- 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 |
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Cisco via Globenewswire
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