Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q3 Pardon the interruption, everyone. We are going to start that one more time. We are not live with our audience. We are going live right now, and I am going to do that countdown again. Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q3 2026 financial results conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press star followed by one on your touch tone telephone. I would now like to turn the conference over to Alexandra Steiger, Global Head of Investor Relations. Please go ahead.
Good evening, everyone, and welcome. Thank you for joining us. With me today, our CEO, Christian Klein, and our CFO, Dominik Asam. On this call, we will discuss SAP's third quarter 2026 results. You can find the deck supplementing this call, as well as our quarterly statement on our investor relations website. During this call, we will make forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to differ materially. Additional information regarding these risks and uncertainties may be found in our filings with the SEC, including, but not limited to the risk factor section of our annual report on Form 20-F for 2025.
Unless otherwise stated, all numbers on this call are non-IFRS, and growth rates and percentage point changes are non-IFRS year-on-year at constant currencies. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with IFRS. With that, over to you, Christian.
Yes. Thank you, Alexandra, and welcome to everyone joining us. Q3 was an outstanding quarter. We brought the autonomous enterprise to life. Customers are now getting their hands on our latest AI capabilities, and the response has been incredible. Our strategy is not just resonating, it is being adopted. Here is what that looks like in the Q3 numbers. The growing cloud backlog reached EUR 24.1 billion, up 26%. Cloud revenue was EUR 6.7 billion, up 25% in constant currencies. The strong growth in cloud revenue was significantly driven by our business AI data and platform business. Continuing the trend from recent quarters, nine out of 10 of our 50 largest deals included AI and Business Data Cloud. Total revenue for the quarter was EUR 10.3 billion, up 12%.
This is the first time in SAP's history that quarterly revenue crossed EUR 10 billion. Operating profit grew 18% to more than EUR 3 billion.
We are extending our leading position by winning market share at scale. According to IDC, we are growing about 11 percentage points faster than the market. In Q3, AI was the main driver behind our customers' move to the cloud. There are three key reasons. First, AI accelerates the RISE and GROW cloud migration. Second, AI makes the business case for our suite more attractive. Finally, our customers embrace our business AI platform with RISE and GROW. They know it's essential for building the data and process foundation required for high-quality enterprise-grade AI. RISE and business AI are winning across every sector. We added new customers in financial services with BBVA and FirstBank of Canada. Technology and research with Infineon and Fraunhofer-Gesellschaft. Manufacturing with NTN Corporation, and logistics with [Inaudible] and the U.S. Defense Logistics Agency. On the GROW side, AI is also a key differentiator.
For example, Greenbrier Maxion, South America's largest railway manufacturer, plans to use Joule to boost real-time operational visibility. Other GROW wins included Petroplus, A5X, and BLACKROLL. Industry AI is becoming a critical differentiator, especially in large enterprises. We saw wins such as AstraZeneca, where we are actively co-developing AI solutions for the life science industry. Decathlon will be leveraging our AI to build a foundation for a more intelligent, automated, and customer-focused business. Meanwhile, Danish retailer Salling Group uses industry AI to manage suppliers, classify new products, and trigger supply chain actions. Time to shelf improved by up to 66%. Manual category management time was cut by up to 70%. Further AI wins came from MAN Industries Limited, building what they call a once in a generation digital foundation to unify operations. Hengli chose our business AI platform for more efficient finance processes and improved decision-making.
Austrian Post, Commerz Real, and Fraport selected BDC. In solution areas and LOBs, Kao Corporation went with SAP Signavio, NTT DATA with our procurement solutions, and Helvetia Group with SuccessFactors. IDC estimates that SAP is growing more than 1.7x faster than the overall HCM market year-over-year. Many customers went live with RISE in Q3, including Mondelez, Panasonic, Roche, Infosys, and Panasonic . We also saw HUGO BOSS with SuccessFactors and WalkMe, Thalia Bücher with SAP Warehouse Solutions, and Bertelsmann with SmartRecruiters. In Q3, we already saw the great impact of the autonomous enterprise strategy on our business and in our numbers. Let's start with what customers see, Joule Work. This is where enterprise AI finally becomes usable. Our 400 million SAP users can now work with SAP in natural language and Joule gets the job done. It is based on three key capabilities.
First, conversations, the way users get work done. Here, users ask questions and delegate tasks in natural language. Joule handles every work directly, but when a task requires more than just a query, the user can use Joule to call a specialized agent. Take a supply chain planner. They can ask Joule to summarize the supplier contract, then delegate the resolution of a supplier shortfall to an agent that identifies an alternative source and triggers the production adjustment directly in SAP. Second, Spaces, the live view across system. Joule Spaces brings data together into a single, always up-to-date view, so users don't have to build PowerPoints and Excel spreadsheets. For our supply chain planner, they have a space combining live IBP and S/4HANA data with a real-time supply chain risk summary. They can see current demand, supply, and the risk all in one place.
Third, Joule Studio, the way to extend our agents or build your own from no-code to pro-code and with seamless integration of end-to-end. With Joule Studio, customers extend SAP's agents or create new ones for their specific needs. Here, the planners team can use the supplier resolution agent and tailor it to their own sourcing rules without starting from scratch. As the example showed, Joule Work serves every business user. It is much more than an AI chatbot. It is the workbench for the autonomous enterprise. This is true for users who need a presentation, a dashboard, an email, or solutions for even the most complex enterprise challenges, thanks to our 40 assistants and 300 agents across the autonomous suite. While I'm pleased with the progress we made, the focus is quality over quantity. One well-designed agent can outperform several fine-grained ones. That is how we build.
With Joule Work Desktop, companies like Reinhausen see the potential to permanently transform how their teams interact with business data. The same shift is happening in finance at Accenture. In their words, their Joule journey is not about deploying another AI tool. It is about working differently. Danfoss shared that the sourcing assistant has significantly improved the efficiency and quality of RFP creation. What makes Joule Work and the autonomous suite different is what lies behind this simple experience, our SAP Business AI Platform, the place to build, contextualize, and govern AI. Let's look at this in more detail, starting with build. Joule Studio gives every developer and domain expert the tools to create, extend, and deploy agents on top of SAP's platform. When building custom solutions, customers can select the best model for each use case.
SAP offers access to more than 70 models, both frontier and open weight. Unlike some of our peers, SAP is not committing to a preferred model. We give our customers choice, and we will always make sure that they have access to the best options available. Moving on to context and reason. Joule draws from the deepest business context in the industry through our knowledge graph, anchored in BDC, mapping more than 7 million fields and half a million tables, along with 400 data products and our full process knowledge. With our acquisitions of Dremio and Reltio, we extend that reach far beyond SAP data and give customers a unified context layer across their entire data landscape. This structured business ontology means Joule can solve even the most complex tasks with high accuracy, faster results, and better pro-
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I'm upbeat.
We are live now again. Please go ahead.
Okay, thank you.
Okay, here we go again. Starting with build, Joule Studio gives every developer and domain expert the tools to create, extend, and deploy agents on top of SAP's platform. When building custom solutions, customers can select the best model for each use case. SAP offers access to more than 70 models, both frontier and open weight. Unlike some of our peers, SAP is not committing to a preferred model. We give our customers choice, and we will always make sure they have access to the best options available. Moving on to context and reason. Joule draws from the deepest business context in the industry through our knowledge graph, anchored in BDC, mapping more than 7 million fields and half a million tables, along with 400 data products and our full process knowledge.
With our acquisitions of Reltio and LeanIX, we extend that reach far beyond SAP data and give customers a unified context layer across their entire data landscape. The structured business ontology means Joule can solve even the most complex tasks with higher accuracy, faster results, and better price performance. In Ariba, Joule delivers twice the accuracy of leading frontier models at half the token cost. We are continuously deepening the ontology itself. Our intent to acquire TechWolf is a good example. It puts us at the heart of every people transformation and extends our ontology into skills and workforce intelligence. Finally, governance. Joule Work comes with governance and security baked in. Every agent built on the Business AI Platform is run and governed by SAP. We ensure identity and authorization management, compliance with regulations across 60 countries and 26 industries, and certifications by auditors.
Our AI Agent Hub in LeanIX provides one central inventory to manage and govern every SAP and non-SAP agent. One key principle is very important. At SAP, the customer's data remains the customer's data. We never upload customer data or process IP into large language models, not for training, not for model improvement, not for any purpose. That commitment shapes every partnership with the model providers we make. In a nutshell, we bring together the best models with the deepest business context and govern all of that across our customers' entire agent landscape. That is why SAP provides the business AI for the enterprise. We will share more announcements across all these areas at TechEd next week. The story is not just what we ship, it is how we transform into an autonomous enterprise ourselves. We are reinventing, once again, SAP's own operating model.
First, in engineering. Our 40,000 developers are not just building AI. They are working AI first, guided by clear principles. We are co-innovating with customers, increasing speed, and focusing on the data and ontology our AI agents need. The results are clear. Our developers completed approximately 70% more code contributions since beginning of the year. Second, in go-to-market, we are using AI everywhere to transform how we engage with customers. This includes running targeted campaigns to attract the right leads and evolving our consulting services into an AI factory to accelerate adoption. The same holds true for AI across our corporate functions. Across SAP, our Joule Work Desktop is live for more than 110,000 employees. We are already seeing productivity gains of 20% across our central functions like finance, HR, and procurement, with even more productivity gains on more complex analytical and planning tasks. Let me summarize.
Q3 was an outstanding quarter. We are successfully executing in a volatile world because our customers see AI as a critical lever for competitiveness and resilience. Our pipeline for Q4 looks strong. At the same time, we remain mindful that Q4 is always our biggest and most important quarter with the greatest movement. Our teams are in full execution mode. The best enterprise AI is not the loudest. It is the AI you can trust to run your business. SAP is that AI, and we are turning that opportunity into results today. With that, I will hand over to Dominik.
Thank you very much, Christian, and thank you all for joining us this evening. Q3 was another strong quarter, as reflected by current cloud backlog expansion and healthy operating profit growth. We continue to see our work bearing fruit as we move closer towards our vision of an autonomous enterprise. SAP remains mission-critical for its customers who want to fundamentally change the way they do work by virtue of AI. As Christian alluded to in his prepared remarks, SAP continues to set the standard for large-scale business transformation and now leads the way in redefining how enterprises run in the age of AI. Today, our Early Adopter Care Program validates our progress and has been overwhelmingly positively received by customers, a step change versus a year ago.
The second half is off to a strong start, and we remain committed to investing in growth while preserving our bottom line in lockstep with the operational framework we've put in place by balancing expense versus revenue growth. We continue to be excited for what's to come and remain focused on capitalizing on what's clearly a once-in-a-lifetime opportunity for SAP and our customers. Now, let me provide more details on our financial highlights. Current cloud backlog surpassed EUR 24 billion, up 26%. SAP continues to be the undisputed large-scale enterprise SaaS and PaaS vendor in terms of growth. While we continue to expect a slight deceleration in constant currencies current cloud backlog growth in 2026, we do foresee continued market share gains.
As we outlined at the beginning of the year, the slight deceleration is attributable to several factors, including the continued political macroeconomic uncertainty we see today that could impact our largest booking quarter, which is, of course, the fourth, as well as a rapidly expanding base that continues to grow in absolute terms every year. Cloud revenue grew to approximately EUR 6.7 billion, up 25%, helped by several one-off positive effects, which added approximately one percentage point of growth in Q3. This was due to largely a positive revenue recognition effect, which in turn mainly stemmed from a catch-up of revenues from customers returning from financial distress. Cloud ERP suite revenue increased by 28% in Q3, now accounting for 89% of total cloud revenue. Software licenses revenue decreased by 9%.
Finally, total revenue in the third quarter was EUR 10.3 billion, up 12%, a remarkable result when taking a minus 5% year-on-year decline in services into account. Now, let's take a brief look at our regional performance. In the third quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA, and solid in the Americas region. Brazil, France, Germany, Italy, India, South Korea, and Spain had outstanding performance. While Switzerland, the U.K., and the U.S. were particularly strong. Now, moving down the income statement. Our IFRS cloud gross margin in Q3 was 73.9%, and non-IFRS was 74.3%, down 0.7 percentage points year-on-year. IFRS operating profit increased by 18% to EUR 2.9 billion. Non-IFRS operating profit was also up by 18%, now surpassing EUR 3 billion.
IFRS and non-IFRS pre-tax profit growth benefited from prior year negative impacts of EUR 0.1 billion each from a change in case law affecting SAP's other tax litigation, and from a workforce transformation, which were both recorded in the third quarter of 2025. While the operating profit strength this quarter was a result of the factors I mentioned above, it is important to remember that investments to accelerate our AI transformation and to further enhance our products are in full swing. We are managing the business and associated costs with a disciplined approach, aware that this is a long-term endeavor, and we expect to see these ongoing investments continue in the near term. The IFRS effective tax rate was 24.4%, and the non-IFRS effective tax rate was 25.8%. Free cash flow in Q3 was robust at EUR 1.7 billion.
Finally, IFRS earnings per share increased by 14% to EUR 1.96, and non-IFRS earnings per share increased by 19% to EUR 1.89. Now, on to our outlook. As disclosed in the quarterly statement issued earlier today, we now expect to lend towards the upper end of our previously guided range for 2026 cloud and cloud and software revenue, while reaffirming our previous guidance for current cloud backlog, operating profit, and free cash flow. Finally, we continue to believe that we are well-positioned to accelerate total revenue growth in 2027. While we are committed to this goal, I would like to take a moment to provide some additional context to help you better understand our path forward. First, as a reminder, the fourth quarter accounts for around 50% of our annual bookings volume.
Given the continued political and macroeconomic uncertainty we face today, this could weigh on Q4 bookings and, as a result, our 2027 trajectory. Second, as we mentioned in the first quarter of this year, and as you can see in the 5% decline, we want to leverage services more intentionally to promote the adoption of our AI solutions and build critical mass. This strategy has served SAP well to date, and as we are seeing positive return on investment, we will continue to double down on delivering even stronger adoption support to our cloud and AI customers, which will likely put more downward pressure on billable hours and services revenue also next year. In fact, we believe that in knowledge work industries, business models which solely rely on selling more hours to customers will be more and more challenged by AI.
Enable lower cost, more scalable, and nevertheless higher margin alternatives. So further portfolio adaptation in services is a necessity. Lastly, as mentioned earlier, Q3 was another strong quarter, as evidenced by growth across top-line parameters. As a result, we expect to trend towards the upper end of our cloud and software revenue outlook, which will raise the bar against we will measure our 2027 revenue acceleration. Taken together, we are still planning for total revenue growth to accelerate in 2027, but must be cognizant of all the factors that make this trajectory more challenging. To close, SAP was once again able to navigate a choppy environment, executing on its strategy and driving commercial success. The second half of 2026 is off to a strong start, and we continue to make progress against the operating plan we set at the beginning of the year.
While we have been able to maintain steady momentum year to date, we will put our full focus on the decisive fourth quarter bookings required to maintain our growth acceleration against now even more challenging comparables in 2027. Thank you, and we will now be happy to take your questions.
All right. We now take your questions. As always, I would kindly remind you to only ask one question when prompted. Operator, please open the line.
Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you are using speaker equipment today, please lift the handset before making your selections. Again, anyone who has a question may press star followed by one at this time. We will take our first question from the line of Adam Wood with Morgan Stanley.
Hi, thanks very much for taking the question, and congratulations on that very strong third quarter. Maybe if I could just ask on the CCP guide, Dominik, I think you still guided to that slight decel and changed the language around the macro expectations. I think you have said before that slight decel was 2%, which would imply 23% for the fourth quarter versus we ended Q3 at 26%. Could you just talk a little bit about why you are not willing to be a bit more optimistic here? Is it just an abundance of caution given the sale of the quarter? Is there anything you are seeing in pipelines or in customer decision-making that would give you that greater caution at this point in the year? Thank you.
Yeah. Thank you for the question. We had a very robust performance on CCP growth so far this year. Again, there is half of the bookings of the year to be still executed in Q4. If I look at the current macro backdrop, it is not so great. You have seen the oil price going up. Luckily, the conflicts in the Near East have not really resulted in massive disruptions of supply chains, but a huge pressure on pricing of many of the commodities that are relevant for the globe. Think about oil price going up from $60- $110. Interest rates have gone up, and we have all seen long-term correlation analysis that when interest rates reach 5%+ , and they have reached that in the U.S. now, these interest rates start to develop teeth.
I would say it is probably reasonable to not assume that the macro is super conducive in Q4. Yes, I would not like to be understood that we gave a precise guidance on what exactly slightly means. We just refer to what was implied in the prior guidance. It is a little bit of a range. I would say the upper end of that range might be 24% or so. I do not want to be necessarily saying that there is a point value of 23. There is a certain range and possible outcomes, and let us see how the rest of the quarter shapes out.
We will take our next question from Toby Ogg with JP Morgan.
Yeah. Hi, good evening and thanks for the question. Just on the backlog again. So 26% constant currency, stable versus Q2, and looks to be slightly accelerating on an organic basis. Your guidance has always been for that slight deceleration, and that is unchanged. Is the backlog currently growing faster than your own internal expectations at this point? If it is, could you help us with what products specifically are surprising you on the upside and why that is happening? Thank you.
Yeah. I can take that. First, as I also already highlighted in my remarks, what a difference again a year can make. We see in every RISE and GROW journey first. Just today, I had a large mining company here in Walldorf at our headquarter, and the first thing what they said is your agents to accelerate the migration and the transformation with RISE are really outstanding. So Joule for Consultants, all our data migration agents, they are up through the roof, and we get very, very good feedback. Also, by the way, by all the partnerships we are closing in that space as well. We have a good partnership with Conduct and many others. Also the SIs are helping us to even disrupt their own business model and accelerate the migration of our SAP customers to the cloud. Second, the business case.
Every business case is now with AI. I said it again, the majority of our deals are closed with AI. Even more important, the Business Data Cloud, after two years now being in the market, Reltio and Dremio acquisition is spot on. I just come from a two days engineering workshop, and what I have seen there is outstanding. Now in Q1, we will be able to even auto-generate non-SAP data products, put it into the SAP Knowledge Graph, and we can extend the ontology layer almost automated also for non-SAP data. Also Reltio, this AI matching of master data records, be it the customer, the material, the supplier, we are on that, will come very soon. That already creates now a really huge excitement, and BDC is just the foundation. Yeah.
Customers understand when I have really a messed up data model, also for non-SAP data, I have to work on that. Because we also see with AI adoption, obviously we can adopt AI very fast on the customer side, but it takes longer if you have a messy system. That has nothing to do with our AI or with the technology. It is just the same like with every ERP implementation, you need still a clean core. So with that, the BDC is, I would say, this outstanding business, and it is great. Then last but not least, as we said, we are in Q4 now, it is prime time for all of our new AI capabilities. The excitement inside SAP about Joule Work is fantastic. I love to hear all the feedback from our employees.
No matter if you are building PowerPoints for finance, for HR, for workforce in sales, creating ends of customer-previewing decks, this is all done now with Joule Work. Again, it is not only about another copilot who creates all of these spreadsheets and PowerPoints automatically. It is also giving you always the data context and the governance about who is allowed to see actually which data, and of course, all the identity and the authorizations also sitting in our underlying system of records. So that actually explains it very well. Probably you heard it, I was also very keen this time to share our line of business wins. Because now we always said the suite wins. But now we can go into every customer and says, "You know what?
You can build the ontology in pieces with your best of breed landscape, or you can have A2A out of the box with an end-to-end ontology layer coming with the suite. The value proposition for every app in every LOB is also now way easier for us because we can always sell the end-to-end ontology layer which only SAP can provide. When you then say, "Hey, this ontology comes as a service and governed by SAP," this is really huge. Then finally, also with my engineering team, we are fighting hard. It's always good to stay humble. There's of course also things we have to still improve. One thing what is really outstanding in my eyes is that we are really also making sure that we are not uploading any data or process IP of our customers into these large language models.
Which customer wants to see their own process IP, their own data trained in with these large language models and being available to the public? This is very important. Then last but not least, obviously now in the next months and quarters, we continuously work on the response times of the agents of Joule Work, the accuracy. But all of that together really delivered already a strong quarter, and we see it also reflected in the pipeline. Also what makes me now so confident is also, again, when I see on the product side the situation now compared to 12 months, not everything works out of the box. Again, we have to work on certain things like agent response time accuracy, but it's so much better, and the customers see the value proposition, and that is also now reflected in the numbers.
Our next question comes from Charlie Brennan with Jefferies.
Great. Thanks very much for taking my question. Actually, just to follow up to your previous answer there, Christian, you talked about needing to continue to improve the agents, both in response times and accuracy. Can you give us a sense of how far away you are today from where you want to be? Is that a matter of months to close, or is it a longer body of work than that? I guess related to AI, I'm getting partners beginning to feel the push towards AI credit as a business model. Dominik, can you shed some light into whether that's influencing some of the metrics in the P&L yet, and the dynamics between perhaps what you can book as CCB and what ends up in revenue? Thank you.
Happy to take the first question, Charlie. Look, probably on accuracy, we will never be done. Transformation is always also a mindset change. When product managers come to me and show me in our daily agent review, "Oh, I have an accuracy of 95%," I said, "Oh, no. You raised the bar on your test cases." We want to then solve even more complex problems. That is what SAP is known for. We continuously work on accuracy. Again, when I look at the new harness, when I look at the Knowledge Graph, when I see how we are training those models, this is again, a big difference also compared to 12 months ago. But of course, there's always work what we have to do. Response time is also something. We are tracing every query down to the data layer, to the ontology layer.
We are tracing how respondent, how good are the APIs? Do we need to extend the ontology when agents are going into the loop? Again, this is also a mindset change. This is really so different compared to what we did in software development, but we are making good progress. I see everyone is so energized to move into that and build the best agents for the industry. There's always work to do. But we are making great progress now.
Maybe, Charlie, on the question of the credits and whether there's any impact visible, I would say, first of all, it's very important to note that whenever we give credits to a customer, we basically amortize these so they're kind of spread over the life of the contract. That means that you don't have to worry about some cliffs or anything happening on that front. If your question more referred to this more consumption-based approach, which we want to gradually ramp into the mix, that is a very gradual process. I'd say in the near term, this kind of logic, how to bring CCP down to cloud revenues is still quite intact. Yes, it will loosen over time as we are going into more and more hybrid models all the way to full consumption based, as we want to sell outcomes to customers as opposed to tokens.
For outcomes, it needs consumption and adoption, which also means that all our incentives are gravitating towards more adoption. That is not something you should be concerned about in the bridge to 2027. This will be still quite traditional, I'd say. By the way, it was also good to see that maybe our famous transactional business, which has been lingering along for a long time, has now bottomed out a little bit, and we have actually seen a pretty nice growth year-on-year in that bucket.
We will move to our next question from Jackson Ader with KeyBanc Capital Markets.
Hey. Thanks for taking our questions, guys. The one that I had was on regions. EMEA and APAC growing again in cloud revenue, growing again ahead of the Americas. I am curious, as AI becomes more of a part of the customer decision-making, do you think that some of the other regions, the Americas, could start to catch up to EMEA and APAC in terms of their cloud revenue growth? As AI might be being adopted faster in one region versus others? Thank you.
No. When I look at the regional performance both on AI and data, the regions really perform equally strong. Yes, there is one quarter where you might see an outlier. I would say when you look at it over the last four quarters, there is really great consistency. Also, especially in North America, I would even say the customers are really oftentimes the front runner for AI. We are in many AI projects, especially on industry AI, where we are now co-developing with customers, very open from a regulation perspective anyway, more easier than when I compare this to all the regulations we find in Europe. So I would say no, it is actually U.S. being the front runner and EMEA and APJ in the meantime following really well. So there is really also a great consistency in the performance across all regions.
But given they are the front runner, they are also much more penetrated on cloud already. So that, I think is the main factor.
Yes.
Our next question comes from Mark Moerdler with Bernstein Research.
Thank you very much for taking my question and congratulations on the solid quarter and the numbers and the details. Dominik, you have been talking about current cloud backlog. Maybe you want to focus on the way you are thinking about a guiding to the Q4 and the total revenue you have given us numbers for FY 2026. FY 2025 grew at 11% constant currency. First nine months has grown faster than that. Is it just simply there is just so much that the close obviously helps CCB, but a lot of what closes in Q4 is really not going to necessarily generate revenue in Q4? What are the factors that are going into the bridge between the nine months and the full year 2026 revenue guide?
You are absolutely right that our visibility for Q4, in cloud revenue terms, which is of course the key driver of total revenues, is quite high at this stage. This is why we now say it is towards the high end of the range, and then you can back solve the implied cloud revenue growth, and you will find it is around 23% given. So that is no magic. You might wonder why is it actually 23% given that we jump off a pretty healthy 25% in Q3. There are a couple of reasons I want to call out, and some I have already mentioned in my introductory remarks. I want to recall that Q3 last year we had EUR 1.2 billion of true factors that weighed on cloud revenue in that quarter, so it makes the comps easier.
Secondly, there is still a little bit of a kind of quote-unquote decel effect by the fact that SmartRecruiters was actually embarked in our P&L 11th of September last year, so we have a tiny kind of Q3 contribution. So there is still some good growth from M&A, so to speak, in Q3 of 2026, which the comps will be out. So we will lose that kind of edge. But it is, I would say, half a percentage point or so. Then last but not least, do not forget that we have seen a decel in the CCP growth from Q3 last year when it was 27% in Q3 to 25% in Q4. So it is quite natural that we see a little of a dampening effect. But you are right, there should not be any massive surprises on cloud revenues anymore.
There's always some customer stories where some customers might recover from a certain situation or go in a certain situation which is adverse to revenues. This noise is always normal. Otherwise, it's a quite clear line of sight for Q4 on the cloud revenue side, say now. The other items, licenses always notoriously difficult to predict, so don't nail me on that one. But it's getting smaller and smaller. Then we mentioned that we had minus 5% constant currency decline in services. So it's the EUR 1 billion runabouts run rate per quarter. That's another factor that will be there probably because we really have good experience now and think that this conversion of billable hours into adoption and support of customers is paying off handsomely because it's quite straightforward.
You get a meager margin on an hour you sell, but if you can convert that into recurring high-margin AI data business, we feel there's more value to be had from that.
We'll take our next question from Michael Briest with UBS.
Thank you. Congratulations. For Dominik, I think you need to do about EUR 2 billion in Q4. Obviously, I know there's lots of things that are occurring. Can you give confidence in that? I know tailwinds is becoming less of a wind than it has been for the last couple of years. Are you starting to see from the migration credits being, if you like, utilized by customers? Thanks.
Yeah. Indeed, we always pointed out to the fact that migration credits at some point in time will affect our free cash flow, but not to a degree that I feel nervous about the full year guidance of EUR 10 billion. Yes, the remain to do you mentioned is there, but I think we have opportunities, and I am relatively confident that this is something we can manage. To be honest, on Q3, you see a little bit of a, for my taste, a high accounts receivable. So I think we have to tighten the screws on our collections a little bit more. Maybe the higher interest rates create some incentives here for customers to be a little slower sometimes if they find a good excuse.
We are now all over this and collecting money to make sure that we are harvesting, not only sending out invoices, but also getting the money back into the shop.
We will take our next question from Johannes Schaller with Deutsche Bank.
Yeah, thanks for taking my question. Christian, you talked a little bit about how you are not overly relying on a single AI model out there, and then also you made some decent investments in model routing tools, routing the right task to the right, most efficient model. In the light of the gross margin for the business, we obviously have some headwinds at the moment, but this model routing could become quite a nice source of potential cost savings that you can either pass on to your customers or maybe keep some of that in your margins. Just how should we think about that conceptually going forward?
Yeah, absolutely right. Johannes, we are also now checking every agent use case we are shipping also on what is the best model, and not only from a performance, from an outcome perspective, but also from a price perspective. We are just at the beginning. We are switching the models now more often, and we see also that we have an increasing share of open weight models. By the way, not only for what we ship to our customers, but also what we do internally. The second part is, when you look into the cost margin, as I also said in the last earnings call, yes, this year we have some one-timers. We are investing in software and cloud. We of course have higher hardware prices now. We are not super invested in the infra business, but still.
Next year, what we are also working on is, of course, on a huge AI automation initiative across the delivery life cycle of our cloud operations, be it on the deployment side, be it on the monitoring, on the incident management, the whole application management. We are working heavily on further automation opportunities so that we are also able to cut some of our third-party contractors we deploy in our cloud delivery. We remain confident that we also see in the upcoming years a healthy development of our cloud cost margins, including switching off the models, and being agnostic is in my eyes a big plus, as we also said before.
Our next question comes from Ben Castillo with BNP Paribas.
Good evening, and thanks for taking my question. Christian, there are two more recent debates forming. The firstly around software potentially going more headless, so accessing data and insights from a plugin versus retaining that AI UX. Secondly, perhaps as you mentioned earlier, a divergence between those staying AI model agnostic, kind of giving choice, and those partnering more exclusively. It is an open question. Just curious on your thoughts and what gives you confidence you have the right strategy, and is that being validated with your customer discussions that that is aligned to how they want to deploy their own AI roadmap? Thank you.
Please stand by. Pardon the interruption, everyone. Please stand by while we reestablish our audio. Please resume.
Okay. Sorry for the disruption. As I said before, it is very important that what I mentioned is that we are, of course, also now using AI to train the models and further work on the accuracy and the outcomes of the agent. That is what we are continuously now doing. With that, we see also then, of course, also further optimization of the price-outcome ratio. Again, we are working there, and we see very, very good progress quarter- over- quarter.
Our next question comes from Frederic Boulan with Bank of America. Frederic, your line is open.
Yeah. Thank you for taking the question. If I can come back to the question around the margin side, can you talk a bit more about the moving parts on margins this year and next? We have gross margins down. You seem pretty confident about the ability to return to growth, but it would be good to have a bit more detail on the rest of the model in terms of operating leverage and ability to keep on expanding margins next year.
Yeah. We are working on an all-in-one AI program internally at SAP, and I mentioned it. In R&D, obviously, we see huge productivity gains, not only applying AI code generation tools, we are also applying AI for testing, and then for the whole delivery life cycle. That is why, as I said before, I am also really optimistic on cloud delivery and our cost margins, because again, we will switch models to always optimize for the best price outcome. But also then, for all the manual activities we are doing today in really delivering, onboarding the agents and the systems, but also the whole application management of our operations. We will see huge efficiency gains also next year. We will also adjust our third-party contracts also during the course of the next 12 months. If you look at sales, Joule Work is fantastic.
When you go to a customer, the customer previewing with all the details, with all the business data of the customer pipeline, adoption data, the tickets, everything is there. That helps the salespeople a lot. The whole account planning is done via Joule Work. If we move on to finance, we are just doing the financial planning for the year. Also there, we use our Tableau AI. We use a lot also Joule Work there to do the simulations, to do the reporting. Including HR now with TechWolf, it is all about skill transformation. So HR business partners are using Joule Work heavily to analyze skills, to check, okay, where to recruit, who to offer which training. So also there, we are confident.
As I also said, we are confident to really also gain up to EUR 3 billion efficiency gains over the course of the next two years. We will continuously update you on the progress, but we are very confident that on all cost items in our P&L, you are going to see the impact of AI.
Yeah. I just want to make sure that these are all extremely powerful levers. I think Christian has also mentioned we have the sovereign cloud still. We have some reselling business which is expanding fast, the BDC structures. We are going to embark quite some acquisitions, which is not so much a topic on gross margin, but more a topic on operating margin, which are going to be absorbed. So we will need all these levers to really make sure that the gross margin, the cloud gross margin is stable, and we can sustain that. But the overall model is of course intact. We are firmly committed to containing the growth in operating expenses, total operating expenses, including cost of goods sold to the 80%-90% growth of the top line.
We have always been very careful to not be too specific on any one of the line items. I think it serves us well because there are all these puts and takes happening every quarter, and we want to be really flexible to steer the business to make sure we maximize the economics here. Do not forget, we want to really drive the absolute amount of money we harvest from these opportunities as opposed to focusing purely on the margin side.
Our next question comes from Kirk Materne with Evercore ISI.
Yeah. Thanks very much for taking the question. Dominik, I just wanted to follow up on something you said earlier about the transactional business. I realize it is very small for you all, but it seemed like you mentioned that it was stabilizing. I was just wondering, do you see that continuing to stabilize? Can that be a little bit more of a tailwind for you all as you go into 2027? I realize it can fluctuate, but it is good news that it is obviously stabilizing. I am wondering how you are thinking about it going forward. Thanks.
Tailwind is a strong word because it might imply that it is higher than the group average cloud growth, which is definitely not. It is far below that. But you recall it was kind of hovering around zero, even slightly negative, and now we are back to some positive territory, which is just reducing the headwind as opposed to being a tailwind.
We'll move to the next question from Richard Nguyen with Bernstein. Richard, your line is now open. Hearing no response, we'll move on to our next question from Patrick Walravens with Citizens.
Oh, great. Thank you very much. I really appreciate it. Christian, this is maybe a little bit on the smaller side of the business opportunity, but I'm wondering what you think about the travel and expense side of the business, where Concur has been so dominant for so long, but now you're seeing some new competitors growing faster.
Yeah, absolutely. Concur is a sizable business for us, and I would say, God thanks, we are more on the expense side, so travel to expense, with a lot of regulations. Customers have Concur in the meantime, extremely deeply integrated to our finance solutions. It's a very, very stable business. Obviously, a very minor part is on the booking side, and there are, of course, a lot of new incumbents in the market. But this is not the main part of Concur's business. We are also seeing there with our agents, we are developing already great adoption. I would even say from all of the lines of business solution, we see even the highest adoptions on the Concur side. We are very happy with this business. Again, this is predominantly focused on the expense to pay. That is very important.
The travel to record is intact. Also there, we will announce new partnerships with some credit card providers, with some airlines. Also there is a huge interest in the ecosystem. The business is intact and very healthy.
Our next question comes from Balajee Tirupati with Citi.
Hi. Good evening, and thank you for taking my questions. Would it be possible to share color on constituents within your backlog growth? As the ECC maintenance deadline is approaching, is it getting more skewed towards migration or AI and BDC actually growing share from very small base?
Yeah. No, as I said, what we are seeing is in every RISE journey now to the cloud, customers use these RISE journeys more and more to really do a business transformation. While two to three years ago, it was more about greenfield process redesign, process automation. Now it is also, of course, a huge lever to also completely reinvent how business processes run with AI. Plus, as I said, in every RISE journey, customers are not only moving to S/4 on our line of business solutions, but they are really also making use of our BDC platform to really also build a harmonized data layer, both SAP and non-SAP. So we are seeing that the RISE contracts overall, they are getting richer. There are more solutions embedded. First AI on the process layer underneath our SAP Business AI Platform with BDC.
Customers are using all kinds of AI migration tools now to also then accelerate the journey. So overall, you see RISE definitely became richer from a scope perspective with AI, with BDC. We also see it, by the way, in the Q4 pipe, which again, looks strong. It is actually also there, you see the consistency on that every RISE deal we are leading with AI and the data layer is always part of it.
Great. With that, thank you, Christian. Thank you, Dominik. This concludes our call for today. Thank you for joining and apologies again for the disruption.
Thank you.
Thank you. Bye-bye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.