Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q3 2024 Earnings Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. I would now like to turn the conference over to Alexandra Steiger, Global Head of Investor Relations. Please go ahead.

Good evening, everyone, and welcome. Thank you for joining us. With me today are CEO Christian Klein and CFO Dominik Asam. On this call, we will discuss SAP's third quarter 2024 results. You can find the deck supplementing this call, as well as our quarterly statement on our investor relations website. During this call, we will make forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to differ materially. Additional information regarding these risks and uncertainties may be found in our filings with the SEC, including but not limited to the risk factor section of our annual report on Form 20-F for 2023. Unless otherwise stated, all numbers on this call are non-IFRS and growth rates and percentage point changes are non-IFRS, year-on-year at constant currencies. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with IFRS. Christian, now over to you.

Yes, thank you, Alexandra, and hello to everyone on the line. Welcome to today's earnings call. As we are already getting closer to the end of the year, I’m happy to say we are well ahead of our plans for 2024 and fully on track for our 2025 financial goals. Clearly, Q3 was another successful step on SAP's transformation journey. Let me quickly explain why. Again, total and cloud revenue growth accelerated, also by winning many net new customers. Operating profit developed better than expected because many underlying measures of our transformation program started to unfold. At the same time, we continue to deliver innovation focusing on business AI. Our AI strategy plays a key role across our cloud ERP suite. Roughly about 30% of our cloud order entry in Q3 included deals that had AI use cases. Finally, we successfully completed the tuck-in acquisition of WalkMe, which is a perfect fit for our business transformation portfolio. Let me now talk you through the key metrics for Q3. Current cloud backlog increased 29% and reached EUR15.4 billion. The increase was almost entirely organic, with WalkMe adding only a slight bit on top. Total revenue growth was once again in double-digit territory, with best-in-class renewal rates for cloud and our support business. Cloud revenue growth accelerated to 27% and came in at EUR4.4 billion. And, even more important, our Cloud ERP Suite was again the main driver of the top-line growth, with accelerated growth of 36% to EUR3.6 billion. Operating profit increased 28% and reached EUR2.2 billion with an excellent operating margin of 26.5%. The share of more predictable revenue is now at 84%. I guess it’s fair to say that all the hard work to drive SAP's cloud transformation over the last four years has led to a highly resilient and innovative company, offering us a strong foundation for many successful years to come. Behind the impressive results are so many exciting customer stories. It's impossible to mention all the key wins, but let’s have a look, for example, at the retail industry. In Q3, we signed a significant deal with Schwarz Group. Schwarz is the parent company of the well-known supermarket chain Lidl and Kaufland, operating about 14,000 stores with almost 600,000 employees. I was closely involved in the conversations for this partnership. It was all about WISE as a key enabler to redesign the end-to-end core processes of Schwarz, leveraging in the cloud the latest innovations around business AI to achieve their long-term growth and sustainability, for example, with the Green Ledger. In addition, Schwarz Group and SAP will jointly offer RISE with STACKIT, Schwarz Group's digital cloud infrastructure, which offers a high degree of digital sovereignty. RISE with SAP is protected by XM Cyber, the Schwarz Group's provider of cloud security solutions. Speaking of world-class retailers, Sainsbury's, one of the UK's largest supermarkets chains, decided to become part of the SAP family and selected RISE in Q3. And so did Mercado Libre, an e-commerce leader operating in 18 Latin American countries. With RISE, we will help Mercado Libre to strengthen decision-making through real-time data in the front office, back office, supply chain, and amongst other areas. They are also a business AI customer and have major expansion plans in these areas. Also in Q3, Mondelez closed a significant deal to expand their North America business over to Latin America and to EMEA. It’s just great to see, quarter by quarter, more and more of the world's hottest companies joining the WISE movement. So let’s now look at tech. In Q3, one of Europe's most exciting tech startups opted for GROW with SAP, our cloud journey offering for net new customers. Mistral AI is creating some of the world's best large language models. They are growing rapidly and see the need for a complete ERP solution to scale their business on a global level. We also have a technology partnership with Mistral. Their large language models are available on the GenAI hub, and we are running Large 2, one of Mistral’s latest modules, on SAP infrastructure. Our partners and customers now have access to an excellent LLM alternative hosted on European territory. Staying within tech, NVIDIA went live with RISE in Q3, and that was a rapid implementation that took only six months, thanks to our close collaboration. Additionally, in Q3, the software company Gainsight, a specialist in customer success solutions, signed a GROW with SAP deal. It’s just great to see. Quarter by quarter, more and more of the world's hottest tech companies are choosing SAP because they consider our cloud solutions a solid foundation for exponential growth and value creation. To sum it all up, they trust us to bring out the best in their business, and that's something we are very proud of. To close it out, there are many other great wins in Q3. For example, Dawn Foods, DXC Technology, and Sol de Janeiro, a subsidiary of L'Occitane Group, and Praise Group. And for RISE, we also won Mondelez, Roche, E.ON, Equinor, and Tetra Pak, the who’s who in their industries. As you can see, SAP is already very successful at reaching and winning customers. But we can do even better. So how will our future go-to-market model look like? Let me start by saying thank you to Julia White and Scott Russell for their great contributions to our marketing and sales achievements over the past years. Together, we shaped the growth company well positioned to tap into the many opportunities ahead. Going forward, in the context of our ongoing restructuring, we will center our go-to-market setup even more strongly around our land and expand strategy with a strong focus on adoption and consumption. First, we are making our operating model clearer and more streamlined, reducing the number of different job profiles with the goal to improve productivity and our sales ratio. Second, we will empower our partner ecosystem to significantly grow in the mid-market. By doing that, we are expanding this highly profitable sales channel and driving our future growth. Third, to gain even more momentum behind our land and expand strategy, we are overhauling our commercials, including how we package our solutions. This will go hand in hand with revised incentive structures for our colleagues in sales. Let me tell you, Q3 was not only a successful quarter in terms of customers and growth but also in terms of innovation. This was very evident at TechEd, our technology and developer conference. Let me share some highlights with you. Starting with Joule. Our digital copilot just celebrated its first birthday, and we announced a major upgrade. We are supercharging Joule with collaborative AI agents. Most AI chain instances are fit to perform only one type of task - in sales, in HR, in supply chain. However, many key processes cut across departments. Financial predictions, for instance, involve data from sales, supply chain management, HR, and other functions. Joule will soon be able to orchestrate several AI agents to carry out such complex processes end-to-end. That’s possible because SAP speaks the language of all corporate functions. We are not trapped in one silo. So while many in the software industry talk about AI agents these days, I can assure you that Joule will be the champion of them all. So far, we have added over 500 skills to Joule, and we are well on track to cover 80% of the most frequent business and analytical transactions by the end of this year. And in Q3 alone, several hundred customers licensed Joule. Our progress was also accelerating with regard to the other elements of our AI architecture. Well ahead of time, we reached a goal to embed over 100 AI use cases across our solutions. Moreover, the GenAI hub's consumption by our partners more than tripled from Q2 to Q3, and even better, the consumption by our customers more than quadrupled. Finally, there was one more thing at TechEd with regard to business AI, something we’ve been working on for a few years. We announced the SAP Knowledge Graph. The Knowledge Graph captures decades of business process knowledge and allows GenAI to deeply understand SAP systems regarding structured data, the tables, the connections. That, in turn, enables GenAI to provide much more relevant, reliable, and context-sensitive answers. It will allow Joule, for example, to carry out the complex tasks I just mentioned. The Knowledge Graph will and is a real game changer in our industry, and we are the first to accomplish it at this scale. We have had a bit of an unfair advantage, of course. We can rely on decades of domain know-how and the wealth of data in SAP's system. So in summary, Q3 was another strong quarter for SAP. Revenue growth accelerated, and our profitability continued to develop very positively. Against this background, we are confidently raising our outlook for 2024. We are now expecting an operating profit of EUR7.8 billion to EUR8 billion. We are also happy to confirm that we are on track towards our revised 2025 financial ambitions with continuous double-digit total revenue and operating profit growth in the years to come. And with that, over to you, Dominik.

Thank you, Christian. And thank you all for joining us this evening. We have successfully navigated another quarter despite the ongoing complexities of the macroeconomic environment. Demand for our solutions remains solid in Q3, driving steady expansion of our current cloud backlog and strong cloud revenue growth, which grew by 29% and 27% year-over-year, respectively. In Q3, deals exceeding EUR5 million accounted for more than 60% of cloud order entry, reflecting continued confidence in our offerings and strategic direction. The continued disciplined execution of our transformation program, combined with a slower-than-anticipated ramp in our hiring activities, contributed to exceptional growth in non-IFRS operating profit and a significant increase in free cash flow. Our investment in Business AI is also starting to show positive results, creating new opportunities and deepening customer engagement. Now with the added capabilities of WalkMe, we are able to further improve workflow execution and user experience, positioning SAP well to deliver unparalleled value to our stakeholders. Let me now go into further details regarding our financial highlights. Current cloud backlog reached EUR15.4 billion, up 29%. Absent the first-time inclusion of WalkMe, current cloud backlog growth would have remained virtually flat compared to the prior quarter. Cloud revenue grew by 27%, fueled by the sustained strength of our cloud ERP suite, which saw another impressive quarter with an increase of 36%. This marks the 11th consecutive quarter of cloud ERP suite growth in the 30s, now representing approximately 84% of total cloud revenue. The first-time inclusion of WalkMe's revenue contribution was approximately EUR50 million. Software license revenue showed remarkable resilience with a decrease of only 14% in the quarter. Finally, total revenue was EUR8.5 billion in Q3, up 10% year-over-year. This performance was primarily driven by the strength in cloud revenue and demonstrates how the positive revenue mix effect is driving gradual acceleration in our top line. Now, let's take a brief look at our regional performance. In the third quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and robust in the Americas region. Brazil, Chile, Germany, Italy, India, Japan, and Spain had outstanding performances in cloud revenue growth, while China, Saudi Arabia, and the U.S. were particularly strong. Now moving on to the bottom line. Our non-IFRS cloud gross profit increased by 28%. This was supported by an improvement in cloud gross margin from the year-ago period, expanding 0.6 percentage points to 73.7%. IFRS operating profit in the third quarter was up 29% to EUR2.2 billion. Finally, non-IFRS operating profit rose by 28% to EUR2.2 billion. Operating profit growth was mainly driven by strong revenue growth as well as disciplined execution of the 2024 transformation program. Basic non-IFRS earnings per share in the quarter increased 6% to EUR1.23. The IFRS effective tax rate for Q3 was 33%, and the non-IFRS tax rate was 33.4%. Now on to our cash generation. Free cash flow for Q3 increased in nominal terms by 44% to EUR1.2 billion, with approximately EUR3 million paid out for restructuring. The positive development was primarily attributable to the increased profitability and lower tax payments. For the first nine months, free cash flow was up 47% to EUR5 billion. Now let's move on to our outlook. As you have seen in today's release, we're increasing our 2024 outlook for cloud and software revenue, operating profit, and free cash flow, which we are adjusting to reflect our updated expectations. While Q3 was another solid quarter in terms of cloud bookings, we would like to remind everyone that Q4 is typically our largest quarter, and performance here will be crucial in achieving our full-year targets and our 2025 ambition, which remains unchanged for now. It’s essential that we stay focused on executing our strategic initiatives and managing through evolving market conditions. We've also seen that we now expect to end the year at a slightly higher headcount than last year, including the colleagues joining us from WalkMe. This year-end headcount will still include a few thousand colleagues who will leave the company as part of the transformation program on January 1, 2025. For additional details, please refer to our quarterly statement published earlier today on our Investor Relations website. So in summary, in Q3, we were yet again able to prove our resilience and strategic execution on all fronts. We continue to help our customers navigate their digital transformation journeys to the cloud. As a result, we are on track to achieve or overachieve all of our financial KPIs guided in our outlook at the beginning of this year and are further solidifying the trajectory towards our Ambition 2025, as well as accelerated revenue growth through 2027. Thank you, and we will now be happy to take your questions.

Ladies and gentlemen, we will now start the question-and-answer session. Our first question will be from Michael Briest with UBS. Please go ahead.

Thank you very much. Good evening. Just I think, Dominik, you called out the very strong contribution of large deals this quarter. I think it was over 60% of the order intake. It's normally about 50% in a Q3. Can you say about the total volume of deals? Were they up year on year? And what the pipeline looks like for Q4? And your messaging around the sort of volatile conditions, can you characterize whether the environment is the same as it was when you started the quarter or are things getting a bit more challenging? And then just, Christian, very quickly on the 30% of deals with AI, can you talk to maybe the price up list that you're realizing on that? Thank you.

Maybe I’ll first step at the 60%. I mean, what we do observe is really the kind of installed base large enterprises turning with great momentum. So here, we really see the flywheel spinning. So that explains the strong momentum we have there, which gives us, of course, tremendous stability because that kind of installed base is only partially tapped into. And even the ones who are already on the RISE journey have not fully converted the installed base on-prem onto the cloud. So I think that's the point we want to make here. I think on the demand environment, I think probably Christian is better suited to comment.

Look, I mean, clearly, Michael, I mean, of course, we hear a lot about macroeconomic challenges. And I mean, look at our home market in Germany. I mean, definitely the economy has its challenges. But still, I would say after Q4, there’s rarely a DAX 40 company left who is not yet on the move to the cloud with SAP and RISE. Especially in Germany, Dominik and I also had a few customer calls today. I mean, when you are in a transformation, no matter if it's in the chemical industry or in the auto industry, we see no slowdown. I mean, they really see our cloud ERP suite as the only way to restructure their portfolio, to transform to new business models, and of course, also to drive productivity. So when I can trust my business AI with regard to the predictive focus for Q4, I am positive. Still, of course, as every year, there is a huge order entry to close. That's every year the same. So let's get the execution done in the next two and a half months. I'm confident. And on the 30% of the AI use cases, yes, absolutely. I mean, the ones which I’m mentioning, they all come with upside. First of all, with value for the customers. I mean, this is in sourcing, supply chain, and manufacturing, these are the areas where I would say we see with regard to embedded AI, the strongest uptick, and all that comes with our premium RISE offering or with GROW. And yes, there is good upside. But the good piece is also there. I mean, in all 30% of the deals, I mentioned Mercado Libre; they are starting now with some use cases, but by far not with everyone. So we also see here the land and expand motion in the quarters to come. And then when you see that the innovation pipeline is now also accelerating with regard to embedded AI, the GenAI hub, and Joule, I mean, by the end of the year, we will also see an expansion of the business AI footprint in the customers where we already landed.

Our next question is from the line of Adam Wood with Morgan Stanley.

Hi, good evening. Thanks very much for taking the question. First of all, congrats on the quarter, very strong again. Can I just ask, you alluded to the management changes during the call, and obviously, we've got around 10% of the workforce leaving through the year? And Christian, you also talked about the Salesforce reorganization. Could you just talk a little bit about how you're managing the risks of making sure that the reorganization doesn't cause disruption? As you said, you're going now into the fourth quarter, whether there's a lot of business to close, but culturally, what you're doing to make sure things don't slip through the cracks, and you're able to close the deals that you need? And maybe just quickly on the free cash flow, Dominik, a very, very strong quarter. Could you just talk a little bit about how much of that is structural changes and improvements that we should expect to continue, and how much is maybe one-off things from working capital that are great to come in but are possibly not repeatable every year? Thank you.

Yes, I can start with regard to the management changes and also the outlook for next year on growth, on cloud growth, and the execution risks you are mentioning. I mean, first, let me clearly again state here, I mean, Scott and Julia did a fabulous job in transforming SAP to the state where we are, and I guess today's results are proof of the great job we as a team have done over the last years. Now, Adam, the good piece is when you look into the planning for next year, how we assemble our bookings closes first, what do we have still in the tank for RISE? And then you can see out of the EUR11 billion of maintenance, I mean, one-fourth of the customers have started a transformation journey, but there’s a ramp. So even in the one-fourth of the customers who are in their transformation, there is potential left. And I mentioned here some customers in the past who are deeply in the journey and on the journey to move to the public cloud suite, like Exxon and others, and they are now ramping up and are very satisfied with the way we use this methodology to transform and drive adoption over time, delivering high value for the company. Then, second, net new. So this is with GROW a huge uptick, and I see even further potential. I’ll come in a second to that. Then the land and expand cross-sell. I mean, when you look into a typical ECC system, we were strong in finance, procurement, and supply chain manufacturing, but very transactional. Now in the cloud, I mean, when you look at demand and supply chain planning, workforce planning, skills-based, not profile-based, when you look into omnichannel, order volume, high billing scenarios, these are all things which we didn’t even offer at the ECC. So you also see there is no question anymore about value. There is a ton of value to do this, not only the speed and the agility you get with the cloud SaaS offerings of SAP, but also with the capabilities. And so, that is also offering is once we landed, for example, on finance, we are now making sure that we land then with ECC next and push some of the best-of-breed players out. Then we go to sourcing, then we go to the supply chain because sourcing needs to be connected to manufacturing. Now, with regard to the execution risk, look, I have to say I’m very close to, of course, some of the large deals. I am, of course, talking to our top customers frequently. I also want to feel the pulse of how our product portfolio works and how we also position the value. And I just had the team together, marketing, sales leadership, and our services leadership, for some days. We really talked through about what can we do more, not in the here and now. Next year, we are seeing a really good healthy pipeline. But what is about in two or three years? How can we expand the channel? We have a huge mid-market, where we can still grow, but not with direct sales. So what can we do better to enable the ecosystem? Let them sell the suite, give them territories, and provide more demand coming from marketing via our digital channels, which are way better than two years ago. And then, second, when you talk about direct at the top of the house, what can we do better on value engineering with fewer roles, but better architects, and even better specialists to foster the land and expand opportunity I just talked about. So I’m on it, and we are on it, and I’m very confident. The team is strong. The team really sees the massive opportunities in the years ahead. Everyone is excited for Q4, and we are confident.

The next question is from the line of Fred Boulan with BofA. Please go ahead.

Yes, thank you. So first of all, on the cloud momentum, so Cloud ERP Suite accelerated quite significantly in the quarter. I don’t know if you can comment on any specific drivers there. And then from a CCB perspective, are you trading ahead of your target? Are you still confident? And can you share a little bit the scenarios around the 27% guidance for this year? I mean, I note some commentary around the macro, but at the same time, a lot of bullishness. So it’d be good to get some of the different dynamics here at play. And then secondly, around gross margin, if you can spend a moment on your outlook here in cloud gross margin in particular. What's the outlook considering the public cloud traction field remains pretty strong but improving mix of services infrastructure? So any update there would be great. Thank you.

I mean, regarding the cloud ERP, where is the strong growth coming from? Of course, as we also mentioned in some of the customer wins, you see some of the largest customers making the move to RISE. It depends a little bit on the industry if the customers prefer to start with manufacturing or if they go with finance and HR first. Commerce is obviously a strong area and then end-to-end. Over time, we also observe healthy upsell this quarter where we can deliver value and then expand the footprint. Second, the net new was also very strong, especially in the area of HR and finance, where we typically land in the first step. Let’s also not underestimate our platform. The ecosystem is more into this now that we not only integrate our suite, but we also extend our suite, developing our own IP, not customizing the ERP anymore, but building extensions and innovative apps for the different verticals of our customers. That is indeed charging the remarkable growth we have seen in Q3. Now, with regard to macro versus pipeline, without a doubt, also when you look at the numbers our peers have delivered, we are actually seeing ongoing strong momentum—the pipeline is healthy. But again, before we now jump into 2025, let us first deliver Q4. It's a big quarter. Once we have closed Q4, we will see each other again in January, and then we will provide guidance for 2025. As for gross margin, maybe one last piece. As I also mentioned before, the cloud transformation and the underlying measures we have taken are clearly taking off. It was the right decision to centralize our cloud operations. With Thomas Saueressig, the lifecycle management of the apps gets harmonized. We are rolling out the cloud version of HANA, much more scale, better TCO, better resiliency. We're also working with the hyperscalers. With RISE and the cloud infrastructure, we are implementing strong measures to further optimize performance and scalability for HANA Cloud. But of course, on the data side, we are doing several things to further improve both performance and scalability of our stack. That will also lead to a very healthy expansion of our gross margins in 2025. With the uptake of our suite and the land-and-expand strategy and running all these solutions on a multi-tenant infrastructure, we are very confident that we can expand our gross margin, especially in 2025.

Maybe one comment on the free cash flow, whether that's a structural topic or just more of a phasing topic. I’d say it appears to be more of a phasing topic. Nevertheless, the underlying performance is quite solid. I mean, you have seen us increase the guidance at the midpoint by EUR0.25 billion. We have deliberately not changed the cash flow outlook for 2025, as we raised it in the last quarterly communication. Of course, the current cash performance helps us further solidify our outlook. We're going to move in the very near future, i.e., in January, from a kind of ambition 2025 to an outlook 2025. We want to ensure that we have the typical high-quality, high-confidence level whenever we guide the outlook. There's more confidence level than we usually have in mid to long-term ambitions. Now, on the CCB growth, I want to add that we still see significant headwinds from the transactional business. Actually, our transactional business has experienced a mid-single-digit percentage point decline. The macro is very much felt at SAP too. But on the other hand, you see that Cloud ERP Suite growth was at 36% despite that headwind. With the guidance of EUR21.5 billion in 2025, if you take the ForEx into account, we need about a 26.5% cloud revenue growth. We are almost there. There is a very minor impact from our WalkMe acquisition on cloud revenues. I think I disclosed that is EUR14 million in Q3, very little. By the way, we absorbed losses in the integration, but that's completely offset by other outperformance. Regarding the CCB, we've initially said we would exit the year 2024 at a similar level to prior year, which was 27%. Even if you have a very adverse scenario on transaction revenue in your head, which is not necessarily the default assumption, you have not much more than 1 percentage point dilution. So as soon as you are at 27.5%, you are secured for next year's ambition. This is the framework on how to triangulate into next year. It's on the right trajectory for hitting our ambition. Also regarding cloud gross margin, as already commented by Christian, you can almost take a ruler. If you look at the kind of grind up in the cloud gross margin, you cannot almost linearly extrapolate, eliminating the noise of any given quarter—it shows that kind of 75% is exactly what’s in the cart. So I feel the results we posted in Q3 are nicely triangulating with the ambition for 2025.

The next question comes from the line of Jackson Ader with KeyBank Capital Markets.

Great. Thanks for taking our questions, guys. First one is on just your current assessment of the risks or due to some of the investigations that are underway in the US related to the practices with government agencies. And then, can you size how large your US federal business is in terms of the mix of the overall business? Thanks.

Would I have a stab at that. Yes, first of all, there's actually not really new news on this one, but maybe for the benefit of everyone here, a small reminder of what has happened. First of all, for many years, and I'd say like many other tech companies, we've been serving US governmental entities via the typical reselling partners such as Carahsoft. So that's really common industry practice. Now in August 2022, we received a so-called Civil Investigative Demand from the US Department of Justice. That involved us and Carahsoft and others. Since then, we have fully been cooperating with the DOJ and plan to continue to do so. Now, in September this year, there was a search of the Carahsoft offices by the FBI. By now, we can say that we are really confident that this has nothing to do with our case here. We have received assurance in writing from Carahsoft that the FBI search was completely unrelated to SAP and NS2, as well as to the DOJ’s Civil Investigative Demand from 2022. This is a different story. Of course, we continue to be fully committed to ensuring that our sales practices comply with all applicable regulations. This is all I can say at this stage. That’s the current status.

And look, also the relationship there with the US public sector, like the DOD and other agencies, remains strong and intact. As Dominik just said, the investigations have nothing to do with the case started two years ago. Regarding the size, next to Germany, the US is strong in Australia and the UK. It's actually the same size we see in other countries. In all public sectors, I have to say this was clearly the part of the customer base that took some time moving to the cloud, but now with the buildup of sovereign clouds, we see strong momentum in many countries in the world.

Recall, the US is about a third of our revenue base and if you apply a typical kind of government agency ratio, which is certainly a small fraction of that, you see that we talk about low single-digit revenue contribution. Again, that's still an extremely appealing market we want to fight for going forward.

Our next question comes from the line of Mohammed Moawalla with Goldman Sachs.

Hi, Christian. Hi, Dominik. And congrats on the strong quarter. Two from me. The first one, Christian, you talked a lot about the line of business portfolio and the opportunity to cross-sell and upsell into the base even as customers sort of migrate to S4 in the cloud. Can you talk about the specific domains and the kind of runway you have still to go in the installed base to drive some of that uplift? And then secondly, Dominik, your comments around the transactional revenue, outside of the kind of transactional revenue, maybe you've seen any kind of impact in terms of closing into business around close rates or kind of migrations, perhaps impacting the CCB or being a headwind around CCB or is that going to continue to evolve as you expected? Thank you.

Now, regarding your first question, I mean, look, last week with the whole leadership team, we really deep-dived into the installed base and our land and expand strategy. I have to say it's remarkable the kind of growth which has brought us to today's state and the strong Q3 performance. When you look at the metrics and how we go to market today, I’m convinced there is much more upside for us. We land our customers in the cloud. Typically, they start with finance. Today, you have to imagine we have our finance sellers, we have Ariba, we have Concur, but they are all serving the finance community. Why not connecting them much better? Why not giving them the cross-sell incentives to break these silos? When you talk about when you land with sourcing, you have to have the order management and the billing in place. Vice versa, if you do direct procurement with our S/4HANA, why not actually building one procurement platform with Ariba? We want to break these silos and connect the dots around the business processes of our customers. When we see how many cross-sell potential we have in our HR installed base, in finance, in spend, in CX, and in supply chain, this is massive. Our resellers always sold a suite in the on-premise days; today they are for sure capable of doing the same in the cloud. This is also about enabling our resellers to capture the mid-market by bringing our partner teams together and harboring their growth. And last but not least, when we look into the installed base and still see the complexity a customer has built into their ERPs, there is much more upside also with the SIs concerning certifications, enablement, and being also a bit more prescriptive regarding how we build certain things on the platform, which then also gives us upside in the installed base. These are just three levers. On the marketing side, we are doing a lot to excite the CIOs. But I'm convinced we can do even better to expand our footprint into other buying centers and connect the LOB events we are driving, showing them the benefits of the suite. When you're looking at the CFO, they should be happy seeing how SAP can connect financial planning with HR planning and supply chain planning. I just met a CFO of a large US customer who didn't even know how we can run end-to-end planning. Today, he has a lot of best of breed players stuck in silos, and that's what we can improve. There’s also the upside we are discussing here.

With regard to transaction revenues and CCB development, the only point to call out on CCB for Q4 is that it's more difficult communications. We integrated last year the acquisition of LeanIX, making it a bit harder to generate the growth in CCB. We had a huge booking quarter in Q4 last year, of course, and we try as well as we can this quarter. But this is the only aspect to highlight. Otherwise, it’s a very normal development, I would say. Regarding transaction revenues, it's the most cyclically sensitive parts of it, particularly in temporary workforce, which are suffering most. It's not surprising in the current macro backdrop. We would anticipate recovery as soon as the macro environment improves. Don’t forget, at the end of the transformation on our business network, there are opportunities to resuscitate growth. Once we've gone through this phase transforming the business model, we have waived fees for suppliers, reducing revenue run rates. But we also see the snap-back effect from higher onboarding numbers, which should bode well for resuscitating growth. We think we are actually prepared for continual pressure on that side, if need be, by very strong CCB.

The next question is from the line of Mark Moerdler with Bernstein.

Thank you so much for taking my question and congratulations on the strong quarter. If you don't mind, I’m going to ask each of you a question. Dominik, can you give us any color on how you think about GenAI? Whether it's going to have any negative impacts on cloud gross margins, especially as it becomes more used and scaled? And then Christian, given macro concerns about large complex projects, can you give any color on how the ECC customers are starting to move to S4 and cloud? Is the rate in line with prior expectations? Are they planning to directly move to the cloud? Really appreciate it. Thanks.

If you look at Ambition 2025, we see a continuous expansion in line with the improvements we've shown in prior years. I’d say it’s a gradual improvement, which is more due to economies of scale than the one-off strong improvements we have been reaping by virtue of the Cloud Convergence Project, which was a big transformation project. So now, of course, the initial ramp of our AI activities is already reflected in that. Beyond years 2025, looking at 2026 and 2027, it’s kind of speculative what will influence gross margin. Pricing is still in flux, and we have to see how much of that will be accretive versus a part of the normal offering. It will definitely add incremental gross profit. Our focus is on maximizing the absolute gross profit we drive because that will ultimately drive free cash flow and the company valuation. So we’re not too hung up about the margin itself. But for 2025, there are no risks out of that, I would say.

We've seen large enterprises participating in large ERP projects in today’s market environment. I’m so happy to see that RISE has developed into the kind of methodology offering I always aspired to. Today, large customers, like the one we had in the morning with Dominik, ask SAP to share our best practices from 20,000 customers in their industry to help minimize complexity in their business processes. This large customer clearly understands the need to transform. It’s not simply about moving my ERP onto cloud infrastructure; it’s about business processes first. The cloud is also giving SAP and the customer the discipline needed to decompress the complexity in business processes. Now, this should also drive productivity, and when we look at the methodology, we can measure the custom code and support these projects, giving them productivity metrics before and after and the status updates—that’s amazing. It’s all on the customers, as I mentioned earlier. No one goes in stating, ‘Hey, I’m doing it all at once,’ as that would completely overwhelm any IT organization. What we do is, we ask, ‘Where's your highest pressure? Is it in the front? In the supply chain? In the core processes of your back offices?’. Then we go in, and we have the architects and our partners engaged in the conversation with the customer about how to transform. I have to say the methodology is now truly proven, and customers come to us seeking challenge– SAP to truly minimize complexity in business processes and showcase the best practices. Observing the largest companies, like NVIDIA and Amazon, as well as supporting some unicorns, gives them the knowledge needed to transform. That is the sentiment we are witnessing. So despite the macro challenges, we see very high interest in moving forward. This, of course, relates to the end of maintenance policy, but clearly, the value and need to transform is clearly the number one driver for our cloud growth.

The next question comes from the line of Sven Merkt with Barclays.

Good evening. Thanks for taking my questions and congratulations on the great quarter. Maybe first, can you provide us a bit more color on the support revenues? First, why did the support revenues decline less in Q3 than in Q2? And secondly, how should this trend from here, based on what you see in the cloud migration pipeline? Should we see a visible acceleration in the decline of support revenues over the coming quarters? And then it would be also great if you could comment just if there's anything specific we should take maybe into account around the cost for Q4 as the implied Q4 operating profit and guidance looks very conservative, especially at the low end. Thank you.

Yes, I mean on software support, indeed you’re right, constant currency growth was minus 2%. I think it's a gradual decline across a hugely diversified portfolio, across customer regions, even according to their transformation phasing we just described. If there’s a percentage point up and down in any given quarter, it’s more noise around the trend line, and the trend line will gradually see accelerating decline as we move more into cloud revenue, which bodes for cloud revenues. It’s quite intuitive that in order to sustain the high growth numbers of cloud ERP suite, you need to convert more and more maintenance base. If you’ve only penetrated as mentioned before, one-fourth of the installed base, and they are now paying both the maintenance and for some instances they have already converted to cloud revenues, as this base grows, the cannibalization will also grow. That’s just mathematics. It will be a gradual decline. Now, a good question on Q4. You mentioned cost development. I would put it a bit larger; it’s the operating profit development. The biggest factor in there is what we’ve embedded on software. Recall that we were careful in software for the full-year guidance. Q3, as I mentioned in my introductory comments, was extremely resilient; we had only considered last year's decline of 14%, which was way below what we think is a normal rate. So we made the assumption that's more of a phasing topic. We want to keep well protected ensuring that any disruption from the transformation does not impact our cloud business. If anything, it's about the software business, where we are most vulnerable in terms of closing deals at year-end. We conservatively dialed down the potential for back-end loaded software business. Last year, 48% of total license income occurred in Q4, and this year we’ve dialed it down to around 42%, still a significant number. We wanted to keep it manageable, given the transformation disruptions. Given last year's 6% decline, I reviewed how much gross margin loss you incur if that happens and then considered the anticipated much higher decline in Q4 this year, affecting profit more severely. Additionally, there are back-end loaded employee bonus programs, including a decision to increase the matching share for Q4 in a program where our employees can obtain shares. We wanted to leverage the strong business momentum to encourage participation, but also control stock-based compensation. We also factored in the WalkMe business, which dilutes with EUR14 million in losses and integration costs. Delayed ramp-up also played a role, so connecting all the elements, you arrive at around EUR400 million that explain the bridge from Q3 to Q4. This rationalizes the year-on-year growth deceleration. Regarding next year, we will not modify or touch the EUR10.2 billion non-IFRS operating profit guidance because we believe that's the right approach. Right now, we are firmly on track to achieve that, and as mentioned, we want to transition from ambition to a concrete outlook in January.

Our last question comes from the line of Toby Ogg with JP Morgan.

Yes. Hi, thanks. Thanks for squeezing me in. A couple of questions. Just on the backlog growth of 29%, just wanted to double-check the contribution to the year-over-year growth from WalkMe? And whether there was actually any slight organic acceleration in the backlog there versus the 28% in Q2? And then, just on the go-to-market transformation, Christian, you mentioned a number of factors earlier on in the call. What changes have already been made and already been implemented? What changes are still to come? And out of those changes, which ones do you think are the biggest needle movers and the most important ones? Thank you.

I'll start with CCB. Also, I said in my introductory comments that the CCB growth excluding the first-time inclusion of WalkMe was virtually flat. So, indeed the 1 percentage point increase primarily stemmed from the inclusion of WalkMe. I want to mention that we won’t be able to comment quarter by quarter on how that will evolve going forward. Why? Because we also have a cannibalization effect regarding a product called Enable Now, which does very much what WalkMe is aiming at. Given that WalkMe is a much broader and superior offering, we are gradually phasing that out. We will also experience some counter effects during this transformation when we fully integrate WalkMe.

Looking at the go-to-market strategy, after a very strong Q3 order entry and a healthy pipeline for Q4, I don’t want to change the go-to-market operating model in Q4. However, starting in January, you will see the massive expansion of our volume business, starting with marketing in the digital domain, connecting this to territories that partners own and fully automating processes—something we didn’t have at this scale before. Additionally, we’re expecting partners to invest more into SAP, which they all signal they will do—there's a great momentum in the ecosystem. We don’t wish to dive too deep with our direct sales team into mid-market territories anymore. Secondly, we will change a bit the line of business setup we currently have for finance and spend; let’s combine that and establish cross-sell incentives to maximize customer engagement and growth. Lastly, we will also be implementing further measures aimed at driving productivity out of our go-to-market model. There are various measures in place, but again, this will kick off in January after hopefully closing another strong quarter for SAP in the cloud.

Thank you very much Christian, Dominik. And this concludes our call for today. Thank you very much for joining.

Thank you.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.