EX-99.1 2 d602856dex991.htm EXHIBIT 99.1 Exhibit 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 FIRST QUARTER EARNINGS

 

   

Q1 Results:

 

   

Revenue: $13.1 billion

 

   

Increase of 8% year over year

 

   

Earnings per Share: GAAP: $0.77; Non-GAAP: $0.75

 

   

Non-GAAP EPS increased 23% year over year

 

   

Q2 FY 2019 Guidance (normalized to exclude SPVSS business):

 

   

Revenue: 5% to 7% growth year over year

 

   

Earnings per Share: GAAP: $0.56 to $0.61; Non-GAAP: $0.71 to $0.73

SAN JOSE, Calif. — November 14, 2018 — Cisco today reported first quarter results for the period ended October 27, 2018. Cisco reported first quarter revenue of $13.1 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.5 billion or $0.77 per share, and non-GAAP net income of $3.5 billion or $0.75 per share.

“We had a strong start to fiscal 2019 and we believe our opportunity has never been greater,” said Chuck Robbins, chairman and CEO of Cisco. “Our customers are looking to Cisco as a trusted partner to help them operate in a multi-cloud world and to transform their businesses. Our strategy is working and we are well positioned with our growing and differentiated portfolio across multiple domains to bring our customers a more secure, automated and simple IT infrastructure.”

GAAP Results

 

     Q1 FY 2019      Q1 FY 2018      Vs. Q1 FY 2018  

Revenue

   $ 13.1 billion      $ 12.1 billion        8

Net Income

   $ 3.5 billion      $ 2.4 billion        48

Diluted Earnings per Share (EPS)

   $ 0.77      $ 0.48        60

Non-GAAP Results

 

     Q1 FY 2019      Q1 FY 2018      Vs. Q1 FY 2018  

Net Income

   $   3.5 billion      $   3.0 billion        14

EPS

   $ 0.75      $ 0.61        23

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

“We executed well, with broad-based growth across all of our geographies, product categories and customer segments, and delivered 8% revenue growth and 23% non-GAAP EPS growth,” said Kelly Kramer, CFO of Cisco. “We are seeing the returns on our investments in innovation as we continue to transform our business model.”

 

1


Financial Summary

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

Q1 FY 2019 Highlights

Revenue — Total revenue was $13.1 billion, up 8%, with product revenue up 9% and service revenue up 3%. Revenue by geographic segment was: Americas up 5%, EMEA up 11%, and APJC up 12%. Product revenue performance was generally broad based with growth in Applications, up 18%, Security, up 11%, and Infrastructure Platforms, up 9%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 62.3%, 61.6%, and 64.6%, respectively, as compared with 61.2%, 60.1%, and 64.5%, respectively, in the first quarter of fiscal 2018.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 63.8%, 63.2%, and 65.7%, respectively, as compared with 63.7%, 63.0%, and 65.6%, respectively in the first quarter of fiscal 2018.

Total gross margins by geographic segment were: 65.4% for the Americas, 64.2% for EMEA and 57.2% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.3 billion, down 7%. Non-GAAP operating expenses were $4.2 billion, up 3%, and were 31.9% of revenue.

Operating Income — GAAP operating income was $3.8 billion, up 38%, with GAAP operating margin of 29.1%. Non-GAAP operating income was $4.2 billion, up 13%, with non-GAAP operating margin at 31.9%.

Provision for Income Taxes — The GAAP tax provision rate was 9.2%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS — On a GAAP basis, net income was $3.5 billion and EPS was $0.77. On a non-GAAP basis, net income was $3.5 billion, an increase of 14%, and EPS was $0.75, an increase of 23%.

Cash Flow from Operating Activities — $3.8 billion for the first quarter of fiscal 2019, an increase of 22% compared with $3.1 billion for the first quarter of fiscal 2018. Operating cash flow includes the receipt of $0.4 billion in relation to the litigation settlement with Arista Networks. Operating cash flow increased 9%, normalized for this receipt.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $42.6 billion at the end of the first quarter of fiscal 2019, compared with $46.5 billion at the end of fiscal 2018.

Deferred Revenue — $16.8 billion, down 9% in total, with deferred product revenue down 24%. Deferred service revenue was up 1%.

Capital Allocation — For the first quarter of fiscal 2019, Cisco returned $6.5 billion to shareholders through share buybacks and dividends. Cisco declared and paid a cash dividend of $0.33 per common share, or $1.5 billion. Cisco repurchased approximately 109 million shares of common stock under its stock repurchase program at an average price of $46.01 per share for an aggregate purchase price of $5.0 billion. The remaining authorized amount for stock repurchases under the program is $14.0 billion with no termination date.

Acquisitions and Divestitures

In the first quarter of fiscal 2019, we closed the acquisition of Duo Security, a privately held company that provides unified access security and multi-factor authentication delivered through the cloud. We also closed the acquisition of July Systems, Inc., a privately held company that provides an enterprise-grade location platform through cloud-based subscription offerings.

In the fourth quarter of fiscal 2018, we announced an agreement to sell our Service Provider Video Software Solutions (SPVSS) business. This transaction closed in the second quarter of fiscal 2019.

 

2


Guidance for Q2 FY 2019

In the second quarter of fiscal 2019 on October 28, 2018, Cisco completed its divestiture of the SPVSS business. In order to provide a clear view of Cisco’s continuing expected performance, the revenue outlook for the second quarter of fiscal 2019 is normalized to exclude the SPVSS business for the second quarter of fiscal 2018. The corresponding revenue in the second quarter of fiscal 2018 for the SPVSS business was $230 million.

Cisco expects to achieve the following results for the second quarter of fiscal 2019 (normalized to exclude SPVSS business):

 

Q2 FY 2019

    

Revenue

   5% - 7% growth Y/Y

Non-GAAP gross margin rate

   63.5% - 64.5%

Non-GAAP operating margin rate

   30.5% - 31.5%

Non-GAAP tax provision rate

   19%

Non-GAAP EPS

   $0.71 - $0.73

Cisco estimates that GAAP EPS will be $0.56 to $0.61 in the second quarter of fiscal 2019.

A reconciliation between the Guidance for Q2 FY 2019 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q2 FY 2019” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

   

Q1 fiscal year 2019 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, November 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, November 14, 2018 to 4:00 p.m. Pacific Time, November 21, 2018 at 1-866-501-5114 (United States) or 1-203-369-1838 (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, November 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.

 

3


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended  
     October 27,
2018
    October 28,
2017
 

REVENUE:

    

Product

   $ 9,890     $ 9,054  

Service

     3,182       3,082  
  

 

 

   

 

 

 

Total revenue

     13,072       12,136  
  

 

 

   

 

 

 

COST OF SALES:

    

Product

     3,799       3,615  

Service

     1,127       1,094  
  

 

 

   

 

 

 

Total cost of sales

     4,926       4,709  
  

 

 

   

 

 

 

GROSS MARGIN

     8,146       7,427  

OPERATING EXPENSES:

    

Research and development

     1,608       1,567  

Sales and marketing

     2,410       2,334  

General and administrative

     211       557  

Amortization of purchased intangible assets

     34       61  

Restructuring and other charges

     78       152  
  

 

 

   

 

 

 

Total operating expenses

     4,341       4,671  
  

 

 

   

 

 

 

OPERATING INCOME

     3,805       2,756  

Interest income

     344       379  

Interest expense

     (221     (235

Other income (loss), net

     (19     62  
  

 

 

   

 

 

 

Interest and other income (loss), net

     104       206  
  

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,909       2,962  

Provision for income taxes

     360       568  
  

 

 

   

 

 

 

NET INCOME

   $ 3,549     $ 2,394  
  

 

 

   

 

 

 

Net income per share:

    

Basic

   $ 0.78     $ 0.48  
  

 

 

   

 

 

 

Diluted

   $ 0.77     $ 0.48  
  

 

 

   

 

 

 

Shares used in per-share calculation:

    

Basic

     4,565       4,959  
  

 

 

   

 

 

 

Diluted

     4,614       4,994  
  

 

 

   

 

 

 

Cash dividends declared per common share

   $ 0.33     $ 0.29  
  

 

 

   

 

 

 

 

4


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     Three Months Ended  
     October 27, 2018  
     Amount      Y/Y%  

Revenue:

     

Americas

   $ 7,751        5

EMEA

     3,224        11

APJC

     2,096        12
  

 

 

    

Total

   $ 13,072        8
  

 

 

    

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

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     Three Months Ended  
     October 27, 2018  

Gross Margin Percentage:

  

Americas

     65.4

EMEA

     64.2

APJC

     57.2

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     Three Months Ended  
     October 27, 2018  
     Amount      Y/Y%  

Revenue:

     

Infrastructure Platforms

   $ 7,642        9

Applications

     1,419        18

Security

     651        11

Other Products

     178        (38 )% 
  

 

 

    

Total Product

     9,890        9

Services

     3,182        3
  

 

 

    

Total

   $ 13,072        8
  

 

 

    

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

 

5


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     October 27,
2018
     July 28,
2018
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 8,410      $ 8,934  

Investments

     34,183        37,614  

Accounts receivable, net of allowance for doubtful accounts of $130 at October 27, 2018 and $129 at July 28, 2018

     4,536        5,554  

Inventories

     1,572        1,846  

Financing receivables, net

     4,851        4,949  

Other current assets

     2,134        2,940  
  

 

 

    

 

 

 

Total current assets

     55,686        61,837  

Property and equipment, net

     2,956        3,006  

Financing receivables, net

     4,644        4,882  

Goodwill

     33,386        31,706  

Purchased intangible assets, net

     2,716        2,552  

Deferred tax assets

     3,960        3,219  

Other assets

     2,081        1,582  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 105,429      $ 108,784  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 7,241      $ 5,238  

Accounts payable

     1,805        1,904  

Income taxes payable

     1,084        1,004  

Accrued compensation

     2,622        2,986  

Deferred revenue

     9,637        11,490  

Other current liabilities

     4,025        4,413  
  

 

 

    

 

 

 

Total current liabilities

     26,414        27,035  

Long-term debt

     18,323        20,331  

Income taxes payable

     8,216        8,585  

Deferred revenue

     7,177        8,195  

Other long-term liabilities

     1,451        1,434  
  

 

 

    

 

 

 

Total liabilities

     61,581        65,580  
  

 

 

    

 

 

 

Total equity

     43,848        43,204  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 105,429      $ 108,784  
  

 

 

    

 

 

 

 

6


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Three Months Ended  
     October 27,
2018
    October 28,
2017
 

Cash flows from operating activities:

    

Net income

   $ 3,549     $ 2,394  

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

    

Depreciation, amortization, and other

     465       566  

Share-based compensation expense

     403       392  

Provision (benefit) for receivables

     8       (17

Deferred income taxes

     (72     178  

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

     7       (56

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

    

Accounts receivable

     892       957  

Inventories

     (34     (80

Financing receivables

     273       (333

Other assets

     (295     8  

Accounts payable

     (153     (235

Income taxes, net

     (437     (419

Accrued compensation

     (348     (215

Deferred revenue

     (309     77  

Other liabilities

     (186     (137
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,763       3,080  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (484     (8,275

Proceeds from sales of investments

     2,805       2,682  

Proceeds from maturities of investments

     2,541       3,929  

Acquisition of businesses, net of cash and cash equivalents acquired

     (1,964     (725

Purchases of investments in privately held companies

     (29     (20

Return of investments in privately held companies

     16       81  

Acquisition of property and equipment

     (212     (168

Proceeds from sales of property and equipment

     2       1  

Other

     —         (10
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     2,675       (2,505
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     8       9  

Repurchases of common stock—repurchase program

     (5,076     (1,686

Shares repurchased for tax withholdings on vesting of restricted stock units

     (318     (342

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

     —         (2,498

Issuances of debt

     —         5,482  

Repayments of debt

     —         (748

Dividends paid

     (1,500     (1,436

Other

     (59     (31
  

 

 

   

 

 

 

Net cash used in financing activities

     (6,945     (1,250
  

 

 

   

 

 

 

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

     (507     (675

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

     8,993       11,773  
  

 

 

   

 

 

 

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

   $ 8,486     $ 11,098  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 269     $ 283  

Cash paid for income taxes, net

   $ 869     $ 810  

Prior period information has been retrospectively adjusted due to the adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash in the beginning of the first quarter of fiscal 2019.

 

7


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     October 27,
2018
     July 28,
2018
     October 28,
2017
 

Deferred revenue:

        

Service

   $ 11,062      $ 11,431      $ 10,991  

Product

     5,752        8,254        7,574  
  

 

 

    

 

 

    

 

 

 

Total

   $ 16,814      $ 19,685      $ 18,565  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 9,637      $ 11,490      $ 10,920  

Noncurrent

     7,177        8,195        7,645  
  

 

 

    

 

 

    

 

 

 

Total

   $ 16,814      $ 19,685      $ 18,565  
  

 

 

    

 

 

    

 

 

 

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 2019

                 

October 27, 2018

   $ 0.33      $ 1,500        109      $ 46.01      $ 5,026      $ 6,526  

Fiscal 2018

                 

July 28, 2018

   $ 0.33      $ 1,535        138      $ 43.58      $ 6,015      $ 7,550  

April 28, 2018

   $ 0.33      $ 1,572        140      $ 42.83      $ 6,015      $ 7,587  

January 27, 2018

   $ 0.29      $ 1,425        103      $ 39.07      $ 4,011      $ 5,436  

October 28, 2017

   $ 0.29      $ 1,436        51      $ 31.80      $ 1,620      $ 3,056  

 

8


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 

     Three Months Ended  
     October 27,
2018
    October 28,
2017
 

GAAP net income

   $ 3,549     $ 2,394  

Adjustments to cost of sales:

    

Share-based compensation expense

     56       57  

Amortization of acquisition-related intangible assets

     136       139  

Supplier component remediation charge (adjustment), net

     (1     (19

Acquisition-related/divestiture costs

     4       —    

Legal and indemnification settlements

     —         122  
  

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     195       299  
  

 

 

   

 

 

 

Adjustments to operating expenses:

    

Share-based compensation expense

     329       335  

Amortization of acquisition-related intangible assets

     34       61  

Acquisition-related/divestiture costs

     121       83  

Legal and indemnification settlements

     (395     —    

Significant asset impairments and restructurings

     78       152  
  

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     167       631  
  

 

 

   

 

 

 

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

    
  

 

 

   

 

 

 

(Gains) and losses on equity investments

     (9     —    
  

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     353       930  
  

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (185     (288

Significant tax matters

     (265     —    
  

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (450     (288
  

 

 

   

 

 

 

Non-GAAP net income

   $ 3,452     $ 3,036  
  

 

 

   

 

 

 

Diluted net income per share:

    

GAAP

   $ 0.77     $ 0.48  
  

 

 

   

 

 

 

Non-GAAP

   $ 0.75     $ 0.61  
  

 

 

   

 

 

 

 

9


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  
     October 27, 2018  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Y/Y     Operating
Income
    Y/Y     Interest
and other
income
(loss),
net
    Y/Y     Net
Income
    Y/Y  

GAAP amount

   $ 6,091     $ 2,055     $ 8,146     $ 4,341       (7 )%    $ 3,805       38   $ 104       (50 )%    $ 3,549       48

% of revenue

     61.6     64.6     62.3     33.2       29.1       0.8       27.1  

Adjustments to GAAP amounts:

                      

Share-based compensation expense

     23       33       56       329         385         —           385    

Amortization of acquisition-related intangible assets

     136       —         136       34         170         —           170    

Supplier component remediation charge (adjustment), net

     (1     —         (1     —           (1       —           (1  

Legal and indemnification settlements

     —         —         —         (395       (395       —           (395  

Acquisition/divestiture-related costs

     2       2       4       121         125         —           125    

Significant asset impairments and restructurings

     —         —         —         78         78         —           78    

(Gains) and losses on equity investments

     —         —         —         —           —           (9       (9  

Income tax effect/significant tax matters

     —         —         —         —           —           —           (450  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 6,251     $ 2,090     $ 8,341     $ 4,174       3   $ 4,167       13   $ 95       (54 )%    $ 3,452       14
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

% of revenue

     63.2     65.7     63.8     31.9       31.9       0.7       26.4  

 

     Three Months Ended  
     October 28, 2017  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Operating
Income
    Net
Income
 

GAAP amount

   $ 5,439     $ 1,988     $ 7,427     $ 4,671     $ 2,756     $ 2,394  

% of revenue

     60.1     64.5     61.2     38.5     22.7     19.7

Adjustments to GAAP amounts:

            

Share-based compensation expense

     23       34       57       335       392       392  

Amortization of acquisition-related intangible assets

     139       —         139       61       200       200  

Supplier component remediation charge (adjustment), net

     (19     —         (19     —         (19     (19

Legal and indemnification settlements

     122       —         122       —         122       122  

Acquisition/divestiture-related costs

     —         —         —         83       83       83  

Significant asset impairments and restructurings

     —         —         —         152       152       152  

Income tax effect

     —         —         —         —         —         (288
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 5,704     $ 2,022     $ 7,726     $ 4,040     $ 3,686     $ 3,036  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.0     65.6     63.7     33.3     30.4     25.0

 

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CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended  
     October 27, 2018     October 28, 2017  

GAAP effective tax rate

     9.2     19.2

Total adjustments to GAAP provision for income taxes

     9.8     2.8
  

 

 

   

 

 

 

Non-GAAP effective tax rate

     19.0     22.0
  

 

 

   

 

 

 

GAAP TO NON-GAAP GUIDANCE FOR Q2 FY 2019

 

Q2 FY 2019

  

Gross Margin
Rate

  

Operating Margin
Rate

  

Tax Provision
Rate

  

Earnings per
Share (2)

GAAP

  

62% - 63%

  

24.5% - 25.5%

  

17%

  

$0.56 - $0.61

Estimated adjustments for:

           

Share-based compensation expense

  

0.5%

  

3.0%

  

  

$0.06 - $0.07

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

  

1.0%

  

1.0%

  

  

$0.02 - $0.03

Restructuring and other charges (1)

  

  

2.0%

  

  

$0.04 - $0.05

Income tax effect of non-GAAP adjustments

        

  2%

  
  

 

  

 

  

 

  

 

Non-GAAP

  

63.5% - 64.5%

  

30.5% - 31.5%

  

19%

  

$0.71 - $0.73

  

 

  

 

  

 

  

 

 

(1)

In the third quarter of fiscal 2018, we initiated a restructuring plan in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $300 million. In the first quarter of fiscal 2019, we expanded the restructuring plan to include an additional $300 million of estimated additional pretax charges. We have recognized pretax charges of $186 million to our GAAP financial results in relation to this restructuring plan since its inception. We expect to recognize approximately $250 million of pretax charges under this plan in the second quarter of fiscal 2019.

 

(2) 

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

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

 

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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 capitalizing on our strategic opportunities, the ongoing value customers see in our multi-cloud offerings and our ability to help them transform their businesses, our ability to innovate and to continue to provide a differentiated portfolio across multiple domains to our customers, execution on our strategy and continued progress in transforming our business model, and execution and growth across our geographies, product categories and customer segments) and the future financial performance of Cisco (including the guidance for Q2 FY 2019) 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; problems such as cyber-attacks, data breaches, malware 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 report on Form 10-K filed on September 6, 2018. 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 report on Form 10-K as it may be amended from time to time. Cisco’s results of operations for the three months ended October 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, 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, 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.

 

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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.

 

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