Cisco Reports Third Quarter Earnings

05/16/2018
  • Q3 Revenue: $12.5 billion

    • Increase of 4% year over year

    • Recurring revenue was 32% of total revenue, up 2 points year over year

  • Q3 Earnings per Share: $0.56 GAAP; $0.66 non-GAAP

  • Q4 FY 2018 Guidance:

    • Revenue: 4% to 6% growth year over year

    • Earnings per Share: GAAP: $0.55 to $0.60; Non-GAAP: $0.68 to $0.70

SAN JOSE, Calif., May 16, 2018 (GLOBE NEWSWIRE) -- Cisco today reported third quarter results for the period ended April 28, 2018. Cisco reported third quarter revenue of $12.5 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.7 billion or $0.56 per share, and non-GAAP net income of $3.2 billion or $0.66 per share.

“We are executing well against our strategy, our innovation pipeline has never been stronger, and we continue to make great progress in transforming towards more software and subscriptions,” said Chuck Robbins, Chairman and CEO, Cisco. “I am confident with our position in the industry and the impact we will continue to drive with our customers.”

 GAAP Results

    Q3 FY 2018   Q3 FY 2017   Vs. Q3 FY 2017
Revenue   $ 12.5  billion   $ 11.9  billion   4 %
Net Income   $ 2.7  billion   $ 2.5  billion   7 %
Diluted Earnings per Share (EPS)   $ 0.56     $ 0.50     12 %
                       

Non-GAAP Results

    Q3 FY 2018   Q3 FY 2017   Vs. Q3 FY 2017
Net Income                                      $ 3.2  billion   $ 3.0  billion   6 %
EPS   $ 0.66     $ 0.60     10 %
                       

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 delivered strong results in Q3 with solid revenue growth of 4% and non-GAAP EPS growth of 10%," said Kelly Kramer, CFO of Cisco.  "Our investment in innovation and continued execution are paying off.  We saw broad-based strength across our portfolio, while continuing to shift our business model and deliver value for shareholders.”  

Financial Summary

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

Q3 FY 2018 Highlights

Revenue -- Total revenue was $12.5 billion, up 4%, with product revenue up 5% and service revenue up 3%. 32% of total revenue was from recurring offers, up 2 percentage points from the third quarter of fiscal 2017. Revenue by geographic segment was: Americas up 2%, EMEA up 9%, and APJC up 7%. Product revenue performance was broad based with growth in Infrastructure Platforms which increased by 2%, Applications which increased by 19%, and Security which increased by 11%.

Gross Margin -- On a GAAP basis, total gross margin and product gross margin were 62.3% and 61.0%, respectively. Product gross margin decreased compared with 61.7% in the third quarter of fiscal 2017.

Non-GAAP total gross margin and product gross margin were 63.9% and 62.9%, respectively. Non-GAAP product gross margin decreased compared with 63.2% in the third quarter of fiscal 2017. The decrease was primarily due to pricing and higher memory costs partially offset by improved productivity benefits.

GAAP service gross margin was 65.8% and non-GAAP service gross margin was 66.9%.

Total gross margins by geographic segment were: 64.4% for the Americas, 64.3% for EMEA and 61.7% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.6 billion, up 6%. Non-GAAP operating expenses were $4.0 billion, up 6%, and were 32.5% of revenue.

Operating Income -- GAAP operating income was $3.1 billion, down 1%, with GAAP operating margin of 25.1%. Non-GAAP operating income was $3.9 billion, up 2%, with non-GAAP operating margin of 31.5%.

Provision for Income Taxes -- The GAAP tax provision rate was 17.3%. The non-GAAP tax provision rate was 21.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.7 billion and EPS was $0.56. On a non-GAAP basis, net income was $3.2 billion, an increase of 6%, and EPS was $0.66, an increase of 10%.

Cash Flow from Operating Activities -- was $2.4 billion, a decrease of 28% compared with $3.4 billion for the third quarter of fiscal 2017. Operating cash flow includes the payment of $1.3 billion of one-time foreign taxes as related to the Tax Cuts and Jobs Act. Operating cash flow increased 11%, normalized for these tax payments.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- were $54.4 billion at the end of the third quarter of fiscal 2018, compared with $73.7 billion at the end of the second quarter of fiscal 2018, and compared with $70.5 billion at the end of fiscal 2017. The total cash and cash equivalents and investments available in the United States at the end of the third quarter of fiscal 2018 were $47.5 billion.

Deferred Revenue -- was $19.0 billion, up 9% in total, with deferred product revenue up 18%, driven largely by subscription-based and software offers, and deferred service revenue was up 4%. The portion of deferred product revenue related to recurring software and subscription offers increased 29%.

Capital Allocation -- In the third quarter of fiscal 2018, Cisco declared and paid a cash dividend of $0.33 per common share, or $1.6 billion. For the third quarter of fiscal 2018, Cisco repurchased approximately 140 million shares of common stock under its stock repurchase program at an average price of $42.83 per share for an aggregate purchase price of $6.0 billion. The remaining authorized amount for stock repurchases under the program is $25.1 billion with no termination date.

Acquisitions and Divestitures

On May 1, 2018, we announced our intent to acquire Accompany, a privately held company that provides an AI-driven relationship intelligence platform. The Accompany acquisition closed in the fourth quarter of fiscal 2018. We also announced an agreement to sell our Service Provider Video Software Solutions (SPVSS) business. We expect this transaction to close in the first quarter of fiscal 2019 subject to regulatory approvals and customary closing conditions.

In the third quarter of 2018, we closed our acquisition of BroadSoft, Inc., a publicly held company that offers cloud calling and contact center solutions. We also closed our acquisition of Skyport Systems, Inc., a privately held company providing cloud-managed, hyper-converged systems that run and protect business critical applications.

Guidance for Q4 FY 2018

Cisco expects to achieve the following results for the fourth quarter of fiscal 2018:

Q4 FY 2018    
Revenue   4% - 6% growth Y/Y
Non-GAAP gross margin rate   63% - 64%
Non-GAAP operating margin rate   29.5% - 30.5%
Non-GAAP tax provision rate   21%
Non-GAAP EPS   $0.68 - $0.70

Cisco estimates that GAAP EPS will be $0.55 to $0.60 in the fourth quarter of fiscal 2018.

A reconciliation between the Guidance for Q4 FY 2018 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q4 FY 2018" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q3 fiscal year 2018 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, May 16, 2018 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 16, 2018 to 4:00 p.m. Pacific Time, May 23, 2018 at 1-888-568-0890 (United States) or 1-402-998-1566 (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 16, 2018. 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 28,
2018
  April 29,
2017
  April 28,
2018
  April 29,
2017
REVENUE:              
Product $ 9,304     $ 8,885     $ 27,067     $ 26,678  
Service 3,159     3,055     9,419     9,194  
      Total revenue 12,463     11,940     36,486     35,872  
COST OF SALES:              
Product 3,625     3,405     10,594     10,113  
Service 1,079     1,017     3,208     3,081  
     Total cost of sales 4,704     4,422     13,802     13,194  
GROSS MARGIN 7,759     7,518     22,684     22,678  
OPERATING EXPENSES:              
Research and development 1,590     1,507     4,706     4,560  
Sales and marketing 2,325     2,226     6,894     6,866  
General and administrative 561     487     1,601     1,498  
Amortization of purchased intangible assets 67     59     188     201  
Restructuring and other charges 82     70     332     614  
     Total operating expenses 4,625     4,349     13,721     13,739  
OPERATING INCOME 3,134     3,169     8,963     8,939  
Interest income 380     354     1,155     978  
Interest expense (237 )   (219 )   (719 )   (639 )
Other income (loss), net (24 )   (113 )   48     (171 )
     Interest and other income (loss), net 119     22     484     168  
INCOME BEFORE PROVISION FOR INCOME TAXES 3,253     3,191     9,447     9,107  
Provision for income taxes (1) 562     676     13,140     1,922  
NET INCOME (LOSS) $ 2,691     $ 2,515     $ (3,693 )   $ 7,185  
               
Net income (loss) per share:              
Basic $ 0.56     $ 0.50     $ (0.76 )   $ 1.43  
Diluted $ 0.56     $ 0.50     $ (0.76 )   $ 1.42  
Shares used in per-share calculation:              
Basic 4,791     5,005     4,892     5,015  
Diluted 4,844     5,045     4,892     5,056  
               
Cash dividends declared per common share $ 0.33     $ 0.29     $ 0.91     $ 0.81  
 

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

CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(In millions, except percentages)

    April 28, 2018
    Three Months Ended   Nine Months Ended
    Amount   Y/Y%   Amount   Y/Y%
Revenue:                
Americas                $ 7,161     2 %   $ 21,515     2 %
EMEA   3,281     9 %   9,252     2 %
APJC   2,021     7 %   5,719     1 %
     Total   $ 12,463     4 %   $ 36,486     2 %
 


CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)

    April 28, 2018
    Three Months Ended   Nine Months Ended
Gross Margin Percentage:        
Americas   64.4 %   64.8 %
EMEA   64.3 %   64.0 %
APJC   61.7 %   61.3 %
             


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)

    April 28, 2018
    Three Months Ended   Nine Months Ended
    Amount   Y/Y%   Amount   Y/Y%
Revenue:                
Infrastructure Platforms   $ 7,163     2 %   $ 20,827     %
Applications   1,309     19 %   3,696     10 %
Security   583     11 %   1,726     8 %
Other Products   249     (6 )%   818     (11 )%
  Total Product   9,304     5 %   27,067     1 %
Services   3,159     3 %   9,419     2 %
  Total   $ 12,463     4 %   $ 36,486     2 %
 

CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)

  April 28, 2018   July 29, 2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 6,719     $ 11,708  
Investments 47,712     58,784  
Accounts receivable, net of allowance for doubtful accounts of $115 at April 28, 2018
and $211 at July 29, 2017
4,274     5,146  
Inventories 1,900     1,616  
Financing receivables, net 4,868     4,856  
Other current assets 1,668     1,593  
      Total current assets 67,141     83,703  
Property and equipment, net 3,082     3,322  
Financing receivables, net 4,915     4,738  
Goodwill 31,654     29,766  
Purchased intangible assets, net 2,681     2,539  
Deferred tax assets 3,044     4,239  
Other assets 1,491     1,511  
     TOTAL ASSETS $ 114,008     $ 129,818  
LIABILITIES AND EQUITY      
Current liabilities:      
Short-term debt $ 7,736     $ 7,992  
Accounts payable 1,552     1,385  
Income taxes payable 962     98  
Accrued compensation 2,966     2,895  
Deferred revenue 11,301     10,821  
Other current liabilities 4,125     4,392  
     Total current liabilities 28,642     27,583  
Long-term debt 20,336     25,725  
Income taxes payable 9,076     1,250  
Deferred revenue 7,652     7,673  
Other long-term liabilities 1,641     1,450  
     Total liabilities 67,347     63,681  
Total equity 46,661     66,137  
TOTAL LIABILITIES AND EQUITY $ 114,008     $ 129,818  
 

CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

  Nine Months Ended
  April 28,
 2018
  April 29,
 2017
Cash flows from operating activities:      
Net income (loss) $ (3,693 )   $ 7,185  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
     Depreciation, amortization, and other 1,676     1,708  
     Share-based compensation expense 1,184     1,124  
     Provision for receivables (104 )   20  
     Deferred income taxes 1,013     (125 )
     Excess tax benefits from share-based compensation     (125 )
     (Gains) losses on divestitures, investments and other, net (159 )   156  
     Change in operating assets and liabilities, net of effects of acquisitions and
     divestitures:
     
         Accounts receivable 1,064     1,253  
         Inventories (289 )   (149 )
         Financing receivables (165 )   (773 )
         Other assets (135 )   140  
         Accounts payable 148     149  
         Income taxes, net 8,795     (112 )
         Accrued compensation 53     (154 )
         Deferred revenue 415     592  
         Other liabilities (237 )   (1,014 )
             Net cash provided by operating activities 9,566     9,875  
Cash flows from investing activities:      
Purchases of investments (14,132 )   (35,562 )
Proceeds from sales of investments 12,422     24,414  
Proceeds from maturities of investments 12,259     8,390  
Acquisition of businesses, net of cash and cash equivalents acquired (2,789 )   (3,211 )
Proceeds from business divestitures 27      
Purchases of investments in privately held companies (126 )   (172 )
Return of investments in privately held companies 163     168  
Acquisition of property and equipment (620 )   (756 )
Proceeds from sales of property and equipment 54     6  
Other (3 )   35  
             Net cash provided by (used in) investing activities 7,255     (6,688 )
Cash flows from financing activities:      
Issuances of common stock 318     418  
Repurchases of common stock - repurchase program (11,562 )   (2,516 )
Shares repurchased for tax withholdings on vesting of restricted stock units (541 )   (497 )
Short-term borrowings, original maturities of 90 days or less, net (2,502 )   2,000  
Issuances of debt 6,877     6,232  
Repayments of debt (9,875 )   (4,151 )
Excess tax benefits from share-based compensation     125  
Dividends paid (4,433 )   (4,063 )
Other (92 )   (250 )
             Net cash used in financing activities (21,810 )   (2,702 )
Net increase (decrease) in cash and cash equivalents (4,989 )   485  
Cash and cash equivalents, beginning of period 11,708     7,631  
Cash and cash equivalents, end of period $ 6,719     $ 8,116  
Supplemental cash flow information:      
Cash paid for interest $ 739     $ 727  
Cash paid for income taxes, net $ 3,332     $ 2,159  
               

CISCO SYSTEMS, INC.
DEFERRED REVENUE
(In millions)

  April 28,
2018
  January 27,
2018
  April 29,
2017
Deferred revenue:          
Service $ 10,960     $ 10,963     $ 10,532  
Product:          
     Deferred revenue related to recurring software and subscription offers 5,635     5,451     4,352  
     Other product deferred revenue 2,358     2,374     2,438  
     Total product deferred revenue 7,993     7,825     6,790  
         Total $ 18,953     $ 18,788     $ 17,322  
Reported as:          
Current $ 11,301     $ 11,102     $ 10,344  
Noncurrent 7,652     7,686     6,978  
         Total $ 18,953     $ 18,788     $ 17,322  
 


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 2018                        
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  
Fiscal 2017                        
July 29, 2017   $ 0.29     $ 1,448     38     $ 31.61     $ 1,201     $ 2,649  
April 29, 2017   $ 0.29     $ 1,451     15     $ 33.71     $ 503     $ 1,954  
January 28, 2017   $ 0.26     $ 1,304     33     $ 30.33     $ 1,001     $ 2,305  
October 29, 2016   $ 0.26     $ 1,308     32     $ 31.12     $ 1,001     $ 2,309  
                                               



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 28,
 2018
  April 29,
 2017
  April 28,
 2018
  April 29,
 2017
GAAP net income (loss) $ 2,691     $ 2,515     $ (3,693 )   $ 7,185  
Adjustments to cost of sales:              
Share-based compensation expense 57     56     168     163  
Amortization of acquisition-related intangible assets 161     124     444     343  
Supplier component remediation charge (adjustment), net (9 )   (13 )   (41 )   (29 )
Acquisition-related/divestiture costs 2         4     1  
Legal and indemnification settlements         122      
Total adjustments to GAAP cost of sales 211     167     697     478  
Adjustments to operating expenses:              
Share-based compensation expense 342     349     1,010     963  
Amortization of acquisition-related intangible assets 67     59     188     201  
Acquisition-related/divestiture costs 89     43     195     157  
Significant asset impairments and restructurings 82     70     332     614  
Total adjustments to GAAP operating expenses 580     521     1,725     1,935  
Total adjustments to GAAP income (loss) before provision for
income taxes
791     688     2,422     2,413  
Income tax effect of non-GAAP adjustments (168 )   (177 )   (613 )   (612 )
Significant tax matters (1) (119 )       11,261      
Total adjustments to GAAP provision for income taxes (287 )   (177 )   10,648     (612 )
Non-GAAP net income $ 3,195     $ 3,026     $ 9,377     $ 8,986  
Net income (loss) per share: (2)              
GAAP $ 0.56     $ 0.50     $ (0.76 )   $ 1.42  
Non-GAAP $ 0.66     $ 0.60     $ 1.90     $ 1.78  
 

(1) Cisco recorded charges relating to significant tax matters that were excluded from non-GAAP net income for the first nine months of fiscal 2018. $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 are 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 is 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 is calculated using diluted shares of 4,936 million, as the Company had non-GAAP net income for this period.

CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME
(In millions, except percentages)

  Three Months Ended
  April 28, 2018
  Product
Gross
Margin
  Service
Gross
Margin
  Total
Gross
Margin
  Operating
Expenses
  Y/Y   Operating
Income
  Y/Y   Net
Income
  Y/Y
GAAP amount $ 5,679     $ 2,080     $ 7,759     $ 4,625     6 %   $ 3,134     (1 )%   $ 2,691     7 %
% 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     6 %   $ 3,925     2 %   $ 3,195     6 %
% of revenue 62.9 %   66.9 %   63.9 %   32.5 %       31.5 %       25.6 %    
                                               


  Three Months Ended
  April 29, 2017
  Product
Gross
Margin
  Service
Gross
Margin
  Total
Gross
Margin
  Operating
Expenses
  Operating
Income
  Net
Income
GAAP amount $ 5,480     $ 2,038     $ 7,518     $ 4,349     $ 3,169     $ 2,515  
% of revenue 61.7 %   66.7 %   63.0 %   36.4 %   26.5 %   21.1 %
Adjustments to GAAP amounts:                      
Share-based compensation expense 22     34     56     349     405     405  
Amortization of acquisition-related
intangible assets
124         124     59     183     183  
Supplier component remediation
charge (adjustment), net
(13 )       (13 )       (13 )   (13 )
Acquisition/divestiture-related costs             43     43     43  
Significant asset impairments and
restructurings
            70     70     70  
Income tax effect                     (177 )
Non-GAAP amount $ 5,613     $ 2,072     $ 7,685     $ 3,828     $ 3,857     $ 3,026  
% of revenue 63.2 %   67.8 %   64.4 %   32.1 %   32.3 %   25.3 %
                                   


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME (LOSS)
(In millions, except percentages)

  Nine Months Ended
  April 28, 2018
  Product
Gross
Margin
  Service
Gross
Margin
  Total
Gross
Margin
  Operating
Expenses
  Y/Y   Operating
Income
  Y/Y   Net
Income
(Loss)
  Y/Y
GAAP amount $ 16,473     $ 6,211     $ 22,684     $ 13,721     %   $ 8,963     %   $ (3,693 )   (151 )%
% 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   (1 )  
Non-GAAP amount $ 17,069     $ 6,312     $ 23,381     $ 11,996     2 %   $ 11,385     %   $ 9,377     4 %
% of revenue 63.1 %   67.0 %   64.1 %   32.9 %       31.2 %       25.7 %    
                                               

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

  Nine Months Ended
  April 29, 2017
  Product
Gross
Margin
  Service
Gross
Margin
  Total
Gross
Margin
  Operating
Expenses
  Operating
Income
  Net
Income
GAAP amount $ 16,565     $ 6,113     $ 22,678     $ 13,739     $ 8,939     $ 7,185  
% of revenue 62.1 %   66.5 %   63.2 %   38.3 %   24.9 %   20.0 %
Adjustments to GAAP amounts:                      
Share-based compensation expense 62     101     163     963     1,126     1,126  
Amortization of acquisition-related
intangible assets
343         343     201     544     544  
Supplier component remediation
charge (adjustment), net
(29 )       (29 )       (29 )   (29 )
Acquisition/divestiture-related costs     1     1     157     158     158  
Significant asset impairments and
restructurings
            614     614     614  
Income tax effect                     (612 )
Non-GAAP amount $ 16,941     $ 6,215     $ 23,156     $ 11,804     $ 11,352     $ 8,986  
% of revenue 63.5 %   67.6 %   64.6 %   32.9 %   31.6 %   25.1 %
                                   


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE
(In percentages)

  Three Months Ended   Nine Months Ended
  April 28,
2018
  April 29,
2017
  April 28,
2018
  April 29,
2017
GAAP effective tax rate (1)   17.3 %     21.2 %      139.1 %     21.1 %
Total adjustments to GAAP provision for income taxes 3.7 %   0.8 %   (118.1 )%   0.9 %
Non-GAAP effective tax rate 21.0 %   22.0 %   21.0 %   22.0 %
 

(1) Includes an $11.1 billion charge as 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 2018

Q4 FY 2018   Gross Margin Rate   Operating Margin Rate   Tax Provision Rate   Earnings per Share (2)
GAAP   61.5% - 62.5%   24%- 25%   20%   $0.55 - $0.60
Estimated adjustments for:                
Share-based compensation expense   0.5%   3.0%     $0.05 - $0.06
Amortization of purchased intangible assets and other acquisition-related/divestiture costs   1.0%   2.5%     $0.05 - $0.06
Restructuring and other charges (1)         $0.00 - $0.01
Income tax effect of non-GAAP adjustments       1%    
Non-GAAP   63% - 64%   29.5% - 30.5%   21%   $0.68 - $0.70
                 

(1)  In the third quarter of fiscal 2018, Cisco initiated a restructuring plan in order to realign the organization and enable further investment in key priority areas. The total pre-tax cash charges to the GAAP financial results is estimated to be approximately $300 million consisting of severance and other one-time benefits, and other associated costs. We expect to recognize up to $50 million of these charges in the fourth quarter of fiscal 2018 with the remaining amount to be recognized through fiscal 2019.

(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 execution on our strategy, our investment in innovation and ability to continue to build a strong innovation pipeline, continued progress in transforming our business toward more software and subscriptions, our ability to maintain our position in the industry and the impact we will continue to drive with our customers, continued broad-based strength across our portfolio, and our ability to continue to execute well, deliver profitable growth and return capital to our shareholders) and the future financial performance of Cisco (including the guidance for Q4 FY 2018) 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; man-made problems such as cyber-attacks, data protection breaches, computer viruses or 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 February 20, 2018 and September 7, 2017, 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 28, 2018 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, 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, significant gains and losses on 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.

About Cisco

Cisco (NASDAQ:CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow's digital opportunity today. Discover more at thenetwork.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2018 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

Press Contact:   Investor Relations Contact:
Robyn Blum   Marilyn Mora
Cisco   Cisco
1 (408) 853-9848   1 (408) 527-7452
rojenkin@cisco.com   marilmor@cisco.com
     

Primary Logo

Source: Cisco

NASDAQ: CSCO $ 44.79 -00.97 -2.12% Volume: 6,692,701 Market Cap 20 minute delay October 23, 2018

Email Alerts

You may automatically receive Cisco Systems financial information by email.

NOTE: Re-select all alerts you would like to receive if you change your subscription preferences.

Email Address *
Mailing Lists *










 
Enter the code shown above.

Investor Contact

To report a change of address or lost stock certificate, or to request account information, please contact our transfer agent:

Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233

Toll Free: 800-254-5194
International: 781-575-2879
Fax: 781-575-3604