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Cisco Reports First Quarter Earnings
15 Nov, 2017
SAN JOSE, CA - Nov 15, 2017 - Cisco (NASDAQ:
CSCO)
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 delivered a solid Q1 and executed well as we focus on strategic priorities and maintaining rigorous discipline on profitability and cash generation," said Kelly Kramer, CFO of Cisco. "We delivered strong growth in operating and free cash flow, focused investments on long term profitable growth, and returned $3.1 billion to shareholders through repurchases and quarterly dividends."
Financial Summary
All comparative percentages are on a year-over-year basis unless otherwise noted.
Q1 FY 2018 Highlights
Revenue -- Total revenue was $12.1 billion, down 2%, with product revenue down 3% and service revenue up 1%. 32% of total revenue was from recurring offers, up over 3 percentage points from the first quarter of fiscal 2017. Revenue by geographic segment was: Americas down 1%, EMEA down 3%, and APJC down 1%. Product revenue performance was led by Security and Applications, which increased by 8% and 6%, respectively. Infrastructure Platforms revenue decreased by 4%.
Gross Margin -- On a GAAP basis, total gross margin and product gross margin were 61.2% and 60.1%, respectively. The decrease in the product gross margin compared with 63.4% in the first quarter of fiscal 2017 was primarily due to pricing, legal and indemnification settlements, and lower productivity benefits. Non-GAAP total gross margin and product gross margin were 63.7% and 63.0%, respectively. The decrease in non-GAAP product gross margin compared with 64.8% in the first quarter of fiscal 2017 was primarily due to pricing and lower productivity benefits. While productivity was positive, the benefit was lower than in the prior year as productivity improvements continued to be adversely impacted by an increase in the cost of certain memory components, consistent with our expectations. GAAP service gross margin was 64.5% and non-GAAP service gross margin was 65.6%. Total gross margins by geographic segment were: 64.2% for the Americas, 63.2% for EMEA and 62.1% for APJC.
Operating Expenses -- On a GAAP basis, operating expenses were $4.7 billion, down 7%. Non-GAAP operating expenses were $4.0 billion, down 3%, and were 33.3% of revenue.
Operating Income -- GAAP operating income was $2.8 billion, down 4%, with GAAP operating margin of 22.7%. Non-GAAP operating income was $3.7 billion, down 5%, with non-GAAP operating margin of 30.4%.
Provision for Income Taxes -- The GAAP tax provision rate was 19.2%. The non-GAAP tax provision rate was 22.0%.
Net Income and EPS -- On a GAAP basis, net income was $2.4 billion and EPS was $0.48. On a non-GAAP basis, net income was $3.0 billion, a decrease of 2%, and EPS was flat at $0.61.
Cash Flow from Operating Activities -- was $3.1 billion, an increase of 13% compared with $2.7 billion for the first quarter of fiscal 2017.
Balance Sheet and Other Financial Highlights
Cash and Cash Equivalents and Investments -- were $71.6 billion at the end of the first quarter of fiscal 2018, compared with $70.5 billion at the end of fiscal 2017. The total cash and cash equivalents and investments available in the United States at the end of the first quarter of fiscal 2018 were $2.5 billion.
Deferred Revenue -- was $18.6 billion, up 10% in total, with deferred product revenue up 16%, driven largely by subscription-based and software offers, and deferred service revenue was up 5%. The portion of product deferred revenue related to recurring software and subscription offers increased 37%.
Capital Allocation -- In the first quarter of fiscal 2018, Cisco declared and paid a cash dividend of $0.29 per common share, or $1.4 billion. For the first quarter of fiscal 2018, Cisco repurchased approximately 51 million shares of common stock under its stock repurchase program at an average price of $31.80 per share for an aggregate purchase price of $1.6 billion. As of October 28, 2017, Cisco had repurchased and retired 4.8 billion shares of Cisco common stock at an average price of $21.41 per share for an aggregate purchase price of approximately $101.9 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $10.1 billion with no termination date.
Acquisitions In the first quarter of fiscal 2018, we announced the acquisitions of privately held Springpath, Inc. and privately held Perspica, Inc. The Springpath acquisition is designed to enhance our ability to deliver next-generation data center innovation to customers through hyperconvergence software. The Springpath acquisition closed in the first quarter of fiscal 2018. The Perspica acquisition provides machine learning and data processing technology which enables customers to analyze large amounts of application-related data, in real-time and with business context. The Perspica acquisition closed in the second quarter of fiscal 2018. We also closed our acquisitions of Viptela, Inc., a privately held company that provides software-defined wide area networking products, and Observable Networks, Inc., a privately held company that offers cloud-native network forensics security applications delivered as a service. On October 23, 2017, we announced a definitive agreement to acquire BroadSoft, Inc., a publicly held company that offers cloud calling and contact center solutions. The acquisition is expected to close after completion of customary regulatory reviews.
Business Outlook for Q2 FY 2018 Cisco expects to achieve the following results for the second quarter of fiscal 2018:
Our Q2 FY2018 business outlook does not reflect any impact from the pending acquisition of BroadSoft. Cisco estimates that GAAP EPS will be $0.46 to $0.51 in the second quarter of fiscal 2018. A reconciliation between the Business Outlook for Q2 FY 2018 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Business Outlook for Q2 FY 2018" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."
Editor's Notes:
- Q1 Revenue: $12.1 billion
- Decrease of (2)% year over year
- Recurring revenue was 32% of total revenue, up over 3 points year over year
- Q1 Earnings per Share: $0.48 GAAP; $0.61 non-GAAP
- Q2 FY 2018 Outlook:
- Revenue: 1% to 3% growth year over year
- Earnings per Share: GAAP $0.46 to $0.51; Non-GAAP: $0.58 to $0.60
| GAAP Results | ||||||||
| Q1 FY 2018 | Q1 FY 2017 | Vs. Q1 FY 2017 | ||||||
| Revenue | $ | 12.1 billion | $ | 12.4 billion | (2)% | |||
| Net Income | $ | 2.4 billion | $ | 2.3 billion | 3% | |||
| Diluted Earnings per Share (EPS) | $ | 0.48 | $ | 0.46 | 4% | |||
| Non-GAAP Results | ||||||||
| Q1 FY 2018 | Q1 FY 2017 | Vs. Q1 FY 2017 | ||||||
| Net Income | $ | 3.0 billion | $ | 3.1 billion | (2)% | |||
| EPS | $ | 0.61 | $ | 0.61 | --% | |||
| Q2 FY 2018 | ||
| Revenue | 1% to 3% growth Y/Y | |
| Non-GAAP gross margin rate | 62.5% - 63.5% | |
| Non-GAAP operating margin rate | 29.5% - 30.5% | |
| Non-GAAP tax provision rate | 22% | |
| Non-GAAP EPS | $0.58 - $0.60 |
- Q1 fiscal year 2018 conference call to discuss Cisco's results along with its business outlook will be held on Wednesday, November 15, 2017 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, November 15, 2017 to 4:00 p.m. Pacific Time, November 22, 2017 at 1-866-421-0447 (United States) or 1-203-369-0803 (international). The replay will also be available via webcast on the Cisco Investor Relations website at http://investor.cisco.com.
- 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, November 15, 2017. 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 http://investor.cisco.com.
