Press Release

Cisco Reports Second Quarter Earnings

cisco_building_corporate_003_jpg-1889894-1_0

SAN JOSE, Calif., Feb. 16, 2022

News Summary:

  • Strong business momentum drove $12.7 billion in revenue, up 6% year over year; GAAP EPS $0.71, up 18% year over year, and Non-GAAP EPS $0.84, up 6% year over year
  • Continued robust demand across the business with third consecutive quarter of more than 30% total product order growth
  • Solid progress on business model transformation with total Annualized Recurring Revenue (ARR) at $21.9 billion in the second quarter of fiscal 2022, up 11% year over year
  • Dividend increased 3% and additional $15 billion authorized for stock repurchase
  • Q2 Results:
    • Revenue: $12.7 billion
      • Increase of 6% year over year
    • Earnings per Share: GAAP: $0.71; Non-GAAP: $0.84
      • GAAP EPS increased 18% year over year
      • Non-GAAP EPS increased 6% year over year
  • Q3 Guidance:   
    • Revenue: 3% to 5% growth year over year
    • Earnings per Share: GAAP: $0.70 to $0.74; Non-GAAP: $0.85 to $0.87
  • FY 2022 Guidance:
    • Revenue: 5.5% to 6.5% growth year over year
    • Earnings per Share: GAAP: $2.83 to $2.92; Non-GAAP: $3.41 to $3.46

Cisco today reported second quarter results for the period ended January 29, 2022. Cisco reported second quarter revenue of $12.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.0 billion or $0.71 per share, and non-GAAP net income of $3.5 billion or $0.84 per share.

"We continue to see incredibly strong demand across our portfolio, emphasizing the criticality and relevance of Cisco's innovation," said Chuck Robbins, chair and CEO of Cisco. "Our robust order strength, record backlog and double-digit growth in annual recurring revenue position us well to deliver growth."

GAAP Results

 
   

Q2 FY 2022

 

Q2 FY 2021

 

Vs. Q2 FY 2021

Revenue

 

$

12.7

billion

 

$

12.0

billion

 

6%

Net Income

 

$

3.0

billion

 

$

2.5

billion

 

17%

Diluted Earnings per Share (EPS)

 

$

0.71

   

$

0.60

   

18%

 

Non-GAAP Results

 
   

Q2 FY 2022

 

Q2 FY 2021

 

Vs. Q2 FY 2021

Net Income

 

$

3.5

billion

 

$

3.4

billion

 

6%

EPS

 

$

0.84

   

$

0.79

   

6%

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."

Cisco Increases Quarterly Cash Dividend; Stock Repurchase Program Authorization Increased

Cisco has declared a quarterly dividend of $0.38 per common share, a 1-cent increase or up 3% over the previous quarter's dividend, to be paid on April 27, 2022 to all stockholders of record as of the close of business on April 6, 2022. Future dividends will be subject to Board approval.

Cisco's board of directors has also approved a $15 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 $18 billion.

"Our business performed well with revenue and non-GAAP EPS growing 6% year over year despite the supply-constrained environment," said Scott Herren, CFO of Cisco. "We delivered healthy margins while continuing to make good progress in our business model shift, with software product revenue growing 9% year over year and the product portions of ARR and RPO growing in double digits. The combination of our dividend increase and additional share repurchase authorization demonstrates our commitment to returning excess capital to our shareholders and confidence in our ongoing cash flows."

Financial Summary

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

Q2 FY 2022 Highlights

Revenue -- Total revenue was up 6% at $12.7 billion, with product revenue up 9% and service revenue down 1%. Revenue by geographic segment was: Americas up 3%, EMEA up 11%, and APJC up 13%. Product revenue performance was led by growth in Secure, Agile Networks up 7%, Internet for the Future up 42%, End-to-End Security up 7%, and Optimized Application Experiences up 12%. Hybrid Work was down 9%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.3%, 61.8%, and 67.3%, respectively, as compared with 65.1%, 64.5%, and 66.6%, respectively, in the second quarter of fiscal 2021.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.5%, 64.3%, and 68.8%, respectively, as compared with 66.9%, 66.6%, and 67.9%, respectively, in the second quarter of fiscal 2021.

Total gross margins by geographic segment were: 64.5% for the Americas, 66.8% for EMEA and 66.5% for APJC.

Operating Expenses --  On a GAAP basis, operating expenses were flat at $4.6 billion, and were 35.9% of revenue. Non-GAAP operating expenses were $4.0 billion, up 2%, and were 31.2% of revenue.

Operating Income -- GAAP operating income was $3.5 billion, up 8%, with GAAP operating margin of 27.4%. Non-GAAP operating income was $4.4 billion, up 6%, with non-GAAP operating margin at 34.3%.

Provision for Income Taxes -- The GAAP tax provision rate was 17.5%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $3.0 billion, an increase of 17%, and EPS was $0.71, an increase of 18%. On a non-GAAP basis, net income was $3.5 billion, an increase of 6%, and EPS was $0.84, an increase of 6%.

Cash Flow from Operating Activities -- $2.5 billion for the second quarter of fiscal 2022, a decrease of 17% compared with $3.0 billion for the second quarter of fiscal 2021.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $21.1 billion at the end of the second quarter of fiscal 2022, compared with $24.5 billion at the end of fiscal 2021.

Remaining Performance Obligations (RPO) -- $30.5 billion, up 8% in total, with 53% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 16% and service RPO were up 3%.

Deferred Revenue -- $22.3 billion, up 7% in total, with deferred product revenue up 17%. Deferred service revenue was flat.

Capital Allocation -- In the second quarter of fiscal 2022, we returned $6.4 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.37 per common share, or $1.5 billion, and repurchased approximately 82 million shares of common stock under our stock repurchase program at an average price of $58.36 per share for an aggregate purchase price of $4.8 billion.

Acquisitions

In the second quarter of fiscal 2022, we closed the acquisition of replex GmbH, a privately held enterprise software company based in Germany. In addition, we announced our intent to acquire Opsani, a privately held enterprise software company.

Guidance

Cisco expects to achieve the following results for the third quarter of fiscal 2022:

Q3 FY 2022

   

Revenue

 

3% - 5% growth Y/Y

Non-GAAP gross margin rate

 

63.5% - 64.5%

Non-GAAP operating margin rate

 

32.5% - 33.5%

Non-GAAP EPS

 

$0.85 - $0.87

The third quarter of fiscal 2021 included an extra week.

Cisco estimates that GAAP EPS will be $0.70 to $0.74 for the third quarter of fiscal 2022.

Cisco expects to achieve the following results for fiscal 2022:

FY 2022

   

Revenue

 

5.5% - 6.5% growth Y/Y

Non-GAAP EPS

 

$3.41 - $3.46

Cisco estimates that GAAP EPS will be $2.83 to $2.92 for fiscal 2022.

Our Q3 FY 2022 and FY 2022 guidance assumes an effective tax provision rate of 18% for GAAP and 19% for non-GAAP results.

A reconciliation between the Guidance on a GAAP and non-GAAP basis is provided in the tables entitled "GAAP to non-GAAP Guidance" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q2 fiscal year 2022 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, February 16, 2022 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 16, 2022 to 4:00 p.m. Pacific Time, February 23, 2022 at 1-888-568-0332 (United States) or 1-203-369-3905 (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 16, 2022. 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

 

Six Months Ended

 

January 29,
2022

 

January 23,
2021

 

January 29,
2022

 

January 23,
2021

REVENUE:

             

Product

$

9,353

   

$

8,572

   

$

18,882

   

$

17,159

 

Service

3,367

   

3,388

   

6,738

   

6,730

 

Total revenue

12,720

   

11,960

   

25,620

   

23,889

 

COST OF SALES:

             

Product

3,569

   

3,044

   

7,242

   

6,250

 

Service

1,102

   

1,132

   

2,276

   

2,274

 

Total cost of sales

4,671

   

4,176

   

9,518

   

8,524

 

GROSS MARGIN

8,049

   

7,784

   

16,102

   

15,365

 

OPERATING EXPENSES:

             

Research and development

1,670

   

1,527

   

3,384

   

3,139

 

Sales and marketing

2,266

   

2,277

   

4,527

   

4,494

 

General and administrative

544

   

484

   

1,095

   

1,028

 

Amortization of purchased intangible assets

79

   

39

   

163

   

75

 

Restructuring and other charges

3

   

234

   

8

   

836

 

Total operating expenses

4,562

   

4,561

   

9,177

   

9,572

 

OPERATING INCOME

3,487

   

3,223

   

6,925

   

5,793

 

Interest income

111

   

161

   

232

   

335

 

Interest expense

(88)

   

(113)

   

(177)

   

(225)

 

Other income (loss), net

93

   

(16)

   

280

   

33

 

Interest and other income (loss), net

116

   

32

   

335

   

143

 

INCOME BEFORE PROVISION FOR INCOME TAXES

3,603

   

3,255

   

7,260

   

5,936

 

Provision for income taxes

630

   

710

   

1,307

   

1,217

 

NET INCOME

$

2,973

   

$

2,545

   

$

5,953

   

$

4,719

 
               

Net income per share:

             

Basic

$

0.71

   

$

0.60

   

$

1.42

   

$

1.12

 

Diluted

$

0.71

   

$

0.60

   

$

1.41

   

$

1.11

 

Shares used in per-share calculation:

             

Basic

4,183

   

4,223

   

4,201

   

4,227

 

Diluted

4,205

   

4,234

   

4,222

   

4,239

 

 

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 
   

January 29, 2022

   

Three Months Ended

 

Six Months Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

Revenue:

               

Americas

 

$

7,146

   

3%

 

$

14,706

   

4%

EMEA

 

3,564

   

11%

 

6,867

   

11%

APJC

 

2,010

   

13%

 

4,046

   

14%

Total

 

$

12,720

   

6%

 

$

25,620

   

7%

 

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

 

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 
   

January 29, 2022

   

Three Months Ended

 

Six Months Ended

Gross Margin Percentage:

       

Americas

 

64.5%

 

64.5%

EMEA

 

66.8%

 

65.7%

APJC

 

66.5%

 

65.6%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 
   

January 29, 2022

   

Three Months Ended

 

Six Months Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

Revenue:

               

Secure, Agile Networks

 

$

5,898

   

7%

 

$

11,866

   

9%

Hybrid Work

 

1,067

   

(9)%

 

2,176

   

(8)%

End-to-End Security

 

883

   

7%

 

1,778

   

6%

Internet for the Future

 

1,322

   

42%

 

2,697

   

44%

Optimized Application Experiences

 

180

   

12%

 

361

   

15%

Other Products

 

2

   

(28)%

 

5

   

(10)%

Total Product

 

9,353

   

9%

 

18,882

   

10%

Services

 

3,367

   

(1)%

 

6,738

   

—%

Total

 

$

12,720

   

6%

 

$

25,620

   

7%

 

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

Effective the third quarter of fiscal 2022, Hybrid Work will change to Collaboration.

 

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 
 

January 29, 2022

 

July 31, 2021

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

6,731

   

$

9,175

 

Investments

14,382

   

15,343

 

Accounts receivable, net of allowance of $70 at January 29, 2022 and $109 at
July 31, 2021

6,003

   

5,766

 

Inventories

2,059

   

1,559

 

Financing receivables, net

3,997

   

4,380

 

Other current assets

3,627

   

2,889

 

Total current assets

36,799

   

39,112

 

Property and equipment, net

2,140

   

2,338

 

Financing receivables, net

4,024

   

4,884

 

Goodwill

38,679

   

38,168

 

Purchased intangible assets, net

3,079

   

3,619

 

Deferred tax assets

4,269

   

4,360

 

Other assets

5,272

   

5,016

 

TOTAL ASSETS

$

94,262

   

$

97,497

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

$

2,502

   

$

2,508

 

Accounts payable

2,101

   

2,362

 

Income taxes payable

837

   

801

 

Accrued compensation

3,364

   

3,818

 

Deferred revenue

12,268

   

12,148

 

Other current liabilities

4,843

   

4,620

 

Total current liabilities

25,915

   

26,257

 

Long-term debt

8,969

   

9,018

 

Income taxes payable

7,628

   

8,538

 

Deferred revenue

10,045

   

10,016

 

Other long-term liabilities

2,209

   

2,393

 

Total liabilities

54,766

   

56,222

 

Total equity

39,496

   

41,275

 

TOTAL LIABILITIES AND EQUITY

$

94,262

   

$

97,497

 

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 
 

Six Months Ended

 

January 29,
2022

 

January 23,
2021

Cash flows from operating activities:

     

Net income

$

5,953

   

$

4,719

 

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

       

Depreciation, amortization, and other

1,049

   

887

 

Share-based compensation expense

930

   

874

 

Provision (benefit) for receivables

8

   

(10)

 

Deferred income taxes

(138)

   

(91)

 

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

(323)

   

(86)

 

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

     

Accounts receivable

(308)

   

1,245

 

Inventories

(506)

   

(145)

 

Financing receivables

1,241

   

748

 

Other assets

(780)

   

(212)

 

Accounts payable

(250)

   

(358)

 

Income taxes, net

(876)

   

(836)

 

Accrued compensation

(437)

   

125

 

Deferred revenue

202

   

226

 

Other liabilities

123

   

(16)

 

Net cash provided by operating activities

5,888

   

7,070

 

Cash flows from investing activities:

     

Purchases of investments

(3,937)

   

(6,025)

 

Proceeds from sales of investments

1,402

   

1,374

 

Proceeds from maturities of investments

3,185

   

3,373

 

Acquisitions, net of cash and cash equivalents acquired and divestitures

(361)

   

(860)

 

Purchases of investments in privately held companies

(124)

   

(95)

 

Return of investments in privately held companies

104

   

58

 

Acquisition of property and equipment

(232)

   

(358)

 

Proceeds from sales of property and equipment

5

   

9

 

Other

(11)

   

(4)

 

Net cash provided by (used in) investing activities

31

   

(2,528)

 

Cash flows from financing activities:

     

Issuances of common stock

306

   

306

 

Repurchases of common stock - repurchase program

(5,105)

   

(1,569)

 

Shares repurchased for tax withholdings on vesting of restricted stock units

(411)

   

(317)

 

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

959

   

 

Issuances of debt

1,049

   

 

Repayments of debt

(2,000)

   

 

Dividends paid

(3,102)

   

(3,041)

 

Other

(65)

   

70

 

Net cash used in financing activities

(8,369)

   

(4,551)

 

Net decrease in cash, cash equivalents, and restricted cash

(2,450)

   

(9)

 

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

9,942

   

11,812

 

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

$

7,492

   

$

11,803

 

Supplemental cash flow information:

     

Cash paid for interest

$

184

   

$

220

 

Cash paid for income taxes, net

$

2,320

   

$

2,142

 

 

CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)

 
 

January 29, 2022

 

October 30, 2021

 

January 23, 2021

 

Amount

 

Y/Y%

 

Amount

 

Y/Y%

 

Amount

 

Y/Y%

Product

$

13,532

   

16

%

 

$

13,384

   

18

%

 

$

11,666

   

17

%

Service

16,986

   

3

%

 

16,751

   

4

%

 

16,512

   

10

%

Total

$

30,518

   

8

%

 

$

30,135

   

10

%

 

$

28,178

   

13

%

 

We expect 53% of total RPO at January 29, 2022 will be recognized as revenue over the next 12 months.

 

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 
 

January 29,
2022

 

October 30,
2021

 

January 23,
2021

Deferred revenue:

         

Product

$

9,767

   

$

9,681

   

$

8,332

 

Service

12,546

   

12,391

   

12,514

 

Total

$

22,313

   

$

22,072

   

$

20,846

 

Reported as:

         

Current

$

12,268

   

$

12,017

   

$

11,552

 

Noncurrent

10,045

   

10,055

   

9,294

 

Total

$

22,313

   

$

22,072

   

$

20,846

 

 

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 2022

                       

January 29, 2022

 

$

0.37

   

$

1,541

   

82

 

$

58.36

   

$

4,824

   

$

6,365

 

October 30, 2021

 

$

0.37

   

$

1,561

   

5

 

$

56.49

   

$

256

   

$

1,817

 

Fiscal 2021

                       

July 31, 2021

 

$

0.37

   

$

1,562

   

15

 

$

53.30

   

$

791

   

$

2,353

 

May 1, 2021

 

$

0.37

   

$

1,560

   

10

 

$

48.71

   

$

510

   

$

2,070

 

January 23, 2021

 

$

0.36

   

$

1,521

   

19

 

$

42.82

   

$

801

   

$

2,322

 

October 24, 2020

 

$

0.36

   

$

1,520

   

20

 

$

40.44

   

$

800

   

$

2,320

 

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions)

 
 

Three Months Ended

 

Six Months Ended

 

January 29,
2022

 

January 23,
2021

 

January 29,
2022

 

January 23,
2021

GAAP net income

$

2,973

   

$

2,545

   

$

5,953

   

$

4,719

 

Adjustments to cost of sales:

             

Share-based compensation expense

81

   

68

   

150

   

133

 

Amortization of acquisition-related intangible assets

197

   

152

   

395

   

315

 

Acquisition-related/divestiture costs

1

   

1

   

2

   

2

 

Legal and indemnification settlements/charges

   

   

   

43

 

Total adjustments to GAAP cost of sales

279

   

221

   

547

   

493

 

Adjustments to operating expenses:

             

Share-based compensation expense

396

   

358

   

779

   

720

 

Amortization of acquisition-related intangible assets

79

   

39

   

163

   

75

 

Acquisition-related/divestiture costs

120

   

34

   

232

   

93

 

Significant asset impairments and restructurings

3

   

234

   

8

   

836

 

Total adjustments to GAAP operating expenses

598

   

665

   

1,182

   

1,724

 

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

             

Acquisition-related/divestiture costs

   

(2)

   

   

(2)

 

(Gains) and losses on equity investments

(100)

   

13

   

(319)

   

(35)

 

Total adjustments to GAAP interest and other income (loss), net

(100)

   

11

   

(319)

   

(37)

 

Total adjustments to GAAP income before provision for income taxes

777

   

897

   

1,410

   

2,180

 

Income tax effect of non-GAAP adjustments

(202)

   

(162)

   

(340)

   

(408)

 

Significant tax matters

   

83

   

   

83

 

Total adjustments to GAAP provision for income taxes

(202)

   

(79)

   

(340)

   

(325)

 

Non-GAAP net income

$

3,548

   

$

3,363

   

$

7,023

   

$

6,574

 

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

 
 

Three Months Ended

 

Six Months Ended

 

January 29,
2022

 

January 23,
2021

 

January 29,
2022

 

January 23,
2021

GAAP EPS

$

0.71

   

$

0.60

   

$

1.41

   

$

1.11

 

Adjustments to GAAP:

             

Share-based compensation expense

0.11

   

0.10

   

0.22

   

0.20

 

Amortization of acquisition-related intangible assets

0.07

   

0.05

   

0.13

   

0.09

 

Acquisition-related/divestiture costs

0.03

   

0.01

   

0.06

   

0.02

 

Legal and indemnification settlements/charges

   

   

   

0.01

 

Significant asset impairments and restructurings

   

0.06

   

   

0.20

 

(Gains) and losses on equity investments

(0.02)

   

   

(0.08)

   

(0.01)

 

Income tax effect of non-GAAP adjustments

(0.05)

   

(0.04)

   

(0.08)

   

(0.10)

 

Significant tax matters

   

0.02

   

   

0.02

 

Non-GAAP EPS

$

0.84

   

$

0.79

   

$

1.66

   

$

1.55

 
 

Amounts may not sum due to rounding.

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME

(In millions, except percentages)

 
 

Three Months Ended

 

January 29, 2022

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Y/Y

 

Operating
Income

 

Y/Y

 

Interest
and
other
income
(loss),
net

 

Net
Income

 

Y/Y

GAAP amount

$

5,784

   

$

2,265

   

$

8,049

   

$

4,562

   

—%

 

$

3,487

   

8%

 

$

116

   

$

2,973

   

17%

% of revenue

61.8

%

 

67.3

%

 

63.3

%

 

35.9

%

     

27.4

%

     

0.9

%

 

23.4

%

   

Adjustments to GAAP amounts:

                               

Share-based compensation expense

29

   

52

   

81

   

396

       

477

       

   

477

     

Amortization of acquisition-related intangible assets

197

   

   

197

   

79

       

276

       

   

276

     

Acquisition/divestiture-related costs

1

   

   

1

   

120

       

121

       

   

121

     

Significant asset impairments and restructurings

   

   

   

3

       

3

       

   

3

     

(Gains) and losses on equity investments

   

   

   

       

       

(100)

   

(100)

     

Income tax effect/significant tax matters

   

   

   

       

       

   

(202)

     

Non-GAAP amount

$

6,011

   

$

2,317

   

$

8,328

   

$

3,964

   

2%

 

$

4,364

   

6%

 

$

16

   

$

3,548

   

6%

% of revenue

64.3

%

 

68.8

%

 

65.5

%

 

31.2

%

     

34.3

%

     

0.1

%

 

27.9

%

   
   
 

Three Months Ended

 

January 23, 2021

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total Gross
Margin

 

Operating
Expenses

 

Operating

Income

 

Interest
and other
income
(loss), net

 

Net

Income

GAAP amount

$

5,528

   

$

2,256

   

$

7,784

   

$

4,561

   

$

3,223

   

$

32

   

$

2,545

 

% of revenue

64.5

%

 

66.6

%

 

65.1

%

 

38.1

%

 

26.9

%

 

0.3

%

 

21.3

%

Adjustments to GAAP amounts:

                         

Share-based compensation expense

25

   

43

   

68

   

358

   

426

   

   

426

 

Amortization of acquisition-related intangible assets

152

   

   

152

   

39

   

191

   

   

191

 

Acquisition/divestiture-related costs

1

   

   

1

   

34

   

35

   

(2)

   

33

 

Significant asset impairments and restructurings

   

   

   

234

   

234

   

   

234

 

(Gains) and losses on equity investments

   

   

   

   

   

13

   

13

 

Income tax effect/significant tax matters

   

   

   

   

   

   

(79)

 

Non-GAAP amount

$

5,706

   

$

2,299

   

$

8,005

   

$

3,896

   

$

4,109

   

$

43

   

$

3,363

 

% of revenue

66.6

%

 

67.9

%

 

66.9

%

 

32.6

%

 

34.4

%

 

0.4

%

 

28.1

%

 

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

 

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)

 
 

Six Months Ended

 

January 29, 2022

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Y/Y

 

Operating
Income

 

Y/Y

 

Interest
and
other
income
(loss),
net

 

Net
Income

 

Y/Y

GAAP amount

$

11,640

   

$

4,462

   

$

16,102

   

$

9,177

   

(4)%

 

$

6,925

   

20%

 

$

335

   

$

5,953

   

26%

% of revenue

61.6

%

 

66.2

%

 

62.8

%

 

35.8

%

     

27.0

%

     

1.3

%

 

23.2

%

   

Adjustments to GAAP amounts:

                               

Share-based compensation expense

54

   

96

   

150

   

779

       

929

       

   

929

     

Amortization of acquisition-related intangible assets

395

   

   

395

   

163

       

558

       

   

558

     

Acquisition/divestiture-related costs

2

   

   

2

   

232

       

234

       

   

234

     

Significant asset impairments and restructurings

   

   

   

8

       

8

       

   

8

     

(Gains) and losses on equity investments

   

   

   

       

       

(319)

   

(319)

     

Income tax effect/significant tax matters

   

   

   

       

       

   

(340)

     

Non-GAAP amount

$

12,091

   

$

4,558

   

$

16,649

   

$

7,995

   

2%

 

$

8,654

   

8%

 

$

16

   

$

7,023

   

7%

% of revenue

64.0

%

 

67.6

%

 

65.0

%

 

31.2

%

     

33.8

%

     

0.1

%

 

27.4

%

   
   
 

Six Months Ended

 

January 23, 2021

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Operating

Income

 

Interest
and other
income
(loss), net

 

Net

Income

GAAP amount

$

10,909

   

$

4,456

   

$

15,365

   

$

9,572

   

$

5,793

   

$

143

   

$

4,719

 

% of revenue

63.6

%

 

66.2

%

 

64.3

%

 

40.1

%

 

24.2

%

 

0.6

%

 

19.8

%

Adjustments to GAAP amounts:

                         

Share-based compensation expense

49

   

84

   

133

   

720

   

853

   

   

853

 

Amortization of acquisition-related intangible assets

315

   

   

315

   

75

   

390

   

   

390

 

Acquisition/divestiture-related costs

1

   

1

   

2

   

93

   

95

   

(2)

   

93

 

Legal and indemnification settlements/charges

43

   

   

43

   

   

43

   

   

43

 

Significant asset impairments and restructurings

   

   

   

836

   

836

   

   

836

 

(Gains) and losses on equity investments

   

   

   

   

   

(35)

   

(35)

 

Income tax effect/significant tax matters

   

   

   

   

   

   

(325)

 

Non-GAAP amount

$

11,317

   

$

4,541

   

$

15,858

   

$

7,848

   

$

8,010

   

$

106

   

$

6,574

 

% of revenue

66.0

%

 

67.5

%

 

66.4

%

 

32.9

%

 

33.5

%

 

0.4

%

 

27.5

%

 

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

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 
 

Three Months Ended

 

Six Months Ended

 

January 29,
2022

 

January 23,
2021

 

January 29,
2022

 

January 23,
2021

GAAP effective tax rate

17.5

%

 

21.8

%

 

18.0

%

 

20.5

%

Total adjustments to GAAP provision for income taxes

1.5

%

 

(2.8)

%

 

1.0

%

 

(1.5)

%

Non-GAAP effective tax rate

19.0

%

 

19.0

%

 

19.0

%

 

19.0

%

 

GAAP TO NON-GAAP GUIDANCE

             

Q3 FY 2022

 

Gross Margin
Rate

 

Operating Margin
Rate

 

Earnings per
Share (1)

GAAP

 

61.5% - 62.5%

 

26.5% - 27.5%

 

$0.70 - $0.74

Estimated adjustments for:

           

Share-based compensation expense

 

0.5%

 

4.0%

 

$0.08 - $0.09

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

 

1.5%

 

2.0%

 

$0.05 - $0.06

Non-GAAP

 

63.5% - 64.5%

 

32.5% - 33.5%

 

$0.85 - $0.87

     

FY 2022

 

Earnings per
Share (1)

GAAP

 

$2.83 - $2.92

Estimated adjustments for:

   

Share-based compensation expense

 

$0.33 - $0.35

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

 

$0.27 - $0.29

(Gains) and losses on equity investments

 

($0.06)

Non-GAAP

 

$3.41 - $3.46

 

(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, (gains) and losses on equity investments 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 ability to deliver growth through our investments in innovation; the strength of our strategy; the continued momentum in our business; our growing pipeline and record backlog which we believe will convert into revenue in the coming quarters; our on-going transformation to accelerate our shift to more software and subscription-based recurring revenue; our significant growth opportunities and expanding addressable markets; and our commitment to returning excess capital to our shareholders and confidence in our ongoing cash flows) and the future financial performance of Cisco (including the guidance for Q3 FY 2022 and full year FY 2022) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: the impact of the COVID-19 pandemic and related public health measures; 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 Secure, Agile Networks and services; the timing of orders and manufacturing and customer lead times; significant supply constraints; 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, other intellectual property, antitrust, stockholder and other matters, and governmental investigations; our ability to achieve the benefits of restructurings and possible changes in the size and timing of related charges; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events (including as a result of global climate change); any other pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent reports on Forms 10-Q and 10-K filed on November 23, 2021 and September 9, 2021, 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 29, 2022 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.

Annualized Recurring Revenue represents the annualized revenue run-rate of active subscriptions, term licenses, and maintenance contracts at the end of a reporting period, net of rebates to customers and partners as well as certain other revenue adjustments. Includes both revenue recognized ratably as well as upfront on an annualized basis.

About Cisco

Cisco (Nasdaq: CSCO) is the worldwide leader in technology that powers the Internet. Cisco inspires new possibilities by reimagining your applications, securing your data, transforming your infrastructure, and empowering your teams for a global and inclusive future. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2022 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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