Cisco Systems, Inc., Q4 2012 Earnings Call, Aug 15, 2012 - NasdaqGS:CSCO

NasdaqGS:CSCO

Melissa Selcher [Executives] 💬

Melissa Selcher made the following statements during the Cisco Systems, Inc. Q4 2012 Earnings Call:

Introduction:
- Thanked everyone and welcomed them to the 90th quarterly conference call.
- Introduced herself as the Senior Director, Analyst and Investor Relations.
- Mentioned she was joined by John Chambers (Chairman and CEO), Frank Calderoni (CFO), Rob Lloyd (Executive Vice President of Worldwide Operations), and Gary Moore (Executive Vice President and COO).
Financial Information Availability:
- Noted that the Q4 fiscal year 2012 press release was available on U.S. high-tech Marketwire and on the Cisco website.
- Mentioned that a corresponding webcast with slides was available.
- Stated that downloadable Q4 and full fiscal year 2012 financial statements would be available in the Investor Relations section of the website.
- Indicated that revenue and gross margin by geographic segments as well as revenue by product categories would be included.
- Added that income statements, full GAAP to non-GAAP reconciliation information, balance sheet, and cash flow statements could also be found on the website.
Conference Call Guidance:
- Reminded participants that the call was being recorded at the request of Cisco Systems.
- Provided instructions for accessing the webcast slides and financial documents on the website.
Forward-Looking Statements Disclaimer:
- Noted that the matters discussed included forward-looking statements subject to risks and uncertainties.
- Advised listeners to review the most recent annual report on Form 10-K and quarterly report on Form 10-Q for important risk factors.
- Prohibited unauthorized recording of the conference call.
Transition to John Chambers:
- Turned the call over to John Chambers for his commentary on the quarter.
Closing Remarks:
- Announced the date and time of the next quarterly call (Q1 FY '13).
- Mentioned the availability of downloadable financial statements and documents on the website.
- Reiterated the company's policy to not comment on financial guidance during the quarter unless done through an explicit public disclosure.
- Invited callers to contact Investor Relations with any follow-up questions.
- Concluded the call.

John T. Chambers [Former Chairman Emeritus] 💬

John T. Chambers covered a variety of topics during the Cisco Systems, Inc. Q4 2012 Earnings Call. Here is a detailed summary of his remarks:

Closing Fiscal Year 2012 Performance:
- Chambers expressed satisfaction with the company’s performance in fiscal year 2012, highlighting non-GAAP earnings-per-share growth of 14% year-over-year and revenue growth of 7%.
- He noted that Q4 was a record quarter in terms of revenue, with non-GAAP earnings-per-share growth of 18% and revenue growth of 4%.
Strategy and Success:
- Chambers emphasized the success of the company’s strategy, which focuses on delivering intelligent networks and technology architectures built on integrated products, services, and software platforms.
- He highlighted the company’s strategic partnership with the British government, London Organizing Committee of the Games, NBC, and BT for the London Olympics and Paralympics.
Market Transitions and Innovation:
- Chambers discussed the major market transitions centered around cloud, mobile, visual, virtual, and social, and how Cisco’s innovation engine continues to fuel growth and customer success.
- He mentioned the company’s focus on its operating model and ongoing evolution, which has led to record customer and partner satisfaction levels and leverage in the financial model.
Fiscal Year 2012 and Q4 Results:
- Chambers reviewed the fiscal year 2012 and Q4 results, noting the company’s growth in various product areas, including switching, routing, collaboration, wireless, security, and data center.
Data Center Performance:
- Chambers highlighted the strong performance of the data center business, with overall data center revenue growing at 90% in Q4.
- He discussed the company’s approach to the data center, emphasizing open architecture, an ecosystem of partners, and proven solutions with VMware, EMC, NetApps, Citrix, and Microsoft.
Software-Defined Networking (SDN):
- Chambers addressed the topic of software-defined networking, stating that Cisco aims to lead the evolution of the network alongside its partners.
- He outlined three advantages Cisco has in the SDN marketplace: the importance of optimizing hardware and software combinations, a comprehensive framework for network virtualization, and a global market presence that provides insights into customer requirements.
Collaboration and Video:
- Chambers discussed the decline in collaboration revenue, driven by a decrease in TelePresence sales, particularly in the public sector and European markets.
- He highlighted the launch of the new TX9000 immersive system and the move toward a software and Software-as-a-Service (SaaS) business model.
- Chambers mentioned the decline in SP Video in Q4 but expressed optimism about the potential for more software content and profitable growth opportunities in the future.
Geographic and Customer Segments:
- Chambers provided details on the performance of various geographic and customer segments, noting growth in the Americas, challenges in Europe, and strong growth in Asia Pacific, Japan, and China.
- He discussed the trends in the U.S. market, with positive growth in state and local government, global enterprise accounts, U.S. enterprise, and U.S. commercial, despite declines in the federal government sector.
Challenges and Opportunities:
- Chambers outlined several challenges, including a tough European market, global public spending, and conservative customer spending, as well as potential drivers for growth, such as the company’s position in commercial accounts, cloud and data center expansion, and emerging countries.
Guidance and Outlook:
- Chambers mentioned the company’s guidance for Q1 FY 2013, which included expectations for revenue growth, non-GAAP gross margins, non-GAAP operating margin, and non-GAAP earnings per share.
- He expressed confidence in the company’s ability to manage through uncertainties and focus on gaining market share and profitable growth.
Closing Remarks:
- Chambers thanked shareholders, employees, customers, and partners for their commitment and expressed the company’s dedication to delivering long-term shareholder value.

Throughout his remarks, Chambers emphasized the company’s strategic focus, innovation, and ability to navigate through market transitions and economic challenges.

Frank A. Calderoni [Former Chief Financial Officer and Executive Vice President] 💬

Frank A. Calderoni, the Former Chief Financial Officer and Executive Vice President of Cisco Systems, Inc., provided detailed financial insights during the Q4 2012 Earnings Call. Below is a summary of his remarks:

Financial Performance Overview:
- For the full fiscal year 2012, total revenue was $46.1 billion, up 7%.
- Non-GAAP net income was $10.0 billion, up 11%.
- Non-GAAP earnings per share (EPS) on a fully diluted basis were $1.85, which grew 14%.
- GAAP net income was $8 billion or $1.49 per share on a fully diluted basis, representing increases of 24% and 27%, respectively.
Cash Flow and Dividend Increase:
- Generated strong free cash flows of $10.4 billion, increasing 16%.
- Announced an increase in the quarterly dividend by 75% to $0.14 per share, representing a 3.2% yield on the share price.
- Committed to returning a minimum of 50% of free cash flow annually through dividends and share repurchases.
Product Area Revenue Details:
- Switching revenue was up 3%.
- Routing revenue grew 2%.
- Collaboration revenue was up 3%.
- Wireless had a very strong year, with revenue up 19%.
- Security revenue was up 12%.
- Data center business had strong growth, with revenues up 87%.
Q4 Results:
- Total revenue in Q4 was $11.7 billion, up 4%.
- Total product revenue was $9.2 billion, up approximately 3%.
- Services revenue was $2.5 billion, up approximately 12%.
- Total revenue from a geographic perspective grew 7% for Americas, 9% for APJC, and decreased 5% for EMEA.
- Total non-GAAP gross margin for Q4 FY '12 was 61.9%, down 1.2 percentage points quarter-over-quarter and down 0.8% on a year-over-year basis.
Operating Expenses and Income:
- Non-GAAP operating expenses were 34.4% of revenue or approximately $4 billion in Q4 FY '12, and that was approximately flat as compared to the previous quarter.
- Non-GAAP operating income was $3.2 billion, 27.5% of revenue for Q4, and grew 14%.
- Headcount at the end of Q4 totaled 66,639, up approximately 1,400 quarter-over-quarter.
Tax Provision Rate and Net Income:
- Non-GAAP tax provision rate for Q4 FY '12 was 21.7%.
- Non-GAAP net income for the fourth quarter was $2.5 billion, which represented an increase of 15%.
- Non-GAAP earnings per share (EPS) for the fourth quarter was $0.47 versus $0.40 in the fourth quarter of fiscal year 2011, which was an increase of 18%.
Cash, Cash Equivalents, and Investments:
- Total cash, cash equivalents, and investments at quarter end was $48.7 billion, up $304 million from the previous quarter.
- Approximately $6.2 billion was available in the U.S. at the end of the quarter.
Share Repurchase Program and Dividend Payment:
- Repurchased $1.8 billion of common stock under the share repurchase program or 108 million shares at an average price of $16.62 per share.
- Paid a dividend of $425 million, representing $0.08 per share.
Guidance for Q1 FY '13:
- Excluding NDS:
  - Expected Q1 revenue growth to be in the range of 2% to 4% on a year-over-year basis.
  - Anticipated non-GAAP gross margins to be in the range of 61% to 62%.
  - Expected non-GAAP operating margin in Q1 to be in the range of 26.5% to 27.5%.
  - Expected non-GAAP earnings per share (EPS) to be in the range of $0.45 to $0.47.
- Including NDS:
  - Expected Q1 revenue growth, including NDS, to be in the range of 4% to 6% on a year-over-year basis.
  - Anticipated non-GAAP gross margins, including NDS, to be in the range of 61% to 62%.
  - Expected non-GAAP operating margin in Q1, including NDS, to be in the range of 26.0% to 27.0%.
  - Expected non-GAAP earnings per share (EPS), including NDS, to be in the range of $0.45 to $0.47.
Restructuring Charges:
- Incurred total pre-tax charges of approximately $1 billion to GAAP financial results to date.
- Expected total restructuring charges to be approximately $1.1 billion, including through the first quarter of fiscal '13.
Capital Allocation Strategy:
- Provided a framework for capital allocation, committing to return a minimum of 50% of free cash flow annually through dividends and share repurchases.

Robert W. Lloyd [Former President of Development & Sales] 💬

Robert W. Lloyd highlighted the following:

Praise for the team's execution in the data center and cloud segment, noting a 90% revenue growth and 58% order growth.
Emphasis on the importance of an open architecture and ecosystem of partners, such as Vblock with VMware and EMC, FlexPods with NetApp, VXI with Citrix, and private cloud with Microsoft.
Discussion on the Cisco Open Network Environment (ONE), which includes technologies for network virtualization, and positive reception from customers and partners.
Mention of the Nexus 1000V, the first virtualized switch, and its success with over 6,000 production customers.
Focus on value engineering and supply chain improvements to drive profitability.
Realignment of resources to emerging markets and high-growth areas.
Strong performance in the data center, including the UCS and Nexus product lines.
Importance of private cloud, converged infrastructure, and automation in enterprise use cases.
Success in service provider use cases, particularly in provisioning and management, and hosted collaboration solutions.
Strength in massively scalable data centers and enterprise-class applications.