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pww.comCisco Systems, Inc., Q1 2021 Earnings Call, Nov 12, 2020 - SEHK:4333

SEHK:4333

Marilyn Mora [Director of Global Investor Relations] 💬

Marilyn Mora, the Director of Global Investor Relations for Cisco Systems, Inc., made the following statements during the Q1 2021 Earnings Call:

  1. Introduction:

    • "Thanks, Michelle. Welcome, everyone, to Cisco's First Quarter Fiscal 2021 Quarterly Earnings Conference Call. This is Marilyn Mora, Head of Investor Relations, and I'm joined by Chuck Robbins, our Chairman and CEO; and Kelly Kramer, our CFO."

  2. Webcast Availability:

    • "A corresponding webcast with slides, including supplemental information, will be made available on our website in the Investor Relations section following the call."

  3. Financial Information Availability:

    • "As is customary, in Q1, we have made certain reclassifications to prior period amounts to conform to the current period's presentation. Income statements full GAAP to non-GAAP reconciliation information, balance sheets, cash flow statements and other financial information can also be found in the Financial Information section of our Investor Relations website."

  4. Conference Call Guidance:

    • "Throughout this conference call, we will be referencing both GAAP and non-GAAP financial results and will discuss product results in terms of revenue and geographic and customer results in terms of product orders, unless stated otherwise. All comparisons made throughout this call will be on a year-over-year basis."

  5. Forward-Looking Statements:

    • "The matters we will be discussing today include forward-looking statements, including the guidance we will be providing for the second quarter of fiscal 2021. They are subject to the risks and uncertainties, including COVID-19, that we discuss in detail in our documents filed with the SEC, specifically the most recent report on Form 10-K, which identifies important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements."

  6. Guidance Details:

    • "With respect to guidance, please also see the slides and press release that accompany this call for further details. Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure."

  7. Transition to Chuck Robbins:

    • "With that, I'll now turn it over to Chuck."

  8. Q&A Session Introduction:

    • "Thanks, Kelly. [Operator Instructions] Michelle, I'll turn it over to you."

  9. Closing Comments:

    • "Thanks, Chuck. Thanks, Kelly. So in closing, Cisco's next quarterly earnings conference call, which will reflect our fiscal 2021 second quarter results, will be on Tuesday, February 9, 2021, at 1:30 p.m. Pacific Time, 4:30 p.m. Eastern Time."

    • "Again, I'd like to remind the audience that in light of Regulation FD, Cisco's policy is not to comment on its financial guidance during the quarter, unless it is done through an explicit public disclosure."

    • "We now plan to close the call. But if you have any further questions, feel free, as always, to reach out to the Investor Relations team, and we thank you very much for joining the call."

Charles H. Robbins [Chairman & CEO] 💬

Charles H. Robbins, the Chairman & CEO of Cisco Systems, Inc., provided the following comments during the Q1 2021 Earnings Call:

  1. Opening Remarks:

    • Expresses hope that everyone is safe and healthy.
    • Thanks employees for their dedication to customers and focus on innovation.

  2. Business Performance:

    • Cisco is off to a solid start in fiscal 2021.
    • Teams are executing with excellence and making steady progress on the shift to a software and subscription-driven model.
    • Signs of improvement in the business despite navigating the pandemic and other macro uncertainties.
    • Focus is on winning with a differentiated innovation portfolio, long-term growth, and being a trusted technology partner.

  3. Customer Needs and Adaptation:

    • Successfully adjusted to new demands by making necessary changes in shifts within the business.
    • Closely aligned with customers to provide mission-critical technology for resilience and adapting to new hybrid work models.
    • Sees great opportunities ahead as every company and industry accelerates its digital-first strategy.

  4. Key Areas of Focus:

    • Optimized Application Experiences: Delivering optimized application experiences for customers as the application becomes the primary access point for products and services.
    • Secure Networking as a Service: Continuing to deliver secure networking capabilities as a service, offering simplicity and automation.
    • Supporting Communications Providers: Helping communications providers succeed with significant architectural transitions like 400 gig and 5G.
    • Future of Work: Accelerating the future of work by helping enterprises adopt new hybrid work models.
    • Security: Supporting customers with their mission of securing everything they do.
    • Edge Technologies: Developing edge technologies for running distributed applications while securely accessing and managing distributed data.

  5. Q1 Results:

    • Encouraging signs of improvement in certain areas of the business.
    • Strong growth in Webex, security solutions, and business resiliency offers.
    • 78% of software revenue sold as a subscription.
    • Double-digit growth in deferred product revenue.
    • Continued success of the Catalyst 9000 and web-scale customers.
    • Introduction of new technology solutions at the recent Partner Summit.

  6. Infrastructure Platforms:

    • Cat 9K family of switches and Meraki cloud-based platforms performed well.
    • Customers building highly secure, resilient, and scalable networks.
    • Announced new cloud and SD-WAN platform innovations.

  7. Security:

    • Delivered another solid quarter of growth driven by the broad cloud-native portfolio.
    • SecureX saw strong adoption.
    • Robust growth in secure remote worker offer, including Duo, Umbrella, and AnyConnect.

  8. Collaboration Portfolio:

    • Business continuity and resiliency remain top priorities.
    • Leading in the hybrid model with employees in the office and at home.
    • Webex saw significant increased usage and solid adoption.
    • Launched new return-to-office solutions and accelerated innovation.

  9. AppDynamics:

    • Customers moving to highly distributed cloud-native applications requiring greater observability and insights.
    • Delivering full-stack observability with AppDynamics and ThousandEyes.

  10. CFO Transition:

    • Announces Scott Herren as the new Executive Vice President and Chief Financial Officer starting December 18.
    • Highlights Scott's background in software and successful business model transformation from perpetual licenses to SaaS and subscription software.
    • Expresses confidence in Scott's ability to help accelerate the transition to a service-oriented business model.

  11. Summary:

    • Encouraged by the start to the year and proud of progress in transformation and empowering customers.
    • Clear vision and strategy with a focus on building an inclusive future for all.
    • Emphasizes the importance of trust, innovation, and choice in Cisco's approach.

  12. Closing Remarks:

    • Thanks the team for their hard work and commitment to customers.

    • Expresses pride in the team's efforts during complex times.

    • Thanks Kelly Kramer for her contributions and partnership.

Kelly A. Kramer [Former Executive VP & CFO] 💬

Kelly A. Kramer, the Former Executive VP & CFO of Cisco Systems, Inc., provided the following information and comments during the Q1 2021 Earnings Call:

  1. Financial Results Summary:

    • Total revenue was $11.9 billion, down 9% year-over-year.
    • Non-GAAP operating margin rate was 32.7%, down 0.9 points.
    • Non-GAAP net income was $3.2 billion, down 11%.
    • Non-GAAP EPS was $0.76, down 10%.

  2. Revenue Breakdown:

    • Total product revenue was down 13% to $8.6 billion.
    • Infrastructure Platforms revenue was down 16%.
      • Declines were seen across switching, routing, data center, and wireless, primarily due to weakness in the enterprise and commercial markets.
      • Growth was seen in the Catalyst 9000 (Cat 9K) and the ramp of Wi-Fi 6 products.
      • Data center revenue declined, driven by servers.
    • Applications revenue was down 8%.
      • Strong growth in Webex was offset by declines in Unified Communications and TelePresence endpoints.
    • Security revenue was up 6%.
      • The Cloud Security portfolio performed well with strong double-digit growth, and continued momentum with Duo and Umbrella offerings.

  3. Service Revenue:

    • Up 2% driven by growth in the maintenance business as well as support services.

  4. Software Subscription and RPO:

    • Software subscriptions accounted for 78% of total software revenue, up 7 points year-on-year.
    • Remaining Performance Obligations (RPO) at the end of Q1 were $27.5 billion, up 10%.
      • Product RPO was up 15%.
      • Service RPO was up 8%.

  5. Orders:

    • Total product orders were down 5%.
    • Geographically, the Americas were down 5%, EMEA was down 1%, and APJC was down 14%.
    • Total emerging markets were down 15%, with the BRICs plus Mexico down 19%.
    • In customer segments, Public Sector was up 5%, Enterprise was down 15%, Commercial was down 8%, and Service Provider was down 5%.

  6. Profitability:

    • Total Q1 non-GAAP gross margin was 65.8%, down 0.1 points.
    • Product gross margin was 65.3%, down 0.8 points.
    • Service gross margin was 67.1%, up 1.7 points year-over-year.

  7. GAAP Results:

    • GAAP net income was $2.2 billion.
    • GAAP EPS was $0.51.
    • GAAP results included restructuring charges of $602 million related to the plan announced in Q1.

  8. Cash and Capital Allocation:

    • Ended Q1 with total cash, cash equivalents, and investments of $30 billion.
    • Operating cash flow was $4.1 billion, up 14%.
    • Returned $2.3 billion to shareholders during the quarter, comprised of $0.8 billion of share repurchases and $1.5 billion for the quarterly dividend.

  9. Guidance for Q2 Fiscal 2021:

    • Expected revenue to be in the range of flat to minus 2% year-over-year.
    • Non-GAAP gross margin rate expected to be in the range of 64% to 65%.
    • Non-GAAP operating margin rate expected to be in the range of 32% to 33%.
    • Non-GAAP tax provision rate expected to be 19%.
    • Non-GAAP earnings per share expected to range from $0.74 to $0.76.

  10. Response to Questions:

    • On RPO, the duration hasn't changed much since Cisco started reporting this over a year ago. About half – slightly more than half of the total balance will get recognized in the next 12 months, and the rest is longer term.

    • On pricing, the Q1 pricing is in the normal range. From a product gross margin walk perspective, the rate impact was down 1.8 points, which is in the normal operating range. Cisco has annualized all of the price increases done a year ago for the List 4 tariffs.

    • On the mismatch between orders and guidance, the difference is due to timing of when things are recognized and what is in the backlog. Cisco knows what is coming off the balance sheet with all the software and what is in the backlog, which informs the guidance.

    • On the strength seen in Public Sector, a lot of it is in Security and Collaboration, working from home, and doing school from home. The K-12 education globally is very favorable, and there was a lot of benefit from the stimulus globally.

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