SAP Announces Q3 2023 Results

in € millions, unless otherwise stated; based on SAP group results from continuing operations

• Cloud revenue up 16% and up 23% at constant currencies
• Current cloud backlog of €12.3 billion up 19% and up 25% at constant currencies
• IFRS cloud gross profit up 21%, non-IFRS cloud gross profit up 21% and up 28% at constant currencies, supported by the expansion of cloud gross margin
• IFRS operating profit up 11%, non-IFRS operating profit up 10% and up 16% at constant currencies
• SAP reaffirms 2023 outlook

WALLDORF, Germany, Oct. 18, 2023 /PRNewswire/ -- SAP SE (NYSE: SAP) today announced its financial results for the third quarter ended September 30, 2023.

Christian Klein, CEO: "Our Q3 results are yet another proof point that we have entered the next phase of our transformation. We accelerated cloud growth across our portfolio and significantly expanded our cloud gross margins. Our strong focus on innovation, including our latest SAP Business AI capabilities, ensure SAP's continued resiliency in the face of tough macroeconomic conditions and increasing geopolitical tensions."

Dominik Asam, CFO: "Our Q3 results demonstrate strong execution and the resilience of our business, including sustained cloud growth in spite of persisting macro headwinds. Also, we carefully balance growth and profitability at all times. In combination, this allows us to boost our bottom-line with the aim to achieve double-digit operating profit growth this year."

All figures in this statement are based on SAP group results from continuing operations unless otherwise noted. See section (M) Discontinued Operations.

Financial Performance

Financial Highlights¹

Third Quarter 2023

Current cloud backlog grew by 19% to €12.27 billion and was up 25% at constant currencies. SAP S/4HANA current cloud backlog was up 58% to €4.20 billion and up 66% at constant currencies.

In the third quarter, cloud revenue was up 16% to €3.47 billion and up 23% at constant currencies, mainly driven by the growth of SAP's combined SaaS and PaaS portfolio, which was up 19% and up 26% at constant currencies. SAP S/4HANA cloud revenue was up 67% to €914 million and up 77% at constant currencies.

Supported by a few major transactions, software licenses revenue decreased by 17% to €335 million and was down 14% at constant currencies. Cloud and software revenue was up 4% to €6.68 billion and up 9% at constant currencies. Services revenue was flat at €1.07 billion and up 4% at constant currencies. Total revenue was up 4% to €7.74 billion and up 9% at constant currencies.

The share of more predictable revenue increased by 2 percentage points to 82% in the third quarter.

Cloud gross profit was up 21% (IFRS) to €2.53 billion, up 21% to €2.56 billion (non-IFRS), and up 28% (non-IFRS at constant currencies). Cloud gross profit growth was supported by a strong increase in cloud gross margins. IFRS cloud gross margin was up 2.9 percentage points to 72.7%, non-IFRS cloud gross margin up 2.9 percentage points to 73.7% and up 2.9 percentage points at constant currencies.

IFRS operating profit increased 11% to €1.72 billion. Non-IFRS operating profit was up 10% to €2.28 billion and up 16% at constant currencies. The increase was supported by the resilience of our on-premise business as well as continued operational discipline, which overcompensated the negative impact of an accelerated amortization of capitalized sales commissions related to the on-premise business (see section (O) Capitalized Cost from Contracts with Customers – Costs of Obtaining Customer Contracts).

IFRS earnings per share (basic) increased 45% to €1.09. Non-IFRS earnings per share (basic) increased 32% to €1.45. The effective tax rate was 27.8% (IFRS) and 27.1% (non-IFRS).

Free cash flow in the third quarter increased by 69% to €865 million. While payments for taxes and share-based compensation increased, the positive development was driven by SAP's profitability, improvements in working capital and lower payments for capex and leasing. For the first nine months, free cash flow was up 29% to €3.42 billion.

Share Repurchase Program

On May 16, SAP announced a new share repurchase program with an aggregate volume of up to €5 billion and a term until December 31, 2025. As of September 29, SAP had repurchased 7,190,252 shares at an average price of €125.49 with a purchased value of approximately €902 million under the program.

Business Highlights

In the third quarter, customers around the globe continued to choose "RISE with SAP" to drive their end-to-end business transformations. These customers included ADAC, Alnatura, BC Hydro, Bobst Mex, Constellium, Graybar, Hitachi Zosen Corporation, KAESER KOMPRESSOREN, LG Electronics, LG Energy Solution, PUMA, Siemens Healthineers, and University of Leeds.

BMW Group, Celltrion Healthcare, City of Vancouver, Schneider Electric, Toll Group, and UPL Limited went live on SAP S/4HANA Cloud in the third quarter.

Atria, elobau, Leanin' Tree, Northstar Clean Technologies, PERSSA, Phoenix Global, Tait International, and Ziegler Holding chose "GROW with SAP", a new offering helping midsize customers adopt cloud ERP with speed, predictability, and continuous innovation.

Key customer wins across SAP's solution portfolio included: Accenture, Adobe, BVG (Berlin public transport), Ecovacs, freenet DLS, Fressnapf, Heidelberger Druckmaschinen, Hyundai Motor Company / Kia, Jollibee Foods Corporation, Lenovo, RICOH, Salling Group, and thyssenkrupp Steel Europe.

Ducati Motor Holding, Gilead Sciences, Hunkemöller, The KaDeWe Group, Swiss Federal Railways, and SCOTT Sports went live on SAP solutions.

In the third quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and solid in the Americas region. Brazil, India, and the Netherlands had outstanding cloud revenue growth while Canada, China, France, Germany, Japan, and Switzerland performed particularly strong.

On July 4, 2023, SAP was informed that Standard and Poor's (S&P) upgraded its credit rating to A+ from A, citing SAP's sound cloud transition execution, its track record of deleveraging quickly and its high cash generation.

On July 18, SAP announced the next step in its commitment to deliver Business AI that is relevant, reliable, and responsible with strategic investments in three leading generative AI companies. The investments in Aleph Alpha, Anthropic, and Cohere reinforce SAP's open ecosystem approach to AI, leveraging the best technology to embed AI across SAP's portfolio.

On August 29, SAP announced that Gina Vargiu-Breuer has been appointed to the Executive Board of SAP as Chief People Officer and labor director, effective from February 1, 2024. She will succeed Sabine Bendiek, who will be leaving the company at her own request upon the end of her term on December 31, 2023.

On August 29, SAP and Google Cloud announced an expanded partnership to help enterprises harness the power of data and generative AI. The companies will combine their integrated open data cloud using the SAP Datasphere solution with Vertex AI to launch new generative AI-powered industry solutions starting with automotive and to introduce new capabilities to help customers improve sustainability performance.

On September 1, SAP announced the appointment of Walter Sun as Global Head of Artificial Intelligence. Sun joined SAP from Microsoft where he served as vice president of Copilot Applied Artificial Intelligence for business applications.

On September 7, SAP and LeanIX GmbH announced that SAP has entered into an agreement to acquire LeanIX, a leader in enterprise architecture management (EAM) software. The planned acquisition is expected to help SAP expand its business transformation portfolio, giving customers access to the full suite of tools required for continuous business transformation and facilitating AI-enabled process optimization. The transaction is expected to close in the fourth quarter of 2023, subject to customary closing conditions and regulatory approvals.

On September 26, SAP announced Joule, a natural-language, generative AI copilot. Joule will be embedded throughout SAP's cloud enterprise portfolio, delivering proactive and contextualized insights from across the breadth and depth of SAP solutions and third-party sources.

Segment Results at a Glance

SAP's reportable segment showed the following performance:

In the third quarter, segment revenue in AT&S was up 3% to €7.46 billion and up 9% at constant currencies, primarily due to strong cloud revenue growth, which was supported by SAP S/4HANA as well as Business Technology Platform. Operating Expenses of the segment decreased by 3% and increased by 2% at constant currencies, resulting in a segment margin of 35.7% and 35.8% at constant currencies. This implies a growth of 4.3 percentage points and 4.4 percentage points at constant currencies compared to the third quarter of the prior year.

Cloud Performance