Exhibit 99.1

 

LOGO

 

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 SECOND QUARTER EARNINGS

Dividend Increased 3 Percent

 

   

Q2 Results:

 

   

Revenue: $12.0 billion

 

   

Decrease of (4)% year over year

 

   

Earnings per Share: GAAP: $0.68; Non-GAAP: $0.77

 

   

Non-GAAP EPS increased 5% year over year

 

   

Q3 Guidance:

 

   

Revenue: (1.5)% to (3.5)% decline year over year

 

   

Earnings per Share: GAAP: $0.62 to $0.67; Non-GAAP: $0.79 to $0.81

SAN JOSE, Calif. — February 12, 2020 — Cisco today reported second quarter results for the period ended January 25, 2020. Cisco reported second quarter revenue of $12.0 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 $3.3 billion or $0.77 per share.

“I am incredibly proud of the innovation our teams continue to drive,” said Chuck Robbins, chairman and CEO of Cisco. “I am confident in our long-term growth opportunities as we help our customers build out the networks for the future.”

GAAP Results

 

     Q2 FY 2020      Q2 FY 2019      Vs. Q2 FY 2019  

Revenue

   $ 12.0 billion      $ 12.4 billion        (4 )% 

Net Income

   $ 2.9 billion      $ 2.8 billion        2

Diluted Earnings per Share (EPS)

   $ 0.68      $ 0.63        8

Non-GAAP Results

 

 

     Q2 FY 2020      Q2 FY 2019      Vs. Q2 FY 2019  

Net Income

   $ 3.3 billion      $ 3.3 billion        —  

EPS

   $ 0.77      $ 0.73        5

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.”

 

1


Cisco Increases Quarterly Cash Dividend

Cisco has declared a quarterly dividend of $0.36 per common share, a $0.01 increase or up 3% over the previous quarter’s dividend, to be paid on April 22, 2020 to all shareholders of record as of the close of business on April 3, 2020. Future dividends will be subject to Board approval.

“We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions,” said Kelly Kramer, CFO of Cisco. Our increased dividend shows confidence in the strength of our ongoing cash flows and demonstrates our commitment to shareholder return.”

Financial Summary

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

Q2 FY 2020 Highlights

Revenue — Total revenue was $12.0 billion, down 4%, with product revenue down 6% and service revenue up 5%. Revenue by geographic segment was: Americas down 5%, EMEA down 3%, and APJC down 1%. Product revenue was led by growth in Security, up 9%. Infrastructure Platforms and Applications were each down 8%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.7%, 63.9%, and 66.6%, respectively, as compared with 62.5%, 61.0%, and 66.6%, respectively, in the second quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.4%, 65.9%, and 67.7%, respectively, as compared with 64.1%, 62.8%, and 67.7%, respectively, in the second quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.9% for the Americas, 65.8% for EMEA and 65.6% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.4 billion, down 4%. Non-GAAP operating expenses were $3.9 billion, down 1%, and were 32.7% of revenue.

Operating Income — GAAP operating income was $3.4 billion, up 5%, with GAAP operating margin of 28.2%. Non-GAAP operating income was $4.0 billion, up 1%, with non-GAAP operating margin at 33.7%.

Provision for Income Taxes — The GAAP tax provision rate was 18.6%. 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 flat at $3.3 billion, and EPS was $0.77, an increase of 5%.

Cash Flow from Operating Activities — $3.8 billion for the second quarter of fiscal 2020, flat compared with $3.8 billion for the second quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $27.1 billion at the end of the second quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue — $18.7 billion, up 8% in total, with deferred product revenue up 19%. Deferred service revenue was up 2%.

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

Capital Allocation — In the second quarter of fiscal 2020, we returned $2.4 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 18 million shares of common stock under our stock repurchase program at an average price of $46.71 per share for an aggregate purchase price of $870 million. The remaining authorized amount for stock repurchases under the program is $11.8 billion with no termination date.

 

2


Guidance for Q3 FY 2020

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

 

Q3 FY 2020

    

Revenue

   (1.5)% - (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

   $0.79 - $0.81

Cisco estimates that GAAP EPS will be $0.62 to $0.67 in the third quarter of fiscal 2020.

A reconciliation between the Guidance for Q3 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q3 FY 2020” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

   

Q2 fiscal year 2020 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, February 12, 2020 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, February 12, 2020 to 4:00 p.m. Pacific Time, February 19, 2020 at 1-800-839-1160 (United States) or 1-402-998-0925 (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, February 12, 2020. 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     Six Months Ended  
     January 25,
2020
    January 26,
2019
    January 25,
2020
    January 26,
2019
 

REVENUE:

        

Product

   $ 8,671     $ 9,273     $ 18,549     $ 19,163  

Service

     3,334       3,173       6,615       6,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     12,005       12,446       25,164       25,518  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     3,126       3,614       6,650       7,413  

Service

     1,115       1,059       2,286       2,186  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     4,241       4,673       8,936       9,599  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     7,764       7,773       16,228       15,919  

OPERATING EXPENSES:

        

Research and development

     1,570       1,557       3,236       3,165  

Sales and marketing

     2,279       2,271       4,759       4,681  

General and administrative

     455       509       974       720  

Amortization of purchased intangible assets

     38       39       74       73  

Restructuring and other charges

     42       186       226       264  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,384       4,562       9,269       8,903  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,380       3,211       6,959       7,016  

Interest income

     242       328       515       672  

Interest expense

     (158     (223     (336     (444

Other income (loss), net

     70       27       82       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     154       132       261       236  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,534       3,343       7,220       7,252  

Provision for income taxes

     656       521       1,416       881  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,878     $ 2,822     $ 5,804     $ 6,371  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.68     $ 0.63     $ 1.37     $ 1.41  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.68     $ 0.63     $ 1.36     $ 1.40  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,242       4,470       4,244       4,517  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,260       4,505       4,265       4,557  
  

 

 

   

 

 

   

 

 

   

 

 

 

The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the six months ended January 26, 2019.

 

4


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     January 25, 2020  
     Three Months Ended     Six Months Ended  
                         Excluding
SPVSS
business
    Including
SPVSS
business
 
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

            

Americas

   $ 7,013        (5 )%    $ 14,990        —       (1 )% 

EMEA

     3,134        (3 )%      6,417        1     —  

APJC

     1,859        (1 )%      3,758        (5 )%      (5 )% 
  

 

 

      

 

 

      

Total

   $ 12,005        (4 )%    $ 25,164        (1 )%      (1 )% 
  

 

 

      

 

 

      

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 six months ended January 26, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     January 25, 2020  
     Three Months Ended     Six Months Ended  

Gross Margin Percentage:

    

Americas

     66.9     66.8

EMEA

     65.8     65.9

APJC

     65.6     64.2

 

5


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     January 25, 2020  
     Three Months Ended     Six Months Ended  
                         Excluding
SPVSS
business
    Including
SPVSS
business
 
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

            

Infrastructure Platforms

   $ 6,528        (8 )%    $ 14,067        (4 )%      (4 )% 

Applications

     1,349        (8 )%      2,847        (1 )%      (1 )% 

Security

     748        9     1,563        15     15

Other Products

     46        110     72        33     (64 )% 
  

 

 

      

 

 

      

Total Product

     8,671        (6 )%      18,549        (2 )%      (3 )% 

Services

     3,334        5     6,615        4     4
  

 

 

      

 

 

      

Total

   $ 12,005        (4 )%    $ 25,164        (1 )%      (1 )% 
  

 

 

      

 

 

      

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 six months ended January 26, 2019 was $168 million.

 

6


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     January 25, 2020      July 27, 2019  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 8,475      $   11,750  

Investments

       18,587        21,663  

Accounts receivable, net of allowance for doubtful accounts of $112 at January 25, 2020 and $136 at July 27, 2019

     4,330        5,491  

Inventories

     1,353        1,383  

Financing receivables, net

     4,827        5,095  

Other current assets

     2,481        2,373  
  

 

 

    

 

 

 

Total current assets

     40,053        47,755  

Property and equipment, net

     2,621        2,789  

Financing receivables, net

     4,757        4,958  

Goodwill

     33,612        33,529  

Purchased intangible assets, net

     1,906        2,201  

Deferred tax assets

     3,896        4,065  

Other assets

     3,581        2,496  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 90,426      $ 97,793  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 1,499      $ 10,191  

Accounts payable

     1,935        2,059  

Income taxes payable

     819        1,149  

Accrued compensation

     2,690        3,221  

Deferred revenue

     10,638        10,668  

Other current liabilities

     4,507        4,424  
  

 

 

    

 

 

 

Total current liabilities

     22,088        31,712  

Long-term debt

     14,494        14,475  

Income taxes payable

     8,227        8,927  

Deferred revenue

     8,048        7,799  

Other long-term liabilities

     2,036        1,309  
  

 

 

    

 

 

 

Total liabilities

     54,893        64,222  
  

 

 

    

 

 

 

Total equity

     35,533        33,571  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 90,426      $ 97,793  
  

 

 

    

 

 

 

 

7


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Six Months Ended  
     January 25,
2020
    January 26,
2019
 

Cash flows from operating activities:

    

Net income

   $ 5,804     $ 6,371  

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

    

Depreciation, amortization, and other

     918       952  

Share-based compensation expense

     779       792  

Provision (benefit) for receivables

     46       30  

Deferred income taxes

     128       (257

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

     (162     (77

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

    

Accounts receivable

     1,084       1,613  

Inventories

     25       (203

Financing receivables

     408       161  

Other assets

     130       (652

Accounts payable

     (126     (296

Income taxes, net

     (1,007     (830

Accrued compensation

     (521     (339

Deferred revenue

     236       207  

Other liabilities

     (355     88  
  

 

 

   

 

 

 

Net cash provided by operating activities

     7,387       7,560  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (4,250     (677

Proceeds from sales of investments

     3,410       3,055  

Proceeds from maturities of investments

     4,044       6,263  

Acquisitions and divestitures

     (163     (1,599

Purchases of investments in privately held companies

     (97     (68

Return of investments in privately held companies

     91       43  

Acquisition of property and equipment

     (391     (473

Proceeds from sales of property and equipment

     131       10  

Other

     (10     (12
  

 

 

   

 

 

 

Net cash provided by investing activities

     2,765       6,542  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     334       312  

Repurchases of common stock - repurchase program

     (1,648     (10,062

Shares repurchased for tax withholdings on vesting of restricted stock units

     (437     (514

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

     (3,470     —    

Repayments of debt

     (5,220     —    

Dividends paid

     (2,972     (2,970

Other

     (12     18  
  

 

 

   

 

 

 

Net cash used in financing activities

     (13,425     (13,216
  

 

 

   

 

 

 

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

     (3,273     886  

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

     11,772       8,993  
  

 

 

   

 

 

 

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

   $ 8,499     $ 9,879  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 349     $ 425  

Cash paid for income taxes, net

   $ 2,295     $ 1,968  

 

8


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     January 25,
2020
     October 26,
2019
     January 26,
2019
 

Deferred revenue:

        

Service

   $ 11,526      $ 11,497      $ 11,246  

Product

     7,160        7,105        6,015  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,686      $ 18,602      $ 17,261  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 10,638      $ 10,646      $ 9,976  

Noncurrent

     8,048        7,956        7,285  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,686      $ 18,602      $ 17,261  
  

 

 

    

 

 

    

 

 

 

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

                 

January 25, 2020

   $ 0.35      $ 1,486        18      $ 46.71      $ 870      $ 2,356  

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      Six Months Ended  
     January 25,
2020
     January 26,
2019
     January 25,
2020
     January 26,
2019
 

GAAP net income

   $ 2,878      $ 2,822      $ 5,804      $ 6,371  

Adjustments to cost of sales:

           

Share-based compensation expense

     59        53        116        109  

Amortization of acquisition-related intangible assets

     150        141        300        277  

Supplier component remediation charge (adjustment), net

     —          —          —          (1

Acquisition-related/divestiture costs

     1        3        2        7  

Legal and indemnification settlements

     —          5        4        5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP cost of sales

     210        202        422        397  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjustments to operating expenses:

           

Share-based compensation expense

     320        323        653        652  

Amortization of acquisition-related intangible assets

     38        39        74        73  

Acquisition-related/divestiture costs

     53        39        125        160  

Legal and indemnification settlements

     —          —          —          (395

Significant asset impairments and restructurings

     42        186        226        264  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP operating expenses

     453        587        1,078        754  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

           
  

 

 

    

 

 

    

 

 

    

 

 

 

(Gains) and losses on equity investments

     (87      (64      (100      (73
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP income before provision for income taxes

     576        725        1,400        1,078  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax effect of non-GAAP adjustments

     (166      (209      (375      (394

Significant tax matters

     —          (43      67        (308
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP provision for income taxes

     (166      (252      (308      (702
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP net income

   $ 3,288      $ 3,295      $ 6,896      $ 6,747  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per share:

           

GAAP

   $ 0.68      $ 0.63      $ 1.36      $ 1.40  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP

   $ 0.77      $ 0.73      $ 1.62      $ 1.48  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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  
     January 25, 2020  
     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

   $ 5,545     $ 2,219     $ 7,764     $ 4,384       (4 )%    $ 3,380       5   $ 154       17   $ 2,878       2

% of revenue

     63.9     66.6     64.7     36.5       28.2       1.3       24.0  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     23       36       59       320         379         —           379    

Amortization of acquisition-related intangible assets

     150       —         150       38         188         —           188    

Acquisition/divestiture-related costs

     —         1       1       53         54         —           54    

Significant asset impairments and restructurings

     —         —         —         42         42         —           42    

(Gains) and losses on equity investments

     —         —         —         —           —           (87       (87  

Income tax effect/significant tax matters

     —         —         —         —           —           —           (166  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 5,718     $ 2,256     $ 7,974     $ 3,931       (1 )%    $ 4,043       1   $ 67       (1 )%    $ 3,288       —  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     65.9     67.7     66.4     32.7       33.7       0.6       27.4  

 

     Three Months Ended  
     January 26, 2019  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Operating
Income
    Interest
and other
income
(loss), net
    Net
Income
 

GAAP amount

   $ 5,659     $ 2,114     $ 7,773     $ 4,562     $ 3,211     $ 132     $ 2,822  

% of revenue

     61.0     66.6     62.5     36.7     25.8     1.1     22.7

Adjustments to GAAP amounts:

              

Share-based compensation expense

     22       31       53       323       376       —         376  

Amortization of acquisition-related intangible assets

     141       —         141       39       180       —         180  

Legal and indemnification settlements

     5       —         5       —         5       —         5  

Acquisition/divestiture-related costs

     1       2       3       39       42       —         42  

Significant asset impairments and restructurings

     —         —         —         186       186       —         186  

(Gains) and losses on equity investments

     —         —         —         —         —         (64     (64

Income tax effect/significant tax matters

     —         —         —         —         —         —         (252
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 5,828     $ 2,147     $ 7,975     $ 3,975     $ 4,000     $ 68     $ 3,295  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     62.8     67.7     64.1     31.9     32.1     0.5     26.5

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

 

11


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Six Months Ended  
     January 25,
2020
    January 26,
2019
    January 25,
2020
    January 26,
2019
 

GAAP effective tax rate

     18.6     15.6     19.6     12.1

Total adjustments to GAAP provision for income taxes

     1.4     3.4     0.4     6.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     20.0     19.0     20.0     19.0
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP TO NON-GAAP GUIDANCE FOR Q3 FY 2020

 

Q3 FY 2020

   Gross Margin
Rate
  Operating Margin
Rate
  Tax Provision
Rate
  Earnings per
Share (2)

GAAP

   63% - 64%   26% - 27%   19%   $0.62 - $0.67

Estimated adjustments for:

        

Share-based compensation expense

   0.5%   3.0%   —     $0.07 - $0.08

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)

   —     1.5%   —     $0.02 - $0.03

Income tax effect of non-GAAP adjustments

       1%  
  

 

 

 

 

 

 

 

Non-GAAP

   64.5% - 65.5%   32.5% - 33.5%   20%   $0.79 - $0.81
  

 

 

 

 

 

 

 

 

(1)

In the third quarter of fiscal 2020, we initiated a restructuring plan in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $300 million consisting of severance and other one-time termination benefits, and other costs. We expect to recognize approximately $150 million of these charges in the third quarter of fiscal 2020.

(2) 

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.

 

12


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 continue to drive innovation, our long-term growth opportunities as we help our customers build out the networks for the future, the continued strength of our ongoing cash flows and our ability to continue to return value to our shareholders) and the future financial performance of Cisco (including the guidance for Q3 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 November 19, 2019 and September 5, 2019, 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 10-K as each may be amended from time to time. Cisco’s results of operations for the three and six months ended January 25, 2020 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.

 

13


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 © 2020 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

 

14

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