Executives: Stefan Gruber - Head of Investor Relations William McDermott - Chief Executive Officer Luka Mucic - Chief Financial Officer Robert Enslin - President of New Cloud Business Group Bernd Leukert - Head of Products and Innovation Jennifer Morgan - Global Customer Organization Adaire Fox-Martin - Global Customer

Operations
Analysts: Philipp Winslow - Wells Fargo Securities, LLC John King - Bank of America Merrill Lynch Stewart Materne - Evercore ISI Stacy Pollard - JP Morgan Ross MacMillan - Royal Bank of Canada Michael Briest - UBS Limited Walter Pritchard - Citi Investment Research Stefan Slowinski - Exane BNP Paribhas Alex Tout - Deutsche Bank Mohammed Moawalla - Goldman Sachs Group Inc Patrick Walravens - JMP

Securities
Operator: Good day, and welcome to the Q1, 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to today's host, Mr. Stefan Gruber. Please go ahead, sir.

Stefan Gruber: Thank you. Good morning or good afternoon. This is Stefan Gruber, Head of Investor Relations. Thank you for joining us to discuss our results for the first quarter 2018. I’m joined by our CEO, Bill McDermott and Luka Mucic, our CFO, who will both make opening remarks on the call today.

Also joining us for Q&A are our Board members, Rob Enslin, who runs Cloud Business Group; and Bernd Leukert, who leads Product and Innovation, as well as Jennifer Morgan and Adaire Fox-Martin, who together run our Global Customer Organization. Before we get started, I would like to say a few words about forward-looking statements and our use of non-IFRS financial measures. Any statements made during this call that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should, outlook and will and similar expressions as they will relate to SAP are intended to identify such forward-looking statements.

SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP’s filings with the U.S. Securities and Exchange Commission, including SAP's Annual Report on Form 20-F for 2017 filed with the SEC on February 28, 2018. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

On our Investor Relations website, you can find our quarterly statement and financial summary slide deck, which are intended to supplement our prepared remarks today, and include a reconciliation from our non-IFRS numbers to IFRS numbers. Unless otherwise noted, all financial numbers referred to on this conference call are non-IFRS, and growth rates are non-IFRS constant currency. 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 finally, we would like to invite you to our Customer Conference SAPPHIRE NOW in Orlando, Florida, which runs from June 5th to June 7th. SAPPHIRE is a great opportunity to learn more about our strategy and our product portfolio will offers special program for financial analysts and investors.

Further, we will [also host an] (Ph) event for financial analysts at CEBIT in Hannover, Germany on Tuesday June 12. Please see the SEC website for further information. We would love to see you at these events. With that, I'd like to turn things over to our CEO, Bill McDermott.

William McDermott: Thank you, Stefan and hello everyone.

I appreciate you joining us today. I will be brief in my remarks so we can get your questions. Overall as you will hear, SAP could not possibly be in a better position to deliver on our growth ambition for the Company. First, as many of you have come to expect, SAP has once again delivered a very strong quarter. Several of you have noted in your outlook for 2018 that we faced a challenging Q1 comparison based on last year’s remarkable performance.

As you can see in these results today, SAP doesn’t shrink from the challenge, we rise to it. We once again delivered a [tri-sector] (Ph) performance, including fast growing cloud, strong software sales and operating income expansion. With cloud revenue [scored 71%] (Ph) year-over-year at constant currencies, we are growing faster at scale than our key competitors. This is the first quarter that the cloud revenue in our Company has crossed the €1 billion threshold. Cloud bookings grew by 25% on top of an exceptionally strong prior year growth of almost 50%.

This is a robust result and we expect strong bookings growth over the course of the year in-line with our cloud ambition. SAP is the most geographically diversified cloud business in the industry. This quarter, APJ and Europe were particularly strong. From a solutions perspective, SAP S/4HANA, cloud ERP grew strong triple digits. Our front office cloud portfolio also grew in triple digits.

This is a sign of things to come for SAP’s crystal clear plan to retake the lead position in CRM driven by overall fast adoption of SAP S/4HANA cloud and software grew at a stellar 9%. We now have 8300 S/4HANA customers which represent 43% year-on-year growth in the quarter. This momentum translates even against a very strong comparable to license performing above our expectations with negative 2% year-over-year growth. These results also struck a significant balance, a strong top-line combined with operational discipline allowed for strategic investments and bottom-line acceleration. We delivered 52% year-on-year growth in IFRS operating profit.

We were up 14% non-IFRS at constant currency. This is the clearest indication yet that our profitable growth strategy is the right one for SAP especially for our shareholders. Luka will take you through the complete results in just a moment. Beyond the results, I would like to make some points before I conclude. I will pick up my markets and my comments from our recent Capital Markets Day in New York.

We have a clear strategy to deliver the intelligent enterprise. Some competitors have the line of business specific applications that tailor only to a single business unit. As those same vendors now struggle to expand outside their core, SAP is exactly where we want to be with a complete set of assets driving business value from end-to-end. Incidentally, with a well formed global distribution channel, we are ready for all commerce especially as they move outside their comfort zone of the U.S. marketplace.

In this context, SAP solutions portfolio has never been more relevant. Consider this from the customer perspective, every CEO agenda in the world has a similar set of priorities. One, how does the business get a single view of its consumer? Every business is looking for new competitive advantage and its consumer driven growth revolution. Even with so much interest, the technology industry to-date has not delivered the capabilities to reinvent the front office. In fact, the many businesses today so called Cloud CRM is nothing more than overpriced software running on first generation SaaS architecture.

This is probably why so many have responded so eagerly to SAP's recent statement about a new vision for CRM. They know, change is coming, we are coming. Unlike to others, SAP's approach actually begins with the end consumer. Look at the headlines around the data and social media, consumers are nervous out there. In the age of GDPR, how can businesses give consumers choice about their own data? If permission is given, how can businesses protect the data, engage the consumer however they choose to be engaged, deliver them what they want and keep them happy and loyal at the same time.

With SAP's acquisition of Gigya and Callidus Cloud now complete. At SAPPHIRE, we will introduce a truly comprehensive portfolio of solutions to transform the front office. Our objective is simple, help legacy CRM go to the way of legacy database. No other company has the capacity to do it, we do. That's why companies like Unilever, Jaguar Land Rover and Coca Cola selected SAP Front Office Solutions in Q1.

There was a time when a market leader was dominating in CRM. It was said that they couldn't be disrupted. Well, let's be clear once again, [we want CRM. We won CRM] (Ph). Two how does the business connect this Front Office to a fulfillment engine? SAP is world's pre-eminent business applications Company, we are the undisputed leader in the ERP category.

To deliver best-of-breed functionality to individual lines of business, we either build it or we bought it. So now we power the enterprise from end-to-end across these 25 industries in nearly every country. There are now two defining priorities in the application layer, intelligence and integration. SAP is comfortably ahead in both, but we are determined. Determined in intelligence, our applications aren’t [indiscernible] strong by obsolete technology the platform layer.

With SAP Leonardo we are infusing all breakthrough technologies into our applications. If you buy SAP's solution, you are buying the latest and machine learning, IoT and Block Chain it's included. The other is integration, we didn't need to exhaust our balance sheet to buy an integration platform, we already have the best, the SAP Cloud Platform. At SAPPHIRE we will begin to introduce new end-to-end process scenarios that stretch across our applications built on the SAP Cloud platform. This is the best of all worlds.

A re-imagination of the suite still modular powered by intelligent systems. All the LOB functionality for the Head of Sales, procurement, finance, head of HR, are enhanced by the power to work across the entire business in a consistent user experience, yes the best UX in industry and we can’t wait to show it to you. For a global company like American Airlines which went live on success factors this quarter, this strategy creates immense opportunities to shape the future of work. This is what customers want, which is why in the end the suite we always wins. The third priority on the CEO agenda is how do businesses convert data into productivity? Here again SAP is ahead beyond any doubt.

What started out as an idea is now a movement with more than 20,000 customers SAP HANA has been the disruptive force in the database industry for years now. We have clear opportunities to accelerate its potential, full use SAP HANA is becoming the only viable option including support of multiple data models, data virtualization, support for distributed storage and extended capabilities such as graph and geospatial. We have only just begun to pressure the incumbencies with these particular arguments. A global sales force is in place to execute this plan. HANA also represents a broader paradigm shift in data management.

SAP Data Hub for example lets business work with multi-source data, the enterprise control tower. We looked into the legacy data management solutions moving the data was easily the slowest part of a painfully slow architecture. Today, with HANA’s Data Hub, the data doesn’t have to be moved as the solution is open data architecture that works across Hadoop, Data Lakes, cloud object storage, relational data basis, enterprise applications and hyper scale providers. At SAPPHIRE we will make our most comprehensive push ever to save customers from the inadequacies of their legacy data solutions. No other vendor is positioned to support businesses like SAP with nine consecutive years of growth, customers have voted repeatedly with their wallets to signal their confidence in this strategy.

From a mid-term perspective, we are focused on sustainable profitable growth; we will win in the applications markets with integration from front office to back office. We will win with SAP Leonardo intelligent systems powering industry next practices. We will win with SAP HANA and SAP cloud platform as the modern infrastructure for the intelligent enterprise. Already if you look at peer group comparisons, SAP is gaining market share around the world. We have a more complete strategy for top-line growth and a better track record of effective management to accelerate margin expansion.

If we sound confident, it’s because we are. In closing, I can only say to our shareholders on behalf of the 90,000 colleagues of SAP, we are just getting warmed up. The world needs business leadership now more than ever. We serve our higher purpose by helping to make our customers successful every time. Through the success of our more than 380,000 customers, we help the world run better and improve people’s lives.

It’s why we are so deeply motivated by the model and the maxim the best run SAP. Thank you for your ongoing trust, Luka over to you.

Luka Mucic: Thanks a lot Bill. Yes, as you can tell from the financial results shared by Bill already we had a very strong start to the year. In addition, our business continues to get more and more predictable.

For the first time our share of more predictable revenue exceeded 70% coming in at 71% for the quarter. We clearly demonstrated that we are a profitable growth company while overcoming severe currency headwinds in Q1. Let me now go into more detail on the key factors that made up for this exceptional growth. First, our cloud revenue grew by 31, which is slightly above the midpoint of our growth range aspiration set at the beginning of the year. For new cloud bookings, we grew by 25% and to put this into perspective in Q1 last year we had a tremendous quarter growing by almost 50%.

And remember, that new high-growth Cloud solutions like S/4HANA Public Cloud, SAP Cloud platform, SAP Analytics Cloud, SAP Leonardo and our Digital Supply Chain Management solutions will have way more impact on growth as they scale to be a bigger part of the mix. Now to software, where we had a very good start to the year considering the tough double-digit growth comparison from last year. Software revenue decreased slightly but was still perfectly in-line with our implied 2018 and mid-term aspirations actually it was above our expectations for Q1 which gives us great confidence for the remainder of the year. There were few key growth drivers to call out in particular such as the continuous momentum of S/4HANA, our IoT and Digital Supply Chain solutions, Business One as well as CEC all had a very good quarter. Key metric that best demonstrates our performance new business is the combination of the total contract value of our Cloud Order Entry or Cloud TCV and software license order entry which was again up double-digits despite an extremely tough comparison.

And to underscore the scale which our cloud business has reached meanwhile, this marks the first quarter that Cloud TCV surpassed software license order entry. The result of our strong cloud revenue and solid software revenue performance led us to 9% cloud and software growth. This is both above our initial guidance range provided at the beginning of the year and the updated outlook. Now a few words on the first quarter regional results. Starting with EMEA, where we had a strong performance with Cloud and software revenue increasing 9%.

Cloud revenue grew by 45% driven by a strong performance in Germany. In addition, we had double-digit software revenue growth in the UK. We also had a strong performance in the Americas region, despite a significant currency headwind. The cloud and software revenue grew by 10%. Cloud revenue increased by 22% led by a strong performance in Brazil.

In North America, we had a strong results in software revenue and grew by double-digits. In the APJ region, we had a robust performance considering the strong prior year period and currency headwind. Cloud and software revenue was up 10%, cloud revenue grew by 53%. China and Japan were both very strong in cloud revenue. For software revenue, Australia, China and India had impressive quarters and grew by double-digits.

Now before I continue with our bottom line results, I want to briefly give you a update on the impact from IFRS 15 which as you know we adopted on January 1st of this year. The top-line was positively impacted by €8 million and operating expenses benefited by €36 million. Hence our operating profit had an aggregate the positive impact of €44 million which contributed around 80 basis points to our operating margin. Now to profitability and gross margins. As you know, we continue to have a revenue mix shift effect between our cloud and on premise business which negatively impacts our cloud and software margin.

Despite that approximately 90 basis points mix shift effect, our cloud and software gross margin was roughly flat year-over-year to 80.7%. On the cloud margin, we achieved a 2.2 percentage point increase to 63.2% when comparing to the previous quarter. On a year-over-year basis, our cloud gross margin decreased by 1.4 percentage points. However, excluding a 1.5 percentage points revenue mix impact, it would actually have been up, the strong upward trend in Q1 shows that our heavy investments in the past few years are really starting to pay-off. This is mainly visible in the improvement of our Public Cloud business which increased by around five percentage points quarter-on-quarter and 20 basis points year-over-year to 60.5% at constant currencies.

The Business Network margin continued its very stable part to exceed 80% in 2020 and is now at 77.3% which is an increase of 50 basis points year-over-year at constant currencies. Private Cloud margin was roughly flat year-over-year at constant currencies, but likewise accelerate upwards by four percentage points quarter-over-quarter at constant currencies as our upfront investments in partner delivery begin to taper off. Our Services gross margin was again up nicely by 70 basis points to 21.4% year-over-year at constant currency and continues to be at a very healthy level showing our operational efficiency in this organization. The combination of strong top-line, sequential Cloud gross margin improvement and operating expense discipline led to an acceleration in our operating profit growth to 14% in the first quarter and that is while we continue to invest in our people and our portfolio. This resulted in operating margin expansion sooner and larger than expected.

Turning to IFRS and non-IFRS effective tax rates which both increased year-over-year, IFRS increased by 7.9 percentage points to 28.5% and non-IFRS increased by 2.1 percentage points to 27.8%. The year-over-year increase in effective tax rates primarily came from effects as a result of in the company financing and changes in tax exempt income. The IFRS earnings per share increased strongly by 37% due primarily to lower share based compensation and acquisition related chargers. Non-IFRS earnings per share decreased by 1% to $0.73. Now to liquidity, where we are in the positive territory for the first time since Q1 2014 and improved by over €2 billion since the end of last year.

From cash flow, our operating cash flow decreased to €2.6 billion due to higher tax payments and the currency headwinds year-over-year which over settled our positive progress the DSO where we had a two days decrease quarter-over-quarter and the four days decrease year-on-year. As a reminder, our stock based compensation is largely cash settled and therefore also impacts in cash flow. Our free cash flow was €2.2 billion, as already mentioned in our Capital Markets Day, the year 2018 will mark the last year in which we will have significant capital expenditure investments on the Cloud delivery side going along with increased building activities. Once this has run its course, we believe that there will be very limited CapEx increase that’s beyond 2018. Finally, we are raising our outlook to reflect the closing of the Callidus acquisition as well as the strong operating profit performance in the first quarter and our confidence for the remainder of the year.

We have also updated our currency expectations for the impact on reported growth rates in 2018. For more details please refer to our quarterly statement published earlier today. And before closing, I would also like to talk again about a few of our key non-financial indicators. This quarter, we again increased the number of women in managements to now 25.6% as our efforts to promote diversity and equality continue. We continue to make progress on CO2 emissions and are very confident that we will become carbon neutral by 2025.

Finally, our employees continue to embrace our strategy and hire purpose. Our employee retention increased from 94.1% in the first quarter of 2017 to 95.9% this quarter. So to summarize, we delivered strong top-line growth and showed excellent cost management on the bottom line resulting in operating margin expansion in our seasonally smallest quarter of the year. Our performance portfolio and pipeline give us great confidence in 2018 and beyond. Thank you.

And we will now be happy to take your questions.

Stefan Gruber: Thank you. Operator we can now start the Q&A session.

Operator: Thank you sir. [Operator Instructions].

And we will take our first question from Philipp Winslow with Wells Fargo.

Philipp Winslow: Hi, thanks guys. And congrats on a great start to the year. Bill, a question for you on the S/4HANA customer count. Obviously you have very strong quarter at the start of the year and just continued strong growth there.

How do you think about sort of customer account versus called it penetration of actually SAP application value? I mean obviously we are into your several thousand in total customers, but I'm assuming you are still rather you have been underpenetrated with them now. So maybe if you give us sort of the puts and takes about how you think about sort of customer count versus called it SAP penetration? And how you are sort of thinking about that especially in the context for your long-term guidance and just your goals for this year?

William McDermott: Well, thank you very much Phil. Customer count is one thing and the Euros or the dollars are another thing. So as you see the count, I look at the adoption rate and how we are less than 20% penetrated into our base. And as I look at the size of the deal that are now possible, I think you are going to see the deals get larger because this intelligent suite is all about the end-to-end integration of the full value chain.

And that's what S/4HANA is enabling. So that single view of the customers comes through on the front office and it's enabled than the back office the S/4HANA architecture is enabling customers to completely rethink their business, new business models, very large and significant deals. So when you start out with the product like S/4HANA, there is lots of proof of concept in smaller deals in the beginning, so you get a lot of count. And then overtime, you might not even see as much on the count, but you'll start to see even more on the revenue, because that's when the deal get bigger and that's what we are looking forward too. I have got the all the leaders from around the world, flew in to the Germany, they will be with us for a couple of days.

And our ambitions for S/4HANA have only just begun.

Stefan Gruber: Okay. Thank you.

Philipp Winslow: Okay. Thank you, got it.

Thanks guys, keep up your work.

William McDermott: Thank you very much Phil.

Stefan Gruber: Thank you. Let’s take the next question please.

Operator: And we will take our next question from John King with Merrill Lynch.

John King: Yes, thank you for taking the questions. I have got two actually, the first one is probably to Rob on the cloud business and particularly in the U.S. or at least Americas has accelerated quite nicely versus Q4. So I just wonder what the drivers of that are and specifically if you could comment on how success factor is getting on there, I think there was some capacitive dynamics issues were going right up for you outside of the U.S. so some comments on that would be great.

The second question I guess is potentially for Luka, around converge cloud projects, can you remind us what is highline there and I guess if we think about when you got in terms of guidance you are a little bit ahead of that, I think you stated in terms of the progression of the margin we should I suppose expect some benefit from a Converge Cloud project overtime through the quarter of this year. So what is holding you back maybe from a increase in the implied margin guidance a little bit more? Thank you.

Robert Enslin: Yes, so when you look at such factor, you continue to see us experience [indiscernible] globally and see some terrific results on a global sale. In North America, as Bill mentioned, I think the big American airline go live with more than 300,000 employees that’s significant and you will start to see us become even more competitive in the North America timeframe as we get more and more of these significant guidance. When you look at in general cloud in the Americas, I mean one of the big outstanding is that CRM focus which we have been speaking about for the last couple of months.

I think the vision around customer experience bringing Gigya and Callidus on board has allowed us to actually really get back in the game with significant way. And then all of our other businesses that Luka mentioned with ATP cloud platform, the IBP solution and all the CBG group, the cloud business groups are all doing very, very well globally. So are off to a great start for the year.

Luka Mucic: Yes, and maybe to answer the second question on Converge Cloud infrastructure, so just to remind you we want to be complete with the migration of all of our main flagship cloud assets to our own HANA based cloud infrastructure by the end of the year and we are well on track to achieve that and that certainly will then have great benefits for us. On the one hand due to a substantial reduction in incremental CapEx needs that we will have, that’s one of the key underlying reasons why we don’t expect that we will need further CapEx increases as of next year and also because we then can harmonize a lot of the tooling around our cloud data centers, the infrastructure harmonization can progress and therefore we will also have a potential [indiscernible] automation in our data centers.

So as I have said previously, the aggregate of those impact as of next year should definitely contributes to triple-digit million savings. For this year while we are going through the migrations, we are seeing some early benefits in the sense that we don’t need to really incrementally invest so much anymore in the legacy duplicate infrastructures, but they are still there. So the cost is not entirely gone and that’s why the aspirations that we have expressed based on our outlook I think are reasonable for the year, of course, yes you are right we have proven in Q1 that we can also do better than that, but let’s see how the year progresses so we feel very comfortable with those assumptions. But then as of next year, you should definitely see substantial improvement which we will have bearing not only on our margin progression but through the lesser CapEx needs of course also on free cash flow.

John King: Okay.

Thank you.

Stefan Gruber: Thank you. Let's take next question please?

Operator: And we will take our next question from Kirk Materne with Evercore ISI.

Stewart Materne: Yes, thanks very much. Just two quick ones I think probably for Rob and Bill.

Just first on the growth in Cloud and APG in China. I was wondering if you could just drill down a little bit more on that. Obviously a very different competitive dynamic for you, I was curious if that some of the product drivers in that region. And then secondly, with Callidus, could you just remind us how you are going to integrate that business into the field into the go-to-market operation or organization. Just to try to sort of further push this customer experience narrative you guys are out with now.

Thanks.

William McDermott: Maybe, I'll open it up and then Rob, please feel free to jump in. Kirk thank you very much for your question. First of all, China is the fastest growing market in the world for SAP. So hard stop, we are on a complete tier in China, and that could be considered in every aspect of our business including the cloud with also pretty amazing ecosystem that's developing around us.

And that's a very, very strategic market. We said it was our second home sometime ago, and we meant it. As it relates to CRM, what we are seeing here is the customer really needs the entire value chain connected. How do I design a process, how do I build around that single view of the customer to drive economic value, customer satisfaction and loyalty, and how do I deliver? I mean really deliver the right product at the right price at any location where that customer is, taking into account that customer is on the move very often, they are actually connected from an IoT perspective in social media in new and highly innovative ways. And big companies are having a lot of trouble putting that all together and clearly, legacy CRM platforms aren't going to get there.

And that's why you are seeing them develop a strategy around even more M&A, even when the multiples make no sense whatever, because they don't have the ERP and now they have to come up with some methodology to connect all this complexity, which is where we come in, this is what we are really, really good at. So you'll see us connect the entire value chain from the consumer all the way through to the supply chain in seamless, integrated processes by industry and in the cloud. We also put deep Machine Learning AI, IoT and Block Chain into the application to make it easier for the customer to consumer this innovation out of the box. You'll see a branding campaign, you'll see a major launch at SAPPHIRE in my day one keynote and I would love to see you there. Rob, anything you want to add?

Robert Enslin: Yes, I'll add little bit to that not to much more.

I would say, together with the [indiscernible] and the CbG folks we are currently aligned with Callidus and S4 in how we bring the front office to the back office. I would say our sales organizations are extremely excited about taking from a lead all the way through sales performance management and how they can truly fulfill this. So you are going to see an amazing SAP sales organization tell the story that nobody else in the industry can tell. And we promise they are coming into this year and now we will fulfill that right now and going into SAPPHIRE. And then when you look at China, we have BEEN in China in a real way for many years.

We actually had a joint venture with data centers where we put out solutions in, success factors was one of the very, very first solution in that markets, we have a high risk common solution and many other solutions in that market. So we have natively integrated into the Chinese market with local players where as others have been not and that’s allowed us to continue to grow as we invested in a home away from market in a significant way. And that’s also included when you look at the APJ market as you see uptick in S4, customers continue to invest in what we call intelligent enterprise and connecting all of these line of business applications into the fulfillment engine like ERP, S4 and that’s why you see the significant results in Asia Pacific, Japan and in China in particular.

Stewart Materne: Thank you very much.

William McDermott: Thank you.

Stefan Gruber: Thank you. Let’s move to the next question please.

Operator: And we will take our next question from Stacy Pollard with JP Morgan.

Stacy Pollard: Thank you. How many S4 large customers do you have, any particular industry where you are seeing traction.

What is the average deal size maybe compare that to the average ERP deal size. So basically I’m trying to understand what value uplift you get with HANA plus S4 and the other up selling of potential features et cetera and any of that goes into your sweet mantra? And then a second question, quick one just a follow up to something you said earlier, you had mentioned the potential for larger deals but in Q1 it seems that they are benefitting just smaller deal sizes that could have just spend a one-off but looks like 50% of your deals were smaller than a million and just 18% were greater than 5 million, both of those trending into the smaller category.

Luka Mucic: First of all, I will open it up Stacy and the let Bernd Leukert make some comments, as you know Bernd is leading the whole development effort o S4. But first of all, I think it’s a great sign that you took to Q1 against the toughest comparison and you are absolutely right. It was a volume driven quarter, so there once was a day with large ERP including SAP where you needed big deals to conclude a quarter successfully, we don’t anymore.

So the volume machine is well in hand and keep in mind in Q1, you are just picking up after the year-end close. So to do this, back-to-back I think shows sustenance of SAP’s business model and the executional excellence of SAP. I will let Bernd make some comments on S4.

Bernd Leukert: Yes, so Stacy the question related to the live customers. While we have seen at the beginning of the training that customer still outline started small as well as that means they were hesitant in putting mission critical business onto S4, this has changed significantly over the course of the last 12 months.

We have biggest customers in our installed base entirely running their complete business on S/4HANA. We see a strong acceleration as well in the number of live customers while we had in August of last year passed the threshold of 1000. We had passed at the beginning of this year already the threshold of 1500 and we have more than 3000 additional projects which are currently in process of going live over the next weeks and months. So we see here as well as the hockey stick not just in terms of the revenue and the bookings, we see as well hockey stick in terms of adoption for live customers. And related to your question on industries, I mean this goes across our entire portfolio.

We have the 25 industries which we offer and we just analyze the situation and it’s hard to say it is better fitting in one or the other industry. So I would say its mainstream, it's helping us significantly in especially our installed base to get for the first time since many years significant value out of the combination of the leading world platform which is HANA and incorporation of that technology unleashing the value via the application. So we are very confident that this numbers continue to accelerate.

Stacy Pollard: Okay. Thank you.

Stefan Gruber: Thank you. Let's take next question please?

Operator: And we will take our next question from Ross MacMillan with RBC Capital Markets.

Ross MacMillan: Thanks so much for the opportunity. Either for Bill or Rob, I guess two questions. One, are you still confident in the at least 3000 S/4HANA conversions from base this year that you mentioned at the Capital Markets Day? And has there been any sign of consumption changes from customers either what you saw in Q1 or in the pipeline? And then, and I mean between license and subscription for core S4.

And then Luka, quick one for you, just inside of cloud, anyway that you could size or size the growth contribution from the organic assets like the SAP Cloud Platform, S/4HANA Cloud, Analytics Cloud et cetera as you think about this year? Thanks so much.

Robert Enslin: Well Ross, I'll open it up. Just a couple of things. First of all, we stand by the 3000 commitment, we see no risk to that or whatsoever. And in terms of the consumption changes, I think what you are going to see now this intelligent enterprise and truly driving this integration concept which is something that SAP is best known for in the industry is going to drive tremendous increases in the deal sizes not only on the S/4HANA side as it becomes even more formidable, but also the entire enterprise at the line of business, the network and the four ERP side of the equation.

In terms of the on-premise and the cloud, you are looking at a hybrid world. Our customers especially the large enterprise customers, they value everything in the cloud, but in many cases they value the Private Cloud in combination with the Public Cloud at the line of business and the business network level. And therefore from an investor perspective, I think you should feel very confident that the license and maintenance thesis of the core SAP software and related services business is totally intact. And the cloud at the LOB the network and also the suite in the cloud is going perfectly according to the plan. So the combination of those two things to me is really unique.

I mean it is one of those companies that if we can put the architecture in front our customers and make it easy for them to move to the new world, they believe in SAP, they want SAP to win. So it's kind of like the perfect virtue of cycle with our customers right now.

Luka Mucic: Yes. And from my side maybe on the organically developed assets. They are fast growing and they are reaching scale.

Three of them are already in the triple-digit million euro range for the full year. That's our CEC portfolio obviously far above that mark. That’s the SAP cloud platform and that's our IoT and Digital Supply Chain portfolio around IDP. The next one that will get there very, very quickly S/4HANA Public Cloud. And then next in-line after than would be Analytics Cloud.

William McDermott: And one of the things you may want to keep in mind Ross, not only looking at the 31% year-over-year growth of SAP in the cloud against our toughest comparison from last year, but keep this in mind. if we were reporting these revenues in U.S. dollar terms at seven points to growth okay and then compare that to any of the best-of-breed companies or even the large “hybrid” companies in the cloud and we are growing faster than all of them in the enterprise application software market, all of them. And that to me says a lot about the innovation cycle at SAP and where we are taking the Company.

Ross MacMillan: Very clear.

Thank you.

Stefan Gruber: Thank you Ross. Can we move to the next question please?

Operator: We will take our next question from Michael Briest with UBS.

Michael Briest: Thank you and good afternoon. Bill could you say something about the new pricing model announcements that were made at the end of Q1, what it means now in terms of indirect access fees and separating the sales and what it’s in compliance teams from one another.

And then Luka, hiring was quite frontend loaded this year, you added maybe 2,600 in the quarter and I guess is about 1200 or so coming in whit Callidus next or in April, but can you talk about how head count will progress through the rest of year and is this one of the reasons to John’s question earlier around margins that you haven’t raised the high end of your range for the year. Thanks.

William McDermott: Thank you for the question Michael, I will open up and then let Luka finish it up. So first of all, I think it’s important just to reflect on the significance of the question. The pricing model required change because 70% of the world’s transactions are touching that ERP system from SAP in one formula or another.

The data in that system is mission critical to running almost any business process in any enterprise, anywhere in any industry. So the strategic relevance of that systems and that data cannot possibly be over stated and therefore when our customers whether they were working directly with SAP, or they were working through another company, they needed to indirectly access our system, our process our data where companies that that do business with us said make it easier for me, because I need the information in that system so much. So we what is changed was the indirect access pricing model to allow for that customer satisfaction to take place and take away any anxiety from the equation. Before doing so, we had carefully modeled the revenue impact that such a change would have and essentially the way we reconfigured the pricing methodology it’s a wash. So customers are much happier, no more noise on the pricing, the access is simple, the pricing basically breaks even.

So a non-issue.

Luka Mucic: Yes, and headcount is also equally a non-issue, it’s perfectly in-line with how we had planned it, indeed and we want to front load hiring, because we want to have the people productive especially in sales as they enter the second half of the year and have to close big business especially in Q4. So of course you will not need to extrapolate our Q1 organic hiring activity to the coming quarters, this will slowdown and we have also ready at the Year-End Conference been saying that you should expect roughly the same kind of organic hiring activity in absolute terms in 2018 as you saw it in 2017 and that’s still accurate. Of course Callidus comes on top of that, but that has been part of the planning too and so this is absolutely nothing to do with any perceived caution to increase our margin targets. Let's remember, that Q1 is our seasonally smallest quarter, we have big quarters coming up.

It's great to lean into the year and not face it from a back leaning position. We like that position, but we will remain humble and hungry and execute with the heart of an underdog. As Bill always sets against our opportunities throughout the year and then let's see how we progress and maybe there is an opportunity to do some more as we progress through during the year.

Michael Briest: Okay. Thank you.

Stefan Gruber: Thank you. Let's go to the next question, please?

Operator: And we will take our next question from Walter Pritchard with Citi.

Walter Pritchard: Hi, thanks. Question on the cloud customer or cloud for customer. You talked about Unilever, Coke and Jaguar.

I think they are all three pretty headline sales force customers. I’m wondering if you could talk about you co-exists in these accounts, are you displacing sales force? And how do you expect as those three as models for the future? How do expect as the joint customer base to proceed going forward?

Robert Enslin: So may Bill I'll take that. Walter thanks for the question. I would add some more customers on to Unilever, Jaguar and Land Rover, I would add Robert Bosch and Dutch Telecoms among others, but what I would say is many of those customers understand the need for content identification and then the need for global GDPR. And I would say we are the premier GDPR solution in the market of that.

And so these customers have actually invested in Gigya and some of the C4C solutions. And overtime, we will focus on as we said earlier, connecting the front office to the back office and that will make a difference to these customers. And then you'll see them start to changed out their solution.

William McDermott: And Walter, one thing I would like to offer building on Rob's commentary. Keep in mind, the British Standards Institute has certified SAP for its full GDPR compliance.

And what you to have to remember about our Company, we are very sensitive to data privacy. As you know Germany is probably the country best known for privacy and the protection of an individuals' data. So when you think about our strategic positioning in the marketplace, we are already fully GDPR certified. BSI will actually offer us a certificate in a Public Forum very soon accrediting SAP for the great work in this regard. When we do M&A, the multiples actually make sense.

And when you look at what we did with Gigya acquiring over 1.5 billion now customer profile where our customers conserve their customers by authenticating them making sure what should remain totally private and non-activated is. It's truly a strategic advantage. It's yet another reason why the boldness for SAP next generation CRM which just simply could not be more passionate at this point.

Walter Pritchard: Great. Thank you.

Stefan Gruber: Thank you. Let's take the next question, please?

Operator: And we will go next to Stefan Slowinski with Exane BNP Paribhas. Please proceed.

Stefan Slowinski: Yes, hi. Thanks for taking my question.

Just two quick ones. First on the sales and marketing side, do you have any update on some of the things you discussed at the Capital Markets Day in terms of some of the sales force reorganization. Any changes that have happened there, and any impact that may or may not have over the course of the year. And then just a quick one on the cash flow side. It looks like you had lower deferred income in flow in the first quarter than in the previous year.

I just wonder if you can give us any color on that? Thank you.

William McDermott: Sure, I just want to introduce Jennifer Morgan and Adaire Fox-Martin both Executive Board members happen to be with us today for our Global Leadership Meeting and I think perhaps they would like to offer some commentary on the sales force.

Jennifer Morgan: Yes thanks for the question. So as we talked about at Capital Markets Day, we really have taken an approach where we are simplifying the engagement with our customers beyond just product and really focusing more on the business transformation. So for example, many of our customers they are ECC customers and then moving to S4, whether they are S4 customers and then moving into the cloud or whether they are customers who are starting with us in S4 Public Cloud.

We want to have a conversation based on the business of the customer versus a set of individual products and so combining our sales forces around that cloud notion around ERP has allowed us to really I think have more targeted conversations with our customers in the context of their business and obviously gives us a lot more scale across all of our customers. So we have announced that, that’s in process and as we talked about we have the other clusters as well. So we believe that, that will give us a lot of lift and a lot more focus on our customers business.

Luka Mucic: Yes and if I may compliment just that comment, because you can see also the impact of that partially in our sales and marketing expense line that we are becoming more efficient and nimbler. You see that for the first time in quite a few quarters there has actually been a sizeable reduction in our sales and marketing ratio of more than a percentage point 1.1%, 1.2% dependent of whether you look at it at a constant currencies or at nominal currencies.

Admittedly 80 basis points of this positive impact is due to the IFRS 15 accounting changes on the capitalization of Sales Commissions but the rest some 30 basis points also has to do with greater organizational efficiency which is bringing down the cost ratios. So this is going exactly into the direction that we had outlined at the Capital Markets Day. Now on your question on the deferred income balance, you are absolutely right and this is purely an effect out of IFRS 15 too, you need to understand the IFRS 15 resides in kind of a balance sheet contraction. On the asset side, we are presenting trade receivables only when they become due which obviously reduces the amount of trade receivables on the balance sheet. And then the counter booking for that is of course in the contract liability or deferred income as we have come to know the term over many years which is likewise reduced and that’s the simple explanation, no other changes in our operational business, no changes to cash collection items whatsoever.

It’s purely a technical accounting change in residing in the balance sheet contraction.

Stefan Slowinski: Right, that’s very clear and very helpful. And just a quick follow-up on the sales and marketing side, you know I kind of get the change is being made and the opportunity there, but obviously whenever there is a change in sales and marketing teams processes there is always sort of a near-term execution but you are not seeing any of that risk materialize and don’t expect that to materialize in the near-term as you execute upon those changes. Adaire Fox-Martin: Alright, I will follow-up with that that. This is Adaire, we implemented these changes in our first quarter around our sales kick off meeting which is the opportunities that we have to bring all of our sales teams together and communicate quite clearly our organizational structure and our strategy for the year.

I think it is a testament professionality of our sales team that we have delivered the results that we have and the simplification of our processes and our approach to the customer is also I think a key underlying outcome of the results that we have shown in this quarter. So we are not anticipating any subsequent disruption to our business as a result of the changes that we made in our first quarter.

William McDermott: And you know it’s an interesting point in our history right now that I think is worth noting. When you have the market leading ERP company expanding into the cloud, there was a real benefit to having a loosely coupled relationship with the line of business and the business network clouds. Now as you drive the intelligent enterprise, integration becomes more and more front and center.

That's the way the customer want it. So I think our people have shared values and common goals around the integrated intelligent enterprise in how we bring that to life as Jen and Adaire said by transforming the business processes, but also aligning the execute teams in these accounts towards shared value and common goals much in the way that we run SAP. And this requires real professionalism in design thinking, the engineering of value, the industry domain expertise, the global reach that you have to have because the companies are highly global. And we are ready for that conversation. And we are not just ready like any U.S.

market as an example, moonlighting and other geographies, we are like ready everywhere. And that's the big difference I think with the global footprint and the professionalism of the sales channel and SAP and also the cooperation with development. And just how this whole things comes together in a service delivery and the cloud for the customer. So I think we are entering into a new realm of sophistication. I think the customers are going to more and more demand this.

And I think not having an ERP system is going to be very harmful to line of business cloud companies in the not too distant future.

Stefan Slowinski: Got it. Thank you very much for that.

Stefan Gruber: Thank you. Let's take the next question please?

Operator: And we will take our next question from Alex Tout with Deutsche Bank.

Alex Tout: Yes, hi guys thanks for taking the questions. Just two. On the cloud new bookings, 25% constant currency growth. You alluded to the strong comparable that you faced in the quarter. But is 30% still very much the target in constant currency terms this year.

And then secondly, just the progress on S4 Public Cloud i.e. the versions that is priced on a fully subscription basis. Do you think this kind of marks quite a significant threshold that you have reached now? Meaning that since you now have most if not all of the ERP functionality mapped with the Public Cloud subscription solution. You now sort of finally reached the point where licenses do start declining sort of in perpetuity. We obviously have been guided to expect that over the last few years, but you have actually exceeded that and done about 3% license CAGR the last three years.

Have we now reached that point where that tips and the emphasis is much more clearly on cloud and on premise does start its gradual decline. Thanks.

William McDermott: Alex, all very valid questions, thank you very much. First of all on that 30% growth rate expectation in the cloud, we maintained that, so no change. On the S4 Public Cloud, as I said earlier, the thesis the core thesis around a hybrid model because of our customers want it that way.

We will hold true so the licenses will be steady in-line with the way we architected our guidance for the year, the maintenance and loyalty of our customers, because it has satisfaction will remain ever strong. And that will compliment these new business endeavors in the cloud. One of course as you rightfully point out is S/4HANA and the Public Cloud that’s really Greenfield, it could be big, really big and we also have the Data Hub with HANA and the HANA suite just think of this as a service and how big that can be overtime. And then just think about the relentless focuses we are putting on CRM and reidentifying that category and calling it our own, because we know the world needs a next generation CRM concept around integration to the core from an end-to-end perspective. So all these things and more will drive our cloud business, but our core ERP business will remain a hybrid business.

I just got done with one of our very large customers and they want to own the license, because they are not looking at ERP as switching opportunity, they are looking at it like who is my best partner, how do I capitalize this asset and keep it for the long-term and how by the way do I keep it within the Private Cloud environment because this particular customer like many others doesn’t want the crown jewels in a Public Cloud. They want the differentiation, they want the SAP cloud platform and they want this unique relationship with SAP. So I think you are going to feel very comfortable as in investor in SAP realizing that the guidance we provided is very, very on target.

Alex Tout: Thank you.

Stefan Gruber: Thank you.

Let’s move to the next question please.

Operator: And we will take our next question from Mohammed Moawalla with Goldman Sachs.

Mohammed Moawalla: Thank you. Bill I wondering if you could just drill in a little bit more in terms of the CRM opportunity. How do you see this evolving between kind of your installed base, the opportunity sort of for win backs or how much penetration you have versus also sort of new customers.

And also coming back to sort of S/4HANA, have you seen any sort of change in sales cycles, are they sort of getting shorter now that the product is more established with more references?

William McDermott: Absolutely, so Mohammed thank you very much for your question. Maybe the best way I can give you the answer to our CRM story is through the eyes of a customer and, for example, one of the customer meetings I have had with a CEO and his leadership team recently went something like this. Our price has been raised, we have been nickeled and dying on every little application imaginable and I’m paying 65% more now for my CRM asset than I was 18 months ago and I'm not seeing the value. So this is not an uncommon situation, because nobody has asserted their will like SAP intends to in the enterprise application software market. So I think some of it will be upgrading SAP's own base.

Some of it will be net new because it's a whole new idea when you think about the intelligent enterprise and the end-to-end and clearly some of it will be replacement where customers now will have an alternative that will be marketed properly, invested in properly and the customers will say, given the choice if I could do it through end-to-end without all this complexity and I can get more value from it. Why wouldn’t I? and that's where we going. Now as it relates SAP S/4HANA thing, I will give Bernd a chance to give you his thoughts on it, but we seriously couldn’t be more optimistic Bernd.

Bernd Leukert: Sure, so two aspects, one is the increasing demand of customers to move their entire business to the cloud. We have seen this growing mainly from the U.S.

and I'm happy if Jen can comment on it, but if it gets the penetrated all over the world. Then when you ask about cycle times, I see the biggest advantage in terms of especially implementation time. As customers perceive the real benefit of S/4HANA Public Cloud solution, especially if you compare whether they are based that they are coming from ERP on the legacy database. I mean even from ERP to S/4 on prem we reduced the implementation time by half and now if you consider then the cloud, we have customers going live so from deal signature to go live within six to 10 weeks and this is impossible because of the complexity of the data model on the legacy platform and if you see here the benefit of the cloud and the capability to consume future innovations Bill was referring to with Leonardo which are incorporated quarter-by-quarter. I think this is a story customers laugh and this is especially where they ultimately get into a decade where we provide value even in the core of our business.

Jen anything to add.

Jennifer Morgan: I think I sort of said it’s a hybrid world and as you said a lot of these customers are talking to each other and when we look at SAPPHIRE that coming up in two months, I mean this is where they talk to each other. The references are out there and that really puts the flame on the growth of both the core and on premise or in the Public Cloud.

William McDermott: And Mohammed you know well, you know, you knows us very well, so if you think about in 2010, we said we will be the cloud company powered by HANA and we moved the Company to the cloud now as you know our new software business will be bigger in the cloud and the on premise, which is something we said then that we would do and we did it. We said it would be a HANA world, now you got 20,000 customers saying it’s a HANA world.

And what we are now up to in our transformation is basically we are going to rebrand the whole CRM category, it’s going to be a massive movement at SAPPHIRE and were going to show every customer that they can be a best run business by running SAP and no longer do they have to be relegated to an outdated sales platform with complex integration layers trying to get that data out of the ERP system. We are going to seamlessly integrate it out-of-the-box, it will be in the cloud, it will be tailored for their industry and it will be ready to run. And as Bernd said, the times to value on these solutions will be wicked fast and I think that's what the world is waiting for.

Mohammed Moawalla: Okay. Thank you.

Stefan Gruber: Thank you. Let’s move to the next question please.

Operator: And we will take our next question from Patrick Walravens with JMP Securities.

Patrick Walravens: Great, thank you very much, though I like that last summary, that was super helpful. How much do your partnerships with Google cloud and with Azure and AWS help when you are competing against Oracle and how much do they help when you are competing against sales force.

Robert Enslin: I'll give you my feeling and the teams feel free to jump in. I think the idea of our strategy has been and will continue to be in recognition that the customer is the only boss. And if we can do what we do best, which is the intelligent enterprise in all the industries globally, and we can allow for the customer to run an infrastructure as a service with the big market participants who can do things on the cost and value basis that are pretty substantial and that's why customers like it. I think it's in our interest to do that and therefore I think we have been perceived and continue to be perceived as a company who has got a good heart and wants the customer to win. And therefore in all three of the big hyper scale cloud providers that you mentioned, you know, should the customer wish to go that route, we will provide our technical assistance, our reference architecture, our incredibly high security standards and our ready to run business processes to make them successful.

And then in the ongoing innovation cycle, we will control and we will maintain those systems to make sure that we are never boxed out of the innovation cycle and what has been nice is the hyper scale providers don't want to box us out, because they actually need to know how. So it's truly a win-win. Having said that, we also need to make sure that SAP and the HANA Enterprise Cloud is world-class because by doing so not only does it contribute to the cloud growth rate of company, but more importantly we learned so much. We have so much insight on what it takes to run a best run business and we can comport that into any cloud environment we work in. So really the knowledge that we gain is so significant and were happy to transfer it to good partners and I do believe that that is different, you know you have to ask customers what they think is better, but most of the competition in our space wants to own the customer, they want to own all the wallet share and they want to do everything in their cloud that their right to do so.

We have chosen a different path which is to give customers choice and in some cases in the past we learned the hard way, when customers don't get choice they can often times are resent that greatly, and we want to make sure they always have choice.

Stefan Gruber: Thank you. We have time for one final question.

Operator: And we will take our final question from [indiscernible].

Unidentified Analyst: Thanks very much, just two quick ones for me.

Firstly, I missed the actual figure of S/4HANA customers that went live in Q1. I think you referenced the big uplift towards the back end of 2017, but an update on Q1 would be interesting. And secondly Bill you have mentioned in a couple of occasions the expectation of larger deals coming through, perhaps the remainder of this year I presume as we go into next year. Is this sort of an aspiration based upon previous platform and technology upgrade cycles or is this something you can actually see hard and craft in the pipeline planning data that you have at the moment.

William McDermott: Thank you, [Neil] (Ph).

I'll start off with a larger deal concept and then I'm sure Bernd others will talk to about the Q1 go lives on S/4 on. So first of all its very clear to me, and it always has been, that in the enterprise application software industry you are generating large deals based upon innovating business processes, so customers do things different and the things that they do different unleashes value and to unleash that value they are more than happy to go into a larger scale partnership with you. And therefore at mass scale we will be applying the logic of design thinking and innovation, we will be applying logic of value engineering and we will align our industry assets as well as everything around Leonardo which will include Machine Learning, IOT, Block Chain and all of this comes together in a value message for the customer. So we do an MRI on their business and we show them just how big their price is and once they understand the size of their price, they are happy to give us our cut of the action because our software is necessary to fundamentally rethink the business model. And the more we do that at scale and the more we can comport ourselves with the C level executives as the change agents for real business transformation not slinging software in a line of business, but real business model transformation.

The deals get bigger and bigger and that's why we have 250, the top global leaders in [indiscernible], Germany waiting for this call to end and we will be meeting them for the next two days to make sure that their program is just right S/4 go live.

Bernd Leukert: Okay Neil, just to repeat it, I’m making sure the as I explained it already, finishing Q1 we have more than 1600 S/4 live customer and I think we had passed the threshold of 1000 last August, so just to repeat that number.

Unidentified Analyst: Thank you.

Stefan Gruber: Okay. Thank you very much.

This concludes the Q1, 2018 financial analyst call with SAP. Thank you all for joining and we look forward to seeing you at SAPPHIRE in Orlando in early June. Thanks so much.

William McDermott: Thank you everybody.