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CISCO SYSTEMS (CSCO)
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Cisco : Reports Second Quarter Earnings

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02/15/2018 | 12:02am CEST
Cisco Reports Second Quarter Earnings

Dividend Increased 14 Percent, Additional $25 Billion Authorized for Stock Repurchase

 
  • Q2 Revenue: $11.9 billion

    • Increase of 3% year over year

    • Recurring revenue was 33% of total revenue, up 2 points year over year

  • Q2 Earnings (Loss) per Share: $(1.78) GAAP; $0.63 non-GAAP

    • GAAP results include an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act

  • Q3 FY 2018 Guidance:

    • Revenue: 3% to 5% growth year over year

    • Earnings per Share: GAAP: $0.50 to $0.55; Non-GAAP: $0.64 to $0.66

SAN JOSE, Calif., Feb. 14, 2018 (GLOBE NEWSWIRE) -- Cisco (NASDAQ:CSCO) today reported second quarter results for the period ended January 27, 2018. Cisco reported second quarter revenue of $11.9 billion, net loss on a generally accepted accounting principles (GAAP) basis of $(8.8) billion or $(1.78) per share, and non-GAAP net income of $3.1 billion or $0.63 per share.

"We had a great quarter which demonstrates that our strategy is working. Our business is growing, we have a fantastic innovation pipeline, our balance sheet is strong and we have a team that's executing incredibly well," said Chuck Robbins, Chairman and CEO, Cisco. "The network is more critical to business success than ever, and our new intent-based networking portfolio has great momentum including the fastest ramping new product in our history."

       
GAAP Results
       
  Q2 FY 2018 Q2 FY 2017 Vs. Q2 FY 2017
Revenue $11.9 billion $11.6 billion 3%
Net Income (Loss) $(8.8) billion $2.3 billion (474)%
Earnings (Loss) per Share $(1.78) $0.47  (479)%

GAAP results include an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act comprised of $9.0 billion for the U.S. transition tax, $1.2 billion for foreign withholding tax and $0.9 billion for the re-measurement of net deferred tax assets.

       
Non-GAAP Results
       
  Q2 FY 2018 Q2 FY 2017 Vs. Q2 FY 2017
Net Income $3.1 billion $2.9 billion 10%
Diluted Earnings per Share (EPS) $0.63  $0.57  11%

Reconciliations between net income (loss), earnings (loss) per share, 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 Cash Dividend; Stock Repurchase Program Authorization Increased

Cisco has declared a quarterly dividend of $0.33 per common share, a 4-cent increase or up 14% over the previous quarter's dividend, to be paid on April 25, 2018 to all shareholders of record as of the close of business on April 5, 2018. Future dividends will be subject to Board approval.

Cisco's board of directors has also approved a $25 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 $31 billion.

"Q2 was a great quarter with 3% revenue growth and strong margins and cash flow," said Kelly Kramer, CFO of Cisco. "We continue to make progress as we shift the business toward more software and recurring revenue. Our significant dividend increase and additional share repurchase authorization reinforce our commitment to returning capital to our shareholders and show confidence in the strength of our ongoing cash flows."

Financial Summary

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

Q2 FY 2018 Highlights

Revenue -- Total revenue was $11.9 billion, up 3%, with product revenue up 3% and service revenue up 3%. 33% of total revenue was from recurring offers, up 2 percentage points from the second quarter of fiscal 2017. Revenue by geographic segment was: Americas up 5%, EMEA flat, and APJC down 2%. Product revenue performance reflected solid growth in Applications and Security, which each increased 6%. Infrastructure Platforms increased by 2%.

Gross Margin -- On a GAAP basis, total gross margin and product gross margin were 63.1% and 61.5%, respectively. Product gross margin increased compared with 61.1% in the second quarter of fiscal 2017.

Non-GAAP total gross margin and product gross margin were 64.7% and 63.3%, respectively. Non-GAAP product gross margin increased compared with 62.4% in the second quarter of fiscal 2017. The increase was primarily due to improved productivity benefits and to a lesser extent product mix, partially offset by pricing.

GAAP service gross margin was 67.4% and non-GAAP service gross margin was 68.5%.

Total gross margins by geographic segment were: 65.9% for the Americas, 64.6% for EMEA and 60.1% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion, up 1%. Non-GAAP operating expenses were $3.9 billion, up 2%, and were 32.9% of revenue.

Operating Income -- GAAP operating income was $3.1 billion, up 6%, with GAAP operating margin of 25.9%. Non-GAAP operating income was $3.8 billion, up 5%, with non-GAAP operating margin of 31.7%.

Provision for Income Taxes -- The GAAP tax provision rate was 371.6% which includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act. The non-GAAP tax provision rate was 20.0%.

Net Income (Loss) and Earnings (Loss) per Share -- On a GAAP basis, net loss was $(8.8) billion and earnings (loss) per share was $(1.78). On a non-GAAP basis, net income was $3.1 billion, an increase of 10%, and EPS was $0.63, an increase of 11%.

Cash Flow from Operating Activities -- was $4.1 billion, an increase of 8% compared with $3.8 billion for the second quarter of fiscal 2017.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- were $73.7 billion at the end of the second quarter of fiscal 2018, compared with $71.6 billion at the end of the first 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 second quarter of fiscal 2018 were $2.4 billion.

Deferred Revenue -- was $18.8 billion, up 10% in total, with deferred product revenue up 19%, 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 36%.

Capital Allocation -- In the second quarter of fiscal 2018, Cisco declared and paid a cash dividend of $0.29 per common share, or $1.4 billion. For the second quarter of fiscal 2018, Cisco repurchased approximately 103 million shares of common stock under its stock repurchase program at an average price of $39.07 per share for an aggregate purchase price of $4.0 billion.

Acquisitions

In the first quarter of fiscal 2018, we announced a definitive agreement to acquire BroadSoft, Inc., a publicly held company that offers cloud calling and contact center solutions. The BroadSoft acquisition closed in the third quarter of fiscal 2018.

On January 24, 2018, we announced our intent to acquire Skyport Systems, Inc., a privately held company providing cloud-managed, hyper-converged systems that run and protect business critical applications. The Skyport acquisition closed in the third quarter of fiscal 2018.


Guidance for Q3 FY 2018

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

   
Q3 FY 2018  
Revenue 3% - 5% 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 $0.64 - $0.66
   

The impact of the BroadSoft acquisition is factored into our guidance.

Cisco estimates that GAAP EPS will be $0.50 to $0.55 in the third quarter of fiscal 2018.

A reconciliation between the Guidance for Q3 FY 2018 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q3 FY 2018" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

 

Editor's Notes:

  • Q2 fiscal year 2018 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, February 14, 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, February 14, 2018 to 4:00 p.m. Pacific Time, February 21, 2018 at 1-800-391-9854 (United States) or 1-402-220-9828 (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 14, 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 Six Months Ended
 January 27,
2018
 January 28,
2017
 January 27,
2018
 January 28,
2017
REVENUE:       
Product$8,709  $8,491  $17,763  $17,793 
Service3,178  3,089  6,260  6,139 
      Total revenue11,887  11,580  24,023  23,932 
COST OF SALES:       
Product3,354  3,305  6,969  6,708 
Service1,035  999  2,129  2,064 
     Total cost of sales4,389  4,304  9,098  8,772 
GROSS MARGIN7,498  7,276  14,925  15,160 
OPERATING EXPENSES:       
Research and development1,549  1,508  3,116  3,053 
Sales and marketing2,235  2,222  4,569  4,640 
General and administrative483  456  1,040  1,011 
Amortization of purchased intangible assets60  64  121  142 
Restructuring and other charges98  133  250  544 
     Total operating expenses4,425  4,383  9,096  9,390 
OPERATING INCOME3,073  2,893  5,829  5,770 
Interest income396  329  775  624 
Interest expense(247) (222) (482) (420)
Other income (loss), net10  (37) 72  (58)
     Interest and other income (loss), net159  70  365  146 
INCOME BEFORE PROVISION FOR INCOME TAXES3,232  2,963  6,194  5,916 
Provision for income taxes (1)12,010  615  12,578  1,246 
NET INCOME (LOSS)$(8,778) $2,348  $(6,384) $4,670 
        
Net income (loss) per share:       
Basic$(1.78) $0.47  $(1.29) $0.93 
Diluted$(1.78) $0.47  $(1.29) $0.92 
Shares used in per-share calculation:       
Basic4,924  5,015  4,942  5,021 
Diluted4,924  5,040  4,942  5,054 
        
Cash dividends declared per common share$0.29  $0.26  $0.58  $0.52 

(1) 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)
   
  January 27, 2018
  Three Months Ended Six Months Ended
  Amount Y/Y % Amount Y/Y%
Revenue:        
Americas $7,004  5% $14,354  2%
EMEA 3,062  -% 5,971  (2)%
APJC 1,821  (2)% 3,698  (1)%
      Total $11,887  3% $24,023  -%

 

   
   
CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)
   
  January 27, 2018
  Three Months Ended Six Months Ended
Gross Margin Percentage:    
Americas 65.9% 65.0%
EMEA 64.6% 63.9%
APJC 60.1% 61.1%

 

   
   
CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)
   
  January 27, 2018
  Three Months Ended Six Months Ended
  Amount Y/Y % Amount Y/Y%
Revenue:        
Infrastructure Platforms $6,694  2% $13,664  (1)%
Applications 1,184  6% 2,387  6%
Security 558  6% 1,143  7%
Other Products 273  (10)% 569  (13)%
Total Product 8,709  3% 17,763  -%
Services 3,178  3% 6,260  2%
      Total $11,887  3% $24,023  -%

 

    
    
CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
    
 January 27, 2018 July 29, 2017
ASSETS   
Current assets:   
Cash and cash equivalents$17,624  $11,708 
Investments56,059  58,784 
Accounts receivable, net of allowance for doubtful accounts of $181 at January 27, 2018 and $211 at July 29, 20173,963  5,146 
Inventories1,896  1,616 
Financing receivables, net4,925  4,856 
Other current assets1,583  1,593 
      Total current assets86,050  83,703 
Property and equipment, net3,113  3,322 
Financing receivables, net4,913  4,738 
Goodwill30,391  29,766 
Purchased intangible assets, net2,474  2,539 
Deferred tax assets3,097  4,239 
Other assets1,472  1,511 
      TOTAL ASSETS$131,510  $129,818 
LIABILITIES AND EQUITY   
Current liabilities:   
Short-term debt$13,741  $7,992 
Accounts payable1,060  1,385 
Income taxes payable2,204  98 
Accrued compensation2,736  2,895 
Deferred revenue11,102  10,821 
Other current liabilities4,521  4,392 
      Total current liabilities35,364  27,583 
Long-term debt25,625  25,725 
Income taxes payable9,185  1,250 
Deferred revenue7,686  7,673 
Other long-term liabilities1,668  1,450 
      Total liabilities79,528  63,681 
Total equity51,982  66,137 
TOTAL LIABILITIES AND EQUITY$131,510  $129,818 

 

  
  
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
  
 Six Months Ended
 January 27,
 2018
 January 28,
 2017
Cash flows from operating activities:   
Net income (loss)$(6,384) $4,670 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
     Depreciation, amortization, and other1,112  1,148 
     Share-based compensation expense785  724 
     Provision for receivables(43) 4 
     Deferred income taxes1,021  (26)
     Excess tax benefits from share-based compensation-  (101)
     (Gains) losses on divestitures, investments and other, net(174) 79 
     Change in operating assets and liabilities, net of effects of acquisitions and divestitures:   
         Accounts receivable1,236  1,396 
         Inventories(276) (51)
         Financing receivables(156) (764)
         Other assets(15) 155 
         Accounts payable(338) (98)
         Income taxes, net10,246  (257)
         Accrued compensation(189) (417)
         Deferred revenue237  611 
         Other liabilities88  (571)
             Net cash provided by operating activities7,150  6,502 
Cash flows from investing activities:   
Purchases of investments(13,954) (27,847)
Proceeds from sales of investments9,111  18,420 
Proceeds from maturities of investments7,365  5,245 
Acquisition of businesses, net of cash and cash equivalents acquired(754) (251)
Proceeds from business divestitures27  - 
Purchases of investments in privately held companies(89) (142)
Return of investments in privately held companies124  108 
Acquisition of property and equipment(379) (526)
Proceeds from sales of property and equipment51  5 
Other(7) 10 
             Net cash provided by (used in) investing activities1,495  (4,978)
Cash flows from financing activities:   
Issuances of common stock302  386 
Repurchases of common stock - repurchase program(5,457) (1,991)
Shares repurchased for tax withholdings on vesting of restricted stock units(433) (432)
Short-term borrowings, original maturities of 90 days or less, net5,095  300 
Issuances of debt6,877  6,232 
Repayments of debt(6,230) (1)
Excess tax benefits from share-based compensation-  101 
Dividends paid(2,861) (2,612)
Other(22) (240)
             Net cash provided by (used in) financing activities(2,729) 1,743 
Net increase (decrease) in cash and cash equivalents5,916  3,267 
Cash and cash equivalents, beginning of period11,708  7,631 
Cash and cash equivalents, end of period$17,624  $10,898 
Supplemental cash flow information:   
Cash paid for interest$454  $419 
Cash paid for income taxes, net$1,311  $1,529 

 

      
      
CISCO SYSTEMS, INC.
DEFERRED REVENUE
(In millions)
      
 January 27,
2018
 October 28,
2017
 January 28,
2017
Deferred revenue:     
Service$10,963  $10,991  $10,525 
Product:     
     Deferred revenue related to recurring software and subscription offers5,451  5,213  3,997 
     Other product deferred revenue2,374  2,361  2,564 
     Total product deferred revenue7,825  7,574  6,561 
         Total$18,788  $18,565  $17,086 
Reported as:     
Current$11,102  $10,920  $10,243 
Noncurrent7,686  7,645  6,843 
         Total$18,788  $18,565  $17,086 

 

       
       
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            
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 Six Months Ended
 January 27,
 2018
 January 28,
 2017
 January 27,
 2018
 January 28,
 2017
GAAP net income (loss)$(8,778) $2,348  $(6,384) $4,670 
Adjustments to cost of sales:       
Share-based compensation expense54  53  111  107 
Amortization of acquisition-related intangible assets144  107  283  219 
Supplier component remediation charge (adjustment), net(13) (16) (32) (16)
Acquisition-related/divestiture costs2  1  2  1 
Legal and indemnification settlements-  -  122  - 
Total adjustments to GAAP cost of sales187  145  486  311 
Adjustments to operating expenses:       
Share-based compensation expense333  299  668  614 
Amortization of acquisition-related intangible assets60  64  121  142 
Acquisition-related/divestiture costs23  61  106  114 
Significant asset impairments and restructurings98  133  250  544 
Total adjustments to GAAP operating expenses514  557  1,145  1,414 
Total adjustments to GAAP income (loss) before provision for income taxes701  702  1,631  1,725 
Income tax effect of non-GAAP adjustments(157) (191) (445) (435)
Significant tax matters (1)11,380  -  11,380  - 
Total adjustments to GAAP provision for income taxes11,223  (191) 10,935  (435)
Non-GAAP net income$3,146  $2,859  $6,182  $5,960 
Net income (loss) per share: (2)       
GAAP$(1.78) $0.47  $(1.29) $0.92 
Non-GAAP$0.63  $0.57  $1.24  $1.18 

(1) During the second quarter of fiscal 2018, Cisco recorded charges relating to significant tax matters that were excluded from non-GAAP net income for the second quarter and first six 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 $9.0 billion related to the U.S. transition tax, $1.2 billion related to foreign withholding tax and $0.9 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 $0.3 billion was related to other significant tax matters.

(2) GAAP net loss per share for the three and six months ended January 27, 2018 is calculated using basic shares of 4,924 million and 4,942 million respectively, due to the net loss resulting from the tax charge as discussed in footnote (1). Non-GAAP net income per share for the respective periods is calculated using diluted shares of 4,966 million and 4,982 million, as the Company had non-GAAP net income for these periods.

 

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

GROSS MARGINS, OPERATING EXPENSES, OPERATINGMARGINS, 

AND NET
INCOME (LOSS)

(In millions, except percentages)
  
 Three Months Ended
 January 27, 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
$ 5,355   $2,143  $
7,498
  $
4,425
  1% $
3,073
  6% $
(8,778
) (474)%
% of
revenue
61.5% 67.4% 63.1% 37.2%   25.9%   (73.8)%  
Adjustments
to
GAAP amounts:
                 
Share-based compensation expense23  31  54  333    387    387   
Amortization
of
acquisition-related intangible assets
144  -  144  60    204    204   
Supplier component remediation charge (adjustment), net(13) -  (13) -    (13)   (13)  
Acquisition/
divestiture-related costs
-  2  2  23    25    25   
Significant asset impairments and restructurings-  -  -  98    98    98   
Income tax effect/
significant
tax matters (1)
-  -  -  -    -    11,223 (1) 
Non-GAAP amount$
5,509
  $
2,176
  $7,685  $3,911  2% $3,774  5% $3,146  10%
% of revenue63.3% 68.5% 64.7% 32.9%   31.7%   26.5%  

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

 Three Months Ended
 January 28, 2017
 Product
Gross
Margin
 Service
Gross
Margin
 Total
Gross
Margin
 Operating
Expenses
 Operating
Income
 Net
Income
GAAP amount$5,186  $2,090  $7,276  $4,383  $2,893  $2,348 
% of revenue61.1% 67.7% 62.8% 37.8% 25.0% 20.3%
Adjustments to
GAAP amounts:
           
Share-based compensation expense19  34  53  299  352  352 
Amortization of acquisition-related intangible assets107  -  107  64  171  171 
Supplier component remediation charge (adjustment), net(16) -  (16) -  (16) (16)
Acquisition/divestiture-related costs-  1  1  61  62  62 
Significant asset impairments and restructurings-  -  -  133  133  133 
Income tax effect-  -  -  -  -  (191)
Non-GAAP amount$5,296  $2,125  $7,421  $3,826  $3,595  $2,859 
% of revenue62.4% 68.8% 64.1% 33.0% 31.0% 24.7%

 

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

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

(In millions, except percentages)
  
 Six Months Ended
 January 27, 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
$
10,794
  $
4,131
  $
14,925
  $
9,096
  (3)% $
5,829
  1% $
(6,384
) (237)%
% of
revenue
60.8% 66.0% 62.1% 37.9%   24.3%   (26.6)%  
Adjustments
to
GAAP amounts:
                 
Share-based compensa-
tion expense
46  65  111  668    779    779   
Amortization
of acquisition-related intangible assets
283  -  283  121    404    404   
Supplier component remediation charge (adjustment), net(32) -  (32) -    (32)   (32)  
Legal and indemnifica-
tion settlements
122  -  122  -    122    122   
Acquisition/
divestiture-related costs
-  2  2  106    108    108   
Significant asset impairments and restructu-
rings
-  -  -  250    250    250   
Income
tax effect/
significant
tax matters (1)
-  -  -  -    -    10,935 (1) 
Non-GAAP
amount
$11,213  $4,198  $15,411  $7,951  -% $7,460  -% $6,182  4%
% of
revenue
63.1% 67.1% 64.2% 33.1%   31.1%   25.7%  

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

 Six Months Ended
 January 28, 2017
 Product
Gross
Margin
 Service
Gross
Margin
 Total
Gross
Margin
 Operating
Expenses
 Operating
Income
 Net
Income
GAAP amount$11,085  $4,075  $15,160  $9,390  $5,770  $4,670 
% of revenue62.3% 66.4% 63.3% 39.2% 24.1% 19.5%
Adjustments to GAAP amounts:           
Share-based compensation expense.40  67  107  614  721  721 
Amortization of acquisition-related intangible assets219  -  219  142  361  361 
Supplier component remediation charge (adjustment), net(16) -  (16) -  (16) (16)
Acquisition/divestiture-related costs-  1  1  114  115  115 
Significant asset impairments and restructurings-  -  -  544  544  544 
Income tax effect/significant tax matters-  -  -  -  -  (435)
Non-GAAP amount$11,328  $4,143  $15,471  $7,976  $7,495  $5,960 
% of revenue63.7% 67.5% 64.6% 33.3% 31.3% 24.9%

 

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

EFFECTIVE TAX RATE
(In percentages)
    
 Three Months Ended Six Months Ended
 January 27,
2018
 January 28,
2017
 January 27,
2018
 January 28,
2017
GAAP effective tax rate (1)371.6% 20.8% 203.1% 21.1%
Total adjustments to GAAP provision for income taxes(351.6)% 1.2% (182.1)% 0.9%
Non-GAAP effective tax rate20.0% 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.

 

GAAP TO NON-GAAP GUIDANCE FOR Q3 FY 2018
 
Q3 FY 2018 Gross Margin
Rate
 Operating Margin
Rate
 Tax Provision
Rate
 Earnings per
Share (2)
GAAP 61.5% - 62.5% 24%- 25% 22% $0.50 - $0.55
Estimated adjustments for:        
Share-based compensation expense 0.5% 3.5%  $0.06 - $0.07
Amortization of purchased intangible assets and other acquisition-related/divestiture costs 1.0% 2.0%  $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% $0.64 - $0.66
         

 

(1) In August 2016, we began taking action under a restructuring plan in order to reinvest in our key priority areas. We have incurred charges of approximately $1.0 billion in relation to this plan since its inception through Q2 FY2018. We have a small amount of charges that remain which will be recognized over the remainder of the fiscal year.

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

The impact of the BroadSoft acquisition is factored into our guidance.

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 continued execution on our strategy, our ability to continue to innovate and grow our business, the continued criticality of the network to the business success of our customers, the momentum of our intent-based networking portfolio, continued progress in shifting our business toward more software and recurring revenue, 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 Q3 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 November 21, 2017 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 six months ended January 27, 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 BlumMarilyn Mora
CiscoCisco
1 (408) 853-98481 (408) 527-7452
rojenkin@cisco.commarilmor@cisco.com
  

 


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Source: Cisco via Globenewswire

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NameTitle
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