SAP Q2 2020: Operating cash flow bounces back, cloud bookings remain stable

SAP is weathering the COVID-19 storm through strong cloud service results despite disruption in the firm’s business travel arm.

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SAP has reported its second-quarter earnings results, highlighting stable cloud revenues and a substantial increase in operating cash flow despite the COVID-19 pandemic. 

SAP's Q2 2020 earnings (statement) (.PDF), ending June 30, 2020, reveal revenues of €6.74 billion IFRS, up two percent year-over-year (or one percent non-IFRS and at constant currencies) with basic earnings per share of €0.73 (€1.17 non-IFRS), an improvement on Q1 2020's €6.521 billion IFRS revenue.

SAP reported an operating profit of €1.28 billion IFRS, up 55% year-over-year and eight percent to €1.96 billion non-IFRS and up seven percent non-IFRS at constant currencies. Profit after tax in Q2 has been reported as €885 million.

Operating cash flow for the first six months of the year was €3.77 billion, up 41% year-over-year as SAP begins to bounce back from heavy restructuring costs. The company also cited lower-than-expected tax payments as a reason for the improvement.

SAP's major cloud and software licensing businesses have been disrupted by the novel coronavirus pandemic and in Q1 2020, the company reported a backlog of licensing contracts worth €6.65 billion. 

The cloud backlog remains roughly the same, while cloud revenue grew by 21% year-over-year, to €2.04 billion (IFRS), up 19% non-IFRS and up 18% non-IFRS at constant currencies. Software licenses revenue decreased by 18% year-over-year to €0.77 billion (IFRS and non-IFRS).

Overall cloud and software revenue grew four percent year-over-year to €5.71 billion (IFRS) and up three percent non-IFRS at constant currencies.

SAP S/4HANA added an additional 500 customers to the roster in Q2 2020, up 22% year-over-year. SAP S/4HANA now accounts for over 14,600 customers, of which roughly 7,400 are now live.

The four main business segments SAP reports on, "Applications, Technology & Services," "Qualtrics," "Concur" and "Services" performed relatively well over the second quarter of 2020, despite the disruption caused by the novel coronavirus pandemic.

Applications, Technology & Services revenue increased by three percent to €5.31 billion year-over-year.  

Concur, the firm's travel, expense, and invoice management solutions unit, reported revenue of €379 million year-over-year, down four percent -- or five percent at constant currencies -- a substantial slide based on Q1 revenue reports of €428 million. SAP says this is due to "significantly reduced business travel due to the COVID-19 crisis."

Qualtrics revenue was €168 million, an increase of 34% year-over-year, or 32% at constant currencies. 

On Sunday, SAP announced its intention to take Qualtrics public. However, the company intends to maintain majority ownership and the timing of the upcoming Initial Public Offering (IPO) has not been decided. 

See also: SAP Q1 2020: Cloud bookings remain strong despite coronavirus crisis

"SAP's acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40 percent, demonstrating very strong performance in the current setup," SAP CEO Christian Klein said. "SAP will remain Qualtrics' largest and most important go-to-market and research and development (R&D) partner while giving Qualtrics greater independence to broaden its base by partnering and building out the entire experience management ecosystem."

The Services segment, including digital transformation and the Intelligence team, reported revenue of €796 million, down six percent year-over-year.

SAP's business outlook for 2020 has been confirmed, with cloud revenue predicted to be within the €8.3 billion to €8.7 billion range (non-IFRS), and total revenue expected to be within the range of €27.8 to €28.5 billion at constant currencies. SAP estimates operating profit for the year will be between €8.1 to €8.7 billion at constant currencies.

"With our investments in strategic growth areas we are confident we will not only weather the crisis but emerge even stronger," commented SAP chief financial officer Luka Mucic. "We were also pleased to see a strong acceleration in free cash flow despite the current market dynamics."

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