News Release

Cisco Reports Third Quarter Earnings

SAN JOSE, Calif., May 18, 2022

News Summary:

  • $12.8 billion in revenue, flat year over year; GAAP EPS $0.73, up 7% year over year, and Non-GAAP EPS $0.87, up 5% year over year
  • Solid demand with product order growth up 8% year over year
  • Progress on business model transformation with total Annualized Recurring Revenue (ARR) at $22.4 billion in the third quarter of fiscal 2022, up 11% year over year
     
  • Q3 Results:
    • Revenue: $12.8 billion
      • Flat year over year
    • Earnings per Share: GAAP: $0.73; Non-GAAP: $0.87
      • GAAP EPS increased 7% year over year
      • Non-GAAP EPS increased 5% year over year
  • Q4 Guidance:  
    • Revenue: (1)% to (5.5)% decline year over year
    • Earnings per Share: GAAP: $0.60 to $0.70; Non-GAAP: $0.76 to $0.84
  • FY 2022 Guidance:
    • Revenue: 2% to 3% growth year over year
    • Earnings per Share: GAAP: $2.75 to $2.85; Non-GAAP: $3.29 to $3.37

 

Q3FY2022 Earnings Infographics

 

Cisco today reported third quarter results for the period ended April 30, 2022. Cisco reported third quarter revenue of $12.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.0 billion or $0.73 per share, and non-GAAP net income of $3.6 billion or $0.87 per share.

"We continued to see solid demand for our technologies and our business transformation is progressing well," said Chuck Robbins, chair and CEO of Cisco. "While Covid lockdowns in China and the war in Ukraine impacted our revenue in the quarter, the fundamental drivers across our business are strong and we remain confident in the long term."

"We delivered healthy earnings despite unanticipated disruptions through strong pricing and disciplined spend management," said Scott Herren, CFO of Cisco. "Our product backlog is well over $15 billion and product ARR and RPO again grew double digits. The continued progress in our business model transformation reflects the success of our strategy and underpins our long-term confidence."

 GAAP Results

 
   

Q3 FY 2022

 

Q3 FY 2021

 

Vs. Q3 FY 2021

Revenue

 

$       12.8 billion

 

$       12.8 billion

 

—%

Net Income

 

$        3.0  billion

 

$        2.9  billion

 

6%

Diluted Earnings per Share (EPS)

 

$              0.73

 

$              0.68

 

7%

 

Non-GAAP Results

 
   

Q3 FY 2022

 

Q3 FY 2021

 

Vs. Q3 FY 2021

Net Income

 

$      3.6   billion

 

$      3.5   billion

 

3%

EPS

 

$             0.87

 

$             0.83

 

5%

The third quarter of fiscal 2022 had 13 weeks compared with 14 weeks in the third quarter of fiscal 2021.

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."

Financial Summary

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

Q3 FY 2022 Highlights

Revenue -- Total revenue was flat at $12.8 billion, with product revenue up 3% and service revenue down 8%. Revenue by geographic segment was: Americas up 5%, EMEA down 6%, and APJC down 6%. Product revenue performance was led by growth in Secure, Agile Networks up 4%, Internet for the Future up 6%, End-to-End Security up 7%, and Optimized Application Experiences up 8%. Collaboration was down 7%.

The third quarter of fiscal 2022 had 13 weeks compared with 14 weeks in the third quarter of fiscal 2021. The total additional  revenue associated with the extra week in the third quarter of fiscal 2021 was approximately 3% of revenue growth.

In March 2022, in connection with the Russian invasion of Ukraine, Cisco announced its intention to stop business operations in Russia and Belarus for the foreseeable future. The total negative impact to revenue was approximately $200 million in the third quarter of fiscal 2022. Historically, Russia, Belarus and Ukraine collectively, represented approximately 1% of our total revenue.

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 63.9%, 62.6%, and 67.4%, respectively, in the third quarter of fiscal 2021.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.3%, 64.1%, and 68.9%, respectively, as compared with 66.0%, 64.9%, and 68.7%, respectively, in the third quarter of fiscal 2021.

Total gross margins by geographic segment were: 64.8% for the Americas, 65.9% for EMEA and 66.4% for APJC.

Operating Expenses --  On a GAAP basis, operating expenses were $4.5 billion, down 4%, and were 35.1% of revenue. Non-GAAP operating expenses were $3.9 billion, down 5%, and were 30.7% of revenue.

Operating Income -- GAAP operating income was $3.6 billion, up 4%, with GAAP operating margin of 28.1%. Non-GAAP operating income was $4.5 billion, up 4%, with non-GAAP operating margin at 34.7%.

Provision for Income Taxes -- The GAAP tax provision rate was 19.9%. 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 6%, and EPS was $0.73, an increase of 7%. On a non-GAAP basis, net income was $3.6 billion, an increase of 3%, and EPS was $0.87, an increase of 5%.

Cash Flow from Operating Activities -- $3.7 billion for the third quarter of fiscal 2022, a decrease of 6% compared with $3.9 billion for the third quarter of fiscal 2021.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $20.1 billion at the end of the third quarter of fiscal 2022, compared with $24.5 billion at the end of fiscal 2021.

Remaining Performance Obligations (RPO) -- $30.2 billion, up 7% in total, with 54% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 13% and service RPO were up 3%.

Deferred Revenue -- $22.3 billion, up 7% in total, with deferred product revenue up 13%. Deferred service revenue was up 2%.

Capital Allocation -- In the third quarter of fiscal 2022, we returned $1.8 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.38 per common share, or $1.6 billion, and repurchased approximately 5 million shares of common stock under our stock repurchase program at an average price of $54.20 per share for an aggregate purchase price of $252 million. The remaining authorized amount for stock repurchases under the program is $17.6 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2022, we closed the acquisition of Opsani, a privately held enterprise software company.

Guidance

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

Q4 FY 2022

   

Revenue

 

(1)% - (5.5)% decline Y/Y

Non-GAAP gross margin rate

 

64% - 65%

Non-GAAP operating margin rate

 

31.5% - 33.5%

Non-GAAP EPS

 

$0.76 - $0.84

Cisco estimates that GAAP EPS will be $0.60 to $0.70 for the fourth quarter of fiscal 2022.

Cisco expects to achieve the following results for fiscal 2022:

FY 2022

   

Revenue

 

2% - 3% growth Y/Y

Non-GAAP EPS

 

$3.29 - $3.37

Cisco estimates that GAAP EPS will be $2.75 to $2.85 for fiscal 2022.

Our fiscal 2022 has 52 weeks compared with 53 weeks in fiscal 2021 which is reflected in the guidance.

Our Q4 FY 2022 and FY 2022 guidance assumes an effective tax provision rate of 19% for GAAP and 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:

  • Q3 fiscal year 2022 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, May 18, 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, May 18, 2022 to 4:00 p.m. Pacific Time, May 25, 2022 at 1-800-388-4923 (United States) or 1-203-369-3800 (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 18, 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

 

Nine Months Ended

 

April 30, 2022

 

May 1, 2021

 

April 30, 2022

 

May 1, 2021

REVENUE:

             

     Product

$         9,448

 

$         9,139

 

$       28,330

 

$       26,298

     Service

3,387

 

3,664

 

10,125

 

10,394

          Total revenue

12,835

 

12,803

 

38,455

 

36,692

COST OF SALES:

             

     Product

3,606

 

3,422

 

10,848

 

9,672

     Service

1,108

 

1,196

 

3,384

 

3,470

          Total cost of sales

4,714

 

4,618

 

14,232

 

13,142

GROSS MARGIN

8,121

 

8,185

 

24,223

 

23,550

OPERATING EXPENSES:

             

     Research and development

1,708

 

1,697

 

5,092

 

4,836

     Sales and marketing

2,209

 

2,317

 

6,736

 

6,811

     General and administrative

517

 

603

 

1,612

 

1,631

     Amortization of purchased intangible assets

77

 

61

 

240

 

136

     Restructuring and other charges

 

42

 

8

 

878

          Total operating expenses

4,511

 

4,720

 

13,688

 

14,292

OPERATING INCOME

3,610

 

3,465

 

10,535

 

9,258

     Interest income

115

 

153

 

347

 

488

     Interest expense

(90)

 

(111)

 

(267)

 

(336)

     Other income (loss), net

166

 

84

 

446

 

117

          Interest and other income (loss), net

191

 

126

 

526

 

269

INCOME BEFORE PROVISION FOR INCOME TAXES

3,801

 

3,591

 

11,061

 

9,527

Provision for income taxes

757

 

728

 

2,064

 

1,945

     NET INCOME

$         3,044

 

$         2,863

 

$         8,997

 

$         7,582

               

Net income per share:

             

     Basic

$           0.73

 

$           0.68

 

$           2.15

 

$           1.79

     Diluted

$           0.73

 

$           0.68

 

$           2.14

 

$           1.79

Shares used in per-share calculation:

             

     Basic

4,152

 

4,219

 

4,184

 

4,224

     Diluted

4,170

 

4,238

 

4,204

 

4,237

 

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 
   

April 30, 2022

   

Three Months Ended

 

Nine Months Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

Revenue :

               

     Americas

 

$         7,638

 

5%

 

$       22,344

 

4%

     EMEA

 

3,271

 

(6)%

 

10,138

 

5%

     APJC

 

1,926

 

(6)%

 

5,972

 

6%

          Total

 

$       12,835

 

—%

 

$       38,455

 

5%

 

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

 

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 
   

April 30, 2022

   

Three Months Ended

 

Nine Months Ended

Gross Margin Percentage :

       

     Americas

 

64.8%

 

64.6%

     EMEA

 

65.9%

 

65.7%

     APJC

 

66.4%

 

65.9%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 
   

April 30, 2022

   

Three Months Ended

 

Nine Months Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

Revenue :

               

     Secure, Agile Networks

 

$         5,869

 

4%

 

$       17,735

 

7%

     Internet for the Future

 

1,324

 

6%

 

4,021

 

29%

     Collaboration

 

1,132

 

(7)%

 

3,308

 

(8)%

     End-to-End Security

 

938

 

7%

 

2,716

 

6%

     Optimized Application Experiences

 

183

 

8%

 

544

 

13%

     Other Products

 

2

 

(58)%

 

7

 

(32)%

          Total Product

 

9,448

 

3%

 

28,330

 

8%

     Services

 

3,387

 

(8)%

 

10,125

 

(3)%

               Total

 

$       12,835

 

—%

 

$       38,455

 

5%

 

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

 

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 
 

April 30, 2022

 

July 31, 2021

ASSETS

     

Current assets:

     

     Cash and cash equivalents

$                6,952

 

$                9,175

     Investments

13,156

 

15,343

     Accounts receivable, net of allowance of $78 at April 30, 2022 and $109 at July 31, 2021

5,783

 

5,766

     Inventories

2,231

 

1,559

     Financing receivables, net

3,804

 

4,380

     Other current assets

4,055

 

2,889

          Total current assets

35,981

 

39,112

Property and equipment, net

2,046

 

2,338

Financing receivables, net

3,959

 

4,884

Goodwill

38,452

 

38,168

Purchased intangible assets, net

2,811

 

3,619

Deferred tax assets

4,276

 

4,360

Other assets

5,272

 

5,016

          TOTAL ASSETS

$              92,797

 

$              97,497

LIABILITIES AND EQUITY

     

Current liabilities:

     

     Short-term debt

$                1,000

 

$                2,508

     Accounts payable

2,289

 

2,362

     Income taxes payable

852

 

801

     Accrued compensation

3,032

 

3,818

     Deferred revenue

12,249

 

12,148

     Other current liabilities

4,728

 

4,620

          Total current liabilities

24,150

 

26,257

Long-term debt

8,418

 

9,018

Income taxes payable

7,689

 

8,538

Deferred revenue

10,044

 

10,016

Other long-term liabilities

2,096

 

2,393

          Total liabilities

52,397

 

56,222

Total equity

40,400

 

41,275

          TOTAL LIABILITIES AND EQUITY

$              92,797

 

$              97,497

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 
 

Nine Months Ended

 

April 30,
2022

 

May 1,
2021

Cash flows from operating activities:

     

     Net income

$              8,997

 

$              7,582

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

     

          Depreciation, amortization, and other

1,527

 

1,373

          Share-based compensation expense

1,407

 

1,337

          Provision (benefit) for receivables

49

 

(4)

          Deferred income taxes

(167)

 

(89)

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

(470)

 

(201)

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

     

               Accounts receivable

(134)

 

1,250

               Inventories

(683)

 

(260)

               Financing receivables

1,431

 

1,160

               Other assets

(1,295)

 

(233)

               Accounts payable

(54)

 

24

               Income taxes, net

(730)

 

(828)

               Accrued compensation

(730)

 

145

               Deferred revenue

292

 

263

               Other liabilities

109

 

(569)

                    Net cash provided by operating activities

9,549

 

10,950

Cash flows from investing activities:

     

     Purchases of investments

(5,383)

 

(7,855)

     Proceeds from sales of investments

2,488

 

2,724

     Proceeds from maturities of investments

4,308

 

6,445

     Acquisitions, net of cash and cash equivalents acquired and divestitures

(373)

 

(6,333)

     Purchases of investments in privately held companies

(158)

 

(138)

     Return of investments in privately held companies

149

 

96

     Acquisition of property and equipment

(338)

 

(530)

     Proceeds from sales of property and equipment

6

 

14

     Other

(15)

 

(56)

                    Net cash provided by (used in) investing activities

684

 

(5,633)

Cash flows from financing activities:

     

     Issuances of common stock

306

 

307

     Repurchases of common stock - repurchase program

(5,347)

 

(2,096)

     Shares repurchased for tax withholdings on vesting of restricted stock units

(546)

 

(419)

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

9

 

     Issuances of debt

1,049

 

     Repayments of debt

(3,050)

 

(3,000)

     Dividends paid

(4,657)

 

(4,601)

     Other

(230)

 

39

                    Net cash used in financing activities

(12,466)

 

(9,770)

Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents

(2,233)

 

(4,453)

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

9,942

 

11,812

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

$              7,709

 

$              7,359

Supplemental cash flow information:

     

Cash paid for interest

$                 292

 

$                 377

Cash paid for income taxes, net

$              2,960

 

$              2,862

 

CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)

 
 

April 30, 2022

 

January 29, 2022

 

May 1, 2021

 

Amount

 

Y/Y%

 

Amount

 

Y/Y%

 

Amount

 

Y/Y%

Product          

$    13,416

 

13 %

 

$    13,532

 

16 %

 

$    11,903

 

15 %

Service

16,789

 

3 %

 

16,986

 

3 %

 

16,235

 

7 %

     Total

$    30,205

 

7 %

 

$    30,518

 

8 %

 

$    28,138

 

10 %

 

We expect 54% of total RPO at April 30, 2022 will be recognized as revenue over the next 12 months.

 

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 
 

April 30, 2022

 

January 29, 2022

 

May 1, 2021

Deferred revenue:

         

     Product

$         9,835

 

$         9,767

 

$         8,698

     Service

12,458

 

12,546

 

12,191

          Total

$       22,293

 

$       22,313

 

$       20,889

Reported as:

         

     Current

$       12,249

 

$       12,268

 

$       11,492

     Noncurrent

10,044

 

10,045

 

9,397

          Total

$       22,293

 

$       22,313

 

$       20,889

 

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

                       

     April 30, 2022

 

$             0.38

 

$          1,555

 

5

 

$          54.20

 

$              252

 

$          1,807

     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

 

Nine Months Ended

 

April 30,
2022

 

May 1,
2021

 

April 30,
2022

 

May 1,
2021

GAAP net income

$         3,044

 

$         2,863

 

$         8,997

 

$         7,582

     Adjustments to cost of sales:

             

          Share-based compensation expense

83

 

75

 

233

 

208

          Amortization of acquisition-related intangible assets

176

 

184

 

571

 

499

          Acquisition-related/divestiture costs

1

 

1

 

3

 

3

          Russia-Ukraine war costs

5

 

 

5

 

          Legal and indemnification settlements/charges

 

 

 

43

     Total adjustments to GAAP cost of sales

265

 

260

 

812

 

753

     Adjustments to operating expenses:

             

          Share-based compensation expense

394

 

383

 

1,173

 

1,103

          Amortization of acquisition-related intangible assets

92

 

61

 

255

 

136

          Acquisition-related/divestiture costs

29

 

86

 

261

 

179

          Russia-Ukraine war costs

62

 

 

62

 

          Significant asset impairments and restructurings

 

42

 

8

 

878

     Total adjustments to GAAP operating expenses

577

 

572

 

1,759

 

2,296

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

             

          Acquisition-related/divestiture costs

 

6

 

 

4

          (Gains) and losses on equity investments

(159)

 

(96)

 

(478)

 

(131)

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

(159)

 

(90)

 

(478)

 

(127)

     Total adjustments to GAAP income before provision for income taxes

683

 

742

 

2,093

 

2,922

          Income tax effect of non-GAAP adjustments

(95)

 

(95)

 

(435)

 

(503)

          Significant tax matters

 

 

 

83

     Total adjustments to GAAP provision for income taxes

(95)

 

(95)

 

(435)

 

(420)

Non-GAAP net income

$         3,632

 

$         3,510

 

$       10,655

 

$       10,084

  

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

GAAP TO NON-GAAP EPS

 
 

Three Months Ended

 

Nine Months Ended

 

April 30,
2022

 

May 1,
2021

 

April 30,
2022

 

May 1,
2021

GAAP EPS

$           0.73

 

$           0.68

 

$           2.14

 

$           1.79

     Adjustments to GAAP:

             

          Share-based compensation expense

0.11

 

0.11

 

0.33

 

0.31

          Amortization of acquisition-related intangible assets

0.06

 

0.06

 

0.20

 

0.15

          Acquisition-related/divestiture costs

0.01

 

0.02

 

0.06

 

0.04

          Russia-Ukraine war costs

0.02

 

 

0.02

 

          Legal and indemnification settlements/charges

 

 

 

0.01

          Significant asset impairments and restructurings

 

0.01

 

 

0.21

          (Gains) and losses on equity investments

(0.04)

 

(0.02)

 

(0.11)

 

(0.03)

          Income tax effect of non-GAAP adjustments

(0.02)

 

(0.02)

 

(0.10)

 

(0.12)

          Significant tax matters

 

 

 

0.02

Non-GAAP EPS

$           0.87

 

$           0.83

 

$           2.53

 

$           2.38

 

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

 

April 30, 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

$ 5,842

 

$ 2,279

 

$ 8,121

 

$ 4,511

 

(4)%

 

$ 3,610

 

4%

 

$  191

 

$ 3,044

 

6%

% of revenue

61.8 %

 

67.3 %

 

63.3 %

 

35.1 %

     

28.1 %

     

1.5 %

 

23.7 %

   

Adjustments to GAAP amounts:

                               

     Share-based compensation expense

30

 

53

 

83

 

394

     

477

     

 

477

   

     Amortization of acquisition-related intangible assets

176

 

 

176

 

92

     

268

     

 

268

   

     Acquisition/divestiture-related costs

1

 

 

1

 

29

     

30

     

 

30

   

     Russia-Ukraine war costs

4

 

1

 

5

 

62

     

67

     

 

67

   

     (Gains) and losses on equity investments

 

 

 

     

     

(159)

 

(159)

   

     Income tax effect/significant tax matters

 

 

 

     

     

 

(95)

   

Non-GAAP amount

$ 6,053

 

$ 2,333

 

$ 8,386

 

$ 3,934

 

(5)%

 

$ 4,452

 

4%

 

$    32

 

$ 3,632

 

3%

% of revenue

64.1 %

 

68.9 %

 

65.3 %

 

30.7 %

     

34.7 %

     

0.2 %

 

28.3 %

   

 

 

Three Months Ended

 

May 1, 2021

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Operating

Income

 

Interest
and
other
income
(loss),
net

 

Net

Income

GAAP amount

$   5,717

 

$   2,468

 

$   8,185

 

$   4,720

 

$   3,465

 

$      126

 

$   2,863

% of revenue

62.6 %

 

67.4 %

 

63.9 %

 

36.9 %

 

27.1 %

 

1.0 %

 

22.4 %

Adjustments to GAAP amounts:

                         

     Share-based compensation expense

26

 

49

 

75

 

383

 

458

 

 

458

     Amortization of acquisition-related intangible assets

184

 

 

184

 

61

 

245

 

 

245

     Acquisition/divestiture-related costs

1

 

 

1

 

86

 

87

 

6

 

93

     Significant asset impairments and restructurings

 

 

 

42

 

42

 

 

42

     (Gains) and losses on equity investments

 

 

 

 

 

(96)

 

(96)

     Income tax effect/significant tax matters

 

 

 

 

 

 

(95)

Non-GAAP amount

$   5,928

 

$   2,517

 

$   8,445

 

$   4,148

 

$   4,297

 

$        36

 

$   3,510

% of revenue

64.9 %

 

68.7 %

 

66.0 %

 

32.4 %

 

33.6 %

 

0.3 %

 

27.4 %

 

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)

 
 

Nine Months Ended

 

April 30, 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

$ 17,482

 

$ 6,741

 

$ 24,223

 

$ 13,688

 

(4)%

 

$ 10,535

 

14%

 

$  526

 

$ 8,997

 

19%

% of revenue

61.7 %

 

66.6 %

 

63.0 %

 

35.6 %

     

27.4 %

     

1.4 %

 

23.4 %

   

Adjustments to GAAP amounts:

                               

     Share-based compensation expense

84

 

149

 

233

 

1,173

     

1,406

     

 

1,406

   

     Amortization of acquisition-related intangible assets

571

 

 

571

 

255

     

826

     

 

826

   

     Acquisition/divestiture-related costs

3

 

 

3

 

261

     

264

     

 

264

   

     Russia-Ukraine war costs

4

 

1

 

5

 

62

     

67

     

 

67

   

     Significant asset impairments and restructurings

 

 

 

8

     

8

     

 

8

   

     (Gains) and losses on equity investments

 

 

 

     

     

(478)

 

(478)

   

     Income tax effect/significant tax matters

 

 

 

     

     

 

(435)

   

Non-GAAP amount

$ 18,144

 

$ 6,891

 

$ 25,035

 

$ 11,929

 

(1)%

 

$ 13,106

 

6%

 

$    48

 

$ 10,655

 

6%

% of revenue

64.0 %

 

68.1 %

 

65.1 %

 

31.0 %

     

34.1 %

     

0.1 %

 

27.7 %

   

 

 

Nine Months Ended

 

May 1, 2021

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Operating

Income

 

Interest
and
other
income
(loss),
net

 

Net

Income

GAAP amount

$ 16,626

 

$   6,924

 

$ 23,550

 

$ 14,292

 

$   9,258

 

$      269

 

$   7,582

% of revenue

63.2 %

 

66.6 %

 

64.2 %

 

39.0 %

 

25.2 %

 

0.7 %

 

20.7 %

Adjustments to GAAP amounts:

                         

     Share-based compensation expense

75

 

133

 

208

 

1,103

 

1,311

 

 

1,311

     Amortization of acquisition-related intangible assets

499

 

 

499

 

136

 

635

 

 

635

     Acquisition/divestiture-related costs

2

 

1

 

3

 

179

 

182

 

4

 

186

     Legal and indemnification settlements/charges

43

 

 

43

 

 

43

 

 

43

     Significant asset impairments and restructurings

 

 

 

878

 

878

 

 

878

     (Gains) and losses on equity investments

 

 

 

 

 

(131)

 

(131)

     Income tax effect/significant tax matters

 

 

 

 

 

 

(420)

Non-GAAP amount

$ 17,245

 

$   7,058

 

$ 24,303

 

$ 11,996

 

$ 12,307

 

$      142

 

$ 10,084

% of revenue

65.6 %

 

67.9 %

 

66.2 %

 

32.7 %

 

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

 

Nine Months Ended

 

April 30, 2022

 

May 1, 2021

 

April 30, 2022

 

May 1, 2021

GAAP effective tax rate

19.9 %

 

20.3 %

 

18.7 %

 

20.4 %

     Total adjustments to GAAP provision for income taxes

(0.9) %

 

(1.3) %

 

0.3 %

 

(1.4) %

Non-GAAP effective tax rate

19.0 %

 

19.0 %

 

19.0 %

 

19.0 %

 

 

GAAP TO NON-GAAP GUIDANCE

   
     

Q4 FY 2022

 

Gross Margin Rate

 

Operating Margin Rate

 

Earnings per Share (1)

GAAP

 

62% - 63%

 

25% - 27%

 

$0.60 - $0.70

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%

 

2.5%

 

$0.06 - $0.07

Non-GAAP

 

64% - 65%

 

31.5% - 33.5%

 

$0.76 - $0.84

 
         

FY 2022

     

Earnings per
Share (1)

GAAP

     

$2.75 - $2.85

Estimated adjustments for:

       

     Share-based compensation expense

     

$0.33 - $0.34

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

     

$0.27 - $0.28

     Russia-Ukraine war costs

     

$0.01

     (Gains) and losses on equity investments

     

($0.09)

Non-GAAP

     

 $3.29 - $3.37

   

(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, Russia-Ukraine war costs, 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 manage through ongoing supply constraints, the success of our strategy and confidence in our long-term growth, the fundamental drivers across our business being strong, the strong demand resulting in record backlogs, our business transformation shifting to more software and subscriptions, and our strategic investments in innovation to capitalize on significant growth opportunities and expanding addressable markets) and the future financial performance of Cisco (including the guidance for Q4 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 February 22, 2022 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 nine months ended April 30, 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, Russia-Ukraine war costs, 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 The Newsroom 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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