SAP SE ADS

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the SAP Q3 2024 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 star followed by one on your touchtone telephone. I would now like to turn the conference over to Alexandra Steiger, Global Head of Investor Relations. Please go ahead.

Good evening, everyone, and welcome. Thank you for joining us. With me today are CEO Christian Klein and CFO Dominic Assam. On this call, we will discuss SAP's third quarter 24 results. You can find the deck supplementing this call as well as our quarterly statement on our Investor Relations website. During this call, we will 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 differ materially. Additional information regarding these risk and uncertainties may be found in our filings with the SEC, including but not limited to the risk factor section of our annual report on Form 20F for 2023. Unless otherwise stated, all numbers on this call are non-IFRS and growth rates and percentage point changes are non-IFRS, year-on-year at constant currencies. 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. Christian, now over to you.

Thank you, Alexandra, and hello to everyone on the line. Welcome to today's earnings call. As we are already getting closer to the end of the year, I'm happy to say we are well ahead of our plans for 2024 and fully on track for our 2025 financial goals. Clearly, U3 was another successful step on SAP's transformation journey. Let me quickly explain you why. Again, total and cloud revenue growth accelerated also by winning many net new customers. Operating profit developed better than expected because many underlying measures of our transformation program start to unfold. And at the same time, we continue to deliver innovation, focusing on business AI. Our AI strategy plays a key role across our cloud ERP suite. Roughly about 30% of our cloud order entry in Q3 were deals that included AI use cases. Finally, we successfully completed the tuck-in acquisition of WalkMe, which is a perfect fit for our business transformation portfolio. Let me now talk you through the key metrics for Q3. Current cloud backlog increased 29% and reached 15.4 billion euros. The increase was almost entirely organic, with WorkMe adding only a slight bit on top. Total revenue growth was once again in double-digit territory, with best-in-class renewal rates for cloud and our support business. Cloud revenue growth accelerated to 27% and came in at 4.4 billion euros. And even more important, our cloud ERP suite was again the main driver of the top line growth with accelerated growth of 36% to 3.6 billion euros. Operating profit increased 28% and reached 2.2 billion euros with an excellent operating margin of 26.5%. The share of more predictable revenue is now at 84%. I guess it's fair to say that all the hard work to drive SAP's cloud transformation over the last four years has led to a highly resilient as well as innovative company and offers us a strong foundation for many successful years to come. Behind the impressive results, there are so many exciting customer stories. It's impossible to mention all the McKee wins. But let's have a look, for example, at the retail industry. In Q3, we signed a wise deal with Schwarz Group. Schwarz is the parent company of the well-known supermarket chains Lidl and Kaufland, operating about 14,000 stores with almost 600,000 employees. I was closely involved in the conversation for this partnership. It was all about WISE as a key enabler to redesign the end-to-end core processes of Schwarz to leverage in the cloud the latest innovations around business AI and to achieve their long-term growth and sustainability growth, for example, with the Green Ledger. In addition, Schwarz Group and SAP will jointly offer Wise on Stackit, Schwarz Group's digital cloud infrastructure, which offers a high degree of digital sovereignty. Wise with SAP is protected by XM Cyber, the Schwarz Group's provider of cloud security solutions. Speaking of world-class retailers. Sainsbury's, one of the UK's largest supermarket chains, decided to become part of the SAP family and selected WISE in Q3. And so did MercadoLibre, an e-commerce leader operating in 18 Latin American countries. With WISE, we will help MercadoLibre to strengthen decision making through real-time data, front office, back office, supply chain, amongst other things. They are also a Business AI customer and have major expansion plans in these areas. Also in Q3, Mondelez closed a wise deal to expand their North America business over to Latin America and to EMEA. It's just great to see, quarter by quarter, more and more of the world's hottest companies are joining the rise movement. So let's now look at tech. In Q3, one of Europe's most exciting tech startups opted for Grow with SAP, our cloud journey offering for net new customers. Mistwell AI is creating some of the world's best large language models. They are growing rapidly and see the need for a complete ERP solution to scale their business on a global level. We also have a technology partnership with Mistwell. Their large language models are available on the GenAI Hub. And we are running Large2, one of Mistwell's latest modules on SAP infrastructure. Our partners and customers now have access to an excellent LLM alternative hosted on European territory. Staying with tech, NVIDIA went live on Rise in Q3. And that was a rapid implementation that took only six months, thanks to our close collaboration. Also in Q3, the software company Gainsight, a specialist in customer success solutions, signed a grow with SAP deal. It's just great to see, quarter by quarter, more and more of the world's hottest tech companies are choosing SAP. They consider our cloud solutions a solid foundation for exponential growth and value creation. They see us as an innovative leader in ERP, business AI, supply chain solutions, and more. To say it in short, they trust us to bring out the best in their business. And that's something we are very proud of. To close it out, there are many other great wins in Q3. For example, Dawn Foods, DXC Technology, and Sol de Janeiro, a subsidiary of L'Occitane Group and PriceGrow. And for wise, we also won Mondelez, Roche, E.ON, Equinor, and Tetra Pak. The who is who in their industries. As you can see, SAP is already very successful at reaching and winning customers. But we can do even better. So how will our future go-to-market model look like? Let me start by saying thank you to Julia White and Scott Russell for their great contributions to our marketing and sales achievements over the past years. Together, we shape the growth company well-positioned to tap into the many opportunities ahead. Going forward, and in the context of our ongoing restructuring, we will center our go-to-market setup even more strongly around our land and expense strategy, with a strong focus on adoption and consumption. First, we are making our operating model clearer and more streamlined, reducing the number of the different job profiles with the goal to improve productivity and our sales ratio. Second, we will empower our partner ecosystem to go big in the mid-market. By that, we are expanding this highly profitable sales channel and pushing our future growth. Third, to get even more steam behind our land and expand strategy, we are overhauling our commercials, including how we package our solutions. This will go hand in hand with revised incentive structures for our colleagues in sales. Let me tell you, Q3 was not only a successful quarter in terms of customers and growth, but also in terms of innovation. This was very evident at TechEd, our technology and developer conference. Let me share some highlights with you, starting with Juul. Our digital co-pilot just celebrated its first birthday, and we announced a major, major upgrade. We are supercharging Juul with collaborative AI agents. Most AI agents are fit to perform only one type of task in sales and HR. supply chain. But however, many key processes cut across departments. Financial predictions, for instance, involve data from sales, supply chain management, HR, and other functions. Shool will soon be able to orchestrate several AI agents to carry out such complex processes end to end. That's possible because SAP speaks the language of all corporate functions. We are not trapped in one silo. So while many in the software industry talk about AI agents these days, I can assure you, Joule will be the champion of them all. So far, we have added over 500 skills to Juul and we are well on track to cover 80% of the most frequent business and analytical transactions by the end of this year. And in Q3 alone, several hundred customers licensed Juul. Our progress was also accelerating with regard to the other elements of our AI architecture. Well ahead of time, we reached the goal to embed over 100 AI use cases across our solutions. And the GenAI hub. Consumption by our partners more than tripled from Q2 to Q3. And even better, the consumption by our customers more than quadrupled. Finally, there was one more thing at TechEd with regard to business AI, something we worked on since a few years. We announced the SAP Knowledge Graph. The Knowledge Graph captures decades of business process knowledge and allows GenAI to deeply understand SAP systems with regard to structured data, the tables, the connections. That in turn enables GenAI to provide much more relevant, reliable and context sensitive answers. It will allow Joule, for example, to carry out the complex tasks I just mentioned. The knowledge graph will and is a real game changer in our industry, and we are the first to accomplish it at this scale. We have had a bit of an unfair advantage, of course. We can rely on decades of domain know-how and the wealth of data in SAP's system. So in summary, Q3 was another strong quarter for SAP. Very new growth accelerated, and our profitability continued to develop very positively. Against this background, we are confidently raising our outlook for 2024. we are now expecting an operating profit of 7.8 to 8 billion euros and we are also happy to confirm that we are too on track towards our revised 2025 financial ambitions with continuous double-digit total revenue and operating profit growth in the years to come and with that over to you dominic thank you christian and thank you all for joining us this evening