Cisco's (CSCO) Q1 Earnings Top Estimates, Revenues Up Y/Y
Cisco Systems CSCO reported first-quarter fiscal 2022 non-GAAP earnings of 82 cents per share, which beat the Zacks Consensus Estimate by 1.2%. The bottom line increased 8% year over year. Non-GAAP earnings were anticipated in the range of 79-81 cents per share.
Revenues rose 8% year over year to $12.9 billion. The top line was driven by strength across customer markets and revenue growth in all geographies. For the fiscal first quarter, revenues were anticipated in the range of 7.5-9.5% on a year-over-year basis.
Revenues missed the consensus mark by 0.6%. The ongoing supply chain disruptions affected the company’s top line performance.
Following the announcement, shares are down 6.7% in the pre-market trading on Nov 18. In the past year, Cisco’s shares have returned 37.9% compared with industry’s growth 36.7%.
For second-quarter fiscal 2022, revenues are expected to increase in the range of 4.5-6.5% on a year-over-year basis. The Zacks Consensus Estimate for revenues is pegged at $12.79 billion, indicating year-over-year growth of 6.9%.
The company cautioned that the ongoing component shortages and supply chain issues will persist in the second half of fiscal 2022. Due to higher supply chain costs, the company expects to report a non-GAAP gross margin in the range of 63.5-64.5% for second-quarter fiscal 2022. It had reported a non-GAAP gross margin of 66.9% in second-quarter fiscal 2021.
Cisco Systems, Inc. Price, Consensus and EPS Surprise
Cisco Systems, Inc. price-consensus-eps-surprise-chart | Cisco Systems, Inc. Quote
Quarter in Detail
Region-wise, the Americas and the APJC revenues increased 5% and 15% year over year to $7.561 billion and $2.036 billion, respectively. EMEA revenues rose 11% to $3.303 billion. Americas, EMEA and APJC contributed 58.6%, 25.6% and 15.8%, respectively, to total revenues.
Service revenues (26.1% of total revenues) increased 1% year over year to $3.371 billion, driven by growth in software and solution support services.
Software revenues were up 1% to $3.7 billion. Software subscription revenues increased 2%. Subscriptions contributed 80% to Cisco’s software revenues. Total subscription revenues increased 4% to $5.5 billion.
Annualized recurring revenues or ARR came in at $21.6 billion, up 10% year over year. Product ARR growth was 21% in the quarter under review.
Product revenues (73.9% of total revenues) increased 11% on a year-over-year basis to $9.529 billion.
Total product orders rose 33% on a year-over-year basis. In terms of customer segments, product orders from public sector, commercial and service providers were up 10%, 46% and 66%, respectively. Enterprise orders were up 30% on a year-over-year basis.
Region-wise, Americas, EMEA and APJC product orders increased 31%, 36% and 39%, respectively, on a year-over-year basis. Product orders across total emerging markets were up 37%, while the BRICs plus Mexico rallied 47%.
Breakup of Product Revenues
Beginning from first-quarter fiscal 2022, the company announced that it will report product and service revenues under new categories — Secure, Agile Networks, Hybrid Work, End-to-End Security, Optimized Application Experiences, Internet for the Future, Other Products. Earlier, the company reported revenues under Infrastructure Platforms, Applications, Security and Other Products categories.
Secure, Agile Networks (62.6% of total Product revenues) revenues increased 10% year over year to $5.967 billion. Switching revenues improved in the quarter under review due to double digit growth in campus switching, especially the Catalyst 9000 family of switches and Meraki switching solutions.
In the wireless vertical, the company witnessed double digit increases in revenues owing to ramping up Wi-Fi 6 products and solid growth in Meraki wireless solutions. Enterprise routing revenues increased in high-single digits backed by strength in Edge and SD-WAN offerings.
Hybrid Work (11.6% of Product revenues) revenues declined 7% on a year-over-year basis to $1.109 billion, owing to revenue decline for perpetual calling, meetings and contact center solutions. Cisco noted that it witnessed increases in demand for communication platform-as-a-service and collaboration devices. SaaS revenues were up in high-single digits, backed by strength in contact center and cloud calling.
End-to-End Security (9.4% of Product revenues) revenues were up 4% to $895 million, backed by higher demand for the company’s cloud-based offerings, Unified Threat Management, Duo solutions and double-digit growth in Zero Trust Portfolio. A decline in perpetual and hardware solutions acted as a headwind.
Internet for the Future (14.4% of Product revenues) revenues surged 46% to $1.374 billion, primarily due to higher Webscale customers.
Optimized Application Experiences (1.9% of Product revenues) revenues were up 18% to 181 million, owing to triple-digit growth in ThousandEyes and double-digit increase in Intersight. AppDynamics’ SaaS revenues were up in double digits, owing to the shift to the cloud-delivered platform.
Other Products revenues increased 9% to $3 million.
Acquisitions in Q1
Cisco acquired Epsagon Ltd for undisclosed financial terms. Epsagon is an observability vendor that specializes in distributed tracing solutions for modern applications and technologies.
Cisco also revealed plans to acquire a Germany-based enterprise software company — replex GmbH.
Operating Details
Non-GAAP gross margin contracted 130 basis points (bps) from the year-ago quarter’s level to 64.5%.
On a non-GAAP basis, product gross margin contracted 150 bps to 63.8%. Service gross margin shrank 60 bps to 66.5%. Product gross margin was negatively impacted by higher freight costs and component costs related to the supply chain troubles.
Non-GAAP operating expenses were $4.031 billion, up 2% year over year. As a percentage of revenues, operating expenses contracted 190 bps to 31.2%.
Non-GAAP operating margin expanded 60 bps year over year to 33.3%.
Balance Sheet and Cash Flow
As of Oct 30, 2021, Cisco’s cash & cash equivalents and investments balance were $23.3 billion compared with $24.5 billion as of Jul 31, 2021.
Total debt (short-term plus long-term) as of Oct 30 was $9.502 billion compared with $11.526 billion as of Jul 31.
Cash flow from operating activities was $3.4 billion compared with $4.5 billion reported in the prior quarter.
In the quarter under review, Cisco returned $1.8 billion to shareholders, which includes dividend payments of $1.6 billion and share repurchases worth $256 million. The company has $7.7 billion shares left under the current share buyback program with no termination date.
Remaining performance obligations (RPO) at the end of the fiscal first quarter were $30.1 billion, up 10%. The metric represents total committed non-cancelable future revenues. Product RPO increased 18%, while Service RPO was up 4%.
Deferred revenues at the end of the fiscal first quarter amounted to $22.1 billion, up 8% year over year.
Guidance
For second-quarter fiscal 2022, non-GAAP earnings are anticipated between 80 cents and 82 cents per share. The Zacks Consensus Estimate for earnings is pegged at 81 cents per share.
Non-GAAP operating margin is anticipated between 32.5% and 33.5% for the quarter.
For fiscal 2022, revenues are expected to rise 5-7% on a year-over-year basis. The Zacks Consensus Estimate for revenues is pegged at $52.8 billion, indicating year-over-year growth of 6%.
Non-GAAP earnings are anticipated between $3.38 and $3.45 per share. The Zacks Consensus Estimate for earnings is pegged at $3.43 per share.
Zacks Rank & Other Stock Picks
Cisco currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are Arrow Electronics ARW, ON Semiconductor ON and PTC PTC. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The long-term earnings growth rate for Arrow Electronics is pegged at 27.4%. In the past year, shares of the company have returned 41.5% compared with Zacks Electronic-Parts Distribution Industry’s 59.4% rise.
ON Semiconductor’s the long-term earnings growth rate is pegged at 53.9%. In the past year, shares of ON Semiconductor have increased 124% compared with Zacks Semiconductor-Analog and Mixed industry’s growth of 48.3%.
PTC’s long-term earnings growth rate is pegged at 13.7%. Shares of PTC have returned 19.4% in the past year compared with Zacks Computer Software industry’s rise of 50.8%.
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