Ladies and gentlemen, thank you for standing by. I'm Hailey, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the Third Quarter 2018. [Operator Instructions]. I would now like to the conference over to Dominik, Head of Investor Relations. Please go ahead.

Thank you, Hailey. We would like to welcome all of you to the Fresenius Medical Care earnings call for the third quarter 2018. 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 am certainly aware that everyone was waiting for this call for quite a while, and therefore, we do not limit it to 60 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, Rice Powell, our CEO and Chairman of the management board. Rice 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 Brosnan, 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, Dominik. 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 comment that I understand that some of you were disappointed that we did not have a conference call immediately after the October 16, 17 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 4 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 were 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…

Thank you, Rice, and hi, everybody. So 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 were 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 the material that was distributed with the slides today. Business growth at €57 million 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 '17. There were certain aspects of that that needed further research and study, which…

Thank you, Rice, thank you, Mike for the presentation. I'm happy to open the Q&A for more insights now. Hailey, can you open the Q&A please.

[Operator Instructions]. The first question is from the line of Veronika Dubajova of Goldman Sachs.

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?

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 some volatility in commercial mix that we manage year in and year out, quarter-to-quarter. Our thinking, frankly, at the moment is 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.

Yes. Veronika, 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, vacationers. 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 of the commercial book is a process. You figure out how best to take new patients on, do that effectively, quickly and make it attractive for those patients to come into your clinic. So we're going to go back and relook at that. We've already figured some things out that we will 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 want to kind of skinny that down. I'm a big believer in 3 or 4 key things, not 8 or 9 or 10. And so we're kind of 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 done what we've done. Go ahead, Mike.

Good, thanks. So yes, so we don't attribute it at all to any kind of pricing consideration, just 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% is a bit 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 has 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?

Yes, Veronika. 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 going to tell you I don't think so, but I can't bet my two children on it, 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.

The next question is from the line of Ian Douglas-Pennant from UBS.

Could you just a quick question, the clinic counts that you give in the press release, is that before or after the certifications? Just for a start.

It's after they've been certified.

Okay. So in that case, we saw the that [indiscernible] clinic is actually up 5.2% year-over-year. I mean, that's twice the long-term run -- over twice the long-term run rate of around 2%. So I am slightly surprised you calling out the lack of new centers or the lack of acquisitions as a headwind. It feels like, it sounds like de novo is given a tailwind and if you 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'm going to ask about 2019 guidance, but I think it's the question that you can answer. And what format do you think you'll give that in? May I suggest moving away from the current metrics with 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 novo as 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 '19, we felt that we should be in -- doing a bit more in that regard. So that's what led to the 79 that Rice was 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 '18, I had indicated 3-plus percent. And we're trending to a little bit under 3%. So -- yes. So that's how you can kind of fit in Rice commenting about the approval of de novo as being a little 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 '18 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. It does 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 within [indiscernible] 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, if you will. 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 giving, with the transparency we're providing. So the objective is not to confuse people. The objective is to keep people reported, and 1 or 2 dimensions that we think they may be more interesting 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 or just a dollar number is fine.

Oh, no. We give you the dollar number every quarter. I've reported every quarter. But you're talking about the growth rate. I believe it's -- we're just double checking a couple of things here.

I can follow it, Dominik.

It's 2.3 without calcimimetics in the quarter.

Okay. So with calcimimetics, 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.

I had two questions. I hate to harp on about it, but I wanted to just ask another question on the commercial payer mix. I think it will be helpful if you could just give us a bit of color on whether the challenges you're seeing or the reasons you think 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 were in a same position back in 2011, 2012, and in a couple of quarters back on track. But if the actual commercial market that you're operating in is becoming more difficult, 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 the 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 it 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. So are you as keen on the emerging market opportunity? 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 don't see something going on in the commercial book on a global or U.S. 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 has been talking about. But look, let's take a minute and let me just run through this. No, we can't have it both ways. We hear all the time from people, "My God you're so consistently centered in the U.S. You should be doing something more internationally. Are you going to grow your business." And so you got to kind of 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 that 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 in 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 tried to go in as products first before we make a move to be a service provider. And there is a reason that we're in 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 U.S. 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 raced 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. We do appreciate the granularity on the various adjustments, it does help us to tease out the underlying trends in the business.

The next question is from the line of Patrick Wood of BAML.

Two for me, please. I'm sure it was clear to a lot of other people. But it will 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 that, but 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 is going to improve materially going forward? Just to be helpful to understand why that wasn't sort of part of the commentary.

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 have wanted them to, it all kind of sat right there in the emerging markets. And the more we were able to dig into it and really talked to people with feet on the ground in some of these markets, it became clearer to us, it had to be a bigger situation than we were first looking at it first blush. Maybe you 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 prerelease and try to have a conference call the next day, we wouldn't have had the clarity to do dress some of this that we've gotten over the last two weeks. Mike, if you want to add anything?

Yes, I would just say a lot of this is timing. Not that you need to express and see how the sausage is made, but literarily when we looked at this and what the obligations are under the ad hoc rules, we had operated only off of our flash data. We did not get our closing information until literally the day that we have to release the FR. So that's what you're getting a lot more specificity today than you did two weeks ago, because we didn't have an opportunity to do a great deal of analysis of the details. We have 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 spin their budget and get the 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 is 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 to 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. Mike, and I don't know what you want to say on -- relative to the growth that we think we're going to see, but that's kind of my commentary.

Yes, I wouldn't add anything to what you said.

So hopefully, that's helpful, Patrick?

Sure, helpful.

The next question is from the line of Lisa Clive of Bernstein.

Two questions. First on home dialysis. You've had very impressive growth on your HHD population, from I believe 2% to 4% 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 the bigger opportunity in home as being able to attract as privately insured patients as HHD can enable them to dialyze at night, stay employed and 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, your 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. So 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 NxStage was seeing the trend that there are more people, as the younger people are coming onto dialysis, they have no desire to going into a clinic. They want to be at home. And many of them were employed and are working. So all of those comments that we made a year ago in August when we were welcoming 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 cost around HHD, most of those new patients are Medicare, right? I mean, I don't think that that's particularly profitable, is it?

Yes. So many of them are Medicare. And the increased cost wasn't directed just at HHD. Remember, a part of what you see when you're growing your home book of business, either way, but particularly one is PD in the case of the U.S. and us, we run our own fleet of trucks. We do our own deliveries. When the business grows, you got to have trucks, you got to deliver their 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 necessarily in the product side of the house. So there's a little bit of division of labor, I guess, I'll call it for the lack of a better word. I don't know Mike, if you want to jump in on that. But I think that's the way I would say that.

Yes. No, I agree with that. And then I just say bigger picture when we think about life after the close of NxStage, as we've talked about it, we think that gives us opportunities to approach home and inside a bit differently, and in the midterm, generate some synergies.

Yes.

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 FreseniusRx, ESCO vascular access. And then nondialysis service expansion in 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, it's seen something of a decline in its profitability since you bought it, but it sounds like a further step down this quarter. Have you rethought your sort of nondialysis aspirations, also given how big ESCO and other integrated care platforms are and your increased focus on home dialysis? Where should we really be expending your energy and money in Care Coordination?

Yes. I think it's a fair question. I have not turned from facing north and gone south on NCP 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 did mention in the urgent care, I'm more facing south than the north on that one. We're going to do what we need to do. So I would say, just keep in mind that we will actually need to, but the converse of that is when we see a good opportunity, like Cura in Australia where it's really working, we're going to jump on that as well. So it is still fluid. Let me say it that way without going much more in any specific organizational discussion.

The next question is from the line of Ed Ridley-Day of Redburn.

My first question would be regarding the FCPA provision. Mike, just can you 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 prerelease commentary around nonfinancial methods under discussions. So could you clarify what those are and how we should think about this investigation and the costs related to it going forward?

Ed, so it's Rice. I'll turn Mike loose on 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 going to be characterized and is published when you have had that settlement. So that means back-and-forth discussion about what's actually on the paper or where is it going. There's also been 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 in through a little bit of the charge components?

Yes. Beyond that, I would say that when we first took the charge, we had just indicated we've 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 probability perspective to arrive in 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, we 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 than it involve lawyers, your legal costs go up. So we've kind of topped it off in that regard as well on the financial side in the 75 million.

Okay. Fair enough. And then second one, 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 happened 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 effects in the third quarter?

You say incremental, less...

I mean, a fraction of what we thought in the third quarter.

A fraction, yes. That's fair.

The next question is from the line of Michael Jungling of Morgan Stanley.

Two questions, please. Firstly on the California ballots. Can you describe your loading assets? And also what you think of the wording on the ballots? It's kind of interesting, I think the way it's been worded. And also what do you think the financial impact would be if there is, unfortunately, a yes vote against the dialysis industry. And 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&L?

Yes. Michael, it's Rice. Relative to California and the wording on the ballot initiative, it's certainly not what we would have wanted. It was not in a way that I thought was fairly unfair, but I'm not going to cry about it. But the way it works is it was -- wording was developed and we, both the parties got to comment on the wording and it just didn't go our way as I guess the way I would say it. We continue to say that this is going to 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 going to make any commentary until 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 going to 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, I think Mike can talk about ESCOs and profit, but that may be another cart before the horse to go.

Yes. No, and I take it because you're really talking about the year-over-year change related to the expanded sites in '17. And when you think of the program, they are not allowing additional sites in '18. So as we introduce new sites in '17, we went through the same kind of process with them that we had with the original sites. For '18, since you're dealing with just new patients in existing sites with all the controlled procedures set up, it's much -- 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.

Okay. Mike, just a follow-up on these ESCOs, what is the chance so that will 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 see in the past, is no longer an issue?

Yes. I think -- well, the smoothness I'm referring to relates to operationally new sites, new patients and going all the way back to the being establishing the whole process, we went through the same thing with BPCI. The -- relative to any abrupt change, I'm not anticipating anything operationally in that regard in terms of the patient care aspects. I think relative to discussing the reconciliations with the government, these are very detailed discussions because you're dealing with benchmarks, you're dealing with adjustments to the 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. And Rice, on this ballot, just a follow-up question, please. Given that the industry or the dialysis industry has spent over 110 million 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 -- or reimbursement rates of profitability in the U.S?

Well a couple of things, Michael. You're mixing things here. The 110 million was an industry-wide spend. The 15,000 patients is just our patients. The total number of patients in California I 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 want to unionize or not. And the answer is, there is a process for that in the U.S. 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 to you poking in the eye, and then 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.

The next question is from the line of Oliver Metzger of Commerzbank.

The first one is on M&A. So could you comment how -- or to which territory your excellent growth projections have changed? So you mentioned that you still project 1% plus this 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. So your decline is your first decline for more than two years in a quarter. So can you just comment on how long you expect this negative momentum to last?

So Oliver, I'll turn it over to Mike here on the M&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 have pretty big expectations on the M&A front as we had big budget and we took that down are also just trying to 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 U.S. 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 on 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 as a board, we wanted to see an accelerant there. 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 the 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 leans tender from time today. And those tenders are for necessarily 3 months or 6 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 it to the point that you trash your pricing and you destroy value? Or 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, Oliver, in my 21 years with the company is that we generally find a way to continue to grow our product business. R&D's the big piece of that obviously and coming out with a 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.

The next question is from the line of David Addington from JPMorgan.

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 to 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 sort of, on the high inflation side, think 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 clarify the Q4 expectations versus Q3.

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 Sound gain, I think you should think about that in terms of 9%. That's kind of where we are. So that's widened the range as we thought that we gave you we thought we'd be in.

Then on the emerging markets -- I've 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. We believe it will be another bad quarter in the fourth 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 -- we'll see a similar effect in the fourth quarter that we saw in the third, which is in the teens -- mid-teens I would say 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, so that's...

It's in the guidance.

Correct me if I'm wrong, but I think that mid-teens in Q3, you captured Q1, Q2 and Q3 more than Q3, right?

Right.

For Argentina, that's correct. But I think what 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. It's not symmetrical.

The next question is from the line of Gunnar Romer of Deutsche Bank.

Gunnar Romer, Deutsche Bank, the first one again on Care Coordination. I think when you last guided on the business, you set around 9% to 11% or around 10% margin. And now given your nine months' performance, even to get to the lower end, what 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 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 really 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 help us understand what your current thinking is on the corporate cost?

Going around Care Coordination margins, we're trying to take a look. Because I would have said year-to-date, I'm probably still in the 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, I still believe that very high-single digits, possibly $15 million.

We'll get it for you, we're going to hang on, we'll answer your questions when we come back.

On your second question, I have -- I don't do this all the time, but a couple of years ago, we saw this effect. I did kind of disclose the transactional effects in the aggregate for the international markets. And as I said before, we saw something substantial in Q1, which was about $15 million EBIT effect that moderated in Q2. Yes, that's just a little over $1 million in Q2. And now we're back in Q3 in the range of the mid-teens, around $17 million. So there's -- you see the boomerang effect there.

Yes, it's [indiscernible] you can understand now coming out of where we are in Q2, the surprise and the change, the missed expectation for us seeing that in Q3.

That makes perfect sense. But the $17 million does not include the high cancellation charge, right? I mean, otherwise it doesn't make...

You're correct, Gunnar. That is correct. It just transact. The corporate costs, 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 the 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, where 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. What I would tell you that I would hopefully come out of Q1 of next year with the 40 we want to convert it done, certify 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 the 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 centers. And we didn't anticipate, we didn't expect that we would convert all 60 of them. So 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 site 11 where we combined 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 '19.

Yes, Gunnar, just going back to you on the Care Coordination, and we may need to do this offline with Investor Relations. What I'm looking at year-to-date through September is around 7%. So to get to the 9% to 10%, 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.

It has to be -- it would have to be on the, I'd say, the mid- to high teens.

And revenue-wise, I guess, sequentially, Q4 should look pretty similar to Q3 for the Care Coordination business.

Yes, I think. I think that's accurate.

It's up a bit.

The next question is from the line of Hassan Al-Wakeel of Barclays.

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 NxStage deadline for the second time now to February 2019, although you note that you still expect the closing this year. What is driving this delay? And do you think other disposals may be required?

We'll work backwards to forwards. No, I do not believe there're other disposals that will be required. The reason is in the February 5, is we used 90-day windows of planning that was what we agreed to in the merger agreements. So there's no magic to that. We just stuck to the formula that we've 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 a 90-day -- an additional 90-day window. Then on the countermeasures relative to the commercial situation relative to de novo's, 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 is 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 from an inspect and certify the facility so that we can begin to take patient and they are just very, very backlog. And so the use 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 balance budget act that was passed back in July that will allow us to utilize third parties effective in February -- or in January of next year. So this is not something that I think is self-inflicted. I think we're dealing with kind of the cards that we've 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.

There are no further questions at this time. I'll hand back to Dominik for closing comments.

Just wanted to...

Okay.

So we begin. One comment, we're doing our best, but I would say I think we have guided to flat to maybe slightly up on corporate cost. And I would say we're probably slightly up. So fairly consistent with our guidance, that's in current currency.

Go ahead. I can hear.

Excluding FCPA?

Yes. Excluding FCPA.

So Gunnar, remains in the cost, pretty much is the way we've laid them out to you...

Does that give you -- answer your?

Yes.

Good. Thank you, ladies and gentlemen. The conference has now concluded. And you may disconnect. Otherwise, we would like to say thank you very much for sticking with us for that long call. We hope it was helpful, and you gained a little bit more understanding of the topics you hadn't had two weeks ago. Okay. So thank you very much.

Thank you, folks. Take care.

Ladies and gentlemen, the conference has now concluded and you may now disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.