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pww.comCisco Systems, Inc., Q1 2015 Earnings Call, Nov 12, 2014 - SEHK:4333

SEHK:4333

Melissa Selcher [Executives] 💬

Melissa Selcher made the following announcements and comments during the earnings call:

  1. Introduction

    • Welcome to Cisco Systems' 99th quarterly conference call.
    • Introduced the executives present, including John Chambers, Frank Calderoni, Rob Lloyd, Gary Moore, and Kelly Kramer.

  2. Webcast and Slides Availability

    • Mentioned the availability of a corresponding webcast with slides, including supplemental information, on the company’s website in the Investor Relations section.

  3. Financial Information Access

    • Noted that income statements, GAAP to non-GAAP reconciliation information, balance sheets, cash flow statements, and other financial information can be found on the Investor Relations website.
    • Highlighted that certain reclassifications were made to prior period amounts to conform to the current period's presentation.

  4. Forward-Looking Statements Disclaimer

    • Reminded listeners that the call included forward-looking statements subject to risks and uncertainties detailed in the company’s SEC filings, particularly the most recent Form 10-K and any applicable amendments.

  5. Recording of the Call

    • Stated that unauthorized recording of the call was not permitted.

  6. Conference Call Format

    • Explained that comparisons would be on a year-over-year basis unless otherwise stated.
    • Noted that product results would be discussed in terms of revenue, and geographic and customer segment results in terms of product orders, unless specified otherwise.

  7. Handover to John Chambers

    • Turned the call over to John Chambers for his commentary on the quarter.

  8. Call Conclusion

    • Announced the date and time of the next quarterly call, which would reflect the FY '15 second quarter results: Wednesday, February 11, 2015, at 1:30 p.m. Pacific, 4:30 p.m. Eastern.

    • Reminded participants of Cisco's policy not to comment on financial guidance during the quarter unless done through an explicit public disclosure.

    • Invited participants to call the Investor Relations department with any follow-up questions from the call.

    • Concluded the call and thanked participants for their support.

John T. Chambers [Former Chairman Emeritus] 💬

John T. Chambers provided extensive commentary during the Cisco Systems, Inc. Q1 2015 Earnings Call. Here is a detailed summary of his remarks:

  1. Introduction and Financial Performance Highlights:

    • Reported a strong Q1 with record revenues, non-GAAP operating income, and non-GAAP earnings per share.
    • Revenues grew to $12.2 billion, up 1% year-over-year.
    • Generated $2.5 billion in operating cash flow and returned close to $2 billion to shareholders through share repurchase and dividends.
    • Delivered non-GAAP earnings per share of $0.54.

  2. Key Takeaways:

    • Managing the business well in a tough environment.
    • Seeing the results of a three-year transformational work, moving from selling boxes to selling solutions.
    • Leading technology and business transitions in the market.

  3. Business Momentum:

    • Product orders were up 1% and product book-to-bill was below 1, consistent with typical Q1 trends.
    • EMEA grew 6% with strong performances in the UK and Germany, and stabilization in emerging countries.
    • Americas grew 2%, with the US growing 3% excluding the service provider segment.
    • US Public Sector had a very strong quarter with 22% growth.
    • US Service Provider declined 18%.
    • Latin America grew 5%.
    • Asia Pacific, Japan, and China declined 12%, led by a 33% decline in China.
    • Overall, emerging countries declined 6%.

  4. Customer Segments:

    • Global Public Sector grew 13%.
    • Global Commercial grew 5%.
    • Global Enterprise grew 2%.
    • Service Provider declined 10% globally.

  5. Product and Services Momentum:

    • Convergence across the portfolio, integrating networking with compute, storage, applications, security, and scale.
    • Routing declined 4%, reflecting lower CapEx spend by major service providers and challenges in emerging markets.
    • Switching returned to growth, up 3%, driven by strength in the data center switching portfolio.
    • Data Center and Cloud grew 15% year-over-year, holding the #1 position in revenue share for x86 blades in the US.
    • Security revenues grew 25%.
    • Wireless grew 11%.
    • Collaboration business declined 10%.
    • Service Provider video declined 12%.
    • Services grew 5%, representing over 23% of Cisco's revenue on a 12-month trailing basis.

  6. Leadership Transition:

    • Announced that Frank Calderoni will step down as CFO on January 1, 2015, and Kelly Kramer will assume the role.
    • Praised Frank Calderoni's leadership and contributions to Cisco.

  7. Summary and Outlook:

    • Optimistic about Cisco's future and its position in the market.
    • Highlighted the accelerating pace of change in the industry and Cisco's role at the center of major technology and business transitions.
    • Emphasized the importance of integrated architectures and intelligent networks in delivering business outcomes for customers.
    • Discussed the company's ability to move quickly and aggressively to transform into a leaner and more effective company.
    • Mentioned the evolution of the leadership team and talent to drive the company forward.
    • Noted the strengthening of the company's brand, global channels, and strategic relationships with customers.

  8. Q&A Session:

    • Addressed questions regarding product order growth, the impact of foreign exchange, China, and the U.S. carrier space.
    • Provided insights into the Service Provider and emerging markets, including the impact of regulatory discussions on service provider spending.
    • Discussed the company's gross margin performance and the factors influencing it.
    • Commented on the Enterprise business, the VCE partnership, and the outlook for the company's various business segments.

Chambers' remarks covered a wide range of topics, from financial performance to strategic initiatives, and provided a comprehensive overview of Cisco's position and outlook.

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

During the Cisco Systems, Inc. Q1 2015 Earnings Call on November 12, 2014, Frank A. Calderoni, the Former Chief Financial Officer and Executive Vice President, provided the following comments:

  1. Financial Performance Overview:

    • Total revenue was $12.2 billion, representing 1% year-over-year growth.
    • Non-GAAP net income was $2.8 billion, and non-GAAP earnings per share (EPS) was $0.54.
    • GAAP net income was $1.8 billion, and GAAP earnings per share on a fully diluted basis was $0.35.
    • Product revenue was flat, while service revenue increased by 5% year-over-year.
    • Non-GAAP operating margin was 29.2%.

  2. Gross Margins:

    • Total non-GAAP gross margin was 63.3%, above the guidance of 61% to 62%.
    • Non-GAAP product gross margin was 62.5%.
    • Non-GAAP service gross margin was 66%, consistent with historical levels.

  3. Operating Expenses:

    • Non-GAAP operating expenses were $4.2 billion or 34.1% as a percentage of revenue.
    • Non-GAAP operating expenses were flat quarter-over-quarter and up 3% year-over-year, reflecting investments in key growth areas.

  4. Patent Litigation Matter:

    • A pre-tax charge of $188 million or $0.03 per share related to a patent litigation matter involving the Rockstar Consortium.
    • A term sheet has been signed, and the company is hopeful to achieve a resolution in a constructive manner for the whole industry.

  5. Headcount:

    • Headcount at the end of the quarter was 72,247, a decrease of approximately 1,800 from the previous quarter.
    • Reductions were due to restructuring activities, partially offset by key sales, service, and engineering investments, as well as acquisitions.

  6. Restructuring Actions:

    • Restructuring actions were taken to continue investing in growth, innovation, and talent while managing costs and driving efficiencies.
    • The restructuring impacted the global workforce during fiscal 2015.

  7. Acquisitions:

    • Announced and completed two acquisitions: Metacloud and Memoir Systems.
    • These acquisitions were aimed at enhancing innovation and long-term growth opportunities in key areas such as cloud and software-defined networking.

  8. VCE Update:

    • Cisco, along with EMC and VCE, announced the next phase of VCE.
    • Cisco will continue as a strategic partner and will have an approximate 10% equity interest in VCE.
    • The transition is expected to close in Q2 of FY '15.

  9. Geographic Segment Results:

    • Americas segment revenue was up 3% year-over-year.
    • EMEA revenue was up 2% year-over-year.
    • APJC revenue was down 5% year-over-year.
    • Gross margins varied by region, with Americas at 64.1%, EMEA at 63.8%, and APJC at 58.8%.

  10. Balance Sheet and Cash Flow:

    • Total cash, cash equivalents, and investments were $52.1 billion, including $3.8 billion available in the U.S.
    • Generated operating cash flow of $2.5 billion during the quarter.
    • Returned $2 billion to shareholders, including $1 billion through share repurchases and approximately $973 million through the quarterly dividend.

  11. Deferred Revenue:

    • Deferred revenue was $13.7 billion, up 4% year-over-year.
    • Product deferred revenue grew 9%, driven by subscription-based offerings.
    • Services deferred revenue grew 1%.

  12. Outlook and Guidance for Q2 FY '15:

    • Expected total revenue growth in the range of 4% to 7% year-over-year.
    • Non-GAAP gross margins expected to be in the range of 61% to 62%.
    • Non-GAAP operating margin expected to be in the range of 27.5% to 28.5%.
    • Non-GAAP tax provision rate expected to be approximately 22%.
    • Non-GAAP earnings per share expected to range from $0.50 to $0.52 per share.
    • GAAP earnings expected to be lower than non-GAAP EPS by $0.10 to $0.13 per share.
    • Guidance assumes no significant improvement in emerging markets or the Service Provider segment in the near future.

  13. Restructuring Charges:

    • Recognized pre-tax charges of $318 million related to the restructuring announcement.
    • Total charge not expected to exceed $600 million during fiscal year 2015.

  14. Guidance Assumptions:

    • No additional acquisitions, asset impairments, restructuring, and tax or other significant events assumed in the guidance.

  15. Financial Guidance Policy:

    • Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.

These points summarize the key financial and operational updates provided by Frank A. Calderoni during the Q1 2015 Earnings Call.

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