest moving away from the current metrics with a large number of adjustments in favor of something simpler like organic growth and reported EBIT margins? Yes. Okay. Let me comment initially on your questions. So relative to the de novos being a headwind, it's a headwind against our expectations for the year. It's not a headwind against our historical trend. I think in our view, as we came into 2019, we felt that we should be doing a bit more in that regard. So that's what led to the '79 that research referring to. And in terms of the measure, I would say, if you go back to the beginning of the year, relative to treatment growth for fiscal twenty eighteen, I indicated three plus percent and we're trending to a little bit under three percent. So that's how you can kind of fit in Rice commenting about the approval of de novo as being a bit of a headwind. It's really against what our expectations and our guidance was when we started the year. In terms of format, I'm not going to prejudge 2019. We actually and I'm not going to be defensive about it. We made a change in Q1 because we tried to keep it simple in 2018 with one revenue guidance and one earnings guidance. And we got very, very strong feedback even before we had the call in February, Basically insisting that we had to provide something with more transparency about the underlying operations, taking out all of the knock on effects from 2017. And frankly, you don't sell a business for a couple of billion dollars every day, so we felt it was appropriate to also take that effect out of the reported earnings for transparency. You know, it does, like, make life difficult. There are people out there that like it, but it does make things more difficult for us. So it's not something that we're crazy about doing. When I think about '19, and we've made no decision yet, I just need to think about the implementation of the leasing accounting standard and folks might want some profitability and some of the amount associated with that potentially. So we'll take a hard look at it and we'll still have the legacy effects associated with the Care Coordination divestitures together. But we would like to find a better way where more people in the investment community are satisfied with the clarity we're giving, with the detail we're getting, with the transparency we're providing. The objective is not to confuse people. The objective is to get people reported and one or two dimensions that we think they may be more interested in, which gets down to operational results. Great. Thank you. Just one last, if I may, and I'm sorry if I missed it. Have you broken out the actual impacts of calcimimetics in your North American Dialysis Care organic growth number? On the Just a dollar number is fine. No. Well, we give you the dollar number every quarter. I report it every quarter. But you're talking about the growth rate. And I believe it's we're just double checking a couple of things here. I can follow-up, Dominic. It's 2.3 without calcimimetics in the quarter. It's with calcium mimetics, which is what I thought. I was hesitating, but the rate is not adjusted, my revenue and cost per treatment is. The next question is from the line of Tom Jones of Berenberg. Please go ahead. Good afternoon. I had two questions. I hate to hop on a bit, but I wanted to just ask another question on the commercial payer mix. I think what would be helpful is if you could just give us a bit of color on whether the challenges you're seeing or the reasons you think that your payer mix suffered a little bit in Q2 were 100% related to your own kind of operations? Or there was any shift in the commercial insurance market external to FMC that you saw that you're now having to deal with? I think the reason I ask the question is the former, if it's just operational on your side, you've been there before, you're in a similar position back in 2011, 2012 in a couple of quarters and you're back on track. But if the actual commercial market that you're operating in is becoming more difficult and more challenging, then that's maybe a bit of a bigger concern for investors. So maybe if you could just make some comment in that regard. And then the second question, I guess, is a bigger picture one, probably for Rice. Emerging Markets, I mean, how has the kind of last couple of quarters affected your thinking about your willingness to deploy capital in Emerging Markets? Because they, by and large, just generally seem to be a pain in the proverbial. When they grow, it's a relatively small number and doesn't really move the needle given the size of the EMEA and the North American business. But when they go wrong, they seem to go wrong in a big way and create a huge headache for everyone. Are you as keen on the emerging market opportunities as you once were? Or has your enthusiasm kind of softened somewhat? Yes, Tom. So two good questions. On the first question, it pains me greatly to say it's self inflicted. I I don't see something going on in the commercial book on a global or US national basis, if you will. I'm not seeing something there. I simply think that we were not doing things that we should have been doing, lessons we learned a while ago. We seem to have forgotten. So it is self inflicted, which pains me to say it, but that is the case. And we will fix it. We'll sort through what needs to be done and get it fixed. On the emerging markets, today is not a good day to ask me that question, given what Mike's been talking about. But look, let's take a minute and let me just run through this. We can't have it both ways. We hear all the time from people, my god. You're so consistently centered in The US. You should be doing something more international. You're gonna grow your business. And so you gotta kinda take the good with the bad. Having said that, just imagine, though, you can't sit on the sidelines in China. China is a unique place that one person will make a decision. Everybody's going to get health care. They're going to open up the markets. And you need to be there. Because the one thing we've learned in some of these countries, as those markets open up, if you don't have a presence, if you're not perhaps manufacturing and they want to keep out foreigners, if you will, from coming into the country, they have ways to do that. Being an early adopter and getting there tends to make sense, but you do have to take some of the good with the bad. Am I ready to change the strategy today? No. But remember, we try to go in as products first before we make a move to be a service provider. And there is a reason that we're at 150 countries with products but only 50 with services. But I have to say, as I sit here today and I read everything that's going on in the world, we have to be more diligent in looking at these opportunities. But at the same time, I need some flexibility from you guys. I can't turn those opportunities down and stay anchored in The US and Germany and no place else when everybody's telling me you need to diversify and you need to look to grow more. So we take a very long term view, as you know, and we'll continue to do that. But it's a fair point that you raised today. And today, I'm not big on emerging markets at this very moment, but I will calm down and think about this differently tomorrow. That's understandable. And just one passing comment. We do appreciate the granularity on the various adjustments. It does help us tease out the underlying trends in the business. So thanks for those. I appreciate that. Thanks, Tom. Thanks, Mike. Not Yes. You. I appreciate it. The next question is from the line of Patrick Wood of BAML. Please go ahead. Perfect. Thank you very much. Two for me, please. I'm sure it was clear to a lot of other people, but it would just be a little bit helpful if you could help me understand a little bit more the product side of things. And obviously, the weakness in the 3Q, I understand some of the adjustments that have gone on there, really trying to get my head around how that looks going forward given the gross margin profile of that business, how we should expect growth then. I guess on that same topic, I was a little surprised in when we got the final numbers. Looking at the prerelease, why the product side wasn't called out as partly driving the weakness and the adjustment, did you not call products out as part of that weakness in the prerelease because of the expectation that it's going to improve materially going forward? Just be helpful to understand why that wasn't sort of part of the commentary. Thanks. So I would say on the prerelease, and then I'll let Mike jump into the margins here for products going forward, fourth quarter, what we think. Looking at the prerelease when we first looked at this, and it's interesting, Patrick, lots of folks haven't really wanted to accept what I'm about to say to you. But when we first looked at the signals that we were getting and got concerned that our expectations were not going to develop as we had wanted them it all kind of set right there in the emerging markets. And the more we were able to dig into it and really talk to people with feet on the ground in some of these markets, it became clear to us it had to be a bigger situation than we were first looking at at first blush. Maybe people don't realize what two weeks of detailed study and being able to rip things apart and talk to people on the ground is worth quite a lot to Mike and I. And again, as I said earlier, to have done the pre release and try to have a conference call the next day, we wouldn't have had the clarity to address some of this that we've gotten over the last two weeks. Mike, if you want to add anything. Yeah. I I I would just say, you know, a lot of this is is timing. Not not that you need to, you know, the expression, see how the sausage is made, but literally, when we looked at this and what the obligations are under the ad hoc rules, we had operated only off our flash data. We did not get our closing information until literally the day that we had to release the ad hoc. So that's why we're getting a lot more specificity today than you did few weeks ago because we didn't have an opportunity to do a great deal of analysis of the details. We had to look at the big picture and then make some judgments. Now looking at products for fourth quarter, I'll make a comment and then I'll let Mike jump in. As we have traditionally seen in the fourth quarter, we can see better equipment sales as a result of people trying to spend their budget and get their equipment ordered on order and then by the beginning of the next year. But when we look at what's happening in some of these emerging markets, I'm not as bullish that we're going to see a normal fourth quarter flood of equipment orders as we've seen. And as Mike has pointed out with IFRS 15, there's a lag time there, so we're not going to see the same kind of contribution that we may have seen in prior years. When I do look at the disposable book of business, which I think is more repeatable and easier to measure, I think we'll see some of that come back. But it's a matter of is it going to meet the expectation that we had. And so we're just not sure it's going to develop that way. And don't know what you want to say relative to the growth that we think we're still going to see, but that's kind of my commentary. Yes. I wouldn't add anything to what was saying. Hopefully, that's helpful, Patrick. Sure. Helpful. Thank you. The next question is from the line of Lisa Clive of Bernstein. Please go ahead. Good afternoon. Two questions. First on home dialysis. You've had very impressive growth in your ADHD population from, I believe, two percent to four percent over the course of this year. But I'm trying to get an idea of the margin impact of this. It really depends on how you're growing this business. And so am I right in understanding that most of the new patients are PD patients who had rolled off that therapy? And if that's the case, since they've been dialysis patients for a while, I assume all of them are Medicare. Meanwhile, it really seems a bigger opportunity in home is being able to attract those privately insured patients as HHD can enable them to dialyze at night, stay employed, stay privately insured. How do we think about how you've been scaling up that business? And then I'll ask a follow-up question after that. Yes. So Lisa, instinct or your gut feeling is correct. The growth the bigger growth that we're seeing in our home penetration, much of that is coming off of the PD side of the business. If you go back and you were to look at our PD growth in The U. S. Over the last couple of quarters, it has been high single digit to low double digit. And so they're coming in through the PD side of the house, if you will. Yes, your second point about privately insured patients that want to work and can work, bringing them in through home therapy is clearly a way to do that. Because as we've said, part of what led us down this path of acquisition with Nextage was seeing the trend that there are more people as the younger people are coming on to dialysis. They have no desire to go into a clinic. They want to be at home. And many of them are employed and are working. So all of those comments that we made a year ago, August, when we were walking you guys through the deal rationale, that still is applicable today. You're correct. Okay. And just given the commentary, at least in the prerelease around the extra costs around HHD, most of those new patients are Medicare, right? I mean, don't think that that's particularly profitable, is it? So many of them are Medicare, and the increased cost wasn't directed just at HHD. Remember, part of what you see when you're growing your home book of business, either way, but particularly when it's PD, in the case of The US and us, we run our own fleet of trucks. We do our own deliveries. The more the business grows, you've to have trucks. You've got to deliver. There are things that go into that in addition to a tremendous amount of training that has to go on that sits in the clinic side of the house and not in the product side of the house. So there's a little bit of division of labor, I guess, I'll call it, for lack of a better word. Don't know, Mike, if you want to jump in on that. But I think that's the way I would say that. Yeah. No, I agree with that. And then I'd just say bigger picture when we think about life after the closure of NxStage. As we've talked about it, we think that gives us opportunities to approach home and in center a bit differently and in the midterm generate Okay. And then second question, just on Care Coordination. When you first launched this division in 2014, it was really segmented into the dialysis related business lines like Fresenius Rx, ESCO, Vascular Access and then non dialysis sort of expansion into other areas of health care services like Sound and NCP. And frankly, the latter really hasn't turned out how we initially expected. Sound has obviously been divested, albeit with a nice gain. But NCP, if I've modeled it correctly, has seen something of a decline in its profitability since you bought it with it sounds like a further step down this quarter. Have you rethought your sort of non dialysis aspirations, also given how big ESCO and other integrated care platforms are and your increased focus on home dialysis, where should you really be expending your energy and money in care coordination? Yeah. I think it's a fair question. I have not turned from facing north and going south on MCP yet, Lisa. We are looking at that. It hasn't delivered to our expectations. But at the same time, there is so much back and forth and in and out about where vascular access rates are going to be and where the procedures that offer the best opportunity for increased margin are going to go. We're not ready to cut that loose yet in any stretch of imagination, but we are looking at it and watching it. But if there's any level of comfort people should have, I think we've shown you we will move when we think the time is right, I. E. Sound. We're not there yet. And the other piece that you didn't mention in the urgent care, I'm more facing south and north on that one. And we're going to do what we need to do. So I would say just keep in mind that we will act when we need to. But the converse to that is when we see a good opportunity like CURA in Australia where it's really working, we're gonna jump on that as well. So it is still fluid. Let me let me say it that way without going much more into any specific organizational discussion. Okay. Thanks. Your next question is from the line of Edward Lee Day of Redburn. Please go ahead. Hi. Thank you. My first question would be regarding the FCPA provision. And Mike, just can you just catch up on this? Because we had the big provision a year ago, and then there was obviously you guided for lower costs related to that investigation. And then we have this additional charge and indeed in the pre release commentary around nonfinancial matters that's still under discussion. So could you just clarify what those are? And how we should think about this investigation and the costs relating to it going forward? Ed, so it's Rice. I'll turn Mike loose on you here in a minute. But I do want to make a comment. We're not going to get into a whole lot of detail about what the other financial nonfinancial discussions are. Let me say it this way. Anytime you come to a settlement of this nature on the FCPA, you've got to agree on how it's gonna be characterized and published when you've had that settlement. So that means back and forth discussion about what's actually on the paper, where is it going. There's also then how are you going to carry on your business post having reached a settlement that everybody is comfortable with, and that has to be discussed. We might want to do things differently than they do, and you have to go back and forth on that. So that's probably as much color as I think I can give you. Mike, I don't know if you want to walk him through a little bit of the charge compulsory. Yes. Beyond that, I would say that when we first took the charge, we had just indicated we'd started settlement discussions. We had a view of what we think the financial elements of the we actually had several points that we looked at from a probability perspective to arrive at an estimate. As we indicated in the release, we've reached an understanding. And I use the word understanding because for us to reach a full agreement, have to agree on all terms. But we have reached an understanding with the SEC and the DOJ in terms of the financial piece, which was a little bit higher than what our probability estimate was at the time we established the reserve. In addition to that, frankly, it's taking us longer to get through the process. And when things take longer that involve lawyers, your legal costs go up. We've kind of topped it off in that regard as well on the financial side in the $75,000,000 Okay. Fair enough. And the second question, just I'm sorry if I missed it, but what was the materiality of the new consent agreement on pharmaceuticals on the dialysis margin in the quarter? We haven't given an exact figure because we are limited in terms of what we can say under our confidentiality agreement, but it's listed prominently. So I think it had a meaningful impact on the quarter. And this is not a onetime thing, but I think probably the influence in the quarter is more significant than we'd see going forward. Think of it, we did this in the second quarter of last year, Ed. And what happens is we are allowing, if you will, certain activities to be done by the partner that we're not undertaking, but they have to get our consent for that. So I think that's kind of the way I would leave it because Mike's right. We can't get into a whole lot of detail on that. Hopefully, that gives you a little color. So we should see some benefit going forward but incremental relative to the effect in the third quarter. You say incremental, less than I mean a fraction of what we saw in the third quarter. Yes, a fraction, yes. That's fair. Thank you. The next question is from the line of Michael Jungling of Morgan Stanley. Please go ahead. Thank you. Good afternoon. Two questions, please. Firstly, on the California ballot. Can you describe your lobbying efforts? And also what you think of the wording on the ballot? It's kind of interesting, I think, the way it's been worded. And also what you think the financial impact would be if there is, unfortunately, a yes vote against the dialysis industry? Question number two is on ESCOs. Can you describe the profit or the booking of profits going forward for the next four quarters? How do you see the volatility of those ESCO profits being booked into your P and L? Thank you. Yes, Michael, it's Rice. Relative to California and the wording on ballot initiative, it's certainly not what we would have wanted. It was done in a way that I thought was fairly unfair, but I'm not gonna cry about it. But the way it works is it was wording was developed, and we both parties got to comment on the wording, and it just didn't go our way is, I guess, the way I would say it. We continue to say that this is gonna be too close to call. We will know probably sometime during the day on November 7 how it went. What I would tell you then is I'm not gonna make any commentary till I know whether it went our way or not. If it didn't go our way, then we'll talk to you about what we're gonna do and what we think those impacts could be. But let's not get the cart before the horse at this particular point in time. And then secondly, think Mike can talk about ESCOs and profit, but that may be another cart before the horse, but go ahead. Yes, no. And I take it because you're really talking about the year over year change related to the expanded sites in 2017. And when you think of the program, they're not allowing additional sites in 2018. So as we introduced new sites in 2017, we went through the same kind of process with them that we had with the original sites. For 2018, since you're dealing with just new patients in existing sites with all the control procedures set up, it's a much smoother process. So thinking about when you said next four quarters, I think relative to the expansion, since we're dealing with the same sites and just new patients, it's very smooth. We're pleased with the performance and what we're doing for the patients in these ESCOs. And then we'll have to just go through the reconciliation process, which is an annual event. Just a follow-up on the ESCOs. What is the chances, sir, that we'll be surprised in a quarter or so of booking a material amount like we've seen in the past? Is that likely? Or is the smoothness that you've described as the volatility that we've seen in the past is no longer an issue? Yes, I think well, smoothness I'm referring to relates to operationally new sites, new patients, and and, you know, going all the way back to the being, establishing, you know, the whole process. We went through the same thing with the BPCI. The, you know, relative to any any abrupt change, I'm I'm I'm not anticipating anything operationally in that regard in terms of patient care aspects. I think relative to, you know, discussing the reconciliations with the government, you know, are very detailed discussions because you're dealing with benchmarks, you're dealing with adjustments to benchmarks. So I can't really comment on that today because we have to just sit around the table, work through the questions that you typically have from year to year and then come to an agreement. Great. Rice, on this ballot, just a follow-up question, please. Given that the industry or the dialysis industry has spent over $110,000,000 fighting maybe around 15,000 patients, Is that spend an indication that this is such a material win for the future of, let's say, reimbursement of reimbursement rates of profitability in The U. S? Well, a couple of things, Michael. You're mixing things here. The $110,000,000 was an industry wide spend. The 15,000 patients is just our patients. The total number of patients in California, think, runs around 65,000. So it's quite a large number. Without waxing too political on this, what I would say is we're fighting this fight because we think what's happened is egregious. We think they're putting patient lives at risk versus them dealing straightforwardly about do we wanna unionize or not? And the answer is there is a process for that in The US. We can't stop it. We don't stop it. But they just decided to not make that effort and just go take this to the public in California. So, I'm a pretty rational guy till you poke me in the eye, and then I can, I can get aggressive back? So we're just defending our territory, and we'll see where this goes. And that's probably as much as I'll say. Great. Thank you. The next question is from the line of Oliver Metzger of Commerzbank. Please go ahead. Yes. Hi. Thanks a lot for taking my question. The first one is on M and A. So could you comment how or to which territory your external growth projections have changed? So you mentioned that you still project 1% positive external growth. So can you give us an indication at which level you were earlier this year? That's my first question. My second question is on health care products in Europe again. You declined the first decline for more than two years in a quarter. So can you just comment how long you expect this negative momentum to last? So Oliver, I'll turn it over to Mike here on the M and A. The one thing I do kind of just want to point out to people, and I think Mike said this earlier, is obviously we had pretty big expectations on the M and A front as we had a big budget, and we took that down. I would also just kinda get people to realize the same folks that buy things for us sell things for us. So you just have to keep in mind the business development team in The US spent a number of months selling sound. And when you're selling something, you're not necessarily looking to buy other things right at that point in time. So there's a little bit of just priority in what was going on here. I know you want a more technical answer, and I'll turn it over to Mike. But I wanted to give you just a sense of kind of how we're looking at this big picture. Yes. And I wouldn't add much to that, Rice. I would say that as we did our planning for this year, you know, a as a board, we wanted to see an accelerant there. And and and part of why we're not seeing what we had hoped to see was as Rice described, you have the same people very focused on a divestiture. We did look at some deals that did take some time from these folks, and we ultimately didn't get to a close. So we'd be having a different conversation if we had. Your second question on the product side of the business relative to EMEA. We see ups and downs when you look at that book of business, 40 countries spread from Central Europe to Eastern Europe to The Middle East and Africa. So we do see puts and takes there. I think one of the things that has put us in this downward trend, remember, a bunch of this business, probably 50% of it or so, is tender related. And so we do lose tenders from time to time. And those tenders aren't for necessarily three months or six months. They can be a year long on the product side. And then if it's a service tender, it can be multiyear. So we've had some of that going on. The competition is there. We fight it. But we also have to make decisions about, do you want to fight to the point that you trash your pricing and you destroy value? Or do you do you not do that, sit on the sidelines, have a bad quarter or two, have to deal with that, and then come back in at the next opportunity? So I believe that we are going to see continued pressure from our expectations in the fourth quarter, and we've hinted that to you. Where will it go next year? We're not there yet. As I said, we're just starting our budgeting process. But if there's anything that I've seen over in my twenty one years with the company is that we generally find a way to continue to grow our product business. R and D is a big piece of that, obviously, in coming out with new products. So I'm not worried or panicked, but we are recognizing that we see a lot more competition around the world. Everybody's elevated their game, and so the battle is on. But we'll get our fair share. But it may not be ratable quarter to quarter to quarter. Sometimes you get these expectation surprises that you have to deal with, and we just have to lay it out for you that way. Thank you. The next question is from the line of David Adlington of JPMorgan. Please go ahead. Hey, guys. Thanks for taking the questions. Firstly, on just your Care Coordination business in North America. Just wondered the 12% margin in Q3. Is that at least a good starting point for where we are with the business now and how we should be thinking from here? And secondly, just on EM. Mike, I think you said that you saw on the hyperinflation side, thinking about Q4 being the same as Q3, but I'm pretty sure that Q3 had a catch up for the entire first nine months. So I just wanted to sort of clarify that Q4 expectation versus Q3. Thanks. Yes. So David, I'll take on the Care Coordination. So I wouldn't lock and load on that 12.1%. As Mike took you through there, once you strip out that transactional gain from the sales gain, I think you should think about that in terms of 9%. That's kind of where we are. So that's right in the range of sweet spot that we gave you we thought we'd be in. Then on the emerging markets I missed the question. Okay. So he was asking about inflation in the emerging markets, knowing that in Q3, we had to deal with Argentina and kind of the step up there. Do we really think it's going to continue that way? But I think I know your answer on that, that we believe it will be another bad quarter in this quarter. Yes. For Argentina, when you look at the indices that we're using, they're already prognosticating into Q4. So that's why I said I think I'll see a we'll see a similar effect in the fourth quarter that we saw on the third, which is in the teens. Terms of mid teens, I would say. Yes. In terms of millions of euros. But we have taken that into our consideration the way we've adapted our guidance and our expectations. That's we assume that in there. That's not newbie. It won't It's be in in the guidance, yes. Mike correct me if I'm wrong, but I think that mid teens in Q3, you captured Q1, Q2 and Q3 all in Q3, right? Correct. In Argentina, that's correct. But I think Mike's given me the hand signal here that it accelerated as we got into the latter part of the year. It wasn't such a big deal in the first quarter and in the second quarter of that. So it's not symmetrical. Understood. Thank you. The next question is from the line of Gunnar Romer of Deutsche Bank. Please go ahead. Gunnar Romer, Deutsche Bank. Thanks for taking my question. The first one, again, on Care Coordination. I think when you last guided on the business, you said around 9% to 11% or around 10% margin. Now given your nine month performance, even to get to the lower end would, I believe, assume quite a significant step up in the margin in the fourth quarter. So can you help us understand how you really look at the earnings contribution from Care Coordination in the fourth quarter? Are you expecting a sequential improvement here? And what is this going to be related to? Then the second question would be on the transactional effects that you've seen in international. Can you comment what the combined effect was on EBIT if you take together the international markets? Because that would clearly help us stripping out the operational performance here. And then last question on corporate cost. Can you update the guidance here now in or excluding the FCPA charge? I don't mind, but just to help us understand what your current thinking is on the corporate cost. Thank you. Gunnar, on Care Coordination margins, we're trying to take a look because I would have said year to date, I'm probably still in a range where the 9% or 10% that I gave you would probably mean you're coming down a bit off Q3, but you're still much better than we were at the beginning of the year. But I just don't have the year to date figures in front of me. So I think there's a little bit of moderation, but I think still very high single digits, possibly teens. Yes. We'll get it for you, guys. Hang on. We're double. We'll answer your questions when we come back. Yes. Your second question, and I have I don't do this all the time, but a couple of years ago, saw this effect. I did kind of disclose the transactional effects in the aggregate for the international markets. As I said before, we saw something substantial in Q1, which is about 15,000,000 EBIT effect. That moderated in Q2. Yes, that's just a little over $1,000,000 in Q2. And now we're back in Q3 in the range of the mid teens, around $17,000,000 So there's a you see the moving around with that there. It's a sawtooth, but you can understand now coming out of where we were in Q2, the surprise and the change, the missed expectation for us seeing that in Q3. That makes perfect sense. But the $17,000,000 does not include the hyperinflation charge, right? I mean, otherwise, doesn't make sense. That's correct. You're correct, Gus. That is correct. Corporate costs, taking a look at. I didn't come into the room today with an answer on that one. So why don't we go to the next and I'll come back. Maybe then a follow-up question. Just around your expectations regarding the conversions of the Site 11s. What's the current thinking on how fast you can get these approvals? It's a tough one, Gunnar, because we're dealing state by state. So I'm going to kind of say it this way. I don't expect where we had an appetite for 40 to be done this year, now we're looking at 29. I don't see anything that's going to tell me that I'm going to get the remainder done in the fourth quarter. So I think there's going to be some spillover effect into Q1. But I would tell you that I would hopefully come out of Q1 of next year with the 40 that we wanted converted done, certified and up and running. But I don't think we're going to get there in the fourth quarter given the delays and the issues we saw getting various states to certify for us over the course of Q3. And how many more would then be left once you've reached the 40? Yes. So we have a total of I think it's 60 and we didn't anticipate, we didn't expect that we would convert all 60 of them. So at getting 40 of those done, we may still have another handful that we would do. And part of that will kind of depend on geography and do we stay in at Site 11 where we combine some. So I think you probably got another handful that we would consider that we would probably do over the course of next year. But we can give you color on that when we get to guidance for 2019. Gunnar. Just to come back to you on the Care Coordination, and we may you may need to do this offline with Investor Relations. What I'm looking at year to date through September is around seven. So to get to the nine to ten, we would have to see an uptick in the fourth quarter. Quite a significant uptick then in the fourth quarter in terms of margin, I guess. We to be in the we have to be on the, I'd say, mid to high teens. Yes. And revenue wise, I guess, sequentially, Q4 should look pretty similar to Q3 for the Care Coordination business. Yes. I think that's accurate. Right. That's helpful. Thank you, guys. Just up a bit. Yes. The next question is from the line of Hassan Al Wakil of Barclays. Please go ahead. Thank you for taking my questions. I've got a couple. Firstly, could you elaborate on the countermeasures that you've identified, particularly in The U. S. Other than the changes to management as you highlighted? To this end, was the de novo delay here largely avoidable? And secondly, you pushed out the next stage deadline for the second time now to February 2019, although you note that you still expect a closing this year. What is driving this delay? And do you think other disposals may be required? Thank you. We'll work backwards to forwards. No, I do not believe there are other disposals that will be required. The reason is in the February 5 is we used ninety day windows of planning. That was what we agreed to in the merger agreement. So there's no magic to to that. We just stuck to the formula that we had been using. And that's why no more discussion on having to divest something else. That's why I'm still bullish we'll close this year. No magic around using an additional ninety day windup. Then on the countermeasures relative to the commercial situation, relative to de novos, we had for years traditionally done around 45 to 50 de novos in a year. And then we decided to step that up. And so we had a much bigger appetite over the last year or two. There's not anything that we could do. This is not a self inflicted gunshot wound, if you will, to our de novo practice. This is simply building them, literally hounding the government to come and inspect and certify the facility so that people can begin to take patients. And they are just very, very backlogged. And so the good news out of this is, as an industry, we went to Congress and complained bitterly and said, guys, we're not going to match the growth in the market if we can't get these facilities certified. And that's how we ended up with the Balanced Budget Act that was passed back in July that will allow us to utilize third parties effective in February or in January. So this is not something that I think is self inflicted. I think we're dealing with kind of the cards that we got dealt. But when the government doesn't get things done quick enough, we were able to go to Congress to try to get that speeded up. And I think that should help us tremendously in that regard. Thank you. Sure. There are no further questions at this time. I hand back to Dominic for closing comments. Okay. Yes, we're doing our best, but I would say I think we have guided to flat to maybe slightly up on corporate costs. And I would say we're probably slightly up. So fairly consistent with our guidance. And that's in current currency. Go ahead. I can't hear you. Excluding FTPA? Yes, excluding it. Yes, yes, yes. Got it. We're managing the cost pretty much as the way we'd like them out to you ex FTPA. That gives you answer your Yes. Thank you. Good. Then thank you, ladies and gentlemen. The conference has now concluded, and you may disconnect afterwards. We would like to say thank you very much for sticking with us for that long call. And we hope it was helpful and you gained a little bit more understanding of the topics you hadn't had to consider. Okay? So thank you very much. Thank you, folks. Take care. Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.