SAP(US:SAP)2025-10-22 22:02Financial Data and Key Metrics Changes - In Q3 2025, cloud revenue rose by 27%, maintaining over 25% growth for five consecutive quarters, with a solid cloud gross margin of approximately 75% [6][22] - Total revenue increased by 11% to €9.1 billion, with the share of predictable revenue rising by two percentage points to 87% [7][24] - Current cloud backlog increased by 27%, exceeding €18.8 billion [22] - Free cash flow increased by 5% to €1.3 billion, while operating profit rose by 19% to €2.6 billion [7][25] Business Line Data and Key Metrics Changes - The cloud ERP suite achieved its 15th consecutive quarter of growth exceeding 30%, representing 87% of cloud revenues and over 100% of the year-over-year increase in cloud revenues [20][22] - Software licenses revenue decreased by 42% in Q3 [23] Market Data and Key Metrics Changes - Cloud revenue performance was particularly strong in APJ and EMEA regions, with Brazil, France, Germany, India, Italy, and South Korea showing outstanding performance [24] - The U.S. public sector business is starting to pick up again, with a major framework contract awarded to SAP by the U.S. government [10][23] Company Strategy and Development Direction - The company aims to accelerate total revenue growth through 2027, leveraging AI as a key enabler of growth [5][19] - SAP's strategy focuses on providing software and cloud solutions without building infrastructure, partnering with strong cloud infrastructure partners instead [11][63] - The company is enhancing its AI capabilities, emphasizing the integration of AI with business processes and contextual data to create high-value use cases [12][66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the Q4 pipeline, noting that many stalled deals are now returning, particularly in the U.S. public sector and manufacturing [32][34] - The company anticipates reaching the lower end of its cloud revenue outlook for fiscal year 2025 due to delayed bookings but expects to exceed its operating profit outlook [26][25] Other Important Information - SAP closed its acquisition of SmartRecruiters, enhancing its capabilities in talent acquisition [22] - The company is seeing significant interest in its new software and cloud offerings for highly regulated customers and governments [12] Q&A Session Summary Question: Update on demand backdrop in U.S. public sector and manufacturing - Management noted positive early signs in the U.S. public sector and a strong Q4 pipeline, with many deals returning [32][34] Question: Insights on backlog and cloud revenue expectations - Management expressed confidence in achieving a good Q4 and picking up stalled pipeline deals, indicating optimism for cloud revenue growth [36][54] Question: Uptake of SAP ERP transition option - Management highlighted positive momentum in the pipeline and noted that the transition option is helping customers move to the cloud [40][41] Question: Competitive position versus Oracle - Management emphasized that SAP's strategy remains effective, focusing on value creation rather than infrastructure scaling [63][66] Question: Free cash flow guidance and conversion - Management indicated that Q4 free cash flow may be impacted by tax cash out phasing and other working capital factors [58][59]