SAP SE (SAP) Posts 31% Increase in Q3 EPS as Revenues Falls 4%, Warns Demand Recovery More Muted

SAP SE (NYSE: SAP) said in the third quarter revenue was down 4% year over year to €6.54 billion, EPS was up 26% year over year to €1.32. The company warned that lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected.

The company reported current cloud backlog was up 10% year over year to €6.60 billion (up 16% at constant currencies) amid continued COVID-19 effects on SAP's cloud business. Cloud revenue grew 11% year over year to €1.98 billion (IFRS), up 10% to €1.98 billion (non-IFRS) and up 14% (non-IFRS at constant currencies). Continued lower transactional revenues, particularly in Concur, negatively impacted cloud growth by 6 percentage points. Cloud revenue from SAP's SaaS/PaaS offerings, that do not belong to Intelligent Spend, and its IaaS offering grew by 26% and 24% (non-IFRS at constant currencies), respectively. Software licenses revenue was down 23% year over year to €0.71 billion (IFRS and non-IFRS) and down 19% (non-IFRS at constant currencies). Cloud and software revenue was down 2% year over year to €5.54 billion (IFRS and non-IFRS) and up 2% (non-IFRS at constant currencies). Total revenue was down 4% year over year to €6.54 billion (IFRS and non-IFRS) and flat (non-IFRS at constant currencies).

EPS was up 26% year over year to €1.32 (IFRS) and up 31% year over year to €1.70 (non-IFRS) reflecting a strong contribution from Sapphire Ventures.

Operating cash flow for the first nine months was €5.09 billion, up 54% year-over-year. Operating cash flow benefited from lower restructuring related payments and lower income tax payments. Free cash flow for the first nine months was €4.17 billion, up 79% year over year. Free cash flow additionally benefited from lower capital expenditure compared to the previous year. At the end of the third quarter, net debt was -€6.89 billion.

Updated Business Outlook 2020

SAP's previous full year 2020 outlook issued on April 8th, 2020 reflected its best estimates concerning the timing and pace of recovery from the COVID-19 crisis. This outlook assumed economies would reopen and population lockdowns would ease, leading to a gradually improving demand environment in the third and fourth quarters.

While SAP continues to see robust interest in its solutions to drive digital transformation as customers look to emerge from the crisis with more resilience and agility, lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected. Further and for the same reasons, SAP no longer anticipates a meaningful recovery in SAP Concur business travel-related revenues for the remainder of the year 2020.

SAP is therefore updating its full year 2020 outlook and now expects:

€8.0 – 8.2 billion non-IFRS cloud revenue at constant currencies (previously €8.3 – 8.7 billion)
€23.1 – 23.6 billion non-IFRS cloud and software revenue at constant currencies (previously €23.4 – 24.0 billion)
€27.2 – 27.8 billion non-IFRS total revenue at constant currencies (previously €27.8 – 28.5 billion)
€8.1 – 8.5 billion non-IFRS operating profit at constant currencies (previously €8.1 – 8.7 billion)

SAP continues to expect its share of more predictable revenue to be approximately 72%.

The Company has raised its cash flow expectations for 2020 on the back of a strong year-to-date cash flow performance and now expects an operating cash flow of approximately €6.0 billion (previously above €5.0 billion) and a free cash flow above €4.5 billion (previously approximately €4.0 billion).

While SAP's full year 2020 business outlook is at constant currencies, actual currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. See the table below for the Q4 and FY 2020 expected currency impacts.

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