SAP
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SAP Ag ADR
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Earnings Details
3rd Quarter September 2022
Tuesday, October 25, 2022 1:00:00 AM
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Summary

SAP Ag ADR (SAP) Recent Earnings

SAP Ag ADR (SAP) reported 3rd Quarter September 2022 earnings of $0.66 per share on revenue of $7.9 billion. The consensus earnings estimate was $0.78 per share on revenue of $7.7 billion. Revenue fell 2.1% compared to the same quarter a year ago.

SAP SE is engaged in selling licenses for software solutions and related support services. It also offers consulting, training and other services for its software solutions.

Results
Reported Earnings
$0.66
Earnings Whisper
-
Consensus Estimate
$0.78
Reported Revenue
$7.90 Bil
Revenue Estimate
$7.72 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

SAP Announces Q3 2022 Results

  • Cloud momentum continues to accelerate
  • Cloud revenue up 38% and up 25% at constant currencies
  • Current cloud backlog up 38% and up 26% at constant currencies
  • SAP S/4HANA current cloud backlog up 108% and up 90% at constant currencies
  • IFRS cloud gross profit up 44%, non-IFRS cloud gross profit up 42% and up 30% at constant currencies
  • IFRS operating profit down 1%, non-IFRS operating profit flat and down 8% at constant currencies

WALLDORF, Germany, Oct. 25, 2022 /PRNewswire/ -- SAP SE (NYSE: SAP) today announced its financial results for the third quarter ended September 30, 2022.

Christian Klein, CEO: "Our cloud solutions are the answer, as customers turn to us to help them future-proof their businesses. This trust in SAP is reflected in our accelerating cloud momentum. With a recurring revenue share of more than 80%, it's clear that our transformation has reached an important inflection point, paving the way for continued growth in the future."

Luka Mucic, CFO: "We have delivered a strong cloud quarter with accelerating momentum across all key cloud indicators. We're at an important inflection point in our transformation which we anticipate will lead to accelerating revenue growth and double-digit operating profit growth in 2023."

Financial Performance

Group results at a glance – Third quarter 2022



IFRS


Non-IFRS1

€ million, unless otherwise stated

Q3 2022

Q3 2021

? in %


Q3 2022

Q3 2021

? in %

? in %
const.
curr.

Cloud revenue

3,288

2,386

38


3,288

2,386

38

25

Software licenses

406

657

–38


406

657

–38

–42

Software support

3,016

2,867

5


3,016

2,867

5

–2

Software licenses and support revenue

3,422

3,524

–3


3,422

3,524

–3

–9

Cloud and software revenue

6,710

5,910

14


6,710

5,910

14

5

Total revenue

7,841

6,845

15


7,841

6,845

15

5

Share of more predictable revenue (in %)

80

77

4pp


80

77

4pp


Operating profit (loss)

1,239

1,249

–1


2,094

2,102

0

–8

Profit (loss) after tax

547

1,418

–61


1,263

2,129

–41


Earnings per share - Basic (in €)

0.57

1.19

–52


1.12

1.74

–36


Earnings per share - Diluted (in €)

0.57

1.19

–52






Net cash flows from operating activities

849

1,183

–28






Free cash flow





464

881

–47


Number of employees (FTE, September 30)

112,632

105,015

7






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

Due to rounding, numbers may not add up precisely.

 


Group results at a glance – Nine months ended September 2022



IFRS


Non-IFRS1

€ million, unless otherwise stated

Q1–Q3

2022

Q1–Q3

2021

? in %


Q1–Q3

2022

Q1–Q3

2021

? in %

? in %
const.
curr.

Cloud revenue

9,164

6,806

35


9,164

6,806

35

25

Software licenses

1,149

1,790

–36


1,149

1,790

–36

–39

Software support

8,916

8,491

5


8,916

8,491

5

0

Software licenses and support revenue

10,065

10,281

–2


10,065

10,281

–2

–7

Cloud and software revenue

19,229

17,088

13


19,229

17,088

13

6

Total revenue

22,435

19,861

13


22,435

19,861

13

6

Share of more predictable revenue (in %)

81

77

4pp


81

77

4pp


Operating profit (loss)

2,965

3,193

–7


5,452

5,762

–5

–10

Profit (loss) after tax

1,382

3,936

–65


3,522

6,063

–42


Earnings per share - Basic (in €)

1.49

3.22

–54


3.08

4.88

–37


Earnings per share - Diluted (in €)

1.48

3.22

–54






Net cash flows from operating activities

3,598

4,954

–27






Free cash flow





2,543

4,132

–38


Number of employees (FTE, September 30)

112,632

105,015

7






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

Due to rounding, numbers may not add up precisely

Financial Highlights

Current cloud backlog continued to build momentum and expanded to €11.27 billion, accelerating growth to 38% and 26% at constant currencies.

Driven by double-digit growth across the SaaS and PaaS portfolio, cloud revenue was up 38% to €3.29 billion, up 25% at constant currencies.

Cloud gross profit was up 44% (IFRS), 42% (non-IFRS) and 30% (non-IFRS at constant currencies). Year-over-year, cloud gross margin was up 2.8 percentage points to 69.8% (IFRS) and up 2.3 percentage points to 71.7% (non-IFRS). This was mainly driven by a strong increase of the SaaS margin, with efficiency gains overcompensating increased investments into the next generation cloud delivery program.

IFRS operating profit decreased 1% to €1.24 billion and IFRS operating margin decreased by 2.4 percentage points to 15.8%. Non-IFRS operating profit was flat at €2.09 billion and decreased 8% at constant currencies. Non-IFRS operating margin decreased by 4.0 percentage points to 26.7% and was down by 3.8 percentage points at constant currencies. As in previous quarters, this was mainly driven by a reduced contribution from software licenses revenue as well as accelerated investments into research & development and sales & marketing to capture current and future growth opportunities. In addition, prior year third quarter IFRS and non-IFRS operating profit included a disposal gain of €77 million related to the launch of SAP Fioneer.

IFRS earnings per share decreased 52% to €0.57 and non-IFRS earnings per share decreased 36% to €1.12. The year-over-year decline of earnings per share reflects a contribution to financial income by Sapphire Ventures that, due to current market conditions, was significantly lower than in the same period last year. Effective tax rate was 35.7% (IFRS) and 26.0% (non-IFRS). The year-over-year increase mainly resulted from changes in tax exempt income related to Sapphire Ventures.

Free cash flow for the first nine months was down 38% to €2.54 billion. The decrease versus last year is mainly attributable to the development of profitability and adverse impacts in working capital. In the fourth quarter, we continue to expect a more favorable cash flow development due to a focus on working capital management and lower payouts for cash taxes, share-based compensation, and capex. However, based on our year-to-date position, we are adjusting the free cash flow outlook for the year to approximately €4.5 billion (previously: "above €4.5 billion").

On July 21, SAP announced its second share buyback program for 2022, which was completed on September 6. Under the program, SAP repurchased 5,715,512 shares at an average price of €87.50 with a purchase value of approximately €500 million. Repurchased shares will primarily be used to service awards granted under share-based compensation plans for employees.

Impact of War in Ukraine

In the first nine months, SAP's business was impacted by the war in Ukraine and SAP's decision to wind down its business operations in Russia and Belarus.

At the end of the third quarter current cloud backlog was approximately €64 million lower due to the termination of existing cloud engagements in Russia and Belarus, reducing current cloud backlog growth by approximately 1 percentage point at constant currencies. The impact on third quarter IFRS operating profit was approximately €20 million (first nine months: approximately €370 million) and approximately €20 million (first nine months: approximately €250 million) on non-IFRS operating profit, mainly due to reduced revenues.

For the full year, we expect a total revenue impact of approximately €250 million at constant currencies from lack of new business and discontinuation of existing business. For non-IFRS operating profit we expect an impact of approximately €300 million at constant currencies from the revenue gaps mentioned above and other expense items.

Other impacts due to this evolving situation are currently unknown and could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope.

Business Highlights

In the third quarter, customers around the globe chose "RISE with SAP" to drive end-to-end business transformation, including Alpargatas, Assaí Atacadista, Center for Pandemic Vaccines and Therapeutics (ZEPAI) at the Paul-Ehrlich-Institut, Dabur India Limited, Fonterra, HELLENiQ ENERGY, Nikon Corporation, Prada, RICOH CO., Roborock, Salzburg AG, Schneider Electric, Wistron Corporation and 11teamsports. BioNTech, Birlasoft, Bosch BASF Smart Farming, Dufry International, NBA, Petrobras and Wipro went live on SAP S/4HANA Cloud in the third quarter.

Key customer wins across SAP's solution portfolio included: Allianz Technology, Cognizant, DB Schenker, Domino's Pizza Enterprises, Endress+Hauser, Fujitsu Limited, Grupo Energía Bogotá, Gustavo Gusto, Hapag-Lloyd, L.L.Bean, Salzgitter, Schiphol Nederland, Siemens Energy, The Pennsylvania State University, The State of Missouri, Trent Limited and Valio.

SAP's cloud revenue performance for the quarter was very strong across all regions. The U.S. and Germany had an outstanding cloud revenue performance while Brazil, China, India and Switzerland were particularly strong.

On July 21, SAP announced that it has acquired Askdata, a startup focused on search-driven analytics. With the acquisition of Askdata, SAP strengthens its ability to help organizations take better-informed decisions by leveraging AI-driven natural language searches.

On August 17, SAP and Francisco Partners (FP) announced that FP has signed a definitive agreement with SAP America Inc. under which FP will acquire SAP Litmos from SAP. The transaction is expected to close in the fourth quarter of 2022 and is subject to customary regulatory clearances.

On August 31, SAP announced that the SAP Supervisory Board has appointed Dominik Asam as CFO and member of the Executive Board of SAP SE. He will start on March 7, 2023. Currently he is the CFO and a member of the Executive Committee at Airbus. He will succeed Luka Mucic, who will remain a member of the Executive Board until March 31, 2023.

On September 13, SAP announced that SAP SuccessFactors unveiled new modules for its Human Experience Management (HXM) Suite to create a powerful way for organizations to execute on an integrated talent development strategy and create a future-ready workforce. The new capabilities are the most significant developments that SuccessFactors has had in the last decade.

On October 20, Taulia and Standard Chartered Bank signed a partner agreement to collaborate across a range of working capital finance solutions primarily in APJ and emerging markets. Further to this, Taulia has signed an agreement with Mastercard to provide embedded payment capabilities by integrating with the Mastercard Virtual Card platform which facilitates access to multiple global banks to fund the Taulia/Mastercard Virtual Card solution.

Among other accolades, in the third quarter SAP was:

  • named a Leader in 2022 Gartner® Magic Quadrant™ for Digital Commerce[1]
  • recognized as a Leader in 2022 Gartner® Magic Quadrant™ for Data Integration Tools
  • named a leader in The Forrester Wave™: Digital Operations Platforms for Manufacturing and Distribution and
  • SAP SuccessFactors was named a Leader in IDC MarketScape: for Worldwide Modern Talent Acquisition Suites 2022 Vendor Assessment

_____________________________________________

1 Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. SAP is not responsible for the content of third-party research reports.

Segment Results at a Glance

SAP's two reportable segments showed the following performance:

Applications, Technology & Services1

Q3 2022

Q1-Q3 2022

€ million, unless otherwise stated

(Non-IFRS)

Actual

Currency

? in %

? in %

Constant
Currency

Actual

Currency

? in %

? in %

Constant
Currency

SaaS2

2,037

37

24

5,658

32

23

PaaS3

389

53

42

1,064

50

41

IaaS4

252

5

–3

751

10

3

Cloud revenue

2,678

35

23

7,474

32

23

Segment revenue

7,160

12

4

20,558

11

4

Segment profit (loss)

2,268

–4

–10

6,080

–8

–12

SaaS2 (in %)

70.7

3.2pp

3.5pp

69.5

2.0pp

2.1pp

PaaS3 (in %)

77.4

–1.4pp

0.6pp

78.3

–1.6pp

–0.1pp

IaaS4 (in %)

21.0

–12.7pp

–7.3pp

26.0

–8.1pp

–4.6pp

Cloud gross margin (in %)

67.0

2.2pp

3.2pp

66.4

1.3pp

2.0pp

Segment margin (in %)

31.7

–5.2pp

–4.7pp

29.6

–6.0pp

–5.6pp

1 Segment information for comparative prior periods were restated to conform with the new segment composition.

2 Software as a service

3 Platform as a service

4 Infrastructure as a service

Segment revenue in AT&S was up 12% to €7.16 billion year-over-year, up 4% at constant currencies, due primarily to strong cloud revenue growth, driven by SAP S/4HANA as well as Business Technology Platform. Software licenses revenue decreased due to the shift to the cloud as more customers are choosing our 'RISE with SAP' offering. Segment support revenue was up 5% to €3.02 billion year-over-year and down 2% at constant currencies.

Qualtrics

Q3 2022

Q1-Q3 2022

€ million, unless otherwise stated

(Non-IFRS)

Actual

Currency

? in %

? in %

Constant
Currency

Actual

Currency

? in %

? in %

Constant
Currency

Cloud revenue – SaaS2

322

70

47

870

67

49

Segment revenue

384

65

42

1,033

60

43

Segment profit (loss)

34

>100

>100

60

52

65

Cloud gross margin – SaaS2 (in %)

88.9

–2.7pp

–2.9pp

89.0

–3.0pp

–3.1pp

Segment margin (in %)

9.0

3.1pp

5.0pp

5.8

–0.3pp

1.0pp

Qualtrics segment revenue was up 65% to €384 million year-over-year, up 42% at constant currencies. The continued strong growth was driven by robust renewal rates and expansions.

Cloud Performance


Q3 2022

Q1 - Q3 2022

€ millions, unless otherwise stated

(non-IFRS)

Actual
Currency

?  in %

?  in %
Constant
Currency

Actual
Currency

?  in %

?  in %
Constant
Currency

Current Cloud Backlog







Total

11,267

38

26

11,267

38

26

Thereof SAP S/4HANA

2,662

108

90

2,662

108

90

Cloud Revenue







SaaS1

2,621

39

26

7,279

35

25

PaaS2

415

56

44

1,134

54

45

IaaS3

252

5

–3

752

10

3

Total

3,288

38

25

9,164

35

25

Thereof SAP S/4HANA

546

98

81

1,422

87

75

Thereof Qualtrics

322

70

47

870

67

49

Cloud Gross Profit







SaaS1

1,978

45

31

5,434

39

28

PaaS2

325

54

46

898

52

46

IaaS3

53

–34

–24

196

–16

–10

Total

2,357

42

30

6,527

38

28

Thereof Qualtrics

286

65

42

775

61

44

Cloud Gross Margin (in %)







SaaS1 (in %)

75.5

2.9pp

2.9pp

74.7

2.0pp

1.8pp

PaaS2 (in %)

78.3

–1.0pp

0.9pp

79.2

–1.1pp

0.4pp

IaaS3 (in %)

21.0

–12.7pp

–7.3pp

26.0

–8.1pp

–4.5pp

Total

71.7

2.3pp

2.8pp

71.2

1.6pp

1.9pp

Thereof Qualtrics

88.9

–2.7pp

–2.9pp

89.0

–3.0pp

–3.1pp

1 Software as a service

2 Platform as a service

3 Infrastructure as a service

Due to rounding, numbers may not add up precisely

The Q1-Q3 2022 results were also impacted by other effects. For details, please refer to the disclosure on page 30 of this document.

Business Outlook 2022

SAP is executing on its cloud-led strategy, which is driving accelerated cloud growth through both new business and cloud adoption by existing customers. The pace and scale of SAP's cloud momentum places the Company well on track towards its mid-term ambition.

Financial Outlook

For 2022, SAP continues to expect:

  • €11.55 – 11.85 billion cloud revenue at constant currencies (2021: €9.42 billion), up 23% to 26% at constant currencies.
  • €25.0 – 25.5 billion cloud and software revenue at constant currencies (2021: €24.08 billion), up 4% to 6% at constant currencies.
  • €7.6 – 7.9 billion non-IFRS operating profit at constant currencies (2021: €8.23 billion), down 4% to 8% at constant currencies.
  • The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) is expected to reach approximately 78% (2021: 75%).

For 2022, SAP now expects:

  • Free cash flow of approximately €4.5 billion (2021: €5.01 billion). The previous outlook was above €4.5 billion.

The current market environment and volatility in capital markets also lead to a lower level of predictability regarding the full-year 2022 effective tax rate outlook (IFRS and non-IFRS). Based on current estimates, we now expect a full-year 2022 effective tax rate for IFRS of around 45.0% (previously: 34.0% to 38.0%) and for non-IFRS of around 30.0% (previously: 23.0% to 27.0%). As the further development of our effective tax rate (IFRS and non-IFRS) strongly depends on the 2022 financial income contribution of Sapphire Ventures, we may face major deviations from the current estimate in either direction given current market conditions.

While SAP's full-year 2022 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 2022 expected currency impacts.

Expected Currency Impact Assuming September 2022 Rates Apply for the Rest of the Year

In percentage points

Q4 2022

FY 2022

Cloud revenue growth

+10pp to +12pp

+9pp to +11pp

Cloud and software revenue growth

+6pp to +8pp

+6pp to +8pp

Operating profit growth (non-IFRS)

+6pp to +8pp

+4pp to +6pp

Non-Financial Outlook

For 2022, SAP continues to expect:

  • Employee Engagement Index to be in a range of 80% to 84% (2021: 83%)

For 2022, SAP now expects:

  • Customer Net Promoter Score of 3 to 8 (2021: 10) after reviewing the year-to-date survey results. The previous range was 11 to 15.
  • Net carbon emissions of 90 to 95 kt (2021: 110 kt). The previous value was 70 kt.

Ambition 2025

SAP reiterates its mid-term ambition published in its Q3 2020 Quarterly Statement including the commitment to double-digit growth of operating profit in 2023. In light of its strong cloud momentum and most recent favorable currency exchange rate development, SAP expects to update its mid-term ambition in the upcoming quarters.

The full Q3 2022 Quarterly Statement can be downloaded from: https://www.sap.com/investors/sap-2022-q3-statement

Additional Information

This press release and all information therein is preliminary and unaudited.

SAP Performance Measures

For more information about our key growth metrics and performance measures, their calculation, their usefulness, and their limitation, please refer to the following document on our Investor Relations website: SAP Performance Measures.

Webcast

SAP senior management will host a financial analyst conference call on Tuesday, October 25th at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The conference 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 can be found at www.sap.com/investor.

About SAP

SAP's strategy is to help every business run as an intelligent enterprise. As a market leader in enterprise application software, we help companies of all sizes and in all industries run at their best: SAP customers generate 87% of total global commerce. 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 business and public customers across 25 industries globally 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

For customers interested in learning more about SAP products:

Global Customer Center:

+49 180 534-34-24

United States Only:

+1 (800) 872-1SAP (+1-800-872-1727)

This document contains forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations, forecasts, and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including but not limited to the risk factors section of SAP's 2021 Annual Report on Form 20-F.

© 2022 SAP SE. All rights reserved.

SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE in Germany and other countries. Please see https://www.sap.com/copyright for additional information.

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