8-K
CISCO SYSTEMS, INC. (CSCO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 14, 2024
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-39940 | 77-0059951 |
|---|---|---|
| (State or other jurisdiction<br>of incorporation) | (Commission<br>File Number) | (IRS Employer<br>Identification No.) |
| 170 West Tasman Drive, San Jose, California | 95134-1706 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
(408) 526-4000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br>Symbol(s) | Name of each exchange<br>on which registered |
|---|---|---|
| Common Stock, par value $0.001 per share | CSCO | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
On February 14, 2024, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal second quarter 2024 ended January 27, 2024. A copy of the press release issued by Cisco concerning the foregoing results is furnished herewith as Exhibit 99.1.
The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of Cisco, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.
The attached exhibit 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 (such as legal and indemnification settlements and the supplier component remediation amounts), Russia-Ukraine war costs, gains and losses on 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.
As described above, Cisco excludes the following items from one or more of its non-GAAP measures when applicable:
Share-based compensation expense. These expenses consist primarily of expenses for employee restricted stock and restricted stock units, employee stock options, and employee stock purchase rights, including such expenses associated with acquisitions. Cisco excludes share-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses and Cisco believes that it is useful to investors to understand the impact of share-based compensation to its results of operations.
Amortization of acquisition-related intangible assets. Cisco incurs amortization of intangible assets (which may include impairment charges from the write-downs of purchased intangible assets) in connection with acquisitions. Such intangible assets may include purchased intangible assets with finite lives, capitalized in process research and development and goodwill. Cisco excludes these items because Cisco does not believe these expenses are reflective of ongoing operating results in the period incurred. These amounts arise from Cisco’s prior acquisitions and have no direct correlation to the operation of Cisco’s business.
Acquisition-related/divestiture costs. In connection with its business combinations, Cisco incurs compensation expense, changes to the fair value of contingent consideration, as well as professional fees and other direct expenses such as restructuring activities related to the acquired company. In addition, from time to time Cisco enters into foreign currency transactions related to pending acquisitions, and may incur gains or losses on such transactions. Cisco may also from time to time incur gains or losses from divestitures of a business area as well as professional fees and other direct expenses associated with such transactions. Cisco excludes such compensation expense, changes to the fair value of contingent consideration, fees, other direct expenses, and gains and losses, as they are related to acquisitions and divestitures and have no direct correlation to the operation of Cisco’s business.
Significant asset impairments and restructurings. Cisco from time to time incurs significant asset impairments, restructuring charges, and gains or losses on asset disposals. Cisco excludes these items, when significant, because it does not believe they are reflective of ongoing business and operating results.
Significant litigation settlements and other contingencies. Cisco from time to time may incur charges or benefits related to significant litigation settlements and other contingencies. Cisco excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.
Russia-Ukraine War Costs. In March 2022, in connection with the Russian invasion of Ukraine, Cisco announced its intention to stop business operations in Russia and Belarus for the foreseeable future. Cisco has begun an orderly wind-down and exit of its business in Russia and Belarus. Cisco has and may incur certain non-recurring charges related to this exit plan. These charges include non-recoverability of certain assets, special personnel-related charges in order to support impacted employees (unrelated to ordinary compensation expenses), potential future litigation and other contingencies, and other exit related costs, among others. Cisco excludes these charges because it believes they are not normal and recurring with respect to ongoing business and operating results. These excluded amounts do not include any impacts to revenue.
Gains and losses on investments. Cisco excludes gains and losses on our marketable equity investments and our investments in privately held companies, because it does not believe they are reflective of ongoing business and operating results.
Income tax effects of the foregoing. This amount is used to present each of the amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.
Significant tax matters. Cisco may incur tax charges or benefits that are (i) related to prior periods or (ii) not reflective of its ongoing provision for income taxes. These tax charges or benefits may be the result of events such as changes in tax legislation, court decisions, and/or tax settlements. Cisco excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.
From time to time in the future, there may be other items that Cisco may exclude if it believes that doing so is consistent with the goal of providing useful information to investors and management.
Cisco will incur share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs, and gains and losses on investments, in future periods. Significant asset impairments, restructurings, significant litigation settlements and other contingencies, Russia-Ukraine war costs, and divestiture costs could occur in future periods. Cisco could also be impacted by significant tax matters in future periods.
| Item 2.05. | Costs Associated with Exit or Disposal Activities. |
|---|
On February 14, 2024, Cisco announced a restructuring plan in order to realign the organization and enable further investment in key priority areas. This restructuring plan will impact approximately 5 percent of Cisco’s global workforce. Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results of approximately $800 million consisting of severance and other one-time termination benefits and other costs. These charges are primarily cash-based. Cisco expects to take the majority of these actions in the third quarter of fiscal 2024 and recognize approximately $500 million of these charges. Cisco expects approximately $150 million of these charges to be recognized in the fourth quarter of fiscal 2024, and the remaining amount of these charges primarily through the first half of fiscal 2025.
The foregoing contains 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 the size and scope of the restructuring, and the approximate amount and expected timing of the related charges. Statements regarding future events are based on Cisco’s current expectations and are necessarily subject to associated risks related to the completion of the restructuring in the manner anticipated by Cisco. 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: Cisco’s ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges. For information regarding other factors that could cause Cisco’s results to vary from expectations, please see the “Risk Factors” section of Cisco’s periodic report filings with the Securities and Exchange Commission, including its most recent reports on Form 10-K and 10-Q. Cisco undertakes no obligation to revise or update publicly any forward-looking statements.
| Item 9.01. | Financial Statements and Exhibits. |
|---|
(d) Exhibits
| Exhibit<br> <br>Number | Description of Document |
|---|---|
| 99.1 | Press Release of Cisco, dated February 14, 2024, reporting the results of operations for Cisco’s fiscal second quarter 2024 ended January 27, 2024. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CISCO SYSTEMS, INC. | ||
|---|---|---|
| Dated: February 14, 2024 | By: | /s/ R. Scott Herren |
| Name: | R. Scott Herren | |
| Title: | Executive Vice President and Chief Financial Officer |
EX-99.1
Exhibit 99.1
| Press Contact: | Investor Relations Contact: |
|---|---|
| Robyn Blum | Sami Badri |
| Cisco | Cisco |
| 1 (408) 930-8548 | 1 (469) 420-4834 |
| rojenkin@cisco.com | sambadri@cisco.com |
CISCO REPORTS SECOND QUARTER EARNINGS
News Summary:
| • | $12.8 billion in revenue, down 6% year over year; GAAP EPS $0.65, down 3% year over year, and Non-GAAP EPS $0.87, down 1% year over year |
|---|---|
| • | Revenue growth in security, collaboration and observability |
| --- | --- |
| • | Progress on business model transformation in Q2 FY 2024: |
| --- | --- |
| • | Total software revenue was flat year over year and software subscription revenue up 5% year over year<br> |
| --- | --- |
| • | Total annualized recurring revenue (ARR) at $24.7 billion, up 6% year over year and product ARR up 9% year<br>over year |
| --- | --- |
| • | Remaining performance obligations (RPO) at $35.7 billion, up 12% year over year and product RPO up 12% year<br>over year |
| --- | --- |
| • | Dividend increased by 3% to $0.40 per share |
| --- | --- |
| • | Q2 FY 2024 Results: |
| --- | --- |
| • | Revenue: $12.8 billion |
| --- | --- |
| • | Decrease of 6% year over year |
| --- | --- |
| • | Earnings per Share: GAAP: $0.65; Non-GAAP: $0.87<br> |
| --- | --- |
| • | GAAP EPS decreased 3% year over year |
| --- | --- |
| • | Non-GAAP EPS decreased 1% year over year |
| --- | --- |
| • | Q3 FY 2024 Guidance: |
| --- | --- |
| • | Revenue: $12.1 billion to $12.3 billion |
| --- | --- |
| • | Earnings per Share: GAAP: $0.51 to $0.56; Non-GAAP: $0.84 to $0.86<br> |
| --- | --- |
| • | FY 2024 Guidance: |
| --- | --- |
| • | Revenue: $51.5 billion to $52.5 billion |
| --- | --- |
| • | Earnings per Share: GAAP: $2.61 to $2.73; Non-GAAP: $3.68 to $3.74<br> |
| --- | --- |
SAN JOSE, Calif. — February 14, 2024 — Cisco today reported second quarter results for the period ended January 27, 2024. Cisco reported second quarter revenue of $12.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.6 billion or $0.65 per share, and non-GAAP net income of $3.5 billion or $0.87 per share.
“We delivered a solid second quarter with strong operating leverage and capital returns,” said Chuck Robbins, chair and CEO of Cisco. “We continue to align our investments to future growth opportunities. Our innovation sits at the center of an increasingly connected ecosystem and will play a critical role as our customers adopt AI and secure their organizations.”
“Focused execution and operating discipline drove our solid top and bottom-line results and strong margins in Q2,” said Scott Herren, CFO of Cisco. “We are making good progress in our business model shift to more recurring revenue while remaining focused on financial discipline, operating leverage and shareholder returns, as evidenced by our increased dividend.”
1
GAAP Results
| Q2 FY 2024 | Q2 FY 2023 | Vs. Q2 FY 2023 | |||
|---|---|---|---|---|---|
| Revenue | $ | 12.8 billion | $ | 13.6 billion | (6)% |
| Net Income | $ | 2.6 billion | $ | 2.8 billion | (5)% |
| Diluted Earnings per Share (EPS) | $ | 0.65 | $ | 0.67 | (3)% |
Non-GAAP Results
| Q2 FY 2024 | Q2 FY 2023 | Vs. Q2 FY 2023 | |||
|---|---|---|---|---|---|
| Net Income | $ | 3.5 billion | $ | 3.6 billion | (3)% |
| EPS | $ | 0.87 | $ | 0.88 | (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.”
Cisco Increases Quarterly Dividend
Cisco has declared a quarterly dividend of $0.40 per common share, a 1-cent increase or up 3%, over the previous quarter’s dividend, to be paid on April 24, 2024, to all stockholders of record as of the close of business on April 4, 2024. Future dividends will be subject to Board approval.
2
Financial Summary
All comparative percentages are on a year-over-year basis unless otherwise noted.
Q2 FY 2024 Highlights
Revenue — Total revenue was $12.8 billion, down 6%, with product revenue down 9% and service revenue up 4%. Revenue by geographic segment was: Americas down 4%, EMEA down 7%, and APJC was down 12%. Product revenue performance reflected growth in Security up 3%, Collaboration up 3% and Observability up 16%. Networking was down 12%.
Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.2%, 62.7%, and 68.2%, respectively, as compared with 62.0%, 60.2%, and 67.2%, respectively, in the second quarter of fiscal 2023.
On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.7%, 65.2%, and 70.5%, respectively, as compared with 63.9%, 62.1%, and 69.1%, respectively, in the second quarter of fiscal 2023.
Total gross margins by geographic segment were: 65.7% for the Americas, 68.1% for EMEA and 68.2% for APJC.
Operating Expenses — **** On a GAAP basis, operating expenses was flat at $5.1 billion, and were 40.0% of revenue. Non-GAAP operating expenses were $4.3 billion, up 1%, and were 33.8% of revenue.
Operating Income — GAAP operating income was $3.1 billion, down 6%, with GAAP operating margin of 24.2%. Non-GAAP operating income was $4.2 billion, down 4%, with non-GAAP operating margin at 33.0%.
Provision for Income Taxes — The GAAP tax provision rate was 16.7%. The non-GAAP tax provision rate was 19.0%.
Net Income and EPS — On a GAAP basis, net income was $2.6 billion, a decrease of 5%, and EPS was $0.65, a decrease of 3%. On a non-GAAP basis, net income was $3.5 billion, a decrease of 3%, and EPS was $0.87, a decrease of 1%.
Cash Flow from Operating Activities — $0.8 billion for the second quarter of fiscal 2024, a decrease of 83% compared with $4.7 billion for the second quarter of fiscal 2023.
Balance Sheet and Other Financial Highlights
Cash and Cash Equivalents and Investments — $25.7 billion at the end of the second quarter of fiscal 2024, compared with $26.1 billion at the end of fiscal 2023.
Remaining Performance Obligations (RPO) — $35.7 billion, up 12% in total, with 50% of this amount to be recognized as revenue over the next 12 months. Product RPO and service RPO were each up 12%.
Deferred Revenue— $25.8 billion, up 8% in total, with deferred product revenue up 9%. Deferred service revenue was up 7%.
Capital Allocation— In the second quarter of fiscal 2024, we returned $2.8 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.39 per common share, or $1.6 billion, and repurchased approximately 25 million shares of common stock under our stock repurchase program at an average price of $49.54 per share for an aggregate purchase price of $1.3 billion. The remaining authorized amount for stock repurchases under the program is $8.4 billion with no termination date.
3
Guidance
Cisco expects to achieve the following results for the third quarter of fiscal 2024:
| Q3 FY 2024 | |
|---|---|
| Revenue | $12.1 billion - $12.3 billion |
| Non-GAAP gross margin rate | 66% – 67% |
| Non-GAAP operating margin rate | 33.5% – 34.5% |
| Non-GAAP EPS | $0.84 – $0.86 |
Cisco estimates that GAAP EPS will be $0.51 to $0.56 for the third quarter of fiscal 2024.
Cisco expects to achieve the following results for fiscal 2024:
| FY 2024 | |
|---|---|
| Revenue | $51.5 billion - $52.5 billion |
| Non-GAAP EPS | $3.68 – $3.74 |
Cisco estimates that GAAP EPS will be $2.61 to $2.73 for fiscal 2024.
Our Q3 FY 2024 and FY 2024 guidance assumes an effective tax provision rate of 18% for GAAP and 19% for non-GAAP results.
A reconciliation between the guidance on a GAAP and non-GAAP basis is provided in the tables entitled “GAAP to non-GAAP Guidance” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”
Editor’s Notes:
| • | Q2 fiscal year 2024 conference call to discuss Cisco’s results along with its guidance will be held on<br>Wednesday, February 14, 2024 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 14, 2024 to 12:00 a.m.<br>Pacific Time, February 21, 2024 at 1-800-876-5258 (United States) or 1-203-369-3998 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.<br> |
| --- | --- |
| • | Additional information regarding Cisco’s financials, as well as a webcast of the conference call with<br>visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, February 14, 2024. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The<br>webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to<br>non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com. |
| --- | --- |
4
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 27,<br>2024 | January 28,<br>2023 | January 27,<br>2024 | January 28,<br>2023 | |||||||||
| REVENUE: | ||||||||||||
| Product | $ | 9,232 | $ | 10,155 | $ | 20,371 | $ | 20,400 | ||||
| Service | 3,559 | 3,437 | 7,088 | 6,824 | ||||||||
| Total revenue | 12,791 | 13,592 | 27,459 | 27,224 | ||||||||
| COST OF SALES: | ||||||||||||
| Product | 3,443 | 4,038 | 7,400 | 8,217 | ||||||||
| Service | 1,131 | 1,127 | 2,285 | 2,234 | ||||||||
| Total cost of sales | 4,574 | 5,165 | 9,685 | 10,451 | ||||||||
| GROSS MARGIN | 8,217 | 8,427 | 17,774 | 16,773 | ||||||||
| OPERATING EXPENSES: | ||||||||||||
| Research and development | 1,943 | 1,855 | 3,856 | 3,636 | ||||||||
| Sales and marketing | 2,458 | 2,384 | 4,964 | 4,775 | ||||||||
| General and administrative | 642 | 582 | 1,314 | 1,147 | ||||||||
| Amortization of purchased intangible assets | 66 | 71 | 133 | 142 | ||||||||
| Restructuring and other charges | 12 | 243 | 135 | 241 | ||||||||
| Total operating expenses | 5,121 | 5,135 | 10,402 | 9,941 | ||||||||
| OPERATING INCOME | 3,096 | 3,292 | 7,372 | 6,832 | ||||||||
| Interest income | 324 | 219 | 684 | 388 | ||||||||
| Interest expense | (120 | ) | (107 | ) | (231 | ) | (207 | ) | ||||
| Other income (loss), net | (139 | ) | 11 | (222 | ) | (123 | ) | |||||
| Interest and other income (loss), net | 65 | 123 | 231 | 58 | ||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 3,161 | 3,415 | 7,603 | 6,890 | ||||||||
| Provision for income taxes | 527 | 642 | 1,331 | 1,447 | ||||||||
| NET INCOME | $ | 2,634 | $ | 2,773 | $ | 6,272 | $ | 5,443 | ||||
| Net income per share: | ||||||||||||
| Basic | $ | 0.65 | $ | 0.68 | $ | 1.55 | $ | 1.33 | ||||
| Diluted | $ | 0.65 | $ | 0.67 | $ | 1.54 | $ | 1.32 | ||||
| Shares used in per-share calculation: | ||||||||||||
| Basic | 4,055 | 4,103 | 4,056 | 4,105 | ||||||||
| Diluted | 4,073 | 4,116 | 4,079 | 4,115 |
5
CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(Inmillions, except percentages)
| January 27, 2024 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Six Months Ended | |||||||||||
| Amount | Y/Y % | Amount | Y/Y % | |||||||||
| Revenue: | ||||||||||||
| Americas | $ | 7,510 | (4 | )% | $ | 16,532 | 5 | % | ||||
| EMEA | 3,484 | (7 | )% | 7,148 | (3 | )% | ||||||
| APJC | 1,798 | (12 | )% | 3,779 | (7 | )% | ||||||
| Total | $ | 12,791 | (6 | )% | $ | 27,459 | 1 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)
| January 27, 2024 | ||||||
|---|---|---|---|---|---|---|
| Three Months Ended | Six Months Ended | |||||
| Gross Margin Percentage: | ||||||
| Americas | 65.7 | % | 65.9 | % | ||
| EMEA | 68.1 | % | 68.8 | % | ||
| APJC | 68.2 | % | 67.6 | % |
CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)
| January 27, 2024 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Six Months Ended | |||||||||||
| Amount | Y/Y % | Amount | Y/Y % | |||||||||
| Revenue: | ||||||||||||
| Networking | $ | 7,081 | (12 | )% | $ | 15,904 | (1 | )% | ||||
| Security | 973 | 3 | % | 1,984 | 4 | % | ||||||
| Collaboration | 989 | 3 | % | 2,106 | 3 | % | ||||||
| Observability | 188 | 16 | % | 378 | 18 | % | ||||||
| Total Product | 9,232 | (9 | )% | 20,371 | — | % | ||||||
| Services | 3,559 | 4 | % | 7,088 | 4 | % | ||||||
| Total | $ | 12,791 | (6 | )% | $ | 27,459 | 1 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
6
CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
| July 29, 2023 | |||
|---|---|---|---|
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | 13,715 | $ | 10,123 |
| Investments | 11,956 | 16,023 | |
| Accounts receivable, net of allowance of 79 at January 27, 2024 and 85 at July 29,<br>2023 | 4,884 | 5,854 | |
| Inventories | 3,209 | 3,644 | |
| Financing receivables, net | 3,476 | 3,352 | |
| Other current assets | 4,887 | 4,352 | |
| Total current assets | 42,127 | 43,348 | |
| Property and equipment, net | 2,005 | 2,085 | |
| Financing receivables, net | 3,364 | 3,483 | |
| Goodwill | 39,087 | 38,535 | |
| Purchased intangible assets, net | 1,678 | 1,818 | |
| Deferred tax assets | 7,338 | 6,576 | |
| Other assets | 5,575 | 6,007 | |
| TOTAL ASSETS | 101,174 | $ | 101,852 |
| LIABILITIES AND EQUITY | |||
| Current liabilities: | |||
| Short-term debt | 4,936 | $ | 1,733 |
| Accounts payable | 1,848 | 2,313 | |
| Income taxes payable | 1,876 | 4,235 | |
| Accrued compensation | 3,216 | 3,984 | |
| Deferred revenue | 14,011 | 13,908 | |
| Other current liabilities | 4,964 | 5,136 | |
| Total current liabilities | 30,851 | 31,309 | |
| Long-term debt | 6,669 | 6,658 | |
| Income taxes payable | 3,390 | 5,756 | |
| Deferred revenue | 11,760 | 11,642 | |
| Other long-term liabilities | 2,253 | 2,134 | |
| Total liabilities | 54,923 | 57,499 | |
| Total equity | 46,251 | 44,353 | |
| TOTAL LIABILITIES AND EQUITY | 101,174 | $ | 101,852 |
All values are in US Dollars.
7
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Six Months Ended | ||||||
|---|---|---|---|---|---|---|
| January 27,<br>2024 | January 28,<br>2023 | |||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 6,272 | $ | 5,443 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation, amortization, and other | 823 | 853 | ||||
| Share-based compensation expense | 1,463 | 1,097 | ||||
| Provision (benefit) for receivables | 12 | 6 | ||||
| Deferred income taxes | (816 | ) | (845 | ) | ||
| (Gains) losses on divestitures, investments and other, net | 205 | 109 | ||||
| Change in operating assets and liabilities, net of effects of acquisitions and<br>divestitures: | ||||||
| Accounts receivable | 941 | 1,393 | ||||
| Inventories | 442 | (569 | ) | |||
| Financing receivables | (33 | ) | 834 | |||
| Other assets | (403 | ) | (210 | ) | ||
| Accounts payable | (476 | ) | 42 | |||
| Income taxes, net | (4,656 | ) | 118 | |||
| Accrued compensation | (763 | ) | (146 | ) | ||
| Deferred revenue | 293 | 633 | ||||
| Other liabilities | (125 | ) | (57 | ) | ||
| Net cash provided by operating activities | 3,179 | 8,701 | ||||
| Cash flows from investing activities: | ||||||
| Purchases of investments | (2,253 | ) | (3,797 | ) | ||
| Proceeds from sales of investments | 2,484 | 587 | ||||
| Proceeds from maturities of investments | 4,044 | 2,316 | ||||
| Acquisitions, net of cash and cash equivalents acquired | (878 | ) | (3 | ) | ||
| Purchases of investments in privately held companies | (50 | ) | (70 | ) | ||
| Return of investments in privately held companies | 123 | 39 | ||||
| Acquisition of property and equipment | (304 | ) | (346 | ) | ||
| Other | (1 | ) | (19 | ) | ||
| Net cash provided by (used in) provided by investing activities | 3,165 | (1,293 | ) | |||
| Cash flows from financing activities: | ||||||
| Issuances of common stock | 349 | 316 | ||||
| Repurchases of common stock - repurchase program | (2,504 | ) | (1,760 | ) | ||
| Shares repurchased for tax withholdings on vesting of restricted stock units | (581 | ) | (310 | ) | ||
| Short-term borrowings, original maturities of 90 days or less, net | 1,398 | (602 | ) | |||
| Issuances of debt | 2,537 | — | ||||
| Repayments of debt | (750 | ) | — | |||
| Dividends paid | (3,163 | ) | (3,120 | ) | ||
| Other | (7 | ) | (5 | ) | ||
| Net cash used in financing activities | (2,721 | ) | (5,481 | ) | ||
| Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and<br>restricted cash equivalents | (32 | ) | 3 | |||
| Net increase in cash, cash equivalents, restricted cash and restricted cash<br>equivalents | 3,591 | 1,930 | ||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of<br>period | 11,627 | 8,579 | ||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period | $ | 15,218 | $ | 10,509 | ||
| Supplemental cash flow information: | ||||||
| Cash paid for interest | $ | 203 | $ | 178 | ||
| Cash paid for income taxes, net | $ | 6,804 | $ | 2,172 |
8
CISCO SYSTEMS, INC.
REMAINING PERFORMANCE OBLIGATIONS
(In millions, except percentages)
| January 27, 2024 | October 28, 2023 | January 28, 2023 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Y/Y% | Amount | Y/Y% | Amount | Y/Y% | |||||||||||||
| Product | $ | 16,249 | 12 | % | $ | 16,011 | 14 | % | $ | 14,517 | 7 | % | ||||||
| Service | 19,407 | 12 | % | 18,742 | 11 | % | 17,255 | 2 | % | |||||||||
| Total | $ | 35,656 | 12 | % | $ | 34,753 | 12 | % | $ | 31,772 | 4 | % |
We expect 50% of total RPO at January 27, 2024 will be recognized as revenue over the next 12 months.
CISCO SYSTEMS, INC.
DEFERRED REVENUE
(Inmillions)
| January 27,<br>2024 | October 28,<br>2023 | January 28,<br>2023 | ||||
|---|---|---|---|---|---|---|
| Deferred revenue: | ||||||
| Product | $ | 11,640 | $ | 11,689 | $ | 10,679 |
| Service | 14,131 | 13,970 | 13,248 | |||
| Total | $ | 25,771 | $ | 25,659 | $ | 23,927 |
| Reported as: | ||||||
| Current | $ | 14,011 | $ | 13,812 | $ | 13,109 |
| Noncurrent | 11,760 | 11,847 | 10,818 | |||
| Total | $ | 25,771 | $ | 25,659 | $ | 23,927 |
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-<br>Average Price<br>per Share | Amount | Amount | ||||||
| Fiscal 2024 | ||||||||||||
| January 27, 2024 | $ | 0.39 | $ | 1,583 | 25 | $ | 49.54 | $ | 1,254 | $ | 2,837 | |
| October 28, 2023 | $ | 0.39 | $ | 1,580 | 23 | $ | 54.53 | $ | 1,252 | $ | 2,832 | |
| Fiscal 2023 | ||||||||||||
| July 29, 2023 | $ | 0.39 | $ | 1,589 | 25 | $ | 50.49 | $ | 1,254 | $ | 2,843 | |
| April 29, 2023 | $ | 0.39 | $ | 1,593 | 25 | $ | 49.45 | $ | 1,259 | $ | 2,852 | |
| January 28, 2023 | $ | 0.38 | $ | 1,560 | 26 | $ | 47.72 | $ | 1,256 | $ | 2,816 | |
| October 29, 2022 | $ | 0.38 | $ | 1,560 | 12 | $ | 43.76 | $ | 502 | $ | 2,062 |
9
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 27,<br>2024 | January 28,<br>2023 | January 27,<br>2024 | January 28,<br>2023 | |||||||||
| GAAP net income | $ | 2,634 | $ | 2,773 | $ | 6,272 | $ | 5,443 | ||||
| Adjustments to cost of sales: | ||||||||||||
| Share-based compensation expense | 139 | 106 | 242 | 187 | ||||||||
| Amortization of acquisition-related intangible assets | 175 | 153 | 356 | 306 | ||||||||
| Acquisition-related/divestiture costs | 1 | 1 | 1 | 3 | ||||||||
| Total adjustments to GAAP cost of sales | 315 | 260 | 599 | 496 | ||||||||
| Adjustments to operating expenses: | ||||||||||||
| Share-based compensation expense | 662 | 498 | 1,212 | 913 | ||||||||
| Amortization of acquisition-related intangible assets | 66 | 71 | 133 | 142 | ||||||||
| Acquisition-related/divestiture costs | 64 | 48 | 139 | 123 | ||||||||
| Russia-Ukraine war costs | — | 2 | (2 | ) | 5 | |||||||
| Significant asset impairments and restructurings | 12 | 243 | 135 | 241 | ||||||||
| Total adjustments to GAAP operating expenses | 804 | 862 | 1,617 | 1,424 | ||||||||
| Adjustments to interest and other income (loss), net: | ||||||||||||
| (Gains) and losses on investments | 88 | (44 | ) | 139 | 65 | |||||||
| Total adjustments to GAAP interest and other income (loss), net | 88 | (44 | ) | 139 | 65 | |||||||
| Total adjustments to GAAP income before provision for income taxes | 1,207 | 1,078 | 2,355 | 1,985 | ||||||||
| Income tax effect of non-GAAP adjustments | (303 | ) | (212 | ) | (561 | ) | (404 | ) | ||||
| Significant tax matters | — | — | — | 164 | ||||||||
| Total adjustments to GAAP provision for income taxes | (303 | ) | (212 | ) | (561 | ) | (240 | ) | ||||
| Non-GAAP net income | $ | 3,538 | $ | 3,639 | $ | 8,066 | $ | 7,188 |
10
CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GAAP TO NON-GAAP EPS
| Three Months Ended | Six Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 27,<br>2024 | January 28,<br>2023 | January 27,<br>2024 | January 28,<br>2023 | |||||||||
| GAAP EPS | $ | 0.65 | $ | 0.67 | $ | 1.54 | $ | 1.32 | ||||
| Adjustments to GAAP: | ||||||||||||
| Share-based compensation expense | 0.20 | 0.15 | 0.36 | 0.27 | ||||||||
| Amortization of acquisition-related intangible assets | 0.06 | 0.05 | 0.12 | 0.11 | ||||||||
| Acquisition-related/divestiture costs | 0.02 | 0.01 | 0.03 | 0.03 | ||||||||
| Significant asset impairments and restructurings | — | 0.06 | 0.03 | 0.06 | ||||||||
| (Gains) and losses on investments | 0.02 | (0.01 | ) | 0.03 | 0.02 | |||||||
| Income tax effect of non-GAAP adjustments | (0.07 | ) | (0.05 | ) | (0.14 | ) | (0.10 | ) | ||||
| Significant tax matters | — | — | — | 0.04 | ||||||||
| Non-GAAP EPS | $ | 0.87 | $ | 0.88 | $ | 1.98 | $ | 1.75 |
Amounts may not sum due to rounding.
11
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
(Inmillions, except percentages)
| Three Months Ended<br>January 27, 2024 | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Product<br>Gross<br>Margin | Service<br>Gross<br>Margin | Total<br>Gross<br>Margin | Operating<br>Expenses | Y/Y | Operating<br>Income | Y/Y | Interest<br>and<br>other<br>income<br>(loss),<br>net | Net<br>Income | Y/Y | |||||||||||||||||||||
| GAAP amount | $ | 5,789 | $ | 2,428 | $ | 8,217 | $ | 5,121 | — | % | $ | 3,096 | (6 | )% | $ | 65 | $ | 2,634 | (5 | )% | ||||||||||
| % of revenue | 62.7 | % | 68.2 | % | 64.2 | % | 40.0 | % | 24.2 | % | 0.5 | % | 20.6 | % | ||||||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 58 | 81 | 139 | 662 | 801 | — | 801 | |||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 175 | — | 175 | 66 | 241 | — | 241 | |||||||||||||||||||||||
| Acquisition/divestiture-related costs | 1 | — | 1 | 64 | 65 | — | 65 | |||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 12 | 12 | — | 12 | |||||||||||||||||||||||
| (Gains) and losses on investments | — | — | — | — | — | 88 | 88 | |||||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (303 | ) | ||||||||||||||||||||||
| Non-GAAP amount | $ | 6,023 | $ | 2,509 | $ | 8,532 | $ | 4,317 | 1 | % | $ | 4,215 | (4 | )% | $ | 153 | $ | 3,538 | (3 | )% | ||||||||||
| % of revenue | 65.2 | % | 70.5 | % | 66.7 | % | 33.8 | % | 33.0 | % | 1.2 | % | 27.7 | % | ||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||
| January 28, 2023 | ||||||||||||||||||||||||||||||
| Product<br>Gross<br>Margin | Service<br>Gross<br>Margin | Total Gross<br>Margin | Operating<br>Expenses | Operating<br>Income | Interest<br>and other<br>income<br>(loss), net | Net<br>Income | ||||||||||||||||||||||||
| GAAP amount | $ | 6,117 | $ | 2,310 | $ | 8,427 | $ | 5,135 | $ | 3,292 | $ | 123 | $ | 2,773 | ||||||||||||||||
| % of revenue | 60.2 | % | 67.2 | % | 62.0 | % | 37.8 | % | 24.2 | % | 0.9 | % | 20.4 | % | ||||||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 40 | 66 | 106 | 498 | 604 | — | 604 | |||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 153 | — | 153 | 71 | 224 | — | 224 | |||||||||||||||||||||||
| Acquisition/divestiture-related costs | 1 | — | 1 | 48 | 49 | — | 49 | |||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 243 | 243 | — | 243 | |||||||||||||||||||||||
| Russia-Ukraine war costs | — | — | — | 2 | 2 | — | 2 | |||||||||||||||||||||||
| (Gains) and losses on investments | — | — | — | — | — | (44 | ) | (44 | ) | |||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (212 | ) | ||||||||||||||||||||||
| Non-GAAP amount | $ | 6,311 | $ | 2,376 | $ | 8,687 | $ | 4,273 | $ | 4,414 | $ | 79 | $ | 3,639 | ||||||||||||||||
| % of revenue | 62.1 | % | 69.1 | % | 63.9 | % | 31.4 | % | 32.5 | % | 0.6 | % | 26.8 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
12
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
(Inmillions, except percentages)
| Six Months Ended<br>January 27, 2024 | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Product<br>Gross<br>Margin | Service<br>Gross<br>Margin | Total<br>Gross<br>Margin | Operating<br>Expenses | Y/Y | Operating<br>Income | Y/Y | Interest<br>and<br>other<br>income<br>(loss),<br>net | Net<br>Income | Y/Y | |||||||||||||||||||||
| GAAP amount | $ | 12,971 | $ | 4,803 | $ | 17,774 | $ | 10,402 | 5 | % | $ | 7,372 | 8 | % | $ | 231 | $ | 6,272 | 15 | % | ||||||||||
| % of revenue | 63.7 | % | 67.8 | % | 64.7 | % | 37.9 | % | 26.8 | % | 0.8 | % | 22.8 | % | ||||||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 100 | 142 | 242 | 1,212 | 1,454 | — | 1,454 | |||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 356 | — | 356 | 133 | 489 | — | 489 | |||||||||||||||||||||||
| Acquisition/divestiture-related costs | 1 | — | 1 | 139 | 140 | — | 140 | |||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 135 | 135 | — | 135 | |||||||||||||||||||||||
| Russia-Ukraine war costs | — | — | — | (2 | ) | (2 | ) | — | (2 | ) | ||||||||||||||||||||
| (Gains) and losses on investments | — | — | — | — | — | 139 | 139 | |||||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (561 | ) | ||||||||||||||||||||||
| Non-GAAP amount | $ | 13,428 | $ | 4,945 | $ | 18,373 | $ | 8,785 | 3 | % | $ | 9,588 | 10 | % | $ | 370 | $ | 8,066 | 12 | % | ||||||||||
| % of revenue | 65.9 | % | 69.8 | % | 66.9 | % | 32.0 | % | 34.9 | % | 1.3 | % | 29.4 | % | ||||||||||||||||
| Six Months Ended<br>January 28, 2023 | ||||||||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||
| Product<br>Gross<br>Margin | Service<br>Gross<br>Margin | Total Gross<br>Margin | Operating<br>Expenses | Operating<br>Income | Interest<br>and<br>other<br>income<br>(loss),<br>net | Net<br>Income | ||||||||||||||||||||||||
| GAAP amount | $ | 12,183 | $ | 4,590 | $ | 16,773 | $ | 9,941 | $ | 6,832 | $ | 58 | $ | 5,443 | ||||||||||||||||
| % of revenue | 59.7 | % | 67.3 | % | 61.6 | % | 36.5 | % | 25.1 | % | 0.2 | % | 20.0 | % | ||||||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 71 | 116 | 187 | 913 | 1,100 | — | 1,100 | |||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 306 | — | 306 | 142 | 448 | — | 448 | |||||||||||||||||||||||
| Acquisition/divestiture-related costs | 3 | — | 3 | 123 | 126 | — | 126 | |||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 241 | 241 | — | 241 | |||||||||||||||||||||||
| Russia-Ukraine war costs | — | — | — | 5 | 5 | — | 5 | |||||||||||||||||||||||
| (Gains) and losses on investments | — | — | — | — | — | 65 | 65 | |||||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (240 | ) | ||||||||||||||||||||||
| Non-GAAP amount | $ | 12,563 | $ | 4,706 | $ | 17,269 | $ | 8,517 | $ | 8,752 | $ | 123 | $ | 7,188 | ||||||||||||||||
| % of revenue | 61.6 | % | 69.0 | % | 63.4 | % | 31.3 | % | 32.1 | % | 0.5 | % | 26.4 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
13
CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
EFFECTIVE TAX RATE
(Inpercentages)
| Three Months Ended | Six Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 27,<br>2024 | January 28,<br>2023 | January 27,<br>2024 | January 28,<br>2023 | |||||||||
| GAAP effective tax rate | 16.7 | % | 18.8 | % | 17.5 | % | 21.0 | % | ||||
| Total adjustments to GAAP provision for income taxes | 2.3 | % | 0.2 | % | 1.5 | % | (2.0 | )% | ||||
| Non-GAAP effective tax rate | 19.0 | % | 19.0 | % | 19.0 | % | 19.0 | % |
GAAP TO NON-GAAP GUIDANCE
| Q3 FY 2024 | Gross Margin<br>Rate | Operating Margin<br>Rate | Earnings per<br>Share ^(2)^ |
|---|---|---|---|
| GAAP | 63.5% – 64.5% | 20.5% – 21.5% | $0.51 – $0.56 |
| Estimated adjustments for: | |||
| Share-based compensation expense | 1.0% | 6.5% | $0.15 – $0.16 |
| Amortization of acquisition-related intangible assets and acquisition/divestiture-related<br>costs | 1.5% | 2.0% | $0.05 – $0.06 |
| Significant asset impairments and restructurings<br>^(1)^ | — | 4.5% | $0.10 – $0.11 |
| Non-GAAP | 66% – 67% | 33.5% – 34.5% | $0.84 – $0.86 |
| FY 2024 | Earnings per<br>Share ^(2)^ | ||
| --- | --- | ||
| GAAP | $2.61 – $2.73 | ||
| Estimated adjustments for: | |||
| Share-based compensation expense | $0.59 – $0.61 | ||
| Amortization of acquisition-related intangible assets and acquisition/divestiture-related<br>costs | $0.23 – $0.25 | ||
| Significant asset impairments and restructurings<br>^(1)^ | $0.16 – $0.18 | ||
| (Gains) and losses on investments | $0.03 | ||
| Non-GAAP | $3.68 – $3.74 | ||
| ^(1)^ | On February 14, 2024, Cisco announced a restructuring plan in order to realign the organization and enable<br>further investment in key priority areas. This restructuring plan will impact approximately 5 percent of Cisco’s global workforce. Cisco currently estimates that it will recognize pre-tax charges to<br>its GAAP financial results of approximately $800 million consisting of severance and other one-time termination benefits and other costs. These charges are primarily cash-based. Cisco expects to take the<br>majority of these actions in the third quarter of fiscal 2024 and recognize approximately $500 million of these charges. Cisco expects approximately $150 million of these charges to be recognized in the fourth quarter of fiscal 2024, and<br>the remaining amount of these charges primarily through the first half of fiscal 2025. | ||
| --- | --- | ||
| ^(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, Russia-Ukraine war costs, restructurings, (gains) and losses on investments and significant tax matters or other events, which may or may not be significant unless specifically stated.
14
Forward Looking Statements, Non-GAAP Information and AdditionalInformation
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 the alignment of our investments to future growth opportunities, the role that our innovation plays as our customers adopt AI and secure their organizations, the progress in our business model shift to more recurring revenue while remaining focused on financial discipline, operating leverage and shareholder returns) and the future financial performance of Cisco (including the guidance for Q3 FY 2024 and full year FY 2024) 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; our development and use of artificial intelligence; 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 Networking and services; the timing of orders and manufacturing and customer lead times; supply constraints; 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, other intellectual property, antitrust, stockholder and other matters, and governmental investigations; our ability to achieve the benefits of restructurings and possible changes in the size and timing of related charges; cyber attacks, data breaches or other incidents; vulnerabilities and critical security defects; our ability to protect personal data; evolving regulatory uncertainty; terrorism; natural catastrophic events (including as a result of global climate change); any 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 21, 2023 and September 7, 2023, 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 27, 2024 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, Russia-Ukraine war costs, gains and losses on 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
15
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.
Annualized recurring revenue represents the annualized revenue run-rate of active subscriptions, term licenses, operating leases and maintenance contracts at the end of a reporting period, net of rebates to customers and partners as well as certain other revenue adjustments. Includes both revenue recognized ratably as well as upfront on an annualized basis.
About Cisco
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