SAP SE ADS

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q1 2023 earnings conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press hash followed by one on your touchtone telephone. I would now like to turn over the conference to Anthony Colletta, Chief Investor Relations Officer. Please go ahead.

Good afternoon, everyone, and welcome. Thank you for joining us. With me today are CEO Christian Klein, CFO Dominique Azam, and Scott Russell, Head of Customer Success. On this call, we will discuss SAP's results for the first quarter of 2023. You can find the deck supplementing this call as well as our quarterly statement on our investor relations website. During this call, we'll make forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risk and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding this risk and uncertainties may be found in our filings with the Securities and Exchange Commission, including but not limited to the risk factor section of SAP's annual report on Form 20F for 2022. Unless otherwise stated, all numbers on this call are non-HRFs and growth rates and percentage point changes are non-HRFs year on year at constant currencies. 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. Before we start, I would like to welcome Dominique, who joined SAP as our new CFO in March. It is great to have you on board, Dominique. I know the financial community is very much looking forward to speaking with you. I would also like to call your attention to our upcoming financial analyst conference, which will take place on May 16th as part of our Sapphire event in Orlando, Florida. This will be podcast on our website. And with that, I'd like to turn the call over to Christian.

Thank you, Anthony. And thanks to all of you for joining our first earnings call of 2023. This has been a very good Q1. We continue to see strong demand across our portfolio with customers choosing our solutions to solve their most strategic and pressing needs. The strong momentum is reflected in our top line numbers. Current cloud backlog stands at over 11 billion euros, up 25% this quarter. Cloud revenue grew 22%, up from 21% last quarter. For S4HANA specifically, cloud revenue grew 75% and current cloud backlog grew 79%. This strong performance has led to total Q1 revenue growth of 9%. And importantly, in Q1, we delivered double-digit operating profit growth, demonstrating the significance of Q4 2022 as a tipping point of our transformation. We have now entered a new phase. Our innovative portfolio is at the heart of our continued growth. In 2023, we are continuing to execute on our focused growth strategy with S4HANA and BDP at the core. Our announcement in March that we came to an agreement to sell our stake in Qualtrics is an example of this focus on our portfolio. We believe that these transactions will unlock significant value for both companies and their shareholders. For SAP to focus more on our core cloud growth and profitability. For Qualtrics to expand its leadership in the XM category that it pioneered. This quarter, we also introduced powerful new offerings and innovations to help our customers generate significant new sources of value from their IT investments. I'd like to cover three examples. Grow with SAP, the launch of SAP Data Sphere, and the work we are doing to embed AI across our portfolio. Let's start with our new offering, Grow with SAP. We see significant growth potential with mid-market customers new to SAP. These are the companies that we expect to experience significant growth as they build their businesses. This new offering, Quo with SAP, provides them with a native ERP solution that can quo and scale with them with agility and speed. It includes our leading cloud-native ERP solution, S4HANA Cloud. Through rapid adoption services and our modular stack, mid-market customers can go live and see rapid results within weeks at a fixed price. Grow with SAP also includes SAP Business Technology Platform so customers can design and automate business processes in a cloud-native way using SAP Build and create industry or LOB-specific enterprise apps without writing code. The second game changing offering I'd like to discuss is the launch of SAP Data Sphere. SAP Data Sphere collects and federates business data across a customer's entire landscape, no matter where the data resides, including data from SAP and non-SAP sources. Importantly, This is not only a technical integration. DataSphere enables the business data fabric, a powerful semantically rich layer that builds the foundation for managing and steering the business end to end, as well as applying AI based on high quality contextualized business data. Our engineering teams are working closely together with four new strategic open data partners, Colipro, Confluent, Databricks, and DataRobot, to integrate with SAP's data sphere and deliver a superior data and AI layer for our customers. DataSphere is a great example of the power of our ecosystem centric strategy. As another example, today we announced our partnership with UiPath to offer the UiPath automation platform to customers, which builds upon the strong momentum of SAP build process automation. UiPath is also committed to their continued adoption of S4HANA Cloud to run their own business operations. Finally, let me touch on our efforts to embed AI across our portfolio. Our AI is built for business, with AI capabilities built in to deliver strong business outcomes for our customers' most critical business functions. And with DataSphere, we lay the strongest data foundation in business. We are in advanced stages to apply generative AI across our portfolio, and we are working as an early release partner of OpenAI and together with other vendors. We are planning to announce new disruptive AI use cases. Stay tuned for Zephyr. Let's now look at how our strategy and the strengths of our portfolio and innovation is addressing the specific needs of our customers in today's challenging macroeconomic environment. SAP's strategy is geared towards a world where business transformation is foundational to their success both now and in the future. where every organization benefits from being part of a collaborative network able to effectively manage today's supply chain challenges and where everything can operate sustainably. Our offerings provide a pathway to solve many of the fundamental challenges that companies are facing today. This is behind the strong customer momentum we saw in Q1. Wise with SAP has become the preferred choice for customers transforming their businesses in the cloud. We are developing deep, broad-based partnerships around the globe. Here are some examples. In January, we announced the expansion of our long-standing partnership with BMW Group. This will help them accelerate their digital transformation and manage their end-to-end business processes in the cloud. Henkel has selected WISE with SAP to transform their digital landscape and move to the cloud. Dolce & Gabbana, the renewed luxury goods leader, recently chose WISE to drive their finance transformation. And HP, the global technology leader operating in more than 170 countries, selected WISE with SAP and expanded its investment in Q1 to support business transformation for its customers around the globe. This quarter, we also saw significant enterprise goal lives for Vice with SAP, including AMD and Air India. With S4HANA Public Cloud, we are seeing strong adoption across a broad range of enterprise mid-market and startup customers. Significant enterprise wins for S4HANA Public Cloud include NEC Networks and System Integration Corporation. and the benefits and reward services activity of the Sodexo Group, a global leader in employee benefits and engagement. We are also seeing strong adoption for S4HANA Public Cloud and Quo with SAP, with startups and companies new to SAP. Examples include the French aeronautic startup Flying Whales. In the US, Nine Dot Energy, a sustainable energy provider who got up and running in just 10 weeks. And Repetco, the European plastics recycling company. We continue to also see excellent cross-sell and upsells through our success with WISE with SAP and S4HANA Cloud. Our solution area momentum includes HCL Tech, one of the world's leading technology companies, leading their HR transformation with SAP success factors, a competitive win against Workday. Hitachi, high-tech corporation of Japan, and Prawn, the Mexican food company, choosing SAP business technology platform. A.S. Watson, the world's largest health and beauty retailer, renewing their investment in SAP Commerce Cloud. And continued momentum for our sustainability solutions, SAP Sustainability Control Tower and SAP Product Footprint Management, including the adoption of SAP Sustainability Control Tower by Soleum, the Brazilian producer of sustainable raw materials. Let me turn now to our outlook and ambitions. These customer examples show how SAP is continuing to deliver despite the continued challenges being faced across nations and industries today. This is because our vision is directly tied to solutions that fortify our customers against those challenges and lead to stronger companies. Our strategic transformation has reached a new phase where we are now a force for transformation across industries worldwide. We remain committed to our 2023 guidance, updated to reflect Qualtrics as a discontinued operation. We plan to update our 2025 ambition during our Sapphire Financial Analyst Conference on May 16th and look forward to talking with many of you there. In closing, we see significant opportunities for continued growth based on our own transformation into a leading cloud company. First, the strength of our current cloud backlog provides the foundation to grow and scale through increased upsell and cross-sell to our existing customer base. Second, we expect that our new offerings will power our growth in new markets and with those customers new to SAP, for example, with mid-market customers. We have a leaner and more agile operating structure, and our game-changing solutions are creating sustainably end-to-end business processes across industries. We are off to a good start in 2023 and remain optimistic about the unique value we offer our customers. Finally, I'm of course very happy to welcome Dominik Assam to SAP, our new CFO since March 7th. Dominik, welcome to SAP and welcome to your first earnings call. Over to you.