Cisco Reports Second Quarter Earnings

Dividend Increased 3 Percent

    --  Q2 Results:
        --  Revenue: $12.0 billion
            --  Decrease of (4)% year over year
        --  Earnings per Share: GAAP: $0.68; Non-GAAP: $0.77
            --  Non-GAAP EPS increased 5% year over year
    --  Q3 Guidance:
        --  Revenue: (1.5)% to (3.5)% decline year over year
        --  Earnings per Share: GAAP: $0.62 to $0.67; Non-GAAP: $0.79 to $0.81

SAN JOSE, Calif., Feb. 12, 2020 /PRNewswire/ -- Cisco today 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.

"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."


                                        
        
          GAAP Results




                           Q2 FY 2020                              Q2 FY 2019     
         
           Vs. Q2 FY 2019




     Revenue              
            $        12.0                             
     $       12.4
                                          billion                                   billion                    (4)%



     Net Income           
            $         2.9                             
     $        2.8
                                          billion                                   billion                      2%


      Diluted Earnings per
       Share (EPS)                     $
        0.68                                            $
           0.63             8%




                                      
        
          Non-GAAP Results




                           Q2 FY 2020                              Q2 FY 2019     
         
           Vs. Q2 FY 2019




     Net Income           
            $         3.3                             
     $        3.3
                                          billion                                   billion                         -%



     EPS                              $
        0.77                                            $
           0.73             5%

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."

Cisco Increases Quarterly Cash Dividend

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."

Financial Summary

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

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.

A reconciliation between the Guidance for Q3 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q3 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

    --  Q2 fiscal year 2020 conference call to discuss Cisco's results along
        with its guidance will be held on Wednesday, February 12, 2020 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,
        February 12, 2020 to 4:00 p.m. Pacific Time, February 19, 2020 at
        1-800-839-1160 (United States) or 1-402-998-0925 (international). The
        replay will also be available via webcast on the Cisco Investor
        Relations website at https://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, February 12, 2020. 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 https://investor.cisco.com.


                                                                                          
           
                CISCO SYSTEMS, INC.

                                                                                  
             
             CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                 
             
             (In millions, except per-share amounts)

                                                                                              
           
                (Unaudited)




                                                     
            Three Months Ended                                       
              Six Months Ended


                                               January 25,                          January 26,                     January 25,                      January 26,
                                                      2020                                  2019                             2020                              2019

                                                                                                                                                             ---


     
                REVENUE:



     Product                                              $
              8,671                                                       $
              9,273                $
        18,549  $
       19,163



     Service                                        3,334                                        3,173                                                      6,615          6,355




     Total revenue                                 12,005                                       12,446                                                     25,164         25,518




     
                COST OF SALES:



     Product                                        3,126                                        3,614                                                      6,650          7,413



     Service                                        1,115                                        1,059                                                      2,286          2,186



      Total cost of sales                            4,241                                        4,673                                                      8,936          9,599



                   GROSS MARGIN                      7,764                                        7,773                                                     16,228         15,919



     
                OPERATING EXPENSES:


      Research and development                       1,570                                        1,557                                                      3,236          3,165


      Sales and marketing                            2,279                                        2,271                                                      4,759          4,681


      General and administrative                       455                                          509                                                        974            720


      Amortization of purchased
       intangible assets                                38                                           39                                                         74             73


      Restructuring and other
       charges                                          42                                          186                                                        226            264



      Total operating expenses                       4,384                                        4,562                                                      9,269          8,903



                   OPERATING INCOME                  3,380                                        3,211                                                      6,959          7,016



     Interest income                                  242                                          328                                                        515            672



     Interest expense                               (158)                                       (223)                                                     (336)         (444)


      Other income (loss), net                          70                                           27                                                         82              8



      Interest and other income
       (loss), net                                     154                                          132                                                        261            236



                   INCOME BEFORE PROVISION FOR
                    INCOME TAXES                     3,534                                        3,343                                                      7,220          7,252


      Provision for income taxes                       656                                          521                                                      1,416            881



                   NET INCOME                              $
              2,878                                                       $
              2,822                 $
        5,804   $
       6,371






     Net income per share:



     Basic                                                 $
              0.68                                                        $
              0.63                  $
        1.37    $
       1.41




     Diluted                                               $
              0.68                                                        $
              0.63                  $
        1.36    $
       1.40



      Shares used in per-share calculation:



     Basic                                          4,242                                        4,470                                                      4,244          4,517




     Diluted                                        4,260                                        4,505                                                      4,265          4,557

The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the six months ended January 26, 2019.


                                                         
             
                CISCO SYSTEMS, INC.

                                                          
             
                REVENUE BY SEGMENT

                                                  
             
                (In millions, except percentages)




                                                   
             January 25, 2020


                            
         Three Months Ended                          
              Six Months Ended


                                                                                                             
          Excluding         
          Including
                                                                                                                SPVSS                     SPVSS
                                                                                                               business                 business



                          
       Amount                            Y/Y %               
              Amount                       Y/Y%                  Y/Y %



                 Revenue:

    ---


       Americas                        $
              7,013                                (5)%              $
          14,990                                 -% (1)%



       EMEA                   3,134                                           (3)%                  6,417                         1%                     -%



       APJC                   1,859                                           (1)%                  3,758                       (5)%                   (5)%




       Total                          $
              12,005                                (4)%              $
          25,164                               (1)%  (1)%

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 six months ended January 26, 2019 was $168 million.


                                            
           
              CISCO SYSTEMS, INC.

                                          
        
           GROSS MARGIN PERCENTAGE BY SEGMENT

                                             
           
              (In percentages)




                                                  
         January 25, 2020


                                                 
         Three Months Ended                 
     Six Months Ended



                 Gross Margin Percentage:

    ---


       Americas                                                              66.9%                          66.8%



       EMEA                                                                  65.8%                          65.9%



       APJC                                                                  65.6%                          64.2%


                                                     
              
                CISCO SYSTEMS, INC.

                                     
              
                REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

                                              
              
                (In millions, except percentages)




                                                            
              January 25, 2020


                                   
           Three Months Ended                           
              Six Months Ended


                                                                                                                       
          Excluding         
          Including
                                                                                                                          SPVSS                     SPVSS
                                                                                                                         business                 business



                                 
         Amount                             Y/Y %               
              Amount                       Y/Y%                Y/Y %




       
                Revenue:

    ---


       Infrastructure Platforms                 $
              6,528                                 (8)%              $
          14,067                     (4)%     (4)%



       Applications                    1,349                                            (8)%                  2,847                       (1)%         (1)%



       Security                          748                                              9%                  1,563                        15%          15%



       Other Products                     46                                            110%                     72                        33%        (64)%




       Total Product                   8,671                                            (6)%                 18,549                       (2)%         (3)%



       Services                        3,334                                              5%                  6,615                         4%           4%




       Total                                   $
              12,005                                 (4)%              $
          25,164                     (1)%     (1)%

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 six months ended January 26, 2019 was $168 million.


                                             
         
               CISCO SYSTEMS, INC.

                                    
              
          CONDENSED CONSOLIDATED BALANCE SHEETS

                                                
        
                (In millions)

                                                 
        
                (Unaudited)




                                                        January 25, 2020                      July 27, 2019

                                                                                              ---


     
                ASSETS



     Current assets:


      Cash and cash equivalents                                             $
              8,475               $
     11,750



     Investments                                                 18,587                      21,663


      Accounts receivable, net of
       allowance for doubtful accounts of
       $112 at January 25, 2020 and $136
       at July 27, 2019                                            4,330                       5,491



     Inventories                                                  1,353                       1,383


      Financing receivables, net                                   4,827                       5,095



     Other current assets                                         2,481                       2,373




     Total current assets                                        40,053                      47,755


      Property and equipment, net                                  2,621                       2,789


      Financing receivables, net                                   4,757                       4,958



     Goodwill                                                    33,612                      33,529


      Purchased intangible assets, net                             1,906                       2,201



     Deferred tax assets                                          3,896                       4,065



     Other assets                                                 3,581                       2,496



                   TOTAL ASSETS                                            $
              90,426               $
     97,793




     
                LIABILITIES AND EQUITY



     Current liabilities:



     Short-term debt                                                       $
              1,499               $
     10,191



     Accounts payable                                             1,935                       2,059



     Income taxes payable                                           819                       1,149



     Accrued compensation                                         2,690                       3,221



     Deferred revenue                                            10,638                      10,668


      Other current liabilities                                    4,507                       4,424



      Total current liabilities                                   22,088                      31,712



     Long-term debt                                              14,494                      14,475



     Income taxes payable                                         8,227                       8,927



     Deferred revenue                                             8,048                       7,799


      Other long-term liabilities                                  2,036                       1,309




     Total liabilities                                           54,893                      64,222




     Total equity                                                35,533                      33,571



                   TOTAL LIABILITIES AND EQUITY                            $
              90,426               $
     97,793


                                                          
             
               CISCO SYSTEMS, INC.

                                                 
              
              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                             
            
                (In millions)

                                                              
            
                (Unaudited)




                                                                                  
              Six Months Ended


                                                                           January 25,                        January 26,

                                                                                  2020                                2019

                                                                                                                      ---


     Cash flows from operating activities:



     Net income                                                                         $
              5,804                           $
       6,371


      Adjustments to reconcile net income to net cash provided by
       operating activities:



     Depreciation, amortization, and other                                        918                                           952



     Share-based compensation expense                                             779                                           792



     Provision (benefit) for receivables                                           46                                            30



     Deferred income taxes                                                        128                                         (257)


      (Gains) losses on divestitures, investments and
       other, net                                                                (162)                                         (77)


      Change in operating assets and liabilities, net of effects of
       acquisitions and divestitures:



     Accounts receivable                                                        1,084                                         1,613



     Inventories                                                                   25                                         (203)



     Financing receivables                                                        408                                           161



     Other assets                                                                 130                                         (652)



     Accounts payable                                                           (126)                                        (296)



     Income taxes, net                                                        (1,007)                                        (830)



     Accrued compensation                                                       (521)                                        (339)



     Deferred revenue                                                             236                                           207



     Other liabilities                                                          (355)                                           88




     Net cash provided by operating activities                                  7,387                                         7,560




     Cash flows from investing activities:



     Purchases of investments                                                 (4,250)                                        (677)



     Proceeds from sales of investments                                         3,410                                         3,055



     Proceeds from maturities of investments                                    4,044                                         6,263



     Acquisitions and divestitures                                              (163)                                      (1,599)


      Purchases of investments in privately held companies                        (97)                                         (68)


      Return of investments in privately held companies                             91                                            43



     Acquisition of property and equipment                                      (391)                                        (473)


      Proceeds from sales of property and equipment                                131                                            10



     Other                                                                       (10)                                         (12)




     Net cash provided by investing activities                                  2,765                                         6,542




     Cash flows from financing activities:



     Issuances of common stock                                                    334                                           312


      Repurchases of common stock -repurchase program                          (1,648)                                     (10,062)


      Shares repurchased for tax withholdings on vesting
       of restricted stock units                                                 (437)                                        (514)


      Short-term borrowings, original maturities of 90
       days or less, net                                                       (3,470)



     Repayments of debt                                                       (5,220)



     Dividends paid                                                           (2,972)                                      (2,970)



     Other                                                                       (12)                                           18




     Net cash used in financing activities                                   (13,425)                                     (13,216)



      Net increase (decrease) in cash, cash equivalents,
       and restricted cash                                                     (3,273)                                          886


      Cash, cash equivalents, and restricted cash,
       beginning of period                                                      11,772                                         8,993



      Cash, cash equivalents, and restricted cash, end of
       period                                                                            $
              8,499                           $
       9,879




     Supplemental cash flow information:



     Cash paid for interest                                                               $
              349                             $
       425



     Cash paid for income taxes, net                                                    $
              2,295                           $
       1,968


                                       
          
            CISCO SYSTEMS, INC.

                                        
          
            DEFERRED REVENUE

                                          
          
            (In millions)




                        January 25,                October 26,             January 26,
                               2020                        2019                     2019

                                                                                   ---


     Deferred revenue:



     Service                       $
     11,526                                            $
     11,497       $
      11,246



     Product                 7,160                                 7,105                          6,015



             Total                  $
     18,686                                            $
     18,602       $
      17,261




     Reported as:



     Current                       $
     10,638                                            $
     10,646        $
      9,976



     Noncurrent              8,048                                 7,956                          7,285



             Total                  $
     18,686                                            $
     18,602       $
      17,261


                                                                                
              
                CISCO SYSTEMS, INC.

                                                                    
            
                DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

                                                                        
            
                (In millions, except per-share amounts)




                                          
         DIVIDENDS            
            STOCK REPURCHASE PROGRAM                                         TOTAL



                     Quarter Ended Per Share               Amount Shares                                Weighted-                        Amount      Amount
                                                                                                 Average Price
                                                                                                   per Share

    ---

        Fiscal 2020


        January 25,
         2020                                $
           0.35                $
              1,486                                        18                       $
     46.71   $
       870 $
     2,356


        October 26,
         2019                                $
           0.35                $
              1,486                                        16                       $
     48.91   $
       768 $
     2,254


        Fiscal 2019


        July 27, 2019                        $
           0.35                $
              1,490                                        82                       $
     54.99 $
       4,515 $
     6,005


        April 27, 2019                       $
           0.35                $
              1,519                                       116                       $
     52.14 $
       6,020 $
     7,539


        January 26,
         2019                                $
           0.33                $
              1,470                                       111                       $
     45.09 $
       5,016 $
     6,486


        October 27,
         2018                                $
           0.33                $
              1,500                                       109                       $
     46.01 $
       5,026 $
     6,526


                                                                                                    
              
                CISCO SYSTEMS, INC.

                                                                                            
         
                RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES



                                                                                                
              
                GAAP TO NON-GAAP NET INCOME

                                                                                              
          
                (In millions, except per-share amounts)




                                                                  
            Three Months Ended                                           
              Six Months Ended


                                                            January 25,                           January 26,                        January 25,                      January 26,

                                                                   2020                                   2019                                2020                              2019

                                                                                                                                                                              ---


     GAAP net income                                                   $
              2,878                                                           $
              2,822                $
        5,804  $
      6,371



     Adjustments to cost of sales:


      Share-based compensation expense                               59                                               53                                                        116           109


      Amortization of acquisition-related
       intangible assets                                            150                                              141                                                        300           277


      Supplier component remediation charge
       (adjustment), net                                              -                                                                                                                    (1)


      Acquisition-related/divestiture costs                           1                                                3                                                          2             7


      Legal and indemnification settlements                           -                                               5                                                          4             5



      Total adjustments to GAAP cost of sales                       210                                              202                                                        422           397




     Adjustments to operating expenses:


      Share-based compensation expense                              320                                              323                                                        653           652


      Amortization of acquisition-related
       intangible assets                                             38                                               39                                                         74            73


      Acquisition-related/divestiture costs                          53                                               39                                                        125           160


      Legal and indemnification settlements                           -                                                                                                                  (395)


      Significant asset impairments and
       restructurings                                                42                                              186                                                        226           264



      Total adjustments to GAAP operating
       expenses                                                     453                                              587                                                      1,078           754



      Adjustments to GAAP interest and other income (loss),
       net:


      (Gains) and losses on equity
       investments                                                 (87)                                            (64)                                                     (100)         (73)



      Total adjustments to GAAP income before
       provision for income taxes                                   576                                              725                                                      1,400         1,078



      Income tax effect of non-GAAP
       adjustments                                                (166)                                           (209)                                                     (375)        (394)



     Significant tax matters                                         -                                            (43)                                                        67         (308)



      Total adjustments to GAAP provision for
       income taxes                                               (166)                                           (252)                                                     (308)        (702)




     Non-GAAP net income                                               $
              3,288                                                           $
              3,295                $
        6,896  $
      6,747




     Diluted net income per share:



     GAAP                                                               $
              0.68                                                            $
              0.63                 $
        1.36   $
      1.40




     Non-GAAP                                                           $
              0.77                                                            $
              0.73                 $
        1.62   $
      1.48


                                                                                                                                    
              
                CISCO SYSTEMS, INC.

                                                                                                                        
              
                RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES



                                                                                                
        
              GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME

                                                                                                                             
              
                (In millions, except percentages)




                                                                                                  
          Three Months Ended


                                                                                                   
          January 25, 2020



                                                 Product              Service          Total                Operating                       
              Y/Y                             Operating                           Y/Y           Interest        
     Y/Y           Net           
        Y/Y
                                             Gross                Gross            Gross               Expenses                                                                    Income                                           and other                     Income
                                            Margin                Margin          Margin                                                                                                                                             income
                                                                                                                                                                                                                                   (loss),
                                                                                                                                                                                                                                     net

                                                                                                                                                                                                                                                                                            ---


     GAAP amount                                        $
     5,545              $
            2,219                            $
              7,764                                       $
              4,384                           (4)%                $
     3,380     5%                  $
       154      17% $
     2,878 2%



     
                % of revenue                    63.9%                66.6%           64.7%                   36.5%                                                                      28.2%                                             1.3%                      24.0%



     Adjustments to GAAP amounts:


      Share-based compensation expense                23                    36               59                      320                                                                         379                                                                          379


      Amortization of acquisition-related
       intangible assets                             150                                   150                       38                                                                         188                                                                            188


      Acquisition/divestiture-related costs            -                    1                1                       53                                                                          54                                                                           54


      Significant asset impairments and
       restructurings                                  -                                                           42                                                                          42                                                                             42


      (Gains) and losses on equity
       investments                                     -                                                                                                                                                                                     (87)                         (87)


      Income tax effect/significant tax
       matters                                         -                                                                                                                                                                                                                 (166)




     Non-GAAP amount                                    $
     5,718              $
            2,256                            $
              7,974                                       $
              3,931                           (1)%                $
     4,043     1%                   $
       67     (1)% $
     3,288 -%




     
                % of revenue                    65.9%                67.7%           66.4%                   32.7%                                                                      33.7%                                             0.6%                      27.4%


                                                                                   
              Three Months Ended


                                                                                    
              January 26, 2019



                                                 Product               Service            Total                       Operating             Operating            Interest      Net
                                             Gross                 Gross              Gross                      Expenses                                  and other
                                            Margin                Margin             Margin                                                   Income         income          Income
                                                                                                                                                          (loss), net




     GAAP amount                                        $
     5,659               $
              2,114                                  $
     7,773                $
              4,562             $
     3,211 $
      132 $
     2,822



     
                % of revenue                    61.0%                 66.6%             62.5%                          36.7%                 25.8%                1.1%     22.7%



     Adjustments to GAAP amounts:


      Share-based compensation expense                22                     31                 53                             323                    376                            376


      Amortization of acquisition-related
       intangible assets                             141                                      141                              39                    180                            180


      Legal and indemnification settlements            5                                        5                                                     5                              5


      Acquisition/divestiture-related costs            1                      2                  3                              39                     42                             42


      Significant asset impairments and
       restructurings                                                                                                       186                    186                            186


      (Gains) and losses on equity
       investments                                                                                                                                                   (64)      (64)


      Income tax effect/significant tax
       matters                                                                                                                                                                (252)




     Non-GAAP amount                                    $
     5,828               $
              2,147                                  $
     7,975                $
              3,975             $
     4,000  $
      68 $
     3,295



     
                % of revenue                    62.8%                 67.7%             64.1%                          31.9%                 32.1%                0.5%     26.5%

Amounts may not sum and percentages may not recalculate due to rounding.


                                               
          
                CISCO SYSTEMS, INC.

                                           
     
            RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES



                                               
          
                EFFECTIVE TAX RATE

                                                
          
                (In percentages)




                         Three Months Ended       
             Six Months Ended



                       
         January 25,            
             January 26,                        
     January 25,       
     January 26,
                                        2020                              2019                                  2020                 2019

                                                                                                                                   ---

     GAAP effective
      tax rate                         18.6%                            15.6%                                19.6%               12.1%


     Total adjustments
      to GAAP
      provision for
      income taxes                      1.4%                             3.4%                                 0.4%                6.9%



     Non-GAAP
      effective tax
      rate                             20.0%                            19.0%                                20.0%               19.0%


                                                                       
            
     GAAP TO NON-GAAP GUIDANCE FOR Q3 FY 2020





       
                Q3 FY 2020                          
       Gross Margin                 
              Operating Margin        
      Tax Provision      
             Earnings per
                                                           Rate                                      Rate                      Rate                      Share (2)

    ---


       GAAP                                                          63% - 64%                                   26% - 27%                  19%     
             $0.62 - $0.67



       Estimated adjustments for:



       Share-based compensation expense                                   0.5%                                         3.0%                           
             $0.07 - $0.08


        Amortization of acquisition-related intangible
         assets and acquisition/divestiture-related
         costs                                                             1.0%                                         2.0%                           
             $0.05 - $0.06


        Significant asset impairments and restructurings
         (1)                                                                                                           1.5%                           
             $0.02 - $0.03


        Income tax effect of non-GAAP adjustments                                                                                               1%




       Non-GAAP                                                  64.5% - 65.5%                               32.5% - 33.5%                  20%     
             $0.79 - $0.81

((1) )In the third quarter of fiscal 2020, we initiated a restructuring plan in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $300 million consisting of severance and other one-time termination benefits, and other costs. We expect to recognize approximately $150 million of these charges in the third quarter of fiscal 2020.

((2)) Estimated adjustments to GAAP earnings per share are shown after income tax effects.

Except as noted above, this guidance does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

Forward Looking Statements, Non-GAAP Information and Additional Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our ability to continue to drive innovation, our long-term growth opportunities as we help our customers build out the networks for the future, the continued strength of our ongoing cash flows and our ability to continue to return value to our shareholders) and the future financial performance of Cisco (including the guidance for Q3 FY 2020) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent reports on Forms 10-Q and 10-K filed on November 19, 2019 and September 5, 2019, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco's results of operations for the three and six months ended January 25, 2020 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

This release includes non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP interest and other income (loss), net, and non-GAAP net income per share data for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco's results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations.

For its internal budgeting process, Cisco's management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements and other contingencies, gains and losses on equity investments, the income tax effects of the foregoing and significant tax matters. Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

Cisco divested its Service Provider Video Software Solutions business (SPVSS) during the second quarter of fiscal 2019 on October 28, 2018. This release includes, where indicated, financial measures that exclude the SPVSS business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SPVSS business will not be part of Cisco on a go forward basis. Cisco's management also uses the financial measures excluding the SPVSS business in reviewing the financial results of Cisco.

About Cisco

Cisco (Nasdaq: CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow's digital opportunity today. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2020 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

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     Robyn Blum                           
     Marilyn Mora



     Cisco                                
     Cisco



     1 (408) 930-8548                                 
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