SAP SE (SAP.US), the German software giant, achieved a milestone in the third quarter by surpassing 10 billion euros in quarterly revenue for the first time, with cloud business growth exceeding expectations, indicating that the artificial intelligence (AI) boom has not dampened demand for its products. The company also expects full-year cloud revenue to reach the upper end of its previous guidance range. According to financial reports, SAP's third-quarter revenue grew 13% year-over-year to 10.27 billion euros, marking the first time quarterly revenue exceeded 10 billion euros. On the profitability front, non-IFRS operating profit reached 3.03 billion euros, up 18% year-over-year, surpassing 3 billion euros in a single quarter for the first time; the non-IFRS operating margin was 29.5%, up 1.2 percentage points year-over-year. IFRS basic earnings per share was 1.96 euros, up 14% year-over-year; non-IFRS basic earnings per share was 1.89 euros, up 19% year-over-year, beating the analyst consensus estimate of approximately 1.83 euros. Free cash flow grew 36% to 1.72 billion euros. Third-quarter cloud revenue grew 26% to 6.67 billion euros, exceeding the analyst consensus estimate of 6.57 billion euros. SAP stated that cloud revenue growth was driven by customers resuming investments after emerging from "financial difficulties." On a constant currency basis, SAP's cloud backlog grew 26% to 24.14 billion euros, higher than UBS's previous forecast of 24% to 25% growth. SAP's backlog is viewed as an important indicator of global enterprise technology spending, as the company's software suite provides accounting and payroll management services for many large enterprises worldwide. SAP develops enterprise-grade software for managing finance, human resources, and other core business functions. In recent years, SAP has been encouraging customers to migrate from legacy software systems installed on local servers to the cloud. Currently, most of SAP's revenue already comes from remote access services. The company plans to end regular support for legacy products next year, after which the cost of maintaining traditional services will rise. SAP now expects that 2026 subscription revenue — where customers rent software access remotely rather than purchasing and running it themselves — will reach the upper end of the 25.8 billion to 26.2 billion euro range, corresponding to year-over-year growth of 23% to 25%. Including the declining traditional software license business, SAP expects full-year revenue to reach 36.3 billion to 36.8 billion euros, up 12% to 13% year-over-year. SAP maintained its full-year operating profit guidance unchanged, at 11.8 billion to 12.2 billion euros on a constant currency basis.
The following is the full transcript of SAP's earnings call (translated with the assistance of AI tools):
Executive Remarks
CEO Christian Klein: The third quarter performance was outstanding, as we moved "autonomous enterprise" from vision to reality. Customers are experiencing our latest AI capabilities with unprecedented response. The strategy not only resonates but is translating into results. On key metrics, current cloud backlog reached 24.1 billion euros, up 26% year-over-year; cloud revenue was 6.7 billion euros, up 25% at constant currency, driven primarily by the AI data and platform business, with 9 out of the 50 largest deals including AI and Business Data Cloud (BDC). Total quarterly revenue was 10.3 billion euros, up 12%, marking the first time in SAP's history that quarterly revenue surpassed 10 billion euros; operating profit grew 18% to over 3 billion euros. According to IDC data, our growth rate is approximately 11 percentage points faster than the market. AI is the third major driver of customers moving to the cloud: accelerating RISE and GROW cloud migrations, making the suite's business value more prominent, and customers embracing business AI platforms through RISE/GROW. RISE and business AI are flourishing across industries, with new customers including financial services (BBVA, Canada's Fairstone Bank), technology and research (Infineon, Fraunhofer Society), manufacturing (Japan's NTN), logistics (Nagel-Group, US Defense Logistics Agency), among others. On the GROW side, Greenbrier Maxion, South America's largest railway manufacturer, plans to use Joule to enhance real-time operational visibility; customers such as AstraZeneca, Decathlon, Denmark's Salling Group, and Henkel are also adopting industry AI, with Salling Group reducing time-to-shelf by up to 66% and category management time by up to 70%. On the solutions side, Kao adopted SAP Signavio, NTT DATA adopted procurement solutions, and Helvetia adopted SuccessFactors; IDC estimates our growth rate in the human capital management (HCM) market is more than 1.7 times the industry average. RISE customers that went live during the quarter include Mondelez, Panasonic, Roche, and Infosys. The core of the autonomous enterprise strategy is Joule Work, which enables 400 million SAP users to interact with SAP using natural language, built on three key capabilities: first, "Conversations," where users ask questions, delegate tasks, and can invoke specialized agents when needed — for example, a supply chain planner can have Joule summarize supplier contracts and delegate an agent to resolve supply shortages, directly triggering production adjustments; second, "Spaces," which aggregates real-time data across systems, displaying IBP and S/4HANA data side by side to show supply-demand and risks; third, "Joule Studio," which supports no-code to professional-code extensions or building custom agents. Currently, the autonomous suite includes 40 assistants and 300 agents, and we adhere to "quality over quantity." Technically, Joule is built on the business AI platform, offering over 70 models (including frontier and open-weight models), not locking into a single model and giving customers choice; the knowledge graph is anchored in BDC, mapping over 7 million fields, 500,000 tables, and 400 data products, and through the acquisitions of Dremio and Reltio, extends context to data beyond SAP. In the Ariba scenario, Joule achieved twice the accuracy at half the total cost of leading frontier models. On governance, every agent is run and governed by SAP, covering compliance and auditor certifications across 26 industries and 60 countries and regions; we commit that customer data is never used for large model training or improvement. We ourselves are also transforming into an autonomous enterprise: 40,000 developers work "AI-first," with code contributions increasing approximately 70% since the beginning of the year; the go-to-market strategy is fully AI-enabled; Joule Work Desktop has been deployed to over 110,000 employees, boosting productivity in finance, HR, procurement, and other functions by 20%. The Q4 pipeline is strong, but Q4 is always the largest and most critical quarter, and the team is fully engaged in execution.
CFO Dominik Asam: Financial Data and Outlook. The third quarter continued its strong performance. Current cloud backlog surpassed 24 billion euros, up 26%, and SAP remains the undisputed growth leader in large enterprise SaaS/PaaS. We still expect cloud backlog growth at constant currency to slow slightly in 2026, but market share will continue to increase, due to factors including macro-political uncertainty potentially affecting the largest Q4 order season and the continuously expanding base. Cloud revenue was approximately 6.7 billion euros, up 25%, including approximately 1 percentage point of positive one-time impact (mainly from revenue recognition for customers emerging from financial difficulties). Cloud ERP suite revenue grew 28%, accounting for 89% of cloud revenue; software license revenue declined 9%; service revenue declined 5%. Total revenue was 10.3 billion euros, up 12%. By region, cloud revenue was particularly strong in Asia Pacific Japan (APJ) and Europe, Middle East and Africa (EMEA), with the Americas solid; Brazil, France, Germany, Italy, India, South Korea, and Spain performed notably, while Switzerland, the UK, and the US were especially strong. On profitability, IFRS cloud gross margin was 73.9% for the quarter, non-IFRS 74.3% (down 0.7 percentage points year-over-year); IFRS operating profit grew 18% to 2.9 billion euros, non-IFRS operating profit also grew 18%, surpassing 3 billion euros (both benefiting from one-time negative impacts in the prior-year period). IFRS effective tax rate was 24.4%, non-IFRS 25.8%; free cash flow was 1.7 billion euros; IFRS earnings per share grew 14% to 1.96 euros, non-IFRS earnings per share grew 19% to 1.89 euros. On the outlook, we expect 2026 cloud and "cloud plus software" revenue to land at the upper end of the original guidance range, while maintaining the original guidance for cloud backlog, operating profit, and free cash flow. We remain committed to accelerating total revenue growth in 2027, but must flag three points: first, Q4 accounts for approximately 50% of full-year orders, and macro uncertainty could suppress Q4 orders and affect the 2027 trajectory; second, we intentionally use the services business to drive AI adoption, which will further reduce billable hours and service revenue; third, as revenue improves and the base rises, accelerating in 2027 becomes more difficult. Overall, we remain in planning mode regarding 2027 revenue acceleration, but must acknowledge these factors.
Q&A Session
Morgan Stanley analyst Adam Wood — Question: Why is the cloud backlog (CCB) guidance still conservative — is it just caution about Q4 scale, or are there concerns in the pipeline or customer decision-making? Dominik Asam: CCB growth has indeed been strong this year, but half of the full-year orders still need to land in Q4. The current macro environment is not ideal — oil prices have risen from $60 to $110, and US interest rates have reached above 5% and are starting to show their impact, so it would not be wise to assume Q4 macro will be very favorable. We have not given a precise point estimate for "slight deceleration" — this is just a range implied by previous guidance, with the upper end at approximately 24%, and ultimately it depends on how the remaining Q4 period unfolds.
JPMorgan analyst Toby Ogg — Question: Has backlog growth exceeded internal expectations, and which products brought unexpected surprises? Christian Klein: Every RISE/GROW journey brings surprises. Just today we hosted a large mining company that spoke highly of our data migration agents, and consultants and partners have given equally excellent feedback — system integrators are even willing to disrupt their own models to accelerate customer cloud migration. Second, most deals now include AI, and two years after BDC's launch, the Dremio and Reltio acquisitions are perfectly timed — next year in Q1 we can also automatically extend the ontology layer for non-SAP data. Customers are increasingly understanding that messy data models slow down AI deployment, which requires a "clean core," just like any ERP implementation. Finally, Q4 is the golden period for our new AI capabilities, with Joule Work already covering finance, HR, sales, and other scenarios, always with data context and permission governance — this is SAP's unique value.
Jefferies analyst Charles Brennan — Question focus: How far are agent response times and accuracy from targets; have AI credits already affected income statement metrics? Christian Klein: On accuracy, we will never be "done" — when a product manager shows 95% accuracy, I ask them to raise the testing bar and solve harder problems; this is an ongoing process. On response times, we trace every query down to the data layer, ontology layer, and API, and the team is highly motivated with good progress. Dominik Asam: AI credits are amortized over the contract period after issuance, so there will be no cliff effect. The consumption-based model is being introduced gradually, and in the short term, the traditional logic of "CCB converting to cloud revenue" still holds; evolving toward outcomes-based models in the future requires consumption and adoption, and all incentives are tilted toward adoption, but this is not something to worry about in the 2027 bridge. It is worth noting that the long-depressed transactional business has essentially bottomed out and achieved decent positive year-over-year growth this quarter.
KeyBanc Capital Markets analyst Jackson Ader — Question focus: As AI becomes a decision factor, can Americas cloud revenue growth catch up with EMEA and APAC? Christian Klein: All regions are performing equally strongly on AI and data, with high consistency over the past four quarters. North American customers tend to be AI pioneers, and the regulatory environment is more relaxed than in Europe — in reality, the US leads, with EMEA and APJ following closely. Dominik Asam: Precisely because the US is a pioneer, its cloud penetration is already higher, which is the main reason for the growth rate difference.
Bernstein analyst Mark Moerdler — Question focus: What are the bridging factors between the first nine months and the full-year revenue guidance? Dominik Asam: Q4 cloud revenue visibility is already quite high, which is why we raised to the upper end of the range, implying cloud revenue growth of approximately 23% — there is no mystery. The deceleration from Q3's 25% has several reasons: the prior-year period had two negative factors totaling 200 million euros that made the base lower; SmartRecruiters was only consolidated on September 11 last year, so the M&A gain will disappear in the year-over-year comparison (approximately 0.5 percentage points); and the natural transmission of CCB growth slowing from 27% in Q3 of last year to 25% in Q4. License revenue has always been difficult to predict but represents an increasingly smaller share, while service revenue continues to decline at approximately 1 billion euros per quarter, because converting billable hours into adoption support yields generous returns.
UBS analyst Michael Briest — Question focus: Confidence in the approximately 2 billion euro cash flow target for Q4, and whether migration credits are starting to be used by customers? Dominik Asam: Migration credits will eventually affect free cash flow, but not enough to shake the full-year 10 billion euro guidance. Q3 accounts receivable was elevated, and we are tightening collections — in a high interest rate environment, customers sometimes find excuses to delay payment, and we will ensure the money is actually collected.
Deutsche Bank analyst Johannes Schaller — Question focus: Can model routing become a potential source of cost savings for gross margin? Christian Klein: We are selecting the optimal "performance-to-price" model for each agent use case, and the proportion of open-weight models is increasing (both externally and internally) — this is just the beginning. On gross margin, there were some one-time investments this year and hardware prices were elevated, but next year we will advance large-scale AI automation in cloud operations deployment, monitoring, incident management, and full application management, and reduce third-party outsourcing, so we remain confident in the healthy development of cloud gross margin.
BNP Paribas analyst Ben Castillo-Bernaus — Question focus: The "headless" trend in software, and the divergence between "model-agnostic" and "exclusive partnership" strategies — is SAP's strategy validated by customers? Christian Klein: We are using AI to train models, continuously optimizing agent accuracy and results, while also optimizing the "price-to-outcome" ratio, with good quarter-over-quarter progress. Being model-agnostic and giving customers choice is our advantage.
Bank of America analyst Frederic Boulan — Question focus: Margin change factors for this year and next, and operating leverage and room for continued expansion? Christian Klein: We are implementing an "all-in-one" AI program internally, applying AI across the entire R&D and delivery cycle, and will adjust third-party contracts over the next 12 months. On the sales side, Joule Work already covers customer briefings and customer planning; on the finance side, we use Tableau AI and Joule Work for simulations and reporting; on the HR side, we use TechWolf for skills transformation. We expect to achieve up to 3 billion euros in efficiency gains over the next two years, with AI impacting costs across the income statement. Dominik Asam: These levers are extremely powerful, while sovereign cloud, retail business, and BDC structure are also expanding, and several acquisitions will mainly affect the operating margin. We are firmly committed to controlling total operating expense growth at 80% to 90% of revenue growth, while placing more emphasis on the absolute amount earned from opportunities rather than simply watching the margin rate.
Evercore ISI analyst Kirk Materne — Question focus: After the transactional business stabilizes, can it become a tailwind in 2027? Dominik Asam: "Tailwind" is an overstatement — it is far below the group's average cloud growth rate, just returning from near-zero growth to positive territory; essentially it is "reducing headwind" rather than "contributing tailwind."
Citizens JMP Securities analyst Patrick Walravens — Question focus: How does SAP view the Concur travel expense business facing new competitors? Christian Klein: Concur is a sizable business for us, and it focuses more on the "expense-to-pay" segment — customers have deeply integrated it into their financial solutions, and the business is very stable; the booking side represents a very small share. Among all line-of-business solutions, Concur actually has the highest agent adoption rate, and we will announce new partnerships with credit card companies and airlines — ecosystem interest is strong, and the business is healthy and intact.
Citi analyst Balaji Thirupathi — Question focus: The internal composition of the backlog, and whether the ECC maintenance business decline is approaching a shift toward migration or AI/BDC? Christian Klein: Today, every RISE journey is not just about moving to the cloud but about reshaping business processes with AI — customers adopt S/4, line-of-business solutions, and the BDC platform simultaneously, building a unified harmonized data layer across SAP and non-SAP. RISE contracts are becoming thicker overall, embedding more solutions, process-layer AI, and BDC, and customers are also using various AI migration tools to accelerate deployment. This trend is also reflected in the strong Q4 pipeline, where every RISE deal is AI-led with a mandatory data layer.
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