SAP SE Q4 FY2024 earnings call

• Total cloud backlog at end of 2024 was €63 billion, up 40% year-on-year, a new record high. Cloud revenue more than doubled since 2020 and now makes up half of SAP's total revenue.
• Customer wins in Q4 included BP, Total Energies, BASF, Data Bricks, Outreach, IBM, General Motors, and Mala International, demonstrating broad adoption of SAP's cloud suite.
• In 2024, over 130 Gen AI use cases were brought to customers, 30,000 customers use SAP Business AI, and AI investments will be doubled in 2025 with over 30,000 developers enhancing the AI foundation.
• Commercial innovation includes simplifying licensing options, enhancing strategic migration incentives, and evolving the Wise with SAP offering to include business transformation toolkit components.
• Simplification efforts: AI internally driving efficiency with 20,000 developers using AI-powered tools, 75% reduction in contract booking time, and tenfold productivity gain in quote-to-cash process automation.

Cloud revenue grew 26% year-on-year, with cloud ERP suite up 34% in 2024, reaching 84% of total cloud revenue. Software licenses revenue decreased by 21%. Total revenue for the full year exceeded €34 billion, up 10%. Current backlog was €18.1 billion, up 9%, and total cloud backlog was €63.3 billion, up 40%. Cloud revenue growth was supported by strong performance of the cloud ERP suite, which had an impressive year, contributing significantly to the company's growth.

• SAP expects accelerated double-digit total revenue growth and expansion of operating profit through 2027.
• Cloud revenue is projected to continue growing, with AI playing a key role in driving order entry and revenue.
• Maintenance revenue is expected to have a gradual decline as customers migrate to the cloud, with a focus on expanding from maintenance to cloud revenues.
• Free cash flow outlook was revised, exceeding the prior range, with considerations for restructuring, compliance matters, and stock-based compensation.

No specific detailed risks discussed in the transcript, but general risks include macroeconomic headwinds, challenges associated with ongoing transformation, foreign exchange rate fluctuations, and compliance-related matters.

Q: Adam Wood asked about CCB and the upgrade cycle to S4, specifically regarding CCB acceleration and the installed base for S4 upgrade.

A: Christian Klein and Dominik Asam responded, stating 40% of customers are underway with cloud migration, higher retention and adoption rates, and ongoing win rates in public cloud, indicating continued growth potential.

Q: Jackson Ader inquired about migrations in 2025 and support revenue flow into cloud revenue.

A: Dominik Asam explained maintenance revenue has a gradual decline, with a slight acceleration expected, and the rollover from maintenance to cloud revenues is gradual.

Q: Johannes Schaller asked about maintenance extension and SAP private edition option.

A: Christian Klein responded, clarifying the private edition is for large customers needing to migrate and replace third-party components in their stack, not an extension of on-premise maintenance.

Q: Mohammed Moawalla questioned the FY '25 outlook, working capital, and moving parts.

A: Dominik Asam discussed working capital considerations, cash flow statement insights, stock-based compensation impact, and depolluted free cash flow calculations.

Q: Sven Merkt asked about breakdown of cloud order entry into maintenance conversion, net new, and upselling.

A: Christian Klein stated Q4 cloud order entry mix was ~60% from base customers moving to cloud, ~30% net new, and ~10% upselling, with a healthy mix.

Q: Toby Ogg asked about AI and Joule adoption, monetization, and timeline for revenue contribution.

A: Christian Klein shared AI-driven order entry in Q4, consumption-based commercial models, and Joule's role in driving order entry and turning into revenue with a 3-month delay from signing to go-live.

Q: Frederic Boulan inquired about cost side, go-to-market strategy, and efficiency beyond 2025.

A: Christian and Dominik discussed organizational changes, process optimization, and operating leverage around 80%-90% for '26-'27.

Q: Mark Moerdler asked about AI translating to margins, revenue growth, and efficiency.

A: Dominik Asam and Christian Klein responded, stating efficiency initiatives are on plan, organizational changes for process optimization, and maintaining growth investment and efficiency sync.

Q: Michael Briest asked about maintenance and CCB deceleration.

A: Christian Klein clarified the private edition is for large customers migrating, and Dominik Asam discussed CCB deceleration considerations for total revenue growth alignment through 2027