Ladies and gentlemen, thank you for standing by. I'm Mirabel, your Chorus Call operator. Welcome and thank you for joining the SAP Second Quarter Results 2016 Conference Call. For today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. I would now like to turn the conference over to Mr. Stefan Gruber. Please go ahead.

Thank you very much. Good morning or good afternoon. This is Stefan Gruber, Head of Investor Relations. Thank you for joining us to discuss our results for the second quarter 2016. I'm joined by 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 Rob Enslin, who runs Global Customer Operations; Bernd Leukert, who leads Product Innovation; and Steve Singh, Head of SAP Business Networks and Applications. Before we get started, as usual, I would like to say a few words about forward-looking statements. 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 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 our filings with the U.S. Securities and Exchange Commission, the SEC, including SAP's Annual Report on Form 20-F for 2015 filed with the SEC on March 29, 2016. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Please keep in mind that unless otherwise noted, all financial numbers referred to on this conference call are non-IFRS, and growth rates are non-IFRS constant currencies unless otherwise noted. I would now like to turn the call over to Bill McDermott.

Thank you very much, Stefan, and hello, everyone. Today, SAP reaffirmed our position as a strong growth company and the market leader in the business software industry. We delivered a trifecta of double-digit software, cloud, and operating income growth. Let me share some Q2 highlights with you. First, we saw strength across all geographies including the BRIC. Despite widespread concerns, we experienced no effect from the Brexit vote. We saw a continued fast growth in cloud at 33%, tracking to the high end of guidance. Software license revenue grew fast at 10%, exceeding every expectation. Cloud and software were up significantly at 11% growth, again, outpacing expectations. We also saw a continued operating profit expansion beyond expectations at 11%. Important to note, IFRS operating profit was actually up 81%, and it's a pretty proud moment when you can reset the cost base, increase innovation, grow fast, have a happy company, and yes, be more profitable, too. So, with solid first half execution and a robust pipeline across all regions, industries, and business units, we firmly reiterate our outlook for the full year. Now let me comment on our strategic growth initiatives for the company. SAP S/4HANA has changed ERP from a system of record to a system of innovation. It provides immediate insight, intelligence beyond automation, integration between departments, and connections to the world. We see continued strong momentum with more than 3,700 S/4HANA customers, up 500 in the quarter, of which 40% were net new. Some thought, leading analysts out there, really smart ones, have noted the strength of this product cycle, which is running ahead of plan, and prior upgrade cycles. Our Q2 results further validate those assessments. Since announcing S/4HANA last year, more than 10% of our ERP customer base has already signed on. And this is…

Thank you. Operator, you can now start the Q&A session.

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. And your first question is from John King of Bank of America. Please go ahead.

Great. Thanks very much for taking the questions and congratulations on the strong second quarter. Maybe just to start off, Bill. In the context of the product cycle, I think you said that was ahead of initial expectations, and obviously, you reiterated the guidance for 2016. How should we start to think about how this could impact 2017, if it's not too early to think about that, I guess, as we get into more of the kind of volume adoption of S/4? I think previously, you've talked about structural decline of the license business, a modest decline. Is it possible that we might think about outperforming that kind of medium-term guidance in 2017 if you start to see the broader adoption of S/4? And the second question was for Luca, probably on the tax rate. Obviously, quite a big change for the tax rate guidance for this year related to Venezuela and hybris. What's the initial thinking again as to whether that's a one-off or whether that should normalize? Looking out, I guess, neither of those businesses are huge in the context of overall SAP. So, just trying to understand how much of an impact that can have on a kind of medium and long-term basis. Thanks.

Well, why don't I start off, John, by thanking you, appreciate the kind remarks and just wanted you to know it means a lot to me that all of you on the call today, because we really feel excited about our story on S/4HANA. This is a multi-year upgrade cycle opportunity. And if you think about us slightly less than 10% into that journey, you can see a lot of runway that's still left in the business model just on the upgrade cycle. But then when you add on the fact that 40% of these S/4HANA deals are coming in on a new business level, you really kind of get excited that maybe there is a major movement going on here, which is why we felt very comfortable, firmly, confidently, reiterating the guidance for the full year, but also giving you some reason to have optimism on the SAP company going forward. And one of the examples I gave was a customer that's using S/4HANA to pivot with all of our line of business cloud solutions and our Business Network, because the magic of S/4HANA is really connecting the demand chain with any channel and any customer on any device with the supply chain. And when you can do that in real time in memory with all the data at your fingertips, we can really make decisions as executives that fundamentally rethink and re-imagine business on the fly. So, that's huge. The second piece that I think of as under reported is the fact that you can run this all in the cloud. So, as you think about what percentage it will grow, whether we recognize it ratably or we recognize it as a perpetual license remains to be seen. But there's no question that it is the de facto…

That's very clear. Thank you.

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

The next question is from the line of Kirk Materne of Evercore ISI. Please go ahead.

Yes. Thanks very much for taking the question, and congrats on the quarter. Bill, my question is around S/4HANA adoption. Clearly, you guys have since seen a great move out of the gate on that. I guess just two questions on that. One, in terms of the new customers coming to you for the first time, is there any commonality in terms of the size of the customer? Are you getting into the mid-market more effectively with S/4 or any particular region that you feel like you're picking up share that perhaps you didn't historically? And then I guess the second part of the question is what needs to happen to sort of take the trajectory of adds from the sort of 500 per quarter level up to 750 to 1,000 as we think forward to calendar 2017 and calendar 2018? Thanks.

Well, Kirk, thank you very much for the question. The first thing I wanted to mention is as you saw from SAPPHIRE, we recognize that the capabilities of this product and what it can do to transform businesses actually, in fact, sometimes outstrips the customers' imagination, and in some cases early on, it outstripped the knowledge level of our people calling on the customer, which is why we redoubled our efforts at SAPPHIRE for the road mapping exercise, and really mapping the solution to the customer delivery process and the value that they would extract from such an unbelievable invention. So with that as a backdrop, we spent, the board, offsite this weekend talking about just that; how are we going to really explode this all over the world. And without stealing the thunder of my dear colleagues, I think it's really important that we hear from Rob and we also hear from Bernd as it relates to S/4 because you got the field channel, and then, of course, you have the development lead, and I think they have a very unique perspective on just how successful this product is and how much it still has to go.

Yeah. Thank you, Bill. This is Robert here. Great question. We see actually an acceleration of S/4 in terms of the amount of implementations. There's over 1,200 implementations now taking place around the world, 220-odd are live and plus/minus a couple of a hundred are ongoing. More importantly, I think when Bill talks about 40% new customers, and we've seen a significant uptick in the upper segment of the midmarket in places like Latin America and Asia, where customers see this as the future opportunity in the ERP space, actually, they see this as kind of the go-to platform if you want to be a digital company and you want to be competitive. So, that is clearly moving the needle for us. And then, I would say, lastly, the value assurance program, connecting the roadmap for the cloud product, bringing that to the fore has clearly shown that we have a full cloud on-premise business that customers really want to see. With that, I'll hand over to Mr. Leukert. Bernd Leukert - Member of the Executive Board, Head-Products & Innovation: Yeah. Thanks, Rob. Thanks, Bill. Just to add a few points from the product perspective. I think you all know that we launched S/4HANA, just to remind you of that, February 2015. So, this is not a product which is four years out in the market, and is a significant growth driver and contributing to the great Q2. We have massively invested during the course of 2015, and you still remember that last year, we had the conversation when is the product complete. And we had in Q4, so the 15/11 release, a complete coverage of the HANA adoption and exploitation across the entire modules in S/4. And then we look now at the Q2 numbers, we strongly see that this massively adds to value, adds to benefit, and this broad adoption of HANA across the entire suite is now paying off. And from a product perspective, we are fully confident that it's not just a renewal of existing processes. We have now a strong driver in innovations, in new capabilities, which we have not been able to provide to our customers before.

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

And the next question is from the line of Gerardus Vos of Barclays. Please go ahead.

Hi. Thanks for taking my question and congratulations from me as well. Just a couple, if I may. First of all, I just want to come back on the kind of go-lives, the 220, I believe it was around €140 million in the kind of first quarter. When should we kind of expect a ramp in this kind of figure? And perhaps related to this as well, the services, clearly, continue to be on the pressure during the quarter. I can imagine that has something to do with the kind of ramp of go-lives. So, maybe you link that in as well. And then, secondly, great results on the operating profit, which is now running quite ahead of the full-year guidance. And I'm cognizant of the fact that in the second half, you have the cost benefit dropping out. How should we kind of model this forward or is that kind of plus 8% now a more feasible kind of target for the full year? Thank you. Luka Mucic - Chief Operating & Financial Officer: Yeah. Maybe I can start with the services question and the question on operating profit modeling for the second half year, and then the colleagues can handle the go lives question. So, first of all, when you take a look at our services result, yes, it looks as if services continues to be under pressure if you take it from an outside perspective. However, in it, you can see that, A, in a lot of the efficiency metrics in the services business, we actually have improved in this quarter. So, we see a pretty much improved revenue conversion ratio, we see a higher overall productive utilization, and we had a very strong bookings performance as well. So, this is making me actually quite confident that…

Thank you. (41:14) I think, Rob, you might want to handle that.

Yeah, I'll take it. So, I think this is what we can expect towards the end of the year, mid-to-high-triple-digit customer go live. We are really focused on getting our partners trained, more than 5,000 really trained. We'll have close to 10,000 by the end of the year. Our internal consultants have now well-trained, and we see that go lives are actually taking between six months to nine months, so a lot faster than anything else in the marketplace. Also believe that when we look at the stability of S/4 and how customers have actually seen the rock solid quality of this product, you will actually continue to see a mass extrapolation of go lives into the years. So, mid to high triple digits.

Okay. Thanks very much.

Thank you. Thanks, (42:01).

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

The next question is from the line of Charles Brennan of Credit Suisse. Please go ahead. Charles A. Brennan - Credit Suisse Securities (Europe) Ltd.: Great. So, congratulations and thanks very much for taking my questions. Just a couple of questions for me actually. Firstly, can we go back to the net new customers, 40% coming from new customers is quite a significant number. You implied that, that was primarily the upper mid market. Does that mean that 40% corresponds to a much smaller percentage of revenue during the period? And then the second question, just talking about the comps for the second half of the year. Luka, I think you wanted to be exiting the first half in positive license territory to give you some breathing space against the fourth quarter comp. Do you think you've done enough here to derisk the outlook for the second half of the year or are you still looking at the fourth quarter with a bit of a gasp for breath? Thanks.

Maybe on the net new customers, Rob, you can comment this? And, of course, the second question is for Luka then.

Yeah. I wouldn't take the combination of customer counts and revenue to be equated just mid-market. I think what you see is the large SAP customers on – are looking at transforming the digital environment rapidly fast. We saw that with Nestlé. We've seen that with companies like Accenture. But what you see is companies that are moving to a next-generation ERP system from older systems are actually looking at S/4 as the future, and that's what we see in the mid markets. So, there's new companies coming to SAP quite a lot. Luka Mucic - Chief Operating & Financial Officer: Yeah. And maybe to the second question, so I have one principle in business, and that's to play fearless. I don't have fear about the second half year. And in terms of the – in terms of where we are, actually, I want to expand this a little bit beyond licenses. You're absolutely right. I wanted us, at the half-year point, to show positive growth in licenses in order to make sure that we de-risk the full year performance. I am absolutely at the point where I wanted us to be with 2% growth in licenses. We are kind of at the implied high-end of the license guidance if you take it in as a component of cloud and software revenues. If you talk about cloud and software revenues, at the half-year point, we are plus 8%, and we guided for 6% to 8%, so we are absolutely at the high end there. And in terms cloud, we guided at the top end for 33% growth, and we are right at 33% growth at the half-year mark. So, I think that's a perfect basis for us to execute against in the second half year. Of course, it's not set that having first two quarters in a good shape means that the second good – two quarters will be in the same shape. We need to earn our right and to win at the customer front. That means we need to stay in traffic (45:10). We need to embrace the values that Bill and Rob have also alluded to, run the value assurance program plays, make sure our customers understand the value that we can bring to the table, execute with precision so that we can earn the repeat trust, and then I'm absolutely confident that we will arrive at the guidance that we have set out at the beginning of the year. So, I'm definitely not shivering, actually, it's much too hot in Germany these days that I could even start thinking about shivering.

And, Charles, one of the things that keeps us all very, very focused is the fact that we run the company on HANA. And when you need information around the pipeline in any geography, in any industry, in any channel, we have the facts. So today is the perfect combination of a well executed first half, but also a pipeline that is very healthy across the board for SAP. It's on that basis of a focused management team and inspired workforce and very clear pipeline that we say to you, we go in and strongly reiterate guidance for the second half. So, everything is in place and we're ready to go.

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

Next question is from the line of Adam Wood of Morgan Stanley. Please go ahead. Adam D. Wood - Morgan Stanley & Co. International Plc: Hi. Thanks so much for taking the question, and also congratulations from me on the excellent quarter. Maybe, just first of all thinking about the spending and investments. You obviously had good operating leverage in the first half of the year, and you've been highlighting how those investments can continue. Luka, there's obviously some macro uncertainty out there, how do you think about pacing the investments to the second half, especially given the year, as always, will be backend loaded? And then, maybe a bigger picture question. There's a lot of focus today on frontend customer engagement and customer digitalization. When you're dealing with companies, to what extent are they starting to think about also working on their back ends? Thinking about digital manufacturing, IoT, is that starting to be a driver of HANA adoption? And how significant do you think that could be as a driver for adoption of the company? Thank you. Luka Mucic - Chief Operating & Financial Officer: Yeah. So, I'll take the first question on the investment levels. As you know, Adam, also from the past, of course, we would have flexibility in our investment plans if we had signs that we were looking at a slowdown of our business. As Bill had said, we have absolutely no signs to that end. But, of course, we will continue to monitor the situation. We are absolutely committed to our guidance not only on the top line, but also on the bottom line. So, rest assured that we will manage our responsibly in order to hit it as well. There are some investments that I very strongly and adamantly believe in, and on which we will not compromise. Those are those investments that will make us nimbler and more efficient going forward, especially in our cloud business. So, we will absolutely march forward on replacing third-party databases as the basis of our cloud solutions. So, we have made great progress and we will continue to work on that path. We will continue to work on converging our cloud infrastructures and consolidating our data centers into less but more effective central locations because this will help us in cloud margin progression going forward. On the remaining part of the investments, we have flexibility and can react in the short term, but don't see this as necessary at this point because we're very confident in our top line prospects.

And if you think about the Internet of Things, and the front end and the back end, to fully leverage the Internet of Things, the front end has to coalesce with the back end. So, for example, during the NBA championship playoffs, we featured Kevin Plank and Under Armour in a commercial. And what we demonstrate is the athlete and the concept of connected fitness to the device, connecting that athlete to communities that they participate in. They care a lot about their nutrition, they care a lot about the number of steps they're taking a day, they care a lot about their biorhythms. But then, a company like Under Armour has to care a lot about the channels that they shop in. So, when they're coming in direct to consumer, they also have to have a social media understanding, as well as a retail or a wholesale understanding of the customer. So, if you're really going to do Internet of Things, I don't know how you do it without knowing the consumer in any channel, on any device, and then being able to fulfill wherever they are in the world. So, you start to see the application, not only the transaction and the things and the consumer, but you also think about issues like geospatial and the various ways to market and precise market the consumers no matter where they're at. This is the whole idea of S/4HANA and CRM now, being a lot more than contacts management and forecasting. You're really into an omni-channel, e-commerce, end-to-end, demand and supply chain world, and the IoT is right in the center of that, and that's what we do. Adam D. Wood - Morgan Stanley & Co. International Plc: That's right. Helpful. Thank you.

Thank you.

Thank you.

The next question please.

The next question is from Knut Woller of Baader Bank. Please go ahead.

Yeah. Hello. Thank you for taking my questions, actually two. The first one to Bill, I think you mentioned that more than 10% of the ERP base has now moved to S/4. Can you give us an idea in terms of the overall investment and revenue opportunity you see from this 10%, where we are currently? Is it something like 30% of the revenue opportunity from this part of the installed base that has moved, is it higher or lower? And how long do you think it will take to harvest that opportunity? Then lastly, if I look at total revenues by region, it looks like the rest of APJ is falling a bit off compared to all the other regions. Was here the effect you mentioned from the legacy services business having a negative impact or were there any other reasons explaining that slightly lower performance compared to the average growth rate in APJ in Q2? Thank you.

On the second part with regard to APJ, I'm not sure specifically what data point you're poking at, but we should let you illuminate that so we give you a specific answer. But as it relates to the S/4HANA penetration, it is early stages of what's possible with S/4HANA even in the install base. So, it's certainly not 30%. We still are in a very early stage progression of the massive upgrade cycle and net new selling cycle that's going to go on with S/4HANA. Now, we're starting to talk about industries and market segments and things like that to even expand it further. So, please know that, that is very early stage. It's got a lot of run rate and a lot of momentum. I'll let Rob comment on APJ specifically, but I could tell you that in APJ – if you give us the specific of the question, we'll answer it – but APJ is in very good shape, when you look at India, you look at China. The only challenge is, we've seen a little bit, is Australia, but that's consistent with what you've heard from every other company. But count on APJ to continue to be a force multiplier of growth for SAP. And one of the reasons I really like APJ right now is because of our global footprint and the strong presence that we have in the install base, and the size and bandwidth and scale of our ecosystem, it makes it very difficult for smaller companies to go in there and compete with us, because to compete with us, you'd have to throw a lot of resources at it and they usually lose. So, I think what you'll see them do is stay in markets where they have a chance to win. Rob?

Yeah. I would just say that Australia and New Zealand is a tale of two right now, with the government kind of almost shutting down as the elections took place, public sector spending slowed down in the second half. It will pick up in the back half as the governments stabilize. But we have seen tremendous, tremendous performance in the cloud business in Australia and New Zealand. It is growing tremendously well. Customers absolutely adopting SuccessFactors, Ariba, and actually, our HANA Enterprise Cloud movement. So, the positive movements when you look at Australia and New Zealand. Other than that, as Bill alluded, we feel really good about India, Southeast Asia; Japan is like coming back like a storm drain. Our cloud business in China is good. So, it's a really good region, and it's actually doing consistently well every quarter.

Great. Thank you.

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

Next question is from the line of Walter Pritchard of Citi. Please go ahead.

Hi. Thanks. Just one quick one on the new customer accounts. I'm curious how focused you are simply on that metric. I know there's lots of other things from a S/4HANA perspective that matter with the 500 customers. How focused are you on driving that and measuring that on a quarterly basis?

Yeah. That's a very good question. One of the things I wanted to mention, and I want to get this gentlemen involved in the conversation a little bit here, we're very focused on it, first of all, and we're going to get increasingly focused on it because the problem is with the Fortune 2000 or the Fortune 1000, is it only 1,000 or 2,000 of them? I mean, there's a lot of businesses out there. So, when you look at companies like Concur and Ariba and Fieldglass, one of the unique attributes of the business network move that we made was not just enabling companies to collaborate and conduct commerce and business with each other, but we also acquired a wonderful leader and now an executive board member in Steve Singh. And we moved over small, medium-sized enterprise responsibility to Steve with our cloud portfolio of products because we're massively concerned with, A, the cross-sell capability coming from the S/4HANA world and, B, all kinds of net new customers that we can work through a channel that SAP was not that well represented in. So, I would like, number one, to give Steve a chance to say a few words today on how he sees things going with SAP and how confident he is how we can expand in the SAP franchise with regard to our cloud products, as well as our SME products. There's a lot of net new names there.

Thank you. Yeah. Thanks, Bill. So, I think the way that I would ask you to think about this is that we think that the – we could deliver all of our cloud products to SMB customers on a global basis. As Bill mentioned, Concur has a very large focus in the SMB segment. In fact, about 75% of Concur's business in any given quarter are net new customers to SAP. And we did sign a few thousand customers a quarter in that space. One of the other things, I think, we have a tremendous opportunity to do is actually deliver a full suite of integrated services, of cloud services that allow our customers to run their entire business, everything from the ERP suite to the line of business applications, and delivering that to not just the Concur channel, but even as we continue to build out our channels for our midmarket ERP business and Ariba, Fieldglass, and SuccessFactors businesses. So, this is – we think this is a huge growth opportunity in the years ahead for SAP.

And then, Luka, just on M&A, you talked about being proud that you paid down debt and your liquidity position. I'm wondering the last acquisition, I think Bill described as completely new. How are you thinking about M&A? That's seems like the only thing here that could disrupt margins if you were to do another larger transaction. Other than that, it seems like you're on your way to your 2020 goals for (57:32) margins?

Yeah. Maybe I could start on that answer and then I'd be most happy to have Luka build on it. And the reason I feel most happy to do that is because you're seeing a CEO and a CFO totally aligned, and an executive board that's totally aligned. So basically, we made the big moves when we had the opportunity to get pristine assets off the market and make them part of the SAP company. There are not a lot of opportunities like the ones we've done in the marketplace today at any price, but certainly, in a price that's semi-reasonable. So our objective is to take all this organic innovation, which is what we're talking about today. Let's celebrate that. This is organic growth. Isn't that nice? And when we do an acquisition, you can think of it more in the tuck-in category and highly complementary to what we've given you in the mid and a little bit longer-term guidance to 2020. So, we're aligned. We love our credit rating, we love paying down the debt, and we love putting our shareholders in a position to watch growth happen the right way. Luka Mucic - Chief Operating & Financial Officer: Yeah. I'm actually running out of anything else that I could add to this, perfectly right. And all the acquisitions that we did since we closed Concur were paid out of our normal cash flow, so that's kind of the type of tuck-ins that we can easily digest. And on anything that would be slightly bigger, it wouldn't really need to address a wide space in our solution portfolio. And as our wide spaces have become smaller over time as we have worked both organically, as well as through integrating the acquisitions that we did already so will naturally be a size of any acquisitions that we might consider. Bernd Leukert - Member of the Executive Board, Head-Products & Innovation: Thank you. We are almost at the end already, at the end of the hour, but we have time for one final question, please.

And the question is from the line of Patrick Walravens from JMP. Please go ahead.

Great. Thank you. Bill, I'd love to hear your thoughts on why Salesforce was willing to spend $25 billion to buy LinkedIn, and if the opportunity to apply artificial intelligence to application softwares is really that big.

Well, I'm not sure what they were actually willing to pay, Pat, you know better than me, but I'm pretty sure that Microsoft was the one that ended up with them, meaning LinkedIn. And when I look at it from – on Microsoft perspective, it's a natural extension of Office 365 in a sense. You can also think of it a little bit as a CRM application because now, I've got a very large channel of consumers that I know a lot about that maybe I can upsell and cross-sell very special things to. But also, as you look at their importance in the ecosystem. I think Satya has done a very good job of making them an open company in the ecosystem with Azure, and it's very nice, I think, to be able to say to their key partners, hey, as an extension of some of the things that you're doing in human capital management, wouldn't it be nice if in recruiting and other techniques that you have on the HR side, LinkedIn could potentially be a part of that. So, I think there's an ecosystem play, I think there's a core business play. And, certainly, I think there's a business network effect that you can monetize with an asset like LinkedIn. And, certainly, a company with Microsoft's reach and capabilities and success, they're in a position to do something like that, and I wish them the absolute best with that asset.

Great. Thank you.

Thank you, Pat.

Thank you very much. And this concludes our SAP second quarter earnings call. Thanks, all, for joining and talk to you soon. Thank you and good-bye.

This concludes the SAP second quarter earnings call for today. Thank you for joining and good-bye.