News Release

Cisco Reports Second Quarter FY20 Earnings

Cisco Press Release

Dividend Increased 3 Percent

  • Q2 Results:
    • Revenue: $12.0 billion
      • Decrease of (4)% year over year
    • Earnings per Share: GAAP: $0.68; Non-GAAP: $0.77
      • Non-GAAP EPS increased 5% year over year
  • Q3 Guidance:
    • Revenue: (1.5)% to (3.5)% decline year over year
    • Earnings per Share: GAAP: $0.62 to $0.67; Non-GAAP: $0.79 to $0.81

    Q2FY20 Earnings Infographics

     

SAN JOSE, Calif., Feb. 12, 2020 -- Cisco today reported second quarter results for the period ended January 25, 2020. Cisco reported second quarter revenue of $12.0 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 $3.3 billion or $0.77 per share.

"I am incredibly proud of the innovation our teams continue to drive," said Chuck Robbins, chairman and CEO of Cisco. "I am confident in our long-term growth opportunities as we help our customers build out the networks for the future."

GAAP Results

 
   

Q2 FY 2020

 

Q2 FY 2019

 

Vs. Q2 FY 2019

Revenue

 

$

12.0 billion

 

$

12.4 billion

 

(4)%

Net Income

 

$

2.9 billion

 

$

2.8 billion

 

2%

Diluted Earnings per Share (EPS)

 

$

0.68

   

$

0.63

   

8%

 

Non-GAAP Results

 
   

Q2 FY 2020

 

Q2 FY 2019

 

Vs. Q2 FY 2019

Net Income

 

$

3.3 billion

 

$

3.3 billion

 

—%

EPS

 

$

0.77

   

$

0.73

   

5%

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

Cisco Increases Quarterly Cash Dividend

Cisco has declared a quarterly dividend of $0.36 per common share, a $0.01 increase or up 3% over the previous quarter's dividend, to be paid on April 22, 2020 to all shareholders of record as of the close of business on April 3, 2020. Future dividends will be subject to Board approval.

"We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions," said Kelly Kramer, CFO of Cisco. "Our increased dividend shows confidence in the strength of our ongoing cash flows and demonstrates our commitment to shareholder return."

Financial Summary

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

Q2 FY 2020 Highlights

Revenue -- Total revenue was $12.0 billion, down 4%, with product revenue down 6% and service revenue up 5%. Revenue by geographic segment was: Americas down 5%, EMEA down 3%, and APJC down 1%. Product revenue was led by growth in Security, up 9%.  Infrastructure Platforms and Applications were each down 8%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.7%, 63.9%, and 66.6%, respectively, as compared with 62.5%, 61.0%, and 66.6%, respectively, in the second quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.4%, 65.9%, and 67.7%, respectively, as compared with 64.1%, 62.8%, and 67.7%, respectively, in the second quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.9% for the Americas, 65.8% for EMEA and 65.6% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion, down 4%. Non-GAAP operating expenses were $3.9 billion, down 1%, and were 32.7% of revenue.

Operating Income -- GAAP operating income was $3.4 billion, up 5%, with GAAP operating margin of 28.2%. Non-GAAP operating income was $4.0 billion, up 1%, with non-GAAP operating margin at 33.7%.

Provision for Income Taxes -- The GAAP tax provision rate was 18.6%. 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 flat at $3.3 billion, and EPS was $0.77, an increase of 5%.

Cash Flow from Operating Activities -- $3.8 billion for the second quarter of fiscal 2020, flat compared with $3.8 billion for the second quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $27.1 billion at the end of the second quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.7 billion, up 8% in total, with deferred product revenue up 19%. Deferred service revenue was up 2%.

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

Capital Allocation -- In the second quarter of fiscal 2020, we returned $2.4 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 18 million shares of common stock under our stock repurchase program at an average price of $46.71 per share for an aggregate purchase price of $870 million. The remaining authorized amount for stock repurchases under the program is $11.8 billion with no termination date.

Guidance for Q3 FY 2020

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

Q3 FY 2020

   

Revenue

 

(1.5)% - (3.5)% decline Y/Y

Non-GAAP gross margin rate

 

64.5% - 65.5%

Non-GAAP operating margin rate

 

32.5% - 33.5%

Non-GAAP tax provision rate

 

20%

Non-GAAP EPS

 

$0.79 - $0.81

Cisco estimates that GAAP EPS will be $0.62 to $0.67 in the third quarter of fiscal 2020.

A reconciliation between the Guidance for Q3 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q3 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q2 fiscal year 2020 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, February 12, 2020 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).
  • Conference call replay will be available from 4:00 p.m. Pacific Time, February 12, 2020 to 4:00 p.m. Pacific Time, February 19, 2020 at 1-800-839-1160 (United States) or 1-402-998-0925 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.
  • Additional information regarding Cisco's financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, February 12, 2020. Text of the conference call's prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

       
 

Three Months Ended

 

Six Months Ended

 

January 25,
2020

 

January 26,
2019

 

January 25,
2020

 

January 26,
2019

REVENUE:

             

Product

$

8,671

   

$

9,273

   

$

18,549

   

$

19,163

 

Service

3,334

   

3,173

   

6,615

   

6,355

 

Total revenue

12,005

   

12,446

   

25,164

   

25,518

 

COST OF SALES:

             

Product

3,126

   

3,614

   

6,650

   

7,413

 

Service

1,115

   

1,059

   

2,286

   

2,186

 

Total cost of sales

4,241

   

4,673

   

8,936

   

9,599

 

GROSS MARGIN

7,764

   

7,773

   

16,228

   

15,919

 

OPERATING EXPENSES:

             

Research and development

1,570

   

1,557

   

3,236

   

3,165

 

Sales and marketing

2,279

   

2,271

   

4,759

   

4,681

 

General and administrative

455

   

509

   

974

   

720

 

Amortization of purchased intangible assets

38

   

39

   

74

   

73

 

Restructuring and other charges

42

   

186

   

226

   

264

 

Total operating expenses

4,384

   

4,562

   

9,269

   

8,903

 

OPERATING INCOME

3,380

   

3,211

   

6,959

   

7,016

 

Interest income

242

   

328

   

515

   

672

 

Interest expense

(158)

   

(223)

   

(336)

   

(444)

 

Other income (loss), net

70

   

27

   

82

   

8

 

Interest and other income (loss), net

154

   

132

   

261

   

236

 

INCOME BEFORE PROVISION FOR INCOME TAXES

3,534

   

3,343

   

7,220

   

7,252

 

Provision for income taxes

656

   

521

   

1,416

   

881

 

NET INCOME

$

2,878

   

$

2,822

   

$

5,804

   

$

6,371

 
               

Net income per share:

             

Basic

$

0.68

   

$

0.63

   

$

1.37

   

$

1.41

 

Diluted

$

0.68

   

$

0.63

   

$

1.36

   

$

1.40

 

Shares used in per-share calculation:

             

Basic

4,242

   

4,470

   

4,244

   

4,517

 

Diluted

4,260

   

4,505

   

4,265

   

4,557

 

The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the six months ended January 26, 2019.

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 
   

January 25, 2020

   

Three Months Ended

 

Six Months Ended

               

Excluding
SPVSS
business

 

Including
SPVSS
business

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

 

Y/Y %

Revenue:

                   

Americas

 

$

7,013

   

(5)%

 

$

14,990

   

—%

 

(1)%

EMEA

 

3,134

   

(3)%

 

6,417

   

1%

 

—%

APJC

 

1,859

   

(1)%

 

3,758

   

(5)%

 

(5)%

Total

 

$

12,005

   

(4)%

 

$

25,164

   

(1)%

 

(1)%

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 six months ended January 26, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 
   

January 25, 2020

   

Three Months Ended

 

Six Months Ended

Gross Margin Percentage:

       

Americas

 

66.9%

 

66.8%

EMEA

 

65.8%

 

65.9%

APJC

 

65.6%

 

64.2%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 
   

January 25, 2020

   

Three Months Ended

 

Six Months Ended

               

Excluding
SPVSS
business

 

Including
SPVSS
business

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

 

Y/Y %

Revenue:

                   

Infrastructure Platforms

 

$

6,528

   

(8)%

 

$

14,067

   

(4)%

 

(4)%

Applications

 

1,349

   

(8)%

 

2,847

   

(1)%

 

(1)%

Security

 

748

   

9%

 

1,563

   

15%

 

15%

Other Products

 

46

   

110%

 

72

   

33%

 

(64)%

Total Product

 

8,671

   

(6)%

 

18,549

   

(2)%

 

(3)%

Services

 

3,334

   

5%

 

6,615

   

4%

 

4%

Total

 

$

12,005

   

(4)%

 

$

25,164

   

(1)%

 

(1)%

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 six months ended January 26, 2019 was $168 million.

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 
 

January 25, 2020

 

July 27, 2019

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

8,475

   

$

11,750

 

Investments

18,587

   

21,663

 

Accounts receivable, net of allowance for doubtful accounts of $112 at January 25, 2020 and $136 at July 27, 2019

4,330

   

5,491

 

Inventories

1,353

   

1,383

 

Financing receivables, net

4,827

   

5,095

 

Other current assets

2,481

   

2,373

 

Total current assets

40,053

   

47,755

 

Property and equipment, net

2,621

   

2,789

 

Financing receivables, net

4,757

   

4,958

 

Goodwill

33,612

   

33,529

 

Purchased intangible assets, net

1,906

   

2,201

 

Deferred tax assets

3,896

   

4,065

 

Other assets

3,581

   

2,496

 

TOTAL ASSETS

$

90,426

   

$

97,793

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

$

1,499

   

$

10,191

 

Accounts payable

1,935

   

2,059

 

Income taxes payable

819

   

1,149

 

Accrued compensation

2,690

   

3,221

 

Deferred revenue

10,638

   

10,668

 

Other current liabilities

4,507

   

4,424

 

Total current liabilities

22,088

   

31,712

 

Long-term debt

14,494

   

14,475

 

Income taxes payable

8,227

   

8,927

 

Deferred revenue

8,048

   

7,799

 

Other long-term liabilities

2,036

   

1,309

 

Total liabilities

54,893

   

64,222

 

Total equity

35,533

   

33,571

 

TOTAL LIABILITIES AND EQUITY

$

90,426

   

$

97,793

 

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 
 

Six Months Ended

 

January 25,

 2020

 

January 26,

 2019

Cash flows from operating activities:

     

Net income

$

5,804

   

$

6,371

 

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

     

Depreciation, amortization, and other

918

   

952

 

Share-based compensation expense

779

   

792

 

Provision (benefit) for receivables

46

   

30

 

Deferred income taxes

128

   

(257)

 

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

(162)

   

(77)

 

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

     

Accounts receivable

1,084

   

1,613

 

Inventories

25

   

(203)

 

Financing receivables

408

   

161

 

Other assets

130

   

(652)

 

Accounts payable

(126)

   

(296)

 

Income taxes, net

(1,007)

   

(830)

 

Accrued compensation

(521)

   

(339)

 

Deferred revenue

236

   

207

 

Other liabilities

(355)

   

88

 

Net cash provided by operating activities

7,387

   

7,560

 

Cash flows from investing activities:

     

Purchases of investments

(4,250)

   

(677)

 

Proceeds from sales of investments

3,410

   

3,055

 

Proceeds from maturities of investments

4,044

   

6,263

 

Acquisitions and divestitures

(163)

   

(1,599)

 

Purchases of investments in privately held companies

(97)

   

(68)

 

Return of investments in privately held companies

91

   

43

 

Acquisition of property and equipment

(391)

   

(473)

 

Proceeds from sales of property and equipment

131

   

10

 

Other

(10)

   

(12)

 

Net cash provided by investing activities

2,765

   

6,542

 

Cash flows from financing activities:

     

Issuances of common stock

334

   

312

 

Repurchases of common stock - repurchase program

(1,648)

   

(10,062)

 

Shares repurchased for tax withholdings on vesting of restricted stock units

(437)

   

(514)

 

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

(3,470)

   

 

Repayments of debt

(5,220)

   

 

Dividends paid

(2,972)

   

(2,970)

 

Other

(12)

   

18

 

Net cash used in financing activities

(13,425)

   

(13,216)

 

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

(3,273)

   

886

 

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

11,772

   

8,993

 

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

$

8,499

   

$

9,879

 

Supplemental cash flow information:

     

Cash paid for interest

$

349

   

$

425

 

Cash paid for income taxes, net

$

2,295

   

$

1,968

 

 

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 
 

January 25,
2020

 

October 26,
2019

 

January 26,
2019

Deferred revenue:

         

Service

$

11,526

   

$

11,497

   

$

11,246

 

Product

7,160

   

7,105

   

6,015

 

       Total

$

18,686

   

$

18,602

   

$

17,261

 

Reported as:

         

Current

$

10,638

   

$

10,646

   

$

9,976

 

Noncurrent

8,048

   

7,956

   

7,285

 

       Total

$

18,686

   

$

18,602

   

$

17,261

 

 

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 2020

                       

January 25, 2020

 

$

0.35

   

$

1,486

   

18

   

$

46.71

   

$

870

   

$

2,356

 

October 26, 2019

 

$

0.35

   

$

1,486

   

16

   

$

48.91

   

$

768

   

$

2,254

 

Fiscal 2019

                       

July 27, 2019

 

$

0.35

   

$

1,490

   

82

   

$

54.99

   

$

4,515

   

$

6,005

 

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

 

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 
 

Three Months Ended

 

Six Months Ended

 

January 25,

 2020

 

January 26,

 2019

 

January 25,

 2020

 

January 26,

 2019

GAAP net income

$

2,878

   

$

2,822

   

$

5,804

   

$

6,371

 

Adjustments to cost of sales:

             

Share-based compensation expense

59

   

53

   

116

   

109

 

Amortization of acquisition-related intangible assets

150

   

141

   

300

   

277

 

Supplier component remediation charge (adjustment), net

   

   

   

(1)

 

Acquisition-related/divestiture costs

1

   

3

   

2

   

7

 

Legal and indemnification settlements

   

5

   

4

   

5

 

Total adjustments to GAAP cost of sales

210

   

202

   

422

   

397

 

Adjustments to operating expenses:

             

Share-based compensation expense

320

   

323

   

653

   

652

 

Amortization of acquisition-related intangible assets

38

   

39

   

74

   

73

 

Acquisition-related/divestiture costs

53

   

39

   

125

   

160

 

Legal and indemnification settlements

   

   

   

(395)

 

Significant asset impairments and restructurings

42

   

186

   

226

   

264

 

Total adjustments to GAAP operating expenses

453

   

587

   

1,078

   

754

 

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

             

(Gains) and losses on equity investments

(87)

   

(64)

   

(100)

   

(73)

 

Total adjustments to GAAP income before provision for income taxes

576

   

725

   

1,400

   

1,078

 

Income tax effect of non-GAAP adjustments

(166)

   

(209)

   

(375)

   

(394)

 

Significant tax matters

   

(43)

   

67

   

(308)

 

Total adjustments to GAAP provision for income taxes

(166)

   

(252)

   

(308)

   

(702)

 

Non-GAAP net income

$

3,288

   

$

3,295

   

$

6,896

   

$

6,747

 

Diluted net income per share:

             

GAAP

$

0.68

   

$

0.63

   

$

1.36

   

$

1.40

 

Non-GAAP

$

0.77

   

$

0.73

   

$

1.62

   

$

1.48

 

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

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

(In millions, except percentages)

 
 

Three Months Ended

 

January 25, 2020

 

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

$

5,545

 

$

2,219

 

$

7,764

 

$

4,384

 

(4)%

 

$

3,380

 

5%

 

$

154

 

17%

 

$

2,878

 

2%

% of revenue

63.9%

 

66.6%

 

64.7%

 

36.5%

     

28.2%

     

1.3%

     

24.0%

   

Adjustments to GAAP amounts:

                                             

Share-based compensation expense

23

 

36

 

59

 

320

     

379

     

     

379

   

Amortization of acquisition-related intangible assets

150

 

 

150

 

38

     

188

     

     

188

   

Acquisition/divestiture-related costs

 

1

 

1

 

53

     

54

     

     

54

   

Significant asset impairments and restructurings

 

 

 

42

     

42

     

     

42

   

(Gains) and losses on equity investments

 

 

 

     

     

(87)

     

(87)

   

Income tax effect/significant tax matters

 

 

 

     

     

     

(166)

   

Non-GAAP amount

$

5,718

 

$

2,256

 

$

7,974

 

$

3,931

 

(1)%

 

$

4,043

 

1%

 

$

67

 

(1)%

 

$

3,288

 

—%

% of revenue

65.9%

 

67.7%

 

66.4%

 

32.7%

     

33.7%

     

0.6%

     

27.4%

   

 

 

Three Months Ended

 

January 26, 2019

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Operating

Income

 

Interest
and other
income
(loss), net

 

Net

Income

GAAP amount

$

5,659

 

$

2,114

 

$

7,773

 

$

4,562

 

$

3,211

 

$

132

 

$

2,822

% of revenue

61.0%

 

66.6%

 

62.5%

 

36.7%

 

25.8%

 

1.1%

 

22.7%

Adjustments to GAAP amounts:

                         

Share-based compensation expense

22

 

31

 

53

 

323

 

376

 

 

376

Amortization of acquisition-related intangible assets

141

 

 

141

 

39

 

180

 

 

180

Legal and indemnification settlements

5

 

 

5

 

 

5

 

 

5

Acquisition/divestiture-related costs

1

 

2

 

3

 

39

 

42

 

 

42

Significant asset impairments and restructurings

 

 

 

186

 

186

 

 

186

(Gains) and losses on equity investments

 

 

 

 

 

(64)

 

(64)

Income tax effect/significant tax matters

 

 

 

 

 

 

(252)

Non-GAAP amount

$

5,828

 

$

2,147

 

$

7,975

 

$

3,975

 

$

4,000

 

$

68

 

$

3,295

% of revenue

62.8%

 

67.7%

 

64.1%

 

31.9%

 

32.1%

 

0.5%

 

26.5%


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

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

EFFECTIVE TAX RATE

(In percentages)

 
 

Three Months Ended

 

Six Months Ended

 

January 25,
2020

 

January 26,
2019

 

January 25,
2020

 

January 26,
2019

GAAP effective tax rate

18.6%

 

15.6%

 

19.6%

 

12.1%

Total adjustments to GAAP provision for income taxes

1.4%

 

3.4%

 

0.4%

 

6.9%

Non-GAAP effective tax rate

20.0%

 

19.0%

 

20.0%

 

19.0%


 

GAAP TO NON-GAAP GUIDANCE FOR Q3 FY 2020

 

Q3 FY 2020

 

Gross Margin
Rate

 

Operating Margin
Rate

 

Tax Provision
Rate

 

Earnings per
Share (2)

GAAP

 

63% - 64%

 

26% - 27%

 

19%

 

$0.62 - $0.67

Estimated adjustments for:

               

Share-based compensation expense

 

0.5%

 

3.0%

 

 

$0.07 - $0.08

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

 

1.0%

 

2.0%

 

 

$0.05 - $0.06

Significant asset impairments and restructurings (1)

 

 

1.5%

 

 

$0.02 - $0.03

Income tax effect of non-GAAP adjustments

         

1%

   

Non-GAAP

 

64.5% - 65.5%

 

32.5% - 33.5%

 

20%

 

$0.79 - $0.81

(1) In the third quarter of fiscal 2020, we initiated a restructuring plan in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $300 million consisting of severance and other one-time termination benefits, and other costs. We expect to recognize approximately $150 million of these charges in the third quarter of fiscal 2020.

(2) 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 continue to drive innovation, our long-term growth opportunities as we help our customers build out the networks for the future, the continued strength of our ongoing cash flows and our ability to continue to return value to our shareholders) and the future financial performance of Cisco (including the guidance for Q3 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 reports on Forms 10-Q and 10-K filed on November 19, 2019 and September 5, 2019, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco's results of operations for the three and six months ended January 25, 2020 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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Release Contacts

Robyn Blum press
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+1 (408) 527-7452 marilmor@cisco.com