SAP SE ADS

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 first quarter 2025 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 outcome 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 2024. 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. Before we begin, I'd like to call your attention to our upcoming financial analyst conference, which will take place on May 21st as part of our Sapphire event in Orlando, Florida. If you're interested in joining us in person, please reach out to our investor relations team for more information. For those who can't attend on site, a live stream will be provided on our website. And with that, over to you, Christian.

Thanks, Alexandra, and a warm welcome to everyone on the line. Q1 was a very fast-paced start to the year. Given the macroeconomic environment, I'm very happy to say that SAP did really well in the quarter. Thanks to our transformation, SAP entered the current phase of the world economy with greater resilience than ever. Our current cloud backlog expanded 29% to 18.2 billion euros in Q1. Our quarterly cloud revenue is now close to the 5 billion mark, showing a 26% increase. Overall, the share of more predictable revenue is now at 86%. Our very large cloud backlog and high recurring revenue share will be the foundation for double-digit total revenue growth in 2025 and for many years to come. Operating profit was up 58% in Q1, and our stellar cloud cross-margin improved by 2.6 percentage points to 75%. Thanks to the diligent execution of SAP's transformation, also our operating profit will quote double-digit in 2025 and the years to come. Just last week, IDC and Gartner released new reports underlining our market momentum. IDC's update on software market share for the full year 2024 confirms SAP as the worldwide number one enterprise application software vendor. And in cloud, according to IDC, SAP experienced the strongest year-over-year growth among the top 10 enterprise application SaaS companies. As for Gartner... In their WW enterprise software report, SAP is the number one by revenue in 2024 for overall ERP. Of course, No one can really predict how the global economy will develop throughout 2025. Without any doubt, uncertainty in the market remains high. However, several factors make us confident that SAP remains on track towards our 2025 outlook ranges. First, I just mentioned SAP's highly resilient business and financial module and our excellent market position. Second, our pipeline for the year continues to look very solid. Third, no other tech company can offer a solution portfolio which is more relevant in times of new regulations, tariffs, and business uncertainty. Our globalization team localizes SAP's portfolio, including solutions like global trade services management. That enables our customers to manage every single global transaction in real time and fully compliant in over 130 countries. To steer their companies through uncertain times, our customers can run real-time financial simulations based on internal and external data with SAP Business Data Cloud. to adapt a company's business plan to new market realities, SAP's Analytics Cloud and IPP, integrate in real-time sales, supply chain, HR, spend, and financial planning with each other to make cross-company decisions fast and in harmony. And finally, across our portfolio, Embedded AI and Juul are boosting the productivity of a company to offset financial pressure. Net-net, this means SAP's portfolio is highly relevant. We can't change external uncertainty, but we can help our customers like no other company to manage those challenges, compliant with high agility and empowered by AI. Now, let me share a quick summary of the quarter. The figures underline once more that SAP's growth formula is solid. We have done our homework and we benefit from that. Current cloud backlog kept growing with a very high pace in Q1. Cloud revenue continued to grow strongly even as the base has expanded. Total revenue growth moved further into double-digit territory. Operating profit, operating margin, and cloud cross-margin performance have and will heavily benefit from our transformation program. And again, about half of our cloud order entry were deals that included AI use cases. The deals in Q1 offer a compelling insight into how customers are navigating the current business environment. Let me start with an impressive series of major deals in the automotive sector. As you know, the car industry is undergoing an extensive transformation. New business models and competitors are emerging. Cost pressure is increasing. Sustainability continues to be a challenge. And there is the need to adapt to a changing global trade system, including tariffs. How does the industry deal with these challenges? As our customer wins indicate, auto companies rely on SAP's industry best practices, solutions, and tools to transform their value chains by embracing the cloud and AI. In Q4, as you remember, Robert Bosch and Scheffler signed up for their wise journeys, and Mahle went live. Now in Q1, others from the who's who in the industry joined the ranks. Hyundai, Kia, and Mazda, as well as the automotive supplier Webasto. Customers in other sectors rely as well on SAP's business transformation offering-wise. In Q1, Ugo Boss, Tyson Foods, and the chemical group ScienceCo and Japan Railway. And in the public sector, the German Federal Employment Agency, Bundesagentur für Arbeit, as well as the police force in the state of Baden-Württemberg, decided to put their trust in SAP's solutions and server-and-cloud technology. For all customers on their wise journeys, we have been accelerating time to value while reducing the implementation costs of SAP projects with excellent AI tools such as Joule for Developer, Joule for Consultants, and business transformation tools like Signavio, Linux, and Walkme. As for Grow with SAP, two-thirds of our deals in Q1 were net new customers, which underlines the attractiveness of our offering for fast-growing companies in the mid-market. One example is Gymshark, a fitness brand who selected us over a competitor. What convinced them to choose SAP was the scalability and broad functionality of our suite offering, as well as our industry-specific solutions for retail. Other examples include the sustainable steel company Stekra, as well as VFS, a global provider of visa application services, selecting our end-to-end business suite applications. Finally, some Q1 customer examples from our lines of businesses. In supply chain management, we won Kion Group, a global leader in supply chain and logistics solutions. In human capital management, we won the travel company Booking. And Axpo Services, the largest electricity provider in Switzerland, went live on success factors. In business networks, we won the media company Times Group India and the mining firm Amman Mineral. And the chocolate company Alfred Ritter, home to the famous brand Ritter Sport, celebrated a go-live in our network. Last but not least, BASF Coatings went live in Q1 on our sustainability portfolio. All these customer stories show how we are winning with our modular business suite and our transformation offerings rise and grow with SAP, capturing every customer size and industry. Let me now summarize what happened in Q1 in terms of product innovation, commercials, and simplification. First, let me start with product innovation. In February, we presented one of SAP's most exciting innovations ever and the greatest opportunity since WISE, SAP Business Data Cloud. Business Data Cloud is the new center of gravity for business data. It unifies and governs all data, SAP and non-SAP, structured and unstructured. It builds a strong semantical layer with the context, connections, and meaning of data. And thanks to our new partnership with Databricks, Business Data Cloud will become the number one offering in the data analytics market. Thanks to the Business Data Cloud's strong value proposition, the pipeline for the coming quarters is building up very nicely. In Q1 alone, we closed 20 deals, including Kion Group, Willeroy & Boch, the pharma company Fering, and the metals manufacturer Tipnor. Business Data Cloud is not only groundbreaking in how it brings together data. It is also a pillar for high-performing end-to-end AI agents. Why? Because it takes three things to build truly powerful AI agents. First, access to a harmonized data layer with strong semantics. That's SAP's Business Data Cloud. Second, a smart AI stack drawing on the best Gen AI modules and technologies. That is SAP Business AI. Third, fully integrated applications so agents can cover business processes end-to-end. That is our SAP Business Suite. SAP is the only company to have all three of these pillars in place. And that puts us in a unique and very strong position to win in the agentic AI space. When we work with customers, AI adoption is more than a one-time event. It's a journey. Take, for example, Standard Chartered Bank. They went live with the first AI use cases in SuccessFactors. They then released Juul to over 80,000 employees and are leveraging the GenAI hub. With all our AI customers, we systematically drive adoption from the first implementations of use cases all the way through to a GenDig AI. At Sapphire, we will make exciting announcements about our AI capabilities. Continuing now on the topic of innovation, we are also evolving our commercials. We are updating our rights offering with enhanced packages. They now include the solutions for business transformation management, solutions well integrated into our business suite portfolio to accelerate time to value and cut SEP project costs. And with the flexible cloud addendum, we make it easier for customers to switch from private to public cloud within their existing contracts. Besides innovation, we continue to focus on our own productivity in these turbulent times. And we are transforming the company along the way. We are fully on track to deliver the internal AI efficiencies for this year. Let me share some examples with you. Our consultants save up to 90 minutes per day with Juul for consultants. Juul helps them, for instance, to find and use best practices, analyze unfamiliar code, and prevent suboptimal design and implementation errors. And with AI tools such as Joule for Developers, our coders are 30% more productive, accelerating our innovation pace. Finally, in addition to the internal use of AI, we are rolling out a standardized and automated cloud contract starting this quarter, reducing the time from the quote to provisioning a system to under 24 hours. All in all, our productivity gains help us to decouple top-line growth and costs. They also give us flexibility to hire less than originally planned. And when we hire, we can focus on growth areas with targeted job profiles, for example, in AI. Now, let me conclude. We delivered a strong Q1. Customers seek our advice and solutions in uncertain times. And we have laid a very strong foundation for a resilient company. And we will continue to do so through product innovation, simplification, and an even better go-to-market setup. It is difficult to make projections for the entire year, but all the aspects I just mentioned make us confident for the longer term. We are in the right place. We are doing the right things, and this will pay off. At SAFIRE in May, we will go deeper into these areas and look at the next chapters of SAP's growth story. I would be delighted to see you all there. And with that, over to you, Dominic.

Thank you very much, Christian, and thank you all for joining us this evening. We kick off 2025 on a high note, driven by the continued acceleration of total revenue and the whopping increase in operating profit in the first quarter. Our current cloud backlog remains healthy despite the volatile and challenging macro environment. This performance reflects the strength of our strategy, the momentum of the Cloud ERP Suite, and the impact of our strict cost discipline, which renders our profitability and free cash flow more resilient. With the 2024 transformation program now concluded, we are well positioned to execute on our priorities this year, including focused investments as we expand our suite-first, AI-first approach throughout our portfolio. Across industries and organizations of all sizes, from the world's largest enterprises to growing businesses looking to scale quickly, we continue to see high customer engagement as companies turn to us for end-to-end business transformation. Now let me provide more details around our financial highlights. current cloud backlog reached 18.2 billion euros, up 29%. Cloud revenue grew by 26% year on year, supported by the strong performance of the Cloud ERP Suite, which maintained its high growth momentum with a 33% increase in Q1. It accounted for 85% of total cloud revenue in the first quarter, underlying its strengthening position as a key contributor to our growth. As cloud bookings were again very back and loaded in the fourth quarter of last year, some cloud contracts which entered current cloud backlog as of year end 2024 were provisioned only later during the first quarter, so they will only be visible in cloud revenues for a full quarter in Q2. And the deterioration in macroeconomic conditions continue to weigh on transactional cloud revenues. Software licenses turned out to be surprisingly resilient and decreased by only 10%. But given that Q1 tends to be a small quarter for software licenses, I would caution you not to extrapolate too much from that. Finally, total revenue came in at 9 billion euros, up 11%. So now let's take a brief look at our regional performance. In the first quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA, and robust in the Americas region. Brazil, Chile, Germany, India, Italy, South Korea, and Spain had outstanding performances, while Canada, China, France, Japan, Singapore, and the US were particularly strong. Now moving down to the income statement, Our non-IFRS cloud gross margin for the quarter continued its upward trend and expand by 2.6 percentage points to 75%, driving cloud gross profit up by 30%. IFRS operating profit increased to 2.3 billion euros in the quarter, positively impacted by a restructuring expense decline of 2.2 billion euros in the context of the 2024 transformation program. In the first quarter, non-IFRS operating profit was up 58% to 2.5 billion euros, way above the 26% to 30% growth rate we have guided for the full fiscal year 2025. A highly welcome head start to de-risk our bottom-line guidance in times of environment which, I trust you will all agree, has become much more risky. Both IFRS and non-IFRS operating profit growth benefited from the operational efficiencies realized through successful execution of the 2024 transformation program. The IFRS effective tax rate in Q1 was 27.2% and the non-IFRS tax rate was 29.4%. Operating cash flow in the first quarter was up by 31% to €3.8 billion and free cash flow increased by 36% to €3.6 billion. The increase was mainly attributable to the higher operating profit. Finally, basic IFRS earnings per share increased to €1.52 and non-IFRS earnings per share increased to €1.44. So moving on to the outlook. As you've likely seen in the quarterly statement published a little bit earlier today, we decided to leave our 2025 outlook across all metrics unchanged. While our pipeline remains healthy, conversion rates could be negatively affected by a further deceleration of current trade disputes. Needless to say that a rapid unwinding of decades of productivity gains driven by the benefits of globalization in the context of an escalating trade war would likely result in a severe global recession. I want to stress that our outlook is not based on such an adverse scenario, but rather assumes conversion rates consistent with prior quarters and years. In light of the risk of escalation, we remain fully focused on discipline execution and safeguarding both our bottom line and free cash flow by prudent cost management and other elements within our control.

In summary,

One reflects a strong start to the year, highlighted by continued total revenue acceleration and standout profitability. The momentum we continue to see in the