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Cisco Misses on Revenue - Guides Down

November 18, 2021

Cisco 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.

Wall Street was looking for earnings of 80 cents per share with revenue of. $12.98 billion. Cisco guided Q2 per-share earnings ranging between 80 cents to 82 cents with 4.5% to 6.5% annualized revenue growth. Consensus was set at 82 cents per share in earnings with $12.85 billion in revenue, which implies 7.4% growth.

"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."

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

Cash and 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.

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