Fresenius Medical Care (NYSE:FMS) held its second-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
Fresenius Medical Care reported a 23% increase in operating income, driven by strong organic revenue growth and improvements in profitability, alongside the FME 25+ transformation program which delivered €67 million in savings.
The company completed a €1 billion share buyback program ahead of schedule and initiated a second €1 billion program, maintaining a net leverage ratio of 2.6 times.
U.S. same market treatment growth declined by 0.9% due to operational issues with referrals, which the company is addressing with organizational changes.
Fresenius Medical Care successfully rolled out its 5008X machines in the U.S., converting 227 clinics, and is seeing positive patient and clinician feedback.
The company maintained a strong financial position with a 5% organic revenue growth, despite continued regulatory challenges in China and inflationary pressures from the Middle East conflict.
The company expects flat revenue development for 2026 and aims to maintain elevated profitability levels, forecasting mid-single-digit percentage changes in operating income.
Management is focusing on resolving referral issues in the U.S. and foresees treatment growth stabilizing at Q2 levels for the remainder of the year.
Full Transcript
Dominic, Investor Relations
Thank you, Valentina. I would like to welcome everyone to our earnings call for the second quarter of 2026. I appreciate your flexibility to join this earlier call. We felt it is more helpful to have the call earlier given that we had to publish earlier than originally planned. I do apologize for the inconvenience, in particular for those of you who are located in a different time zone or those of you who cover another company hosting a call in parallel.
As always, I 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 and to our SEC filings. The call is scheduled for one hour. In order to give everyone the chance to ask questions, we would limit the number of questions, as always, to two.
Thank you for making this work. Let me now welcome Helen Gieser, CEO and Chair of the Management Board, and Martin Fischer, our Chief Financial Officer. Helen, the floor is yours.
Helen Gieser, CEO and Chair of the Management Board
Thank you, Dominic, and welcome everyone and thank you for joining. At this earlier time of the day, I will begin my prepared remarks on slide 4. We continued our strong start to the year, delivering another quarter of highly profitable growth, supported by solid organic revenue development and further improvement in profitability. Operating income growth accelerated to 23% in line with our planned phasing for the year and we realized another quarter of margin expansion.
This was also supported by the continued execution of our FME 25+ transformation program which delivered 67 million euro of sustainable savings during the quarter. Excuse me. We also completed our initial 1 billion euro share buyback program on an accelerated timeline and have already launched a second 1 billion euro program, underscoring our continued focus on disciplined capital allocation and reigniting shareholder returns. With a net leverage ratio of 2.6 times, we remain around the lower end of our target corridor and continue to maintain a strong financial position.
With that overview, let me turn to the key second quarter highlights across our operating segments on slide 5. Beginning with Care Delivery, the international markets delivered 0.8% same market treatment growth. In the U.S., same market treatment growth declined by 0.9%. At the same time, I am genuinely encouraged by the progress we are seeing where it matters most for our patients. Our continued focus on quality and patient care is making a real difference.
Missed treatments and mortality improved in the quarter. These are outcomes that are deeply meaningful for the patients who rely on us every day and for all of us who are committed to their care. The same market treatment growth declined due to our own operational miss in our business development approach to capture our fair market share of referrals. This exposed an execution gap and led to a further softening of referrals in Q2 compared with Q1.
We have promptly addressed this with an organizational change enabling rapid implementation of the necessary measures. While these measures will take a few months to gain traction, we remain confident in our path to restoring referral rates in the affected areas. Given the compounding effect of lower first half referrals on the rest of the year, we now expect U.S. same market treatment growth in 2026 to be around the Q2 level. I also want to recognize the strong execution driving accelerating momentum across several strategic priorities.
Under our Reignite strategy, we are making significant progress accelerating the rollout of our 5008X in our clinics in the U.S. We have a dedicated slide on high volume HDF coming up where I will provide a broader update. As we continue to strengthen our core operations, we remain disciplined in optimizing our clinic network. We have successfully completed the clinic footprint optimization, exiting around 100 select underperforming clinics. We are realizing favorable rates and seeing contributions from our revenue cycle management initiatives, providing further evidence that our operational improvement efforts are gaining traction.
As already indicated, we are beginning to see the impact of our catheter-related bloodstream infection prevention efforts. We saw a 23% reduction in bloodstream infections over the past year, which supports lower infection-related hospitalizations and also translates into lower patient mortality risk. Next, on Value Based Care, we continue to build on the strong momentum we have established in this business. The quarter reflected continued positive operating income as well as an increase in member months driven by contracting growth.
We are demonstrating how our vertically integrated model translates into better patient outcomes. We are seeing meaningful improvements across key clinical measures such as reduced missed treatments, lowered mortality and hospitalization rates when Fresenius Medical Care patients are managed by InterWell Health. On October 12th, we will host an expert call with Tommy O'Connor, the CEO of Value Based Care, where we will give more insights into this segment.
Information about the call is available on our Investor Relations website. Turning to Care Enablement, the 5008X rollout gained momentum with growing sales supporting favorable business growth. Overall, we continue to realize positive pricing and volume development outside of China, driving momentum in our underlying business. Despite recent headwinds from regulatory changes, China remains an attractive products market for Fresenius Medical Care.
With refreshed leadership, we are reviewing our strategy to win as well as our product portfolio for this market. We are navigating elevated raw material and logistics costs driven by the conflict in the Middle East. While these external cost pressures remain a headwind and are something we are monitoring closely, they are currently absorbed in our guidance range. This further reinforces the importance of our continued execution of our FME 25+ program to drive sustainable savings.
Before I turn to the 5008X update, there are two other innovations that I want to highlight. Recently we announced the introduction of Therapywise, a cloud-based analytics capability designed to provide retrospective program-level insight into kidney replacement therapy delivered in acute and hospital critical care settings. Therapywise reflects our continued focus on innovation in critical care by applying data analytics. This helps hospital and clinical leaders gain visibility into how kidney replacement therapy is delivered across their organizations, supporting informed discussions around workflow consistency and quality improvement.
We also launched Connexus, marking a significant milestone in our home dialysis strategy and our broader digital transformation journey. By bringing peritoneal dialysis and home hemodialysis capabilities together on a single platform, we are creating a more connected experience for patients, caregivers and clinical teams. We have already achieved our patient go-live with encouraging initial feedback and we look forward to expanding adoption as we continue to scale the platform globally.
Most importantly, Connexus establishes a global digital foundation that will enable future innovation and help us advance our commitment to delivering high-quality, person-centered home care. Next, on slide 6, I'm excited to update you on the progress we are making with our 5008X rollout, which is accelerating as planned. We are firmly on track to meet our 2026 targets, including converting around 20% of our machines in our own clinics. By late July we had converted 227 clinics across 23 states, representing 10% of our machine base.
Of the more than 600,000 treatments on the 5008X, around 170,000 have been HDF and more than 100,000 high volume HDF. So far we have produced 4 million consumables for the 5008X, which is in line with our plan and is rapidly ramping up. Our extensive training efforts have covered around 5,000 renal nurses and patient care technicians. It has been a tremendous undertaking to achieve all of this and I am proud of how much we have accomplished so far.
Last Wednesday we announced BEACON US, which is a major research initiative designed to generate real-world evidence for high volume HDF in routine U.S. clinical practice. This reflects our commitment to bringing innovation to patients thoughtfully, responsibly and with rigorous scientific evaluation at scale. We are encouraged by the positive early experiences we are seeing from both patients and clinicians. To give you some examples, patients report feeling better both during and after dialysis and, for example, data shows 40% fewer muscle cramps.
More than 70% of treatments using AutoSubplus technology in our research cohort are already reaching the high volume HDF target of at least 23 liters of convective volume per session. Clinical experience suggests simplified clinician workflows, optimized resource utilization including reduced water consumption, and a much quieter overall dialysis clinic experience. Early observations are tracking consistently with previously published international randomized and real-world studies, including the landmark EU-funded CONVINCE study, that collectively have associated high volume HDF with fewer hospitalizations, fewer missed treatments and improved survival outcomes compared with conventional hemodialysis. I will now hand over to Martin to walk you through the second quarter financials in more detail.
Martin Fischer, Chief Financial Officer and Member of the Management Board
Thank you, Helen, and welcome, everyone. I will continue on slide 8. In the second quarter, we achieved solid organic group revenue growth of 5%, supported by growth in all three operating segments. At constant currency, revenue increased by 4%. Regulatory pressure in China continued to pose a challenge to revenue development in Care Enablement. Divestitures negatively impacted group revenue development by 50 basis points in the second quarter. For the full year, we continue to assume an unfavorable impact on year-over-year revenue growth of about 30 basis points from the execution of our portfolio optimization plan in 2025 and 2026.
We significantly increased operating income by 23% at constant currency. This growth was driven by contributions from Care Delivery and Value-based Care segments and is in line with our planned phasing for 2026. Special items in the second quarter amounted to a negative 103 million euro, mainly related to the Tafneos impact. As background, the European Commission's recommended revocation of the Tafneos marketing authorization led to an impairment of intangible assets at Fresenius Medical Care Renal Pharma that resulted in a negative impact on our income from equity method investees of 71 million euro, which was treated as a special item.
Special items further include 42 million euros of FME25+ one-time costs and also positive effects from the Humor side re-evaluation. I will continue on slide 9. Our group operating margin again expanded and further improved by 180 basis points. Care Delivery as well as Value-based Care contributed positively. I will cover the drivers of the segment profitability a little bit later. The greater intersegment elimination reflects the growing sales of the 5008X in our clinics in the US.
With further advancing our rollout, this trend will continue. Corporate costs increased by 47 million euro, mainly driven by the impact from virtual power purchase agreements and the planned costs of the strategic IT platform investment as we continue to transition to SAP S/4HANA. In addition, FX translation effects had an impact of negative 19 million this quarter. The average US dollar exchange rate in the second quarter was 1.16 compared to 1.17 in the first quarter and compared to 1.13 in the second quarter of 2025.
I will now walk you through the business developments in each segment, starting with Care Delivery on slide 10. Care Delivery realized 5% revenue growth at constant currency and organic revenue growth of 7% in the US. Organic growth of 7% was supported by the positive impact from TDAPA reimbursement regulations, favorable rate development, and continued progress in revenue cycle management initiatives, further enhancing revenue yield. These benefits were partially offset by lower treatment volumes driven by the referral dynamics Helen discussed earlier.
The international business continued to contribute positively. Divestitures as part of our portfolio optimization plan negatively impacted revenue growth by around 90 basis points. The main driver here was the prior-year divestment of our clinics in Brazil. Care Delivery achieved strong earnings growth in line with planned phasing for the year, accelerating operating income growth to 45% with a 390-basis-point step-up in margin. Importantly, underlying operating income excluding the TDAPA effects improved by 34%.
This improvement was driven by higher rates, FME25 contributions in particular from the clinic closures, as well as benefits from revenue cycle management. Additionally, the growth was supported by a lower prior-year base, which includes effects such as elevated medical benefit costs. This more than offsets the impacts from lower treatment volumes in the United States as assumed. Benefits from TDAPA reimbursement regulations for phosphate binders and catheter lock solutions were a driver of earnings, with around an 80 million euro year-over-year benefit in the quarter.
The TDAPA effects are assumed to be a headwind in the remainder of the year. Moving on to Value-based Care on slide 11. Revenue in the Value-based Care segment grew by 9% on both an organic and constant currency basis. This was driven by an increased number of member months and a favorable effect from premium rates. Revenue increase was partially offset by the change of the risk type for a large contract, which resulted in a different type of accounting treatment and lower revenue recognition.
Value-based Care delivered a strong improvement in profitability in the second quarter, with operating income increasing to 18 million euro from a 9 million euro loss in the prior year. The margin improved by 500 basis points, marking another profitable quarter. Supporting favorable business growth in the quarter was an improved savings rate reflecting the strength of our contracting. FME25 savings additionally had a smaller but positive effect on earnings as well.
Looking ahead, due to the positive business development, we expect 2026 revenue for Value-based Care to decline by 150 to 200 million euro, which is lower than the initially assumed 300 million euro decline. I will finish the segment overview with Care Enablement on slide 12. Care Enablement delivered organic revenue growth of 3%, supported by continued positive pricing and volumes outside China. Regulatory measures and stricter tender requirements in China remained a headwind, as assumed.
However, the underlying momentum across the rest of the business continues to be encouraging, with growing sales of the 5008X increasingly contributing to that momentum as well. Care Enablement earnings declined by 5% in the quarter, reflecting the adverse regulatory impact in China as well as increased inflationary pressure, including higher raw material costs and elevated logistics expenses related to the Middle East conflict. As the Middle East conflict continues, we are closely monitoring the increasing inflationary pressures and implementing mitigation measures where possible.
Currently, these higher costs, especially for raw materials and transportation, are absorbed in our guidance range for our Care Enablement China business. As expected, we saw a headwind of around 20 million euro in the second quarter. These negative effects were partially offset by positive volume and price effects outside of China and continued contributions from FME25+ savings. Next, I will look at cash flow on slide 13. We delivered a strong increase in operating cash flow of 11% in the second quarter, primarily driven by disciplined working capital management.
Free cash flow remained stable at 625 million euro, while we increased our investment in the business, reflecting the continued strength of our underlying cash generation. Total net debt and lease liabilities increased by 6% year over year, as expected. After canceling 8.5% of shares which we bought back as part of the share buyback program completed in April of this year, we initiated a new share buyback program starting in May with a total volume of around a further 1 billion euro.
The new program will be executed in tranches over a 12-month period, with the first tranche of up to 600 million euro expected to be completed by mid-December. By the end of the second quarter, we already repurchased 2.5 million shares for 94 million euro, representing 0.9% of total share capital and approximately 16% of the first tranche. After initiating our new share buyback program, we continue to maintain a net leverage ratio of 2.6 times, remaining around the lower end of our target corridor of 2.5 to 3 times and underscoring the strength of our balance sheet and disciplined approach to capital allocation.
I will now hand back to you, Helen.
Helen Gieser, CEO and Chair of the Management Board
Thank you, Martin. I will pick up with our outlook on slide 15. We continue to expect a broadly flat revenue development. For earnings, our priority is to sustain the higher level of profitability established in 2025. Accordingly, we expect operating income to remain at a consistently elevated level in 2026 with an upside/downside range of a mid-single-digit percentage change. While we do not provide quarterly phasing, we communicated that we expected a strong first-half earnings contribution in 2026, supported by the mentioned underlying earnings improvement and positive TDAPA effects.
TDAPA is expected to become a sizable headwind in the third and fourth quarters, resulting in negative earnings growth in the second half. For full-year TDAPA contributions, we now expect a lower year-over-year headwind of around 50 million euro compared with the previously anticipated negative impact of around 100 million euro. The second quarter demonstrates that the strategic actions we are taking are yielding meaningful improvements in underlying profitability in Care Delivery.
Despite the headwinds from lower treatment volumes in the US and a tougher base in the second half of the year, we expect continued improvement in the underlying profitability of Care Delivery. Overall, we expect to deliver Care Enablement margin improvement in the second half and full year 2026 as we continue to execute our Reignite strategy while offsetting increased inflationary pressure from the Middle East conflict in our Care Enablement business.
And we continue to assume Value-based Care to perform around break-even for the year, reflecting the assumed phasing of contributions and prior-year effects. Given our strong first-half performance and current expectations for the remainder of the year, we are confirming our full-year outlook. This concludes our prepared remarks, and I will now hand back to Dominic to begin the Q&A session.
Dominic, Investor Relations
Thank you, Helen. Thank you, Martin. Before I hand over for the Q&A, I would like to remind everyone to limit your questions to two. If we have remaining time, we can go another round. With that, I hand it over to Valentyna to open the Q&A, please.
Valentyna, Operator
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star one at this time.
Back over to you for the first question.
Dominic, Investor Relations
Thank you, Valentyna. And the first question comes from Jonathan from Barclays. Jonathan, the floor is yours.
Jonathan, Analyst at Barclays
Good morning. Thank you for taking my questions. The first one is just on same-market treatment growth. If you could just help us to understand really the detail on the deceleration from Q1 to Q2 in that number, specifically on the referrals piece, really just trying to understand what you could do to improve the inflow of patients there. And how should we think about the relative impact of clinic closures, referrals, and the outflow issues of patients that you previously pointed to.
And then, thank you for giving the 2026 expectation. So is it fair to assume that you expect market treatment growth in the US to get worse throughout the year? How do you see the phasing, and where do you expect to exit 2027 from a same-market treatment growth perspective? Thank you.
Helen Gieser, CEO and Chair of the Management Board
Thanks, Jonathan. I'll take that question. And recognizing there's probably a lot of similar questions around same market treatment growth, I think it's helpful to maybe walk through that in a bit more detail than normal. As we already outlined, the same market treatment growth declined by 0.9% in the quarter. At the same time, we are encouraged by the progress we are seeing where it matters for our patients, and that focus on quality and patient care is making a real difference.
And we were really encouraged to see missed treatments and mortality declining in the quarter. As we discussed in Q1, we are executing a lot in parallel in the U.S. dialysis business, which is an operational stretch. We obviously exited, excuse me, around 100 clinics with execution speed. I would say in the first half, we've closed clinics faster than we ever have before. Obviously, the progress on HDF is exciting, but at the same time, that does cause a fair amount of work in the clinics that we are impacting there.
And at the same time, there's been a major clinic operations effort that touched about a couple of thousand people with the whole focus here on driving profitable growth. In the same time, recognizing that we had the ACA subsidies expiring, we also have implemented some enhanced insurance verification on our patients. And, you know, while we are pleased with the quality and patient safety initiatives, obviously rolling out these solutions did also have an impact on the operation.
So all of that is really to say the clinic operations are managing significant demands in parallel. And I think we saw that emerge on referrals in Q1 with a little softness there. And I would say that there was an underestimation of the impact that created as we came out of Q1 into Q2. It was clear that there was, you know, while that disruption may have been understood, it was clear that it was masking an underlying issue. And, you know, I think what we, as I've kind of worked closely with the team there and with Cassi directly, it's clear now that we have an operational mess.
Specifically in the business development approach, which is, you know, capturing our fair market share of referrals. We are not seeing a market issue, we are seeing a volume capture issue in terms of getting the patients that we see into our clinics. So that was the execution gap that has led to a further softening of referrals in Q2 compared to Q1. We are all over it. We obviously saw the organizational changes. We've also made organizational changes in the business development group that will take a few months to gain traction.
Cassi is crystal clear on those priorities. And we do remain confident in our path to restoring those referral rates in those affected areas. And obviously we're looking at this region by region. However, given the compounding effect of the lower first half referrals on the rest of the year, that's why we are now saying we expect the same market treatment growth in 26 to be around the Q2 level. Obviously that compounding effect has caused a gap. We also know that we've got work to do that will take time.
So that's why I think we're trying to be realistic here and call the year at a similar level to Q2. Obviously we do expect that work to take hold and for that benefit to pull through. But realistically I think we're seeing that more into 27 than we were originally thinking in 26 in terms of the exit rate for 2027. Clearly I'm not going to speak to that today. I think we can kind of see where we see 26, what 27 looks like. I need a few more quarters under our belt and obviously we'll be able to give that outlook when we get to February.
You know, the areas of focus, as you can appreciate, are making sure that when we get those referrals, they're accepted referrals and we are gaining our fair share there. You know, we had said, and I think it's fair to acknowledge this, that, you know, we didn't have an inflow issue earlier, or maybe at the end of last year it was an outflow issue. I think we have done some significant work on outflows and that's really showing up in the mortality and missed treatment numbers.
What we have now is not a market or a patient issue. We have an accepted referral, an inflow issue that is 1000% the focus of Cassi and the organization. So I think that answered all the pieces there. And apologies for the longer answer. I think it was one that's on a lot of people's minds.
Jonathan, Analyst at Barclays
That's great. Thank you very much.
Helen Gieser, CEO and Chair of the Management Board
Of course.
Valentyna, Operator
Thank you. The next question comes from Veronica from Citi. Veronica, the floor is yours.
Veronica, Analyst at Citi
Hello, good morning and thank you guys for taking my questions. I have two, please, apologies. The first one's going to be on the same market. And Helen, I just want to get a better shape of understanding of the quarter. I appreciate you don't report monthly, but I remember when you were on the road you were talking about April being down 40 basis points, so not hugely similar, which would suggest that May and June really sort of fell off the cliff in terms of U.S. same market treatment growth rate. I was kind of wondering if you could comment on that and I guess if you have any early indications for how the referral piece is improving in July relative to how poor it must have been in May and June, that might be helpful to give us all a bit of confidence in terms of the forward path. And then my second question is on the TDAPA phosphate binder assumption for the year. By my math, you're probably at around 130 already for H1.
It sounds like the new guidance is 150 to 100. Just trying to understand if maybe you're being a little too conservative on that given how strong the first half of the year has come in. Thank you guys.
Helen Gieser, CEO and Chair of the Management Board
Thanks, Veronica. I'll take the same market treatment growth and I'll have Martin walk us through the TDAPA numbers because I know that there's a lot of numbers here on that one. Yeah, look, you're right. When we were on the road in April, we were already indicating that April may be, you know, kind of a similar level coming out of the softness of Q1. I mean, don't forget April still had the benefit of the lower flu base in 2025. So that was, you know, maybe also not giving us the clear picture.
There's no question, as you see the number for the quarter, that May and June did deteriorate. And I think that's where the focus has been over the last couple of months, really getting under what the root cause is and where the area of focus was. I mean, I can buy disruption to a point, but we also have to make sure that the underlying operation is operating as we expect it to. And, you know, I'm the last person to want to speak to an operational mess, but clearly we have one here.
And that's why I think we're just being careful on how we guide the rest of the year. In July, I haven't seen numbers yet, but I think, you know, the fact that we are calling it for a similar level to Q2, I don't expect to see the improvement overnight, but I do expect to see it take hold as we go through the next couple of quarters here. Martin, do you want to take TDAPA?
Martin Fischer, Chief Financial Officer and Member of the Management Board
Yes. Hi, Veronica. So on TDAPA, as we said, we have seen about 80 million effect in quarter two. And also we said that we expect, after the first half-year tailwind, this to turn into a headwind for quarter three and quarter four. Now, total TDAPA contribution we are now saying will be a negative 15 million overall on a year-over-year basis, and that is reduced from around 100 we had on the previous expectation. As a reminder, we had last year a 310 million positive year-over-year contribution.
And we said therein there was a 19 million defend cost. Defend cost is unchanged, positive 19 million first half, negative 90 million in the second half. So year over year that is a wash or a zero effect. For the binders, yes, we did see in the first half around 70 million positivity year over year. And we expect this to turn into a headwind of around 120 million year over year in the second half, then resulting in the 50 million for the full year.
The lower headwinds are predominantly driven by our pharma business where we see lower than expected headwinds, and that gives you an impression on the overall picture.
Veronica, Analyst at Citi
That's helpful, thank you. And Helen, can I just follow up? One of the things that really struck me this quarter is the volume growth gap was in the U.S. clinics business. But it looks like your mix is good, your revenue management is good. Is there a risk here that you're sort of, you know, so focused on profitability that you've ended up at a place where volume growth is suffering? Is that the issue that we're looking at?
Helen Gieser, CEO and Chair of the Management Board
No, I don't believe so. You know, the work that we identified on rate and yield were very obvious things for us to go after where we were lagging. And we've made tremendous strides in those. And, you know, in many ways there are different teams internally within CD as well focused on those. We will look at profitability measures like the clinic closures, where we really can't see a way to make that clinic profitable. That obviously has been a profitability focus for us, but not at the detriment of the rate and the yield that you're talking about.
But we clearly knew, right, that when we were closing these clinics, while we've held on to a significant portion of these patients, we knew we were giving up some of that volume and we saw that play out in the market in Q1. I expect that to continue to play out in the market in Q2. I think that was kind of a smaller piece of the overall same market treatment growth development though. But we're very mindful, Veronica, of what trade-offs we are making.
We don't go into any of them lightly. But clearly the profitability play on both the restructure and reorg, the clinic closures, has been meaningful for us and a smaller part of that same market treatment growth give-up. The real issue here is really focused on the business development area on accepted referrals. And we can see that by area. So it is isolated, which is why I'm kind of confident that we've got the right plans in place, we've got the right people now in place, and we can get at it.
Okay, good.
Valentyna, Operator
Thank you. The next question comes from Oliver, from ODDO BHF. Oliver, the floor is yours.
Oliver, Analyst at ODDO BHF
Good morning. Two questions from my side. First, about the payer or commercial mix. So would you describe that your startup initiatives to improve the mix since last fall have contributed already significantly to some of these mix improvements? Second question is still very early days, but we saw recently the first indications about the bundle rate which also caused some volatility in the share price. Could you share with us how you think about the first indications?
And, yes, it will still change, but would be great to hear.
Helen Gieser, CEO and Chair of the Management Board
Yeah, thanks, Oliver. I think I can tackle both of those. On the commercial mix, we continue to be very encouraged by the improvements that we see there. The rate improvement is real. We've done a lot of work in that area. It is slightly down to ACA that obviously has developed in line with our expectations. But overall, really pleased with the work that has been done on the commercial mix. On the bundle rate, the 1% always disappointing. Clearly we're in preliminary period.
We're offering up a lot of comments to the administration on the moving pieces of that. We'll see what final brings. But overall it's always challenging when it's less than inflation.
Oliver, Analyst at ODDO BHF
I was less thinking about the bundle rates, but more about also the additions which come to the total rate.
Helen Gieser, CEO and Chair of the Management Board
Oh, you mean the TDAPA add-on payment.
Oliver, Analyst at ODDO BHF
Yes, yes, yes.
Helen Gieser, CEO and Chair of the Management Board
Yeah. Oh, okay, yeah, sorry, I heard you say bundle and thought you were talking about the PPS rate that also came out since last quarter.
UNKNOWN Analyst
No, no, no, I said, I meant also including Saradava. Sorry.
Martin Fischer, Chief Financial Officer and Member of the Management Board
Yeah, look, two things there again, some of this is preliminary. We do expect the government to continue to capture the pricing for the next couple of quarters before it comes final. So for that we would expect that payment to come down as it brings in more quarters reflecting the lower prices and the rebates that exist in that. So that should come down as we get to final. And I think we wouldn't be surprised if that continues to develop in line with our expectations.
It's high right now just because it's, I think it's a two-quarter lag off to what more data would come in and show.
UNKNOWN Analyst
Okay, great, thank you.
Valentyna, Operator
Thank you. The next question comes from Aisha from Morgan Stanley. The floor is yours.
Aisha, Analyst at Morgan Stanley
Hi, good morning, Helen and Martin. Thanks for taking my question. My first one is also unfortunately on the same market, treatment growth, but for the international number. That number was quite weak and the weakest we've seen in two years. Were there any reimbursements there in the past that supported the growth and has resulted in a lower number in the quarter. And then my second question was on the ACA headwind that you expect, I guess what was the number for the quarter, your expectations for 2026 and any early thoughts on the ACA headwind for 2027?
Helen Gieser, CEO and Chair of the Management Board
Thank you. Yeah, thanks, Aisha. On the international same market, treatment growth, clearly we have a lot, you know, there's a mix effect there. Clearly we have a lot of countries and a lot of markets that we are focusing on. I think the piece that maybe gets lost in this is, you know, we have exited some markets that had higher growth rates. So that would have an effect and it's kind of a little bit of mix on the mix in the countries, countries like Brazil and Malaysia, for example.
And then, as we already mentioned, the flu impacts in Q2 as well. So nothing that we are overly, overly concerned about there. On the ACA, we had kind of sized a 50 million headwind for the full year. We had been watching that very, very closely, obviously in Q1 to see how sticky this was and, you know, what would happen once patients had to start paying their premiums. It did step up as expected in Q2, which has meant that we've had existing patients leave the exchange plans due to the affordability issues.
And then we have seen some patients move to other coverage like Medicare Advantage or Medicare. And of course some are no longer treating with us. So the underlying headwind remains consistent with our initial expectation of that 50 million for the full year. What we're also seeing is that we have been able to reduce the impact on our commercial mix by expanded payer relationships and signing new contracts in other geographies. So while it starts to get really difficult to tease out what patient went where, we can see what happened on the ACA exchanges.
But anything else that results from that will be picked up in business growth moving forward. So we won't continue to track this ACA move. I think we've kind of been able to ring-fence it for 2026, but it all kind of played out as expected. Even though there was this weird dynamic between Q1 and Q2, we're back where we thought we would be.
Aisha, Analyst at Morgan Stanley
Thanks. So if I kind of interpret your comments and assuming that this impact kind of increases over the course of the year towards the 50 million you had expected for the full year, would it be fair to assume it's something like 10 million this quarter, 15 million next quarter, 25 million the quarter after that, or is it more kind of a linear progression?
Helen Gieser, CEO and Chair of the Management Board
Probably neither. It's been a bit lumpy because of what happened in Q1 and then some of this grace period and then kind of how patients have fallen out. So I think we're not getting into the quarter by quarter, but just the whole 50 million sizing for the year developed in line with our H1/H2 phasing within our guidance range.
Aisha, Analyst at Morgan Stanley
Understood. Thank you so much.
Valentyna, Operator
Okay, thank you. The next question comes from Hugo from BNP Paribas. Hugo, the floor is yours.
Hugo, Analyst at BNP Paribas
Hi, Dominic. Hi, Martin. Thank you for taking my questions. I have two, please. First, quick one on tariff refund. Can you maybe help us quantify the impact in Q2, what you expect for the remainder of the year? I think you guys have only a marginal impact, but would be helpful to have that number. Second, thanks for all the moving parts on 2026. But if we look forward to 2027, you guys have some tailwinds rolling off. U.S. draft reimbursement is 1% and inflation keeps running slightly above that at 3%.
Could you walk us through some of the building blocks for 2027 which would lead to EBIT growth next year, if that is the plan? Or is EBIT growth off the table next year? Thank you.
Helen Gieser, CEO and Chair of the Management Board
Yeah. Martin, why don't you take the tariff question and I will head off the tailwinds and headwinds discussion for 2027.
Martin Fischer, Chief Financial Officer and Member of the Management Board
As we had discussed, we had a limited tariff exposure in the past because of the breadth of our supply chain network and how we managed to mitigate it as such. We also expect a limited refund. We have not received or booked anything in the second quarter. We expect, let's say, high single-digit kind of range in the second half here. But it is, as I said previously on the headwind, rather limited.
Helen Gieser, CEO and Chair of the Management Board
Yeah, Hugo, I think you can appreciate I am not going to get into the moving pieces of 2027 guidance in August of 2026. What I will speak to though is, you know, our usual building blocks, right? On the positive side, business performance and volume rate and yield, FME25, a clear expectation there that we continue to expand our margins across the business as well as getting the benefits from the HDF rollout. On the negative side, of course, we have the usual inflation and merit increases.
And then I think the bigger moving bucket for 2027 is the binders and the TDAPA roll-off and that headwind into 2027. Obviously we are not able to completely size that and won't do that today. We've got to wait for what the final pricing does on, you know, the pharma pricing of what goes into the bundle. But I think we've got our arms around what the moving parts of this business are by now and of course we'll size them accordingly by February.
Hugo, Analyst at BNP Paribas
Thank you.
Valentyna, Operator
The next question comes from Richard from Goldman Sachs. Richard, the floor is yours.
Richard, Analyst at Goldman Sachs
Thank you very much. Thanks for my question. I just want to follow up on the U.S. treatment growth and, in particular, your comments about not capturing your fair share of referrals. What was actually in practice happening to drive that? Have there been changes in your processes, your competitor processes? I would like to understand more what the root cause of that is. And then, as a follow-up to that, what is going to be top of Cassie's to-do list as she comes in to run that business and, I suppose, tries to steady the ship?
Thank you.
Helen Gieser, CEO and Chair of the Management Board
Yeah, thanks, Richard. Look, at the end of the day we could see that we were getting patients referred and we weren't getting them into the clinic. So we track incoming referrals and we also track confirmed referrals. So when those referrals don't get confirmed, meaning a patient isn't in the chair, we know that they're going somewhere else. So we're clearly expecting share loss because those patients have gone somewhere, and we'll see how that plays out in the market this quarter.
Of course, what we are able to see is what those volumes and what those shares and, you know, kind of treatment volumes look like by region. And clearly where we were falling short there, we have now targeted what area we need to make those improvements. So there is clear visibility on it. There have been leadership changes in that area as well. And I think our whole organization knows that every aspect of inflows and outflows on same market treatment growth are our number one priority.
What I am encouraged by: Cassie's been with the organization, you know, what, three quarters or so now. As we were looking through the noise of disruption and I was trying to get under the real root cause, she quickly identified that we had a business development and, you know, kind of in-our-own-control inflow issue, if you will. And she's already working through those measures that need to be executed. And, as I mentioned, we're putting the right leaders in and the right metrics to make sure that we're really focused on this particular real root cause.
As we know, it's a big operation, it's a complex operation. We've done a lot here and I don't want to dismiss the work that has been done, and I think the work that we are pulling through on outflows speaks to that. So we're focused on it and I think Cassie and I are very clearly aligned on the priorities and where we need to see improvement, and we'll obviously track it accordingly, daily and weekly and monthly.
Richard, Analyst at Goldman Sachs
Thank you very much, Helen. I appreciate the color. And if I could just squeeze in one follow-up, international care delivery was pretty robust, especially in organic terms. What was driving that? Are there any one-offs that we should be aware of? Thank you.
Helen Gieser, CEO and Chair of the Management Board
Martin, do you want to say?
Martin Fischer, Chief Financial Officer and Member of the Management Board
Yeah, so you saw that the same market treatment growth was at the 0.8. We did see in the international organic revenue driver a supporting accounting topic which had the effect there. When you look at that, in the second quarter we had certain pharmaceutical product business activities that we still had in Care Enablement, and in the second quarter we shifted that to CPE. It's neutral for the overall company. And to give you a bit of framing here, this is something that had, last year, brought it to about 20 million roughly in revenue and the low single-digit in profitability.
That is what is supporting international organic revenue growth. And we did that in order to also have a full visibility of a global pharma.
Richard, Analyst at Goldman Sachs
Thank you very much.
Valentyna, Operator
Thank you. Next question comes from Anna from Bank of America. Anna, the floor is yours.
Anna, Analyst at Bank of America
Hi. Thank you so much for taking the question. I wanted to dig in a bit on the HV-HDF rollout and how much, if at all, you saw disruption from the rollout of the clinics affecting U.S. same market treatment growth in the quarter, and what the learnings are from the rollout in the first half to take into the second half. And then I also wanted to, if possible, ask about external sales of HV-HDF. I realize that's not a near-term priority; the priority for the year is the internal rollout.
But I imagine those discussions are in place. Just how are they evolving and how has that maybe changed after the MOTHER trial data? Any incremental color there would be super helpful. Thank you.
Helen Gieser, CEO and Chair of the Management Board
Yeah, thanks, Anna. As you know, it's my favorite topic and one that we're thrilled with the progress on and, as you can appreciate, you know, something of this scale, we get a lot of learnings. What I would say is a lot of those learnings were really, really helpful through that pilot stage of last year. Once we got going, I think the teams have really, really stepped up. Don't forget it's still a relatively small part of the overall clinic network that has been converted, so it's not that it's a mass disruption to the 2,600 clinic network.
It is obviously an impact to the couple of hundred that we have done so far. What we have seen is, as we are gathering momentum, the speed and training and the staff are just getting it, and that's why I think you're seeing the acceleration and the progress of the 10%, which is wonderful. I'd say we were clear that we wanted to track this patient cohort that was on HDF and you saw Charles put out the Beacon US press release last week, which we're thrilled with.
I think it's too early at this stage to give real mortality or mistreatment data on that cohort. But what we are able to see, and I referenced it earlier, is that the clinical benefits are tracking in line with the CONVINCE study, and the fact that we've got the patients reaching the high volume relatively quickly, we know that that mortality benefit will ramp up over the coming years as well. So we're thrilled with what we're seeing so far as well as, obviously, not just the performance, but the patient feedback, the physician feedback and the patients reaching out to learn more and want to be referred to an HDF clinic.
As you rightly said, the external sales are minimal this year because of the allocation plan to our clinics. So obviously we're making our machines available as we have excess capacity to other providers, but that is something that is in pilot with some of those right now and obviously that's up to them on what they choose to do with purchasing the machines. Obviously, if that excess capacity that we've allocated doesn't get taken up in the short term, that would mean we would allocate more to our clinics and go faster.
So I think we're in good shape for where we are six months, or two quarters, into—I guess we're eight months but two quarters in at least—to the launch and things are going incredibly well. And I think this speed of the uptake on reaching the high volume levels is incredibly exciting and we're seeing that show up in the patient response.
Anna, Analyst at Bank of America
Great, thank you very much.
Valentyna, Operator
Of course, thank you. The next question comes from Graham from UBS. Graham, the floor is yours.
Graham, Analyst at UBS
Morning. Thanks for taking my questions. Just one quick one for Martin and then a slightly longer one for Helen. Martin, just under TDAPA, I've had a few people ask this: specific total contribution for Q2—Is it fair to think of that as about 120 million of EBIT in Q2 was from the full TDAPA, so catheters and phosphates? And then, Helen, just secondly on the guidance for this year. So the midpoint would imply something like a 12, 13% decline in EBIT in H2.
When I think of H2'26, H1'27 looks quite similar in terms of the TDAPA driver. In terms of the comparator there, that feels like not an unsensible way of thinking about H1'27. And there's still a degree of headwind in H2'27. Is it still reasonable to think of EBIT growth in 2027? I know you don't want to comment too much on it, but it seems like those headwinds are quite big.
Helen Gieser, CEO and Chair of the Management Board
Martin, do you want to take the TDAPA one?
Martin Fischer, Chief Financial Officer and Member of the Management Board
Yeah, Graham. So what we did disclose is that this quarter in 2026 we had a year-over-year improvement of 80 million. We also disclosed in quarter two, 2025 that we had against the prior year period before an improvement year-over-year of the lower end of a mid double-digit impact. So when you take these two together, you are roughly where you said you would be. And that constitutes kind of a two-times year-over-year improvement that we see. We think of it in a yearly slice normally, not as a total contribution.
Does that make sense?
Graham, Analyst at UBS
That's super clear. That's super clear. Thank you.
Helen Gieser, CEO and Chair of the Management Board
Good. Yeah, and then Graham, on your second question, obviously I don't want to get into the 2027 guidance but I recognize everyone is already trying to put those building blocks together. Maybe what I would refer you to is the 2025 to 2028 CAGR aspiration that we put out there. Obviously on 2026 we are confirming our guidance. We always said that there would be this shift between half one and half two. That has completely developed in line with our expectations, which is why we are confirming.
And then of course we've put out a 2025 to 2028 3 percent growth CAGR aspiration and that is obviously still there. That used 2025 as a base that had the roughly 300 million of TDAPA benefits in there. So yeah, that's how we're thinking about it. And don't forget on that 3 to 7% CAGR assumption we had also said there was underlying low-teens growth. So obviously we are expecting the businesses to continue to contribute on their margin expansion here.
Graham, Analyst at UBS
Okay, thank you very much.
Valentyna, Operator
Thank you. The next question comes from James, from Jefferies. James, the floor is yours.
James, Analyst at Jefferies
Hi, thanks very much for taking my questions. Two if I can, please. Firstly, you've completed 100 clinic closures this year. So I was wondering, if volumes stay at around the 2Q level into next year, would you need to consider other clinic closure programs to manage your fixed costs, or how should we think about decisions to manage your clinic capacity? And then the second question is: This quarter you've renamed the operating cash flow line "changes in other working capital and non-cash items" to "changes in other assets and liabilities and other non-cash items." So I was wondering, why change the wording now?
And was this purely presentational, or does it better reflect the fact that a broader set of operating assets and liabilities now contribute to operating cash flow than historically? It does seem as if cash flow improvements from this line in the first half were greater than the whole of the group, so it'd be helpful to have some color on what's driven it if it's outside core operations, which otherwise would have decreased. Thank you.
Helen Gieser, CEO and Chair of the Management Board
James, the clinic closure question sounds a lot easier than the second one, so I'll take the first one. Martin can clearly—give him a moment to look that up while I'm answering the clinic closures. Look, this is the second round of clinic closures that we've done over the last couple of years. As we know, the deeper you go into that program on where they are operationally, the tougher they get in terms of the ROI on them. We feel really good about what we've done to date and this hundred.
We feel that we're well placed with our outlook on what we expect to get on volume and obviously the benefits from HDF as they kick in. I've always said while we're not planning for this not to come back to growth, I've always said costs are not fixed indefinitely and we would adjust capacity and overhead accordingly. And I think we've been very diligent in how we've done that and appropriate with the outlook that we've got. So our expectation is still this underlying return to growth.
Clearly it's now taking a little longer, but we're constantly looking at that overhead structure in line with that and would adjust if needed in the future.
James, Analyst at Jefferies
Okay, so would it be fair to say if it was more like, say, minus one and a half or something, that would probably sort of trigger that sort of discussion? I guess I'm trying to understand the capacity that you have in terms of this manage and how much excess there is for you to do that. So how much headroom do you have at the current run rate? Maybe that's a better way of asking the question.
Helen Gieser, CEO and Chair of the Management Board
Yeah, I feel that we are right-sized for what we expect to see through this medium-term period.
James, Analyst at Jefferies
Thank you.
Martin Fischer, Chief Financial Officer and Member of the Management Board
Okay, so James, quick one from my side. There's no change in content, so to say, in the line. There's also no accounting changes that impact the line. It is only a better representation of the naming of the line.
James, Analyst at Jefferies
Thank you. So that sounds sort of understood, but in terms of what's driven that then—just given the swing is more than the cash flow generated by the overall group—are you able to give us a sense what's gone into that cash flow improvement?
Martin Fischer, Chief Financial Officer and Member of the Management Board
So overall our cash flow improvement was driven by the working capital development that we had. As Emma pointed out, we did improve based on the collection side as well as on the receivable side—we had strong cash velocity. And we also improved further, as we also lined out already in quarter one, on the payable side. So those were the main drivers.
James, Analyst at Jefferies
Yes, thank you. I think it's just because the wording now doesn't include working capital in that particular line—that's what I'm trying to understand. I'm happy to follow up offline if that's easier, but given the magnitude, it would be helpful to understand.
Martin Fischer, Chief Financial Officer and Member of the Management Board
So no content change, and the main drivers are the payables.
James, Analyst at Jefferies
Good, thank you.
Valentyna, Operator
Okay, thank you. The next call comes from Falco, from Deutsche Bank. Falco, the floor is yours.
Falco, Analyst at Deutsche Bank
Thank you. Good morning. My first question is on the Care Enablement business in China. Thanks for pointing out the headwind in Q2. I was wondering when you expect this situation to stabilize. And secondly, on the ACA topic, do you happen to have any early view on how we should think about this for 2027 and how much of an additional headwind it could potentially be next year on top of the 50 million this year? Thank you.
Helen Gieser, CEO and Chair of the Management Board
Yeah. Hi, Falco. Martin, why don't you take the China question. I'll come back on the ACA topic.
Martin Fischer, Chief Financial Officer and Member of the Management Board
Okay. All right. Sorry for that, there was a bit of a gap. So in China we did see first-half expectations to be as we thought. We had 20 million headwind in quarter two; we had in quarter one half of the expected less than 50 million. So for the second half we see that to be normalized and we expect for the full year also this to remain below the 50 million. I would say through the first half we are through most of it, and with that the 50 million assumption for the full year is still intact.
Helen Gieser, CEO and Chair of the Management Board
Yeah. And then, Falco, on your ACA question, clearly I'm not going to size what that is for 2027 because we don't really know. What we do know is the 50 million that developed unfavorably this year was in line with expectations. But as I also mentioned in my answer to my previous question on the same topic, we also are seeing shifts in contracts and where patients are going. So I think ultimately what this will all wash up in is our business growth number, and that will now be in the base.
But there are moving pieces here—so not all negative because of the positive moves in coverage with different insurers. So it's just going to be impossible to track separately moving forward. When we give a business growth number for 2027, once we roll up these entire books of business and how it all settles out, we'll be able to pop it in there. It's impossible to track where these patients ultimately will end up in 2027 between the different plans.
But we'll do the bottom-up book-of-business build that goes into that business growth number.
Falco, Analyst at Deutsche Bank
Okay, thank you.
Valentyna, Operator
Okay, super.
Dominic, Investor Relations
Thank you. So those were all questions we received. So there's no one waiting to ask a question. With that, I'll thank Helen and Martin for answering the questions and for all the interesting questions. And with that, we'll close the call and wish everyone a great summer.
Helen Gieser, CEO and Chair of the Management Board
Yeah. Thanks everybody. Appreciate the flexibility today on the earlier timing as well. Have a good summer and we'll see many of you on the road soon.
Martin Fischer, Chief Financial Officer and Member of the Management Board
Thank you.
Valentyna, Operator
Thank you.
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