SAP SE ADS

Welcome to the SAP Third Quarter 2020 Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stefan Gruber, Head of Investor Relations. Please go ahead.

Thank you. Good morning or good afternoon. This is Stefan Gruber. Thank you for joining us for our extended earnings call today to discuss our strategy update, as well as our third quarter results and the updated guidance. I'm joined by our CEO, Christian Klein, and our CFO, Luca Mucic, who will make opening remarks on the call today. And also joining us for Q&A is Executive Board Member Adair Fox-Martin, who leads our Customer Success Organization. And as usual, before we get started, I'd like to say a couple of words about forward-looking statements and our use of non-IFRS financial measures. Any statements made during this call that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should, outlook and will and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in our filings with the U.S. Securities and Exchange Commission, the SEC, including SAP's annual report on Form 20F for 2019 filed with the SEC on February 27th this year. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. In addition, on the Investor Relations website, you can find a slide deck intended to supplement today's call available for download. The address is www.sap.com slash investor. For those of you following the webcast, the slides will be shown as we proceed through the PPI remarks. Unless otherwise noted, all financial numbers referred to on this conference call are non-IFRS, and growth rates and percentage points are non-IFRS at constant currencies year over year. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with IFRS. And this extended earnings score today is being held in lieu of the capital markets day we discussed last quarter. With that, I'd like to turn things over to our CEO, Christian Klein. Thank you, Stefan.

Welcome and thanks for joining. I hope everyone is well and staying safe as COVID infection rates are unfortunately increasing again in most countries. Today's announcements mark an important milestone for SAP. We have not only published our Q3 results and updated our 2020 outlook, but more importantly, we are providing additional insight into how we are evolving our strategy. Our updated strategy is a response to the fundamental changes in the market brought on by the COVID-19 pandemic. COVID-19 is an inflection point for our customers. Many enterprises have real issues to produce, sell and deliver their products in times of country lockdowns and people working from home. For most of our 400,000 customers, resiliency is achieved not just by accelerating the move to the cloud, but more importantly, by driving a fundamental change in how their business operates end-to-end. It means transforming every process for the digital world from their customer-facing go-to-market function all the way to supply chain management. SAP is uniquely positioned to partner with our customers to make this transformation happen combined with a move to the cloud, which is why we are determined to reinvent how businesses run by co-innovating with our customers and partners across the broadest cloud solution portfolio in the market. Responding decisively to the requirements of our customers in a fast-changing world results in our new financial midterm ambition. But before going there, let's take first a quick look at Q3 and the updated 2020 outlook. In Q3, our resilient business model allowed us to continue to grow strongly in the cloud and again growing operating profit and margins. Apart from the intelligence band business, our SaaS and PaaS cloud revenues were up by 26%. We continue to see a very rapid growth in categories such as commerce, S4, supply chain, Qualtrics and our foundation, the business technology platform. Current cloud backlog is up significantly by 16% to 6.6 billion euro. At the same time, the lack of recovery from COVID-19 is visible in a lower than expected transactional cloud revenue because of our travel and expense solution Concur, which is hard to sell in times of COVID. Our software license performance is on a similar level compared to our great Q2 results. On the bottom line, the benefits of our best one transformation project have continued to show tremendous progress. As stated, we yet again expanded significantly our operating margin and free cash flow. In addition, 28,000 customer goal lives over the last nine months demonstrate our ability to deliver remotely in a challenging environment. Q3 also saw many notable customer wins, including some competitive replacements. Deals included Lenovo for S4HANA, Gabobank for S4HANA Cloud, Swisscom and Barilla for Customer Experience, HPE and Unibar for the Business Technology Platform, LG for Ariba, Walgreens Boots Alliance for Supply Chain Management, Lululemon for Qualtrics, Schwarz Group for Industry Club, and Bavarian Airport for SuccessFactors. For SuccessFactors actually, more than 4,000 customers and around 45% of the Fortune 500 are already running on our core solution, Employee Central. This quarter, we added more than 500 S4HANA customers, around 45% were net new. Take us to a total of more than 15,100 customers, 20% up over last year. In Q3, we also added a new deployment option for our private cloud service, HANA Enterprise Cloud. So far, we have offered deployment in SAP or hyperscaleless data centers. There is also demand by customers to run these services in their own data center, managed by SAP. This is why we have now launched the HANA Enterprise Cloud Customer Edition. And we are very excited that in this quarter Lenovo has decided to become a global partner for the Customer Edition with their TrueScale offering. This supplements the global GreenLake partnership with VMware and HPE. Finally, Interpoint just issued the 2020 Best Global Trends Report. and I'm very proud that SAP came in as number 18 globally, up two spots versus last year and growing its brand value by 12% to more than 28 billion US dollar. Luca will now provide additional insights into Q3 and our updated 2020 outlook.