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Cisco Exceeds Expectations

February 13, 2020

Cisco reported second quarter results for the period ended January 25, 2020. Cisco reported second quarter revenue of $12.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.9 billion or $0.68 per share, and non-GAAP net income of $3.3 billion or $0.77 per share.

Wall Street was only looking for an EPS of 76 cents with revenue of $11.98 billion.

"I am incredibly proud of the innovation our teams continue to drive," said Chuck Robbins, chairman and CEO of Cisco. "I am confident in our long-term growth opportunities as we help our customers build out the networks for the future."

Cisco has declared a quarterly dividend of $0.36 per common share, a $0.01 increase or up 3% over the previous quarter's dividend, to be paid on April 22, 2020 to all shareholders of record as of the close of business on April 3, 2020. Future dividends will be subject to Board approval.

"We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions," said Kelly Kramer, CFO of Cisco. "Our increased dividend shows confidence in the strength of our ongoing cash flows and demonstrates our commitment to shareholder return."

Q2 FY 2020 Highlights

Revenue -- Total revenue was $12.0 billion, down 4%, with product revenue down 6% and service revenue up 5%. Revenue by geographic segment was: Americas down 5%, EMEA down 3%, and APJC down 1%. Product revenue was led by growth in Security, up 9%.  Infrastructure Platforms and Applications were each down 8%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.7%, 63.9%, and 66.6%, respectively, as compared with 62.5%, 61.0%, and 66.6%, respectively, in the second quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.4%, 65.9%, and 67.7%, respectively, as compared with 64.1%, 62.8%, and 67.7%, respectively, in the second quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.9% for the Americas, 65.8% for EMEA and 65.6% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion, down 4%. Non-GAAP operating expenses were $3.9 billion, down 1%, and were 32.7% of revenue.

Operating Income -- GAAP operating income was $3.4 billion, up 5%, with GAAP operating margin of 28.2%. Non-GAAP operating income was $4.0 billion, up 1%, with non-GAAP operating margin at 33.7%.

Provision for Income Taxes -- The GAAP tax provision rate was 18.6%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.9 billion and EPS was $0.68. On a non-GAAP basis, net income was flat at $3.3 billion, and EPS was $0.77, an increase of 5%.

Cash Flow from Operating Activities -- $3.8 billion for the second quarter of fiscal 2020, flat compared with $3.8 billion for the second quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $27.1 billion at the end of the second quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.7 billion, up 8% in total, with deferred product revenue up 19%. Deferred service revenue was up 2%.

Remaining Performance Obligations -- $24.9 billion at the end of the second quarter of fiscal 2020, up 11%.

Capital Allocation -- In the second quarter of fiscal 2020, we returned $2.4 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 18 million shares of common stock under our stock repurchase program at an average price of $46.71 per share for an aggregate purchase price of $870 million. The remaining authorized amount for stock repurchases under the program is $11.8 billion with no termination date.

Guidance for Q3 FY 2020

Cisco expects to achieve the following results for the third quarter of fiscal 2020:

Q3 FY 2020

   

Revenue

 

(1.5)% - (3.5)% decline Y/Y

Non-GAAP gross margin rate

 

64.5% - 65.5%

Non-GAAP operating margin rate

 

32.5% - 33.5%

Non-GAAP tax provision rate

 

20%

Non-GAAP EPS

 

$0.79 - $0.81

Cisco estimates that GAAP EPS will be $0.62 to $0.67 in the third quarter of fiscal 2020.

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