SAP Q4 2025 Earnings Call - AI-fueled bookings lift backlog to EUR 77bn, but CCB slows to 25%

Alexandra, Earnings Call Moderator, SAP: Today are CEO Christian Klein and CFO Dominik Asam. On this call, we will discuss SAP’s fourth quarter and full year results for 2025. You can find the deck supplementing this call, as well as our quarterly statement on our website 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 outcome 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 on 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. With that, I would like to turn the call over to Christian.

Christian Klein, CEO, SAP: Yeah. Thank you, Alexandra, and a warm welcome to everyone joining this call. In countless conversations with business leaders in Q4 and at the World Economic Forum, it became clear: customers are facing geopolitical uncertainty, macroeconomic volatility, and they would like to leverage AI to make their companies more resilient and more productive, driving growth as well as cost efficiencies. At the same time, it is very encouraging that more and more customers and partners are turning to SAP to gain real business value from AI. Why? Because they realize that they don’t gain value by developing a number of custom AI agents or by applying commodity large language models on top of transactional business applications. The formula for gaining real value from AI as an enterprise is becoming clear. It’s important to reimagine first, how AI will change existing business models and mission-critical business processes.

To boost process automation and efficiency, AI agents must be embedded in business processes and trained with context-rich business data that is not available to large language model providers. This is a unique combination only SAP can deliver, because our business suite provides us with access to the world’s largest volume of business data, and we directly infuse our agentic AI layer in the most mission-critical business processes of a company. This momentum of SAP Business AI is also clearly visible in our Q4 numbers. More than two-thirds of our Q4 cloud order entry includes Business AI, increasing by more than 20 percentage points compared with Q3. Looking at the 50 largest deals in Q4, 90% of them included AI or SAP Business Data Cloud. We also saw the number of customers using our AI copilot tool growing ninefold over the course of the year.

Now, let’s have a broader look at our financial performance. Q4 was the best bookings quarter of 2025, ahead of our expectations. This resulted in a total cloud backlog of EUR 77 billion, up 30%. This also clearly shows the underlying momentum of our business, as well as our potential in the future. In addition, we achieved our 2025 financial outlook for cloud revenue, as well as cloud and software revenue. A great performance, considering the macroeconomic challenges we faced in half year one. The ongoing transformation of SAP’s operating model, combined with applying AI across the company, allowed us to even beat our operating profit and free cash flow outlook in 2025.

Some of you might remember, back in 2020, we started our disruptive cloud transformation with very ambitious targets for 2025, and today I’m happy to say we have delivered what we promised and even outperformed this ambition. But more importantly, the great technological achievements of our cloud transformation are now giving SAP the right to win with business AI. It is the time to thank our customers, partners, and more than 100,000 colleagues worldwide for the trust in our strategy and for making the transformation happen, for sure, the biggest in SAP’s history. Let me directly turn to a Q4 number where I expect some questions. Our current cloud backlog. In Q4, it grew 25%. Back in Q3, we expected to reach 26%.

Before I explain the deviation, let me outline that in Q4, new bookings came in clearly ahead of plan, and we saw strong customer retention, low churn, and stable discount rates. This resulted in a 30% increase to EUR 77 billion total cloud backlog, an impressive growth on an already large base. Despite the strong Q4 performance, two factors led to the deviation. First, we closed a higher share of significantly large deals in Q4 compared to our forecast in October, which is great for the total cloud backlog. But large customers often don’t move their mission-critical ERP in the first year. These deals always have more back-end-loaded ramps, and as a consequence, a limited impact on current cloud backlog in the first 12 months. The good news, the average contract duration remains stable, so we expect higher revenue contributions from these deals over the next few years....

Second, we closed a higher share of government deals in Q4 that included a termination for convenience by law. Such deals are not reflected in the CCB. So, while we even overperformed on bookings and are very satisfied with the outcome of Q4, the combination of both effects resulted in a one percentage point difference to what we expected in October, and consequently, a slight shift of cloud revenue from 2026 to 2027 and beyond. Now, the great bookings performance included some impressive wins in Q4: adidas, L’Oréal, and H&M Group are embarking on the RISE with SAP journey. Deloitte, Pirelli, RTX, Nokia, Chaebol, and the U.S. Navy chose RISE, too. While Toyota and Daimler Truck are even expanding their ongoing RISE journey.

Lockheed Martin went live on RISE with SAP in one of their business areas, a further step in our multi-year partnership, which will continue in 2026 with our human capital management solutions as they keep transforming their workforce. Across all sectors, companies selected SAP Signavio to transform their business. KPMG, Snowflake, and Müller, a large German retailer, just to name a few. On business AI, new customers included names such as Tech Mahindra, Mondelēz, Kirin, and Sun Chemical. In healthcare, Fresenius selected SAP Business AI to sustainably improve patient care. We also saw the Bosch Group select SAP Business AI in Q4 to help boost innovation across all four of its business sectors. This momentum is translating into business AI adoption. Our customers are already achieving impressive outcomes.

Just one example: At Siemens, consultants can reinvest 25% of their weekly working time into higher value activities, thanks to Joule for Consultants. These impressive wins aren’t just a list of logos, they are the result of our focused strategy execution throughout the year. Looking back at 2025, we made huge progress. Let me name a few highlights. First, our cloud transformation is in full swing. Customers representing 40% of our support revenue base have now initiated a move to cloud ERP, using the RISE and GROW with SAP offerings. On the go-to-market side, we established a partner-first approach for the mid-market, and our focus on public cloud pays off, with order entry growing more than five times faster than private cloud in 2025. Now, almost half of our order entry.

We have also expanded our software and cloud capabilities and continue to see high demand for our offerings in the public sector. In Q4, for example, we closed a new OneGov agreement with the U.S. General Services Administration and with the HMRC in the UK. Finally, our innovations in SAP Business Data Cloud and SAP Business AI are seeing strong traction. SAP Business Data Cloud secured around EUR 2 billion in total contract value in less than a year since its launch. As I mentioned earlier, more than two-thirds of our Q4 cloud order entry included AI. Now, let’s turn to our growth ambition for the year 2026 and beyond. Over the last years, we have built a solid foundation for future growth, thanks to the successful execution of our transformation.

Building on this momentum, we are confident that we will further expand our market share, grow cloud revenue, and accelerate total revenue growth through 2027. This confidence is based on several key growth drivers. First, coming back to our total cloud backlog of EUR 77 billion. This grew by 30%. It outperformed our current cloud backlog growth by 5 percentage points. In short, we have a significant amount of our future cloud revenue in the books, and given the ramps of the large deals over the next four years, we are increasingly building a strong foundation for total revenue acceleration through 2027. Second, we will continue converting our installed base to the cloud with a multiplier of 2-3x. Considering our support revenue base of EUR 10.5 billion, this represents a multi-billion euro cloud revenue opportunity for us.

Third, the vast majority of our cloud customers are expanding their SAP footprint across the SAP Business Suite. They now clearly see the value of best of suite over best of breed, especially in the age of AI. So they leverage the best of suite approach not only to run their business processes end-to-end, but they also seek a harmonized data platform that provides the foundation for high-value business AI. As a result, in Q4 alone, almost two-thirds of our deals exceeding EUR 1 million involved four or more lines of businesses, a remarkable increase of 25 percentage points. But we see this not only in increased up- and cross-selling numbers, but also in market share gains. Overall, we outperformed the cloud market by 10 percentage points in 2025. Fourth, it is not just the world’s largest enterprises that rely on SAP...

With our business suite in the public cloud, SAP’s mid-market business is growing, too. We expand in the mid-market, and we are winning new customers through our Partner First strategy and the significant expansion of our reseller ecosystem. This channel is already growing more than 1.5 times faster than our direct business, and we will substantially increase the contribution from our ecosystem. Finally, let’s conclude with the growth driver that has the highest potential and is, of course, the greatest strategic relevance by far: our business AI and Business Data Cloud. The traction from 2025 is just the beginning. Many customers have seen that an LLM alone is not enough. They need modules, business data, and context to build high-value AI use cases and derive business value.

So let me explain to you how we drive growth with SAP’s unique combination of apps, data, and AI. First, Joule. We are reinventing the user experience and the way people work across all our apps with our copilot, Joule. Unlike other digital coworkers, Joule doesn’t just access the world’s leading LLMs, it also has broad access to business data. No matter the task, Joule is setting new standards for user experience, simplicity, productivity, and will just redefine the future of work. Second, embedded and extensible AI agents. We are embedding AI agents across the main business processes of every company. Doing so, we are helping our customers to realize efficiency through automation, make better decisions, and gain agility across their value chain with connected agents.

To extend where differentiation is needed, we provide a powerful agent builder with capabilities that are unique to SAP, such as the access to a semantic BDC data product, and the ability to benchmark and infuse agents directly into the business process layer within our apps. Our pro-code offering serves the needs of our developers, while our business users can use the agent builder in a low-code mode to easily build, deploy, and manage AI agents. Third, we have always differentiated ourselves by our deep industry and business process knowledge and coded high-value, industry-specific applications. Now, we are reimagining these strategic industry capabilities with AI.

Together with some industry-leading customers, we are already redefining mission-critical parts of an industry value chain by developing the next-generation AI solutions, like redefining patient care in healthcare, delivering higher predictability and supply chain resilience in manufacturing, and to run smarter trade promotions and personalize the shopping experience in retail. Some of these industry AI use cases were already crucial to the success of our Q4 deals. Fourth, BDC addresses one of the biggest roadblocks for AI adoption that our customers face today: data silos. BDC brings together SAP and non-SAP data, providing our customers with the harmonized data they need to enable their agentic AI vision. In 2026, we will heavily accelerate the development of data products to enrich the semantic layer for all of our customers. And fifth, accelerated ERP migration.

Often, customers spend 10x more on their ERP migration compared to what they spend on their ERP software. With our integrated AI-powered migration tool chain in the RISE journey, we are shrinking this ratio by cutting the migration cost and making it faster and easier for customers to realize value from their transformation. Net net, in all of the focus areas, SAP has a clear right to win. Together, they’ll secure SAP’s position as the leading business AI company. Finally, to be credible in the AI market, we role model the use of business AI and kicked off an extensive AI transformation program internally. We are using AI across all functions to unlock significant long-term operating profit potential. In R&D, we see huge efficiency gains, as the role of a developer is shifting from traditional code writing toward designing, guiding, and validating AI-generated solutions.

In sales, business AI will help us to better quote, price, identify opportunities. In HR, business AI will help us better plan and transform our workforce. Every SAP leader across every function is infusing AI into their business and drive the reskilling of our workforce, because AI isn’t just about technology. It first needs to be enabled by our people. Altogether, our goal is to achieve a run rate of around EUR 2 billion in real cost efficiencies by the end of 2028, thanks to the internal usage of AI. This equates to efficiency gains of 15%-20% of addressable costs, which also helps us to reinvest into our AI roadmap. So to sum it all up, we closed 2025 with strong momentum. Our strategy is validated by our customers, and we will, we have all the ingredients to win in the age of AI.

The groundwork is done, and 2026 will be the year AI delivers enterprise-scale return on investment. 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 morning. I’d also like to wish you all a happy and healthy year, 2026. SAP’s strong close to the year reflects steady execution against our priorities. As we navigated a rapidly shifting macroeconomic backdrop at the beginning of the year, we remained focused on operational discipline and driving value for our customers in times of unprecedented technological change. Our ability to drive top-line growth while consistently exceeding our profitability and free cash flow expectations, reflects the consistent execution against the outlook we provided at the beginning of the year. While challenges persisted, we took deliberate steps to reinforce our foundation and align the business for durable, sustainable performance.

As a result, we closed the year in a position of strength, and the progress we’ve made has set the stage for continued advancement towards our financial and strategic priorities in the years ahead. RISE with SAP and GROW with SAP both remain core pillars of our transformation strategy, serving as a go-to solution for large-scale enterprises and high-growth mid-sized companies undergoing complex end-to-end modernization efforts. As highlighted by Christian, AI and the Business Data Cloud are beginning to show real commercial impact, emerging as a meaningful contributor to customer decision and deal activity. This combined momentum continues to materialize in large cloud transactions, with deal volumes greater than EUR 5 million, contributing a record 71% to our total cloud order entry in the fourth quarter. These results validate our role as a partner of choice, trusted by world-class organizations, navigating high-stakes transformation at speed and scale.

Now, let me provide more details around our financial highlights. Current cloud backlog reached EUR 21 million, up 25%. This is a more pronounced slowdown than what we had anticipated and more than the slight deceleration we guided to at the beginning of last year. Echoing Christian’s remarks, this outcome reflects a deal mix weighted towards larger transformations, many of which include longer ramp periods or flexible structuring, reducing their near-term CCB contribution. Also, further mounting geopolitical tensions have led to many customers putting even more emphasis on exploring sovereign SaaS options.

While SAP is extremely well-positioned in this segment, and we have a significant pipeline of opportunities, due to the trust Germany and SAP continue to enjoy on a global scale, it takes longer to negotiate these more complex transactions and also longer to deploy and ramp as compared with plain vanilla offerings of U.S. infrastructure, the service vendors. This is particularly true for any state-owned and related entities as well as defense, but starts to also affect commercial customers in certain particularly sensitive geographies and industries. Total cloud backlog for the year grew 30% to a record €77 billion, again, significantly exceeding our current cloud backlog and cloud revenue growth. Cloud revenue actually grew 26% year-on-year in 2025, again, primarily driven by the strong performance of Cloud ERP Suite.

Cloud ERP Suite had another notable year, reinforcing its position as a key engine of growth with an increase of 32% in 2025, and I want to make the remark, this is a constant currency number. In US dollar, the number would be two percentage points higher if you want to compare to competition. This performance is especially meaningful given the expansion of its revenue base over time, highlighting its ability to scale at a sustainable growth rate, now accounting for 86% of total cloud revenue for the year. Software licenses revenue decreased by 27%. Finally, total revenue for the full year approached EUR 37 billion, up 11%. Now, let’s take a brief look at our regional performance.

For the full year, Brazil, France, Germany, India, Italy, South Korea, and Spain all had outstanding performances in cloud revenue, but China, Japan, Saudi Arabia, and the United Kingdom, as well as the US, were particularly strong. Now, down to the income statement. Our non-IFRS cloud gross margin for the full year continued its upward trend from last year and expanded by 1.6 percentage points to 75%, driving cloud gross profit up by 29%. In the fourth quarter, IFRS operating profit increased 27% to €2.6 billion. Non-IFRS operating profit was up 21%. Both IFRS and non-IFRS operating profit growth were negatively impacted by approximately EUR 100 million related to a 2025 workforce transformation. In addition, IFRS operating profit growth was negatively impacted by $200 million related to Teradata litigation expenses.

For the full year, IFRS operating profit increased to EUR 9.8 billion and non-IFRS operating profit to EUR 10.4 billion. The IFRS effective tax rate for the full year was 28.5%. The non-IFRS tax rate was 30.4%, which is below the outlook for the approximately 32%... mainly resulting from an increasing ability to offset foreign withholding taxes in Germany. Looking forward, we expect the midterm non-IFRS effective tax rate to be in a range of 28%-30%, which is slightly lower than half lower-- which is in the lower half of the previously communicated range of 28%-32%. Free cash flow for the full year was a rounded down 8.2 billion euros, i.e., at the very high end of our revised outlook range of EUR 8 billion to EUR 8.2 billion.

This increase was mainly attributable to higher profitability and to lower payments for restructuring and share-based compensation. This result reflects our continued emphasis on disciplined cash management and operating efficiency, building on the progress we’ve made in strengthening quality and consistency of our cash flow over time. We are very proud of the progress we’ve made this year and the business momentum that contributed to our strong net cash position. As a result, SAP has decided to further step up its capital returns with a new two-year share repurchase program of up to EUR 10 billion, scheduled to start in February. This decision reflects our confidence in the sustainable strengths of the business and our continued commitment to returning capital to shareholders in a disciplined and balanced way. Finally, non-IFRS basic earnings per share in fiscal year 2025 increased by 36% to EUR 6.15.

Now, let’s move on to our outlook. As you’ve probably seen in the quarterly statement published earlier today, we have provided this year’s outlook by now. We expect CCB growth to moderate slightly over the course of 2026. While some deceleration is anticipated, it is expected to be meaningfully less than what we saw in 2025 in terms of deceleration. At the same time, we see a path for total revenue growth to accelerate, supported by the foundation we’ve built and the continued strength of our business. Our operating profit outlook reflects sustained operating discipline, driving our expense to revenue growth ratio towards the lower end of our long-term operating leverage objectives of 80%-90%, giving us the opportunity to continue to drive non-IFRS operating profit growth significantly above revenue growth.

In addition, in 2026, we expect to generate a record free cash flow of approximately EUR 10 billion, supported by continued efficiency improvements and operational rigor. Overall, our guidance reflects a balanced view of the opportunity ahead, grounded in disciplined execution and an ongoing commitment to long-term value creation. With 2025 now behind us, we move into 2026 focused on consistency, clarity, and execution. The groundwork we have laid across both transformation incentives and initiatives and commercial performance puts us in a strong position to deliver against the guidance we outlined today. While geopolitical and trade tensions have taken a certain toll on our top-line performance in 2025, the growing need for sovereignty and resilience also offers unique opportunities for those vendors that can offer technologies and tools to reduce dependencies from dominant offerings.

As the largest non-US software, SaaS, and PaaS vendor, there’s no company better positioned than SAP to satisfy this rapidly growing demand. Our strategy to design a stack which is not locked into any particular IaaS vendor is particularly valuable in that respect, and our decision to keep developing our powerful SAP Converged Cloud infrastructure, the sovereign infrastructure, thereby preserving capability to run infrastructure as a service efficiently in our own data centers, provides us with another, now even more valuable option to deploy our SaaS and PaaS offerings. Despite an unpredictable macro and geopolitical environment, our strategy remains clear, and our execution is already driving meaningful progress across the business. Customers are choosing us as their North Star to lead mission-critical change, and we remain committed to helping them move faster, scale smarter, become more sovereign, more resilient, and modernize with confidence.

Thank you, and we will now be happy to take your questions.

Alexandra, Earnings Call Moderator, SAP: Thank you, Dominik, and with that, we’ll now take your question. I would like to kindly remind you to only ask one question when prompted. Operator, please open the line.

Speaker 9: 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 touchtone 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. One moment for the first question, please. We’ll take our first question from Adam Wood with Morgan Stanley.

Adam Wood, Analyst, Morgan Stanley: Hey, good morning. Firstly, good morning, Dominik. Thanks so much for taking the question. Maybe if we go to, I guess, the main focus for investors on the CCB at the end of the year. You know, you spoke obviously at the end of the year of 25% being disappointing, which is unfortunately where we ended up. Could you maybe talk us a little bit through the end of the fourth quarter close? You know, was it entirely that you had these large deals with later ramps and deals with cancellation clauses in them, or did you also see some slippage? And maybe if that was also the case, could you help us with what the pipeline looks like going into Q1?

You know, obviously, if there was slippage out of a very big Q4, that could mean a very good pipeline for the first quarter. And then I appreciate you only give these numbers, you know, to, to the big figure and not to the decimal point, but unfortunately, I think for everybody, you know, the, the kind of rounding up and rounding down would help. Could you give us any insight into whether 25% and then 26% adjusted for those effects is being rounded down or rounded up? And then maybe just finally, you talked about slight deceleration. I guess everybody’s gonna say, well, slight deceleration last year was 4 points, I guess we could say 3 points organic. Is that the same type of range that people should be thinking about?

Because I think that’s, you know, initially where people would go to. Thank you.

Christian Klein, CEO, SAP: Yeah, thanks a lot, Adam. So look, let me start with the CCB of 25%. As, yes, we said in October, 26% would be the target. I mean, first, let me reiterate again, compared to October, we even had overachieved our bookings plan, and also the churn came out lower than expected, and we also, very importantly, had stable discount rates. Now, why did we end up at 25%? What we have seen is that during the course of Q4, actually, the deal mix has changed. We closed larger deals. And, I mean, it’s quite standard in for a larger customer, oftentimes, in the first year, they are shifting, you know, some smaller solutions to the cloud because the larger ERPs, that needs time.

First, to figure out how they would love to run their business processes. We talk about clean core, but of course, there are also a lot of technical things to be figured out before you really lift and shift your most mission-critical system to the cloud. So that was clearly, I would say, the largest factor. And the second one is actually that we have seen that actually, we perform much better in the public sector. And in some deals, you know, you have a termination for convenience by law. So per se, we are not including this in the CCB, and that was the only mix effect I would say we had compared to October. Again, bookings performance was ahead of plan.

Now, for some of the larger deals where there’s slippages, I mean, in every quarter you have slippages, but I would say the execution, the sales execution was really good. I mean, some of these larger mega deals, what I was mentioning, is actually that some of them closed, some of them not. So clearly, also for 2026, we see actually a better pipeline coverage, you know, than when we compare the pipeline now compared to where we were at in 2025. Also, of course, one thing to consider, what Dominik also mentioned, is sovereignty. I mean, in some countries of the world, in some industries, obviously, also deal cycles took a little bit longer. I mean, with the geopolitical tensions, customers have more questions around sovereignty, and actually that also then reflects in longer negotiation cycles.

Now, for 2026, what means marginal decline or slight decline over the year? Definitely not a 4% decline. That is not what we are seeking for. It will be not such a decline like what you have seen in 2025. Also, again, given the strong pipeline, what we have now at the beginning of the year. Also mentioning, I mentioned that 90% of deals which included AI. I mean, we see an even better trend for 2026, so you clearly see with BDC and AI, customers are now not only doing wise to just rematching their business model and drive to a clean core. We see now in more and more deals that also, of course, AI and BDC is kicking in as another growth driver, also helping, of course, the multiples, of these deals.

Speaker 9: We’ll take our next question from Charlie Brennan with Jefferies.

Charlie Brennan, Analyst, Jefferies: Great. Good morning. Thanks for taking my question. I’ll do two, if I can. Firstly, everyone’s preoccupied with AI at the moment. I think you referred to a EUR 2 billion saving at SAP over the next couple of years. Can you talk to how that’s going to flow through the business? Are you gonna extract that through natural churn in the organization, or do we have to think more about, say, another restructuring program? And then, as you rewire the business towards a sort of AI age, how much of your R&D today do you think is based on AI-driven tools? And how much of your output today is focused on AI as opposed to some of the core products? Thank you.

Christian Klein, CEO, SAP: Yeah, talking about our internal transformation, obviously, it’s for us, super important to also be credible to our customers. And indeed, I mean, all our business leaders already working with actually our product management teams on implementing certain AI use cases. For the EUR 2 billion that will be reached obviously by, you know, first, we will have a heavily growing business, and with that, we will just under proportionally grow our cost and headcount base. And you will see the efficiencies. Obviously, in R&D, I mean, this is where the LLM modules alone can do magic, on, especially on the code generation side.

But in all other areas, obviously, our own AI foundation is kicking in, where, you know, heavily also you need business data to build those smart agents who can take over a lot of the work what people are doing today. So today, as of today, there is no restructuring plan, restructuring plan. Obviously, can you hold this out forever? No. But today, I can tell you, we’re gonna achieve that by just scaling our business way more than in the past with AI. Now, on the R&D side, I mean, first, what we did is... I mean, we have great talents in the organization, but obviously, these talents are oftentimes buried in development backlogs.

So already last year, we lifted and shifted a lot of our AI talents into, you know, the work to build the AI foundation, to train our foundational module, to build those AI agents. So a lift and shift has already happened, and so for example, the things which are, of course, now becoming less and less is code generation, so we already automated 35% of the code, and then obviously, that will increase now also again, significantly this year. So actually, the profile of a software developer is already changing quite significantly within SAP... also, again, investing, and it’s not a size of quantity of people.

It’s really about getting the best people, the best data scientists, the best AI developers on board to actually, you know, build what I just lined out with the five force drivers within AI.

Dominik Asam, CFO, SAP: Maybe, maybe on the R&D side, let’s not forget that, I think one of the challenges we used to face very heavily is the enormous rigorous prioritization of what we are actually developing, because there’s such a scarcity of topics we can go after versus the in terms of opportunities there are. So, let’s not forget that there is ample of wood to chop, so to speak, on R&D, to do things that previously we couldn’t do using the modern technologies. And this is also why, in terms of financial model, we stick to our 80%-90% operating leverage. Yes, we are going to be at the lower end of that in 2026, but the last thing we want to have is putting some mortgages on the top line.

We really want to push the top line very hard by aggressively investing, and so we want to use these tools to really push the envelope and secure innovation and top line, and to be ahead of the pack.

Speaker 9: The next question is from the line of Frederic Poulat with Bank of America.

Frederic Poulat, Analyst, Bank of America: Good morning, Christian and Dominik. If I can follow up on the AI side. We’ve seen growing concerns about risks from AI impacting the enterprise SaaS. You made a strong pitch around the kind of software, data and agent ecosystem. It would be good to share, in terms of AI traction, what percentage of existing cloud customers currently using your AI offering? I mean, you know, it’s good to have the kind of 90% of bookings now, including that, but it would be good to see existing cloud customers using the product. And give us a range of revenue uplift you’re seeing, in particular with some of the customers where you’ve seen earlier adoption.

From a risk standpoint, I mean, a huge amount of concern in the industry about new tools out there. You made a pitch about the relevance of your own models versus commoditized LLMs, but would be... You know, do you see any of your customers starting to use different tools to respond to needs that they were previously addressed by SAP, either in core ERP or across HCM, et cetera? Thank you very much.

Christian Klein, CEO, SAP: I can start, Dominik, and please also comment. I mean, first on number of customer adoption. As I already said, customer adoption of Joule increased by ninefold, which is really significant, you know, starting when I compare this, you know, back to 25 January. And then second, obviously, what we are seeing is, of course, now that we are developing builds, more users are jumping on it. Customers are one thing, number of users. And what we see is actually in the cloud base, a healthy penetration of our AI. Round about 60% of our customers are already using our AI actively. 20% are on the way to it. But also, please not forget, and I know what the market is, you know, fearing right now.

To give you one practical example or two, in the business world, in order to deliver high-value AI, I mean, let’s take code generation. Yes, of course, the LLMs can understand code, can find the patterns, understand how people use the code, and actually are super powerful on that. There is no business data involved. Let’s use a German customer. It actually started with an LLM to build a cash flow agent. No value. Because why? The LLM would, of course, read certain emails, support tickets, and try to figure out why is this customer not paying. But what was completely missing is all the business data, the inventory data, the financial bank statements, the other data on the customer side. Is there still a deal ongoing? Maybe that’s blocking, you know, actually the payment of this customer.

So actually, what we did is we used this LLM, we brought it together with our AI foundation and our knowledge graph. And actually, what the customer did, they removed actually over 200 predictive modules now, which they built on their own using our AI foundation. And that example, you can actually replicate to every AI agent in the business world. Second, we won a large deal with H&M. We actually built a prototype for them. I mean, and that’s what they are now going to implement on AI. We showed them the personalized shopping experience in commerce, obviously also using an LLM, but we combine it again with our AI foundation to better understand what did the consumer buy in the past, to understand better patterns about what he clicked on the webpage, et cetera. Then, you know, we went into returns claims management.

Also that, we had this industry capability always in our portfolio. Now we are actually reimagining this industry capability with AI, making it smarter, making it more efficient, when it comes to returns claims management. And that is a very good example. We closed one of these mega deals I personally was involved in. We didn’t win it, actually, again, only because, "Hey, cloud clean core," that was the thing what we did a year ago. Now we are winning it because last mile delivery. Again, this customer tried to reinvent last mile delivery with an LLM. Again, they were missing business data. We brought it together. We showed them what we can build together with our AI foundation, and they were totally convinced. So to make this very clear, we are winning deals because of AI.

We are not losing deals because of AI, and definitely, you know, these deals are actually now leveraging AI to increase the win rate in Q4.

Dominik Asam, CFO, SAP: Maybe to give a little bit of a financial color around that kind of winning deals.

... I’m always a little bit nervous about how people compare our numbers to the industry. We have a constant currency disclosure, but don’t forget, we had a massive devaluation of the US dollar. I think over the year it was about 13% appreciation of the euro. So our constant currency performance in SaaS, PaaS, and there’s also a different strategy. I mean, we are not investing massively in infrastructure. Actually, you’ve seen our infrastructure business decline. Frankly, that decline might slow as these sovereign solutions become more prevalent, but still it will... we will largely leverage third-party infrastructure, and there’s a spree of investment appetite right now in this frothy business. So we are not very concerned about lack of opportunities to leverage that infrastructure.

Now, what we focus on is SaaS and PaaS, and we have delivered in Q4 a whopping 27% constant currency growth for that. If you transform that into comparable U.S. dollar numbers, that’s above 30%. Now, you have seen some of our competitors, Dynamics and ServiceNow, report numbers in Q4, which are hovering around the 20s, I think 19%-20%. You’ve seen our largest competitors, some of them not even reaching 10%. And, so, so I’d say that is the evidence that we are actually winning in AI as opposed to losing.

Speaker 9: We’ll take our next question from Ben Castillo with BNP Paribas.

Ben Castillo, Analyst, BNP Paribas: Hi, good morning. Yeah, thanks for putting me on. There’s lots of positives in here, lots of large deals in the mix, either sovereign cloud opportunity, you know, the high volume of AI and the backlog, record TCB. So that all sounds optically, you know, very encouraging, and if we were to pair that against, you know, we ultimately still have CCB growth of sort of 25%, in Q4 and still indicating the cloud revenues decelerate this year to come. I guess, could you help us just think about, you know, the changing landscape here, that growing mix of large deals in, in the pipeline that are converting the longer deal ramps? How should we think about that maybe midterm trajectory of, of total cloud revenue growth, you know, into 2027 and perhaps beyond?

Just help us with, you know, how you think about that pace of cloud revenue growth, either deceleration or scope for stabilization. Thank you.

Dominik Asam, CFO, SAP: Yeah. I mean, good question, and for sure, when I’m looking back to October, there is definitely, I mean, honestly, also a lessons learned at Q4, and we didn’t see this in the forecast. But obviously, when you are then going into a Q4, it’s not unnatural, actually, that you have large deals, but you see it in the order entry. I mean, we are this time, really closed many more large deals. And again, what should you do? I mean, we saw this then in the... during the course of actually in December, where customers then said, "Okay, deal done, and now we are doing the phasing." And the phasing, actually, I mean, should we now incentivize our people to keep the first twelve months up?

That would be the wrong thing to do because, again, it’s against the nature of how these transformations work. Also, I don’t want to discount the renewal base. You know, at the end, what matters for the company on the mid and the long term is the renewal base, because that is what is driving the cloud revenue and the, and the profits, actually, on the long term. So when you look into 2026, I mean, Q1, Q2, Q3, actually, we, you know, we are not having this larger share, you know, of large deals, and that’s why we actually see a - we will see a similar pattern.

About Q4, I mean, definitely when you look into our support revenue base, there are still some larger customers, and we need to make sure that, especially when it comes to the phasing of a deal, et cetera, that we have that wide. But again, I would see there is definitely, you can expect a similar pattern to what we have seen in 2025, I mean, given what is left in the installed base. Yeah.

Maybe on the cloud revenue in terms of what we see going forward. First of all, we guided cloud revenues now for 26, and maybe just looking back at 25, I venture to say that the accuracy of forecasts on cloud revenues is actually by now extremely high. This is also due to the extremely high share of recurring, more predictable, revenues. And yes, because of all the macro mess being tariff disputes or the kind of sovereign debate we just mentioned, we were a kind of mini EUR 75 million away from the midpoint of the guidance at the end of 25. Against such a massive macro backdrop, I feel 0.5 percentage points variance to the midpoints on growth is almost like forward accounting.

So, rest assured that our revenue guidance also for 2026 is of a similar kind of confidence level. CCB forecast is always a little bit more difficult because as we just learned, the granularity of what’s exactly coming in the crystal ball is a little bit difficult. But I also want to highlight how we think about the bridge from CCB growth and cloud revenues. And if you again do the math for last year to calibrate your model, so to speak, it will be obvious once we publish our results; you will see the executive board compensation that we were thinking more of a couple percentage points decline as opposed to something bigger.

And then the two factors that weighed on us was first, in the first half, it was this tariff debate, where the bookings were slower, and then the factors Christian mentioned as a surprise towards the end. So, also there, I would argue that we, we do have our checks under control, how it kind of translates. And when you translate the CCB of 2025 into 2026, please remember that the transactional dilutive effect is becoming smaller. So it used to be close to 1.5 percentage point last year, and it will be diluted, to less than a percentage point. So, I think the nice thing is about also, when you look at the fill rate, I mean, what % of the cloud revenues adjusted for currency, yeah? There’s always a problem.

The CCB is at point value, which was an extremely high dollar change-

Christian Klein, CEO, SAP: ... the other values are constant currency. If you really depollute that, you see the coverage with CCB for next year is actually quite good. So, that also should give you some confidence about 2026. And now going beyond that, I already mentioned what slight kind of reasonably means. You can then work from there and assume further dilution of the transactional part. So this is how I would think about it. So it’s actually stabilizing in some way.

Speaker 9: We’ll take our next question from Mohammed Moawalla with Goldman Sachs.

Mohammed Moawalla, Analyst, Goldman Sachs: Great, thank you. Morning, Christian. Morning, Dominik. My question was really on the TCB. You talked a lot about sort of delays in, in recognizing some of this business into the CCB. We saw quite a steep decel in the—so CCB growth versus a year ago, almost sort of 9-10 points. You know, is there any—I know there’s kind of the law of large numbers here, but is there anything you can sort of comment on that’s kind of going on here? Because you obviously talked about record number of larger deals, so just want to better understand that dynamic. And as a follow-up, could you update us perhaps on, BDC and the momentum? You’re saying you’ve signed up a flurry of, many partners.

How is that sort of pipeline shifting, and what really do you expect in terms of contribution in 2026? Thank you.

Christian Klein, CEO, SAP: Yeah. I can start with the total cloud backlog. I mean, actually, you said it really well. I mean, at the end, the number is getting, of course, much bigger. When you look at the absolute quotes we put on top, to Dominik’s point, I don’t see any other competitor producing similar kind of numbers when it comes to the total cloud backlog, not even close. And, you know, this year, yes, there were, you know, larger customers coming, but when you look at the RISE journey, when we started this, four years back, actually, of course, we started with smaller customers, mid-sized customers, and now there are these mega deals, and that will also continue, and they will just, you know, take a higher share in the overall order entry of what we are converting to the cloud with RISE.

So I, I’m actually super proud also, given that, I mean, the TCB is always then also, of course, dependent on the contract duration, and that actually, you know, was stable. So we are not actually increasing TCB with longer contract duration. We are actually increasing it by putting real business on top. And that, combined also with a lower churn as we are closing more and more healthy business, is actually, for me, a super positive sign also when it comes to the cloud revenue development, not only in 2026, but then also for many, many years to come.

And then finally, when you look into GROW, I mean, still it’s a, it’s a smaller business than compared to our install base business, but just last year, I mean, overall, we won over, you know, 3,000 net new customers, and that is, of course, mid-sized customers, but they will grow over time. The up and the cross-sell I mentioned of the business suite. So while, you know, the share of mid-sized SME business became smaller because some of the larger transactions happened and will happen, you know, still, this business is growing really well, and we are adding a lot of new logos to SAP.

Dominik Asam, CFO, SAP: Maybe it’s also worthwhile mentioning, if you look at the TCB minus CCB, which is basically the backlog year two and the following years, it’s actually that ratio is increasing, so it gives you also more visibility in the outer years.

Speaker 9: We’ll take our next question from Mark Moerdler with Bernstein.

Mark Moerdler, Analyst, Bernstein: Sorry, had my mic off, wanted it - didn’t want to cause an issue. So, I’d like to make sure that we’re really clear on the CCB, and I know it’s been a lot of the questions put on it. Can you give some ordering to what you think was the most impactful for why the number was less than the street might have expected? And can you also give us any sense on the economic impact of these sovereign cloud deals? Does it impact revenue lift, multiple, or margin in any way, shape, or form, other than that it may take longer for the deals to close? Thank you.

Christian Klein, CEO, SAP: Yeah. I mean, the one factor, Mark, clearly, which changed over the course of the quarter, and again, it’s, it’s absolutely positive for the years 2020 to 2027 plus. I mean, we closed more larger deals, and then when you think about the phasing of such a deal, I mean, first of all, you negotiate on the business case, on the ROI, the AI use cases. You think about, okay, what are the pillars which are really important? You think about, okay, do we go supply chain first, finance first, logistics, et cetera. And then during the course of the quarter, obviously, you start also then phasing those deals.

As you then have many larger deals, and this was actually a quite significant shift, we actually saw that a lot of the revenue moved out from the first 12 months to year 2, 3, and 4. That was by far, by far the highest impact we have seen compared to October. On sovereign cloud, actually, no, I mean, the deal margins are almost the same, but what Dominik already alluded to, I mean, the deal negotiation per se, I mean, we are winning not only very mission-critical ERP systems, we are also winning customers in regulated industries, and they have questions. They say, "Hey, what is happening if sanctions are coming? What is happening if there’s an export control coming? What is happening if this AI data protection regulation is now redefined?" Et cetera.

So these discussions take just longer than they have been a year ago, and it’s a reflection of what is happening in the world. This is not a reflection of a demand issue. Actually, it’s good. Look, I mean, I always also start these conversations with: Look, when it comes to regulation... trust on one thing, SAP has your back. I mean, we are spending over EUR 1 billion on localization, on regulations, et cetera. We are running these businesses in over 120 countries.

So we know how to adhere to all of these also new regulations, and I see this rather as a competitive advantage that we can clearly say, "Hey, look, no matter where you want to do business or where you want to expand your business, SAP will have a sovereign cloud solution for you in the different parts of the world.

Dominik Asam, CFO, SAP: And there’s also this certification step, which is required in many countries. So we see new offerings on the infrastructure as a service for sovereign in various countries, almost mushrooming up, I can say. And there are certain requirements in different countries, and we now really see the first country certifying these products. So we are really at the in the embryonic phase of what could become something really big, but it’s really happening because the capital is flowing there. The certification agencies are getting their arms around it, but it takes some time to groom and mature these projects.

Speaker 9: Our next question comes from Toby Ogg with J.P. Morgan.

Alexandra, Earnings Call Moderator, SAP0: Yeah. Hi, Christian, Dominik, thanks for the question. Just on the free cash flow guidance, Dominik, of EUR 10 billion, clearly well ahead of expectations and looks to imply a pickup in cash conversion. I know we talked through the year about cash tax, FX, and the migration credit headwinds. Could you just help us reconcile these headwinds with the better free cash flow outlook-

Dominik Asam, CFO, SAP: Sure

Alexandra, Earnings Call Moderator, SAP0: ... and improved cash conversion you’re now expecting? Thank you.

Dominik Asam, CFO, SAP: Yeah, sure. I would say the upside is from two sources, partially from operational further improvements, which we have matured to a point that we feel comfortable guiding it now, but also from the fact that the delta on stock-based compensation between the P&L and cash is increasing. You’ve seen it already now in the numbers. You will see that in 2025. So it’s a little bit higher. We’ve always said, take the effective tax rate off the non-IFRS operating profit, add back around EUR 1 billion. So now I say around EUR 1 billion plus, so that gives us a part of the upside, and the good news is that’s sustainable, so that’s the new base, basically, to jump off. Now, on the transformation credits, it’s always the game of the overall working capital.

It’s not the only item there, and, from that perspective, yeah, for 2026, this is the best estimate we can give today. And, yeah, we also make sure that we have no mortgages in the future and can stick to that very simplistic formula, with the noise that always will be there around the phasing of certain payments, but, that’s the trend.

Alexandra, Earnings Call Moderator, SAP: Great. Well, thank you, Dominik, and this concludes our call for today. Thank you all for joining.

Christian Klein, CEO, SAP: Thank you.

Dominik Asam, CFO, SAP: Thank you.

Speaker 9: Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.