Cisco (NASDAQ:CSCO) today reported second quarter results for the
period ended January 27, 2018. Cisco reported second quarter
revenue of $11.9 billion, net loss on a generally accepted
accounting principles (GAAP) basis of $(8.8) billion or $(1.78) per
share, and non-GAAP net income of $3.1 billion or $0.63 per share.
“We had a great quarter which demonstrates that our strategy is
working. Our business is growing, we have a fantastic innovation
pipeline, our balance sheet is strong and we have a team that’s
executing incredibly well,” said Chuck Robbins, Chairman and CEO,
Cisco. “The network is more critical to business success than ever,
and our new intent-based networking portfolio has great momentum
including the fastest ramping new product in our history.”
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GAAP Results |
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|
|
|
Q2 FY 2018 |
|
Q2 FY 2017 |
|
Vs. Q2 FY 2017 |
Revenue |
|
$ |
11.9 |
billion |
|
$ |
11.6 |
billion |
|
3 |
% |
Net Income (Loss) |
|
$ |
(8.8 |
) billion |
|
$ |
2.3 |
billion |
|
(474 |
)% |
Earnings (Loss) per
Share |
|
$ |
(1.78 |
) |
|
$ |
0.47 |
|
|
(479 |
)% |
GAAP results include an $11.1 billion charge related to the
enactment of the Tax Cuts and Jobs Act comprised of $9.0 billion
for the U.S. transition tax, $1.2 billion for foreign withholding
tax and $0.9 billion for the re-measurement of net deferred tax
assets.
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Non-GAAP Results |
|
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|
|
|
|
|
|
|
Q2 FY 2018 |
|
Q2 FY 2017 |
|
Vs. Q2 FY 2017 |
Net Income |
|
$ |
3.1 |
billion |
|
$ |
2.9 |
billion |
|
10 |
% |
Diluted Earnings per
Share (EPS) |
|
$ |
0.63 |
|
|
$ |
0.57 |
|
|
11 |
% |
Reconciliations between net income (loss), earnings (loss) per
share, 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."
Cisco Increases Quarterly Cash Dividend; Stock
Repurchase Program Authorization Increased
Cisco has declared a quarterly dividend of $0.33 per common
share, a 4-cent increase or up 14% over the previous quarter’s
dividend, to be paid on April 25, 2018 to all shareholders of
record as of the close of business on April 5, 2018. Future
dividends will be subject to Board approval.
Cisco’s board of directors has also approved a $25 billion
increase to the authorization of the stock repurchase program.
There is no fixed termination date for the repurchase program. The
remaining authorized amount for stock repurchases including the
additional authorization is approximately $31 billion.
“Q2 was a great quarter with 3% revenue growth and strong
margins and cash flow,” said Kelly Kramer, CFO of Cisco. “We
continue to make progress as we shift the business toward more
software and recurring revenue. Our significant dividend increase
and additional share repurchase authorization reinforce our
commitment to returning capital to our shareholders and show
confidence in the strength of our ongoing cash flows.”
Financial Summary
All comparative percentages are on a year-over-year basis unless
otherwise noted.
Q2 FY 2018 Highlights
Revenue -- Total revenue was $11.9 billion, up
3%, with product revenue up 3% and service revenue up 3%. 33% of
total revenue was from recurring offers, up 2 percentage points
from the second quarter of fiscal 2017. Revenue by geographic
segment was: Americas up 5%, EMEA flat, and APJC down 2%. Product
revenue performance reflected solid growth in Applications and
Security, which each increased 6%. Infrastructure Platforms
increased by 2%.
Gross Margin -- On a GAAP basis, total gross
margin and product gross margin were 63.1% and 61.5%, respectively.
Product gross margin increased compared with 61.1% in the second
quarter of fiscal 2017.
Non-GAAP total gross margin and product gross margin were 64.7%
and 63.3%, respectively. Non-GAAP product gross margin increased
compared with 62.4% in the second quarter of fiscal 2017. The
increase was primarily due to improved productivity benefits and to
a lesser extent product mix, partially offset by pricing.
GAAP service gross margin was 67.4% and non-GAAP service gross
margin was 68.5%.
Total gross margins by geographic segment were: 65.9% for the
Americas, 64.6% for EMEA and 60.1% for APJC.
Operating Expenses -- On a GAAP basis,
operating expenses were $4.4 billion, up 1%. Non-GAAP operating
expenses were $3.9 billion, up 2%, and were 32.9% of revenue.
Operating Income -- GAAP operating income was
$3.1 billion, up 6%, with GAAP operating margin of 25.9%. Non-GAAP
operating income was $3.8 billion, up 5%, with non-GAAP operating
margin of 31.7%.
Provision for Income Taxes -- The GAAP tax
provision rate was 371.6% which includes an $11.1 billion charge
related to the enactment of the Tax Cuts and Jobs Act. The non-GAAP
tax provision rate was 20.0%.
Net Income (Loss) and Earnings (Loss) per Share
-- On a GAAP basis, net loss was $(8.8) billion and
earnings (loss) per share was $(1.78). On a non-GAAP basis, net
income was $3.1 billion, an increase of 10%, and EPS was $0.63, an
increase of 11%.
Cash Flow from Operating Activities -- was $4.1
billion, an increase of 8% compared with $3.8 billion for the
second quarter of fiscal 2017.
Balance Sheet and Other Financial
Highlights
Cash and Cash Equivalents and Investments --
were $73.7 billion at the end of the second quarter of fiscal 2018,
compared with $71.6 billion at the end of the first quarter of
fiscal 2018, and compared with $70.5 billion at the end of fiscal
2017. The total cash and cash equivalents and investments available
in the United States at the end of the second quarter of fiscal
2018 were $2.4 billion.
Deferred Revenue -- was $18.8 billion, up 10%
in total, with deferred product revenue up 19%, driven largely by
subscription-based and software offers, and deferred service
revenue was up 4%. The portion of deferred product revenue related
to recurring software and subscription offers increased 36%.
Capital Allocation -- In the second quarter of
fiscal 2018, Cisco declared and paid a cash dividend of $0.29 per
common share, or $1.4 billion. For the second quarter of fiscal
2018, Cisco repurchased approximately 103 million shares of common
stock under its stock repurchase program at an average price of
$39.07 per share for an aggregate purchase price of $4.0
billion.
Acquisitions
In the first quarter of fiscal 2018, we announced a definitive
agreement to acquire BroadSoft, Inc., a publicly held company that
offers cloud calling and contact center solutions. The BroadSoft
acquisition closed in the third quarter of fiscal 2018.
On January 24, 2018, we announced our intent to acquire Skyport
Systems, Inc., a privately held company providing cloud-managed,
hyper-converged systems that run and protect business critical
applications. The Skyport acquisition closed in the third quarter
of fiscal 2018.
Guidance for Q3 FY 2018
Cisco expects to achieve the following results for the third
quarter of fiscal 2018:
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|
|
Q3 FY
2018 |
|
|
Revenue |
|
3% - 5% growth Y/Y |
Non-GAAP gross margin
rate |
|
63% - 64% |
Non-GAAP operating
margin rate |
|
29.5% - 30.5% |
Non-GAAP tax provision
rate |
|
21% |
|
Non-GAAP EPS |
|
$0.64 - $0.66 |
|
|
|
The impact of the BroadSoft acquisition is factored
into our guidance.
Cisco estimates that GAAP EPS will be $0.50 to
$0.55 in the third quarter of fiscal 2018.
A reconciliation between the Guidance for Q3 FY
2018 on a GAAP and non-GAAP basis is provided in the table entitled
"GAAP to non-GAAP Guidance for Q3 FY 2018" located in the section
entitled "Reconciliations of GAAP to non-GAAP Measures."
Editor's Notes:
- Q2 fiscal year 2018 conference call to discuss Cisco's results
along with its guidance will be held on Wednesday,
February 14, 2018 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 14, 2018 to 4:00 p.m. Pacific Time,
February 21, 2018 at 1-800-391-9854 (United States) or
1-402-220-9828 (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 14, 2018. 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.
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CISCO SYSTEMS,
INC.CONSOLIDATED STATEMENTS OF
OPERATIONS(In millions, except per-share
amounts)(Unaudited) |
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
January 27,2018 |
|
January 28,2017 |
|
January 27,2018 |
|
January 28,2017 |
REVENUE: |
|
|
|
|
|
|
|
Product |
$ |
8,709 |
|
|
$ |
8,491 |
|
|
$ |
17,763 |
|
|
$ |
17,793 |
|
Service |
3,178 |
|
|
3,089 |
|
|
6,260 |
|
|
6,139 |
|
Total revenue |
11,887 |
|
|
11,580 |
|
|
24,023 |
|
|
23,932 |
|
COST OF
SALES: |
|
|
|
|
|
|
|
Product |
3,354 |
|
|
3,305 |
|
|
6,969 |
|
|
6,708 |
|
Service |
1,035 |
|
|
999 |
|
|
2,129 |
|
|
2,064 |
|
Total cost of sales |
4,389 |
|
|
4,304 |
|
|
9,098 |
|
|
8,772 |
|
GROSS
MARGIN |
7,498 |
|
|
7,276 |
|
|
14,925 |
|
|
15,160 |
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
Research
and development |
1,549 |
|
|
1,508 |
|
|
3,116 |
|
|
3,053 |
|
Sales and
marketing |
2,235 |
|
|
2,222 |
|
|
4,569 |
|
|
4,640 |
|
General
and administrative |
483 |
|
|
456 |
|
|
1,040 |
|
|
1,011 |
|
Amortization of purchased intangible assets |
60 |
|
|
64 |
|
|
121 |
|
|
142 |
|
Restructuring and other charges |
98 |
|
|
133 |
|
|
250 |
|
|
544 |
|
Total operating expenses |
4,425 |
|
|
4,383 |
|
|
9,096 |
|
|
9,390 |
|
OPERATING
INCOME |
3,073 |
|
|
2,893 |
|
|
5,829 |
|
|
5,770 |
|
Interest
income |
396 |
|
|
329 |
|
|
775 |
|
|
624 |
|
Interest
expense |
(247 |
) |
|
(222 |
) |
|
(482 |
) |
|
(420 |
) |
Other
income (loss), net |
10 |
|
|
(37 |
) |
|
72 |
|
|
(58 |
) |
Interest and other income (loss),
net |
159 |
|
|
70 |
|
|
365 |
|
|
146 |
|
INCOME BEFORE
PROVISION FOR INCOME TAXES |
3,232 |
|
|
2,963 |
|
|
6,194 |
|
|
5,916 |
|
Provision for income
taxes (1) |
12,010 |
|
|
615 |
|
|
12,578 |
|
|
1,246 |
|
NET INCOME (LOSS) |
$ |
(8,778 |
) |
|
$ |
2,348 |
|
|
$ |
(6,384 |
) |
|
$ |
4,670 |
|
|
|
|
|
|
|
|
|
Net income (loss) per
share: |
|
|
|
|
|
|
|
Basic |
$ |
(1.78 |
) |
|
$ |
0.47 |
|
|
$ |
(1.29 |
) |
|
$ |
0.93 |
|
Diluted |
$ |
(1.78 |
) |
|
$ |
0.47 |
|
|
$ |
(1.29 |
) |
|
$ |
0.92 |
|
Shares used in
per-share calculation: |
|
|
|
|
|
|
|
Basic |
4,924 |
|
|
5,015 |
|
|
4,942 |
|
|
5,021 |
|
Diluted |
4,924 |
|
|
5,040 |
|
|
4,942 |
|
|
5,054 |
|
|
|
|
|
|
|
|
|
Cash dividends declared
per common share |
$ |
0.29 |
|
|
$ |
0.26 |
|
|
$ |
0.58 |
|
|
$ |
0.52 |
|
(1) The provision for income taxes includes an
$11.1 billion charge as related to the enactment of the Tax Cuts
and Jobs Act.
|
|
|
|
|
|
CISCO SYSTEMS, INC.REVENUE BY
SEGMENT(In millions, except
percentages) |
|
|
|
|
|
January 27, 2018 |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
Amount |
|
Y/Y % |
|
Amount |
|
Y/Y% |
Revenue: |
|
|
|
|
|
|
|
|
Americas |
|
$ |
7,004 |
|
|
5 |
% |
|
$ |
14,354 |
|
|
2 |
% |
EMEA |
|
3,062 |
|
|
— |
% |
|
5,971 |
|
|
(2 |
)% |
APJC |
|
1,821 |
|
|
(2 |
)% |
|
3,698 |
|
|
(1 |
)% |
Total |
|
$ |
11,887 |
|
|
3 |
% |
|
$ |
24,023 |
|
|
— |
% |
|
|
|
|
|
|
CISCO SYSTEMS, INC.GROSS
MARGIN PERCENTAGE BY SEGMENT(In
percentages) |
|
|
|
|
|
January 27, 2018 |
|
|
Three Months Ended |
|
Six Months Ended |
Gross Margin
Percentage: |
|
|
|
|
Americas |
|
65.9% |
|
65.0% |
EMEA |
|
64.6% |
|
63.9% |
APJC |
|
60.1% |
|
61.1% |
|
|
|
|
|
|
CISCO SYSTEMS, INC.REVENUE
FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES(In
millions, except percentages) |
|
|
|
|
|
January 27, 2018 |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
Amount |
|
Y/Y % |
|
Amount |
|
Y/Y% |
Revenue: |
|
|
|
|
|
|
|
|
Infrastructure Platforms |
|
$ |
6,694 |
|
|
2 |
% |
|
$ |
13,664 |
|
|
(1 |
)% |
Applications |
|
1,184 |
|
|
6 |
% |
|
2,387 |
|
|
6 |
% |
Security |
|
558 |
|
|
6 |
% |
|
1,143 |
|
|
7 |
% |
Other
Products |
|
273 |
|
|
(10 |
)% |
|
569 |
|
|
(13 |
)% |
Total
Product |
|
8,709 |
|
|
3 |
% |
|
17,763 |
|
|
— |
% |
Services |
|
3,178 |
|
|
3 |
% |
|
6,260 |
|
|
2 |
% |
Total |
|
$ |
11,887 |
|
|
3 |
% |
|
$ |
24,023 |
|
|
— |
% |
|
|
|
|
|
|
|
|
CISCO SYSTEMS, INC.CONDENSED
CONSOLIDATED BALANCE SHEETS(In
millions)(Unaudited) |
|
|
|
|
|
January 27, 2018 |
|
July 29, 2017 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
17,624 |
|
|
$ |
11,708 |
|
Investments |
56,059 |
|
|
58,784 |
|
Accounts
receivable, net of allowance for doubtful accounts of $181 at
January 27, 2018 and $211 at July 29, 2017 |
3,963 |
|
|
5,146 |
|
Inventories |
1,896 |
|
|
1,616 |
|
Financing
receivables, net |
4,925 |
|
|
4,856 |
|
Other
current assets |
1,583 |
|
|
1,593 |
|
Total current assets |
86,050 |
|
|
83,703 |
|
Property and equipment,
net |
3,113 |
|
|
3,322 |
|
Financing receivables,
net |
4,913 |
|
|
4,738 |
|
Goodwill |
30,391 |
|
|
29,766 |
|
Purchased intangible
assets, net |
2,474 |
|
|
2,539 |
|
Deferred tax
assets |
3,097 |
|
|
4,239 |
|
Other assets |
1,472 |
|
|
1,511 |
|
TOTAL ASSETS |
$ |
131,510 |
|
|
$ |
129,818 |
|
LIABILITIES AND
EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Short-term debt |
$ |
13,741 |
|
|
$ |
7,992 |
|
Accounts
payable |
1,060 |
|
|
1,385 |
|
Income
taxes payable |
2,204 |
|
|
98 |
|
Accrued
compensation |
2,736 |
|
|
2,895 |
|
Deferred
revenue |
11,102 |
|
|
10,821 |
|
Other
current liabilities |
4,521 |
|
|
4,392 |
|
Total current liabilities |
35,364 |
|
|
27,583 |
|
Long-term debt |
25,625 |
|
|
25,725 |
|
Income taxes
payable |
9,185 |
|
|
1,250 |
|
Deferred revenue |
7,686 |
|
|
7,673 |
|
Other long-term
liabilities |
1,668 |
|
|
1,450 |
|
Total liabilities |
79,528 |
|
|
63,681 |
|
Total equity |
51,982 |
|
|
66,137 |
|
TOTAL LIABILITIES AND EQUITY |
$ |
131,510 |
|
|
$ |
129,818 |
|
|
|
|
|
CISCO SYSTEMS,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS(In
millions)(Unaudited) |
|
|
|
Six Months Ended |
|
January 27, 2018 |
|
January 28, 2017 |
Cash flows from
operating activities: |
|
|
|
Net
income (loss) |
$ |
(6,384 |
) |
|
$ |
4,670 |
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
Depreciation, amortization, and other |
1,112 |
|
|
1,148 |
|
Share-based compensation expense |
785 |
|
|
724 |
|
Provision for receivables |
(43 |
) |
|
4 |
|
Deferred income taxes |
1,021 |
|
|
(26 |
) |
Excess tax benefits from share-based compensation |
— |
|
|
(101 |
) |
(Gains) losses on divestitures, investments and other,
net |
(174 |
) |
|
79 |
|
Change in operating assets and liabilities, net of
effects of acquisitions and divestitures: |
|
|
|
Accounts receivable |
1,236 |
|
|
1,396 |
|
Inventories |
(276 |
) |
|
(51 |
) |
Financing receivables |
(156 |
) |
|
(764 |
) |
Other assets |
(15 |
) |
|
155 |
|
Accounts payable |
(338 |
) |
|
(98 |
) |
Income taxes, net |
10,246 |
|
|
(257 |
) |
Accrued compensation |
(189 |
) |
|
(417 |
) |
Deferred revenue |
237 |
|
|
611 |
|
Other liabilities |
88 |
|
|
(571 |
) |
Net cash provided by
operating activities |
7,150 |
|
|
6,502 |
|
Cash flows from
investing activities: |
|
|
|
Purchases
of investments |
(13,954 |
) |
|
(27,847 |
) |
Proceeds
from sales of investments |
9,111 |
|
|
18,420 |
|
Proceeds
from maturities of investments |
7,365 |
|
|
5,245 |
|
Acquisition of businesses, net of cash and cash equivalents
acquired |
(754 |
) |
|
(251 |
) |
Proceeds
from business divestitures |
27 |
|
|
— |
|
Purchases
of investments in privately held companies |
(89 |
) |
|
(142 |
) |
Return of
investments in privately held companies |
124 |
|
|
108 |
|
Acquisition of property and equipment |
(379 |
) |
|
(526 |
) |
Proceeds
from sales of property and equipment |
51 |
|
|
5 |
|
Other |
(7 |
) |
|
10 |
|
Net cash provided by (used
in) investing activities |
1,495 |
|
|
(4,978 |
) |
Cash flows from
financing activities: |
|
|
|
Issuances
of common stock |
302 |
|
|
386 |
|
Repurchases of common stock - repurchase program |
(5,457 |
) |
|
(1,991 |
) |
Shares
repurchased for tax withholdings on vesting of restricted stock
units |
(433 |
) |
|
(432 |
) |
Short-term borrowings, original maturities of 90 days or less,
net |
5,095 |
|
|
300 |
|
Issuances
of debt |
6,877 |
|
|
6,232 |
|
Repayments of debt |
(6,230 |
) |
|
(1 |
) |
Excess
tax benefits from share-based compensation |
— |
|
|
101 |
|
Dividends
paid |
(2,861 |
) |
|
(2,612 |
) |
Other |
(22 |
) |
|
(240 |
) |
Net cash provided by (used
in) financing activities |
(2,729 |
) |
|
1,743 |
|
Net increase (decrease)
in cash and cash equivalents |
5,916 |
|
|
3,267 |
|
Cash and cash
equivalents, beginning of period |
11,708 |
|
|
7,631 |
|
Cash and cash
equivalents, end of period |
$ |
17,624 |
|
|
$ |
10,898 |
|
Supplemental cash flow
information: |
|
|
|
Cash paid for
interest |
$ |
454 |
|
|
$ |
419 |
|
Cash paid for income
taxes, net |
$ |
1,311 |
|
|
$ |
1,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CISCO SYSTEMS, INC.DEFERRED
REVENUE(In millions) |
|
|
|
|
|
|
|
January 27,2018 |
|
October 28,2017 |
|
January 28,2017 |
Deferred revenue: |
|
|
|
|
|
Service |
$ |
10,963 |
|
|
$ |
10,991 |
|
|
$ |
10,525 |
|
Product: |
|
|
|
|
|
Deferred revenue related to recurring software and
subscription offers |
5,451 |
|
|
5,213 |
|
|
3,997 |
|
Other product deferred revenue |
2,374 |
|
|
2,361 |
|
|
2,564 |
|
Total product deferred revenue |
7,825 |
|
|
7,574 |
|
|
6,561 |
|
Total |
$ |
18,788 |
|
|
$ |
18,565 |
|
|
$ |
17,086 |
|
Reported as: |
|
|
|
|
|
Current |
$ |
11,102 |
|
|
$ |
10,920 |
|
|
$ |
10,243 |
|
Noncurrent |
7,686 |
|
|
7,645 |
|
|
6,843 |
|
Total |
$ |
18,788 |
|
|
$ |
18,565 |
|
|
$ |
17,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Priceper Share |
|
Amount |
|
Amount |
Fiscal 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
January
27, 2018 |
|
$ |
0.29 |
|
|
$ |
1,425 |
|
|
103 |
|
|
$ |
39.07 |
|
|
$ |
4,011 |
|
|
$ |
5,436 |
|
October
28, 2017 |
|
$ |
0.29 |
|
|
$ |
1,436 |
|
|
51 |
|
|
$ |
31.80 |
|
|
$ |
1,620 |
|
|
$ |
3,056 |
|
Fiscal 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
July 29,
2017 |
|
$ |
0.29 |
|
|
$ |
1,448 |
|
|
38 |
|
|
$ |
31.61 |
|
|
$ |
1,201 |
|
|
$ |
2,649 |
|
April 29,
2017 |
|
$ |
0.29 |
|
|
$ |
1,451 |
|
|
15 |
|
|
$ |
33.71 |
|
|
$ |
503 |
|
|
$ |
1,954 |
|
January
28, 2017 |
|
$ |
0.26 |
|
|
$ |
1,304 |
|
|
33 |
|
|
$ |
30.33 |
|
|
$ |
1,001 |
|
|
$ |
2,305 |
|
October
29, 2016 |
|
$ |
0.26 |
|
|
$ |
1,308 |
|
|
32 |
|
|
$ |
31.12 |
|
|
$ |
1,001 |
|
|
$ |
2,309 |
|
|
|
|
|
|
|
|
|
CISCO SYSTEMS,
INC.RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURESGAAP NET INCOME (LOSS) TO NON-GAAP NET
INCOME(In millions, except per-share
amounts) |
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
January 27, 2018 |
|
January 28, 2017 |
|
January 27, 2018 |
|
January 28, 2017 |
GAAP net income
(loss) |
$ |
(8,778 |
) |
|
$ |
2,348 |
|
|
$ |
(6,384 |
) |
|
$ |
4,670 |
|
Adjustments to cost of sales: |
|
|
|
|
|
|
|
Share-based compensation expense |
54 |
|
|
53 |
|
|
111 |
|
|
107 |
|
Amortization of acquisition-related intangible assets |
144 |
|
|
107 |
|
|
283 |
|
|
219 |
|
Supplier
component remediation charge (adjustment), net |
(13 |
) |
|
(16 |
) |
|
(32 |
) |
|
(16 |
) |
Acquisition-related/divestiture costs |
2 |
|
|
1 |
|
|
2 |
|
|
1 |
|
Legal and
indemnification settlements |
— |
|
|
— |
|
|
122 |
|
|
— |
|
Total
adjustments to GAAP cost of sales |
187 |
|
|
145 |
|
|
486 |
|
|
311 |
|
Adjustments to operating expenses: |
|
|
|
|
|
|
|
Share-based compensation expense |
333 |
|
|
299 |
|
|
668 |
|
|
614 |
|
Amortization of acquisition-related intangible assets |
60 |
|
|
64 |
|
|
121 |
|
|
142 |
|
Acquisition-related/divestiture costs |
23 |
|
|
61 |
|
|
106 |
|
|
114 |
|
Significant asset impairments and restructurings |
98 |
|
|
133 |
|
|
250 |
|
|
544 |
|
Total
adjustments to GAAP operating expenses |
514 |
|
|
557 |
|
|
1,145 |
|
|
1,414 |
|
Total
adjustments to GAAP income (loss) before provision for income
taxes |
701 |
|
|
702 |
|
|
1,631 |
|
|
1,725 |
|
Income
tax effect of non-GAAP adjustments |
(157 |
) |
|
(191 |
) |
|
(445 |
) |
|
(435 |
) |
Significant tax matters (1) |
11,380 |
|
|
— |
|
|
11,380 |
|
|
— |
|
Total
adjustments to GAAP provision for income taxes |
11,223 |
|
|
(191 |
) |
|
10,935 |
|
|
(435 |
) |
Non-GAAP net
income |
$ |
3,146 |
|
|
$ |
2,859 |
|
|
$ |
6,182 |
|
|
$ |
5,960 |
|
Net income (loss) per
share: (2) |
|
|
|
|
|
|
|
GAAP |
$ |
(1.78 |
) |
|
$ |
0.47 |
|
|
$ |
(1.29 |
) |
|
$ |
0.92 |
|
Non-GAAP |
$ |
0.63 |
|
|
$ |
0.57 |
|
|
$ |
1.24 |
|
|
$ |
1.18 |
|
(1) During the second quarter of fiscal 2018, Cisco
recorded charges relating to significant tax matters that were
excluded from non-GAAP net income for the second quarter and first
six months of fiscal 2018. $11.1 billion of these charges were
provisional amounts related to the enactment of the Tax Cuts and
Jobs Act comprised of $9.0 billion related to the U.S. transition
tax, $1.2 billion related to foreign withholding tax and $0.9
billion related to the re-measurement of net deferred tax assets.
The amounts are provisional based on Securities and Exchange
Commission Staff Accounting Bulletin No. 118. The remaining $0.3
billion was related to other significant tax matters.
(2) GAAP net loss per share for the three and six
months ended January 27, 2018 is calculated using basic shares of
4,924 million and 4,942 million respectively, due to the net loss
resulting from the tax charge as discussed in footnote (1).
Non-GAAP net income per share for the respective periods is
calculated using diluted shares of 4,966 million and 4,982 million,
as the Company had non-GAAP net income for these periods.
|
|
|
|
CISCO SYSTEMS,
INC.RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURESGROSS MARGINS, OPERATING EXPENSES,
OPERATING MARGINS, AND NET INCOME (LOSS)(In
millions, except percentages) |
|
|
|
Three Months Ended |
|
January 27, 2018 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
Y/Y |
|
OperatingIncome |
|
Y/Y |
|
NetIncome(Loss) |
|
Y/Y |
GAAP amount |
$ |
5,355 |
|
|
$ |
2,143 |
|
|
$ |
7,498 |
|
|
$ |
4,425 |
|
|
1 |
% |
|
$ |
3,073 |
|
|
6 |
% |
|
$ |
(8,778 |
) |
|
(474 |
)% |
% of revenue |
61.5 |
% |
|
67.4 |
% |
|
63.1 |
% |
|
37.2 |
% |
|
|
|
25.9 |
% |
|
|
|
(73.8 |
)% |
|
|
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
23 |
|
|
31 |
|
|
54 |
|
|
333 |
|
|
|
|
387 |
|
|
|
|
387 |
|
|
|
Amortization of acquisition-related intangible assets |
144 |
|
|
— |
|
|
144 |
|
|
60 |
|
|
|
|
204 |
|
|
|
|
204 |
|
|
|
Supplier
component remediation charge (adjustment), net |
(13 |
) |
|
— |
|
|
(13 |
) |
|
— |
|
|
|
|
(13 |
) |
|
|
|
(13 |
) |
|
|
Acquisition/divestiture-related costs |
— |
|
|
2 |
|
|
2 |
|
|
23 |
|
|
|
|
25 |
|
|
|
|
25 |
|
|
|
Significant asset impairments and restructurings |
— |
|
|
— |
|
|
— |
|
|
98 |
|
|
|
|
98 |
|
|
|
|
98 |
|
|
|
Income
tax effect/significant tax matters (1) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|
11,223 |
|
(1 |
) |
|
Non-GAAP
amount |
$ |
5,509 |
|
|
$ |
2,176 |
|
|
$ |
7,685 |
|
|
$ |
3,911 |
|
|
2 |
% |
|
$ |
3,774 |
|
|
5 |
% |
|
$ |
3,146 |
|
|
10 |
% |
% of revenue |
63.3 |
% |
|
68.5 |
% |
|
64.7 |
% |
|
32.9 |
% |
|
|
|
31.7 |
% |
|
|
|
26.5 |
% |
|
|
(1) Includes an $11.1 billion charge as related to
the enactment of the Tax Cuts and Jobs Act.
|
Three Months Ended |
|
January 28, 2017 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
OperatingIncome |
|
NetIncome |
GAAP amount |
$ |
5,186 |
|
|
$ |
2,090 |
|
|
$ |
7,276 |
|
|
$ |
4,383 |
|
|
$ |
2,893 |
|
|
$ |
2,348 |
|
% of revenue |
61.1 |
% |
|
67.7 |
% |
|
62.8 |
% |
|
37.8 |
% |
|
25.0 |
% |
|
20.3 |
% |
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
19 |
|
|
34 |
|
|
53 |
|
|
299 |
|
|
352 |
|
|
352 |
|
Amortization of acquisition-related intangible assets |
107 |
|
|
— |
|
|
107 |
|
|
64 |
|
|
171 |
|
|
171 |
|
Supplier
component remediation charge (adjustment), net |
(16 |
) |
|
— |
|
|
(16 |
) |
|
— |
|
|
(16 |
) |
|
(16 |
) |
Acquisition/divestiture-related costs |
— |
|
|
1 |
|
|
1 |
|
|
61 |
|
|
62 |
|
|
62 |
|
Significant asset impairments and restructurings |
— |
|
|
— |
|
|
— |
|
|
133 |
|
|
133 |
|
|
133 |
|
Income
tax effect |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(191 |
) |
Non-GAAP amount |
$ |
5,296 |
|
|
$ |
2,125 |
|
|
$ |
7,421 |
|
|
$ |
3,826 |
|
|
$ |
3,595 |
|
|
$ |
2,859 |
|
% of revenue |
62.4 |
% |
|
68.8 |
% |
|
64.1 |
% |
|
33.0 |
% |
|
31.0 |
% |
|
24.7 |
% |
|
|
|
|
CISCO SYSTEMS,
INC.RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURESGROSS MARGINS, OPERATING EXPENSES,
OPERATING MARGINS, AND NET INCOME (LOSS)(In
millions, except percentages) |
|
|
|
Six Months Ended |
|
January 27, 2018 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
Y/Y |
|
OperatingIncome |
|
Y/Y |
|
NetIncome(Loss) |
|
Y/Y |
GAAP amount |
$ |
10,794 |
|
|
$ |
4,131 |
|
|
$ |
14,925 |
|
|
$ |
9,096 |
|
|
(3 |
)% |
|
$ |
5,829 |
|
|
1 |
% |
|
$ |
(6,384 |
) |
|
(237 |
)% |
% of revenue |
60.8 |
% |
|
66.0 |
% |
|
62.1 |
% |
|
37.9 |
% |
|
|
|
24.3 |
% |
|
|
|
(26.6 |
)% |
|
|
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
46 |
|
|
65 |
|
|
111 |
|
|
668 |
|
|
|
|
779 |
|
|
|
|
779 |
|
|
|
Amortization of acquisition-related intangible assets |
283 |
|
|
— |
|
|
283 |
|
|
121 |
|
|
|
|
404 |
|
|
|
|
404 |
|
|
|
Supplier
component remediation charge (adjustment), net |
(32 |
) |
|
— |
|
|
(32 |
) |
|
— |
|
|
|
|
(32 |
) |
|
|
|
(32 |
) |
|
|
Legal and
indemnification settlements |
122 |
|
|
— |
|
|
122 |
|
|
— |
|
|
|
|
122 |
|
|
|
|
122 |
|
|
|
Acquisition/divestiture-related costs |
— |
|
|
2 |
|
|
2 |
|
|
106 |
|
|
|
|
108 |
|
|
|
|
108 |
|
|
|
Significant asset impairments and restructurings |
— |
|
|
— |
|
|
— |
|
|
250 |
|
|
|
|
250 |
|
|
|
|
250 |
|
|
|
Income
tax effect/significant tax matters (1) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|
10,935 |
|
(1 |
) |
|
Non-GAAP
amount |
$ |
11,213 |
|
|
$ |
4,198 |
|
|
$ |
15,411 |
|
|
$ |
7,951 |
|
|
— |
% |
|
$ |
7,460 |
|
|
— |
% |
|
$ |
6,182 |
|
|
4 |
% |
% of revenue |
63.1 |
% |
|
67.1 |
% |
|
64.2 |
% |
|
33.1 |
% |
|
|
|
31.1 |
% |
|
|
|
25.7 |
% |
|
|
(1) Includes an $11.1 billion charge as related to
the enactment of the Tax Cuts and Jobs Act.
|
Six Months Ended |
|
January 28, 2017 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
OperatingIncome |
|
NetIncome |
GAAP amount |
$ |
11,085 |
|
|
$ |
4,075 |
|
|
$ |
15,160 |
|
|
$ |
9,390 |
|
|
$ |
5,770 |
|
|
$ |
4,670 |
|
% of revenue |
62.3 |
% |
|
66.4 |
% |
|
63.3 |
% |
|
39.2 |
% |
|
24.1 |
% |
|
19.5 |
% |
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense. |
40 |
|
|
67 |
|
|
107 |
|
|
614 |
|
|
721 |
|
|
721 |
|
Amortization of acquisition-related intangible assets |
219 |
|
|
— |
|
|
219 |
|
|
142 |
|
|
361 |
|
|
361 |
|
Supplier
component remediation charge (adjustment), net |
(16 |
) |
|
— |
|
|
(16 |
) |
|
— |
|
|
(16 |
) |
|
(16 |
) |
Acquisition/divestiture-related costs |
— |
|
|
1 |
|
|
1 |
|
|
114 |
|
|
115 |
|
|
115 |
|
Significant asset impairments and restructurings |
— |
|
|
— |
|
|
— |
|
|
544 |
|
|
544 |
|
|
544 |
|
Income
tax effect/significant tax matters |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(435 |
) |
Non-GAAP amount |
$ |
11,328 |
|
|
$ |
4,143 |
|
|
$ |
15,471 |
|
|
$ |
7,976 |
|
|
$ |
7,495 |
|
|
$ |
5,960 |
|
% of revenue |
63.7 |
% |
|
67.5 |
% |
|
64.6 |
% |
|
33.3 |
% |
|
31.3 |
% |
|
24.9 |
% |
|
|
|
|
|
|
|
|
CISCO SYSTEMS,
INC.RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURESEFFECTIVE TAX RATE(In
percentages) |
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
January 27,2018 |
|
January 28,2017 |
|
January 27,2018 |
|
January 28,2017 |
GAAP effective tax rate
(1) |
371.6 |
% |
|
20.8 |
% |
|
203.1 |
% |
|
21.1 |
% |
Total
adjustments to GAAP provision for income taxes |
(351.6 |
)% |
|
1.2 |
% |
|
(182.1 |
)% |
|
0.9 |
% |
Non-GAAP effective tax
rate |
20.0 |
% |
|
22.0 |
% |
|
21.0 |
% |
|
22.0 |
% |
(1) Includes an $11.1 billion charge as related to
the enactment of the Tax Cuts and Jobs Act.
GAAP TO NON-GAAP GUIDANCE FOR Q3 FY
2018 |
|
Q3 FY 2018 |
|
Gross Margin Rate |
|
Operating Margin Rate |
|
Tax Provision Rate |
|
Earnings per Share (2) |
GAAP |
|
61.5% - 62.5% |
|
24%- 25% |
|
22% |
|
$0.50
- $0.55 |
Estimated adjustments
for: |
|
|
|
|
|
|
|
|
Share-based
compensation expense |
|
0.5 |
% |
|
3.5 |
% |
|
— |
|
$0.06
- $0.07 |
Amortization of
purchased intangible assets and other
acquisition-related/divestiture costs |
|
1.0 |
% |
|
2.0 |
% |
|
— |
|
$0.05
- $0.06 |
Restructuring and other
charges (1) |
|
— |
|
|
— |
|
|
— |
|
$0.00
- $0.01 |
Income tax effect of
non-GAAP adjustments |
|
— |
|
|
— |
|
|
(1)% |
|
|
Non-GAAP |
|
63% - 64% |
|
29.5% - 30.5% |
|
21% |
|
$0.64 - $0.66 |
|
|
|
|
|
|
|
|
|
(1) In August 2016, we began taking action under a
restructuring plan in order to reinvest in our key priority areas.
We have incurred charges of approximately $1.0 billion in relation
to this plan since its inception through Q2 FY2018. We have a small
amount of charges that remain which will be recognized over the
remainder of the fiscal year.
(2) Estimated adjustments to GAAP earnings per
share are shown after income tax effects.
The impact of the BroadSoft acquisition is factored
into our guidance.
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.
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
execution on our strategy, our ability to continue to innovate and
grow our business, the continued criticality of the network to the
business success of our customers, the momentum of our intent-based
networking portfolio, continued progress in shifting our business
toward more software and recurring revenue, and our ability to
continue to execute well, deliver profitable growth and return
capital to our shareholders) and the future financial performance
of Cisco (including the guidance for Q3 FY 2018) 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; man-made problems such
as cyber-attacks, data protection breaches, computer viruses or
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 21, 2017 and September 7, 2017,
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 27, 2018 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, 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, significant gains and losses on
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.
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
thenetwork.cisco.com and follow us on Twitter at @Cisco.
Copyright © 2018 Cisco and/or its affiliates. All
rights reserved. Cisco and the Cisco logo are trademarks or
registered trademarks of Cisco and/or its affiliates in the U.S.
and other countries. To view a list of Cisco trademarks, go to:
www.cisco.com/go/trademarks. Third-party trademarks mentioned in
this document are the property of their respective owners. The use
of the word partner does not imply a partnership relationship
between Cisco and any other company. This document is Cisco Public
Information.
|
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Press
Contact: |
Investor
Relations Contact: |
Robyn Blum |
Marilyn Mora |
Cisco |
Cisco |
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rojenkin@cisco.com |
marilmor@cisco.com |
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