SAP (SAP) Q3 2026 earnings call transcript

Good evening, everyone, and welcome. Thank you for joining us. With me today, our CEO Christian Klein and our CFO Dominic Assam. 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 risk 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 20F for 2025.

Unless otherwise stated, all numbers on this call are non-IFRS, and growth rates and percentage changes are non-IFRS year-on-year at constant years. 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. And with that, over to you, Christian.

Yes, thank you, Alexandra, and welcome to everyone joining us. FuseWe 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's being adopted. Here's what that looks like in the Q3 numbers. The current cloud backlog reached 24.1 billion euros, up 26%. Cloud revenue was 6.7 billion euros, 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 10.3 billion euros, up 12%.

This is the first time in SAP's history that quarterly revenue crossed 10 billion. Operating profit grew 18% to more than 3 billion euros. And 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. And 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.

WISE and Business AI are winning across every sector. We added new customers in financial services with Bungo Bilbao and Fastloan Bank of Canada, technology and research with Infineon and Fraunhofer Gesellschaft, manufacturing with NTN Corporation and logistics with Nagelkuhl and the U. S. Defense Logistics Agency. On the growth side, AI is also a key differentiator. For example, Queen Pryor Maxion, South America's largest railway manufacturer, plans to use Juul to boost real-time operational visibility.

Other growth wins included Petro Plus, 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 Selling 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. Henkel 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, Taro Corporation went with SAP Signario Entity Data with our procurement solutions and Helvetia Holding with success factors. IDC estimates that SAP is growing more than 1.7x faster than the overall HCM market year over year. Many customers went live with Ryzen Q3, including Mondelez, Panasonic, Roche, Infosys, and AnnaSwiss. We also saw Hugo Boss with SuccessFactors and WalkMe, Talia Bücher with SAP Warehouse Solutions and Battlesman with Smart Recruiters.

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, tool 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 S4HANA 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-quote to pro-quote and with seamless integration of N at N. 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, JouleWork 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 built.

With JouleWork 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 tool journey is not about deploying another AI tool. It is about working differently. And Danfoss shared that the sourcing assistant has significantly improved the efficiency and quality of RFP creation.

What makes tool work and the eponymous 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.

And 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 Openweight. 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 Relio, we extend that reach far beyond SAP data and give customers a unified context layer across the entire data landscape. This structured business ontology means Joule can solve even the most complex tasks with higher accuracy, faster results, and better performance.

Pardon the interruption. One moment while we reestablish our audio. Thank you everyone for your patience. Please continue to stand by while we reestablish the audio.

And we are live now again. Please go ahead. Okay, thank you. Okay, thank you. Okay, here we go again. Starting with Bill. Jules Studio gives every developer and domain expert the tools to create, extend, and deploy agents on top of SAP's platform. And when building customer 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. tool 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 Relgeo, we extend that reach for our beyond SAP data and give customers a unified context layer across their entire data landscape.

The structured business anthology 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. And we are continuously deepening the anthology 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. Jouleworks comes with governance and security baked in. Every agent built on the business AI platform is one and governed by SAP. We ensure identity and authorization management, compliance with regulations across 60 industries and 26 countries and 26 industries and certifications by auditors Our AI agent hub in DIN provides one central inventory to manage and govern every SAP and non agent And 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. And 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. And we will share more announcements across all these areas at TechEd next week. But 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 GoToMarket, 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. And across SAP, our toolwork 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 Dominic.

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 by preserving our bottom line in lockstep with the operational framework we've put in place for 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 24 billion euros, 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 currency's 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 6.7 billion euros, up 25%, helped by several one-off positive effects, which added approximately one percentage points 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 38% in Q3, now accounting for 89% of total cloud revenue. Software licenses revenue decreased by 9%. Finally, total revenue in the third quarter was $10.3 billion, up 12%, a remarkable result when taking a minus 5% union 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 Sondag in the Americas region. Brazil, France, Germany, Italy, India, South Korea, and Spain had outstanding performance. While Switzerland, the United Kingdom, and the United States 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 2.9 billion euros. Non-IFRS operating profit was also up by 18%, now surpassing 3 billion euros. IFRS and non-IFRS bring profit growth benefited from prior year negative impacts of 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're managing the business and associate 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 1.7 billion euros.

Finally, IFRS earnings per share increased by 14%, 1.96 euro, and non-IFRS earnings per share increased by 19% to 1.89 euro. Now on to our outlook. As disclosed in the quality 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 you 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 worker 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. And lastly, as mentioned earlier, Q3 was another strong order, 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're 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 job environment, executing on its strategy and driving commercial success. The second half of 2020, SIX 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, and we now take your questions. As always, I would kindly remind you to only ask one question when prompted. Operator, please open them up.

Thank you for the question. I mean, obviously, we had a very robust performance on CCP growth so far this year. But again, there is half of the bookings of the year to be still executed in Q4. And if I look at the current macro backdrop, it's not so great. I mean, 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 to 110. Interest rates have gone up, and we've all seen long-term correlation analysis that when interest rates reach like 5% plus, and they have reached that in the U. S. now, these interest rates start to develop teeth. So I'd say it's probably reasonable to not assume that the macro is super conducive in Q4. and yes, I would not kind of like to be understood that we gave a precise guidance on what exactly slightly means.

We just referred to what was kind of implied in the prior guidance. So it's a little bit of a range and so I'd say the upper end of that range might be 24% or so. So I don't want to be necessarily saying that there's a kind of point value at 23. There's a certain range and possible outcomes and let's see how the rest of the quarter shapes out.

Yeah, I can take that. And first as I also already highlighted in my remarks I mean what a difference again a year can make I think we see in every rise and quote journey First just today I had a large mining company here in Waldorf and 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're up to 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, and we have a good partnership with Conduct and many others, and 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. I mean, every business case is now with AI. I said it again, The majority of our deals are closed with AI. And even more important, the business data cloud, after two years now being in the market, this Relio and Dremio acquisition is spot on. I just come from a two-day 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 knowledge curve, and we can extend the ontology layer almost automated also for non-SAP data. Also, Relgio, I mean, this AI matching, you know, of master data records, be it the customer, the material, the supplier, we are on that, will come very soon.

And that already creates now a really huge excitement, and BDC is just the foundation. Customers understand, and 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. And that has nothing to do with our AI or with the technology. It's just the same like with every ERP implementation.

You need still a clean core. And so with that, the BDC is, I would say, this outstanding business, and it's great. And then last but not least, as we said, in Q4 now, it's prime time for all of our new AI capabilities. I mean, the excitement inside SAP about dual work is fantastic. I mean, I love to hear all the feedback from our employees.

And no matter if you are building PowerPoints for finance, for HR, for workforce in sales, creating ends of customer briefing decks, this is all done now with dual work. And again, it's not only about another co-pilot who creates all of these spreadsheets and PowerPoints automatically. It's 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. But 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 say, you know what?

You can build the ontology in pieces with your best of breed landscape, or you can have A to A out of the box with an end-to-end ontology layer coming with the suite. And that is, you know, so the value proposition for every app in every line of business is also now way easier for us because we can always sell the end-to-end ontology layer, which only SAP can provide. And when you then say, hey, this ontology comes as a service and governed by SAP, this is really huge. And 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 that 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. I mean, which customer wants to see, you know, their own process IP, their own data trained in with this large language models and being available to the public. So this is very, very important. And then last but not least, obviously now in the next months and quarters, we continuously work on the response times of the agents of true work, the accuracy. But all of that together really delivered already a strong quarter.

and we see it also reflected in the pipeline. And 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 security, but it's so much better, and the customers see the value proposition, and that is also now reflected in the numbers.

I'm happy to take the first question, Charlie. Look, probably on accuracy, we will never be done. I mean, you know, and transformation is always also a mindset change. And when product managers come to me and show me in our daily agent review, oh, I have an accuracy of 95 percent, I said, oh, no, you waste the bar on your test cases because we want to then solve even more complex problems. I mean, that is what SAP is known for. So we continuously work on accuracy.

And again, when I look at, you know, the new harness, when I look at the knowledge graph, when I see how we are training those models, I mean, 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, you know, down to the data layer, to the ontology layer. We are tracing, you know, how respondent, how good are the APIs? Do we need to extend the ontology when agents are going into the loop? And, again, this is also a mindset change. I mean, this is really so different compared to what we did in software development, but we are making good progress.

And I see everyone is so energized to move into that and build the best agents for the industry. So there's always work to do, but we are making great progress now.

So 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 spread over the life of the contract. And that means that you don't have to worry about some clips 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. So I'd say in the near term, this kind of logic, how to bring CCB 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, and 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 27. This will be still quite traditional, I'd say. And 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 and year in that bucket.

I mean, no. I mean, when I look at the regional performance, both on AI and data, I mean, the regions really perform equally strong. Yes, there's one quarter where you might see an outlier. But I would say when you look at it over the last four quarters, there's really great consistency. And also, especially in North America, I would even say the customers are really, you know, 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 standpoint, the perspective anyway, more easier than when I compare this to all the regulations we find in Europe. So I would say, no, it's actually a U. S. being the frontrunner and EMEA and APJ in the meantime falling really well.

So there's really also a great consistency in the performance across all regions. But even though they are the front runner, they are also much more penetrating on cloud already. So that, I think, is the main factor. Yes. Yeah.

You're 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. And this is why we now say it's kind of towards the high end of the range, and then you can back solve the implied cloud revenue growth, and you will find it's around 23% here. So that's no magic. Now, you might wonder why is it actually 23% given that we jump off a pretty healthy 25% in Q3.

And there are a couple of reasons I want to call out. Some I've already mentioned in my introductory remarks. I want to recall that Q3 last year, we had 1.2 billion of two factors that weighed on cloud revenue in that quarter. So it makes the comms easier. And secondly, there is still a little bit of a kind of quarter on quarter decel effect by the fact that smart recruiters was actually embarked in our P&L 11th of September last year. So we have a tiny kind of Q3 contribution. So there's still some good growth from M&A, so to speak, in Q3 of 26, which will be, the comps will be out. So we'll lose that kind of edge, but it's, I'd say, half a percentage point or so.

And then last but not least, don't forget that we have seen a decel in the CCB growth from Q3 last year, where it was 27% in Q3 to 25% in Q4. So it's quite natural that we see a little bit of a dampening effect. But you're right, I mean, there shouldn't 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, but otherwise it's a quite clear line of sight for Q4 on the cloud revenues. I'd say now the other items, licenses are always notoriously difficult to predict, so don't name it on that one.

but it's getting smaller and smaller. And then we mentioned that we had minus 5% constant currency decline in services. And so it's the 1 billion roundabouts run rate per quarter. And 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 support of customers is paying off handsomely. It's quite straightforward. or 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.

Yes, the Remain2Do, you mentioned, is there. But I think we have opportunities, and I'm relatively confident that this is and 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 bit slower sometimes if they find a good excuse. So we're 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.

Yeah, absolutely right, Johannes. I mean, obviously, 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. And we are just at the beginning. So 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.

And then the second part is, I mean, when you look into the cost margin, as I also said in the last earnings call, I mean, yes, this year we have some one-time. 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're also working on is, of course, on a huge AI automation initiative across the delivery lifecycle of our cloud operations, be it on the deployment side, be it on the monitoring, on the incident management, the whole application management. So 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.

So we remain confident that we also see in the upcoming years a healthy development of our cloud cost margins, including switching of the models. And being agnostic is a big plus, as we also said before.

You know, as I said before, you know, it's very important that what I mentioned is that, you know, we are, of course, also now using, you know, AI to, you know, train the models and further work on the accuracy on, you know, and the outcomes of the agent. And that's what we are continuously now doing. And with that, we see also then, of course, also further optimization of the price outcome ratio. So, again, we are working there and we see very, very good progress quarter over quarter.

Yeah. I mean, you know, we are working on an all-in-one AI program, you know, internally at SAP, and I mentioned it, you know, on R&D, obviously, we see, you know, huge productivity gains, just not only applying AI code generation tools, we're also applying AI for testing and then for the whole delivery lifecycle. And that's why, as I said before, I'm 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, you know, for all the manual activities we are doing today in really delivering, onboarding, you know, the agents and the systems, but also the whole application management of our operations, we will see huge efficiency gains also next year.

And we will also adjust, you know, our third-party contracts, you know, also during the course of the next 12 months. If you look at sales, I mean, Juul work is fantastic. When you go to a customer, the customer briefing 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 Juul work. And then 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 to work there to do the simulations, to do the reporting, and including HR now with TechWolf.

I mean, it's all about skill transformation. So HR business partners are using tool work heavily to analyze skills, to check, okay, where to recruit, who to offer which training. And so also there. I mean, we are confident, as I also said, we are confident to really also gain, you know, up to 3 billion efficiency gains over the course of the next two years. And we will continuously update you on the progress. But we are very confident that on all cost items in our P&L, you're going to see the impact of AI.

I just want to make sure that, I mean, 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 you know the BDC structures and we have embarked we are going to embark quite some acquisitions which is not so much a topic on gross margin but more topic on operating margin which are going to be absorbed and 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. I mean, we are firmly committed to keeping that, to containing the growth in operating expenses, total operating expenses, including cost of goods sold to the 80 to 90 percent growth of the top line.

So that is, you know, we have always been very careful to not be too specific on any one of the line items. And I think 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. And don't 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.

A tailwind is a strong word because it might imply that it's higher than the group average cloud growth, which is definitely not. It's far below that. But you recall it was kind of hovering around zero, slightly negative, and now we are back to some positive territory, which is just reducing the headwind as opposed to being a tailwind.

Yeah, I mean, absolutely. I mean, Concur is a sizable business source, and I would say God thanks. We are more on the expense side, so travel to expense. with a lot of regulations. Customers have Conquer in the meantime extremely deeply integrated to our finance solutions. So 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 Conquer's business. And 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 Conquer side.

So we are very happy with this business. And again, this is predominantly focused on the expense to pay. So that is very, very important. And so the travel to record is intact. And also there, I mean, we are also now announcing new, we will announce new partnerships with some credit card providers, some airlines. So also there is a huge interest in the ecosystem. So the business is intact and very healthy.

As I said, I mean, what we are seeing is in every WISE journey now to the cloud, customers use this WISE journey more and more to really do a business transformation. And while, you know, two to three years ago, it was more about Greenfield process redesign, process automation. Now it's also, of course, a huge lever to also completely reinvent how business processes run with AI. Plus, as I said, in every WISE journey, customers are not only moving to S4 and 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 WISE contracts overall, they are getting richer.

There are more solutions embedded. first AI on the process layer underneath our business AI platform with BDC. And then, you know, customers are using all kinds of AI migration tools now to also then accelerate the journey. So overall, you see why it's definitely become a Witcher from a scope perspective with AI, with BDC. And we also see it, by the way, in the Q4 pipe, which, again, looks strong.

It's actually also there. You see the consistency on that every wise deal we are leading with AI, and the data layer is always part of it. Great.

And with that, thank you, Christian. Thank you, Dominic.