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Investor Relations – CISCO REPORTS SECOND QUARTER EARNINGS

SAN JOSE, Calif., Feb. 15, 2023 /PRNewswire/ —

Cisco Logo (PRNewsfoto/Cisco)


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

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.”


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.”

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.

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
  • 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

 


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

 


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.

 


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

 


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

 


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

 


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

  


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.

 


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.

 


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.

 


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.

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 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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