.
• New Cloud Bookings Up 39%, Software License Revenue Down 1%
• Cloud Revenue Up 37%
• Cloud Gross Margin Up More Than 5 Percentage Points
• IFRS Operating Profit Up 36%; Non-IFRS Operating Profit Up 20%
• IFRS Operating Margin Up 4.2pp; Non-IFRS Operating Margin Up 1.7pp
• Q3 Operating Cash Flow Up 28%, Free Cash Flow Up 116%
"Our third quarter results reflect the momentum we’ve built entering the final quarter of the year and more broadly where we are on our journey of growth and operational excellence. We are excited and energized to write the next chapter in SAP’s story alongside the best workforce anywhere in the technology industry."
Jennifer Morgan and Christian Klein, Co-CEOs
"In April we promised a stronger focus on profits and here we go: Q3 marks yet another milestone in delivering on this commitment. Q3 is also a manifesto of us keeping our second promise: continued strong top line momentum. Despite continued macro uncertainties we couldn’t be more confident to make 2019 another stellar year for SAP."
Luka Mucic, CFO
Business Performance
Financial Highlights Third Quarter 2019[1]
In the third quarter, new cloud bookings were up 39% to €572 million (34% at constant currencies) and up 51% excluding Infrastructure-as-a-Service (IaaS). A new partnership with Microsoft contributed 18 percentage points to the 39% Q3 new cloud bookings growth. The deal has a term of 3 years, with revenue recognition starting in the fourth quarter 2019. Cloud revenue grew 37% year over year to €1.79 billion (IFRS), up 37% (non-IFRS) and 33% (non-IFRS at constant currencies). Software licenses revenue was down 1% year over year to €932 million (IFRS), down 1% (non-IFRS) and down 4% (non-IFRS at constant currencies). New cloud and software order entry was up 20% (15% at con-stant currencies) year over year in the third quarter. Cloud and software revenue grew 12% year over year to €5.63 billion (IFRS), up 13% (non-IFRS) and 10% (non-IFRS at constant currencies). Total revenue grew 13% year over year to €6.79 billion (IFRS), up 13% (non-IFRS) and 10% (non-IFRS at constant currencies).
The share of more predictable revenue grew by two percentage points year-over-year to 69% in the third quarter.
Cloud gross margin increased 5.9 percentage points year over year to 64.5% (IFRS) and increased by 5.4 percentage points year over year to 69.0% (non-IFRS).
Operating profit increased 36% year over year to €1.68 billion (IFRS), up 20% (non-IFRS) and up 15% (non-IFRS at constant currencies). Operating margin increased 4.2 percentage points year over year to 24.7% (IFRS) and expanded by 1.7 percentage points year over year to 30.6% (non-IFRS) and 1.5 percentage points to 30.4% (non-IFRS at constant currencies). Operating profit in the third quarter benefitted from disciplined hiring and accelerated operating efficiency gains. IFRS operating profit additionally benefitted from lower share-based compensa-tion expenses.
Earnings per share was up 28% to €1.04 (IFRS) and up 14% to €1.30 (non-IFRS).
Operating cash flow in the third quarter developed significantly better than in the first half of 2019 and contributed €638 million (up 28% year-over-year) to the nine-month operating cash flow. Operating cash flow for the first nine months was €3.32 billion, down 5% year-over-year. The decrease in operating cash flow was primarily due to higher payouts related to share-based compensation (€205 million), restruc-turing payouts (€239 million) and higher tax cash outflows (€490 million) compared to the first nine months of 2018. In addition, operating cash flow experienced a year over year benefit of roughly €288 million from the application of IFRS 16. Free cash flow[2] was flat year-over-year at €2.33 billion. At the end of the third quarter, net liquidity was -€8.28 billion.
Segment Performance Third Quarter 2019
SAP’s three reportable segments “Applications, Technology & Services”, “Intelligent Spend Group” and “Customer and Experience Manage-ment” showed the following performance:
Applications, Technology & Services (AT&S)
In the third quarter, segment revenue in AT&S was up 9% to €5.52 billion year-over-year (up 6% at constant currencies). Solutions which contributed to this growth are listed below.
In the third quarter, SAP and Microsoft established a preferred partnership to move on-premise SAP ERP and S/4HANA customers to the cloud through industry specific best practices, reference architectures, and cloud-delivered services on Microsoft Azure. This partnership will both accelerate and simplify customer migration to S/4HANA on Microsoft Azure, and Microsoft will embed SAP Cloud platform solutions and related services within Azure Cloud Services.
SAP S/4HANA
SAP S/4HANA is at the core of the Intelligent Enterprise. It embeds analytics, simulation, prediction, and decision support to run LIVE business. SAP offers customers a choice of deployment options including cloud, on-premise and hybrid so they can choose any scenario or combination that is right for them. Built on SAP’s advanced in-memory computing platform, SAP S/4HANA is the market-leading intelligent ERP that provides unparalleled business agility, empowering companies across all industries to reinvent their business models for the digital economy and navigate dynamic marketplaces.
Adding over 500 customers in the quarter, S/4HANA adoption grew to more than 12,000 customers, up 25% year over year. In the third quar-ter close to 40% of the additional S/4HANA customers were net new.
S/4HANA continues to be selected by world-class organizations, including State of Nevada, Grupo Crystal and BrandX. Dow Jones, Callaway Golf, Daewoong Pharmaceutical and Breitling have gone live on S/4HANA. A growing number of companies including British Telecom and CIE Automotive have chosen S/4HANA in the Cloud. McDonald’s UAE and Xinjiang Daming Mining Group Co. have gone live on S/4HANA Cloud.
Human Capital Management Solutions (HCM)
SuccessFactors’ evolution towards Human Experience Management (EmployeeXM™) represents the next generation of human capital man-agement (HCM).
The unique combination of SAP SuccessFactors and Qualtrics Employee Experience Management elevates HCM solutions beyond facilitating transactions to truly reinvent human experiences in ways that accelerate business growth. Employees are the frontline face to the customer. Delivering great customer experiences requires focusing on employees and delivering great employee experiences. Organizations that deliver exceptional employee experiences achieve better business results and outperform the competition.
Proximus Group, a top Belgian provider of information and communications technology, selected Qualtrics Employee Experience to support an ambitious new employee listening program. The combination of SAP and Qualtrics solutions will ultimately empower Proximus Group to blend customer experience data with employee experience data to enable holistic, personalized experience management.
SAP SuccessFactors Employee Central, which is the flagship of SAP’s HCM offering, added more than 150 customers in the quarter and has now more than 3,500 customers globally. Vonovia SE was one of many competitive wins and the International Committee of the Red Cross went live on SAP SuccessFactors this quarter.
Business Technology Platform
SAP’s business technology platform represents an evolution of the digital platform helping customers to turn their data into business value. It encompasses database and data management, application development and integration, analytics, and intelligent technologies. The busi-ness technology platform represents a combination of SAP’s leading technologies such as SAP HANA, SAP Cloud Platform, SAP Data Ware-house Cloud, SAP Analytics Cloud, SAP Data Intelligence and SAP Intelligent Robotic Process Automation bundled into one single reference architecture. It supports cloud, on-premise and hybrid customer landscapes. Additionally, the business technology platform offers seamless interoperability with hyperscalers’ technologies to deliver a high level of scalability and flexibility. The business technology platform provides customers with convenient access to SAP data, SAP technology and SAP pre-configured business services to help them drive business value across their entire solution landscape.
Nippon Express, Impossible Foods Inc and Amazonas & Roraima Energia selected SAP’s business technology platform and analytics cloud solutions in the third quarter.
Intelligent Spend Group
In the third quarter, segment revenue in the Intelligent Spend Group was up 23% to €828 million year-over-year (up 18% at constant curren-cies).
With the Intelligent Spend Group, SAP provides collaborative commerce capabilities (SAP Ariba), effortless travel and expense processing (SAP Concur) and flexible workforce management (SAP Fieldglass). The Intelligent Spend Group portfolio represents the largest commerce platform in the world with approximately $3.4 trillion in global commerce annually transacted in more than 180 countries.
British Telecom, Prada, and Xiaomi Communications chose SAP’s Intelligent Spend Group solutions in the third quarter.
Customer and Experience Management (CXM)
In the third quarter, segment revenue in Customer and Experience Management was up 75% to €371 million year-over-year (69% at constant currencies). Solutions which contributed to this growth in the third quarter are listed below[3].
SAP C/4HANA
SAP’s C/4HANA suite enables companies to manage and deliver personalized customer experiences across every touchpoint and across channels based on a complete view of the customer. C/4HANA combines leading solutions for marketing, sales, commerce, service and cus-tomer data. As part of the Intelligent Enterprise, C/4HANA integrates with S/4HANA to connect demand signals to fulfillment in one end-to-end process.
SAP C/4HANA solutions also leverage Qualtrics CustomerXM™. This enables organizations to combine customer feedback and operational data to listen, understand and take action in the moment to improve the customer experience.
E.ON, Swift, and Cintac Mining all chose SAP C/4HANA in Q3.
Experience Management Solutions (Qualtrics)
With Qualtrics, SAP combines market leadership in Experience Management (XM) with end-to-end operational power in over 25 industries to help organizations manage and improve the four core experiences of business: customer, employee, product, and brand.
The Qualtrics XM™ Platform is trusted by approx. 11,000 customers to listen, understand, and take action on experience data (X-data™) by combining X-data with the operational data (O-data™) systems of the enterprise.
In Q3, Slack Technologies, U-Haul, Sharper Image Corp, Stanley Black & Decker, Garmin International, Dish Networks and many others se-lected Qualtrics to move beyond systems of record to new systems of action and achieve breakthrough results.
Regional Revenue Performance
SAP had a solid performance in the EMEA region with cloud and software revenue increasing 10% (IFRS) and 9% (non-IFRS at constant cur-rencies). Cloud revenue increased 49% (IFRS) and 46% (non-IFRS at constant currencies) with Germany and the UK being highlights. France and the UK had exceptional quarters in software license revenue.
The Company had a strong performance in the Americas region. Cloud and software revenue increased 16% (IFRS) and 12% (non-IFRS at constant currencies). Cloud revenue increased 31% (IFRS) and 26% (non-IFRS at constant currencies) with Canada, Brazil and Mexico being highlights. In addition, the United States and Brazil had strong quarters in software license revenue.
In the APJ region, SAP had a solid quarter amidst a challenging market environment. Cloud and software revenue was up 9% (IFRS) and 5% (non-IFRS at constant currencies). Cloud revenue increased 40% (IFRS) and 37% (non-IFRS at constant currencies) with Japan and Australia being highlights. For software license revenue, Japan had an exceptional quarter.
[1] Q3 2019 results were also impacted by changes in accounting policies, business combinations and other effects. For details, please refer to the disclosures on page 34 of this Quarterly Statement.
[2] IFRS 16 also affects SAP’s cash flow statement: operating cash flow increased and cash flow from financing activities decreased by €288 million. The Company has modified its free cash flow metric by subtracting this impact. Therefore, free cash flow is not affected by this change. For details, please refer to the disclo-sures on page 34 of this Quarterly Statement.
[3] Q3 2019 results were impacted by business combinations. For details, please refer to the disclosures on page xx of this Quarterly Statement
[4] For details on the performance of our segments please refer to pages 21-29.
• New Cloud Bookings Up 39%, Software License Revenue Down 1%
• Cloud Revenue Up 37%
• Cloud Gross Margin Up More Than 5 Percentage Points
• IFRS Operating Profit Up 36%; Non-IFRS Operating Profit Up 20%
• IFRS Operating Margin Up 4.2pp; Non-IFRS Operating Margin Up 1.7pp
• Q3 Operating Cash Flow Up 28%, Free Cash Flow Up 116%
"Our third quarter results reflect the momentum we’ve built entering the final quarter of the year and more broadly where we are on our journey of growth and operational excellence. We are excited and energized to write the next chapter in SAP’s story alongside the best workforce anywhere in the technology industry."
Jennifer Morgan and Christian Klein, Co-CEOs
"In April we promised a stronger focus on profits and here we go: Q3 marks yet another milestone in delivering on this commitment. Q3 is also a manifesto of us keeping our second promise: continued strong top line momentum. Despite continued macro uncertainties we couldn’t be more confident to make 2019 another stellar year for SAP."
Luka Mucic, CFO
Business Performance
Financial Highlights Third Quarter 2019[1]
In the third quarter, new cloud bookings were up 39% to €572 million (34% at constant currencies) and up 51% excluding Infrastructure-as-a-Service (IaaS). A new partnership with Microsoft contributed 18 percentage points to the 39% Q3 new cloud bookings growth. The deal has a term of 3 years, with revenue recognition starting in the fourth quarter 2019. Cloud revenue grew 37% year over year to €1.79 billion (IFRS), up 37% (non-IFRS) and 33% (non-IFRS at constant currencies). Software licenses revenue was down 1% year over year to €932 million (IFRS), down 1% (non-IFRS) and down 4% (non-IFRS at constant currencies). New cloud and software order entry was up 20% (15% at con-stant currencies) year over year in the third quarter. Cloud and software revenue grew 12% year over year to €5.63 billion (IFRS), up 13% (non-IFRS) and 10% (non-IFRS at constant currencies). Total revenue grew 13% year over year to €6.79 billion (IFRS), up 13% (non-IFRS) and 10% (non-IFRS at constant currencies).
The share of more predictable revenue grew by two percentage points year-over-year to 69% in the third quarter.
Cloud gross margin increased 5.9 percentage points year over year to 64.5% (IFRS) and increased by 5.4 percentage points year over year to 69.0% (non-IFRS).
Operating profit increased 36% year over year to €1.68 billion (IFRS), up 20% (non-IFRS) and up 15% (non-IFRS at constant currencies). Operating margin increased 4.2 percentage points year over year to 24.7% (IFRS) and expanded by 1.7 percentage points year over year to 30.6% (non-IFRS) and 1.5 percentage points to 30.4% (non-IFRS at constant currencies). Operating profit in the third quarter benefitted from disciplined hiring and accelerated operating efficiency gains. IFRS operating profit additionally benefitted from lower share-based compensa-tion expenses.
Earnings per share was up 28% to €1.04 (IFRS) and up 14% to €1.30 (non-IFRS).
Operating cash flow in the third quarter developed significantly better than in the first half of 2019 and contributed €638 million (up 28% year-over-year) to the nine-month operating cash flow. Operating cash flow for the first nine months was €3.32 billion, down 5% year-over-year. The decrease in operating cash flow was primarily due to higher payouts related to share-based compensation (€205 million), restruc-turing payouts (€239 million) and higher tax cash outflows (€490 million) compared to the first nine months of 2018. In addition, operating cash flow experienced a year over year benefit of roughly €288 million from the application of IFRS 16. Free cash flow[2] was flat year-over-year at €2.33 billion. At the end of the third quarter, net liquidity was -€8.28 billion.
Segment Performance Third Quarter 2019
SAP’s three reportable segments “Applications, Technology & Services”, “Intelligent Spend Group” and “Customer and Experience Manage-ment” showed the following performance:
Applications, Technology & Services (AT&S)
In the third quarter, segment revenue in AT&S was up 9% to €5.52 billion year-over-year (up 6% at constant currencies). Solutions which contributed to this growth are listed below.
In the third quarter, SAP and Microsoft established a preferred partnership to move on-premise SAP ERP and S/4HANA customers to the cloud through industry specific best practices, reference architectures, and cloud-delivered services on Microsoft Azure. This partnership will both accelerate and simplify customer migration to S/4HANA on Microsoft Azure, and Microsoft will embed SAP Cloud platform solutions and related services within Azure Cloud Services.
SAP S/4HANA
SAP S/4HANA is at the core of the Intelligent Enterprise. It embeds analytics, simulation, prediction, and decision support to run LIVE business. SAP offers customers a choice of deployment options including cloud, on-premise and hybrid so they can choose any scenario or combination that is right for them. Built on SAP’s advanced in-memory computing platform, SAP S/4HANA is the market-leading intelligent ERP that provides unparalleled business agility, empowering companies across all industries to reinvent their business models for the digital economy and navigate dynamic marketplaces.
Adding over 500 customers in the quarter, S/4HANA adoption grew to more than 12,000 customers, up 25% year over year. In the third quar-ter close to 40% of the additional S/4HANA customers were net new.
S/4HANA continues to be selected by world-class organizations, including State of Nevada, Grupo Crystal and BrandX. Dow Jones, Callaway Golf, Daewoong Pharmaceutical and Breitling have gone live on S/4HANA. A growing number of companies including British Telecom and CIE Automotive have chosen S/4HANA in the Cloud. McDonald’s UAE and Xinjiang Daming Mining Group Co. have gone live on S/4HANA Cloud.
Human Capital Management Solutions (HCM)
SuccessFactors’ evolution towards Human Experience Management (EmployeeXM™) represents the next generation of human capital man-agement (HCM).
The unique combination of SAP SuccessFactors and Qualtrics Employee Experience Management elevates HCM solutions beyond facilitating transactions to truly reinvent human experiences in ways that accelerate business growth. Employees are the frontline face to the customer. Delivering great customer experiences requires focusing on employees and delivering great employee experiences. Organizations that deliver exceptional employee experiences achieve better business results and outperform the competition.
Proximus Group, a top Belgian provider of information and communications technology, selected Qualtrics Employee Experience to support an ambitious new employee listening program. The combination of SAP and Qualtrics solutions will ultimately empower Proximus Group to blend customer experience data with employee experience data to enable holistic, personalized experience management.
SAP SuccessFactors Employee Central, which is the flagship of SAP’s HCM offering, added more than 150 customers in the quarter and has now more than 3,500 customers globally. Vonovia SE was one of many competitive wins and the International Committee of the Red Cross went live on SAP SuccessFactors this quarter.
Business Technology Platform
SAP’s business technology platform represents an evolution of the digital platform helping customers to turn their data into business value. It encompasses database and data management, application development and integration, analytics, and intelligent technologies. The busi-ness technology platform represents a combination of SAP’s leading technologies such as SAP HANA, SAP Cloud Platform, SAP Data Ware-house Cloud, SAP Analytics Cloud, SAP Data Intelligence and SAP Intelligent Robotic Process Automation bundled into one single reference architecture. It supports cloud, on-premise and hybrid customer landscapes. Additionally, the business technology platform offers seamless interoperability with hyperscalers’ technologies to deliver a high level of scalability and flexibility. The business technology platform provides customers with convenient access to SAP data, SAP technology and SAP pre-configured business services to help them drive business value across their entire solution landscape.
Nippon Express, Impossible Foods Inc and Amazonas & Roraima Energia selected SAP’s business technology platform and analytics cloud solutions in the third quarter.
Intelligent Spend Group
In the third quarter, segment revenue in the Intelligent Spend Group was up 23% to €828 million year-over-year (up 18% at constant curren-cies).
With the Intelligent Spend Group, SAP provides collaborative commerce capabilities (SAP Ariba), effortless travel and expense processing (SAP Concur) and flexible workforce management (SAP Fieldglass). The Intelligent Spend Group portfolio represents the largest commerce platform in the world with approximately $3.4 trillion in global commerce annually transacted in more than 180 countries.
British Telecom, Prada, and Xiaomi Communications chose SAP’s Intelligent Spend Group solutions in the third quarter.
Customer and Experience Management (CXM)
In the third quarter, segment revenue in Customer and Experience Management was up 75% to €371 million year-over-year (69% at constant currencies). Solutions which contributed to this growth in the third quarter are listed below[3].
SAP C/4HANA
SAP’s C/4HANA suite enables companies to manage and deliver personalized customer experiences across every touchpoint and across channels based on a complete view of the customer. C/4HANA combines leading solutions for marketing, sales, commerce, service and cus-tomer data. As part of the Intelligent Enterprise, C/4HANA integrates with S/4HANA to connect demand signals to fulfillment in one end-to-end process.
SAP C/4HANA solutions also leverage Qualtrics CustomerXM™. This enables organizations to combine customer feedback and operational data to listen, understand and take action in the moment to improve the customer experience.
E.ON, Swift, and Cintac Mining all chose SAP C/4HANA in Q3.
Experience Management Solutions (Qualtrics)
With Qualtrics, SAP combines market leadership in Experience Management (XM) with end-to-end operational power in over 25 industries to help organizations manage and improve the four core experiences of business: customer, employee, product, and brand.
The Qualtrics XM™ Platform is trusted by approx. 11,000 customers to listen, understand, and take action on experience data (X-data™) by combining X-data with the operational data (O-data™) systems of the enterprise.
In Q3, Slack Technologies, U-Haul, Sharper Image Corp, Stanley Black & Decker, Garmin International, Dish Networks and many others se-lected Qualtrics to move beyond systems of record to new systems of action and achieve breakthrough results.
Regional Revenue Performance
SAP had a solid performance in the EMEA region with cloud and software revenue increasing 10% (IFRS) and 9% (non-IFRS at constant cur-rencies). Cloud revenue increased 49% (IFRS) and 46% (non-IFRS at constant currencies) with Germany and the UK being highlights. France and the UK had exceptional quarters in software license revenue.
The Company had a strong performance in the Americas region. Cloud and software revenue increased 16% (IFRS) and 12% (non-IFRS at constant currencies). Cloud revenue increased 31% (IFRS) and 26% (non-IFRS at constant currencies) with Canada, Brazil and Mexico being highlights. In addition, the United States and Brazil had strong quarters in software license revenue.
In the APJ region, SAP had a solid quarter amidst a challenging market environment. Cloud and software revenue was up 9% (IFRS) and 5% (non-IFRS at constant currencies). Cloud revenue increased 40% (IFRS) and 37% (non-IFRS at constant currencies) with Japan and Australia being highlights. For software license revenue, Japan had an exceptional quarter.
[1] Q3 2019 results were also impacted by changes in accounting policies, business combinations and other effects. For details, please refer to the disclosures on page 34 of this Quarterly Statement.
[2] IFRS 16 also affects SAP’s cash flow statement: operating cash flow increased and cash flow from financing activities decreased by €288 million. The Company has modified its free cash flow metric by subtracting this impact. Therefore, free cash flow is not affected by this change. For details, please refer to the disclo-sures on page 34 of this Quarterly Statement.
[3] Q3 2019 results were impacted by business combinations. For details, please refer to the disclosures on page xx of this Quarterly Statement
[4] For details on the performance of our segments please refer to pages 21-29.
