EX-99.1 2 d417697dex991.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:

 

   

$13.6 billion in revenue, up 7% year over year; GAAP EPS $0.67, down 6% year over year, and Non-GAAP EPS $0.88, up 5% year over year

 

   

Continued progress on business model transformation:

 

   

Total annualized recurring revenue (ARR) at $23.3 billion, up 6% year over year and product ARR up 11% year over year

 

   

Total software revenue up 10% year over year and software subscription revenue up 15% year over year

 

   

Remaining performance obligations (RPO) at $31.8 billion, up 4% year over year and product RPO up 7% year over year

 

   

Dividend increased 3%

 

   

Q2 FY 2023 Results:

 

   

Revenue: $13.6 billion

 

   

Increase of 7% year over year

 

   

Earnings per Share: GAAP: $0.67; Non-GAAP: $0.88

 

   

GAAP EPS decreased (6)% year over year

 

   

Non-GAAP EPS increased 5% year over year

 

   

Q3 FY 2023 Guidance:

 

   

Revenue: 11% to 13% growth year over year

 

   

Earnings per Share: GAAP: $0.74 to $0.79; Non-GAAP: $0.96 to $0.98

 

   

FY 2023 Guidance:

 

   

Revenue: 9% to 10.5% growth year over year

 

   

Earnings per Share: GAAP: $2.85 to $2.96; Non-GAAP: $3.73 to $3.78

SAN JOSE, Calif. — February 15, 2023 — Cisco today reported second quarter results for the period ended January 28, 2023. Cisco reported second quarter revenue of $13.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.67 per share, and non-GAAP net income of $3.6 billion or $0.88 per share.

“With Cisco’s strong Q2 performance, our fiscal 2023 is shaping up to be a great year,” said Chuck Robbins, chair and CEO of Cisco. “The modern, highly secure networks we are building serve as the backbone of our customers’ technology strategy. This, combined with the success of our ongoing business transformation and operational discipline gives me confidence in our future.”

 

1


GAAP Results

 

     Q2 FY 2023      Q2 FY 2022      Vs. Q2 FY 2022  

Revenue

   $ 13.6 billion      $ 12.7 billion        7

Net Income

   $ 2.8 billion      $ 3.0 billion        (7 )% 

Diluted Earnings per Share (EPS)

   $ 0.67      $ 0.71        (6 )% 

Non-GAAP Results

 

     Q2 FY 2023      Q2 FY 2022      Vs. Q2 FY 2022  

Net Income

   $ 3.6 billion      $ 3.5 billion        3

EPS

   $ 0.88      $ 0.84        5

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.”

Cisco Increases Quarterly Dividend

Cisco has declared a quarterly dividend of $0.39 per common share, a 1-cent increase or up 3%, over the previous quarter’s dividend, to be paid on April 26, 2023 to all stockholders of record as of the close of business on April 5, 2023. Future dividends will be subject to Board approval.

“We continue to execute well, delivering better than expected results in revenue, record non-GAAP EPS and operating cash flow”, said Scott Herren, CFO of Cisco. “We are raising our full year outlook driven by our growing recurring revenue base and RPO, along with our healthy backlog and the steps we have taken to improve supply. We have once again increased our dividend, reflecting the strength of our cash flow generation and our commitment to shareholder returns.”

 

2


Financial Summary

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

Q2 FY 2023 Highlights

Revenue — Total revenue was up 7% at $13.6 billion, with product revenue up 9% and service revenue was up 2%. Revenue by geographic segment was: Americas up 9%, EMEA up 5%, and APJC was up 1%. Product revenue performance was led by growth in Secure, Agile Networks up 14%, End-to-End Security up 7%, and Optimized Application Experiences up 11%. Internet for the Future was down 1% and Collaboration was down 10%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 62.0%, 60.2%, and 67.2%, respectively, as compared with 63.3%, 61.8%, and 67.3%, respectively, in the second quarter of fiscal 2022.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 63.9%, 62.1%, and 69.1%, respectively, as compared with 65.5%, 64.3%, and 68.8%, respectively, in the second quarter of fiscal 2022.

Total gross margins by geographic segment were: 62.9% for the Americas, 66.2% for EMEA and 63.6% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $5.1 billion, up 13%, and were 37.8% of revenue. Non-GAAP operating expenses were $4.3 billion, up 8%, and were 31.4% of revenue.

Operating Income — GAAP operating income was $3.3 billion, down 6%, with GAAP operating margin of 24.2%. Non-GAAP operating income was $4.4 billion, up 1%, with non-GAAP operating margin at 32.5%.

Provision for Income Taxes — The GAAP tax provision rate was 18.8%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS — On a GAAP basis, net income was $2.8 billion, a decrease of 7%, and EPS was $0.67, a decrease of 6%. On a non-GAAP basis, net income was $3.6 billion, an increase of 3%, and EPS was $0.88, an increase of 5%.

Cash Flow from Operating Activities — $4.7 billion for the second quarter of fiscal 2023, an increase of 93% compared with $2.5 billion for the second quarter of fiscal 2022.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $22.1 billion at the end of the second quarter of fiscal 2023, compared with $19.3 billion at the end of fiscal 2022.

Remaining Performance Obligations (RPO) $31.8 billion, up 4% in total, with 53% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 7% and service RPO were up 2%.

Deferred Revenue — $23.9 billion, up 7% in total, with deferred product revenue up 9%. Deferred service revenue was up 6%.

Capital Allocation — In the second quarter of fiscal 2023, we returned $2.8 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.38 per common share, or $1.6 billion, and repurchased approximately 26 million shares of common stock under our stock repurchase program at an average price of $47.72 per share for an aggregate purchase price of $1.3 billion. The remaining authorized amount for stock repurchases under the program is $13.4 billion with no termination date.

 

3


Guidance

Cisco expects to achieve the following results for the third quarter of fiscal 2023:

 

Q3 FY 2023     

Revenue

   11% – 13% growth Y/Y

Non-GAAP gross margin rate

   63.5% – 64.5%

Non-GAAP operating margin rate

   33% – 34%

Non-GAAP EPS

   $0.96 – $0.98

Cisco estimates that GAAP EPS will be $0.74 to $0.79 for the third quarter of fiscal 2023.

Cisco expects to achieve the following results for fiscal 2023:

 

FY 2023     

Revenue

   9% – 10.5% growth Y/Y

Non-GAAP EPS

   $3.73 – $3.78

Cisco estimates that GAAP EPS will be $2.85 to $2.96 for fiscal 2023.

Our Q3 FY 2023 guidance assumes an effective tax provision rate of 18% for GAAP and 19% for non-GAAP results. Our FY 2023 guidance assumes an effective tax provision rate of 20% 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 2023 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, February 15, 2023 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 15, 2023 to 4:00 p.m. Pacific Time, February 22, 2023 at 1-866-361-4941 (United States) or 1-203-369-0189 (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 15, 2023. 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.

 

4


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     January 28,
2023
    January 29,
2022
    January 28,
2023
    January 29,
2022
 

REVENUE:

        

Product

   $ 10,155     $ 9,353     $ 20,400     $ 18,882  

Service

     3,437       3,367       6,824       6,738  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     13,592       12,720       27,224       25,620  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     4,038       3,569       8,217       7,242  

Service

     1,127       1,102       2,234       2,276  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     5,165       4,671       10,451       9,518  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     8,427       8,049       16,773       16,102  

OPERATING EXPENSES:

        

Research and development

     1,855       1,670       3,636       3,384  

Sales and marketing

     2,384       2,266       4,775       4,527  

General and administrative

     582       544       1,147       1,095  

Amortization of purchased intangible assets

     71       79       142       163  

Restructuring and other charges

     243       3       241       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     5,135       4,562       9,941       9,177  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,292       3,487       6,832       6,925  

Interest income

     219       111       388       232  

Interest expense

     (107     (88     (207     (177

Other income (loss), net

     11       93       (123     280  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     123       116       58       335  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,415       3,603       6,890       7,260  

Provision for income taxes

     642       630       1,447       1,307  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,773     $ 2,973     $ 5,443     $ 5,953  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.68     $ 0.71     $ 1.33     $ 1.42  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.67     $ 0.71     $ 1.32     $ 1.41  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,103       4,183       4,105       4,201  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,116       4,205       4,115       4,222  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

5


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     January 28, 2023  
     Three Months Ended     Six Months Ended  
     Amount      Y/Y%     Amount      Y/Y%  

Revenue:

          

Americas

   $ 7,825        9   $ 15,738        7

EMEA

     3,728        5     7,404        8

APJC

     2,039        1     4,082        1
  

 

 

      

 

 

    

Total

   $ 13,592        7   $ 27,224        6
  

 

 

      

 

 

    

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

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     January 28, 2023  
     Three Months Ended     Six Months Ended  

Gross Margin Percentage:

    

Americas

     62.9%       62.9%  

EMEA

     66.2%       64.8%  

APJC

     63.6%       63.0%  

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     January 28, 2023  
     Three Months Ended     Six Months Ended  
     Amount      Y/Y%     Amount      Y/Y%  

Revenue:

          

Secure, Agile Networks

   $ 6,746        14   $ 13,430        13

Internet for the Future

     1,306        (1 )%      2,616        (3 )% 

Collaboration

     958        (10 )%      2,044        (6 )% 

End-to-End Security

     943        7     1,914        8

Optimized Application Experiences

     199        11     393        9

Other Products

     3        25     4        (17 )% 
  

 

 

      

 

 

    

Total Product

     10,155        9     20,400        8

Services

     3,437        2     6,824        1
  

 

 

      

 

 

    

Total

   $ 13,592        7   $ 27,224        6
  

 

 

      

 

 

    

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

 

6


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     January 28, 2023      July 30, 2022  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 9,009      $ 7,079  

Investments

     13,052        12,188  

Accounts receivable, net of allowance of $86 at January 28, 2023 and $83 at July 30, 2022

     5,237        6,622  

Inventories

     3,140        2,568  

Financing receivables, net

     3,557        3,905  

Other current assets

     4,520        4,355  
  

 

 

    

 

 

 

Total current assets

     38,515        36,717  

Property and equipment, net

     1,964        1,997  

Financing receivables, net

     3,554        4,009  

Goodwill

     38,388        38,304  

Purchased intangible assets, net

     2,134        2,569  

Deferred tax assets

     5,321        4,449  

Other assets

     5,964        5,957  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 95,840      $ 94,002  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 1,250      $ 1,099  

Accounts payable

     2,329        2,281  

Income taxes payable

     2,200        961  

Accrued compensation

     3,187        3,316  

Deferred revenue

     13,109        12,784  

Other current liabilities

     5,177        5,199  
  

 

 

    

 

 

 

Total current liabilities

     27,252        25,640  

Long-term debt

     7,637        8,416  

Income taxes payable

     6,609        7,725  

Deferred revenue

     10,818        10,480  

Other long-term liabilities

     2,050        1,968  
  

 

 

    

 

 

 

Total liabilities

     54,366        54,229  
  

 

 

    

 

 

 

Total equity

     41,474        39,773  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 95,840      $ 94,002  
  

 

 

    

 

 

 

 

7


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Six Months Ended  
     January 28,
2023
    January 29,
2022
 

Cash flows from operating activities:

    

Net income

   $ 5,443     $ 5,953  

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

    

Depreciation, amortization, and other

     853       1,049  

Share-based compensation expense

     1,097       930  

Provision (benefit) for receivables

     6       8  

Deferred income taxes

     (845     (138

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

     109       (323

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

    

Accounts receivable

     1,393       (308

Inventories

     (569     (506

Financing receivables

     834       1,241  

Other assets

     (210     (780

Accounts payable

     42       (250

Income taxes, net

     118       (876

Accrued compensation

     (146     (437

Deferred revenue

     633       202  

Other liabilities

     (57     123  
  

 

 

   

 

 

 

Net cash provided by operating activities

     8,701       5,888  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (3,797     (3,937

Proceeds from sales of investments

     587       1,402  

Proceeds from maturities of investments

     2,316       3,185  

Acquisitions, net of cash and cash equivalents acquired and divestitures

     (3     (361

Purchases of investments in privately held companies

     (70     (124

Return of investments in privately held companies

     39       104  

Acquisition of property and equipment

     (346     (232

Proceeds from sales of property and equipment

     1       5  

Other

     (20     (11
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (1,293     31  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     316       306  

Repurchases of common stock - repurchase program

     (1,760     (5,105

Shares repurchased for tax withholdings on vesting of restricted stock units

     (310     (411

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

     (602     959  

Issuances of debt

     —         1,049  

Repayments of debt

     —         (2,000

Dividends paid

     (3,120     (3,102

Other

     (5     (40
  

 

 

   

 

 

 

Net cash used in financing activities

     (5,481     (8,344
  

 

 

   

 

 

 

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents

     3       (25
  

 

 

   

 

 

 

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

     1,930       (2,450

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

     8,579       9,942  
  

 

 

   

 

 

 

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

   $ 10,509     $ 7,492  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 178     $ 184  

Cash paid for income taxes, net

   $ 2,172     $ 2,320  

 

8


CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)

 

     January 28, 2023     October 29, 2022     January 29, 2022  
     Amount      Y/Y%     Amount      Y/Y%     Amount      Y/Y%  

Product

   $ 14,517        7   $ 14,013        5   $ 13,532        16

Service

     17,255        2     16,897        1     16,986        3
  

 

 

      

 

 

      

 

 

    

Total

   $ 31,772        4   $ 30,910        3   $ 30,518        8
  

 

 

      

 

 

      

 

 

    

We expect 53% of total RPO at January 28, 2023 will be recognized as revenue over the next 12 months.

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     January 28,
2023
     October 29,
2022
     January 29,
2022
 

Deferred revenue:

        

Product

   $ 10,679      $ 10,404      $ 9,767  

Service

     13,248        12,615        12,546  
  

 

 

    

 

 

    

 

 

 

Total

   $ 23,927      $ 23,019      $ 22,313  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 13,109      $ 12,578      $ 12,268  

Noncurrent

     10,818        10,441        10,045  
  

 

 

    

 

 

    

 

 

 

Total

   $ 23,927      $ 23,019      $ 22,313  
  

 

 

    

 

 

    

 

 

 

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 2023

                 

January 28, 2023

   $ 0.38      $ 1,560        26      $ 47.72      $ 1,256      $ 2,816  

October 29, 2022

   $ 0.38      $ 1,560        12      $ 43.76      $ 502      $ 2,062  

Fiscal 2022

                 

July 30, 2022

   $ 0.38      $ 1,567        54      $ 44.02      $ 2,402      $ 3,969  

April 30, 2022

   $ 0.38      $ 1,555        5      $ 54.20      $ 252      $ 1,807  

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  

 

9


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 28,
2023
     January 29,
2022
     January 28,
2023
     January 29,
2022
 

GAAP net income

   $ 2,773      $ 2,973      $ 5,443      $ 5,953  

Adjustments to cost of sales:

           

Share-based compensation expense

     106        81        187        150  

Amortization of acquisition-related intangible assets

     153        197        306        395  

Acquisition-related/divestiture costs

     1        1        3        2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP cost of sales

     260        279        496        547  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjustments to operating expenses:

           

Share-based compensation expense

     498        396        913        779  

Amortization of acquisition-related intangible assets

     71        79        142        163  

Acquisition-related/divestiture costs

     48        120        123        232  

Russia-Ukraine war costs

     2        —          5        —    

Significant asset impairments and restructurings

     243        3        241        8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP operating expenses

     862        598        1,424        1,182  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

           

(Gains) and losses on equity investments

     (44      (100      65        (319
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     (44      (100      65        (319
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP income before provision for income taxes

     1,078        777        1,985        1,410  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax effect of non-GAAP adjustments

     (212      (202      (404      (340

Significant tax matters

     —          —          164        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP provision for income taxes

     (212      (202      (240      (340
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP net income

   $ 3,639      $ 3,548      $ 7,188      $ 7,023  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

 

     Three Months Ended      Six Months Ended  
     January 28,
2023
     January 29,
2022
     January 28,
2023
     January 29,
2022
 

GAAP EPS

   $ 0.67      $ 0.71      $ 1.32      $ 1.41  

Adjustments to GAAP:

           

Share-based compensation expense

     0.15        0.11        0.27        0.22  

Amortization of acquisition-related intangible assets

     0.05        0.07        0.11        0.13  

Acquisition-related/divestiture costs

     0.01        0.03        0.03        0.06  

Significant asset impairments and restructurings

     0.06        —          0.06        —    

(Gains) and losses on equity investments

     (0.01      (0.02      0.02        (0.08

Income tax effect of non-GAAP adjustments

     (0.05      (0.05      (0.10      (0.08

Significant tax matters

     —          —          0.04        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP EPS

   $ 0.88      $ 0.84      $ 1.75      $ 1.66  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts may not sum 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)

 

     Three Months Ended  
     January 28, 2023  
     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

   $ 6,117     $ 2,310     $ 8,427     $ 5,135       13   $ 3,292       (6 )%    $ 123     $ 2,773       (7 )% 

% of revenue

     60.2     67.2     62.0     37.8       24.2       0.9     20.4  

Adjustments to GAAP amounts:

 

               

Share-based compensation expense

     40       66       106       498         604         —         604    

Amortization of acquisition-related intangible assets

     153       —         153       71         224         —         224    

Acquisition/divestiture-related costs

     1       —         1       48         49         —         49    

Significant asset impairments and restructurings

     —         —         —         243         243         —         243    

Russia-Ukraine war costs

     —         —         —         2         2         —         2    

(Gains) and losses on equity investments

     —         —         —         —           —           (44     (44  

Income tax effect/significant tax matters

     —         —         —         —           —           —         (212  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

Non-GAAP amount

   $ 6,311     $ 2,376     $ 8,687     $ 4,273       8   $ 4,414       1   $ 79     $ 3,639       3
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

% of revenue

     62.1     69.1     63.9     31.4       32.5       0.6     26.8  

 

     Three Months Ended  
     January 29, 2022  
     Product
Gross
Margin
    Service
Gross
Margin
    Total Gross
Margin
    Operating
Expenses
    Operating
Income
    Interest
and other
income
(loss), net
    Net
Income
 

GAAP amount

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

% 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     $ 4,364     $ 16     $ 3,548  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     64.3     68.8     65.5     31.2     34.3     0.1     27.9

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

 

12


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 28, 2023  
     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

   $ 12,183     $ 4,590     $ 16,773     $ 9,941       8   $ 6,832       (1 )%    $ 58     $ 5,443       (9 )% 

% of revenue

     59.7     67.3     61.6     36.5       25.1       0.2     20.0  

Adjustments to GAAP amounts:

                    

Share-based compensation expense

     71       116       187       913         1,100         —         1,100    

Amortization of acquisition-related intangible assets

     306       —         306       142         448         —         448    

Acquisition/divestiture-related costs

     3       —         3       123         126         —         126    

Significant asset impairments and restructurings

     —         —         —         241         241         —         241    

Russia-Ukraine war costs

     —         —         —         5         5         —         5    

(Gains) and losses on equity investments

     —         —         —         —           —           65       65    

Income tax effect/significant tax matters

     —         —         —         —           —           —         (240  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

Non-GAAP amount

   $ 12,563     $ 4,706     $ 17,269     $ 8,517       7   $ 8,752       1   $ 123     $ 7,188       2
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

% of revenue

     61.6     69.0     63.4     31.3       32.1       0.5     26.4  

 

     Six Months Ended  
     January 29, 2022  
     Product
Gross
Margin
    Service
Gross
Margin
    Total Gross
Margin
    Operating
Expenses
    Operating
Income
    Interest
and other
income
(loss), net
    Net
Income
 

GAAP amount

   $ 11,640     $ 4,462     $ 16,102     $ 9,177     $ 6,925     $ 335     $ 5,953  

% 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     $ 8,654     $ 16     $ 7,023  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     64.0     67.6     65.0     31.2     33.8     0.1     27.4

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

 

13


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Six Months Ended  
     January 28,
2023
    January 29,
2022
    January 28,
2023
    January 29,
2022
 

GAAP effective tax rate

     18.8     17.5     21.0     18.0

Total adjustments to GAAP provision for income taxes

     0.2     1.5     (2.0 )%      1.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     19.0     19.0     19.0     19.0
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP TO NON-GAAP GUIDANCE

 

Q3 FY 2023

   Gross Margin
Rate
  Operating Margin
Rate
  Earnings per
Share (2)

GAAP

   61.5% – 62.5%   25.5% – 26.5%   $0.74 – $0.79

Estimated adjustments for:

      

Share-based compensation expense

   1.0%   4.5%   $0.12 – $0.13

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

   1.0%   2.0%   $0.05 – $0.06

Significant asset impairments and restructurings (1)

   —     1.0%   $0.02 – $0.03
  

 

 

 

 

 

Non-GAAP

   63.5% – 64.5%   33% – 34%   $0.96 – $0.98
  

 

 

 

 

 

 

FY 2023

   Earnings per
Share (2)

GAAP

   $2.85 – $2.96

Estimated adjustments for:

  

Share-based compensation expense

   $0.46 – $0.48

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

   $0.21 – $0.23

Significant asset impairments and restructurings (1)

   $0.10 – $0.12

(Gains) and losses on equity investments

   $0.01

Significant tax matters

   $0.04
  

 

Non-GAAP

   $3.73 – $3.78
  

 

 

(1) 

On November 16, 2022, Cisco announced a restructuring plan in order to rebalance the organization and enable further investment in key priority areas. This rebalancing includes talent movement options and restructuring. Additionally, Cisco has begun optimizing its real estate portfolio, aligned to the broader hybrid work strategy. Cisco estimates that it will recognize pre-tax charges to its GAAP financial results of approximately $600 million consisting of severance and other one-time termination benefits, real estate-related charges, and other costs. These charges are primarily cash-based. We recognized $243 million of these charges during the second quarter of fiscal 2023. We expect to recognize approximately $140 million of these charges in each of the third and fourth quarters of fiscal 2023, and the remaining amount of these charges primarily in the first quarter of fiscal 2024.

(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, Russia-Ukraine war costs, restructurings, (gains) and losses on equity investments and significant tax matters or other events, which may or may not be significant unless specifically stated.

 

14


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 the success of our ongoing business transformation and operational discipline, the growth of our recurring revenue base and RPO, our healthy backlog, steps taken to improve the supply situation, strength of our cash flow generation, and commitment to shareholder returns) and the future financial performance of Cisco (including the guidance for Q3 FY 2023 and full year FY 2023) 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 22, 2022 and September 8, 2022, 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 28, 2023 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, Russia-Ukraine war costs, 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

 

15


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 © 2023 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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