SAP - Earnings call transcript Q2 2022

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Operator

Good day, and welcome to the SAP Q2 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anthony Coletta, Chief Investor Relations Officer. Please go ahead, sir.

Anthony Coletta

Thank you, and welcome, everyone. today first earnings half us SAP's to joining and QX XXXX for on call our discuss Thanks results. On can our find you the deck Investor supplementing today's Relations website, call. Mucic, CEO, and today Christian me opening remarks. are CFO, With Luka will make Klein; Customer who also with organization, Russell, Q&A. Scott Success for is our leads us

Now safe the let's do harbor.

subject make uncertainties forecasts which events. call, are could are statements During and These results to other that on or and and we'll materially based this expectations, to projections cause actual forward-looking differ. statements, current that assumptions are future risks statements outcomes about

may are Additional Securities found stated, all information for regarding but risk to to changes these measures as Growth at point over risks on with superior or Commission, annual numbers Exchange financial of we percentage like our of and with not that, in the IFRS. XX-F call uncertainties I'd to should And report with section Unless to, it accordance are Form currencies. non-IFRS. the financial a be factors not XXXX. filings provide and non-IFRS otherwise including, be this limited in considered financial and performance SAP's on the The for non-IFRS Christian. prepared turn year-over-year rates measures substitute constant

Christian Klein

macroeconomic and and Anthony, environment. a today. This good of thanks has you, Thank political you Yes. been the despite quarter all to for challenging joining for SAP

than we XX% and have and at revenue progressing exceeded expected total cloud faster XX% expectations Our nominal, market and respectively. are

automating see SAP business enterprise. chain processes and the and operations. sustainable pressing ever us business is functions continuing increase tailwinds. than increased to core are the macroeconomic currency current Our and transforming more clearly Customers their focus them demand of process address automation, by accelerated to to resilience turning environment top an ahead most help and model an with of transformation line mission-critical cloud plan, for concerns, on technology supply performance We further actually and now

previous better in efficiency investments seen balance and As economic pressure. strategic we pullbacks, to technology measures able margin cost have with resilient that in offset more companies are

snowball also We of are our effect SAP ecosystem businesses from the seeing a platform adoption solutions accelerates. powerful as and

look a for at was revenue currency hit the revenue revenue our milestone and stream we constant In major the becoming numbers top QX. first cloud QX, time. line of our take at Let's of €X.X up now continued largest some up for XX% levels. a S/XHANA Current XX% backlog first. SAP SAP. growth and strong at exceeds for growth cloud at Current accelerated record of XX% hit now €XX RISE adoption by billion, billion, backlog driven stands at with XX% nominal and Cloud another

cloud addition, for Customers to revenue In our us the XX%. choosing of accelerate integrated S/XHANA power are at portfolio. continued growth

SAP technology First, platform; core ERP; business second, our and solutions. best-in-class the third,

years always strategy an on update as SAP the for leader these superior integration been and Since X ahead I'd to focused Our our of category strategy well in acknowledged plan. the solutions initiated of our our almost on cross-sell ago, on now performance transformation has ERP. is customers we This is our capitalizing provides unmatched for and SAP. like provide extensive for investing assets. opportunities execution.

as SAP over from SAP backlog are of a to just €X.X led being billion we ERP today current platform Now momentum This cloud. are power earlier. leading comes has ago, cloud transition to mentioned decades company. The seeing for the as the invented the of ERP I we S/XHANA, increasingly

platform are billion, using now rate has technology the platform. than there exceeding more business Our XX,XXX run customers €X.X a and

given to value solutions. They portfolio growing We solutions. are business the digits from integrated full adopt customers from of both enhanced revenue line all core by our cloud SAP in see double backlog. choosing and current to Turning cloud increasingly our the

indirect and and well cost achieve for many cross-selling Spend customers entire for our third-party savings potential example, our XX% more Intelligent to business direct a platform. we adopting with being and SAP solutions expense RISE catalysts up-sell as the cloud is as of across was with and of solutions In spend than technology saw The customers workforce. travel deals, and opt For their XX% tremendous. SAP QX, cross including of additional RISE

Network. We the transparency markets, allows entered isolation, Business environment. so suppliers their the industry-specific recognizing desperately key resilience have networks. in pioneered today's succeed we that can SAP Network new a realtime no also across connect to customers This and boosts growth business provides in in building needed approach new SAP in Business The

customer them: launched redesign a end-to-end cloud; Since growth the to support was at we utility of RISE to beginning RWE, vaccine agile RISE Information part custom business sourcing choice ABB own hardest from the transition, second, their how with scalable, much customers growing RISE and the chains, companies sustainability seen the to to is of SAP processes; support its pioneering German and Bridgestone. position helps gaining support functions. SAP. helps new to solutions. in regulatory We applications, transition X.Xx continued so transformation value and first, cloud. Our a world RISE success and the RISE innovate third, sustainable complements design for than continue which to strong SAP SAP see than our to customers Systems, service our S/XHANA. and create leading contribute with ERP our distribution is their requirements up-sell to with a around Moderna, of preferred Underpinning overcome enabling COVID-XX included customers with gaining and have year-over-year new of We processes cross- the In meet customers its international across our across QX, customers on being transparency adopting to ambitious end-to-end about the leadership business the future. transition. SAP year, S/XHANA adopted development as selected helping with company, performance RISE last Moderna's move including offering, as helping net The a to technology becoming the now they momentum, to a RISE have new. strategy. initiatives platform the the from pandemic. portfolio XX,XXX as line of SAP customers They momentum, and expansion green with part for value with wise turn targets that Network, offer want. is SAP in more with HeidelbergCement offering automated after RWE, redesigning our and customers, with means sustainability research Business its SAP of to the XX% traction, going We we they the across XX% with have RISE up SAP. this the business more

also S/XHANA approximately the XXX QX. are for over seeing momentum cloud, strong wins in We with and in X,XXX customers

community. start-up We are in seeing the mid-market and in increasing traction the

unicorn, to solution as For S/XHANA time example, value. implement and mobile users scalable an an Doctolib booking to make that the online robust helps cloud platform find easy doctors French providing is They selected appointments. and fast

Now for demonstrating our S/XHANA customer market XX% significant platform innovation clearly in SAP's order entry technology and growth business enables on-premise infrastructure gains cloud share. and exceeded integration.

SAP's will to provide their an HeidelbergCement platform cloud and This They as quarter, leader from the Azure. Oracle to on to on-premise S/XHANA using development integration SAP technology platform business ERP on access to services. global be decided move

them crisis. in out Europe, of role to more financial on to the navigate an create insurance one create services have chosen sustainable the in climate-neutral even accordance expectations energy Our new guidelines sustainability has the SAP regulated taken the given by a industry, open help groups sustainability business GIA. business important by Germany. international and course, its Group, throughout ERGO of of with solutions ERGO business aims highly set operations practices, largest the in transparencies reporting

division languages Wins a to this Our Intelligent and continued leading quarter new manage costs. taken Spend biotech anti-cancer drugs. companies has and specializing for platform a addition meaning include company Business BeiGene, the to on procurement SAP in plan quickly pressures world support They diligently inflationary to chose Network regulations improving and need Ariba around the as cloud-based management in efficiency. to build different

in for company, Tecnologia, to This engagement customer our their them more CX will portfolio. their using spend marketing as suite routers and collaborative Positivo ALTANA, this provide solutions campaigns a graphics in to time to company. computer, analysis. SAP service supported going a of Moët QX, behavior and and I'd customer is by personalize vision Signavio, process part create our engagements the Brazilian material transform SAP on The outlook. about strength enable from which opportunities innovators also technology to analysis like is to German chemicals is the its and ERP data life. customer bring they and governance Corning, intelligence process conversion talking based personal ASUS, management Turning the cross-sell, and to Hennessy to a SuccessFactors automate monitors, include the In insights. selected full Signavio one-stop Customers drive science, excellence quarter will little solution SAP customer systems. their leading retention. our employees upsell, world's cards portfolio, strength. one chose of for to global SAP leader business

cloud We are very half the strong with pipeline. entering year a second the of

line exit. to the spend shift impact tailwinds Russia to strategy top our pressing see on OpEx completely our from directly of the Given we maps most customers' our CapEx offsetting combined challenges, currency with

expected expenditure. operational to X faster the to are the continue upfront continues our upside bottom from guidance On intended from current adjusting on we our leads they onetime as environment, strategy move full cloud capital an are This pay transactional as first, macro impacts: shifting based on expansion with in Russia; off. to line, our cloud short-term second, impact recurring our to our clear midterm withdrawal than customers profitability the additional to

managing discretionary onetime these We spend. significant are with a measures additional portion of around impacts

deliver new we ahead we we Looking of XXXX clearly promise beyond are made announced upon the in when our October to plan strategy. XXXX,

XXXX And midterm confident are all XXXX slightly the will through profit the by for XXXX goals track on to XXXX. performance achieving are flat keeping well growth ambitions. profit of we We XXXX double-digit in versus promise declining and our to operating operating achieve we

potential will a in stronger place On double-digit the our profit portfolio. growth This focus to starting line, initiative providing complemented core. us even we made simplify over year. position our have importantly, a synergies also by bottom strategic in on our result increased put the years high-growth in in good we acquisitions to last core solutions and of the X suite Very our solutions, across next consolidate deliver investments

ambition our first good made have In the We we further XXXX, XXXX and which situation. our execution. the us has significant been on clarity in update an next summary, provide enables scale XXXX investments more macroeconomic this of to once during quarters on half will the quarter. We a now

to Our we resilient. more Luka and to today. helping Thank our customers And over out And in perfectly Luka? aligned us more is will strategy our come again look environment through the you facing. forward them detail. joining stronger results talk current to now of are to challenges I the hand for

Luka Mucic

you, delivered are as Thank Yes, our We, topics today many is strategy and Christian proving challenging Christian. customer portfolio meeting there good a working definitely nonetheless, our said, is and businesses that creating a solution quarter, environment. demand. worldwide affecting

to by the This our for strong a In to more even and deliver is cloud double-digit them offering. order deals our our portfolio robust was million evolution and billion more We're entry accelerating reiterate, becoming €X and largest biggest cloud relevant entry ongoing chains quarter. larger RISE contributed their greater point about momentum Our the S/XHANA on the talked a our and and driven exciting accelerated, exceeded technology fast backlog, accelerate the line time particularly trend in introduced XX%, growth new the cloud backlog our contributor. from we that a transformation platform. rate. the cloud that more a for America continues efforts. quarter, €X.X financial up from the with percentage first accelerating top opportunities. supply backlog first overall helping billion current revenue The to business in to saw the momentum was dampening already was towards also volume Christian cloud cloud growth again customers revenue became up Ukraine our and cloud America. we reflect North current resilient transform the sustainability XX% growth war the €XX record driving of the To a XX% we impact At with XX% businesses, SAP in cloud the contributed than S/XHANA Again, our continue Latin analyst than strong in of than second transactions strategy. ever conference, X and with saw growth more we and and disclosure growth order the had create their quarter. them to

impressive contribution an up up business revenue S/XHANA grew Signavio. growth SAP PaaS was PaaS XX%. And an outstanding cloud portfolio and and cloud driven Strong SaaS Our was by SaaS and XX%. technology Qualtrics, cloud; revenue breaking combined the was primarily it cloud down, platform; of XX%

contributions this was cloud well we continued as Concur, its In SaaS up from our including services path which growth by grew addition, also saw recovery Fueled strong X% by of quarter. other and double-digit revenue revenue strong our the the XX%. total as in momentum in offerings, revenue,

performance, Our strong was all quarter. particularly in XX%, an XX% cloud across Japan, performance U.S., regions the Switzerland second increased and Germany while and Brazil, outstanding the APJ by by XX%. revenue Americas strong. cloud revenue by EMEA India had were

of profit Very to bottom mix of total look line, to effects, at margin our XX% growth by percentage our reached cloud our was basis a points XX%. gross decreased expanded is points more than take Year-over-year, with margin. investments cloud revenue that it now continued our the gross trend XX%, Let's supported program. delivery Due starting and despite into gross next-generation upward margins. X cloud importantly, gross XX by by increased and a

war a as significant billion, non-IFRS XX% the mainly from driven by debt expenses revenue was Ukraine. well to operating Our software reduced bad down licenses related profit as contribution by €X.XXX to in

we expenses incurred mainly Russia, €XXX €XXX down operating impacting addition, which from million. IFRS to due of the In million exit profit, XX% was restructuring to

of down operating have the down Ukraine, impact would profit X% direct in the Excluding war non-IFRS IFRS operating and profit XX%. been

that share in billion than Ventures, saw Sapphire the quarter financial the decline which same lower turn now to the by €X reflects of per contribution Let and to flow. earnings you last cash The me period income was EPS over year.

share-based points XX.X due This was Ukraine. IFRS the XX.X%. of restructuring income the Sapphire and Ventures in expenses by to context Our in expenses increase reduction effective percentage mainly non-deductible and additional was the up compensation an of rate contributed tax to in related tax-exempt war to

tax rate up that, XX points increase As expenses. percentage by to effective unaffected to our the it compared XX.X% as non-IFRS was non-deductible only was in

first the caused increased came to flow capital favorable reduced due impacts due by the cash however, working decline for we billion]. mainly flow profitability year-over-year in expect The a lower to taxes quarter cash X move second and our cloud. free the approximately and half, to cash the Our months from [€X.XX at In is the in profitability. more continuous

of for our above billion the reiterating year. free therefore, are, We cash flow outlook €X.X

are mainly On to the our from given to current Ventures, of updating financial the line, we market year contribution full expenses Sapphire tax XXXX non-deductible IFRS of lower XXXX effective results updated tax rate XX% guidance XX%. conditions. and expected adjustment projection This income an

at now continue effective the non-IFRS be tax are included end anticipate of non-deductible As rate expect to a to to in expenses non-IFRS, range. we full this year XX%, but updated the XX% of upper not

to turn now Let's the outlook.

revenue As in for we reaffirming release, our are full you've seen today's year. the outlook

in due war million macro of current decline the licenses software from continued revenue of and We to impact are environment. €XXX the operating profit our Ukraine potential expected market updating approximately a

words on sustainability strategic Finally, and few initiatives. a some

to make progress enabler front as both continue and an sustainability an We the exemplar. on

the solutions, biggest We and we SAP announced solution. sustainable through in impact have for positive new our the innovations enterprise Cloud have

example, carbon SAP announced footprints reduce For Footprint at partnership the Taulia a product Further, solution scale. enhanced helps Management EcoVadis. with Product customers

ESG ratings finance for provide Taulia's supplier solution. will sustainable We

diversity. around milestones positive achieved also have We

SAP.iO expected. in goal Demonstrating that Foundries companies earlier of management individuals to managed women impact, XX.X%. XXX portfolio example, has For in underrepresented or further supporting have its by its further founded positive increased than are our achieved

current are strategy seeing this clearly So our with technology resonating, pressing quarter cloud to again that to look them of help our in proved their by performance. investments strategic we discussion the backlog solve in once customers, imperatives. In they conclusion, our results is confirmed business that most

And midterm over are strong towards expansion. our the ambition. your an months our makes to to to capitalize in and investments expect growth XX on we're be our by momentum progress ready currency provide now and confident We Thank strong profitability and based making update delivering cloud now take questions. ambition substantial to sustained the on last quarters. will us This happy we we upcoming growth that favorable development, our you,

Anthony Coletta

the Operator, line. open please

Operator

Boulan Instructions] first of Fredric question [Operator from take America. We our from will now Bank

Frederic Boulan

Fred size around driving can we pricing. around gave One license please. questions, from markets, of Bank fair concern change specific of what is considering on unchanged clients deceleration. already when amount what's a America. point has around had guidance if you QX of And touch markets. changed versus Two end end can you the that Any that you secondly, to? And

the pass you We license? degree actions environment Can and to you're maintenance to share us you your between have and can a a geography. that with if split inflationary high on cloud across that taking

Christian Klein

Yes.

first a at offset and, me take let seeing are what world will costs. mean, question also So the these is we're cloud are of that, also And But we we -- increasing sticky of away course, same across And business. on of indeed, I pricing. to the time, some actually, the increases. right with inflation cost high planning what we very course, having

We with and the price the yes? planning upcoming release And see that, have we of will And weeks then you and course, new profit can maybe, just inflationary the on pressure. price we will and for additional in increases. to in definitely, to But are months. outlook, react will our schedule we Luka, this comment

Luka Mucic

Yes, absolutely.

QX given QX our Even for conditions, software with assuming double-digit under were year on full that, year. of license in to invite in license will comments were very strong that we of and we that negative always also the normal first in Scott around I software the was mean, growth. terms I all, planning momentum the prior the are seeing performance So we side, some make a

a strong market total was little the the bit say, macro we then some you strong of environment, was more the the OpEx XX%. customer of and very get in clearly two in because a XX% has in the the Middle that's or also see flavor pipeline a certainly, across further What to Europe markets, environment clearly actually Europe, of of combination, it's solid about. quarter actually for region that you versus can also on-premise, we Scott, But one on our than Ukraine something why as shift for concerns. I the side decline And us particular, I The order the of a cities. rest tale and would constructive to of add in preferences clearly become the In it. it's We you entry conversion of actual signal current detriment in And clearly increasing Broadly cloud a that cloud very Russia talked S/XHANA see hand also Americas would for has we the lower is a speaking, not of in back here. cloud investments very kind has in so a more Eastern closings. demand perhaps really QX that and is see well, closer S/XHANA growth CapEx to on strong in gaining and see say, Europe, there, and Asia. house. combined transition is the some we're and Christian to now a the deteriorating acceleration pronounced, Christian fundamentally. in results not of that on with shift said, the this accelerating of And had share And as and

guidance after as we unchanged QX, focused our impact million the from this that, operating you absorb you all at direct midpoint a because reduced Russia together, impact we €XXX take our impact. we indeed, the when exit So have by to on alone. And a €XXX of profit look the at is million. guidance The were Russia from our when for ability now left actually take

something also to to now it of But impact and on-prem of appreciate, cloud Russia, indirect made outside that a that comes are and the And that you see that. sense to part now with the the shift the is the have now commentary that you're us the actually therefore, so we derisk it we half. outlook along outlook of any momentum is for feel the stronger and absorbing better for seeing half we from the XXXX. come the we of safe and good But also confident very that that to first second have extend into in shift around seen market? continuation in Perhaps, shift color the supports this Scott,

Scott Russell

Luka. sure, Yes,

In SAP. to since market this described companies the to in market their addition launch around you seen by move the we've what of the is year the the to the of run mission-critical conditions, RISE CapEx the from cloud OpEx and what workloads willingness to

allows ever, and SAP to You But acceleration reliable, we need cloud. is secure, the increase now them that with Luka take and the strategy than a in described, more And grow relevant strategy. that RISE the and demand, that the the current a continues platform factors of reduced. combined environment, S/X demand means validation the the is other of can to which with as for accelerate of safe, correspondingly scalable that means the see

out to Logistics the customers, move that So whether acceleration or Baker new let Information or to or these their year, ABB they're but Hughes that Defense the decisions it not X XX% XX for platform looking big looking a organizations, years, see is positive, shift. that Agency oilfield net they're others, and alone many you're it X an Systems at in years I for cloud they're X, as scalable a X their making here they're accelerated year, certainly looking so platform,

Anthony Coletta

Thank take please. you will next and question we the

Operator

Amit from Citigroup. Next Harchandani from question

Amit Harchandani

of context with Two Citi. if the Harchandani may. to momentum first Amit question in from cloud My macro. questions, I is the regards

strong changing a for likely of do views same. this we reason you're because need is margin forward? second thoughts talked that the today, past you ask recessions cloud to they to customers? And was any is recession with sort it how the think a if And do with discussions would but is is stronger But the there small Yes, a know your your going was have drivers going that XXXX, underpinning the to about on keen typically do have cloud be so see be in I you've portfolio. performance. I operating you have question growth having part, Now trend? secular obviously your see regards the had, to on your into What you

We drove seen operating the in seems in the quarters you the have X it cloud have what to where offset outcome. weaker-than-expected a on row particularly talk been by giving about margin see this strength the side, as OpEx sales of merit margins guidance operating go and to marketing understanding. in expenses? you Can on we And if forward quarterly lack maybe potentially better reduce

Christian Klein

Yes.

half, let also first second pipeline outlook for question when on we customers, actually cloud course, can for the I the first, with compared our you days mean, confirm months clearly what is X that XXXX. And our have the of to these increased. ago So me for conversation take but cloud

the all and it willing about license They RISE to why is more all no when no. only when of speed digital slowdown. talk SAP. when clearly is to not car to comes you the manufacturer utilities. new more of it's And It's quoting, want to comes intelligent is stop resilient RISE is SAP, pricing, this move and there's necessarily the reskilling see So with comes it to CEO demand. This to to or SAP business is When a the full retailer a the with that? SAP model, now stronger when we about cloud. workforce, continue answer models build about it you business The transformation talk

into less a huge chain The course, second oftentimes a look companies challenge. into pipeline, days, challenge portfolio see demand but these one, of you of when supply the and our

it to resilient there, a comes supply also So chain.

SAP do we to Network, So IBP supply chains with these what leading supply more can chain resilient. Business make with solutions our

technology. of green And the have there, we transform you a high of gas And wants a others, and when everyone more enterprise. offering pipeline also new letter demand. to -- oil utilities, is and So course, into also is there, also up. sustainable We're and that then

pipeline. So with a a when I portfolio, you me with cloud ask see of SaaS regard to regard our we slowdown no also to robust signs would the today, in very our PaaS portfolio. see

side, are confident. on So that we very

Luka Mucic

perhaps of industries, stronghold this have risk. obviously, I factors, And to let's I as that a be E&G industries, will subject X forget to SAP's so stronghold. much mean we with not not just complement the many think, recessionary

a have pharma have all as the we we others what have with essentially now Moderna, stronghold We seen of well. as

We retailers stronghold. a have

of a in RISE rates strength So cloud I now And is good SAP. current well. the long backlog growth sure since to as significant We for us in values of of the of our had we think point higher gives think, actually about, the continued advent a I addition in talked not do a cloud significantly with support also the for I've now then terms and there. other that TCV and the time backlog the see portfolio. the strength number annualized quarters, contract only

also in see and, that's future and current have And the backlog. guaranteed of us revenue don't what cloud an through contracted in so very safety gives already already that into course, And necessarily coverage line. backlog of what we come additional net this the strong a quarters into current will cloud the you

given expand Now I'm quickly impact to I've And have to on commentary this. on for that your from some year, actually operating expect margin started in of including But we seasonality, QX. think I beginning around Russia that's also the since happy have actually already the valid we point. topic, the a

investments, that half have half we year. right, said then to that. I front-loaded half expect quarter, the the and and negative were in in second marketing significantly you're the first QX first all, have Why? the always of Because absolutely First the in sales we that in we year, call the ratio clear profitability about and up. has improvements been on

you actually covered to drive that's have want have happened. can so You your growth that for that we strong and the has what territories expected, exactly

and obviously, expenses, we with will the that further So marketing XXXX, was the almost for year-over-year year. half certainly And front in reduction in the And hats expect planned go-to-market first comes in but incremental that half X,XXX moderate we a second the and on added ratio. year. actually that sales

forget much to when behind engagement. comes COVID us not also Let's it is that customer pretty

So on Sapphire we the virtual a I but significantly event, bit yes, that can you physical than pipeline. marketing purely side coming ensure the costs back, of With to more drives have more it house, events. a it also returned

the And so we that revenue perspective, investment the see continued that's on payoff we that will worthwhile see the momentum with on from a -- front.

then use some CCB you mean you year. much it's as and I shared side, I in half to So also should around QX essentially QX. expectations second revenue think cloud how color give the it's opportunity about after our that pretty more important the commentary I also and on call on this think I what the

we be of the continue from confident pretty growth second to part the Russia CCB that here year be one we that saw the in that believe to it able in road a we'll absorb on that. the half see should impact as will with exit that year. And of steady a QX rate we XXXX. is reasonably that to I'm we So a also similar

cloud it's similar. revenue the On front, quite

a as have is the profit quite growth a QX expect line. well, stable operating you from difference there So what on seen should we in and

the investments profit to operating growth XXXX. in So profit scale for we front-loaded all, because negative that we is of made the in the start return Well, the Why operating making means towards particular, return we to in profits, expecting that as still room year. the end in QX, that so? will a to first double-digit said, of we're then and them positive QX,

And most course, year, that well we And of the employees released had investments in pending that as in of course, dynamic the of will of We will year. of will generation very of year, pipeline bit comparables Russia have have line remember Please of the significant retain And anticipate significant help. QX. as be on expense side released really In we operating and in last to the helps particular, a then. a profit venture better. our the QX. we we divestiture will, The that digested become close joint QX. still that by last and Hopefully, war so we a will, had on this have course, Fioneer event we provide in don't in the as easier already a in well. hiring comparable impact up understand in on because QX, lot Ukraine set the QX

Anthony Coletta

Thank you.

Next question please.

Operator

from from Adam Wood question Next Stanley. Morgan

Adam Wood

just second or terms Just look forward expecting secondly, first into And recession of on speak impact. in quarter, of the you assumptions mean So just assuming Could particularly to on of second having next year would double situation talk shift side slowdown. the be this through Europe, the of continuation year, and in are to versus, year. half then i.e., say, the And as a side. about as of basically the most of little of the the a profitability bit of there where assuming, a macro continued it that digit impacting parts in you've other alluded licenses little I investments Or an maybe a Are parts a and assumption world discretionary there's EBIT half? more bit again, focus the parts hitting starting so that cloud already cloud all, go, we I maybe suggests? is the for for macro also next you how to to a spread macro maybe guidance made the and also on current second could certainly half is little on would you weakness for growth the cycles you're bit a of as you to think the caution? to I second licenses of maybe Europe grow what impossible investors level have you spend? and that, on you for that manage strength cost the weakness licenses to the maintaining incremental other

Luka Mucic

Yes.

this. take me Let

to. at cloud first in actually, half So we we're QX. happen our same have Flex alluded level. of something parts productivity happening already of this, transformation a on course, already areas. and actually second license it discretionary the expenses expect guidance pace what is that, out program have Cost And is that And only with we don't in to yes, means happening will This all, program as we seen you in guide, obviously, are And software the we Europe. that taking so running continue we to see which global against the our at -- in of that

We have in already down QX. slowed hiring

the of with underway you without on extent. last to because same up have to actually the As harmonization set well continuation the here slow this the seen already front be X adding is capitalize would on we to quarters, in cloud continue are now. close down. made exception opportunities with to so well program, the we kind employees additions, only investment only significant The have further additional growth of X,XXX XXX delivery will which our moves And we

half, that significant very make We yet in room sight have then complete profitability. step-up clear a the line and to cloud of another first we'll now we'll in

look, asked, And me include a guidance we covered, that was safe side from we it on a growth is Europe, the numbers. saw. that XXXX that also trend might committed of actually that saw broad-based we that was Because let double-digit the parts not license Yes, perspective, question confined So in what are XXXX, right in answer that appropriately we feel that to the the but I be have because proactively we over and away. would we're to QX now divestiture. mean, said only

saw for natural the program. made basis. the numbers. for don't the that double-digit certainly will benefit We additional in of see significant as we that that have investments gain with in those drive set be the build see XXXX, we cloud Frankly, years headcount last need harmonization onetime And the up XXXX growth delivery would levels the So XXXX now. very X from the same whatever we at we a of drive we for very in to off there ending on increases investments ourselves from well

give investments in €XXX to harmonization million than delivery had more QX, we you view in here, Just program. a cloud tied up the in

this of that similar already in half big a second once off, expect year help. has We is course, amounts very the tapered

not we for that a would environment drive the will but we we're double-digit doomsday continue a So for XXXX, macro assume I say if confident growth. difficult extremely to

Christian Klein

this we summarize And it we let bit good started look Adam, guess ago. say from than I me And it Scott, took off. until software quarters, maybe just transformation of a last better RISE a a year, time also When I it's really took we back, X.X perspective. expected. bit And strategy years had mean, fair that to

because into way platform, we're and the plan. not is business. cloud, moving a the But the below going a a now see also to macroeconomics, you a actually also new year this super celebrated once have Now are the Nestlé project backlog this away. resilient of bit you're go now on up we high what super we you mean the we you're are live. going transforming, big cloud, ERP and just with build is The the I

building Now we are apps, co-innovating the on the core. new platform, surrounding

So we customers already for see businesses closed. the we also new

business, we to XXXX, higher revenue well. share one, mean, grow that operating market developing resilient plan. of all will recurring the you bit core actually SuccessFactor, gaining And form I more a of with in little line we're procurement, confidence profit now If were the share. back me would us double-digit shape growth now growth, gives and all Not Also gives good digit? a years weaker make even for businesses license the because software really that That us super double ago, on is the have today. clearly X that going asked in

If of out more on profit plan, cloud I performs resilient, say. more you would revenue recurring the have well actually side, Russia base and the ahead take we a

Luka Mucic

comment. And perhaps just a last

long You declines. our software essentially flat see despite revenues, pronounced period the license that which of are support time resilience also a in now for

there, we the in to remarkable. support very, away is this have cloud And nice don't see So quite quarter changing foreseeable again, had any Xx extremely very of the around actually, in is stickiness this conversions, which the actually either. multipliers or going high. future also And terms mark, I time

Anthony Coletta

Thank you.

the will next question We take please.

Operator

Johannes question Deutsche Schaller from from Bank. Next

Johannes Schaller

other are a maybe clear also strong side. on But Thanks some the for of if questions. peers, things pipeline bit and cycles taking on Qualtrics tougher and Christian, deal done cloud we're commentary my then very And get decisions lengthening we really. software at look to the that

from not right you are I just what just portfolio? really with then here cycles I see you, is for are confident pretty And of check Luka. wanted the you So Qualtrics rest question mean, in the portfolio now? in the your second lengthening exception your to that And cloud

how about into the margin we into going not we that should are Given half? I cloud to half, gross how the expand about the cloud can level that? Or investments second around think second mean really further the think should XX% trajectory? stay we

Christian Klein

Yes.

built second sentiment. applications. growth. business on integration how the in half core side. me are with They I accelerated have they the will Let the of where the seen the how in start with more Qualtrics, product last you high And growth. the have Qualtrics a come, on we still And their the X+O the our and and processes further Qualtrics of year, packages can question it, embed integrated we packages, overall X more we mean years, call

can and RISE will around lot the a to is where attach launch We trace in the how see we regard a portfolio, with procurement IT, sentiment few into where more areas Qualtrics. We're of for Qualtrics to build track our going opportunities transformation. scenarios so the you high-growth to

at start So potential. Yes. where “I optimization parts actually, S/XHANA, product. cycles, The see when flagship I'm conversations deal very look more certain I are businesses huge have let's The with around, and my the I now and confident. of RISE going

Christian, new billing Okay, want on I we launch we on models. we to angle?” license go automation? that So procurement faster? What can into can fair. move can OpEx-related do

kind And priorities, important which of flexible of a our case are any very are only would commercial shift RISE I very a discussion wise, a areas around or shift doing as would a look it's maybe delay. not first. cycles such again, to and yes, We're We a say delay, deal not business cloud, actually here to the shift time. cloud. only stop the yet A to into with maybe the everything with with comes go delaying strong a projects. products, let's is this macroeconomic not we these But but with the not in resilience,

to peers. And my of so lot I'm Scott? a just talking to where gaining this is also confidence

Scott Russell

bit to color just give Look, it more Yes. a described, you what to Christian.

manage in multiple from supply their time capabilities. able case. moving ability is, they're to they in capability. need just inventory That's just first suppliers a disruptions capability. We're go different They the They're than levels manage did choose before. an enhanced not of choosing enhancing real when we workloads. an at chain. And be to are They to just enhanced that can they because The to SAP, what in moving business time

prioritization the deal So the clear are about in transformation is because outcomes is to very sharper what exceptionally a cycles need seeing part of about cloud with the is the sharper not what which means volume at deal be by it delay we we're which, when. as it's about plan, good it cycles, service. RISE SAP transformation a in course, more But of a of brings delivered plans,

have an a be that each different them sharper of growth, then at would And statement. double-digit of overall growing that between business the all So are then, need categories, about getting. outcomes which clear us in gives the is good strong, in obviously, businesses to all That times, confidence because be but stronger. SAP because times, even even difficult that priority they're we're will

Luka Mucic

Yes. and to answer margin. on that cloud And to just question the add the on

increasing cloud the I'm than made The I would all, delivery harmonization more a in of XXXX increase X.X% the headwinds the pleased investments from that actually we despite first in cloud have margin expected. very was progress have bit So with the program.

second And mean, But investments also on is I the plan. at increase year. the a half the slightly very in second are of the when half same growth year, strong. we side, now So further take I revenue the ahead will cloud look

think for now beginning increase likely at development end the the at cloud with So cloud year margin about. are cloud actually, The topic I year, and particular, And that actually the of that that from ahead we will as our in that that we or the would and thought ambition profit XX% I for while than a asking you significantly tapering where the it's slight exit margin great we of margin in I the up a cloud a planning in success look and the momentum with be original XXXX, you have think the S/XHANA will important flattish our bigger we story already cloud certainly out ahead in midterm XXXX more are should highlighting then be first half of in higher obviously, investments our that's off getting end XXXX. the have our said in because of one is more absolute and more of of is success we watch to terms well. that perspective been

Anthony Coletta

you. Thank

Next please. question

Operator

Goldman next Our Sachs. Mohammed question from from Moawalla

Mohammed Moawalla

you Thank very Great. X much. I have questions, please.

The first and one, Christian maybe Scott. for both

the mix and I to aspect And versus how Luka. discretionary next cautious for the severe backlog impacting scenario momentum strong be kind the revenue do in forward of portfolio the sort the lower of the of different sort to of pretty is it's the pretty if pieces would of aspect. second growth more perhaps defensive understand more the versus cloud? aspects cloud curious going you year, or sort the As more portfolio, defensive we then ASP more and of right But was were risks a even macroeconomic of at growth know we of the assess broad and one SAP's of S/XHANA discretionary now. look to of move I portfolio more kind

kind Cost reflect shown margin. SAP to the ability the significant to Flex, as this year. heavy we protect cost investment has about talked in past, think of You But the about

say, sort do of expected scope the year, So target the kind next double-digit in hit of base of of absence kind flex your you in even to how that slowing? see with growth to the the context of, EBIT of sort growth cost

Scott Russell

start, So maybe then you and Christian, add comments. I'll

macro to and but it's and portfolio give try views discretionary, So on at the discretionary what's not, the interesting Have different what's it businesses. level. a first I'll question about around what's

whether able We're would SAP be only the solving their portfolio. managing managing breadth whether line, be First are the the of retention disruptions, I challenges whether labor. is to this that about employee our of our it chain it's of solving to that of able advantages organizations, of all, and contingent supply sustainability, argue, customers, and is only their solutions it enhance green workforce, one one the their company provide of their

to really are the supply the specific situation. manage each Having us supplier to breadth and macroeconomic seeing expand. Christian a ability will about environment. lot because realtime we to strong. through what source said chain challenges, consistent speaks diverse your are that, they but with our our and relationship be able in your business a is the able be ability very and base So manage disruptions, They helps can be to faced

demand on And going and much solutions to at other within HR discrete core those But would so because don't that And ever. the needs of provides. portfolio, the the But they the even in discretionary. forward, really which parts strong the core consider we difficult portfolio, example, some for SuccessFactors change businesses look environment, become might are operations, to more more expect they focused pipeline of a not be that I than part apparent then see

be companies the expect difficult made there not to uncertainty, continues focus confidence finite and past opportunity. to they pressure to our go about why to operational continues a spend able Technology IT Christian? And portfolio I the on priority there to in resist was they've that I manage So macroeconomic, be look gives outlook. What and spend. more or decisions pipeline the always core us the In advantage need is as and got that's spend. strong take same OpEx say disruption as a of forward. they be do to be the would across for lot environments on in if capabilities clear.

Christian Klein

you when How RISE to a how the there's Cybersecurity do topic. business with IT? point obviously, of look is justifying mean one certain on parts a of can case I can outsource the side outsource we SAP, into And a always big house? we

RISE I more supply you forget moving players the a Yesterday, realtime just as then semiconductor Scott second, industry, makes chain. with But we example. them only are the actually which cloud, cloud now said, Samsung mean, give but the with that, resilient not and move very needed. other with not a also to Let's I to in concerns, SAP, we're building they're increasing the

network which of these to are are supply for are millions we in where them their also especially resilient suppliers scenarios moving find are We then these and the and crucial. they And the times so a industry buyers chain. building

cloud, about move the automation to it's more the and of but are supply facing. even the to So challenges pressure offset some chain our customers margin

Luka Mucic

discussed. delivery euro harmonization program. terms to have out, Just see that proven reduced cloud situation different scope across really expense of on certainly scope we high anyway a you a to the for with downturn will as have third-party other I Flex million of manage, finding mid- in finally point if occasions mean on had rightfully on we past have what triple-digit items we discretionary severe Cost growth we that dissolution you headcount in and top the line expenses items savings the of and expense easily

course, have, significant the line manage bottom in with to So we of scope commitment. line our

Anthony Coletta

Thank you.

please. question Next

Operator

from The next Briest Michael UBS. from question

Michael Briest

in And your see could in Christian, you're order what cloud the faster. transition own the just to trends obviously, Yes. midterm waiting you revisit of you're to sort marketplace suggesting say guidance? or the then

business. to of I today? gross the So at if even if you're were mix adamant you're changed. billion Sapphire, EBIT underpinned substituting wondering know Luka, I reendorse business on-premise XX% cloud sort that that the XXXX you €XX.X well was am margin with [XX%] the happy probably in

Christian Klein

Yes.

I So of about cloud. when more mean the all Michael, a First I if you all, what this to again, the it do growth in we actually year value a value could And ago, need to uplift I growth. bit the our was compare would guidance? guys

sentiment has always first I the And just that Of course, years, the a bit difficult it's case more operating yesterday, realize look, said was we market X-year X profit on math. did And transformation. side. mathematically, a shifted. But the the we it always the

of plan If take even profit. Russia we're now ahead on operating second, for out you a

well on So ambitions. our plan hitting we are on midterm

say, X. we to give do us a new a guidance? have let to half what need would order I deliver great year in Now look,

going that. is to resilient. is, the of the that assume the us environment it let's emphasize see if us Let next that, cloud macroeconomic want to you're show very year guidance, and stays then like updating And beginning I

line. There in be You then will guidance update the is, an not the also top on line. bottom see of only update an course, to on the expecting

Luka Mucic

the perspective. Yes. And is all it’s from I update this cloud be on great positive growth will not the only momentum side, said as a because along that

overcompensate supported it’s also course, to at that -- But going to what the can much also through absolute materially by therefore, rates currency. from line. differential in higher higher drives and current absolute it of the cloud, flow also perspective. bottom in levels the at an the cloud the And we this Of FX profit growth actually margin the profit terms momentum expect our contributes to

continue if said, perspective. we update would performance it how macro a at course all of backlog goes, investors out of say. also all does have in ingredients will we same to And stays then performance But the the the from let’s place tastes As please watch level. I for that an what prove

Michael Briest

-- midterm target replaced ask, six would you a you time, that? new you 'XX a XXXX that just I now 'XX in in be introduce was We're beyond and update 'XX ambition. months' target would with going had can to a previously in And or in XXXX

Luka Mucic

XXXX. the to we No, then will pleasant. And on updating -- quite would XXXX probably will I a look cloud XXXX you old we the side the that compare course, for to say look that give of at would can guidance. guidance

Anthony Coletta

Thank Thank you you. question please. will we final And now take one

Operator

Moerdler from comes from question Mark Bernstein final Research. Our

Mark Moerdler

not my complex and far. have much question, you've it too given the detail squeezing call Thank you in, very the X so questions. I on I appreciate for taking additional

especially what you've from share you've how in added million new first buy of cloud was of And customers question where the to S/XHANA valuation us customer Can the SaaS percentage winning that you color it is said new much we on is being the stocks. return is? of versus with give of the think base and back smaller the to you're The forward, customers. count the is? going XX% second any stock down revenues customers €XXX should roughly cash, How S/XHANA of on available about

Christian Klein

and can on start can Scott, build on then the I net that. new, you

the beginning, larger what what in need successful, the from at winning unicorn midsize sticky new customers share now scalability, very net net new you I kind new guess of new much ERPs wants offer to of is less very So XX%, see cloud France, course, We're than, high but so of have community. the or are of the first my that in also net value customers, in shows you course, net But are high also as customers. of I product the you share the again, in if to has it also comments business X-X. customer in S/XHANA such our where for mentioned go share those? segments. new. we unicorn into expand it Doctolib other of winning And kind customers net This growth, Oftentimes, is the a

Scott Russell

Yes. if I add Christian, Maybe comments, X I'll can.

midsize. we expense us, that launched increasing proportion the over outlook, are our order which launched had the when QX, midsized proportion expand. net continues customers has the proportion customers. you That's in That is we've moving terms see but The larger customers also of not of optimism RISE, we entries X,XXX that the RISE, large XXX only we revenue larger gives service. scaled midsized first, revenue lift. customers builds mix seen increasingly on an but obviously out as in when customers of we high the customers the increased we first of a continue at improved total RISE, What the at also have in new not moving of to or to now will customers to of obviously, the of The mix to

the revenue big Our but as be at tend that well, to move means midsize across new the large or unicorns which scale mix companies is companies the net higher. customers Christian are of now mentions, moving to

Luka Mucic

the share the just count And to share Yes. come and buyback question. on back

employees did important plans of the we the just as share shareholders. year, understand compensation order back half did that are in counter it's we for in shares to we buying our equity-based our to the for the and think I first first satisfy buyback dilution primarily any

the therefore, remain to we does are not we So underpin unaffected, additional -- on refilling we can our And It its share continuously And buy strategy. expect back of evidently, the that believe equity not do €XXX that Very shares. and make sure to are it in essentially, the committed it the true canceling you XXXX, a strongly share-based compensation the decided an that create dilution. plans. in for pool value makes million those count bit we is aggregate sense shares? additional company more will Why to but don't that have we

in So to that's for the reasonable our necessary invest priorities volumes of We, of is as decided accelerate organic we our business. allocation unchanged. course, remain XXXX. to why and Outside capital that, will continue

we accelerate not for course, prices. everything meant stock equity share for of rule out. attractive else, fuel pay can where in count no If we of interest top continue of some share to obviously, we tuck-ins not we offset then future. again, flow. rate on committed out Then them existing attractive employees buybacks our opportunities, And to there pursue it's also if programs the long-term will when And as our might is the cash uses, are other This be continue that. deleverage dividend to continue result also the have to to we reduction we current will I we makes sense. a So environment, something the M&A at to dilution. it in of have an really will will would treasury it then in But

Anthony Coletta

this And for you. concludes you. today. our call Thank Thank

Luka Mucic

Thank you, everyone, for joining.

Christian Klein

Thank you.

Operator

conference. Thank you. That today's concludes

SAP SE (SAP) 21 Jul 222022 Q2 Earnings call transcript