SAP (NYSE:SAP) 2025 Conference December 03, 2025 09:00 AM ET Company ParticipantsFred Boulan - Head of European Software, Payments, and IT Services ResearchMuhammad Alam - Executive Board Member for Product and EngineeringFred BoulanOkay, good afternoon and good morning, Fred Boulan from Bank of America's software team. We are delighted to be hosting Muhammad Alam, Head of Product Engineering and Member of the Executive Board at SAP. From a format perspective, we'll go through some, some questions together, ...

Summary of SAP 2025 Conference Call Company Overview - **Company**: SAP (NYSE: SAP) - **Event**: 2025 Conference Call - **Date**: December 02, 2025 Key Points Industry and Company Context - SAP has successfully transitioned towards a cloud-centric model over the past five years, particularly through its "Rise" initiative, which has been well-received despite initial skepticism from analysts and investors [2][3][4] - The company emphasizes the importance of integrating AI into its offerings to enhance business processes and customer experiences [18][21] Financial Performance and Targets - SAP's cloud revenue target was initially set at $22 billion, including Qualtrics; excluding Qualtrics, the company is performing slightly ahead of this target [5] - Maintenance and support revenue has exceeded initial expectations, now estimated to be 20%-30% above the previous target of $9 billion [5] - The company has experienced the lowest churn rates ever, indicating strong customer retention and satisfaction [6][7] Strategic Initiatives - The cultural shift within SAP has been identified as a significant achievement, fostering a more agile and innovative environment [3][4] - SAP is focusing on expanding its footprint within existing customer accounts, particularly in finance, HR, and supply chain modules [9][10] - The introduction of AI agents is seen as a key driver for enhancing customer engagement and operational efficiency [10][16] Market Outlook and Growth Projections - SAP anticipates continued growth in its cloud business, with a strong pipeline for Q4 and beyond, driven by large transactions and AI integration [11][12][14] - The company is confident in its ability to maintain a robust pipeline for the upcoming year, supported by a solid installed base and new customer acquisitions [13][14] - SAP aims for total revenue acceleration through 2027 and beyond, leveraging data and AI to enhance its offerings [15][17] AI and Technology Integration - The integration of AI into SAP's business processes is viewed as essential for future growth, with a focus on creating agentic AI solutions that enhance customer operations [18][21] - SAP's Business Technology Platform (BTP) is positioned as a foundational element for its applications, facilitating seamless integration and extensibility [42][43] - The company is investing in AI tooling to assist customers in migrating to the cloud, addressing challenges related to data cleansing and system configuration [35][36] M&A Strategy - SAP's M&A strategy is focused on acquiring companies that enhance its data and AI capabilities, with recent acquisitions aimed at modernizing its recruiting platform [37][38] - Future acquisitions will prioritize companies that can accelerate SAP's roadmap in agentic AI and data platforms [39][40] Partnerships and Ecosystem - SAP is enhancing its partnerships to ensure integration with its AI foundation, emphasizing the importance of a cohesive ecosystem for delivering end-to-end business solutions [40][41] Conclusion - SAP is on a positive trajectory, with strong financial performance, a clear strategy for AI integration, and a commitment to expanding its cloud offerings. The company is well-positioned to capitalize on future growth opportunities in the evolving technology landscape [43]

Core Insights - SAP SE has completed the acquisition of SmartRecruiters, aiming to enhance talent acquisition through AI-driven efficiency and innovation [1][10] - The integration of SmartRecruiters' platform with SAP SuccessFactors is expected to improve hiring processes and workforce planning insights [3][10] Group 1: Acquisition and Integration - The acquisition of SmartRecruiters is intended to empower enterprises by streamlining talent acquisition processes [1] - SmartRecruiters offers an AI-native platform that enhances efficiency and streamlines hiring, focusing on both high-volume frontline hiring and enterprise-level recruiting [2] - For SAP SuccessFactors users, SmartRecruiters' innovations will be incorporated to improve features like time-to-hire and candidate experience [3] Group 2: AI and Cloud Strategy - SAP is investing heavily in AI, with over 30,000 developers working to enhance its AI foundation and increase user efficiency by 30% by the end of 2025 [5] - The expansion of the SAP Sovereign Cloud portfolio reflects SAP's commitment to digital sovereignty and AI-driven innovation, particularly in Europe [6] - SAP's growth strategy includes product innovation and embedding AI to drive sustained growth through 2027 [7] Group 3: Market Challenges - SAP faces revenue pressures due to long sales cycles, complex licensing, and shifting budgets, which may impact cloud backlog growth [8] - The performance in the second half of the year is critical as most cloud deals are signed during this period [8]

Financial Data and Key Metrics Changes - Current cloud backlog increased by 29% to €18.2 billion in Q1 [5][37] - Quarterly cloud revenue grew by 26%, approaching the €5 billion mark [5][37] - Total revenue rose by 11% to €9 billion [42] - Operating profit surged by 58% to €2.5 billion, significantly exceeding the guidance for the year [41][45] - Cloud gross margin improved by 2.6 percentage points to 75% [6][40] Business Line Data and Key Metrics Changes - Cloud ERP suite revenue maintained high growth momentum with a 33% increase in Q1, accounting for 85% of total cloud revenue [37] - Software licenses decreased by only 10%, indicating resilience despite being a smaller quarter [38] - Approximately half of cloud order entries included AI use cases, reflecting strong demand for AI integration [13] Market Data and Key Metrics Changes - Strong cloud revenue performance noted in APJ and EMEA regions, with Brazil, Germany, and India showing outstanding results [40] - The Americas region also demonstrated robust performance, with notable strength in Canada and the US [40] Company Strategy and Development Direction - Company emphasizes a suite-first, AI-first approach to expand its offerings [36] - Focus on product innovation, particularly with the launch of Business Data Cloud, which aims to unify and govern business data [22][23] - Continued investment in AI and cloud solutions to enhance customer productivity and reduce implementation costs [30][31] Management's Comments on Operating Environment and Future Outlook - Management expresses confidence in the company's resilience despite high market uncertainty [9][45] - The pipeline for the year remains solid, with no significant deterioration in conversion rates observed [56] - Management acknowledges potential risks from geopolitical tensions and trade disputes but maintains a positive outlook for long-term growth [44][120] Other Important Information - The company plans to provide deeper insights into its growth strategy at the upcoming Sapphire event in May [34][47] - The transformation program concluded in 2024, positioning the company for focused investments in key areas [36] Q&A Session Summary Question: Current trading and confidence in cloud revenue guidance - Management noted strong customer engagement and resilience in supply chains, which supports confidence in cloud revenue guidance despite macro uncertainties [52][56] Question: Deceleration in cloud revenue growth - Management explained that the deceleration was influenced by the timing of cloud deals and expected a rebound in Q2 as these deals ramp up [58][62] Question: Current cloud backlog performance - Current cloud backlog performance was in line with expectations, with no significant changes in customer dynamics despite tariff uncertainties [68][71] Question: Product innovation and Business Data Cloud differentiation - Management clarified that Business Data Cloud offers a more comprehensive solution than the previous SAP Datasphere, enabling better data integration and AI capabilities [78][83] Question: Impact of tariffs on business and cloud margins - Management indicated that while tariffs could impact hardware costs, the company's multi-cloud strategy provides price security and mitigates risks [130][132]