SAP Q3 sales decline and cash flow improves, guidance lowered
- Amidst COVID-19 crisis, SAP (NYSE:SAP) reports rapid growth in earnings and cash flow in Q3 2020.
- Non-IFRS Cloud revenue grew 10% Y/Y to €1.98B. Software licenses revenue down 23% Y/Y to €0.71B (IFRS and non-IFRS).
- Total revenue of €6.54 billion (IFRS and non-IFRS), decline of 4% Y/Y.
- Cloud gross margin continued positive trend through Q3. Non-IFRS Cloud Gross Margin up 0.7pp to 69.7 at constant currencies.
- Total gross margin grew 1.4pp Y/Y to 73.7.
- Non-IFRS Operating profit of €2.07B, -1.0% Y/Y. Operating margin up 1.0 pp to 31.7%.
- Operating cash flow for the first nine months rose 54% to €5.09B, benefiting from lower restructuring and income tax related payments.
- 2020 Outlook: €8.0 - 8.2B non-IFRS cloud revenue at constant currencies (previously €8.3 - 8.7B).
- €23.1 - 23.6B non-IFRS cloud and software revenue (previously €23.4 - 24.0B).
- €27.2 - 27.8B non-IFRS total revenue (previously €27.8 - 28.5B).
- €8.1 - 8.5B non-IFRS operating profit (previously €8.1 - 8.7B).
- SAP continues to expect its share of more predictable revenue to be ~72%.
- The Company has raised its operating cash flow expectations to ~€6B from above €5B and FCF of above €4.5B from ~€4B.
- Also, over 500 SAP S/4HANA customers were added in the quarter, taking total adoption to more than 15,100 customers, up 20% Y/Y. Out of these, more than 45% of the customers were net new.
- Additionally, SAP expects muted non-IFRS total revenue growth as well as flat or slightly lower non-IFRS operating profit over the next two years, followed by accelerated non-IFRS total revenue and double-digit non-IFRS operating profit growth from 2023 onwards.
- By 2025, the Company expects: More than €22B non-IFRS cloud revenue, >€36B non-IFRS total revenue and more than €11.5B non-IFRS operating profit.
- SAP has also updated its previous mid-term ambition issued on April 24, 2019.
