Cisco Reports Fourth Quarter And Fiscal Year 2020 Earnings

    --  Q4 Results:
        --  Revenue: $12.2 billion
            --  Decrease of (9)% year over year
        --  Earnings per Share: GAAP: $0.62; Non-GAAP: $0.80
            --  GAAP EPS increased 22% year over year
            --  Non-GAAP EPS decreased (4)% year over year
    --  FY 2020 Results:
        --  Revenue: $49.3 billion
            --  Decrease of (5)% year over year
            --  51% of revenue from software and services
        --  Earnings per Share: GAAP: $2.64; Non-GAAP: $3.21
            --  GAAP EPS increased 1% year over year
            --  Non-GAAP EPS increased 4% year over year
    --  Q1 Guidance:
        --  Revenue: (9)% to (11)% decline year over year
        --  Earnings per Share: GAAP: $0.41 to $0.47; Non-GAAP: $0.69 to $0.71

SAN JOSE, Calif., Aug. 12, 2020 /PRNewswire/ -- Cisco today reported fourth quarter and fiscal year results for the period ended July 25, 2020. Cisco reported fourth quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.6 billion or $0.62 per share, and non-GAAP net income of $3.4 billion or $0.80 per 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 and non-GAAP financial information have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

"By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations. Throughout fiscal 2020, Cisco has demonstrated operational resilience based on our strong customer relationships, solid financial foundation, and differentiated innovation," said Chuck Robbins, chairman and CEO of Cisco. "As we focus on the future, we are rebalancing our R&D investments to focus on new areas so we can continue to offer customers the best, most relevant technology in simpler, more easily consumable ways."


                                  
        
       Q4 GAAP Results




                   Q4 FY 2020                           Q4 FY 2019 
     
        Vs. Q4 FY 2019



     Revenue                  $
        12.2 
        billion                $
      13.4    
           billion (9)%


     Net Income                $
        2.6 
        billion                 $
      2.2    
           billion  19%


     Diluted
      Earnings per
      Share (EPS)             $
        0.62                             $
      0.51                     22%

Q4 GAAP results for fiscal 2019 include a $0.9 billion charge related to the Tax Cuts and Jobs Act.


                              
        
            Q4 Non-GAAP Results




             Q4 FY 2020                          Q4 FY 2019     Vs. Q4 FY 2019



      Net
      Income             $
      3.4 
       billion                                    $
      3.6 
     billion (5)%


     EPS                $
      0.80                                               $
      0.83           (4)%


                          
     
          Fiscal Year GAAP Results




                 FY 2020                             FY 2019    Vs. FY 2019

                                                                  ---

     Revenue
      (including
      SPVSS
      business
      for all
      periods)           $
     49.3 
           billion             $
         51.9    
     billion (5)%


     Revenue
      (excluding
      SPVSS
      business
      for all
      periods)           $
     49.3 
           billion             $
         51.7    
     billion (5)%


     Net Income          $
     11.2 
           billion             $
         11.6    
     billion (4)%


     EPS                 $
     2.64                             $
         2.61                1%

GAAP results for fiscal 2019 include charges related to the Tax Cuts and Jobs Act of $0.9 billion.


                         
       
            Fiscal Year Non-GAAP Results




                 FY 2020                                  FY 2019     Vs. FY 2019

                                                                        ---

     Net Income
      (excluding
      SPVSS
      business
      for all
      periods)            $
       13.7 
             billion              $
         13.8    
     billion (1)%


     EPS
      (excluding
      SPVSS
      business
      for all
      periods)            $
       3.21                                $
         3.10                4%

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 executed well in Q4, delivering strong margins despite the very challenging environment," said Kelly Kramer, CFO of Cisco. "Software subscriptions now make up 78% of our software revenue and remaining performance obligations continued to grow strongly in the quarter, reflecting the strength of our portfolio of software and services. We are seeing the returns on our investments in innovation as we focus on delivering 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 "FY 2020 Highlights" sections are presented excluding the SPVSS business for all prior periods as it was divested during the second quarter of fiscal 2019, on October 28, 2018.

Q4 FY 2020 Highlights

Revenue -- Total revenue was $12.2 billion, down 9%, with product revenue down 13% and service revenue was flat. Revenue by geographic segment was: Americas down 12%, EMEA down 6%, and APJC down 7%. Product revenue was led by growth in Security, up 10%. Infrastructure Platforms was down 16% and Applications was down 9%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.2%, 61.2%, and 68.7%, respectively, as compared with 63.9%, 62.9%, and 66.8%, respectively, in the fourth quarter of 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.0%, 63.2%, and 69.8%, respectively, as compared with 65.5%, 64.7%, and 67.9%, respectively, in the fourth quarter of 2019.

Total gross margins by geographic segment were: 65.6% for the Americas, 64.9% for EMEA and 63.2% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion, down 9%, and were 36.5% of revenue. Non-GAAP operating expenses were $3.9 billion, down 12%, and were 32.0% of revenue.

Operating Income -- GAAP operating income was $3.2 billion, down 12%, with GAAP operating margin of 26.7%. Non-GAAP operating income was $4.0 billion, down 8%, with non-GAAP operating margin at 33.0%.

Provision for Income Taxes -- The GAAP tax provision rate was 20.3%. The non-GAAP tax provision rate was 16.7%.

Net Income and EPS -- On a GAAP basis, net income was $2.6 billion, an increase of 19%, and EPS was $0.62, an increase of 22%. On a non-GAAP basis, net income was $3.4 billion, a decrease of 5%, and EPS was $0.80, a decrease of 4%.

Cash Flow from Operating Activities -- $3.8 billion for the fourth quarter of fiscal 2020, a decrease of 4% compared with $3.9 billion for the fourth quarter of fiscal 2019.

FY 2020 Highlights

Revenue -- Total revenue was $49.3 billion, a decrease of 5%.

Net Income and EPS -- On a GAAP basis, net income was $11.2 billion, a decrease of 4%, and EPS was $2.64, an increase of 1%. On a non-GAAP basis, net income was $13.7 billion, a decrease of 1% compared to fiscal 2019, and EPS was $3.21, an increase of 4%.

Cash Flow from Operating Activities -- $15.4 billion for fiscal 2020 compared with $15.8 billion for fiscal 2019, a decrease of 3%. Operating cash flow for fiscal 2019 includes the receipt of $0.4 billion related to a litigation settlement with Arista Networks. Operating cash flow was flat normalized for this item.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $29.4 billion at the end of the fourth quarter of fiscal 2020, compared with $28.6 billion at the end of the third quarter of fiscal 2020, and compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $20.4 billion, up 11% in total, with deferred product revenue up 17%. Deferred service revenue was up 7%.

Remaining Performance Obligations -- $28.4 billion at the end of fiscal 2020, up 12%.

Capital Allocation -- In the fourth quarter of fiscal 2020, we declared and paid a cash dividend of $0.36 per common share, or $1.5 billion.

Acquisitions

In the first quarter of fiscal 2021, we closed the acquisition of privately held ThousandEyes, Inc. ThousandEyes' Internet and Cloud intelligence platform delivers deep visibility and insights into the digital delivery of applications and services over the Internet.

Guidance for Q1 FY 2021

Cisco expects to achieve the following results for the first quarter of fiscal 2021:



       
                
                  Q1 FY 2021

    ---


       Revenue                                
     (9)% - (11)% decline Y/Y



       Non-GAAP gross margin rate                                            64% - 65%



       Non-GAAP operating margin rate                                        30% - 31%



       Non-GAAP tax provision rate                                                 19%



       Non-GAAP EPS                                                   
      $0.69 - $0.71

Cisco estimates that GAAP EPS will be $0.41 to $0.47 in the first quarter of fiscal 2021.

A reconciliation between the Guidance for Q1 FY 2021 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q1 FY 2021" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

    --  Q4 fiscal year 2020 conference call to discuss Cisco's results along
        with guidance will be held on Wednesday, August 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,
        August 12, 2020 to 4:00 p.m. Pacific Time, August 19, 2020 at
        1-866-429-0574 (United States) or 1-203-369-0916 (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, August 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                                                  
              Fiscal Year Ended


                                               July 25,                        July 27,                     July 25,                                   July 27,

                                                   2020                             2019                          2020                                        2019

                                                                                                                                                            ---


     
                REVENUE:



     Product                                           $
           8,832                                                  $
              10,120                         $
        35,978  $
       39,005



     Service                                     3,322                                   3,308                                                            13,323         12,899




     Total revenue                              12,154                                  13,428                                                            49,301         51,904




     
                COST OF SALES:



     Product                                     3,429                                   3,757                                                            13,199         14,863



     Service                                     1,041                                   1,097                                                             4,419          4,375



      Total cost of sales                         4,470                                   4,854                                                            17,618         19,238



                   GROSS MARGIN                   7,684                                   8,574                                                            31,683         32,666



     
                OPERATING EXPENSES:


      Research and development                    1,565                                   1,753                                                             6,347          6,577


      Sales and marketing                         2,218                                   2,487                                                             9,169          9,571


      General and administrative                    494                                     566                                                             1,925          1,827


      Amortization of purchased
       intangible assets                             33                                      38                                                               141            150


      Restructuring and other
       charges                                      127                                      40                                                               481            322


      Total operating expenses                    4,437                                   4,884                                                            18,063         18,447



                   OPERATING INCOME               3,247                                   3,690                                                            13,620         14,219



     Interest income                               187                                     305                                                               920          1,308



     Interest expense                            (119)                                  (204)                                                            (585)         (859)


      Other income (loss), net                      (9)                                   (87)                                                               15           (97)



      Interest and other income
       (loss), net                                   59                                      14                                                               350            352


                   INCOME BEFORE PROVISION FOR
                    INCOME TAXES                  3,306                                   3,704                                                            13,970         14,571


      Provision for income taxes
       (1)                                         670                                   1,498                                                             2,756          2,950



                   NET INCOME                           $
           2,636                                                   $
              2,206                         $
        11,214  $
       11,621






     Net income per share:



     Basic                                              $
           0.62                                                    $
              0.52                           $
        2.65    $
       2.63




     Diluted                                            $
           0.62                                                    $
              0.51                           $
        2.64    $
       2.61



      Shares used in per-share calculation:



     Basic                                       4,227                                   4,269                                                             4,236          4,419




     Diluted                                     4,244                                   4,307                                                             4,254          4,453



               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) The provision for income
                             taxes included a $0.9 billion
                             charge for the three months and
                             fiscal year ended July 27, 2019
                             related to the Tax Cuts and
                             Jobs Act.


                                                   
          
                CISCO SYSTEMS, INC.


                                                    
          
                REVENUE BY SEGMENT


                                            
              
            (In millions, except percentages)




                                                    
          July 25, 2020


                            
         Three Months Ended                       
              Fiscal Year Ended


                                                                                                        
       Excluding           
       Including

                                                                                                          
       SPVSS               
       SPVSS

                                                                                                        
       business            
       business



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

                                                                                                                                    ---


       
            Revenue:

    ---


       Americas                        $
              7,185                            (12)%              $
       29,291                    (5)%    (5)%



       EMEA                   3,106                                        (6)%                 12,659                    (3)%        (3)%



       APJC                   1,863                                        (7)%                  7,352                    (6)%        (7)%



       Total                          $
              12,154                             (9)%              $
       49,301                    (5)%    (5)%



               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 fiscal year
                ended July 27, 2019 was $168
                million.


                                            
         
                CISCO SYSTEMS, INC.


                                          
         
           GROSS MARGIN PERCENTAGE BY SEGMENT


                                              
         
                (In percentages)




                                                         
              July 25, 2020


                                                      
              Three Months Ended           
     Fiscal Year Ended




       
            Gross Margin Percentage:

    ---


       Americas                                                                        65.6%                     66.7%



       EMEA                                                                            64.9%                     65.6%



       APJC                                                                            63.2%                     63.8%


                                              
              
                CISCO SYSTEMS, INC.


                                   
         
                REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES


                                       
              
                (In millions, except percentages)




                                                           
              July 25, 2020


                                   
         Three Months Ended                           
              Fiscal Year Ended



                                                                                                                            
          Excluding           
          Including
                                                                                                                               SPVSS                       SPVSS
                                                                                                                              business                   business



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




       
                Revenue:

    ---


       Infrastructure Platforms               $
              6,626                                (16)%                     $
          27,122                      (10)%           (10)%



       Applications                  1,357                                            (9)%                  5,568                              (4)%           (4)%



       Security                        814                                             10%                  3,154                               12%            12%



       Other Products                   35                                           (17)%                    135                                    -%                (52)%




       Total Product                 8,832                                           (13)%                 35,978                              (7)%           (8)%



       Services                      3,322                                                      -%                13,323                            3%                    3%



       Total                                 $
              12,154                                 (9)%                     $
          49,301                       (5)%            (5)%



               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 fiscal year
                ended July 27, 2019 was $168
                million.


                                            
            
               CISCO SYSTEMS, INC.


                                   
              
             CONDENSED CONSOLIDATED BALANCE SHEETS


                                               
           
                (In millions)


                                                
           
                (Unaudited)




                                                                July 25,                       July 27,

                                                                    2020                      2019

                                                                                              ---


     
                ASSETS



     Current assets:


      Cash and cash equivalents                                            $
              11,809           $
     11,750



     Investments                                                 17,610                      21,663


      Accounts receivable, net of
       allowance for doubtful
       accounts 
              of $143
       at July 25, 2020 and $136 at
       July 27, 2019                                               5,472                       5,491



     Inventories                                                  1,282                       1,383


      Financing receivables, net                                   5,051                       5,095


      Other current assets                                         2,349                       2,373


      Total current assets                                        43,573                      47,755


      Property and equipment, net                                  2,453                       2,789


      Financing receivables, net                                   5,714                       4,958



     Goodwill                                                    33,806                      33,529


      Purchased intangible assets,
       net                                                         1,576                       2,201


      Deferred tax assets                                          3,990                       4,065



     Other assets                                                 3,741                       2,496



                   TOTAL ASSETS                                            $
              94,853           $
     97,793



                   LIABILITIES AND EQUITY



     Current liabilities:



     Short-term debt                                                       $
              3,005           $
     10,191



     Accounts payable                                             2,218                       2,059


      Income taxes payable                                           839                       1,149


      Accrued compensation                                         3,122                       3,221



     Deferred revenue                                            11,406                      10,668


      Other current liabilities                                    4,741                       4,424



      Total current liabilities                                   25,331                      31,712



     Long-term debt                                              11,578                      14,475


      Income taxes payable                                         8,837                       8,927



     Deferred revenue                                             9,040                       7,799


      Other long-term liabilities                                  2,147                       1,309




     Total liabilities                                           56,933                      64,222



     Total equity                                                37,920                      33,571



                        TOTAL LIABILITIES AND EQUITY                       $
              94,853           $
     97,793


                                                        
              
                CISCO SYSTEMS, INC.


                                               
              
                CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                           
              
                (In millions)


                                                            
              
                (Unaudited)




                                                                                      
              Fiscal Year Ended


                                                                             July 25,                              July 27,

                                                                                 2020                                   2019

                                                                                                                        ---


     Cash flows from operating activities:



     Net income                                                                        $
              11,214                             $
        11,621


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



     Depreciation, amortization, and other                                     1,808                                            1,897



     Share-based compensation expense                                          1,569                                            1,570



     Provision for receivables                                                    93                                               40



     Deferred income taxes                                                      (38)                                           (350)


      (Gains) losses on divestitures, investments and
       other, net                                                               (138)                                            (24)


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



     Accounts receivable                                                       (107)                                            (84)



     Inventories                                                                  84                                              131



     Financing receivables                                                     (797)                                           (249)



     Other assets                                                                 96                                            (955)



     Accounts payable                                                            141                                               87



     Income taxes, net                                                         (322)                                             312



     Accrued compensation                                                       (78)                                             277



     Deferred revenue                                                          2,011                                            1,407



     Other liabilities                                                         (110)                                             151




     Net cash provided by operating activities                                15,426                                           15,831




     Cash flows from investing activities:



     Purchases of investments                                                (9,212)                                         (2,416)



     Proceeds from sales of investments                                        5,631                                            7,388



     Proceeds from maturities of investments                                   7,975                                           12,928



     Acquisitions and divestitures                                             (327)                                         (2,175)


      Purchases of investments in privately held companies                      (190)                                           (148)


      Return of investments in privately held companies                           224                                              159



     Acquisition of property and equipment                                     (770)                                           (909)


      Proceeds from sales of property and equipment                               179                                               22



     Other                                                                      (10)                                            (12)




     Net cash provided by investing activities                                 3,500                                           14,837




     Cash flows from financing activities:



     Issuances of common stock                                                   655                                              640


      Repurchases of common stock -repurchase program                         (2,659)                                        (20,717)


      Shares repurchased for tax withholdings on vesting
       of restricted stock units                                                (727)                                           (862)


      Short-term borrowings, original maturities of 90
       days or less, net                                                      (3,470)                                           3,446



     Issuances of debt                                                             -                                           2,250



     Repayments of debt                                                      (6,720)                                         (6,780)



     Dividends paid                                                          (6,016)                                         (5,979)



     Other                                                                        51                                              113




     Net cash used in financing activities                                  (18,886)                                        (27,889)


      Net increase in cash, cash equivalents, and
       restricted cash                                                             40                                            2,779


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


      Cash, cash equivalents, and restricted cash, end of
       fiscal year                                                                      $
              11,812                             $
        11,772






     Supplemental cash flow information:



     Cash paid for interest                                                               $
              603                                $
        892



     Cash paid for income taxes, net                                                    $
              3,116                              $
        2,986


                           
            
            CISCO SYSTEMS, INC.


                             
            
            DEFERRED REVENUE


                              
            
            (In millions)




                        July 25,                             April 25,      July 27,

                            2020                            2020           2019

                                                                          ---


     Deferred revenue:



     Service                    $
          12,551                        $
     11,423           $
     11,709



     Product              7,895                             7,225                   6,758




     Total                      $
          20,446                        $
     18,648           $
     18,467




     Reported as:



     Current                    $
          11,406                        $
     10,710           $
     10,668



     Noncurrent           9,040                             7,938                   7,799




     Total                      $
          20,446                        $
     18,648           $
     18,467


                                                    
         
                CISCO SYSTEMS, INC.


                                               
          
             REMAINING PERFORMANCE OBLIGATIONS


                                               
          
             (In millions, except percentages)




              
            July 25, 2020                
         April 25, 2020                         
        July 27, 2019


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



      Product         $
              11,261                      17                                   $
           10,386              25

                                                              %                                                               %            $
      9,603     N/A


      Service  17,093                             9                              15,142                               3

                                                 %                                                                  %              15,702            N/A



     Total           $
              28,354                      12                                   $
           25,528              11

                                                              %                                                               %           $
      25,305     N/A


                                                                                 
            
                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


        July 25, 2020                        $
             0.36        $
          1,525                                                               
     $           
     $            $
        1,525


        April 25, 2020                       $
             0.36        $
          1,519                                                  25               $
      39.71       $
       981    $
        2,500


        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



               The remaining authorized amount
                for stock repurchases under
                the program is $10.8 billion
                with no termination date.


                                                                                               
              
                CISCO SYSTEMS, INC.


                                                                                     
           
                RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES




                                                                                           
              
                GAAP TO NON-GAAP NET INCOME


                                                                                                  
              
                (In millions)




                                                               
            Three Months Ended                                           
              Fiscal Year Ended


                                                            July 25,                             July 27,                        July 25,                         July 27,

                                                                2020                                  2019                             2020                              2019



     GAAP net income                                                $
              2,636                                                       $
              2,206                $
      11,214  $
     11,621



     Adjustments to cost of sales:


      Share-based compensation expense                            61                                              57                                                     237          220


      Amortization of acquisition-related
       intangible assets                                         157                                             144                                                     611          562


      Supplier component remediation charge
       (adjustment), net                                           -                                             17                                                                  16


      Acquisition-related/divestiture costs                        -                                              1                                                       3           10


      Legal and indemnification settlements                        -                                                                                                     4            5



      Total adjustments to GAAP cost of sales                    218                                             219                                                     855          813




     Adjustments to operating expenses:


      Share-based compensation expense                           332                                             335                                                   1,307        1,309


      Amortization of acquisition-related
       intangible assets                                          33                                              38                                                     141          150


      Acquisition-related/divestiture costs                       55                                              61                                                     246          299


      Legal and indemnification settlements                        -                                                                                                             (396)


      Significant asset impairments and
       restructurings                                            127                                              40                                                     481          322



      Total adjustments to GAAP operating
       expenses                                                  547                                             474                                                   2,175        1,684



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


      (Gains) and losses on equity
       investments                                                 2                                              20                                                    (97)        (57)



      Total adjustments to GAAP income before
       provision for income taxes                                767                                             713                                                   2,933        2,440



      Income tax effect of non-GAAP
       adjustments                                             (175)                                          (168)                                                  (722)       (722)



     Significant tax matters (1)                                166                                             835                                                     233          448



      Total adjustments to GAAP provision for
       income taxes                                              (9)                                            667                                                   (489)       (274)



     Non-GAAP net income                                            $
              3,394                                                       $
              3,586                $
      13,658  $
     13,787



                            (1)  The three months
                             and fiscal year ended
                             July 27, 2019
                             includes a $0.9
                             billion charge
                             related to the Tax
                             Cuts and Jobs Act.


                                                                             
              
                CISCO SYSTEMS, INC.


                                                                    
          
                RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES




                                                                            
              
                GAAP TO NON-GAAP EPS




                                               
            Three Months Ended                                    
              Fiscal Year Ended


                                            July 25,                           July 27,                        July 25,                     July 27,

                                                2020                                2019                             2020                          2019



     GAAP EPS                                       $
              0.62                                                      $
              0.51             $
         2.64  $
     2.61



     Adjustments to GAAP:


      Share-based compensation expense          0.09                                          0.09                                                0.36          0.34


      Amortization of acquisition-related
       intangible assets                        0.04                                          0.04                                                0.18          0.16


      Acquisition-related/divestiture costs     0.01                                          0.01                                                0.06          0.07


      Legal and indemnification settlements        -                                                                                                       (0.09)


      Significant asset impairments and
       restructurings                           0.03                                          0.01                                                0.11          0.07


      (Gains) and losses on equity
       investments                                 -                                                                                          (0.02)       (0.01)


      Income tax effect of non-GAAP
       adjustments                            (0.04)                                       (0.04)                                             (0.17)       (0.16)



     Significant tax matters                   0.04                                          0.19                                                0.05          0.10




     Non-GAAP EPS                                   $
              0.80                                                      $
              0.83             $
         3.21  $
     3.10



               Amounts may not sum due
                to rounding.


                                                                                                                                                         
              
                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


                                                                                                        
              July 25, 2020


                                            
        Product          
      Service        
     Total                Operating               
       Y/Y                                  Operating                
              Y/Y                                Interest       
            Net  
        Y/Y

                                             
        Gross            
      Gross         
     Gross                Expenses                                                
              Income                                                         
            and       
            Income

                                            
        Margin           
      Margin         
     Margin                                                                                                                                                         other

                                                                                                                                                                                                                                                  income

                                                                                                                                                                                                                                                 (loss),

                                                                                                                                                                                                                                           
            net

                                                                                                                                                                                                                                                                                      ---


     GAAP amount                                        $
     5,403                            $
     2,281                                          $
              7,684                                                         $
              4,437                           (9)%         $
          3,247        (12)% $
     59 $
     2,636  19%



     
                % of revenue                     61.2                       68.7                               63.2                                       36.5                                                                                          26.7                              0.5
                                               
           %                     
       %                        
            %                                
            %                                                                                   
            %                                      
        %
                                                                                                                                                                                                                                                                                          %        21.7



     Adjustments to GAAP amounts:


      Share-based compensation expense                24                         37                                 61                                        332                                                                                           393                                          393


      Amortization of acquisition-related
       intangible assets                             157                                                          157                                         33                                                                                           190                                          190


      Acquisition/divestiture-related costs            -                                                                                                    55                                                                                            55                                           55


      Significant asset impairments and
       restructurings                                  -                                                                                                   127                                                                                           127                                          127


      (Gains) and losses on equity
       investments                                     -                                                                                                                                                                                                                                  2            2


      Income tax effect/significant tax
       matters                                         -                                                                                                                                                                                                                                            (9)




     Non-GAAP amount                                    $
     5,584                            $
     2,318                                          $
              7,902                                                         $
              3,890                          (12)%         $
          4,012         (8)% $
     61 $
     3,394 (5)%




     
                % of revenue                     63.2                       69.8                               65.0                                       32.0                                                                                          33.0                              0.5
                                               
           %                     
       %                        
            %                                
            %                                                                                   
            %                                      
        %
                                                                                                                                                                                                                                                                                          %        27.9



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


                                                                                    
          Three Months Ended


                                                                                      
           July 27, 2019


                                            Product          Service      Total                           Operating   Operating           Interest 
       Net

                                             Gross            Gross       Gross                           Expenses      Income               and     Income

                                            Margin           Margin       Margin                                                            other

                                                                                                                                           income

                                                                                                                                          (loss),

                                                                                                                                             net




     GAAP amount                                   $
     6,363                     $
         2,211                                   $
     8,574                        $
     4,884        $
     3,690           $
     14 $
     2,206



     
                % of revenue                62.9                  66.8                                        63.9                36.4                  27.5             0.1               16.4

                                                  %                    %                                          %                  %                    %               %                %



     Adjustments to GAAP amounts:


      Share-based compensation expense           23                    34                                          57                 335                   392                               392


      Amortization of acquisition-related
       intangible assets                        144                                                              144                  38                   182                               182


      Supplier component remediation charge
       (adjustment), net                         17                                                               17                                       17                                17


      Acquisition/divestiture-related costs                            1                                           1                  61                    62                                62


      Significant asset impairments and
       restructurings                                                                                                               40                    40                                40


      (Gains) and losses on equity
       investments                                                                                                                                                       20                20


      Income tax effect/significant tax
       matters (1)                                                                                                                                                                       667



     Non-GAAP amount                               $
     6,547                     $
         2,246                                   $
     8,793                        $
     4,410        $
     4,383           $
     34 $
     3,586




     
                % of revenue                64.7                  67.9                                        65.5                32.8                  32.6             0.3               26.7

                                                  %                    %                                          %                  %                    %               %                %



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




                            (1) Includes a $0.9 billion
                             charge related to the Tax Cuts
                             and Jobs Act.


                                                                                                                                                            
              
                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)




                                                                                                         
              Fiscal Year Ended


                                                                                                           
              July 25, 2020


                                            
        Product           
      Service        
     Total                  Operating               
      Y/Y                                   Operating                
              Y/Y                                Interest      
           Net   
          Y/Y

                                             
        Gross             
      Gross         
     Gross           
          Expenses                                                
              Income                                                          
           and       
           Income

                                            
        Margin            
      Margin         
     Margin                                                                                                                                                   
           other

                                                                                                                                                                                                                                                     income

                                                                                                                                                                                                                                                    (loss),

                                                                                                                                                                                                                                               
           net

                                                                                                                                                                                                                                                                                           ---


     GAAP amount                                        $
     22,779                            $
     8,904                                           $
              31,683                                                         $
              18,063                        (2)%          $
            13,620          (4)%   $
      350  $
      11,214  (4)%



     
                % of revenue                     63.3                        66.8                                 64.3                                       36.6                                                                                          27.6                                0.7          22.7
                                               
           %                      
       %                          
            %                                
            %                                                                                   
            %                         
           %      
         %



     Adjustments to GAAP amounts:


      Share-based compensation expense                93                         144                                  237                                      1,307                                                                                         1,544                                           1,544


      Amortization of acquisition-related
       intangible assets                             611                                                             611                                        141                                                                                           752                                             752


      Legal and indemnification settlements            4                                                               4                                                                                                                                       4                                               4


      Acquisition/divestiture-related costs            -                          3                                    3                                        246                                                                                           249                                             249


      Significant asset impairments and
       restructurings                                  -                                                                                                      481                                                                                           481                                             481


      (Gains) and losses on equity
       investments                                     -                                                                                                                                                                                                                                    (97)         (97)


      Income tax effect/significant tax
       matters                                         -                                                                                                                                                                                                                                                (489)



     Non-GAAP amount                                    $
     23,487                            $
     9,051                                           $
              32,538                                                         $
              15,888                        (5)%          $
            16,650            -%  $
      253  $
      13,658  (1)%




     
                % of revenue                     65.3                        67.9                                 66.0                                       32.2                                                                                          33.8                                0.5          27.7
                                               
           %                      
       %                          
            %                                
            %                                                                                   
            %                         
           %      
         %



               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. Accordingly, the
                non-GAAP growth rates are
                normalized to exclude the
                SPVSS business for fiscal
                2019.


                                                                                              
             Fiscal Year Ended


                                                                                                
             July 27, 2019


                                                 Product             Service      
     Total                           Operating     Operating                Interest   
         Net

                                             
        Gross            
      Gross       
     Gross                           Expenses    
       Income               
        and   
         Income

                                            
        Margin              Margin       
     Margin                                                                   other

                                                                                                                                                            income

                                                                                                                                                           (loss),

                                                                                                                                                         
        net




     GAAP amount                                        $
     24,142                         $
         8,524                                     $
       32,666                              $
     18,447          $
     14,219              $
     352 $
     11,621



     
                % of revenue                     61.9                     66.1                                          62.9                     35.5                        27.4                0.7
                                               
           %                                                           
            %                  
        %                   
          %                                  
         %
                                                                               %                                                                                                                  %                  22.4



     Adjustments to GAAP amounts:


      Share-based compensation expense                90                      130                                           220                    1,309                       1,529                                     1,529


      Amortization of acquisition-related
       intangible assets                             562                                                                   562                      150                         712                                       712


      Supplier component remediation charge
       (adjustment), net                              16                                                                    16                                                  16                                        16


      Legal and indemnification settlements            5                                                                     5                    (396)                      (391)                                    (391)


      Acquisition/divestiture-related costs            4                        6                                            10                      299                         309                                       309


      Significant asset impairments and
       restructurings                                                                                                                             322                         322                                       322


      (Gains) and losses on equity
       investments                                                                                                                                                                             (57)                  (57)


      Income tax effect/significant tax
       matters (1)                                                                                                                                                                                                  (274)




     Non-GAAP amount                                    $
     24,819                         $
         8,660                                     $
       33,479                              $
     16,763          $
     16,716              $
     295 $
     13,787



     Less: SPVSS business (2)                      (51)                     (9)                                         (61)                    (60)



      Non-GAAP amount (excluding SPVSS
       business)                                         $
     24,768                         $
         8,651                                     $
       33,418                              $
     16,703          $
     16,716              $
     295 $
     13,787




     
                % of revenue                     63.7                     67.2                                          64.6                     32.3                        32.3                0.6
                                               
           %                                                           
            %                  
        %                   
          %                                  
         %
                                                                               %                                                                                                                  %                  26.6



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




                            (1) Includes a $0.9 billion
                             charge related to the Tax Cuts
                             and Jobs Act.




                            (2) Reflects three months of
                             operations for the SPVSS
                             business.


                                     
              
                CISCO SYSTEMS, INC.


                          
            
                RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES




                                     
              
                EFFECTIVE TAX RATE


                                      
              
                (In percentages)




                                Three Months Ended                                   Fiscal Year Ended


                       July 25,                         July 27,                         July 25,      July 27,

                           2020                              2019                              2020           2019

                                                                                                            ---

     GAAP effective        20.3                                         40.4                                 19.7      20.2
      tax rate (1)                                                        %
                              %                                                                               %        %


     Total adjustments
      to GAAP                                                             %
      provision for           %                                                                               %        %
      income taxes        (3.6)                                      (21.6)                               (0.5)    (1.2)

                                                                                                                            ---

     Non-GAAP              16.7                                         18.8                                 19.2      19.0
      effective tax                                                       %
      rate                    %                                                                               %        %

                                                                                                                            ===



                            (1) The three months
                             and fiscal year ended
                             July 27, 2019
                             includes a $0.9
                             billion charge
                             related to the Tax
                             Cuts and Jobs Act.


                                                                         
             
     GAAP TO NON-GAAP GUIDANCE FOR Q1 FY 2021





       
                Q1 FY 2021                              
       Gross Margin                 
              Operating Margin        
       Tax Provision    
         Earnings per

                                                               
         Rate                           
              Rate                
          Rate          
         Share (2)

    ---


       GAAP                                                             62% - 63%                                    18% - 19%                   19%   
         $0.41 - $0.47



       Estimated adjustments for:



       Share-based compensation expense                                      0.5%                                          3.5%                          
         $0.07 - $0.08


        Amortization of acquisition-related intangible
         assets and acquisition/divestiture-related costs                     1.5%                                          2.0%                          
         $0.04 - $0.05


        Significant asset impairments and restructurings (1)                                                                6.5%                          
         $0.13 - $0.15



       Income tax effect of non-GAAP adjustments






       Non-GAAP                                                         64% - 65%                                    30% - 31%                   19%   
         $0.69 - $0.71



                  (1) In the first quarter of fiscal 2021, we initiated a
                   restructuring plan, which includes a voluntary early
                   retirement program, in order to realign the
                   organization and enable further investment in key
                   priority areas with estimated pretax charges of
                   approximately $900 million consisting of severance and
                   other one-time termination benefits, and other costs.
                   We expect to recognize approximately $800 million of
                   these charges in the first quarter of fiscal 2021 with
                   the remaining amount to be recognized during the rest
                   of the fiscal year.




                  (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 continued execution of our strategy to shift to revenue coming from software and services, the strength of our portfolio of software and services to continue to resonate with customers as they digitize their organizations, our ability to successfully rebalance our R&D investments to focus on new areas so that we can continue to offer customer relevant technology in simpler, consumable ways, our continued ability to deliver long term growth and shareholder value, and future responses to and effects of the COVID-19 pandemic) and the future financial performance of Cisco (including the guidance for Q1 FY 2021) 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: the impact of the COVID-19 pandemic; 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; any other 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 May 18, 2020 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 months and the year ended July 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 leader in technology that powers the Internet. Cisco inspires new possibilities by reimagining your applications, securing your data, transforming your infrastructure, and empowering your teams for a global and inclusive future. 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


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              1 (408) 527-7452


                                    rojenkin@cisco.com                               marilmor@cisco.com

    ---

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