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    Cisco Reports Third Quarter FY19 Earnings | The Network


    • Q3 Results:

      • Revenue: $13.0 billion

        • Growth of 6% year over year (normalized to exclude the divested SPVSS business for Q3 FY 2018)
      • Earnings per Share: GAAP: $0.69; Non-GAAP: $0.78

        • Non-GAAP EPS increased 18% year over year
    • Q4 Guidance (normalized to exclude the divested SPVSS business for Q4 FY 2018):

      • Revenue: 4.5% to 6.5% growth year over year
      • Earnings per Share: GAAP: $0.66 to $0.71; Non-GAAP: $0.80 to $0.82


        Q3FY19 Earnings Infographics

         

    SAN JOSE, Calif., May 15, 2019 — Cisco today reported third quarter results for the period ended April 27, 2019. Cisco reported third quarter revenue of $13.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.0 billion or $0.69 per share, and non-GAAP net income of $3.5 billion or $0.78 per share.

        

    As previously disclosed, Cisco completed the divestiture of the Service Provider Video Software Solutions (SPVSS) business in the second quarter of fiscal 2019 on October 28, 2018. Revenue, non-GAAP financial information, and Q4 FY 2019 guidance have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

    “Our strong performance in the quarter was across the business, reflecting our customers’ confidence in our strategy, business model and market-leading portfolio,” said Chuck Robbins, chairman and CEO of Cisco. “Technology is at the heart of our customers’ strategies and we are building the technology to help them achieve their business objectives.”

    GAAP Results

                 
       

    Q3 FY 2019

     

    Q3 FY 2018

     

    Vs. Q3 FY 2018

    Revenue (including SPVSS business for all periods)

     

    $

    13.0 billion

     

    $

    12.5 billion

     

    4%

    Revenue (excluding SPVSS business for all periods)

     

    $

    13.0 billion

     

    $

    12.2 billion

     

    6%

    Net Income

     

    $

    3.0 billion

     

    $

    2.7 billion

     

    13%

    Diluted Earnings per Share (EPS)

     

    $

    0.69

       

    $

    0.56

       

    23%

     

    Non-GAAP Results

                 
       

    Q3 FY 2019

     

    Q3 FY 2018

     

    Vs. Q3 FY 2018

    Net Income (excluding SPVSS business for all periods)

     

    $

    3.5 billion

     

    $

    3.2 billion

     

    8%

    EPS (excluding SPVSS business for all periods)

     

    $

    0.78

       

    $

    0.66

       

    18%

    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, delivering revenue growth of 6%, non-GAAP EPS growth of 18%, as well as strong margins and cash flow,” said Kelly Kramer, CFO of Cisco. “We continue to invest in our innovation pipeline to drive long-term profitable growth, while successfully evolving our business model through software offerings and subscriptions and delivering value for shareholders.”

    Financial Summary

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

    All revenue, non-GAAP, and geographic financial information in the “Q3 FY 2019 Highlights” section are presented excluding the SPVSS business for all periods as it was divested during the second quarter, on October 28, 2018.

    Q3 FY 2019 Highlights

    Revenue — Total revenue was $13.0 billion, up 6%, with product revenue up 7% and service revenue up 3%. Revenue by geographic segment was: Americas up 9%, EMEA up 5%, and APJC down 4%. Product revenue performance was broad based with growth in Security, up 21%, Applications, up 9%, and Infrastructure Platforms, up 5%.

    Gross Margin —  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.1%, 62.0%, and 66.3%, respectively, as compared with 62.3%, 61.0%, and 65.8%, respectively, in the third quarter of fiscal 2018.

    On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 64.6%, 63.7%, and 67.3%, respectively, as compared with 64.5%, 63.7%, and 67.1%, respectively, in the third quarter of fiscal 2018.

    Total gross margins by geographic segment were: 65.6% for the Americas, 64.5% for EMEA and 60.7% for APJC.

    Operating Expenses — On a GAAP basis, operating expenses were $4.7 billion, up 1%. Non-GAAP operating expenses were $4.2 billion, up 6%, and were 32.4% of revenue.

    Operating Income — GAAP operating income was $3.5 billion, up 12%, with GAAP operating margin of 27.1%. Non-GAAP operating income was $4.2 billion, up 6%, with non-GAAP operating margin at 32.2%.

    Provision for Income Taxes — The GAAP tax provision rate was 15.8%. The non-GAAP tax provision rate was 19.0%.

    Net Income and EPS — On a GAAP basis, net income was $3.0 billion and EPS was $0.69. On a non-GAAP basis, net income was $3.5 billion, an increase of 8%, and EPS was $0.78, an increase of 18%.

    Cash Flow from Operating Activities — $4.3 billion for the third quarter of fiscal 2019, an increase of 79% compared with $2.4 billion for the third quarter of fiscal 2018. Operating cash flow for the third quarter of fiscal 2018 included the payment of $1.3 billion of one-time foreign taxes as related to the Tax Cuts and Jobs Act. Operating cash flow increased 16%, normalized for these tax payments.

    Balance Sheet and Other Financial Highlights

    Cash and Cash Equivalents and Investments — $34.6 billion at the end of the third quarter of fiscal 2019, compared with $40.4 billion at the end of the second quarter of fiscal 2019, and compared with $46.5 billion at the end of fiscal 2018.

    Deferred Revenue — $17.5 billion, down 8% in total, with deferred product revenue down 23%. Deferred service revenue was up 3%.

    Capital Allocation — In the third quarter of fiscal 2019, we returned $7.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.35 per common share, or $1.5 billion, and repurchased approximately 116 million shares of common stock under our stock repurchase program at an average price of $52.14 per share for an aggregate purchase price of $6.0 billion. The remaining authorized amount for stock repurchases under the program is $18.0 billion with no termination date.

    Acquisitions

    In the third quarter of fiscal 2019, we closed the acquisitions of Luxtera, Inc., a privately held semiconductor company, and Singularity Networks, a privately held network infrastructure analytics company.

    Guidance for Q4 FY 2019

    Cisco expects to achieve the following results for the fourth quarter of fiscal 2019 (normalized to exclude the divested SPVSS business):

    Q4 FY 2019

       

    Revenue

     

    4.5% – 6.5% growth Y/Y

    Non-GAAP gross margin rate

     

    64% – 65%

    Non-GAAP operating margin rate

     

    31% – 32%

    Non-GAAP tax provision rate

     

    19%

    Non-GAAP EPS

     

    $0.80 – $0.82

    Revenue for the divested SPVSS business for the fourth quarter of fiscal 2018 was $206 million.

    Cisco estimates that GAAP EPS will be $0.66 to $0.71 in the fourth quarter of fiscal 2019.

    A reconciliation between the Guidance for Q4 FY 2019 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q4 FY 2019” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

    Editor’s Notes:

    • Q3 fiscal year 2019 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, May 15, 2019 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).
    • Conference call replay will be available from 4:00 p.m. Pacific Time, May 15, 2019 to 4:00 p.m. Pacific Time, May 22, 2019 at 1-888-446-2545 (United States) or 1-402-998-1344 (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 15, 2019. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.
    • Cisco is hosting Cisco Live, its premier annual customer and partner conference June 9-13 in San Diego, Calif. Register now for keynotes, hands-on learnings experiences, expert demos and networking.

     

    CISCO SYSTEMS, INC.

    CONSOLIDATED STATEMENTS OF OPERATIONS

    (In millions, except per-share amounts)

    (Unaudited)

           
     

    Three Months Ended

     

    Nine Months Ended

     

    April 27, 2019

     

    April 28, 2018

     

    April 27, 2019

     

    April 28, 2018

    REVENUE:

                 

    Product

    $

    9,722

       

    $

    9,304

       

    $

    28,885

       

    $

    27,067

     

    Service

    3,236

       

    3,159

       

    9,591

       

    9,419

     

    Total revenue

    12,958

       

    12,463

       

    38,476

       

    36,486

     

    COST OF SALES:

                 

    Product

    3,693

       

    3,625

       

    11,106

       

    10,594

     

    Service

    1,092

       

    1,079

       

    3,278

       

    3,208

     

    Total cost of sales

    4,785

       

    4,704

       

    14,384

       

    13,802

     

    GROSS MARGIN

    8,173

       

    7,759

       

    24,092

       

    22,684

     

    OPERATING EXPENSES:

                 

    Research and development

    1,659

       

    1,590

       

    4,824

       

    4,706

     

    Sales and marketing

    2,403

       

    2,325

       

    7,084

       

    6,894

     

    General and administrative

    541

       

    561

       

    1,261

       

    1,601

     

    Amortization of purchased intangible assets

    39

       

    67

       

    112

       

    188

     

    Restructuring and other charges

    18

       

    82

       

    282

       

    332

     

    Total operating expenses

    4,660

       

    4,625

       

    13,563

       

    13,721

     

    OPERATING INCOME

    3,513

       

    3,134

       

    10,529

       

    8,963

     

    Interest income

    331

       

    380

       

    1,003

       

    1,155

     

    Interest expense

    (211)

       

    (237)

       

    (655)

       

    (719)

     

    Other income (loss), net

    (18)

       

    (24)

       

    (10)

       

    48

     

    Interest and other income (loss), net

    102

       

    119

       

    338

       

    484

     

    INCOME BEFORE PROVISION FOR INCOME TAXES

    3,615

       

    3,253

       

    10,867

       

    9,447

     

    Provision for income taxes (1)

    571

       

    562

       

    1,452

       

    13,140

     

    NET INCOME (LOSS)

    $

    3,044

       

    $

    2,691

       

    $

    9,415

       

    $

    (3,693)

     
                   

    Net income (loss) per share:

                 

    Basic

    $

    0.70

       

    $

    0.56

       

    $

    2.11

       

    $

    (0.76)

     

    Diluted

    $

    0.69

       

    $

    0.56

       

    $

    2.09

       

    $

    (0.76)

     

    Shares used in per-share calculation:

                 

    Basic

    4,370

       

    4,791

       

    4,468

       

    4,892

     

    Diluted

    4,415

       

    4,844

       

    4,509

       

    4,892

     

    The Consolidated Statements of Operations include the results of the SPVSS business prior to its divestiture during the second quarter of fiscal 2019 on October 28, 2018. Accordingly, the nine months ended April 27, 2019 includes three months of financial results for this business.

    (1) The provision for income taxes for the nine months ended April 28, 2018 includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.

    CISCO SYSTEMS, INC.

    REVENUE BY SEGMENT

    (In millions, except percentages)

         
       

    April 27, 2019

       

    Three Months Ended

     

    Nine Months Ended

       

    Amount

     

    Y/Y %

     

    Amount

     

    Y/Y %

    Revenue:

                   

    Including SPVSS business for all periods:

                   

    Americas

     

    $

    7,695

       

    7%

     

    $

    22,798

       

    6%

    EMEA

     

    3,356

       

    2%

     

    9,803

       

    6%

    APJC

     

    1,907

       

    (6)%

     

    5,875

       

    3%

    Total

     

    $

    12,958

       

    4%

     

    $

    38,476

       

    5%

    Excluding SPVSS business for all periods:

                   

    Americas

     

    $

    7,695

       

    9%

     

    $

    22,721

       

    7%

    EMEA

     

    3,356

       

    5%

     

    9,737

       

    8%

    APJC

     

    1,907

       

    (4)%

     

    5,851

       

    5%

    Total

     

    $

    12,958

       

    6%

     

    $

    38,309

       

    7%

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

    During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended April 28, 2018 was $219 million and for the nine months ended April 27, 2019 and April 28, 2018 was $168 million and $697 million, respectively.

    CISCO SYSTEMS, INC.

    GROSS MARGIN PERCENTAGE BY SEGMENT

    (In percentages)

         
       

    April 27, 2019

       

    Three Months Ended

     

    Nine Months Ended

    Gross Margin Percentage:

           

    Including SPVSS business for all periods:

           

    Americas

     

    65.6%

     

    65.4%

    EMEA

     

    64.5%

     

    64.3%

    APJC

     

    60.7%

     

    59.0%

    Excluding SPVSS business for all periods (1):

           

    Americas

     

    65.6%

     

    65.6%

    EMEA

     

    64.5%

     

    64.4%

    APJC

     

    60.7%

     

    59.1%

    (1) During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business.

    CISCO SYSTEMS, INC.

    REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

    (In millions, except percentages)

         
       

    April 27, 2019

       

    Three Months Ended

     

    Nine Months Ended

       

    Amount

     

    Y/Y %

     

    Amount

     

    Y/Y %

    Revenue:

                   

    Including SPVSS business for all periods:

                   

    Infrastructure Platforms

     

    $

    7,545

       

    5%

     

    $

    22,315

       

    7%

    Applications

     

    1,431

       

    9%

     

    4,315

       

    17%

    Security

     

    707

       

    21%

     

    2,016

       

    17%

    Other Products

     

    39

       

    (83)%

     

    239

       

    (69)%

    Total Product

     

    9,722

       

    4%

     

    28,885

       

    7%

    Services

     

    3,236

       

    2%

     

    9,591

       

    2%

    Total

     

    $

    12,958

       

    4%

     

    $

    38,476

       

    5%

    Excluding SPVSS business for all periods:

                   

    Infrastructure Platforms

     

    $

    7,545

       

    5%

     

    $

    22,315

       

    7%

    Applications

     

    1,431

       

    9%

     

    4,315

       

    17%

    Security

     

    707

       

    21%

     

    2,016

       

    17%

    Other Products

     

    39

       

    3%

     

    93

       

    (39)%

    Total Product

     

    9,722

       

    7%

     

    28,739

       

    9%

    Services

     

    3,236

       

    3%

     

    9,570

       

    2%

    Total

     

    $

    12,958

       

    6%

     

    $

    38,309

       

    7%

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

    During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended April 28, 2018 was $219 million and for the nine months ended April 27, 2019 and April 28, 2018 was $168 million and $697 million, respectively.

    CISCO SYSTEMS, INC.

    CONDENSED CONSOLIDATED BALANCE SHEETS

    (In millions)

    (Unaudited)

           
     

    April 27, 2019

     

    July 28, 2018

    ASSETS

         

    Current assets:

         

    Cash and cash equivalents

    $

    10,251

       

    $

    8,934

     

    Investments

    24,392

       

    37,614

     

    Accounts receivable, net of allowance for doubtful accounts of $124 at April 27, 2019 and $129 at July 28, 2018

    3,795

       

    5,554

     

    Inventories

    1,513

       

    1,846

     

    Financing receivables, net

    5,029

       

    4,949

     

    Other current assets

    2,331

       

    2,940

     

    Total current assets

    47,311

       

    61,837

     

    Property and equipment, net

    2,834

       

    3,006

     

    Financing receivables, net

    4,862

       

    4,882

     

    Goodwill

    33,544

       

    31,706

     

    Purchased intangible assets, net

    2,398

       

    2,552

     

    Deferred tax assets

    4,023

       

    3,219

     

    Other assets

    2,315

       

    1,582

     

    TOTAL ASSETS

    $

    97,287

       

    $

    108,784

     

    LIABILITIES AND EQUITY

         

    Current liabilities:

         

    Short-term debt

    $

    7,777

       

    $

    5,238

     

    Accounts payable

    2,022

       

    1,904

     

    Income taxes payable

    953

       

    1,004

     

    Accrued compensation

    2,872

       

    2,986

     

    Deferred revenue

    10,117

       

    11,490

     

    Other current liabilities

    4,172

       

    4,413

     

    Total current liabilities

    27,913

       

    27,035

     

    Long-term debt

    15,921

       

    20,331

     

    Income taxes payable

    8,038

       

    8,585

     

    Deferred revenue

    7,339

       

    8,195

     

    Other long-term liabilities

    1,272

       

    1,434

     

    Total liabilities

    60,483

       

    65,580

     

    Total equity

    36,804

       

    43,204

     

    TOTAL LIABILITIES AND EQUITY

    $

    97,287

       

    $

    108,784

     

     

    CISCO SYSTEMS, INC.

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (In millions)

    (Unaudited)

       
     

    Nine Months Ended

     

    April 27,

     2019

     

    April 28,

     2018

    Cash flows from operating activities:

         

    Net income (loss)

    $

    9,415

       

    $

    (3,693)

     

    Adjustments to reconcile net income (loss) to net cash provided by operating activities:

         

    Depreciation, amortization, and other

    1,433

       

    1,676

     

    Share-based compensation expense

    1,166

       

    1,184

     

    Provision (benefit) for receivables

    32

       

    (104)

     

    Deferred income taxes

    (281)

       

    1,013

     

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

    (79)

       

    (159)

     

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

         

    Accounts receivable

    1,560

       

    1,064

     

    Inventories

    (1)

       

    (289)

     

    Financing receivables

    (112)

       

    (165)

     

    Other assets

    (736)

       

    (135)

     

    Accounts payable

    52

       

    148

     

    Income taxes, net

    (759)

       

    8,795

     

    Accrued compensation

    (68)

       

    53

     

    Deferred revenue

    421

       

    415

     

    Other liabilities

    (154)

       

    (237)

     

    Net cash provided by operating activities

    11,889

       

    9,566

     

    Cash flows from investing activities:

         

    Purchases of investments

    (1,176)

       

    (14,132)

     

    Proceeds from sales of investments

    5,391

       

    12,422

     

    Proceeds from maturities of investments

    10,797

       

    12,259

     

    Acquisitions and divestitures

    (2,175)

       

    (2,762)

     

    Purchases of investments in privately held companies

    (118)

       

    (126)

     

    Return of investments in privately held companies

    127

       

    163

     

    Acquisition of property and equipment

    (701)

       

    (620)

     

    Proceeds from sales of property and equipment

    15

       

    54

     

    Other

    (12)

       

    (16)

     

    Net cash provided by investing activities

    12,148

       

    7,242

     

    Cash flows from financing activities:

         

    Issuances of common stock

    321

       

    318

     

    Repurchases of common stock – repurchase program

    (16,042)

       

    (11,562)

     

    Shares repurchased for tax withholdings on vesting of restricted stock units

    (601)

       

    (541)

     

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

    1,723

       

    (2,502)

     

    Issuances of debt

    1,530

       

    6,877

     

    Repayments of debt

    (5,250)

       

    (9,875)

     

    Dividends paid

    (4,489)

       

    (4,433)

     

    Other

    51

       

    (92)

     

    Net cash used in financing activities

    (22,757)

       

    (21,810)

     

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

    1,280

       

    (5,002)

     

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

    8,993

       

    11,773

     

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

    $

    10,273

       

    $

    6,771

     

    Supplemental cash flow information:

         

    Cash paid for interest

    $

    690

       

    $

    739

     

    Cash paid for income taxes, net

    $

    2,491

       

    $

    3,332

     

    Prior period information has been retrospectively adjusted due to the adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash at the beginning of the first quarter of fiscal 2019.

    CISCO SYSTEMS, INC.

    DEFERRED REVENUE

    (In millions)

               
     

    April 27, 2019

     

    January 26, 2019

     

    April 28, 2018

    Deferred revenue:

             

    Service

    $

    11,297

       

    $

    11,246

       

    $

    10,960

     

    Product

    6,159

       

    6,015

       

    7,993

     

    Total

    $

    17,456

       

    $

    17,261

       

    $

    18,953

     

    Reported as:

             

    Current

    $

    10,117

       

    $

    9,976

       

    $

    11,301

     

    Noncurrent

    7,339

       

    7,285

       

    7,652

     

    Total

    $

    17,456

       

    $

    17,261

       

    $

    18,953

     

     

    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 2019

                           

    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

     

    Fiscal 2018

                           

    July 28, 2018

     

    $

    0.33

       

    $

    1,535

       

    138

       

    $

    43.58

       

    $

    6,015

       

    $

    7,550

     

    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

     

     

    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 27,

     2019

     

    April 28,

     2018

     

    April 27,

     2019

     

    April 28,

     2018

    GAAP net income (loss)

    $

    3,044

       

    $

    2,691

       

    $

    9,415

       

    $

    (3,693)

     

    Adjustments to cost of sales:

                 

    Share-based compensation expense

    54

       

    57

       

    163

       

    168

     

    Amortization of acquisition-related intangible assets

    141

       

    161

       

    418

       

    444

     

    Supplier component remediation charge (adjustment), net

       

    (9)

       

    (1)

       

    (41)

     

    Acquisition-related/divestiture costs

    2

       

    2

       

    9

       

    4

     

    Legal and indemnification settlements

       

       

    5

       

    122

     

    Total adjustments to GAAP cost of sales

    197

       

    211

       

    594

       

    697

     

    Adjustments to operating expenses:

                 

    Share-based compensation expense

    322

       

    342

       

    974

       

    1,010

     

    Amortization of acquisition-related intangible assets

    39

       

    67

       

    112

       

    188

     

    Acquisition-related/divestiture costs

    78

       

    89

       

    238

       

    195

     

    Legal and indemnification settlements

    (1)

       

       

    (396)

       

     

    Significant asset impairments and restructurings

    18

       

    82

       

    282

       

    332

     

    Total adjustments to GAAP operating expenses

    456

       

    580

       

    1,210

       

    1,725

     

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

                 

    (Gains) and losses on equity investments

    (4)

       

       

    (77)

       

     

    Total adjustments to GAAP income (loss) before provision for income taxes

    649

       

    791

       

    1,727

       

    2,422

     

    Income tax effect of non-GAAP adjustments

    (160)

       

    (168)

       

    (554)

       

    (613)

     

    Significant tax matters (1)

    (79)

       

    (119)

       

    (387)

       

    11,261

     

    Total adjustments to GAAP provision for income taxes

    (239)

       

    (287)

       

    (941)

       

    10,648

     

    Non-GAAP net income

    $

    3,454

       

    $

    3,195

       

    $

    10,201

       

    $

    9,377

     

    Net income (loss) per share (2):

                 

    GAAP

    $

    0.69

       

    $

    0.56

       

    $

    2.09

       

    $

    (0.76)

     

    Non-GAAP

    $

    0.78

       

    $

    0.66

       

    $

    2.26

       

    $

    1.90

     

    (1) For the first nine months of fiscal 2018, we recorded charges relating to significant tax matters that were excluded from non-GAAP net income. $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 were 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 was 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 was calculated using diluted shares of 4,936 million, as we had non-GAAP net income for this period.

    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 27, 2019

     

    Product Gross Margin

     

    Service Gross Margin

     

    Total Gross Margin

     

    Operating Expenses

     

    Y/Y

     

    Operating Income

     

    Y/Y

     

    Interest and other income (loss), net

     

    Y/Y

     

    Net Income

     

    Y/Y

    GAAP amount

    $

    6,029

       

    $

    2,144

       

    $

    8,173

       

    $

    4,660

       

    1%

     

    $

    3,513

       

    12%

     

    $

    102

       

    (14)%

     

    $

    3,044

       

    13%

    % 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

       

    6%

     

    $

    4,166

       

    6%

     

    $

    98

       

    (18)%

     

    $

    3,454

       

    8%

    % 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.

    During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for the third quarter of fiscal 2018.

     

    Three Months Ended

     

    April 28, 2018

     

    Product Gross Margin

     

    Service Gross Margin

     

    Total Gross Margin

     

    Operating Expenses

     

    Operating

    Income

     

    Net

    Income

    GAAP amount

    $

    5,679

       

    $

    2,080

       

    $

    7,759

       

    $

    4,625

       

    $

    3,134

       

    $

    2,691

     

    % 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-related intangible 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 and restructurings

       

       

       

    82

       

    82

       

    82

     

    Income tax effect/significant tax matters

       

       

       

       

       

    (287)

     

    Non-GAAP amount

    $

    5,856

       

    $

    2,114

       

    $

    7,970

       

    $

    4,045

       

    $

    3,925

       

    $

    3,195

     

    Less: SPVSS business (1)

    (56)

       

    (11)

       

    (66)

       

    (61)

       

    (5)

       

    (4)

     

    Non-GAAP amount (excluding SPVSS business)

    $

    5,800

       

    $

    2,103

       

    $

    7,903

       

    $

    3,984

       

    $

    3,919

       

    $

    3,191

     

    % of revenue

    63.7

    %

     

    67.1

    %

     

    64.5

    %

     

    32.5

    %

     

    32.0

    %

     

    26.1

    %

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

    (1) Reflects three months of operations for the SPVSS business.

    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 (LOSS)

    (In millions, except percentages)

       
     

    Nine Months Ended

     

    April 27, 2019

     

    Product Gross Margin

     

    Service Gross Margin

     

    Total Gross Margin

     

    Operating Expenses

     

    Y/Y

     

    Operating Income

     

    Y/Y

     

    Interest and other income (loss), net

     

    Y/Y

     

    Net Income

     

    Y/Y

    GAAP amount

    $

    17,779

       

    $

    6,313

       

    $

    24,092

       

    $

    13,563

       

    (1)%

     

    $

    10,529

       

    17%

     

    $

    338

       

    (30)%

     

    $

    9,415

       

    NM

    % of revenue

    61.6

    %

     

    65.8

    %

     

    62.6

    %

     

    35.3

    %

         

    27.4

    %

         

    0.9

    %

         

    24.5

    %

       

    Adjustments to GAAP amounts:

                                             

    Share-based compensation expense

    67

       

    96

       

    163

       

    974

           

    1,137

           

           

    1,137

         

    Amortization of acquisition-related intangible assets

    418

       

       

    418

       

    112

           

    530

           

           

    530

         

    Supplier component remediation charge (adjustment), net

    (1)

       

       

    (1)

       

           

    (1)

           

           

    (1)

         

    Legal and indemnification settlements

    5

       

       

    5

       

    (396)

           

    (391)

           

           

    (391)

         

    Acquisition/divestiture-related costs

    4

       

    5

       

    9

       

    238

           

    247

           

           

    247

         

    Significant asset impairments and restructurings

       

       

       

    282

           

    282

           

           

    282

         

    (Gains) and losses on equity investments

       

       

       

           

           

    (77)

           

    (77)

         

    Income tax effect/significant tax matters

       

       

       

           

           

           

    (941)

         

    Non-GAAP amount

    $

    18,272

       

    $

    6,414

       

    $

    24,686

       

    $

    12,353

           

    $

    12,333

           

    $

    261

           

    $

    10,201

         

    % of revenue

    63.3

    %

     

    66.9

    %

     

    64.2

    %

     

    32.1

    %

         

    32.1

    %

         

    0.7

    %

         

    26.5

    %

       

    Less: SPVSS business (1)

    (52)

       

    (9)

       

    (61)

       

    (59)

           

    (1)

           

           

    (1)

         

    Non-GAAP amount (excluding SPVSS business)

    $

    18,220

       

    $

    6,405

       

    $

    24,625

       

    $

    12,293

       

    4%

     

    $

    12,332

       

    9%

     

    $

    261

       

    (46)%

     

    $

    10,200

       

    9%

    % of revenue

    63.4

    %

     

    66.9

    %

     

    64.3

    %

     

    32.1

    %

         

    32.2

    %

         

    0.7

    %

         

    26.6

    %

       

    NM — Not meaningful

    (1) Reflects three months of operations for the SPVSS business.

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

    During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for the first nine months of fiscal 2018.

     

    Nine Months Ended

     

    April 28, 2018

     

    Product Gross Margin

     

    Service Gross Margin

     

    Total Gross Margin

     

    Operating Expenses

     

    Operating

    Income

     

    Net

    Income (Loss)

    GAAP amount

    $

    16,473

       

    $

    6,211

       

    $

    22,684

       

    $

    13,721

       

    $

    8,963

       

    $

    (3,693)

     

    % 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-related intangible assets

    444

       

       

    444

       

    188

       

    632

       

    632

     

    Supplier component remediation charge (adjustment), net

    (41)

       

       

    (41)

       

       

    (41)

       

    (41)

     

    Legal and indemnification settlements

    122

       

       

    122

       

       

    122

       

    122

     

    Acquisition/divestiture-related costs

    1

       

    3

       

    4

       

    195

       

    199

       

    199

     

    Significant asset impairments and restructurings

       

       

       

    332

       

    332

       

    332

     

    Income tax effect/significant tax matters (1)

       

       

       

       

       

    10,648

     

    Non-GAAP amount

    $

    17,069

       

    $

    6,312

       

    $

    23,381

       

    $

    11,996

       

    $

    11,385

       

    $

    9,377

     

    Less: SPVSS business (2)

    (200)

       

    (27)

       

    (226)

       

    (192)

       

    (34)

       

    (27)

     

    Non-GAAP amount (excluding SPVSS business)

    $

    16,870

       

    $

    6,284

       

    $

    23,154

       

    $

    11,805

       

    $

    11,349

       

    $

    9,348

     

    % of revenue

    63.8

    %

     

    67.3

    %

     

    64.7

    %

     

    33.0

    %

     

    31.7

    %

     

    26.1

    %

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

    (1) Includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.

    (2) Reflects nine months of operations for the SPVSS business.

    CISCO SYSTEMS, INC.

    RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

     

    EFFECTIVE TAX RATE

    (In percentages)

           
     

    Three Months Ended

     

    Nine Months Ended

     

    April 27, 2019

     

    April 28, 2018

     

    April 27, 2019

     

    April 28, 2018

    GAAP effective tax rate (1)

    15.8

    %

     

    17.3

    %

     

    13.4

    %

     

    139.1

    %

    Total adjustments to GAAP provision for income taxes

    3.2

    %

     

    3.7

    %

     

    5.6

    %

     

    (118.1)

    %

    Non-GAAP effective tax rate

    19.0

    %

     

    21.0

    %

     

    19.0

    %

     

    21.0

    %

    (1) Includes an $11.1 billion charge 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 2019

                     

    Q4 FY 2019

     

    Gross Margin Rate

     

    Operating Margin Rate

     

    Tax Provision Rate

     

    Earnings per Share (1)

    GAAP

     

    62.5% – 63.5%

     

    26% – 27%

     

    17%

     

    $0.66 – $0.71

    Estimated adjustments for:

                   

    Share-based compensation expense

     

    0.5%

     

    3.0%

     

     

    $0.06 – $0.07

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

     

    1.0%

     

    2.0%

     

     

    $0.05 – $0.06

    Significant asset impairments and restructurings

     

     

    0.0%

     

     

    $0.00 – $0.01

    Income tax effect of non-GAAP adjustments

             

    2%

       

    Non-GAAP

     

    64% – 65%

     

    31% – 32%

     

    19%

     

    $0.80 – $0.82

    (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.

    Forward Looking Statements, Non-GAAP Information and Additional Information

    This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our customers’ confidence in our strategy, business model and market-leading portfolio, our ability to build the technology to help our customers achieve their business objectives, our investment in our innovation pipeline to drive long-term profitable growth, our ability to successfully evolve our business model through software offerings and subscriptions and our ability to deliver value to our shareholders) and the future financial performance of Cisco (including the guidance for Q4 FY 2019) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Forms 10-Q and 10-K filed on February 19, 2019 and September 6, 2018, 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 Form 10-K as each may be amended from time to time. Cisco’s results of operations for the three and nine months ended April 27, 2019 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

    This release includes non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP interest and other income (loss), net, and non-GAAP net income per share data for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

    These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.

    Cisco believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations.

    For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements and other contingencies, gains and losses on equity investments, the income tax effects of the foregoing and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

    Cisco divested its Service Provider Video Software Solutions business (SPVSS) during the second quarter of fiscal 2019 on October 28, 2018. This release includes, where indicated, financial measures that exclude the SPVSS business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SPVSS business will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SPVSS business in reviewing the financial results of Cisco.

    About Cisco

    Cisco (Nasdaq: CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow’s digital opportunity today. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

    Copyright © 2019 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

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

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