SAP SE (NYSE:SAP) Q1 2024 Earnings Call Transcript

SAP SE (NYSE:SAP) Q1 2024 Earnings Call Transcript April 22, 2024

SAP SE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome, and thank you for joining the SAP Q1 2024 Financial Results Conference Call. Throughout today’s recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Anthony Coletta, Chief Investor Relations Officer. Please go ahead.

Anthony Coletta: Good evening, everyone, and welcome. Thank you for joining us. With me today are CEO, Christian Klein; CFO, Dominik Asam; and Scott Russell, Head of Customer Success. On this call, we will discuss SAP’s first quarter 2024 results. You can find the deck supplementing this call, as well as our quarterly statement on our Investor Relations website. During this call, we’ll make forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to 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 of SAP’s annual report on Form 20F for 2023.

Unless otherwise stated, all numbers on this call are non-IFRS and growth rates and percentage point changes are non-IFRS year-on-year at constant currencies. The non-IFRS financial measures we provide should not be considered a substitute for or superior to the measures of financial performance prepared in accordance with IFRS. Before we start, I’d like to first remind everyone of the adjustment to our reporting practices announced on December 18, last year. This adjustment notably incorporating share based compensation into our non-IFRS results are now fully reflected in our Q1 results. I would also like to call your attention to our upcoming Financial Analyst Conference, which will take place on June 5 as part of our Sapphire event in Orlando, Florida.

This will be broadcast on our website. And with that, I’d like to now turn the call over to Christian.

Christian Klein: Yes. Thank you, Anthony, and thanks to everyone on the line for joining our first earnings call for 2024. When we look at SAP’s longer term growth journey, 2024 is a key year. It’s the year to scale up revenue and profitability. And I’m so proud to say, what we saw in Q1 makes us very confident about our goals. We are off to a strong start, and we have laid a solid foundation for 2025 and beyond. Let’s look at the key metrics for Q1. Current Cloud’s backlog grew 28% to EUR14.2 billion This is the fastest growth on record and demonstrates the strong momentum across our portfolio with Business AI as an enabling factor with a strong impact already on our Q1 backlog. Cloud revenue increased 25% and reached EUR3.9 billion.

Our operating profit came in at EUR1.5 billion in Q1, 19% higher than a year ago. The new disclosure of Cloud ERP Suite creates transparency for you and us. It shows how we are executing on moving our installed base to the cloud and how we are driving SAPs ERP leadership position with our land and expand strategy. The Cloud ERP Suite contains all the modules for our company’s core processes from finance, spend management, and HR to supply chain commerce, and our business technology platform, including data and analytics. Together, these modules have the same functional scope as our monolithic on premise ERP. Our modular and integrated Cloud ERP is unmatched in covering the core processes for over 25 industries and 130 countries in the world and represents a $700 billion market opportunity by 2027.

In Q1, revenue from the Cloud ERP Suite was up 32% and reached EUR3.2 billion We have seen exponential growth in this metric for two consecutive years as we are successfully expanding our footprint in our installed base. The land and expand strategy works beautifully. Every customer right now has to redesign core processes end-to-end to master the business transformation in the industry. And this is only the beginning. The flywheel has just started to spin. I will go deeper into that in a minute. There are many exciting customer stories behind our strong start to the year. In Q1, a range of exciting companies signed up for RISE with SAP. To name just a few examples, the premium chocolate maker Lindt & Sprüngli, the global manufacturing company SKF, and the US aerospace company, Curtiss-Wright.

We also saw a great customer take up across the portfolio. Maersk, a world leader in container logistics adopted the BTP as the integration and development platforms, spanning across the SAP and non-SAP IT landscape. Our GROW with SAP offering was very successful with 100 of new customers and a 64% share of net new customers in Q1. One of them is the carbon capture start up, Climeworks. As for our sustainability solutions, we won another 100 customers in Q1 on top of more than 1,000 we had before. New customers like Ericsson, the global leader in wireless technologies, and [Weiland] (ph), a leader in energy saving technologies, chose SAP’s sustainability control tower for their regulatory ESG reporting. So in summary, we had a strong start in Q1, and we are happy to confirm our 2024 outlook as well as our 2025 ambition.

We are also very confident about the resilience of our growth story beyond 2025, because we have all the right ingredients in place. Our three growth drivers are, RISE with SAP as the leading transformation offering for our installed base, GROW with SAP for net new customers, smaller subsidiaries, and acquisitions, and the innovations we delivered and we will release in the upcoming years, above all, Business AI. Let’s first look at RISE with SAP. Our installed base is large with over EUR11 billion remaining support revenue to be converted to the cloud. Typically, by a factor of around two to two. On top, the EUR700 billion Cloud ERP market offers significant cross selling opportunities, and I have no doubt that SAP’s integrated best of suite capabilities will win in the core business of our customers.

As part of RISE and via the clean core journey, SAP and our ecosystem will help our customers to remove the ERP custom code and instead develop integrated ERP extensions on BTP. This gives us an immense additional revenue potential considering that customers in the on premise world spend up to EUR7 on custom code for every euro they invest in ERP software. Customers like Hitachi, Hi-Tech, for example, reduced the number of custom code add ons by over 19%. RISE has just become the de facto standard for our installed base. It offers a holistic business process redesign combined with the migration to our modular Cloud ERP, resulting in fast time to value and being always on the latest release, consuming new innovations without time intensive ERP upgrades like in the past.

Let’s have a brief look at GROW with SAP, our second growth driver. As SAP’s greenfield cloud ERP offering for net new customers or new business units of large enterprises, GROW delivers go lives in weeks for every business model in every industry in every country. With our ERP solution, SME customers can grow and scale their business without migrating to a new ERP. Ultimately, RISE and GROW offer customers similar advantages, innovation, modularity, scalability, and integration. Coming to the third driver of our growth, which is innovation with Business AI at the core. SAP Business AI will once again transform how businesses run and how end users will work in the future. At SAP, we infuse Business AI across our portfolio. First of all, Joule will be our new user experience via natural language, our one front end.

We have based our Joule roadmap on an analysis of the most frequent business and analytical transactions of our end users. This way, we make sure that the most heavily used transactions will be fully AI enabled by the end of this year. Second, we are embedding GenAI directly in our cloud products. Since Q4, we have released over 30 new AI scenarios across our cloud portfolio. Additional ones come out almost every week with more than 100 in the pipeline for the remainder of the year. Third, our customers, partners, and SAP can use the AI foundation on the BTP, including the GenAI hub to build custom AI scenarios. Over 60 ecosystem partners are taking advantage of these capabilities already and working on over 80 use cases right now. Among the over 27,000 customers already using our Business AI is ZF Friedrichshafen, a leading automotive supplier.

ZF is lifting significant financial value by optimizing demand and supply chain planning with embedded AI. Together with our partner NVIDIA, we are currently building new GenAI capabilities. One use case will revolutionize how software will be developed in the future. Jensen and I are looking forward to telling you more about this partnership at Sapphire. Commercially, customers can buy SAP Business AI as consumption based AI units, which can be used across the entire portfolio or via our premium RISE and GROW offerings that include AI units, so customers can get started right away. Both commercial offers have already seen high demand, and many Q1 deals were influenced by SAP Business AI. Overall, we offer a unique value proposition versus the competition with three elements.

SAP Business AI works out of the box. For their own GenAI enabled extensions, customers and partners have full choice which leading model they want to use, including modules from OpenAI, Google, the best open source alternatives, or using their own modules. And SAP Business AI comes with our leading enterprise standards and is deeply integrated with our data and security model. In summary, we had a strong start to 2024, and we are confident we will achieve our goals for the year. Looking ahead, we have powerful growth drivers in place and many innovations in our R&D pipeline. The strong development of our cloud backlog is a testament to that momentum. With regard to our transformation program, we are making even better progress than expected, especially with hiring new talent for future oriented areas, such as AI.

The program will help us to capture growth and increase efficiency at the same time, among other things, by pushing the internal use of AI. We expect a triple digit million amount in efficiencies from embedding AI across all our processes. Equally important for us as an employer, where our SAP colleagues are affected by restructuring, we are moving with care and empathy, always aware of our social responsibility. And with that, I’m handing over to you, Dominik.

Dominik Asam: Thank you, Christian, and thank you all for joining us this evening. Let me start by echoing Christian’s sentiment that the fundamentals remain exceptionally strong. March marked my first anniversary as SAP CFO, and I consider myself very fortunate to have joined the company just in time with the business in pole position to capitalize on the tremendous AI opportunity lying ahead of us. The hard work of the prior year starts to pay off handsomely, also for those investors who kept the faith in the company during these turbulent times. It is because of the dedication of our workforce that we continue to experience strength across the business. Our solutions are becoming increasingly differentiated, demonstrated by continued revenue growth throughout the world, expanding cloud gross profit, and improved cash conversion.

We’ve kept the promise and walked the talk, setting the stage for sustained growth in the coming years. Fiscal year 2024 is already off to a strong start. We continue to build on our robust foundation as evidenced by the impressive growth of our current cloud backlog and continued momentum of our cloud revenue. In addition, non-IFRS operating profit showed significant double digit growth even when including stock based compensation. Our key priorities, including our investments in Business AI, demonstrate our commitment to leading the charge in this new era of business transformation and exemplify our relentless drive for growth and operational excellence. The company wide transformation program we initiated in January is progressing well, focusing on enhancing our operational efficiencies and setting the stage for improved financial performance.

We’re also deploying our own AI solutions internally as a powerful lever to drive productivity. Digital transformation is imperative in today’s evolving landscape, and SAP remains the partner of choice. Building on our strategic commitment, the introduction of the Cloud ERP Suite is a pivotal step in aligning our product offering more closely with our core ERP and integrated business solutions. All of this has helped foster the trend towards larger cloud transactions with deals greater than 5 million in volume, contributing more than half of our cloud order entry. This is remarkable for the Q1 of the year. I will now go into further details on our financial highlights. Current cloud backlog was EUR14.2 billion accelerating its impressive growth to 28%, solidly keeping us on the trajectory towards our fiscal year 2024 outlook and fiscal year 2025 top line ambition.

Cloud revenue grew 25% year-on-year, mainly driven by the continued strength of our Cloud ERP Suite. It grew by 32% in Q1, its nineth consecutive quarter of growth in the thirties. This sustained momentum underscores our expectations that Cloud ERP Suite will continue to capture a growing share of our cloud business, thanks to its critical role in our customers’ digital transformation journeys. It actually already represents 84% of our combined PaaS, SaaS revenue, up 3 percentage points as compared to the prior year’s quarter. Software license revenue saw a decrease of 25%. So the dilution of its share of the total revenue from 9% to 5% in only one year impressively illustrates the continued secular shift in market preference towards cloud based solutions in the enterprise.

Finally, total revenue surpassed $8 billion in Q1, up 9% year-over-year, showing unabated growth momentum. Now let’s take a brief look at our regional performance. In the first quarter, SAP’s cloud revenue performance was particularly strong in APJ and EMEA and robust in the Americas region. Brazil, Canada, Germany, Italy, the United Arab Emirates, India, and South Korea had outstanding performances in cloud revenue growth, while the US, Japan, and Spain were particularly strong. Now let’s move further down the income statement. Our cloud gross profit grew by 28%, driven by cloud revenue growth and further efficiency gains. This resulted in cloud gross margin improving from the year ago period, expanding by 1.8 percentage points to 72.5%. IFRS operating profit in the Q1 was impacted by EUR2.2 billion of restructuring provisions associated with the transformation program initiated in January.

This resulted in an IFRS operating loss of EUR787 million. This accrual represents the vast majority of the total restructuring expenses we currently expect to incur in the context of the program. The amount is closer to the upper end of what we had anticipated initially, which is primarily driven by the strong share price performance in the Q1 and the higher than expected acceptance rate of the early retirement program in the US. We continue to be in the very early stages of executing the program, which we expect to be concluded by the beginning of 2025, and projected expenses are based on preliminary assumptions. We expect visibility to further improve over the course of the second quarter and plan to provide an update once the related measures are fully assessed.

Finally, non-IFRS operating profit grew by 19%, evidencing our sustained push towards enhanced profitability. The underlying profit extension expansion was tempered by a EUR135 increase in stock based compensation expense, mainly as a result of a very strong appreciation of our share price in the first quarter. Q1 2024 was actually the quarter with the highest increase in SAP’s market capitalization ever. As we settled for the last time, the entire trench of our obligations under the move — 2021 move SAP program in Q1, fully in cash, we expect a significantly lower sensitivity in the coming quarter as we move to equity-settled. Therefore, the non-IFRS operating profit outlook is reaffirmed for the full year 2024 despite this headwind. Non IFRS earnings per share in the quarter increased 8% to EUR0.81.

The IFRS effective tax rate for Q1 was 16%, and the non IFRS tax rate was 32.4%. Now onto our cash generation. Free cash flow for q one came in at EUR2.49 billion, up 28%, again, putting us on the right trajectory to maintain our full year outlook. There was only a minor cash flow impact from our transformation program in the first quarter. So we reiterate our 2024 outlook on all parameters. For the detailed outlook, please refer to our quarterly statement published earlier today on our Invest Relations website. In summary, Q1 marks a strong start to the year, highlighted by continued growth in both our current cloud backlog and Cloud ERP Suite. Business traction combined with focus on execution is positioning us well to meet our objectives for the remainder of the year.

Before we open it up to Q&A, I would like to say that we are very much looking forward to welcoming you to our financial analyst conference in June. As already mentioned by Anthony, it will take place in conjunction with Sapphire in Orlando. And the team and I are very much looking forward to meeting you there in person. So thank you, and we’ll now be happy to take your questions.

Anthony Coletta: Operator, please open the line.

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Q&A Session

Operator: Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from the line of Toby Ogg with JP Morgan Cazenove Limited. Go ahead, your line is open.

Toby Ogg: Yes. Hi and thanks for the question. Perhaps just taking a step back on the margin side, clearly there’s a big step up in the margins embedded in your EUR10 billion EBIT guidance for 2025. I know Dominik, you talked to Q4 about the potential for continued margin expansion beyond 2025. And I know that the Rule of 40 is something that’s being discussed in the market. And when looking at the software ecosystem, could you perhaps just give us a sense for how you’re thinking about the Rule of 40 and whether this is something you think SAP could achieve? Thank you.

Dominik Asam: Well, I mean, the Rule of 40 is simply an observation. If we do benchmarking with our core competitors and we look at the median or the average, it doesn’t actually matter, you see that that’s what they trade at. The stats show us that for 2023, we are at 25%. If you combine our free cash flow to sales margin plus the growth we achieved in that year. And if you look at the midpoint of the ambition, or the ambition 2035, basically, you see that would bring us a little bit more than half the way towards that. Now, the rest is really very much dependent on how much can we accelerate revenue growth. This is why we highlight again and again the revenue mix improving. I highlighted 84% of the SaaS, PaaS revenue is already in Cloud ERP Suite, which is kind of running at 30% plus growth rates on a year-on-year basis.

We also highlight the strongest headwind, the decline in software business is becoming smaller and smaller. It’s now down to 5% of the revenues, though the fundamentals are actually there to support strong revenue growth. And then of course there is also some improvement in margins. We said that we want to clearly scale the cost base not at the same growth rate as revenues, but again we look at benchmarking and see that our core competitors achieve between 80% to 90% growth of the cost base versus the revenue base. That’s an indication of the kind of ballpark we aim at with our transformation program. And now then you can basically play the math of rolling these numbers forward to see how long it will take us to come to that Rule of 40, which by the way, we have no idea where it will be five, 10 years down the road because, of course, our competitors will also not stand still.

But that’s the way I can describe it. So don’t take it as a guidance that we can get there at any specific given quarter. But, obviously, we have to acknowledge that this is where the market is running and this is a little bit of the North Star we have on top of our head. And I think with the measures we are taking now to really: A, kind of cover more than half of the gap we currently have; and B, to accelerate growth and also to grow costs more slowly than revenues, we have the ingredients to gradually move towards the target.

Toby Ogg: That’s great. Thank you.

Anthony Coletta: Thank you, Tobi. We’ll take the next question, please.

Operator: The next question comes from the line of Adam Wood with Morgan Stanley. Go ahead, your line is open.

Adam Wood: Hi, good evening. Thanks for taking the question. I wanted to first of all, just on the AI side, if you could help us a little bit around how that’s been monetized today? Is this more that customers are accelerating the shift to S/4 because they want to take advantage of the tools that will be available there in the future or actually are you starting to monetize already that Business AI feature and charging directly for that? And then maybe just secondly, you talked about EUR7 of custom code versus one of software, obviously, a massive opportunity if you could capture more of that. How realistic is it that you can cover enough of the custom areas to be able to capture that? Or is this more monetization of the platform as companies and partners develop on the BTP? Thank you.

Christian Klein: Thanks a lot for the questions, Adam. I mean, on AI, first, when you look at the commercial model, we actually included some standard AI use cases for automation of repetitive task in our base packages. On top, of course, we have — now we are delivering more and more GenAI models, which also require high computing power. I talked about Joule, and Joule will cover the most used transactions of our end users by the end of the year. So no matter if you do work on travel, on finance, on supply chain, on procurement, it will all happen via human language. And that is included in our premium AI offering, which is consumption-based. We package it, some AI units already in our RISE and GROW packages, and that is actually running extremely well.

And on top, of course, you can also, of course, consume Business AI by, of course, buying more consumption packages of our offerings. And with regard to the adoption. I mean, the way how it works, Adam, is of course, Joule will become the de facto user experience front end for our end users. Second, when you are then talking to the customers, what we are already doing, they will use our GenAI scenarios for asset management, for manufacturing, for shop floor automation, for more personalization of their offerings, of their services, of their products by our configurator, or they also build custom AI use cases. Why? Why do you do that with our GenAI Hub on BTP? Because you get the native integration into the data. We can also pre-train some modules.

You have integration into the security and authorization, which matters in the business world. And these are all the benefits, the value, why our partners and customers already start to develop new AI use cases custom for their individual business. And with regard to your second question, I guess here it’s also very important to mention that when you look at the momentum of our top line, I mean it’s evident that we are not only scaling our business with S/4HANA finance. I mean, I’m sitting in many of these RISE mega transformations and what we are often doing is, we start with finance, then we go into hire to retire, we go into finance and payroll. We talk about total workforce, we fill clubs and success factors. So we are closing mega deals, but we are doing it step-by-step in a modular way, given our architecture, which ensures fast time to value.

And then you scan the custom code. And the custom code is actually sometimes 7 times more than standard code, ERP standard code on-prem. And then you are looking into what kind of extensions have been built. Then, for example, in oil and gas, we brought now the 10 largest oil and gas companies of the world together. We talk about trade promotion. We talk about product revenue accounting. All the extensions which make a ton of sense to not custom code it anymore in ERP to sit always on the latest release, but then developing it side-by-side because you need a native integration into the data module of SAP. And of course, the security concept plays in there as well. And indeed, Adam, this is a massive uptick of what we have and its platform consumption.

And customers, partners can actually then also develop their own IP, can offer it in our app store, and then again, as I just said for oil and gas, same will happen for retail, for manufacturing, can cross-sell it across the industry. And with that, I guess you also feel that this is also a massive transformation for our ecosystem. No custom coding, but rather building, developing software on the platform and building a massive ecosystem around our cloud ERP.

Adam Wood: That’s great, Christian. I appreciate all the detail there. Thank you.

Anthony Coletta: Thank you, Adam. We will take the next question, please.

Operator: The next question is from the line of Johannes Schaller with Deutsche Bank. Please go ahead.

Johannes Schaller: Yes, thanks for taking my question. Christian, you mentioned you’ve seen already a kind of noticeable impact on CCB from AI. And obviously last year I think the CCB soft target was in the mid-20s, now it looks like were more at 27, 28. I mean, it’s tough to quantify the impact, I guess, but is the delta, is that largely AI driven and also should we look at the kind of high 20s as the more sustainable growth run rate for CCB now going forward?

Christian Klein: I mean, on Business AI, to answer your first question. I mean, Scott is also on the line. Please comment, Scott. I have no C-level conversation anymore without talking about Business AI and the impact on the business. Just last week, I had a conversation about production downs in manufacturing and how our GenAI hub can help to get the machines faster up and running again, which actually would result in hundreds of millions of efficiency gains for this large chemical company. And you see in these conversations, are these AI use cases already live and fully adopted? No, they are now in the making. But with that comes more and more consumption. And we’re going to monetize that in the upcoming quarters and in the upcoming years.

And we have many more of that. And of course, when you are now using success factors, conquer, everyone is looking for more efficiencies, for a new way of working. So Joule will become the de facto standard and with that, we’re going to see an uptake of all of our premium packages. Now we are building for each line of business and, of course, also for RIDE and GROW. With regard to CCB, we are very confident when we look at the pipeline for the year, we see healthy renewals, we see a good pipeline to close business in the upcoming quarter. Sapphire is around the corner where we also make some exciting announcements around data and, of course, AI. So we are very confident also when it comes to CCB for the remainder of the year. But Scott, Dominik, please feel free to comment as well.

Scott Russell: Yes, I’ll probably give two additional data points just to add on what you described, Christian. So first, as you saw in the update, the Cloud ERP Suite growth, and that covers the end-to-end capability for an enterprise is growing and it continues to grow strongly. Ninth quarter in a row, 30% plus. But the reasons why are evolving. There is no doubt companies want best-in-class processes, be able to automate their enterprise, build in efficiency. But what they’re clearly now seeing is not all data is equal. Not all data in the enterprise is equal. The data that sits in the SAP platforms is the most valuable data that they have. And when they think forward and they look at our innovation roadmap with Business AI and they see the capabilities that we bring inside the core, not only will they get the benefit out of the generative AI capabilities that we do in our and generative AI hub, But then the data that is the most valuable to them is — it’s got the integrity, it has got the context, it’s got the metadata, it’s got the semantics, and then you can get the innovation insights.

And a lot of the growth that we’re now seeing, and to Christian’s point, there is not a single conversation that SAP is having with customers that is not linking best-in-class innovation, underlying valuable data, and the generative AI capabilities in that combination. And that’s why they are excited about the roadmap, but it’s already stimulating the growth. And to give you one additional data point, our cloud pipeline growth. So the pipeline that we generate in first quarter was the best on record. We continue to see strong demand, not only in what we booked and what we generating in the cloud backlog, but also the interest from the market. And a lot of that is stimulated by our Business AI roadmap.

Christian Klein: Maybe just to compliment that view on the kind of dynamics in the business to the financial model, you know that the biggest single most important dilute effectors, so to speak, from CCB down to cloud revenue growth with a certain time lag is actually the transactional business. This is now kind of stagnating. It’s actually very, very slightly decreasing. The macro isn’t great. There’s also these changes in the kind of supply network happening. And we think that over time that will become smaller in the mix. By the way, that dilutive effect is also embarked in our Cloud EAP Suite growth numbers. So we show that 30%, 32% growth despite that headwind. But that’s the biggest bridge item between CCB and cloud revenues.

Now, if you look at what we’ve kind of indicated in our ambition 2025, you see that with 28% CCB, you don’t need to see much acceleration to basically get there, because you take off the dilutive effect on 5% of the [indiscernible] basically stagnating and we do believe that in 2025 there will be some acceleration there. So it’s what we really take to get to our 2025 ambition. So anything beyond that would be upside in some way.

Christian Klein: And last but not least, when you look at the current cloud backlog, we release ACV numbers at the end. We are going to talk about TCV, but customers are also trending more and more to also now sign longer term commitments with [indiscernible], which are also then going over five years. And of course, there is enough in the books also when it comes to CCB, TCV and there the growth is even higher than in the ACV.

Johannes Schaller: Very clear. Thank you very much.

Anthony Coletta: Thanks, Johannes. We will take the next question, please.

Operator: The next question is from the line of Frederic Boulan with Bank of America. Please go ahead.

Frederic Boulan: Hi, good evening. Two quick questions, please. So first of all, coming back on the CCB, so you mentioned the CCB is being held by the demand for AI, but can you discuss a bit more specifically what’s driving that sequential acceleration, any specific modules or areas where you see demand, or is it just the momentum in S/4? And then second question on the cloud migration. If you can give us an update on your current ERP landscape, percentage of customers that have migrated to the cloud? And what are you seeing in terms of momentum? Are we seeing some of those largest customers continuing to migrate? So any based on that would be great. Thank you.

Christian Klein: Yes. Happy to take that question. And Scott, please feel free to comment as well. I mean, first — your second question is also actually related to your question number one. What we are seeing now with Business AI is actually that a lot of customers who probably planned their migration start date for S/4, end of this year or next year, that they actually now want to move faster, because they see the capabilities with SAP Business AI, as I mentioned, on asset management, on just automating many, many workflows in their company, but also when it comes to analytics, especially in the supply chain planning, which is an extremely important part of many companies right now. And that actually also has driven now the sequential increase.

But this is not only Business AI stand alone. Business AI helps us to sell more supply chain, to sell more HR, to sell more finance. And then last but not least, which makes me so confident also about the growth potential for 2025 plus. I mean, when you start with finance and you talk about your business model, you talk immediately about the billing, about the commissions. Then you’re actually moving into the supply chain and when you’re doing demand and supply, you’re also then talking about design to operate. And now we are seeing a huge uptick in our manufacturing cloud business. And then you’re going module by module because when you talk to these customers they see more and more that the best of [indiscernible] really doesn’t work when you have to stitch together manually data models or the identity or the authorization.

So what we are seeing in many RISE customers over time, that there are a lot of cross-sell potential and that the first phase is only about landing and then start provisioning, start to redesign the process landscape. And then we go and we already talked about the custom code and the ecosystem. We are more and more building on BTP to also remove the custom code and move to the clean code.

Scott Russell: And I’ll just add one additional comment to what Christian described. And that is, the growth on the CCB is consistent around the world. And so, this is not a particular region. Across all regions, we saw healthy growth. Obviously, APJ and parts of Europe and greater China were strong, but across the world. And secondly, it is across that portfolio. People aren’t doing a move only. They’re doing a move and transform. And that requires those extended capabilities. And if I just link it back, if you’ve already got the data architecture of SAP and it’s the most valuable, then you can do so many more things, not only AI related, but also innovation related that you can do within your business. So it is definitely means that our short mid and long term growth has — it’s definitely got confidence based on the capabilities, the innovation roadmap, but also the buying signals that we see from the market here and now.

Frederic Boulan: Okay, thanks.

Anthony Coletta: Thank you, Fred. Next question please.

Operator: The next question is from the line of Jackson Ader with KeyBanc Capital Markets. Go ahead.

Jackson Ader: Great. Thanks, guys, for taking our question. Just one on the large deal strength, but I think Christian or maybe Dominik, you called it out in terms of the $5 million plus deals driving a lot of strength in cloud ERP. Just curious, are you seeing — I mean, I assume the preponderance of that is migrations or RISE with SAP, but are you seeing any large deals for net new customers or net new land that are also driving some of the CCB growth? Thank you.

Christian Klein: Scott, do you want to go first?