Press Release

Cisco Reports First Quarter Earnings

Cisco Reports First Quarter Earnings

SAN JOSE, Calif., Nov. 15, 2023

News Summary:

  • Strongest first quarter results in Cisco's history in terms of revenue and profitability with $14.7 billion in revenue, up 8% year over year; GAAP EPS $0.89, up 37% year over year, and Non-GAAP EPS $1.11, up 29% year over year
  • Progress on business model transformation in Q1 FY 2024:
    • Total software revenue up 13% year over year and software subscription revenue up 13% year over year
    • Total annualized recurring revenue (ARR) at $24.5 billion, up 5% year over year and product ARR up 10% year over year
    • Remaining performance obligations (RPO) at $34.8 billion, up 12% year over year and product RPO up 14% year over year
  • Strong Q1 revenue across Cisco product portfolio, driven by customers' investments in Generative AI, Cloud, Security, and Full Stack Observability
  • Q1 FY 2024 Results:
    • Revenue: $14.7 billion
      • Increase of 8% year over year
    • Earnings per Share: GAAP: $0.89; Non-GAAP: $1.11
      • GAAP EPS increased 37% year over year
      • Non-GAAP EPS increased 29% year over year
  • Q2 FY 2024 Guidance:
    • Revenue: $12.6 billion to $12.8 billion
    • Earnings per Share: GAAP: $0.59 to $0.64; Non-GAAP: $0.82 to $0.84
  • FY 2024 Guidance:
    • Revenue: $53.8 billion to $55.0 billion
    • Earnings per Share: GAAP: $2.97 to $3.08; Non-GAAP: $3.87 to $3.93

 

Cisco Q1 FY2024 Financial Results Infographic

 

Cisco today reported first quarter results for the period ended October 28, 2023. Cisco reported first quarter revenue of $14.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.6 billion or $0.89 per share, and non-GAAP net income of $4.5 billion or $1.11 per share.

"We had a solid start to fiscal 2024 with the strongest Q1 results in our history on both revenue and profitability," said Chuck Robbins, chair and CEO of Cisco. "We are confident in the foundational strength of our business and future growth opportunities fueled by AI, Security, Cloud, and Observability."

"In Q1, we delivered revenue and EPS at the high end or above our guidance range, generating strong operating leverage," said Scott Herren, CFO of Cisco. "We also saw double-digit year-over-year growth in software revenue, product ARR and total RPO. After customers implement large amounts of recently shipped product, we expect to see product order growth rates accelerate in the second half of the year. We are committed to delivering operating leverage and increasing capital returns to our shareholders."

GAAP Results

 
   

Q1 FY 2024

 

Q1 FY 2023

 

Vs. Q1 FY 2023

Revenue

 

$               14.7 billion

 

$               13.6 billion

 

8 %

Net Income

 

$                3.6  billion

 

$                2.7  billion

 

36 %

Diluted Earnings per Share (EPS)

 

$                      0.89

 

$                      0.65

 

37 %

 

Non-GAAP Results

 
   

Q1 FY 2024

 

Q1 FY 2023

 

Vs. Q1 FY 2023

Net Income

 

$               4.5   billion

 

$               3.5   billion

 

28 %

EPS

 

$                      1.11

 

$                      0.86

 

29 %

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 Declares Quarterly Dividend

Cisco has declared a quarterly dividend of $0.39 per common share to be paid on January 24, 2024, to all stockholders of record as of the close of business on January 4, 2024. Future dividends will be subject to Board approval.

Financial Summary

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

Q1 FY 2024  Highlights

Revenue -- Total revenue was $14.7 billion, up 8%, with product revenue up 9% and service revenue up 4%. Revenue by geographic segment was: Americas up 14%, EMEA flat, and APJC was down 3%. Product revenue performance reflected growth in Networking up 10%, Security up 4%, Observability up 21% and Collaboration up 3%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 65.2%, 64.5%, and 67.3%, respectively, as compared with 61.2%, 59.2%, and 67.3%, respectively, in the first quarter of fiscal 2023.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 67.1%, 66.5%, and 69.0%, respectively, as compared with 63.0%, 61.0%, and 68.8%, respectively, in the first quarter of fiscal 2023.

Total gross margins by geographic segment were: 66.2% for the Americas, 69.5% for EMEA and 67.0% for APJC.

Operating Expenses --  On a GAAP basis, operating expenses were $5.3 billion, up 10%, and were 36.0% of revenue. Non-GAAP operating expenses were $4.5 billion, up 5%, and were 30.5% of revenue.

Operating Income --  GAAP operating income was $4.3 billion, up 21%, with GAAP operating margin of 29.2%. Non-GAAP operating income was $5.4 billion, up 24%, with non-GAAP operating margin at 36.6%.

Provision for Income Taxes --  The GAAP tax provision rate was 18.1%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS --  On a GAAP basis, net income was $3.6 billion, an increase of 36%, and EPS was $0.89, an increase of 37%. On a non-GAAP basis, net income was $4.5 billion, an increase of 28%, and EPS was $1.11, an increase of 29%.

Cash Flow from Operating Activities --  $2.4 billion for the first quarter of fiscal 2024, a decrease of 40% compared with $4.0 billion for the first quarter of fiscal 2023, primarily due to the timing of tax payments.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $23.5 billion at the end of the first quarter of fiscal 2024, compared with $26.1 billion at the end of fiscal 2023.

Remaining Performance Obligations (RPO)  -- $34.8 billion, up 12% in total, with 51% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 14% and service RPO were up 11%.

Deferred Revenue -- $25.7 billion, up 11% in total, with deferred product revenue up 12%. Deferred service revenue was up 11%.

Capital Allocation -- In the first quarter of fiscal 2024, we returned $2.8 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.39 per common share, or $1.6 billion, and repurchased approximately 23 million shares of common stock under our stock repurchase program at an average price of $54.53 per share for an aggregate purchase price of $1.3 billion. The remaining authorized amount for stock repurchases under the program is $9.7 billion with no termination date.

Acquisitions

In the first quarter of fiscal 2024, our closed acquisitions include:

  • Accedian, a privately held network performance monitoring company
  • Working Group Two, a privately held company that developed a cloud native mobile services platform
  • Oort, Inc., a privately held company focused on identity threat detection and response technology
  • SamKnows, a privately held broadband network monitoring company
  • Code BGP, Inc., a privately held border gateway protocol monitoring company

Cisco's Intent to Acquire Splunk

On September 21, 2023, we announced our intent to acquire Splunk Inc., a public cybersecurity and observability company. The acquisition is expected to close by the end of the third quarter of calendar year 2024, subject to regulatory approval and other customary closing conditions including approval by Splunk shareholders.

Guidance

Cisco saw a slowdown of new product orders in the first quarter of fiscal 2024 and believes the primary reason is that customers are currently focused on installing and implementing products in their environments following exceptionally strong product delivery over the past three quarters. Cisco estimates there are one to two quarters of shipped product orders still waiting to be implemented by its customers.

Cisco expects to achieve the following results for the second quarter of fiscal 2024:

Q2 FY 2024

   

Revenue

 

$12.6 billion - $12.8 billion

Non-GAAP gross margin rate

 

65% – 66%

Non-GAAP operating margin rate

 

31.5% – 32.5%

Non-GAAP EPS

 

$0.82 – $0.84

Cisco estimates that GAAP EPS will be $0.59 to $0.64 for the second quarter of fiscal 2024.

Cisco expects to achieve the following results for fiscal 2024:

FY 2024

   

Revenue

 

$53.8 billion - $55.0 billion

Non-GAAP EPS

 

$3.87 – $3.93

Cisco estimates that GAAP EPS will be $2.97 to $3.08 for fiscal 2024.

Our Q2 FY 2024 guidance assumes an effective tax provision rate of 17% for GAAP and 19% for non-GAAP results. Our FY 2024 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:

  • Q1 fiscal year 2024 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, November 15, 2023 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, November 15, 2023 to 4:00 p.m. Pacific Time, November 22, 2023 at 1-800-834-5839 (United States) or 1-203-369-3351 (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, November 15, 2023. 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

 

October 28,
2023

 

October 29,
2022

REVENUE:

     

Product

$       11,139

 

$       10,245

Service

3,529

 

3,387

Total revenue

14,668

 

13,632

COST OF SALES:

     

Product

3,957

 

4,179

Service

1,154

 

1,107

Total cost of sales

5,111

 

5,286

GROSS MARGIN

9,557

 

8,346

OPERATING EXPENSES:

     

Research and development

1,913

 

1,781

Sales and marketing

2,506

 

2,391

General and administrative

672

 

565

Amortization of purchased intangible assets

67

 

71

Restructuring and other charges

123

 

(2)

Total operating expenses

5,281

 

4,806

OPERATING INCOME

4,276

 

3,540

Interest income

360

 

169

Interest expense

(111)

 

(100)

Other income (loss), net

(83)

 

(134)

Interest and other income (loss), net

166

 

(65)

INCOME BEFORE PROVISION FOR INCOME TAXES

4,442

 

3,475

Provision for income taxes

804

 

805

NET INCOME

$         3,638

 

$         2,670

       

Net income per share:

     

Basic

$           0.90

 

$           0.65

Diluted

$           0.89

 

$           0.65

Shares used in per-share calculation:

     

Basic

4,057

 

4,108

Diluted

4,087

 

4,116

 

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 
   

Three Months Ended

   

October 28, 2023

   

Amount

 

Y/Y %

Revenue:

       

Americas

 

$           9,022

 

14 %

EMEA

 

3,664

 

— %

APJC

 

1,982

 

(3) %

Total

 

$         14,668

 

8 %

 

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

 

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 
   

Three Months Ended

   

October 28, 2023

Gross Margin Percentage:

   

Americas

 

66.2 %

EMEA

 

69.5 %

APJC

 

67.0 %

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 
   

Three Months Ended

   

October 28, 2023

   

Amount

 

Y/Y %

Revenue:

       

Networking

 

$           8,822

 

10 %

Security

 

1,010

 

4 %

Collaboration

 

1,117

 

3 %

Observability

 

190

 

21 %

Total Product

 

11,139

 

9 %

Services

 

3,529

 

4 %

Total

 

$         14,668

 

8 %

 

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

 

Effective for the first quarter of fiscal 2024, we began reporting our revenue in the following categories:  Networking, Security, Collaboration, Observability and Services. The reclassified product category revenue by quarter for fiscal 2021 through fiscal 2023, as well as other information is available on Cisco's Investor Relations website at https://investor.cisco.com/investor-relations/financial-information/Financial-Results/default.aspx.

 

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 
 

October 28, 2023

 

July 29, 2023

ASSETS

     

Current assets:

     

Cash and cash equivalents

$                9,602

 

$              10,123

Investments

13,921

 

16,023

Accounts receivable, net of allowance of $82 at October 28, 2023 and $85 at July 29,
2023

4,833

 

5,854

Inventories

3,342

 

3,644

Financing receivables, net

3,414

 

3,352

Other current assets

4,547

 

4,352

Total current assets

39,659

 

43,348

Property and equipment, net

2,004

 

2,085

Financing receivables, net

3,324

 

3,483

Goodwill

38,900

 

38,535

Purchased intangible assets, net

1,914

 

1,818