Exhibit 99.1

 

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Press Contact:       Investor Relations Contact:
Robyn Blum       Marilyn Mora
Cisco       Cisco
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rojenkin@cisco.com       marilmor@cisco.com

CISCO REPORTS FOURTH QUARTER AND FISCAL YEAR 2019 EARNINGS

 

   

Q4 Results:1

 

   

Revenue: $13.4 billion

 

   

Growth of 6% year over year

 

   

Earnings per Share: GAAP: $0.51; Non-GAAP: $0.83

 

   

Non-GAAP EPS increased 19% year over year

 

   

FY 2019 Results:1

 

   

Revenue: $51.7 billion

 

   

Growth of 7% year over year

 

   

Earnings per Share: GAAP: $2.61; Non-GAAP: $3.10

 

   

Non-GAAP EPS increased 20% year over year

 

 

Q1 Guidance:1

 

   

Revenue: 0% to 2% growth year over year

 

   

Earnings per Share: GAAP: $0.64 to $0.69; Non-GAAP: $0.80 to $0.82

1 Normalized to exclude the divested SPVSS business

SAN JOSE, Calif. — August 14, 2019 — Cisco today reported fourth quarter and fiscal year results for the period ended July 27, 2019. Cisco reported fourth quarter revenue of $13.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.51 per share, and non-GAAP net income of $3.6 billion or $0.83 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 Q1 FY 2020 guidance have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

“Our Q4 results marked a strong end to a great year. We are executing well in a dynamic environment, delivering tremendous innovation across our portfolio and extending our market leadership,” said Chuck Robbins, chairman and CEO of Cisco. “We are committed to providing our customers ongoing value through differentiated solutions, and we are well positioned to take advantage of the long-term growth opportunities ahead.”

Q4 GAAP Results

 

     Q4 FY 2019      Q4 FY 2018      Vs. Q4 FY 2018  

Revenue (including SPVSS business for all periods)

   $ 13.4 billion      $ 12.8 billion        5

Revenue (excluding SPVSS business for all periods)

   $ 13.4 billion      $ 12.6 billion        6

Net Income

   $ 2.2 billion      $ 3.8 billion        (42 )% 

Diluted Earnings per Share (EPS)

   $ 0.51      $ 0.81        (37 )% 

Q4 GAAP results for fiscal 2019 and 2018 include a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act.

 

1


Q4 Non-GAAP Results

 

     Q4 FY 2019      Q4 FY 2018      Vs. Q4 FY 2018  

Net Income (excluding SPVSS business for all periods)

   $ 3.6 billion      $ 3.3 billion        9

EPS (excluding SPVSS business for all periods)

   $ 0.83      $ 0.70        19

Fiscal Year GAAP Results

 

     FY 2019      FY 2018      Vs. FY 2018  

Revenue (including SPVSS business for all periods)

   $ 51.9 billion      $ 49.3 billion        5

Revenue (excluding SPVSS business for all periods)

   $ 51.7 billion      $ 48.4 billion        7

Net Income

   $ 11.6 billion      $ 0.1 billion        NM  

EPS

   $ 2.61      $ 0.02        NM  

NM — Not meaningful

GAAP results for fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.

Fiscal Year Non-GAAP Results

 

     FY 2019      FY 2018      Vs. FY 2018  

Net Income (excluding SPVSS business for all periods)

   $ 13.8 billion      $ 12.7 billion        9

EPS (excluding SPVSS business for all periods)

   $ 3.10      $ 2.59        20

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 are pleased with our solid execution and performance in Q4, delivering revenue growth of 6%, non-GAAP EPS growth of 19%, and strong margins,” said Kelly Kramer, CFO of Cisco. “We continue to transform our business model with software subscriptions now at 70% of our software revenue. The returns on our investments in key strategic areas position Cisco for long-term growth and shareholder value.”

 

2


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 “Q4 FY 2019 Highlights” and “FY 2019 Highlights” sections are presented excluding the SPVSS business for all periods as it was divested during the second quarter, on October 28, 2018.

Q4 FY 2019 Highlights

Revenue — Total revenue was $13.4 billion, up 6%, with product revenue up 7% and service revenue up 4%. Revenue by geographic segment was: Americas up 9%, EMEA up 7%, and APJC down 4%. Product revenue performance was broad based with growth in Security, up 14%, Applications, up 11%, and Infrastructure Platforms, up 6%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.9%, 62.9%, and 66.8%, respectively, as compared with 61.7%, 60.2%, and 66.0%, respectively, in the fourth quarter of 2018.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.5%, 64.7%, and 67.9%, respectively, as compared with 63.2%, 61.9%, and 67.2%, respectively, in the fourth quarter of 2018.

Total gross margins by geographic segment were: 66.8% for the Americas, 65.2% for EMEA and 60.8% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.9 billion, up 7%. Non-GAAP operating expenses were $4.4 billion, up 9%, and were 32.8% of revenue.

Operating Income — GAAP operating income was $3.7 billion, up 10%, with GAAP operating margin of 27.5%. Non-GAAP operating income was $4.4 billion, up 11%, with non-GAAP operating margin at 32.6%.

Provision for Income Taxes — The GAAP tax provision rate was 40.4%, which includes a $0.9 billion charge related to the Tax Cuts and Jobs Act. The non-GAAP tax provision rate was 18.8%.

Net Income and EPS — On a GAAP basis, net income was $2.2 billion and EPS was $0.51. On a non-GAAP basis, net income was $3.6 billion, an increase of 9%, and EPS was $0.83, an increase of 19%.

Cash Flow from Operating Activities — $3.9 billion for the fourth quarter of fiscal 2019, a decrease of 4% compared with $4.1 billion for the fourth quarter of fiscal 2018.

FY 2019 Highlights

Revenue — Total revenue was $51.7 billion, an increase of 7%.

Net Income and EPS — On a GAAP basis, net income was $11.6 billion and EPS was $2.61. On a non-GAAP basis, net income was $13.8 billion, up 9% compared to fiscal 2018, and EPS was $3.10, an increase of 20%.

Cash Flow from Operating Activities — $15.8 billion for fiscal 2019 compared with $13.7 billion for fiscal 2018, an increase of 16%. Operating cash flow for fiscal 2019 and 2018 include payments of $0.8 billion and $1.4 billion, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 also includes the receipt of $0.4 billion related to a litigation settlement with Arista Networks. Operating cash flow increased 8%, normalized for these items.

 

3


Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $33.4 billion at the end of the fourth quarter of fiscal 2019, compared with $34.6 billion at the end of the third quarter of fiscal 2019, and compared with $46.5 billion at the end of fiscal 2018.

Deferred Revenue — $18.5 billion, down 6% in total, with deferred product revenue down 18%. Deferred service revenue was up 2%.

Remaining Performance Obligations $25.3 billion at the end of fiscal 2019.

Capital Allocation — In the fourth quarter of fiscal 2019, we returned $6.0 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 82 million shares of common stock under our stock repurchase program at an average price of $54.99 per share for an aggregate purchase price of $4.5 billion.

Acquisitions

On July 9, 2019, we announced our intent to acquire Acacia Communications, Inc., a publicly-traded fabless semiconductor company that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. The acquisition is expected to close during the second half of fiscal 2020, subject to customary closing conditions and regulatory approvals.

 

4


Guidance for Q1 FY 2020

Cisco expects to achieve the following results for the first quarter of fiscal 2020 (normalized to exclude the divested SPVSS business):

 

Q1 FY 2020

    

Revenue

   0% to 2% growth Y/Y

Non-GAAP gross margin rate

   64% - 65%

Non-GAAP operating margin rate

   32% - 33%

Non-GAAP tax provision rate

   20%

Non-GAAP EPS

   $0.80 - $0.82

Revenue for the divested SPVSS business for the first quarter of fiscal 2019 was $168 million.

Cisco estimates that GAAP EPS will be $0.64 to $0.69 in the first quarter of fiscal 2020.

A reconciliation between the Guidance for Q1 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q1 FY 2020” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

   

Q4 fiscal year 2019 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, August 14, 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, August 14, 2019 to 4:00 p.m. Pacific Time, August 21, 2019 at 1-866-463-4969 (United States) or 1-203-369-1404 (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, August 14, 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.

 

5


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Fiscal Year Ended  
     July 27,
2019
    July 28,
2018
    July 27,
2019
    July 28,
2018
 

REVENUE:

        

Product

   $ 10,120     $ 9,642     $ 39,005     $ 36,709  

Service

     3,308       3,202       12,899       12,621  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     13,428       12,844       51,904       49,330  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     3,757       3,833       14,863       14,427  

Service

     1,097       1,089       4,375       4,297  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     4,854       4,922       19,238       18,724  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     8,574       7,922       32,666       30,606  

OPERATING EXPENSES:

        

Research and development

     1,753       1,626       6,577       6,332  

Sales and marketing

     2,487       2,348       9,571       9,242  

General and administrative

     566       543       1,827       2,144  

Amortization of purchased intangible assets

     38       33       150       221  

Restructuring and other charges

     40       26       322       358  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,884       4,576       18,447       18,297  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,690       3,346       14,219       12,309  

Interest income

     305       353       1,308       1,508  

Interest expense

     (204     (224     (859     (943

Other income (loss), net

     (87     117       (97     165  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     14       246       352       730  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES

     3,704       3,592       14,571       13,039  

Provision for (benefit from) income taxes (1)

     1,498       (211     2,950       12,929  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,206     $ 3,803     $ 11,621     $ 110  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.52     $ 0.81     $ 2.63     $ 0.02  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.51     $ 0.81     $ 2.61     $ 0.02  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,269       4,672       4,419       4,837  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,307       4,722       4,453       4,881  
  

 

 

   

 

 

   

 

 

   

 

 

 

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 fiscal year ended July 27, 2019 includes three months of financial results for this business.

 

(1) 

For the three months ended July 27, 2019 and July 28, 2018, the provision for (benefit from) income taxes include a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.

 

6


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     July 27, 2019  
     Three Months Ended     Fiscal Year Ended  
     Amount      Y/Y %     Amount      Y/Y %  

Revenue:

          

Including SPVSS business for all periods:

          

Americas

   $ 8,129        8   $ 30,927        6

EMEA

     3,297        4     13,100        5

APJC

     2,002        (5 )%      7,877        1
  

 

 

      

 

 

    

Total

   $ 13,428        5   $ 51,904        5
  

 

 

      

 

 

    

Excluding SPVSS business for all periods:

          

Americas

   $ 8,129        9   $ 30,850        8

EMEA

     3,297        7     13,034        8

APJC

     2,002        (4 )%      7,853        3
  

 

 

      

 

 

    

Total

   $ 13,428        6   $ 51,737        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 July 28, 2018 was $206 million and for the fiscal years ended July 27, 2019 and July 28, 2018 was $168 million and $903 million, respectively.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     July 27, 2019  
     Three Months Ended     Fiscal Year Ended  

Gross Margin Percentage:

    

Including SPVSS business for all periods:

    

Americas

     66.8     65.8

EMEA

     65.2     64.6

APJC

     60.8     59.5

Excluding SPVSS business for all periods (1):

    

Americas

     66.8     65.9

EMEA

     65.2     64.6

APJC

     60.8     59.5

 

(1) 

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

 

7


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     July 27, 2019  
     Three Months Ended     Fiscal Year Ended  
     Amount      Y/Y %     Amount      Y/Y %  

Revenue:

          

Including SPVSS business for all periods:

          

Infrastructure Platforms

   $ 7,876        6   $ 30,191        7

Applications

     1,487        11     5,803        15

Security

     714        14     2,730        16

Other Products

     42        (81 )%      281        (72 )% 
  

 

 

      

 

 

    

Total Product

     10,120        5     39,005        6

Services

     3,308        3     12,899        2
  

 

 

      

 

 

    

Total

   $ 13,428        5   $ 51,904        5
  

 

 

      

 

 

    

Excluding SPVSS business for all periods:

          

Infrastructure Platforms

   $ 7,876        6   $ 30,191        7

Applications

     1,487        11     5,803        15

Security

     714        14     2,730        16

Other Products

     42        (4 )%      135        (31 )% 
  

 

 

      

 

 

    

Total Product

     10,120        7     38,859        8

Services

     3,308        4     12,879        3
  

 

 

      

 

 

    

Total

   $ 13,428        6   $ 51,737        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 July 28, 2018 was $206 million and for the fiscal years ended July 27, 2019 and July 28, 2018 was $168 million and $903 million, respectively.

 

8


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     July 27,
2019
     July 28,
2018
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 11,750      $ 8,934  

Investments

     21,663        37,614  

Accounts receivable, net of allowance for doubtful accounts of $136 at July 27, 2019 and $129 at July 28, 2018

     5,491        5,554  

Inventories

     1,383        1,846  

Financing receivables, net

     5,095        4,949  

Other current assets

     2,373        2,940  
  

 

 

    

 

 

 

Total current assets

     47,755        61,837  

Property and equipment, net

     2,789        3,006  

Financing receivables, net

     4,958        4,882  

Goodwill

     33,529        31,706  

Purchased intangible assets, net

     2,201        2,552  

Deferred tax assets

     4,065        3,219  

Other assets

     2,496        1,582  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 97,793      $ 108,784  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 10,191      $ 5,238  

Accounts payable

     2,059        1,904  

Income taxes payable

     1,149        1,004  

Accrued compensation

     3,221        2,986  

Deferred revenue

     10,668        11,490  

Other current liabilities

     4,424        4,413  
  

 

 

    

 

 

 

Total current liabilities

     31,712        27,035  

Long-term debt

     14,475        20,331  

Income taxes payable

     8,927        8,585  

Deferred revenue

     7,799        8,195  

Other long-term liabilities

     1,309        1,434  
  

 

 

    

 

 

 

Total liabilities

     64,222        65,580  
  

 

 

    

 

 

 

Total equity

     33,571        43,204  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 97,793      $ 108,784  
  

 

 

    

 

 

 

 

9


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Fiscal Year Ended  
     July 27,
2019
    July 28,
2018
 

Cash flows from operating activities:

    

Net income

   $ 11,621     $ 110  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation, amortization, and other

     1,897       2,192  

Share-based compensation expense

     1,570       1,576  

Provision (benefit) for receivables

     40       (134

Deferred income taxes

     (350     900  

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

     (24     (322

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

    

Accounts receivable

     (84     (269

Inventories

     131       (244

Financing receivables

     (249     (219

Other assets

     (955     66  

Accounts payable

     87       504  

Income taxes, net

     312       8,118  

Accrued compensation

     277       100  

Deferred revenue

     1,407       1,205  

Other liabilities

     151       83  
  

 

 

   

 

 

 

Net cash provided by operating activities

     15,831       13,666  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (2,416     (14,285

Proceeds from sales of investments

     7,388       17,706  

Proceeds from maturities of investments

     12,928       15,769  

Acquisitions and divestitures

     (2,175     (2,979

Purchases of investments in privately held companies

     (148     (267

Return of investments in privately held companies

     159       168  

Acquisition of property and equipment

     (909     (834

Proceeds from sales of property and equipment

     22       59  

Other

     (12     (19
  

 

 

   

 

 

 

Net cash provided by investing activities

     14,837       15,318  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     640       623  

Repurchases of common stock—repurchase program

     (20,717     (17,547

Shares repurchased for tax withholdings on vesting of restricted stock units

     (862     (703

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

     3,446       (2,502

Issuances of debt

     2,250       6,877  

Repayments of debt

     (6,780     (12,375

Dividends paid

     (5,979     (5,968

Other

     113       (169
  

 

 

   

 

 

 

Net cash used in financing activities

     (27,889     (31,764
  

 

 

   

 

 

 

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

     2,779       (2,780

Cash, cash equivalents, and restricted cash, beginning of fiscal year

     8,993       11,773  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash, end of fiscal year

   $ 11,772     $ 8,993  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 839     $ 910  

Cash paid for income taxes, net

   $ 2,986     $ 3,911  

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.

 

10


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     July 27,
2019
     April 27,
2019
     July 28,
2018
 

Deferred revenue:

        

Service

   $ 11,709      $ 11,297      $ 11,431  

Product

     6,758        6,159        8,254  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,467      $ 17,456      $ 19,685  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 10,668      $ 10,117      $ 11,490  

Noncurrent

     7,799        7,339        8,195  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,467      $ 17,456      $ 19,685  
  

 

 

    

 

 

    

 

 

 

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

                 

July 27, 2019

   $ 0.35      $ 1,490        82      $ 54.99      $ 4,515      $ 6,005  

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  

 

11


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 

     Three Months Ended     Fiscal Year Ended  
     July 27,
2019
    July 28,
2018
    July 27,
2019
    July 28,
2018
 

GAAP net income

   $ 2,206     $ 3,803     $ 11,621     $ 110  

Adjustments to cost of sales:

        

Share-based compensation expense

     57       59       220       227  

Amortization of acquisition-related intangible assets

     144       134       562       578  

Supplier component remediation charge (adjustment), net

     17       (36     16       (77

Acquisition-related/divestiture costs

     1       3       10       7  

Legal and indemnification settlements

     —         —         5       122  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     219       160       813       857  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to operating expenses:

        

Share-based compensation expense

     335       329       1,309       1,339  

Amortization of acquisition-related intangible assets

     38       33       150       221  

Acquisition-related/divestiture costs

     61       79       299       274  

Legal and indemnification settlements

     —         —         (396     —    

Significant asset impairments and restructurings

     40       26       322       358  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     474       467       1,684       2,192  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        
  

 

 

   

 

 

   

 

 

   

 

 

 

(Gains) and losses on equity investments

     20       —         (57     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     713       627       2,440       3,049  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (168     (253     (722     (866

Significant tax matters (1)

     835       (851     448       10,410  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     667       (1,104     (274     9,544  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 3,586     $ 3,326     $ 13,787     $ 12,703  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share:

        

GAAP

   $ 0.51     $ 0.81     $ 2.61     $ 0.02  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP (2)

   $ 0.83     $ 0.70     $ 3.10     $ 2.60  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The three months ended July 27, 2019 and July 28, 2018 includes a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.

 

(2) 

Fiscal 2018 Non-GAAP EPS excluding the SPVSS business was $2.59.

 

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

(In millions, except percentages)

 

     Three Months Ended  
     July 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

   $ 6,363     $ 2,211     $ 8,574     $ 4,884       7   $ 3,690       10   $ 14       (94 )%    $ 2,206       (42 )% 

% of revenue

     62.9     66.8     63.9     36.4       27.5       0.1       16.4  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     23       34       57       335         392         —           392    

Amortization of acquisition-related intangible assets

     144       —         144       38         182         —           182    

Supplier component remediation charge (adjustment), net

     17       —         17       —           17         —           17    

Acquisition/divestiture-related costs

     —         1       1       61         62         —           62    

Significant asset impairments and restructurings

     —         —         —         40         40         —           40    

(Gains) and losses on equity investments

     —         —         —         —           —           20         20    

Income tax effect/significant tax matters (1)

     —         —         —         —           —           —           667    
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 6,547     $ 2,246     $ 8,793     $ 4,410       9   $ 4,383       11   $ 34       (86 )%    $ 3,586       9
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     64.7     67.9     65.5     32.8       32.6       0.3       26.7  

 

(1) 

Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

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 fourth quarter of fiscal 2018.

 

13


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

GAAP amount

   $ 5,809     $ 2,113     $ 7,922     $ 4,576     $ 3,346     $ 3,803  

% of revenue

     60.2     66.0     61.7     35.6     26.1     29.6

Adjustments to GAAP amounts:

            

Share-based compensation expense

     24       35       59       329       388       388  

Amortization of acquisition-related intangible assets

     134       —         134       33       167       167  

Supplier component remediation charge (adjustment), net

     (36     —         (36     —         (36     (36

Acquisition/divestiture-related costs

     2       1       3       79       82       82  

Significant asset impairments and restructurings

     —         —         —         26       26       26  

Income tax effect/significant tax matters (1)

     —         —         —         —         —         (1,104
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 5,933     $ 2,149     $ 8,082     $ 4,109     $ 3,973     $ 3,326  

Less: SPVSS business (2)

     (76     (13     (89     (59     (30     (24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount (excluding SPVSS business)

   $ 5,857     $ 2,136     $ 7,993     $ 4,050     $ 3,943     $ 3,302  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     61.9     67.2     63.2     32.0     31.2     26.1

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

 

(1) 

Includes a $0.9 billion benefit as related to the Tax Cuts and Jobs Act.

 

(2) 

Reflects three months of operations for the SPVSS business.

 

14


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)

 

     Fiscal Year Ended  
     July 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

   $ 24,142     $ 8,524     $ 32,666     $ 18,447       1   $ 14,219       16   $ 352       (52 )%    $ 11,621       NM  

% of revenue

     61.9     66.1     62.9     35.5       27.4       0.7       22.4  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     90       130       220       1,309         1,529         —           1,529    

Amortization of acquisition-related intangible assets

     562       —         562       150         712         —           712    

Supplier component remediation charge (adjustment), net

     16       —         16       —           16         —           16    

Legal and indemnification settlements

     5       —         5       (396       (391       —           (391  

Acquisition/divestiture-related costs

     4       6       10       299         309         —           309    

Significant asset impairments and restructurings

     —         —         —         322         322         —           322    

(Gains) and losses on equity investments

     —         —         —         —           —           (57       (57  

Income tax effect/significant tax matters (1)

     —         —         —         —           —           —           (274  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 24,819     $ 8,660     $ 33,479     $ 16,763       $ 16,716       $ 295       $ 13,787    

% of revenue

     63.6     67.1     64.5     32.3       32.2       0.6       26.6  

Less: SPVSS business (2)

     (51     (9     (61     (60       —           —           —      
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount (excluding SPVSS business)

   $ 24,768     $ 8,651     $ 33,418     $ 16,703       5   $ 16,716       9   $ 295       (60 )%    $ 13,787       9
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     63.7     67.2     64.6     32.3       32.3       0.6       26.6  

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 fiscal 2018.

 

(1) 

Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

 

(2) 

Reflects three months of operations for the SPVSS business.

 

15


     Fiscal Year Ended  
     July 28, 2018  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Operating
Income
    Net
Income
 

GAAP amount

   $ 22,282     $ 8,324     $ 30,606     $ 18,297     $ 12,309     $ 110  

% of revenue

     60.7     66.0     62.0     37.1     25.0     0.2

Adjustments to GAAP amounts:

            

Share-based compensation expense

     94       133       227       1,339       1,566       1,566  

Amortization of acquisition-related intangible assets

     578       —         578       221       799       799  

Supplier component remediation charge (adjustment), net

     (77     —         (77     —         (77     (77

Legal and indemnification settlements

     122       —         122       —         122       122  

Acquisition/divestiture-related costs

     3       4       7       274       281       281  

Significant asset impairments and restructurings

     —         —         —         358       358       358  

Income tax effect/significant tax matters (1)

     —         —         —         —         —         9,544  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 23,002     $ 8,461     $ 31,463     $ 16,105     $ 15,358     $ 12,703  

Less: SPVSS business (2)

     (276     (41     (316     (250     (66     (53
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount (excluding SPVSS business)

   $ 22,726     $ 8,420     $ 31,147     $ 15,855     $ 15,292     $ 12,650  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.3     67.3     64.3     32.7     31.6     26.1

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

 

(1) 

Includes a $10.4 billion charge as related to the enactment of the Tax Cuts and Jobs Act.

 

(2) 

Reflects twelve months of operations for the SPVSS business.

 

16


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Fiscal Year Ended  
     July 27, 2019     July 28, 2018     July 27, 2019     July 28, 2018  

GAAP effective tax rate (1)

     40.4     (5.9 )%      20.2     99.2

Total adjustments to GAAP provision for income taxes

     (21.6 )%      27.1     (1.2 )%      (78.2 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     18.8     21.2     19.0     21.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The three months ended July 27, 2019 and July 28, 2018 includes a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.

GAAP TO NON-GAAP GUIDANCE FOR Q1 FY 2020

 

Q1 FY 2020

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

GAAP

   62.5% - 63.5%    25.5% - 26.5%    18%    $0.64 - $0.69

Estimated adjustments for:

           

Share-based compensation expense

   0.5%    3.0%    —      $0.05 - $0.06

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

   1.0%    2.0%    —      $0.05 - $0.06

Significant asset impairments and restructurings

   —      1.5%    —      $0.03 - $0.04

Income tax effect of non-GAAP adjustments

         2%   
  

 

  

 

  

 

  

 

Non-GAAP

   64% - 65%    32% - 33%    20%    $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.

 

17


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 ability to deliver tremendous innovation across our portfolio and extend our market leadership, our ability to provide our customers ongoing value through differentiated solutions, our ability to take advantage of the long-term growth opportunities ahead, the transformation of our business model with software subscriptions, and our investments in key strategic areas to position Cisco for long-term growth and shareholder value) and the future financial performance of Cisco (including the guidance for Q1 FY 2020) 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 May 21, 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 months and the year ended July 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.

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

 

18


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.

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