Form 8-K CISCO SYSTEMS, INC. For: Aug 12

August 12, 2020 4:10 PM

Exhibit 99.1

 

LOGO

 

Press Contact:      Investor Relations Contact:
Robyn Blum      Marilyn Mora
Cisco      Cisco
1 (408) 930-8548      1 (408) 527-7452
rojenkin@cisco.com      marilmor@cisco.com

CISCO REPORTS FOURTH QUARTER AND FISCAL YEAR 2020 EARNINGS

 

   

Q4 Results:

 

   

Revenue: $12.2 billion

 

   

Decrease of (9)% year over year

 

   

Earnings per Share: GAAP: $0.62; Non-GAAP: $0.80

 

   

GAAP EPS increased 22% year over year

 

   

Non-GAAP EPS decreased (4)% year over year

 

   

FY 2020 Results:

 

   

Revenue: $49.3 billion

 

   

Decrease of (5)% year over year

 

   

51% of revenue from software and services

 

   

Earnings per Share: GAAP: $2.64; Non-GAAP: $3.21

 

   

GAAP EPS increased 1% year over year

 

   

Non-GAAP EPS increased 4% year over year

 

   

Q1 Guidance:

 

   

Revenue: (9)% to (11)% decline year over year

 

   

Earnings per Share: GAAP: $0.41 to $0.47; Non-GAAP: $0.69 to $0.71

SAN JOSE, Calif. — August 12, 2020 — Cisco today reported fourth quarter and fiscal year results for the period ended July 25, 2020. Cisco reported fourth quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.6 billion or $0.62 per share, and non-GAAP net income of $3.4 billion or $0.80 per share.

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

“By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations. Throughout fiscal 2020, Cisco has demonstrated operational resilience based on our strong customer relationships, solid financial foundation, and differentiated innovation,” said Chuck Robbins, chairman and CEO of Cisco. “As we focus on the future, we are rebalancing our R&D investments to focus on new areas so we can continue to offer customers the best, most relevant technology in simpler, more easily consumable ways.”

Q4 GAAP Results

 

     Q4 FY 2020      Q4 FY 2019      Vs. Q4 FY 2019  

Revenue

   $ 12.2 billion      $ 13.4 billion        (9 )% 

Net Income

   $ 2.6 billion      $ 2.2 billion        19

Diluted Earnings per Share (EPS)

   $ 0.62      $ 0.51        22

Q4 GAAP results for fiscal 2019 include a $0.9 billion charge related to the Tax Cuts and Jobs Act.

 

1


Q4 Non-GAAP Results

 

     Q4 FY 2020      Q4 FY 2019      Vs. Q4 FY 2019  

Net Income

   $ 3.4 billion      $ 3.6 billion        (5 )% 

EPS

   $ 0.80      $ 0.83        (4 )% 

Fiscal Year GAAP Results

 

     FY 2020      FY 2019      Vs. FY 2019  

Revenue (including SPVSS business for all periods)

   $ 49.3 billion      $ 51.9 billion        (5 )% 

Revenue (excluding SPVSS business for all periods)

   $ 49.3 billion      $ 51.7 billion        (5 )% 

Net Income

   $ 11.2 billion      $ 11.6 billion        (4 )% 

EPS

   $ 2.64      $ 2.61        1

GAAP results for fiscal 2019 include charges related to the Tax Cuts and Jobs Act of $0.9 billion.

Fiscal Year Non-GAAP Results

 

     FY 2020      FY 2019      Vs. FY 2019  

Net Income (excluding SPVSS business for all periods)

   $ 13.7 billion      $ 13.8 billion        (1 )% 

EPS (excluding SPVSS business for all periods)

   $ 3.21      $ 3.10        4

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 Q4, delivering strong margins despite the very challenging environment,” said Kelly Kramer, CFO of Cisco. “Software subscriptions now make up 78% of our software revenue and remaining performance obligations continued to grow strongly in the quarter, reflecting the strength of our portfolio of software and services. We are seeing the returns on our investments in innovation as we focus on delivering long term growth and shareholder value.”

 

2


Financial Summary

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

All revenue, non-GAAP, and geographic financial information in the “FY 2020 Highlights” sections are presented excluding the SPVSS business for all prior periods as it was divested during the second quarter of fiscal 2019, on October 28, 2018.

Q4 FY 2020 Highlights

Revenue — Total revenue was $12.2 billion, down 9%, with product revenue down 13% and service revenue was flat. Revenue by geographic segment was: Americas down 12%, EMEA down 6%, and APJC down 7%. Product revenue was led by growth in Security, up 10%. Infrastructure Platforms was down 16% and Applications was down 9%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.2%, 61.2%, and 68.7%, respectively, as compared with 63.9%, 62.9%, and 66.8%, respectively, in the fourth quarter of 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.0%, 63.2%, and 69.8%, respectively, as compared with 65.5%, 64.7%, and 67.9%, respectively, in the fourth quarter of 2019.

Total gross margins by geographic segment were: 65.6% for the Americas, 64.9% for EMEA and 63.2% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.4 billion, down 9%, and were 36.5% of revenue. Non-GAAP operating expenses were $3.9 billion, down 12%, and were 32.0% of revenue.

Operating Income — GAAP operating income was $3.2 billion, down 12%, with GAAP operating margin of 26.7%. Non-GAAP operating income was $4.0 billion, down 8%, with non-GAAP operating margin at 33.0%.

Provision for Income Taxes — The GAAP tax provision rate was 20.3%. The non-GAAP tax provision rate was 16.7%.

Net Income and EPS — On a GAAP basis, net income was $2.6 billion, an increase of 19%, and EPS was $0.62, an increase of 22%. On a non-GAAP basis, net income was $3.4 billion, a decrease of 5%, and EPS was $0.80, a decrease of 4%.

Cash Flow from Operating Activities — $3.8 billion for the fourth quarter of fiscal 2020, a decrease of 4% compared with $3.9 billion for the fourth quarter of fiscal 2019.

FY 2020 Highlights

Revenue — Total revenue was $49.3 billion, a decrease of 5%.

Net Income and EPS — On a GAAP basis, net income was $11.2 billion, a decrease of 4%, and EPS was $2.64, an increase of 1%. On a non-GAAP basis, net income was $13.7 billion, a decrease of 1% compared to fiscal 2019, and EPS was $3.21, an increase of 4%.

Cash Flow from Operating Activities — $15.4 billion for fiscal 2020 compared with $15.8 billion for fiscal 2019, a decrease of 3%. Operating cash flow for fiscal 2019 includes the receipt of $0.4 billion related to a litigation settlement with Arista Networks. Operating cash flow was flat normalized for this item.

 

3


Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $29.4 billion at the end of the fourth quarter of fiscal 2020, compared with $28.6 billion at the end of the third quarter of fiscal 2020, and compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue — $20.4 billion, up 11% in total, with deferred product revenue up 17%. Deferred service revenue was up 7%.

Remaining Performance Obligations $28.4 billion at the end of fiscal 2020, up 12%.

Capital Allocation — In the fourth quarter of fiscal 2020, we declared and paid a cash dividend of $0.36 per common share, or $1.5 billion.

Acquisitions

In the first quarter of fiscal 2021, we closed the acquisition of privately held ThousandEyes, Inc. ThousandEyes’ Internet and Cloud intelligence platform delivers deep visibility and insights into the digital delivery of applications and services over the Internet.

 

4


Guidance for Q1 FY 2021

Cisco expects to achieve the following results for the first quarter of fiscal 2021:

 

Q1 FY 2021

    

Revenue

   (9)% - (11)% decline Y/Y

Non-GAAP gross margin rate

   64% - 65%

Non-GAAP operating margin rate

   30% - 31%

Non-GAAP tax provision rate

   19%

Non-GAAP EPS

   $0.69 - $0.71

Cisco estimates that GAAP EPS will be $0.41 to $0.47 in the first quarter of fiscal 2021.

A reconciliation between the Guidance for Q1 FY 2021 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q1 FY 2021” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

   

Q4 fiscal year 2020 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, August 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, August 12, 2020 to 4:00 p.m. Pacific Time, August 19, 2020 at 1-866-429-0574 (United States) or 1-203-369-0916 (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, August 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.

 

5


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2020
    July 27,
2019
    July 25,
2020
    July 27,
2019
 

REVENUE:

        

Product

   $ 8,832     $ 10,120     $ 35,978     $ 39,005  

Service

     3,322       3,308       13,323       12,899  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     12,154       13,428       49,301       51,904  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     3,429       3,757       13,199       14,863  

Service

     1,041       1,097       4,419       4,375  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     4,470       4,854       17,618       19,238  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     7,684       8,574       31,683       32,666  

OPERATING EXPENSES:

        

Research and development

     1,565       1,753       6,347       6,577  

Sales and marketing

     2,218       2,487       9,169       9,571  

General and administrative

     494       566       1,925       1,827  

Amortization of purchased intangible assets

     33       38       141       150  

Restructuring and other charges

     127       40       481       322  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,437       4,884       18,063       18,447  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,247       3,690       13,620       14,219  

Interest income

     187       305       920       1,308  

Interest expense

     (119     (204     (585     (859

Other income (loss), net

     (9     (87     15       (97
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     59       14       350       352  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,306       3,704       13,970       14,571  

Provision for income taxes (1)

     670       1,498       2,756       2,950  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,636     $ 2,206     $ 11,214     $ 11,621  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.62     $ 0.52     $ 2.65     $ 2.63  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.62     $ 0.51     $ 2.64     $ 2.61  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,227       4,269       4,236       4,419  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,244       4,307       4,254       4,453  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

(1) 

The provision for income taxes included a $0.9 billion charge for the three months and fiscal year ended July 27, 2019 related to the Tax Cuts and Jobs Act.

 

6


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     July 25, 2020  
     Three Months Ended     Fiscal Year Ended  
                         Excluding
SPVSS
business
    Including
SPVSS
business
 
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

            

Americas

   $ 7,185        (12 )%    $ 29,291        (5 )%      (5 )% 

EMEA

     3,106        (6 )%      12,659        (3 )%      (3 )% 

APJC

     1,863        (7 )%      7,352        (6 )%      (7 )% 
  

 

 

      

 

 

      

Total

   $ 12,154        (9 )%    $ 49,301        (5 )%      (5 )% 
  

 

 

      

 

 

      

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 fiscal year ended July 27, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     July 25, 2020  
     Three Months Ended     Fiscal Year Ended  

Gross Margin Percentage:

    

Americas

     65.6     66.7

EMEA

     64.9     65.6

APJC

     63.2     63.8

 

7


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     July 25, 2020  
     Three Months Ended     Fiscal Year Ended  
                         Excluding
SPVSS
business
    Including
SPVSS
business
 
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

            

Infrastructure Platforms

   $ 6,626        (16 )%    $ 27,122        (10 )%      (10 )% 

Applications

     1,357        (9 )%      5,568        (4 )%      (4 )% 

Security

     814        10     3,154        12     12

Other Products

     35        (17 )%      135        —       (52 )% 
  

 

 

      

 

 

      

Total Product

     8,832        (13 )%      35,978        (7 )%      (8 )% 

Services

     3,322        —       13,323        3     3
  

 

 

      

 

 

      

Total

   $ 12,154        (9 )%    $ 49,301        (5 )%      (5 )% 
  

 

 

      

 

 

      

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 fiscal year ended July 27, 2019 was $168 million.

 

8


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     July 25, 2020      July 27, 2019  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 11,809      $   11,750  

Investments

       17,610        21,663  

Accounts receivable, net of allowance for doubtful accounts of $143 at July 25, 2020 and $136 at July 27, 2019

     5,472        5,491  

Inventories

     1,282        1,383  

Financing receivables, net

     5,051        5,095  

Other current assets

     2,349        2,373  
  

 

 

    

 

 

 

Total current assets

     43,573        47,755  

Property and equipment, net

     2,453        2,789  

Financing receivables, net

     5,714        4,958  

Goodwill

     33,806        33,529  

Purchased intangible assets, net

     1,576        2,201  

Deferred tax assets

     3,990        4,065  

Other assets

     3,741        2,496  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 94,853      $ 97,793  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 3,005      $ 10,191  

Accounts payable

     2,218        2,059  

Income taxes payable

     839        1,149  

Accrued compensation

     3,122        3,221  

Deferred revenue

     11,406        10,668  

Other current liabilities

     4,741        4,424  
  

 

 

    

 

 

 

Total current liabilities

     25,331        31,712  

Long-term debt

     11,578        14,475  

Income taxes payable

     8,837        8,927  

Deferred revenue

     9,040        7,799  

Other long-term liabilities

     2,147        1,309  
  

 

 

    

 

 

 

Total liabilities

     56,933        64,222  

Total equity

     37,920        33,571  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 94,853      $ 97,793  
  

 

 

    

 

 

 

 

9


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Fiscal Year Ended  
     July 25,
2020
    July 27,
2019
 

Cash flows from operating activities:

    

Net income

   $ 11,214     $ 11,621  

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

    

Depreciation, amortization, and other

     1,808       1,897  

Share-based compensation expense

     1,569       1,570  

Provision for receivables

     93       40  

Deferred income taxes

     (38     (350

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

     (138     (24

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

    

Accounts receivable

     (107     (84

Inventories

     84       131  

Financing receivables

     (797     (249

Other assets

     96       (955

Accounts payable

     141       87  

Income taxes, net

     (322     312  

Accrued compensation

     (78     277  

Deferred revenue

     2,011       1,407  

Other liabilities

     (110     151  
  

 

 

   

 

 

 

Net cash provided by operating activities

     15,426       15,831  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (9,212     (2,416

Proceeds from sales of investments

     5,631       7,388  

Proceeds from maturities of investments

     7,975       12,928  

Acquisitions and divestitures

     (327     (2,175

Purchases of investments in privately held companies

     (190     (148

Return of investments in privately held companies

     224       159  

Acquisition of property and equipment

     (770     (909

Proceeds from sales of property and equipment

     179       22  

Other

     (10     (12
  

 

 

   

 

 

 

Net cash provided by investing activities

     3,500       14,837  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     655       640  

Repurchases of common stock - repurchase program

     (2,659     (20,717

Shares repurchased for tax withholdings on vesting of restricted stock units

     (727     (862

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

     (3,470     3,446  

Issuances of debt

     —         2,250  

Repayments of debt

     (6,720     (6,780

Dividends paid

     (6,016     (5,979

Other

     51       113  
  

 

 

   

 

 

 

Net cash used in financing activities

     (18,886     (27,889
  

 

 

   

 

 

 

Net increase in cash, cash equivalents, and restricted cash

     40       2,779  

Cash, cash equivalents, and restricted cash, beginning of fiscal year

     11,772       8,993  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash, end of fiscal year

   $ 11,812     $ 11,772  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 603     $ 892  

Cash paid for income taxes, net

   $ 3,116     $ 2,986  

 

10


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     July 25,
2020
     April 25,
2020
     July 27,
2019
 

Deferred revenue:

        

Service

   $ 12,551      $ 11,423      $ 11,709  

Product

     7,895        7,225        6,758  
  

 

 

    

 

 

    

 

 

 

Total

   $ 20,446      $ 18,648      $ 18,467  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 11,406      $ 10,710      $ 10,668  

Noncurrent

     9,040        7,938        7,799  
  

 

 

    

 

 

    

 

 

 

Total

   $ 20,446      $ 18,648      $ 18,467  
  

 

 

    

 

 

    

 

 

 

CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)

 

     July 25, 2020     April 25, 2020     July 27, 2019  
     Amount      Y/Y%     Amount      Y/Y%     Amount      Y/Y%  

Product

   $ 11,261        17   $ 10,386        25   $ 9,603        N/A  

Service

     17,093        9     15,142        3     15,702        N/A  
  

 

 

      

 

 

      

 

 

    

Total

   $ 28,354        12   $ 25,528        11   $ 25,305        N/A  
  

 

 

      

 

 

      

 

 

    

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

                 

July 25, 2020

   $ 0.36      $ 1,525        —        $ —        $ —        $ 1,525  

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  

The remaining authorized amount for stock repurchases under the program is $10.8 billion with no termination date.

 

11


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2020
    July 27,
2019
    July 25,
2020
    July 27,
2019
 

GAAP net income

   $ 2,636     $ 2,206     $ 11,214     $ 11,621  

Adjustments to cost of sales:

        

Share-based compensation expense

     61       57       237       220  

Amortization of acquisition-related intangible assets

     157       144       611       562  

Supplier component remediation charge (adjustment), net

     —         17       —         16  

Acquisition-related/divestiture costs

     —         1       3       10  

Legal and indemnification settlements

     —         —         4       5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     218       219       855       813  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to operating expenses:

        

Share-based compensation expense

     332       335       1,307       1,309  

Amortization of acquisition-related intangible assets

     33       38       141       150  

Acquisition-related/divestiture costs

     55       61       246       299  

Legal and indemnification settlements

     —         —         —         (396

Significant asset impairments and restructurings

     127       40       481       322  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     547       474       2,175       1,684  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        
  

 

 

   

 

 

   

 

 

   

 

 

 

(Gains) and losses on equity investments

     2       20       (97     (57
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     767       713       2,933       2,440  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (175     (168     (722     (722

Significant tax matters (1)

     166       835       233       448  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (9     667       (489     (274
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 3,394     $ 3,586     $ 13,658     $ 13,787  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The three months and fiscal year ended July 27, 2019 includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

 

12


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

 

     Three Months Ended      Fiscal Year Ended  
     July 25,
2020
     July 27,
2019
     July 25,
2020
     July 27,
2019
 

GAAP EPS

   $ 0.62      $ 0.51      $ 2.64      $ 2.61  

Adjustments to GAAP:

           

Share-based compensation expense

     0.09        0.09        0.36        0.34  

Amortization of acquisition-related intangible assets

     0.04        0.04        0.18        0.16  

Acquisition-related/divestiture costs

     0.01        0.01        0.06        0.07  

Legal and indemnification settlements

     —          —          —          (0.09

Significant asset impairments and restructurings

     0.03        0.01        0.11        0.07  

(Gains) and losses on equity investments

     —          —          (0.02      (0.01

Income tax effect of non-GAAP adjustments

     (0.04      (0.04      (0.17      (0.16

Significant tax matters

     0.04        0.19        0.05        0.10  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP EPS

   $ 0.80      $ 0.83      $ 3.21      $ 3.10  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts may not sum due to rounding.

 

13


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  
     July 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
    Net
Income
    Y/Y  

GAAP amount

   $ 5,403     $ 2,281     $ 7,684     $ 4,437       (9 )%    $ 3,247       (12 )%    $ 59     $ 2,636       19

% of revenue

     61.2     68.7     63.2     36.5       26.7       0.5     21.7  

Adjustments to GAAP amounts:

                    

Share-based compensation expense

     24       37       61       332         393         —         393    

Amortization of acquisition-related intangible assets

     157       —         157       33         190         —         190    

Acquisition/divestiture-related costs

     —         —         —         55         55         —         55    

Significant asset impairments and restructurings

     —         —         —         127         127         —         127    

(Gains) and losses on equity investments

     —         —         —         —           —           2       2    

Income tax effect/significant tax matters

     —         —         —         —           —           —         (9  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

Non-GAAP amount

   $ 5,584     $ 2,318     $ 7,902     $ 3,890       (12 )%    $ 4,012       (8 )%    $ 61     $ 3,394       (5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

% of revenue

     63.2     69.8     65.0     32.0       33.0       0.5     27.9  

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

 

     Three Months Ended  
     July 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

   $ 6,363     $ 2,211     $ 8,574     $ 4,884     $ 3,690     $ 14     $ 2,206  

% of revenue

     62.9     66.8     63.9     36.4     27.5     0.1     16.4

Adjustments to GAAP amounts:

              

Share-based compensation expense

     23       34       57       335       392       —         392  

Amortization of acquisition-related intangible assets

     144       —         144       38       182       —         182  

Supplier component remediation charge (adjustment), net

     17       —         17       —         17       —         17  

Acquisition/divestiture-related costs

     —         1       1       61       62       —         62  

Significant asset impairments and restructurings

     —         —         —         40       40       —         40  

(Gains) and losses on equity investments

     —         —         —         —               20       20  

Income tax effect/significant tax matters (1)

     —         —         —         —         —         —         667  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 6,547     $ 2,246     $ 8,793     $ 4,410     $ 4,383     $ 34     $ 3,586  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     64.7     67.9     65.5     32.8     32.6     0.3     26.7

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

 

(1) 

Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

 

14


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)

 

     Fiscal Year Ended  
     July 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
    Net
Income
    Y/Y  

GAAP amount

   $ 22,779     $ 8,904     $ 31,683     $ 18,063       (2 )%    $ 13,620       (4 )%    $ 350     $ 11,214       (4 )% 

% of revenue

     63.3     66.8     64.3     36.6       27.6       0.7     22.7  

Adjustments to GAAP amounts:

                    

Share-based compensation expense

     93       144       237       1,307         1,544         —         1,544    

Amortization of acquisition-related intangible assets

     611       —         611       141         752         —         752    

Legal and indemnification settlements

     4       —         4       —           4         —         4    

Acquisition/divestiture-related costs

     —         3       3       246         249         —         249    

Significant asset impairments and restructurings

     —         —         —         481         481         —         481    

(Gains) and losses on equity investments

     —         —         —         —           —           (97     (97  

Income tax effect/significant tax matters

     —         —         —         —           —           —         (489  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

Non-GAAP amount

   $ 23,487     $ 9,051     $ 32,538     $ 15,888       (5 )%    $ 16,650       —     $ 253     $ 13,658       (1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

% of revenue

     65.3     67.9     66.0     32.2       33.8       0.5     27.7  

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

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

 

15


     Fiscal Year Ended  
     July 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

   $ 24,142     $ 8,524     $ 32,666     $ 18,447     $ 14,219     $ 352     $ 11,621  

% of revenue

     61.9     66.1     62.9     35.5     27.4     0.7     22.4

Adjustments to GAAP amounts:

              

Share-based compensation expense

     90       130       220       1,309       1,529       —         1,529  

Amortization of acquisition-related intangible assets

     562       —         562       150       712       —         712  

Supplier component remediation charge (adjustment), net

     16       —         16       —         16       —         16  

Legal and indemnification settlements

     5       —         5       (396     (391     —         (391

Acquisition/divestiture-related costs

     4       6       10       299       309       —         309  

Significant asset impairments and restructurings

     —         —         —         322       322       —         322  

(Gains) and losses on equity investments

     —         —         —         —         —         (57     (57

Income tax effect/significant tax matters (1)

     —         —         —         —         —         —         (274
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 24,819     $ 8,660     $ 33,479     $ 16,763     $ 16,716     $ 295     $ 13,787  

Less: SPVSS business (2)

     (51     (9     (61     (60     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount (excluding SPVSS business)

   $ 24,768     $ 8,651     $ 33,418     $ 16,703     $ 16,716     $ 295     $ 13,787  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.7     67.2     64.6     32.3     32.3     0.6     26.6

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

 

(1) 

Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

(2) 

Reflects three months of operations for the SPVSS business.

 

16


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2020
    July 27,
2019
    July 25,
2020
    July 27,
2019
 

GAAP effective tax rate (1)

     20.3     40.4     19.7     20.2

Total adjustments to GAAP provision for income taxes

     (3.6 )%      (21.6 )%      (0.5 )%      (1.2 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     16.7     18.8     19.2     19.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The three months and fiscal year ended July 27, 2019 includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

GAAP TO NON-GAAP GUIDANCE FOR Q1 FY 2021

 

Q1 FY 2021

  

Gross Margin

Rate

  

Operating Margin

Rate

   Tax Provision
Rate
  Earnings per
Share (2)

GAAP

   62% - 63%    18% - 19%    19%   $0.41 - $0.47  

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 (1)

   —      6.5%      $0.13 - $0.15  

Income tax effect of non-GAAP adjustments

         —    
  

 

  

 

  

 

 

 

Non-GAAP

   64% - 65%    30% - 31%    19%   $0.69 - $0.71  
  

 

  

 

  

 

 

 

 

(1) 

In the first quarter of fiscal 2021, we initiated a restructuring plan, which includes a voluntary early retirement program, in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $900 million consisting of severance and other one-time termination benefits, and other costs. We expect to recognize approximately $800 million of these charges in the first quarter of fiscal 2021 with the remaining amount to be recognized during the rest of the fiscal year.

(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.

 

17


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 execution of our strategy to shift to revenue coming from software and services, the strength of our portfolio of software and services to continue to resonate with customers as they digitize their organizations, our ability to successfully rebalance our R&D investments to focus on new areas so that we can continue to offer customer relevant technology in simpler, consumable ways, our continued ability to deliver long term growth and shareholder value, and future responses to and effects of the COVID-19 pandemic) and the future financial performance of Cisco (including the guidance for Q1 FY 2021) 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 May 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 months and the year ended July 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.

 

18


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

Cisco (Nasdaq: CSCO) is the worldwide leader in technology that powers the Internet. Cisco inspires new possibilities by reimagining your applications, securing your data, transforming your infrastructure, and empowering your teams for a global and inclusive future. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2020 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.

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19

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