Cisco Systems’ (CSCO) CEO John Chambers on Q4 2014 Results – Earnings Call Transcript

Source: Seeking Alpha

Cisco Systems, Inc. (NASDAQ:CSCO)

Q4 2014 Earnings Conference Call

August 13, 2014 4:30 PM ET


Melissa Selcher – VP of Corporate Communication and IR

John Chambers – Chairman and CEO

Frank Calderoni – EVP and CFO

Rob Lloyd – President, Development and Sales

Gary Moore – President and COO


Brian Modoff – Deutsche Bank

Simona Jankowski – Goldman Sachs

Mark Sue – RBC Capital Markets

Amitabh Passi – UBS Securities

Jim Fawcett – Morgan Stanley

Jess Lubert – Wells Fargo Securities

Subu Subrahmanyan – Juda Group

Ben Reitzes – Barclays Capital

Kulbinder Garcha – Credit Suisse

Paul Silverstein – Cowen and Company

Jeff Kvaal – Northland Securities


Welcome to Cisco Systems’ Fourth Quarter and Fiscal Year 2014 Financial Results Conference Call. At the request of Cisco Systems, today’s call is being recorded. If you have any objections, you may disconnect.

Now, I would like to introduce Melissa Selcher, Vice President of Corporate Communication and Investor Relations. Ma’am, you may begin.

Melissa Selcher – VP of Corporate Communication and IR

Thanks Kim. Good afternoon, everyone, and welcome to our 98th quarterly conference call. This is Melissa Selcher, and I’m joined by John Chambers, our Chairman and Chief Executive Officer; Frank Calderoni, Executive Vice President and Chief Financial Officer; Rob Lloyd, President of Development and Sales and Gary Moore, President and Chief Operating Officer.

I would like to remind you that we have a corresponding webcast with slides including supplemental information that will be available on our Web site in the Investor Relations section following the call. Income statements full GAAP to non-GAAP reconciliation information, balance sheets, and cash flow statements and other financial information can also be found on the Investor Relations Web site. Click on the Financial Reporting section of the Web site to access these documents.

Throughout this call, we will be referencing both, GAAP and non-GAAP financial results. The matters we will be discussing today include forward-looking statements and as such are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on the Form 10-K and 10-Q and any applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

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Unauthorized recording of this call is not permitted. All comparisons throughout this call will be on a year-over-year basis unless stated otherwise. As in the past we will discuss product results in terms of revenue and geographic and customer segment results in terms of product orders unless specifically stated otherwise.

I will now turn it over to John for his commentary on the quarter.

John Chambers – Chairman and CEO

Mel, thank you very much. I’m pleased with our solid performance in Q4 with non-GAAP earnings per share of $0.55 on revenues of 12.4 billion, exceeding the guidance we gave you and representing a record quarter for non-GAAP earnings per share and our second highest quarter in our history in terms of revenue. We generated over 3.6 billion in operating cash flow and returned approximately 2.5 billion to our shareholders through share buyback and dividends.

FY 2014 was a year with many big wins and several challenges. Our fiscal year began with the number of external headwinds including the federal government shutdown and the possibility of a U.S. default combined with significant slowdown in emerging markets. Even with this backdrop FY14 ended with revenues of 47.1 billion representing the second strongest year in our history and record non-GAAP earnings per share of — I wish 200, $2.06 per share.

We maintained our non-GAAP gross margins, generated strong non-GAAP operating margins and exceeded our capital return target, returning 120% of our free cash flow to shareholders. Our innovation engine dramatically accelerated this year as we brought new architectures to the market with a next generation of networking, security and collaboration. At the same time, the journey we began three years ago to transform Cisco continued at a rapid pace.

Let me take a step back for a moment. In 2011, we saw how rapidly the market was changing and understood that we require transformational change at our company. We saw these market changes earlier than our peers and understood the market dynamics were not unique to Cisco. We required a strategic approach, and not tactical responses to the coming transactions. That is the core of what you have seen from Cisco over the past several years. Even in 2011, we saw a much bigger picture.

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We rolled out our transformational plan with two principal objectives. First, drive innovation, speed, agility and efficiencies in our business and second, to transform the company to move from selling boxes to selling first architectures, then solutions and now outcomes. Operationally, we’ve done a very good job against those objectives which has afforded us flexibility today and how we go after market opportunities.

Our results are evident, we created significant operating leverage in the past three years revenue has grown nearly $4 billion while our absolute non-GAAP OpEx expenses virtually unchanged. That is very good execution especially when compared with many of our peers. During the same time period, our U.S. commercial and U.S. enterprise business grew orders over 37% and 28% respectively over these three years. They grew double-digit this last year and closed with a very-very strong in Q4 with both segments growing orders over 15%.

These are the segments that have seen the early stages of our transformation, being this segment’s our most successful selling integrated architecture solutions and outcomes. Those of you who follow us closely and talk with our channels and our customers hear first hand that our strategy is not just gaining traction but most importantly getting results. The changes we’ve made over the three years have enabled us to bring innovative products and solutions to market while at the same time growing non-GAAP earnings per share to record levels and returning 25.2 billion to shareholders including 16.7 billion in share repurchase at the average price of $20.58.

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