• Q1 Results: ¹
  • Revenue: $13.2 billion
    • Growth of 2% year over year
  • Earnings per Share: GAAP: $0.68; Non-GAAP: $0.84
    • Non-GAAP EPS increased 12% year over year
• Q2 Guidance:
  • Revenue: (3)% to (5)% decline year over year
  • Earnings per Share: GAAP: $0.61 to $0.67; Non-GAAP: $0.75 to $0.77

¹ Normalized to exclude the divested SPVSS business

SAN JOSE, Calif., Nov. 13, 2019 -- Cisco today reported first quarter results for the period ended October 26, 2019. Cisco reported first quarter revenue of $13.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.9 billion or $0.68 per share, and non-GAAP net income of $3.6 billion or $0.84 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 and non-GAAP financial information have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

"We delivered a solid quarter against a challenging macro environment," said Chuck Robbins, chairman and CEO of Cisco. "We're focused on continuing to drive innovation, transform our business and exceed our customers' expectations."

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 performed well in Q1, growing revenue and delivering strong margins and EPS," said Kelly Kramer, CFO of Cisco. "With software subscriptions now at 71% of our software revenue, we are making good progress in transforming our business model.  We continue to invest in our innovation pipeline to generate long-term profitable growth and deliver 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 "Q1 FY 2020 Highlights" section are presented excluding the SPVSS business for all periods as it was divested during the second quarter of fiscal 2019 on October 28, 2018.

Q1 FY 2020 Highlights

Revenue -- Total revenue was $13.2 billion, up 2%, with product revenue up 1% and service revenue up 4%. Revenue by geographic segment was: Americas up 4%, EMEA up 4%, and APJC down 8%. Product revenue was led by growth in Security, up 22% and Applications, up 6%. Infrastructure Platforms was down 1%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were each 64.3%, as compared with 62.3%, 61.6%, and 64.6%, respectively, in the first quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.9%, 66.1%, and 65.4%, respectively, as compared with 64.2%, 63.6%, and 65.8%, respectively, in the first quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.6% for the Americas, 66.0% for EMEA and 62.9% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.9 billion, up 13%. Non-GAAP operating expenses were $4.3 billion, up 4%, and were 32.4% of revenue.

Operating Income -- GAAP operating income was $3.6 billion, down 6%, with GAAP operating margin of 27.2%. Non-GAAP operating income was $4.4 billion, up 6%, with non-GAAP operating margin at 33.6%.

Provision for Income Taxes -- The GAAP tax provision rate was 20.6%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.9 billion and EPS was $0.68. On a non-GAAP basis, net income was $3.6 billion, an increase of 5%, and EPS was $0.84, an increase of 12%.

Cash Flow from Operating Activities -- $3.6 billion for the first quarter of fiscal 2020, a decrease of 5% compared with $3.8 billion for the first quarter of fiscal 2019. Operating cash flow for the first quarter of fiscal 2019 included the receipt of $0.4 billion in relation to the litigation settlement with Arista Networks. Operating cash flow increased 7%, normalized for this receipt.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $28.0 billion at the end of the first quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.6 billion, up 11% in total, with deferred product revenue up 24%. Deferred service revenue was up 4%.

Remaining Performance Obligations -- $24.9 billion at the end of the first quarter of fiscal 2020, up 11%.

Capital Allocation -- In the first quarter of fiscal 2020, we returned $2.3 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 16 million shares of common stock under our stock repurchase program at an average price of $48.91 per share for an aggregate purchase price of $768 million. The remaining authorized amount for stock repurchases under the program is $12.7 billion with no termination date.

Acquisitions

We completed several acquisitions in the first quarter of fiscal 2020. In addition, in the fourth quarter of fiscal 2019, we announced our intent to acquire Acacia Communications, Inc., a publicly-traded fabless semiconductor company that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. The acquisition is expected to close during the second half of fiscal 2020, subject to customary closing conditions and regulatory approvals.

Guidance for Q2 FY 2020

Cisco expects to achieve the following results for the second quarter of fiscal 2020:

Cisco estimates that GAAP EPS will be $0.61 to $0.67 in the second quarter of fiscal 2020.

A reconciliation between the Guidance for Q2 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q2 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

• Q1 fiscal year 2020 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, November 13, 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, November 13, 2019 to 4:00 p.m. Pacific Time, November 20, 2019 at 1-800-835-4610 (United States) or 1-203-369-3352 (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 13, 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.

 

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 three months ended October 27, 2018 includes three months of financial results for this 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. SPVSS business revenue for the three months ended October 27, 2018 was $168 million.

 

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 October 27, 2018 was $168 million.

 

 

 

 

 

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 quarter of fiscal 2019.

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

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

 

⁽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 ability to drive innovation, transform our business and exceed our customers' expectations, our continued progress in transforming our business model with software subscriptions, and our investment in our innovation pipeline to generate long-term profitable growth and deliver value for shareholders) and the future financial performance of Cisco (including the guidance for Q2 FY 2020) 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 report on Form 10-K filed on September 5, 2019. 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 report on Form 10-K as it may be amended from time to time. Cisco's results of operations for the three months ended October 26, 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

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