Cisco Reports Third Quarter FY19 Earnings

SAN JOSE, Calif., May 15, 2019 — Cisco today reported third quarter results for the period ended April 27, 2019. Cisco reported third quarter revenue of $13.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.0 billion or $0.69 per share, and non-GAAP net income of $3.5 billion or $0.78 per share.

As previously disclosed, Cisco completed the divestiture of the Service Provider Video Software Solutions (SPVSS) business in the second quarter of fiscal 2019 on October 28, 2018. Revenue, non-GAAP financial information, and Q4 FY 2019 guidance have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

“Our strong performance in the quarter was across the business, reflecting our customers’ confidence in our strategy, business model and market-leading portfolio,” said Chuck Robbins, chairman and CEO of Cisco. “Technology is at the heart of our customers’ strategies and we are building the technology to help them achieve their business objectives.”

GAAP Results
Q3 FY 2019 Q3 FY 2018 Vs. Q3 FY 2018
Revenue (including SPVSS business for all periods) $ 13.0 billion $ 12.5 billion 4%
Revenue (excluding SPVSS business for all periods) $ 13.0 billion $ 12.2 billion 6%
Net Income $ 3.0 billion $ 2.7 billion 13%
Diluted Earnings per Share (EPS) $ 0.69 $ 0.56 23%

 

Non-GAAP Results
Q3 FY 2019 Q3 FY 2018 Vs. Q3 FY 2018
Net Income (excluding SPVSS business for all periods) $ 3.5 billion $ 3.2 billion 8%
EPS (excluding SPVSS business for all periods) $ 0.78 $ 0.66 18%

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

“We executed well in Q3, delivering revenue growth of 6%, non-GAAP EPS growth of 18%, as well as strong margins and cash flow,” said Kelly Kramer, CFO of Cisco. “We continue to invest in our innovation pipeline to drive long-term profitable growth, while successfully evolving our business model through software offerings and subscriptions and delivering value for shareholders.”

Financial Summary

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

All revenue, non-GAAP, and geographic financial information in the “Q3 FY 2019 Highlights” section are presented excluding the SPVSS business for all periods as it was divested during the second quarter, on October 28, 2018.

Q3 FY 2019 Highlights

Revenue — Total revenue was $13.0 billion, up 6%, with product revenue up 7% and service revenue up 3%. Revenue by geographic segment was: Americas up 9%, EMEA up 5%, and APJC down 4%. Product revenue performance was broad based with growth in Security, up 21%, Applications, up 9%, and Infrastructure Platforms, up 5%.

Gross Margin —  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.1%, 62.0%, and 66.3%, respectively, as compared with 62.3%, 61.0%, and 65.8%, respectively, in the third quarter of fiscal 2018.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 64.6%, 63.7%, and 67.3%, respectively, as compared with 64.5%, 63.7%, and 67.1%, respectively, in the third quarter of fiscal 2018.

Total gross margins by geographic segment were: 65.6% for the Americas, 64.5% for EMEA and 60.7% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.7 billion, up 1%. Non-GAAP operating expenses were $4.2 billion, up 6%, and were 32.4% of revenue.

Operating Income — GAAP operating income was $3.5 billion, up 12%, with GAAP operating margin of 27.1%. Non-GAAP operating income was $4.2 billion, up 6%, with non-GAAP operating margin at 32.2%.

Provision for Income Taxes — The GAAP tax provision rate was 15.8%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS — On a GAAP basis, net income was $3.0 billion and EPS was $0.69. On a non-GAAP basis, net income was $3.5 billion, an increase of 8%, and EPS was $0.78, an increase of 18%.

Cash Flow from Operating Activities — $4.3 billion for the third quarter of fiscal 2019, an increase of 79% compared with $2.4 billion for the third quarter of fiscal 2018. Operating cash flow for the third quarter of fiscal 2018 included the payment of $1.3 billion of one-time foreign taxes as related to the Tax Cuts and Jobs Act. Operating cash flow increased 16%, normalized for these tax payments.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $34.6 billion at the end of the third quarter of fiscal 2019, compared with $40.4 billion at the end of the second quarter of fiscal 2019, and compared with $46.5 billion at the end of fiscal 2018.

Deferred Revenue — $17.5 billion, down 8% in total, with deferred product revenue down 23%. Deferred service revenue was up 3%.

Capital Allocation — In the third quarter of fiscal 2019, we returned $7.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.35 per common share, or $1.5 billion, and repurchased approximately 116 million shares of common stock under our stock repurchase program at an average price of $52.14 per share for an aggregate purchase price of $6.0 billion. The remaining authorized amount for stock repurchases under the program is $18.0 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2019, we closed the acquisitions of Luxtera, Inc., a privately held semiconductor company, and Singularity Networks, a privately held network infrastructure analytics company.

Guidance for Q4 FY 2019

Cisco expects to achieve the following results for the fourth quarter of fiscal 2019 (normalized to exclude the divested SPVSS business):

Q4 FY 2019
Revenue 4.5% – 6.5% growth Y/Y
Non-GAAP gross margin rate 64% – 65%
Non-GAAP operating margin rate 31% – 32%
Non-GAAP tax provision rate 19%
Non-GAAP EPS $0.80 – $0.82

Revenue for the divested SPVSS business for the fourth quarter of fiscal 2018 was $206 million.

Cisco estimates that GAAP EPS will be $0.66 to $0.71 in the fourth quarter of fiscal 2019.

A reconciliation between the Guidance for Q4 FY 2019 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q4 FY 2019” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

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