News Release

Cisco Reports Third Quarter FY20 Earnings

Cisco Press Release
  • Q3 Results:
    • Revenue: $12.0 billion
      • Decrease of (8)% year over year
    • Earnings per Share: GAAP: $0.65; Non-GAAP: $0.79
      • GAAP EPS decreased (6)% year over year
      • Non-GAAP EPS increased 1% year over year
  • Q4 Guidance:
    • Revenue: (8.5)% to (11.5)% decline year over year
    • Earnings per Share: GAAP: $0.57 to $0.62; Non-GAAP: $0.72 to $0.74

Q2FY20 Earnings Infographics

 

SAN JOSE, Calif., May 13, 2020 /PRNewswire/ -- Cisco today reported third quarter results for the period ended April 25, 2020. Cisco reported third quarter revenue of $12.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.65 per share, and non-GAAP net income of $3.4 billion or $0.79 per share.

"During this extraordinary time, our priority has been supporting our employees, customers, partners and communities, while positioning Cisco for the future," said Chuck Robbins, chairman and CEO of Cisco.  "The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before.  We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations."

GAAP Results

             
   

Q3 FY 2020

 

Q3 FY 2019

 

Vs. Q3 FY 2019

Revenue

 

$

12.0 billion

 

$

13.0 billion

 

(8)%

Net Income

 

$

2.8 billion

 

$

3.0 billion

 

(9)%

Diluted Earnings per Share (EPS)

 

$

0.65

   

$

0.69

   

(6)%

 

Non-GAAP Results

             
   

Q3 FY 2020

 

Q3 FY 2019

 

Vs. Q3 FY 2019

Net Income

 

$

3.4 billion

 

$

3.5 billion

 

(2)%

EPS

 

$

0.79

   

$

0.78

   

1%

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 in a very challenging environment, delivering strong margins and non-GAAP EPS growth," said Kelly Kramer, CFO of Cisco.  "The resiliency that we have been building into our business model is paying off, with software subscriptions now at 74% of our software revenue, up 9 points year over year.  We are focused on driving long-term profitable growth while delivering shareholder value."

COVID-19 Pandemic Response

We have been focused on helping our employees, customers, partners and communities.

Employees

  • 95% of our global workforce working from home.
  • Seamless transition to work from home with a long-standing flexible work policy, and we build the technologies that allow organizations to stay connected, secure and productive.
  • For the 5% who must be in the office to perform their roles, we are focused on their health and safety, and are taking all of the necessary precautions.

Customer and Partners

  • Introduced a variety of free offers and trials for our Webex and security technologies as they dramatically shifted entire workforces to be remote.
  • Announced $2.5 billion in financing with a new Business Resiliency Program through Cisco Capital to offer financial flexibility and support their business continuity. This will help customers and partners access the technology they need now, invest for recovery, and defer most of the payments until early 2021.

Communities

  • Committed nearly $300 million to date to support both global and local pandemic response efforts.
  • Providing technology and financial support for non-profits, first responders, and governments.
  • Donating personal protective equipment to hospital workers including N95 masks and face shields 3D-printed by Cisco volunteers around the world.

Financial Summary

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

Q3 FY 2020 Highlights

Revenue -- Total revenue was $12.0 billion, down 8%, with product revenue down 12% and service revenue up 5%. Revenue by geographic segment was: Americas down 8%, EMEA down 7%, and APJC down 9%. Product revenue was led by growth in Security, up 6%.  Infrastructure Platforms was down 15% and Applications was down 5%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.9%, 63.7%, and 67.7%, respectively, as compared with 63.1%, 62.0%, and 66.3%, respectively, in the third quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.6%, 65.8%, and 68.9%, respectively, as compared with 64.6%, 63.7%, and 67.3%, respectively, in the third quarter of fiscal 2019.

Total gross margins by geographic segment were: 67.8% for the Americas, 65.7% for EMEA and 63.5% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion, down 6%, and were 36.4% of revenue. Non-GAAP operating expenses were $3.8 billion, down 9%, and were 31.8% of revenue.

Operating Income -- GAAP operating income was $3.4 billion, down 3%, with GAAP operating margin of 28.5%. Non-GAAP operating income was flat at $4.2 billion, with non-GAAP operating margin at 34.9%.

Provision for Income Taxes -- The GAAP tax provision rate was 19.4%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.8 billion, a decrease of 9%, and EPS was $0.65, a decrease of 6%. On a non-GAAP basis, net income was $3.4 billion, a decrease of 2%, and EPS was $0.79, an increase of 1%.

Cash Flow from Operating Activities -- $4.2 billion for the third quarter of fiscal 2020, a decrease of 2% compared with $4.3 billion for the third quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $28.6 billion at the end of the third quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.6 billion, up 7% in total, with deferred product revenue up 17%. Deferred service revenue was up 1%.

Remaining Performance Obligations -- $25.5 billion at the end of the third quarter of fiscal 2020, up 11%.

Capital Allocation -- In the third quarter of fiscal 2020, we returned $2.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.36 per common share, or $1.5 billion, and repurchased approximately 25 million shares of common stock under our stock repurchase program at an average price of $39.71 per share for an aggregate purchase price of $981 million. The remaining authorized amount for stock repurchases under the program is $10.8 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2020, we closed the acquisition of Exablaze, a privately held designer and manufacturer of advanced network devices aimed at reducing latency and improving network performance.

Guidance for Q4 FY 2020

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

Q4 FY 2020

   

Revenue

 

(8.5)% - (11.5)% decline Y/Y

Non-GAAP gross margin rate

 

64% - 65%

Non-GAAP operating margin rate

 

31.5% - 32.5%

Non-GAAP tax provision rate

 

20%

Non-GAAP EPS

 

$0.72 - $0.74

Cisco estimates that GAAP EPS will be $0.57 to $0.62 in the fourth quarter of fiscal 2020.

A reconciliation between the Guidance for Q4 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q4 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q3 fiscal year 2020 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, May 13, 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, May 13, 2020 to 4:00 p.m. Pacific Time, May 20, 2020 at 1-800-391-9847 (United States) or 1-402-220-3093 (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 13, 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

 

Nine Months Ended

 

April 25, 2020

 

April 27, 2019

 

April 25, 2020

 

April 27, 2019

REVENUE:

             

Product

$

8,597

   

$

9,722

   

$

27,146

   

$

28,885

 

Service

3,386

   

3,236

   

10,001

   

9,591

 

Total revenue

11,983

   

12,958

   

37,147

   

38,476

 

COST OF SALES:

             

Product

3,120

   

3,693

   

9,770

   

11,106

 

Service

1,092

   

1,092

   

3,378

   

3,278

 

Total cost of sales

4,212

   

4,785

   

13,148

   

14,384

 

GROSS MARGIN

7,771

   

8,173

   

23,999

   

24,092

 

OPERATING EXPENSES:

             

Research and development

1,546

   

1,659

   

4,782

   

4,824

 

Sales and marketing

2,192

   

2,403

   

6,951

   

7,084

 

General and administrative

457

   

541

   

1,431

   

1,261

 

Amortization of purchased intangible assets

34

   

39

   

108

   

112

 

Restructuring and other charges

128

   

18

   

354

   

282

 

Total operating expenses

4,357

   

4,660

   

13,626

   

13,563

 

OPERATING INCOME

3,414

   

3,513

   

10,373

   

10,529

 

Interest income

218

   

331

   

733

   

1,003

 

Interest expense

(130)

   

(211)

   

(466)

   

(655)

 

Other income (loss), net

(58)

   

(18)

   

24

   

(10)

 

Interest and other income (loss), net

30

   

102

   

291

   

338

 

INCOME BEFORE PROVISION FOR INCOME TAXES

3,444

   

3,615

   

10,664

   

10,867

 

Provision for income taxes

670

   

571

   

2,086

   

1,452

 

NET INCOME

$

2,774

   

$

3,044

   

$

8,578

   

$

9,415

 
               

Net income per share:

             

Basic

$

0.66

   

$

0.70

   

$

2.02

   

$

2.11

 

Diluted

$

0.65

   

$

0.69

   

$

2.01

   

$

2.09

 

Shares used in per-share calculation:

             

Basic

4,230

   

4,370

   

4,239

   

4,468

 

Diluted

4,243

   

4,415

   

4,258

   

4,509

 

The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the nine months ended April 27, 2019.

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

     
   

April 25, 2020

   

Three Months Ended

 

Nine Months Ended

               

Excluding SPVSS business

 

Including SPVSS business

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

 

Y/Y %

Revenue:

                   

Americas

 

$

7,116

   

(8)%

 

$

22,106

   

(3)%

 

(3)%

EMEA

 

3,136

   

(7)%

 

9,553

   

(2)%

 

(3)%

APJC

 

1,730

   

(9)%

 

5,489

   

(6)%

 

(7)%

Total

 

$

11,983

   

(8)%

 

$

37,147

   

(3)%

 

(3)%

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 nine months ended April 27, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

     
   

April 25, 2020

   

Three Months Ended

 

Nine Months Ended

Gross Margin Percentage:

       

Americas

 

67.8%

 

67.1%

EMEA

 

65.7%

 

65.8%

APJC

 

63.5%

 

64.0%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

     
   

April 25, 2020

   

Three Months Ended

 

Nine Months Ended

               

Excluding SPVSS business

 

Including SPVSS business

   

Amount

 

Y/Y %

 

Amount

 

Y/Y%

 

Y/Y %

Revenue:

                   

Infrastructure Platforms

 

$

6,429

   

(15)%

 

$

20,496

   

(8)%

 

(8)%

Applications

 

1,363

   

(5)%

 

4,211

   

(2)%

 

(2)%

Security

 

776

   

6%

 

2,340

   

12%

 

12%

Other Products

 

28

   

(27)%

 

100

   

8%

 

(58)%

Total Product

 

8,597

   

(12)%

 

27,146

   

(6)%

 

(6)%

Services

 

3,386

   

5%

 

10,001

   

5%

 

4%

Total

 

$

11,983

   

(8)%

 

$

37,147

   

(3)%

 

(3)%

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 nine months ended April 27, 2019 was $168 million.

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

       
 

April 25, 2020

 

July 27, 2019

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

10,366

   

$

11,750

 

Investments

18,208

   

21,663

 

Accounts receivable, net of allowance for doubtful accounts of $130 at April 25, 2020 and $136 at July 27, 2019

4,569

   

5,491

 

Inventories

1,212

   

1,383

 

Financing receivables, net

4,703

   

5,095

 

Other current assets

2,249

   

2,373

 

Total current assets

41,307

   

47,755

 

Property and equipment, net

2,535

   

2,789

 

Financing receivables, net

4,770

   

4,958

 

Goodwill

33,453

   

33,529

 

Purchased intangible assets, net

1,744

   

2,201

 

Deferred tax assets

3,909

   

4,065

 

Other assets

3,676

   

2,496

 

TOTAL ASSETS

$

91,394

   

$

97,793

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

$

4,506

   

$

10,191

 

Accounts payable

2,393

   

2,059

 

Income taxes payable

1,047

   

1,149

 

Accrued compensation

2,940

   

3,221

 

Deferred revenue

10,710

   

10,668

 

Other current liabilities

4,341

   

4,424

 

Total current liabilities

25,937

   

31,712

 

Long-term debt

11,578

   

14,475

 

Income taxes payable

8,285

   

8,927

 

Deferred revenue

7,938

   

7,799

 

Other long-term liabilities

1,948

   

1,309

 

Total liabilities

55,686

   

64,222

 

Total equity

35,708

   

33,571

 

TOTAL LIABILITIES AND EQUITY

$

91,394

   

$

97,793

 

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

   
 

Nine Months Ended

 

April 25,

2020

 

April 27,

2019

Cash flows from operating activities:

     

Net income

$

8,578

   

$

9,415

 

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

     

Depreciation, amortization, and other

1,364

   

1,433

 

Share-based compensation expense

1,170

   

1,166

 

Provision (benefit) for receivables

60

   

32

 

Deferred income taxes

103

   

(281)

 

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

(185)

   

(79)

 

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

     

Accounts receivable

774

   

1,560

 

Inventories

143

   

(1)

 

Financing receivables

380

   

(112)

 

Other assets

145

   

(736)

 

Accounts payable

324

   

52

 

Income taxes, net

(700)

   

(759)

 

Accrued compensation

(220)

   

(68)

 

Deferred revenue

333

   

421

 

Other liabilities

(645)

   

(154)

 

Net cash provided by operating activities

11,624

   

11,889

 

Cash flows from investing activities:

     

Purchases of investments

(6,880)

   

(1,176)

 

Proceeds from sales of investments

4,737

   

5,391

 

Proceeds from maturities of investments

5,708

   

10,797

 

Acquisitions and divestitures

(237)

   

(2,175)

 

Purchases of investments in privately held companies

(143)

   

(118)

 

Return of investments in privately held companies

213

   

127

 

Acquisition of property and equipment

(562)

   

(701)

 

Proceeds from sales of property and equipment

175

   

15

 

Other

(10)

   

(12)

 

Net cash provided by investing activities

3,001

   

12,148

 

Cash flows from financing activities:

     

Issuances of common stock

335

   

321

 

Repurchases of common stock - repurchase program

(2,659)

   

(16,042)

 

Shares repurchased for tax withholdings on vesting of restricted stock units

(519)

   

(601)

 

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

(3,470)

   

1,723

 

Issuances of debt

   

1,530

 

Repayments of debt

(5,220)

   

(5,250)

 

Dividends paid

(4,491)

   

(4,489)

 

Other

(3)

   

51

 

Net cash used in financing activities

(16,027)

   

(22,757)

 

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

(1,402)

   

1,280

 

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

11,772

   

8,993

 

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

$

10,370

   

$

10,273

 

Supplemental cash flow information:

     

Cash paid for interest

$

519

   

$

707

 

Cash paid for income taxes, net

$

2,683

   

$

2,491

 

 

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

           
 

April 25, 2020

 

January 25, 2020

 

April 27, 2019

Deferred revenue:

         

Service

$

11,423

   

$

11,526

   

$

11,297

 

Product

7,225

   

7,160

   

6,159

 

    Total

$

18,648

   

$

18,686

   

$

17,456

 

Reported as:

         

Current

$

10,710

   

$

10,638

   

$

10,117

 

Noncurrent

7,938

   

8,048

   

7,339

 

    Total

$

18,648

   

$

18,686

   

$

17,456

 

 

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

                       

April 25, 2020

 

$

0.36

   

$

1,519

   

25

   

$

39.71

   

$

981

   

$

2,500

 

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)

       
 

Three Months Ended

 

Nine Months Ended

 

April 25,

2020

 

April 27,

2019

 

April 25,

2020

 

April 27,

2019

GAAP net income

$

2,774

   

$

3,044

   

$

8,578

   

$

9,415

 

Adjustments to cost of sales:

             

Share-based compensation expense

60

   

54

   

176

   

163

 

Amortization of acquisition-related intangible assets

154

   

141

   

454

   

418

 

Supplier component remediation charge (adjustment), net

   

   

   

(1)

 

Acquisition-related/divestiture costs

1

   

2

   

3

   

9

 

Legal and indemnification settlements

   

   

4

   

5

 

Total adjustments to GAAP cost of sales

215

   

197

   

637

   

594

 

Adjustments to operating expenses:

             

Share-based compensation expense

322

   

322

   

975

   

974

 

Amortization of acquisition-related intangible assets

34

   

39

   

108

   

112

 

Acquisition-related/divestiture costs

66

   

78

   

191

   

238

 

Legal and indemnification settlements

   

(1)

   

   

(396)

 

Significant asset impairments and restructurings

128

   

18

   

354

   

282

 

Total adjustments to GAAP operating expenses

550

   

456

   

1,628

   

1,210

 

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

             

(Gains) and losses on equity investments

1

   

(4)

   

(99)

   

(77)

 

Total adjustments to GAAP income before provision for income taxes

766

   

649

   

2,166

   

1,727

 

Income tax effect of non-GAAP adjustments

(172)

   

(160)

   

(547)

   

(554)

 

Significant tax matters

   

(79)

   

67

   

(387)

 

Total adjustments to GAAP provision for income taxes

(172)

   

(239)

   

(480)

   

(941)

 

Non-GAAP net income

$

3,368

   

$

3,454

   

$

10,264

   

$

10,201

 

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

GAAP TO NON-GAAP EPS

       
 

Three Months Ended

 

Nine Months Ended

 

April 25,

2020

 

April 27,

2019

 

April 25,

2020

 

April 27,

2019

GAAP EPS

$

0.65

   

$

0.69

   

$

2.01

   

$

2.09

 

Adjustments to GAAP:

             

Share-based compensation expense

0.09

   

0.09

   

0.27

   

0.25

 

Amortization of acquisition-related intangible assets

0.04

   

0.04

   

0.13

   

0.12

 

Acquisition-related/divestiture costs

0.02

   

0.02

   

0.05

   

0.05

 

Legal and indemnification settlements

   

   

   

(0.09)

 

Significant asset impairments and restructurings

0.03

   

   

0.08

   

0.06

 

(Gains) and losses on equity investments

   

   

(0.02)

   

(0.02)

 

Income tax effect of non-GAAP adjustments

(0.04)

   

(0.04)

   

(0.13)

   

(0.12)

 

Significant tax matters

   

(0.02)

   

0.02

   

(0.09)

 

Non-GAAP EPS

$

0.79

   

$

0.78

   

$

2.41

   

$

2.26

 

Amounts may not sum due to rounding.

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

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

(In millions, except percentages)

   
 

Three Months Ended

 

April 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

$

5,477

   

$

2,294

   

$

7,771

   

$

4,357

   

(6)%

 

$

3,414

   

(3)%

 

$

30

   

(71)%

 

$

2,774

   

(9)%

% of revenue

63.7%

   

67.7%

   

64.9%

   

36.4%

       

28.5%

       

0.3%

       

23.1%

     

Adjustments to GAAP amounts:

                                   

Share-based compensation expense

23

   

37

   

60

   

322

       

382

       

       

382

     

Amortization of acquisition-related intangible assets

154

   

   

154

   

34

       

188

       

       

188

     

Acquisition/divestiture-related costs

   

1

   

1

   

66

       

67

       

       

67

     

Significant asset impairments and restructurings

   

   

   

128

       

128

       

       

128

     

(Gains) and losses on equity investments

   

   

   

       

       

1

       

1

     

Income tax effect/significant tax matters

   

   

   

       

       

       

(172)

     

Non-GAAP amount

$

5,654

   

$

2,332

   

$

7,986

   

$

3,807

   

(9)%

 

$

4,179

   

—%

 

$

31

   

(68)%

 

$

3,368

   

(2)%

% of revenue

65.8%

   

68.9%

   

66.6%

   

31.8%

       

34.9%

       

0.3%

       

28.1%

     
   
   
   
 

Three Months Ended

 

April 27, 2019

 

Product Gross Margin

 

Service Gross Margin

 

Total Gross Margin

 

Operating Expenses

 

Operating

Income

 

Interest and other income (loss), net

 

Net

Income

GAAP amount

$

6,029

   

$

2,144

   

$

8,173

   

$

4,660

   

$

3,513

   

$

102

   

$

3,044

 

% 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

   

$

4,166

   

$

98

   

$

3,454

 

% 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.

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

EFFECTIVE TAX RATE

(In percentages)

 
         
 

Three Months Ended

 

 

Nine Months Ended

 
 

April 25, 2020

 

April 27, 2019

 

April 25, 2020

 

April 27, 2019

GAAP effective tax rate

19.4%

 

15.8%

 

19.6%

 

13.4%

Total adjustments to GAAP provision for income taxes

0.6%

 

3.2%

 

0.4%

 

5.6%

Non-GAAP effective tax rate

20.0%

 

19.0%

 

20.0%

 

19.0%

 

GAAP TO NON-GAAP GUIDANCE FOR Q4 FY 2020

                 

Q4 FY 2020

 

Gross Margin Rate

 

Operating Margin Rate

 

Tax Provision Rate

 

Earnings per Share (1)

GAAP

 

62% - 63%

 

25.5% - 26.5%

 

19%

 

$0.57 - $0.62

Estimated adjustments for:

               

Share-based compensation expense

 

0.5%

 

3.5%

 

 

$0.07 - $0.08

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

 

1.5%

 

2.0%

 

 

$0.04 - $0.05

Significant asset impairments and restructurings

 

 

0.5%

 

 

$0.01 - $0.02

Income tax effect of non-GAAP adjustments

         

1%

   

Non-GAAP

 

64% - 65%

 

31.5% - 32.5%

 

20%

 

$0.72 - $0.74

(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 continued support of our employees, customers, partners and communities, while positioning Cisco for the future, global customer demand to digitize their operations and support remote workforces at a faster speeds and greater scale and our ability to provide the technology and solutions our customers need to accelerate their digital organizations, our ability to continue to build resiliency into our business model, continued growth of revenue from software subscriptions, our ability to drive long-term profitable growth while delivering shareholder value, and future responses to and effects of the COVID-19 pandemic), and the future financial performance of Cisco (including the guidance for Q4 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: the impact of the COVID-19 pandemic; 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; any other pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent reports on Forms 10-Q and 10-K filed on February 18, 2020 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 nine months ended April 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

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