SAP SE: Cloud and Software Revenue Growth Above FY Guidance

Double-Digit Operating Profit Growth Drives Operating Margin Increase

- Cloud Revenue Accelerates, Up 18% (IFRS) and Up 31% (Non-IFRS at Constant Currencies), Exceeding €1 Billion for the First Time in a Quarter

- New Cloud Bookings Up 25% at Constant Currencies on Top of an Exceptional Prior Year Quarter

- Digital Core Momentum Continues With Over 8,300 S/4HANA Customers, Up 43% Year-over-Year

- Full Year Outlook Increased to Reflect Callidus Acquisition and Strong Operational Momentum

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SAP SE

Apr 24, 2018, 01:01 ET

WALLDORF, Germany, April 24, 2018 /PRNewswire/ -- SAP SE (NYSE: SAP) today announced its preliminary financial results for the first quarter ended March 31, 2018.

SAP SE: Cloud and Software Revenue Growth Above FY Guidance

"SAP's momentum continues with our latest trifecta, including fast growing cloud, strong software sales, and operating income expansion. Even against the steepest comparisons, S/4HANA led us again to major market share gains for the company. With an increasing share of predictable revenues, our beyond expectations profitability is cause for even greater shareholder confidence. From this position of immense strength, look for SAP to be bolder than ever in markets like CRM." - Bill McDermott, CEO

"There are two things I am particularly proud of in Q1: We faced a very strong prior year quarter comparison and still delivered cloud & software growth above our full year guidance. Moreover, we increased operating margins while continuing to invest in our people and our portfolio. This gives me great confidence for 2018 and beyond." - Luka Mucic, CFO

Business Highlights

Financial Highlights

First Quarter 2018
New cloud bookings¹ grew by 14% (25% at constant currencies) in the first quarter and reached €245 million. Cloud subscriptions and support revenue grew 18% year over year to €1.07 billion (IFRS), up 31% (non-IFRS at constant currencies). Software revenue was down 10% year over year to €625 million (IFRS), down 2% (non-IFRS at constant currencies). New cloud and software license order entry² grew by 10% at constant currencies year over year in the first quarter. Cloud and software revenue grew 1% year over year to €4.35 billion (IFRS), up 9% (non-IFRS at constant currencies). Total revenue was flat year over year at €5.26 billion (IFRS), up 9% (non-IFRS at constant currencies).

SAP's rapidly expanding cloud business together with solid growth in support revenue continued to drive the share of more predictable revenue. The total of cloud subscriptions & support revenue and software support revenue as a percentage of total revenue grew 2 percentage points to 71% in the first quarter and thus exceeded 70% for the first time.

First quarter operating profit was up 52% year over year to €1.03 billion (IFRS), up 14% (non-IFRS at constant currencies). As announced in January 2018, the Company expects a positive revenue and profit impact from the adoption of IFRS 15 in 2018. In the first quarter, this positive impact on SAP's operating profit was around €44 million. Earnings per share increased 37% to €0.59 (IFRS) and was down 1% to €0.73 (non-IFRS).

Operating cash flow for the first quarter was €2.58 billion, down 10% year over year. Free cash flow decreased 17% year over year to €2.15 billion. The decrease in free cash flow was mainly due to higher tax payments and a currency headwind as well as increased CapEx spending compared to the prior year. At the end of the first quarter, net liquidity was €546 million, an improvement of €1 billion year over year.

SAP S/4HANA

SAP's next generation ERP S/4HANA sits at the core of the Intelligent Enterprise. With S/4HANA, customers can massively simplify their IT landscape, turn real-time data into actions and reinvent their business model for the digital economy across every industry. S/4HANA Cloud brings speed and ease of deployment. It is positioned as a leader in three cloud solution categories by industry analyst firm IDC: Midmarket ERP, Large Enterprise ERP and Finance & Accounting.

S/4HANA adoption grew to more than 8,300 customers, up 43% year over year. In the first quarter, approximately 400 additional customers signed up of which approximately 40% were net new. S/4HANA continues to be selected by world-class global companies, including Swiss Post in the quarter. A growing number of our customers are now adopting S/4HANA in the Cloud. MacMahon Holdings and Detecon International GmbH were among those who selected S/4HANA Cloud in the first quarter.

Customer Experience

SAP's next generation customer experience solutions serve both B2C and B2B across a wide range of industries. They enable businesses to manage their front office across the entire spectrum from marketing to sales to services – seamlessly and in real-time. Businesses get a single view of their customer – across social, retail or e-commerce. In the age of heightened data privacy concerns, SAP also offers Gigya, a market leading solution for customer identity and access management. Gigya software manages customers' profile, preference and consent, with customers maintaining control of their data at all times. On April 5th, 2018, SAP closed the acquisition of Callidus Software Inc (CallidusCloud®). SAP will fuse its customer experience solutions and S/4HANA fulfillment capabilities with CallidusCloud's best-in-class Sales Performance Management (SPM) and Configure-Price-Quote (CPQ) solutions to deliver the most complete, end-to-end, fully cloud-based 'Lead-to-Cash' offering. This will enable customers to close deals faster, drive higher volume and bigger deals and accelerate sales productivity.

In the first quarter, SAP's customer experience solutions achieved triple digit year-over-year growth in new cloud bookings. Jaguar Land Rover, Coca-Cola, and Unilever were among those that chose SAP's customer experience solutions this quarter.

Human Capital Management

With SAP SuccessFactors and SAP Fieldglass, SAP delivers total workforce management across both permanent and contingent labor. Increasingly, HR is asked to include flexible workers in planning and to effectively establish a total talent supply. The SAP SuccessFactors suite is localized for 91 countries and 42 languages. SAP SuccessFactors Employee Central, which is the core of SAP's HCM offering, ended the quarter with more than 2,400 customers and scored numerous competitive wins including CaixaBank, Reckitt Benckiser Group plc, HiPP, San Francisco Unified School District. and Intesa Sanpaolo.

SAP Leonardo

SAP Leonardo is about orchestrating innovative capabilities to rapidly create completely new ways of working and new business models. SAP Leonardo brings together deep process and industry expertise, advanced design thinking methodology and cutting edge software capabilities such as IoT, Big Data, Machine Learning, Analytics, and Blockchain. All of this is integrated on the SAP Cloud Platform with new technologies easily added as they emerge.

Airbus, DBS Informatik, and Thyssenkrupp are among many others that adopted SAP Leonardo solutions in the first quarter to redefine their businesses and become intelligent enterprises.

Business Networks

SAP is fueling the Networked Economy. With more than $1.9 trillion³ in global commerce annually transacted in more than 180 countries, the SAP Business Network is the largest commerce platform in the world. Leveraging the collaborative commerce capabilities of SAP Ariba, the flexible workforce management capabilities of SAP Fieldglass, effortless travel and expense processing with SAP Concur and the real-time in memory capabilities of the SAP HANA® platform, the SAP Business Network orchestrates commerce transactions across an entire value chain. It provides transparency and insight into supply chains that enable companies to ensure they are acting in ethically responsible ways.

In the first quarter, total revenue in the SAP Business Network segment was up 17% to €663 million at constant currencies year over year. Migros and Ralph Lauren chose SAP's Business Network Solutions in the first quarter.

Regional Revenue Performance in the First Quarter 2018

SAP had a solid performance in the EMEA region with cloud and software revenue increasing 6% (IFRS) and 9% (non-IFRS at constant currencies). Cloud subscriptions and support revenue was very strong and grew by 40% (IFRS) and 45% (non-IFRS at constant currencies) with Germany being a highlight. In addition, SAP had double-digit software revenue growth in the UK.

The Company had a strong performance in the Americas region with a significant currency headwind. Cloud and software revenue decreased by 5% (IFRS) and increased by 10% (non-IFRS at constant currencies). Cloud subscriptions and support revenue increased by 6% (IFRS) and 22% (non-IFRS at constant currencies) with Brazil being a highlight. In North America, the company had double digit software revenue growth.

In the APJ region, SAP had a strong performance considering the strong prior year period and currency headwind. Cloud and software revenue was flat (IFRS) and grew by 10% (non-IFRS at constant currencies). Cloud subscriptions and support revenue was exceptional and grew by 38% (IFRS) and 53% (non-IFRS at constant currencies) with China and Japan being highlights. For software revenue, Australia, China and India had an impressive quarter and grew by double digits.

Financial Results at a Glance

First Quarter 2018¹⁾
	IFRS			Non-IFRS²⁾
€ million, unless otherwise stated	Q1 2018	Q1 2017	∆ in %	Q1 2018	Q1 2017	∆ in %	∆ in % const. curr.
New Cloud Bookings³⁾	N/A	N/A	N/A	245	215	14	25
Cloud subscriptions and support	1,070	905	18	1,072	906	18	31
Software licenses and support	3,281	3,422	–4	3,281	3,422	–4	4
Cloud and software	4,351	4,328	1	4,353	4,328	1	9
Total revenue	5,261	5,285	0	5,262	5,285	0	9
Share of predictable revenue (in %)	71	69	2pp	71	69	2pp
Operating profit	1,025	673	52	1,235	1,198	3	14
Profit after tax	708	530	33	868	887	–2
Basic earnings per share (€)	0.59	0.43	37	0.73	0.73	–1
Number of employees (FTE, March 31)	91,120	85,751	6	N/A	N/A	N/A	N/A

¹⁾ All figures are unaudited.

²⁾ For a detailed description of SAP's non-IFRS measures see Explanation of Non-IFRS Measures online. For a breakdown of the individual adjustments see table "Non-IFRS Adjustments by Functional Areas" in this Quarterly Statement.

³⁾ As this is an order entry metric, there is no IFRS equivalent.

Due to rounding, numbers may not add up precisely.

Business Outlook 2018

SAP is raising its outlook to reflect the closing of the Callidus acquisition on April 5, 2018 as well as the strong operating profit performance in the first quarter. For the full year 2018, the Company now expects:

Non-IFRS cloud subscriptions and support revenue to be in a range of €4.95 billion − €5.15 billion at constant currencies (2017: €3.77 billion), up 31% – 36.5% at constant currencies. The previous range was €4.8 − €5.0 billion. Callidus is expected to contribute approximately €150 million.
Non-IFRS cloud and software revenue to be in a range of €20.85 – €21.25 billion at constant currencies (2017: €19.55 billion), up 6.5% – 8.5% at constant currencies. The previous range was €20.7 – €21.1 billion. Callidus is expected to contribute approximately €150 million.
Non-IFRS total revenue to be in a range of €24.80 billion − €25.30 billion at constant currencies (2017: €23.46 billion), up 5.5% – 7.5% at constant currencies. The previous range was €24.6 – €25.1 billion. Callidus is expected to contribute approximately €200 million.
Non-IFRS operating profit to be in a range of €7.35 billion − €7.50 billion at constant currencies (2017: €6.77 billion), up 8.5% – 11% at constant currencies. The previous range was €7.3 – €7.5 billion. Callidus is expected to contribute approximately €10 million.

While SAP's full-year 2018 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 Q2 and FY 2018 expected currency impacts.

Expected Currency Impact Based on Early April Exchange Rates for 2018
In percentage points	Q2	FY
Cloud subscriptions and support	-10 to -12	-7 to -9
Cloud and software	-6 to -8	-4 to -6
Operating profit	-6 to -8	-4 to -6

IFRS 15 Impact

As of January 1, 2018, SAP changed several of its accounting policies to adopt IFRS 15 'Revenue from Contracts with Customers'. Under the IFRS 15 adoption method chosen by SAP prior years are not restated to conform to the new policies. Consequently, the year-over-year growth of revenue and profit in 2018 will be impacted by the new policies.

As already announced in SAP's Q4 2017 Quarterly Statement, the Company expects the full year 2018 impact of the policy change⁴ on revenue, operating expenses and profit to be as follows:

Revenues are expected to experience a benefit of substantially less than €0.1 billion with most of the difference resulting from exercises of customer software purchase options granted in prior years which result in software revenue.
Operating expenses are expected to benefit, in cost of sales and marketing, in the amount of approximately €0.2 billion from higher capitalization of sales commissions. Other policy changes will weigh on operating expenses with an additional cost of revenue of substantially less than €0.1 billion.
The above-mentioned effects will result in a net positive impact on operating profit of approximately €0.2 billion.

Details regarding the IFRS 15 impact in the first quarter can be found on page 21 in the appendix.

The full Q1 2018 Quarterly Statement can be downloaded from http://www.sap.com/investors/sap-2018-q1-statement

Additional Information

For a more detailed description of all of SAP's non-IFRS measures and their limitations as well as our constant currency and free cash flow figures see Explanation of Non-IFRS Measures online.

Webcast
SAP senior management will host a financial analyst conference call at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The call 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 first quarter results can be found at www.sap.com/investor.

About SAP
As market leader in enterprise application software, SAP (NYSE: SAP) helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device – SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 388,000 business and public sector customers to operate profitably, adapt continuously, and grow sustainably. For more information, visit www.sap.com.

For more information, financial community only:
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¹ New cloud bookings is the total of all orders received in a given period the revenue from which is expected to be classified as cloud subscription and support revenue and that result from purchases by new customers and from incremental purchases by existing customers. Consequently, orders to renew existing contracts are not included in this metric. The order amount must be committed. Consequently, due to their pay-per-use nature, business network transaction fees which do not include a committed minimum consumption are not reflected in the bookings metric (e.g. SAP Ariba and SAP Fieldglass transaction-based fees). Amounts included in the measures are generally annualized (annualized contract value ACV).

² New cloud and software license order entry is the total of new cloud order entry and software license order entry. The new cloud order entry metric is identical to the new cloud bookings metric defined above except that it considers the total contract value (TCV) of the orders where the new cloud bookings metric considers the orders' annualized contract value (ACV). Software license order entry is the total of all orders received in a given period the revenue from which is expected to be classified as software license revenue. The support services commonly sold with the software licenses are not included in the software license order entry metric.

³ SAP Business Network commerce is the total commerce transacted on the Ariba, Concur and Fieldglass Networks in the trailing 12 months. Ariba commerce includes procurement and sourcing spend. Previously we only included the total commerce transacted on the Ariba Network in this metric.

⁴ "Impact of the accounting policy change" means the difference between a revenue and profit measure determined under SAP's new IFRS 15-based policies and the respective measure as it would stand had our previous accounting policies continued to apply.

SOURCE SAP SE