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Cisco Reports Third Quarter Earnings

  • Q3 Results:
  • Q4 Guidance:

SAN JOSE, Calif. , May 13, 2020 /PRNewswire/ -- Cisco today reported third quarter results for the period ended April 25, 2020. Cisco reported third quarter revenue of $12.0 billion , net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.65 per share, and non-GAAP net income of $3.4 billion or $0.79 per share.

Cisco Logo (PRNewsfoto/Cisco)

"During this extraordinary time, our priority has been supporting our employees, customers, partners and communities, while positioning Cisco for the future," said Chuck Robbins , chairman and CEO of Cisco.  "The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before.  We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations."

GAAP Results










Q3 FY 2020


Q3 FY 2019


Vs. Q3 FY 2019

Revenue


$

12.0 billion


$

13.0 billion


(8)%

Net Income


$

2.8 billion


$

3.0 billion


(9)%

Diluted Earnings per Share (EPS)


$

0.65



$

0.69



(6)%


Non-GAAP Results










Q3 FY 2020


Q3 FY 2019


Vs. Q3 FY 2019

Net Income


$

3.4 billion


$

3.5 billion


(2)%

EPS


$

0.79



$

0.78



1%

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 in Q3 in a very challenging environment, delivering strong margins and non-GAAP EPS growth," said Kelly Kramer , CFO of Cisco.  "The resiliency that we have been building into our business model is paying off, with software subscriptions now at 74% of our software revenue, up 9 points year over year.  We are focused on driving long-term profitable growth while delivering shareholder value."

COVID-19 Pandemic Response

We have been focused on helping our employees, customers, partners and communities.

Employees

  • 95% of our global workforce working from home.
  • Seamless transition to work from home with a long-standing flexible work policy, and we build the technologies that allow organizations to stay connected, secure and productive.
  • For the 5% who must be in the office to perform their roles, we are focused on their health and safety, and are taking all of the necessary precautions.

Customer and Partners

  • Introduced a variety of free offers and trials for our Webex and security technologies as they dramatically shifted entire workforces to be remote.
  • Announced $2.5 billion in financing with a new Business Resiliency Program through Cisco Capital to offer financial flexibility and support their business continuity. This will help customers and partners access the technology they need now, invest for recovery, and defer most of the payments until early 2021.

Communities

  • Committed nearly $300 million to date to support both global and local pandemic response efforts.
  • Providing technology and financial support for non-profits, first responders, and governments.
  • Donating personal protective equipment to hospital workers including N95 masks and face shields 3D-printed by Cisco volunteers around the world.

Financial Summary

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

Q3 FY 2020 Highlights

Revenue -- Total revenue was $12.0 billion , down 8%, with product revenue down 12% and service revenue up 5%. Revenue by geographic segment was: Americas down 8%, EMEA down 7%, and APJC down 9%. Product revenue was led by growth in Security, up 6%.  Infrastructure Platforms was down 15% and Applications was down 5%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.9%, 63.7%, and 67.7%, respectively, as compared with 63.1%, 62.0%, and 66.3%, respectively, in the third quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.6%, 65.8%, and 68.9%, respectively, as compared with 64.6%, 63.7%, and 67.3%, respectively, in the third quarter of fiscal 2019.

Total gross margins by geographic segment were: 67.8% for the Americas, 65.7% for EMEA and 63.5% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion , down 6%, and were 36.4% of revenue. Non-GAAP operating expenses were $3.8 billion , down 9%, and were 31.8% of revenue.

Operating Income -- GAAP operating income was $3.4 billion , down 3%, with GAAP operating margin of 28.5%. Non-GAAP operating income was flat at $4.2 billion , with non-GAAP operating margin at 34.9%.

Provision for Income Taxes -- The GAAP tax provision rate was 19.4%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.8 billion , a decrease of 9%, and EPS was $0.65 , a decrease of 6%. On a non-GAAP basis, net income was $3.4 billion , a decrease of 2%, and EPS was $0.79 , an increase of 1%.

Cash Flow from Operating Activities -- $4.2 billion for the third quarter of fiscal 2020, a decrease of 2% compared with $4.3 billion for the third quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $28.6 billion at the end of the third quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.6 billion , up 7% in total, with deferred product revenue up 17%. Deferred service revenue was up 1%.

Remaining Performance Obligations -- $25.5 billion at the end of the third quarter of fiscal 2020, up 11%.

Capital Allocation -- In the third quarter of fiscal 2020, we returned $2.5 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 25 million shares of common stock under our stock repurchase program at an average price of $39.71 per share for an aggregate purchase price of $981 million . The remaining authorized amount for stock repurchases under the program is $10.8 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2020, we closed the acquisition of Exablaze, a privately held designer and manufacturer of advanced network devices aimed at reducing latency and improving network performance.

Guidance for Q4 FY 2020

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

Q4 FY 2020



Revenue


(8.5)% - (11.5)% decline Y/Y

Non-GAAP gross margin rate


64% - 65%

Non-GAAP operating margin rate


31.5% - 32.5%

Non-GAAP tax provision rate


20%

Non-GAAP EPS


$0.72 - $0.74

Cisco estimates that GAAP EPS will be $0.57 to $0.62 in the fourth quarter of fiscal 2020.

A reconciliation between the Guidance for Q4 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q4 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q3 fiscal year 2020 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, May 13, 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 , May 13, 2020 to 4:00 p.m. Pacific Time , May 20, 2020 at 1-800-391-9847 ( United States ) or 1-402-220-3093 (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 , May 13, 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


Nine Months Ended


April 25, 2020


April 27, 2019


April 25, 2020


April 27, 2019

REVENUE:








Product

$

8,597



$

9,722



$

27,146



$

28,885


Service

3,386



3,236



10,001



9,591


Total revenue

11,983



12,958



37,147



38,476


COST OF SALES:








Product

3,120



3,693



9,770



11,106


Service

1,092



1,092



3,378



3,278


Total cost of sales

4,212



4,785



13,148



14,384


GROSS MARGIN

7,771



8,173



23,999



24,092


OPERATING EXPENSES:








Research and development

1,546



1,659



4,782



4,824


Sales and marketing

2,192



2,403



6,951



7,084


General and administrative

457



541



1,431



1,261


Amortization of purchased intangible assets

34



39



108



112


Restructuring and other charges

128



18



354



282


Total operating expenses

4,357



4,660



13,626



13,563


OPERATING INCOME

3,414



3,513



10,373



10,529


Interest income

218



331



733



1,003


Interest expense

(130)



(211)



(466)



(655)


Other income (loss), net

(58)



(18)



24



(10)


Interest and other income (loss), net

30



102



291



338


INCOME BEFORE PROVISION FOR INCOME TAXES

3,444



3,615



10,664



10,867


Provision for income taxes

670



571



2,086



1,452


NET INCOME

$

2,774



$

3,044



$

8,578



$

9,415










Net income per share:








Basic

$

0.66



$

0.70



$

2.02



$

2.11


Diluted

$

0.65



$

0.69



$

2.01



$

2.09


Shares used in per-share calculation:








Basic

4,230



4,370



4,239



4,468


Diluted

4,243



4,415



4,258



4,509


The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the nine months ended April 27, 2019 .

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)






April 25, 2020



Three Months Ended


Nine Months Ended









Excluding SPVSS business


Including SPVSS business



Amount


Y/Y %


Amount


Y/Y%


Y/Y %

Revenue :











Americas


$

7,116



(8)%


$

22,106



(3)%


(3)%

EMEA


3,136



(7)%


9,553



(2)%


(3)%

APJC


1,730



(9)%


5,489



(6)%


(7)%

Total


$

11,983



(8)%


$

37,147



(3)%


(3)%

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 nine months ended April 27, 2019 was $168 million .

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)






April 25, 2020



Three Months Ended


Nine Months Ended

Gross Margin Percentage :





Americas


67.8%


67.1%

EMEA


65.7%


65.8%

APJC


63.5%


64.0%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)






April 25, 2020



Three Months Ended


Nine Months Ended









Excluding SPVSS business


Including SPVSS business



Amount


Y/Y %


Amount


Y/Y%


Y/Y %

Revenue :











Infrastructure Platforms


$

6,429



(15)%


$

20,496



...