Good day, and welcome to the SAP Q3 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Anthony Coletta, Chief Investor Relations Officer. Please go ahead.

Good morning, everyone. Welcome and thank you for joining our earnings call to discuss SAP 's Q3 results. On a personal note, I'm delighted towards my first earnings for SAP. It is a distinct honor to serve in this capacity. With me on the call today, our CEO, Christian Klein, and CFO Luka Mucic will make opening remarks. Joining us today for Q&A from New York City, Scott Rusell, who is our customer success organization. Also, with us in the room is Stefan Gruber, my predecessor, as we now successfully conclude our handover. Welcome, Stefan. Would you like to say a few words before we start?

Thanks, Anthony, and congratulations your appointment. And thanks also for the great cooperation and the partnership during the last weeks, I really enjoyed our collaboration. What I just want to say briefly here that it has been a privilege to engage with the financial community over the last 18 years. And now I'm looking forward to my next chapter and I can do this at ease because I know the financial community is in very good hands with you, Anthony. Back to you.

All right. Thank you, Stefan. And now to the [inaudible 00:01:27]. 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, forecasts, and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including, but not limited to the risk factors section. SAP's Annual Report on Form 20-F, for 2020. On the SAP Investor Relations website, you can find the deck intended to supplement today's call available for download. Unless otherwise stated, all financial numbers on this call are non-IFRS and growth rates and percentages point changes are non-IFRS, year-over-year at constant currencies. The non-IFRS financial measures we provide should not be considered as a substitute or superior to the measures of financial performance prepared in accordance with IFRS. And with that, I will now turn the call over to Christian.

Yeah, thank you, Anthony and Stefan. And thanks to all of you for joining us today. I hope everyone is staying safe and healthy. Q3 has been an outstanding quarter. WireCAP new cloud business led to 22% growth including cloud backlog, which for the first time surpassed EUR8 billion. The newer waves are also strong and keep improving, reflecting very high customer satisfaction. It's clear that our approach with customers is resonating. They're facing unprecedented pressure from a combination of factors. The pandemic, supply chain disruptions, to changing workplace, and of course, climate change. A year ago, we introduced our new strategy, which directly support our customers in addressing these challenges. SAP strategy is based on our unmatched trends in developing deep customer partnerships to drive holistic business transformation. At the hub of our approach is RISE with SAP. Our offering for business transformation in the Cloud, which offers three key benefits. First, it helps customers develop, adopt, and automate new business models, thereby becoming intelligent enterprises. Second, with our business network, the largest B2B network in the world, we help our customers create more resilient supply chains by connecting them the vast community of suppliers and manufacturers. Third, we are uniquely positioned to help our customers improve their green line, as no one is better placed than SAP to help companies put in place the most energy-efficient business processes. We at SAP are motivated by the role we play to fulfill our mission, to help the world run better and ultimately improve people's lives. A key part of improving people's lives is a strong partnership between the technology sector and government. This critical partnership became crystal-clear during the pandemic. Form contact tracing, apps like our OneApp, downloaded nearly 35 million times in Germany to vaccine distribution. Whether it's in Germany or the U.S. or elsewhere, we are encouraged by discussions about new investments in infrastructure, education, and healthcare, with digital transformation at their call. Let's now turn to some of the details behind our quarter. We are seeing excellent progress in the Cloud and strong growth across our line of business applications. Our Cloud revenue growth accelerated sequentially by 3% points to 20% higher than most of our large competitors. This is the second consecutive quarter of increasing growth, and we expect this to continue in Q4. We have seen record new Cloud business in Q3 with the highest Q3 growth in 6 years in both E&P and human experience management. Our new Cloud business is growing faster than our largest competitors. Overall, our revenue grew 5% year-over-year. Our third consecutive quarter of increasing our [inaudible 00:06:27] revenue growth. I talked about RISE with SAP at the start of my comments. We introduced this new offering just in January this year and Q3 has already been another great quarter. As an important strategic dynamic behind this, specifically, strong RISE momentum accelerates the move to S/4HANA Cloud, and even more important, the SAP business technology platform, which in turn leads to strong adoption of our modular Cloud ERP, including SAP's line of business and industry applications. RISE with SAP is the enabler. Customers can analyze, benchmark and redesigned their business models and processes based on best practices collected from our 400,000 customers. This dynamic enables SAP to more effectively cross-sell to our installed base and lead to this quarter's strong momentum. In Q3, S/4HANA cloud backlog grew by an impressive 58% up from 48% close in Q2, and building a strong foundation for future cloud revenue. In Q3, our S/4HANA cloud revenue grew by 46% up from 39% in Q2. At the same time, we are winning market share with more than 50% of S/4HANA cloud revenue coming from new customers. As our stores from the U.K. and Philips domestic appliance are among hundreds of new customers, choosing RISE with SAP. Thanks to RISE with SAP. We're seeing equally strong momentum with our line of business applications. In Q3, all of our main solutions, new cloud business by double-digits. We saw double-digit cloud backlog growth across our whole portfolio. We are seeing positive cloud wins with S/4HANA against our record, including wins with Adidas and Global International. VMWare further invested in S/4HANA showcasing definitely that S/4HANA will continue to transform their business, by simplifying their integration of acquisitions and new products, harmonizing that data and lowering overall IT costs. We saw several wins against Workday. With our human experience management solutions, including this quarter more impact, a large UK-based food Company. In our CX business, both Cloud revenue and covalent Cloud backlog grew again, by strong double-digits. Via has selected SAP customer experience solutions as part of a part SAP portfolio to streamline the end-to-end business processes. Siemens energy, was a key win for SAP Ariba. We are also very excited about our new multiyear agreement with the U.S. Department of Defense for SAP Concur. We signed a strategic long-term agreement with Reckitt for SAP Analytics Cloud. Our business technology platform, which underpins the strengths across our line of business applications, also grew well in both cloud revenue and cloud backlog. Customers this quarter include Robert Bosch, SoftBank Corporation, Yamaha Corporation, and nonetheless. For the first time, our overall Cloud ERP business, spanning our line of business applications exceeded EUR6 billion of annual revenue runway. As we extend our RISE offering to include modular ERP, a new industry solution, we expect our overall Cloud ERP business to continue to grow well. In summary, this has been another excellent quarter. Our results demonstrate that our strategy has taken hold and is delivering at an accelerated pace across an expanding set of markets. We are optimistic about the momentum we are seeing and we are raising our outlook once again. In closing, I want to spotlight a critical imperative that is at the heart of our transformation: sustainability. We are delivering major new advances to help our customers reached their net zero goals. Recently introduced SAP product footprint management is designed to help customers reduce the footprint of their supply chain. Later this year, we will launch SAP responsible design and production, helping companies build sustainable outcomes into product design. Shortly after, we will launch SAP Sustainability Control Tower, providing customers with transparency and insight around their progress to net zero. However, our ambitions go far beyond individual products. The UN's Climate Change Conference, COP 26, is happening next month, putting a spotlight on the enormity of our climate change challenges. But no single government, multilateral organization or business can solve this problem alone, businesses do play a significant role. The ability to see inside and outside your organization across manufacturing supply chains and critical business processes is crucial. This is the unique advantage SAP can offer. We enable our customers to manage that green line with as much as important as the bottom and the top-line. You will see us continue to lead significant innovation on this call. In addition to building strong business coalition. Let me close on a personal note. Thank you, Stefan, for leading Investor Relations for the last 18 years. I can actually still remember when we -- when we the 2 of us met for the first time together. It was in New York and I was an intern and you took me out to a concert at Central Park. And after that, you worked with six COs. Our market cap increased six-fold, and you took part, believe it or not, in 75 earnings calls. I enjoyed really working for you and I'm also very thankful for your personal friendship, and of course, on behalf of SAP, we are really grateful for your dedication, integrity, and great work. We all wish you well for the future. The same time, a warm welcome to you, A - Anthony Coletta, our new Chief Investor Relations Officer. Anthony has held a number of key leadership positions with SAP, most recently as CFO for North America. We are delighted to have Anthony in this new role and I'm sure you will all enjoy getting to know him. Thank you again for joining us today and let me now hand over to Luka to talk through our results in more detail.

Thank you very much, Christian. But before I get started, I would also like to say a big thank you to you, Stefan, for many years of partnership and friendship. I counted it as well and we have worked together for 31 quarters and of course, countless road shows and investor one-on-one meetings in between. I actually have to say, unlike on the CEO side of the house, you only had to work with two CFOs. I'm not sure whether you consider that a blessing or curse, but I also hope that I didn't create too many headaches for you. As we were going through all of these meetings, but always genuinely enjoyed working with you, and also the sense of humor. That even in the wake of more difficult times, I think we were always able to uphold. I should disclose here that Stefan is also an excellent piano player and recently gave a play to be when I was getting 50 a months ago. And so, the least that I can expect now, as you're having a little bit more time to practice is to get a fully recorded concert, at least for every quarter that we're ending. So, all the best to you, Stefan. And really once again, a big thank you for all of your dedication to SAP and also to all of the great work with me personally. At the same time, Anthony, I'm also really looking forward to working together with you in this new capacity. We've been working together a long time and I was the CFO of Customer Operations. You were the head of FP&A and then became a CFO in both mature and emerging markets in Mexico, Latin America, and North America. I think you'll bring a greater understanding of our business on the ground, as well as the transformation that we have been going through to the table. And I'm sure investors will come to appreciate this in the personal dialogue with you. So once again, congratulations and looking forward too many more quarters together with you. At least 31, let's see. So, with that out of the way, let me come to my review of the quarter, which indeed was an excellent one across all key financial metrics. Christian just talked about some of the business highlights and customer wins. But at the macro level of what we can clearly see, is that our customers are choosing SAP to redefine and optimize their end-to-end business processes. This is reflected in the strong RISE with SAP adoption that continued in Q3, which gives us high confidence to comfortably exceed the 1,000 customers mark by the end of the year. I would now like to give you some more details on how our accelerated momentum translates into our financial results. And what we expect to see going forward. In the third quarter, growth of current cloud backlog continued to accelerate, reaching 22%. That's an increase of 2% over Q2. That acceleration was driven by an even stronger than expected bookings and renewals in the third quarter. This pickup was specifically driven by a strong contribution in S/4HANA cloud, business technology platform, business process intelligence, customer experience, as well as Qualtrics. For the fourth quarter, we expect a further positive development of current cloud backlog growth, similar to what we saw this quarter. While traveled volumes are slowly picking up again, Concur's backlog so far remain flat, representing a three-percentage point drag on overall backlog growth and it was the only solution in our entire portfolio that was not growing in double-digits in the backlog. As travel resumes in the near-term, we expect Concur, will eventually fuel the momentum further. For the quarter, S/4HANA current cloud backlog grew by 58% to EUR1.3 billion, building a strong foundation for future cloud revenue. As for cloud revenue growth accelerated as anticipated and was up 46% to EUR276 million. Our Cloud revenue growth increased sequentially by 3% points to 20%. We are also encouraged to see that our intelligent spend category bounced back to double-digit growth up 3% points sequentially. Concur continued to show signs of recovery, but still at a moderate rate. Overall, our strong Cloud revenue representing now 35% of total revenue, is driving up the share of more predictable revenue by 3% points year-over-year to 77% As anticipated, software licenses revenue continues to decrease as more customers adopted our holistic subscription offering RISE with SAP. Driven by the strength of our cloud business, our cloud and software revenue grew by 6%. Services revenue in turn was down 6%, mainly attributable to the divestiture of our SAP Digital Interconnect business in November last year. And our total revenue increased by 5% for the quarter, which is the fastest growth rate since the outbreak of the pandemic. Let me now briefly provide you with some color on our regional performance. We had a strong Cloud performance across all regions. In the EMEA region, Cloud and software revenue increased by 7%. Cloud revenue increased by 28%, with Germany, the UK, and France being highlights. In the Americas region, Cloud and software revenue was up 6%. Cloud revenue was up 14% with a robust performance in the U.S., Canada, Brazil, and Mexico. We were again pleased to see that in our largest market, the U.S., we had another strong sequential acceleration in Cloud revenue growth. In the APJ region, Cloud and software revenue increased by 6%. Cloud revenue increased by 25% with Japan, Singapore, and South Korea being particularly strong. Let's now look at profitability and gross margins in the third quarter. Overall, our total gross margin remained stable at 74% even with the higher share of cloud revenue. Our cloud gross margin decreased by 40 basis points to 69.4%. However, we were pleased to see that both our intelligent spend and infrastructure as a service margin increased strongly by approximately 2% year-over-year. As we further executed on our next-generation Cloud delivery initiatives, the margin of our thoughts, PaaS business outside intelligent spend. But most of the related investments occur was 69.8%. Our Cloud and software gross margin declined by 70 basis points to 80.4% as a result of the revenue mix shift effects from our transition to the Cloud. The gross margin of our services business remained steady at 31%. In the third quarter, our operating profit expanded by 2%, and was up 8% for the first 9 months. Our operating margin declined 70 basis points to 30.7%, primarily due to the planned additional investments in R&D, which increased our R&D ratio by approximately 2%. For the first 9 months, the operating margin was very strong, and grew by 1.3% to 29%. On an IFRS basis, our operating profit was down by 15% to EUR1.2 billion. And our IFRS operating margin was down over 4% to 18.2%. This decrease was mainly driven by higher share-based compensation expenses primarily related to Qualtrics. Let me now turn to taxes, EPS, and cash flow. In the third quarter, the IFRS effective tax rate was down 1.3% to 18.9%. And the non-IFRS effective tax rate was down 3.1% to 18.2%. Therefore, we are again lowering our non-IFRS effective tax rate guidance for the full year to 20% to 21%, and to 21% to 22% in IFRS terms. Decrease in comparison to the previous outlook, mainly results from changes in tax exempt income. IFRS EPS decreased by 10% to EUR1.19, while non-IFRS EPS was up 2% to EUR1.74. This includes another strong contribution from Sapphire Ventures. In addition, our IFRS EPS was impacted by a year-over-year increase in share-based compensation. As expected, our cash flow slightly declined for the first 9 months. Operating cash flow was down 3% to EUR5 billion, positive effects from lower share-based compensation and restructuring payments were compensated by higher income taxes paid. Free cash flow was down only 1% to EUR4.1 billion, supported by a reduction in capex. For the full year, our operating cash flow and free cash flow guidance remains unchanged. But based on the strong performance we had in the first nine months, we are highly confident to have a very solid outcome at the end of the year. Reflecting the strong business performance in the first 9 months. We are again raising our revenue and profit outlook for the full year. For the detailed outlook, please refer to our quarterly statement. Before closing, let me briefly provide you with an update on sustainability, a topic close to our heart. Christian already mentioned, but a significant role business play to help solve the climate change challenges. With the latest product developments as EPS, other companies become more sustainable. At the same time, however, it is important to remain acting as an exemplar of sustainable business. In Q3, we were able to keep carbon emissions at the same level as the prior year, despite the strong growth in our business and a gradual lifting of some COVID restrictions in many geographies. In addition, our leadership in the environmental and social space was highlighted by receiving the Eco Vadis Sustainability Assessment gold-medal. So, in summary, we had a tremendous third quarter. Our order entry was exceptionally strong. Renewal rates are extremely healthy with a continued focus on efficiency. Therefore, we are confidently raising our full-year guidance once again. This puts us in a great position on the path towards our midterm ambition. Thank you, and we will now be happy to take your questions.

Ladies and gentlemen, [Operator Instructions]. Our first question today comes from Kirk Materne of Evercore ISI.

Yeah, thanks very much. And I will echo the congrats to Stefan on a great run at SAP, and thanks for all your hard work and working with us on the investor side. I guess my question for you, Christian, just to start, will the S/4HANA Cloud be seeing nice momentum, especially over the last couple of quarters. I was wondering if you could talk about sort of how that breaks out maybe geographically. If you're seeing similar performance across all the geos, or some geos in front of others just in terms of the adoption rates. And then Luka, I was wondering if you could peel that back, and maybe talk about that relative to the U.S., or the Americas growth, which is lagging a little bit versus Europe and Asia-Pac. And I expect a lot of that to concur, but I was wondering if you could just talk about how you see that -- the Americas growth accelerating, I assume, over the next couple of quarters. Thanks guys.

Yeah. Thanks a lot, Kirk. And Scott also please feel free to comment, especially on the regional performance. Look at -- what we have seen in the quarter, and I can also remember we had some questions around the deal sizes went as far on our cloud. First, I guess you also have seen it in the earnings document. We also have seen some significant large S/4HANA Cloud deals, respectively RISE with SAP deals. And that also signals that we are not only targeting small and mid-sized customers, actually, we see a move across our customer base. This is clearly also the case when you look at the geographical perspective, but also the industry perspective. And we even in the meantime, go 1 step further. When we launched RISE with SAP, which is really a business transformation as-a-service offering with S/4HANA Cloud and the platform in the COO. We of course also asked the question, what is the role of the partners. In the meantime, also the ecosystem joins some movement across the bench. Now, the partners are coming to us and asking, how can we better help to make this move happen. Just to give you an example, one of our biggest hyperscale partners just offered now their existing customers to switch existing contracts over to RISE as they see and feel that there is such a high market demand to do more than just the technical migration. And Scott, maybe you can highlight maybe some of the regional wins we have.

I can do it, Christian. First of all, I think you summarized really well the move to rise is both at a net new customer and at a scale of customers, and I think it's really important to highlight that across all of the regions we've had growth in both. Make new customers coming on board with S/4HANA Cloud, the modular Cloud, driving an accelerating the transformation in the Cloud, moving workloads doesn't drive the business change. They need to transform their businesses and that's what I moved to RISE. But we've also seen particularly in regions like the America -- North America and parts of Europe where big companies, big customers who have got large, complex environments moving to rise to help simplify and to transform their businesses going forward. And we now expect that this is the third quarter in the road that that has occurred, and we continue to see that trend going forward.

Yeah. And just to complement this, as you know, we are also disclosing the relative weight of contracts of different sizes against our total order entry and growth in the quarter. And there you can see this better, that in the cloud contracts more than 5 million of annualized contract value actually represented 40% of the total order entry that's up nine percentage points from last year. So, this clearly makes this very transparent that we're now talking really about all sizes of customers, in particular larger ones. Now on the Americas growth. First of all, I think even before the pandemic, obviously, the other two regions, EMEA and APJ, had grown in terms of the few of the growth rates at a faster pace than the Americas. Just because of the higher majority of the markets in America, and particularly in the U.S. which is by far the largest market that we have in that region. And as you are entering the pandemic, it's correct that the growth in America's was over proportionately hampered by the fact that Concur, which obviously was particularly, negatively, affected, has a proportionately higher share of their revenues in the U.S. Having said that, we have actually seen a very evenly paced recovery and re-acceleration of revenues across all regions. They all actually accelerated by 3%, each from Q2 into Q3. And the same was also the case from Q1 to Q2. So, the Americas is showing at a different scale, of course, the same pace and shape of recovery and further acceleration. And I would continue to expect that also for the next coming quarters. So, we're very happy about the business performance in the region overall. But in particular also in the U.S.

Thank you, all.

Thank you. Let's now take the next question, please.

Our next question today comes from James Goodman of Barclays. Mr. Goodman, please go ahead.

Operator, let's take the next question then. We have -- the line is silent, so maybe you can take the next question.

Our next question comes from Mohammed Moawalla of Goldman Sachs.

Operator?

Can you hear me?

Yeah, we can hear you now.

Yes, we can hear you now. Thank you.

Go ahead.

Okay. Great. Thank you. Yes. Morning, Luka, Christian, and also Stefan, wishing you all the best for the future. I have 2 questions. The first, as you start to see the cloud growth starting to pick up, Luka, my understanding was that the backlog -- expectation on backlog, both accelerations was as historically been more pronounced into Q4. I think you made the comment that it's going to be kind of moves similar levels. So, can you just help us or explain that comment. And then more broadly, as we think of the kind of building blocks around the cloud growth acceleration moving into 2022. I mean, obviously you've had a pretty strong discretionary spending environment. What is your kind of expectation. Is this kind of more sustainable trend? And as obviously, concur comes back, couldn't we see sort of the cloud growth accelerate significantly beyond the current levels. Then secondly, just on the OpEx. I noticed that obviously the OpEx, particularly sales and marketing is starting to come back. So, as you look into next year, with some of this spending coming back, what are the key factors and would you look to invest more to sustain or accelerate your growth? Thank you.

Let me cover those, Christian. First of all, on the backlog obviously, we're coming off the heels of the spectacular quarter that was actually exceeding our expectations as we were walking into the quarter. So, we would not have as in the past quarters fully expected that scale of growth that we saw and would have expected actually, that we would have some of that growth only seeing in Q4. Now, are we expecting further growth acceleration in Q4? Absolutely. We see a great strength of our business portfolio. We see that renewal rates continue to trend up and are at a very healthy state already, so no doubt that we will see a further acceleration. However, given the very significant achievements that we saw in Q3, I think it is fair and prudent to assume that we should see a similar step up, but not necessarily a dramatic acceleration on top of this. This is also underpinned by the fact that in absolute terms, actually the backlog expansion that we saw in Q3 was exactly at the level that we saw two years ago, entirely unaffected by the pandemic. And if you recall, Q3 2019, was probably, until now, the best quarter in the Cloud in many years that we had before. So, from that perspective, I think if we weren't able to achieve the same, that will be a terrific result. And it would also set us up actually exactly on where we are. Need to be to also drive 2022 to a great success. We see a number of important supporting drivers that make us confident that in 2022 we will actually see a further continued acceleration of our cloud business compared to this year. One is, as you have highlighted, that Concur is already showing a recovery. It's still a moderate one, but still they are up in mid-single digits on a revenue perspective, they have now a very strong order entry performance in Q3. And this will start to show in the backlog, but also in the revenues. They will become next year certainly a very positive contributor to our growth. And secondly, with S/4HANA Cloud, we have such a great wealth and breadth of opportunities, we are only starting now to harvest. We are very confident that the revenue growth and the backlog growth in S/4HANA will continue well into next year, and this will, of course, from an ever-increasing base and more and more add to the growth of the overarching business. So, from that perspective, yes, we are confident that our Cloud business will continue to accelerate not only in Q4, but also going into 2022. In terms of the expectations from an OpEx and profit perspective, I think we were very clear when we communicated our new strategy and our associated mid-term ambitions, that in 2021 and in 2022, we expect flat to slight declines in profits. This is what we are guiding for now in 2021, and I would say, we have so far executed extremely well against this commitment. Our current guidance is for -- flat to minus 2% in growth. My expectation for 2022 remains also unchanged. That we will also in 2022 see flat to slight declines in profits. And we will invest properly to continue to fuel our innovation. We will look at an R&D ratio roughly in the same ballpark as we're seeing it now, with 17% of revenues. But we will scale it from the top line very effectively with accelerating cloud growth, which will also start to show its positive impact on the cloud and software and total revenue line. So, things are going exactly in the right direction, and we will look at further investing to make this growth that we're seeing sustainable quite frankly, for many years, beyond 2022. And so, from that perspective, that remains our planning ambition.

Okay. Great. Thank you.

Our next question comes from James Goodman of Barclays.

Great. Thank you for coming back to me. Can you hear me now?

Yes.

Please go ahead.

Excellent. And Stefan, all the best from my side as well. In terms of the performance of RISE, it's clearly running ahead of your initial expectations. But at the same time, we're simply not seeing the anticipated decline in the core business. I mean, license has been outperforming 4 quarters in a row, so the question is: on a two-year view, even the guidance is implying a very significant weakening in license in Q4. And I'm trying to gauge the extent to which this is really conservatism as we come into the largest quarter versus a far bigger substitution effect that you are anticipating with on-prem customers switching over, so if you could talk a bit about that, that would be great. And secondly, just could I ask for an update on the migration project to the converged cloud? And Luka, you mentioned briefly that the project, when you took the cloud gross margins, but how is that progressing? Where are we on the ramp up cost around that project now? And I still confident that those costs will dissipate by the end of next year?

Yeah. So, let me get started, but please in particular on the software and perhaps Scott, you can give your view as well. So, let's be clear: our business for ever has been basically back-end loaded where most of the very large software contracts will typically close in Q4. And therefore, obviously in a world in which we are now seeing a greater and greater amount also of very large RISE opportunities, it's natural that we can expect that from quarter-to-quarter, there will be a bigger impact on large software transactions in particular. And that's why, I think, it makes sense to plan for a significant further search on the cloud side, but also to assume that in Q4 the impact of this search on the software license revenue side should be more pronounced than what we have seen year-to-date. In terms of just briefly on the Converged Cloud, and then perhaps Scott can come back to the software comment of where we are obviously pleased with the year-to-date performance in particular, since the cloud was nevertheless scaling very, very fast. But on the Converged Cloud program, we're actually making good progress. We believe that we will be done with most, if not all migration activities by the beginning of 2023 as expected. And in terms of the investments, they are actually happening as planned with a slightly lower share in 2021, and then a slightly higher share in 2022. In terms of the impact of the program on the Cloud margins, let's be clear about this as well. Yes, we had a slightly negative impact in Q3 of margins in the cloud were declining. However, from a year-to-date perspective, the margins are exactly where we had planned them to be. We have actually planned that the cloud's harmonization program would have an increasing impact on it. In the second half as we are ramping up the investments. So, we are up year-to-date by 10 basis points at constant currencies, or 20 basis points in nominal currencies, which is exactly in line with the slight improvement that we have planned for 2021. You should also expect the same for 2022. Investments will be slightly higher, but then on the flip side, the very strong growth that we have seen on the order entry side will obviously help the revenue line and that should level out per our planning. So, we remain confident in those planning assumptions. The big step-up will then be up as of 2023 when we have completed the program because we have a much higher not only resiliency, but also efficiency in our Cloud operations than with higher levels of automation. So, nothing has changed in this respect, and we remain absolutely on track also for the slight improvements that we're expecting in this year and next year. Scott, perhaps some comments around software from your side?

Yes. Sure. Thanks Luka, I guess these three things that are just provide additional commentary to what Luka described on the software, and the transition to cloud. The first is, and it's a really important based on to remember is that customers are moving with S/4 and a digital platform at scale. So, there is no doubt that they are resonating to transform their business, having a clean digital core to be out drive and running mission-critical workloads. And primarily, as you saw in the cloud backlog and in the booking’s performance in the cloud. The second is -- I reminded that we're only 9 months seems to launch of RISE. And what we've seen is a progression over that 9 months of momentum of continued expansion of our customers to move to the cloud, to understand the offering, to understand how it transforms their business. And it's accelerating. And you'll see that being in the outlook that Luka described on the cloud versus the software. And then the third comment that I would obviously highlight, is as we go forward in the transformation of their businesses of both net new customers, existing clients that are small, medium, and large all around the planet. Our pipeline reflects in the outlook -- reflects the customers are choosing to transform in the cloud, and that will continue to accelerate, so the natural effect will be as we've given the outlook on the software. So that gives a bit more context.

Yeah, that's very helpful. Thank you, guys.

Thank you, Scott, Let's now --

Our next question comes from Frederic -- It comes from Frederic Boulan of Bank of America.

Hi, thanks for taking the question. A couple of follow-ups. First of all, on the margin question into next year. So, if you can maybe spend a moment on the different cloud options that you offer, what's going to take up, you're seeing, and how is that impacting margins? And second, going into 2022, if you can -- when you mentioned R&D, but any other cost item you can discuss driving your guidance of stable to slightly -- a slight reduction in operating profits. In particular, in terms of age impact of the migration to single cloud platform, which will be a bit bigger, but anything else in terms of license and cloud mix that you think is relevant. And secondly, I'm interested more broadly considering the current disruption in supply chain that we've seen across many industries. If you've seen increased engagement from the customers on those topics. And more broadly, any update you can provide on the launch of industry cloud solutions for the initial launches that you flagged back in June? Thank you.

So, let me get started and then on the more business-related questions so I can hand over to Christian then. Look on the margins on the Cloud side going into next year, I would expect that both in our SaaS/PaaS businesses, as well as in our intelligent spend businesses. We will look at previous stable situation. Quite unchanged with perhaps very slight improvements on our infrastructure as a service business, we are already operating at a quite decent level of efficiency for this type of business. But the share of the mix of retail business will rather trends continuously down of this business because with the advent of RISE with SAP, we are driving for more SaaS/PaaS business, which is positive for the margins. So, in the individual lines, there shouldn't be a lot of changes because of the impact of the Converged Cloud program, but slight mix shifts should be helpful for margins overall. When it comes to the composition of the 2022 P&L, just very shortly, what do we expect on the top line of course, a continued shift towards more cloud business, so cloud revenue further accelerating its growth. Software licenses revenue trending down definitely in a more pronounced fashion than what we have seen in the first 9 months, to Scott's point, that RISE obviously will more and more proliferate across our customer base. And that will obviously then result in declines in software license revenues, and will also shift an increasing amount of maintenance revenues as part of our Cloud extension program to Cloud revenues, which is actually great because we're so far driving a very healthy multipliers on this, actually, continuously significantly above the 2X-factor that we mentioned at the beginning of our transformation, so this is positive. And then on the investment on the expense side, as I said, we will continue to prioritize investments in R&D, as well as in sales and marketing, because we see the great growth opportunities, we will also add additional feet on the street and go-to-market resources. The current level that we are have achieved is around about 23% of revenues, I think is a reasonable and appropriate button on the sales and marketing line. And in R&D, we have seen a significant step-up in investments over the course of the last two years. And we're looking to sustain that and also plan for around about 17% of revenues on the R&D side. For the business questions, Christian?

Happy to take that question. I mean, there are 2 big challenges. And when we talk to our customers these days, the first challenge is clearly about the disrupted supply chains, then I come into second to that. And actually, when we're talking about the intelligent enterprise, in the meantime, it's not only about growth, why a new business models’ productivity, why all automation, but also about the green line, and with everything that we do around carbon and our commitment to net zero. And coming back to the supply chains. Indeed, many customers are just reaching out to also join the business network, just to give you a few examples, semiconductor. There are a lot of enterprises right now, who are joining our business network to get more transparency, where are the shortages in the supply chain? Is it the next year supplier? Is it others the suppliers below? Which kind of region from which kind of supplier can I get? Still some supply in the next month, in the next quarter and we did track and trace that real time. That's the business network. Think about Catena-X. We're now delivering. the first use case with Catena-X. And it's not only anymore to European car industry, automotive industry, General Motors just joined. What we're doing there is actually it's same thing, we are putting together the OEMs which manufacturers with the suppliers to give them that real time transparency again around -- across the supply chain. So that in the future when the car demand is changing, it took sometimes up to 6 months until the raw material provider realized, hey, the demand has changed and now you have that real time with these kind of businesses in [inaudible 00:51:21]. You're not talking about millions of actually synergies. We're talking billions as we are really transforming the whole industry end-to-end. And this is what we're now doing step by step automotive. We talked about semiconductor, which is impacting many industries, but there are shortages also with regard to other raw materials. So, we are doing this now step-by-step and the business network is definitely one of the key pillars which will also drive our future driving new growth.

Thank you. Can we take the next question, please?

The next question comes from Michael Briest of UBS.

Thank you. And good afternoon. And also, my best -- Stefan, I think I've been on most the 75 calls with him as well. If I can just on the guidance, the guidance for the on-premise business. It's sort of mid-single-digit to 10% decline in maintenance, by the looks of things, and double-digits on license. I'm trying to square that with your comments, Luka, about the cloud backlog. If you're converting at 2 times or more in support to Cloud revenues, surely the backlog would see a big step-up in Q4 if you do achieve the expected decline in support. And then, just on the RISE customers to date, Scott or Christian, can you talk about that profile? I mean, are these mainly customers who are coming from EP6 for the first time? Are there any who are perhaps S/4 ready and maybe in a hyperscale who've decided to come to RISE? And then a question, Luka, on Concur on the business network, can you just remind us how much below sort of pre-COVID levels we are today? I think you said it was about 200 million to 300 million run rate pre-COVID, so maybe we can think about how it expands next year? Thank you.

Yes. So first of all, on the guidance, let's just be clear. We don't expect a materially different pattern on support revenues in Q4 than in previous quarters. The main difference in patterns that is baked into the guidance is a different level of declines of software revenues. Let's see to what extent that assumption is correct or not. But I think it made sense for us to be prudent here given that Q4 is obviously by far the largest software quarter. And at Concur based on the current levels, I would. say, we are looking at a reduction in the annual run rate of a bit more than 300 -- probably of EUR450 million to EUR400 million from pre-COVID times, and that is starting to recover now, as I said, versus first positive increase in revenues that Concur has posted in long time in Q3. In terms of RISE, perhaps I can hand over to Scott or Christian.

I can start and then, Christian, please say a comment. I guess the question around the makeup of the customers. RISE actually is resonating with all forms of customers. Let me give you a few examples. Of our new -- of the customers that have come on RISE, nearly 50% of them are new customers to SAP. So, attracting new companies who are running on different legacy technologies coming to RISE, transforming, and having that digital platform to run forward. But what we saw in Q3 and a continued trend was an increasing share of overall large customers that make up nearly 40% of our cloud order entry, so it's a record high. And what that means is companies like AMD, Etihad Airways, Asda Stores, Philips Domestic Appliances, Siemens Energy, amongst others. So large companies that are moving with RISE in the cloud. And then the third, your question around existing workloads of maybe S/4 in hyperscale. What's been interesting, is customers are moving to RISE with SAP with different starting points, their transformation journeys. Some are going from a new customer, some are existing ECC. But yes, some are already in the hyperscale, but they need the transformation in the cloud, not just the workload in the cloud. And so, what we're seeing is demand on all 3 angles that gives us confidence going forward, that no matter what your starting point, you've got the ability to transform in the cloud with RISE and hence, the outlook remain strong. Christian, I don't know what you want to add it to most of that.

Just maybe one more comment. And Michael, just to give you some sense around why S/4HANA is so important in the middle of RISE. Customers, they, in the meantime completely realized that a technical migration to the cloud is not changing their business model. And in many industries, CEOs are coming to me, to the teams here, and say, "Hey, we need to sell everything as a service. We need more personalized experiences. We need pay-as-you-go. We need the revenue real time, revenue realization. And the only software wonder who can do that end-to-end at scale real time is SAP, there's no one else out there. And then when you talk about, you know, you want to scale your business across 150 countries, here we go, this is only what SAP can do. Now the crucial question was always, okay, the technology is there, but how can I get that? That's the hardest part. The hardest part in the business transformation is changing the culture and then having someone who knows how these processes one at scale. And this is RISE, and this is why even existing customers from hyperscale’s are now coming say, "We want to have that, we want to learn from the best customers you have. Show us your best practices, benchmark, analyze these offices and tell us how can I get there." And this is why this offering is extremely well resonating. And then Scott said it well. And so, based -- large ones, many modifications take a bit longer. We moved them back to the standout. And overtime they also not only running new businesses, they are also having a much more agile IT landscape and then net new. It can be, if you going to have a fit to stand up. It can also happen that they go live, come through in 20 -- 30 days, that's also the case.

Thanks so much.

The next question comes from Amit Harchandani of Citibank.

Thank you. Hello, everyone. Q - Amit Harchandani from Citi. And before I proceed with the questions, thank you, Stefan, for your support and all the best for the future. With regards to my question, I guess 2 if I may. Firstly, with regards to human experience management, which I guess is your largest solution within the SaaS PaaS category, could you give us a sense for the growth profile there, particularly with regards to competition and how it's trending in different parts of the world? And secondly, could you also remind us, please, of your ambitions in customer experience? Again, you've talked about playing to your strengths in the past as customers migrate to cloud. What are you seeing on the customer experience side, particularly also with RISE kicking off? Thank you.

Let me start, Scott, and please feel free then to weigh in. On human experience management, actually it's pretty interesting. Probably also have read about some [inaudible 00:59:20] projects from one of our competitors when it comes to massive scale and localizations around the globe. And actually, what we see is that actually that the sentiment is changing, that more and more customers are now coming to us, and want to digitize hire-to-retire with SAP. And then second with RISE, I mean, it's not only as I said, the move to a new platform, and the move to S/4HANA cloud. I mean, when you talk about payroll, when you talk about Employee Central, obviously our an ECC Customer has HCM on-prem included. And now it's only the question, how can we digitize hire to retire end-to-end? You have strong interfaces, [inaudible 01:00:02] interfaces to finance, to other functions inside the [inaudible 01:00:07]. And now with the platform with S/4HANA cloud, we can put it together in the modular way. So, the cost sale also into the installed base is now much better also with RISE, as we have the underlying platform now to connect the dots. You're not running isolated solutions with SAP anymore. Plus, as I said, also in the net new market, we're seeing very positive momentum, and the CX it's all about focus. So, it's not about that we want to compete in every space. There's a huge focus on commerce that we are clearly leading with our B2B solution in the cloud. And now, we just launched our B2C solution, also there we have positive momentum. Obviously, CPQ was "cash," is of course, a very dominant space. Scott, anything you want to add?

Yeah, I think you said it really well, Christian. I guess, 2 things that I would just add. The first is with the momentum with RISE and the integration of our technologies under that platform at full swing, we are seeing an acceleration of the cross-sell of our line of business solutions. So not only are we winning in those categories, head-to-head with the competition because they stay not been able to deliver at scale with great capability around the world, as Christian describes. But also, the cross-sell on -- with RISE to allow that seamless orchestration and experience for the customer. The estimates of the 3 cross-sell goals for every core ERP cloud continues to be reflected and that gives us confidence not only in the standalone, but then in the orchestrated story, because from a customer, when they're running their processes, they don't look at single line business type applications. They look at how to deliver a wonderful experience to their employees or to their customers. In those two categories introduced so you need the orchestration based in costs capabilities, which requires RISE, plus our HXM or FCX solutions.

Thank you. We will take 2 additional questions.

Thank you.

Thank you. Our next question comes from Mark Moerdler of Bernstein Research.

Thank you very much. And let me first say to Stefan, as we've discussed recently. I really appreciate all your support and assistance, and how you've helped us with understanding the transition. And good luck, and I'm going to miss our interactions. Let me go into a multipart question. I apologize. S/4HANA cloud, Christian, Luka, we've discussed in last year the lift in revenue that occurs with workloads shifting to the cloud. 1. what are the expectations you have now for what that revenue lift is going to be as workloads move to S/4HANA SaaS. 2. can you give us any sense of what the attach of the other cloud offerings are today and what you think they could be in terms of dollars or quantity or anything, any sense would be helpful? And 3. Are there certain industries adopting quicker RISE with SAP quicker than others? Thank you.

I mean, first let me start, and Luka, you can build on that. I mean, first with regard to S/4HANA Cloud, as you also probably have heard in our earlier statements. We remain extremely confident, because with RISE, this is now the way we going. I'm not only to do with technical migration, we do a business transformation. And then of course, our install base is huge. And there is high demand. Large companies also now joining the movement. And when you also look at our total order, and when you look at software-based cloud, I guess, Luka, it's fair to say that this was one of the highest growth rates ever. As we see in the cloud, these are -- especially with large enterprises, these are long contracts. The contract last-time value is extremely good, extremely high. So, from my perspective, also looking now in the quarters ahead, I mean, there is no reason not to be optimistic. And then second, also look at the net new customer share. It's not only the installed base where we import. If someone decides to join from [inaudible 01:04:21], we take them and also put them into the public cloud into the standard and help them again to transform their business. So, I guess there's no reason to be not confident.

That's just a few more comments and then Scott, please feel free to add some color commentary here as well. So first of all, Christian is absolutely right. Our TCV growth rates. So, in terms of the total contract that are seeing including ramp contracts, is materially up way higher growth rates than on an annualized contract value level. And only, obviously, a first year of that progression is reflected in the current cloud backlog. So, this is making us very confident around the growth momentum in the cloud, obviously. And also, the average contract duration continues to move upwards because of the increasing number of RISE contracts, who are typically very long-term-oriented contracts. So, we are getting much closer to the 4-year average contract duration, which is very positive as well. In terms of the attach rate, I think we -- from my perspective the assumptions still hold. Scott has often talked and including on this call about the 3 for 1 opportunity. And that's clearly what we can see as well, including in some of our large RISE opportunities that had an attach to different line of business applications. Some very positive ones come to mind that were also mentioned on this call, like Philips Domestic Appliances and others, which are good examples. And so, I think that assumptions still hold from my perspective. And in terms of industries, perhaps I can hand over to Scott but for me it's really a broad-based adoption across all industries. It might just make a difference of which industries tend to more move to S/4 public cloud right away because they have actually less modification legacy service industries would be probably one of them, whereas some others, like discrete manufacturing, automotive would rather tend to move to a private cloud set up.

I would add, I think you described the industry situation and the scenario that SAP broad-based, but the scenario that you've described, Luka, is correct. I think the only 2 comments I'd make on the multi-tenant, and it's for -- these are few things to remember. The first is many customers, Christian said it, well, I'm going strike to access multi-tenant is full-cloud. That's especially true for net new customers or customers coming from Oracle or landscapes. But they're still coming, but a lot of their existing clients are also looking at hybrid scenarios. We see a lot of large companies that are going to mix of private cloud and public cloud. And the beauty of S/4 cloud is we can support that. We've got the ability to provide I -- not only the hybrid scenario, but a modular S/4 cloud. It gives the benefits of not only lower subscription fees to grow it better efficiency, but the induction of innovation for these customers and to do so at scale across the landscape whilst minimizing customization best practices, making sure they've got that clean core, which we do across all parts of S/4 cloud through RISE. That makes it very compelling to clients. And I mentioned before the starting journey of customers is varies but the endpoint of having that agile transformed platform that gives them the business agility, that is clear. And whether they are on a full SaaS or in a hybridous scenario, they're able to do that with RISE with SAP.

Thank you.

Today's final question comes from Adam Wood of Morgan Stanley.

Hi, good afternoon. Christian, Luca, thanks for taking the question. And I know. Say my best wishes for my side to Stefan. Thanks for the support over the years, definitely appreciate it. I've got two, please. Maybe just following-up on the comments that you made, Scott, and the type of cloud option that customers going through. A discussion we get into investors quite a lot is the full public cloud version of S/4 and whether it can satisfy the demands of customers. To what extent the customers care about what the cloud they're running in versus just being able to solve the business problems and get an upgradable version of the product that's easy for them to consume. If you could talk a little bit about customer reaction to that and what customers actually care about versus perceptions that that will be helpful. And maybe secondly, you mentioned Reckitt taking business analytics, I wonder if you could talk a little bit about the views of how that industry evolves to the extent you've been selling separate data warehousing solutions over time. How does the competitive landscape stack up there against the hyperscale’s and against people like Snowflake, and analytics some more in the application layer for SAP rather than in that area. Is that something you can charge for separately or is that something that really just helps differentiate the application? Thank you.

Very good question, Adam. And let me start with your last point as we just talk about this partnership also internally. Look, on the analytics space, clearly analytics is for us and the application where we see even higher attach rates now with our line of business application. Spending in analytics layer across the Company helps you. Then you are not having integrated planning. You have -- if you are not you can steer your Company end-to-end, you have to [inaudible 01:10:15] them. And this is analytics cloud. And this is why we also offer that also as in many cases, in many deals as an attached to our existing line of business solutions. Then also on the data warehouse, yes, of course, we still have many, many happy, actually, BW customers and we are very proud of this legacy. And now we are in full speed developing data warehouse cloud, and we see very strong deals already, very strong -- what customer reference is to also make that move. On the big data side, nevertheless, we are open for partnerships. We are just in all sorts of negotiations on how can we really even problems and on the data -- the access to data for our customers. So, this is where we partner data warehouse cloud that we own. And then of course on the analytics, yes, clearly, we see this more on the application layer very successfully. This is where SAP plays, of course, for a very long time.

And maybe if I can Christian, I'll just comment on the first question about do the customers care about Cloud? It's interesting customers around the world, and in all industries are very clear about needing 3 things. One, they need a clean digital core that is transformed to help their business navigate. They don't want to just move that workload and move that they really need that ability to be able to then respond to competition, impact on their industry. All of the other factors that we've seen around the supply chain disruption that you've heard and seen before. And that requires that -- that agility. And the second is then the platform to be added out of innovates and scale from. So not only do you have it today, but you are able to then extend and adapt and drive your business going forward and having that flexibility. And then the third is speed. they are looking for the ability to transform in speed. The beauty is they're not really saying multi-tenant product. They want modularity in those we combined. And so, as I said before, some will go straight to -- we can run the entire value chain on our SaaS multi-tenant cloud today. But some will go through a journey where they will have that hybrid landscape. It's a modular ERP and what we focus on is to give them that agility, to give them that scale, and to give them that speed. I think then the outcome whether that ultimately land on a full SaaS or a modular where they've got a hybrid or combination, actually they're not too concerned about it.

And last one, at least just to build on that. Why is the SAP doesn't end with the point of sale, it's very important because a lot of customers, they have a lot of complexity build along that core ERP. And we send architects in, partners are now coming in and we always then have a discussion with the customers. How can we remove this modification? Is this a standard? Okay. When does it come on the road map? How can we also build extensions? How can partner still know extensions on the platform? So, we also just in the process of building a huge ecosystem on our platform -- on our business technology platform, which then also is IP. We can monetize, our partners can monetize and across the SAP installed base. And this is also very important to not forget the ecosystem which plays a very important role in RISE with SAP.

Well, thank you Christian. And that concludes --

[inaudible 01:13:42] Thank you.

Our call for today. Thank you.