"SAP" Q2 and Half Year 2026 Earnings Call - Cloud Backlog Accelerates 26% as AI Pricing Model Resets

Operator: Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q2 and half year 2026 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 star followed by one on your touchtone telephone. I would now like to turn the conference over to Alexandra Steiger, Global Head of Investor Relations. Please go ahead.

Alexandra Steiger, Global Head of Investor Relations, SAP: Good evening, everyone, and welcome. Thank you for joining us. With me today are CEO Christian Klein and CFO Dominik Asam. On this call, we will discuss SAP’s second quarter 2026 results. You can find the deck supplementing this call, as well as our quarterly statement on our investor relations website. 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 2025.

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, Christian.

Christian Klein, CEO, SAP: Yeah. Thank you, Alexandra, and a warm welcome to everyone joining this call. Q2 was an outstanding quarter, highlighted by our flagship customer conference, Sapphire. The event was a huge success. We saw record attendance, generated significant additional pipeline, and received very positive feedback on our autonomous enterprise launch. In parallel, our AI transformation is progressing well, both among our customers and our employees, reflected in growing AI consumption and tangible outcomes. This momentum contributed to our strong top-line performance in Q2. Let’s look at this in detail. Current Cloud Backlog grew 26%, an acceleration compared to Q1. And after two quarters where our CCB was lagging behind cloud revenue growth, it was a welcome trend reversal in this important forward-looking indicator. A great result, especially given the volatile environment.

AI and SAP Business Data Cloud were embedded as key pillars in more than 90% of our 50 largest deals, giving us strong confidence for the second half of the year. Cloud revenue grew 24% to EUR 6.3 billion, backed by a solid execution of on-premise to cloud ERP migrations in our installed base. Total revenue was up 11% to EUR 9.9 billion. This comes despite a slight decline in services revenue as we reallocate consultants to build agents and foster AI adoption. Our top-line performance translated into an operating profit of EUR 2.7 billion, an increase of 9%. Our indirect channel continues to be a strong growth pillar. Q2 growth again significantly outpaced direct channel cloud revenue, reflecting our successful go-to-market transformation over the last two years. As mentioned, a key highlight in Q2 was, of course, SAP Sapphire and the launch of the Autonomous Enterprise.

It resonated strongly because it gets to the root of why enterprise AI is so hard and what that means for our customers. The reality for many enterprises today is that LLMs don’t understand business data, processes, and governance. AI token spend doesn’t mirror outcomes. Log in to single-frontier vendors is a growing concern, and AI sovereignty is becoming more important. At Sapphire, we explained how the combination of the Autonomous Suite and Business AI Platform will solve those challenges. The new Business AI Platform is being delivered this quarter. The platform covers three key pillars. First, the build pillar, where we offer the best experience for pro-code and citizen developers to create and extend agents. With Joule Studio, you can choose from a range of leading LLMs, including Anthropic, Cohere, Google, Mistral AI, OAI, and other open-weight models.

Joule Studio is integrated with the second pillar, the context and reason pillar. This pillar provides the agents with the context and the knowledge they need to run business processes autonomously. It starts with our data foundation. SAP Business Data Cloud provides broad data access to the agents. With our latest acquisition of Dremio and its Apache Iceberg native technology, we are bringing mission-critical SAP and non-SAP data together to become a true enterprise lakehouse, meaning SAP and non-SAP data can be analyzed together in real-time without moving or copying it first. On top of the data foundation, we are able to build one semantic data layer for SAP and non-SAP data. By joining data products, we are creating semantic data models centered around the customer, supplier, material, and other master data objects of a company.

Our acquisition, Reltio, will govern these master data models end to end to ensure high data quality. These semantic models are connected with our ontology layer and knowledge graphs, which we offer for every LOB and industry domain. They are the brain infused into the agents developed with Joule Studio on the new platform. Most importantly, all three layers will be extensible by partners and customers to cater for their specific business needs. Our acquisition of Prior Labs will enable agents to generate accurate tabular predictions out of the box. After providing the agents with the context, they also need to run the business with trust and high scalability. Which brings me to the third pillar, run and govern. This pillar addresses another key challenge of AI adoption.

Here we take the complexity off our customers’ shoulders by managing and governing the agents embedded in the autonomous suite and beyond. SAP manages the agents across the complete agent life cycle, including SAP, partner, and customer-built agents. Specifically in the governance layer, we will ensure the agents meet your compliance frameworks and data privacy requirements from over 130 countries, checking all the identity and authorization rules to ensure the response is not only accurate, but also compliant. Furthermore, we are able to switch between different models safely and dynamically inside customers’ SAP landscapes. This means we will run the agents without any login, adhere to local sovereignty requirements, and ensure the best price-to-outcome ratio. Powered by the new platform, our autonomous suite will consist of SAP partner and customer agents, all managed by SAP.

The SAP AI Agent Hub is our command center to discover, manage, and govern SAP and non-SAP agents, MCP servers, and more. The SAP AI Agent Hub gives customers transparency across a universe of agents for every LOB and every industry. Finally, this quarter, we will also launch our new end-to-end user experience, Joule Work. It’s a single entry point and interface across all our portfolio solutions for all tasks where users can collaborate with our AI agents. Connected to our Business AI platform, Joule Work dramatically accelerates outcomes for our 350 million end users. For example, a salesperson can create a complete data-rich customer pitch in just a few minutes. A finance business partner can pull together a financial analysis, including all structured and non-structured data from his or her company.

After SAP Sapphire, the beta programs for our new platform suite and Joule Work were immediately oversubscribed, and initial customer feedback has been excellent. This makes us very confident about a successful launch in Q3. In addition, we will release close to 50 assistants by the end of Q3, underpinned by more than 400 autonomous suite agents by the end of the year. To accelerate our customers’ journey to the autonomous enterprise, we are also releasing three additional ERP migration assistants with 10 underlying agents later this quarter. Let me now share some tangible outcomes from our customers. On the autonomous suite side, SAP and Amadeus, a platform for global travel, developed an AI agent that autonomously reconciles unstructured payment data, already clearing around 40,000 incorrect transactions. One example from our Business AI platform.

To prepare for Business AI, Northcuto transitioned from a legacy BW to an end-to-end data platform with SAP Business Data Cloud. This delivered significant agility, cutting BI solution build time by around 75% and accelerating report creation time by 50%. Moving on to Industry AI. With NTT Data, Denmark’s largest wholesaler for steel and technical equipment, Lemvigh-Müller deployed custom AI agents to verify purchasing orders. The solution achieved over 90% touchless processing and 98% matching accuracy. For AI agents to deliver the accurate outcomes at scale that all of these companies need, a harmonized data foundation and simplified process layer is essential. That’s why the modernization of legacy system landscapes is still very important. To support our customers in this transformation, we launched our new RISE with SAP and GROW with SAP offering, which has already been very well received in Q2.

As part of this new offering, we are seeing a strong uptake of our AI ERP migration toolchain. Customers are achieving faster time to value and up to 30% lower ERP migration costs. A great example of this in action is Dexco, who used their RISE with SAP migration to eliminate 97% of legacy customizations, driving a 75% faster accounting close. In parallel, our new offering also includes a firm commitment to our customers to activate and adopt AI assistants and agents within the first year of their journey. We also saw many RISE deal highlights in Q2. They include Shell, Morgan Stanley, Samsonite Group, Vonovia, Eli Lilly, retailer Shoprite Group, and Electrolux. We also see great momentum around GROW with SAP with companies such as Aloha, Gooroo Crédito, Modular Data Centers, and Tecumseh Energy Services.

Turning to the AI deals, key wins included PwC, one of the world’s largest professional services firms. They selected our AI to transform a complex billing process, cutting a 35-minute task to just 5 minutes while improving accuracy and end-user satisfaction. Travel platforms Booking.com and Goal, as well as Oki Electric Industry, selected many of our LOB and industry AI offerings in addition to BDC. Our software and cloud offerings also gained significant momentum with key wins, including companies like ABUS. Successful go-lives included Fonterra, Döhler, and Natura Cosméticos. To deliver our AI vision, we also continue our own transformation. We are moving with full speed to turn SAP into an autonomous enterprise. In engineering and technology, we are transforming our operating model from software development to building AI at scale.

We are doubling down on our ontology development with our best domain experts working on knowledge graphs for every industry and LOB. We are accelerating innovation, targeting complete agent delivery in under three weeks. By applying tools like low-code, we are also increasing overall developer productivity by up to 30%. In go-to-market, we are also evolving our operating model. The Consulting AI Factory is a prime example. Over 3,000 SAP consultants are driving AI adoption directly with more than 2,000 customers. Over the next few weeks, we will roll out Joule Work Desktop internally to drive additional productivity across all functions. While we are driving significant efficiency gains with AI, we are making investments in our workforce, both by investing in world-class AI talent as well as up and reskilling at full speed.

We are rolling out a range of code camps and in-person training offerings across our key locations, with the target of reaching more than 90% of our employees over the next few months. In addition to upskilling our people, we are focusing our hiring efforts to bring in the industry’s best data scientists and AI experts. Their leading skills will complement our deep business process and domain know-how. Let me summarize. In Q2, we delivered a strong quarter with strong momentum in our business. In the age of agentic AI, SAP is leading the way. The autonomous enterprise is anchored in AI agents that can run end-to-end business processes accurately, compliantly, and cost effectively, and always with the human in the loop. SAP successfully completed our transformation to the cloud, and we will once again successfully transform in the AI era to deliver accelerated growth and profitability.

With that, I’ll hand over to Dominik.

Dominik Asam, CFO, SAP: Thank you very much, Christian, and thank you all for joining us this evening. To build on what Christian shared in his opening remarks, Q2 was a strong quarter for SAP, supported by sustained current cloud backlog growth and further improving free cash flow generation. These results were delivered against the backdrop of a complex and uncertain operating environment, with the ongoing conflict in the Middle East continuing to weigh on customer sentiment and decision-making. Despite these headwinds, we remain focused on executing our strategy and continue to see progress across our strategic priorities. At Sapphire in May, we outlined our vision for the autonomous enterprise and the expanded role of AI across our portfolio. While these innovations are still at an early stage, we believe they can create new commercial opportunities over time and support durable growth beyond the current cloud transition.

Importantly, we continue to invest in these areas while maintaining our commitment to the operating leverage framework we’ve laid out. These results reflect the resilience of our business model and give us confidence in the path ahead. Let me provide more details on our financial highlights. Current cloud backlog reached almost EUR 23 billion, up 26%, benefiting from the first-time inclusion of Reltio, which only contributed less than one percentage point to the constant currency growth rate. While CCB growth sequentially accelerated, we continue to expect a slight deceleration exiting the year. As you are all aware, the situation in the Middle East remains fluid, and the longer it persists, the more it weighs on customer decision-making, particularly in directly affected industries and supply chains.

With that said, the breadth of our pipeline, the mission-critical nature of our solutions, and the fact that the second half of the year typically accounts for the lion’s share of our bookings, give us confidence in our ability to execute against these opportunities in front of us. As expected, the year-over-year cloud revenue growth rate declined sequentially to 24%, reflecting several quarter-specific effects that particularly benefited the 2026 year-on-year comparison in the preceding first quarter. You might recall the comments we made in that regard in our last quarterly earnings call. Also recall that in Q2 2025, we had roughly two percentage points higher cloud revenue growth than in Q1. There is a strong basis effect here. SaaS and PaaS combined continue to perform strongly, with growth again far above the overall market.

Cloud ERP suite revenue increased by 27% in Q2, now accounting for 88% of total cloud revenue. Software licenses revenue decreased by 32%. Finally, total revenue in the second quarter was €9.9 billion, up 11%. A brief look at our regional performance. In the second quarter, SAP’s cloud revenue performance was particularly strong in APJ and EMEA, and solid in the Americas region. Brazil, France, Germany, Italy, India, South Korea, and Spain had outstanding performance, while Australia, Singapore, and the U.S. were particularly strong. Moving down the income statement. Our IFRS cloud gross margin in Q2 was 74.3%, and non-IFRS was 74.6%, down 0.7 percentage points year-over-year at constant currencies. IFRS operating profit increased by 8% to €2.6 billion. Non-IFRS operating profit was up by 9% to EUR 2.7 billion.

The quarter-over-quarter deceleration in IFRS and non-IFRS operating profit growth is mainly caused by lower cloud and total revenue growth in Q2 as compared to Q1 2026, an unusually low stock-based compensation expense in the first quarter of 2026, accelerated investments into research and development, higher marketing expenses in the quarter of the launch of the autonomous enterprise, and finally, the slightly dilutive impact of the Reltio acquisition, which just closed on May 7th. We are investing to accelerate our own AI transformation. This includes rapid internal adoption of our AI solutions, as well as targeted hiring in the most critical roles. These investments enable us to further enhance our products and drive efficiencies. At the same time, we are applying disciplined governance to manage our cost base and improve spend predictability. The IFRS effective tax rate was 26.5%, and the non-IFRS effective tax rate was 30.8%.

The IFRS effective tax rate is lower than the non-IFRS effective tax rate due to tax benefits from tax-exempt income. Free cash flow in Q2 was robust at €3 billion. Finally, IFRS earnings per share increased by 30% to €1.89, and non-IFRS earnings per share increased by 6% to €1.59. On to the outlook. As you will have seen in the quarterly statement issued earlier today, we are maintaining our financial outlook for all top-line parameters and free cash flow. We are adjusting our operating profit outlook by €8.1 billion and expect €11.8 billion-€11.2 billion to reflect the dilutive impact of the recent Dremio and Prior Labs acquisitions. As announced last quarter, we are planning to fully offset the slightly dilutive effect of the Reltio acquisition on our non-IFRS operating income.

As you see in the half year report, Reltio has generated an IFRS loss after tax since closing on May 7th to the tune of €10 million in Q2. Adjusting to non-IFRS operating profit by taking taxes and items such as amortization of acquisition-related intangibles out, we are down to a high single-digit million euro amount. Dremio and Prior Labs in combination will weigh on H2 2026 with a very low triple-digit million euro amount. We feel that the current environment and the investment needs in our own AI transformation do not support what would effectively be a noticeable upgrade of the underlying organic non-IFRS operating profit outlook we gave at the beginning of the year. To cut it short, we are fully on track on our initial non-IFRS operating profit outlook, which obviously did not include any M&A expense, despite all macro headwinds so far this year.

We continue to target an 80%-90% expense to revenue ratio despite the J curves of the recent M&A investments coming years. We have great confidence in the impact of AI-driven productivity measures as they are going to pay off over the coming years. With respect to current cloud backlog, our expectation of a slight deceleration over the course of the year remains unchanged. The second half typically accounts for the lion’s shares of our annual bookings, and we remain focused on converting the pipeline we have built. As the situation in the Middle East remains in flux, the range of possible outcomes for the metric continues to be wider than we would like.

To close, while there has been no shortage of volatility in the macro environment and massive noise around the alleged SaaS apocalypse over the last quarters, the underlying trajectory of our business remains fully intact, as evidenced by solid and sustained current cloud backlog growth. By virtue of starting to harvest the fruit of our successful cloud transformation, we are well-positioned to honor our commitments to capital markets, while at the same time heavily investing in our own transformation towards an autonomous enterprise to ensure the sustainability of our strong growth trajectories for years to come. The recent debate about exploding token costs at most enterprises supports our strategy of leveraging a unique combination of both deterministic, highly scalable, and low-cost mission-critical enterprise applications on the one hand, and probabilistic agentic AI-powered solutions on the other.

We’re highly assured deterministic solutions are not yet attainable and heavy human intervention is the baseline, AI can very effectively compete with labor. This ambidexterity at unrivaled levels of functional breadth, reliability, semantical richness, industry-specific process know-how, cost competitiveness, and, last but not least, enterprise-grade governance makes us the partner of choice for those enterprises who do not see AI as a destination, but a means to reach better efficiency. All this without enterprise-grade assurance requirements at risk. We are more convinced than ever that our strategy not to be locked into any generic large language frontier model, but to flexibly benefit from the vibrant competition amongst them in terms of both performance but also cost, is the right one. In times of high geopolitical uncertainties, customers do value the resilience of this model delivered by a provider actually headquartered in Germany.

Sovereign requirements are taking center stage for more and more customers. We will continue to work very hard every day to re-earn the trust they put into us. Our priorities for the second half of the year are clear: sustain the momentum in our cloud business, delivering on operating leverage we have committed to, and close the year with strength. Thank you. We’re happy to take your questions now.

Alexandra Steiger, Global Head of Investor Relations, SAP: All right. We will now take your question. I would like to kindly remind you to only ask one question when prompted. Operator, please open the line for the first question.

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. Again, anyone who has a question may press star followed by one at this time. We’ll take our first question from Adam Wood with Morgan Stanley.

Adam Wood, Analyst, Morgan Stanley: Hi. Thanks for taking my question. It’s probably one for you, Dominik. I think investors have got used to the kind of beat and raise cycle from SAP on the operating income line, and there’s maybe a little bit of surprise to see the weaker second quarter. Appreciate there are good reasons behind that, but maybe also the cut to the full year suggests there was a little bit less room for maneuver than people thought. I know you’ve given that 80%-90% expense to revenue growth guide, continue to guide for that for 2027. Could you just talk a little bit about going into a bit more depth there around how you think about how much room there is for margin expense for the business over the next 12 to 24 months?

Has there been a shift in focus in terms of what you need to invest in the business and what you need to invest to drive top line growth versus driving the margins higher? Maybe specifically on the AI investments you’re making internally in the business, any more detail you can give us on the scale and timeframe of payoffs of those? Thank you.

Dominik Asam, CFO, SAP: Yeah. That’s a lot of questions, but all centering around, I think, the operating profit for Q2. First of all, let me reiterate that it’s, from my perspective, not really conducive to look at one single quarter but it’s really over several quarters. For instance, if you look at the first half, you’ll see that our operating leverage envelope has been well respected, and we also see that for the full year 2026, we’ll be well in that kind of operating leverage formula. That even including all the acquisitions we have made. Of course, it pushes the kind of point a little bit more to the downside of the range. But we think the real absolute highest priority is to drive the AI transformation forcefully and to protect the top line in the current environment, while still preserving discipline on the growth.

In many areas like development, of course, we are in a stage where we are ramping capacities. We mentioned the hirings we did for very selective, but very high performing resources. Also the widespreading token, where basically we are also now improving the efficiency and improving the bang for the buck, introducing model rooting technologies and so forth to optimize the bang for the buck. This is why I mentioned in my introductory remarks, from my perspective, there’s no point in extrapolating just one single quarter where we had a concentration of all the factors I’ve already mentioned, which I can also reiterate if you’re interested in. It was a little bit of a special quarter, so don’t read too much into that. It is true, though, that the M&A acquisitions we did, they will have actually an impact which is in excess of EUR 100 million.

We of course had a debate now, should we basically upgrade the underlying organic guidance, and say we absorb that on top, or should we keep the bigger room to drive aggressive growth? We decided to go for the latter. That’s the backdrop, I think, on that.

Christian Klein, CEO, SAP: Maybe, Adam, just to build on what Dominik said, as we are also now building the plan for the next 12 months, and I always draw a little bit of comparison to our cloud transformation. The good piece this time is, when you think about our cost margin, there is nothing which now stops us with the ability to switch models to always choose the best model for an ideal price outcome. We see already that for many agents we are now developing, especially for Joule Work, we don’t always need to use the expensive frontier models. That will always help us to manage the cost margin at a very healthy level. Second, when you think about the productivity overall of the company, when I look at development, right now we are very busy to shift the backlog from SaaS features, UI enhancements to AI development.

What you need is what we already have in-house. We have a lot of domain know-how. We have a lot of domain know-how in data and business processes now. We need to hire a few great data scientists to build the ontology layer. That’s what we need. There’s nothing like now in DevOps where we need to build up a massive operations like in the cloud transformation. The good piece is on the go-to-market side, we need our consultants now to drive massive agent extensions and also adoption. There we are now reshuffling parts of our consulting to really work with the customers hands-on in their hybrid landscapes to really drive that. We have a lot of the capabilities already in-house. In the second half now, it’s all about also reskilling, enabling our workforce to work with AI.

When I also look at the productivity levels, what I just mentioned in development, depending on the area, we see on an average a 30% productivity increase. I’m convinced, especially when it comes to now adding more agents, adding more data layers to our applications, I actually see that this is not even the end. We can easily reach a higher productivity level, but we need to give ourselves a little bit of time in the second half. Again, the outlook for the next 12 months, I don’t see anything now similar to the cloud transformation where we had to invest massively into the buildup of our operations.

Operator: We’ll move to our next question from Mohammed Moawalla with Goldman Sachs.

Mohammed Moawalla, Analyst, Goldman Sachs: Great, thank you. Good evening, Christian. Good evening, Dominik. My question was more focused on the top line. Given you haven’t really seen any decelerations to date in the CCB, can you talk about now the visibility you have for the rest of the year on the cloud revenue? Then just to extend that one step forward, Christian, can you talk a bit about how the pipeline has evolved coming out of SAP Sapphire with obviously the launch of the roadmap, and some of the agents. When do you expect to drive some of both the adoption but monetization of some of your AI solutions? Could you see that effect potentially towards the end of the year, or is it still more into next year and beyond? Thank you.

Christian Klein, CEO, SAP: I can get started, Dominik, please add. Being seven months now in the year, of course, the predictability on cloud revenue is becoming better and better. We are very confident to hit our guidance for the year, despite the volatility we still see and we had especially in Q1. The pipeline after SAP Sapphire is for half year two better than expected, and it’s a better coverage than the last year. Especially now when customers saw the new platform, and we have a lot of customers, hundreds of customers now in the beta testing. The feedback is extraordinarily good. The good piece is also that a lot of our customers, obviously, truth to be told, build custom agents. They all somehow came back and said, "Hey, we are really missing a good price outcome ratio.

We are missing the efficiency gains, the value we expected." Also the IT teams are oftentimes really completely overwhelmed by managing the agents in hundreds of countries. Also the governance is not easy. There the customers really saw now SAP with the new platform, with the announcement we did. That definitely also reconfirmed the belief that SAP will deliver the leading AI platform. Net, despite the macro volatility, we see a very positive pipeline for the half year two. Obviously now, when the customers also see now by building the agents in their hybrid landscapes, they also see continuously the need to modernize the landscapes. That’s also a very important pillar now in Q2.

You saw the big RISE deals we closed, all of these customers said, "Hey, with the current data quality, with the current complexity in my ERP landscapes, AI is going nowhere." We need to modernize while we need to implement and drive adoption of AI. Both they are getting with SAP. That actually also now was really reassuring in Q2 that a lot of customers are realizing, hey, we need to do both. We can’t stop on ERP migrations, while of course we want to lever the power of AI.

Dominik Asam, CFO, SAP: Just quantitatively, I think just comparing the evolution of 2026 to what happened in 2025. In 2025, we had a quite higher than expected deceleration in CCB growth. We guided slightly, then it turned out to be more than slightly. We had a much better start actually in 2026. We guided slightly, but you’ve seen not much attrition. Even if you adjust for M&A, that’s actually a very stable CCB development. The reason why we still stick with slightly is very much the macro uncertainty for the second half of the year, where the outcomes can be more nuanced, different, just depending on what type of escalation you might see.

I think operationally, deep-rooted CCB growth development is much more stable this year, and also in relation to the cloud revenue growth, we now see that while last year there was a big gap that cloud revenues were below CCB growth, that now has flipped. That’s really positive from my perspective.

Operator: We’ll move to our next question from Ben Castillo-Bernaus with BNP Paribas.

Ben Castillo-Bernaus, Analyst, BNP Paribas: Hi, good evening. Thanks for taking my question. Just really on that cloud revenue outlook, please. H1 is running slightly ahead of your guidance. We’re looking at quite a material deceleration in cloud revenue growth in the second half to get to your guidance midpoint. Again, this despite adding more M&A, despite CCB growth re-accelerating Q2, and also growing ahead of cloud revenues, which is usually positive directionally for trailing cloud revenue growth. I guess, how much of this is just prudence given what’s going on in the world, but how much is actually what you really expect, and how can we get comfortable with that deceleration that’s now implied in the second half? Just a quick follow-up would be just on the macro side. Did you actually see any sort of impact on sales cycles and pipeline conversion in Q2?

Could the backlog growth have been better in Q2 without that? Thanks.

Christian Klein, CEO, SAP: Yeah. Because of the macro now in Q2, definitely, look at the CCB, super strong. We don’t see any major backlog because of macro. Obviously in the Middle East, a few deals here and there got delayed, but definitely not at the broader scale, and let’s hope that it continues like that in the second half. Obviously with regard to the revenue in the second half, very important for me to mention is, all three acquisitions now we did was not to acquire growth. First of all three acquisitions have only a very, very minor impact on CCB and revenue. The latest two actually have no impact on cloud revenue. For us, this was very important to just strengthen our data and ontology layer, what I just outlined in my intro.

Last but not least, obviously now with being seven months in the year, as I just said, of course, the predictability becomes better and better. We are more and more confident that we can also hit the guidance what we outlined at the beginning of the year despite all of the volatility we see out there in the market.

Operator: We’ll take our next question from Kirk Materne with Evercore ISI.

Kirk Materne, Analyst, Evercore ISI: Yeah, thanks very much. Christian, can you just follow up on that last point on the most two recent acquisitions you’ve done? I’d be curious, sir, if you could just go over again the thought process behind specifically Prior Labs and the idea of bringing on technologists, obviously around tabular models. Sir, what is the strategy for taking that IP and then monetizing it across the customer base? Can you just give us an idea of how we should think about the return on that acquisition in particular? Obviously, I realize Dremio plays into it a little bit as well. Thanks.

Christian Klein, CEO, SAP: Yeah. First, I said it last time. We went definitely over the last two years through a learning curve in development when it comes to building accurate and reliable AI. What we are now doing with the new platform, the accuracy tests we are doing are very promising. First, the agents, they have access to a lot of mission-critical data in the ERP, the most mission-critical data of a company, which is great. When you are doing replenishment, when you’re doing financial forecasting, when you’re doing workforce planning, obviously oftentimes you not only need SAP data, you need also non-SAP data. That’s why we acquired Dremio, that gives us access to this data without copying it. We have real-time access. That is very important. With Reltio, obviously, the second layer is you have a lot of data.

You can have that also with databases with Snowflake and others. You need high-quality data. We have a very strong master data governance solution, we were missing a master data governance solution for non-SAP data because we want to build one semantical data layer. In development, we are shifting now our developers more and more to really not only expose data products on our new platform, but also joining data products. A customer model for customer churn, for example, includes over 100 data objects across the ERP, plus oftentimes over 400 data objects in the non-SAP world. For example, in a Salesforce system, also sometimes even on social media, on the web. We are joining these data products to build these semantical modules.

Prior Labs comes in, we want to keep this open source, we want to monetize it via our agents. We are pricing our agent based on value, Prior Labs will give our agents the ability to predict more accurately than any other agent in the industry because we will use the tabular AI modules where we can source SAP and non-SAP data, they can run predictions without curating data, without managing a data pipeline. They drive predictions up to a level of 99% accuracy, where you needed before a bunch of data scientists to get this done. We can deliver these predictions out of the box. When you look at predictions, you need it in finance, you need it in sales, you need it in a lot of industry AI agents.

That’s why we want to use the Prior Labs tabular AI module to include that into our agentic AI layer, monetize it via the agents. Yeah. We don’t want to monetize the model on its own. We want to monetize it via the value of our agents.

Dominik Asam, CFO, SAP: Maybe at the risk of stating the obvious, what is also so interesting about Prior Labs is that it is trained on tabular databases. No secret, SAP has probably the biggest reservoir of data of tabular databases, that is not public data. It is proprietary data. That is, I think, a very different ballgame from the large language models where a lot of public data is scraped. The combination of that technology with the unique treasure of data that we have in that format, I think positions us extremely well to run this frontier model here.

Operator: We will take our next question from Michael Briest with UBS.

Michael Briest, Analyst, UBS: Great. Thank you. Good evening. Question on the R&D side of things. Headcount looks to be up 3% year-on-year and the costs 14%. In Q1, the numbers were 2% and 2%. I know Gina Safa was talking about some sort of compensation structure change. Can you elaborate on whether there has been some either targeted or sort of significant increase in rates for the R&D staff? Also where your token costs would go. Would those go into costs of sale? If they are related to developing products, would they go into R&D? Is that part of this increase? Thank you.

Christian Klein, CEO, SAP: Yeah. Good question, Michael. First of all, in the last 12 months, indeed, we still invested into new job profiles in R&D, data scientists, data engineers. We invested into full stack developers for industry AI, we will now continuously, heavily slow down the hiring for the other profiles. Now that the AI productivity is kicking in, and indeed the highest token consumption is in R&D, we see productivity gains of an average of 30%, there is no need anymore now to hire additional people. You also see that the costs are more up than the headcount. That is actually the token effect. Yeah. We charge the tokens, of course, to the functions who are using it.

Second, obviously, we also, for very few top caliber people, we hired a few top caliber people, which came in with a higher personal expense per FTE than the average what we are having. That’s also what Gina was alluding to. You can expect now in the next 12 months not a further increase of headcount. It’s just about getting a few experts in and then, of course, driving the productivity of R&D up in line with the token consumption.

Operator: We’ll take our next question from Charles Brennan

Christian Klein, CEO, SAP: Maybe one-

Operator: Sorry, go ahead.

Christian Klein, CEO, SAP: Yeah, maybe one addition. I guess what is also very important, Michael, what we are doing, and that also relates to our customers. We are now also managing with our customers the development backlog from SaaS features to AI development. Obviously, with this change in the backlog, we don’t want to incrementally just add to the development backlog. We want to now change the backlog from feature development into agentic AI development. Obviously, that is also a transition period, not to forget. We cannot just say from one day to another, we stop feature development of our SaaS solution. This will be a transition, which is, by the way, already on its way.

The customers, of course, are heavily now interested in shifting their feature requirements into agent requirements. That process is also ongoing to really, at the end, also see the wide R&D productivity in the next 12 months. Yeah.

Operator: We’ll take our next question from Charles Brennan with Jefferies.

Charles Brennan, Analyst, Jefferies: Great. Thanks for taking my question. Can you just say something on the recent European ruling on maintenance? There’s some suggestion, I think, that giving customers more maintenance options potentially opens the door to them staying on ECC for longer. Do you think this ruling actually changes any behavior on the ground? Then maybe as a small modeling follow-up, Dominik, you’ve given us the loss run rate for Dremio and Prior Labs, but can you say anything about the revenue and the CCB contribution from them? Thank you.

Dominik Asam, CFO, SAP: Let’s start with the last question. It’s negligible. Contrary to Reltio, which had, as I said, a less than one percentage point increment in CCB revenue, not much different on cloud revenue growth. It’s basically negligible on these two acquisitions. This is why we didn’t comment on it much. Now, you said EU ruling. This is an agreement between the EU and SAP to commit to certain mitigants in terms of flexibility on maintenance. First of all, I want to stress that the maintenance is extremely highly valued by the lion’s share of our customers. They clearly see the value of being current on cyber patches, on compliance patches, legal patches, on some functional improvements we bring to the table. We have actually also in the past, granted flexibility and opportunities for these customers to adjust their software spend to the needs.

That has been, to some degree now, formalized in this agreement. In some degrees, some more flexibility has been granted in limited scenarios for the customer. For some customers that are actually prioritizing lower spend over the advantages of some maintenance and support I described, there might be an impact, but we think we can manage it. Don’t forget, that one is also phasing out more and more as we convert the customers onto cloud and RISE. That has nothing to do actually with ECC versus S/4 transition, because at some point in time, that maintenance will anyhow expire. In 2030, ECC maintenance is basically zero anyhow. Last point I want to mention, we do actually see quite a nice pickup in returns from third-party maintenance. That gives us also confidence.

When people try that for a while, they tend to be more nervous over time about incidents happening and then come back. Actually, some of the discussions in that context are about how do we deal with the customers who are knocking on our door and say, "We want to come back," and how much back maintenance do they need to pay and that sort of stuff.

Operator: Our next question comes from Frederic Boulan with Bank of America.

Frederic Boulan, Analyst, Bank of America: Hi, good evening, Christian, Dominik. Fred at Bank of America. If I can come back on the cost side, if you can comment on the decline we’ve seen in cloud margins this quarter, and more broadly on the R&D side, a bump as well in terms of potential sales. Is it something structural in terms of rebalancing from sales and marketing into R&D? Or as you were saying, it’s more about an initial investment that should then normalize over time? Thank you.

Christian Klein, CEO, SAP: Absolutely the latter one. Give us some time, please. Look, this is the second transformation we are now in. As I mentioned before, first, you need to reshuffle the backlog. Our backlog was full of feature requests from our customers, and we need to have the time to reshuffle this now to AI. We are on a good path there. We already see that the share of agentic AI development in the backlog has substantially increased. The second part of it, now we invested into getting the right experts into SAP. We invested into the AI tokens, but at the same time, we are already seeing the productivity gains. Now in the next 12 months after have done that, you will see very healthy R&D ratios going forward. There is no structural shift. The same is true for the cost margin.

Now, in Q2, we had some one-time investments into the test environments for our new platform, into Joule Work. We had to do that, and we have a cost increase for the sovereignty environments. We are delivering end to end, but still for the bulk of our cloud operations delivered by the hyperscalers, we see no cost increase. Also there were some minor one-time impacts now in Q2, but nothing where we believe will continue now in the second half of the year or on the 12 months out.

Dominik Asam, CFO, SAP: Recall, we always gave that kind of formula to say that total expenses We brought in 90% of the revenue growth. We always said we want to have some wiggling room within any specific line item. I think that served us well. That gives us flexibility to optimize the business while sticking to that envelope. We have no reason whatsoever to change that. I think the longer we wait, the more it turns out to be a very solid corridor with regards to how we can leverage the revenue growth down to the bottom line.

Christian Klein, CEO, SAP: Our AI business now is really starting to scale. Think about the price levels, what we can also then achieve in the market. For 50 years, this company has sold system of records, ERP, first on-prem, then cloud. The customers were used to a certain discount level. We always, in the last years, very successfully maintained very healthy price levels. You have seen this in the cost margin development of SAP. Who have thought that we’re going to achieve such a cost margin, by the way, five years ago? With AI, we can completely reset the price level. You’re going to a customer and said, "Hey, it’s not your end user, it’s not your financial accounting team who does the financial close, it’s the agents doing this autonomously." Here is outcome-based pricing.

There is nothing what you can relate to when you come from the system of record pricing. That is, in my eyes, a unique chance also for SAP to do a reset and really price outcome value-based. That is our clear task also to our salespeople to make sure that, hey, don’t even go to the SaaS world, don’t even go to the price levels you have given. That is a new way of selling, and it’s a new way of actually pricing our solutions. For me, this is a unique chance, which first of all, will hopefully end up in the next 12 months in an acceleration of our AI cloud revenue, but second, then also in very healthy cost margins going forward.

Operator: We’ll take our next question from Toby Ogg with J.P. Morgan.

Toby Ogg, Analyst, J.P. Morgan: Hi, good evening, and thanks for the question. Perhaps just on the new EBIT guidance, Dominik. EBIT slowed to nine percent in Q2 for the reasons that you laid out, but you had a strong Q1. Overall, H1 EBIT growth constant currency was 16%. The guidance midpoint implies mid-teens or so EBIT growth in the second half, which would imply a re-acceleration relative to the Q2 EBIT growth. Can you help us understand what would drive that re-acceleration from the Q2 EBIT growth rate, and what gives you the confidence in that as we think about the second half? Thank you.

Dominik Asam, CFO, SAP: Yeah. I did mention in my introductory comments that Q2 was a little bit of an abnormal situation because also from the cloud revenue growth acceleration, we had a strong contribution. We are frankly optimizing massively now on how we spend tokens by virtue of a very tight controlling. We can now, on a very granular basis, see who’s using what tool and what is output driven here, and we will funnel the tokens in a way that gives us a better bang for the buck. There are also measures on cost containment to really make sure that we focus our resources where it really matters. You nicely summarized the thinking we have in terms of H1, H2. This is exactly what we’re going to do.

Operator: We’ll take our next question from Michael Turrin with Wells Fargo.

Michael Turrin, Analyst, Wells Fargo: Hey, great. Thanks. Appreciate you taking the question. I just want to ask a little bit of a different flavor on the questions around bookings and margins. CCB growth improved this quarter. I think that’s a surprise to many, given the backdrop. The margins coming in a touch, Dominik. Maybe walk us through both what drove the Q2 growth improvement, and then given that, why that doesn’t flow through to operating income. Is there anything outside of M&A impacting that relationship? Are you saying on the organic side, things are generally improving, and it’s all tied to just some of the dilution impacts?

Dominik Asam, CFO, SAP: Okay. Let me do it step by step. If you look at the deceleration, so to speak, in the growth of the non-IFRS operating profit, Q1, which was extremely high, 24% versus Q2. First of all, we have to understand there was a very big, strong positive from lower stock-based compensation because a EUR 60 roundabout share price drop in Q1 that didn’t reoccur in Q2. That is sequentially going down. We mentioned a heavy R&D investment that was discussed at length on this call already. We had a slower growth in cloud revenue growth, and this was predominantly driven by the comparison in the prior year, as I tried to explain.

We had basically, in the prior year, an increase of two percentage points in the cloud revenue growth from Q1 to Q2, that just mathematically means that the comparables on cloud revenue growth are less favorable. We had much harder comps in Q2. By the way, that will of course flip around also in the next quarter. We did have some pointed marketing investment around the launch of the autonomous enterprise. Then there was also a minor effect, but still negative on first-time inclusion from Renzhu in early May. That is giving you basically the bridge why Q1 had a higher growth rate on non-IFRS operating profit than Q2.

Again, if you pull it together, you see a mid-teens increase in operating profit for the two quarters taken together, we are expecting something similar with all the measures I have been highlighting we’re going to take in the second half of the year. Of course, this is actually, so to speak, a little bit more comfortable to achieve than top-line topics because it’s entirely under our control. We can do these things. The CCB is the more important measure from our perspective in terms of bringing that home, because that is also requiring customer to sign a contract, whereas our spend is something we have entirely under our control.

Christian Klein, CEO, SAP: Maybe just to close it out on the bottom line. Just last week also, we reviewed our hiring plans for the next 12 months and for 2027. Seeing the increase of the AI token, seeing the increase of the productivity, now not only development with Joule Work, we’re going to see it cross company. We have now 4,000 users inside SAP using Joule Work with tremendously good feedback. That will now hit the market in Q3 as well. We also adjusted our hiring plans. For this year, we will nowhere near hire the number of people we planned to hire at the beginning of the year. Also for next year, we see that we are balancing AI token consumption and own headcount in the right way so that we see the productivity increase to hit the 80%-90% cost revenue ratio we committed to you.

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