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 THIRD QUARTER EARNINGS

 

   

Q3 Results:

 

   

Revenue: $12.0 billion

 

   

Decrease of (8)% year over year

 

   

Earnings per Share: GAAP: $0.65; Non-GAAP: $0.79

 

   

GAAP EPS decreased (6)% year over year

 

   

Non-GAAP EPS increased 1% year over year

 

   

Q4 Guidance:

 

   

Revenue: (8.5)% to (11.5)% decline year over year

 

   

Earnings per Share: GAAP: $0.57 to $0.62; Non-GAAP: $0.72 to $0.74

SAN JOSE, Calif. — May 13, 2020 — Cisco today reported third quarter results for the period ended April 25, 2020. Cisco reported third quarter revenue of $12.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.65 per share, and non-GAAP net income of $3.4 billion or $0.79 per share.

“During this extraordinary time, our priority has been supporting our employees, customers, partners and communities, while positioning Cisco for the future,” said Chuck Robbins, chairman and CEO of Cisco. “The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations.”

GAAP Results

 

     Q3 FY 2020      Q3 FY 2019      Vs. Q3 FY 2019  

Revenue

   $ 12.0 billion      $ 13.0 billion        (8 )% 

Net Income

   $ 2.8 billion      $ 3.0 billion        (9 )% 

Diluted Earnings per Share (EPS)

   $ 0.65      $ 0.69        (6 )% 

Non-GAAP Results

 

 

     Q3 FY 2020      Q3 FY 2019      Vs. Q3 FY 2019  

Net Income

   $ 3.4 billion      $ 3.5 billion        (2 )% 

EPS

   $ 0.79      $ 0.78        1

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

“We executed well in Q3 in a very challenging environment, delivering strong margins and non-GAAP EPS growth,” said Kelly Kramer, CFO of Cisco. “The resiliency that we have been building into our business model is paying off, with software subscriptions now at 74% of our software revenue, up 9 points year over year. We are focused on driving long-term profitable growth while delivering shareholder value.”

 

1


COVID-19 Pandemic Response

We have been focused on helping our employees, customers, partners and communities.

Employees

 

   

95% of our global workforce working from home.

 

   

Seamless transition to work from home with a long-standing flexible work policy, and we build the technologies that allow organizations to stay connected, secure and productive.

 

   

For the 5% who must be in the office to perform their roles, we are focused on their health and safety, and are taking all of the necessary precautions.

Customer and Partners

 

   

Introduced a variety of free offers and trials for our Webex and security technologies as they dramatically shifted entire workforces to be remote.

 

   

Announced $2.5 billion in financing with a new Business Resiliency Program through Cisco Capital to offer financial flexibility and support their business continuity. This will help customers and partners access the technology they need now, invest for recovery, and defer most of the payments until early 2021.

Communities

 

   

Committed nearly $300 million to date to support both global and local pandemic response efforts.

 

   

Providing technology and financial support for non-profits, first responders, and governments.

 

   

Donating personal protective equipment to hospital workers including N95 masks and face shields 3D-printed by Cisco volunteers around the world.

 

2


Financial Summary

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

Q3 FY 2020 Highlights

Revenue — Total revenue was $12.0 billion, down 8%, with product revenue down 12% and service revenue up 5%. Revenue by geographic segment was: Americas down 8%, EMEA down 7%, and APJC down 9%. Product revenue was led by growth in Security, up 6%. Infrastructure Platforms was down 15% and Applications was down 5%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.9%, 63.7%, and 67.7%, respectively, as compared with 63.1%, 62.0%, and 66.3%, respectively, in the third quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.6%, 65.8%, and 68.9%, respectively, as compared with 64.6%, 63.7%, and 67.3%, respectively, in the third quarter of fiscal 2019.

Total gross margins by geographic segment were: 67.8% for the Americas, 65.7% for EMEA and 63.5% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.4 billion, down 6%, and were 36.4% of revenue. Non-GAAP operating expenses were $3.8 billion, down 9%, and were 31.8% of revenue.

Operating Income — GAAP operating income was $3.4 billion, down 3%, with GAAP operating margin of 28.5%. Non-GAAP operating income was flat at $4.2 billion, with non-GAAP operating margin at 34.9%.

Provision for Income Taxes — The GAAP tax provision rate was 19.4%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS — On a GAAP basis, net income was $2.8 billion, a decrease of 9%, and EPS was $0.65, a decrease of 6%. On a non-GAAP basis, net income was $3.4 billion, a decrease of 2%, and EPS was $0.79, an increase of 1%.

Cash Flow from Operating Activities — $4.2 billion for the third quarter of fiscal 2020, a decrease of 2% compared with $4.3 billion for the third quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $28.6 billion at the end of the third quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue — $18.6 billion, up 7% in total, with deferred product revenue up 17%. Deferred service revenue was up 1%.

Remaining Performance Obligations $25.5 billion at the end of the third quarter of fiscal 2020, up 11%.

Capital Allocation — In the third quarter of fiscal 2020, we returned $2.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.36 per common share, or $1.5 billion, and repurchased approximately 25 million shares of common stock under our stock repurchase program at an average price of $39.71 per share for an aggregate purchase price of $981 million. The remaining authorized amount for stock repurchases under the program is $10.8 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2020, we closed the acquisition of Exablaze, a privately held designer and manufacturer of advanced network devices aimed at reducing latency and improving network performance.

 

3


Guidance for Q4 FY 2020

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

 

Q4 FY 2020

    

Revenue

   (8.5)% - (11.5)% decline Y/Y

Non-GAAP gross margin rate

   64% - 65%

Non-GAAP operating margin rate

   31.5% - 32.5%

Non-GAAP tax provision rate

   20%

Non-GAAP EPS

   $0.72 - $0.74  

Cisco estimates that GAAP EPS will be $0.57 to $0.62 in the fourth quarter of fiscal 2020.

A reconciliation between the Guidance for Q4 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q4 FY 2020” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

   

Q3 fiscal year 2020 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, May 13, 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, May 13, 2020 to 4:00 p.m. Pacific Time, May 20, 2020 at 1-800-391-9847 (United States) or 1-402-220-3093 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.

 

   

Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 13, 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.

 

4


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     April 25,
2020
    April 27,
2019
    April 25,
2020
    April 27,
2019
 

REVENUE:

        

Product

   $ 8,597     $ 9,722     $ 27,146     $ 28,885  

Service

     3,386       3,236       10,001       9,591  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     11,983       12,958       37,147       38,476  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     3,120       3,693       9,770       11,106  

Service

     1,092       1,092       3,378       3,278  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     4,212       4,785       13,148       14,384  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     7,771       8,173       23,999       24,092  

OPERATING EXPENSES:

        

Research and development

     1,546       1,659       4,782       4,824  

Sales and marketing

     2,192       2,403       6,951       7,084  

General and administrative

     457       541       1,431       1,261  

Amortization of purchased intangible assets

     34       39       108       112  

Restructuring and other charges

     128       18       354       282  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,357       4,660       13,626       13,563  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,414       3,513       10,373       10,529  

Interest income

     218       331       733       1,003  

Interest expense

     (130     (211     (466     (655

Other income (loss), net

     (58     (18     24       (10
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     30       102       291       338  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,444       3,615       10,664       10,867  

Provision for income taxes

     670       571       2,086       1,452  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,774     $ 3,044     $ 8,578     $ 9,415  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.66     $ 0.70     $ 2.02     $ 2.11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.65     $ 0.69     $ 2.01     $ 2.09  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,230       4,370       4,239       4,468  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,243       4,415       4,258       4,509  
  

 

 

   

 

 

   

 

 

   

 

 

 

The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the nine months ended April 27, 2019.

 

5


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     April 25, 2020  
     Three Months Ended     Nine Months Ended  
                         Excluding
SPVSS
business
    Including
SPVSS
business
 
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

            

Americas

   $ 7,116        (8 )%    $ 22,106        (3 )%      (3 )% 

EMEA

     3,136        (7 )%      9,553        (2 )%      (3 )% 

APJC

     1,730        (9 )%      5,489        (6 )%      (7 )% 
  

 

 

      

 

 

      

Total

   $ 11,983        (8 )%    $ 37,147        (3 )%      (3 )% 
  

 

 

      

 

 

      

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 nine months ended April 27, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     April 25, 2020  
     Three Months Ended     Nine Months Ended  

Gross Margin Percentage:

    

Americas

     67.8     67.1

EMEA

     65.7     65.8

APJC

     63.5     64.0

 

6


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     April 25, 2020  
     Three Months Ended     Nine Months Ended  
                         Excluding
SPVSS
business
    Including
SPVSS
business
 
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

            

Infrastructure Platforms

   $ 6,429        (15 )%    $ 20,496        (8 )%      (8 )% 

Applications

     1,363        (5 )%      4,211        (2 )%      (2 )% 

Security

     776        6     2,340        12     12

Other Products

     28        (27 )%      100        8     (58 )% 
  

 

 

      

 

 

      

Total Product

     8,597        (12 )%      27,146        (6 )%      (6 )% 

Services

     3,386        5     10,001        5     4
  

 

 

      

 

 

      

Total

   $ 11,983        (8 )%    $ 37,147        (3 )%      (3 )% 
  

 

 

      

 

 

      

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 nine months ended April 27, 2019 was $168 million.

 

7


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     April 25, 2020      July 27, 2019  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 10,366      $   11,750  

Investments

       18,208        21,663  

Accounts receivable, net of allowance for doubtful accounts of $130 at April 25, 2020 and $136 at July 27, 2019

     4,569        5,491  

Inventories

     1,212        1,383  

Financing receivables, net

     4,703        5,095  

Other current assets

     2,249        2,373  
  

 

 

    

 

 

 

Total current assets

     41,307        47,755  

Property and equipment, net

     2,535        2,789  

Financing receivables, net

     4,770        4,958  

Goodwill

     33,453        33,529  

Purchased intangible assets, net

     1,744        2,201  

Deferred tax assets

     3,909        4,065  

Other assets

     3,676        2,496  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 91,394      $ 97,793  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 4,506      $ 10,191  

Accounts payable

     2,393        2,059  

Income taxes payable

     1,047        1,149  

Accrued compensation

     2,940        3,221  

Deferred revenue

     10,710        10,668  

Other current liabilities

     4,341        4,424  
  

 

 

    

 

 

 

Total current liabilities

     25,937        31,712  

Long-term debt

     11,578        14,475  

Income taxes payable

     8,285        8,927  

Deferred revenue

     7,938        7,799  

Other long-term liabilities

     1,948        1,309  
  

 

 

    

 

 

 

Total liabilities

     55,686        64,222  
  

 

 

    

 

 

 

Total equity

     35,708        33,571  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 91,394      $ 97,793  
  

 

 

    

 

 

 

 

8


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Nine Months Ended  
     April 25,
2020
    April 27,
2019
 

Cash flows from operating activities:

    

Net income

   $ 8,578     $ 9,415  

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

    

Depreciation, amortization, and other

     1,364       1,433  

Share-based compensation expense

     1,170       1,166  

Provision (benefit) for receivables

     60       32  

Deferred income taxes

     103       (281

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

     (185     (79

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

    

Accounts receivable

     774       1,560  

Inventories

     143       (1

Financing receivables

     380       (112

Other assets

     145       (736

Accounts payable

     324       52  

Income taxes, net

     (700     (759

Accrued compensation

     (220     (68

Deferred revenue

     333       421  

Other liabilities

     (645     (154
  

 

 

   

 

 

 

Net cash provided by operating activities

     11,624       11,889  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (6,880     (1,176

Proceeds from sales of investments

     4,737       5,391  

Proceeds from maturities of investments

     5,708       10,797  

Acquisitions and divestitures

     (237     (2,175

Purchases of investments in privately held companies

     (143     (118

Return of investments in privately held companies

     213       127  

Acquisition of property and equipment

     (562     (701

Proceeds from sales of property and equipment

     175       15  

Other

     (10     (12
  

 

 

   

 

 

 

Net cash provided by investing activities

     3,001       12,148  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     335       321  

Repurchases of common stock - repurchase program

     (2,659     (16,042

Shares repurchased for tax withholdings on vesting of restricted stock units

     (519     (601

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

     (3,470     1,723  

Issuances of debt

     —         1,530  

Repayments of debt

     (5,220     (5,250

Dividends paid

     (4,491     (4,489

Other

     (3     51  
  

 

 

   

 

 

 

Net cash used in financing activities

     (16,027     (22,757
  

 

 

   

 

 

 

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

     (1,402     1,280  

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

     11,772       8,993  
  

 

 

   

 

 

 

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

   $ 10,370     $ 10,273  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 519     $ 707  

Cash paid for income taxes, net

   $ 2,683     $ 2,491  

 

9


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     April 25,
2020
     January 25,
2020
     April 27,
2019
 

Deferred revenue:

        

Service

   $ 11,423      $ 11,526      $ 11,297  

Product

     7,225        7,160        6,159  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,648      $ 18,686      $ 17,456  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 10,710      $ 10,638      $ 10,117  

Noncurrent

     7,938        8,048        7,339  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,648      $ 18,686      $ 17,456  
  

 

 

    

 

 

    

 

 

 

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

                 

April 25, 2020

   $ 0.36      $ 1,519        25      $ 39.71      $ 981      $ 2,500  

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  

 

10


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions)

 

     Three Months Ended     Nine Months Ended  
     April 25,
2020
    April 27,
2019
    April 25,
2020
    April 27,
2019
 

GAAP net income

   $ 2,774     $ 3,044     $ 8,578     $ 9,415  

Adjustments to cost of sales:

        

Share-based compensation expense

     60       54       176       163  

Amortization of acquisition-related intangible assets

     154       141       454       418  

Supplier component remediation charge (adjustment), net

     —         —         —         (1

Acquisition-related/divestiture costs

     1       2       3       9  

Legal and indemnification settlements

     —         —         4       5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     215       197       637       594  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to operating expenses:

        

Share-based compensation expense

     322       322       975       974  

Amortization of acquisition-related intangible assets

     34       39       108       112  

Acquisition-related/divestiture costs

     66       78       191       238  

Legal and indemnification settlements

     —         (1     —         (396

Significant asset impairments and restructurings

     128       18       354       282  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     550       456       1,628       1,210  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        
  

 

 

   

 

 

   

 

 

   

 

 

 

(Gains) and losses on equity investments

     1       (4     (99     (77
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     766       649       2,166       1,727  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (172     (160     (547     (554

Significant tax matters

     —         (79     67       (387
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (172     (239     (480     (941
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 3,368     $ 3,454     $ 10,264     $ 10,201  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

11


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

 

     Three Months Ended      Nine Months Ended  
     April 25,
2020
     April 27,
2019
     April 25,
2020
     April 27,
2019
 

GAAP EPS

   $ 0.65      $ 0.69      $ 2.01      $ 2.09  

Adjustments to GAAP:

           

Share-based compensation expense

     0.09        0.09        0.27        0.25  

Amortization of acquisition-related intangible assets

     0.04        0.04        0.13        0.12  

Acquisition-related/divestiture costs

     0.02        0.02        0.05        0.05  

Legal and indemnification settlements

     —          —          —          (0.09

Significant asset impairments and restructurings

     0.03        —          0.08        0.06  

(Gains) and losses on equity investments

     —          —          (0.02      (0.02

Income tax effect of non-GAAP adjustments

     (0.04      (0.04      (0.13      (0.12

Significant tax matters

     —          (0.02      0.02        (0.09
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP EPS

   $ 0.79      $ 0.78      $ 2.41      $ 2.26  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts may not sum due to rounding.

 

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  
     April 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

   $ 5,477     $ 2,294     $ 7,771     $ 4,357       (6 )%    $ 3,414       (3 )%    $ 30       (71 )%    $ 2,774       (9 )% 

% of revenue

     63.7     67.7     64.9     36.4       28.5       0.3       23.1  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     23       37       60       322         382         —           382    

Amortization of acquisition-related intangible assets

     154       —         154       34         188         —           188    

Acquisition/divestiture-related costs

     —         1       1       66         67         —           67    

Significant asset impairments and restructurings

     —         —         —         128         128         —           128    

(Gains) and losses on equity investments

     —         —         —         —           —           1         1    

Income tax effect/significant tax matters

     —         —         —         —           —           —           (172  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 5,654     $ 2,332     $ 7,986     $ 3,807       (9 )%    $ 4,179       —     $ 31       (68 )%    $ 3,368       (2 )% 
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     65.8     68.9     66.6     31.8       34.9       0.3       28.1  

 

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

GAAP amount

   $ 6,029     $ 2,144     $ 8,173     $ 4,660     $ 3,513     $ 102     $ 3,044  

% of revenue

     62.0     66.3     63.1     36.0     27.1     0.8     23.5

Adjustments to GAAP amounts:

              

Share-based compensation expense

     22       32       54       322       376       —         376  

Amortization of acquisition-related intangible assets

     141       —         141       39       180       —         180  

Legal and indemnification settlements

     —         —         —         (1     (1     —         (1

Acquisition/divestiture-related costs

     1       1       2       78       80       —         80  

Significant asset impairments and restructurings

     —         —         —         18       18       —         18  

(Gains) and losses on equity investments

     —         —         —         —         —         (4     (4

Income tax effect/significant tax matters

     —         —         —         —         —         —         (239
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 6,193     $ 2,177     $ 8,370     $ 4,204     $ 4,166     $ 98     $ 3,454  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.7     67.3     64.6     32.4     32.2     0.8     26.7

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

 

13


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Nine Months Ended  
     April 25,
2020
    April 27,
2019
    April 25,
2020
    April 27,
2019
 

GAAP effective tax rate

     19.4     15.8     19.6     13.4

Total adjustments to GAAP provision for income taxes

     0.6     3.2     0.4     5.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     20.0     19.0     20.0     19.0
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP TO NON-GAAP GUIDANCE FOR Q4 FY 2020

 

Q4 FY 2020

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

GAAP

   62% - 63%   25.5% - 26.5%   19%   $0.57 - $0.62  

Estimated adjustments for:

        

Share-based compensation expense

   0.5%   3.5%   —     $0.07 - $0.08  

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

   1.5%   2.0%   —     $0.04 - $0.05  

Significant asset impairments and restructurings

   —     0.5%   —     $0.01 - $0.02  

Income tax effect of non-GAAP adjustments

       1%  
  

 

 

 

 

 

 

 

Non-GAAP

   64% - 65%   31.5% - 32.5%   20%   $0.72 - $0.74  
  

 

 

 

 

 

 

 

 

(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.

 

14


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 continued support of our employees, customers, partners and communities, while positioning Cisco for the future, global customer demand to digitize their operations and support remote workforces at a faster speeds and greater scale and our ability to provide the technology and solutions our customers need to accelerate their digital organizations, our ability to continue to build resiliency into our business model, continued growth of revenue from software subscriptions, our ability to drive long-term profitable growth while delivering shareholder value, and future responses to and effects of the COVID-19 pandemic) and the future financial performance of Cisco (including the guidance for Q4 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: the impact of the COVID-19 pandemic; 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; any other pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Forms 10-Q and 10-K filed on February 18, 2020 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 nine months ended April 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.

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.

 

15


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

 

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