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 FIRST QUARTER EARNINGS

 

   

Q1 Results: 1

 

   

Revenue: $13.2 billion

 

   

Growth of 2% year over year

 

   

Earnings per Share: GAAP: $0.68; Non-GAAP: $0.84

 

   

Non-GAAP EPS increased 12% year over year

 

   

Q2 Guidance:

 

   

Revenue: (3)% to (5)% decline year over year

 

   

Earnings per Share: GAAP: $0.61 to $0.67; Non-GAAP: $0.75 to $0.77

1 Normalized to exclude the divested SPVSS business

SAN JOSE, Calif. — November 13, 2019 — Cisco today reported first quarter results for the period ended October 26, 2019. Cisco reported first quarter revenue of $13.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.9 billion or $0.68 per share, and non-GAAP net income of $3.6 billion or $0.84 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 and non-GAAP financial information have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

“We delivered a solid quarter against a challenging macro environment,” said Chuck Robbins, chairman and CEO of Cisco. “We’re focused on continuing to drive innovation, transform our business and exceed our customers’ expectations.”

GAAP Results

 

     Q1 FY 2020      Q1 FY 2019      Vs. Q1 FY 2019  

Revenue (including SPVSS business for all periods)

   $ 13.2 billion      $ 13.1 billion        1

Revenue (excluding SPVSS business for all periods)

   $ 13.2 billion      $ 12.9 billion        2

Net Income

   $ 2.9 billion      $ 3.5 billion        (18 )% 

Diluted Earnings per Share (EPS)

   $ 0.68      $ 0.77        (12 )% 

Non-GAAP Results

 

     Q1 FY 2020      Q1 FY 2019      Vs. Q1 FY 2019  

Net Income (excluding SPVSS business for all periods)

   $ 3.6 billion      $ 3.5 billion        5

EPS (excluding SPVSS business for all periods)

   $ 0.84      $ 0.75        12

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 performed well in Q1, growing revenue and delivering strong margins and EPS,” said Kelly Kramer, CFO of Cisco. “With software subscriptions now at 71% of our software revenue, we are making good progress in transforming our business model. We continue to invest in our innovation pipeline to generate long-term profitable growth and deliver 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 “Q1 FY 2020 Highlights” section are presented excluding the SPVSS business for all periods as it was divested during the second quarter of fiscal 2019 on October 28, 2018.

Q1 FY 2020 Highlights

Revenue — Total revenue was $13.2 billion, up 2%, with product revenue up 1% and service revenue up 4%. Revenue by geographic segment was: Americas up 4%, EMEA up 4%, and APJC down 8%. Product revenue was led by growth in Security, up 22% and Applications, up 6%. Infrastructure Platforms was down 1%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were each 64.3%, as compared with 62.3%, 61.6%, and 64.6%, respectively, in the first quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.9%, 66.1%, and 65.4%, respectively, as compared with 64.2%, 63.6%, and 65.8%, respectively, in the first quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.6% for the Americas, 66.0% for EMEA and 62.9% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.9 billion, up 13%. Non-GAAP operating expenses were $4.3 billion, up 4%, and were 32.4% of revenue.

Operating Income — GAAP operating income was $3.6 billion, down 6%, with GAAP operating margin of 27.2%. Non-GAAP operating income was $4.4 billion, up 6%, with non-GAAP operating margin at 33.6%.

Provision for Income Taxes — The GAAP tax provision rate was 20.6%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS — On a GAAP basis, net income was $2.9 billion and EPS was $0.68. On a non-GAAP basis, net income was $3.6 billion, an increase of 5%, and EPS was $0.84, an increase of 12%.

Cash Flow from Operating Activities — $3.6 billion for the first quarter of fiscal 2020, a decrease of 5% compared with $3.8 billion for the first quarter of fiscal 2019. Operating cash flow for the first quarter of fiscal 2019 included the receipt of $0.4 billion in relation to the litigation settlement with Arista Networks. Operating cash flow increased 7%, normalized for this receipt.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $28.0 billion at the end of the first quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue — $18.6 billion, up 11% in total, with deferred product revenue up 24%. Deferred service revenue was up 4%.

Remaining Performance Obligations $24.9 billion at the end of the first quarter of fiscal 2020, up 11%.

Capital Allocation — In the first quarter of fiscal 2020, we returned $2.3 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 16 million shares of common stock under our stock repurchase program at an average price of $48.91 per share for an aggregate purchase price of $768 million. The remaining authorized amount for stock repurchases under the program is $12.7 billion with no termination date.

Acquisitions

We completed several acquisitions in the first quarter of fiscal 2020. In addition, in the fourth quarter of fiscal 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.

 

2


Guidance for Q2 FY 2020

Cisco expects to achieve the following results for the second quarter of fiscal 2020:

 

Q2 FY 2020

    

Revenue

   (3)% - (5)% decline Y/Y

Non-GAAP gross margin rate

   64.5% - 65.5%

Non-GAAP operating margin rate

   32.5% - 33.5%

Non-GAAP tax provision rate

   20%

Non-GAAP EPS

   $0.75 - $0.77

Cisco estimates that GAAP EPS will be $0.61 to $0.67 in the second quarter of fiscal 2020.

A reconciliation between the Guidance for Q2 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q2 FY 2020” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

   

Q1 fiscal year 2020 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, November 13, 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, November 13, 2019 to 4:00 p.m. Pacific Time, November 20, 2019 at 1-800-835-4610 (United States) or 1-203-369-3352 (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, November 13, 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.

 

3


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended  
     October 26,
2019
    October 27,
2018
 

REVENUE:

    

Product

   $ 9,878     $ 9,890  

Service

     3,281       3,182  
  

 

 

   

 

 

 

Total revenue

     13,159       13,072  
  

 

 

   

 

 

 

COST OF SALES:

    

Product

     3,524       3,799  

Service

     1,171       1,127  
  

 

 

   

 

 

 

Total cost of sales

     4,695       4,926  
  

 

 

   

 

 

 

GROSS MARGIN

     8,464       8,146  

OPERATING EXPENSES:

    

Research and development

     1,666       1,608  

Sales and marketing

     2,480       2,410  

General and administrative

     519       211  

Amortization of purchased intangible assets

     36       34  

Restructuring and other charges

     184       78  
  

 

 

   

 

 

 

Total operating expenses

     4,885       4,341  
  

 

 

   

 

 

 

OPERATING INCOME

     3,579       3,805  

Interest income

     273       344  

Interest expense

     (178     (221

Other income (loss), net

     12       (19
  

 

 

   

 

 

 

Interest and other income (loss), net

     107       104  
  

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,686       3,909  

Provision for income taxes

     760       360  
  

 

 

   

 

 

 

NET INCOME

   $ 2,926     $ 3,549  
  

 

 

   

 

 

 

Net income per share:

    

Basic

   $ 0.69     $ 0.78  
  

 

 

   

 

 

 

Diluted

   $ 0.68     $ 0.77  
  

 

 

   

 

 

 

Shares used in per-share calculation:

    

Basic

     4,246       4,565  
  

 

 

   

 

 

 

Diluted

     4,273       4,614  
  

 

 

   

 

 

 

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 three months ended October 27, 2018 includes three months of financial results for this business.

 

4


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     Three Months Ended  
     October 26, 2019  
     Amount      Y/Y %  

Revenue:

     

Including SPVSS business for all periods:

     

Americas

   $ 7,977        3

EMEA

     3,283        2

APJC

     1,899        (9 )% 
  

 

 

    

Total

   $ 13,159        1
  

 

 

    

Excluding SPVSS business for all periods:

     

Americas

   $ 7,977        4

EMEA

     3,283        4

APJC

     1,899        (8 )% 
  

 

 

    

Total

   $ 13,159        2
  

 

 

    

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 October 27, 2018 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     Three Months Ended  
     October 26, 2019  

Gross Margin Percentage:

  

Americas

     66.6

EMEA

     66.0

APJC

     62.9

 

5


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     Three Months Ended
October 26, 2019
 
     Amount      Y/Y %  

Revenue:

     

Including SPVSS business for all periods:

     

Infrastructure Platforms

   $ 7,538        (1 )% 

Applications

     1,499        6

Security

     815        22

Other Products

     26        (85 )% 
  

 

 

    

Total Product

     9,878       

Services

     3,281        3
  

 

 

    

Total

   $ 13,159        1
  

 

 

    

Excluding SPVSS business for all periods:

     

Infrastructure Platforms

   $ 7,538        (1 )% 

Applications

     1,499        6

Security

     815        22

Other Products

     26        (20 )% 
  

 

 

    

Total Product

     9,878        1

Services

     3,281        4
  

 

 

    

Total

   $ 13,159        2
  

 

 

    

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 October 27, 2018 was $168 million.

 

6


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     October 26,
2019
     July 27,
2019
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 8,587      $   11,750  

Investments

     19,448        21,663  

Accounts receivable, net of allowance for doubtful accounts of $136 as of each October 26, 2019 and July 27, 2019

     4,878        5,491  

Inventories

     1,344        1,383  

Financing receivables, net

     5,026        5,095  

Other current assets

     2,433        2,373  
  

 

 

    

 

 

 

Total current assets

     41,716        47,755  

Property and equipment, net

     2,669        2,789  

Financing receivables, net

     4,831        4,958  

Goodwill

     33,578        33,529  

Purchased intangible assets, net

     2,107        2,201  

Deferred tax assets

     3,963        4,065  

Other assets

     3,628        2,496  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 92,492      $ 97,793  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 4,000      $ 10,191  

Accounts payable

     2,016        2,059  

Income taxes payable

     794        1,149  

Accrued compensation

     2,735        3,221  

Deferred revenue

     10,646        10,668  

Other current liabilities

     4,406        4,424  
  

 

 

    

 

 

 

Total current liabilities

     24,597        31,712  

Long-term debt

     14,497        14,475  

Income taxes payable

     8,919        8,927  

Deferred revenue

     7,956        7,799  

Other long-term liabilities

     2,100        1,309  
  

 

 

    

 

 

 

Total liabilities

     58,069        64,222  
  

 

 

    

 

 

 

Total equity

     34,423        33,571  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 92,492      $ 97,793  
  

 

 

    

 

 

 

 

7


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Three Months Ended  
     October 26,
2019
    October 27,
2018
 

Cash flows from operating activities:

    

Net income

   $ 2,926     $ 3,549  

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

    

Depreciation, amortization, and other

     461       465  

Share-based compensation expense

     395       403  

Provision (benefit) for receivables

     50       8  

Deferred income taxes

     81       (72

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

     (8     7  

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

    

Accounts receivable

     515       892  

Inventories

     34       (34

Financing receivables

     146       273  

Other assets

     59       (295

Accounts payable

     (45     (153

Income taxes, net

     (330     (437

Accrued compensation

     (473     (348

Deferred revenue

     158       (309

Other liabilities

     (382     (186
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,587       3,763  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (2,028     (484

Proceeds from sales of investments

     2,342       2,805  

Proceeds from maturities of investments

     1,966       2,541  

Acquisitions and divestitures

     (163     (1,964

Purchases of investments in privately held companies

     (54     (29

Return of investments in privately held companies

     57       16  

Acquisition of property and equipment

     (202     (212

Proceeds from sales of property and equipment

     4       2  
  

 

 

   

 

 

 

Net cash provided by investing activities

     1,922       2,675  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     2       8  

Repurchases of common stock—repurchase program

     (784     (5,076

Shares repurchased for tax withholdings on vesting of restricted stock units

     (194     (318

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

     (3,470     —    

Repayments of debt

     (2,720     —    

Dividends paid

     (1,486     (1,500

Other

     (16     (59
  

 

 

   

 

 

 

Net cash used in financing activities

     (8,668     (6,945
  

 

 

   

 

 

 

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

     (3,159     (507

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

     11,772       8,993  
  

 

 

   

 

 

 

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

   $ 8,613     $ 8,486  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 204     $ 271  

Cash paid for income taxes, net

   $ 1,009     $ 869  

 

8


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     October 26,
2019
     July 27,
2019
     October 27,
2018
 

Deferred revenue:

        

Service

   $ 11,497      $ 11,709      $ 11,062  

Product

     7,105        6,758        5,752  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,602      $ 18,467      $ 16,814  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 10,646      $ 10,668      $ 9,637  

Noncurrent

     7,956        7,799        7,177  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,602      $ 18,467      $ 16,814  
  

 

 

    

 

 

    

 

 

 

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 2020

                 

October 26, 2019

   $ 0.35      $ 1,486        16      $ 48.91      $ 768      $ 2,254  

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  

 

9


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  
     October 26,
2019
    October 27,
2018
 

GAAP net income

   $ 2,926     $ 3,549  

Adjustments to cost of sales:

    

Share-based compensation expense

     57       56  

Amortization of acquisition-related intangible assets

     150       136  

Supplier component remediation charge (adjustment), net

     —         (1

Acquisition-related/divestiture costs

     1       4  

Legal and indemnification settlements

     4       —    
  

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     212       195  
  

 

 

   

 

 

 

Adjustments to operating expenses:

    

Share-based compensation expense

     333       329  

Amortization of acquisition-related intangible assets

     36       34  

Acquisition-related/divestiture costs

     72       121  

Legal and indemnification settlements

     —         (395

Significant asset impairments and restructurings

     184       78  
  

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     625       167  
  

 

 

   

 

 

 

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

    
  

 

 

   

 

 

 

(Gains) and losses on equity investments

     (13     (9
  

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     824       353  
  

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (209     (185

Significant tax matters

     67       (265
  

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (142     (450
  

 

 

   

 

 

 

Non-GAAP net income

   $ 3,608     $ 3,452  
  

 

 

   

 

 

 

Diluted net income per share:

    

GAAP

   $ 0.68     $ 0.77  
  

 

 

   

 

 

 

Non-GAAP

   $ 0.84     $ 0.75  
  

 

 

   

 

 

 

 

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  
     October 26, 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

   $ 6,354     $ 2,110     $ 8,464     $ 4,885       13   $ 3,579       (6 )%    $ 107       3   $ 2,926       (18 )% 

% of revenue

     64.3     64.3     64.3     37.1       27.2       0.8       22.2  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     23       34       57       333         390         —           390    

Amortization of acquisition-related intangible assets

     150       —         150       36         186         —           186    

Legal and indemnification settlements

     4       —         4       —           4         —           4    

Acquisition/divestiture-related costs

     —         1       1       72         73         —           73    

Significant asset impairments and restructurings

     —         —         —         184         184         —           184    

(Gains) and losses on equity investments

     —         —         —         —           —           (13       (13  

Income tax effect/significant tax matters

     —         —         —         —           —           —           (142  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 6,531     $ 2,145     $ 8,676     $ 4,260       4   $ 4,416       6   $ 94       (1 )%    $ 3,608       5
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     66.1     65.4     65.9     32.4       33.6       0.7       27.4  

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 quarter of fiscal 2019.

 

11


     Three Months Ended  
     October 27, 2018  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Operating
Income
    Interest
and other
income
(loss), net
    Net
Income
 

GAAP amount

   $ 6,091     $ 2,055     $ 8,146     $ 4,341     $ 3,805     $ 104     $ 3,549  

% of revenue

     61.6     64.6     62.3     33.2     29.1     0.8     27.1

Adjustments to GAAP amounts:

              

Share-based compensation expense

     23       33       56       329       385       —         385  

Amortization of acquisition-related intangible assets

     136       —         136       34       170       —         170  

Supplier component remediation charge (adjustment), net

     (1     —         (1     —         (1     —         (1

Legal and indemnification settlements

     —         —         —         (395     (395     —         (395

Acquisition/divestiture-related costs

     2       2       4       121       125       —         125  

Significant asset impairments and restructurings

     —         —         —         78       78       —         78  

(Gains) and losses on equity investments

     —         —         —         —         —         (9     (9

Income tax effect/significant tax matters

     —         —         —         —         —         —         (450
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 6,251     $ 2,090     $ 8,341     $ 4,174     $ 4,167     $ 95     $ 3,452  

Less: SPVSS business (1)

     (51     (9     (61     (59     (1     —         (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount (excluding SPVSS business)

   $ 6,200     $ 2,081     $ 8,281     $ 4,115     $ 4,166     $ 95     $ 3,451  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.6     65.8     64.2     31.9     32.3     0.7     26.7

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

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended  
     October 26,
2019
    October 27,
2018
 

GAAP effective tax rate

     20.6     9.2

Total adjustments to GAAP provision for income taxes

     (0.6 )%      9.8
  

 

 

   

 

 

 

Non-GAAP effective tax rate

     20.0     19.0
  

 

 

   

 

 

 

GAAP TO NON-GAAP GUIDANCE FOR Q2 FY 2020

 

Q2 FY 2020

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

GAAP

   63% - 64%    27% - 28%    19%    $0.61 - $0.67

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%    —      $0.04 - $0.06

Significant asset impairments and restructurings

   —      0.5%    —      $0.00 - $0.01

Income tax effect of non-GAAP adjustments

         1%   
  

 

  

 

  

 

  

 

Non-GAAP

   64.5% - 65.5%    32.5% - 33.5%    20%    $0.75 - $0.77
  

 

  

 

  

 

  

 

 

(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.

 

13


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 drive innovation, transform our business and exceed our customers’ expectations, our continued progress in transforming our business model with software subscriptions, and our investment in our innovation pipeline to generate long-term profitable growth and deliver value for shareholders) and the future financial performance of Cisco (including the guidance for Q2 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 report on Form 10-K filed on September 5, 2019. 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 report on Form 10-K as it may be amended from time to time. Cisco’s results of operations for the three months ended October 26, 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 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.

 

14


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.

RSS Feed for Cisco: https://newsroom.cisco.com/rss-feeds

 

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