News Release

Cisco Reports Third Quarter FY19 Earnings

Cisco Press Release
  • Q3 Results:
    • Revenue: $13.0 billion
      • Growth of 6% year over year (normalized to exclude the divested SPVSS business for Q3 FY 2018)
    • Earnings per Share: GAAP: $0.69; Non-GAAP: $0.78
      • Non-GAAP EPS increased 18% year over year
  • Q4 Guidance (normalized to exclude the divested SPVSS business for Q4 FY 2018):
    • Revenue: 4.5% to 6.5% growth year over year
    • Earnings per Share: GAAP: $0.66 to $0.71; Non-GAAP: $0.80 to $0.82

    Q3FY19 Earnings Infographics

     

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

    

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

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

GAAP Results

             
   

Q3 FY 2019

 

Q3 FY 2018

 

Vs. Q3 FY 2018

Revenue (including SPVSS business for all periods)

 

$

13.0 billion

 

$

12.5 billion

 

4%

Revenue (excluding SPVSS business for all periods)

 

$

13.0 billion

 

$

12.2 billion

 

6%

Net Income

 

$

3.0 billion

 

$

2.7 billion

 

13%

Diluted Earnings per Share (EPS)

 

$

0.69

   

$

0.56

   

23%

 

Non-GAAP Results

             
   

Q3 FY 2019

 

Q3 FY 2018

 

Vs. Q3 FY 2018

Net Income (excluding SPVSS business for all periods)

 

$

3.5 billion

 

$

3.2 billion

 

8%

EPS (excluding SPVSS business for all periods)

 

$

0.78

   

$

0.66

   

18%

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

"We executed well in Q3, delivering revenue growth of 6%, non-GAAP EPS growth of 18%, as well as strong margins and cash flow," said Kelly Kramer, CFO of Cisco. "We continue to invest in our innovation pipeline to drive long-term profitable growth, while successfully evolving our business model through software offerings and subscriptions and delivering value for shareholders."

Financial Summary

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

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

Q3 FY 2019 Highlights

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

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

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

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

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

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

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

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

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

Balance Sheet and Other Financial Highlights

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

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

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

Acquisitions

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

Guidance for Q4 FY 2019

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

Q4 FY 2019

   

Revenue

 

4.5% - 6.5% growth Y/Y

Non-GAAP gross margin rate

 

64% - 65%

Non-GAAP operating margin rate

 

31% - 32%

Non-GAAP tax provision rate

 

19%

Non-GAAP EPS

 

$0.80 - $0.82

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

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

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

Editor's Notes:

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

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

       
 

Three Months Ended

 

Nine Months Ended

 

April 27, 2019

 

April 28, 2018

 

April 27, 2019

 

April 28, 2018

REVENUE:

             

Product

$

9,722

   

$

9,304

   

$

28,885

   

$

27,067

 

Service

3,236

   

3,159

   

9,591

   

9,419

 

Total revenue

12,958

   

12,463

   

38,476

   

36,486

 

COST OF SALES:

             

Product

3,693

   

3,625

   

11,106

   

10,594

 

Service

1,092

   

1,079

   

3,278

   

3,208

 

Total cost of sales

4,785

   

4,704

   

14,384

   

13,802

 

GROSS MARGIN

8,173

   

7,759

   

24,092

   

22,684

 

OPERATING EXPENSES:

             

Research and development

1,659

   

1,590

   

4,824

   

4,706

 

Sales and marketing

2,403

   

2,325

   

7,084

   

6,894

 

General and administrative

541

   

561

   

1,261

   

1,601

 

Amortization of purchased intangible assets

39

   

67

   

112

   

188

 

Restructuring and other charges

18

   

82

   

282

   

332

 

Total operating expenses

4,660

   

4,625

   

13,563

   

13,721

 

OPERATING INCOME

3,513

   

3,134

   

10,529

   

8,963

 

Interest income

331

   

380

   

1,003

   

1,155

 

Interest expense

(211)

   

(237)

   

(655)

   

(719)

 

Other income (loss), net

(18)

   

(24)

   

(10)

   

48

 

Interest and other income (loss), net

102

   

119

   

338

   

484

 

INCOME BEFORE PROVISION FOR INCOME TAXES

3,615

   

3,253

   

10,867

   

9,447

 

Provision for income taxes (1)

571

   

562

   

1,452

   

13,140

 

NET INCOME (LOSS)

$

3,044

   

$

2,691

   

$

9,415

   

$

(3,693)

 
               

Net income (loss) per share:

             

Basic

$

0.70

   

$

0.56

   

$

2.11

   

$

(0.76)

 

Diluted

$

0.69

   

$

0.56

   

$

2.09

   

$

(0.76)

 

Shares used in per-share calculation:

             

Basic

4,370

   

4,791

   

4,468

   

4,892

 

Diluted

4,415

   

4,844

   

4,509

   

4,892

 

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

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

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

     
   

April 27, 2019

   

Three Months Ended

 

Nine Months Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y %

Revenue:

               

Including SPVSS business for all periods:

               

Americas

 

$

7,695

   

7%

 

$

22,798

   

6%

EMEA

 

3,356

   

2%

 

9,803

   

6%

APJC

 

1,907

   

(6)%

 

5,875

   

3%

Total

 

$

12,958

   

4%

 

$

38,476

   

5%

Excluding SPVSS business for all periods:

               

Americas

 

$

7,695

   

9%

 

$

22,721

   

7%

EMEA

 

3,356

   

5%

 

9,737

   

8%

APJC

 

1,907

   

(4)%

 

5,851

   

5%

Total

 

$

12,958

   

6%

 

$

38,309

   

7%

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

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

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

     
   

April 27, 2019

   

Three Months Ended

 

Nine Months Ended

Gross Margin Percentage:

       

Including SPVSS business for all periods:

       

Americas

 

65.6%

 

65.4%

EMEA

 

64.5%

 

64.3%

APJC

 

60.7%

 

59.0%

Excluding SPVSS business for all periods (1):

       

Americas

 

65.6%

 

65.6%

EMEA

 

64.5%

 

64.4%

APJC

 

60.7%

 

59.1%

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

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

     
   

April 27, 2019

   

Three Months Ended

 

Nine Months Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y %

Revenue:

               

Including SPVSS business for all periods:

               

Infrastructure Platforms

 

$

7,545

   

5%

 

$

22,315

   

7%

Applications

 

1,431

   

9%

 

4,315

   

17%

Security

 

707

   

21%

 

2,016

   

17%

Other Products

 

39

   

(83)%

 

239

   

(69)%

Total Product

 

9,722

   

4%

 

28,885

   

7%

Services

 

3,236

   

2%

 

9,591

   

2%

Total

 

$

12,958

   

4%

 

$

38,476

   

5%

Excluding SPVSS business for all periods:

               

Infrastructure Platforms

 

$

7,545

   

5%

 

$

22,315

   

7%

Applications

 

1,431

   

9%

 

4,315

   

17%

Security

 

707

   

21%

 

2,016

   

17%

Other Products

 

39

   

3%

 

93

   

(39)%

Total Product

 

9,722

   

7%

 

28,739

   

9%

Services

 

3,236

   

3%

 

9,570

   

2%

Total

 

$

12,958

   

6%

 

$

38,309

   

7%

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

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

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

       
 

April 27, 2019

 

July 28, 2018

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

10,251

   

$

8,934

 

Investments

24,392

   

37,614

 

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

3,795

   

5,554

 

Inventories

1,513

   

1,846

 

Financing receivables, net

5,029

   

4,949

 

Other current assets

2,331

   

2,940

 

Total current assets

47,311

   

61,837

 

Property and equipment, net

2,834

   

3,006

 

Financing receivables, net

4,862

   

4,882

 

Goodwill

33,544

   

31,706

 

Purchased intangible assets, net

2,398

   

2,552

 

Deferred tax assets

4,023

   

3,219

 

Other assets

2,315

   

1,582

 

TOTAL ASSETS

$

97,287

   

$

108,784

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

$

7,777

   

$

5,238

 

Accounts payable

2,022

   

1,904

 

Income taxes payable

953

   

1,004

 

Accrued compensation

2,872

   

2,986

 

Deferred revenue

10,117

   

11,490

 

Other current liabilities

4,172

   

4,413

 

Total current liabilities

27,913

   

27,035

 

Long-term debt

15,921

   

20,331

 

Income taxes payable

8,038

   

8,585

 

Deferred revenue

7,339

   

8,195

 

Other long-term liabilities

1,272

   

1,434

 

Total liabilities

60,483

   

65,580

 

Total equity

36,804

   

43,204

 

TOTAL LIABILITIES AND EQUITY

$

97,287

   

$

108,784

 

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

   
 

Nine Months Ended

 

April 27,

 2019

 

April 28,

 2018

Cash flows from operating activities:

     

Net income (loss)

$

9,415

   

$

(3,693)

 

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

     

Depreciation, amortization, and other

1,433

   

1,676

 

Share-based compensation expense

1,166

   

1,184

 

Provision (benefit) for receivables

32

   

(104)

 

Deferred income taxes

(281)

   

1,013

 

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

(79)

   

(159)

 

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

     

Accounts receivable

1,560

   

1,064

 

Inventories

(1)

   

(289)

 

Financing receivables

(112)

   

(165)

 

Other assets

(736)

   

(135)

 

Accounts payable

52

   

148

 

Income taxes, net

(759)

   

8,795

 

Accrued compensation

(68)

   

53

 

Deferred revenue

421

   

415

 

Other liabilities

(154)

   

(237)

 

Net cash provided by operating activities

11,889

   

9,566

 

Cash flows from investing activities:

     

Purchases of investments

(1,176)

   

(14,132)

 

Proceeds from sales of investments

5,391

   

12,422

 

Proceeds from maturities of investments

10,797

   

12,259

 

Acquisitions and divestitures

(2,175)

   

(2,762)

 

Purchases of investments in privately held companies

(118)

   

(126)

 

Return of investments in privately held companies

127

   

163

 

Acquisition of property and equipment

(701)

   

(620)

 

Proceeds from sales of property and equipment

15

   

54

 

Other

(12)

   

(16)

 

Net cash provided by investing activities

12,148

   

7,242

 

Cash flows from financing activities:

     

Issuances of common stock

321

   

318

 

Repurchases of common stock - repurchase program

(16,042)

   

(11,562)

 

Shares repurchased for tax withholdings on vesting of restricted stock units

(601)

   

(541)

 

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

1,723

   

(2,502)

 

Issuances of debt

1,530

   

6,877

 

Repayments of debt

(5,250)

   

(9,875)

 

Dividends paid

(4,489)

   

(4,433)

 

Other

51

   

(92)

 

Net cash used in financing activities

(22,757)

   

(21,810)

 

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

1,280

   

(5,002)

 

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

8,993

   

11,773

 

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

$

10,273

   

$

6,771

 

Supplemental cash flow information:

     

Cash paid for interest

$

690

   

$

739

 

Cash paid for income taxes, net

$

2,491

   

$

3,332

 

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

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

           
 

April 27, 2019

 

January 26, 2019

 

April 28, 2018

Deferred revenue:

         

Service

$

11,297

   

$

11,246

   

$

10,960

 

Product

6,159

   

6,015

   

7,993

 

Total

$

17,456

   

$

17,261

   

$

18,953

 

Reported as:

         

Current

$

10,117

   

$

9,976

   

$

11,301

 

Noncurrent

7,339

   

7,285

   

7,652

 

Total

$

17,456

   

$

17,261

   

$

18,953

 

 

CISCO SYSTEMS, INC.

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

             
   

DIVIDENDS

 

STOCK REPURCHASE PROGRAM

 

TOTAL

Quarter Ended

 

Per Share

 

Amount

 

Shares

 

Weighted-
Average Price
per Share

 

Amount

 

Amount

Fiscal 2019

                       

April 27, 2019

 

$

0.35

   

$

1,519

   

116

   

$

52.14

   

$

6,020

   

$

7,539

 

January 26, 2019

 

$

0.33

   

$

1,470

   

111

   

$

45.09

   

$

5,016

   

$

6,486

 

October 27, 2018

 

$

0.33

   

$

1,500

   

109

   

$

46.01

   

$

5,026

   

$

6,526

 

Fiscal 2018

                       

July 28, 2018

 

$

0.33

   

$

1,535

   

138

   

$

43.58

   

$

6,015

   

$

7,550

 

April 28, 2018

 

$

0.33

   

$

1,572

   

140

   

$

42.83

   

$

6,015

   

$

7,587

 

January 27, 2018

 

$

0.29

   

$

1,425

   

103

   

$

39.07

   

$

4,011

   

$

5,436

 

October 28, 2017

 

$

0.29

   

$

1,436

   

51

   

$

31.80

   

$

1,620

   

$

3,056

 

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

       
 

Three Months Ended

 

Nine Months Ended

 

April 27,

 2019

 

April 28,

 2018

 

April 27,

 2019

 

April 28,

 2018

GAAP net income (loss)

$

3,044

   

$

2,691

   

$

9,415

   

$

(3,693)

 

Adjustments to cost of sales:

             

Share-based compensation expense

54

   

57

   

163

   

168

 

Amortization of acquisition-related intangible assets

141

   

161

   

418

   

444

 

Supplier component remediation charge (adjustment), net

   

(9)

   

(1)

   

(41)

 

Acquisition-related/divestiture costs

2

   

2

   

9

   

4

 

Legal and indemnification settlements

   

   

5

   

122

 

Total adjustments to GAAP cost of sales

197

   

211

   

594

   

697

 

Adjustments to operating expenses:

             

Share-based compensation expense

322

   

342

   

974

   

1,010

 

Amortization of acquisition-related intangible assets

39

   

67

   

112

   

188

 

Acquisition-related/divestiture costs

78

   

89

   

238

   

195

 

Legal and indemnification settlements

(1)

   

   

(396)

   

 

Significant asset impairments and restructurings

18

   

82

   

282

   

332

 

Total adjustments to GAAP operating expenses

456

   

580

   

1,210

   

1,725

 

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

             

(Gains) and losses on equity investments

(4)

   

   

(77)

   

 

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

649

   

791

   

1,727

   

2,422

 

Income tax effect of non-GAAP adjustments

(160)

   

(168)

   

(554)

   

(613)

 

Significant tax matters (1)

(79)

   

(119)

   

(387)

   

11,261

 

Total adjustments to GAAP provision for income taxes

(239)

   

(287)

   

(941)

   

10,648

 

Non-GAAP net income

$

3,454

   

$

3,195

   

$

10,201

   

$

9,377

 

Net income (loss) per share (2):

             

GAAP

$

0.69

   

$

0.56

   

$

2.09

   

$

(0.76)

 

Non-GAAP

$

0.78

   

$

0.66

   

$

2.26

   

$

1.90

 

(1) For the first nine months of fiscal 2018, we recorded charges relating to significant tax matters that were excluded from non-GAAP net income. $11.1 billion of these charges were provisional amounts related to the enactment of the Tax Cuts and Jobs Act comprised of $8.9 billion related to the U.S. transition tax, $1.2 billion related to foreign withholding tax and $1.0 billion related to the re-measurement of net deferred tax assets. The amounts were provisional based on Securities and Exchange Commission Staff Accounting Bulletin No. 118. The remaining $0.2 billion was related to other significant tax matters.

(2) GAAP net loss per share for the nine months ended April 28, 2018 was calculated using basic shares of 4,892 million, due to the net loss resulting from the tax charge as discussed in footnote (1). Non-GAAP net income per share for the period was calculated using diluted shares of 4,936 million, as we had non-GAAP net income for this period.

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

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

(In millions, except percentages)

   
 

Three Months Ended

 

April 27, 2019

 

Product Gross Margin

 

Service Gross Margin

 

Total Gross Margin

 

Operating Expenses

 

Y/Y

 

Operating Income

 

Y/Y

 

Interest and other income (loss), net

 

Y/Y

 

Net Income

 

Y/Y

GAAP amount

$

6,029

   

$

2,144

   

$

8,173

   

$

4,660

   

1%

 

$

3,513

   

12%

 

$

102

   

(14)%

 

$

3,044

   

13%

% of revenue

62.0

%

 

66.3

%

 

63.1

%

 

36.0

%

     

27.1

%

     

0.8

%

     

23.5

%

   

Adjustments to GAAP amounts:

                                         

Share-based compensation expense

22

   

32

   

54

   

322

       

376

       

       

376

     

Amortization of acquisition-related intangible assets

141

   

   

141

   

39

       

180

       

       

180

     

Legal and indemnification settlements

   

   

   

(1)

       

(1)

       

       

(1)

     

Acquisition/divestiture-related costs

1

   

1

   

2

   

78

       

80

       

       

80

     

Significant asset impairments and restructurings

   

   

   

18

       

18

       

       

18

     

(Gains) and losses on equity investments

   

   

   

       

       

(4)

       

(4)

     

Income tax effect/significant tax matters

   

   

   

       

       

       

(239)

     

Non-GAAP amount

$

6,193

   

$

2,177

   

$

8,370

   

$

4,204

   

6%

 

$

4,166

   

6%

 

$

98

   

(18)%

 

$

3,454

   

8%

% of revenue

63.7

%

 

67.3

%

 

64.6

%

 

32.4

%

     

32.2

%

     

0.8

%

     

26.7

%

   

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

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

 

Three Months Ended

 

April 28, 2018

 

Product Gross Margin

 

Service Gross Margin

 

Total Gross Margin

 

Operating Expenses

 

Operating

Income

 

Net

Income

GAAP amount

$

5,679

   

$

2,080

   

$

7,759

   

$

4,625

   

$

3,134

   

$

2,691

 

% of revenue

61.0

%

 

65.8

%

 

62.3

%

 

37.1

%

 

25.1

%

 

21.6

%

Adjustments to GAAP amounts:

                     

Share-based compensation expense

24

   

33

   

57

   

342

   

399

   

399

 

Amortization of acquisition-related intangible assets

161

   

   

161

   

67

   

228

   

228

 

Supplier component remediation charge (adjustment), net

(9)

   

   

(9)

   

   

(9)

   

(9)

 

Acquisition/divestiture-related costs

1

   

1

   

2

   

89

   

91

   

91

 

Significant asset impairments and restructurings

   

   

   

82

   

82

   

82

 

Income tax effect/significant tax matters

   

   

   

   

   

(287)

 

Non-GAAP amount

$

5,856

   

$

2,114

   

$

7,970

   

$

4,045

   

$

3,925

   

$

3,195

 

Less: SPVSS business (1)

(56)

   

(11)

   

(66)

   

(61)

   

(5)

   

(4)

 

Non-GAAP amount (excluding SPVSS business)

$

5,800

   

$

2,103

   

$

7,903

   

$

3,984

   

$

3,919

   

$

3,191

 

% of revenue

63.7

%

 

67.1

%

 

64.5

%

 

32.5

%

 

32.0

%

 

26.1

%

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

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

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

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

(In millions, except percentages)

   
 

Nine Months Ended

 

April 27, 2019

 

Product Gross Margin

 

Service Gross Margin

 

Total Gross Margin

 

Operating Expenses

 

Y/Y

 

Operating Income

 

Y/Y

 

Interest and other income (loss), net

 

Y/Y

 

Net Income

 

Y/Y

GAAP amount

$

17,779

   

$

6,313

   

$

24,092

   

$

13,563

   

(1)%

 

$

10,529

   

17%

 

$

338

   

(30)%

 

$

9,415

   

NM

% of revenue

61.6

%

 

65.8

%

 

62.6

%

 

35.3

%

     

27.4

%

     

0.9

%

     

24.5

%

   

Adjustments to GAAP amounts:

                                         

Share-based compensation expense

67

   

96

   

163

   

974

       

1,137

       

       

1,137

     

Amortization of acquisition-related intangible assets

418

   

   

418

   

112

       

530

       

       

530

     

Supplier component remediation charge (adjustment), net

(1)

   

   

(1)

   

       

(1)

       

       

(1)

     

Legal and indemnification settlements

5

   

   

5

   

(396)

       

(391)

       

       

(391)

     

Acquisition/divestiture-related costs

4

   

5

   

9

   

238

       

247

       

       

247

     

Significant asset impairments and restructurings

   

   

   

282

       

282

       

       

282

     

(Gains) and losses on equity investments

   

   

   

       

       

(77)

       

(77)

     

Income tax effect/significant tax matters

   

   

   

       

       

       

(941)

     

Non-GAAP amount

$

18,272

   

$

6,414

   

$

24,686

   

$

12,353

       

$

12,333

       

$

261

       

$

10,201

     

% of revenue

63.3

%

 

66.9

%

 

64.2

%

 

32.1

%

     

32.1

%

     

0.7

%

     

26.5

%

   

Less: SPVSS business (1)

(52)

   

(9)

   

(61)

   

(59)

       

(1)

       

       

(1)

     

Non-GAAP amount (excluding SPVSS business)

$

18,220

   

$

6,405

   

$

24,625

   

$

12,293

   

4%

 

$

12,332

   

9%

 

$

261

   

(46)%

 

$

10,200

   

9%

% of revenue

63.4

%

 

66.9

%

 

64.3

%

 

32.1

%

     

32.2

%

     

0.7

%

     

26.6

%

   

NM — Not meaningful

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

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

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

 

Nine Months Ended

 

April 28, 2018

 

Product Gross Margin

 

Service Gross Margin

 

Total Gross Margin

 

Operating Expenses

 

Operating

Income

 

Net

Income (Loss)

GAAP amount

$

16,473

   

$

6,211

   

$

22,684

   

$

13,721

   

$

8,963

   

$

(3,693)

 

% of revenue

60.9

%

 

65.9

%

 

62.2

%

 

37.6

%

 

24.6

%

 

(10.1)

%

Adjustments to GAAP amounts:

                     

Share-based compensation expense

70

   

98

   

168

   

1,010

   

1,178

   

1,178

 

Amortization of acquisition-related intangible assets

444

   

   

444

   

188

   

632

   

632

 

Supplier component remediation charge (adjustment), net

(41)

   

   

(41)

   

   

(41)

   

(41)

 

Legal and indemnification settlements

122

   

   

122

   

   

122

   

122

 

Acquisition/divestiture-related costs

1

   

3

   

4

   

195

   

199

   

199

 

Significant asset impairments and restructurings

   

   

   

332

   

332

   

332

 

Income tax effect/significant tax matters (1)

   

   

   

   

   

10,648

 

Non-GAAP amount

$

17,069

   

$

6,312

   

$

23,381

   

$

11,996

   

$

11,385

   

$

9,377

 

Less: SPVSS business (2)

(200)

   

(27)

   

(226)

   

(192)

   

(34)

   

(27)

 

Non-GAAP amount (excluding SPVSS business)

$

16,870

   

$

6,284

   

$

23,154

   

$

11,805

   

$

11,349

   

$

9,348

 

% of revenue

63.8

%

 

67.3

%

 

64.7

%

 

33.0

%

 

31.7

%

 

26.1

%

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

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

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

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

EFFECTIVE TAX RATE

(In percentages)

       
 

Three Months Ended

 

Nine Months Ended

 

April 27, 2019

 

April 28, 2018

 

April 27, 2019

 

April 28, 2018

GAAP effective tax rate (1)

15.8

%

 

17.3

%

 

13.4

%

 

139.1

%

Total adjustments to GAAP provision for income taxes

3.2

%

 

3.7

%

 

5.6

%

 

(118.1)

%

Non-GAAP effective tax rate

19.0

%

 

21.0

%

 

19.0

%

 

21.0

%

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

GAAP TO NON-GAAP GUIDANCE FOR Q4 FY 2019

                 

Q4 FY 2019

 

Gross Margin Rate

 

Operating Margin Rate

 

Tax Provision Rate

 

Earnings per Share (1)

GAAP

 

62.5% - 63.5%

 

26% - 27%

 

17%

 

$0.66 - $0.71

Estimated adjustments for:

               

Share-based compensation expense

 

0.5%

 

3.0%

 

 

$0.06 - $0.07

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