SAP CEO Discusses Q3 2010 Results – Earnings Call Transcript
SAP AG (
)
Q3 2010 Earnings Call Transcript
October 27, 2010 9:00 am ET
Executives
Stefan Gruber – VP, IR
Werner Brandt – CFO
Bill McDermott – Co-CEO
Jim Hagemann Snabe – Co-CEO
An
alysts
Phil Winslow – Credit Suisse
Ross MacMillan – Jefferies
Michael Briest – UBS
Jonathan Tseng – Merrill Lynch
Raimo Lenschow – Barclays Capital
Mohammed Moawalla – Goldman Sachs
Knut Woller – UniCredit
Adam Wood – Morgan Stanley
Presentation
Operator
Compare to:
Previous Statements by SAP
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SAP AG Q1 2010 Earnings Call Transcript
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SAP AG Q4 2009 Earnings Call Transcript
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SAP AG Q3 2009 Earnings Call Transcript
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SAP AG Q2 2009 Earnings Call Transcript
Welcome to the SAP Q3 earnings financial analyst conference call. I am the operator to this conference. All participants will be in a listen-only mode. The conference is being recorded. After the presentation there will be an opportunity to ask questions. (Operator Instructions)
At this time I would like to turn the conference over to Mr. Stefan Gruber. Please go ahead, sir.
Stefan Gruber
Yes, thank you. Good morning or good afternoon. This is Stefan Gruber. Thank you for joining us to discuss SAP's third-quarter 2010 results. I am joined by Bill McDermott, Jim Hagemann Snabe, and Werner Brandt. Werner and Jim will have prepared remarks for this call. Following their prepared remarks we will have time for Q&A.
I will now make a few remarks about forward-looking statements. Any statements made during this call that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995.
Words such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, outlook, should and will and similar expressions as they 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 US Securities and Exchange Commission, including SAP's Annual Report on Form 20-F for 2009 filed with the SEC on March 25, 2010.
Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.
Now with that I would like to turn the call over to Werner.
Werner Brandt
Yes, thank you, Stefan, for this introduction. Before I begin let me tell you that I will focus on our non-IFRS figures as they are more in line with how we internally look at our operational performance. Also, these non-IFRS measures are the basis of our guidance. Please do also note that our third-quarter and year-end 2010 numbers include the revenue of it end cash flows from Sybase for the period since the acquisition on July 26, 2010, while the comparative prior-year numbers do not include any Sybase revenues, profits or cash flows.
Let me give you the highlights of the third quarter. As the economy continues to stabilize, we are pleased to report double-digit growth in software and software-related service revenue. All regions reported growth in the third quarter, with particular strength in the United States and the emerging markets of Asia, Europe and Latin America. We saw good mix of revenues among small, mid-size and large enterprises, and we had an increase in deal volume.
Non-IFRS software and software-related service revenues grew 21% or 13% at constant currencies to EUR2.35 billion. SAP's business accounted for 7 percentage points of the constant currency growth, and Sybase contributed 6 percentage points to the growth.
The SSRS performance was driven by a constant currency increase of 15% in software revenues and a very strong 11% in the support business. As you know, we have seen strong retention and adoption of Enterprise Support within our customer base.
In fact, September 30
th
was the deadline for customers to make their decisions on their Enterprise Support or Standard Support for 2011. Nearly 100% of current Enterprise Support customers remained on Enterprise Support.
As a result of the strong top line, the non-IFRS SSRS gross margin increased by 1.3 percentage points or 130 basis points year-over-year to 82.4%. Professional services and other service revenue increased 12% at constant currency. The increase was mainly driven by our service revenue, which includes the messaging revenue from Sybase.
The non-IFRS professional service-related margin declined by 50 basis points year-over-year to 23.3%. The decrease is mainly due to currency changes. The overall gross margin was 69%, which is up 90 basis points year-over-year.
Looking at the expense side of the P&L you can see that total operating expenses increased 11% year-over-year at constant currencies. The non-operating – the non-IFRS operating margin in the third quarter of 2010 increased by 80 basis points year-over-year to 28.2% at constant currencies.
Headquartered – headcount in the third quarter increased by 4,900 FTEs. The increase was mainly driven by two acquisitions. Sybase added 3,817 FTEs and TechniData added 416 FTEs. The organic headcount increase accounted for 667 FTEs in the third quarter.
Let me briefly comment on the acquisition-related charges that we expect to face going forward if exchange rates remain unchanged compared to September 30, and provided we do not have additional business combinations.
For the fourth quarter 2010 we expect around 37 million of deferred revenue write-down and around EUR26 million for the full year of 2011.
On the cost side, the operating expenses, we expect roughly 96 million of acquisition-related charges in the fourth quarter and around 465 million for the full year 2011.
The IFRS effective tax rate in the third quarter 2010 was 27.3%, which is an increase of 6.8 percentage points over the third quarter of last year. For the nine month period it was 29.6, which is an increase of 90 basis points.
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