SAP Announces Q3 2022 Results

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Oct 25, 2022, 01:00 ET

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

¹Segment 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 25^th 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:
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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.

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