Q4 2019 Earnings Call
Ladies and gentlemen.
Good day and welcome to the S&P Q4, 2019 earnings Conference call.
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 Sir.
Good morning, Odell Snow. This is Stefan Gruber. Thank you for joining us to discuss our results for the fourth quarter 2019, I'm joined by all co Coos did it come all going into this junk line instead of C of O double teacher, who will make opening remarks on the call. Today also joining us for acuity is Ryan Smith, the CEO of call tricks.
Well, we get started its usually like to see if you worth about forward looking statements in our use of non is financially Madras any statements made during the school that are not just starts affects all forward looking statements as defined in the U.S. Private Securities Litigation Reform Act of 90 95.
Ladies and gentlemen, please standby.
[noise], we get started I'd like to see if you.
These statements that we use a financial measures.
Any statements made during this call, but I'm not historical checks.
These statements 55 to U.S. Private Securities Litigation Reform Act 19 nineties.
Words, such as anticipates believes estimates expects.
In terms may slide projector predicts should look and feel until expressions as they try CP are intended to identify such Philip.
FCC undertakes no obligation to publicly update.
Before we could you see.
Okay.
Thank you guys Smith.
[laughter] cause actual results could differ materially some expectations.
Factors that could affect us if you split your results discuss multiple the CP filings with the U.S. Securities Exchange Commission.
And report on form 20-F 2018.
Do you see on February 28 to 12 Nike.
Participants of this cold I cautioned not to sleep undue reliance on these forward looking statements, which speak only as of yet.
On our Investor Relations website, you can find that will quality statement steady financial summary, slide steps, which are intended to supplement our prepared remarks today any reconciliations or not that's numbers too.
Yes.
Otherwise noted all financial numbers restructuring on this conference call or no.
And growth rates and percentage points changes are not as.
As reported year over year.
Hi, fresh such measures, which provides should not be considered a soft tissue with floor or superior to the metro some financial performance in accordance with I apologize.
Okay.
Thanks over to conceal just yet.
Thank you Stephanie and thanks to everyone on the phone adds up costs actually.
First of all I hope everybody adequate start into 2020 Sep certainly adequate finish in 2019.
Overall strong finish to yet another record year once again, yes kept the promise and deliver on our waste business outcome.
Well I intend to solve speak for themselves total revenue up 12%.
Operating profit up 15% an album waiting marching pushing 70%.
Our on premise business continues to quell I look out business continues to Saul.
Well when you up 40%, we outperformed our major compared to test and continue to weapons, we gained market share.
Combining close with increased profitability harvesting day initial benefits off the best Swan quote.
Operating margin as shown by 80 basis points, and we expect to see more offset SC continue with Sep transformation to try to operational efficiency and important to drive off that success is the cloud cost much.
More than five percentage points, we have steadily increasing the efficiency of our cloud anywhere we can we continue to lever, which our hyperscale pockets is also shows in our capex down 45%, despite supporting a much bigger club business now.
Well I will discuss we saw.
Despite the many opportunities ahead.
The most across all industries turn to Sep to help them off the digital transformation and become intelligent and applies.
Got it with.
Our cost some of Thats why when complete business transformations embedding the latest technology innovations, we deliver using real time data at the tremendously powerful.
And we are seeing an increased number of these large transformational deals deals greater than 5 million Youre now contribute a set of our total order entry so our winning product sweat achee, often they're moving to intelligent enough why isnt fully execution.
Built upon these key principles war integration with our customers introduced new business models, they need a seamless customer experience to support their success.
We acquired two elements strong business post integration across the entire value chain and harmonized data models for wide suite 60 degree if you have to business using weve time, Sep and non Sep data tool innovation, you technology, such as if usually in tonnage.
Trends is changing how enterprise this one.
So he's still we have automating business post offices across the value chain.
Now by embedding.
Into our applications. We believe we can increase productivity up to 40% sweet flexible deployment modern landscapes, hi, quit a combination of cloud and on climate solutions, depending on customer priorities and performance.
You know our flagship ERP suite for Ana, it's an important building blocks of intelligent and applies and it had to wait katia in on plan software licenses when you call at high single digits and our cloud revenue close has continued to expand rapidly.
We are now at more than 13800 as well on our customers across 25 industries annual increase of 24% Islam by includes 86% of could BCG top 50, most innovative company.
In Q4 as for on a wins included marquee customers, such as thought Bristol Myers Squibb Lockheed Martin.
Costs.
Good luck demeans cool sure web.
Yeah, and some onto equally important 65 of our license.
Some of the already lifelong implementing this is an excellent weight, especially considering most of our customer level, which to my equation as an opportunity to achieve business transformation, well, then schuff going for technical out quite well.
Vodafone recently went live on that.
This is one of the lot just go lives, we have seen and they are not wanting to global business on asphalt.
By the way a perfect examples for high put landscape customer license and await a combination of on premise and cloud technology, allowing them to quit surely transition to cloud at their own speed.
Well go lives in Q4 included Bank video Paypal, giving fund Deutsche Telekom Vietnam stock.
Centric amex and BBC.
Today, I won't 40% of the Esfour hundred customers on net.
And competitive wins with CP, that's reflected in our increasing yuppie marketshare whichis by now as proximately double that of our closest competitor.
Most of those net new customers Amit side Comed companies, but at the same time. We've also seen very notable number of large enterprises with no previous sep questions decide to implement as for Honda, replacing competitive software Netscape.
Im not sure that British Telecom Tech Mahindra.
Quarter awful lot to Chuck name if you.
In Q4 as far on our cloud continued its massive quotes as far as cloud is now at more than 2300 customers and that of cloud revenue one weight of more than half a billion year will.
Invite you to come pad that too early track record of any other cloud applications when the out there.
We are delighted to see however, only we expanding the reach of as far on our cloud.
So much more than 20 industries and close to 70 company specific question.
No other cloud ERP solution can match it scope.
So on a cloud customers included Kubota gate comedy Central Holdings, and Tom tape.
Among many others you sell gaming and a messy dispense formula each team have gone live.
At the same time NCP.
Our high performance in memory database continues to rapidly penetrate our customer base.
We have placing legacy database solutions.
Adoption was in key accounts had close to 60% now up from less than 70% in 2015 in the cloud by the end of Q1. This year all our major cloud solutions will be off all back.
Let's look ahead now to some of our key priorities for 2020 and beyond.
One.
In the equation of acquired cloud assets remains at the top of our list integration twice customer satisfaction. It increases the value and sticking that's a pharma solutions.
As cost selling actually as explained at the capital markets day, 70% of our ERP customers have yet to adopt to our cloud solutions and does come from us expect seamless poses indication in one data model tool.
We will increase our focus on water to cloud solutions, that's a big lab out too far to celebrate our ERP market share gains.
CP industry cloud, we'd be trying to ensure we haven't buys happy hour partner offense startups building cutting edge vertical solutions on top of the Sep cloud platform powered by is happy Hanukkah, we estimate the market size 14 solutions to each more than 150 billion euro by 2020 suite and have chop science.
Several partner agreements, including one with essential to how our cloud for utilities.
Yes, Hi, Chuck will turn from Davos, where everyone was focused on sustainability. The world's perspective on company performance continues to web only expand beyond financials.
Well, we are today, the importance of managing aspects such as to comp footprint will massively increase so far Sep was focused on helping customers optimize business models and post offices now we are adding a complete you didn't mention we will enable our customers to melt shop and manage statcom footprint.
Along the entire value chain, including manufacturing and supply chain operations.
Put us into perspective, we estimate that our top 2000 customers manage an aggregate calm footprint of around 10 billion Tom.
Thats close to 25% off the global carbon emissions, so imagine the impact and reduction of Chuck 10% will test.
Finally, as you know this is why we close to China and myself, let me briefly talk about customer success and some of that chaps mens we are implementing yes.
From a success is the number one priority at Sep.
Customer success twice, it all Upselling and cross selling safe to PS and you will end up profitability. This is not new.
Our customers has always been in our focus.
Customer success matter, even more into cloud and so we are further increasing our focus on building long term relationships by implementing two important change one we will link bonus metrics directly to customer solution consumption wetter than purely focusing on deals signature tool, we add depth thing.
Wake terminals Accordingly, we are moving from the new cloud bookings to to Cohen to help backlog, which kept Jeff our success in contracting new business.
Let us well less than using existing business Luka will provide some additional background in a minute.
In closing our 2019 performance sets us up to achieve not only our trend to trendy outlook, but also gives us great confidence that we on track to meet our 2020 suite goals.
We are investing into white areas driving growth and we are improving operational efficiency driving profitability and we will see the benefits of both play out in our favor R&D yet to come.
With that I'd like to handed over to chat.
Thank you Christian.
In our first three months is kind of CEO as we spent a lot of time listening to our customers our partners our employees and our investors and we continue to form our views of the business and we'll share more be perspective unplanned throughout 2020 like any new CEO as we bring a fresh perspective to our role and we see that there are areas, where we will be more focus where we will act.
Salary and we find unique opportunities for further growth, let me highlight some really priorities which were executing on.
Successful, it's out of thought satisfied customers remain front and center for achieving long term growth and profitability goals. This starts with engineering world class products or breaking down the silos and cross Pollinating. Our engineering teams are moving redundancy tightening the integration between our cloud solutions and cloud to export.
This allows us to focus our R&D ROI resources more effectively and efficiently guests investing in long tail solutions that do not served the broader market to free up in investment and accelerate innovation in high growth priority must when segment.
Together with our partners, we will focus on delivering smoothen faster implementation and higher adoption of our solutions.
Oh, ultimately drives higher customer renewals and expansion into additional products across our portfolio with our best friend program, an increased focus on operational excellence, we are creating a simpler and more agile S&P for our customers and employees. We have an amazing workforce of over 100000 employees, who are committed to our customer.
Our success and we're off to a fast start 2020 coming out of our kick off meetings around the world. Our workforce is energized. We further integrated our sales teams to gain scale and create a better experience for our customers as they work with S&P our services and support teams are laser focused on adoption and customer success.
Our R&D teams have clear roadmaps with priorities and are accountable to deliver an integrated intelligent enterprise and new innovation that differentiates us.
Our employee engagement index was a strong 83% for 2019 and above industry benchmarks are employee retention rate also remain high and just over 93%.
Patrick so supported by the external feedback given on glass door S&P made the best employer less in seven countries, taking the number one spot in Argentina and Brazil.
As we continue to foster a diverse and includes a culture. We're proud that S&P was at the very top of the four of Americas, that's employers for diversity less reflecting our industry, leading metrics like roughly 34% women and our workforce today and nearly 27% women and leadership positions. We're far from finished on this front there is much more.
Our work to be done, but we're proud of the progress to date, let me spend a moment on the macro our strong 2019 performer with achieved the Mets macroeconomic and geopolitical uncertainty every company today is focused on growth whether organically via acquisition through new markets in new industries and these companies turned to S&P.
To run their enterprise today, knowing they can scale change and address macro uncertainties, such as regulatory changes our supply chain flexibility in the future and this means a sustainable relevant for S&P as the result, our global pipeline is robust robust heading into 2020 and our predictable revenue.
Approaching 70% of the mix as Christian just mentioned.
He is proud that we once again.
Delivered double digit growth across all key revenue lines.
Cloud cloud and software and total revenue.
And we see clear Chris our operational excellence measures are kicking in with significant increase in operating profit and margin.
Now for Paul tracks, it's clear our experience management vision is resonating with our customers and prospects and driving enhanced interest in our other solutions.
Companies I understand that if they are not competing on experience there on a race to the bottom.
Paul trucks continues to successfully drive of land and expand strategy and has expanded to over 11450 customers add to that scale and geographic reach of S&P and we see rapid growth in both the volume and enterprise segments.
As we sell Paul tricks to Sep traditional enterprise space, we'd how close rates increased the deal size deals over 100000 are up 40% deals over a million are up nearly 60% in one year. We're also seeing a massive increase in growth and win rate in the customer experience customers are realizing there is.
Such better offering that inflexible legacy customer experience vendors like medallion and others I have personally been involved in many of these deals and the technology and opportunity for our approach is game changing.
We also continue to see amazing success and employee experience with the strength of the Successfactors call checks combination carrying forward incredible momentum from previous quarters, and we're seeing strong traction and brand experience and product experience in each of these areas. We've seen early success selling fall tricks to our install base in Q4 many of our.
Existing customers, such as Volkswagen Group, Australia, JP Morgan Chase Autodesk, Aliano, Exxon Mobil Mobile Alaska Airlines Santander Lazy Boy, the Hearst Corporation, and Samsung also like to call tracks to move beyond systems of record two new systems of action and achieve breakthrough results.
Despite high growth achieved in 2019 the opportunity in front of about is much much larger as the vast majority of Sep is installed base does not have paltry, yet we invite you to join US our culture, except for summit on March 10, 213th in Salt Lake City.
I think H.C.H. excess together with Clarkson Successfactors, we've redefined traditional human capital management to human experience management since we launched that Successfactors qual Trex employee experience micro Sweet may we've acquired over 450 customers can get supposed solution.
Our evolution towards human experience management is also proving to be an accelerant for employee central which has ramped from more than 3700 customers globally.
More than 700 from a year ago, our broader suite of Successfactors had almost 7000 customers globally computer center jet Blue Eurobank and shallow group went live with Successfactors in Q4, well NTT group Landesbanks Wartenberg, Stada Genting, Hong Kong Sands Universe.
So Beijing resort.
Diversey, United launch Alliance, where among many other competitive wins.
Turning to S&P from the competition cluster from healthcare group, a leading pharmaceutical products player in Europe have come back to S&P, selecting successfactors HX, Sam including employee central.
Moving to customer experience. This is the largest and fastest growing category and enterprise software.
With bought stock for turning the S&P three months ago keep putting his proven track record and action.
Bringing focus to the largest market opportunities and doubling down on execution any fast growth segments.
The fastest growing areas.
Yes play directly to S&P strength, such as customer data platform commerce customer experience management and connecting demanded a supply chain seamlessly in real time, we've accelerated the delivery of our customer data platform interestingly the customer data market is a highly fragmented and young market with no leader. This is an opportunity.
Become a new system of engagement complementing any CRM system of record.
Were recognized market leader and digital commerce by Gartner and we're innovating everyday we built into order fulfillment using real time intelligence to get packages to customers more efficiently and this is what lab customers shopping pick up anywhere we've integrated our sales and service solution as contact centers are quickly, becoming revenue centers and need a better sales tool.
And by leveraging Qual checks, all combined customer feedback and operational data to listen I understand and most importantly take action in the moment to improve the customer experience case in 0.1 of the largest frustrations for comments commerce is cart abandonment, which amount to 280 billion a year and loss revenue Exxon is how retailers can manage a band.
It's all that she's in real time, we saw many wins across commerce to provide commerce everywhere in Q4, the Nielsen company Royal Dutch shell Chevron Carhartt, Intersport Intersport Deutschland, Tom Taylor, although grip and many other selected our CX solutions and Q4 Ritzy Our February Douglas are not now.
Live on multiple elements of the portfolio.
And intelligent spend we deliver truly integrated spend management across the rebuffed fieldglass and concur together they represent one of the largest commerce platforms in the world with transactions in over 180 countries and we're the only platform addressing globally compliance and risk across all areas of spent Christian mentioned Ford Motor company one of the large.
This global automakers forward purchase to Reba and S&P digital supply chain, along with that for high enough to replace many legacy systems as an intelligent enterprise running ads for Hannah Reba and digital supply chain fours training inside an action in real time streamlining global finance purchasing process is massively simplifying there.
Overall, IP landscape 40 substantial business benefits such as a reduction of procurement approval plus 25000 by over 95% Karcher Electrolux Allegion travel company for GE acreage Coca Cola Atlantic Following Repsol, The New York Yankees, Bristol Myers Squibb Cvs health.
Among the many others that selected our intelligence ventilation and Q4.
We're also using Paul Trex across intelligence spent every every bit Spain lot all tricks embedded to enhance experience and create a continuous feedback loop for buyers and suppliers on our network.
A question spoke up our strongest for acceleration and we see we have a much higher percentage of customers using at least one of our cloud solutions when they move to us for versus those who have not yet move in both the enterprise and volume market.
There's a strong tendency for many of these cloud solutions to sell very well together together as well as invigorating excitement and acceleration to move to US were Honda and we see huge cross sell opportunities for customers to adopt micro sweet such as Successfactors and cultures, together commerce altered or rebound as for Honda.
The strength of our ecosystem continues to accelerate and not a flywheel effect to our progress last quarter. As you know, we announced a strategic partnership with Microsoft to accelerate move that forward to the cloud well we're off to a fast start Q4, one of the largest on premise customers committed to move most of their IP landscape to Sep Hana enterprise cloud on Microsoft Azure over the next three years.
This adjusted beginning other parts have dealt develop their own program to accept to accelerate our customers ask for transformation the cloud such as Deloitte, we imagined everything anywhere program with Google Cloud, our foreign SAP solutions run on GCP Nhw us to the Hyperscalers are also incentivized to advocate for S&P in contrast.
Our traditional competitor has it go it alone strategy Gartner PRN sites, we see the S&P customers completed 1100, new product reviews of S&P with 87% rating Sep four plus stars and a 42% surge in five star reviews from 2018, when you compare performance, it's clear from the math what strategy is winning.
To summarize S&P is evolving a highly differentiated and winning strategy around spirits management and intelligent enterprise for the Hyperscalers an ecosystem is a forced multiplier our approach it validated by our strong full year results and with our strong topline momentum and operational excellence initiatives in full swing, we are positioned to continue to outperform our best.
Software peers, so with that I handed over to you know thanks, a lot Jeff.
Software say myquest very proud of our for the 19 results, particularly strong increase in profits and margins, while continuing our remarks.
Let me cover our results in some of you to first and try to begin on revenue and profit targets. So actually have kept our promise for half a decade, most successful leasing RPG all revenue and profit targets in that timeframe, even though is that.
I'm very proud that we continue to keep our promise interesting.
For the full year, you telco things was 2.3 billion euros grew by 25%. So you walk us excluding the resources.
As discussed at our capital markets.
Starting with Q2 thousand 20, we will replace to disclose of bookings was in UK.
Correct.
Sure.
This metric you assume the contractually committed revenue that we expect to recognize over the upcoming 12 months CCB stuff. The subset remaining performance obligations number so for US 50, just cloud only at 12 months.
Its expansion between two key dates reflects our success in both contracting business as well as we're doing existence, so called out of new cloud bookings. It is the ball this to indicate.
Yes.
The slow growing your growth of 20% 20 might you also past 7 billion durable. This makes our cloud revenue no more than 50% larger than our software license revenue.
Also continued our strong double digit growth.
Total revenue operating profit.
Seeing really strong growth rates in quadruple the very positive successfactors human experience.
I also wanted to other coal agenda Christian said about our unique positioning us well on our cloud and artist and supply chain offerings. So you'll see we are driving strong growth in both our acquired.
Organically developed sellers.
Now moving to our own presence performance 12 aligned with our expectations Q4 software license revenue was solid, especially if you consider really tough yodle yet.
That's successful Q4 as a backdrop, we had only a 2% decline in softer revenue for the full year 2019.
Got it was our ever resilient maintenance business, which grew by 5% a software support business continues to be rock solid repulsive Ross.
Also regional results for the full year.
We had a solid performance in the EMEA region with cloud software revenue increasing 5%.
Revenue decreased 47%.
Nevertheless at the UK.
Spain, Switzerland had a strong year.
Right.
We had a strong performance in the Americas region.
Cloud and software revenue increased 16% cloud revenue increased 35%.
Brazil being items.
For licenses revenue U.S. had a solid year, while Brazil.
Performance was strong.
Hey, PJ, reaching finally, we had a solid year amidst the challenging box.
Cloud and software revenue was up 10% cloud revenue increased 43.
Well cloud revenue and software licenses revenue alike, both China and Japan.
Right.
Now moving on to the bottom line.
Alltel gross margin growing five percentage points operating profit growth 50%.
Got it mentioned that absolutely happy.
Actually the gross margins all of our business loans were up in both Q4 and for the full year trends.
With the impressive growth with our overall gross margin reached 68% for the full year.
Q4, even sauce ending at 70%.
I think within striking distance or 2020 target of 71%.
Your line of sight to get to the 75%.
As expected the strongest contribution to this came from the gross margin of our public clouds or other thoughts possible.
Yes, we had a significant expansion of eight percentage points of which 68%.
The key factor that drove this result was benefits from successful completion of suspect this migration to.
We're also starting to see benefits from our other cloud assets at the start to scale and increased efficiencies.
Of course, we get a benefit from flow tricks.
We are already running at the gross margin roughly 2%.
Gross margin for intelligent spent through continued its steady costs for the full year gross margin in the high 70 percentage range.
Happy to keep that momentum going into anymore.
This year, we expect to positive Bob mainly coming from a reba when it fight licenses migration of third party data base.
Our infrastructure service gross margins improved by an impressive 17 percentage points to 29% interest.
This strong results prove that we're making great progress in our unused strategy within.
We continue to focus on higher water infrastructure service deals.
Save time, we continue to express strategic partnerships.
Our software support gross margin ended the year or the very healthy, 87%, increasing by 10 basis points.
We're all our cloud and software gross margin increased 82%.
This shows that the hard work from our transition to the Coke has paid off.
Metric is now trending upwards. Despite the continued headwinds from the right.
Our services gross margin increased by two percentage points and reached 25%.
This was mainly driven by efficiency gains in our project consulting engagements at this point I would like to thank my colleagues for Mike excited about oil for the tremendous turnaround, but he has achieved in our service organization.
The combination of strong topline exceptional cloud gross margin improvement and operational discipline led to the double digit operating profit growth.
She saw race targets for the full year, almost 8 billion euros operating profit at constant currency growth double digits for the second consecutive.
As a result, as we delivered a strong operating margin increased by 80 basis points in 2019% to 29.7% or 29.6% constant currencies, so slightly better than we expected.
Turning to.
Operating profit EPS in Texas.
Operating profit was heavily impacted by high acquisition related charges due to the Quadrex acquisition expenses from the restructuring program that we have at all to your.
It was also impacted by higher share based compensation, primarily due to cooperate say position as a strong development of ownership.
This resulted in a decrease.
Gross profit of 21% focused pipe business.
Well the same reason.
Earnings per share decreased by 18%.
Of the for US we reported a strong growth of 18% to over five euros.
Well the full year 25 to use the IRS effective tax rate decreased by 30 basis points to 26.7% was.
Effective tax rate decreased by 20 basis points, 26.2% booked tax rates well within our guidance ranges.
As expected and discussed at our capital markets day or cash flow performance and 29.
Likewise infected by higher restructuring payments I have shared based compensation payments and higher tax payments than in 2018 significantly overcompensated the benefit we receive from 16.
Operating cash flow and try to be buying two tenths decreased by 19% to 3.5 billion euros.
Of course also negatively impacted our free cash.
On the positive side for it seemed like it was a year, where weve really able to dramatically improve our capex efficiencies compared to last year reduced our capex by more than 40% to 800 million euros SP harvest benefits.
Platform spent expanding hyper scale.
As we also stated that our capital markets Day last November we expect to both our operating and free cash flow will increase significantly trendy trend since we see that our capex would remain at a reduced level and the negative impact that we haven't tried to and should be much.
We're all 2020 outlook into 2023 efficient please refer to our quarterly statement published earlier today.
Before closing I wanted to talk about some of our social environmental highlights and update you on a few of our non financial metrics.
Sep, we know that we could have an impact beyond our own operations as Christa already mentioned and driving economic social and environmental impact and holistic manner continues to be a key priorities.
You support for US a state of the development goals. While example is the value balancing in line, which we are holding that Bob just thought profit organization Ace changed the way companies measure of value portfolios to create a gold standard.
Welcome to Paul we can have a positive impact or products as the plastic.
The global Ocean plastic crisis, Sep Joy global economic for local plastic auction together, we are launching the next phase of domestic slow through the though businesses repetition.
Just invested material collection infrastructure.
Thanks.
Looking to our financial metric straight already talked about where we set was employee retention women in management.
I would just like to add that we again decreased our CFO to admission despite our company strong.
We remain committed to be carbon neutral.
So to summarize we deliver.
Outlook in 2019.
At March the troops in.
In a row.
Had an exceptional year with double digit top line growth in cloud South.
Rental.
Operational excellence measures continue to produce results.
The yield was more than 8 billion euros operating profit growing interest in person thats it for us.
Good for all the dedication innovators.
Yeah.
Sep will remain Pos growth and highly profitable company.
And I'm very confident we will continue to keep our promises stopping by delivering on our 2020 guidance that following through fluctuate.
Thank you and we will now be happy to take it from us.
Thank you. Thank you operator, we can.
Thank you Lisa.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment I.
It is star one if you would like to ask a question.
And we will take our first question from James Goodman with Barclays.
Good afternoon. Thank you very much for taking my question I wanted to ask you a couple of things about the cloud business. If I may Firstly, you noted the 10 percentage point benefit to new cloud bookings from from this major shift from an on premise customers to the cloud, which is coming under embrace which is clearly encouraging but you're taking I guess.
Benefit to ready there from Microsoft in terms of revenue in the S&P cloud platforms. So my question is can you expand on.
What this customer is doing precisely and where additional revenues are coming to you through the cloud business and then the follow up cloud question is just on the iced tea business, where we move to about 14% growth from parts incentives are both quarters. Thank you.
So on this on this large deals Christian here first of all on this large deal just what gives you. Some context. This is not directly related to employee. So what this large multinational customer we decided is to more fixed existing on premise landscape to the cloud and to go with.
Pete on enterprise cloud offerings in order to not only microwave the landscape to the cloud, but who will be the business transformation I mean, this customer really as certain requirements in adopting new business models driving automation and this is why is customer decided to shift its complete loud landscape to a high bus Kayla.
Laugh Sep will work with this customer had been had to migrate and transformed this customer into an intelligent into place endesa by the way also not a one off Steve I'm actually expecting that more and more custom must we focus on their own transformation, while shifting more and more and all these projects to Hyperscalers plus Sep two twice.
The transformation.
And this is Jennifer maybe let me let me hit the point on the cloud bookings can I know that this is a topic I want to make a couple points here you remember earlier in 2019, we made the strategic decision to really focus on our SaaS business and move away from infrastructure as a service because we knew that we could get better focus on what we do.
Oh and leverage a lot of the motions to the hyperscalers in our business. So that was a strategic decision that we made early in 2019, which did have an impact on the topline revenues.
When you look at where the growth is coming from call Trex is going to be an incredible growth engine results, we had and 2019 or really specific to call tricks continuing to execute within their customer base and the customers that they were growing we didnt really start to pick up steam toward the second half in terms of expanding and doing some nice large deal in our instead.
Based accounts.
We've also done as Ryan and I together have learned quite a bit and we placed one of our most season sales executives from S&P to be the chief revenue officer within Qual Trex. So we can both bringing that really strong sales execution into qual tracks and also the knowledge of S&P and where we can really focus qual tricks to drive the large.
Steels and scale across the globe.
I mentioned Darcy for portfolio now you all know that bought Cayman bought starts in Q3, and this was an area, where we needed somebody who brought experience in this market.
Understood the differentiation the S&P could bring to focus on that differentiation and frankly to execute so we've learned here you're going to see us move and make progress here, you're going to see new product development happened. This year and we're very confident that this portfolio is now more focused and we'll execute and I don't want to forget about our organic cloud solutions Christian.
Talked about S. Four.
The cloud we also have analytics, which had really strong growth digital supply chain. While these might be smaller in terms of the revenue side the growth in the steam of these are picking up and then finally when you look at how we get that get the scale of all these solutions and our customer base. We made the decision to move all of our sales resources within that differ.
Specialized sales forces under their Fox Martin, who now on overall go to market responsibility and can get better focus and scale and really get all these businesses humming and get the synergies of the micro suite as we go out and sell the class that's really the plan for have gone for the crops and perhaps.
Quickly to come back to you a precise question so.
Right. That's very large deal was a net new incremental deal and was not cannibalize any of the embrace.
Transaction and you have specific question around his GE and the 40%.
Cloud growth that you saw that well.
Business, you really have to take a look at the full year results because it is significantly influenced by a transaction volume based pay as you go revenues there is a bit triple digit million euro about revenues in there and Thats business, you have greater variability than in the classic sauce business and that portion actually.
Okay did in Q4, a little bit.
Short of that in the coming the other called US and that's basically it is the reason why you've seen through fall revenues being a little bit.
All up about audit all the 90% that you've seen as she has been actually very consistently as.
A result is around the 20% bark that these businesses. Despite does it have been posting for a number yes, no. So there was really nothing except for this.
Small seasonality live on the transaction volume based revenues.
Right.
So thats great content. Thank you very much.
Thank you, let's move to the next question. Please.
We will take our next question from Kirk matter with Evercore ISI.
Hi, Thanks, Thanks, very much maybe a of two quick ones. One just for Luka just on this new metric you're gonna be giving us in terms of cloud or cloud current backlog you I I guess some of the debate. This morning would be looking at the cloud bookings growth it wouldn't necessarily appear to be robust enough to support your longer term targets I assume this new.
Metric, maybe lines up a little bit better with what you're hoping for over the next few years is that fair fair I know you don't want give us the number exactly right now, but I'm just trying to get a sense on you if thats going to be a better metric in your view to gauge say ACB grows in the cloud business.
Yeah. Thanks, a lot for the question then it's exactly that I mean, as you know I've been preaching this for sometime now the correlation between our new cloud bookings performance and our actual revenues has been weakening overtime.
That's real because the impact of our renewal business as our baseline rose is of course, getting heavier and heavier and therefore moving to current backlog, which gives you the entirety of our success in both driving new order entry, but also successfully renewing what we have and then spreading out the impact.
On the next 12 months revenues is going to give you a much better holistic picture of the expected revenues. So thats cuts read much better introduce them by taking Olivia.
On the new cloud bookings. So it's are you qualitatively much more meaningful disclosure that you will see starting from Q1, Okay. Great and then just one for John for Jennifer I know you all homes do your sales kickoff events over the last couple of weeks and you mentioned, having a new chief revenue officer for Quadrex were there any other things you all changed heading in that.
Here that we should be aware of I know you always will change something you know generally going into a fiscal year, but you any other sort of call outs you'd make in terms of either ways, you're thinking about going to market a little bit different this year or.
Just some general.
Normal procedures around that thanks.
Yeah.
The great thing is that when you look at our leaders across the various geographies and even the leaders within the different caught businesses, we have really strong stability and experience and that helps that really helps us to continue to act to execute and get the synergy and scale that we need depending on where every region is in terms of their collaborative growth and where they.
The opportunity one of the things that we did put a strong focus on it when you look at these leaders in the businesses that they run now making sure we're putting justice strong of a focus obviously the bookings is going to continue to drive and be key to driving our revenue growth, but we also want to want to make sure that our leaders and the people in field are also jump is focused on.
Assumptions, so we have could accelerate isn't there for.
For our sales teams to to be rewarded for ensuring that our customers are not only just buying our solution, but they're consuming that so their incentive to help accelerate that consumption and focus on our customer success.
Thank you.
Thank you six next question please.
Our next question is from Charlie Brennan with credit Suisse.
Okay, great. Thanks, very much taking my questions.
Got to actually different studies, just a question on cool ERP I'm, particularly this do you flagged in the statements is moving to the clouds you have been flagging up.
Yes for Hannah on premise licenses as being a positive fracs to license growth.
Can you just help us quantify is the shift North Korea LP to the clouds going to be immaterial driver going foods.
Does this start to change your your license outlook for the group.
And then secondly, just around the cloud bookings and backlog metric there was a fair amount of investor focus on it we have seen increasing volatility in the clouds.
Kings number as we move to the backlog does not smoothes out the volatility and does it start to give us so much more even pattern of the business going foods.
So let me start question here on Daswani question cloud ERP. So after the quarter. We have now roughly close to 14 sell some customer sets for on a customer and we are seeing of cost at our installed base is moving and.
If they are now moving to on Prem and cloud and by the way I really feel this as a winning strategy because sometimes in some into suites with higher poses complexity last customers still decide to choose Epsilon on Prem where we will also continue to deliver innovations has also functionality so certain kind of into suites.
This week with lower poses complexity utilities professional services they have more mall moving to the cloud it, especially also some Lps also in the core like finance, we are seeing distraction now coming end with having now or what 2000 customers last fall to cloud.
Trend into suites. We also now has the pools that our cloud ERP suite welcome all enough to BD also kolowich disco of larger customers going forward. So we see actually data. This hybrid approach, we the peso and also last but not at least I mean, we have seen that our if on a customer for.
The percent of them on net new so that's also a clear signal that we also attracting new customers that we are winning market share and that doesn't the only you know now means that we only moving our installed base, but we also endo in new fields, especially on the cloud side of styles.
And therefore, let me just add but of course, we are anticipating this shift its cigarettes. So when it comes to the core and therefore you.
Feed on up C., but you've heard us so confirming that us for hard dollars again, a major growth engine across both deployment models. So with high single digit growth also an on premise of licenses and do we continue to expect that as for holiday in the on premise we posted positive growth also in 2020 .
And beyond however at the same time, it's great news actually that we start to see the engine going on a more customers adopting as for Honda also in the cloud with the Oh, you know steep increase in customers to 2300 was the increase on the revenue side, where this is becoming a.
In input and it is baked into both our assumptions for continued growth in the cloud as well as the implicit assumption around the development of our on premise business. So we're not seeing anything that would change our perspective of the business and how it will unfold in the next couple of.
Thank you that's moved through next question. Please.
We will take our next question from Phil Winslow with Wells Fargo.
Yeah. Thanks for taking my question and congrats on great closed the year I just wanted to focus on the comments you mentioned about.
The change in how bonus metrics or are calculated for your sales team going to more of a consumption based model versus group really feels like a drug it's going to jump a little bit Christian engine.
Hi, how are you is we're rolling that really rolling that out is there sort of differentiation between the cloud deals.
Fields.
By the rollout of for the impact from that.
Yeah.
Yes. Thanks for the question Phil Let me just at some context to this new focus blend change first of all its very important to highlight that this is not only with related to save.
All of our people in development and service and support in cloud operations will have a cloud consumption metric and why is that.
Because.
In the cloud, especially the deal doesn't stop this to point of sale, we have to make sure that we support our customers all the way law.
The point of sale to on board to support to one and we don't know showing them the business showing delicate some of the business value out of our South cloud solutions and then at the end of course, we have to make.
Make sure that we have higher than you away. So that's that's a common exercise. This is not only related to say. This is also you know up two developments I was in supporting two up a waste to really make this a top priority and Shannon I really hold up like high on customer success. On this is one of the mash up now we have twice a week to really make sure that we have going.
Turning to execute that and that also of course, our customers feel the benefit of that.
Thank you.
Let's move to next question. Please.
We will take our next question from Adam would with Morgan Stanley .
Hi, good afternoon, and thanks for taking the question I'm also got to just the first one maybe a question on the integration of the products could you talk a little bit about the timeframe of getting all of the cloud products integrated into a signed up and then maybe why you've completed that integration what what benefits have you seen in terms of cross selling adoption and any metrics season.
Dave would be very helpful for the benefits on that side and then maybe as a follow up on the license side of the business and how that evolves as Mcus was moved to cloud can we also talk about pool.
Traditionally it's kind of been an old on operating model on school for customers. So there's more of those landscapes are run on cloud subscriptions, rather than on license and support how does that impact the support business.
Got a factor behind the lowering of the percent of your predictive revenue looking out to 2020 three thanks very much.
So.
Thank you Adam let me just give you some more details about what we're doing on the integration slot. So first and foremost it's really important to understand that when customers by its a p. solutions. We are talking about a wheel business flows into question based on one data model. So it's not enough the technical integration. So you shift data from the.
Left to the wide, it's really about making business proposals as one across the value chain. How did we pull quest, so with Successfactors HR and with US for finance, though of course core mission critical processes that we actually finished on the cloud side. The integration in Q4, so that customers have Phoebe and waterline data model.
And all the business services, what you need to one business posted this quarter.
He will they have been delivered in Q4 last year now what comes next LIBOR procure to pay.
With Colorado's quote to cash front office to back office. This will now showing the cost of 2020 .
So the same is true for concur and we will also actually announce.
The detailed opex for that in a few weeks to come so that also a customer and of course, our own community has more details of won't when is.
The integration being deliberate and as I said everything will happen swelled 2020 to engineering teams already working on that since quite awhile. So this will be done in trend to trend.
And let me quickly expand support because really there has been no change at all in our assumption surrounding support revenues actually we have good even slightly ahead of our own interim funding in terms of ours performance, we continue to enjoy extremely high renewal rates.
Running 96%.
Revenue basis. So this remains a very very sticky business for us with.
Very reliable.
Growth profile as well.
The effect so that we have adjusted slightly adjusted the.
The outlook for the percentage of the.
Recurring revenues highly predictable revenues for 20, trendy as actually nothing to do with our predictable revenue streams.
As to do with effective when we device the original range, we've actually having more conservative assumption for the development or not predictable revenue streams to software revenues in particular as well as our service revenues, but as we have actually for a number of years not seen mid single.
The truth declines and software licenses as implicitly assumed no guidance, but actually have pellets. This software license revenues at a high level and therefore, we have a higher baseline though for those revenues that is one off the driving reasons that the.
Percentage of highly predictable revenue is.
Rob, 70% and not at the high end of this rate and the other reason is that we had not assume that our services business bounced back so strongly with posting double digit growth quite honestly and from that perspective.
The other effect, but in terms of our predictable revenue streams everything.
As expected.
Perfect. Thank you very much.
Thank you take next question please.
Our next question is from Neil steer with Redburn.
Hi, Thanks, very much I've just got to hopefully quick questions. The first is the could you tell you mentioned, obviously, the you expecting quite a bounce in the operating cash flow into free cash flow 2020 would you hazard a guess is to those levels would be please and secondly, when do you assess the commitments to.
We move will stop the standard pools on PCC in 2020 Sotheby's not to be reviewed at some stage will you sticking by then.
Yeah, let me start with the.
Free cash flow to operating cash flow.
Goes.
I would expect a.
A positive bonds.
Of roundabout to enough billion, so very much in line with what we have discussed at our capital markets day about a 1 billion would come from those.
Increased cash items that we have seen in the 219 dissipating in particular, the income tax cash payments as well as the restructuring payments, which basically up.
It's all just bought from there Paul and the rest is basically the positive development.
Most of the growth that should then translate into those.
Free cash flow.
Elements, so basically what I sat in November .
Our blending or indeed.
With regard to the maintenance expense I mean, we're in constant talks with our customers to use them.
If you also in the past test left no customer behind and this notion will of course continue and you can expect a communication going out very soon we give more clarity around this topic.
Thank you very much.
Okay. Thank you so take next question please.
Our next question is from Alex Zukin with RBC.
Hey, guys. Thanks for taking the questions two quick ones. So first I want to ask on us where on a on the positive side. We were observed over the past few quarters kind of steady rate of ads and go lives.
When will we see an acceleration on the go lives portion and what do you expect the impact on the piano from these go lives to be.
I mean I can take the first one.
But I guess can take the second focus to impact on the piano and so you know what the goal is actually S. You also have seen now they went up quite significantly in line with of course also to increase we have seen on the license customers.
I also said at the beginning and also nothing do you know from being the CEO of as they peak.
Sometimes when you are implementing f. honor to take on that she is not going out to actually to the biggest problem actually no to take the upgrade to S. Four Ana we have smooth that a lot with new tools for the data migration and fought upgrade itself oftentimes, it's really about changing business post. This is changing the business model of the company.
You can say you have to do.
Peter If you where you have to hit that then we design business processes, which were spending therefore, we long time, that's you know.
Sure one of the major reasons, why we see a certain delayed between the license customers and Nicolelis customer certainly what we are doing with our partner because they see now this huge demand out there in the market and they clearly have no in some parts of the world a lack of skilled resources. So we are working heavily to gotta, we follow the largest.
Side to further obstacle people because these days the demand is so high that they have to qualify and much more resources into months to come so and we are on that and then with regard to the piano I mean, when we close enough on a deal we realized the revenue why the way and then also on Daswani cloud, we're having debt.
Go lives states after trended thieves 20 days after the deal signature. So there would you have for very fast time to value and then when you have access to the system. This is I guess also when we start realizing that revenue Luca correct me, if I'm wrong, Chris I taught you will correct.
Let me just add on top that.
As for I'll go lives typically Evan in direct flywheel effect, because we see that a lot of customers that are modernizing that current transforming it.
Show at the same time, an increased demand and ambition to extend this to the Atlas and really completes a digitized and tie extended value trade, including supply US for example, with the eyes Gs solutions, our revised very very common attach so to say as for transformation.
And the table cost goes on DHR side that then the modernization of the HR system. That's good going from on Prem to success spec does is quite frequent combination with and as for go lives. So in that respect it has a cross fertilizing effect on the rest of the portfolio, but in terms of the direct revenue recognition Christian is absolutely.
That's what we saw in Q4 it was interesting as we saw the over 50% at a license revenue from S. Four was actually from existing S. Four customer right. So it's not just the customers who are moving from PCC cats for we're seeing customer to yeah. We've already maybe tracked him is moving to add four but they're expanding their deployment. So we're going to continue to see the revenue.
Back from new customers customers, moving from VCC and export customers expanding.
Understood. Thank you guys. Good thank you.
You have time for two more questions.
We will take our next question from Stephens Lewinsky with Exane BNP Paribas.
Alright, Thanks for squeezing me in here quick ones just on that large deal with the 10% a contribution to cloud bookings were there any cloud apps as part of that deal or was it just Hana enterprise cloud and if so is there they are forced to upsell potential on top of that deal.
Adding some of your cloud apps to that.
And then the second question I had was just on Europe in particular, and especially the cloud growth in your 44% was quite strong.
And just wondering obviously couple of the names you highlighted BT Vodafone or in Europe and are you seeing an accelerating dynamic there in Europe more broadly in terms of cloud adoption or is it just kind of execution on your side. Thank you.
Yes, perhaps I can quickly to answer both questions. So first of all that large do you also have a soft so south EPS components, a attached to them, but not so no. We're not sold out to assess them. So we clearly see ambition to come back for more and you know upon the successful.
Like ration so that load there was no reason why we should not see further benefits from that one and in terms of the proliferation of cloud in Europe .
Absolutely correct. So I mean, the cloud is no prevalent here are the concerns around the clouds have largely been additional cost it's important to European customers that you appetite handled on data privacy topics that you have.
Options so around local data residency that you have the appropriate security, it's and also to occasions and the quality certifications in place there was a tight amount of fixed inspection among European customers, especially around this but of course, they know that sep.
European Domiciled company is food it up and the availability across the region is a trusted Papa. Therefore, we can take advantage of this and of course. So you also have a particularly strong the called control here in the and are kind of heritage markets. So that's why also Germany, you know is really.
Very very strong pro forma gross the cloud a couple of years ago, perhaps it was still lagging behind a little bit now it has already been for was the second largest of our country's when it comes to the cloud revenue.
Great. Thank you.
Yes. Thank you will take the final question. Please.
Our question comes from Julian Serafini with Jefferies.
Hi, Thanks for squeezing me in at the end. So I just wanted one quick question on the guidance since we've acquired revenue guidance for 2020, if I'm looking at it correctly at the numbers I mean, the new guidance implies 24% to 20% constant currency growth right. Previously was 29% constant currency growth I guess I'm trying to understand what led to this reduction in the guidance I mean is it.
Really just.
Yes.
Emphasis on the infrastructure business, there was something changed your end market.
Services and any color would be helpful. You could share here.
Yes.
Perhaps quickly just as a point of note I mean, the our mid term ambitions muddier ambition. So why did they have of course, it with an average currency.
Development.
Of the past in mind, they're not strictly constant currency.
Guidances, that's only true for the current guidance, so that just as a backdrop.
So you could take with you and indeed I mean, we have what we are expecting is that.
Infrastructure as a service will not grow as a proportion of auto to cloud revenues any long, though we have seen of cost for a long period of time that this.
Business has been growing faster than the rest of the portfolio that has actually already it's pretty much normalized to round about the same growth rates from revenue perspective, much lower growth rates for bookings perspective, and trendy 19. So we expect that it will remain at or below 10% roughly contribution to our told that.
But the rest of the portfolio is so I'm you know definitely in a strong shaped not only through our acquired assets that for a long time goes to over a carrying our growth we see now a great opportunity, especially in the next coming years post 2020 that given the very strong momentum.
I'm in the core I'm going to the cloud that this can become a very material business for us if you.
The moment it is just reaching scale and growing of cost much faster than the average, but I think if we continue to play our cogswell like in those few deals that we have highlighted that this actually can be beyond 2020 really materially contribute to that can easily make up for any kind of.
Used revenue expectations that we have for the low margin infrastructure services.
Okay, great. Thank you appreciate the clarification.
Good. Thank you very much. This concludes the CPQ4 2019 earnings call. Thank you so much for joining us to we look forward to see you had one of the FCC. That's in 2020 . Thanks, so much and good but I killed.
Thanks, a lot.
Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.