Exhibit 99.1

 

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Press Contact:       Investor Relations Contact:
Robyn Blum       Marilyn Mora
Cisco       Cisco
1 (408) 930-8548       1 (408) 527-7452
rojenkin@cisco.com       marilmor@cisco.com

CISCO REPORTS THIRD QUARTER EARNINGS

 

   

Q3 Results:

 

   

Revenue: $13.0 billion

 

   

Growth of 6% year over year (normalized to exclude the divested SPVSS business for Q3 FY 2018)

 

   

Earnings per Share: GAAP: $0.69; Non-GAAP: $0.78

 

   

Non-GAAP EPS increased 18% year over year

 

   

Q4 Guidance (normalized to exclude the divested SPVSS business for Q4 FY 2018):

 

   

Revenue: 4.5% to 6.5% growth year over year

 

   

Earnings per Share: GAAP: $0.66 to $0.71; Non-GAAP: $0.80 to $0.82

SAN JOSE, Calif. — May 15, 2019 — Cisco today reported third quarter results for the period ended April 27, 2019. Cisco reported third quarter revenue of $13.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.0 billion or $0.69 per share, and non-GAAP net income of $3.5 billion or $0.78 per share.

As previously disclosed, Cisco completed the divestiture of the Service Provider Video Software Solutions (SPVSS) business in the second quarter of fiscal 2019 on October 28, 2018. Revenue, non-GAAP financial information, and Q4 FY 2019 guidance have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

“Our strong performance in the quarter was across the business, reflecting our customers’ confidence in our strategy, business model and market-leading portfolio,” said Chuck Robbins, chairman and CEO of Cisco. “Technology is at the heart of our customers’ strategies and we are building the technology to help them achieve their business objectives.”

GAAP Results

 

     Q3 FY 2019      Q3 FY 2018      Vs. Q3 FY 2018  

Revenue (including SPVSS business for all periods)

   $ 13.0 billion      $ 12.5 billion        4

Revenue (excluding SPVSS business for all periods)

   $ 13.0 billion      $ 12.2 billion        6

Net Income

   $ 3.0 billion      $ 2.7 billion        13

Diluted Earnings per Share (EPS)

   $ 0.69      $ 0.56        23

Non-GAAP Results

 

     Q3 FY 2019      Q3 FY 2018      Vs. Q3 FY 2018  

Net Income (excluding SPVSS business for all periods)

   $ 3.5 billion      $ 3.2 billion        8

EPS (excluding SPVSS business for all periods)

   $ 0.78      $ 0.66        18

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

“We executed well in Q3, delivering revenue growth of 6%, non-GAAP EPS growth of 18%, as well as strong margins and cash flow,” said Kelly Kramer, CFO of Cisco. “We continue to invest in our innovation pipeline to drive long-term profitable growth, while successfully evolving our business model through software offerings and subscriptions and delivering value for shareholders.”

 

1


Financial Summary

All comparative percentages are on a year-over-year basis unless otherwise noted.

All revenue, non-GAAP, and geographic financial information in the “Q3 FY 2019 Highlights” section are presented excluding the SPVSS business for all periods as it was divested during the second quarter, on October 28, 2018.

Q3 FY 2019 Highlights

Revenue — Total revenue was $13.0 billion, up 6%, with product revenue up 7% and service revenue up 3%. Revenue by geographic segment was: Americas up 9%, EMEA up 5%, and APJC down 4%. Product revenue performance was broad based with growth in Security, up 21%, Applications, up 9%, and Infrastructure Platforms, up 5%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.1%, 62.0%, and 66.3%, respectively, as compared with 62.3%, 61.0%, and 65.8%, respectively, in the third quarter of fiscal 2018.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 64.6%, 63.7%, and 67.3%, respectively, as compared with 64.5%, 63.7%, and 67.1%, respectively, in the third quarter of fiscal 2018.

Total gross margins by geographic segment were: 65.6% for the Americas, 64.5% for EMEA and 60.7% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.7 billion, up 1%. Non-GAAP operating expenses were $4.2 billion, up 6%, and were 32.4% of revenue.

Operating Income — GAAP operating income was $3.5 billion, up 12%, with GAAP operating margin of 27.1%. Non-GAAP operating income was $4.2 billion, up 6%, with non-GAAP operating margin at 32.2%.

Provision for Income Taxes — The GAAP tax provision rate was 15.8%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS — On a GAAP basis, net income was $3.0 billion and EPS was $0.69. On a non-GAAP basis, net income was $3.5 billion, an increase of 8%, and EPS was $0.78, an increase of 18%.

Cash Flow from Operating Activities — $4.3 billion for the third quarter of fiscal 2019, an increase of 79% compared with $2.4 billion for the third quarter of fiscal 2018. Operating cash flow for the third quarter of fiscal 2018 included the payment of $1.3 billion of one-time foreign taxes as related to the Tax Cuts and Jobs Act. Operating cash flow increased 16%, normalized for these tax payments.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $34.6 billion at the end of the third quarter of fiscal 2019, compared with $40.4 billion at the end of the second quarter of fiscal 2019, and compared with $46.5 billion at the end of fiscal 2018.

Deferred Revenue — $17.5 billion, down 8% in total, with deferred product revenue down 23%. Deferred service revenue was up 3%.

Capital Allocation — In the third quarter of fiscal 2019, we returned $7.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.35 per common share, or $1.5 billion, and repurchased approximately 116 million shares of common stock under our stock repurchase program at an average price of $52.14 per share for an aggregate purchase price of $6.0 billion. The remaining authorized amount for stock repurchases under the program is $18.0 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2019, we closed the acquisitions of Luxtera, Inc., a privately held semiconductor company, and Singularity Networks, a privately held network infrastructure analytics company.

 

2


Guidance for Q4 FY 2019

Cisco expects to achieve the following results for the fourth quarter of fiscal 2019 (normalized to exclude the divested SPVSS business):

 

Q4 FY 2019

    

Revenue

   4.5% - 6.5% growth Y/Y

Non-GAAP gross margin rate

  

64% - 65%

Non-GAAP operating margin rate

  

31% - 32%

Non-GAAP tax provision rate

  

19%

Non-GAAP EPS

   $0.80 - $0.82

Revenue for the divested SPVSS business for the fourth quarter of fiscal 2018 was $206 million.

Cisco estimates that GAAP EPS will be $0.66 to $0.71 in the fourth quarter of fiscal 2019.

A reconciliation between the Guidance for Q4 FY 2019 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q4 FY 2019” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

   

Q3 fiscal year 2019 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, May 15, 2019 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

 

   

Conference call replay will be available from 4:00 p.m. Pacific Time, May 15, 2019 to 4:00 p.m. Pacific Time, May 22, 2019 at 1-888-446-2545 (United States) or 1-402-998-1344 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.

 

   

Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 15, 2019. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.

 

   

Cisco is hosting Cisco Live, its premier annual customer and partner conference June 9-13 in San Diego, Calif. Register now for keynotes, hands-on learnings experiences, expert demonstrations and networking.

 

3


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     April 27,
2019
    April 28,
2018
    April 27,
2019
    April 28,
2018
 

REVENUE:

        

Product

   $ 9,722     $ 9,304     $ 28,885     $ 27,067  

Service

     3,236       3,159       9,591       9,419  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     12,958       12,463       38,476       36,486  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     3,693       3,625       11,106       10,594  

Service

     1,092       1,079       3,278       3,208  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     4,785       4,704       14,384       13,802  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     8,173       7,759       24,092       22,684  

OPERATING EXPENSES:

        

Research and development

     1,659       1,590       4,824       4,706  

Sales and marketing

     2,403       2,325       7,084       6,894  

General and administrative

     541       561       1,261       1,601  

Amortization of purchased intangible assets

     39       67       112       188  

Restructuring and other charges

     18       82       282       332  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,660       4,625       13,563       13,721  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,513       3,134       10,529       8,963  

Interest income

     331       380       1,003       1,155  

Interest expense

     (211     (237     (655     (719

Other income (loss), net

     (18     (24     (10     48  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     102       119       338       484  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,615       3,253       10,867       9,447  

Provision for income taxes (1)

     571       562       1,452       13,140  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

   $ 3,044     $ 2,691     $ 9,415     $ (3,693
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share:

        

Basic

   $ 0.70     $ 0.56     $ 2.11     $ (0.76
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.69     $ 0.56     $ 2.09     $ (0.76
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,370       4,791       4,468       4,892  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,415       4,844       4,509       4,892  
  

 

 

   

 

 

   

 

 

   

 

 

 

The Consolidated Statements of Operations include the results of the SPVSS business prior to its divestiture during the second quarter of fiscal 2019 on October 28, 2018. Accordingly, the nine months ended April 27, 2019 includes three months of financial results for this business.

 

(1) 

The provision for income taxes for the nine months ended April 28, 2018 includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.

 

4


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     April 27, 2019  
     Three Months Ended     Nine Months Ended  
     Amount      Y/Y%     Amount      Y/Y%  

Revenue:

          

Including SPVSS business for all periods:

          

Americas

   $ 7,695        7   $ 22,798        6

EMEA

     3,356        2     9,803        6

APJC

     1,907        (6 )%      5,875        3
  

 

 

      

 

 

    

Total

   $ 12,958        4   $ 38,476        5
  

 

 

      

 

 

    

Excluding SPVSS business for all periods:

          

Americas

   $ 7,695        9   $ 22,721        7

EMEA

     3,356        5     9,737        8

APJC

     1,907        (4 )%      5,851        5
  

 

 

      

 

 

    

Total

   $ 12,958        6   $ 38,309        7
  

 

 

      

 

 

    

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended April 28, 2018 was $219 million and for the nine months ended April 27, 2019 and April 28, 2018 was $168 million and $697 million, respectively.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     April 27, 2019  
     Three Months Ended     Nine Months Ended  

Gross Margin Percentage:

    

Including SPVSS business for all periods:

    

Americas

     65.6     65.4

EMEA

     64.5     64.3

APJC

     60.7     59.0

Excluding SPVSS business for all periods (1):

    

Americas

     65.6     65.6

EMEA

     64.5     64.4

APJC

     60.7     59.1

 

(1) 

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business.

 

5


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     April 27, 2019  
     Three Months Ended     Nine Months Ended  
     Amount      Y/Y%     Amount      Y/Y%  

Revenue:

          

Including SPVSS business for all periods:

          

Infrastructure Platforms

   $ 7,545        5   $ 22,315        7

Applications

     1,431        9     4,315        17

Security

     707        21     2,016        17

Other Products

     39        (83 )%      239        (69 )% 
  

 

 

      

 

 

    

Total Product

     9,722        4     28,885        7

Services

     3,236        2     9,591        2
  

 

 

      

 

 

    

Total

   $ 12,958        4   $ 38,476        5
  

 

 

      

 

 

    

Excluding SPVSS business for all periods:

          

Infrastructure Platforms

   $ 7,545        5   $ 22,315        7

Applications

     1,431        9     4,315        17

Security

     707        21     2,016        17

Other Products

     39        3     93        (39 )% 
  

 

 

      

 

 

    

Total Product

     9,722        7     28,739        9

Services

     3,236        3     9,570        2
  

 

 

      

 

 

    

Total

   $ 12,958        6   $ 38,309        7
  

 

 

      

 

 

    

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended April 28, 2018 was $219 million and for the nine months ended April 27, 2019 and April 28, 2018 was $168 million and $697 million, respectively.

 

6


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     April 27,
2019
     July 28,
2018
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 10,251      $ 8,934  

Investments

     24,392        37,614  

Accounts receivable, net of allowance for doubtful accounts of $124 at April 27, 2019 and $129 at July 28, 2018

     3,795        5,554  

Inventories

     1,513        1,846  

Financing receivables, net

     5,029        4,949  

Other current assets

     2,331        2,940  
  

 

 

    

 

 

 

Total current assets

     47,311        61,837  

Property and equipment, net

     2,834        3,006  

Financing receivables, net

     4,862        4,882  

Goodwill

     33,544        31,706  

Purchased intangible assets, net

     2,398        2,552  

Deferred tax assets

     4,023        3,219  

Other assets

     2,315        1,582  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 97,287      $ 108,784  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 7,777      $ 5,238  

Accounts payable

     2,022        1,904  

Income taxes payable

     953        1,004  

Accrued compensation

     2,872        2,986  

Deferred revenue

     10,117        11,490  

Other current liabilities

     4,172        4,413  
  

 

 

    

 

 

 

Total current liabilities

     27,913        27,035  

Long-term debt

     15,921        20,331  

Income taxes payable

     8,038        8,585  

Deferred revenue

     7,339        8,195  

Other long-term liabilities

     1,272        1,434  
  

 

 

    

 

 

 

Total liabilities

     60,483        65,580  
  

 

 

    

 

 

 

Total equity

     36,804        43,204  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 97,287      $ 108,784  
  

 

 

    

 

 

 

 

7


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Nine Months Ended  
     April 27,
2019
    April 28,
2018
 

Cash flows from operating activities:

    

Net income (loss)

   $ 9,415     $ (3,693

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation, amortization, and other

     1,433       1,676  

Share-based compensation expense

     1,166       1,184  

Provision (benefit) for receivables

     32       (104

Deferred income taxes

     (281     1,013  

(Gains) losses on divestitures, investments and other, net

     (79     (159

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

    

Accounts receivable

     1,560       1,064  

Inventories

     (1     (289

Financing receivables

     (112     (165

Other assets

     (736     (135

Accounts payable

     52       148  

Income taxes, net

     (759     8,795  

Accrued compensation

     (68     53  

Deferred revenue

     421       415  

Other liabilities

     (154     (237
  

 

 

   

 

 

 

Net cash provided by operating activities

     11,889       9,566  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (1,176     (14,132

Proceeds from sales of investments

     5,391       12,422  

Proceeds from maturities of investments

     10,797       12,259  

Acquisitions and divestitures

     (2,175     (2,762

Purchases of investments in privately held companies

     (118     (126

Return of investments in privately held companies

     127       163  

Acquisition of property and equipment

     (701     (620

Proceeds from sales of property and equipment

     15       54  

Other

     (12     (16
  

 

 

   

 

 

 

Net cash provided by investing activities

     12,148       7,242  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     321       318  

Repurchases of common stock—repurchase program

     (16,042     (11,562

Shares repurchased for tax withholdings on vesting of restricted stock units

     (601     (541

Short-term borrowings, original maturities of 90 days or less, net

     1,723       (2,502

Issuances of debt

     1,530       6,877  

Repayments of debt

     (5,250     (9,875

Dividends paid

     (4,489     (4,433

Other

     51       (92
  

 

 

   

 

 

 

Net cash used in financing activities

     (22,757     (21,810
  

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

     1,280       (5,002

Cash, cash equivalents, and restricted cash, beginning of period

     8,993       11,773  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash, end of period

   $ 10,273     $ 6,771  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 690     $ 739  

Cash paid for income taxes, net

   $ 2,491     $ 3,332  

Prior period information has been retrospectively adjusted due to the adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash at the beginning of the first quarter of fiscal 2019.

 

8


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     April 27,
2019
     January 26,
2019
     April 28,
2018
 

Deferred revenue:

        

Service

   $ 11,297      $ 11,246      $ 10,960  

Product

     6,159        6,015        7,993  
  

 

 

    

 

 

    

 

 

 

Total

   $ 17,456      $ 17,261      $ 18,953  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 10,117      $ 9,976      $ 11,301  

Noncurrent

     7,339        7,285        7,652  
  

 

 

    

 

 

    

 

 

 

Total

   $ 17,456      $ 17,261      $ 18,953  
  

 

 

    

 

 

    

 

 

 

CISCO SYSTEMS, INC.

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

 

     DIVIDENDS      STOCK REPURCHASE PROGRAM      TOTAL  

Quarter Ended

   Per Share      Amount      Shares      Weighted-
Average Price
per Share
     Amount      Amount  

Fiscal 2019

                 

April 27, 2019

   $ 0.35      $ 1,519        116      $ 52.14      $ 6,020      $ 7,539  

January 26, 2019

   $ 0.33      $ 1,470        111      $ 45.09      $ 5,016      $ 6,486  

October 27, 2018

   $ 0.33      $ 1,500        109      $ 46.01      $ 5,026      $ 6,526  

Fiscal 2018

                 

July 28, 2018

   $ 0.33      $ 1,535        138      $ 43.58      $ 6,015      $ 7,550  

April 28, 2018

   $ 0.33      $ 1,572        140      $ 42.83      $ 6,015      $ 7,587  

January 27, 2018

   $ 0.29      $ 1,425        103      $ 39.07      $ 4,011      $ 5,436  

October 28, 2017

   $ 0.29      $ 1,436        51      $ 31.80      $ 1,620      $ 3,056  

 

9


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 

     Three Months Ended     Nine Months Ended  
     April 27,
2019
    April 28,
2018
    April 27,
2019
    April 28,
2018
 

GAAP net income (loss)

   $ 3,044     $ 2,691     $ 9,415     $ (3,693

Adjustments to cost of sales:

        

Share-based compensation expense

     54       57       163       168  

Amortization of acquisition-related intangible assets

     141       161       418       444  

Supplier component remediation charge (adjustment), net

     —         (9     (1     (41

Acquisition-related/divestiture costs

     2       2       9       4  

Legal and indemnification settlements

     —         —         5       122  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     197       211       594       697  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to operating expenses:

        

Share-based compensation expense

     322       342       974       1,010  

Amortization of acquisition-related intangible assets

     39       67       112       188  

Acquisition-related/divestiture costs

     78       89       238       195  

Legal and indemnification settlements

     (1     —         (396     —    

Significant asset impairments and restructurings

     18       82       282       332  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     456       580       1,210       1,725  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to GAAP interest and other income (loss), net:

        
  

 

 

   

 

 

   

 

 

   

 

 

 

(Gains) and losses on equity investments

     (4     —         (77     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP income (loss) before provision for income taxes

     649       791       1,727       2,422  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (160     (168     (554     (613

Significant tax matters (1)

     (79     (119     (387     11,261  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (239     (287     (941     10,648  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 3,454     $ 3,195     $ 10,201     $ 9,377  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share (2):

        

GAAP

   $ 0.69     $ 0.56     $ 2.09     $ (0.76
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 0.78     $ 0.66     $ 2.26     $ 1.90  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

For the first nine months of fiscal 2018, we recorded charges relating to significant tax matters that were excluded from non-GAAP net income. $11.1 billion of these charges were provisional amounts related to the enactment of the Tax Cuts and Jobs Act comprised of $8.9 billion related to the U.S. transition tax, $1.2 billion related to foreign withholding tax and $1.0 billion related to the re-measurement of net deferred tax assets. The amounts were provisional based on Securities and Exchange Commission Staff Accounting Bulletin No. 118. The remaining $0.2 billion was related to other significant tax matters.

 

(2) 

GAAP net loss per share for the nine months ended April 28, 2018 was calculated using basic shares of 4,892 million, due to the net loss resulting from the tax charge as discussed in footnote (1). Non-GAAP net income per share for the period was calculated using diluted shares of 4,936 million, as we had non-GAAP net income for this period.

 

10


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME

(In millions, except percentages)

 

     Three Months Ended  
     April 27, 2019  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Y/Y     Operating
Income
    Y/Y     Interest
and other
income
(loss),
net
    Y/Y     Net
Income
    Y/Y  

GAAP amount

   $ 6,029     $ 2,144     $ 8,173     $ 4,660       1   $ 3,513       12   $ 102       (14 )%    $ 3,044       13

% of revenue

     62.0     66.3     63.1     36.0       27.1       0.8       23.5  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     22       32       54       322         376         —           376    

Amortization of acquisition-related intangible assets

     141       —         141       39         180         —           180    

Legal and indemnification settlements

     —         —         —         (1       (1       —           (1  

Acquisition/divestiture-related costs

     1       1       2       78         80         —           80    

Significant asset impairments and restructurings

     —         —         —         18         18         —           18    

(Gains) and losses on equity investments

     —         —         —         —           —           (4       (4  

Income tax effect/significant tax matters

     —         —         —         —           —           —           (239  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 6,193     $ 2,177     $ 8,370     $ 4,204       6   $ 4,166       6   $ 98       (18 )%    $ 3,454       8
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     63.7     67.3     64.6     32.4       32.2       0.8       26.7  

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for the third quarter of fiscal 2018.

 

11


     Three Months Ended  
     April 28, 2018  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Operating
Income
    Net
Income
 

GAAP amount

   $ 5,679     $ 2,080     $ 7,759     $ 4,625     $ 3,134     $ 2,691  

% of revenue

     61.0     65.8     62.3     37.1     25.1     21.6

Adjustments to GAAP amounts:

            

Share-based compensation expense

     24       33       57       342       399       399  

Amortization of acquisition-related intangible assets

     161       —         161       67       228       228  

Supplier component remediation charge (adjustment), net

     (9     —         (9     —         (9     (9

Acquisition/divestiture-related costs

     1       1       2       89       91       91  

Significant asset impairments and restructurings

     —         —         —         82       82       82  

Income tax effect/significant tax matters

     —         —         —         —         —         (287
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 5,856     $ 2,114     $ 7,970     $ 4,045     $ 3,925     $ 3,195  

Less: SPVSS business (1)

     (56     (11     (66     (61     (5     (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount (excluding SPVSS business)

   $ 5,800     $ 2,103     $ 7,903     $ 3,984     $ 3,919     $ 3,191  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.7     67.1     64.5     32.5     32.0     26.1

Amounts may not sum and percentages may not recalculate due to rounding.

 

(1)

Reflects three months of operations for the SPVSS business.

 

12


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME (LOSS)

(In millions, except percentages)

 

     Nine Months Ended  
     April 27, 2019  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Y/Y     Operating
Income
    Y/Y     Interest
and other
income
(loss),
net
    Y/Y     Net
Income
    Y/Y  

GAAP amount

   $ 17,779     $ 6,313     $ 24,092     $ 13,563       (1 )%    $ 10,529       17   $ 338       (30 )%    $ 9,415       NM  

% of revenue

     61.6     65.8     62.6     35.3       27.4       0.9       24.5  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     67       96       163       974         1,137         —           1,137    

Amortization of acquisition-related intangible assets

     418       —         418       112         530         —           530    

Supplier component remediation charge (adjustment), net

     (1     —         (1     —           (1       —           (1  

Legal and indemnification settlements

     5       —         5       (396       (391       —           (391  

Acquisition/divestiture-related costs

     4       5       9       238         247         —           247    

Significant asset impairments and restructurings

     —         —         —         282         282         —           282    

(Gains) and losses on equity investments

     —         —         —         —           —           (77       (77  

Income tax effect/significant tax matters

     —         —         —         —           —           —           (941  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 18,272     $ 6,414     $ 24,686     $ 12,353       $ 12,333       $ 261       $ 10,201    

% of revenue

     63.3     66.9     64.2     32.1       32.1       0.7       26.5  

Less: SPVSS business (1)

     (52     (9     (61     (59       (1       —           (1  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount (excluding SPVSS business)

   $ 18,220     $ 6,405     $ 24,625     $ 12,293       4   $ 12,332       9   $ 261       (46 )%    $ 10,200       9
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     63.4     66.9     64.3     32.1       32.2       0.7       26.6  

NM — Not meaningful

 

(1) 

Reflects three months of operations for the SPVSS business.

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for the first nine months of fiscal 2018.

 

 

13


     Nine Months Ended  
     April 28, 2018  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Operating
Income
    Net
Income
(Loss)
 

GAAP amount

   $ 16,473     $ 6,211     $ 22,684     $ 13,721     $ 8,963     $ (3,693

% of revenue

     60.9     65.9     62.2     37.6     24.6     (10.1 )% 

Adjustments to GAAP amounts:

            

Share-based compensation expense

     70       98       168       1,010       1,178       1,178  

Amortization of acquisition-related intangible assets

     444       —         444       188       632       632  

Supplier component remediation charge (adjustment), net

     (41     —         (41     —         (41     (41

Legal and indemnification settlements

     122       —         122       —         122       122  

Acquisition/divestiture-related costs

     1       3       4       195       199       199  

Significant asset impairments and restructurings

     —         —         —         332       332       332  

Income tax effect/significant tax matters (1)

     —         —         —         —         —         10,648  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 17,069     $ 6,312     $ 23,381     $ 11,996     $ 11,385     $ 9,377  

Less: SPVSS business (2)

     (200     (27     (226     (192     (34     (27
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount (excluding SPVSS business)

   $ 16,870     $ 6,284     $ 23,154     $ 11,805     $ 11,349     $ 9,348  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.8     67.3     64.7     33.0     31.7     26.1

Amounts may not sum and percentages may not recalculate due to rounding.

 

(1) 

Includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.

 

(2) 

Reflects nine months of operations for the SPVSS business.

 

14


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Nine Months Ended  
     April 27, 2019     April 28, 2018     April 27, 2019     April 28, 2018  

GAAP effective tax rate (1)

     15.8     17.3     13.4     139.1

Total adjustments to GAAP provision for income taxes

     3.2     3.7     5.6     (118.1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     19.0     21.0     19.0     21.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act for the nine months ended April 28, 2018.

GAAP TO NON-GAAP GUIDANCE FOR Q4 FY 2019

 

Q4 FY 2019

   Gross Margin
Rate
   Operating
Margin Rate
   Tax Provision
Rate
   Earnings per
Share (1)

GAAP

   62.5% - 63.5%    26% - 27%    17%    $0.66 - $0.71

Estimated adjustments for:

           

Share-based compensation expense

   0.5%    3.0%    —      $0.06 - $0.07

Amortization of acquisition-related intangible assets and acquisition/divestiture-related costs

   1.0%    2.0%    —      $0.05 - $0.06

Significant asset impairments and restructurings

   —      0.0%    —      $0.00 - $0.01

Income tax effect of non-GAAP adjustments

         2%   
  

 

  

 

  

 

  

 

Non-GAAP

   64% - 65%    31% - 32%    19%    $0.80 - $0.82
  

 

  

 

  

 

  

 

 

(1)

Estimated adjustments to GAAP earnings per share are shown after income tax effects.

Except as noted above, this guidance does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

 

15


Forward Looking Statements, Non-GAAP Information and Additional Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our customers’ confidence in our strategy, business model and market-leading portfolio, our ability to build the technology to help our customers achieve their business objectives, our investment in our innovation pipeline to drive long-term profitable growth, our ability to successfully evolve our business model through software offerings and subscriptions and our ability to deliver value to our shareholders) and the future financial performance of Cisco (including the guidance for Q4 FY 2019) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Forms 10-Q and 10-K filed on February 19, 2019 and September 6, 2018, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent reports on Forms 10-Q and Form 10-K as each may be amended from time to time. Cisco’s results of operations for the three and nine months ended April 27, 2019 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

This release includes non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP interest and other income (loss), net, and non-GAAP net income per share data for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations.

 

16


For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements and other contingencies, gains and losses on equity investments, the income tax effects of the foregoing and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

Cisco divested its Service Provider Video Software Solutions business (SPVSS) during the second quarter of fiscal 2019 on October 28, 2018. This release includes, where indicated, financial measures that exclude the SPVSS business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SPVSS business will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SPVSS business in reviewing the financial results of Cisco.

About Cisco

Cisco (Nasdaq: CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow’s digital opportunity today. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2019 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

 

17

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