Cisco today reported third quarter results for the period ended
April 28, 2018. Cisco reported third quarter revenue of $12.5
billion, net income on a generally accepted accounting principles
(GAAP) basis of $2.7 billion or $0.56 per share, and non-GAAP net
income of $3.2 billion or $0.66 per share.
“We are executing well against our strategy, our innovation
pipeline has never been stronger, and we continue to make great
progress in transforming towards more software and subscriptions,”
said Chuck Robbins, Chairman and CEO, Cisco. “I am confident with
our position in the industry and the impact we will continue to
drive with our customers.”
GAAP Results
|
|
Q3 FY 2018 |
|
Q3 FY 2017 |
|
Vs. Q3 FY 2017 |
Revenue |
|
$ |
12.5 |
billion |
|
$ |
11.9 |
billion |
|
4 |
% |
Net Income |
|
$ |
2.7 |
billion |
|
$ |
2.5 |
billion |
|
7 |
% |
Diluted Earnings per
Share (EPS) |
|
$ |
0.56 |
|
|
$ |
0.50 |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Results
|
|
Q3 FY 2018 |
|
Q3 FY 2017 |
|
Vs. Q3 FY 2017 |
Net Income
|
|
$ |
3.2 |
billion |
|
$ |
3.0 |
billion |
|
6 |
% |
EPS |
|
$ |
0.66 |
|
|
$ |
0.60 |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
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 delivered strong results in Q3 with solid revenue growth of
4% and non-GAAP EPS growth of 10%," said Kelly Kramer, CFO of
Cisco. "Our investment in innovation and continued execution
are paying off. We saw broad-based strength across our
portfolio, while continuing to shift our business model and deliver
value for shareholders.”
Financial Summary
All comparative percentages are on a year-over-year basis unless
otherwise noted.
Q3 FY 2018 Highlights
Revenue -- Total revenue was $12.5 billion, up
4%, with product revenue up 5% and service revenue up 3%. 32% of
total revenue was from recurring offers, up 2 percentage points
from the third quarter of fiscal 2017. Revenue by geographic
segment was: Americas up 2%, EMEA up 9%, and APJC up 7%. Product
revenue performance was broad based with growth in Infrastructure
Platforms which increased by 2%, Applications which increased by
19%, and Security which increased by 11%.
Gross Margin -- On a GAAP basis, total gross
margin and product gross margin were 62.3% and 61.0%, respectively.
Product gross margin decreased compared with 61.7% in the third
quarter of fiscal 2017.
Non-GAAP total gross margin and product gross margin were 63.9%
and 62.9%, respectively. Non-GAAP product gross margin decreased
compared with 63.2% in the third quarter of fiscal 2017. The
decrease was primarily due to pricing and higher memory costs
partially offset by improved productivity benefits.
GAAP service gross margin was 65.8% and non-GAAP service gross
margin was 66.9%.
Total gross margins by geographic segment were: 64.4% for the
Americas, 64.3% for EMEA and 61.7% for APJC.
Operating Expenses -- On a GAAP basis,
operating expenses were $4.6 billion, up 6%. Non-GAAP operating
expenses were $4.0 billion, up 6%, and were 32.5% of revenue.
Operating Income -- GAAP operating income was
$3.1 billion, down 1%, with GAAP operating margin of 25.1%.
Non-GAAP operating income was $3.9 billion, up 2%, with non-GAAP
operating margin of 31.5%.
Provision for Income Taxes -- The GAAP tax
provision rate was 17.3%. The non-GAAP tax provision rate was
21.0%.
Net Income and EPS -- On a GAAP basis, net
income was $2.7 billion and EPS was $0.56. On a non-GAAP basis, net
income was $3.2 billion, an increase of 6%, and EPS was $0.66, an
increase of 10%.
Cash Flow from Operating Activities -- was $2.4
billion, a decrease of 28% compared with $3.4 billion for the third
quarter of fiscal 2017. Operating cash flow includes the payment of
$1.3 billion of one-time foreign taxes as related to the Tax Cuts
and Jobs Act. Operating cash flow increased 11%, normalized for
these tax payments.
Balance Sheet and Other Financial
Highlights
Cash and Cash Equivalents and Investments --
were $54.4 billion at the end of the third quarter of fiscal 2018,
compared with $73.7 billion at the end of the second 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 third quarter of fiscal 2018
were $47.5 billion.
Deferred Revenue -- was $19.0 billion, up 9% in
total, with deferred product revenue up 18%, 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 29%.
Capital Allocation -- In the third quarter of
fiscal 2018, Cisco declared and paid a cash dividend of $0.33 per
common share, or $1.6 billion. For the third quarter of fiscal
2018, Cisco repurchased approximately 140 million shares of common
stock under its stock repurchase program at an average price of
$42.83 per share for an aggregate purchase price of $6.0 billion.
The remaining authorized amount for stock repurchases under the
program is $25.1 billion with no termination date.
Acquisitions and Divestitures
On May 1, 2018, we announced our intent to acquire Accompany, a
privately held company that provides an AI-driven relationship
intelligence platform. The Accompany acquisition closed in the
fourth quarter of fiscal 2018. We also announced an agreement to
sell our Service Provider Video Software Solutions (SPVSS)
business. We expect this transaction to close in the first quarter
of fiscal 2019 subject to regulatory approvals and customary
closing conditions.
In the third quarter of 2018, we closed our acquisition of
BroadSoft, Inc., a publicly held company that offers cloud calling
and contact center solutions. We also closed our acquisition of
Skyport Systems, Inc., a privately held company providing
cloud-managed, hyper-converged systems that run and protect
business critical applications.
Guidance for Q4 FY 2018
Cisco expects to achieve the following results for the fourth
quarter of fiscal 2018:
Q4 FY
2018 |
|
|
Revenue |
|
4% -
6% 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 |
|
$0.68
- $0.70 |
Cisco estimates that GAAP EPS will be $0.55 to $0.60 in the
fourth quarter of fiscal 2018.
A reconciliation between the Guidance for Q4 FY 2018 on a GAAP
and non-GAAP basis is provided in the table entitled "GAAP to
non-GAAP Guidance for Q4 FY 2018" located in the section entitled
"Reconciliations of GAAP to non-GAAP Measures."
Editor's Notes:
- Q3 fiscal year 2018 conference call to discuss Cisco's results
along with its guidance will be held on Wednesday, May 16,
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, May 16, 2018 to 4:00 p.m. Pacific Time, May 23,
2018 at 1-888-568-0890 (United States) or 1-402-998-1566
(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 16, 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.
CISCO SYSTEMS,
INC.CONSOLIDATED STATEMENTS OF
OPERATIONS(In millions, except per-share
amounts)(Unaudited)
|
Three Months Ended |
|
Nine Months Ended |
|
April 28,2018 |
|
April 29,2017 |
|
April 28,2018 |
|
April 29,2017 |
REVENUE: |
|
|
|
|
|
|
|
Product |
$ |
9,304 |
|
|
$ |
8,885 |
|
|
$ |
27,067 |
|
|
$ |
26,678 |
|
Service |
3,159 |
|
|
3,055 |
|
|
9,419 |
|
|
9,194 |
|
Total revenue |
12,463 |
|
|
11,940 |
|
|
36,486 |
|
|
35,872 |
|
COST OF
SALES: |
|
|
|
|
|
|
|
Product |
3,625 |
|
|
3,405 |
|
|
10,594 |
|
|
10,113 |
|
Service |
1,079 |
|
|
1,017 |
|
|
3,208 |
|
|
3,081 |
|
Total cost of sales |
4,704 |
|
|
4,422 |
|
|
13,802 |
|
|
13,194 |
|
GROSS
MARGIN |
7,759 |
|
|
7,518 |
|
|
22,684 |
|
|
22,678 |
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
Research
and development |
1,590 |
|
|
1,507 |
|
|
4,706 |
|
|
4,560 |
|
Sales and
marketing |
2,325 |
|
|
2,226 |
|
|
6,894 |
|
|
6,866 |
|
General
and administrative |
561 |
|
|
487 |
|
|
1,601 |
|
|
1,498 |
|
Amortization of purchased intangible assets |
67 |
|
|
59 |
|
|
188 |
|
|
201 |
|
Restructuring and other charges |
82 |
|
|
70 |
|
|
332 |
|
|
614 |
|
Total operating expenses |
4,625 |
|
|
4,349 |
|
|
13,721 |
|
|
13,739 |
|
OPERATING
INCOME |
3,134 |
|
|
3,169 |
|
|
8,963 |
|
|
8,939 |
|
Interest
income |
380 |
|
|
354 |
|
|
1,155 |
|
|
978 |
|
Interest
expense |
(237 |
) |
|
(219 |
) |
|
(719 |
) |
|
(639 |
) |
Other
income (loss), net |
(24 |
) |
|
(113 |
) |
|
48 |
|
|
(171 |
) |
Interest and other income (loss), net |
119 |
|
|
22 |
|
|
484 |
|
|
168 |
|
INCOME BEFORE
PROVISION FOR INCOME TAXES |
3,253 |
|
|
3,191 |
|
|
9,447 |
|
|
9,107 |
|
Provision for income
taxes (1) |
562 |
|
|
676 |
|
|
13,140 |
|
|
1,922 |
|
NET INCOME (LOSS) |
$ |
2,691 |
|
|
$ |
2,515 |
|
|
$ |
(3,693 |
) |
|
$ |
7,185 |
|
|
|
|
|
|
|
|
|
Net income (loss) per
share: |
|
|
|
|
|
|
|
Basic |
$ |
0.56 |
|
|
$ |
0.50 |
|
|
$ |
(0.76 |
) |
|
$ |
1.43 |
|
Diluted |
$ |
0.56 |
|
|
$ |
0.50 |
|
|
$ |
(0.76 |
) |
|
$ |
1.42 |
|
Shares used in
per-share calculation: |
|
|
|
|
|
|
|
Basic |
4,791 |
|
|
5,005 |
|
|
4,892 |
|
|
5,015 |
|
Diluted |
4,844 |
|
|
5,045 |
|
|
4,892 |
|
|
5,056 |
|
|
|
|
|
|
|
|
|
Cash dividends declared
per common share |
$ |
0.33 |
|
|
$ |
0.29 |
|
|
$ |
0.91 |
|
|
$ |
0.81 |
|
|
(1) For the nine months ended April 28, 2018, 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)
|
|
April 28, 2018 |
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
Amount |
|
Y/Y% |
|
Amount |
|
Y/Y% |
Revenue: |
|
|
|
|
|
|
|
|
Americas |
|
$ |
7,161 |
|
|
2 |
% |
|
$ |
21,515 |
|
|
2 |
% |
EMEA |
|
3,281 |
|
|
9 |
% |
|
9,252 |
|
|
2 |
% |
APJC |
|
2,021 |
|
|
7 |
% |
|
5,719 |
|
|
1 |
% |
Total |
|
$ |
12,463 |
|
|
4 |
% |
|
$ |
36,486 |
|
|
2 |
% |
|
CISCO SYSTEMS, INC.GROSS
MARGIN PERCENTAGE BY SEGMENT(In
percentages)
|
|
April 28, 2018 |
|
|
Three Months Ended |
|
Nine Months Ended |
Gross Margin
Percentage: |
|
|
|
|
Americas |
|
64.4 |
% |
|
64.8 |
% |
EMEA |
|
64.3 |
% |
|
64.0 |
% |
APJC |
|
61.7 |
% |
|
61.3 |
% |
|
|
|
|
|
|
|
CISCO SYSTEMS,
INC.REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND
SERVICES(In millions, except
percentages)
|
|
April 28, 2018 |
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
Amount |
|
Y/Y% |
|
Amount |
|
Y/Y% |
Revenue: |
|
|
|
|
|
|
|
|
Infrastructure Platforms |
|
$ |
7,163 |
|
|
2 |
% |
|
$ |
20,827 |
|
|
— |
% |
Applications |
|
1,309 |
|
|
19 |
% |
|
3,696 |
|
|
10 |
% |
Security |
|
583 |
|
|
11 |
% |
|
1,726 |
|
|
8 |
% |
Other
Products |
|
249 |
|
|
(6 |
)% |
|
818 |
|
|
(11 |
)% |
Total Product |
|
9,304 |
|
|
5 |
% |
|
27,067 |
|
|
1 |
% |
Services |
|
3,159 |
|
|
3 |
% |
|
9,419 |
|
|
2 |
% |
Total |
|
$ |
12,463 |
|
|
4 |
% |
|
$ |
36,486 |
|
|
2 |
% |
|
CISCO SYSTEMS,
INC.CONDENSED CONSOLIDATED BALANCE
SHEETS(In
millions)(Unaudited)
|
April 28, 2018 |
|
July 29, 2017 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
6,719 |
|
|
$ |
11,708 |
|
Investments |
47,712 |
|
|
58,784 |
|
Accounts
receivable, net of allowance for doubtful accounts of $115 at April
28, 2018and $211 at July 29, 2017 |
4,274 |
|
|
5,146 |
|
Inventories |
1,900 |
|
|
1,616 |
|
Financing
receivables, net |
4,868 |
|
|
4,856 |
|
Other
current assets |
1,668 |
|
|
1,593 |
|
Total current assets |
67,141 |
|
|
83,703 |
|
Property and equipment,
net |
3,082 |
|
|
3,322 |
|
Financing receivables,
net |
4,915 |
|
|
4,738 |
|
Goodwill |
31,654 |
|
|
29,766 |
|
Purchased intangible
assets, net |
2,681 |
|
|
2,539 |
|
Deferred tax
assets |
3,044 |
|
|
4,239 |
|
Other assets |
1,491 |
|
|
1,511 |
|
TOTAL ASSETS |
$ |
114,008 |
|
|
$ |
129,818 |
|
LIABILITIES AND
EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Short-term debt |
$ |
7,736 |
|
|
$ |
7,992 |
|
Accounts
payable |
1,552 |
|
|
1,385 |
|
Income
taxes payable |
962 |
|
|
98 |
|
Accrued
compensation |
2,966 |
|
|
2,895 |
|
Deferred
revenue |
11,301 |
|
|
10,821 |
|
Other
current liabilities |
4,125 |
|
|
4,392 |
|
Total current liabilities |
28,642 |
|
|
27,583 |
|
Long-term debt |
20,336 |
|
|
25,725 |
|
Income taxes
payable |
9,076 |
|
|
1,250 |
|
Deferred revenue |
7,652 |
|
|
7,673 |
|
Other long-term
liabilities |
1,641 |
|
|
1,450 |
|
Total liabilities |
67,347 |
|
|
63,681 |
|
Total equity |
46,661 |
|
|
66,137 |
|
TOTAL LIABILITIES AND EQUITY |
$ |
114,008 |
|
|
$ |
129,818 |
|
|
CISCO SYSTEMS,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS(In
millions)(Unaudited)
|
Nine Months Ended |
|
April 28, 2018 |
|
April 29, 2017 |
Cash flows from
operating activities: |
|
|
|
Net
income (loss) |
$ |
(3,693 |
) |
|
$ |
7,185 |
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
Depreciation, amortization, and other |
1,676 |
|
|
1,708 |
|
Share-based compensation expense |
1,184 |
|
|
1,124 |
|
Provision for receivables |
(104 |
) |
|
20 |
|
Deferred income taxes |
1,013 |
|
|
(125 |
) |
Excess tax benefits from share-based compensation |
— |
|
|
(125 |
) |
(Gains) losses on divestitures, investments and other,
net |
(159 |
) |
|
156 |
|
Change in operating assets and liabilities, net of
effects of acquisitions and divestitures: |
|
|
|
Accounts receivable |
1,064 |
|
|
1,253 |
|
Inventories |
(289 |
) |
|
(149 |
) |
Financing receivables |
(165 |
) |
|
(773 |
) |
Other assets |
(135 |
) |
|
140 |
|
Accounts payable |
148 |
|
|
149 |
|
Income taxes, net |
8,795 |
|
|
(112 |
) |
Accrued compensation |
53 |
|
|
(154 |
) |
Deferred revenue |
415 |
|
|
592 |
|
Other liabilities |
(237 |
) |
|
(1,014 |
) |
Net cash provided by
operating activities |
9,566 |
|
|
9,875 |
|
Cash flows from
investing activities: |
|
|
|
Purchases
of investments |
(14,132 |
) |
|
(35,562 |
) |
Proceeds
from sales of investments |
12,422 |
|
|
24,414 |
|
Proceeds
from maturities of investments |
12,259 |
|
|
8,390 |
|
Acquisition of businesses, net of cash and cash equivalents
acquired |
(2,789 |
) |
|
(3,211 |
) |
Proceeds
from business divestitures |
27 |
|
|
— |
|
Purchases
of investments in privately held companies |
(126 |
) |
|
(172 |
) |
Return of
investments in privately held companies |
163 |
|
|
168 |
|
Acquisition of property and equipment |
(620 |
) |
|
(756 |
) |
Proceeds
from sales of property and equipment |
54 |
|
|
6 |
|
Other |
(3 |
) |
|
35 |
|
Net cash provided by (used
in) investing activities |
7,255 |
|
|
(6,688 |
) |
Cash flows from
financing activities: |
|
|
|
Issuances
of common stock |
318 |
|
|
418 |
|
Repurchases of common stock - repurchase program |
(11,562 |
) |
|
(2,516 |
) |
Shares
repurchased for tax withholdings on vesting of restricted stock
units |
(541 |
) |
|
(497 |
) |
Short-term borrowings, original maturities of 90 days or less,
net |
(2,502 |
) |
|
2,000 |
|
Issuances
of debt |
6,877 |
|
|
6,232 |
|
Repayments of debt |
(9,875 |
) |
|
(4,151 |
) |
Excess
tax benefits from share-based compensation |
— |
|
|
125 |
|
Dividends
paid |
(4,433 |
) |
|
(4,063 |
) |
Other |
(92 |
) |
|
(250 |
) |
Net cash used in financing
activities |
(21,810 |
) |
|
(2,702 |
) |
Net increase (decrease)
in cash and cash equivalents |
(4,989 |
) |
|
485 |
|
Cash and cash
equivalents, beginning of period |
11,708 |
|
|
7,631 |
|
Cash and cash
equivalents, end of period |
$ |
6,719 |
|
|
$ |
8,116 |
|
Supplemental cash flow
information: |
|
|
|
Cash paid for
interest |
$ |
739 |
|
|
$ |
727 |
|
Cash paid for income
taxes, net |
$ |
3,332 |
|
|
$ |
2,159 |
|
|
|
|
|
|
|
|
|
CISCO SYSTEMS,
INC.DEFERRED REVENUE(In
millions)
|
April 28,2018 |
|
January 27,2018 |
|
April 29,2017 |
Deferred revenue: |
|
|
|
|
|
Service |
$ |
10,960 |
|
|
$ |
10,963 |
|
|
$ |
10,532 |
|
Product: |
|
|
|
|
|
Deferred revenue related to recurring software and
subscription offers |
5,635 |
|
|
5,451 |
|
|
4,352 |
|
Other product deferred revenue |
2,358 |
|
|
2,374 |
|
|
2,438 |
|
Total product deferred revenue |
7,993 |
|
|
7,825 |
|
|
6,790 |
|
Total |
$ |
18,953 |
|
|
$ |
18,788 |
|
|
$ |
17,322 |
|
Reported as: |
|
|
|
|
|
Current |
$ |
11,301 |
|
|
$ |
11,102 |
|
|
$ |
10,344 |
|
Noncurrent |
7,652 |
|
|
7,686 |
|
|
6,978 |
|
Total |
$ |
18,953 |
|
|
$ |
18,788 |
|
|
$ |
17,322 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
April 28,
2018 |
|
$ |
0.33 |
|
|
$ |
1,572 |
|
|
140 |
|
|
$ |
42.83 |
|
|
$ |
6,015 |
|
|
$ |
7,587 |
|
January
27, 2018 |
|
$ |
0.29 |
|
|
$ |
1,425 |
|
|
103 |
|
|
$ |
39.07 |
|
|
$ |
4,011 |
|
|
$ |
5,436 |
|
October
28, 2017 |
|
$ |
0.29 |
|
|
$ |
1,436 |
|
|
51 |
|
|
$ |
31.80 |
|
|
$ |
1,620 |
|
|
$ |
3,056 |
|
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
MEASURES
GAAP NET INCOME (LOSS) TO NON-GAAP NET
INCOME(In millions, except per-share
amounts)
|
Three Months Ended |
|
Nine Months Ended |
|
April 28, 2018 |
|
April 29, 2017 |
|
April 28, 2018 |
|
April 29, 2017 |
GAAP net income
(loss) |
$ |
2,691 |
|
|
$ |
2,515 |
|
|
$ |
(3,693 |
) |
|
$ |
7,185 |
|
Adjustments to cost of sales: |
|
|
|
|
|
|
|
Share-based compensation expense |
57 |
|
|
56 |
|
|
168 |
|
|
163 |
|
Amortization of acquisition-related intangible assets |
161 |
|
|
124 |
|
|
444 |
|
|
343 |
|
Supplier
component remediation charge (adjustment), net |
(9 |
) |
|
(13 |
) |
|
(41 |
) |
|
(29 |
) |
Acquisition-related/divestiture costs |
2 |
|
|
— |
|
|
4 |
|
|
1 |
|
Legal and
indemnification settlements |
— |
|
|
— |
|
|
122 |
|
|
— |
|
Total
adjustments to GAAP cost of sales |
211 |
|
|
167 |
|
|
697 |
|
|
478 |
|
Adjustments to operating expenses: |
|
|
|
|
|
|
|
Share-based compensation expense |
342 |
|
|
349 |
|
|
1,010 |
|
|
963 |
|
Amortization of acquisition-related intangible assets |
67 |
|
|
59 |
|
|
188 |
|
|
201 |
|
Acquisition-related/divestiture costs |
89 |
|
|
43 |
|
|
195 |
|
|
157 |
|
Significant asset impairments and restructurings |
82 |
|
|
70 |
|
|
332 |
|
|
614 |
|
Total
adjustments to GAAP operating expenses |
580 |
|
|
521 |
|
|
1,725 |
|
|
1,935 |
|
Total
adjustments to GAAP income (loss) before provision forincome
taxes |
791 |
|
|
688 |
|
|
2,422 |
|
|
2,413 |
|
Income
tax effect of non-GAAP adjustments |
(168 |
) |
|
(177 |
) |
|
(613 |
) |
|
(612 |
) |
Significant tax matters (1) |
(119 |
) |
|
— |
|
|
11,261 |
|
|
— |
|
Total
adjustments to GAAP provision for income taxes |
(287 |
) |
|
(177 |
) |
|
10,648 |
|
|
(612 |
) |
Non-GAAP net
income |
$ |
3,195 |
|
|
$ |
3,026 |
|
|
$ |
9,377 |
|
|
$ |
8,986 |
|
Net income (loss) per
share: (2) |
|
|
|
|
|
|
|
GAAP |
$ |
0.56 |
|
|
$ |
0.50 |
|
|
$ |
(0.76 |
) |
|
$ |
1.42 |
|
Non-GAAP |
$ |
0.66 |
|
|
$ |
0.60 |
|
|
$ |
1.90 |
|
|
$ |
1.78 |
|
|
(1) Cisco recorded charges relating to significant tax matters
that were excluded from non-GAAP net income for the first nine
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 $8.9 billion related to the U.S. transition
tax, $1.2 billion related to foreign withholding tax and $1.0
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 $0.2
billion was related to other significant tax matters.
(2) GAAP net loss per share for the nine months ended April 28,
2018 is calculated using basic shares of 4,892 million, due to the
net loss resulting from the tax charge as discussed in footnote
(1). Non-GAAP net income per share for the period is calculated
using diluted shares of 4,936 million, as the Company had non-GAAP
net income for this period.
CISCO SYSTEMS,
INC.RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURES
GROSS MARGINS, OPERATING EXPENSES,
OPERATING MARGINS, AND NET INCOME(In millions,
except percentages)
|
Three Months Ended |
|
April 28, 2018 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
Y/Y |
|
OperatingIncome |
|
Y/Y |
|
NetIncome |
|
Y/Y |
GAAP amount |
$ |
5,679 |
|
|
$ |
2,080 |
|
|
$ |
7,759 |
|
|
$ |
4,625 |
|
|
6 |
% |
|
$ |
3,134 |
|
|
(1 |
)% |
|
$ |
2,691 |
|
|
7 |
% |
% of revenue |
61.0 |
% |
|
65.8 |
% |
|
62.3 |
% |
|
37.1 |
% |
|
|
|
25.1 |
% |
|
|
|
21.6 |
% |
|
|
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
24 |
|
|
33 |
|
|
57 |
|
|
342 |
|
|
|
|
399 |
|
|
|
|
399 |
|
|
|
Amortization of acquisition-relatedintangible assets |
161 |
|
|
— |
|
|
161 |
|
|
67 |
|
|
|
|
228 |
|
|
|
|
228 |
|
|
|
Supplier
component remediation charge(adjustment), net |
(9 |
) |
|
— |
|
|
(9 |
) |
|
— |
|
|
|
|
(9 |
) |
|
|
|
(9 |
) |
|
|
Acquisition/divestiture-related costs |
1 |
|
|
1 |
|
|
2 |
|
|
89 |
|
|
|
|
91 |
|
|
|
|
91 |
|
|
|
Significant asset impairments andrestructurings |
— |
|
|
— |
|
|
— |
|
|
82 |
|
|
|
|
82 |
|
|
|
|
82 |
|
|
|
Income
tax effect/significant taxmatters |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|
(287 |
) |
|
|
Non-GAAP
amount |
$ |
5,856 |
|
|
$ |
2,114 |
|
|
$ |
7,970 |
|
|
$ |
4,045 |
|
|
6 |
% |
|
$ |
3,925 |
|
|
2 |
% |
|
$ |
3,195 |
|
|
6 |
% |
% of revenue |
62.9 |
% |
|
66.9 |
% |
|
63.9 |
% |
|
32.5 |
% |
|
|
|
31.5 |
% |
|
|
|
25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
April 29, 2017 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
OperatingIncome |
|
NetIncome |
GAAP amount |
$ |
5,480 |
|
|
$ |
2,038 |
|
|
$ |
7,518 |
|
|
$ |
4,349 |
|
|
$ |
3,169 |
|
|
$ |
2,515 |
|
% of revenue |
61.7 |
% |
|
66.7 |
% |
|
63.0 |
% |
|
36.4 |
% |
|
26.5 |
% |
|
21.1 |
% |
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
22 |
|
|
34 |
|
|
56 |
|
|
349 |
|
|
405 |
|
|
405 |
|
Amortization of acquisition-relatedintangible assets |
124 |
|
|
— |
|
|
124 |
|
|
59 |
|
|
183 |
|
|
183 |
|
Supplier
component remediationcharge (adjustment), net |
(13 |
) |
|
— |
|
|
(13 |
) |
|
— |
|
|
(13 |
) |
|
(13 |
) |
Acquisition/divestiture-related costs |
— |
|
|
— |
|
|
— |
|
|
43 |
|
|
43 |
|
|
43 |
|
Significant asset impairments andrestructurings |
— |
|
|
— |
|
|
— |
|
|
70 |
|
|
70 |
|
|
70 |
|
Income
tax effect |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(177 |
) |
Non-GAAP amount |
$ |
5,613 |
|
|
$ |
2,072 |
|
|
$ |
7,685 |
|
|
$ |
3,828 |
|
|
$ |
3,857 |
|
|
$ |
3,026 |
|
% of revenue |
63.2 |
% |
|
67.8 |
% |
|
64.4 |
% |
|
32.1 |
% |
|
32.3 |
% |
|
25.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CISCO SYSTEMS,
INC.RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURES
GROSS MARGINS, OPERATING EXPENSES,
OPERATING MARGINS, AND NET INCOME (LOSS)(In
millions, except percentages)
|
Nine Months Ended |
|
April 28, 2018 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
Y/Y |
|
OperatingIncome |
|
Y/Y |
|
NetIncome(Loss) |
|
Y/Y |
GAAP amount |
$ |
16,473 |
|
|
$ |
6,211 |
|
|
$ |
22,684 |
|
|
$ |
13,721 |
|
|
— |
% |
|
$ |
8,963 |
|
|
— |
% |
|
$ |
(3,693 |
) |
|
(151 |
)% |
% of revenue |
60.9 |
% |
|
65.9 |
% |
|
62.2 |
% |
|
37.6 |
% |
|
|
|
24.6 |
% |
|
|
|
(10.1 |
)% |
|
|
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
70 |
|
|
98 |
|
|
168 |
|
|
1,010 |
|
|
|
|
1,178 |
|
|
|
|
1,178 |
|
|
|
Amortization of acquisition-relatedintangible assets |
444 |
|
|
— |
|
|
444 |
|
|
188 |
|
|
|
|
632 |
|
|
|
|
632 |
|
|
|
Supplier
component remediationcharge (adjustment), net |
(41 |
) |
|
— |
|
|
(41 |
) |
|
— |
|
|
|
|
(41 |
) |
|
|
|
(41 |
) |
|
|
Legal and
indemnificationsettlements |
122 |
|
|
— |
|
|
122 |
|
|
— |
|
|
|
|
122 |
|
|
|
|
122 |
|
|
|
Acquisition/divestiture-relatedcosts |
1 |
|
|
3 |
|
|
4 |
|
|
195 |
|
|
|
|
199 |
|
|
|
|
199 |
|
|
|
Significant asset impairments andrestructurings |
— |
|
|
— |
|
|
— |
|
|
332 |
|
|
|
|
332 |
|
|
|
|
332 |
|
|
|
Income
tax effect/significant taxmatters (1) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|
10,648 |
|
(1 |
) |
|
Non-GAAP
amount |
$ |
17,069 |
|
|
$ |
6,312 |
|
|
$ |
23,381 |
|
|
$ |
11,996 |
|
|
2 |
% |
|
$ |
11,385 |
|
|
— |
% |
|
$ |
9,377 |
|
|
4 |
% |
% of revenue |
63.1 |
% |
|
67.0 |
% |
|
64.1 |
% |
|
32.9 |
% |
|
|
|
31.2 |
% |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes an $11.1 billion charge as related to the enactment
of the Tax Cuts and Jobs Act.
|
Nine Months Ended |
|
April 29, 2017 |
|
ProductGrossMargin |
|
ServiceGrossMargin |
|
TotalGrossMargin |
|
OperatingExpenses |
|
OperatingIncome |
|
NetIncome |
GAAP amount |
$ |
16,565 |
|
|
$ |
6,113 |
|
|
$ |
22,678 |
|
|
$ |
13,739 |
|
|
$ |
8,939 |
|
|
$ |
7,185 |
|
% of revenue |
62.1 |
% |
|
66.5 |
% |
|
63.2 |
% |
|
38.3 |
% |
|
24.9 |
% |
|
20.0 |
% |
Adjustments to GAAP
amounts: |
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
62 |
|
|
101 |
|
|
163 |
|
|
963 |
|
|
1,126 |
|
|
1,126 |
|
Amortization of acquisition-relatedintangible assets |
343 |
|
|
— |
|
|
343 |
|
|
201 |
|
|
544 |
|
|
544 |
|
Supplier
component remediationcharge (adjustment), net |
(29 |
) |
|
— |
|
|
(29 |
) |
|
— |
|
|
(29 |
) |
|
(29 |
) |
Acquisition/divestiture-related costs |
— |
|
|
1 |
|
|
1 |
|
|
157 |
|
|
158 |
|
|
158 |
|
Significant asset impairments andrestructurings |
— |
|
|
— |
|
|
— |
|
|
614 |
|
|
614 |
|
|
614 |
|
Income
tax effect |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(612 |
) |
Non-GAAP amount |
$ |
16,941 |
|
|
$ |
6,215 |
|
|
$ |
23,156 |
|
|
$ |
11,804 |
|
|
$ |
11,352 |
|
|
$ |
8,986 |
|
% of revenue |
63.5 |
% |
|
67.6 |
% |
|
64.6 |
% |
|
32.9 |
% |
|
31.6 |
% |
|
25.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CISCO SYSTEMS,
INC.RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURES
EFFECTIVE TAX RATE(In
percentages)
|
Three Months Ended |
|
Nine Months Ended |
|
April 28,2018 |
|
April 29,2017 |
|
April 28,2018 |
|
April 29,2017 |
GAAP effective tax rate
(1) |
17.3 |
% |
|
21.2 |
% |
|
139.1 |
% |
|
21.1 |
% |
Total
adjustments to GAAP provision for income taxes |
3.7 |
% |
|
0.8 |
% |
|
(118.1 |
)% |
|
0.9 |
% |
Non-GAAP effective tax
rate |
21.0 |
% |
|
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 for the nine months ended April 28,
2018.
GAAP TO NON-GAAP GUIDANCE FOR Q4 FY
2018
Q4 FY 2018 |
|
Gross Margin Rate |
|
Operating Margin Rate |
|
Tax Provision Rate |
|
Earnings per Share (2) |
GAAP |
|
61.5%
- 62.5% |
|
24%-
25% |
|
20% |
|
$0.55
- $0.60 |
Estimated adjustments
for: |
|
|
|
|
|
|
|
|
Share-based
compensation expense |
|
0.5% |
|
3.0% |
|
— |
|
$0.05
- $0.06 |
Amortization of
purchased intangible assets and other
acquisition-related/divestiture costs |
|
1.0% |
|
2.5% |
|
— |
|
$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% |
|
$0.68 - $0.70 |
|
|
|
|
|
|
|
|
|
(1) In the third quarter of fiscal 2018, Cisco initiated a
restructuring plan in order to realign the organization and enable
further investment in key priority areas. The total pre-tax cash
charges to the GAAP financial results is estimated to be
approximately $300 million consisting of severance and other
one-time benefits, and other associated costs. We expect to
recognize up to $50 million of these charges in the fourth quarter
of fiscal 2018 with the remaining amount to be recognized through
fiscal 2019.
(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.
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 execution on our strategy, our
investment in innovation and ability to continue to build a strong
innovation pipeline, continued progress in transforming our
business toward more software and subscriptions, our ability to
maintain our position in the industry and the impact we will
continue to drive with our customers, continued broad-based
strength across our portfolio, 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 Q4 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 February 20, 2018 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 nine months
ended April 28, 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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