Good day, and welcome to the SAP conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stefan Gruber, Head of Investor Relations. Please go ahead, sir.
Good morning, good afternoon, or good evening. This is Stefan Gruber, head of investor relations of SAP. Thank you for joining us for this special call. Bill McDermott will open the call, then turn over the call to our new co-CEOs, Jennifer Morgan and Christian Klein. We will have time for Q&A. Before we get started, as usual, I would like to say a few words about forward-looking statements and our use of non-IFRS financial measures. Any statements made during this call that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intent, may, plan, project, predict, should, outlook, and will, and similar expressions as they relate to SAP, are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements.
All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in our filings with the U.S. Securities and Exchange Commission, the SEC, including SAP's annual report on Form 20-F for 2018, filed with the SEC on February 28, 2019. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Note, any numbers mentioned today are preliminary and non-IFRS. We will publish our full quarterly statement for the third quarter 2019 on Monday, October 21st. I would also like to ask you to focus your questions today on the leadership changes, as we'll be able to answer questions regarding our strong Q3 performance in our financial analyst conference call on October 21st.
Now I would like to turn the call over to Bill.
Thank you very much, Stefan. A warm welcome to everyone. I appreciate you joining us for today's call on such short notice. We have two significant announcements to share with you today. The first is our exceptionally strong preliminary results for SAP's third quarter. In short, we could not be happier about the company's double-digit growth performance. Our cloud revenue grew 37% in the quarter, 33% at constant currencies. This is significantly faster than growth by many other standalone cloud companies. Our new cloud bookings were even stronger, growing 38% year-on-year at constant currencies, a sign of very promising things to come for SAP. Our total revenue was up 13%, 10% at constant currencies, and operating profit was up an exceptionally strong 20%, 15% at constant currencies.
You all know that we're focused on improving SAP's margin by an average of one percentage point per year between now and 2023. Already in Q3, we see a very significant 1.7 point reported improvement. That's 1.5 points in constant currency year-over-year. This is what you've all been waiting for, and now it's here. Well, of course, we'll have much more detail for you on our regular earnings day on October 21st. For today, what I can tell you based on these preliminary results is that SAP is strong and ever more confident in our momentum and our full year forecast. Which leads me to our next announcement. You all know that I joined SAP in 2002, and I've been CEO since 2010. We've had quite a ride over the past decade.
Moving SAP from the brink, if you remember the financial crisis that we came out of, to the strong growth company that you see today. We've doubled, tripled, or quadrupled the key metrics in the company, including revenue, profits, customers, and market value. The Dow Jones Sustainability Indices again named SAP the most sustainable software company in the world. We were just recognized, also in the world, as the sixth best place to work. We're the 16th most valuable brand, and we're proud to be Germany's most valuable company. For me, as for every CEO, the dream has always been to preside over a smooth succession plan while the company is in a position of maximum strength. My current contract would've required me to declare early next year whether I would continue or not. Well, as some might say, what must be done eventually should be done immediately.
I informed Hasso recently that I was not planning to renew my contract, and at the same time, proposed that we activate our longstanding succession plan, especially since we have great leaders who are ready. Hasso Plattner and I have always shared this belief, that we should thoughtfully prepare a new generation to carry our success into the future. That's what leaders do. That's why today I could not be prouder to introduce Jennifer Morgan and Christian Klein as the new Co-CEOs of SAP. Many of you know Jennifer and Christian, and I'll ask them to introduce themselves to you in a moment. Jennifer's experience in the IT industry dates back to her early days coding software as a systems integrator. For SAP, she has proven herself time and time again as the President of North America, Co-President of Global Customer Operations, and President of the Cloud Business Group.
She brings immense skill as a commercial strategist, a business model innovator, and a leader of the highest caliber. Christian joined SAP at the very beginning of his career. He has worked his way up from the ground floor to the executive boardroom. He has built on his experience as Chief Financial Officer of SAP SuccessFactors and Chief Controlling Officer of SAP, most recently serving as our Chief Operating Officer and Chief Product Visionary for SAP S/4HANA. I consider Christian to be one of the foremost experts in business process architecture, a champion for thoughtful integration, and a very talented leader. These two leaders complement each other perfectly. They are the logical choice to follow in the footsteps of the other successful co-CEO tenures at SAP. This is part of our fabric, it's part of our culture. It works.
By activating this plan now, we're changing on our own terms with leaders who have been thoughtfully developed to be prepared for this next chapter. As for me, you all know me very well by now. I'm never done, and even as I am retiring my SAP responsibilities, I'm, of course, opening the door to a new chapter of my own journey. I have no announcements to make tonight at this time. This is Jennifer and Christian's night. It's SAP's moment. What I will do is be a thoughtful mentor. I will transition the power reins to Christian and Jennifer tonight, and I will help them in the background do all they need to do to carry on the proud tradition of SAP. Of course, nothing will ever stop me from being a fierce champion for SAP and a believer in the company's potential.
To all of you in the financial community and the media, I can only thank you for the trust and professional courtesy you've always extended to me over the years. While our jobs were different, I believe we always shared a rigorous dialogue about the state of SAP, our customers, and this ever-changing global economy. With that, before we take a few questions, I'll happily hand the call over to our new co-CEOs. Jen, would you like to go first?
Thank you, Bill. My thanks as well to everyone who is joining us for today's call. First and foremost, thank you to Hasso Plattner and Bill McDermott for being true giants of the information technology industry. To say it's an honor to follow in their footsteps would be an understatement. Second, I want to echo what Bill said. The fundamentals and future of SAP could not be stronger. As you see in our results today, the company is on track to deliver our full year guidance for 2019. As we're already into our important fourth quarter, you should expect Christian and I to focus on one critical message, and that is continuity. SAP has a highly diverse customer base in 190 countries around the world who we are deeply privileged to serve.
Our immediate priority is not only to maintain the company's focus on those customers, but heighten our efforts on their success and experience with SAP. We are fond of saying the best is yet to come. Here are three of many reasons we believe it. One, our engineers across the company create products from startups to the most sophisticated businesses in the world. As CEOs look for growth and efficiencies, SAP is at the intersection of both priorities. Two, there's no company in this industry with the sales, distribution, and support capabilities of SAP on a global basis. We can help customers in all industries meet every regulatory, currency, and geographic challenge in a very unpredictable world. Three, we have the most expansive partner ecosystem, which we are excited to continue to build and evolve in new ways with new communities.
We have longstanding partners, and every day, new partners looking to go to market together with SAP. I could list many more, but suffice it to say, we're bullish about the future. As we proceed in this transition, we look forward to talking with you more about our trajectory and how we see the mid and long-term outlook for the business. This will include our full earnings day on October 21st and also our special Capital Markets Day on November 12th. Before I hand it over to Christian, I want to say a few more words about Bill. On a personal level, he's been a true friend and mentor to me for almost two decades, for which I'll always be very grateful. In the context of SAP, it's difficult to characterize what his leadership has meant for all of us and the company as a whole.
His vision, his boundless energy, and his optimism made this company believe in itself, even when others believed or doubted what was achievable. He's always had a unique ability to see around corners before anyone else did, and he leaves us with great optimism and excitement to focus on the next phase of our journey. On behalf of all of our SAP colleagues, Christian and I congratulate Bill. We thank him for the example he set and the legacy he leaves behind at SAP, which is the ultimate example of a true leader. Today, I'm grateful to stand alongside my partner and Co-CEO, Christian Klein, as we lead our company together into the future.
In his previous role as chief operating officer and head of development for our core solutions, he has spent time around the world with our customers, sharing our own journey on SAP and bringing our engineers closer to these customers to influence and accelerate our product direction in multiple industries. We share a similar style, yet complementary skill sets and experiences as we write the next chapter of SAP success together. Thank you again. Over to you, Christian.
Yeah. Thank you, Jen, and thank you, Bill. Greetings from me as well on this significant day for SAP. I likewise begin by sending my appreciation to Hasso Plattner and Bill for this high honor of being Co-CEO together with Jen. Some of you may be unfamiliar with the idea of Co-CEOs. I would like to remind you that Hasso Plattner and Dietmar Hopp were Co-CEOs of SAP. Too were Hasso and Henning Kagermann, and of course, Bill McDermott and Jim Hagemann Snabe. The idea of shared leadership is core to our history, innovation, and growth. For Jen and I to serve as Co-CEOs for the next chapter of SAP, we simply could not be prouder. I'm particularly proud to share the CEO title with Jen. With regard to Jen and myself, two CEOs are certainly better than one CEO for SAP.
Jen and I complement each other very well, and we are both extremely customer-focused. In addition to her strong leadership skills, Jen has a relentless curiosity and very strong approach to listening. These are critical qualities in order to understand what customers want and deliver the solutions they need. Today, we are a confident company, but also a humble company that understands what needs to be done for our customers. When you talk about digital transformation, this always comes down to people, processes, and technology. No company is more relevant here than SAP. From a product perspective, our portfolio is resonating strongly, as you see in today's results. To move forward, we will continue to double down on innovation, integration, and industry best practices.
At SAP TechEd this past week in Barcelona, we continued to roll out our business technology platform as the foundation for developers to build the intelligent enterprises. With SAP S/4HANA, we have the next generation of ERP to power financial, manufacturing, and digital supply chain. By integrating our line of business cloud and network solutions, we are creating new process scenarios for sales, marketing, finance, and HR, and spend management across the value chain of our customers. Our customers know this is an experience economy, which is why the acquisition of Qualtrics was such a significant move in our overall strategy. Now, we have the most powerful operational systems and the best experience data platform. When a chief human resources officer wants to concentrate on retaining top talent, they rely on SAP. When a chief marketing officer wants to channel customer feedback into product development, SAP makes it possible.
When a chief financial officer looks to concentrate resources on the most profitable customer segments, they turn to SAP. Jen and I are both huge believers in this strategy, these solutions, and our colleagues and partners who deliver them for our customers. To all our stakeholders, we are committed to continuing to deliver profitable, sustainable growth as the business software market leader. Thank you all for your continued support of SAP. We look forward to working closely with you and to taking your questions on today's call. Stefan, back to you.
Yeah, thanks a lot, Jennifer, Bill, and Christian. I would like to turn it back to the operator. You can start the Q&A session now, please.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question for the line of Phil Winslow from Wells Fargo. Your line is open. Please go ahead.
Great. Thank you, operator, for taking my question. Bill, first off, just wanted to congratulate you on an amazing run. It's really been a pleasure working with you. Your friendship and leadership has definitely been valued by me, and I know everybody that works at SAP and invests in SAP. Congratulations on an amazing run. Obviously, congratulations to Christian and Jen. My question is this. If I rewind back to nine years ago on Super Bowl Sunday, Hasso gave you, I remember, marching orders of a sort of three-pronged framework, which was drive growth, deliver innovation, and improve margins. I guess a question to the three of you, because I think we could all agree that Bill, under your tenure at SAP, has delivered that. How should we think about sort of that framework now as we have another CEO transition?
Phil, first of all, I'll start out and then give it to Jen and Christian to build if they like. I'd like to, first of all, thank you for your very kind remarks. It means a lot. You're a leader in your industry, too, and grateful for your friendship. In terms of what you should think about the company and its position, what I like about it from an investor perspective is this word called continuity.
Jennifer and Christian, myself, we've been in the same boardroom while the vision, the strategy, and the execution plan has been in full flight. You can expect, if you like the Intelligent Enterprise, if you like the strategy that we're on, which is basically to continue to innovate. We have the database platform of the 21st century, S/4HANA now is scaling unbelievably. We have great cloud assets at the line of business, the business network, and of course, with Qualtrics, we own experience management. All of that is going to sustain the top line, the software and related services in the core, and the operating profit. In particular, the big inflection point now is the fact that the business model itself has been innovated to allow for our margin expansion. You saw that in full motion in Q3, and that is our commitment to the capital markets.
We're excited about it because the business model is built for it now. The other thing that Hasso said back then is, "Give me a happy company." We weren't a happy company back then. Today, we have the most engaged workforce in the world. Very happy place. The brand's in great shape. The business model and the innovation and the mood of the company is in great shape. I can say with great confidence with Jen and Christian, it's going to go to the next level, because that's what's supposed to happen when companies do it right. The next generation is supposed to take it actually up even higher. In Jen and Christian, Phil, I think you're going to have all the elements you mentioned, plus a happy company, which is essential.
Maybe even more bias for engineering and organic innovation, because they're both very focused on that. I'll let them tell you how they're thinking.
Thanks, Phil. I think three things come to mind to me that are going to be pretty critical for us to drive the results that Phil just talked about. The first is really focusing in on the success of our customers. A cloud world is a different world. We have to focus in a different way every single day to drive the great experience our customers have with SAP through the adoption and consumption of our solutions. If we do that right, it's going to lead to more renewals, more predictable revenue. We have a huge opportunity there to continue to grow that and up our game. The second, as Bill said, is innovation. We have an incredible engineering heritage at SAP with so many of the engineers who have built products that are in use by the most important companies today.
We've also acquired some incredible talent and technology from several of the cloud companies. Really combining this cloud DNA together with our engineering heritage and understanding of industries, Christian and I are really excited about accelerating the innovation in the cloud in new areas. I'd say the third piece is really critical, and Bill ended on this, which is a happy company. It's all about culture. We know that for every company today, it's a war for finding the best talent. Culture truly becomes a differentiator. People want a different experience. They're looking for a great company that has multiple dimensions to serve what's important to them, both personally and professionally. We're really focused on that. Those three things we believe will be very critical to driving the numbers that we want to achieve.
From my side, there's not really much more to say. The Q3 results speak for themselves. It's also a credit to Bill McDermott, our CEO for the last 10 years, and how successful he also transformed SAP into a true cloud company. When you look into the Q3 results, especially with our flagship solution, S/4, customers completely understand in the meantime, the business value they are getting out of their investments. They launch new business models, they drive productivity, and with our new S/4HANA solution. Of course, also together with Adaire, we have now also signed some major deals where we also see how the experience management with Qualtrics comes together with S/4 to really take this insight into action in our operational processes. Net, a fantastic quarter for SAP, and it just shows that we have the right strategy.
Thank you very much.
Thanks. Christian, great. Congratulations again.
Thank you.
Thank you, Phil. Thank you.
Thank you. Let's take the next question, please.
We'll take our next question from John King from Bank of America. Your line is open. Please go ahead.
Great. Thanks. Good morning. First, I just want to add my congratulations to you, Bill, on a job well done. Just onto the question for Jennifer and Christian, I think. I guess, typically, as you become CEO, there'll be things that you'll be looking at to put a new spin on things. Obviously, here SAP has fairly recently mapped out this plan towards greater margin expansion. I wonder in the light of some of the things you said there, Jennifer, around culture, and the importance of making sure SAP is a great place to work. Is that plan still compatible with that idea? Do you think there's any prospect of you maybe revisiting how strongly the margin can rise? I guess similarly, I think there's been more recently more of a kind of moratorium on acquisitions. Is that something that you would potentially revisit at any point?
This is Kash. I'm on John's line here. I want to just quickly congratulate Bill. Bill, it's been a fantastic journey. I'll never forget.
September 2002, the world seemed to be ending. The market was at a bottom. You gave a lot of hope, and you delivered. It's been an awesome journey to have witnessed. Congratulations to you. Back to you, John. Sorry for the chime-in here. I had to do it. It's special.
Thank you very much, guys. Thank you, Kash. Very wonderful words. Thank you.
John, back to your question. I think that the things I talked about are really critical to driving our top line and driving more efficiency. As it relates to a little bit more of the detail around those areas as well as the M&A, we'll talk more about that at our Capital Markets Day in November.
Yes, what Jennifer already outlined is for sure right. It's all about now focus on customer success and driving the right outcomes of our customers and investments into SAP solutions. We have seen high growth in the cloud, but now it's also about high revenue rates, high recurring cloud revenues going forward, and also driving innovation, but also in an organic way. We have a strong development workforce all across the globe. We see now the innovations, how we infuse them into our applications in the cloud as well as on-prem, and that makes our portfolio even stronger. Clearly underscored organic innovation.
Thank you.
Got it. Thank you.
Let's take the next question, please.
Thank you. We'll take our next question from the line of Stefan Slowinski from Exane BNP. Your line is open. Please go ahead.
Yeah. Thank you very much for taking my question, also congrats to Bill on an incredible journey at SAP. It's a very different company today than it was 10, 15 years ago. Just a couple of quick ones, I guess. I haven't seen the full release this morning, are you reiterating your 2023 outlook? Can you give us details on the timing of the transition? If you have any initial indication on who's going to be taking over the running of the cloud business. Thank you very much.
I'll give Jennifer the opportunity to talk about the cloud business since she runs it now. I just want to thank you very much, Stefan, for your very kind remarks, and to let you know that the financial commitments that the company has made are not wavering. They are ever consistent. We feel very good, not only about obviously this quarter, but this year and beyond. What we laid out is what we laid out, and we were all in the room when we built that plan together. Any new long-term guidance shifts would take place in January, of course. You should feel very comfortable in knowing that this company's on the move, and these leaders were there when we built those plans, and they stand by them.
As it relates to the cloud business, I will still run those businesses. They'll be under my purview as Christian will maintain his current portfolio. We're going to be working very closely together, specifically around the engineering and bringing our teams together.
Thanks a lot. Thank you.
Thank you.
Thank you, Stefan. We have time for one final question, please.
Thank you. We'll take our next question from Walter Pritchard from Citi. Your line is open. Please go ahead.
Hi. Thank you. I guess just to follow up on the last question. Jen, you started to go into it in terms of the reporting lines and so forth. Could you just help maybe give us a quick overview of, it sounds like maintaining reporting lines, but any significant highlights in terms of leadership responsibilities between the two of you, and how you look at running the company with two versus one CEO there?
Yeah, sure. Thanks for the question, Walter. Christian and I, we work very well together. We have a great working relationship already. We have quite a bit already in flight, even prior to this role change. Again, we really want to simplify, stay close to the business, and we'll have one office of the CEO. That's how we're going to roll together, and we're excited about it.
Just to build on that. Definitely one of Bill's biggest assets, what he believes is building an unbelievable team. It starts from the executive board level. When you see the top-line number, big credit to Adaire. When you see on the bottom line how well we now expanded the margin also in the cloud with the cloud gross margin, this is also driven by Luka Mucic, our CFO. Jürgen Müller is new on the board, driving technology, building the foundation for our applications. Also underneath the board, there were a lot of changes. There's a next generation now in place with very talented leaders, we couldn't be more happy than about the talent bench we also have inside our workforce. This is also big kudos to you, Bill, for building such a great talented bench within SAP.
Great. Thanks, and congrats, Bill, and look forward to working with both of you.
Thanks a lot.
Thank you very much.
Thank you. This concludes our conference call for today. Thank you so much for joining, and we look forward to talking to you again next week on Monday to discuss our strong Q3 results in much more detail. Thank you so much for joining, and goodbye.
Thanks, everybody.
Thank you.
That concludes today's conference. Thank you, everyone, for your participation. You may now disconnect.