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SAP SE: Double-Digit Growth Across Revenue, Profit and Cash Flow

Operational Excellence Boosts Margins

WALLDORF, Germany, Oct. 21, 2019 /PRNewswire/ --  

SAP Logo (PRNewsfoto/SAP)
  • 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% 

 






Cloud Revenue 


Total Revenue



in € millions 


in € millions










IFRS

Non-IFRS


IFRS

Non-IFRS



1,789

1,807


6,791

6,809



+37%

+37% (+33% cc)


+13%

+13% (+10% cc)













The share of more predictable revenue reached 69% in the third quarter of 2019 (+2 percentage points)










Cloud & Software Revenue


Operating Profit



in € millions


in € millions










IFRS

Non-IFRS


IFRS

Non-IFRS



5,629

5,647


1,679

2,086



+12%

 +13% (+10% cc)


+36%

+20% (+15% cc)


















 

"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

"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 opera-tional 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

SAP SE (SAP) today announced its financial results for the third quarter ended September 30, 2019.

Business Performance

Financial Highlights Third Quarter 20191

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 constant 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 compensation 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), restructuring 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 flow2 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 Management" 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 quarter 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 management (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 business technology platform represents a combination of SAP's leading technologies such as SAP HANA, SAP Cloud Platform, SAP Data Warehouse 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 currencies).

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 below3.

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 customer 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 selected Qualtrics to move beyond systems of record to new systems of action and achieve breakthrough results.

Segment Results at a Glance4

Segment Performance Third Quarter 2019


Applications, Technology & Services

Intelligent Spend Group

Customer and Experience

Management

€ million, unless otherwise stated

(Non-IFRS)

Actual

Currency

∆ in %

∆ in %

const. curr.

Actual

Currency

∆ in %

∆ in %

const. curr.

Actual

Currency

∆ in %

∆ in %

const. curr.

Cloud revenue

813

35

32

699

24

20

294

98

92

Segment revenue

5,518

9

6

828

23

18

371

75

69

Segment profit (loss)

2,475

17

13

211

36

31

2

–84

–88

Cloud gross margin (in %)

57.8

9.7pp

10.2pp

78.0

–0.4pp

–0.4pp

76.4

8.8pp

8.7pp

Segment margin (in %)

44.9

3.0pp

2.8pp

25.5

2.5pp

2.4pp

0.5

–5.0pp

–5.1pp

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 currencies). 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.


Financial Results at a Glance

Third Quarter 2019


IFRS

Non-IFRS1)

€ million, unless otherwise stated

Q3 2019

Q3 2018

∆ in %

Q3 2019

Q3 2018

∆ in %

∆ in % const. curr.

New Cloud Bookings2)

NA

NA

NA

572

411

39

34

Cloud revenue

1,789

1,304

37

1,807

1,315

37

33

Software licenses and support revenue

3,839

3,702

4

3,840

3,702

4

1

Cloud and software revenue

5,629

5,007

12

5,647

5,017

13

10

Total revenue

6,791

6,020

13

6,809

6,031

13

10

Share of more predictable revenue (in %)

69

68

2pp

69

68

2pp


Operating profit (loss)

1,679

1,236

36

2,086

1,742

20

15

Profit (loss) after tax

1,259

972

30

1,564

1,358

15


Basic earnings per share (in €)

1.04

0.81

28

1.30

1.14

14


Number of employees (FTE, September 30)

99,710

94,989

5

NA

NA

NA

NA

 

 

Nine months ended September 2019


IFRS

Non-IFRS1)

€ million, unless otherwise stated

Q1–Q3

2019

Q1–Q3

2018

∆ in %

Q1–Q3

2019

Q1–Q3

2018

∆ in %

∆ in % const. curr.

New Cloud Bookings2)

NA

NA

NA

1,389

1,078

29

24

Cloud revenue

5,037

3,588

40

5,106

3,614

41

36

Software licenses and support revenue

11,130

10,714

4

11,130

10,714

4

1

Cloud and software revenue

16,167

14,302

13

16,236

14,328

13

10

Total revenue

19,513

17,280

13

19,583

17,307

13

10

Share of more predictable revenue (in %)

70

68

2pp

70

68

2pp


Operating profit (loss)

2,370

3,304

–28

5,368

4,618

16

12

Profit (loss) after tax

1,733

2,397

–28

3,961

3,397

17


Basic earnings per share (in €)

1.43

2.01

–29

3.29

2.85

16


Number of employees (FTE, September 30)

99,710

94,989

5

NA

NA

NA

NA

1) For a breakdown of the individual adjustments see table "Non-IFRS Adjustments by Functional Areas" in this Quarterly Statement.

2) As this is an order entry metric, there is no IFRS equivalent.

Due to rounding, numbers may not add up precisely.


Business Outlook 2019

The Company reiterates its outlook for the full year 2019.

SAP continues to expect:

  • Non-IFRS cloud revenue to be in a range of €6.7 − €7.0 billion at constant currencies (2018: €5.03 billion), up 33% – 39% at constant currencies.
  • Non-IFRS cloud and software revenue to be in a range of €22.4 – €22.7 billion at constant currencies (2018: €20.66 billion), up 8.5% – 10% at constant currencies. 
  • Non-IFRS operating profit to be in a range of €7.85 – €8.05 billion at constant currencies (2018: €7.16 billion), up 9.5% – 12.5% at constant currencies (previously: €7.7 – €8.0 billion, up 7.5% – 11.5% at constant currencies)
  • In addition, SAP expects total revenues to increase strongly, at a rate lower than operating profit.

The 2019 numbers include Qualtrics' revenues and profits only from the acquisition date of January 23rd. The comparative numbers for full year 2018 do not include Qualtrics revenues and profits and include Callidus revenue and profits only from the April 5th, 2018 acquisition date.

While SAP's full-year 2019 business outlook is at constant currencies, actual currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. See the table below for the Q4 and FY 2019 expected currency impacts.

 

Expected Currency Impact Based on September 2019 Level for the Rest of the Year

In percentage points

Q4

FY

Cloud revenue

+3pp to +5pp

+4pp to +6pp

Cloud and software revenue

+2pp to +4pp

+2pp to +4pp

Operating profit

+2pp to +4pp

+3pp to +5pp

 

Ambition 2020 and 2023

Looking beyond 2019, SAP continues to expect the following:

Ambition 2020

SAP continues to expect:

  • €8.6 − €9.1 billion non-IFRS cloud revenue 
  • €28.6 − €29.2 billion non-IFRS total revenue
  • The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) in a range of 70% − 75%
  • €8.8 – €9.1 billion non-IFRS operating profit

Ambition 2023

Over the period from 2018 through 2023, SAP continues to expect to:

  • More than triple non-IFRS cloud revenue (2018: €5.03 billion)
  • Grow to more than €35 billion in non-IFRS total revenue (2018: €24.74 billion)
  • Approach a share of more predictable revenue of 80%
  • Reach a Non-IFRS cloud gross margin of 75%
  • Increase the non-IFRS operating margin by one percentage point per year on average, representing a total expansion of approximately 500 basis points

The full Q3 2019 Quarterly Statement can be downloaded from http://www.sap.com/investors/sap-2019-q3-statement 


Additional Information

This Quarterly Statement and all information therein is unaudited.

Definition of key growth metrics

New cloud bookings are the total of all orders received in a given period the revenue from which is expected to be classified as cloud revenue and that result from purchases by new customers and from incremental purchases by existing customers. Consequently, orders to renew existing contracts are not included in this metric. The order amount must be committed. Consequently, due to their pay-per-use nature, business network transaction fees which do not include a committed minimum consumption are not reflected in the bookings metric (e.g. SAP Ariba and SAP Fieldglass transaction-based fees). Amounts included in the measures are generally annualized (annualized contract value ACV).

Share of more predictable revenue is the total of non-IFRS cloud revenue and non-IFRS software support revenue as a percentage of total revenue

New cloud and software license order entry is the total of new cloud order entry and software license order entry. The new cloud order entry metric is identical to the new cloud bookings metric defined above except that it considers the total contract value (TCV) of the orders where the new cloud bookings metric considers the orders' annualized contract value (ACV). Software license order entry is the total of all orders received in a given period the revenue from which is expected to be classified as software license revenue. The support services commonly sold with the software license are not included in the software license order entry metric.

Global commerce is the total commerce volume transacted on the SAP Ariba, SAP Concur and SAP Fieldglass Networks in the trailing 12 months. SAP Ariba commerce includes procurement and sourcing spend.

For explanations on other key growth metrics please refer the performance management section of SAP's Integrated Report 2018, which can be found at www.sapintegratedreport.com.

Webcast

SAP senior management will host a financial analyst conference call today at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The call will be webcast live on the Company's website at www.sap.com/investor and will be available for replay. Supplementary financial information pertaining to the third quarter results can be found at www.sap.com/investor.

Special Capital Markets Day

SAP will host a Special Capital Markets Day on November 12, 2019 in New York City.

About SAP

As the Experience Company powered by the Intelligent Enterprise, SAP is the market leader in enterprise application software, helping companies of all sizes and in all industries run at their best: 77% of the world's transaction revenue touches an SAP system. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers' businesses into intelligent enterprises. SAP helps give people and organizations deep business insight and fosters collaboration that helps them stay ahead of their competition. We simplify technology for companies so they can consume our software the way they want — without disruption. Our end-to-end suite of applications and services enables more than 437,000 business and public customers to operate profitably, adapt continuously, and make a difference. With a global network of customers, partners, employees, and thought leaders, SAP helps the world run better and improve people's lives. For more information, visit www.sap.com.

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Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "should" and "will" and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission ("SEC"), including SAP's most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

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References

  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 33-34 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 disclosures on page 33 of this Quarterly Statement.
  3. Q3 2019 results were impacted by business combinations. For details, please refer to the disclosures on page 33-34 of this Quarterly Statement
  4. For details on the performance of our segments please refer to pages 21-29.

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