SAP Q2 2025 Earnings Report

SAP EPS Results

• Actual EPS: $1.70
• Consensus EPS: $1.63
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.10

SAP Revenue Results

• Actual Revenue: $10.58 billion
• Expected Revenue: $9.10 billion
• Beat/Miss: Beat by +$1.48 billion
• YoY Revenue Growth: +8.90%

SAP Announcement Details

• Quarter: Q2 2025
• Date: 7/22/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, July 22, 2025
• Conference Call Time: 5:00PM ET

SAP (NYSE:SAP), together with its subsidiaries, provides applications, technology, and services worldwide. It offers SAP S/4HANA that provides software capabilities for finance, risk and project management, procurement, manufacturing, supply chain and asset management, and research and development; SAP SuccessFactors solutions for human resources, including HR and payroll, talent and employee experience management, and people and workforce analytics; and spend management solutions that covers direct and indirect spend, travel and expense, and external workforce management. The company also provides SAP customer experience solutions; SAP Business Technology platform that enables customers and partners to build, integrate, and automate applications; and SAP Business Network, a business-to-business collaboration platform that helps digitalize key business processes across the supply chain and enables communication between trading partners. In addition, it offers SAP Signavio to help customers to discover, analyze, and understand their business process operations; SAP's industry cloud solutions that provides modular solutions addressing industry-specific functions; Taulia solutions for working capital management to help enable customers mitigate the effects of inflation by providing visibility into working capital and access to liquidity; and sustainability solutions and services. SAP SE was founded in 1972 and is headquartered in Walldorf, Germany.

SAP Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: SAP reported Q2 cloud revenue up 28% (led by the Cloud ERP suite’s >30% growth for 14 quarters), total revenue up 12%, and operating profit up 35%; current cloud backlog reached €18 billion (+28%).
• Negative Sentiment: Global market uncertainty persists—elongated customer approval cycles in the US public sector and tariff-impacted manufacturing have slightly decelerated cloud backlog growth.
• Positive Sentiment: SAP is accelerating its AI and data innovations: over half of Q2 cloud deals included AI use cases, 14 Business AI agents were released (with 40 expected by year-end), and the Business Data Cloud pipeline is surging.
• Positive Sentiment: Ongoing cost discipline and internal AI transformation boosted productivity, reduced share-based compensation expenses by €331 million (26%), and helped decouple expense growth from revenue.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the SAP Q2 and Half Year twenty twenty five Financial Results 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. If you would like to ask a question, you may press I would now like to turn the conference over to Alexandra Steiger, Global Head of Investor Relations. Please go ahead.

[Alexandra Steiger, Global Head - IR at SAP]

Good evening, everyone, and welcome. Thank you for joining us. With me today are CEO, Christian Klein and CFO, Dominik Assam. On this call, we will discuss SAP's second quarter twenty twenty five results. You can find the deck supplementing this call as well as our quarterly statement on our Investor Relations website.

[Alexandra Steiger, Global Head - IR at SAP]

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 Factors section of our Annual Report on Form 20 F for 2024. 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. And with that, over to you, Prashant.

[Christian Klein, CEO at SAP]

Thank Thank you, Alexandra, and a warm welcome to everyone on the line. Q2 was another very good quarter with our Sapphire conference as the main highlight. Let me start with two key messages. First, we are looking at a very solid set of q two numbers today. SAP was performing very well across all key financial indicators.

[Christian Klein, CEO at SAP]

Second, uncertainty in global markets from earlier this year remains, but SAP has an excellent pipeline for half year two in almost all markets and regions. In a few individual industries impacted by uncertainty, we are seeing extended approval workflows on the customer side, for example, in The US public sector and among manufacturers affected by tariffs. Whatever the market environment may bring, SAP is really well prepared. We are taking big steps in product innovation and rapidly increasing our productivity with business AI. Before I go deeper into these topics, let's have a look at the Q2 numbers and customer highlights.

[Christian Klein, CEO at SAP]

In q two, cloud revenue rose 28%, marking an increase of two percentage points compared with q one. The cloud ERP suite once again drove this momentum. For fourteen quarters in a row, it has been consistently expanding at a rate of over 30%. Total revenue growth also continued to accelerate and reached 12%. Our current cloud backlog grew by 28% in Q2.

[Christian Klein, CEO at SAP]

Despite the currency headwind, it came in at EUR18 billion. Finally, our Q2 bottom line is a real highlight. Operating profit surged 35%. This is a testament to the strengths of SAP's business module and the lasting improvements we achieved in our cost base with our transformation program, which includes the internal adoption of business AI. The customer stories from Q2 add some nice color to the picture.

[Christian Klein, CEO at SAP]

They reflect the whole spectrum of what SAP has to offer from cloud ERP for our installed base and net new customers to leading data and LOB solutions to our sovereignty cloud offering and much more. Let's start with our installed base on device journey. In q two, Alibaba entered into a strategic partnership with SAP with a focus on two key areas. First, we will roll out the SAP business suite at Alibaba end to end, including BTP, Business AI, Ariba, integrated business planning, SuccessFactors and Amasis. Second, Alibaba, even more important, will become a partner for our rise in growth journeys.

[Christian Klein, CEO at SAP]

Together, we will be addressing the huge market potential in China, both among installed base and net new customers. Other key wins in Q2 were the pharma company GSK and the fashion brands Balmar and Replay. A number of new customers also joined us via the growth journey. Our wide range of net new customers included the American furniture company Gartner White and the fitness device maker Echim. Beyond Cloud ERP, many net new customers are also embracing solutions from the business suite.

[Christian Klein, CEO at SAP]

The US construction company, NEBCO, and the live marketing company, MCH, for example, signed up for HR and finance. In our solution areas and LOBs, business was charming too. For example, nearly 300 cloud customers selected our digital supply chain solutions only in q two. For example, the airline Delta. Nearly 100 customers selected our customer engagement platform, for example, BMW, who also went live on digital supply chain this quarter.

[Christian Klein, CEO at SAP]

And over 300 customers signed up for our human capital management solutions. The German federal pension insurance opted for SuccessFactors in Q2. And the global cosmetics leader, L'Oreal, expanded their SuccessFactors footprint as well. Finally, the German Armed Forces signed up for SAP project and resource management, Business AI, Analytics Cloud, LeanIX, and Signario. Let's now have a quick look at our top end cloud offering.

[Christian Klein, CEO at SAP]

In q two, the German defense company, Hanselt, and the British defense and security leader, BAE Systems, were among the customers that embraced SAP's excellent sovereign cloud offering. The debate on digital sovereignty and the best way to achieve it has picked up speed in recent weeks. SAP stands out as the only vendor that can offer sovereignty over the entire stack from the infrastructure to the application. We also offer customers additional features on top. For example, EU access, bring your own key, and Air Gap.

[Christian Klein, CEO at SAP]

Our platform runs on any hyperscaler and many local providers, but we also operate data centers of our own across the world. Our unique capabilities ensure that customers stay in control of their data at all times. They can be sure Regardless of how their local sovereignty requirements evolve, we will be able to meet them. Let me now conclude the customer stories with a very exciting topic, the SAP Business Data Cloud. Many of the q two deals I have mentioned so far included BDC as a key component, including GSK, Replay, BAE Systems, and NEBCO.

[Christian Klein, CEO at SAP]

The software company, Adobe, selected our new data offering too, and we are deepening our partnership with Palantir in the context of BDC. All taken together, this makes for a great start. Only a few months after we launched, the pipeline for business data cloud is skyrocketing. For all our customers in all geographies, we have one goal. We want to help them to take full advantage of the SAP business suite for their company.

[Christian Klein, CEO at SAP]

And with each innovation we add, the business suite becomes even more attractive. In q two, well over half of our cloud order entry vol volume came from deals that included AI use cases. And every hour, every day, more customers go live. ABB, for example, is using SAP Business AI to bring down the time to create price quotes for larger product from fifteen days and more to only one day. Siemens is using Joule for consultants to speed up the transition to S4HANA Cloud.

[Christian Klein, CEO at SAP]

And the Australian utility company SA Power Network leverages SAP Business AI to maintain its vast network of electricity poles in a targeted efficient manner, for example, with predictive maintenance techniques. With the next generation of innovation now arriving with customers, we expect business AI adoption to further speed up. In half year one, we released our first 14 AI agents. For example, an agent for the Commerce Cloud. Instructed via natural language, the agent helps online shop customers to find exactly the eye the items they look for.

[Christian Klein, CEO at SAP]

No more clicking through pages of product pictures. The result is higher customer satisfaction and better sales conversion. Other agents released so far help customers to create quotes, streamline customer service, resolve dispute cases, analyze open receivables, and validate expense reports. By the end of the year, we expect the total number of available AI agents to reach 40. The agents will work across business functions addressing all buying centers.

[Christian Klein, CEO at SAP]

In finance for instance, our agents will streamline financial planning, ensure that accruals are automatically calculated and proactively identify cash shortages. And in supply chain management, upcoming agents will keep production moving, for example, by recommending and onboarding suppliers and proactively responding to shop floor disruptions. As for Juul, our SAPI announcements are starting to become available to customers. Juul will be available everywhere across SAP and non SAP systems starting in Q3. Thanks to the integration with Valky.

[Christian Klein, CEO at SAP]

And it will also be giving answers to everything starting in Q4 powered by our partnership with Perplexity. With regard to data products or the business data cloud, we are making very good progress as well. As of today, we have released more than 100 pre built SAP managed data products covering finance, sales, manufacturing, and logistics. And by the end of the year, we will more than double that covering our entire business suite. These data products underpin our intelligent applications for core ERP, spend, finance, people, customer, and supply chain that bring together data, business simulations, and AI capabilities.

[Christian Klein, CEO at SAP]

Every day, we are expanding our innovation footprint in the data and business AI space. Now coming to our own transformation. Of course, SAP also uses business AI internally to boost productivity. This is reflected in the solid expansion of our operating profit. We are decoupling expense growth from revenue growth, thanks to our transformation program.

[Christian Klein, CEO at SAP]

Three examples for internal AI use cases. Our digital sales engagement platform powered by Juul increases productivity by up to 50% for selected sales roles. Thanks to tool for SuccessFactors, HR tickets are now resolved in up to 20% less time. And with tool for developers, coders at SAP are becoming up to 30% more efficient. This is the beginning.

[Christian Klein, CEO at SAP]

It is already clear that AI will further increase productivity at SAP and in many other companies, and it will further change shops and job profiles. This is why it is so important to keep evolving and transforming our workforce in a continuous process. As before, this transformation includes a reskilling component, reductions in areas with lower resource demand, and hiring in shop profiles that define the future of our company, such as data and business AI. To summarize, we achieved an outstanding q two despite market uncertainty. Since it is difficult to predict how this market environment will exactly evolve, we continue to focus on what makes us successful in the mid and the long term.

[Christian Klein, CEO at SAP]

With our data and AI innovations, we are strengthening our portfolio and there's more to come. Our AI enabled go to market transformation is moving ahead with speed, And we remain very diligent about simplification. The AI powered transformation of our workforce continues. Thanks to ongoing operating efficiencies, we are able to do more with a leaner headcount. All this means that SAP is very well prepared for the 2025 and for the coming year. And with that, I'm handing over to you, Dominik.

[Dominik Asam, CFO at SAP]

And thank you very much, Christian, and thank you all for joining us this evening. As you can see from some of the financial results Christian just shared, SAP delivered another great quarter highlighted by accelerating total revenue growth and continued strength in both operating profit and free cash flow. This further reinforces the strength and consistency of the execution of our strategy. The ongoing momentum of Cloud ERP suite and the impact of our strict cost discipline were again key contributors to this performance. Together, they reflect the resilience of our business model and our ability to deliver consistent results in a dynamic and uncertain environment.

[Dominik Asam, CFO at SAP]

Our strategy is working, and our offerings remain mission critical to customers as they pursue their transformation towards cloud based business models. Now let me provide more details around our financial highlights. Current cloud backlog reached €18,100,000,000, up 28%. Cloud revenue increased also by 28% year on year. This was again driven by the strong performance of the Cloud ERP suite, which continued to deliver 34% growth in Q2.

[Dominik Asam, CFO at SAP]

This represents 86% of total crowd cloud revenue, underscoring its role as a foundational part of our cloud business. As we look towards half year two, we are mindful of the broader environment, including geopolitical developments, notably the ongoing uncertainty about trade policy that has contributed to elongated sales cycles in certain sectors such as US public sector and industrial manufacturing. The sequential one percentage point deceleration in current cloud backlog growth is underscoring the dampening effect on bookings in q two. It is obviously hard, if not impossible, to predict when exactly we'll catch up on the push outs. Clothing these open opportunities will be a focus in half year two where we, as you will recall, usually close roughly two thirds of our annual new cloud business.

[Dominik Asam, CFO at SAP]

Unfortunately, we have no crystal ball to reliably predict global trade policy decision making, and it goes without saying that the longer this uncertainty persists, the more pressure it is likely to put on global trade and our customers' ability to make well informed decisions. So while capital markets appear to be optimistic and continue to perform at or near all time highs, we do prepare SAP for less favorable outcomes by focusing on elements within our control to protect our bottom line and safeguarding free cash flow in 2025. These priorities will ensure SAP remains resilient and well positioned regardless of how external conditions evolve. Software licenses revenue decreased by 13% in q two in line with the strategy we pursue. The pace of contraction remained relatively stable as customers increasingly advanced their transformation journeys with the rise and grow with SAP towards the cloud.

[Dominik Asam, CFO at SAP]

Finally, total revenue came in at €9,000,000,000, up 12% driven by broad based strength, particularly within our share of more predictable revenue, which increased to 86%. Now let's take a brief look at our regional performance. In q two, SAP's cloud revenue performance was particularly strong in the APJ and EMEA region and solid in The Americas. Brazil, Chile, France, India, Italy, South Korea, and Spain had outstanding performance. Now moving down the income statement.

[Dominik Asam, CFO at SAP]

Our non IFRS cloud gross margin for the for the quarter continued its upward trend expanding by 1.8 percentage points to 75.2%, driving cloud gross profit up by 31%. IFRS operating profit increased to €2,500,000,000 in the quarter, positively impacted by restructuring expense decline of €600,000,000 as compared to the prior year in connection with the 2024 transformation program. In the second quarter, non IFRS operating profit was up 35% to €2,600,000,000. Both IFRS and non IFRS operating profit growth strongly benefited from cloud revenue growth at expanding cloud gross margin and a significant reduction in share based compensation expenses. In fact, we have been able to reduce share based compensation expenses by 331,000,000 or 26% in the first June 2025 as compared to the same period last year by allocating grants in a more targeted fashion and largely hedging the residual cash settled part of it through April.

[Dominik Asam, CFO at SAP]

Recall that in the last year, we had a significant headwind from share based compensation expenses as the last major cash settled tranches were mark to market while our share price increased by roughly 50% in half year one of twenty twenty four. The IFRS effective tax rate in Q2 was 30.1% and that non IFRS tax rate was 30.8%. Operating cash flow in the second quarter was up by 71% to EUR 2,600,000,000.0 and free cash flow increased by 83% to 2,400,000,000.0. The increase was mainly attributable to the higher profitability and the positive development of working capital, lower payouts for share based compensation, restructuring payments, and income tax payments. Finally, basic IFRS earnings per share increased to €1.45, and non IFRS earnings per share increased to €1.50.

[Dominik Asam, CFO at SAP]

Now let's move on to the outlook. As you have likely seen in the quarterly statement published earlier today, we've decided to keep our 2025 outlook unchanged across all metrics. In summary, q two reflects another leap forward for SAP marked by continued strong momentum in our Cloud ERP suite, resulting in accelerated total revenue growth and strong margin expansion. These results are a clear indication that our priorities are translating into consistent execution and measurable progress. We remain focused on disciplined execution, cost control, and protecting our bottom line and free cash flow for the remainder of the year.

[Dominik Asam, CFO at SAP]

With the first half complete, we are focused on sustaining momentum and closing the year with strength amidst a volatile and uncertain macro environment. Thank you, and we'll now be happy to take your questions.

[Alexandra Steiger, Global Head - IR at SAP]

All right. We will now take your questions. As always, I would like to kindly remind you to only ask one question when prompted. Operator, please open the line.

[Operator]

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch tone telephone. If you are using speaker equipment today, please lift the handset before making your selections. We'll take our first question from Adam Wood with Morgan Stanley. Please go ahead.

[Adam Wood, Managing Director - Equity Research at Morgan Stanley]

Good evening and thanks for taking the question and congratulations on another good quarter. If I could just maybe dig in on the operating margin and the EBIT growth for the second half of the year. Obviously, you've had a phenomenal first half with margins up around 8% and then 5% in Q1 and Q2. In the back of my envelope is right, it looks as if we're looking for more like sort of 22.5% increases in margins in the second half. Obviously, Christian, you've talked about decoupling revenues and expenses and the benefits of consuming your own technology internally.

[Adam Wood, Managing Director - Equity Research at Morgan Stanley]

But I imagine there's some nervousness in terms of how the macro turns out and also some desire to invest for growth. Could you maybe just talk us through how those things play off against each other? How much caution is in there in terms of that big step down in margin improvement in the second half of the year, please? Thank you.

[Dominik Asam, CFO at SAP]

Yeah. Sure. I'm happy to have a stab at that. So first of all, let's not forget that one important factor of the strong performance in operating profit in the first half of the year was that kind of €331,000,000 improvement in stock based compensation. We recall that we said we wanna end up the year at about a 2,000,000,000.

[Dominik Asam, CFO at SAP]

We had 2,400,000,000.0 last year, so we basically said that about 400,000,000.0 improvement that will come from stock based compensation, and the lion's share of that is kind of hitting h one. The reason being that, as I mentioned in my introductory remarks, that the headwind we had last year was very kind of first half year centric. So we have kind of easier much easier comps in the first half than in the second half on that factor. Secondly, we will, continue to fine tune and adjust our workforce. You mentioned, the AI transformation being in full swing.

[Dominik Asam, CFO at SAP]

So that means that on the one hand, there will be hiring. So there are resources we need to get onboard to future proof the company. On the other hand, after having now completed this massive restructuring program in the first quarter, we would probably see going forward, continuous adjustment, I would call it optimization of a much smaller magnitude. So you can think of a kind of one to 2% of workforce annual adjustments. And we cannot rule out that there might be some severance payment for the one or the other position in certain geographies here.

[Dominik Asam, CFO at SAP]

So that will also be kind of, happening, and that will not be an adjustment to our non IFRS operating profit because that will be I always say, like, brushing teeth going forward. This will not be something that is very special. By doing that, we wanna avoid actually having to kind of every now and then make a huge restructuring, but rather continuously adjust as we move along. So these are the factors that I wanna call out. So I would I would say the the full year guidance is is solidly on track, so no reason to, get overly excited about that.

[Dominik Asam, CFO at SAP]

And, obviously, the other question is always where exactly will we end up on the cloud revenue side. And, yes, I I think that protects us also for kind of low lower outcomes in case the trade disputes we alluded to would continue to weigh on sentiment here.

[Christian Klein, CEO at SAP]

Yeah. And maybe, Adam, just to build on that, we are just in the, of course, in the planning process for the upcoming years, for the next two years. And, obviously, Dominique and I have given the team also now the task to say how can we further decouple, yeah, the expense growth from the accelerated total revenue growth we are going to achieve in the next years. And, I mean, think about the cloud cost margin. I mean, we just achieved that by economies of scale and 18,000,000,000 backlog signals.

[Christian Klein, CEO at SAP]

There is more to come. But when you think about onboarding customers, patching customers, when you think about, you know, servicing customers, I mean, there is almost like a digital twin to our operations people who helps to further automate this task by a significant percentage point. And then second, I mean, when you are in support solving tickets, ticket routing, ticket solving, mean, I there's more to come in what we are seeing with tool and when we are now building these agents. I mean, what we expect is actually that AI will be a further productivity driver also in the in the years to come for sure. And that is, you know, also, I guess, very important for our credibility when we go to customers to showcase, hey, this is how SAP wants, and this is our transformation.

[Christian Klein, CEO at SAP]

And that is, of course, also our major goal when it comes to margin optimization for the years to come. And, obviously, then it's our obligation to always look at our work force and do our job and do, you know, some cynical, very distinct measures on reducing profiles where we don't need the people anymore. But on the other hand, of course, when it comes to AgenTik AI, you wouldn't believe how many customers are now coming and say, hey, SAP. I need tool. I don't need customer AI use cases.

[Christian Klein, CEO at SAP]

I don't even know how to train all of that and, you know, how to improve the outcome. And this is where we need also on the consulting side where we dedicated people who can help us to drive the change management with the customers and to implement implement all of these agents at the business of our customer.

[Operator]

The next question is from the line of Mark Moerdler with Bernstein Research. Please go ahead.

[Mark Moerdler, MD, SVP & Senior Research Analyst at AB Bernstein]

Thank you very much, and congratulations on the quarter. I'd like to drill in a little more on the substantial margin improvement that we saw this quarter. We saw it in cloud gross margin. We saw it in sales and marketing and r and d as a percentage of revenue. Can you give us a color, Dominic, how you think long term sustainability of those improvements, especially as you invest in AI?

[Mark Moerdler, MD, SVP & Senior Research Analyst at AB Bernstein]

And how much more room you think there is for for continuing to drive that margin improvement? Thank you.

[Dominik Asam, CFO at SAP]

Yeah. Sure. I mean, I can say that now with the more confidence because as Christian mentioned, we are now kind of starting to sharpen the pencil for the planning exercise for the coming years. And I I just always come back, and I'm glad to say that won't change our operating leverage, I. E, the increase in total expenses versus the increase in revenues will be contained in a range of 80 to 90%.

[Dominik Asam, CFO at SAP]

And and that is the kind of measure the yardstick for coming years. Now we have been doing much more than that now with the big restructuring We have executed through q one of this year. There was 10,000 jobs being eliminated. And as I just stated, while there might be some continuous fine tuning at a much smaller degree, which will then also not be kind of fully be embarked on non IFRS operating profit, that will enable us to to get there. So so our confidence level on being able to reach these operating leverage ratios is is quite high.

[Dominik Asam, CFO at SAP]

And now where exactly when we we'll end up in that range also for '26, that that is something we wanna really hone in when we communicate the guidance for 2026. But it's the the best kind of rough yardstick I can give you at present for these coming years. And how how it's distributed? I mean, we never go into details because we wanna keep the flexibility. You know?

[Dominik Asam, CFO at SAP]

Sometimes we wanna kind of push harder on on on incentives. Sometimes we wanna give more marketing incentives. But the pegging order is still that the biggest percent improvement in operating leverages and selling expenses, and then, there is also still, some some improvement potential that we believe on the r and d side and then also some on g and a. On the gross margin, you've seen a pretty favorable development. We were really pleased with the massive expansion we've seen in Q2, 1.8%.

[Dominik Asam, CFO at SAP]

That's really good news because when we talk about pushing cloud and then also giving transformation incentives, I mean, that's all embarked in that number. So all of that is absorbed, and still we we kind of come to the 1.8% gross margin improvement. Now that will become a slower, much slower gradient going forward because the one off extra effects that we were benefiting from in the past might not reoccur. But still, that's also part of a kind of grinding up the margin.

[Operator]

The next question comes from Jackson Ader with KeyBanc Capital Markets. Please go ahead.

[Jackson Ader, Managing Director at KeyBanc Capital Markets]

All right. Thanks for, taking our questions, guys. Christian, I'd like to spend a couple of minutes on the Alibaba partnership that you mentioned in in your prepared remarks. Just curious, how large is your Chinese footprint today? And I guess, are are there any more details or maybe mechanics on the go to market motion?

[Jackson Ader, Managing Director at KeyBanc Capital Markets]

How this partnership is actually going to work with Alibaba? And maybe how large is that Chinese total addressable market for SAP? Thanks.

[Christian Klein, CEO at SAP]

Yeah. I mean, the China market, we have to look at it from two angles. First, you have to see that 90% of the multinationals we are wanting also outside of China are doing business in China. Because of, the trade conflicts, I mean, obviously, they are looking for solutions to further, you know, drive productivity in China for China in their factories to improve their logistics, to get more supply chain resiliency. But they need to decouple it to a certain extent, yeah, to mitigate risk.

[Christian Klein, CEO at SAP]

And there, of course, Alibaba is now key because we have now also, you know, a Chinese partner with us where we can, you know, really deliver our cloud in China for China. Then the Chinese customers itself, mean, I there are, you know, many, many tech companies who are very open for moving with us to the cloud. They need SAP also to globalize their business. I mean, also, a car manufacturer like b v BYOD, they started rather small, and now they became very big on our platform. And so while, of course, I know the market is still smaller compared to US or Germany, actually, the close, what we are seeing is quite considerable.

[Christian Klein, CEO at SAP]

And, of course, with such a partnership, we definitely wanna now see how we can join forces on go to market. And it's not only about the large enterprises. It's also about the upper mid market, which we wanna capture and hopefully then also can win together with Alibaba. So I have huge hopes. And then, of course, over the time, let's see with Ali.

[Christian Klein, CEO at SAP]

I mean, we see also now customers, you know, in Asia, in even in EMEA also asking for our partnership with Ali. So let's see what what we are going to do, but the first focus is now to make it work in China for China.

[Dominik Asam, CFO at SAP]

I mean, in terms of revenues, we don't disclose China specific revenues, but it's included, of course, in what we call rest of APJ, which I just checked is about 10% of our revenues. And, of course, not not all of that is China. So if you wanna pick the middle as a as a wild guess, you come to mid single digit kind of contribution very roughly. So and you also see the growth rates for these regions, which are reasonable. But we don't have, by far cry the same, business size as we have in United States where we generated 31% of revenues in q two.

[Operator]

The next question is from the line of Tobey Ogg with JPMorgan. Please go ahead. Sophie, your line is now open. We'll move on to our next question from Michael Briest with UBS. Please go ahead.

[Michael Briest, Equity Analyst at UBS Group]

Thank you. Good evening, and, my congratulations as well. Dominic, another really good quarter on cash flow. Contract liabilities, I think the the cash inflow is up about 400,000,000 year on year. And I know at Sapphire, you were talking about the impact of transformation credits.

[Michael Briest, Equity Analyst at UBS Group]

Can you maybe say whether those are related? And, in terms of the unwinding of that transformation credit balance, what what size is it today, and what impact might it have on cash flow next year? Thank you.

[Dominik Asam, CFO at SAP]

Yeah. I mean, the transformation credit, again, just to make sure we're all on the same page what this is all about, when we are signing deals in certain situations, we are granting a credit to the customer, which is basically a cash voucher to offset some of the nonrecurring project costs they have in transforming or adding some of our lines of business, or moving to the public cloud as examples. And then what we do is we take that kind of value of the voucher, and we amortize or we spread it over the term of the deal. And then if it's used in early innings, there is, of course, a certain cash conversion, negative in that early phase, which is then recovered. So over the life of, the full transaction, basically, it's a wash.

[Dominik Asam, CFO at SAP]

It's a kind of neutral cash conversion. And we don't disclose details on how how big that is. That would be also competitively quite sensitive. It's just one part of our working capital management. So the way I really wanna think about it also in terms of what we should look at for 2026 is to really start from non IFRS operating profit.

[Dominik Asam, CFO at SAP]

And and then, of course, for that next year, need to embark a reasonable currency assumption. You know that on the cash flow we are hedging that and while we had been able to hedge a very at very good rates for free cash flow in 2025, now we need to still hedge for 2026 in the remainder two of the year and maybe even in the early innings of '26 when the planning is finalized, so we have a very solid base for that. So these are all the elements we need to take into account. So we start from non IFRS operating profit. We deduct taxes, and the current tax rates, you see a pretty reasonable proxy of what they might be also in '26.

[Dominik Asam, CFO at SAP]

And then there is always that offset between the cash and the p and l on stock based comp, which is adding roundabouts a billion. You can also see that we did a little bit more than half a billion in the first half of the year in terms of positive contribution to cash conversion from stock based comp. And then I would not really overemphasize the attribution of the puts and takes every quarter because they can be quite, yeah, volatile sometimes, seasonal sometimes. And there is a lot of information actually in in the balance sheet, as you point out, to contract liabilities and so forth, but it would really now bust the scope of this call if we go jointly through all accounts payables, contract liabilities, and all of that. I'm actually preparing a little bit of a talk sheet for that so we can all take that offline and and go through this if you're interested in playing that game.

[Dominik Asam, CFO at SAP]

But it's, you will see when you do that. Any given quarter can be kind of misleading, and what really matters is more like a rolling twelve month window. So this is why I tend to focus on the full year. And I can only reemphasize again now having looked at the first view on the planning for the midterm that this kind of stupid rule of thumb take the kind of non IFRS profit tax affected and then take into account the positive impact from stock based being equity settled to a certain degree is a very good proxy over that type of time frame with certain fluctuations year by year.

[Christian Klein, CEO at SAP]

Yeah. And, Michael, just to build on that, looking at the health of business we are closing these days. I mean, obviously, when do we use this migration credits? I mean, we are using that when especially large customers go into a massive transformation greenfield. They are really completely redesigning the way how they predict demand, optimize supply chain on the shop floor or logistics.

[Christian Klein, CEO at SAP]

And that, of course, you know, comes with some initial costs, also not only on system migration, but also really working on the business processes. Now, obviously, what we are doing is then, okay, we say, okay, to make the business case even more compelling, we give this migration credits, yeah, at the limited threshold. And then but what we also then achieving is actually that our prices after discount go also constantly up. I mean, our goal is, of course, which is super important for the margin and the profit long term, is, of course, that our prices are actually, you know, increasing quarter over quarter, and that's what we are achieving. And despite some desperate moves, I have to say, from some of our competitors out there, we are achieving really a healthy increase of of prices quarter over quarter.

[Christian Klein, CEO at SAP]

And when you then, offset that and compare that, I would say we are using this migration credits in a very good, in a very wise way to also protect our prices on subscription and recurring cloud revenue.

[Operator]

The next question is from the line of Frederic Boulan with Bank of America. Please go ahead.

[Frederic Boulan, Head - European Software, Payments & IT Services research at Bank of America]

Hey. Good evening, Christian and and Dominique. You you both started your comments with a fairly prudent message on the the macro environment. Would be great if you could discuss how you see the the demand impacting CCD in the the rest of the year. You you highlighted US public sectors and some manufacturing segments impacted by by tariffs.

[Frederic Boulan, Head - European Software, Payments & IT Services research at Bank of America]

But also, you know, we'll find a positive message. So it would be great to understand with your your assumptions how and how we we should think about TCV and also cloud with a nice pickup to 20% versus q two, but, you know, any specific factors, we should bear in mind for the second half. Thank you.

[Christian Klein, CEO at SAP]

Yeah. So thanks a lot. And look, I mean, first, we clearly said already at the beginning of the year that we always expected a slight deceleration of CCB. So, you know, what we said at beginning of the year is now actually also becoming a reality and was planned in as we honestly, after this massive q four, we, of course, also came in at a very high base, and q one was, of course, definitely a a record high. Now when you're looking at half year two, I mean, first, which gives me the confidence on the guidance is that pipeline coverage.

[Christian Klein, CEO at SAP]

We actually have the same coverage like last year where we had a stellar half year too. And that, of course, assuming now we're gonna hit the same conversion rates like last year, I mean, that is, of course, a very great position to be in. I mean, that that is good, strong pipeline on, of course, on a set of very ambitious bookings numbers for half year two. Now, of course, what now comes in is the uncertainty. And the same like in Q1, I would love to have a crystal ball.

[Christian Klein, CEO at SAP]

I mean, there are some mega deals in, yeah, where where, of course, there is you know, this creates a swing in in CCB on both sides. And, obviously, what we need to see, especially in a few sectors like US public sector, manufacturing industries where, you know, customers are impacted by tariffs, I mean, that is, of course, now really an important factor in in half year two. So we have the pipeline. We have really good coverage. And look, the the fascinating thing about SAP is also when you're sitting in these forecast calls, I mean, you see the the sheer resiliency of this company, and I'm not sure if all of our peers have that.

[Christian Klein, CEO at SAP]

I mean, no matter if, you know, one geo is, you know, performing a little bit soft, we have other geos who are actually performing really well. And then you also see a good swing in the products. I mean, we have a portfolio last quarter. It was definitely a very good quarter in cash flow optimization. We had a good quarter in spend, etcetera.

[Christian Klein, CEO at SAP]

So now it's really hard to say for half year two. It's really about, you know, do we get all of the deals in, yeah, with a similar conversion rate like last year? And, of course, what we need for that is really predictability on trade and customers who really then, you know, sign up for those deals.

[Dominik Asam, CFO at SAP]

Maybe one additional, don't forget the the WalkMe impact for the main to do here. And this is the last quarter q two where we still benefit from the year on year improvement, and this will kind of phase out over the next couple of quarters. Actually, q three already on CCB, it will be done now because we we we closed the deal in the q three of the prior year. And so it's kind of apples to apples at that point in time, and that roughly very roughly is one and a half percentage points. So once that happens now now what happens?

[Dominik Asam, CFO at SAP]

Otherwise, Christian has already commented, but I also wanna make the point, you should also not forget that we have some room in terms of protecting the accelerated revenue growth for 2627 because of the very strong mix effect we're currently benefiting. So, even if we had beyond that kind of 1.5, a very slight continued deceleration, I would still not derail that objective.

[Operator]

The next question is from the line of Charlie Brennan with Jefferies. Please go ahead.

[Charles Brennan, SVP - Equity Research at Jefferies Financial Group]

Hi. Great. Yeah. Thanks for taking my question. Just a couple of quick ones, if I can.

[Charles Brennan, SVP - Equity Research at Jefferies Financial Group]

Firstly, on the cloud revenues, we don't often see growth matching the the CCB. Were there any one off catch up payments in the cloud revenues, that we should be aware of? Or was it a fairly clean quarter? And then secondly, obviously, in the prepared remarks, you were calling out the business data cloud. You gave a couple of examples of contracts where you've got BDC embedded into the contracts.

[Charles Brennan, SVP - Equity Research at Jefferies Financial Group]

Is there anything you can say in terms of the commercials that you've been able to extract the that shed some light on on how material it could be for you, over time? Thank you.

[Dominik Asam, CFO at SAP]

Maybe I would step at that kind of 28% both on CCB and cloud revenue. You're right. I mean, if you look at the the the the cloud CCB growth, normally, there is then some attrition downwards because of transaction revenues. And we actually didn't mention that, but I can mention now that the transactional part of the business was, again, disappointing, frankly. And it's not surprising.

[Dominik Asam, CFO at SAP]

I mean, if you look at share prices of temporary workforce companies imploding over the last half year or so, and the airlines also reporting on travel restrictions and also sometimes because of policy. That's not a super good environment again, so that that was dilutive. But the good news is that kind of we always said kind of 800 ticket is now further and further diluted in the mix, so the dilutive effect on cloud revenue growth is coming down. But indeed, normally, CCB growth is followed by by cloud revenue growth, which is a touch lighter because of that transactional business.

[Christian Klein, CEO at SAP]

On b c p BDC. I can take that. I can take I can take that question. Look. BDC, I mean, first, it's good to see that we can leverage BDC and sell it in many ways.

[Christian Klein, CEO at SAP]

I mean, first, we indeed BTC is part of many wise deals, especially customers, you know, and there are many who still have their BW system on prem. They are now seeing with BTC a real business case because they're saying, hey. I'm not only now shifting the BW to the cloud. I'm actually now working with Databricks, you know, to harmonize data, to really build the semantic layer, and then, of course, consume the intelligent apps on top. And that kind of uplift on a wise deal can be up to 20 to 30% of ACV.

[Christian Klein, CEO at SAP]

It really depends on the size of the b w system and how many data products a customer is consuming. Now b d c is not only a wise add on. B d c is, of course, now embedded in all of our solutions. I mean, when you consume in the future success factors, you can have actually our intelligent app for HR in it, and you get prepackaged content, prepackaged data product semantically, yeah, to for the skills of your workforce, for hiring profiles, for you know, to really manage your workforce end to end. And so that BTC will be also added to all of our LOB deals.

[Christian Klein, CEO at SAP]

And as you know, when you sum that up, obviously, BTC, I I expect that this will be, you know, in a in a few years, of course, also a business which can be a few billions big. And absolutely, when you just consider the installed base, what we are having also on the b w side.

[Operator]

The next question is from the line of Mohammed Moawalan with Goldman Sachs. Please go ahead.

[Mohammed Moawalla, Equity Analyst at Goldman Sachs]

Great. Thank you. Hi, Christian. Hi, Dominic. And well done on the quarter.

[Mohammed Moawalla, Equity Analyst at Goldman Sachs]

My question was just again around coming back to some of the the macro impacts that you're seeing. You've obviously been able to withstand that pretty impressively. And when we look at your CCB growth versus corresponding metrics to some of your peers, still quite impressive. You know, in in your view, what has perhaps changed? Is it changed really in the last couple of months that has, has kinda driven this change?

[Mohammed Moawalla, Equity Analyst at Goldman Sachs]

You alluded to some of the sort of mega deals being a gating factor, and I noticed that the percentage of kind of 5,000,000 plus order entry has been diminishing a little bit. Is it down to that or is it perhaps the complexity of some of the deals that customers are looking to kind of break up into smaller pieces? It would be helpful to get some color on that. And are there any particular verticals that you're seeing this weakness in? Thank you.

[Christian Klein, CEO at SAP]

Really good question. Look, mean, first, very important, no deal with elongated deal cycles is lost. Yeah. Mean, obviously, we have seen in the last few weeks that suddenly, you know, customers needed additional approval, yeah, at the very top. So deal cycles just become longer because there is much more strict cost controls, you know, especially in the in a few industries there, which we mentioned.

[Christian Klein, CEO at SAP]

Now I mean, when when you are now looking into half year two, I mean, for all of these big deals, yeah, what we're having and obviously half year two, we have some of them. I mean, we have clear closing plans. We have, of course, you know, also customers leaning in. They like what they see with the business case. They also oftentimes see SAP as as a solution to overcome their own financial challenges, yeah, coming from macro uncertainty.

[Christian Klein, CEO at SAP]

But obviously, can you now can we certainly say in Q3, we're going to hit all deals which are now lined up, especially the mega deals. I mean, obviously, that is really hard to predict. And that's why the CCB, I mean, we always said we're going to see a slight deceleration. But even assume, you know, there will be a further percentage point of deceleration in q three, even that would mean, you know, that we can further accelerate our total revenue growth. And look, the good piece is the pipeline is there, and we are not losing these deals.

[Christian Klein, CEO at SAP]

We just now need to be more diligent in managing the closing plans and be even closer to the customer that we are getting these deals in because, obviously, the CCB has a swing in half year, too. And that's hard to predict how big this swing will be. But again, the good piece is we have the pipeline and we have the material and customers responding very positively to the business cases, what we are showing to them.

[Operator]

The next question is from the line of Ben Castillo with BNP Paribas. Please go ahead.

[Ben Castillo-Bernaus, Executive Director at BNP Paribas Exane]

Hi. Good evening. Thanks for taking my question. Just coming back to the OpEx trajectory, obviously, you've just grown EBIT, some 40 something percent in H1. I know you talked about the stock comp impact there.

[Ben Castillo-Bernaus, Executive Director at BNP Paribas Exane]

But nevertheless, that still implies the operating profit growth slows quite materially in H two. How much of that is just kind of conservatism on your part versus concrete plans to accelerate the investments in the back half? I guess tying that into your comments around headcount, which, you know, was only up very modestly. Dominic, you mentioned possible continued optimization going forward. What's the level of hiring that you feel is appropriate to deliver on the growth acceleration there? Thanks.

[Dominik Asam, CFO at SAP]

Yeah. I mean, I I tried to really, mention the things that will make the kind of second half remain to do versus first half a little bit, more challenging. You mentioned from a stock based compensation that we have already taken the line share of the improvement because that improvement was against, I'd say, very easy comps in the first half of the year where we had this big impact on a large cash settled to last tranches weighing on our results in '24, and that's kind of going away in '25, and that will not reoccur in the second half of the year. Now very specifically on on some investments we need to make, it's it's about hiring. Yes.

[Dominik Asam, CFO at SAP]

And I don't wanna be precise now on how many headcount exactly, but we are talking about several thousands of headcount we would still embark. But, I also mentioned that this kind of continuous improvement to avoid, like, massive restructuring one offs like we had last year, recall was 10,000 people, would probably require, some fine tuning, every now and then, and we think that q three is probably a good point in time to do that. So and that will also, in some geographies like Germany, of course, imply severance payments that we need to pay. So if you say one to 2% of the population, you can make the math on 100,000 plus that we talk about up to 2,000, and then you can make a certain assumption about what could happen in Germany, but that or in France or in some other jurisdictions where you have severance, and that will also cost some money. And we deliberately decided to not kind of start disclosing it like we did with the big programs because we feel that this will be a recurring topic, in the coming years.

[Dominik Asam, CFO at SAP]

And so in a certain way, it's it's it's an upgrade, you could say, because we are we are really embarking that, digesting that in our numbers without affecting our operating profit by that. So that's what I wanted to allude to, and and that's the reason why the second half looks a little bit more manageable. And then I also made the comment that, yeah, we have to be cautious, prudent about h two in terms of remain to do of also top line, and we don't want to speculate on the kind of most frothy part of our guidance on that for operating profit, but also be able to absorb in case we are lending a little bit more towards the lower half. In case that would materialize, that we also have protection in the operating profit and be solid on that one. Same true for cash flow, by the way.

[Dominik Asam, CFO at SAP]

I mean, cash flow, we also look quite robust as you've commented or some of you have commented yourself for the remainder to do. It's a manageable task, I'd say.

[Operator]

The next question is from the line of Johannes Schaller with Deutsche Bank. Please go ahead.

[Johannes Schaller, Director at Deutsche Bank]

Yeah. Thanks. Good evening. Thanks for taking my question. One for Christian, maybe.

[Johannes Schaller, Director at Deutsche Bank]

I mean, yesterday, we launched the, Made for Germany initiative. SAP is unsurprisingly part of that, and I think you also attended, the the launch event. Can you maybe talk a little bit about that? Just firstly, maybe in terms of SAP's contribution to this initiative, are there any also maybe investments that you're planning as a part of that, that's material enough for us to think about? And then secondly, just what you are hoping to get out of this as SAP?

[Johannes Schaller, Director at Deutsche Bank]

It's obviously with 600,000,000,000 plus massive investments planned over the next few years. So talk a bit about potentially, you know, the financial impact for you, but also what you hope to get out of it non financially. Thank you.

[Christian Klein, CEO at SAP]

Johannes, happy to answer your question. I mean, look, first of all, in Germany, some definitely some optimism is needed. And I guess this initiative yesterday is also a good starting point that also the private sector sees now some really early positive actions by our new government, which we definitely also want to support by also further highlighting the importance of Germany as one of our investment areas in the future. With regard to SAP, I mean, we have actually very important labs in Munich, in Berlin. We are actually collaborating a lot with the Technical University on Supply Chain AI.

[Christian Klein, CEO at SAP]

We are doing a lot with, obviously, the HPI, which is world class when it comes to AI on the data side. And we are doing a lot also there in some research related AI modules. And so and that is, of course, you know, a few investment areas we are going to see also going forward. For us as SAP, obviously, in this initiative, it's also very important to further push down the over regulation we have in Europe because that is clearly a factor which reduces the competitiveness of, you know, not only, you know, the industry, but also especially the many start ups we are having. I mean, we do a lot of development of AI in Palo Alto, in India, etcetera.

[Christian Klein, CEO at SAP]

But think about all the tech start ups we are having in Europe and with the kind of over regulation we are having. I mean, they are starting already, you know, with a big, big disadvantage compared to some other start startups around the world. And then last but not least, obviously, what we are pushing is with Sofhunity. I mean, I mentioned Hanselt. I mentioned we have a lot of defense customers in Europe.

[Christian Klein, CEO at SAP]

And obviously, with this initiative and a big focus on digital, I mean, obviously, we see another strong momentum coming to us when it comes to transforming defense where there is anyway a lot of spend these days. So but of course, of these defense customers are also now reaching out and say, hey, we cannot only spend in assets in more production capabilities. We also definitely need to drive digitization. And that is, of course, the sovereignty aspect is, of course, also a huge aspect what SAP can contribute to the competitiveness of Europe, especially in areas like public sector and, of course, also defense.

[Operator]

The next question is from the line of Michael Turrin with Wells Fargo Securities. Please go ahead.

[Michael Turrin, MD & Equity Research Analyst at Wells Fargo]

Hey, great. Good afternoon. Thanks for taking the question. Christian, you mentioned Sapphire is the main highlight in q two. Can you speak more around any business impacts you're seeing on on the back of that event?

[Michael Turrin, MD & Equity Research Analyst at Wells Fargo]

Any commentary around pipeline, new product impacts or adoption trends and how that sets you up for the rest of the year? And just a small follow on on The US public sector commentary. Are you confident any elongation impacts you're seeing there currently are appropriately factored into how you're looking at the rest of the year from a guidance perspective? Thank you.

[Christian Klein, CEO at SAP]

Yes. Mean, SAPIRE, I mean, it's always the event of the year where we actually generate the pipeline, yeah, to have enough coverage to close out the year according to our guidance. And this was definitely the case this year. I mean, it was a few billion of pipeline, which we added on top of the Sapphire, which but again, yeah, which is, you know, every year needed. But this year, I would say it was definitely a very, very positive outcome when when you just look at the pipeline we generated out of Orlando and, of course, one week later out of Madrid.

[Christian Klein, CEO at SAP]

Now on on the public sector, I mean, this is, of course, yeah, when you think about The US public sector. I mean, obviously, you know, things have become a bit more difficult with Doge, yeah, with certain agencies and, of course, you know, decision cycles and who is now deciding now to move forward on a certain project. I mean I mean, of course, there we are also, of course, working extremely close together, yeah, with with Doge, with a few agencies. And we just hope that in in half year two, yeah, that that pays off. Yeah.

[Christian Klein, CEO at SAP]

But still, I have to say, of course, this is one of the areas where we definitely have to see that we can hopefully accelerate cycle sales cycles in the half year too, and when we are on it. And and, yeah, that is the situation in in The US public sector.

[Alexandra Steiger, Global Head - IR at SAP]

Awesome. Well, you, Christian, Dominic, and this concludes our call for today. Thank you, everyone, for joining.

[Christian Klein, CEO at SAP]

Thanks a lot.

[Dominik Asam, CFO at SAP]

Have a great day.

[Christian Klein, CEO at SAP]

Thank you.

[Dominik Asam, CFO at SAP]

Good night. Bye bye.

[Operator]

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

Participants

Executives

• Alexandra Steiger, Global Head - IR
• Christian Klein, CEO
• Dominik Asam, CFO

Analysts

• Adam Wood, Managing Director - Equity Research at Morgan Stanley
• Mark Moerdler, MD, SVP & Senior Research Analyst at AB Bernstein
• Jackson Ader, Managing Director at KeyBanc Capital Markets
• Michael Briest, Equity Analyst at UBS Group
• Frederic Boulan, Head - European Software, Payments & IT Services research at Bank of America
• Charles Brennan, SVP - Equity Research at Jefferies Financial Group
• Mohammed Moawalla, Equity Analyst at Goldman Sachs
• Ben Castillo-Bernaus, Executive Director at BNP Paribas Exane
• Johannes Schaller, Director at Deutsche Bank
• Michael Turrin, MD & Equity Research Analyst at Wells Fargo