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Cisco Reports Second Quarter Earnings

2021-02-09 16:05 ET - News Release

SAN JOSE, Calif., Feb. 9, 2021 /PRNewswire/ --

News Summary:

  • Total product order growth of 1% year over year  
  • Product revenue strength across Catalyst 9000, Data Center Switching, Security, Wireless and Webex portfolios
  • Great progress on business transformation to more software and subscription, with 76% of software revenue sold as a subscription
  • Dividend increased 3%

Q2 Results:

  • Revenue:$12.0 billion
    • Flat year over year
  • Earnings per Share: GAAP: $0.60; Non-GAAP: $0.79
    • GAAP EPS decreased (12)% year over year
    • Non-GAAP EPS increased 3% year over year

Q3 Guidance:

  • Revenue: 3.5% to 5.5% growth year over year
  • Earnings per Share: GAAP: $0.64 to $0.69; Non-GAAP: $0.80 to $0.82

Cisco today reported second quarter results for the period ended January 23, 2021. Cisco reported second quarter revenue of $12.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.5 billion or $0.60 per share, and non-GAAP net income of $3.4 billion or $0.79 per share.

"We are seeing encouraging signs of strength across our business showing how our technology will be a powerful engine for recovery and growth," said Chuck Robbins, chairman and CEO of Cisco. "Our team delivered a strong performance as we partnered with customers on accelerating their digital transformation and driving secure, remote work."

"Cisco executed well in Q2, delivering growth in orders, strong margins, and growth in non-GAAP EPS, while continuing to grow deferred revenue in double-digits through the shift to more software and subscriptions," said Scott Herren, CFO of Cisco.

 GAAP Results




Q2 FY 2021


Q2 FY 2020


Vs. Q2 FY 2020

Revenue


$

12.0

 billion


$

12.0

 billion


—%

Net Income


$

2.5

 billion


$

2.9

 billion


(12)%

Diluted Earnings per Share (EPS)


$

0.60



$

0.68



(12)%



Non-GAAP Results




Q2 FY 2021


Q2 FY 2020


Vs. Q2 FY 2020

Net Income


$

3.4

  billion


$

3.3

  billion


2%

EPS


$

0.79



$

0.77



3%

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 Cash Dividend

Cisco declared a quarterly dividend of $0.37 per common share, a $0.01 increase or up 3% over the previous quarter's dividend, to be paid on April 28, 2021 to all stockholders of record as of the close of business on April 6, 2021. Future dividends will be subject to Board approval.

Financial Summary

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

Q2 FY 2021 Highlights

Revenue -- Total revenue was flat at $12.0 billion, with product revenue down 1% and service revenue up 2%. Revenue by geographic segment was: Americas down 1%, EMEA up 2%, and APJC down 4%. Product revenue was led by growth in Security, up 10%.  Infrastructure Platforms was down 3% and Applications was flat.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 65.1%, 64.5%, and 66.6%, respectively, as compared with 64.7%, 63.9%, and 66.6%, respectively, in the second quarter of fiscal 2020.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.9%, 66.6%, and 67.9%, respectively, as compared with 66.4%, 65.9%, and 67.7%, respectively, in the second quarter of fiscal 2020.

Total gross margins by geographic segment were: 67.5% for the Americas, 66.9% for EMEA and 64.8% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.6 billion, up 4%, and were 38.1% of revenue. Non-GAAP operating expenses were $3.9 billion, down 1%, and were 32.6% of revenue.

Operating Income -- GAAP operating income was $3.2 billion, down 5%, with GAAP operating margin of 26.9%. Non-GAAP operating income was $4.1 billion, up 2%, with non-GAAP operating margin at 34.4%.

Provision for Income Taxes -- The GAAP tax provision rate was 21.8%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.5 billion, a decrease of 12%, and EPS was $0.60, a decrease of 12%. On a non-GAAP basis, net income was $3.4 billion, an increase of 2%, and EPS was $0.79, an increase of 3%.

Cash Flow from Operating Activities --$3.0 billion for the second quarter of fiscal 2021, a decrease of 22% compared with $3.8 billion for the second quarter of fiscal 2020.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $30.6 billion at the end of the second quarter of fiscal 2021, compared with $29.4 billion at the end of fiscal 2020.

Deferred Revenue -- $20.8 billion, up 12% in total, with deferred product revenue up 16%. Deferred service revenue was up 9%.

Remaining Performance Obligations --$28.2 billion at the end of the second quarter of fiscal 2021, up 13%.

Capital Allocation -- In the second quarter of fiscal 2021, we returned $2.3 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.36 per common share, or $1.5 billion, and repurchased approximately 19 million shares of common stock under our stock repurchase program at an average price of $42.82 per share for an aggregate purchase price of $801 million. The remaining authorized amount for stock repurchases under the program is $9.2 billion with no termination date.

Acquisitions

In the second quarter of fiscal 2021, we closed the acquisition of Portshift, a privately held applications security solutions company, and the acquisition of assets and the team of Banzai Cloud Zrt., a company that specializes in deploying cloud-native applications.

In the second quarter of fiscal 2021, we announced an amendment to the definitive merger agreement under which we previously agreed to acquire Acacia Communications, Inc., a public fabless semiconductor company that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. Under the terms of the amended agreement, Cisco would acquire Acacia for $115 per share in cash, or for approximately $4.5 billion on a fully diluted basis, net of cash and marketable securities. The acquisition is expected to close during the third quarter of fiscal 2021, subject to closing conditions, including Acacia stockholder approval. All required regulatory approvals have been received.

We announced our intent to acquire IMImobile PLC, a United Kingdom publicly-traded cloud communications software and services company. The acquisition is expected to close during the third quarter of fiscal 2021, subject to certain regulatory approvals and IMImobile shareholder approval.

In addition, we announced our intent to acquire Dashbase, Inc., an enterprise software company, which closed in the third quarter of fiscal 2021. We also announced our intent to acquire Slido s.r.o, a privately held company that provides an audience interaction platform. The acquisition is expected to close during the second half of fiscal 2021, subject to customary closing conditions and regulatory approvals.

Guidance for Q3 FY 2021

Cisco expects to achieve the following results for the third quarter of fiscal 2021:

Q3 FY 2021



Revenue


3.5% - 5.5% growth Y/Y

Non-GAAP gross margin rate


65% - 66%

Non-GAAP operating margin rate


33% - 34%

Non-GAAP tax provision rate


19%

Non-GAAP EPS


$0.80 - $0.82

Cisco's third quarter of fiscal 2021 will have 14 weeks compared to 13 weeks for the third quarter of fiscal 2020 which is reflected in the guidance.

Cisco estimates that GAAP EPS will be $0.64 to $0.69 in the third quarter of fiscal 2021.

A reconciliation between the Guidance for Q3 FY 2021 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q3 FY 2021" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q2 fiscal year 2021 conference call to discuss Cisco's results along with its guidance will be held on Tuesday, February 9, 2021 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 9, 2021 to 4:00 p.m. Pacific Time, February 16, 2021 at 1-800-391-9851 (United States) or 1-203-369-3268 (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 9, 2021. 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 23,
2021


January 25,
2020


January 23,
2021


January 25,
2020

REVENUE:








Product

$

8,572



$

8,671



$

17,159



$

18,549


Service

3,388



3,334



6,730



6,615


Total revenue

11,960



12,005



23,889



25,164


COST OF SALES:








Product

3,044



3,126



6,250



6,650


Service

1,132



1,115



2,274



2,286


Total cost of sales

4,176



4,241



8,524



8,936


GROSS MARGIN

7,784



7,764



15,365



16,228


OPERATING EXPENSES:








Research and development

1,527



1,570



3,139



3,236


Sales and marketing

2,277



2,279



4,494



4,759


General and administrative

484



455



1,028



974


Amortization of purchased intangible assets

39



38



75



74


Restructuring and other charges

234



42



836



226


Total operating expenses

4,561



4,384



9,572



9,269


OPERATING INCOME

3,223



3,380



5,793



6,959


Interest income

161



242



335



515


Interest expense

(113)



(158)



(225)



(336)


Other income (loss), net

(16)



70



33



82


Interest and other income (loss), net

32



154



143



261


INCOME BEFORE PROVISION FOR INCOME TAXES

3,255



3,534



5,936



7,220


Provision for income taxes

710



656



1,217



1,416


NET INCOME

$

2,545



$

2,878



$

4,719



$

5,804










Net income per share:








Basic

$

0.60



$

0.68



$

1.12



$

1.37


Diluted

$

0.60



$

0.68



$

1.11



$

1.36


Shares used in per-share calculation:








Basic

4,223



4,242



4,227



4,244


Diluted

4,234



4,260



4,239



4,265


 

 

CISCO SYSTEMS, INC

REVENUE BY SEGMENT

(In millions, except percentages)




January 23, 2021



Three Months Ended


Six Months Ended



Amount


Y/Y %


Amount


Y/Y %

Revenue:









Americas


$

6,969



(1)%


$

14,168



(5)%

EMEA


3,207



2%


6,171



(4)%

APJC


1,784



(4)%


3,551



(6)%

Total


$

11,960



—%


$

23,889



(5)%


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

 

 

CISCO SYSTEMS, INC

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)




January 23, 2021



Three Months Ended


Six Months Ended

Gross Margin Percentage:





Americas


67.5%


67.4%

EMEA


66.9%


65.4%

APJC


64.8%


63.9%

 

 

CISCO SYSTEMS, INC

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)




January 23, 2021



Three Months Ended


Six Months Ended



Amount


Y/Y %


Amount


Y/Y %

Revenue:









Infrastructure Platforms


$

6,391



(3)%


$

12,732



(10)%

Applications


1,354



—%


2,734



(4)%

Security


822



10%


1,684



8%

Other Products


4



(39)%


9



(49)%

Total Product


8,572



(1)%


17,159



(7)%

Services


3,388



2%


6,730



2%

Total


$

11,960



—%


$

23,889



(5)%


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

 

 

CISCO SYSTEMS, INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



January 23, 2021


July 25, 2020

ASSETS




Current assets:




Cash and cash equivalents

$

11,793



$

11,809


Investments

18,795



17,610


Accounts receivable, net of allowance for doubtful accounts of $102 at January 23,
2021 and $143 at July 25, 2020

4,307



5,472


Inventories

1,436



1,282


Financing receivables, net

5,027



5,051


Other current assets

2,553



2,349


Total current assets

43,911



43,573


Property and equipment, net

2,386



2,453


Financing receivables, net

5,100



5,714


Goodwill

34,733



33,806


Purchased intangible assets, net

1,462



1,576


Deferred tax assets

4,109



3,990


Other assets

3,900



3,741


TOTAL ASSETS

$

95,601



$

94,853


LIABILITIES AND EQUITY




Current liabilities:




Short-term debt

$

5,000



$

3,005


Accounts payable

1,867



2,218


Income taxes payable

763



839


Accrued compensation

3,295



3,122


Deferred revenue

11,552



11,406


Other current liabilities

4,791



4,741


Total current liabilities

27,268



25,331


Long-term debt

9,554



11,578


Income taxes payable

8,084



8,837


Deferred revenue

9,294



9,040


Other long-term liabilities

2,280



2,147


Total liabilities

56,480



56,933


Total equity

39,121



37,920


TOTAL LIABILITIES AND EQUITY

$

95,601



$

94,853


 

 

CISCO SYSTEMS, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Six Months Ended


January 23,
2021


January 25,
2020

Cash flows from operating activities:




Net income

$

4,719



$

5,804


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




Depreciation, amortization, and other

887



918


Share-based compensation expense

874



779


Provision (benefit) for receivables

(10)



46


Deferred income taxes

(91)



128


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

(86)



(162)


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




Accounts receivable

1,245



1,084


Inventories

(145)



25


Financing receivables

748



408


Other assets

(212)



130


Accounts payable

(358)



(126)


Income taxes, net

(836)



(1,007)


Accrued compensation

125



(521)


Deferred revenue

226



236


Other liabilities

(16)



(355)


Net cash provided by operating activities

7,070



7,387


Cash flows from investing activities:




Purchases of investments

(6,025)



(4,250)


Proceeds from sales of investments

1,374



3,410


Proceeds from maturities of investments

3,373



4,044


Acquisitions and divestitures

(860)



(163)


Purchases of investments in privately held companies

(95)



(97)


Return of investments in privately held companies

58



91


Acquisition of property and equipment

(358)



(391)


Proceeds from sales of property and equipment

9



131


Other

(4)



(10)


Net cash (used in) provided by investing activities

(2,528)



2,765


Cash flows from financing activities:




Issuances of common stock

306



334


Repurchases of common stock - repurchase program

(1,569)



(1,648)


Shares repurchased for tax withholdings on vesting of restricted stock units

(317)



(437)


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



(3,470)


Repayments of debt



(5,220)


Dividends paid

(3,041)



(2,972)


Other

70



(12)


Net cash used in financing activities

(4,551)



(13,425)


Net decrease in cash, cash equivalents, and restricted cash

(9)



(3,273)


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

11,812



11,772


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

$

11,803



$

8,499


Supplemental cash flow information:




Cash paid for interest

$

220



$

349


Cash paid for income taxes, net

$

2,142



$

2,295


 

 

CISCO SYSTEMS, INC

DEFERRED REVENUE

(In millions)



January 23,
2021


October 24,
2020


January 25,
2020

Deferred revenue:






Product

$

8,332



$

8,139



$

7,160


Service

12,514



12,334



11,526


Total                     

$

20,846



$

20,473



$

18,686


Reported as:






Current

$

11,552



$

11,271



$

10,638


Noncurrent

9,294



9,202



8,048


Total

$

20,846



$

20,473



$

18,686


 

 

CISCO SYSTEMS, INC

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)



January 23, 2021


October 24, 2020


January 25, 2020


Amount


Y/Y%


Amount


Y/Y%


Amount


Y/Y%

Product

$

11,666



17

%


$

11,340



15

%


$

9,933



25

%

Service

16,512



10

%


16,129



8

%


14,998



3

%

Total

$

28,178



13

%


$

27,469



10

%


$

24,931



11

%

 

 

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 2021













January 23, 2021


$

0.36



$

1,521



19



$

42.82



$

801



$

2,322


October 24, 2020


$

0.36



$

1,520



20



$

40.44



$

800



$

2,320


Fiscal 2020













July 25, 2020


$

0.36



$

1,525





$



$



$

1,525


April 25, 2020


$

0.36



$

1,519



25



$

39.71



$

981



$

2,500


January 25, 2020


$

0.35



$

1,486



18



$

46.71



$

870



$

2,356


October 26, 2019


$

0.35



$

1,486



16



$

48.91



$

768



$

2,254


 

 

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 23,
2021


January 25,
2020


January 23,
2021


January 25,
2020

GAAP net income

$

2,545



$

2,878



$

4,719



$

5,804


Adjustments to cost of sales:








Share-based compensation expense

68



59



133



116


Amortization of acquisition-related intangible assets

152



150



315



300


Acquisition-related/divestiture costs

1



1



2



2


Legal and indemnification settlements/charges





43



4


Total adjustments to GAAP cost of sales

221



210



493



422


Adjustments to operating expenses:








Share-based compensation expense

358



320



720



653


Amortization of acquisition-related intangible assets

39



38



75



74


Acquisition-related/divestiture costs

34



53



93



125


Significant asset impairments and restructurings

234



42



836



226


Total adjustments to GAAP operating expenses

665



453



1,724



1,078


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








Acquisition-related/divestiture costs

(2)





(2)




(Gains) and losses on equity investments

13



(87)



(35)



(100)


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

11



(87)



(37)



(100)


Total adjustments to GAAP income before provision for income taxes

897



576



2,180



1,400


Income tax effect of non-GAAP adjustments

(162)



(166)



(408)



(375)


Significant tax matters

83





83



67


Total adjustments to GAAP provision for income taxes

(79)



(166)



(325)



(308)


Non-GAAP net income

$

3,363



$

3,288



$

6,574



$

6,896


  

 

CISCO SYSTEMS, INC

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


GAAP TO NON-GAAP EPS



Three Months Ended


Six Months Ended


January 23,
2021


January 25,
2020


January 23,
2021


January 25,
2020

GAAP EPS

$

0.60



$

0.68



$

1.11



$

1.36


Adjustments to GAAP:








Share-based compensation expense

0.10



0.09



0.20



0.18


Amortization of acquisition-related intangible assets

0.05



0.04



0.09



0.09


Acquisition-related/divestiture costs

0.01



0.01



0.02



0.03


Legal and indemnification settlements/charges





0.01




Significant asset impairments and restructurings

0.06



0.01



0.20



0.05


(Gains) and losses on equity investments



(0.02)



(0.01)



(0.02)


Income tax effect of non-GAAP adjustments

(0.04)



(0.04)



(0.10)



(0.09)


Significant tax matters

0.02





0.02



0.02


Non-GAAP EPS

$

0.79



$

0.77



$

1.55



$

1.62



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 23, 2021


Product Gross Margin


Service Gross Margin


Total Gross Margin


Operating Expenses


Y/Y


Operating Income


Y/Y


Interest and other income (loss), net


Net Income


Y/Y

GAAP amount

$

5,528



$

2,256



$

7,784



$

4,561



4%


$

3,223



(5)%


$

32



$

2,545



(12)%

% of revenue

64.5

%


66.6

%


65.1

%


38.1

%




26.9

%




0.3

%


21.3

%



Adjustments to GAAP amounts:

















Share-based compensation expense

25



43



68



358





426







426




Amortization of acquisition-related intangible assets

152





152



39





191







191




Acquisition/divestiture-related costs

1





1



34





35





(2)



33




Significant asset impairments and restructurings







234





234







234




(Gains) and losses on equity investments















13



13




Income tax effect/significant tax matters

















(79)




Non-GAAP amount

$

5,706



$

2,299



$

8,005



$

3,896



(1)%


$

4,109



2%


$

43



$

3,363



2%

% of revenue

66.6

%


67.9

%


66.9

%


32.6

%




34.4

%




0.4

%


28.1

%



 


Three Months Ended


January 25, 2020


Product Gross Margin


Service Gross Margin


Total Gross Margin


Operating Expenses


Operating
Income


Interest and other income (loss), net


Net
Income

GAAP amount

$

5,545



$

2,219



$

7,764



$

4,384



$

3,380



$

154



$

2,878


% of revenue

63.9

%


66.6

%


64.7

%


36.5

%


28.2

%


1.3

%


24.0

%

Adjustments to GAAP amounts:














Share-based compensation expense

23



36



59



320



379





379


Amortization of acquisition-related intangible assets

150





150



38



188





188


Acquisition/divestiture-related costs



1



1



53



54





54


Significant asset impairments and restructurings







42



42





42


(Gains) and losses on equity investments











(87)



(87)


Income tax effect/significant tax matters













(166)


Non-GAAP amount

$

5,718



$

2,256



$

7,974



$

3,931



$

4,043



$

67



$

3,288


% of revenue

65.9

%


67.7

%


66.4

%


32.7

%


33.7

%


0.6

%


27.4

%


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 23, 2021


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

$

10,909



$

4,456



$

15,365



$

9,572



3%


$

5,793



(17)%


$

143



$

4,719



(19)%

% of revenue

63.6

%


66.2

%


64.3

%


40.1

%




24.2

%




0.6

%


19.8

%



Adjustments to GAAP amounts:

















Share-based compensation expense

49



84



133



720





853







853




Amortization of acquisition-related intangible assets

315





315



75





390







390




Acquisition/divestiture-related costs

1



1



2



93





95





(2)



93




Legal and indemnification settlements/charges

43





43







43







43




Significant asset impairments and restructurings







836





836







836




(Gains) and losses on equity investments















(35)



(35)




Income tax effect/significant tax matters

















(325)




Non-GAAP amount

$

11,317



$

4,541



$

15,858



$

7,848



(4)%


$

8,010



(5)%


$

106



$

6,574



(5)%

% of revenue

66.0

%


67.5

%


66.4

%


32.9

%




33.5

%




0.4

%


27.5

%



 


Six Months Ended


January 25, 2020


Product Gross Margin


Service Gross Margin


Total Gross Margin


Operating Expenses


Operating
Income


Interest and other income (loss), net


Net
Income

GAAP amount

$

11,899



$

4,329



$

16,228



$

9,269



$

6,959



$

261



$

5,804


% of revenue

64.1

%


65.4

%


64.5

%


36.8

%


27.7

%


1.0

%


23.1

%

Adjustments to GAAP amounts:














Share-based compensation expense

46



70



116



653



769





769


Amortization of acquisition-related intangible assets

300





300



74



374





374


Acquisition/divestiture-related costs



2



2



125



127





127


Legal and indemnification settlements

4





4





4





4


Significant asset impairments and restructurings







226



226





226


(Gains) and losses on equity investments











(100)



(100)


Income tax effect/significant tax matters













(308)


Non-GAAP amount

$

12,249



$

4,401



$

16,650



$

8,191



$

8,459



$

161



$

6,896


% of revenue

66.0

%


66.5

%


66.2

%


32.6

%


33.6

%


0.6

%


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 23,
2021


January 25,
2020


January 23,
2021


January 25,
2020

GAAP effective tax rate

21.8

%


18.6

%


20.5

%


19.6

%

Total adjustments to GAAP provision for income taxes

(2.8)

%


1.4

%


(1.5)

%


0.4

%

Non-GAAP effective tax rate

19.0

%


20.0

%


19.0

%


20.0

%

 

 

GAAP TO NON-GAAP GUIDANCE FOR Q3 FY 2021


Q3 FY 2021


Gross Margin Rate


Operating Margin Rate


Tax Provision Rate


Earnings per Share (2)

GAAP


63.5% - 64.5%


27% - 28%


19%


$0.64 - $0.69

Estimated adjustments for:









Share-based compensation expense


0.5%


3.5%



$0.08 - $0.09

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


1.0%


2.0%



$0.04- $0.05

Significant asset impairments and restructurings (1)



0.5%



$0.01- $0.02

Income tax effect of non-GAAP adjustments








Non-GAAP


65% - 66%


33% - 34%


19%


$0.80- $0.82

(1) In the first quarter of fiscal 2021, we initiated a restructuring plan, which includes a voluntary early retirement program, in order to realign the organization and enable further investment in key priority areas with total estimated pretax charges of approximately $900 million consisting of severance and other one-time termination benefits, and other costs. We recognized $602 million and $232 million of these charges during the first and second quarter of fiscal 2021, respectively. We expect to recognize approximately $60 million of these charges in the third quarter of fiscal 2021 with the remaining amount to be recognized during the rest of the fiscal year.

(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.

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 encouraging signs of strength across our business showing how our technology will be a powerful engine for recovery and growth, our customers continuing to partner with us to accelerate their digital transformation and drive secure, remote work, and our continued growth of deferred revenue through the shift to more software and subscriptions) and the future financial performance of Cisco (including the guidance for Q3 FY 2021) 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; 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; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events; 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 17, 2020 and September 3, 2020, 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 23, 2021 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.

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 © 2021 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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SOURCE Cisco Systems, Inc.

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