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Cisco Reports Second Quarter Earnings

Dividend Increased 3 Percent

  • Q2 Results:
  • Q3 Guidance:

SAN JOSE, Calif. , Feb. 12, 2020 /PRNewswire/ -- Cisco today reported second quarter results for the period ended January 25, 2020. Cisco reported second quarter revenue of $12.0 billion , net income on a generally accepted accounting principles (GAAP) basis of $2.9 billion or $0.68 per share, and non-GAAP net income of $3.3 billion or $0.77 per share.

Cisco Logo (PRNewsfoto/Cisco)

"I am incredibly proud of the innovation our teams continue to drive," said Chuck Robbins , chairman and CEO of Cisco. "I am confident in our long-term growth opportunities as we help our customers build out the networks for the future."

GAAP Results




Q2 FY 2020


Q2 FY 2019


Vs. Q2 FY 2019

Revenue


$

12.0 billion


$

12.4 billion


(4)%

Net Income


$

2.9 billion


$

2.8 billion


2%

Diluted Earnings per Share (EPS)


$

0.68



$

0.63



8%


Non-GAAP Results




Q2 FY 2020


Q2 FY 2019


Vs. Q2 FY 2019

Net Income


$

3.3 billion


$

3.3 billion


%

EPS


$

0.77



$

0.73



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 Cash Dividend

Cisco has declared a quarterly dividend of $0.36 per common share, a $0.01 increase or up 3% over the previous quarter's dividend, to be paid on April 22, 2020 to all shareholders of record as of the close of business on April 3, 2020 . Future dividends will be subject to Board approval.

"We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions," said Kelly Kramer , CFO of Cisco. "Our increased dividend shows confidence in the strength of our ongoing cash flows and demonstrates our commitment to shareholder return."

Financial Summary

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

Q2 FY 2020 Highlights

Revenue -- Total revenue was $12.0 billion , down 4%, with product revenue down 6% and service revenue up 5%. Revenue by geographic segment was: Americas down 5%, EMEA down 3%, and APJC down 1%. Product revenue was led by growth in Security, up 9%.  Infrastructure Platforms and Applications were each down 8%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.7%, 63.9%, and 66.6%, respectively, as compared with 62.5%, 61.0%, and 66.6%, respectively, in the second quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.4%, 65.9%, and 67.7%, respectively, as compared with 64.1%, 62.8%, and 67.7%, respectively, in the second quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.9% for the Americas, 65.8% for EMEA and 65.6% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion , down 4%. Non-GAAP operating expenses were $3.9 billion , down 1%, and were 32.7% of revenue.

Operating Income -- GAAP operating income was $3.4 billion , up 5%, with GAAP operating margin of 28.2%. Non-GAAP operating income was $4.0 billion , up 1%, with non-GAAP operating margin at 33.7%.

Provision for Income Taxes -- The GAAP tax provision rate was 18.6%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.9 billion and EPS was $0.68 . On a non-GAAP basis, net income was flat at $3.3 billion , and EPS was $0.77 , an increase of 5%.

Cash Flow from Operating Activities -- $3.8 billion for the second quarter of fiscal 2020, flat compared with $3.8 billion for the second quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $27.1 billion at the end of the second quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.7 billion , up 8% in total, with deferred product revenue up 19%. Deferred service revenue was up 2%.

Remaining Performance Obligations -- $24.9 billion at the end of the second quarter of fiscal 2020, up 11%.

Capital Allocation -- In the second quarter of fiscal 2020, we returned $2.4 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.35 per common share, or $1.5 billion , and repurchased approximately 18 million shares of common stock under our stock repurchase program at an average price of $46.71 per share for an aggregate purchase price of $870 million . The remaining authorized amount for stock repurchases under the program is $11.8 billion with no termination date.

Guidance for Q3 FY 2020

Cisco expects to achieve the following results for the third quarter of fiscal 2020:

Q3 FY 2020



Revenue


(1.5)% - (3.5)% decline Y/Y

Non-GAAP gross margin rate


64.5% - 65.5%

Non-GAAP operating margin rate


32.5% - 33.5%

Non-GAAP tax provision rate


20%

Non-GAAP EPS


$0.79 - $0.81

Cisco estimates that GAAP EPS will be $0.62 to $0.67 in the third quarter of fiscal 2020.

A reconciliation between the Guidance for Q3 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q3 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q2 fiscal year 2020 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, February 12, 2020 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 12, 2020 to 4:00 p.m. Pacific Time , February 19, 2020 at 1-800-839-1160 ( United States ) or 1-402-998-0925 (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 12, 2020 . 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 25,
2020


January 26,
2019


January 25,
2020


January 26,
2019

REVENUE:








Product

$

8,671



$

9,273



$

18,549



$

19,163


Service

3,334



3,173



6,615



6,355


Total revenue

12,005



12,446



25,164



25,518


COST OF SALES:








Product

3,126



3,614



6,650



7,413


Service

1,115



1,059



2,286



2,186


Total cost of sales

4,241



4,673



8,936



9,599


GROSS MARGIN

7,764



7,773



16,228



15,919


OPERATING EXPENSES:








Research and development

1,570



1,557



3,236



3,165


Sales and marketing

2,279



2,271



4,759



4,681


General and administrative

455



509



974



720


Amortization of purchased intangible assets

38



39



74



73


Restructuring and other charges

42



186



226



264


Total operating expenses

4,384



4,562



9,269



8,903


OPERATING INCOME

3,380



3,211



6,959



7,016


Interest income

242



328



515



672


Interest expense

(158)



(223)



(336)



(444)


Other income (loss), net

70



27



82



8


Interest and other income (loss), net

154



132



261



236


INCOME BEFORE PROVISION FOR INCOME TAXES

3,534



3,343



7,220



7,252


Provision for income taxes

656



521



1,416



881


NET INCOME

$

2,878



$

2,822



$

5,804



$

6,371










Net income per share:








Basic

$

0.68



$

0.63



$

1.37



$

1.41


Diluted

$

0.68



$

0.63



$

1.36



$

1.40


Shares used in per-share calculation:








Basic

4,242



4,470



4,244



4,517


Diluted

4,260



4,505



4,265



4,557


The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the six months ended January 26, 2019 .

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)




January 25, 2020



Three Months Ended


Six Months Ended









Excluding
SPVSS
business


Including
SPVSS
business



Amount


Y/Y %


Amount


Y/Y%


Y/Y %

Revenue :











Americas


$

7,013



(5)%


$

14,990



%


(1)%

EMEA


3,134



(3)%


6,417



1%


%

APJC


1,859



(1)%


3,758



(5)%


(5)%

Total


$

12,005



(4)%


$

25,164



(1)%


(1)%

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

During the second quarter of fiscal 2019 on October 28, 2018 , we completed the divestiture of the SPVSS business. SPVSS business revenue for the six months ended January 26, 2019 was $168 million .

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)




January 25, 2020



Three Months Ended


Six Months Ended

Gross Margin Percentage :





Americas


66.9%


66.8%

EMEA


65.8%


65.9%

APJC


65.6%


64.2%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)




January 25, 2020



Three Months Ended


Six Months Ended









Excluding
SPVSS
business


Including
SPVSS
business



Amount


Y/Y %


Amount


Y/Y%


Y/Y %

Revenue :











Infrastructure Platforms


$

6,528



(8)%


$

14,067



(4)%


(4)%

Applications


1,349



(8)%


2,847



(1)%


(1)%

Security


748



9%


1,563



15%


15%

Other Products


46



110%


72



33%


(64)%

Total Product


8,671



(6)%


18,549



(2)%


(3)%

Services


3,334



5%


6,615



4%


4%

Total


$

12,005



(4)%


$

25,164



(1)%


(1)%

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

During the second quarter of fiscal 2019 on October 28, 2018 , we completed the divestiture of the SPVSS business. SPVSS business revenue for the six months ended January 26, 2019 was $168 million .

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



January 25, 2020


July 27, 2019

ASSETS




Current assets:




Cash and cash equivalents

$

8,475



$

11,750


Investments

18,587



21,663


Accounts receivable, net of allowance for doubtful accounts of $112 at January 25, 2020 and $136 at July 27, 2019

4,330



5,491


Inventories

1,353



1,383


Financing receivables, net

4,827



5,095


Other current assets

2,481



2,373


Total current assets

40,053



47,755


Property and equipment, net

2,621



2,789


Financing receivables, net

4,757



4,958


Goodwill

33,612



33,529


Purchased intangible assets, net

1,906



2,201


Deferred tax assets

3,896



4,065


Other assets

3,581



2,496


TOTAL ASSETS

$

90,426



$

97,793


LIABILITIES AND EQUITY




Current liabilities:




Short-term debt

$

1,499



$

10,191


Accounts payable

1,935



2,059


Income taxes payable

819



1,149


Accrued compensation

2,690



3,221


Deferred revenue

10,638



10,668


Other current liabilities

4,507



4,424


Total current liabilities

22,088



31,712


Long-term debt

14,494



14,475


Income taxes payable

8,227



8,927


Deferred revenue

8,048



7,799


Other long-term liabilities

2,036



1,309


Total liabilities

54,893



64,222


Total equity

35,533



33,571


TOTAL LIABILITIES AND EQUITY

$

90,426



$

97,793


 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Six Months Ended


January 25,

 2020


January 26,

 2019

Cash flows from operating activities:




Net income

$

5,804



$

6,371


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




Depreciation, amortization, and other

918



952


Share-based compensation expense

779



792


Provision (benefit) for receivables

46



30


Deferred income taxes

128



(257)


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

(162)



(77)


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




Accounts receivable

1,084



1,613


Inventories

25



(203)


Financing receivables

408



161


Other assets

130



(652)


Accounts payable

(126)



(296)


Income taxes, net

(1,007)



(830)


Accrued compensation

(521)



(339)


Deferred revenue

236



207


Other liabilities

(355)



88


Net cash provided by operating activities

7,387



7,560


Cash flows from investing activities:




Purchases of investments

(4,250)



(677)


Proceeds from sales of investments

3,410



3,055


Proceeds from maturities of investments

4,044



6,263


Acquisitions and divestitures

(163)



(1,599)


Purchases of investments in privately held companies

(97)



(68)


Return of investments in privately held companies

91



43


Acquisition of property and equipment

(391)



(473)


Proceeds from sales of property and equipment

131



10


Other

(10)



(12)


Net cash provided by investing activities

2,765



6,542


Cash flows from financing activities:




Issuances of common stock

334



312


Repurchases of common stock - repurchase program

(1,648)



(10,062)


Shares repurchased for tax withholdings on vesting of restricted stock units

(437)



(514)


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

(3,470)




Repayments of debt

(5,220)




Dividends paid

(2,972)



(2,970)


Other

(12)



18


Net cash used in financing activities

(13,425)



(13,216)


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

(3,273)



886


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

11,772



8,993


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

$

8,499



$

9,879


Supplemental cash flow information:




Cash paid for interest

$

349



$

425


Cash paid for income taxes, net

$

2,295



$

1,968


 

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