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): November 17, 2021
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-39940 | 77-0059951 |
|---|---|---|
| (State or other jurisdiction<br> <br>of incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <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 (see General Instruction A.2. below):
| ☐ | 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> <br>Symbol(s) | Name of each exchange<br> <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 November 17, 2021, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal first quarter 2022 ended October 30, 2021. 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), 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.
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.
Gains and losses on equity investments. Cisco excludes gains and losses on equity investments 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 equity investments, in future periods. Significant asset impairments, restructurings, significant litigation settlements and other contingencies, and divestiture costs could occur in future periods. Cisco could also be impacted by significant tax matters in future periods.
| Item 9.01. | Financial Statements and Exhibits. |
|---|
(d) Exhibits
| Exhibit<br> <br>Number | Description of Document |
|---|---|
| 99.1 | Press Release of Cisco, dated November 17, 2021, reporting the results of operations for Cisco’s fiscal first quarter ended October 30, 2021. |
| 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: November 17, 2021 | 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 | Marilyn Mora |
| Cisco | Cisco |
| 1 (408) 930-8548 | 1 408) 527-7452 |
| rojenkin@cisco.com | marilmor@cisco.com |
CISCO REPORTS FIRST QUARTER EARNINGS
News Summary:
| • | Overall performance: $12.9 billion in revenue, up 8% year over year, with broad-based strength across the<br>business; GAAP EPS $0.70, up 37% year over year, and Non-GAAP EPS $0.82, up 8% year over year |
|---|---|
| • | Strong demand across the business with 33% year-over-year total product order growth |
| --- | --- |
| • | Solid progress on business model transformation: Total Annualized Recurring Revenue was $21.6 billion for the<br>first quarter of fiscal 2022, up 10% year over year |
| --- | --- |
| • | Q1 Results: |
| --- | --- |
| • | Revenue: $12.9 billion |
| --- | --- |
| • | Increase of 8% year over year |
| --- | --- |
| • | Earnings per Share: GAAP: $0.70; Non-GAAP: $0.82 |
| --- | --- |
| • | GAAP EPS increased 37% year over year |
| --- | --- |
| • | Non-GAAP EPS increased 8% year over year |
| --- | --- |
| • | Q2 Guidance: **** |
| --- | --- |
| • | Revenue: 4.5% to 6.5% growth year over year |
| --- | --- |
| • | Earnings per Share: GAAP: $0.64 to $0.68; Non-GAAP: $0.80 to $0.82 |
| --- | --- |
| • | FY 2022 Guidance: |
| --- | --- |
| • | Revenue: 5% to 7% growth year over year |
| --- | --- |
| • | Earnings per Share: GAAP: $2.77 to $2.89; Non-GAAP: $3.38 to $3.45 |
| --- | --- |
SAN JOSE, Calif. — November 17, 2021 — Cisco today reported first quarter results for the period ended October 30, 2021. Cisco reported first quarter revenue of $12.9 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.0 billion or $0.70 per share, and non-GAAP net income of $3.5 billion or $0.82 per share.
“In Q1, we had robust growth and continued strong demand despite the very dynamic supply environment,” said Chuck Robbins, Chair and CEO of Cisco. “Cisco’s technology sits at the heart of the accelerated digital transformation happening today. Our breakthrough innovation, strong demand, and the success of our business transformation position us well for another year of growth in fiscal 2022.”
“Our teams executed well in a challenging environment, delivering balanced profitable growth with revenue and non-GAAP EPS both growing 8% year over year,” said Scott Herren, CFO of Cisco. “We also continued to make significant progress in our business model transformation. Remaining performance obligations and annualized recurring revenue both grew 10% year over year with product ARR growth of 21% providing more predictability and visibility to our long-term growth.”
1
GAAP Results
| Q1 FY 2022 | Q1 FY 2021 | Vs. Q1 FY 2021 | |||||
|---|---|---|---|---|---|---|---|
| Revenue | $ | 12.9 billion | $ | 11.9 billion | 8 | % | |
| Net Income | $ | 3.0 billion | $ | 2.2 billion | 37 | % | |
| Diluted Earnings per Share (EPS) | $ | 0.70 | $ | 0.51 | 37 | % |
Non-GAAP Results
| Q1 FY 2022 | Q1 FY 2021 | Vs. Q1 FY 2021 | |||||
|---|---|---|---|---|---|---|---|
| Net Income | $ | 3.5 billion | $ | 3.2 billion | 8 | % | |
| EPS | $ | 0.82 | $ | 0.76 | 8 | % |
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.”
2
Financial Summary
All comparative percentages are on a year-over-year basis unless otherwise noted.
Q1 FY 2022 Highlights
Revenue — Total revenue was up 8% at $12.9 billion, with product revenue up 11% and service revenue up 1%. Revenue by geographic segment was: Americas up 5%, EMEA up 11%, and APJC up 15%. Product revenue performance was led by growth in Secure, Agile Networks up 10%, Internet for the Future up 46%, End-to-End Security up 4%, and Optimized Application Experiences up 18%. Hybrid Work was down 7%. ****
Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 62.4%, 61.5%, and 65.2%, respectively, as compared with 63.6%, 62.7%, and 65.8%, respectively, in the first quarter of fiscal 2021. ****
On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 64.5%, 63.8%, and 66.5%, respectively, as compared with 65.8%, 65.3%, and 67.1%, respectively, in the first quarter of fiscal 2021.
Total gross margins by geographic segment were: 64.5% for the Americas, 64.4% for EMEA and 64.7% for APJC.
Operating Expenses — On a GAAP basis, operating expenses were $4.6 billion, down 8%, and were 35.8% of revenue. Non-GAAP operating expenses were $4.0 billion, up 2%, and were 31.2% of revenue. ****
Operating Income — GAAP operating income was $3.4 billion, up 34%, with GAAP operating margin of 26.7%. Non-GAAP operating income was $4.3 billion, up 10%, with non-GAAP operating margin at 33.3%. ****
Provision for Income Taxes — The GAAP tax provision rate was 18.5%. The non-GAAP tax provision rate was 19.0%. ****
Net Income and EPS — On a GAAP basis, net income was $3.0 billion, an increase of 37%, and EPS was $0.70, an increase of 37%. On a non-GAAP basis, net income was $3.5 billion, an increase of 8%, and EPS was $0.82, an increase of 8%. ****
Cash Flow from Operating Activities— $3.4 billion for the first quarter of fiscal 2022, a decrease of 16% compared with $4.1 billion for the first quarter of fiscal 2021. ****
Balance Sheet and Other Financial Highlights
Cashand Cash Equivalents and Investments — $23.3 billion at the end of the first quarter of fiscal 2022, compared with $24.5 billion at the end of fiscal 2021. ****
Remaining Performance Obligations (RPO) — $30.1 billion, up 10% in total, with 53% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 18% and service RPO were up 4%. ****
Deferred Revenue — $22.1 billion, up 8% in total, with deferred product revenue up 19%. Deferred service revenue was flat. ****
Capital Allocation — In the first quarter of fiscal 2022, we returned $1.8 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.37 per common share, or $1.6 billion, and repurchased approximately 5 million shares of common stock under our stock repurchase program at an average price of $56.49 per share for an aggregate purchase price of $256 million. The remaining authorized amount for stock repurchases under the program is $7.7 billion with no termination date. ****
Acquisitions
In the first quarter of fiscal 2022, we closed the acquisition of Epsagon Ltd., a privately held modern observability company with expertise in distributed tracing solutions for modern applications and technologies, including containers and serverless environments.
In addition, we announced our intent to acquire replex GmbH, a privately held enterprise software company based in Germany.
3
Guidance
Cisco expects to achieve the following results for the second quarter of fiscal 2022:
| Q2 FY 2022 | |
|---|---|
| Revenue | 4.5% - 6.5% growth Y/Y |
| Non-GAAP gross margin rate | 63.5% - 64.5% |
| Non-GAAP operating margin rate | 32.5% - 33.5% |
| Non-GAAP EPS | $0.80 - $0.82 |
Cisco estimates that GAAP EPS will be $0.64 to $0.68 for the second quarter of fiscal 2022.
Cisco expects to achieve the following results for fiscal 2022 (no change from our previous guidance):
| FY 2022 | |
|---|---|
| Revenue | 5% - 7% growth Y/Y |
| Non-GAAP EPS | $3.38 - $3.45 |
Cisco estimates that GAAP EPS will be $2.77 to $2.89 for fiscal 2022.
Our Q2 FY 2022 and FY 2022 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:
| • | Q1 fiscal year 2022 conference call to discuss Cisco’s results along with its guidance will be held on<br>Wednesday, November 17, 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, November 17, 2021 to 4:00 p.m. Pacific<br>Time, November 24, 2021 at 1-866-360-3304 (United States) or 1-203-369-0159 (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<br>visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, November 17, 2021. 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 non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at<br>https://investor.cisco.com. |
| --- | --- |
4
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited) ****
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| October 30,<br>2021 | October 24,<br>2020 | |||||
| REVENUE: | ||||||
| Product | $ | 9,529 | $ | 8,587 | ||
| Service | 3,371 | 3,342 | ||||
| Total revenue | 12,900 | 11,929 | ||||
| COST OF SALES: | ||||||
| Product | 3,673 | 3,206 | ||||
| Service | 1,174 | 1,142 | ||||
| Total cost of sales | 4,847 | 4,348 | ||||
| GROSS MARGIN | 8,053 | 7,581 | ||||
| OPERATING EXPENSES: | ||||||
| Research and development | 1,714 | 1,612 | ||||
| Sales and marketing | 2,261 | 2,217 | ||||
| General and administrative | 551 | 544 | ||||
| Amortization of purchased intangible assets | 84 | 36 | ||||
| Restructuring and other charges | 5 | 602 | ||||
| Total operating expenses | 4,615 | 5,011 | ||||
| OPERATING INCOME | 3,438 | 2,570 | ||||
| Interest income | 121 | 174 | ||||
| Interest expense | (89 | ) | (112 | ) | ||
| Other income (loss), net | 187 | 49 | ||||
| Interest and other income (loss), net | 219 | 111 | ||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 3,657 | 2,681 | ||||
| Provision for income taxes | 677 | 507 | ||||
| NET INCOME | $ | 2,980 | $ | 2,174 | ||
| Net income per share: | ||||||
| Basic | $ | 0.71 | $ | 0.51 | ||
| Diluted | $ | 0.70 | $ | 0.51 | ||
| Shares used in per-share calculation: | ||||||
| Basic | 4,218 | 4,230 | ||||
| Diluted | 4,243 | 4,244 |
5
CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(Inmillions, except percentages)
| Three Months Ended<br>October 30, 2021 | |||||
|---|---|---|---|---|---|
| Amount | Y/Y % | ||||
| Revenue: | |||||
| Americas | $ | 7,561 | 5 | % | |
| EMEA | 3,303 | 11 | % | ||
| APJC | 2,036 | 15 | % | ||
| Total | $ | 12,900 | 8 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)
| Three Months Ended<br>October 30, 2021 | |||
|---|---|---|---|
| Gross Margin Percentage: | |||
| Americas | 64.5 | % | |
| EMEA | 64.4 | % | |
| APJC | 64.7 | % |
CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)
| Three Months Ended<br>October 30, 2021 | |||||
|---|---|---|---|---|---|
| Amount | Y/Y % | ||||
| Revenue: | |||||
| Secure, Agile Networks | $ | 5,967 | 10 | % | |
| Hybrid Work | 1,109 | (7 | )% | ||
| End-to-End Security | 895 | 4 | % | ||
| Internet for the Future | 1,374 | 46 | % | ||
| Optimized Application Experiences | 181 | 18 | % | ||
| Other Products | 3 | 9 | % | ||
| Total Product | 9,529 | 11 | % | ||
| Services | 3,371 | 1 | % | ||
| Total | $ | 12,900 | 8 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
Effective for the first quarter of fiscal 2022, we began reporting our revenue in the following categories: Secure, Agile Networks; Hybrid Work; End-to-End Security; Internet for the Future; Optimized Application Experiences; Other Products and Services. This change better aligns our product categories with our strategic priorities. The reclassified product category revenue by quarter for fiscal 2019 through fiscal 2021 as well as other information is available on Cisco’s Investor Relations website at https://investor.cisco.com/investor-relations/financial-information/Financial-Results/default.aspx.
6
CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
| July 31, 2021 | |||
|---|---|---|---|
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | 7,619 | $ | 9,175 |
| Investments | 15,727 | 15,343 | |
| Accounts receivable, net of allowance of 114 at October 30, 2021 and 109 at July 31,<br>2021 | 5,306 | 5,766 | |
| Inventories | 1,832 | 1,559 | |
| Financing receivables, net | 4,070 | 4,380 | |
| Other current assets | 3,034 | 2,889 | |
| Total current assets | 37,588 | 39,112 | |
| Property and equipment, net | 2,238 | 2,338 | |
| Financing receivables, net | 4,546 | 4,884 | |
| Goodwill | 38,802 | 38,168 | |
| Purchased intangible assets, net | 3,350 | 3,619 | |
| Deferred tax assets | 4,198 | 4,360 | |
| Other assets | 5,259 | 5,016 | |
| TOTAL ASSETS | 95,981 | $ | 97,497 |
| LIABILITIES AND EQUITY | |||
| Current liabilities: | |||
| Short-term debt | 506 | $ | 2,508 |
| Accounts payable | 2,261 | 2,362 | |
| Income taxes payable | 816 | 801 | |
| Accrued compensation | 3,231 | 3,818 | |
| Deferred revenue | 12,017 | 12,148 | |
| Other current liabilities | 4,407 | 4,620 | |
| Total current liabilities | 23,238 | 26,257 | |
| Long-term debt | 8,996 | 9,018 | |
| Income taxes payable | 8,553 | 8,538 | |
| Deferred revenue | 10,055 | 10,016 | |
| Other long-term liabilities | 2,438 | 2,393 | |
| Total liabilities | 53,280 | 56,222 | |
| Total equity | 42,701 | 41,275 | |
| TOTAL LIABILITIES AND EQUITY | 95,981 | $ | 97,497 |
All values are in US Dollars.
7
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| October 30,<br>2021 | October 24,<br>2020 | |||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 2,980 | $ | 2,174 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation, amortization, and other | 533 | 451 | ||||
| Share-based compensation expense | 453 | 438 | ||||
| Provision (benefit) for receivables | 1 | 13 | ||||
| Deferred income taxes | (98 | ) | (120 | ) | ||
| (Gains) losses on divestitures, investments and other, net | (211 | ) | (59 | ) | ||
| Change in operating assets and liabilities, net of effects of acquisitions and<br>divestitures: | ||||||
| Accounts receivable | 427 | 1,526 | ||||
| Inventories | (275 | ) | (21 | ) | ||
| Financing receivables | 672 | 167 | ||||
| Other assets | (170 | ) | (259 | ) | ||
| Accounts payable | (93 | ) | 73 | |||
| Income taxes, net | 17 | (84 | ) | |||
| Accrued compensation | (585 | ) | (165 | ) | ||
| Deferred revenue | (95 | ) | (45 | ) | ||
| Other liabilities | (129 | ) | 7 | |||
| Net cash provided by operating activities | 3,427 | 4,096 | ||||
| Cash flows from investing activities: | ||||||
| Purchases of investments | (2,951 | ) | (3,756 | ) | ||
| Proceeds from sales of investments | 580 | 657 | ||||
| Proceeds from maturities of investments | 1,856 | 1,425 | ||||
| Acquisitions, net of cash and cash equivalents acquired and divestitures | (336 | ) | (830 | ) | ||
| Purchases of investments in privately held companies | (101 | ) | (68 | ) | ||
| Return of investments in privately held companies | 53 | 29 | ||||
| Acquisition of property and equipment | (122 | ) | (171 | ) | ||
| Proceeds from sales of property and equipment | 1 | 4 | ||||
| Net cash used in investing activities | (1,020 | ) | (2,710 | ) | ||
| Cash flows from financing activities: | ||||||
| Issuances of common stock | — | 1 | ||||
| Repurchases of common stock - repurchase program | (273 | ) | (800 | ) | ||
| Shares repurchased for tax withholdings on vesting of restricted stock units | (133 | ) | (89 | ) | ||
| Repayments of debt | (2,000 | ) | — | |||
| Dividends paid | (1,561 | ) | (1,520 | ) | ||
| Other | (3 | ) | 35 | |||
| Net cash used in financing activities | (3,970 | ) | (2,373 | ) | ||
| Net decrease in cash, cash equivalents, and restricted cash | (1,563 | ) | (987 | ) | ||
| Cash, cash equivalents, and restricted cash, beginning of period | 9,942 | 11,812 | ||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 8,379 | $ | 10,825 | ||
| Supplemental cash flow information: | ||||||
| Cash paid for interest | $ | 124 | $ | 160 | ||
| Cash paid for income taxes, net | $ | 758 | $ | 710 |
8
CISCO SYSTEMS, INC.
REMAINING PERFORMANCE OBLIGATIONS
(In millions, except percentages)
| October 30, 2021 | July 31, 2021 | October 24, 2020 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Y/Y% | Amount | Y/Y% | Amount | Y/Y% | ||||||||||
| Product | $ | 13,384 | 18 | % | $ | 13,270 | 18 | % | $ | 11,340 | 15 | % | |||
| Service | 16,751 | 4 | % | 17,623 | 3 | % | 16,129 | 8 | % | ||||||
| Total | $ | 30,135 | 10 | % | $ | 30,893 | 9 | % | $ | 27,469 | 10 | % |
We expect 53% of total RPO at October 30, 2021 will be recognized as revenue over the next 12 months.
CISCO SYSTEMS, INC.
DEFERRED REVENUE
(Inmillions)
| October 30,<br>2021 | July 31,<br>2021 | October 24,<br>2020 | ||||
|---|---|---|---|---|---|---|
| Deferred revenue: | ||||||
| Product | $ | 9,681 | $ | 9,416 | $ | 8,139 |
| Service | 12,391 | 12,748 | 12,334 | |||
| Total | $ | 22,072 | $ | 22,164 | $ | 20,473 |
| Reported as: | ||||||
| Current | $ | 12,017 | $ | 12,148 | $ | 11,271 |
| Noncurrent | 10,055 | 10,016 | 9,202 | |||
| Total | $ | 22,072 | $ | 22,164 | $ | 20,473 |
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 2022 | ||||||||||||
| October 30, 2021 | $ | 0.37 | $ | 1,561 | 5 | $ | 56.49 | $ | 256 | $ | 1,817 | |
| Fiscal 2021 | ||||||||||||
| July 31, 2021 | $ | 0.37 | $ | 1,562 | 15 | $ | 53.30 | $ | 791 | $ | 2,353 | |
| May 1, 2021 | $ | 0.37 | $ | 1,560 | 10 | $ | 48.71 | $ | 510 | $ | 2,070 | |
| 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 |
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GAAP TO NON-GAAP NET INCOME
(In millions)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| October 30,<br>2021 | October 24,<br>2020 | |||||
| GAAP net income | $ | 2,980 | $ | 2,174 | ||
| Adjustments to cost of sales: | ||||||
| Share-based compensation expense | 69 | 65 | ||||
| Amortization of acquisition-related intangible assets | 198 | 163 | ||||
| Acquisition-related/divestiture costs | 1 | 1 | ||||
| Legal and indemnification settlements/charges | — | 43 | ||||
| Total adjustments to GAAP cost of sales | 268 | 272 | ||||
| Adjustments to operating expenses: | ||||||
| Share-based compensation expense | 383 | 362 | ||||
| Amortization of acquisition-related intangible assets | 84 | 36 | ||||
| Acquisition-related/divestiture costs | 112 | 59 | ||||
| Significant asset impairments and restructurings | 5 | 602 | ||||
| Total adjustments to GAAP operating expenses | 584 | 1,059 | ||||
| Adjustments to interest and other income (loss), net: | ||||||
| (Gains) and losses on equity investments | (219 | ) | (48 | ) | ||
| Total adjustments to GAAP interest and other income (loss), net | (219 | ) | (48 | ) | ||
| Total adjustments to GAAP income before provision for income taxes | 633 | 1,283 | ||||
| Income tax effect of non-GAAP adjustments | (138 | ) | (246 | ) | ||
| Total adjustments to GAAP provision for income taxes | (138 | ) | (246 | ) | ||
| Non-GAAP net income | $ | 3,475 | $ | 3,211 |
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GAAP TO NON-GAAP EPS
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| October 30,<br>2021 | October 24,<br>2020 | |||||
| GAAP EPS | $ | 0.70 | $ | 0.51 | ||
| Adjustments to GAAP: | ||||||
| Share-based compensation expense | 0.11 | 0.10 | ||||
| Amortization of acquisition-related intangible assets | 0.07 | 0.05 | ||||
| Acquisition-related/divestiture costs | 0.03 | 0.01 | ||||
| Legal and indemnification settlements/charges | — | 0.01 | ||||
| Significant asset impairments and restructurings | — | 0.14 | ||||
| (Gains) and losses on equity investments | (0.05 | ) | (0.01 | ) | ||
| Income tax effect of non-GAAP adjustments | (0.03 | ) | (0.06 | ) | ||
| Non-GAAP EPS | $ | 0.82 | $ | 0.76 |
Amounts may not sum due to rounding.
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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<br>October 30, 2021 | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 other<br>income<br>(loss),<br>net | Net<br>Income | Y/Y | |||||||||||||||||||||
| GAAP amount | $ | 5,856 | $ | 2,197 | $ | 8,053 | $ | 4,615 | (8 | )% | $ | 3,438 | 34 | % | $ | 219 | $ | 2,980 | 37 | % | ||||||||||
| % of revenue | 61.5 | % | 65.2 | % | 62.4 | % | 35.8 | % | 26.7 | % | 1.7 | % | 23.1 | % | ||||||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 25 | 44 | 69 | 383 | 452 | — | 452 | |||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 198 | — | 198 | 84 | 282 | — | 282 | |||||||||||||||||||||||
| Acquisition/divestiture-related costs | 1 | — | 1 | 112 | 113 | — | 113 | |||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 5 | 5 | — | 5 | |||||||||||||||||||||||
| (Gains) and losses on equity investments | — | — | — | — | — | (219 | ) | (219 | ) | |||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (138 | ) | ||||||||||||||||||||||
| Non-GAAP amount | $ | 6,080 | $ | 2,241 | $ | 8,321 | $ | 4,031 | 2 | % | $ | 4,290 | 10 | % | $ | — | $ | 3,475 | 8 | % | ||||||||||
| % of revenue | 63.8 | % | 66.5 | % | 64.5 | % | 31.2 | % | 33.3 | % | — | % | 26.9 | % | ||||||||||||||||
| Three Months Ended<br>October 24, 2020 | ||||||||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||
| Product<br>Gross<br>Margin | Service<br>Gross<br>Margin | Total Gross<br>Margin | Operating<br>Expenses | Operating<br>Income | Interest and<br>other<br>income<br>(loss), net | Net<br>Income | ||||||||||||||||||||||||
| GAAP amount | $ | 5,381 | $ | 2,200 | $ | 7,581 | $ | 5,011 | $ | 2,570 | $ | 111 | $ | 2,174 | ||||||||||||||||
| % of revenue | 62.7 | % | 65.8 | % | 63.6 | % | 42.0 | % | 21.5 | % | 0.9 | % | 18.2 | % | ||||||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 24 | 41 | 65 | 362 | 427 | — | 427 | |||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 163 | — | 163 | 36 | 199 | — | 199 | |||||||||||||||||||||||
| Acquisition/divestiture-related costs | — | 1 | 1 | 59 | 60 | — | 60 | |||||||||||||||||||||||
| Legal and indemnification settlements/charges | 43 | — | 43 | — | 43 | — | 43 | |||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 602 | 602 | — | 602 | |||||||||||||||||||||||
| (Gains) and losses on equity investments | — | — | — | — | — | (48 | ) | (48 | ) | |||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (246 | ) | ||||||||||||||||||||||
| Non-GAAP amount | $ | 5,611 | $ | 2,242 | $ | 7,853 | $ | 3,952 | $ | 3,901 | $ | 63 | $ | 3,211 | ||||||||||||||||
| % of revenue | 65.3 | % | 67.1 | % | 65.8 | % | 33.1 | % | 32.7 | % | 0.5 | % | 26.9 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
EFFECTIVE TAX RATE
(Inpercentages)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| October 30,<br>2021 | October 24,<br>2020 | |||||
| GAAP effective tax rate | 18.5 | % | 18.9 | % | ||
| Total adjustments to GAAP provision for income taxes | 0.5 | % | 0.1 | % | ||
| Non-GAAP effective tax rate | 19.0 | % | 19.0 | % |
GAAP TO NON-GAAP GUIDANCE
| Q2 FY 2022 | Gross Margin<br>Rate | Operating Margin<br>Rate | Earnings per<br>Share ^(1)^ | |||
|---|---|---|---|---|---|---|
| GAAP | 61.5% - 62.5% | 26% - 27% | $ | 0.64 - $0.68 | ||
| Estimated adjustments for: | ||||||
| Share-based compensation expense | 0.5% | 4.0% | $ | 0.08 - $0.09 | ||
| Amortization of acquisition-related intangible assets and acquisition/divestiture-related<br>costs | 1.5% | 2.5% | $ | 0.06 - $0.07 | ||
| Non-GAAP | 63.5% - 64.5% | 32.5% -33.5% | $ | 0.80 - $0.82 | ||
| FY 2022 | Earnings per<br>Share ^(1)^ | |||||
| --- | --- | --- | --- | |||
| GAAP | $ | 2.77 - $2.89 | ||||
| Estimated adjustments for: | ||||||
| Share-based compensation expense | $ | 0.34 - $0.36 | ||||
| Amortization of acquisition-related intangible assets and acquisition/divestiture-related<br>costs | $ | 0.26 - $0.28 | ||||
| Significant asset impairments and restructurings | $ | 0.00 - $0.01 | ||||
| (Gains) and losses on equity investments | ($0.04) | |||||
| Non-GAAP | $ | 3.38 - $3.45 | ||||
| ^(1)^ | 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, (gains) and losses on equity investments and significant tax matters or other events, which may or may not be significant unless specifically stated.
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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 our ability to innovate, the demand for our technology, the continued success of our business transformation, the growth of our business, and the continued progress in our business model transformation to more recurring revenue) and the future financial performance of Cisco (including the guidance for Q2 FY 2022 and full year FY 2022) 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 and related public health measures; 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 Secure, Agile Networks 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, 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 malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events (including as a result of global climate change); 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 report on Form 10-K filed on September 9, 2021. 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 report on Form 10-K as it may be amended from time to time. Cisco’s results of operations for the three months ended October 30, 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.
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Annualized Recurring Revenue represents the annualized revenue run-rate of active subscriptions, term licenses, 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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