CSCO

CISCO SYSTEMS INC

Technology | Mega Cap

$0.74

EPS Forecast

$13,647

Revenue Forecast

The company already released most recent quarter's earnings. We will publish our AI's next quarter's forecast around 2024-10-31
EX-99.1 2 d235176dex991.htm EX-99.1 EX-99.1

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 SECOND QUARTER EARNINGS

News Summary:

 

   

Strong business momentum drove $12.7 billion in revenue, up 6% year over year; GAAP EPS $0.71, up 18% year over year, and Non-GAAP EPS $0.84, up 6% year over year

 

   

Continued robust demand across the business with third consecutive quarter of more than 30% total product order growth

 

   

Solid progress on business model transformation with total Annualized Recurring Revenue (ARR) at $21.9 billion in the second quarter of fiscal 2022, up 11% year over year

 

   

Dividend increased 3% and additional $15 billion authorized for stock repurchase

 

   

Q2 Results:

 

   

Revenue: $12.7 billion

 

   

Increase of 6% year over year

 

   

Earnings per Share: GAAP: $0.71; Non-GAAP: $0.84

 

   

GAAP EPS increased 18% year over year

 

   

Non-GAAP EPS increased 6% year over year

 

   

Q3 Guidance:

 

   

Revenue: 3% to 5% growth year over year

 

   

Earnings per Share: GAAP: $0.70 to $0.74; Non-GAAP: $0.85 to $0.87

 

   

FY 2022 Guidance:

 

   

Revenue: 5.5% to 6.5% growth year over year

 

   

Earnings per Share: GAAP: $2.83 to $2.92; Non-GAAP: $3.41 to $3.46

SAN JOSE, Calif. — February 16, 2022 — Cisco today reported second quarter results for the period ended January 29, 2022. Cisco reported second quarter revenue of $12.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.0 billion or $0.71 per share, and non-GAAP net income of $3.5 billion or $0.84 per share.

“We continue to see incredibly strong demand across our portfolio, emphasizing the criticality and relevance of Cisco’s innovation,” said Chuck Robbins, chair and CEO of Cisco. “Our robust order strength, record backlog and double-digit growth in annual recurring revenue position us well to deliver growth.”

GAAP Results

 

     Q2 FY 2022      Q2 FY 2021      Vs. Q2 FY 2021  

Revenue

   $ 12.7 billion      $ 12.0 billion        6

Net Income

   $ 3.0 billion      $ 2.5 billion        17

Diluted Earnings per Share (EPS)

   $ 0.71      $ 0.60        18

Non-GAAP Results

 

     Q2 FY 2022      Q2 FY 2021      Vs. Q2 FY 2021  

Net Income

   $ 3.5 billion      $ 3.4 billion        6

EPS

   $ 0.84      $ 0.79        6

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.”

 

1


Cisco Increases Quarterly Cash Dividend; Stock Repurchase Program Authorization Increased

Cisco has declared a quarterly dividend of $0.38 per common share, a 1-cent increase or up 3% over the previous quarter’s dividend, to be paid on April 27, 2022 to all stockholders of record as of the close of business on April 6, 2022. Future dividends will be subject to Board approval.

Cisco’s board of directors has also approved a $15 billion increase to the authorization of the stock repurchase program. There is no fixed termination date for the repurchase program. The remaining authorized amount for stock repurchases including the additional authorization is approximately $18 billion.

“Our business performed well with revenue and non-GAAP EPS growing 6% year over year despite the supply-constrained environment,” said Scott Herren, CFO of Cisco. “We delivered healthy margins while continuing to make good progress in our business model shift, with software product revenue growing 9% year over year and the product portions of ARR and RPO growing in double digits. The combination of our dividend increase and additional share repurchase authorization demonstrates our commitment to returning excess capital to our shareholders and confidence in our ongoing cash flows.”

Financial Summary

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

Q2 FY 2022 Highlights

Revenue — Total revenue was up 6% at $12.7 billion, with product revenue up 9% and service revenue down 1%. Revenue by geographic segment was: Americas up 3%, EMEA up 11%, and APJC up 13%. Product revenue performance was led by growth in Secure, Agile Networks up 7%, Internet for the Future up 42%, End-to-End Security up 7%, and Optimized Application Experiences up 12%. Hybrid Work was down 9%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.3%, 61.8%, and 67.3%, respectively, as compared with 65.1%, 64.5%, and 66.6%, respectively, in the second quarter of fiscal 2021.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.5%, 64.3%, and 68.8%, respectively, as compared with 66.9%, 66.6%, and 67.9%, respectively, in the second quarter of fiscal 2021.

Total gross margins by geographic segment were: 64.5% for the Americas, 66.8% for EMEA and 66.5% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were flat at $4.6 billion, and were 35.9% of revenue. Non-GAAP operating expenses were $4.0 billion, up 2%, and were 31.2% of revenue.

Operating Income — GAAP operating income was $3.5 billion, up 8%, with GAAP operating margin of 27.4%. Non-GAAP operating income was $4.4 billion, up 6%, with non-GAAP operating margin at 34.3%.

Provision for Income Taxes — The GAAP tax provision rate was 17.5%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS — On a GAAP basis, net income was $3.0 billion, an increase of 17%, and EPS was $0.71, an increase of 18%. On a non-GAAP basis, net income was $3.5 billion, an increase of 6%, and EPS was $0.84, an increase of 6%.

Cash Flow from Operating Activities — $2.5 billion for the second quarter of fiscal 2022, a decrease of 17% compared with $3.0 billion for the second quarter of fiscal 2021.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $21.1 billion at the end of the second quarter of fiscal 2022, compared with $24.5 billion at the end of fiscal 2021.

Remaining Performance Obligations (RPO) $30.5 billion, up 8% in total, with 53% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 16% and service RPO were up 3%.

Deferred Revenue — $22.3 billion, up 7% in total, with deferred product revenue up 17%. Deferred service revenue was flat.

Capital Allocation — In the second quarter of fiscal 2022, we returned $6.4 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.37 per common share, or $1.5 billion, and repurchased approximately 82 million shares of common stock under our stock repurchase program at an average price of $58.36 per share for an aggregate purchase price of $4.8 billion.

Acquisitions

In the second quarter of fiscal 2022, we closed the acquisition of replex GmbH, a privately held enterprise software company based in Germany. In addition, we announced our intent to acquire Opsani, a privately held enterprise software company.

 

2


Guidance

Cisco expects to achieve the following results for the third quarter of fiscal 2022:

 

Q3 FY 2022

    

Revenue

   3% - 5% growth Y/Y

Non-GAAP gross margin rate

   63.5% - 64.5%

Non-GAAP operating margin rate

   32.5% - 33.5%

Non-GAAP EPS

   $0.85 - $0.87

The third quarter of fiscal 2021 included an extra week.

Cisco estimates that GAAP EPS will be $0.70 to $0.74 for the third quarter of fiscal 2022.

Cisco expects to achieve the following results for fiscal 2022:

 

FY 2022

    

Revenue

   5.5% - 6.5% growth Y/Y

Non-GAAP EPS

   $3.41 - $3.46

Cisco estimates that GAAP EPS will be $2.83 to $2.92 for fiscal 2022.

Our Q3 FY 2022 and FY 2022 guidance assumes an effective tax provision rate of 18% for GAAP and 19% for non-GAAP results.

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

Editor’s Notes:

 

   

Q2 fiscal year 2022 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, February 16, 2022 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

 

   

Conference call replay will be available from 4:00 p.m. Pacific Time, February 16, 2022 to 4:00 p.m. Pacific Time, February 23, 2022 at 1-888-568-0332 (United States) or 1-203-369-3905 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.

 

   

Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, February 16, 2022. 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.

 

3


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     January 29,
2022
    January 23,
2021
    January 29,
2022
    January 23,
2021
 

REVENUE:

        

Product

   $ 9,353     $ 8,572     $ 18,882     $ 17,159  

Service

     3,367       3,388       6,738       6,730  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     12,720       11,960       25,620       23,889  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     3,569       3,044       7,242       6,250  

Service

     1,102       1,132       2,276       2,274  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     4,671       4,176       9,518       8,524  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     8,049       7,784       16,102       15,365  

OPERATING EXPENSES:

        

Research and development

     1,670       1,527       3,384       3,139  

Sales and marketing

     2,266       2,277       4,527       4,494  

General and administrative

     544       484       1,095       1,028  

Amortization of purchased intangible assets

     79       39       163       75  

Restructuring and other charges

     3       234       8       836  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,562       4,561       9,177       9,572  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,487       3,223       6,925       5,793  

Interest income

     111       161       232       335  

Interest expense

     (88     (113     (177     (225

Other income (loss), net

     93       (16     280       33  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     116       32       335       143  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,603       3,255       7,260       5,936  

Provision for income taxes

     630       710       1,307       1,217  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,973     $ 2,545     $ 5,953     $ 4,719  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.71     $ 0.60     $ 1.42     $ 1.12  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.71     $ 0.60     $ 1.41     $ 1.11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,183       4,223       4,201       4,227  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,205       4,234       4,222       4,239  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

4


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     January 29, 2022  
     Three Months Ended     Six Months Ended  
     Amount      Y/Y %     Amount      Y/Y %  

Revenue:

          

Americas

   $ 7,146        3   $ 14,706        4

EMEA

     3,564        11     6,867        11

APJC

     2,010        13     4,046        14
  

 

 

      

 

 

    

Total

   $ 12,720        6   $ 25,620        7
  

 

 

      

 

 

    

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

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     January 29, 2022  
     Three Months Ended     Six Months Ended  

Gross Margin Percentage:

    

Americas

     64.5%       64.5%  

EMEA

     66.8%       65.7%  

APJC

     66.5%       65.6%  

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     January 29, 2022  
     Three Months Ended     Six Months Ended  
     Amount      Y/Y %     Amount      Y/Y %  

Revenue:

          

Secure, Agile Networks

   $ 5,898        7   $ 11,866        9

Hybrid Work

     1,067        (9 )%      2,176        (8 )% 

End-to-End Security

     883        7     1,778        6

Internet for the Future

     1,322        42     2,697        44

Optimized Application Experiences

     180        12     361        15

Other Products

     2        (28 )%      5        (10 )% 
  

 

 

      

 

 

    

Total Product

     9,353        9     18,882        10

Services

     3,367        (1 )%      6,738        —  
  

 

 

      

 

 

    

Total

   $ 12,720        6   $ 25,620        7
  

 

 

      

 

 

    

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

Effective the third quarter of fiscal 2022, Hybrid Work will change to Collaboration.

 

5


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     January 29, 2022      July 31, 2021  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 6,731      $ 9,175  

Investments

     14,382        15,343  

Accounts receivable, net of allowance of $70 at January 29, 2022 and $109 at July 31, 2021

     6,003        5,766  

Inventories

     2,059        1,559  

Financing receivables, net

     3,997        4,380  

Other current assets

     3,627        2,889  
  

 

 

    

 

 

 

Total current assets

     36,799        39,112  

Property and equipment, net

     2,140        2,338  

Financing receivables, net

     4,024        4,884  

Goodwill

     38,679        38,168  

Purchased intangible assets, net

     3,079        3,619  

Deferred tax assets

     4,269        4,360  

Other assets

     5,272        5,016  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 94,262      $ 97,497  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 2,502      $ 2,508  

Accounts payable

     2,101        2,362  

Income taxes payable

     837        801  

Accrued compensation

     3,364        3,818  

Deferred revenue

     12,268        12,148  

Other current liabilities

     4,843        4,620  
  

 

 

    

 

 

 

Total current liabilities

     25,915        26,257  

Long-term debt

     8,969        9,018  

Income taxes payable

     7,628        8,538  

Deferred revenue

     10,045        10,016  

Other long-term liabilities

     2,209        2,393  
  

 

 

    

 

 

 

Total liabilities

     54,766        56,222  
  

 

 

    

 

 

 

Total equity

     39,496        41,275  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 94,262      $ 97,497  
  

 

 

    

 

 

 

 

6


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Six Months Ended  
     January 29,
2022
    January 23,
2021
 

Cash flows from operating activities:

    

Net income

   $ 5,953     $ 4,719  

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

    

Depreciation, amortization, and other

     1,049       887  

Share-based compensation expense

     930       874  

Provision (benefit) for receivables

     8       (10

Deferred income taxes

     (138     (91

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

     (323     (86

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

    

Accounts receivable

     (308     1,245  

Inventories

     (506     (145

Financing receivables

     1,241       748  

Other assets

     (780     (212

Accounts payable

     (250     (358

Income taxes, net

     (876     (836

Accrued compensation

     (437     125  

Deferred revenue

     202       226  

Other liabilities

     123       (16
  

 

 

   

 

 

 

Net cash provided by operating activities

     5,888       7,070  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (3,937     (6,025

Proceeds from sales of investments

     1,402       1,374  

Proceeds from maturities of investments

     3,185       3,373  

Acquisitions, net of cash and cash equivalents acquired and divestitures

     (361     (860

Purchases of investments in privately held companies

     (124     (95

Return of investments in privately held companies

     104       58  

Acquisition of property and equipment

     (232     (358

Proceeds from sales of property and equipment

     5       9  

Other

     (11     (4
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     31       (2,528
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     306       306  

Repurchases of common stock - repurchase program

     (5,105     (1,569

Shares repurchased for tax withholdings on vesting of restricted stock units

     (411     (317

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

     959       —    

Issuances of debt

     1,049       —    

Repayments of debt

     (2,000     —    

Dividends paid

     (3,102     (3,041

Other

     (65     70  
  

 

 

   

 

 

 

Net cash used in financing activities

     (8,369     (4,551
  

 

 

   

 

 

 

Net decrease in cash, cash equivalents, and restricted cash

     (2,450     (9

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

     9,942       11,812  
  

 

 

   

 

 

 

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

   $ 7,492     $ 11,803  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 184     $ 220  

Cash paid for income taxes, net

   $ 2,320     $ 2,142  

 

7


CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)

 

     January 29, 2022     October 30, 2021     January 23, 2021  
     Amount      Y/Y%     Amount      Y/Y%     Amount      Y/Y%  

Product

   $ 13,532        16   $ 13,384        18   $ 11,666        17

Service

     16,986        3     16,751        4     16,512        10
  

 

 

      

 

 

      

 

 

    

Total

   $ 30,518        8   $ 30,135        10   $ 28,178        13
  

 

 

      

 

 

      

 

 

    

We expect 53% of total RPO at January 29, 2022 will be recognized as revenue over the next 12 months.

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     January 29,
2022
     October 30,
2021
     January 23,
2021
 

Deferred revenue:

        

Product

   $ 9,767      $ 9,681      $ 8,332  

Service

     12,546        12,391        12,514  
  

 

 

    

 

 

    

 

 

 

Total

   $ 22,313      $ 22,072      $ 20,846  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 12,268      $ 12,017      $ 11,552  

Noncurrent

     10,045        10,055        9,294  
  

 

 

    

 

 

    

 

 

 

Total

   $ 22,313      $ 22,072      $ 20,846  
  

 

 

    

 

 

    

 

 

 

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 2022

                 

January 29, 2022

   $ 0.37      $ 1,541        82      $ 58.36      $ 4,824      $ 6,365  

October 30, 2021

   $ 0.37      $ 1,561        5      $ 56.49      $ 256      $ 1,817  

Fiscal 2021

                 

July 31, 2021

   $ 0.37      $ 1,562        15      $ 53.30      $ 791      $ 2,353  

May 1, 2021

   $ 0.37      $ 1,560        10      $ 48.71      $ 510      $ 2,070  

January 23, 2021

   $ 0.36      $ 1,521        19      $ 42.82      $ 801      $ 2,322  

October 24, 2020

   $ 0.36      $ 1,520        20      $ 40.44      $ 800      $ 2,320  

 

8


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions)

 

     Three Months Ended     Six Months Ended  
     January 29,
2022
    January 23,
2021
    January 29,
2022
    January 23,
2021
 

GAAP net income

   $ 2,973     $ 2,545     $ 5,953     $ 4,719  

Adjustments to cost of sales:

        

Share-based compensation expense

     81       68       150       133  

Amortization of acquisition-related intangible assets

     197       152       395       315  

Acquisition-related/divestiture costs

     1       1       2       2  

Legal and indemnification settlements/charges

     —         —         —         43  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     279       221       547       493  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to operating expenses:

        

Share-based compensation expense

     396       358       779       720  

Amortization of acquisition-related intangible assets

     79       39       163       75  

Acquisition-related/divestiture costs

     120       34       232       93  

Significant asset impairments and restructurings

     3       234       8       836  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     598       665       1,182       1,724  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Acquisition-related/divestiture costs

     —         (2     —         (2

(Gains) and losses on equity investments

     (100     13       (319     (35
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP interest and other income (loss), net

     (100     11       (319     (37
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     777       897       1,410       2,180  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (202     (162     (340     (408

Significant tax matters

     —         83       —         83  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (202     (79     (340     (325
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 3,548     $ 3,363     $ 7,023     $ 6,574  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

 

     Three Months Ended     Six Months Ended  
     January 29,
2022
    January 23,
2021
    January 29,
2022
    January 23,
2021
 

GAAP EPS

   $ 0.71     $ 0.60     $ 1.41     $ 1.11  

Adjustments to GAAP:

        

Share-based compensation expense

     0.11       0.10       0.22       0.20  

Amortization of acquisition-related intangible assets

     0.07       0.05       0.13       0.09  

Acquisition-related/divestiture costs

     0.03       0.01       0.06       0.02  

Legal and indemnification settlements/charges

     —         —         —         0.01  

Significant asset impairments and restructurings

     —         0.06       —         0.20  

(Gains) and losses on equity investments

     (0.02     —         (0.08     (0.01

Income tax effect of non-GAAP adjustments

     (0.05     (0.04     (0.08     (0.10

Significant tax matters

     —         0.02       —         0.02  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP EPS

   $ 0.84     $ 0.79     $ 1.66     $ 1.55  
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts may not sum due to rounding.

 

10


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

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

(In millions, except percentages)

 

     Three Months Ended  
     January 29, 2022  
     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

   $ 5,784     $ 2,265     $ 8,049     $ 4,562       —     $ 3,487       8   $ 116     $ 2,973       17

% of revenue

     61.8     67.3     63.3     35.9       27.4       0.9     23.4  

Adjustments to GAAP amounts:

                    

Share-based compensation expense

     29       52       81       396         477         —         477    

Amortization of acquisition-related intangible assets

     197       —         197       79         276         —         276    

Acquisition/divestiture-related costs

     1       —         1       120         121         —         121    

Significant asset impairments and restructurings

     —         —         —         3         3         —         3    

(Gains) and losses on equity investments

     —         —         —         —           —           (100     (100  

Income tax effect/significant tax matters

     —         —         —         —           —           —         (202  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

Non-GAAP amount

   $ 6,011     $ 2,317     $ 8,328     $ 3,964       2   $ 4,364       6   $ 16     $ 3,548       6
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

% of revenue

     64.3     68.8     65.5     31.2       34.3       0.1     27.9  

 

     Three Months Ended  
     January 23, 2021  
     Product
Gross
Margin
    Service
Gross
Margin
    Total Gross
Margin
    Operating
Expenses
    Operating
Income
    Interest
and other
income
(loss), net
    Net
Income
 

GAAP amount

   $ 5,528     $ 2,256     $ 7,784     $ 4,561     $ 3,223     $ 32     $ 2,545  

% of revenue

     64.5     66.6     65.1     38.1     26.9     0.3     21.3

Adjustments to GAAP amounts:

              

Share-based compensation expense

     25       43       68       358       426       —         426  

Amortization of acquisition-related intangible assets

     152       —         152       39       191       —         191  

Acquisition/divestiture-related costs

     1       —         1       34       35       (2     33  

Significant asset impairments and restructurings

     —         —         —         234       234       —         234  

(Gains) and losses on equity investments

     —         —         —         —         —         13       13  

Income tax effect/significant tax matters

     —         —         —         —         —         —         (79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 5,706     $ 2,299     $ 8,005     $ 3,896     $ 4,109     $ 43     $ 3,363  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     66.6     67.9     66.9     32.6     34.4     0.4     28.1

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

 

11


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)

 

     Six Months Ended  
     January 29, 2022  
     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

   $ 11,640     $ 4,462     $ 16,102     $ 9,177       (4 )%    $ 6,925       20   $ 335     $ 5,953       26

% of revenue

     61.6     66.2     62.8     35.8       27.0       1.3     23.2  

Adjustments to GAAP amounts:

                    

Share-based compensation expense

     54       96       150       779         929         —         929    

Amortization of acquisition-related intangible assets

     395       —         395       163         558         —         558    

Acquisition/divestiture-related costs

     2       —         2       232         234         —         234    

Significant asset impairments and restructurings

     —         —         —         8         8         —         8    

(Gains) and losses on equity investments

     —         —         —         —           —           (319     (319  

Income tax effect/significant tax matters

     —         —         —         —           —           —         (340  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

Non-GAAP amount

   $ 12,091     $ 4,558     $ 16,649     $ 7,995       2   $ 8,654       8   $ 16     $ 7,023       7
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

% of revenue

     64.0     67.6     65.0     31.2       33.8       0.1     27.4  

 

     Six Months Ended  
     January 23, 2021  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Operating
Income
    Interest
and other
income
(loss), net
    Net
Income
 

GAAP amount

   $ 10,909     $ 4,456     $ 15,365     $ 9,572     $ 5,793     $ 143     $ 4,719  

% of revenue

     63.6     66.2     64.3     40.1     24.2     0.6     19.8

Adjustments to GAAP amounts:

              

Share-based compensation expense

     49       84       133       720       853       —         853  

Amortization of acquisition-related intangible assets

     315       —         315       75       390       —         390  

Acquisition/divestiture-related costs

     1       1       2       93       95       (2     93  

Legal and indemnification settlements/charges

     43       —         43       —         43       —         43  

Significant asset impairments and restructurings

     —         —         —         836       836       —         836  

(Gains) and losses on equity investments

     —         —         —         —         —         (35     (35

Income tax effect/significant tax matters

     —         —         —         —         —         —         (325
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 11,317     $ 4,541     $ 15,858     $ 7,848     $ 8,010     $ 106     $ 6,574  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     66.0     67.5     66.4     32.9     33.5     0.4     27.5

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

 

12


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Six Months Ended  
     January 29,
2022
    January 23,
2021
    January 29,
2022
    January 23,
2021
 

GAAP effective tax rate

     17.5     21.8     18.0     20.5

Total adjustments to GAAP provision for income taxes

     1.5     (2.8 )%      1.0     (1.5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     19.0     19.0     19.0     19.0
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP TO NON-GAAP GUIDANCE

 

Q3 FY 2022

   Gross Margin
Rate
   Operating Margin
Rate
   Earnings per
Share (1)

GAAP

   61.5% - 62.5%    26.5% - 27.5%    $0.70 - $0.74

Estimated adjustments for:

        

Share-based compensation expense

   0.5%    4.0%    $0.08 - $0.09

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

   1.5%    2.0%    $0.05 - $0.06
  

 

  

 

  

 

Non-GAAP

   63.5% - 64.5%    32.5% - 33.5%    $0.85 - $0.87
  

 

  

 

  

 

 

FY 2022

   Earnings per
Share (1)

GAAP

   $2.83 - $2.92

Estimated adjustments for:

  

Share-based compensation expense

   $0.33 - $0.35

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

   $0.27 - $0.29

(Gains) and losses on equity investments

   ($0.06)
  

 

Non-GAAP

   $3.41 - $3.46
  

 

 

(1) 

Estimated adjustments to GAAP earnings per share are shown after income tax effects.

Except as noted above, this guidance does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings, (gains) and losses on equity investments and significant tax matters or other events, which may or may not be significant unless specifically stated.

 

13


Forward Looking Statements, Non-GAAP Information and Additional Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our ability to deliver growth through our investments in innovation; the strength of our strategy; the continued momentum in our business; our growing pipeline and record backlog which we believe will convert into revenue in the coming quarters; our on-going transformation to accelerate our shift to more software and subscription-based recurring revenue; our significant growth opportunities and expanding addressable markets; and our commitment to returning excess capital to our shareholders and confidence in our ongoing cash flows) and the future financial performance of Cisco (including the guidance for Q3 FY 2022 and full year FY 2022) 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 and related public health measures; 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 Secure, Agile Networks and services; the timing of orders and manufacturing and customer lead times; significant supply constraints; 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, other intellectual property, antitrust, stockholder and other matters, and governmental investigations; our ability to achieve the benefits of restructurings and possible changes in the size and timing of related charges; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events (including as a result of global climate change); 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 November 23, 2021 and September 9, 2021, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco’s results of operations for the three and six months ended January 29, 2022 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.

 

14


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.

Annualized Recurring Revenue represents the annualized revenue run-rate of active subscriptions, term licenses, and maintenance contracts at the end of a reporting period, net of rebates to customers and partners as well as certain other revenue adjustments. Includes both revenue recognized ratably as well as upfront on an annualized basis.

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 © 2022 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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