Q3 2023 SAP SE Earnings Call

Speaker 1: I will now open the light and

Yes.

[music].

Speaker 2: All participants' lines listen only.

All participant lines listen only.

Ladies and gentlemen, thank you for standing by.

Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q3 2023 Earnings Conference call.

And thank you for joining the Q.

Q3, 2023 earnings conference call.

Speaker 1: Throughout today's recorded presentation, all participants will be in the listen-only mode. The presentation will be followed by a...

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.

Speaker 1: If you would like to ask a question, you may press hash followed by one on your touch tone telephone.

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 the conference over to Anthony Colletta, Chief Investor Relations Officer. Please go ahead.

Speaker 1: I would now like to turn the conference over to Anthony Colletta, Chief Investor Relations Officer.

Speaker 3: Good evening, everyone, and thank you for joining us to discuss our third quarter results for 2023.

Good evening, everyone and thank you for joining us to discuss our third quarter results for 2023.

With me on this call CEO Christian Klein.

Speaker 3: With me on this call are CEO Christian Klein, CFO Dominique Azzam, and Scott Russell, who lead Customer Success.

Yes for Dominik.

And Scott Russell elite customer success.

Speaker 3: can find the deck supplementing this call as well as our quarterly statement on our investor relations website.

Confined index implementing this call as well as our quarterly statement on our Investor Relations website.

Speaker 3: During this call we will make forward looking statements which are predictions, projections or other statements about future events.

During this call we will make forward looking statements, which are predictions projections or other statements about future events.

Speaker 3: These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Addiction on information regarding this risk and uncertainties may be found in our findings with the securities and exchange conditions, including but not limited to the risk factors section of ACP's annual report on Form 20F for 2022.

These statements are based on current expectations and assumptions, but that's subject to risks and uncertainties that could cause actual results and outcomes to materially differ.

Additional information regarding these risks and uncertainties, maybe found in our filings with Securities and Exchange Commission, including but not limited to the risk factors section of <unk> annual report on form 20-F for 2022.

Speaker 3: Unless otherwise stated, all numbers on this call are non-IFRS and growth rates and percentage point changes are non-IFRS year over year at custom current.

Unless otherwise stated all numbers on this call are non air, France and growth rates and percentage point changes are non <unk>.

Yes.

Constant currencies.

The non <unk> financial measures, we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with higher price.

Speaker 3: The non-I-FRID financial measures we provide should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with I-FRID.

Speaker 3: Before turning over the call over to Christian, I would like to take a moment to organize a significant milestone for SAP. This quarter marked the 25 year anniversary of its listing on the New York Stock Exchange.

Before turning over the call over to Christian and I would like to take a moment to organize a significant milestone for <unk> AP. This quarter marked the 25 year anniversary of its listing on the New York stock exchange, reflecting on this journey began with a primary listing in Frankfurt 35 years ago to now be standing as the <unk>.

Speaker 3: Reflecting on this journey, SAP began with a primary listing in Frankfurt 35 years ago to now be standing as the number one company on the DAX. This dual listing is a testament to an amazing growth story. It signifies our dedication to providing our investors with prime access across from the capital market.

One company on the decks. The dual listing is a testament to an emerging growth story. It signifies our dedication to providing our investors with prime access across from me Joe capital markets.

Speaker 3: As we celebrate this milestone, know that the focus on sustainable growth remains on wherever and that the company is poised to keep innovating and creating shoulder value.

As we celebrate this milestone note that the focus on sustainable growth remains unwavering and that the company is poised to keep innovating and creating shareholder value.

Speaker 4: And with that, I'd like to tell the call about the Christian. Yeah, thank you, Anthony, and thanks everyone for joining us for our QSW earnings call today.

And with that I'd like to turn the call over to Christian. Thank you Anthony and thanks to everyone for joining us for our Q3 earnings call today.

Unknown Attendee: [inaudible] And then I will now open the line for the participants. All participants' lines, listen only.

Speaker 4: First of all, I want to express my shock and sadness at the heartbreaking events that have unfolded over the last few weeks.

First of all I want to express my shock and sadness at the hop quaking events that have unfolded over the last few weeks.

Speaker 4: SAP condemns in the strongest possible terms, all acts of terror. And we are deeply concerned by the escalating conflict.

<unk> in the strongest possible terms all act of tower, and we are deeply concerned by the escalating conflict.

Speaker 4: We offer our deepest to all those impacted and are committed to supporting our colleagues, customers and partners during this most difficult time.

We offer our deepest sympathies to all those impacted and are committed to supporting our colleagues customers and partners. During this most difficult time.

Anthony Coletta: Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q3 2023 earnings conference call. Throughout today's recorded presentation, all participants will be in the listen only mode. The presentation will be followed by a questioned answer session.

Speaker 4: I'm sure I speak for everyone here at SAP, and I say that we hope for swift resolution to this tragic situation.

I'm sure I speak for everyone here at S&P, and I'd say that we hope for Swiss poker solution to this tragic situation.

Speaker 4: Let me now turn to more positive news and SCP's earnings.

Let me now turn to model positive new and S&P's earnings.

Speaker 4: Our results clearly reflect the strong foundation we build over the last three years for the next phase of SAP's transformation. In Q3, we once again achieved strong cloud quotes and double digit operating profit quotes, up 16% for Q3 and 19% for the first nine months.

Unknown Attendee: If you would like to ask a question, you may press hash followed by one on your touchstone telephone.

Our results clearly reflect the strong foundation, we built over the last three years for the next phase of Sap's transformation.

Anthony Coletta: I would now like to turn the conference over to Anthony Coletta, Chief Investor Relations Officer. Please go ahead. During this call, we'll make forward looking statements which are predictions, projections or the statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual resolve and outcomes to materially defer. Additionally, information regarding this risk and uncertainties may be found in our findings with the securities and exchange conditions, including but not limited to the risk factor section of SAP's annual report on form 20F for 2022.

In Q3, we once again achieved strong cloud growth and double digit operating profit close up 16% for Q3 and 19% for the first nine months.

Speaker 4: confirming what we have said all along. 2020-SWEET is the year of double digit profit close. And, underlining the fact that we have reached the second phase of our transformation, the phase of acceleration.

Confirming what we have said all along.

2020 suite is the year of double digit profit close and underlining. The fact that we have reached the second phase of our transformation to face of acceleration.

The numbers tell the story best co and cloud backlog is up 25% again, driven by strong order entry across the portfolio and backed by a significantly lower.

Speaker 4: Curve and cloud backlog is up 25% again. To ribbon by strong order entry across the portfolio and backed by significantly lower-cher.

Cloud revenue growth is 23% within that SaaS and Pos is up 26%.

Speaker 4: Cloud value growth is 23%. Within that, 1000 passes up 26%.

Speaker 4: The foundation of SAP Success Stories, the Business Technology Platform, which underpins both our wise and core offering.

Foundation of S&P successor, Oes business technology platform, which underpins, both our wives and co offerings.

Anthony Coletta: Unless otherwise stated, on numbers on this call are non-ifrased and growth rates and processes point changes are non-ifrased. You are over here at custom currencies. The non-ifrased financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with our price.

Speaker 4: BTP is also the foundation for SAP's business AI to ensure high quality data and data privacy standards.

<unk> is also the foundation for Sep's business AI to ensure high quality data and data privacy standards.

Speaker 4: Over 22,000 BTP live customers contribute to almost 50% cloud revenue growth in our past business. This business has a run rate of well over 2 billion euro. We achieved the overall cloud growth despite pressure on transactional revenue, which was flat year over year due to the macroeconomic situation.

Our 22000, PDP lives customers contribute to almost 50% cloud revenue growth in our Pos business.

Anthony Coletta: Before turning over the call, I would like to take a moment to organize a significant milestone for SAP. This quarter marked the 25 year anniversary of its listing on the New York Stock Exchange. Reflecting on this journey, SAP began with a primary listing in Frankfurt 35 years ago to now be standing as the number one company under DAX. This dual listing is a testament to an amazing world story. It signifies our dedication to providing our investors with prime access across from the York Stock Exchange. As we celebrate this milestone, know that the focus on sustainable growth remains on revering and that the company's voice to keep innovating and creating shoulder value.

This business has has a run rate of well over $2 billion yellow we achieved the overall cloud gross despite pressure on transactional revenue, which was flat year over year to Q2, the macroeconomic situation.

Speaker 4: Our total audit entry, combining on premise and cloud, who at the fastest weight in almost two years. Behind these strong numbers are many new and existing customers who turn to us to future proof their business.

Our total order entry combining on premise and cloud grew at the fastest rate in almost two years.

Behind these strong numbers are many new and existing customers, who turned to us to future proof their businesses in the third quarter, we saw key customer wins like Adobe and Aldi suite across our solution portfolio. We also saw a number of important go lives, including BMW Coupe Ducati and.

Speaker 4: In the third quarter we saw key customer wins like Adobe and Aldezude across our solution portfolio. We also saw a number of important goalies including BMW Group, Ducati and Scott Spaw.

Christian Klein: And with that, I'd like to turn the call over to Christian. Yeah, thank you, Anthony, and thanks everyone for joining us for our Q3 earnings call today.

Scott spots.

Speaker 4: This quarter, we have once again seen significant momentum in our wise customer number, reaching well over 4,300 wise customers. Key customer wins include Puma, Cementel Cineas and LG with its energy solution and electronic units.

This quarter, we have once again seen significant momentum momentum in our wide customer number reaching well over 4300 <unk> customers.

Christian Klein: First of all, I want to express my shock and sadness at the heartbreaking events that have unfolded over the last few weeks. SAP condemns in the strongest possible terms, all acts of terror, and we are deeply concerned by the escalating conflict. We offer our deepest fantasies to all those impacted and are committed to supporting our colleagues, customers, and partners, during this most difficult time. I'm sure I speak for everyone here at SAP and I say that we hope for swift resolution to this tragic situation.

Key customer wins include Puma, Siemens housing <unk>, and LG with its energy solution and electronics units.

Speaker 4: There are multiple factors that drive the value of rights with SAP for our customers. With the migration to the cloud, responsibility for a T-operation shifts over to SAP and the hyperscaler. The combination of cloud ERP and SAP's process expertise is key for business model transformation.

There are multiple factors that drive the value of lives with S&P for our customers.

With the migration to the cloud responsibility for operation shift over to S&P and the hyper scaler the combination of cloud ERP and Sep's closest expertise is key for business model transformation.

Speaker 4: Let's take LG Energy solution for example. They chose SAP to help meet the warming demand for electric vehicle batteries.

Let's take energy energy solution for example, they chose S&P to help meet the growing demand for electric weigle batteries.

Christian Klein: Let me now turn to more positive news and SAP's earnings. Our results clearly reflect the strong foundation we build over the last three years for the next phase of SAP's transformation. In Q3, we once again achieved strong cloud growth and double digit operating profit growth, up 16% for Q3 and 19% for the first nine months, confirming what we have said all along. 2023 is the year of double digit profit growth and underlining the fact that we have reached the second phase of our transformation.

Speaker 4: Process standardization and embedded AI increase the productivity of customers in manufacturing, supply chain, HR, and finance.

What was the standardization and embedded AI increase the productivity of customers in manufacturing supply chain, HR and finance and.

Speaker 4: And by always being on the latest release, our customers also gain greater agility through continuous innovation.

And by always being on the latest release.

Our customers also gained greater agility through continuous innovation.

Speaker 4: Finally, we are removing the DIDA data silos with WISE with SAP and build one strong data layer to allow to steer the business 360 with real-time data. WISE and QUO are also very exciting opportunities for SAP.

Finally, we are removing decided data silos with wise with Asap and built one strong data layer to allow to steer the business reached 60 with real time data.

And Guo are also very exciting opportunities for us.

Speaker 4: The two offerings result in net new customers and an installed base maintenance conversion of more than 2x.

The two offerings with solid in net new customers and an installed base maintenance conversion of more than two X.

Christian Klein: The phase of acceleration. The numbers tell the story best. Current cloud backlog is up 25% again, driven by strong order entry across the portfolio and backed by significantly lower churn. Cloud revenue growth is 23%. Within that, thousand passes up 26%. The foundation of SAP's success story is the business technology platform, which underpins both our wise and core offerings. BTP is also the foundation for SAP's business AI to ensure high quality data and data privacy standards.

Speaker 4: At the heart of Rise&Grow, we have the business technology platform. It is the B2B platform for customers, partners, hyperscalers, and of course our own developers. Because it is the platform for the development of mission-critical business applications to extend our core.

At the heart of why isn't grow we have the business technology platform. It is D. B to B platform for customers partners, Hyperscale us and of course, our own developers.

Cost it is the platform for the development of mission critical business applications to extend our core <unk>.

Speaker 4: And this is why it represents such a massive business opportunity, also in the years to come.

And this is why it represents such a massive business opportunity also in the years to come.

Speaker 4: More than 80% of our rise and grow customers use BTP to integrate and extend the cloud ERP portfolio with differentiating capabilities. And we are already seeing strong cross-sell potential with customers replacing legacy ERP with public cloud ERP components, such as SAP SuccessFactors, Ariba, and Concur. That trend continues.

More than 80% of our why isn't Guo customers use PTP to integrate and extend the cloud ERP portfolio with differentiating capabilities.

And we are already seeing strong cross sell potential with customers relate replacing legacy ERP with public cloud ERP components, such as SAP Successfactors, our Iba and conquer that.

Christian Klein: Over 22,000 BTP life customers contribute to almost 50% cloud revenue growth in our past business. This business has a one way of well over 2 billion euro. We achieved the overall cloud growth despite pressure on transactional revenue, which was flat year over year to due to the macroeconomic situation. Our total order entry, combining on premise and cloud, grew at the fastest rate in almost two years. Behind these strong numbers are many new and existing customers who turn to us to future proof their businesses.

That trend continues to grow.

Speaker 4: S4HANA Cloud customers are four times more likely to have four or more of our Cloud LLB products with the BTP as the integration extension layer for Cloud ERP.

As for Hana cloud customers are four times more likely to have four or more of our cloud <unk> product with the BT P. SD integration extension layup for cloud ERP.

Speaker 4: And finally, we are able to deliver innovation to customers much faster, meaning we can focus our R&D spend on innovation and not on maintenance and localization. It's a win-win for our customers and SAP, even under difficult macroeconomic conditions.

And finally, we are unable to deliver innovation to customers much faster, meaning we can focus our R&D spend on innovation and not on maintenance and localization.

It's a win win for our customers and S&P, even under difficult macroeconomic conditions.

Speaker 4: Last week, we took WISE to the next level. We have launched a new Premium Plus Package for WISE, including differentiating AI, sustainability, and advanced finance capabilities, such as cash flow optimization. It also simplifies how our customers consume AI with a new consumption-oriented license model.

Christian Klein: In the third quarter, we saw key customer wins like Adobe and Aldi Seud across our solution portfolio. We also saw a number of important goal lives, including BMW Group, Ducati and Scott's Charles. This quarter, we have once again seen significant momentum in our wise customer number, reaching well over 4,300 wise customers. Key customer wins include Puma, Cementel, Cineas, and LG, with its energy solution and electronic units. There are multiple factors that drive the value of wise with SAP for our customers.

Last week, we took wise to the next level.

<unk> launched a new premium plus package for wise, including differentiating AI sustainability and advanced finance capability, such as cash flow optimization. It also simplifies how our customers consume AI with the new consumption oriented license model.

Speaker 4: Furthermore, we have introduced a new conversion program for Ys with SAP. This program offers further commercial incentives to support our customers on their transformation journeys and accelerate their move to SAP's Cloud ERP.

Furthermore, we have introduced a new conversion program for wise with S&P. This program of a fuller commercial incentives to support our customers on their transformation journeys and accelerate their move to Sap's cloud ERP.

Likewise Guo of S&P had also a great start with strong adoption among startups and companies new to S&P global phase.

Speaker 4: Likewise, Grow with SAP had also a great start with strong adoption among startups and companies new to SAP. Grow with SAP is our cloud native ERP suite offering for rapidly growing mid-market companies. After only three quarters, more than 440 customers in over 80 countries have selected Grow with SAP's cloud ERP to accelerate their business, innovate and grow around the world.

Christian Klein: With the migration to the cloud, responsibility for our IT operations shifts over to SAP and the hyperscaler. The combination of cloud ERP and SAP's process expertise is key for business model transformation. Let's take LG energy solution, for example. They chose SAP to help meet the growing demand for electric vehicle batteries. Process standardization and embedded AI increased the productivity of customers in manufacturing, supply chain, HR, and finance. And by always being on the latest release, our customers also gain greater agility through continuous innovation. Finally, we are removing the data silos with wise with SAP and build one strong data layer to allow to steer the business 360 with real-time data.

It's our cloud native ERP suite offering for rapidly growing mid market companies.

After only three quarters more than 440 customers in over 80 countries have selected kuo with Sap's cloud ERP to accelerate their business innovate and grow around the world.

Speaker 4: Business transformation is much more than the pure technical migration of ERP legacy landscapes to the cloud.

Business transformation is much more than the pure technical my equation of ERP legacy landscapes to the cloud.

Speaker 4: it's key to connect end-to-end processes and the entire data and system landscape to drive true transformation. In 2021, we acquired Signavio, covering the process perspective.

It's key to connect and to end processes and the entire data and system landscape to drive true transformation.

In 2021, we acquired seeking RVO cowing, Diplosis perspective, and in Q3, we announced our intent to acquire lean IX to power. The overall enterprise architecture perspective, making sure processes systems and data are yielding the wide outcome for areas SAP cut.

Speaker 4: And in Q3, we announced our intent to acquire Lean IX to cover the overall enterprise architecture perspective, making sure processes, systems, and data are yielding the right outcome for every SAP customer.

Christian Klein: Wise and grow are also very exciting opportunities for SAP. The two offerings result in net new customers and an installed base maintenance conversion of more than 2x. At the heart of wise and grow, we have the business technology platform. It is deep B2B platform for customers, partners, hyperscalers, and of course our own developers. Because it is deep platform for the development of mission critical business applications to extend our core. And this is why it represents such a massive business opportunity also in the years to come.

Speaker 4: Together, LEAN IX, SIGNAVIO, and SAP Cloud Application Lifecycle Management create a unique business transformation suite.

Together, <unk> <unk> and SVP cloud application lifecycle management create a unique business transformation suite.

Speaker 4: Earlier this year, we also introduced our business AI strategy to the market, bringing together our existing AI capabilities with the new potential of generative AI to transform how businesses run. We have already made a lot of progress over the last few months. We have consent from thousands of customers to use their anonymized data to develop and train our AI use cases and foundational data models.

Earlier. This year, we also introduced our business AI strategy to the market pain to get our existing AI capabilities with the new potential of generating AI to transform how businesses one we.

We have already made a lot of focus over the last few months, we have content on.

Christian Klein: More than 80% of our wise and grow customers use BTP to integrate and extend the cloud ERP portfolio with differentiating capabilities. And we are already seeing strong causal potential with customers replacing legacy ERP with public cloud ERP components such as SAP success factors, Arriva, and Conquer. That trend continues to grow. S4HANA cloud customers are four times more likely to have four or more of our cloud LUB products, with the BTP as the integration extension layer for cloud ERP.

Thousands of customers to use their anonymised data to develop and train our AI use cases and foundational data model. The launch of our digital Copilot Shaw was a huge success and we are starting to all it out across our portfolio This fall and.

Speaker 4: The launch of our digital co-pilot tool was a huge success. And we are starting to roll it out across our portfolio this fall.

Speaker 4: And just last week, we announced our new wise premium plus commercial offering, as I mentioned already. SAP Business.

And just last week, we announced our new wise premium plus commercial offering as I mentioned already.

Our CP business AI is reliable we are making promising progress on building foundational models to enable generated and predictive capabilities from structured business data S&P data fear combined structure SVP data with data from other sources to produce highly accurate with.

Speaker 4: We are making promising progress on building foundational models to enable generative and predictive capabilities from structured business data. SAP DataSphere combines structured SAP data with data from other sources to produce highly accurate results, which is so essential in the B2B world. And our new co-pilot tool will be able to work together with many LLM models to ensure we can offer this technology across the globe.

Christian Klein: And finally, we are able to deliver innovation to customers much faster. Meaning we can focus our on these spend on innovation and not on maintenance and localization. It is a win-win for our customers and SAP, even under difficult macroeconomic conditions.

<unk>, which is so essential in the <unk> world and our new co pilot tool will be able to work together with many LLM models to ensure we can offer this technology across the globe.

Christian Klein: Last week, we took wise to the next level. We have launched a new premium plus packet for wise, including differentiating AI, sustainability, and advanced finance capabilities, such as cash flow optimization. It also simplifies how our customers consume AI with a new consumption oriented license model. Furthermore, we've introduced a new conversion program for WISE with SAP. This program offers further commercial incentives to support our customers on their transformation journeys and accelerate their moves to SAP's cloud ERP.

Speaker 4: And as a result, SAP Business AI is also more well aware.

And as a result.

<unk> business AI is also more relevant.

Speaker 4: Our co-pilot speaks more than CIM. It can manage finance, HR, procurement, sales, marketing, industries, and ESG data, providing answers and recommendations to even the most complex questions.

Our copilot speaks more than CRM.

Can manage finance HR procurement sales marketing industries, and ESG data, providing answer some recommendations to even the most complex questions and automating. Many activities currently performed manually by millions of end users.

Speaker 4: and automating many activities currently performed manually by millions of SAP end users. Recent announcements by key partners such as Accenture and Deloitte further underscore the central world played by SAP.

Recent announcements by key partners, such as Accenture and Deloitte further underscore the central role played by Asap.

Christian Klein: Like WISE, Grow with SAP had also a great start, with strong adoption among startups and companies new to SAP. Grow with SAP is our cloud native ERP suite offering for rapidly growing mid-market companies. After only three quarters, more than 440 customers in over 80 countries have selected Grow with SAP's cloud ERP to accelerate their business innovate and grow around the world. Business transformation is much more than the pure technical migration of ERP legacy landscapes to the cloud.

Speaker 4: Let's be clear, this is just the beginning. Over time, business AI will have a revolutionary impact on the entire business landscape, and SAP will be at the center of that. So stay tuned for more exciting announcements at CX Live and TechEd next month. In closing, let me

Let's be clear. This is just the beginning overtime business AI will have or they look evolutionary impact on the entire business landscape and S&P will be at the center of that so stay tuned for more exciting announcements at CX life and tech at next months.

In closing, let me quickly summarize.

Speaker 4: We have had a strong Q3 and I'm excited by the results. First, SAP continues to deliver on our commitments to the market and we are now well into the second phase of our transformation.

We have had a strong Q suite and I'm excited by the results.

<unk> S.

<unk> continues to deliver on our commitments to the market and we are now well into the second phase of our transformation.

Speaker 4: Second, SAP's unique position at the nexus between business and technology allows us to continue to translate innovations into business outcomes for our customers.

Christian Klein: It's key to connect and to end processes and the entire data and system landscapes to drive to transformation. In 2021, we acquired SignalView, covering the process perspective. And in Q3, we announced our intent to acquire LeanIx to cover the overall enterprise architecture perspective, making sure processes, systems, and data are yielding the wide outcome for every SAP customer. Together, LeanIx, SignalView, and SAP cloud application lifecycle management create a unique business transformation suite.

Second sap's unique position at the Nexus between business and technology allows us to continue to translate innovations into business outcomes for our customers means.

Speaker 4: Meaning certainly, despite ongoing macroeconomic headwinds, our cloud momentum remains strong and growth continues to accelerate. All in all, putting us well on track to achieve our 2025 ambition.

Meaning thirdly, despite ongoing macroeconomic headwinds our cloud momentum remains strong and cant close continues to accelerate all in all putting us well on track to achieve our 2025 ambition.

Speaker 4: This is just the beginning of the next phase. We will further accelerate innovation, try focus in our portfolio, and realize greater efficiencies with our increasing scale. So with that, Dominic, over to you.

This is just the beginning of the next phase we will further accelerate innovation to a focus on our portfolio and realize greater efficiencies with our increasing scale. So if that dominic over to you.

Christian Klein: Earlier this year, we also introduced our business AI strategy to the market, bring together our existing AI capabilities with the new potential of generative AI to transform how businesses run. We have already made a lot of focus over the last few months. We have consent from thousands of customers to use their anonymized data to develop and train our AI use cases and foundational data model. The launch of our digital co-pilot tool was a huge success and we are starting to roll it out across our portfolio this fall.

Speaker 5: Thank you very much, Christian, and good evening, ladies and gentlemen.

Thank you very much Christian and good evening, ladies and gentlemen.

Speaker 5: In light of the current macroeconomic environment, we are pleased with the results of the third quarter across the globe.

In light of the current macroeconomic environment. We are pleased with the results of the third quarter across the globe.

Speaker 5: And now, with the added capabilities of LINAx and JUUL, SAP is even better positioned to develop and deliver unparalleled value to our stakeholders.

And now with the added capabilities of <unk> in June .

Is even better positioned to develop and deliver unparalleled value to our stakeholders.

Speaker 5: In Q3, we saw continued momentum of our cloud business with current cloud backlog growing by 25% for the third consecutive quarter.

In Q3, we saw continued momentum of our cloud business with current cloud backlog growing by 25% for the third consecutive quarter.

Cloud revenue in the third quarter grew by 23% maintaining the growth rate, we had achieved in Q3 of last year.

Christian Klein: And just last week, we announced our new vice premium plus commercial offering, as I mentioned already. SAP Business AI is reliable. We are making promising progress on building foundational models to enable generative and predictive capabilities from structured business data. SAP DataSphere combines structured SAP data with data from other sources to produce highly accurate results, which is so essential in the B2B world. And our new co-pilot tool will be able to work together with many LLM models to ensure we can offer this technology across the globe.

Speaker 5: Cloud Revenue in the third quarter group by 23% maintaining the growth rate we had achieved in Q3 of last year.

The trend towards larger cloud transactions continued with deals greater than 5 million euros in volume contributing approximately half of our cloud order entry.

Speaker 5: The trend towards larger cloud transactions continued with these greater than 5 million euros in volume contributing approximately half of our cloud order entry. Let me walk you through.

Let me walk you through our financial performance.

Speaker 5: Current clock backlog was 12.3 billion euros growing by 25% fueled by the success of RISE with SAP offering.

Current cloud backlog was $12 3 billion growing by 25% fueled by the success of rife with SAP offerings.

Speaker 5: Our combined SaaS and PaaS portfolio continue to grow by 26%, with SaaS cloud revenue up 23% and PaaS cloud revenue even up 46%.

Our combined sales and Pos portfolio continued to grow by 26%, but the SaaS cloud revenue up 23% and Pos cloud revenue up 46%.

Christian Klein: And as a result, SAP Business AI is also more relevant. Our co-pilot speaks more than CM. It can manage finance, HR, procurement, sales, marketing, industries, and ESG data, providing answers and recommendations to even the most complex questions and automating many activities currently performed manually by millions of SAP end users. Recent announcements by key partners such as Accenture and Deloitte further underscore the central world played by SAP.

Speaker 5: This continued momentum was again fueled by the strong contribution of the business technology platform which unapends every single SAP application.

This continued momentum was again fueled by the strong contribution of the business technology platform, which underpins every single application.

Speaker 5: software licenses, revenues saw a decrease of only 14 percent, demonstrating the resilience thanks to a few major transactions.

Software licenses revenue saw a decrease of only 14% demonstrating the resilience. Thanks to a few major transactions.

Speaker 5: Finally, total revenue was up 9% driven by broad-based strength across all predictable revenue streets. Now let's take a brief look.

Finally, total revenue was up 9% driven by broad based strength across all predictable revenue streams.

Now, let's take a brief look at our regional performance.

Christian Klein: Let's be clear, this is just the beginning. Over time, business AI will have a revolutionary impact on the entire business landscape and SAP will be at the center of that.

Speaker 5: In the third quarter, SAP's cloud revenue performance was particularly strong in APJ and Imiya and followed in the Americas reach.

In the third quarter of Sap's cloud revenue performance was particularly strong in a P J and EMEA and solid in the Americas region.

Speaker 5: Brazil, India and the Netherlands had outstanding cloud revenue growth while Canada, China, France, Germany, Japan and Switzerland perform particularly strong. Now let's move down.

Brazil, India, and the Netherlands had outstanding cloud revenue growth, while Canada, China, France, Germany, Japan, and Switzerland performed particularly strong.

Christian Klein: So stay tuned for more exciting announcements at CX Live and Tech at next month.

Christian Klein: In closing, let me quickly summarize, we have had a strong Q-suite and I'm excited by the results. First, SAP continues to deliver on our commitments to the market and we are now well into the second phase of our transformation. Second, SAP's unique position at the nexus between business and technology allows us to continue to translate innovations into business outcomes for our customers, meaning, certainly, despite ongoing macroeconomic headwinds, our cloud momentum remains strong and controls continues to accelerate.

Now, let's move down the income statement.

Our cloud gross profit grew by 28% driven by the effective leveraging of economies of scale and operational efficiencies as evidenced by a reduced cost ratios across the board.

Speaker 5: Our cloud growth profit grew by 28%, tuned by the effective leveraging of economies of scale and operational efficiencies as evidenced by reduced cost ratios across the board.

Speaker 5: Groating cloud gross margin in turn improved for the third consecutive quarter, expanding roughly 2.9 percentage points to 73.7% year-over-year.

Growth in cloud gross margin internal improved for the third consecutive quarter, expanding roughly two nine percentage points to 73, 7% year over year.

Okay.

Speaker 5: The third quarter non-IFA's operating profit increased by 16% supported by the resilience of our on-premise business as well as operation discipline which overcompensated the negative impact of an accelerated amylization of capitalized sales commission.

In the third quarter non <unk> operating profit increased by 16% supported by the resilience of our on premise business as well as operational discipline, which overcompensated the negative impact of an accelerated amortization of capitalized sales commissions.

Christian Klein: All in all, putting us well on track to achieve our 2025 ambition. This is just the beginning of the next phase. We will further accelerate innovation, try to focus on our portfolio and realize greater efficiencies with our increasing scale.

Speaker 5: Finally, the operating margin landed at 29.4%, which is a 1.9% point improvement compared to prior year.

Finally, the operating margin landed at 29, 4%, which is a one nine percentage point improvement compared to prior year.

Speaker 5: IFRS earnings per share in the quarter increased by 45% to 1.9%.

<unk> earnings per share in the quarter increased by 45% to one year line.

Dominik Asam: So with that, Dominic, over to you.

Speaker 5: The IFS effective takes rate for Q3 was 27.8% and the non IFS takes rate was 27.1%.

The IRS effective tax rate for Q3 was 27, 8% and the non <unk> tax rate was 27 point.

Dominik Asam: Thank you very much, Christian and good evening, ladies and gentlemen. In light of the current macroeconomic environment, we are pleased with the results of the third quarter across the globe. And now, with the added capabilities of Lina X and June, SAP is given better position to develop and deliver some parallel value to our stakeholders. In Q3, we saw continued momentum of our cloud business with count cloud backlog growing by 25% for the third consecutive quarter.

1%.

Speaker 5: On to our cash generation, free cash flow for Q3 increased to 865 million driven by SAP's profitability, improvements in working capital and lower payments for capex and leasing.

Onto our cash generation free cash flow for Q3 increased to $865 million driven by Sap's profitability improvements in working capital and lower payments for Capex and leasing.

Speaker 5: For the first nine months, three cashflow was 3.4 billion euros and increased by 761 billion. Now let's move on to our...

For the first nine months free.

Free cash flow was $3 4 billion euros and increased by $761 million.

Now, let's move on to our financial outlook.

As you've likely seen by now we are reiterating the outlook we have.

Speaker 5: As you've likely seen by now, we are reiterating the outlook we had updated in July . For the detailed outlook, please refer to our quarterly statement published earlier today.

Dominik Asam: Cloud revenue in the third quarter grew by 23% maintaining the growth rate we had achieved in Q3 of last year. The trend towards larger cloud transactions continued with these greater than 5 million euros in volume contributing approximately half of our cloud order entry.

<unk> updated in July for the detailed outlook. Please refer to our quarterly statement published earlier today.

Speaker 5: Let's now discuss our non-financial targets. We can confirm our non-financial guidance for 2023, as we are well on track to meet our targets this year. In Q3, SAP once again had net-carbon emissions of zero kilotons.

Let's now discuss our nonfinancial targets, we can confirm or non financial guidance for 2023.

Dominik Asam: Let me walk you through our financial performance. Current cloud backlog was 12.3 billion euros growing by 25% fueled by the success of rise with SAP offerings. Our combined SARS and the past portfolio continued to grow by 26% with the SARS cloud revenue up 23% and past cloud revenue even up 46%. This continued momentum was again fueled by the strong contribution of the business technology platform, which underpins every single SAP application. Software licenses revenue saw a decrease of only 14%, demonstrating the resilience thanks to a few major transactions.

We are well on track to meet our targets. This year in Q3, once again had net carbon emissions of zero kilo tons.

Speaker 5: We continue to focus on achieving that zero emissions across our value chain by 2030.

We continue to focus on achieving net zero emissions across our value chain by 2030.

Speaker 5: In summary, Q3 proves to be another solid quarter, evidenced by strong revenue and current cloud backlog growth. The structure moves to the cloud and the interest of our customers in future proving their businesses remain unabated.

In summary, Q3 proved to be another solid quarter as evidenced by strong revenue and current cloud backlog growth the structural move to the cloud in the interest of our customers in future proofing their businesses remain unabated.

Speaker 5: Despite the persisting Markle Hadwins, SAP continues to be mission critical in helping our customers transform the businesses.

Despite the persistent macro headwinds.

<unk> continues to be mission critical in helping our customers transform their businesses leaner.

Speaker 5: Lina X and Joule are prime examples of our ongoing efforts to innovate around our solutions, giving customers access to full suite of tools to fundamentally change the way they run their business.

Kleenex and jewelry are prime examples of our ongoing efforts to innovate around all solutions, giving customers access to a full suite of tools to fundamentally change the way they run their businesses.

Dominik Asam: Finally, total revenue was up 9%, driven by broad based strength across all predictable revenue streams. Now, let's take a brief look at our regional performance. In the third quarter, SAP's cloud revenue performance was particularly strong in APJ and IMEA and founded in the Americas region. Brazil, India and the Netherlands had outstanding cloud revenue growth while Canada, China, France, Germany, Japan, and Switzerland performed particularly strong.

In addition to the top line, we continue to balance growth and profitability, allowing us to boost our bottom line.

Speaker 5: All of this gives us confidence in our ability to capitalize on a massive market opportunity presenting itself to SAP. Thank you and we will now be happy to take your questions.

All of this gives us confidence in our ability to capitalize on the massive market opportunity presenting itself to us.

Thank you and we will now be happy to take your questions.

Alright, I would like to kindly remind you to only ask one question when prompted <unk>. So operator, please open the line.

Speaker 3: Alright then I would like to kindly remind you to only ask one question when prompted please so operator please open the line

Dominik Asam: Now let's move down the income statement. Our cloud growth profit grew by 28% during by the effective leveraging of economies of scale and operational efficiencies as evidenced by reduced cost ratios across the board. Growth in cloud growth margin and turn improved for the third consecutive quarter, expanding roughly 2.9 percentage points to 73.7% year over years. The third quarter non-ifers operating profit increased by 16% supported by the resilience of our on-premise business as well as operation discipline, which over compensated the negative impact of an accelerated amylization of capitalized sales commissions.

Speaker 1: Ladies and gentlemen, at this time we will begin with a question and answer.

Ladies and gentlemen at this time, we will begin with a question and answer session anyone who wishes to ask a question.

Speaker 1: Anyone who wishes to ask a question may press hash followed by one on their touchstone till it.

Chris has followed by one on that touch tone telephone.

Speaker 1: If you wish to remove yourself from the question queue, you may press hash followed by 3.

If you wish to remove yourself from the question queue. You May press has followed by three.

Speaker 1: If you are using speaker equipment today, please list the handset before making your selection.

If you are using speaker equipment today, please lift the handset before making your selection.

And I wanted to ask a question May press hash followed by one at this time one moment for the question. The first question. Please.

Speaker 1: Anyone who has a question may press hash followed by one at this time. One moment for the first question.

Speaker 1: And there it already is. The first question comes from the line of Mark Murtler with Stanford C. Bernstein.

And there is already is the first question comes from the line of Marc Naughton with sand for cheaper.

C Bernstein.

Go ahead your line is open.

Dominik Asam: Finally, the operating margin landed at 29.4%, which is a 1.9 percentage point improvement compared to prior year. IFRS earnings per share in the quarter increased by 45% to 1.9%, the IFRS effective takes rate for Q3 was 27.8%, and the non-ifers takes rate was 27.1%.

Speaker 6: Thank you very much for taking my questions. Congratulations on the strong quarter. In fact, I'd like to ask about that specifically. ERP has generally been thought of as core workloads. That's not really impacted by maximum.

Thank you very much for taking my questions. Congratulations on the strong quarter in fact, I would like to ask about that specifically ERP has generally been thought of as core workloads, that's not really impacted by macro Bose, we're seeing some other vendors in the market.

Speaker 6: But as we've seen some other vendors in the market that there is persistent macro concerns of slowing slowing to the pipeline etc. Can you give us some color on

That there is persistent macro concerns of slowing slowing to the pipeline et cetera can you give us some color on are you seeing anything in terms of slowing in the pipeline build time to transition through the pipeline is there any difference between existing customers migrating versus new customers adoption, how should we think about.

Dominik Asam: On to our cash generation, free cash flow for Q3 increased to 865 million driven by SAP's profitability, improvements in working capital, and lower payments for CAPEX and Leasing. For the first 9 months, free cash flow was 3.4 billion euros and increased by 761 million.

Speaker 6: Are you seeing anything in terms of slowing in the pipeline build?

Speaker 6: time to transition through the pipeline. Is there any difference between existing customers migrating versus new customers adoption? How should we think about that going forward? Thank you. Yeah, thanks. So thanks a lot, Mark.

That going forward. Thank you.

Thanks, and thanks, a lot Mike for the question.

Speaker 4: First of all, from the customer base perspective, I mean, we see strong momentum both in converting our install base as you heard with a very healthy conversion factor to the cloud. But second, QOL with SAP has also an exceptional area is strong start and these are really representing.

First of all from the customer base perspective, I mean, we see strong momentum both in converting our installed base as you heard with a very healthy conversion factor to the cloud.

Dominik Asam: Now, let's move on to our financial outlook. As you've likely seen by now, we are reiterating the outlook we had updated in July. For the detailed outlook, please refer to our quarterly statement published earlier today.

Core with SCP is all I had also in an exceptionally strong start and these are really representing new customers to the S&P firmly and with regard to the pipeline broken I highlighted LG electronics for example, and this is a very good example on many of the ERP deal.

Dominik Asam: Let's now discuss our non-financial targets. We can confirm our non-financial guidance for 2023, as we are well on track to meet our targets this year. In Q3, SAP once again had net-carbon emissions of zero kilotons. We continue to focus on achieving that zero emissions across our value chain by 2030. In summary, Q3 proved to be another solid quarter, evidenced by strong revenue and current cloud backlog growth. The structure moves to the cloud and the interest of our customers in future proving their businesses remain unabated.

Speaker 4: new customers to the SAP family. And with regard to the pipeline, look, I highlighted LG electronic, for example. And this is a very good example on many of the ERP deals we are doing. This company is also going through a massive transformation. And electric and batteries, they're producing this at mass scale. And this is a different business model to what they did in the past.

We are doing this company is also going through a massive transformation in electric and batteries. They are producing at mass scale and this is a different business model to what they did in the past and so they not only need a new ERP they need a new way of how they won LG electronics and that's why they are deciding.

Speaker 4: And so they not only need a new European, they need a new way of how they want LG electronics. And that's why they are deciding and approving this business.

<unk> and approving this business case and so this is essential to their business and while of course, the macroeconomic times are tough out there we are extremely well aligned to our customers' transformation on top.

Speaker 4: And so this is essential to their business. And while of course the macroeconomic times are tough out there, we are extremely well-aware to our customers' transformation. And on the top.

Dominik Asam: Despite the persisting macro headwinds, SAP continues to be mission critical in helping our customers transform the businesses. Lena X and Joule are prime examples of our ongoing efforts to innovate around our solutions, giving customers access to full suite of tools to fundamentally change the way they run their businesses. In addition to the top line, we continue to balance growth and profitability, allowing us to boost our bottom line. All of this gives us confidence in our ability to capitalize on a massive market opportunity presenting itself to SAP.

Speaker 4: You heard the announcement around SAP Business AI and of course we have to deliver that in the cloud and that's of course another strong driver for our pipeline in the next waters but it's got over to you to give some more light on the water and the pipeline.

You heard the announcement the wound S&P business AI and of course, we have to deliver that in the cloud and that's of course, not a strong driver for our pipeline in the next quarters, but Scott over to you to give some more light on the quarter and the pipeline yeah sure happy to happy to Christian So I think he said it well with the example of L. JV by Bruce.

Speaker 7: Yes, you're all happy to have a two Christians. So I think you said it well with the example of LGB. If I broaden that out.

Wouldn't that out what we're seeing in the market across all geographies is companies small medium large or focusing on their call. What's mission critical how did I get efficiency and they've set themselves up to be able to.

Speaker 7: What we're seeing in the market across all geographies is

Speaker 7: Companies small minimum large are focusing on their core what's mission critical? How do they get efficiency and then set themselves up to be able to take C's opportunities or Protect against threats in their business

Unknown Attendee: Thank you, and we will now be happy to take your questions. All right, then I would like to kindly remind you to only ask one question when prompted, please so operator, please open the line. Ladies and gentlemen, at this time we will begin with a question and answer session. Anyone who wishes to ask a question may press hash followed by one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press hash followed by three. If you are using speaker equipment today, please list the handset before making your selections. Anyone who has a question may press hash followed by one at this time, one moment for the first question, please.

Seize opportunities or protect against threats in their business and so that's why the ERP in the cloud is so important it's not just the move in the cloud. It's the transformation of the business using our ERP cloud and extended capabilities and so that's why you see such resilience because when things are at.

Speaker 7: And so that's why the ERP in the cloud is so important. It's not just the move in the cloud, it's the transformation of their business using our ERP cloud and extended capability.

Speaker 7: And that's why you see such resilience because when things are uncertain or you need prudence, you make sure your core operating model of your company is fit and max fit for the future that you're driving. So LG, but I think about customers like Adobe 3M, there's so many others that are going through this journey with us.

Uncertain or you need Prudence you make sure your core operating model of your company is is fit and match fit for the future that youre driving so LG, but I think about customers like Adobe <unk>. There's so many others that are going through this journey with us to be able to make sure that they can see.

Mark Moerdler: And there it already is, the first question comes from the line of Mark Moerdler with Stanford C. Bernstein, though ahead your line is open. Thank you very much for taking my questions, congratulations on the strong quarter. In fact, I'd like to ask about that specifically, ERP has generally been thought of as core workloads that's not really impacted by macro, but I was just seeing some other vendors in the market that there is persistent macro concerns of slowing, slowing to the pipeline, et cetera.

Speaker 7: to be able to make sure that they can seize at the and future proof their business. The one other thing that I would highlight and question mentioned this in the opening comment.

And future proof their business. The one other thing that I would highlight and Christian mentioned this in the opening comments.

Speaker 7: When we see our customers, which we've had a lot of large customers come in with rise with SAP, they're not just looking at the core RP, they're then looking at the extended capabilities to be able to resolve whether it be in commerce or in HR or in procurement or in supply chain, so the extended capability through that integration that we've invested so heavily over the past few years.

When we see our customers, which we've had a lot of large customers coming with raws with this IP, they're not just looking at the core up he did in looking at the extended capabilities to be as a result, whether it be in commerce or in high char and procurement or supply chain city extended capability through that integral.

Asian that we've invested so heavily over the past few years. They are now able to seize upon that opportunity to be able to drive forward, which means the future is obviously notwithstanding the macroeconomic conditions, we feel like we're well placed.

Speaker 7: they're now able to seize upon that opportunity to be able to drive forward, which means the future is obviously notwithstanding the macroeconomic conditions, we feel like we're well placed.

Mark Moerdler: Can you give us some color on, are you seeing anything in terms of slowing in the pipeline build, time to transition through the pipeline. Is there any difference between existing customers? Where is migrating versus new customers adoption? How should we think about that going forward? Thank you. Yeah, thanks, thanks a lot, Mark, for the question. I mean, first of all, from the customer base perspective, I mean, we see strong momentum both in converting our install base as you heard with a very healthy conversion factor to the cloud.

Excellent. Thank you.

Thank you and we'll take the next question. Please.

The next question is from the line of Tobey York with JP Morgan Cazenove Limited. Please go ahead.

Speaker 1: The next question is from the line of Tobiok with J.P. Morgan Casanova Limited. Please go ahead.

Yes, hi, and thanks for the question, perhaps just on the just on the cloud revenue growth side. So the guidance implies continued acceleration into Q4 I know that.

Mark Moerdler: But second core with SAP has also had exceptional areas to on start and these are really representing new customers to the SAP family. And with regard to the pipeline, look, I highlighted LG electronic for example, and this is a very good example on many of the ERP deals we are doing. This company is also going through a massive transformation and electric and batteries, they're producing this at mass scale and this is a different business model to what they did in the past.

Speaker 8: Perhaps just on the cloud revenue growth side, so the guys and supplies continued acceleration into Q4.

Speaker 8: I know there's the lip moth by bestiture, which is going to end your life.

Mark Moerdler: And so they not only need a new ERP, they need a new way of how they want LG electronics and that's why they are deciding and improving this business case. And so this is essential to their business and while of course the macroeconomic times are tough out there, we are extremely relevant to our customers transformation. And on top, you heard the announcement around SAP business AI and of course we have to deliver that in the cloud.

Most divestiture, which is going to annualize.

Speaker 8: But I think you exit to that in December , so probably not the full benefit there. Well, I guess just with that in mind, Dominic, one of the drivers of that implied cloud revenue growth acceleration.

But I think you exited that in December so probably not the full benefit that well I guess just with that in mind.

So Mike what are the drivers of that implied cloud revenue growth acceleration into Q4.

Speaker 8: into Q4 and how confident are you in achieving that? I guess just given the more difficult macro and also I guess the potential for transactional to be ahead when there as well. Thank you.

How confident are you in achieving that I guess, just given the more difficult macro and and also I guess the potential for transactional to be a headwind there as well.

Speaker 5: Maybe a little bit of granularity on some things you already mentioned, like the LITMOS impact.

Maybe maybe a little bit of granularity.

Granularity on some things you already mentioned like the most impact for the full year, we think that most of them had a good percentage point.

Speaker 5: I mean, for the full year, we think that Lidmoss will add a good percentage point of basically headwind. So when you look at the kind of cumulative year to date, it's already kind of

Of basically headwind. So when you look at the kind of cumulative year to date, it's already kind of.

Speaker 5: pulled down by that. So the real underlying growth rate is already very close to the 24% or so we need to fulfill the lower end of the guides. Now on top of that, there is of course the discussion about the transactional business where Q2 has already been difficult. We have been...

Pulled down by that so the real underlying grew.

Growth rate is already very close to the 24% or so we need to fulfill the lower end of the guidance now on top of that there is of course the discussion about the transactional business, where Q2 is already been difficult. We have been very slightly up marginally in Q3 was actually flattish or very slightly down.

Mark Moerdler: And that's of course another strong driver for our pipeline in the next waters, but got over to you to give some more light on the water and the pipeline. Yeah, sure, happy to have you two Christians. So I think you said it well with the example of LG, but if I broaden that out, what we're seeing in the market across all geographies is companies, small, medium, large are focusing on their core.

Speaker 5: very slightly up, but marginally Q3 was actually flattish or even very slightly down. So we have not seen much relief.

We have not seen much relief on that front and that's another thing that's of course.

Speaker 5: And that's another thing that's of course something we will not see as such a strong headwind from our perspective for quarters to come, but might be more temporary in nature. When exactly that will happen is of course a little bit dependent on the market economic environment. Logically when you are in a soft environment, the first thing you do is cutting travel expenses, cutting contingent workforce. So that business has been very difficult. There are other parts in it which are growing fast.

That's something we will not see is such a strong headwind from our perspective for quarters to come but likely more temporary in nature, but when exactly that will happen is of course, a little bit dependent on the macroeconomic environment logically. When you are in a soft environment. The first thing you do is cutting travel expenses cutting contingent workforce. So that business has been very difficult.

Mark Moerdler: What's mission critical? How do they get efficiency and then set themselves up to be able to take these opportunities or protect against threats in their business. And so that's why the ERP in the cloud is so important. It's not just the move in the cloud. It's the transformation of their business using our ERP cloud and extended capabilities. And that's why you see such resilience because when things are uncertain or you need prudence, you make sure your core operating model of your company is is fit and max fit for the future that you're driving.

Our other parts of it which are growing fast, but the kind of decline for instance in contingent workforce has resulted in a flattish environment. So that's.

Speaker 5: but the kind of decline for instance, contingent workforce has resulted in a flatish environment. So that's...

Speaker 4: The acceleration we need, I also want to remind you that even if you jump off the kind of low end of the range for the guidance for this year, which is 14 billion, with our 2025 guidance, we need about 24 percent. So you see that we're really on the cloud revenue trajectory, depolluted for litmus, depolluted for that kind of temporary headwind where we think that this will be more cyclical around that trend line, very much on track for that trajectory. And you also have to consider with regard to 2025.

The exploration we need I also want to remind you that even if you jump off the low end of the range for the guidance for this year, which is $14 billion towards our 2025 guidance, we need about 24%. So you think you can see what we're really on the cloud revenue trajectory. The polluted Philip most people alluded for that kind of temporary headwind, where we think that this will be.

Mark Moerdler: So LG, but I think about customers like Adobe 3M, there's so many others that are going through this journey with us to be able to make sure that they can seize the future for their business. Williams. When we see our customers, which we've had a lot of large customers come in with rise with SAP, they're not just looking at the quarry up. They're then looking at the extended capabilities to be able to resolve whether it be in commerce or in HR or in procurement or in supply chain.

More cyclical around that trend line very much on track for that trajectory.

And you also have to consider with regards with trended 25, you have to consider that especially the large transactions they foresee a ramp.

Speaker 9: You have to consider that especially the large transactions, they foresee a ramp. So when we are looking at the current cloud backlog of 12 or for now over 12 billion, ACV, obviously there is a ramp included in the contracts, which was going to help us now in the years. Now that RISE is out there for three years, the ramp will now going up and with that, with the adoption, of course, we will also going to see, you know, further cloud revenue acceleration in the years to come.

So when we are looking at the current cloud backlog of $12. Four now over 12 billion ACB. Obviously days included into contracts, which were also going to help us now in the year now that wise is out there for three years to ramp the ramp level now going up and with that with the adoption of course, we will also going to see further cloud.

Mark Moerdler: So the extended capability through that integration that we've invested so heavily over the past few years, they're now able to seize upon that opportunity to be able to drive forward, which means the future is obviously notwithstanding the macroeconomic conditions, we feel like we're well placed. Excellent, thank you.

Revenue acceleration in the years to come.

That's great. Thank you.

Thank you Tobey and we will take the next question. Please.

Toby Ogg: We'll take the next question, please.

Next question is from the line of Adam Wood with Morgan Stanley <unk> co. Please.

Speaker 1: Next question is from the line of Adam Wood with Morgan Stanley and Co.

Unknown Attendee: The next question is from the line of Toby Ogg with JP Morgan, cousin over limited, please go ahead. Yes, hi, and thanks for the question. Perhaps just on the just on the cloud revenue growth side, so the guys and supplies continued acceleration into Q4. I know there's the lip moth by best picture, which is going to annihilate. But but I think you exit to that in December, so probably not the full benefit there.

Please go ahead.

Speaker 10: question. Thanks for taking the question and congratulations from me as well on the quarter. I wanted to go back to the AI topic. You've obviously announced the products there, giving us some details. I think some of your competitors have come out and said, if they feel that the AI copies and so on, really are just kind of table stakes in the back and they don't feel there's room to extract a lot more value from customers.

Hi, Christian thanks.

Thanks for taking my question and congratulations from me as well on the quarter.

Wanted to go back to the AI topic, you've obviously announced.

Products that.

Some details.

Your competitors have come out and said.

Neil the AI type products and so on really just on a table stakes in the bottling again this range of extract more value from customers.

Speaker 10: Could you talk a little bit about what's different in the S.A.P. portfolio. Is it the data that you have access to the complexity of the processes the value of the roles that you can automate further that would make you different in terms of being able to extract value on this versus some of your peers.

Talk a little bit about whats different genetic people.

Unknown Attendee: Well, I guess just with that in mind, one of the drivers of that implied cloud revenue growth acceleration into Q4 and how confident are you in achieving that? I guess just given the more difficult macro and and also I guess the potential for transactional to be a headwind there as well. Maybe maybe a little bit of granularity on some things you already mentioned, like the litmus impact. I mean, for the full year, we think that litmus will add a good percentage point of basically headwind.

Is it the data that you have access to the complexity of the principal value of the Roes that you can.

So that would make you different in terms of being able to extract value on initiatives with some of your peers. Thank you.

Unknown Attendee: So when you look at the kind of cumulative year to date, it's already kind of pulled down by that. So the real underlying growth rate is already very close to the 24% or so we need to fulfill the lower end of the guys. Now on top of that, there is of course the discussion about the transactional business where Q2 has already been difficult. We have been very slightly up, but marginally Q3 was actually fledgled very slightly down.

I mean central other than product question and look at it.

Speaker 4: I mean, thanks a lot, Adam, for the question. And look, I can give you an example on why SAP is so relevant in the business AI space. With our traditional use cases, which we have over 100, we actually, of course, develop great individual use cases. So for example, in procurement, AI was helping to source out of thousands of suppliers the best supplier based on cost, on quality, in the future also on ESG data.

I can give you. An example on why <unk> is so well went into business AI space.

With our traditional use cases, which we have over 100, we actually of course developed great individual use cases. So for example in procurement AI was helping to solve out of one of thousands of suppliers. The best supplier based on cost and quality in the future also on ESG data.

We've generated Fai.

Speaker 4: the opportunities and the relevance will significantly increase.

Opportunities in development, we will significantly increase.

Speaker 4: Schuh will be able to answer questions like, hmm.

Sure, we'll be able to answer questions like.

Speaker 4: Please help me to reduce the carbon footprint in my supply chain by 10 percent.

Please help me to reduce the carbon footprint and my supply chain by 10%, while making sure that my profit is not getting under pressure give me the suppliers give me the suppliers, where it can still deliver on time, but.

Unknown Attendee: So we have not seen much relief from that front and that's another thing that's of course something we will not see as such a strong headwind from our perspective for quarters to come, but might be more temporary nature. But when exactly that will happen is of course the dependent on the macro economic environment. Logically, when you are in a soft environment, the first thing you do is cutting travel expenses, cutting contingent workforce.

Speaker 4: while making sure that my profit is not getting under pressure. Give me the suppliers. Give me the suppliers where I can still deliver on time, but on the same time also reduce my carbon footprint and keep my third party cost to contingent cost actually at the same level.

But on the same time also reduce my carbon footprint and keep my third party cost to contingent cost actually at the same level because we can cross correlate the data we build this foundational data model and the neural network and then with data. So that we can also enhance that and we've actually also unstructured data yesterday.

Speaker 4: because we can cross-correlated data. We build this foundational data model in the neural network. And then with data sphere, we can also enhance that with actually also unstructured data. And yesterday, I just also met Satya in Berlin, and he also, I mean, Microsoft is extremely interested on, how can we join forces? We have to also further combine our data. And what is also very important in the B2B world, I also, I already mentioned it.

Unknown Attendee: So that business has been very difficult. There are other parts in it which are growing fast, but the kind of decline for instance contingent workforce has resulted in a flatish environment. So that's the acceleration we need. I also want to remind you that even if you jump off the kind of low end of the range for the guys for this year, which is 14 billion to our 2025 guys, we need about 24%.

Ultimate software in Berlin, and he also I mean, Microsoft is extremely interested on how can we showing forces to also further combine our data and what is also very important in the <unk> World I also I already mentioned it I mean in the B to C. And you can ask Chuck CPT for question for speech and you get a proposal.

Speaker 4: I mean, in the B2C and you can ask CHECK-CBT for a question for speech and you get a proposal for speech in the B2B world accuracy and data qualities of utmost importance. So all the work we did on BTP over the last three years to integrate but also to harmonize our data model.

Unknown Attendee: So you think you see that we're really on the cloud revenue trajectory depoluted for it most depoluted for that kind of temporary headwind where we think that this will be more cyclical around that trend line very much on track for that trajectory. And you also have to consider with regard to 2025, we have to consider that especially the large transactions stay for three a month. So when we are looking at the current cloud backlog of 1244 now over 12 billion ACV.

Speech in the B to B World Equivalency in data quality is of utmost important. So all the work we did on PDP over the last three years to integrate but also to harmonize our data model.

Speaker 4: It's extremely now paying off in high quality data and it's defundation for SAP Business AI. And last but not least,

It's extremely now paying off in high quality data and his deep foundation for S&P business, AI and last but not least.

Speaker 9: You can ask true questions, but not every employee in every company should see your group here now. So you need an authorization concept. And so this is also very important that we have the authorization layer for almost every business data in a company. And all of that is a good example why SAP will be so relevant in that space.

You can ask Julie a question, but not every employee and every company should see Yoko P&L. So you need an authorization concept and so this is also very important that we have the authorization layer for almost every business data in a company and all of that is a good example, why S&P will be so relevant in that space.

Unknown Attendee: Obviously there is a web included in the contracts, which also going to help us now in the years now that rises out there for three years. The web will now going up and with that with the adoption of course we will also going to see you know further cloud revenue acceleration in the years to come.

Unknown Attendee: That's great, thank you.

That's very helpful. Thank you.

Thank you. Thank you Adam will take the next question. Please.

Adam Wood: Thank you, Toby, and we will take the next question please.

Speaker 1: The next question is from the line of Mohamed Mohawala with Goldman Sachs International. Please go ahead.

The next question is from the line of Muhammad more Waller with Goldman Sachs International. Please go ahead.

Adam Wood: Next question is from the line of Adam Wood with Morgan Stanley and Cole. Please go ahead. The question I don't know next. Thanks for taking the question and congratulations from me as well on the quarter. I wanted to get back to the AI topic. You've obviously announced the products there, given us some details. I think some of your competitors have come out and said, you they feel that the AI co-pilot and so on really are just kind of table stakes in the battle and they don't feel there's room to extract a lot more values and customers.

Great. Thank you.

Speaker 11: Great, thank you. And well done on the quarter. I had one question for Dominic, please. You're implied operating profit growth guidance implies a sort of.

Well done on the quarter.

One question for Dominic Please your implied operating profit growth guidance implies a sort of.

Speaker 5: you know, sort of at the low end, you know, significant sort of decline. I'm just trying to understand around some of the cost dynamics, what we should think about in Q4 in particular. And I know you alluded to sort of some of the changes in the sales capitalization. But also, is there anything on the kind of OPEC space that we should mind be mindful of in Q4? Thank you. Yeah. Excellent question. I think the answer from the numbers that remain to do in Q4 is kind of...

Sort of at the low end.

Significant sort of decline.

Just trying to understand around some of the cost dynamics, what we should think about in Q4 in particular.

And I know you alluded to sort of some of the changes in the.

Adam Wood: Could you talk a little bit about what's different in the SAP portfolio? Is it the data that you've access to, the complexity of the processes, the value of the roles that you can be able to make further that would make you different in terms of being able to extract value on this list of some of your peers. Thank you.

Sales capitalization, but also is there anything on the kind of Opex base that we should be mindful of in Q4.

Excellent question I mean, it's clear from the numbers that remain to do in Q4 is kind of.

Christian Klein: I mean, thanks a lot Adam for the question and look I can give you an example on why SAP is so relevant in the business AI space. With our traditional use cases, which we have over 100, we actually of course develop great individual use cases. So for example, in procurement AI was helping to source out of one of thousands of suppliers, the best supplier based on cost on quality in the future also on ESG data.

Speaker 5: relatively manageable, it appears and now what are the the the kind of elements

Relatively manageable, it's appears and now what are the kind of elements.

Speaker 5: which drive that first of all, it's on the software side. We had a really very mild decline in software in, especially Q1 and Q3, I think Q2 was a little closer to normal. And actually,

Which drive that first of all it's on the software side.

We had really very mild decline in software and especially Q1 and Q3, I think Q2 was a little bit closer to normal and actually.

Speaker 5: On average, we have been declining more slowly than, for instance, in the prior year, if you think about the prior year, we were down 39% constant currency. And now Q2, which was a more tipping quarter, with 20s, I think, is a recall correctly. So we think that Q4 will be probably in that order of magnitude somewhere between these two data points. It's not quite clear. I mean, it's notoriously difficult to predict that.

On average we have been declining more slowly than for instance in the prior year. If you think about the prior year, we were down 39% constant currency and now Q2, which was a more typical quarter with <unk> I think if I recall correctly.

Christian Klein: We've generated AI the opportunities and the relevance will significantly increase true will be able to answer questions like please help me to reduce the carbon footprint in my supply chain by 10% while making sure that my profit is not getting under pressure, give me the supplier, give me the suppliers where I can still deliver on time. But on the same time also reduce my carbon footprint and keep my third party cost the contingent cost actually at the same level because we can cross correlate the data we build this foundational data model in the neural network.

So we think that Q4 will be probably.

In that order of magnitude somewhere between these two data points.

Slipped quite clear I mean, it's notoriously difficult to predict that and I.

Speaker 5: And I think it's also clear that the Q4 is the biggest quarter on licenses. So it has a big disproportionate impact.

I think it's also clear that Q4 is the biggest quarter on licenses. So it has a disproportionate impact and I think it's also some good news in this which means that we can be commercially quite rigorous.

Speaker 5: And I think it's also, there's some good news in it, which means that we can be commercially quite rigorous.

Speaker 5: on the software side and we really can aggressively push on the cloud side.

On the software side, and we really can aggressively push on the cloud side second point I want to highlight is there. We have added a net of 1200 FTE. So of course, they will hit the P&L.

Speaker 5: Second point I want to highlight is there, we have added a net of 1,220 FTEs, so of course they will hit the pinnale in Q4 and will be basically full quarter effective there.

Christian Klein: And then with data, we can also enhance that with actually also unstructured data. Yesterday, I just also met Satya in Berlin and he also, I mean, Microsoft is extremely interested on how can we join forces we have to author further combine our data and what is also very important in the B2B world, I also I already mentioned it. I mean in the B2C and you can ask chat CBT for a question for speech and you get a proposal for speech in the B2B world accuracy in data qualities of utmost importance.

In Q4 and will be basically full.

Full quarter effective there.

Speaker 5: You mentioned that kind of accelerated amortization of commissions that was still based on the software business where we see now the kind of shift.

Mentioned that kind of accelerated.

Amortization of commissions that was still based on the software business, where we see you know.

I kind of shift to the cloud happening that was $65 million ticket.

Speaker 5: to the cloud happening. That was a 65 million ticket. By the way, we will see a similar order of magnitude in Christchurch 4. So that's another item I wanna mention. And then I think it's very important to really look at the gross margin. It has evolved very strongly in Q3, but I wanna say it's always a little dangerous to look at any single quarter. If you wanna have a more stable estimate about how the gross margin is evolving and take them first nine months.

By the way, we will see a similar order of magnitude increase to four so that's another item I want to mention and then I think it's very important to really look at the gross margin. It has evolved very slowly in Q3, but I want to say, it's always dangerous to look at any single quarter. If you want to have a more stable estimate about how the gross margin is evolving and take them.

Christian Klein: So all the work we did on BTP over the last three years to integrate but also to harmonize our data model is extremely now paying off in high quality data and is defundation for SAP business AI. And last but not least, you can ask true question but not every employee in every company should see your group you know, so you need an authorization concept. And so this is also very important that we have the authorization layer for almost every business data in a company. And all of that is a good example why SAP will be so relevant in that space. That's very helpful. Thank you. Thank you Adam.

Unknown Attendee: We'll take the next question please.

First nine months and you'll see that we are basically expanded gross margin year on year by about 254 percentage points now in the two four percentage points. There is I'd say almost one percentage point of.

Speaker 5: And you see that we have basically expanded growth margin year and year by about 2.5 or 2.4% is points. Now in the 2.4%.

Speaker 5: There is, I'd say, almost one percentage points of

Speaker 5: tailwind from the famous cloud conversion program. So we had cost incurred still in the prior year, which is now gradually out of the equation. So that gives us a boost. So the kind of still underlying continuous improvement without that one strike project, so the cloud convergence project is more about 1.5%, which by the way, again, is putting us exactly on the trajectory for the 2025 cloud gross profit guide.

Tailwind from the famous cloud conversion program. So we had cost incurred during the prior year, which is now gradually out of equation. So that gives us a boost so we kind of still underlying continuous improvement without that one strike projects or their cloud conversion project is more about one 5%, which by the way again is putting us exactly on that trajectory.

Mohammed Moawalla: The next question is from the line of Mohamed Moawalla with Goldman Sachs International. Please go ahead. Great thank you and well done on the quarter. I had one question for Dominik, please. Your employees operating profit growth guidance implies a sort of, you know, sort of at the low end, you know, significant sort of decline. I'm just trying to understand around some of the cost dynamics what we should think about in Q4 in particular. And I know you alluded to sort of some of the changes in the sales capitalization, but also is there anything on the kind of op-ex space that we should be mindful of in Q4?

The 2025 cloud gross profit guidance.

Speaker 5: So if you think about that kind of boost being fully harvested, if you take these four elements I mentioned together, this is explaining why we have been more prudent on the Q4 and year-on-year growth. I think it's very much in line with what also Luca has guided already a year ago, also driven on the year-on-year comparison by the litmus divestiture, which was not there or will not be there in Q4.

So if you think about that kind of boost being fully harvested. If you take these four elements I mentioned together this is explaining.

Why we have been more prudent on the Q4 growth I think it's very much in line with what also Luca has guided already a year ago.

Also driven on a year on year comparison by the litmus divestiture, which was not there.

It will not be the end of Q4.

Okay.

That's great. Thank you so much.

Speaker 3: two more and we'll now take the next question please.

And we'll now take the next question please.

The next question is from the line of Frederic <unk> with Bank of America. Please go ahead.

Speaker 1: The next question is from the line of Frederic Boulard with Bank of America, please go ahead.

Dominik Asam: Thank you. Next question, I mean, it's clear from the numbers that remain to do in Q4 is kind of relatively manageable. It appears and now what are the kind of elements, which drive that first of all, it's on the software side. We had a really very mild decline in software in, especially Q1 and Q3. I think Q2 was a little bit closer to normal. And actually, on average, we have been declining more slowly than, for instance, in the prior year, if you think about the prior year, we were down 39% constant currency.

Hi, good good evening, if I can.

Speaker 5: Hi, good evening. If I can ask a question around the cloud margin, so a bit follow up on the previous one. So we saw some slight improvement in SAS. The past, actually, in infrastructure service improved quite strongly. If you can discuss what has been driving that and some further benefits to expect from the optimization program. I think Dominique, you seem to say we was kind of.

Ask a question around the cloud margin to be political on the previous one so we saw some slight improvement in SaaS paas actually in infrastructure services grew quite strongly.

Discuss.

What's been driving that.

First the benefits you expect from the.

The musician program I think the minute you seem to say that we were kind of.

Speaker 12: on the work now, so it's going to be smooth and going forward. And if I may, ask a follow up around S4 so

The work now is who's going to be a solution going forward.

Dominik Asam: And now Q2, which was a more tipping quarter with 20s, I think, is a recall correctly. So we think that Q4 will be probably in that order of magnitude somewhere between these two data points. It's not quite clear. I mean, it's notoriously difficult to predict that. And I think it's also clear that the Q4 is the biggest quarter on licenses. So it has a big disproportionate impact. And I think it's also there's some good news in it, which means that we can be commercially quite rigorous on the software side, and we really can aggressively push on the cloud side.

And if I if I may.

Ask a follow up around.

As for so.

Speaker 12: Could we get a bit of an update on where you are on the, uh,

Could we get a bit of an update on where you are on the.

Speaker 12: The momentum in migration of those large complex customers, and when you mention some of those, they should be shared a bit of an update on where you are on S4, S4 Cloud.

The momentum in migration of those large complex customers them and you mentioned some of those.

You could share a bit of an update on where you are on.

For a full cloud.

Speaker 13: adoption and, you know, in particular for those large contracts and large migrations.

Adoption and.

In particular for those large contracts and those migrations that.

That would be great. Thank you.

Speaker 4: On on on path in the cloud cross margin, let me take that first and in scott you can take the question around the EAP and DS for momentum on the conversion of our LE customers.

On path on the cloud gross margin, let me take that first one Scott you can take the question around the ERP NDS for our momentum on the conversion of our elite customers made on Pos.

Dominik Asam: Second point I want to highlight is there we have added a net of 1,200 FTE. So of course, they will hit the PNL in Q4 and will be basically full quarter effective there. You mentioned that kind of accelerated amortization of commissions that was still based on the software business where we see now the kind of shift to the cloud happening. That was a 65 million ticket. By the way, we will see a similar order of magnitude in Q4.

Speaker 4: I mean, BTP is an extremely scalable platform. It's a native cloud platform. And of course, we are continuously working. And this is not only since we did the cloud conversion program, we actually also continuously work on TCO. For example, HANA Cloud.

<unk> is an extremely scalable platform its a native cloud platform and of course, we are continuously working and this is not only since we did the cloud conversion program. We actually also continuously work on Tcl for example, Harman cloud so a new cloud database, which gives us enormous scale out capabilities.

Speaker 4: So a new cloud database which gives us enormous scale-out capabilities, which is extremely important not only for our TCO, by the way, but also for our large customers who actually can enjoy this new database in the cloud. Second, we're also innovating with AWS on ARM. So we also embed further new technology. We are constantly also updating the capabilities within the database.

Which is extremely important not only for our T zero by the way, but also for our large customers who actually can enjoy this new database in the cloud Secondly, also innovating with AWS on arm. So we also embed further new technology. We are constantly also updating the capabilities within the data.

Dominik Asam: So that's another item I want to mention. And then I think it's very important to really look at the gross margin. It has evolved very strongly in Q3. But I want to say it's always a little dangerous to look at any single quarter. If you want to have a more stable estimate about how the gross margin is evolving and take them first nine months. And you see that we've basically expanded growth margin year and year by about 2.5 or 2.4 percentage points.

Speaker 4: And we still have a few ideas also for the year to come and the platform is now the underlying platform for all of our business applications. So it's the foundation, so it's really important for us to also have a scalable platform there. Scott, over to you for the ERP.

<unk>.

Do we still have a few ideas also further for the year to come and the platform is now the underlying platform for all of our business application. So it's <unk>. So its important really important trough to also have a scalable platform that Scott over to you for the ERP question.

Dominik Asam: Now in the 2.4 percentage points, there is, I'd say almost 1 percentage points of pay wind from the famous cloud conversion program. So we had cost incurred still in the prior year, which is now gradually out of the equation. So that gives us a boost. So the kind of still underlying continuous improvement without that one strike project. So the cloud conversion project is more about 1.5%. Which by the way, again is putting us exactly on the trajectory for the 2025 cloud gross profit guides.

Yes, so I guess, the I mentioned it before but let me give you a bit more color customers aren't just moving to ERP cloud and I mentioned this but it's really important to understand in terms of the the.

Speaker 7: Yeah, so I guess the, I mentioned it before, but let me give you a little more color. Customers aren't just moving to ERP cloud. And I mentioned this, but it's really important to understand in terms of the, the future of for us, but also for our customers. They're not just going to S for hunter cloud. They're transforming their business. They're, they're making it lean. They're getting a clean core. They're able to optimize the way they run their process.

The future for us, but also for our customers. They are not just going to as for Hana cloud that.

Transforming their business, they're making it lean they are getting a clean core they are able to optimize the way. They run their process that allows them then to then build and expand and then use that capability, including generative II optimized. So these are on the lodging customers multiyear programs.

Dominik Asam: So if you think about that kind of boost being fully harvested. If you take these four elements, I mentioned together. This is explaining why we have been more prudent on the Q4 and the year new growth. I think it's very much in line with what also Luca has guided already a year ago. Also driven on the year comparison by the litmus, the vestiture, which was not there or will not be there in Q4.

Unknown Attendee: That's great.

Speaker 7: That allows them then to then build and expand and then use that capability, including generative AI optimized. So these are on the large end customers, multi-year programs, multi-year initiatives, which we see from a financial point of view in our total cloud backlog and that, and what you see in the ramp that Christian mentioned in his opening.

Frederic Boulan: Thank you so much.

T year initiatives, which we see from a financial point of view when you have total cloud backlog in that and what you see in the ramp that Christian mentioned in his opening.

Frederic Boulan: Thank you more and now we will now take the next question please. The next question is from the line of Frederic Boulan with Bank of America, please go ahead. I am good good evening. If I can ask a question around the cloud margin to be followed on the previous one. So we saw some slide improvement in SaaS but the path actually and infrastructure service improved quite strongly. If you can discuss why it's been driving that and the first benefit to expect from the optimization program.

Speaker 7: But then even on their midsize customers, doing these big changes to their business is the foundation for them, the innovation in the future. So.

And even on their midsized customers doing these big changes to the business is the foundation for then the innovation in the future. So I guess, what you will see there with a large Indian Dominic also mentioned opening this call that we had a large proportion of customers are 5 million plus in booking value in ICB.

Speaker 7: I guess what you will see there with a large end and Dominic also mentioned opening this call that we had a large proportion of customers of 5 million plus in in booking value in ACV contributing to the overall performance.

Contributing to the overall performance that gives us the platform for customers to do a multi year transformation of their business leveraging our innovation and they will we in generality by AI into that as we go forward because it's embedded including our recent announcement of.

Speaker 7: That gives us the platform for customers to do a multi-year.

Speaker 7: transformation of their business leveraging our innovation and they will weave in Generative AI into that as we go forward because it's embedded including our recent Announcement of of the the premium offering that we we'd want to do a couple of days ago and

Frederic Boulan: I think the minute you seem to say that we were kind of on the work now. So it's going to be smooth and going forward. And if I may ask a follow up around S4 so could we get a bit of an update on where you are on the momentum in migration of those large compact customers and when you mentioned some of those. You could share a bit of an update on where you are on S4, S4 cloud adoption and in particular for those large contracts and large migrations that would be great. Thank you.

Of the premium offering that we launched a couple of days ago.

And maybe one further example, I mean take for example, Exxon Exxon also decided to go with for ice for ICP means by Exxon, It's actually not differentiating to one the ERP landscape for on Prem and invest into and are really commodity activities look this way more differentiating us to.

Speaker 4: Take for example, Exxon. Exxon also decided to go with WISE for SAP. It means for Exxon it's actually not differentiating to run the ERP landscape further on-prem and invest into really commodity IT activities. What is way more differentiating is to say let's move our system landscape into the hands of SAP and a hyperscaler and then build with our IT budget more differentiating capabilities for commodity and trade for the new renewables business.

Let's move our system landscape into the hands of the P&L hyper scaler, and then build with our it budget more different trading capabilities for commodity and trade for the new renewables business to also build a more resilient supply chain and so the it budget creates way more value. If you can focus more.

Scott Russell: And on on path in the cloud course margin let me take that first and Scott you can take the question around the EAP and years for momentum on the conversion of our LE customers made on past. I mean BTP is an extremely scalable platform. It's a native cloud platform and of course we are continuously working and this is not only since we did the cloud conversion program. We actually also continuously work on TCO for example HANA cloud so a new cloud database which is a enormous scale out capabilities which is extremely important not only for our TCO by the way but also for our large customers who actually can enjoy this new database in the cloud.

Speaker 4: to also build a more resilient supply chain and so the IT budget creates way more value if you can focus more on build and less on run.

<unk> built and less on one and the BGP is now depth lot form of choice to also extend to call because all of these capabilities. What I just mentioned they need to be of course seamlessly integrated into the core and here. We go again. This is the <unk> integration and D extension layer. The same is true for BMW.

Speaker 9: And the BTP is now their platform of choice to also extend the core. Because all of these capabilities, what I just mentioned, they need to be, of course, seamlessly integrated into the core. And here we go again. This is the BTP. The BTP is deintegration and de-extension layer. The same is true for BMW and for many other LE customers in the meantime, as they will have selected to go with Wise with SAP.

And for many others LTE customers in the meantime.

They will have selected to go with Weiss with S&P.

Scott Russell: Second we also innovating with AWS on ARM so we also embed further new technology we are constantly also updating the capabilities within the database. And you know that we still have a few ideas also for the year to come and the platform is now the underlying platform for all of our business application so it's defundation so it's really important for us to also have a scalable platform there.

Hey man.

And we'll take the next question please.

Speaker 1: The next question comes from the line of Kirk Materni with Evercore Partners. Please go ahead.

The next question comes from the line of Kirk <unk> with Evercore partners. Please go ahead.

Speaker 14: Yeah, thanks very much. Congrats on the quarter and thanks for taking the question. I was wondering maybe this one might be for Scott, but it's just kind of curious what you're seeing in the America's market. Obviously, really strong quarters and acceleration in Europe and Asia-Pac on a constant currency basis. America was down slightly, you know, a cure of a queue, but I was just kind of curious, is that just...

Hi, yes, thanks, very much congrats on the quarter and thanks for taking the question I was wondering maybe this one might be for Scott, but I was just kind of curious what youre seeing in the Americas market.

Scott Russell: Scott over to you for the EAP question. Yeah so I guess the I mentioned it before but let me give you a bit more color customers aren't just moving to EAP cloud and I mentioned this but it's really important to understand in terms of the future for us but also for our customers they're not just going to us for HANA cloud. The transforming their business they're they're making it lean they're getting a clean core they're able to optimize the way they run their process that allows them then to then build and expand and then use that capability including generative AI optimize so these are on the large end customers multi year programs multi year initiatives which we we see from a financial point of view in our total cloud backlog and that.

Obviously, a really strong quarters and acceleration in Europe , and Asia Pac on a constant currency basis America was down slightly Q over Q, but I was just kind of curious is that just.

Speaker 14: Market dynamics, macro, is there anything sort of more competitive there going on? I was just kind of curious if you could add a little bit more color on what's going on in that particular region. Thanks.

Market dynamics macro is there anything sort of more competitive theyre going on I was just kind of curious if you could add a little bit more color on what's going on in that particular region. Thanks, Yes.

Speaker 7: Yeah, no problem. I'll answer this. And Christian, if you want to add anything, please do so. So look, as you saw in the performance, we had a very balanced performance across the world. There is no doubt that the Americas and North America

No problem I'll answer this and Christian if you want to add anything. Please do so so Alex as you saw in the performance we had a very balanced performance across the world. There is no doubt that the Americas in North America is our largest cloud market and also where a lot of the innovation that we're seeing around the world and it is differently.

Speaker 7: is our largest cloud market and also where a lot of the innovation that we're seeing around the world, and it is definitely a market that has the macroeconomic pressure, but I wouldn't reflect it as unique against other economies around the world. We see the same macroeconomic

A market that.

That has the macroeconomic pressure, but I wouldn't I wouldn't.

<unk> reflected is unique against other economies around the world. We see the same macroeconomic pressure points I think what we are seeing in North America, though is the combination of growth and rise those to become really important the midmarket in North America looking with a smaller companies that are wanting to.

Scott Russell: And what you see in the ramp the Christian mentioned in his opening but then even on our mid size customers doing these big changes to their business is the foundation for them the innovation in the future so I guess what you will see there with a large end and and Dominic also mentioned opening this call that we had a large proportion of customers of 5 million plus in booking value in ACV contributing to the overall performance that gives us. Platform for customers to do a multi year transformation of their business leveraging our innovation and they will weave in generative AI into that as we go forward because it's embedded including our recent announcement of of the premium offering that we want to do a couple of days, to go.

Speaker 7: I think what we are seeing in North America though, is the combination of grow and rise. Those two become really important. The mid-market in North America looking where these smaller companies that are wanting to expand, but they need to do so really fast. They're not gonna invest heavily into the technology migration. They need to be able to do so in a rapid way. And so the grow offering has been really successful in markets like North America. And at the upper end,

Spain, but they need to do so really fast they're not going to invest.

Invest heavily into the technology migration I need to be able to do so in a rapid way and so the grow offering has been really successful in <unk>.

Markets like North America, and at the upper end.

Speaker 7: We always recognize that even in the best of times, but right now they're taking multi-year major investment journeys with us.

We always recognize that even in the best of times, but right now, they're taking multi year major investment journeys with us So why do the <unk>.

Speaker 7: So the way the market's working there is, the question is not if they move to rise, how and when and that program and that's where we see those large bookings. So look, it continues to be a market where highly competitive and high expectations, but we remain strong in the foundation of what we deliver to around the world is equally is true in North America. Christian, if you want to add...

Market's working there is the question is not if they move to rise, how and when and that and that that program and that's where we see those large bookings. So look it continues to be a market we're highly competitive.

Scott Russell: And maybe one further example, I mean, take for example, Exxon, Exxon also decided to go with White for SAP, means for Exxon, it's actually not different shading to one, the EIP landscape further on-prem and invest into a really commodity IT activities. What is way more different shading is to say, let's move our system landscape into the hands of SAP and the hyperscaler and then build with our IT budget more different shading capabilities for commodity and trade, for their new renewables business, to also build a more resilient supply chain.

High expectations, but.

We remain strong and at the foundation of what we delivered to around the world is equally as true in North America accretion if you want to add.

Speaker 4: Well, that's got, I mean, maybe just one point more. I mean, the transactional business of conquer, field class and arrivals, of course, also the dominant shares in the United States, as these companies also have founded and have for most of their customer base there.

Well that Scott I mean, maybe just one more I mean, the transactional business of concur field cloth and Alibaba is of course also.

Eminent share is in the United States. These companies also have onto then have for most of the customer base there.

Scott Russell: And so the IT budget creates way more value if you can focus more on build and less on run. And the BTP is now their platform of choice to all to extend the core because all of these capabilities, what I just mentioned, they need to be of course seamlessly integrated into the core. And here we go again, this is the BTP, the BTP is the integration and the extension layer. The same is for BMW and for many others LE customers in the meantime, as they will have selected to go with White for SAP.

Speaker 4: So, and as Dominic also outlined, to be seen, you know, how this business develops in Q4.

And as Dominic also outlined to be seen how distributed business develops in Q4, but I was just last week, an S&P spend connect.

Speaker 4: But I was just last week in SAP Span Connect and when I remembered back in three years.

And I remember that back in three years three years ago. These product with completely different products on different legacy stacks on different platforms and when do you see now our intelligent spend portfolio and use look at source to pay you wouldn't even see in which product is it. It's all about the end to end business policy.

Speaker 4: Three years ago, these products were completely different products on different different logistics and different platforms. And when you see now our intelligence band portfolio and you look at source to pay.

Speaker 15: You wouldn't even see which product is it. It's all about the end-to-end business process. It's a beautiful UX. The team did a wonderful job. And of course, there is now some macroeconomic have been to be seen. How this will develop in Q4. On for next year and for the years to come, I feel much better from a product experience perspective than where we have been three years ago. Thanks very much for the color. Helpful.

It's a beautiful UX the team did a wonderful job and of course, there is now some macroeconomic headwind to be seen how this will develop in Q4 for next year and for the years to come I feel much better from a product experience perspective, and where we have been three years ago.

Kirk Materne: And I will take the next question please. The next question comes from the line of Kirk Materney with Evercore partners. Please go ahead and take a look at the next question. Yes, thanks very much, congrats on the quarter and thanks for taking the question. I was wondering maybe this one might be for Scott, but it's just kind of curious what you're seeing in the America's market, obviously really strong quarters and acceleration in Europe and Asia pack on a constant currency basis.

Thanks, very much for the color helpful.

Thanks, Kirk and we'll take the next question. Please.

Speaker 1: The next question comes from the line of James Goodman with Barclays Capital, please go ahead.

The next question comes from the line of James Goodman with Barclays Capital. Please go ahead.

Kirk Materne: The America was down slightly, you know, a cure of a queue, but I was just kind of curious, is that just market dynamics, macro, is there anything sort of more competitive there going on? I was just kind of curious if you could add a little bit more color on what's going on in that particular region. Thanks. Yeah, no problem. I'll answer this in question if you want to add anything please do so.

Speaker 16: Thank you for taking mine. And I wanted to ask you just on the implied guidance also, but around the revenues X cloud. I think that like EBIT, it looks pretty conservative throughout the range. I mean, even the taking into account.

Good evening.

Taking mine and I wanted to ask you just on the implied guidance.

Around the revenues ex cloud I think they're like EBIT, it looks pretty conservative throughout the range I mean, even taking into account as a comment.

Speaker 16: the comments that you've made around the anticipated Q4 license trajectory. So the maintenance has been down, I think, 1%, only three quarters in a row. Why should we see that suddenly sort of decelerating in Q4? And maybe you can extend the answer to some commentary around maintenance for next year. I think we've now seen that you can raise prices up to 5% next year. So should that offer a

Kirk Materne: So look, as you saw in the performance, we had a very balanced performance across the world. There is no doubt that the Americas and North America is our largest cloud market and also where a lot of the innovation that we're seeing around the world and it is definitely a market that has the macroeconomic pressure, but I wouldn't reflected as unique against other economies around the world. We see the same macroeconomic pressure points.

You've made around the anticipated.

Q4 license trajectory so.

The maintenance is being down I think 1% only three quarters in a row.

Why should we see that suddenly sort of deceleration in Q4, and maybe you could extend that too.

Some commentary around maintenance for next year I think we've now seen that you can raise prices up to 5% next year, so shut that off.

Speaker 16: sufficient support to maintenance to keep a sort of similar trajectory.

Sufficient support to maintenance to keep them as sort of a similar trajectory. Thank you.

Kirk Materne: I think what we are seeing in North America, though, is the combination of growth and rise, those two become really important. The mid market in North America, looking where these smaller companies that are wanting to expand, but they need to do so really fast. They're not going to invest heavily into the technology migration. They need to be able to do so in a rapid way. And so the grow offering has been really successful in markets like North America.

Yes, I think the key point is not really the maintenance, but as you say the licenses, where there's more volatility and GAAP.

Speaker 5: Yeah, I think the key point is not really the maintenance, but as you say, the licenses where there's mobile utility.

Speaker 5: and yeah, we have been prudent on that front. Q4 is by far the biggest quarter in that context.

Yeah.

We have been.

Prudent on that front Q.

Q4 is by far the biggest quarter in that context.

Speaker 5: I think it's not wise to extrapolate to one, Q3, into Q4. I think it also gives us an opportunity to send a clear signal that there's commercial discipline on these license deals.

It is not wise to extrapolate Q1 Q3 into Q4 I think it also gives us an opportunity to send a clear signal that there's commercial discipline on these license deals.

Kirk Materne: And at the upper end, we always recognize that even in the best of times, but right now they're taking multi-year major investment journeys with us. So the way that the market's working there is, the question is not if they move to rise, it's how and when and that program and that's where we see those large bookings. So look, it continues to be a market where highly competitive and high expectations, but we remain strong and at the foundation of what we deliver to around the world is equally as true in North America.

Speaker 5: because our strategic trajectory is towards the cloud.

Our strategic trajectory is towards the cloud.

Speaker 5: And this is why I think this assumption makes sense now, and again, it's notoriously difficult to predict. So there can be a wide range of outcomes around that kind of range I've alluded to. And this is why we kept the range quite open.

And this is why I think this assumption makes sense now.

It's notoriously difficult to predict so there can be a wide range of outcomes around that kind of range I have alluded to and this is why we kept.

The range quite opened on that front.

Speaker 4: Yeah, and on cloud, where are you? I mean, also remember, I mean, we have

Cloud revenue I mean.

Let's also remember I mean, we have put out there.

Speaker 4: put out there a 2025 guidance three years ago, and we weren't aware around, you know, what exactly will happen during COVID. We, of course, have lots of fears of being

$1 25 guidance three years ago, and we wound aware around what exactly what will happen with Joe and Covid. We of course have not for fees from Athene Dx set of Russia.

Kirk Materne: Christian, if you want to add, you know, well, that's got, I mean, maybe just one point more. I mean, the transactional business of concur, field class and arrivals, of course, also the dominant share is in the United States. These companies also were founded there and have most of their customer base there. And as Dominic also outlined, to be seen, you know, how this business develops in Q4, but I was just last week in SAP SpendConnect.

Speaker 4: the exit of Russia. Now we are talking about a high inflation environment and some macroeconomic challenges and still...

Now we are talking about a high inflation environment, and some macroeconomic challenges and still keep our 'twenty to 'twenty five guidance and.

Speaker 4: to keep our 2025 guidance and so I'm actually very happy with the underlying strength of our portfolio. But again, also to be seen how Q4 will now develop from a transactional revenue standpoint, but I find it remarkable the underlying strength of the portfolio despite all of these headwinds, what we have seen over the last years, I have to say. I mean, Russia, there will not be a comeback and still we are maintaining our guidance for 2025. Thank you.

And so I'm actually very happy with the underlying strengths of our portfolio, but again also to be seen how Q4 will now develop form of transactional revenue standpoint, and but I find it remarkable the overlap the underlying strength of the portfolio. Despite all of these headwinds what we have seen over the last DSI I have to say I mean.

Kirk Materne: And when I remember back in three years, three years ago, these products were completely, you know, different products on different legacy stacks and different platforms. And when you see now our intelligence spend portfolio and you just look at source to pay, you wouldn't even see, you know, which product is it. It's all about the end-to-end business process. It's a beautiful UX. The team did a wonderful job. And of course, there is now some macroeconomic happen to be seen.

Russia will not be a comeback and still we are maintaining our guidance for 2025.

Thank you.

Jim.

Next question please.

The next question is from the line of Michael J <unk> with UBS Limited. Please go ahead.

Speaker 1: The next question is from the line of Michael J. Priest with UBS Limited. Please go ahead.

Kirk Materne: How this will develop in Q4 on for next year and for the years to come. I feel much better from a product experience perspective than where we have been three years ago. Thanks very much for the colour, helpful. Thanks, Kirk, and we'll take the next question. The next question comes from the line of James Goodman with Barclays Capital, please go ahead. Good evening, thanks for taking mine, and I wanted to ask you just on the implied guidance also, but around the revenue's ex-cloud.

Yes, good evening.

Speaker 16: Yes, good evening and my congratulations as well for the momentum, maybe a little teaser on on next year. I mean, your your revenue outlook is driven by the cloud. It's pretty predictable and hopefully and fairly linear. The maintenance is given clear sort of indications on twenty twenty five. Is there any reason we shouldn't think that profit?

Congratulations as well from the momentum.

Maybe a little teaser on next year.

I mean your revenue outlook is driven by the cloud it's pretty predictable.

The linear the maintenance.

Kent sort of indications on 2025.

Is there any reason, we should think the profit and.

Speaker 16: cash flow grow in a fairly linear progression between here and 2025, is there any factors we should be thinking about that mean that that's unlikely to be the case?

And cash flow grow in a fairly linear progression between here and 2025 is there any factors we should be thinking about the mean that that's unlikely to be the case.

Speaker 16: And then around stock-based compensation, I noticed that the charge increased a little bit at low end, and I know you're thinking internally about how you treat that going forward. Is there any more light you can shed on whether that's still a charge that should be treated as an exceptional item in your view, or maybe it's now, you know, a more predictable number and something you can bring into the adjusted margin? Thank you.

And then around stock based compensation I noticed that the charge increased a little bit at low end and I know you're thinking internally about how you treat that going forward is there any more.

Kirk Materne: I think that like EBIT, it looks pretty conservative throughout the range. I mean, even the taking into account the comments that you've made around the anticipated Q4 license trajectory, so the maintenance has been down I think 1% only 3 quarters in a row. You know, why should we see that suddenly sort of decelerating in Q4, and maybe you can extend the answer to some commentary around maintenance for next year. I think we've now seen that you can raise prices up to 5% next year, so should that offer sufficient support to maintenance to keep a sort of similar trajectory.

Kirk Materne: Thank you. Yeah, I think the key point is not really the maintenance, but as you say, the licenses where there's more volatility and, yeah, we have been prudent on that front Q4 is by far the biggest quarter in that context. I think it's not wise to extrapolate to one Q3 into Q4. I think it also gives an opportunity to send a clear signal that there's commercial discipline on these license deals because our strategic trajectory is towards the cloud.

Light you can shed on on whether that still charged that should be treated as an exceptional item in your view or maybe it's now.

Predictable number and something that you can bring into the adjusted margin. Thank you.

But maybe I'll have a stab at the 2021st as a reminder, we guide 2024 in January of 2024, So we have an efficient 425.

Speaker 5: Maybe I have a stab at 2024. First, as a reminder, we guide 2024 in January of 2024, so we have an ambition for 2025. If you think about what are the priorities in the current planning process, which will then, of course, drive the budget for 2024, I'd say it's, of course,

And if you think about what other priorities and they called planning process, which will then of course drive the budget for 2024, I'd say, it's of course Derisking in 2025 to make sure that it was really solid and deliver to that condition and secondly, I think we will also start to put more focus on the question how can we cut off boost earnings growth.

Speaker 5: de-risking 2025 to make sure that it's really solid and deliver to that ambition. And secondly, I think we will also start to put more focus on the question, how can we kind of boost earnings growth beyond 2025? It's all nice to think about 2025, but the future is actually in the second half of the

Beyond 2025 is all nice to think about 2025, what the future is actually in the second half will dedicate and please bear with us until that cutoff date in January when we have matured.

Speaker 4: And please bear with us till that kind of date in January when we have matured that planning process to really give you then a solid guide for the year. I don't want to kind of preempt that at this point of the year. Yeah. Yeah. And then to add to Dominic's point, I mean Q4 is also in the cloud.

Planning process to really give you then a solid guide for the year I don't want I cannot preempt that at this point of the year.

And then to add to Dominic's point I mean Q4 is also in the cloud.

Kirk Materne: And this is why I think this assumption makes sense. Now, again, it's notoriously difficult to predict, so there can be a wide range of outcomes around that kind of range. I have alluded to. And this is why we kept the range quite open on that front. Yeah, and on cloud 20, I mean, I'll also remember, I mean, we have put out there at 20, 25 guidance three years ago, and we were on the way around, you know, what exactly will happen during COVID.

Speaker 5: our biggest quota from an auto entry perspective and that really can also create really still some swing on the cloud when you run wait for next year and so here are more news to come in January . So now on the second point, I've noted charge, so that was, sorry can you just tell

Our biggest quarter from an order entry plus both perspective and that really can also creates really fill still some swing on the cloud revenue run rate for next year.

So more news to come in in January So now on the second part as I have noted charge so.

That was sorry can you just help me out.

Speaker 4: The stock-based compensation, I mean, yes, given that we have a higher share of

The charge I think its software loaded.

Yes, yes.

Kirk Materne: We, of course, have not seen the exit of Russia. Now we are talking about the high inflation environment and some macro economic challenges and still keep our 20, 25 guidance. And so I'm actually very happy with the underlying trends of our portfolio, but again, also to be seen how Q4 will now develop from a transactional awareness standpoint. But I find it remarkable the overall underlying trends of the portfolio despite all of these had wins, what we have seen over the last years, I have to say.

Based compensation.

I mean, yes, given that we have.

Share of equity settled stock based compensation, where volatility induced by the share price movements in that expense will go down that's the one thing I can say the other thing. We clearly said is that we really want to kind of keep that number steady two diluted somewhat as a percent of revenues over the coming years and there is no change.

Speaker 5: Equity settled stock base compensation. The volatility induced by the shipwrecked movements in that expense will go down.

Speaker 5: keep that number steady to dilute it somewhat as percent of revenues over the coming years.

Speaker 5: There is no change to that guidance that we really try to make it more stable. And then as a consequence, indeed, it would be easier to absorb it kind of in the non-IFRS operating results. We are clearly seeing the stock-based compensation not as funny money, but a real expense, it's real value transferred from shareholders to employees, basically.

With that guidance that we really try to make it more stable and then as a consequence, indeed, it would be easier to absorb it cut off in the end.

<unk> operating results and we are clearly seeing the stock based compensation not as funny money, but a real expense its real value transfer from shareholders to employees basically and that's why anything to embark and oil steaming is really a priority of the company, but again in terms of 2024, we will let you know how we deal with this and more.

Kirk Materne: I mean, Russia, there will not be a comeback and still we are maintaining our guidance for 20, 25. Thank you, Jim. Next question, please. The next question is from the line of Michael tree, briefed with UBS limited, please go ahead. Yes, good evening, and my congratulations as well from the momentum, maybe a little teaser on, on next year. I mean, your revenue outlook is driven by the cloud. It's pretty predictable and hopefully and fairly linear the maintenance, these given clear sort of indications on 20, 25.

Speaker 5: And that's why anything to embark it in or stealing is really a priority of the company.

Speaker 5: But again, in terms of 2024, we will let you know how we deal with this in more detail in January .

Retailers in January .

Okay. Thank you.

Thank you Michael next question please.

The next question is from the line of genre movies through Rahman with Stifel Nicolaus Europe Limited. Please go ahead.

Speaker 1: The next question is from the line of Chandra Mouli Sriraman with Stiefel Nikolaus Europe Ltd.

Yes, Thanks for taking my question and congrats from my side as well.

Speaker 3: Yeah, thanks for taking my question and congrats from my side as well, just one on the amortization period change. I'm just wondering from a business sense, what it means for the end of support of our.

Kirk Materne: Is there any reason we shouldn't think that profit, and Cashflow grow in a fairly linear progression between here in 2025. Is there any factors we should be thinking about but mean that that's unlikely to be the case? And then around stock-based compensation I noticed that the charge increased a little bit at low end and I know you're thinking internally about how you treat that going forward. Is there any more light you can shed on whether that's still a charge that should be treated as an exceptional item in your view or maybe it's now a more predictable number and something you can bring into the adjusted margin. Thank you.

One on the amortization period of change.

Just wondering.

From a business sense, what it means for the.

End of support of our three.

And how does this fit in with the license strength that you have seen.

Speaker 3: And how does this sit in with the license strength that you have seen in 23?

And 'twenty three.

Yeah.

Speaker 5: So it's an accounting policy which is applied steadily and it's driven actually by forward looking assumptions as to the kind of lifetime of the support.

So having said that again, okay. So it's an accounting policy, which is applied steadily and it's driven actually by forward looking assumptions as to the kind of lifetime.

Of the support revenues.

Speaker 5: Now, you should understand it's not a very linear calculation, so there are some factors that can make it somewhat volatile, and when we did the kind of, I'd say, first sneak preview of our planning here, we felt it's not prudent to keep the long nine-year period. By the way, there are some assumptions about renewables in there in dark.

Now.

I understand it's not a very linear calculation. So there are some factors that can make it somewhat volatile and when we did the kind of I'd say first sneak preview of our planning here, we felt it's prudent to keep the long nine year period by the way there are some assumptions about renewals and theyre embarked so I wouldn't read too much into it except for that.

Michael Briest: So maybe I'll stab at 2024 first and as a reminder we guide 2024 in January of 2024 so we have an ambition for 2025 and if you think about what are the priorities in the current planning process which will then of course drive the budget for 2024 I'd say it's of course de-risk in 2025 to make sure that it's really solid and deliver to that ambition and secondly I think we will also start to put more focus on the question how can we kind of boost burning's growth beyond 2025 it's all nice to think about 2025 but the future actually in a second half of the decade and please bear with us till that kind of date in January when we have matured that planning process to really give you then a solid guide for the year I don't want to kind of preamp that at this point of the year. Yeah and then to add to Dominic's point I mean Q4 is also in the cloud our biggest quarter from an order and perspective and that really can also create really still some swing on the cloud when you were one way for next year and so here are more news to come in in January.

Speaker 5: So I wouldn't read too much into it except for that we felt that at this point in time on that commission, given that we want to clearly push

We felt that at this point in time.

On that commission.

Given that we bought are clearly push.

Speaker 5: from on-prem into the cloud and that we see that bigger uptake and rise, there is probably a shorter amortization period required and this is what we've reflected. I also want to highlight, if you may ask, that this will not have a material impact on 2025 because by then we'll also benefit of having kind of taken less capitalization and it kind of then should be break-even, so to speak. So no worries on that front, I think.

From on Prem into the cloud and that we see the bigger uptake in rise there's probably a.

Shorter amortization period required and this is what we predicted I also want to highlight if you may ask but this.

This will not have a material impact on 2025, because by then we will also benefit of having cutoff, taking less capitalization and some of them should be breakeven so to speak so no worries on that front I think for <unk>.

Speaker 5: 2025. It does weigh, as I mentioned already, on Q3 and will weigh also on Q4.

2025, it does away as I mentioned already.

On Q3 and will weigh also in Q4.

Speaker 4: And with regard to the software momentum, look, the end of maintenance is coming for us, we, for our ECC customers and also for the older releases of S4HANA on-prem. Nevertheless, there is a maintenance commitment out there until 2040 for our mainstream S4HANA customers and this will stay, but we will definitely not move.

And with regard to the software momentum.

At the end of maintenance is coming for US we have for our ECC customers and falls for the older releases. So fast for an on Prem Nevertheless days of maintenance commitment out down till 'twenty 40 for our mainstream S. Four on our customers and this will stay but we will definitely not move further up the end of maintenance.

Michael Briest: So now on the second point I've noted charge so sorry can you just help me out on that and in the charge I think it's stock base so it's in charge at the lower. Yeah yeah so the stock base compensation I mean yes given that we have a higher share of equity settled stock base compensation the volatility induced by the ship ride movements in that expense will go down that's one thing I can say the other thing we clearly said is that we really want to kind of keep that number steady to dilute it somewhat as percent of revenues over the coming years and there's no change to that guidance that we really try to make it more stable and then as a consequence indeed it would be easier to absorb it kind of in the non-IFRS operating results and we are clearly seeing the stock base compensation not as funny money but a real expense it's a real value transfer from shareholders to employees basically and that's why anything to embark it in all our steaming is is really a priority of the company but again in terms of 2024 we will let you know how we deal with this in more detail in January. Okay thank you are you Michael next question please.

Speaker 4: further the end of maintenance for the other releases as we have to of course also focus on the innovation in the cloud and deliver this to our

For the other releases as we have to of course also focus on the innovation in the cloud and deliver this to our customers in a natural way and when you look at the software number of course, it can fluctuate quarter by quarter. It's a one time, it's one term license revenue.

Speaker 4: customers in an agile way. And when you look at the software number, of course, it can fluctuate quarter by quarter. It's a one-time license revenue.

Speaker 4: But you can also see, you know, the deals we are doing, probably majority comes out of the regulated industries where customers are also still growing and they need more licenses and this is the type of business.

But you can also see the deals we are doing a public probably maturity comes out of the regulated industries, where customers can also still growing and they need more licenses and this is the type of business, which we are still closing Scott did I say it wide you did Christian it's actually a really important point.

Speaker 4: which we are still closing. Scott, did I say it right?

Speaker 7: Yeah, you did Christian. And it's actually a really important point. You know, you're not seeing a decline on the cloud and their rise performance despite the software. And that is a good sign. That's partly because of the...

You're not seeing a decline on the cloud and they arise performance. Despite the software and that that is a good sign and that's partly because of the segments that are there and you mentioned that on the regulated industries and also companies that are that are topping up their existing license with a growing or expanding.

Speaker 7: segments that are there, and you mentioned that on the regulated industries, and also companies that are that are topping up their existing license where they're growing or expanding.

So.

Speaker 7: So, you know, the outlook doesn't have a bearing or a weighting on the cloud side, other than to Dominic's point, that we continue to drive and build the future on a cloud as a part of our strategic priority. And our customers will continue to do that at scale whilst managing their software estate in the short term.

The the outlook doesn't have a bearing or waiting on the on the cloud side other than to Dominic's point that we continue to drive and build the future on a cloud as a part of our strategic priority and our customers will continue to do that at scale, whilst managing their software state in the short term.

Chandramouli Sriraman: The next question is from the line of Chandra Mouli Sriraman with Stephen Nicolau's Europe limited please go ahead. Yeah thanks for taking my question and congrats from my side as well. Just one on the amortization period change I'm just wondering from a business sense what it means for and the support of R3. And how does this fit in with the license strength that you've seen in 23? Okay, so it's an accounting policy which is applied steadily and it's driven actually by forward looking assumptions as to the kind of lifetime of the support revenues.

Alright, thank you.

We'll take the next question please.

Speaker 1: The next question is from the line of Johannes Schaller with Deutsche Bank. Please go ahead.

The next question is from the line of your honest Sheila with Deutsche Bank. Please go ahead.

Speaker 17: Yeah, thanks. Good evening. Thanks for taking my question. Christian, thank you for providing a bit of detail on the AI side from a technical and functionality perspective. I wanted to ask a bit on pricing. I mean, you said on the last call, you talked about a 30% pricing uplift potentially with AI features, or maybe call it a 30% higher revenue opportunity. Now, three months later, can you talk a little bit about the feedback you're getting on this pricing strategy from your customers?

Yes. Thanks, good evening. Thanks for taking my question Christian Thank you for providing the detail on the AI side from a technical and functionality perspective.

I wanted to ask a bit on pricing I mean, you said on the last call you talked about a 70% pricing uplift potentially with AI features so maybe call it a 30% higher revenue opportunity.

Chandramouli Sriraman: Now, you should understand it's not a very linear calculation, so there are some factors that can make it somewhat volatile. And when we did the kind of, I'd say, first sneak preview of our planning here, we felt it's not prudent to keep the long nine year period. By the way, there are some assumptions about renewals in there in fact, so I wouldn't read too much into it except for that, we felt that at this point in time, on that commission, given that we want to clearly push from on from into the cloud, and that we see that big of a uptake in rise, is probably a shorter amortization period required, and this is what we've reflected.

Now three months later can you talk a little bit about the feedback you're getting on this pricing strategy from your customers.

Speaker 17: And also just in terms of how we should think about these AI revenues coming in, I take that the R&D is pretty much in the run rate, but what we see in the field with some other AI offerings, maybe an initial phase of some customization, some training with propriety, data of your customers, some costs that are coming in in this...

And also just in terms of how we should think about these AI revenues coming in might take that the R&D is pretty much in the run rate, but what we see in the field with some other AI offerings, maybe an initial phase of customization.

Training with proprietary data customers some costs that are coming in initially.

Speaker 17: How should we envisage the initial AI revenues? Will they be fairly profitable right away, or will there also maybe some additional costs up front? Thank you.

How should we envisage. The initially on revenues will be will it be fairly profitable right away or will they also maybe some additional cost upfront. Thank you.

Chandramouli Sriraman: I also want to highlight, if you may ask, but this will not have a material impact on 2025, because by then we'll also benefit of having kind of taken less capitalization, and it kind of then should be break even, so to speak. So no worries. On that front, I think for 2025, it does weigh as I mentioned already on Q3 and will weigh also on Q4. And with regard to the software momentum, look, the end of maintenance is coming for us.

Yeah.

Speaker 4: Let me take it step by step. I mean on the product engineering side, you know, we are not doing only now earnings late night We are also doing some engineering sessions late night and I just looked last week at the overall architecture And in other way how we actually why we are so confident also with regard to the consumption and the cost of running the Architecture of business AI

Let me take it step by step I mean on the product engineering side.

Not doing only now earnings late night, we're also doing some engineering sessions late night and I just looked last week at the overall architecture and I know the way how we actually why we are so confident also with regard to the consumption and the cost of running the.

<unk> business AI is we are building the foundational data model. So for US. It's key that we really infused now all of our data and this neural network and that we have a knowledge graph, which then can find a wide data depending on the kind of analytical question all task activity. What the end user has on the LLM side. So.

Chandramouli Sriraman: We for our ECC customers and for the older releases of S4HANA on prime, never the last days of maintenance commitment out there until 2040 for our mainstream S4HANA customers and this will stay, but we will definitely not move further the end of maintenance for the other releases as we have to of course also focus on the innovation in the cloud and deliver this to our. Customers in an agile way, and when you look at the software number, of course, it can fluctuate quarter by quarter.

Speaker 4: is we are building the foundational data model. So for us, it's key that we really, you know, infuse now all of our data in this neural network.

Speaker 4: and that we have a knowledge graph which then can find the right data depending on the kind of analytical question or task activity what the end user has. On the LLM side, so the large language model, we actually partner. We partner with a lot of players.

Large language model, we actually partner or we partner with a lot of playoff to also offer tool around the globe and then with regard to the cost of cost is multiples.

Speaker 4: to also offer tool around the globe. And then with regard to the cost, of course, these modules are extremely hardware intensive, but what we are going to do is we use our existing Mac commitments with the hyperscalers.

Extremely hardware intensive, but what we are going to do is we use our existing Mac commitments with the Hyperscale us. So we consume it out of that and given now with wise. We are the biggest operations partner for our customers also the elite customer. So we're wanting billions of workload. So of course that also benefits us so that we now don't need.

Chandramouli Sriraman: It's one time license for you, but you can also see, you know, the deals we are doing are probably majority comes out of the calculated industries where customers are also still growing and they need more licenses, and this is the type of business which we are still closing. Scott, did I say it right? Yeah, you did Christian and it's actually a really important point, you know, you're not seeing a decline on the cloud and their rise performance despite the software and that is a good sign that's partly because of the segments that are there, you mentioned that on the regulated industries and also companies that are that are topping up their existing license where they're growing or expanding.

Speaker 4: So we consume it out of that and given now with wise, we are the biggest operations partner for our customers, also the LE customer. So we are wanting billions for our clothes. So of course that also benefits us so that we now don't need to invest in a ton of hardware, but really also can use our existing commitment. On the commercial model.

To invest in a ton of hardware, but really also cannot.

Use our existing commitments on the commercial model.

Speaker 4: Look, we launched now in the meantime the WISE Premium Offering and yes, the Premium Offering, Premium WISE, but of course customer first, so we really looked at the value, so you find sustainability capabilities in there, advanced finance capabilities, cash flow optimization. We have the first customers who actually can improve their cash flow by two or three percent, by better payment terms, etc., etc., and on top we have AI, so it's a real premium package with real value and we see actually positive customer feedback for those ones who actually are our first customers. And then second, let's not forget,

Luke we launched now in the meantime to devise premium offering and yes.

<unk> offering premium price, but of course customer first so we really looked at the value. So you'll find sustainability capabilities in the advanced finance capabilities cash flow optimization, we ask the first customers, who actually can improve their cash flow by two or 3% by better payment terms et cetera, et cetera, and on top we have AI.

Chandramouli Sriraman: So, you know, the outlook doesn't have a bearing or a waiting on the on the cloud side other than to Dominic's point that we continue to drive and build the future on a cloud as a part of our strategic priority and our customers will continue to do that at scale, whilst managing their software estate in the short term.

It's a real premium package with real value and we see actually positive customer feedback for those ones, who actually are our first customers and then second that's not forget we're also offering AI embedded in our product with a consumption based pricing. So you don't have to go for the premium package.

Speaker 4: We're also offering AI embedded in our product with a consumption-based pricing. So you don't have to go for the premium package all at once, but you can also consume AI, business AI, as part of our solution in a pure consumption-based pricing model. So we give customers choice, which I feel is the right way to go.

Christian Klein: All right, thank you. We'll take the next question, please. The next question is from the line of Johannes Schala with Deutsche Bank, please go ahead. Yes, good evening. Thanks for taking my question. Christian, thank you for providing a bit of detail on the AI side from a technical and functionality perspective. I wanted to ask a bit on pricing. I mean, you said on the last call, you talked about a 30% pricing upless potentially with AI features or maybe call it a 30% higher revenue opportunity.

All at once but you can also consume AI business AI as part of our solution in a pure consumption based pricing models. So we give customers choice, which I feel is the right way to go.

Alright. Thank you. Thank you.

Thanks, Ron Us and we will take one final question now thank you.

Speaker 3: Thanks, Rannis, and we'll take one final question now. Thank you.

The final question comes from the line of.

Speaker 1: The final question comes from the line of Castillo Bernal Ben with BNP Paribas.

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Christian Klein: Now three months later, can you talk a little bit about the feedback you're getting on this pricing screen? I mean, it's a bit of a strategy from your customers, and also just in terms of how we should think about these AI revenues coming in. I take that the R&D is pretty much in the run rate, but what we see in the field with some other AI offerings, maybe an initial phase of some customization, some training with proprietary data of your customers, some costs that are coming in initially.

Please go ahead.

Speaker 18: Evening, thanks very much for squeezing me in here. And just one question on the free cash flow, I guess, and the full year guidance looks like running comfortably on track there.

Good evening, Thanks, very much for squeezing me in here just one question on the free cash flow I guess.

Full year guidance it looks like we're running.

We are on track very closely.

Speaker 18: 30% year to date, it would imply the Q4 for cash. So it would be down year of a year. I know we've talked about it.

Close to 30% year to date.

It would imply that Q4 free cash flow.

<unk> down year over year, I know, we've talked on a couple of one offs, but Dominic is there anything specific to call out that just to justify that and I know related to that topic of perhaps unwinding. Some of the extra factoring that was done last year had come up in conversations previously and.

Speaker 18: out there just to justify that and I know related to that the topic of perhaps unwinding some of the extra factoring that was done last

Christian Klein: How do we envisage the initial AI revenues? Will they be fairly profitable right away? Or will they all also maybe some additional costs up front? Thank you. Yeah, let me take it step by step. I mean, on the product engineering side, you know, we are not doing only now earnings late night. We are also doing some engineering sessions late night. And I just looked last week at the overall architecture. And the way how we actually why we are for confident also with regard to the consumption and the cost of running the architecture of business AI is we are building the foundational data model.

Speaker 18: previously. Is that still on the agenda currently?

Is that still on the agenda.

Thanks very much.

Yeah I mean.

Speaker 5: Yeah, I mean, cash flow is of course because of the sometimes volatility in some payments from customers.

Cash flow is of course because of the sometimes.

Volatility and some payments from customers.

Speaker 5: A whole of KPI, which is really difficult to predict at the end, but you mentioned some of the components already, what certainly is on the agenda to make sure that come 2025. There is a clean underlying free cash flow. We always set the 7.5 billion euros at that point in time should be clean.

Hey.

All of them.

Impac, API, which is really difficult to predict and Tia and but you mentioned.

And some of the components already what certainly is on the agenda to make sure that come 2025 is a clean underlying free cash flow. We always set the seven 5 billion euros at that point in time should be clean.

Christian Klein: So for us, it's key that we really, you know, infuse now all of our data in this neural network. And that we have a knowledge quest, which then can find the right data, depending on the kind of analytical question or task activity, what the end user has on the LLM side. So the large language model, we actually partner, we partner with a lot of players to also offer tool around the globe.

Speaker 5: We are checking well, there are however some phasing topics, so we have not updated the guidance for good reasons, and now how exactly that will pan out after we have seen all the receipts of payments at the end, we will tell you of course in the end, but I'm not expecting any wild surprises on that front, so we are on a very good trajectory as you have said yourself on the free cash flow side.

We are tracking well.

However, some phasing topic. So we have not updated the guidance for good reasons.

How exactly that will pan out after we have seen all the receipts of payments at year end.

We will tell you of course, and but I'm not expecting any surprises on that front. So.

We are from a very good trajectory as you have said yourself on the free cash flow side.

Christian Klein: And then with regard to the cost, of course, these modules are extremely hardware intensive, but what we are going to do is we use our existing Mac commitments with the hyperscalers, so we consume it out of that. And given now with wise, we are the biggest operations partner for our customers, also the elite customer, so we are wanting billions of workloads. So of course that also benefits us so that we now did don't need to invest in a ton of hardware, but really also can use our existing commitment on the commercial model.

Okay.

Alright, thank you.

Speaker 3: Thank you, Ben. And with that, we will conclude the call for thank you. This concludes our call for today. Thanks for joining.

And with that we will.

<unk> the call. So thank you. This concludes our call for today, thanks for joining.

Thanks, a lot.

Speaker 19: Good night, see you later. Bye bye.

Well that's evening Bye bye.

Yeah.

Yeah.

Christian Klein: Look, we launched now in the meantime, the wise premium offering and yes, premium offering premium price, but of course customer first, so we really looked at the value, so you find sustainability capabilities in the advanced finance capabilities, cash flow optimization. We have the first customers who actually can improve the cash flow, you know, by two or three percent, by better payment terms, et cetera, et cetera. And on top, we have AI, so it's the real premium package with real value.

Yeah.

Hum.

Yeah.

Christian Klein: And we see actually positive customer feedback for those ones who actually are our first customers. And then second, let's not forget, we're also offering AI embedded in our products with a consumption based pricing. So you don't have to go for the premium package all at once, but you can also consume AI business AI as part of our solution in a pure consumption based pricing model. So we give customers choice, which I feel is the right way to go.

Yeah.

Okay.

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Thank you.

Unknown Attendee: Thank you, and we'll take one final question now.

Okay.

Ben Castillo: Thank you. The final question comes from the line of Castillo, Ben Arbin, with BNP Paribah, please go ahead. Anything, thanks very much for squeezing me in here. Just one question on the free cash flow, I guess, and the full-year guidance looks like running comfortably on track there, it's up close to 30% currently here to date. It would imply the Q4 free cash, so it would be down year of a year. I know we've talked about a couple of one-offs, but Dominik, is there anything specific you could call out there just to justify that?

Yeah.

Speaker 19: So Su person person person person person person that person that person. Person person person C person that person that person. Person person that.

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Ben Castillo: And I know related to that, the topic of perhaps unwinding some of the extra factoring that was done last year had come up in conversations previously. Is that still on the agenda currently? Thanks very much. Yeah, I mean, cash flow is, of course, because of the sometimes more utility and some payments from customers, a whole of KPI, which is really difficult to predict at the end, but you mentioned some of the components already, what certainly is on the agenda to make sure that come 2025.

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Ben Castillo: There is a clean underlying free cash flow. We always said the 7.5 billion euros at that point in time should be clean. We are checking well. There are however some phasing topics, so we have not updated the guidance for good reasons. And now how exactly that will pen out after we have seen all the receipts of payments at the end. We will tell you, of course, in the end, but I'm not expecting any wild surprises on that front. So we are from a very good trajectory as you have fed yourself on the free cash flow side. Thank you. Thank you, Ben.

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Unknown Attendee: And with that, we will conclude the call. Thank you. This concludes our call for today. Thanks for joining. Thanks a lot. All right, see you later. Bye bye.

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