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SAP SE (NYSE:SAP)
Q2 2019 Earnings Call
July 18, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the SAP Q2 2019 Half-year Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Stefan Gruber, Head of Investor Relations. Please go ahead, sir.

Stefan Gruber -- Head of Investor Relations

Thank you. Good morning or good afternoon this is Stefan Gruber, Head of Investor Relations SAP. Thank you for joining us to discuss our results for the Second Quarter of 2019. I am 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 board members Adair Fox-Martin, President of our Global Custom Operations, Jennifer Morgan, President of our Cloud Business Group, and Christian Klein our COO, who leads Intelligence Enterprise Groups.

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 fact are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intent, may, plan, project, predict, should, outlook, and will, and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP takes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations.

The factors that could affect SAP's future financial results are discussed more fully in our filings with the US Securities and Exchange Commission, the SEC, including SAP's annual report on Form 20F for 2018, filed with the SEC on February 28, 2019. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date.

On our investor relations website, you can find our quarterly statement, our half-year report, and a financial summary slide deck, which are intended to supplement our prepared remarks on this call 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 rate and percentage point changes are non-IFRS, as reported year-over-year. 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.

No, looking forward to the end of the year, on November 12, we will hold a special Capital Markets Day in New York City. Here, our senior executives will lay out the details of several new initiatives to create and accelerate operational excellence and value creation. We are looking forward to seeing you there. With that, I would like to turn things over to our CEO Bill McDermott.

Bill McDermott -- Chief Executive Officer

Thank you, Stefan. Good morning and thanks to everyone for joining today's call. SAP's strong first half puts the company in position to deliver on our targets for the full-year. Thanks to the continued trust of our customers, we are a profitable growth company. The key growth drivers performed as we expected they would in the first half, giving us enormous confidence in our top line for years to come. We're also a disciplined value creation company. Since we issued our revised margin aspirations in April we've already made progress. SAP will deliver significant shareholder value as we target approximately 500 basis points of margin improvement by 2023.

So let's take a look at some of the detail before Luka gives you the overall financials. In Q2, we delivered a solid double-digit growth quarter across the board. Cloud revenue was up 40%, growing faster than key competitors. Both cloud and software revenue and total revenue also grew in double-digits. As software license, overall, was good, even with the minor headwinds in Asia due to trade uncertainties, which did postpone some deals, and specifically, we didn't get everything we wanted in Asia -- I'm going to expand on that in a minute -- but don't worry about it. Let me start off with that.

The clear headline for Q2 is that SAP continued to grow fast in the cloud and it was driven by experienced management as the real, real catalyst. IVC and other analysts have said XM is the new frontier, and we actually agree with that. XM is also the new front end to every segment in the enterprise application software industry, including HDM, CRM, ERP, and beyond.

The concept of category creation is actually worth discussing here. Since 2000, there were 4,500 companies in the IT industry that were founded and took a Series A investment. Only 75 of them made it to an IPO. Only 36 became the dominant category winners. Those winners now own 76% of the entire addressable market in their respective categories. So when it comes to experienced management, you're going to hear plenty of noise out there who'd like to catch this wave. The question is who created the category? And the answer, of course, is Qualtrics, which is why we couldn't be happier to have the SAP Global Distribution Channel behind their XM platform. In its second quarter, Qualtrics has proven to be the growth catalyst we expected and more. Ryan Smith and his team are already making a huge positive impact and we're only getting started.

If you look at our HDM business as one example, success factors is an early adopter of the XM vision with employee experience. By combining the Qualtrics and success factor's offerings, we have differentiated against legacy HDM. That's why our success factors portfolio had a strong quarter, growing bookings in high double-digit year-on-year, with multiple wins against Workday and Oracle. Market-leading companies like Merck in Germany are shifting away from old HDM in favor of employee experience. In the quarters to come, we will use all aspects of XM as the differentiator for the intelligent enterprise, including employee, customer, product, and brand experience. Experience management has superseded stand-alone digital transformation talk. I personally shared this message with CEOs around the world. The reaction is unanimous. Every one of them wants XM.

Balancing our healthy top line, operating profit was also up double-digits for the company. This quarter, you're seeing a dip in the IFRS operating profit. This reflects updated estimates from our restructuring program, which was actually more subscribed than anticipated due to more volunteers in Germany than planned.

Luka will take you through the one-time effects in a few minutes, including M&A, tax, and share-based compensation. The non-IFRS operating profit was up a healthy 11% year-over-year, which is another significant feature in this double-digit growth quarter. On an organic basis, there's actually a margin improvement in the core underlying business when you back out the dilutive effects that Luka will discuss.

We also saw a 3-point improvement in our share of predictable revenue in the quarter, which continue to signal the broader success of the company's business model transformation. So overall, we feel strongly about our top line and increasingly confident about the bottom line trajectory for the company. Our best run SAP review is designed to accelerate this operational track record.

We now have support from a highly regarded external partner who is helping us identify opportunities across all corporate functions. Even as we're in the early stages, the initial indications strongly reinforce our stated aspirations. For example, the underlying cloud gross margins improved 4 percentage points in the current quarter, reflecting the success of our off-Oracle converged cloud initiative and accelerating partnerships with hyperscalers. We look forward to the Capital Markets Day in November, where we will unveil the comprehensive roadmap to deliver on the approximate 500 basis point margin improvement we fully expect by 2023.

In terms of the challenges in the quarter, on the software revenue, the macro environment related to global trade, especially in Asia, was a factor. What you see here is large multi-national companies carefully recalibrating their operations and global supply chains. In some cases, this causes a short-term delay on technology purchasing decisions. In our case, you actually see a net-positive impact on the pipeline of SAP. Many of our market units in Asia, for example, have higher pipeline forecasts at this time in 2019 than they did one year ago. And the forecasts across the company are in good shape. I triple checked every detail.

This is because the companies that decide to make changes due to trade uncertainty look to SAP to support their plans to reroute channels or invest in new geographic markets. So overall, while we've noticed the trade effect, our customers demand more from us as they adapt to it. In other words, the bill of materials is getting bigger on the deals.

One more note on this, the temptation here might be to lessen the focus on China, which we believe to be a mistake. I was just in Beijing for meetings with Premier Li a few weeks ago. While the short-term uncertainty over trade negotiations is having an impact in many industries, everyone recognizes these are the natural effects of globalization. I can tell you that the long-term health of the economy in China is, obviously, secure. And keep in mind, there are more than 70 million enterprises operating in that country, so it's a pretty good business opportunity. In terms of SAP's vibrant China business, while some transactions were delayed past Q2, that's a fact, our pipeline in China remains ever robust and we have a very good prognosis for Q3 and Q4.

Another theme embedded in the quarter is in our cloud business, where we initiated our strategy to embrace our public cloud infrastructure partners. As a result, some workloads on certain SAP HANA enterprise cloud deals moved in favor of joint engagements with our cloud infrastructure partners. This strategy will pay dividends for us in the quarters and the years to come. And significantly, it will help us continue improving cloud gross margins, which we have committed to do through 2023 and beyond. When you exclude the infrastructure as a service, HEC business, our cloud bookings grew 27% year-on-year in Q2, which again, reflects the overall health of our solutions portfolio. And I'm not even discussing network and consumption-based cloud revenue, which you never see.

So big picture, for years, the belief has been businesses have the data they need. They just can't access it. What you're seeing in this experience economy is this data assumption is wrong. Businesses don't have all the data they need because nearly all of their existing data was created by the business itself. We call this operational data. Today's imperative is to go out and create a new data set, experience data, that comes directly from the consumers and employees themselves. Only when you layer the two data sets together, the operational data from the business and the experience data from the people can you deliver true experience management.

This is the catalyst of our intelligent enterprise strategy. This is a message and a strategy that only SAP is delivering. Experience management is a paradigm shift for how CXOs run companies, from the legacy inside out to the visionary outside in. And armed with the right mix of experience data and operational data, intelligent enterprises will always know the next action to better serve their customers and their employees.

This, ladies and gentlemen, is the future of business. And our ambition is not only to lead the XM movement, it is to help our customers win it. This is the growth elixir that will uplift every solution in our portfolio, as you saw with HCM in Q2.

Overall, SAP continues to be the rarity in the industry. With S/4HANA adoption up to 11,500 customers globally, our core business is rock solid. With solutions like Concur continuing to grow in double-digits on a global scale, our cloud portfolio couldn't be stronger. Our technology assets, SAP HANA in the cloud, SAP cloud platform, SAP Leonardo, and SAP analytics cloud have the strongest pipeline we've ever seen. And if you look at brands like Burger King Brazil, Hitachi, Kawasaki, NH Hotel Group, Delivery Hero, and many others, it's clear that SAP's entire solution portfolio is resonating strongly on a global basis. Add marque partnerships and the story gets even stronger. Intel, a great company, and SAP have entered into a partnership to optimize the features and technologies in SAP HANA for Intel Xeon Scalable Processors and Intel Optane DC persistent memory. This will deliver customers, industry-leading performance, and TCO advantage for SAP S/4HANA.

We will also jointly establish a center of excellence, so customers can evaluate, innovate, and adopt Intel and SAP jointly developed technologies that power intelligent enterprises. I'd like to give my good friend Bob Swan a big salute for his outstanding friendship and cooperation. SAP is also partnering with Infosys to help clients invest in purposeful innovation to become an intelligent enterprise. Innov8 for embraced leverages Infosys industry knowledge. This is a platform delivered on a cloud hyperscale environment with SAP digital solutions delivering end-to-end business outcomes at an accelerated pace. There are new multi-year partnerships we couldn't be more excited about. These are ones that we're counting on and that will deliver upside bigtime.

In closing, even in the seasonally smaller Q2, the fundamentals of the company are rock solid. We're poised to continue fast growth in the cloud. We're focused on expanding our margin profile. Promises made will be promises kept. Our XM intelligent enterprise strategy is winning big time. Our partner echo system is fired up. Our employee morale is very high. Our brand value is higher than ever. When you think about SAP's customers, the will inside our company to do what's right for them has never been stronger. The best do run SAP. And our commitment is to run this company at its very best so we can continue to power a new generation of economic growth, environmental sustainability, and societal progress. That's what SAP is about, helping the world run better and improving people's lives. I thank you for your time and attention today. I look forward to taking your questions after Luka completes his remarks. Luka, over to you.

Luka Mucic -- Chief Financial Officer

Yeah, thank you very much, Bill. Let me start by echoing Bill's comment that the fundamentals of SAP are very strong. Just look at our cloud momentum. We have now grown our cloud revenue at 40% or higher in the last four quarters. That's impressive for a company at our scale. I'm also pleased that our operational excellence measures have allowed us to achieve double-digit non-IFRS operating profit growth. This is also remarkable, considering our second-quarter revenue in software was impacted by the recent short-term term trade-related uncertainty in Asia.

Let me now provide you with some background on the key drivers behind this quarter. First, both cloud and software revenue, as well as total revenue, grew 11% this quarter. Cloud revenue was, obviously, again a big driver of this. Our cloud revenue surged 40% and as Bill said, we saw an amazing performance of our Qualtrics experience management solutions. New cloud bookings were up 17% to 494 million Euros, and up 27%, excluding our infrastructure as a service business. Our customers are doing more infrastructure as a service business directly with our hyperscaler partners. This is a good trend for SAP, as it is positive for the margin profile of our cloud business.

And you can already see that immediate positive effect on our cloud gross margin this quarter, which I'll talk about in a few minutes. In addition, as Bill mentioned, our success factors offerings had strong double-digit bookings growth driven by rapid early adoption of Qualtrics and employee experience. Software license and support revenue continues to grow at a solid 2% in the second quarter, even with the well-publicized global trade effect.

If you look to the half-year numbers, we had a great 4% growth performance in our rock-solid core business. Our business is also becoming increasingly resilient. As Bill said, in Q2, the share of more predictable revenue had a strong 3 percentage points uptick and is now already approaching 70%.

Now to the regions, we had a solid performance in the EMEA region with cloud and software revenue increasing 9%. Cloud revenue increased by 46%, with Germany and Spain being highlights. In addition, Germany had another solid quarter in software license revenue. France and Italy had a strong quarter in software license revenue. In the Americas region, we had a strong performance. Cloud and software revenue increased by 16%. Cloud revenue increased by 37% with the United States, Canada, and Brazil being highlights. In addition, the US also had a solid quarter in software license revenue and Canada had a strong quarter.

In the APJ region, we had a solid performance, despite the trade-related macro headwinds. Cloud and software revenue was up by 8%. Cloud revenue increased by 41%, with Japan being a highlight. For software license revenue, Australia and India had a strong quarter.

Now, let's look at profitability and gross margins in the second quarter. First of all, we're very happy to report that all our individual cloud gross margins were, again, up year-over-year, leading to an overall cloud gross margin of 68%, which is up 2 percentage points sequentially, and up sharply 4 percentage points year-over-year.

Our most profitable cloud business, the intelligence spend group, formerly business network, the gross margin increased by 1 percentage point year-over-year and reached 78%. The gross margin of our other SAS/PAS business expanded massively by 8 percentage points year-over-year, reaching 69%. More importantly, this gross margin improved sequentially by 5 percentage points, as we saw in the first full quarter of success factors running solely on the converged cloud HANA-based platform. This is a crucial milestone, as it gives us the ability to embed real-time predictive capabilities and cutting edge future innovations by providing expense relief as we retire duplicate infrastructure, reduce third-party support fees, and rationalize resources.

While HANA enterprise cloud, which is our infrastructure as a service offering, the cloud gross margin improved by 11 percentage points, to 22% year-over-year. As we said, we expect to reach a level of 30 to 35% in 2020. We see infrastructure as a service becoming a smaller share of the cloud mix going forward, as we continue to accelerate our hyperscaler partnerships.

Overall, our cloud and software gross margin was a solid 81% for the quarter. Our services gross margin was down 2 percentage points to 24% as we hired more consultants to specifically address the strong S4 implementations backlog. Overall, operating profit was up 11% year-over-year, driven by a combination of a strong top-line, more focused hiring, and continued efficiency gains in our cloud business. This led to a stable operating margin in Q2, even with an acquisition headwind of approximately 40 basis points in the quarter. For the first half, we were able to expand our operating margin by 20 basis points.

Now, turning to IFRS operating profit, as well as EPS in Texas. Q2 IFRS operating profit and EPS were both down 21%, impacted by higher acquisition-related charges, as expected. In addition, IFRS operating profit was impacted by higher share-based compensation, both due to the Qualtrics acquisition, but also particularly the strong SAP share price increase over the second quarter, as well as additional restructuring charges, mainly due to the higher than expected estimated participation rate in the voluntary redundancy and early retirement programs in Germany.

Since these are very significant effects this year, let me put some numbers to it. If we compare the first half of 2018 to the first half this year, we now have close to 100 million Euro of higher acquisition-related charges and revenue adjustments, mainly from the acquisition of Qualtrics. We also have more than 600 million Euro higher share-based compensation expenses and approximately 1 billion Euro higher restructuring charges.

To be clear, as a consequence, we obviously expect IFRS operating profit to be sharply up in 2020. And even significantly higher growth rates than on a non-IFRS basis, as there will be no meaningful restructuring expenses and the gentle downward trend of acquisition-related charges.

Moving on to EPS, we saw a strong 11% increase year-over-year for the second quarter and 17% for the half-year on a non-IFRS basis. Year-over-year, our IFRS and non-IFRS effective tax rates decreased slightly. The IFRS rate decreased by 0.9 percentage points to 28.6%, while the non-IFRS rate decreased by 0.5 percentage points to 27%. Our operating cash flow was 2.7 billion Euros, down 10% in the first six months. As explained at our Capital Markets Day, we expected our 2019 operating cash flow to be impacted by several items.

I'd like to provide you with an update for the first half 2019. First, operating cash flow experienced a year-over-year benefit of roughly 185 million Euros from the application of IFRS Six-Team, which we neutralized in an adapted definition for our free cash flow, just to remind. Also, compared to the prior year, we had higher restructuring payouts of close to 200 million Euros, higher share-based compensation payouts of around 230 million Euros and higher tax payouts of more than 400 million Euros. For the total year 2019, again, as compared to the prior year, we currently expect higher restructuring payouts of somewhere between 550 to 750 million Euros, higher share-based compensation payouts of around 400 million Euro, and higher tax payouts of around 600 million Euro. Due to the adverse impact of the items just mentioned, we now expect 2019 operating cash flow to be slightly lower than in 2018.

Similar to IFRS operating profit, we expect a steep increase in operating cash flow in 2020, as restructuring and tax payouts will sharply recede, and we also do not expect significant increases of payouts for share-based compensation.

Free cash flow for the first half also decreased by 10% to 2 billion Euros, reflecting the lower operating cash flow, but partially offset by CapEx, which came in 279 million Euros lower. We expect that this trend toward lower CapEx will also continue in the second half.

Before I conclude, I would like to give you an update on our non-financial performance and sustainability highlights, as well. Our CO2 emissions remain flat year-over-year at 75 kilotons, despite the addition of Qualtrics. Our goal remains to be carbon-neutral by 2025. For our sustainability policies, we have been able to achieve cost-avoidance of 238 million Euros over the last three years. Further, we have now updated our global environmental policy and introduced a new target to phase out single-use plastic completely by 2020.

We continue to make progress on the social front, as well. As we continue to work to achieve gender equality, we are now at 26.2% women in management, on track to achieving our goal of 30% by 2022.

So to summarize, Q2 was a solid quarter as we continue our journey toward an SAP that is leaner, more agile, and even more customer-oriented than before. We are very confident that the opportunities for operational improvements will continue. We remain as confident in our 2019 outlook as we are in our midterm ambition. And like we have said before, we will provide additional details on our operational excellence initiatives and capital allocation policy at our special Capital Markets Day on November 12th in New York City. Thank you and we will now be happy to take your questions.

Questions and Answers:

Operator

If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is *1 to ask a question.

We will take our first question from Walter Pritchard with Citi. Please go ahead.

Walter Pritchard -- Citi -- Analyst

Hi, thanks. I think everybody understands the impact from the hyperscalers qualitatively. Could you help us understand as we look forward in the year, how much on the IAS side we expect to see the hyperscalers impact the cloud business and does it impact, at all, your longer-term goals around cloud?

Bill McDermott -- Chief Executive Officer

Yeah, just to net it out, the hyperscalers will be a growth opportunity for SAP. The SAP cloud platform is at a mature phase now where it can grow into the hyperscaler environment. That will lead the customer to many more of the cloud-based solutions that SAP offers and that is the factor that probably no one out there is counting on, but it's coming. Secondly, the HANA enterprise cloud now is being run by some real pros. So instead of a low-margin business that was uninteresting financially, it's now improving steadily and you're already over 22% with the margin performance of HEC and it'll get into the mid-30s. And it's actually performing at a quality standard commensurate with the hyperscalers now. It wasn't always. It is now. We have turned back on the valve. Many of our customers want the white glove treatment that comes along with their complete portfolio of SAP solutions, and they want the HEC. And they are going to get it. The HEC is a HANA enterprise cloud.

Similarly, many of our customers have migrated and will migrate to the hyperscalers, and we're very well-positioned. And I think what you're not counting on is just how much cloud-revenue will come SAP's way by leaning into those strategic partnerships. So to be very clear, the booking scenario in the company is ever strong. The pipelines are entirely commensurate with what you would expect and what we guided for and count on the cloud to come through in the bookings and the revenue in the back-end of the year. Command performance in the cloud on its way.

Stefan Gruber -- Head of Investor Relations

Thank you. Let's take the next question, please.

Operator

We will take our next question from Charles Brennan with Credit Suisse. Please go ahead.

Charles Brennan -- Credit Suisse -- Analyst

Great, thanks very much for taking the question. Thank you. Thank you for taking the question. Can we just drill into what feels like has been a bit of revenue weakness during the quarter? I know you called out the trade wars in Asia, but can you just remind us, are the Asian customers primarily on-premise, or does that also impact the clouds? And if it's not the Asian customers who are impacting the current bookings, what's the bottleneck that's holding the current bookings back to high teens on an organic basis? Thank you.

Bill McDermott -- Chief Executive Officer

Yeah, a couple things. First of all, the Asian market is fine. China in this particular quarter wasn't as strong as we're used to seeing China. China usually grows steeply in both the on-premise and the cloud and there was postponed decisions in China. So we did see that. What you're seeing in this environment is there are a lot of companies that were manufacturing things in China that are actually moving supply chains and manufacturing facilities to alternative locations. Those locations include places like Malaysia, Vietnam, and even Mexico. So while that dislocation takes place, it does impact Asia to some extent, China specifically.

So that's the scenario. And then what you do is you go in and you look at, OK, well, what did the pipeline do post-quarter? Because don't forget, we ended the quarter on a Sunday, on June 30th and the G20 discussion was happening at the end of that week in Japan. So there was a lot of people hovering for the outcome of G20, in terms of some of their strategic calls. Most of those deals that were hanging out there have either closed or the bill of materials has expanded because when you change a supply chain, you open up a new manufacturing facility, you start operations in a new geography, even if it's in the similar region, you have governance, you have compliance, you have many things to consider. And I think that's one of the reasons why our digital supply chain cloud business grew in triple digits because many of the customers are now counting on SAP to help them.

So that's the big picture and as I look at Q3 on a pipeline and a forecasted level in that region, right now and I have Adair sitting next to me, if she'd like to make some color commentary, she's more than welcome, everything looks very strong. The coverage that we have in the pipeline is as good, if not better, than it's been all year long. Adair?

Adair Fox-Martin -- President Global Customer Operations

Yeah, thanks, Bill. Certainly, as we enter Q3, we're entering it with a multiple of coverage. But also, more importantly, with a conversion history in this quarter and that will ensure a good outcome for us in terms of our business in Asia. And I think when I look at SAP's position there, of course, the supply chain impact was significant on our China business, but we've got to remember we've been in Asia, Pacific, Japan for 30 years, now. We have very strong teams and very strong businesses across the region, which allows us to support our customers as they move these manufacturing capabilities into other regions.

And we are now working with those customers who delayed some of those decisions to provide both commercial flexibility and certainty, and from an SAP perspective in the face of what is political and economic uncertainty. So we are very comfortable as we move into Q3 that we will be able to manage those transactions that did not happen in Q2, but also deliver a very strong Q3 from Asia for the company.

Charles Brennan -- Credit Suisse -- Analyst

Are you able to give us a quantification of the revenue slippage from Q2 into Q3?

Bill McDermott -- Chief Executive Officer

You can, basically, look at the -- the only thing you can point out, right, is the license. You were negative 5 or negative 6, depending on what currency you want to look at it, instead of flat or up, or down 2. And you can attribute it to that region, primarily. So that's why we're talking about Asia today.

But you got to remember, these are a few percentage points. If you look at Q2 last year -- put the global trade thing on the shelf for a second -- our license in Q2 last year was down 5%. It's a very similar thing to this year. So you've got a lot of things going on in SAP's Q2. You got Sapphire. You got a Sunday quarter close on June 30th. You got the G20. You got the Asia supply chain and manufacturing dislocation. So I wouldn't react to this because we are reiterating the guidance, the pipeline in Asia is the highest coverage in terms of the pipe to the conversion of the license in the company. So whatever didn't happen will happen and it will happen at a larger scale bill of material.

We're also very well positioned politically. And I think it's very important in these trying times that companies and their brands and their leadership is highly regarded at the top government offices around the world. SAP is positioned positively, whether it's Europe, the United States, or Asia, and specifically, China, very, very well. Our brand is very highly thought of there and we'll be in good shape.

Charles Brennan -- Credit Suisse -- Analyst

Okay, thanks.

Stefan Gruber -- Head of Investor Relations

Great, thank you. Let's take the next question, please.

Operator

And we will take our next question from Phil Winslow with Wells Fargo. Please go ahead.

Phil Winslow -- Wells Fargo -- Analyst

Hey, thanks, guys, for taking my question. Obviously, we've spent a lot of time on Asia on the call this quarter, but I want to focus on Europe and Germany, in particular, and some trends that you're seeing there. Obviously, industrial production data points have not been great for Germany for several quarters, but SAP keeps delivering this high single-digit, 10% growth rates. Bill, and Adair too, for that matter, when you're talking to CEOs and customers, what continues to drive that performance in Europe, but also particularly Germany?

Bill McDermott -- Chief Executive Officer

Phil, thank you for the question. I think it's pretty well known that the SAP brand is so highly regarded in Europe, digital transformation, SAP is at the epicenter of changing business processes, whether it's the S/4HANA flagship platform or it's the line of business, business network, and now XM cloud solutions. If you look at Germany, we grew double-digits in Germany in our business. And I don't know too many companies in tech that are growing double-digits in Germany. And our core business is rock solid in Germany and our cloud business is doing extremely well.

Again, I'm on the European Roundtable. I think I might be the only American on the European Roundtable running a substantially sized company. I also enjoy that in the business roundtable in the United States. And I can tell you that SAP is revered in Europe. And one of the examples I gave on the experience management side was Merck. You can't talk to a CEO in Germany, France, the UK, or anywhere else that isn't talking about SAP HANA, S/4HANA, the cloud connections, and now especially experience management. Don't forget, we're in a big omnichannel in the e-commerce world. It's mass personalization at scale. Europe is very concerned with the privacy of consumers. We are the British Standard Institute Platinum example of a company that protects the data of the customer and the consumer. And in Europe, especially Germany, since you mentioned it, that's a really big deal. So again, SAP pristine reputation and will continue to do very well and double-digit is absolutely where we need to be in Europe, and we'll stay there.

Adair Fox-Martin -- President Global Customer Operations

I feel very comfortable and very positive about our business in Europe and in Germany, in particular. We have a very strong installed base in the German market and a number of our larger transactions this quarter were transactions that were transformational in nature, transactions that were moving our customers to the next-generation of SAP software and transactions that were taking into consideration how experience management could add to the business outcomes of those consumers. We have a strong team right across Europe with tenure and we have deep relationships with many of our customers. So we're looking forward to the ongoing migration of our customers in Europe to the next-generation technology and next-generation experiences for their customers in the market.

Phil Winslow -- Wells Fargo -- Analyst

Thanks for the color guys.

Stefan Gruber -- Head of Investor Relations

Thank you, let's take the next question, please.

Bill McDermott -- Chief Executive Officer

Thank you, Phil.

Operator

And we will take our next question from Stacy Pollard with JP Morgan. Please go ahead.

Stacy Pollard -- JP Morgan -- Analyst

Hi, thank you very much. Just looking at networks, slowed to 17% constant currency growth in Q2. Can you give some product trends there, maybe say where the weakness is coming from or relative weakness? And then is teen a sustainable range, or do you think it could get back up to above 20?

Jennifer Morgan -- President Cloud Business Group

This is Jennifer. So in our business, I feel really good about the intelligence spend. I don't think that there is anything to be concerned about. A couple of the Arriba deals slipped into the first -- second week of July. But we feel really good about where we're going with the network business. We've got some great innovation under way and we'll be talking about that a little bit more at our Capital Markets Day. So feel very good about the direction of that and the growth.

Bill McDermott -- Chief Executive Officer

And Stacy, one thing that's very important. Feel Glass is doing great. And Concur is the bellwether of all cloud assets in the network and it's doing very, very well. So there is no reason to think that this thing is slowing down. It's going to be ever steady. And I think you're going to actually see the growth rate tick up in the Q3 and Q4 timeframe, as well.

Jennifer Morgan -- President Cloud Business Group

Yeah, especially over here in Asia. Concur really blew it out in Q2 over here in Japan. I'm in Singapore right now, and we're doing some pretty interesting partnerships with some of the banks that we're working with. So we're excited to share more or that at the Capital Markets Day with what we're doing with the network.

Stefan Gruber -- Head of Investor Relations

Thank you very much.

Stacy Pollard -- JP Morgan -- Analyst

Very useful. Thank you.

Stefan Gruber -- Head of Investor Relations

Thank you. Let's take the next question, please.

Operator

And our next question comes from Adam Wood with Morgan Stanley. Please go ahead.

Adam Wood -- Morgan Stanley -- Analyst

Hi, Bill. Hi Luka. Thanks for taking the question. I've got two, if I could. Just first of all, on margins, margins are flat on a constant currency basis in the first half. I think if I look at the implied guidance, we're looking for, maybe, a 60 basis points improvement for the year. Luka, could you just, maybe, talk a little bit how you feel about that and maybe help us with the phasing of how restructuring benefits start to flow through to P&L. Did we see most of that already in the second quarter? Do we see more of that through the full-year? And maybe the same on the cloud side. Do we have most of the benefits already in the P&L or is there more to come? So could you just help us on the linearity and how you feel about where you are this year versus the full-year guide on margins? That would be great.

And kind of, linked that, Bill, obviously, you've got some fantastic opportunities around cloud and particularly bringing Qualtrics into the business and broadening that out. Could you just talk a little bit, as a CEO, how you balance driving the efficiency in the business and driving margins higher while making sure you're not cutting things that important to take advantage of the opportunity's things like Qualtrics bring. Thank you.

Bill McDermott -- Chief Executive Officer

Why don't I go first, Adam, then we'll finish up on the important financial questions with Luka because I think it's a really important question that you ask. Very clearly, SAP is a growth company and we are going to remain a growth company. And the way I look at growth, I look at HANA as the biggest, best-kept secret of all time. We're going after the database market with all we have. I look at S/4HANA as the flagship platform.

We've got lots more growth coming with S/4HANA, especially as more and more of it comes in the cloud. We have a new release in Q4. We'll start marketing it in Q3. We're going after the upper market and the large enterprise and that hasn't even taken off yet. And meanwhile, we get 50% of our customers as net new. When I think about the line of business, the network, experience management, we've only scratched the surface. With Qualtrics as the front-end to employee, to customer, to this whole idea of brand and ERP, it's going to set the world on fire. It's a sensational breakthrough in the way companies can now think of the world from the outside in instead of the inside out. And we have the fundamental tools to enable business model innovation at mass scale for companies and individual consumers alike. Huge growth story.

Now, blending that with efficiency, we will not be hiring people that do not develop software in SAP. They have to develop software. They do not necessarily have to be domiciled in Germany or the United States, for that matter. We can develop software with the greatest minds in the world and we can do that where the work needs to be done, where the best people are. And often, that's in lower-cost locations, I might add, as well.

As it relates to sales, customer-facing assets, whether you're selling a customer, pre-selling a customer, putting together the composition of the perfect enterprise and the way we design the experience management and how we engineer that value for a customer, and how we implement our software, particularly, the multifaceted nature of our business. We will invest in those kinds of people.

But the things in the middle, HANA can do it and the ERP system that we run the company on called S/4HANA can do it. We don't need people. Now, what I will do and I have the complete backing of the CFO and the entire executive board, we will manage headcount with an iron fist. Meaning, what we hire into the company falls into what I just told you, and they have to be evaluated by several different people before we hire them. We have to have the best people in the world in the company. So that's the deal where you get not only the growth, but you also gain the efficiency.

Now, I'll tell you another thing. I feel for you watching the restructuring and the over subscription of it and all that. But I will also say, look, that's what gives us the bright horizon. We cleaned up the business model. We consumed a great company in Qualtrics. And we gave ourselves some room to make sure that the margin can step up 1 percentage points per year between now and 2023. And even on the cash flow basis, the bad news is out the window and all the good stuff is coming your way in 2020. So I'll let Luka give his color on it. Did I answer your question, Adam?

Adam Wood -- Morgan Stanley -- Analyst

Yeah, that's great. Thank you, Bill.

Bill McDermott -- Chief Executive Officer

Yeah, my pleasure.

Luka Mucic -- Chief Financial Officer

Then let me complete the answer with the margin progression. And let's be clear, first of all, we have very confidently reiterated our guidance for the full-year, for you can absolutely take it for granted that we will see the implied margin increases that are implied in this guidance.

We are getting started right now. And in the first half-year, we still had to fight a couple of headwinds from the acquisition front, while at the same time the benefits from our restructuring program are really only now starting to trickle in, actually. The lion's share of the improvements will come to us the far end of the year and then going into 2020. We always believed that the margin uptick in 2019 would be more pronounced in the second-half-year. First of all, because of the operation of excellence initiatives needing some time to kick in. But equally importantly, because the bar is getting lower in the second half-year, as well. If you remember, in the second half of 2018, we didn't necessarily have the best progress and best growth rates from a profit and margin perspective.

Now, we have set up our cost basis, in particular, in the cloud. We have focused our hiring in those areas where we can really add value. We have been extremely disciplined, and therefore entering the second half-year with much better opportunity coupled also with the relatively lower comparisons on the software license figure, in particular, in Q3, to really outperform and therefore grow the margin.

Similarly, on the cloud, no, of course, we are not seeing the end of the journey in terms of our efficiency improvement potential. Actually, it's the beginning, as well. We have been extremely successful through centralizing cloud delivery and our infrastructure portfolio management, including the purchase of hardware to bring own the CapEx inside the company. That was one of the sources that allowed us to expand the cloud margin. This is something that we can continue to piggy-back on and further drive down the change in the depreciation of hardware that we were able to achieve due to the successful renegotiation of maintenance contracts with our hardware providers. It's going to benefit us all the way through the year.

And we had in Q2, the very first quarter of getting the benefits from success factors. Just to give you an idea, in Q2, alone due to this move, we saved already almost 20 million -- 18 million to be precise. So we are perfectly in line to harvest those roundabout mid-double-digits that we originally projected for the first year and then the low triple digits going into 2020 from that measure alone. And there are still two quarters to come that will see this benefit.

So from that perspective, we are on a very strong trajectory toward the 75% cloud gross margin target for 2023. In fact, when we started to talk about this one year ago, and also our targets for 2020 when we were hovering around 62%, I think I've been hearing a lot of concerns and question marks about our ability to pull this off. Well, fast-forward one year later, we have already made half of the way to these 2023 targets. That should give everybody a lot of confidence.

Adam Wood -- Morgan Stanley -- Analyst

Thank you very much. The detail is appreciated.

Luka Mucic -- Chief Financial Officer

Thank you.

Bill McDermott -- Chief Executive Officer

Thank you, Adam.

Stefan Gruber -- Head of Investor Relations

Thank you. Let's move to the next question, please.

Operator

And our next question is from Mohammed Moawalla with Goldman Sachs. Please go ahead.

Mohammed Moawalla -- Goldman Sachs -- Analyst

Great, thank you very much. Firstly, Bill, can you just give us an update on the cross-selling of Qualtrics, where you are in terms of pipelines and how quickly should we start to see this getting unlocked and where you see this for the biggest opportunities in the near term?

Second point was just to clarify what you said regarding the infrastructure revenue in the cloud that was for go away. Just to clarify, you will be able to fully offset with incremental revenue from the HANA cloud platform sales? Could you clarify that? And then thirdly, for Luka, just are we still on track in terms of the migration of Arriba off of Oracle, and I assume that the bulk of that benefit is still ahead of us, in terms of gross margin in 2020. But when do you expect that migration to happen and the first quarterly benefit of that to come through? Thank you.

Bill McDermott -- Chief Executive Officer

Thank you very much for the question, Mohammed. What I'll try to do is try and give you the big picture on Qualtrics. Jennifer Morgan can build on that. I also will start off answering your question on the infrastructure side by saying very clearly the bookings and the cloud growth trajectory of SAP will continue at the robust clip you are accustomed to. You can say, in certain cases, the law of large numbers, but I can also say there are very large geographies that are still unconquered with solutions already in our portfolio.

And don't forget S/4HANA, we're driving an organic growth strategy in this company and we will take the S/4HANA roadshow in the cloud all over the world and that is going to be big. Don't forget, also, HANA as a service will be hitting hyperscale clouds near you and it's a whole new vector of growth along with analytics. And on the SAP cloud platform, there will be a tremendous opportunity with the SAP cloud platform between that and the upselling opportunity of experience management. Yes, any dilutive effect to moving the infrastructure as a service in the embrace program will be compensated for.

And I want to also be clear, I think Q2 is a little of an anomaly on the HEC business, in general, because we had new management in there, who's doing a great job on making sure the operational excellence of the performance is at the standard of the hyperscalers, at least, and also to make sure that the business we put into the HANA enterprise cloud was at a margin rate commensurate with our commitment to the mid-70s gross margin that Luka just talked about in the cloud gross margin.

So we're just being a little bit more thoughtful. When you get a little bit more thoughtful, what happens? People say what does this mean? And it does slow things down in the HEC business a little bit. But that, we're going to reinforce with all hands at the company. The white glove business is wide open for business. The embrace is wide open for business. The FCP component of that and then also turning on the hyperscalers to illuminate the various solutions in the enterprise of SAP is open for business. And I gave you some color on our flagship products and how we intend to take them to the cloud and rotate them around the global economy to drive the growth machine. So don't be nervous about SAP's cloud ambition. It could not possibly be more resilient, perseverant, and committed on the part of this management team.

I think Jen might want to add some color on Qualtrics, and then I think Luka's got you on a couple of financial points.

Jennifer Morgan -- President Cloud Business Group

Thanks, Bill. So we're really pleased with the talent and the momentum. There are three areas where we really see the focus. No. 1 is Qualtrics has done a fantastic job just continuing on their own pipeline, building sales, execution, and conversion of their pipeline. So that's been a great source of continued growth. Second is we've put a real strong focus of enablement and execution with our success factor sales team and they have exceeded all expectations we had of that business in Q2. We had great growth and success factors and I really think much of that was driven by the broader conversation from simply talking about HR systems to really employee experience. So that was fantastic. And then, obviously, with our CX sales team. So those two sales motions, through those specialist teams have been really great and we exceeded our expectations quite significantly with the synergies of those teams.

And then finally, just the overall curiosity and excitement from our entire customer base with our global sales team and really talking about what experience management means, how O is the what, X is they why. This past week, Ryan Smith and I were in both Korea and Japan at our SAP Select events. And those are our CEO events. We had several hundred CEOs in both countries and this was the focus. And I can tell you this plays very, very well in Asia. When you think about just the [audio cuts out] Asian brands have already on understanding experience. We had a great week. The pipeline's off the charts now. We closed our first deals in Korea last week and I think we're off to a really great start. State Department closed. As Bill said, Merck closed. We closed Chalhoub Group in UAE.

So I feel really good that we're continuing to execute individually with Qualtrics as they continue their growth and get great synergies working together with our team. And we'll continue that focus.

Luka Mucic -- Chief Financial Officer

Yeah, and then finally, Mo, just a very quick update on Arriba. So on Arriba, all of the applications both on the sourcing and on the procurement side have been migrated successfully by now to HANA. The same for all of the Arriba analytics. We are in the process of finalizing the migration for the network element of Arriba. This will also be done this year and this will set us up, then, for the significant gross margin increase that we also expect through the migration of Arriba of Oracle, similar to what you are seeing now from success factors. As you know, our target for the intelligence spend group cloud gross margins is to exceed 80% by 2020. Currently, we are at around 78% and that full-year benefit from being off Oracle and on HANA in Arriba will be a big component of achieving this gain.

Mohammed Moawalla -- Goldman Sachs -- Analyst

Great, thank you very much.

Stefan Gruber -- Head of Investor Relations

Thank you. We have time for two more questions, please.

Operator

And our next question will come from Michael Griest with UBS. Please go ahead.

Michael Griest -- UBS -- Analyst

Yes, thank you. Good afternoon. And I'll start by congratulating you on the cloud market performance. Luka, I think at the 2017 CMD you said that SAP would engage in debt finance buybacks. And at Sapphire this year, you said that capital returns would be paid for from the higher profitability in the business. Are you ruling out using debt to do further buybacks from here?

Luka Mucic -- Chief Financial Officer

As you know, we will update on the capital markets on our capital allocation policy thoughts and I will give, also, a clear picture on how we see the cash flow progression for the company for the next few years. So I don't really want to spend, at this point of time, any thoughts on taking the thunder away from the special Capital Markets Day on November 12th. So you will get a full update there and we are preparing for this properly. At this point in time, we are still under consideration.

Michael Griest -- UBS -- Analyst

Okay, well, maybe I could ask on the maintenance. It grew 2%, which is at the low end of the historical range. Are you seeing more of a shift now from maintenance customers into the cloud? And specifically on S/4 public cloud, maybe, Jennifer could talk about the adoption there, either from net new, or from install based customers. Thank you.

Luka Mucic -- Chief Financial Officer

Yeah, let me handle the first part with the maintenance growth rates and then I will actually hand over to Christian, who is running the S/4 business, for some color commentary on the pickup of S/4HANA cloud. So on the maintenance side, there is absolutely no change in paradigms. Our maintenance at-risk rates, including the extensions toward cloud or other on-premise solutions are actually below the level that we are internally planning for. So we are still seeing a very high stickiness in the maintenance offering.

Why is the growth rate smaller in Q2? Well, you need to look back one year to Q2 in 2018, where we had an exceptional 7% growth in support revenues. That came from the fact that back then we had a very, very steep drop in sales allowances, due again to a very healthy development of our customer relationships and adoption of our solutions. This level of sales allowance has kept at this low level, but of course, therefore, the growth that we are seeing sequentially, as well as year-over-year is smaller. So our support fundamentals are in great shape and we continue to be right where we wanted to be and you can see, also, for the half-year with 3% growth, this is very robust. And you absolutely should expect a similar performance for the full-year. So nothing more to add on that, except for handing over to Christian.

Christian Klein -- Chief Operating Officer

Thank you, Luka. I guess, first of all, let me outline. Q2 was definitely one of the best quarters ever for our S/4HANA business. On the on-premise side, we have seen double-digit growth. We already surpassed after Half-year 1 the 1 billion Euro license number. And this also, of course, will have a very positive impact on the correlating support revenue. So this also clearly shows that the hybrid strategy we are following is clearly the right one because also we see a very decent business together with Adair for the upcoming quarters. So S/4HANA cloud, this is not anymore a small business. When we look at the bookings number, clearly, this solution contributed the most new cloud bookings after Concur in Q2. The cloud revenue number already doubled year-over-year. And for 2020, we will generate significant revenue one way for SAP's cloud subscription revenue stream.

It's a high-shelf, new customers coming. And also, just to outline to give you an example how broad the solution in the meantime is, we are still serving in the meantime over 17 industries. So 17 industries and the install basis growing and growing.

On the product side, we will deliver this year over 2000 new features across 21 end-to-end policies. So this will be, clearly, the most comprehensive year peak [inaudible], by the end of the year. On the AI side, this was always our target to also deliver an innovative cloud suite. We are more than confident that we also can increase the productivity for our S/4 cloud customers in their corporations by at least 20%. And then in Q4, the analytics cloud end equation comes. So the real-time end equation and then with that a real-time steering across the company. And Qualtrics will be natively integrated to our S/4 core, as well, also by Q4.

So net, we are very confident also for the Half-year 2 outlook.

Luka Mucic -- Chief Financial Officer

Yeah, and perhaps just to conclude, what Christian essentially said now is that by now, the combination of digital supply chain management and S/4 is actually already representing more than 60% of our on-premise license revenues. And that is actually very good news because it is stabilizing use. This part of the portfolio still grows, on-premise. And it will continue to grow while the rest has already, to a large extent, migrated to the cloud. And that will also stabilize our on-premise performance in the quarters and years to come quite nicely. So our midterm projections, in terms of negative growth, are certainly still prudent.

Michael Griest -- UBS -- Analyst

Great. Thank you very much.

Stefan Gruber -- Head of Investor Relations

Thank you. Now we move to the last question, please.

Operator

And our final question will come from Stefan Slowinski with Exane BNP. Please go ahead.

Stefan Slowinski -- Exane BNP -- Analyst

Hi, thanks. Thanks for taking my question. Just two related ones. One on growth, one on hiring. On cloud sales growth, you mentioned the efficiencies in terms of headcount going forward. That could create headwinds in terms of your ability to drive growth. So I'm just wondering what kind of organization or other sales adjustments you're making that, on their own, can help you to continue cloud growth. And associated to that, outside of the hiring discipline that you've outlined, can you give us other examples of steps that are already being taken or already in place as part of the Operational Excellence Program? Thank you.

Bill McDermott -- Chief Executive Officer

I'll comment on the overall cloud sales growth and then I'll let Luka comment on the efficiency piece of your question, Stefan. A couple things, we are hiring salespeople all over the world. Every day I get a new string of emails on welcoming the next 50 great associates into the company with their pictures and their LinkedIn accounts, and just how happy they are to be here. So don't take anything away from the impression of growth in sales headcount. We will continue to grow S. What we will cut back on is GNA because we have HANA and we have S/4HANA. And I think Christian gave you a good account of how great that product is. So it does the work of thousands of people. So GNA down, S up. And that's where we're going as a growth company.

I also want to make it clear. The members of the executive board are accountable for organic growth. So we have Jennifer Morgan, now, running the cloud business group. We built some things, and we bought some things. And the things that we bought, she's accountable for making them even better and growing them around the world. And she has a very specific sales force and pre-sales force that works in conjunction with Adair Fox-Martin on the global customer operation. And this way, we can be best of breed and best of suite in the manner in which we manage the customer relationship. So the customer gets the best of both worlds from SAP and the coordination between Jen and Adair has been long-standing as they both managed global customer operations together and have been friends for a long time.

The other piece is Christian Klein is accountable for the organic development of the S/4HANA flagship and, obviously, he's giving you great feedback that it's going extremely well. And Juergen Mueller has HANA, this whole movement of database as a service in the cloud, as well as analytics and Leonardo. And all of these solutions will be front-ended by experience management as we compose the intelligent enterprise for our customers.

So what's different? I'll tell you. What's different is lots of focus on S. Lots of focus on organic innovation, a very disciplined capital allocation strategy, a very brisk pace in our pursuit of 1 point of margin improvement on a per annum basis, and holding people accountable for doing a great job. And I do mean accountable.

So that's the environment we're working in. And what I want to do is start talking about revenue per employee and how that metric is going to start growing. So that gives you an indication of how the place is being steered. Luka?

Yeah, thanks. And just to complement this, of course, just hiring discipline is not a holistic strategy. So we have multiple pillars of operational excellence initiatives that we are currently working on. Again, I don't want to go into too much detail here, but just to give you a couple of examples, we're just currently going through the portfolio round. And as I have also talked about at Sapphire, we have various areas of portfolio overlap that we're currently in process of rationalizing, which will benefit the R&D efficiency, will allow us to continue to invest into developers, but invest that not in a duplicative sense. The cloud efficiency is very, very important and there next to the off-Oracle initiatives we have the cloud infrastructure centralization, the benefits and gains that we get from there.

We have an excellent prospectus example with Qualtrics at the moment. They are running their cloud margins at around 90%. So we are looking deep into architecturally from an operations perspective, from an elasticity perspective, what can we learn and adopt and bring over to the rest of the portfolio? Which is a great opportunity for us, as only we can really now as deeply inspect this.

And then, also, we have great opportunities on the GNA side that we are starting to tap into. Obviously, GNA at the beginning of the year got a headwinds because of the acquisition of Qualtrics and there is plenty of opportunities to bring that down over time, but we are taking, for example, also steps such as lifting and shifting one complete service center in the finance area into Manila in the Philippines in a very low-cost location. Therefore, you see in GNA, a little bit more hiring than you would expect at the moment. But this is low-cost hiring that once the work is handed over will reside in reductions elsewhere and will benefit us on the GNA side. And again, there are many more examples that are already under way. But even more importantly, new ones that we're just in the process of starting that we will be able to talk more about on November 12th.

Stefan Slowinski -- Exane BNP -- Analyst

Great, thank you very much for the information and the color, guys.

Bill McDermott -- Chief Executive Officer

Pleasure. Thank you for the question.

Stefan Gruber -- Head of Investor Relations

Thank you very much. This concludes the Second Quarter 2019 Earnings Call of SAP. Thank you all for participating and goodbye.

Bill McDermott -- Chief Executive Officer

Thank you, everybody.

Luka Mucic -- Chief Financial Officer

Thank you. Goodbye.

Operator

And this concludes today's conference. Thank you for your participation and you may now disconnect.

Duration: 70 minutes

Call participants:

Bill McDermott -- Chief Executive Officer

Luka Mucic -- Chief Financial Officer

Stefan Gruber -- Head of Investor Relations

Adair Fox-Martin -- President Global Customer Operations

Jennifer Morgan -- President Cloud Business Group

Christian Klein -- Chief Operating Officer

Walter Pritchard -- Citi -- Analyst

Charles Brennan -- Credit Suisse -- Analyst

Phil Winslow -- Wells Fargo -- Analyst

Stacy Pollard -- JP Morgan -- Analyst

Adam Wood -- Morgan Stanley -- Analyst

Mohammed Moawalla -- Goldman Sachs -- Analyst

Michael Griest -- UBS -- Analyst

Stefan Slowinski -- Exane BNP -- Analyst

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