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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 47.38+1.3%3:59 PM EDT

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From: Eric5/17/2023 4:13:08 PM
   of 77393
 


Cisco Systems, Inc. has added a new press release to its website:

CISCO REPORTS THIRD QUARTER EARNINGS

SAN JOSE, Calif., May 17, 2023 /PRNewswire/ --



News Summary:

$14.6 billion in revenue, up 14% year over year; GAAP EPS $0.78, up 7% year over year, and Non-GAAP EPS $1.00, up 15% year over yearQ3 FY 2023 operating cash flow of $5.2 billion, up 43%Continued progress on business model transformation:Total software revenue up 18% year over year and software subscription revenue up 17% year over yearTotal annualized recurring revenue (ARR) at $23.8 billion, up 6% year over year and product ARR up 10% year over yearRemaining performance obligations (RPO) at $32.1 billion, up 6% year over year and product RPO up 9% year over yearQ3 FY 2023 Results: Revenue: $14.6 billionIncrease of 14% year over yearEarnings per Share: GAAP: $0.78; Non-GAAP: $1.00GAAP EPS increased 7% year over yearNon-GAAP EPS increased 15% year over yearQ4 FY 2023 Guidance: Revenue: 14% to 16% growth year over yearEarnings per Share: GAAP: $0.82 to $0.87; Non-GAAP: $1.05 to $1.07FY 2023 Guidance: Revenue: 10% to 10.5% growth year over yearEarnings per Share: GAAP: $2.93 to $2.98; Non-GAAP: $3.80 to $3.82 Cisco today reported third quarter results for the period ended April 29, 2023. Cisco reported third quarter revenue of $14.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.2 billion or $0.78 per share, and non-GAAP net income of $4.1 billion or $1.00 per share.

"We once again delivered a strong quarter in a dynamic environment," said Chuck Robbins, chair and CEO of Cisco. "In Q3, we delivered record revenue and double-digit growth in both software and subscription revenue. As key technologies like cloud, AI and security continue to scale, Cisco's long-established leadership in networking, and the breadth of our portfolio position us well for the future."

"Our operational discipline and focused execution resulted in strong top and bottom-line growth, margin expansion and record operating cash flow," said Scott Herren, CFO of Cisco. "Our healthy backlog, recurring revenue streams and RPO, as well as the improving availability of supply, underpin our confidence to increase full year guidance."

GAAP Results




Q3 FY 2023


Q3 FY 2022


Vs. Q3 FY 2022

Revenue


$

14.6 billion


$

12.8 billion


14 %

Net Income


$

3.2 billion


$

3.0 billion


6 %

Diluted Earnings per Share (EPS)


$

0.78


$

0.73


7 %



Non-GAAP Results




Q3 FY 2023


Q3 FY 2022


Vs. Q3 FY 2022

Net Income


$

4.1 billion


$

3.6 billion


13 %

EPS


$

1.00


$

0.87


15 %

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 Declares Quarterly Dividend

Cisco has declared a quarterly dividend of $0.39 per common share to be paid on July 26, 2023, to all stockholders of record as of the close of business on July 6, 2023. Future dividends will be subject to Board approval.

Financial Summary

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

Q3 FY 2023 Highlights

Revenue -- Total revenue was up 14% at $14.6 billion, with product revenue up 17% and service revenue was up 3%. Revenue by geographic segment was: Americas up 13%, EMEA up 16%, and APJC was up 11%. Product revenue performance was led by growth in Secure, Agile Networks up 29%, Internet for the Future up 5%, End-to-End Security up 2%, and Optimized Application Experiences up 12%. Collaboration was down 13%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.4%, 62.7%, and 65.4%, respectively, as compared with 63.3%, 61.8%, and 67.3%, respectively, in the third quarter of fiscal 2022.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.2%, 64.5%, and 67.3%, respectively, as compared with 65.3%, 64.1%, and 68.9%, respectively, in the third quarter of fiscal 2022.

Total gross margins by geographic segment were: 64.2% for the Americas, 66.6% for EMEA and 66.4% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $5.3 billion, up 17%, and were 36.3% of revenue. Non-GAAP operating expenses were $4.6 billion, up 16%, and were 31.3% of revenue.

Operating Income -- GAAP operating income was $3.9 billion, up 9%, with GAAP operating margin of 27.1%. Non-GAAP operating income was $4.9 billion, up 11%, with non-GAAP operating margin at 33.9%.

Provision for Income Taxes -- The GAAP tax provision rate was 18.8%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $3.2 billion, an increase of 6%, and EPS was $0.78, an increase of 7%. On a non-GAAP basis, net income was $4.1 billion, an increase of 13%, and EPS was $1.00, an increase of 15%.

Cash Flow from Operating Activities -- $5.2 billion for the third quarter of fiscal 2023, an increase of 43% compared with $3.7 billion for the third quarter of fiscal 2022.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $23.3 billion at the end of the third quarter of fiscal 2023, compared with $19.3 billion at the end of fiscal 2022.

Remaining Performance Obligations (RPO) -- $32.1 billion, up 6% in total, with 53% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 9% and service RPO were up 4%.

Deferred Revenue -- $24.3 billion, up 9% in total, with deferred product revenue up 11%. Deferred service revenue was up 7%.

Capital Allocation -- In the third quarter of fiscal 2023, we returned $2.9 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 $49.45 per share for an aggregate purchase price of $1.3 billion. The remaining authorized amount for stock repurchases under the program is $12.2 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2023, we closed the acquisition of Valtix, a privately held cloud network security company.

Guidance

Cisco expects to achieve the following results for the fourth quarter of fiscal 2023:

Q4 FY 2023



Revenue


14% – 16% growth Y/Y

Non-GAAP gross margin rate


64.5% – 65.5%

Non-GAAP operating margin rate


34% – 35%

Non-GAAP EPS


$1.05 – $1.07

Cisco estimates that GAAP EPS will be $0.82 to $0.87 for the fourth quarter of fiscal 2023.

Cisco expects to achieve the following results for fiscal 2023:

FY 2023



Revenue


10% – 10.5% growth Y/Y

Non-GAAP EPS


$3.80 – $3.82

Cisco estimates that GAAP EPS will be $2.93 to $2.98 for fiscal 2023.

Our Q4 FY 2023 guidance assumes an effective tax provision rate of 18% for GAAP and 19% for non-GAAP results. Our FY 2023 guidance assumes an effective tax provision rate of 20% 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:

Q3 fiscal year 2023 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, May 17, 2023 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international). Conference call replay will be available from 4:00 p.m. Pacific Time, May 17, 2023 to 4:00 p.m. Pacific Time, May 24, 2023 at 1-800-395-6236 (United States) or 1-203-369-3270 (international). The replay will also be available via webcast on the Cisco Investor Relations website at u27227478.ct.sendgrid.net. Additional information regarding Cisco's financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 17, 2023. Text of the conference call's prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at u27227478.ct.sendgrid.net.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)



Three Months Ended


Nine Months Ended


April 29, 2023


April 30, 2022


April 29, 2023


April 30, 2022

REVENUE:








Product

$ 11,092


$ 9,448


$ 31,492


$ 28,330

Service

3,479


3,387


10,303


10,125

Total revenue

14,571


12,835


41,795


38,455

COST OF SALES:








Product

4,136


3,606


12,353


10,848

Service

1,203


1,108


3,437


3,384

Total cost of sales

5,339


4,714


15,790


14,232

GROSS MARGIN

9,232


8,121


26,005


24,223

OPERATING EXPENSES:








Research and development

1,962


1,708


5,598


5,092

Sales and marketing

2,526


2,209


7,301


6,736

General and administrative

641


517


1,788


1,612

Amortization of purchased intangible assets

70


77


212


240

Restructuring and other charges

87





328


8

Total operating expenses

5,286


4,511


15,227


13,688

OPERATING INCOME

3,946


3,610


10,778


10,535

Interest income

262


115


650


347

Interest expense

(109)


(90)


(316)


(267)

Other income (loss), net

(142)


166


(265)


446

Interest and other income (loss), net

11


191


69


526

INCOME BEFORE PROVISION FOR INCOME TAXES

3,957


3,801


10,847


11,061

Provision for income taxes

745


757


2,192


2,064

NET INCOME

$ 3,212


$ 3,044


$ 8,655


$ 8,997









Net income per share:








Basic

$ 0.79


$ 0.73


$ 2.11


$ 2.15

Diluted

$ 0.78


$ 0.73


$ 2.11


$ 2.14

Shares used in per-share calculation:








Basic

4,089


4,152


4,100


4,184

Diluted

4,110


4,170


4,111


4,204



CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)




April 29, 2023



Three Months Ended


Nine Months Ended



Amount


Y/Y %


Amount


Y/Y %

Revenue :









Americas


$ 8,634


13 %


$ 24,372


9 %

EMEA


3,806


16 %


11,209


11 %

APJC


2,131


11 %


6,214


4 %

Total


$ 14,571


14 %


$ 41,795


9 %


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



CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)




April 29, 2023



Three Months Ended


Nine Months Ended

Gross Margin Percentage :





Americas


64.2 %


63.4 %

EMEA


66.6 %


65.4 %

APJC


66.4 %


64.2 %



CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)




April 29, 2023



Three Months Ended


Nine Months Ended



Amount


Y/Y %


Amount


Y/Y %

Revenue :









Secure, Agile Networks


$ 7,550


29 %


$ 20,980


18 %

Internet for the Future


1,392


5 %


4,007


— %

Collaboration


985


(13) %


3,029


(8) %

End-to-End Security


958


2 %


2,872


6 %

Optimized Application Experiences


204


12 %


597


10 %

Other Products


3


19 %


7


(7) %

Total Product


11,092


17 %


31,492


11 %

Services


3,479


3 %


10,303


2 %

Total


$ 14,571


14 %


$ 41,795


9 %


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



CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



April 29, 2023


July 30, 2022

ASSETS




Current assets:




Cash and cash equivalents

$ 8,044


$ 7,079

Investments

15,244


12,188

Accounts receivable, net of allowance of $83 as of each of April 29, 2023 and July 30, 2022

5,104


6,622

Inventories

3,474


2,568

Financing receivables, net

3,402


3,905

Other current assets

4,682


4,355

Total current assets

39,950


36,717

Property and equipment, net

2,047


1,997

Financing receivables, net

3,393


4,009

Goodwill

38,369


38,304

Purchased intangible assets, net

1,966


2,569

Deferred tax assets

5,817


4,449

Other assets

5,987


5,957

TOTAL ASSETS

$ 97,529


$ 94,002

LIABILITIES AND EQUITY




Current liabilities:




Short-term debt

$ 1,731


$ 1,099

Accounts payable

2,442


2,281

Income taxes payable

3,132


961

Accrued compensation

3,352


3,316

Deferred revenue

13,249


12,784

Other current liabilities

4,813


5,199

Total current liabilities

28,719


25,640

Long-term debt

6,663


8,416

Income taxes payable

6,725


7,725

Deferred revenue

11,011


10,480

Other long-term liabilities

2,116


1,968

Total liabilities

55,234


54,229

Total equity

42,295


39,773

TOTAL LIABILITIES AND EQUITY

$ 97,529


$ 94,002



CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Nine Months Ended


April 29,
2023


April 30,
2022

Cash flows from operating activities:




Net income

$ 8,655


$ 8,997

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




Depreciation, amortization, and other

1,304


1,527

Share-based compensation expense

1,720


1,407

Provision (benefit) for receivables

11


49

Deferred income taxes

(1,343)


(167)

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

243


(470)

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




Accounts receivable

1,494


(134)

Inventories

(894)


(683)

Financing receivables

1,126


1,431

Other assets

(428)


(1,295)

Accounts payable

156


(54)

Income taxes, net

1,120


(730)

Accrued compensation

25


(730)

Deferred revenue

1,055


292

Other liabilities

(324)


109

Net cash provided by operating activities

13,920


9,549

Cash flows from investing activities:




Purchases of investments

(7,652)


(5,383)

Proceeds from sales of investments

802


2,488

Proceeds from maturities of investments

3,789


4,308

Acquisitions, net of cash and cash equivalents acquired and divestitures

(96)


(373)

Purchases of investments in privately held companies

(162)


(158)

Return of investments in privately held companies

72


149

Acquisition of property and equipment

(616)


(338)

Proceeds from sales of property and equipment

2


6

Other

(26)


(15)

Net cash (used in) provided by investing activities

(3,887)


684

Cash flows from financing activities:




Issuances of common stock

316


306

Repurchases of common stock - repurchase program

(3,029)


(5,347)

Shares repurchased for tax withholdings on vesting of restricted stock units

(444)


(546)

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

(602)


9

Issuances of debt




1,049

Repayments of debt

(500)


(3,050)

Dividends paid

(4,713)


(4,657)

Other

(4)


(108)

Net cash used in financing activities

(8,976)


(12,344)

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents

(90)


(122)

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

967


(2,233)

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

8,579


9,942

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

$ 9,546


$ 7,709

Supplemental cash flow information:




Cash paid for interest

$ 306


$ 292

Cash paid for income taxes, net

$ 2,414


$ 2,960



CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)



April 29, 2023


January 28, 2023


April 30, 2022


Amount


Y/Y%


Amount


Y/Y%


Amount


Y/Y%

Product

$ 14,681


9 %


$ 14,517


7 %


$ 13,416


13 %

Service

17,401


4 %


17,255


2 %


16,789


3 %

Total

$ 32,082


6 %


$ 31,772


4 %


$ 30,205


7 %


We expect 53% of total RPO at April 29, 2023 will be recognized as revenue over the next 12 months.



CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)



April 29, 2023


January 28, 2023


April 30, 2022

Deferred revenue:






Product

$ 10,895


$ 10,679


$ 9,835

Service

13,365


13,248


12,458

Total

$ 24,260


$ 23,927


$ 22,293

Reported as:






Current

$ 13,249


$ 13,109


$ 12,249

Noncurrent

11,011


10,818


10,044

Total

$ 24,260


$ 23,927


$ 22,293



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-
Average Price
per Share


Amount


Amount

Fiscal 2023













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

Fiscal 2022













July 30, 2022


$ 0.38


$ 1,567


54


$ 44.02


$ 2,402


$ 3,969

April 30, 2022


$ 0.38


$ 1,555


5


$ 54.20


$ 252


$ 1,807

January 29, 2022


$ 0.37


$ 1,541


82


$ 58.36


$ 4,824


$ 6,365

October 30, 2021


$ 0.37


$ 1,561


5


$ 56.49


$ 256


$ 1,817



CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


GAAP TO NON-GAAP NET INCOME

(In millions)



Three Months Ended


Nine Months Ended


April 29,
2023


April 30,
2022


April 29,
2023


April 30,
2022

GAAP net income

$ 3,212


$ 3,044


$ 8,655


$ 8,997

Adjustments to cost of sales:








Share-based compensation expense

106


83


293


233

Amortization of acquisition-related intangible assets

156


176


462


571

Acquisition-related/divestiture costs

1


1


4


3

Russia-Ukraine war costs




5





5

Total adjustments to GAAP cost of sales

263


265


759


812

Adjustments to operating expenses:








Share-based compensation expense

518


394


1,431


1,173

Amortization of acquisition-related intangible assets

70


92


212


255

Acquisition-related/divestiture costs

55


29


178


261

Russia-Ukraine war costs

2


62


7


62

Significant asset impairments and restructurings

87





328


8

Total adjustments to GAAP operating expenses

732


577


2,156


1,759

Adjustments to interest and other income (loss), net:








(Gains) and losses on investments

123


(159)


188


(478)

Total adjustments to GAAP interest and other income (loss), net

123


(159)


188


(478)

Total adjustments to GAAP income before provision for income taxes

1,118


683


3,103


2,093

Income tax effect of non-GAAP adjustments

(219)


(95)


(623)


(435)

Significant tax matters







164




Total adjustments to GAAP provision for income taxes

(219)


(95)


(459)


(435)

Non-GAAP net income

$ 4,111


$ 3,632


$ 11,299


$ 10,655



CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


GAAP TO NON-GAAP EPS



Three Months Ended


Nine Months Ended


April 29,
2023


April 30,
2022


April 29,
2023


April 30,
2022

GAAP EPS

$ 0.78


$ 0.73


$ 2.11


$ 2.14

Adjustments to GAAP:








Share-based compensation expense

0.15


0.11


0.42


0.33

Amortization of acquisition-related intangible assets

0.06


0.06


0.16


0.20

Acquisition-related/divestiture costs

0.01


0.01


0.04


0.06

Russia-Ukraine war costs




0.02





0.02

Significant asset impairments and restructurings

0.02





0.08




(Gains) and losses on investments

0.03


(0.04)


0.05


(0.11)

Income tax effect of non-GAAP adjustments

(0.05)


(0.02)


(0.15)


(0.10)

Significant tax matters







0.04




Non-GAAP EPS

$ 1.00


$ 0.87


$ 2.75


$ 2.53

Amounts may not sum due to rounding.



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


April 29, 2023


Product
Gross
Margin


Service
Gross
Margin


Total
Gross
Margin


Operating
Expenses


Y/Y


Operating
Income


Y/Y


Interest
and
other
income
(loss), net


Net Income


Y/Y

GAAP amount

$ 6,956


$ 2,276


$ 9,232


$ 5,286


17 %


$ 3,946


9 %


$ 11


$ 3,212


6 %

% of revenue

62.7 %


65.4 %


63.4 %


36.3 %




27.1 %




0.1 %


22.0 %



Adjustments to GAAP amounts:

















Share-based compensation expense

40


66


106


518




624







624



Amortization of acquisition-related intangible assets

156





156


70




226







226



Acquisition/divestiture-related costs

1





1


55




56







56



Significant asset impairments and restructurings










87




87







87



Russia-Ukraine war costs










2




2







2



(Gains) and losses on investments




















123


123



Income tax effect/significant tax matters























(219)



Non-GAAP amount

$ 7,153


$ 2,342


$ 9,495


$ 4,554


16 %


$ 4,941


11 %


$ 134


$ 4,111


13 %

% of revenue

64.5 %


67.3 %


65.2 %


31.3 %




33.9 %




0.9 %


28.2 %






Three Months Ended


April 30, 2022


Product
Gross
Margin


Service
Gross
Margin


Total
Gross
Margin


Operating
Expenses


Operating

Income


Interest
and
other
income
(loss), net


Net

Income

GAAP amount

$ 5,842


$ 2,279


$ 8,121


$ 4,511


$ 3,610


$ 191


$ 3,044

% of revenue

61.8 %


67.3 %


63.3 %


35.1 %


28.1 %


1.5 %


23.7 %

Adjustments to GAAP amounts:














Share-based compensation expense

30


53


83


394


477





477

Amortization of acquisition-related intangible assets

176





176


92


268





268

Acquisition/divestiture-related costs

1





1


29


30





30

Russia-Ukraine war costs

4


1


5


62


67





67

(Gains) and losses on investments
















(159)


(159)

Income tax effect/significant tax matters



















(95)

Non-GAAP amount

$ 6,053


$ 2,333


$ 8,386


$ 3,934


$ 4,452


$ 32


$ 3,632

% of revenue

64.1 %


68.9 %


65.3 %


30.7 %


34.7 %


0.2 %


28.3 %


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



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)



Nine Months Ended


April 29, 2023


Product
Gross
Margin


Service
Gross
Margin


Total
Gross
Margin


Operating
Expenses


Y/Y


Operating
Income


Y/Y


Interest
and
other
income
(loss), net


Net Income


Y/Y

GAAP amount

$ 19,139


$ 6,866


$ 26,005


$ 15,227


11 %


$ 10,778


2 %


$ 69


$ 8,655


(4) %

% of revenue

60.8 %


66.6 %


62.2 %


36.4 %




25.8 %




0.2 %


20.7 %



Adjustments to GAAP amounts:

















Share-based compensation expense

111


182


293


1,431




1,724







1,724



Amortization of acquisition-related intangible assets

462





462


212




674







674



Acquisition/divestiture-related costs

4





4


178




182







182



Significant asset impairments and restructurings










328




328







328



Russia-Ukraine war costs










7




7







7



(Gains) and losses on investments




















188


188



Income tax effect/significant tax matters























(459)



Non-GAAP amount

$ 19,716


$ 7,048


$ 26,764


$ 13,071


10 %


$ 13,693


4 %


$ 257


$ 11,299


6 %

% of revenue

62.6 %


68.4 %


64.0 %


31.3 %




32.8 %




0.6 %


27.0 %






Nine Months Ended


April 30, 2022


Product
Gross
Margin


Service
Gross
Margin


Total
Gross
Margin


Operating
Expenses


Operating

Income


Interest
and
other
income
(loss), net


Net

Income

GAAP amount

$ 17,482


$ 6,741


$ 24,223


$ 13,688


$ 10,535


$ 526


$ 8,997

% of revenue

61.7 %


66.6 %


63.0 %


35.6 %


27.4 %


1.4 %


23.4 %

Adjustments to GAAP amounts:














Share-based compensation expense

84


149


233


1,173


1,406





1,406

Amortization of acquisition-related intangible assets

571





571


255


826





826

Acquisition/divestiture-related costs

3





3


261


264





264

Russia-Ukraine war costs

4


1


5


62


67





67

Significant asset impairments and restructurings










8


8





8

(Gains) and losses on investments
















(478)


(478)

Income tax effect/significant tax matters



















(435)

Non-GAAP amount

$ 18,144


$ 6,891


$ 25,035


$ 11,929


$ 13,106


$ 48


$ 10,655

% of revenue

64.0 %


68.1 %


65.1 %


31.0 %


34.1 %


0.1 %


27.7 %


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



CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


EFFECTIVE TAX RATE

(In percentages)



Three Months Ended


Nine Months Ended


April 29, 2023


April 30, 2022


April 29, 2023


April 30, 2022

GAAP effective tax rate

18.8 %


19.9 %


20.2 %


18.7 %

Total adjustments to GAAP provision for income taxes

0.2 %


(0.9) %


(1.2) %


0.3 %

Non-GAAP effective tax rate

19.0 %


19.0 %


19.0 %


19.0 %



GAAP TO NON-GAAP GUIDANCE


Q4 FY 2023


Gross Margin
Rate


Operating Margin
Rate


Earnings per
Share (2)

GAAP


62.5% – 63.5%


26.5% – 27.5%


$0.82 – $0.87

Estimated adjustments for:







Share-based compensation expense


1.0 %


4.0 %


$0.11 – $0.12

Amortization of acquisition-related intangible assets and
acquisition/divestiture-related costs


1.0 %


2.0 %


$0.05 – $0.06

Significant asset impairments and restructurings (1)





1.5 %


$0.04 – $0.05

Non-GAAP


64.5% – 65.5%


34% – 35%


$1.05 – $1.07



FY 2023


Earnings per
Share (2)

GAAP


$2.93 – $2.98

Estimated adjustments for:



Share-based compensation expense


$0.45 – $0.46

Amortization of acquisition-related intangible assets and
acquisition/divestiture-related costs


$0.22 – $0.23

Significant asset impairments and restructurings (1)


$0.10 – $0.11

(Gains) and losses on investments


$0.03

Significant tax matters


$0.04

Non-GAAP


$3.80 – $3.82



(1)

On November 16, 2022, Cisco announced a restructuring plan in order to rebalance the organization and enable further investment in key priority areas. We expect to recognize approximately $200 million of restructuring charges in the fourth quarter of fiscal 2023.

(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.

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 key technologies like cloud, AI and security continuing to scale, our continued leadership in networking, the breadth of our portfolio to position us well for the future, our healthy backlog, recurring revenue streams, RPO and the continued improving availability of supply) and the future financial performance of Cisco (including the guidance for Q4 FY 2023 and full year FY 2023) 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; significant 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 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 reports on Forms 10-Q and 10-K filed on February 21, 2023 and September 8, 2022, 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 nine months ended April 29, 2023 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 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

Cisco (Nasdaq: CSCO) is the worldwide leader in technology that powers the Internet. Cisco inspires new possibilities by reimagining your applications, securing your data, transforming your infrastructure, and empowering your teams for a global and inclusive future. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2023 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

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