SAN JOSE, Calif., Cisco today reported fourth quarter and fiscal year results for the period ended July 27, 2019. Cisco reported fourth quarter revenue of $13.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.51 per share, and non-GAAP net income of $3.6 billion or $0.83per 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 Q1 FY 2020 guidance have been normalized to exclude the SPVSS business from prior periods for comparative purposes.
“Our Q4 results marked a strong end to a great year. We are executing well in a dynamic environment, delivering tremendous innovation across our portfolio and extending our market leadership,” said Chuck Robbins, chairman and CEO of Cisco. “We are committed to providing our customers ongoing value through differentiated solutions, and we are well positioned to take advantage of the long-term growth opportunities ahead.”
Q4 GAAP Results |
||||||||||
Q4 FY 2019 |
Q4 FY 2018 |
Vs. Q4 FY 2018 |
||||||||
Revenue (including SPVSS business for all periods) |
$ |
13.4 billion |
$ |
12.8 billion |
5% |
|||||
Revenue (excluding SPVSS business for all periods) |
$ |
13.4 billion |
$ |
12.6 billion |
6% |
|||||
Net Income |
$ |
2.2 billion |
$ |
3.8 billion |
(42)% |
|||||
Diluted Earnings per Share (EPS) |
$ |
0.51 |
$ |
0.81 |
(37)% |
Q4 GAAP results for fiscal 2019 and 2018 include a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act.
Q4 Non-GAAP Results |
||||||||||
Q4 FY 2019 |
Q4 FY 2018 |
Vs. Q4 FY 2018 |
||||||||
Net Income (excluding SPVSS business for all periods) |
$ |
3.6 billion |
$ |
3.3 billion |
9% |
|||||
EPS (excluding SPVSS business for all periods) |
$ |
0.83 |
$ |
0.70 |
19% |
|||||
Fiscal Year GAAP Results |
||||||||||
FY 2019 |
FY 2018 |
Vs. FY 2018 |
||||||||
Revenue (including SPVSS business for all periods) |
$ |
51.9 billion |
$ |
49.3 billion |
5% |
|||||
Revenue (excluding SPVSS business for all periods) |
$ |
51.7 billion |
$ |
48.4 billion |
7% |
|||||
Net Income |
$ |
11.6 billion |
$ |
0.1 billion |
NM |
|||||
EPS |
$ |
2.61 |
$ |
0.02 |
NM |
NM – Not meaningful
GAAP results for fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.
Fiscal Year Non-GAAP Results |
||||||||||
FY 2019 |
FY 2018 |
Vs. FY 2018 |
||||||||
Net Income (excluding SPVSS business for all periods) |
$ |
13.8 billion |
$ |
12.7 billion |
9% |
|||||
EPS (excluding SPVSS business for all periods) |
$ |
3.10 |
$ |
2.59 |
20% |
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 are pleased with our solid execution and performance in Q4, delivering revenue growth of 6%, non-GAAP EPS growth of 19%, and strong margins,” said Kelly Kramer, CFO of Cisco. “We continue to transform our business model with software subscriptions now at 70% of our software revenue. The returns on our investments in key strategic areas position Cisco for long-term growth and shareholder value.”
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 “Q4 FY 2019 Highlights” and “FY 2019 Highlights” sections are presented excluding the SPVSS business for all periods as it was divested during the second quarter, on October 28, 2018.
Q4 FY 2019 Highlights
Revenue — Total revenue was $13.4 billion, up 6%, with product revenue up 7% and service revenue up 4%. Revenue by geographic segment was: Americas up 9%, EMEA up 7%, and APJC down 4%. Product revenue performance was broad based with growth in Security, up 14%, Applications, up 11%, and Infrastructure Platforms, up 6%.
Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.9%, 62.9%, and 66.8%, respectively, as compared with 61.7%, 60.2%, and 66.0%, respectively, in the fourth quarter of 2018.
On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.5%, 64.7%, and 67.9%, respectively, as compared with 63.2%, 61.9%, and 67.2%, respectively, in the fourth quarter of 2018.
Total gross margins by geographic segment were: 66.8% for the Americas, 65.2% for EMEA and 60.8% for APJC.
Operating Expenses — On a GAAP basis, operating expenses were $4.9 billion, up 7%. Non-GAAP operating expenses were $4.4 billion, up 9%, and were 32.8% of revenue.
Operating Income — GAAP operating income was $3.7 billion, up 10%, with GAAP operating margin of 27.5%. Non-GAAP operating income was $4.4 billion, up 11%, with non-GAAP operating margin at 32.6%.
Provision for Income Taxes — The GAAP tax provision rate was 40.4%, which includes a $0.9 billion charge related to the Tax Cuts and Jobs Act. The non-GAAP tax provision rate was 18.8%.
Net Income and EPS — On a GAAP basis, net income was $2.2 billion and EPS was $0.51. On a non-GAAP basis, net income was $3.6 billion, an increase of 9%, and EPS was $0.83, an increase of 19%.
Cash Flow from Operating Activities — $3.9 billion for the fourth quarter of fiscal 2019, a decrease of 4% compared with $4.1 billion for the fourth quarter of fiscal 2018.
FY 2019 Highlights
Revenue — Total revenue was $51.7 billion, an increase of 7%.
Net Income and EPS — On a GAAP basis, net income was $11.6 billion and EPS was $2.61. On a non-GAAP basis, net income was $13.8 billion, up 9% compared to fiscal 2018, and EPS was $3.10, an increase of 20%.
Cash Flow from Operating Activities — $15.8 billion for fiscal 2019 compared with $13.7 billion for fiscal 2018, an increase of 16%. Operating cash flow for fiscal 2019 and 2018 include payments of $0.8 billion and $1.4 billion, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 also includes the receipt of $0.4 billion related to a litigation settlement with Arista Networks. Operating cash flow increased 8%, normalized for these items.
Balance Sheet and Other Financial Highlights
Cash and Cash Equivalents and Investments — $33.4 billion at the end of the fourth quarter of fiscal 2019, compared with $34.6 billion at the end of the third quarter of fiscal 2019, and compared with $46.5 billion at the end of fiscal 2018.
Deferred Revenue — $18.5 billion, down 6% in total, with deferred product revenue down 18%. Deferred service revenue was up 2%.
Remaining Performance Obligations — $25.3 billion at the end of fiscal 2019.
Capital Allocation — In the fourth quarter of fiscal 2019, we returned $6.0 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 82 million shares of common stock under our stock repurchase program at an average price of $54.99 per share for an aggregate purchase price of $4.5 billion.
Acquisitions
On July 9, 2019, we announced our intent to acquire Acacia Communications, Inc., a publicly-traded fabless semiconductor company that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. The acquisition is expected to close during the second half of fiscal 2020, subject to customary closing conditions and regulatory approvals.
Guidance for Q1 FY 2020
Cisco expects to achieve the following results for the first quarter of fiscal 2020 (normalized to exclude the divested SPVSS business):
Q1 FY 2020 |
||
Revenue |
0% to 2% growth Y/Y |
|
Non-GAAP gross margin rate |
64% – 65% |
|
Non-GAAP operating margin rate |
32% – 33% |
|
Non-GAAP tax provision rate |
20% |
|
Non-GAAP EPS |
$0.80 – $0.82 |
Revenue for the divested SPVSS business for the first quarter of fiscal 2019 was $168 million.
Cisco estimates that GAAP EPS will be $0.64 to $0.69 in the first quarter of fiscal 2020.
A reconciliation between the Guidance for Q1 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q1 FY 2020” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”
Editor’s Notes:
CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per-share amounts) (Unaudited) |
|||||||||||||||
Three Months Ended |
Fiscal Year Ended |
||||||||||||||
July 27, 2019 |
July 28, 2018 |
July 27, 2019 |
July 28, 2018 |
||||||||||||
REVENUE: |
|||||||||||||||
Product |
$ |
10,120 |
$ |
9,642 |
$ |
39,005 |
$ |
36,709 |
|||||||
Service |
3,308 |
3,202 |
12,899 |
12,621 |
|||||||||||
Total revenue |
13,428 |
12,844 |
51,904 |
49,330 |
|||||||||||
COST OF SALES: |
|||||||||||||||
Product |
3,757 |
3,833 |
14,863 |
14,427 |
|||||||||||
Service |
1,097 |
1,089 |
4,375 |
4,297 |
|||||||||||
Total cost of sales |
4,854 |
4,922 |
19,238 |
18,724 |
|||||||||||
GROSS MARGIN |
8,574 |
7,922 |
32,666 |
30,606 |
|||||||||||
OPERATING EXPENSES: |
|||||||||||||||
Research and development |
1,753 |
1,626 |
6,577 |
6,332 |
|||||||||||
Sales and marketing |
2,487 |
2,348 |
9,571 |
9,242 |
|||||||||||
General and administrative |
566 |
543 |
1,827 |
2,144 |
|||||||||||
Amortization of purchased intangible assets |
38 |
33 |
150 |
221 |
|||||||||||
Restructuring and other charges |
40 |
26 |
322 |
358 |
|||||||||||
Total operating expenses |
4,884 |
4,576 |
18,447 |
18,297 |
|||||||||||
OPERATING INCOME |
3,690 |
3,346 |
14,219 |
12,309 |
|||||||||||
Interest income |
305 |
353 |
1,308 |
1,508 |
|||||||||||
Interest expense |
(204) |
(224) |
(859) |
(943) |
|||||||||||
Other income (loss), net |
(87) |
117 |
(97) |
165 |
|||||||||||
Interest and other income (loss), net |
14 |
246 |
352 |
730 |
|||||||||||
INCOME BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES |
3,704 |
3,592 |
14,571 |
13,039 |
|||||||||||
Provision for (benefit from) income taxes (1) |
1,498 |
(211) |
2,950 |
12,929 |
|||||||||||
NET INCOME |
$ |
2,206 |
$ |
3,803 |
$ |
11,621 |
$ |
110 |
|||||||
Net income per share: |
|||||||||||||||
Basic |
$ |
0.52 |
$ |
0.81 |
$ |
2.63 |
$ |
0.02 |
|||||||
Diluted |
$ |
0.51 |
$ |
0.81 |
$ |
2.61 |
$ |
0.02 |
|||||||
Shares used in per-share calculation: |
|||||||||||||||
Basic |
4,269 |
4,672 |
4,419 |
4,837 |
|||||||||||
Diluted |
4,307 |
4,722 |
4,453 |
4,881 |
The Consolidated Statements of Operations include the results of the SPVSS business prior to its divestiture during the second quarter of fiscal 2019 on October 28, 2018. Accordingly, the fiscal year ended July 27, 2019 includes three months of financial results for this business.
(1) For the three months ended July 27, 2019 and July 28, 2018, the provision for (benefit from) income taxes include a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.
CISCO SYSTEMS, INC. REVENUE BY SEGMENT (In millions, except percentages) |
||||||||||||
July 27, 2019 |
||||||||||||
Three Months Ended |
Fiscal Year Ended |
|||||||||||
Amount |
Y/Y % |
Amount |
Y/Y % |
|||||||||
Revenue: |
||||||||||||
Including SPVSS business for all periods: |
||||||||||||
Americas |
$ |
8,129 |
8% |
$ |
30,927 |
6% |
||||||
EMEA |
3,297 |
4% |
13,100 |
5% |
||||||||
APJC |
2,002 |
(5)% |
7,877 |
1% |
||||||||
Total |
$ |
13,428 |
5% |
$ |
51,904 |
5% |
||||||
Excluding SPVSS business for all periods: |
||||||||||||
Americas |
$ |
8,129 |
9% |
$ |
30,850 |
8% |
||||||
EMEA |
3,297 |
7% |
13,034 |
8% |
||||||||
APJC |
2,002 |
(4)% |
7,853 |
3% |
||||||||
Total |
$ |
13,428 |
6% |
$ |
51,737 |
7% |
Amounts may not sum and percentages may not recalculate due to rounding.
During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended July 28, 2018 was $206 million and for the fiscal years ended July 27, 2019 and July 28, 2018 was $168 million and $903 million, respectively.
CISCO SYSTEMS, INC. GROSS MARGIN PERCENTAGE BY SEGMENT (In percentages) |
||||
July 27, 2019 |
||||
Three Months Ended |
Fiscal Year Ended |
|||
Gross Margin Percentage: |
||||
Including SPVSS business for all periods: |
||||
Americas |
66.8% |
65.8% |
||
EMEA |
65.2% |
64.6% |
||
APJC |
60.8% < |