Cisco Reports First Quarter Earnings

    --  Q1 Results:
        --  Revenue: $11.9 billion
            --  Decrease of (9)% year over year
        --  Earnings per Share: GAAP: $0.51; Non-GAAP: $0.76
            --  GAAP EPS decreased (25)% year over year
            --  Non-GAAP EPS decreased (10)% year over year
    --  Q2 Guidance:
        --  Revenue: 0% to (2)% decline year over year
        --  Earnings per Share: GAAP: $0.55 to $0.60; Non-GAAP: $0.74 to $0.76

SAN JOSE, Calif., Nov. 12, 2020 /PRNewswire/ -- Cisco today reported first quarter results for the period ended October 24, 2020. Cisco reported first quarter revenue of $11.9 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.51 per share, and non-GAAP net income of $3.2 billion or $0.76 per share.

"Cisco is off to a solid start in fiscal 2021 and we are encouraged by the signs of improvement in our business as we continue to navigate the pandemic and other macro uncertainties," said Chuck Robbins, chairman and CEO of Cisco. "Our focus is on winning with a differentiated innovative portfolio, long-term growth and being a trusted technology partner offering choice and flexibility to our customers. We see many great opportunities ahead as every company in every industry is accelerating its digital-first strategy."


                                         
         
            GAAP Results




                               Q1 FY 2021                              Q1 FY 2020     
          
       Vs. Q1 FY 2020




     Revenue              $
           11.9   
         billion                          $
        13.2   
      billion        (9)%



     Net Income            $
           2.2   
         billion                           $
        2.9   
      billion       (26)%


      Diluted Earnings per
       Share (EPS)         $
           0.51                                          $
        0.68                    (25)%






                                       
         
            Non-GAAP Results




                               Q1 FY 2021                              Q1 FY 2020     
          
       Vs. Q1 FY 2020




     Net Income            $
           3.2   
          billion                          $
        3.6   
       billion      (11)%



     EPS                  $
           0.76                                          $
        0.84                    (10)%

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."

"Our Q1 results reflect good execution with strong margins in a challenging environment," said Kelly Kramer, CFO of Cisco. "We continued to transform our business through more software offerings and subscriptions, driving 10% year over year growth in remaining performance obligations. We delivered strong growth in operating cash flow and returned $2.3 billion to shareholders."

Financial Summary

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

Q1 FY 2021 Highlights

Revenue -- Total revenue was $11.9 billion, down 9%, with product revenue down 13% and service revenue up 2%. Revenue by geographic segment was: Americas down 10%, EMEA down 10%, and APJC down 7%. Product revenue was led by growth in Security, up 6%. Infrastructure Platforms was down 16% and Applications was down 8%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.6%, 62.7%, and 65.8%, respectively, as compared with 64.3% for each in the first quarter of fiscal 2020.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.8%, 65.3%, and 67.1%, respectively, as compared with 65.9%, 66.1%, and 65.4%, respectively, in the first quarter of fiscal 2020.

Total gross margins by geographic segment were: 67.3% for the Americas, 63.9% for EMEA and 63.0% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $5.0 billion, up 3%, and were 42.0% of revenue. Non-GAAP operating expenses were $4.0 billion, down 7%, and were 33.1% of revenue.

Operating Income -- GAAP operating income was $2.6 billion, down 28%, with GAAP operating margin of 21.5%. Non-GAAP operating income was $3.9 billion, down 12%, with non-GAAP operating margin at 32.7%.

Provision for Income Taxes -- The GAAP tax provision rate was 18.9%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.2 billion, a decrease of 26%, and EPS was $0.51, a decrease of 25%. On a non-GAAP basis, net income was $3.2 billion, a decrease of 11%, and EPS was $0.76, a decrease of 10%.

Cash Flow from Operating Activities -- $4.1 billion for the first quarter of fiscal 2021, an increase of 14% compared with $3.6 billion for the first quarter of fiscal 2020.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $30.0 billion at the end of the first quarter of fiscal 2021, compared with $29.4 billion at the end of fiscal 2020.

Deferred Revenue -- $20.5 billion, up 10% in total, with deferred product revenue up 15%. Deferred service revenue was up 7%.

Remaining Performance Obligations -- $27.5 billion at the end of the first quarter of fiscal 2021, up 10%.

Capital Allocation -- In the first quarter of fiscal 2021, we returned $2.3 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.36 per common share, or $1.5 billion, and repurchased approximately 20 million shares of common stock under our stock repurchase program at an average price of $40.44 per share for an aggregate purchase price of $800 million. The remaining authorized amount for stock repurchases under the program is $10.0 billion with no termination date.

Guidance for Q2 FY 2021

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



       
                
                  Q2 FY 2021

    ---


       Revenue                                
     0% - (2)% decline Y/Y



       Non-GAAP gross margin rate                                         64% - 65%



       Non-GAAP operating margin rate                                     32% - 33%



       Non-GAAP tax provision rate                                              19%



       Non-GAAP EPS                                             
         $0.74 - $0.76

Cisco estimates that GAAP EPS will be $0.55 to $0.60 in the second quarter of fiscal 2021.

A reconciliation between the Guidance for Q2 FY 2021 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q2 FY 2021" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

    --  Q1 fiscal year 2021 conference call to discuss Cisco's results along
        with its guidance will be held on Thursday, November 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,
        November 12, 2020 to 4:00 p.m. Pacific Time, November 19, 2020 at
        1-800-879-5193 (United States) or 1-203-369-3562 (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, November 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



                                                                                                      October 24,                       October 26,

                                                                                                             2020                               2019

                                                                                                                                                ---


     
                REVENUE:



     Product                                                                                                     $
              8,587                         $
      9,878



     Service                                                                                               3,342                                     3,281




     Total revenue                                                                                        11,929                                    13,159




     
                COST OF SALES:



     Product                                                                                               3,206                                     3,524



     Service                                                                                               1,142                                     1,171




     Total cost of sales                                                                                   4,348                                     4,695




     
                GROSS MARGIN                                                                             7,581                                     8,464



     
                OPERATING EXPENSES:



     Research and development                                                                              1,612                                     1,666



     Sales and marketing                                                                                   2,217                                     2,480



     General and administrative                                                                              544                                       519



     Amortization of purchased intangible assets                                                              36                                        36



     Restructuring and other charges                                                                         602                                       184




     Total operating expenses                                                                              5,011                                     4,885




     
                OPERATING INCOME                                                                         2,570                                     3,579



     Interest income                                                                                         174                                       273



     Interest expense                                                                                      (112)                                    (178)



     Other income (loss), net                                                                                 49                                        12




     Interest and other income (loss), net                                                                   111                                       107




     
                INCOME BEFORE PROVISION FOR INCOME TAXES                                                 2,681                                     3,686



     Provision for income taxes                                                                              507                                       760




     
                NET INCOME                                                                                     $
              2,174                         $
      2,926






     Net income per share:



     Basic                                                                                                        $
              0.51                          $
      0.69




     Diluted                                                                                                      $
              0.51                          $
      0.68




     Shares used in per-share calculation:



     Basic                                                                                                 4,230                                     4,246




     Diluted                                                                                               4,244                                     4,273


                        
       
            CISCO SYSTEMS, INC.


                        
       
            REVENUE BY SEGMENT


                 
            
       (In millions, except percentages)




                                   
              Three Months Ended


                                    
              October 24, 2020



                               
              Amount                      Y/Y %



                 Revenue:

    ---


       Americas                                    $
              7,198             (10)%



       EMEA                               2,964                            (10)%



       APJC                               1,767                             (7)%




       Total                                      $
              11,929              (9)%



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


                                 
            
              CISCO SYSTEMS, INC.


                          
              
            GROSS MARGIN PERCENTAGE BY SEGMENT


                                   
            
              (In percentages)




                                                                         
           Three Months Ended


                                                                          
           October 24, 2020



                 Gross Margin Percentage:

    ---


       Americas                                                                                    67.3%



       EMEA                                                                                        63.9%



       APJC                                                                                        63.0%


                                      
          
                CISCO SYSTEMS, INC.


                          
             
         REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES


                                  
         
              (In millions, except percentages)




                                                                       
              Three Months Ended


                                                                        
              October 24, 2020



                                                                   
              Amount                      Y/Y %




       
                Revenue:

    ---


       Infrastructure Platforms                                                        $
              6,341          (16)%



       Applications                                                           1,380                          (8)%



       Security                                                                 861                            6%



       Other Products                                                             5                         (56)%




       Total Product                                                          8,587                         (13)%



       Services                                                               3,342                            2%




                           Total                                                      $
              11,929           (9)%



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


                                                                              
              
               CISCO SYSTEMS, INC.


                                                                     
              
               CONDENSED CONSOLIDATED BALANCE SHEETS


                                                                                 
             
                (In millions)


                                                                                  
             
                (Unaudited)




                                                                                                            October 24, 2020              July 25, 2020

                                                                                                                                                    ---


     
                ASSETS



     Current assets:



     Cash and cash equivalents                                                                                                $
      10,822                      $
      11,809



     Investments                                                                                                     19,190                            17,610


      Accounts receivable, net of allowance for doubtful accounts of $125 at October 24,
       2020 and $143 at July 25, 2020                                                                                  3,980                             5,472



     Inventories                                                                                                      1,303                             1,282



     Financing receivables, net                                                                                       5,105                             5,051



     Other current assets                                                                                             2,589                             2,349




     Total current assets                                                                                            42,989                            43,573



     Property and equipment, net                                                                                      2,412                             2,453



     Financing receivables, net                                                                                       5,516                             5,714



     Goodwill                                                                                                        34,535                            33,806



     Purchased intangible assets, net                                                                                 1,581                             1,576



     Deferred tax assets                                                                                              4,138                             3,990



     Other assets                                                                                                     3,832                             3,741




     
                TOTAL ASSETS                                                                                                $
      95,003                      $
      94,853




     
                LIABILITIES AND EQUITY



     Current liabilities:



     Short-term debt                                                                                                           $
      5,002                       $
      3,005



     Accounts payable                                                                                                 2,294                             2,218



     Income taxes payable                                                                                               810                               839



     Accrued compensation                                                                                             2,978                             3,122



     Deferred revenue                                                                                                11,271                            11,406



     Other current liabilities                                                                                        4,636                             4,741




     Total current liabilities                                                                                       26,991                            25,331



     Long-term debt                                                                                                   9,564                            11,578



     Income taxes payable                                                                                             8,786                             8,837



     Deferred revenue                                                                                                 9,202                             9,040



     Other long-term liabilities                                                                                      2,303                             2,147




     Total liabilities                                                                                               56,846                            56,933




     Total equity                                                                                                    38,157                            37,920




     
                TOTAL LIABILITIES AND EQUITY                                                                                $
      95,003                      $
      94,853


                                                            
              
                CISCO SYSTEMS, INC.


                                                   
              
                CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                               
              
                (In millions)


                                                                
              
                (Unaudited)




                                                                                      
              Three Months Ended



                                                                               October 24,                          October 26,

                                                                                      2020                                  2019

                                                                                                                            ---


     Cash flows from operating activities:



     Net income                                                                              $
              2,174                           $
       2,926


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



     Depreciation, amortization, and other                                            451                                            461



     Share-based compensation expense                                                 438                                            395



     Provision (benefit) for receivables                                               13                                             50



     Deferred income taxes                                                          (120)                                            81


      (Gains) losses on divestitures, investments and other,
       net                                                                            (59)                                           (8)


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



     Accounts receivable                                                            1,526                                            515



     Inventories                                                                     (21)                                            34



     Financing receivables                                                            167                                            146



     Other assets                                                                   (259)                                            59



     Accounts payable                                                                  73                                           (45)



     Income taxes, net                                                               (84)                                         (330)



     Accrued compensation                                                           (165)                                         (473)



     Deferred revenue                                                                (45)                                           158



     Other liabilities                                                                  7                                          (382)




     Net cash provided by operating activities                                      4,096                                          3,587




     Cash flows from investing activities:



     Purchases of investments                                                     (3,756)                                       (2,028)



     Proceeds from sales of investments                                               657                                          2,342



     Proceeds from maturities of investments                                        1,425                                          1,966



     Acquisitions and divestitures                                                  (830)                                         (163)


      Purchases of investments in privately held companies                            (68)                                          (54)


      Return of investments in privately held companies                                 29                                             57



     Acquisition of property and equipment                                          (171)                                         (202)


      Proceeds from sales of property and equipment                                      4                                              4



      Net cash (used in) provided by investing activities                          (2,710)                                         1,922




     Cash flows from financing activities:



     Issuances of common stock                                                          1                                              2


      Repurchases of common stock -repurchase program                                (800)                                         (784)


      Shares repurchased for tax withholdings on vesting of
       restricted stock units                                                         (89)                                         (194)


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



     Repayments of debt                                                                 -                                       (2,720)



     Dividends paid                                                               (1,520)                                       (1,486)



     Other                                                                             35                                           (16)




     Net cash used in financing activities                                        (2,373)                                       (8,668)



      Net decrease in cash, cash equivalents, and restricted
       cash                                                                          (987)                                       (3,159)


      Cash, cash equivalents, and restricted cash, beginning
       of period                                                                    11,812                                         11,772



      Cash, cash equivalents, and restricted cash, end of
       period                                                                                $
              10,825                           $
       8,613




     Supplemental cash flow information:



     Cash paid for interest                                                                    $
              160                             $
       204



     Cash paid for income taxes, net                                                           $
              710                           $
       1,009


                                 
            
               CISCO SYSTEMS, INC.


                                  
            
               DEFERRED REVENUE


                                    
            
               (In millions)




                        October 24,                                July 25,     October 26,

                               2020                               2020             2019

                                                                                  ---


     Deferred revenue:



     Product                          $
           8,139                        $
        7,895            $
      7,105



     Service                12,334                               12,551                    11,497




                Total                $
           20,473                       $
        20,446           $
      18,602




     Reported as:



     Current                         $
           11,271                       $
        11,406           $
      10,646



     Noncurrent              9,202                                9,040                     7,956




                Total                $
           20,473                       $
        20,446           $
      18,602


                                                  
          
                CISCO SYSTEMS, INC.


                                              
         
              REMAINING PERFORMANCE OBLIGATIONS


                                              
         
              (In millions, except percentages)




                     October 24, 2020             
          July 25, 2020                                October 26, 2019

                                                                                                                         ---

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

                                                                                                                            ---


     Product         $
              11,340                    15                                   $
          11,261                   17         $
      9,878    28

                                                            %                                                                   %                       %



     Service 16,129                            8                              17,093                                   9            14,991           3

                                               %                                                                      %                          %




     Total           $
              27,469                    10                                   $
          28,354                   12        $
      24,869    11

                                                            %                                                                   %                       %


                                                                       
             
                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 2021


        October 24,
         2020                         $
             0.36            $
           1,520                         20                                   $
         40.44          $
     800    $
        2,320



       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


                                                                               
         
                CISCO SYSTEMS, INC.


                                                                         
       
           RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES




                                                                           
           
              GAAP TO NON-GAAP NET INCOME


                                                                                 
          
                (In millions)




                                                                                                                                        
            Three Months Ended



                                                                                                                                  October 24,                       October 26,

                                                                                                                                         2020                               2019

                                                                                                                                                                            ---


     GAAP net income                                                                                                                         $
              2,174                         $
     2,926



     Adjustments to cost of sales:



     Share-based compensation expense                                                                                                     65                                        57



     Amortization of acquisition-related intangible assets                                                                               163                                       150



     Acquisition-related/divestiture costs                                                                                                 1                                         1



     Legal and indemnification settlements/charges                                                                                        43                                         4




     Total adjustments to GAAP cost of sales                                                                                             272                                       212




     Adjustments to operating expenses:



     Share-based compensation expense                                                                                                    362                                       333



     Amortization of acquisition-related intangible assets                                                                                36                                        36



     Acquisition-related/divestiture costs                                                                                                59                                        72



     Significant asset impairments and restructurings                                                                                    602                                       184




     Total adjustments to GAAP operating expenses                                                                                      1,059                                       625




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



     (Gains) and losses on equity investments                                                                                           (48)                                     (13)




     Total adjustments to GAAP income before provision for income taxes                                                                1,283                                       824




     Income tax effect of non-GAAP adjustments                                                                                         (246)                                    (209)



     Significant tax matters                                                                                                               -                                       67




     Total adjustments to GAAP provision for income taxes                                                                              (246)                                    (142)




     Non-GAAP net income                                                                                                                     $
              3,211                         $
     3,608


                                                               
     
                CISCO SYSTEMS, INC.


                                                            
     
       RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES




                                                               
     
                GAAP TO NON-GAAP EPS




                                                                                                             
            Three Months Ended



                                                                                                       October 24,                       October 26,

                                                                                                              2020                               2019

                                                                                                                                                 ---


     GAAP EPS                                                                                                     $
              0.51                           $
     0.68



     Adjustments to GAAP:



     Share-based compensation expense                                                                        0.10                                       0.09



     Amortization of acquisition-related intangible assets                                                   0.05                                       0.04



     Acquisition-related/divestiture costs                                                                   0.01                                       0.02



     Legal and indemnification settlements/charges                                                           0.01



     Significant asset impairments and restructurings                                                        0.14                                       0.04



     (Gains) and losses on equity investments                                                              (0.01)



     Income tax effect of non-GAAP adjustments                                                             (0.06)                                    (0.05)



     Significant tax matters                                                                                    -                                      0.02




     Non-GAAP EPS                                                                                                 $
              0.76                           $
     0.84



               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


                                                                                                          
             October 24, 2020



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

                                                
        Gross            
      Gross         
     Gross               Expenses                                                  
              Income                                                             and other     
           Income

                                               
        Margin           
      Margin         
     Margin                                                                                                                                                        income

                                                                                                                                                                                                                                                    (loss),

                                                                                                                                                                                                                                               
          net

                                                                                                                                                                                                                                                                                          ---


     GAAP amount                                           $
     5,381                            $
     2,200                                           $
              7,581                                                         $
              5,011                          3%          $
            2,570         (28)%  $
      111 $
     2,174 (26)%



     
                % of revenue                        62.7                       65.8                              63.6                                         42.0                                                                                         21.5                               0.9          18.2
                                                  
           %                     
       %                       
            %                                  
            %                                                                                  
            %                         
          %      
         %



     Adjustments to GAAP amounts:


      Share-based compensation expense                   24                         41                                65                                          362                                                                                          427                                            427


      Amortization of acquisition-related
       intangible assets                                163                                                         163                                           36                                                                                          199                                            199


      Acquisition/divestiture-related costs               -                         1                                 1                                           59                                                                                           60                                             60


      Legal and indemnification settlements/
       charges                                           43                                                          43                                                                                                                                       43                                             43


      Significant asset impairments and
       restructurings                                     -                                                                                                    602                                                                                          602                                            602


      (Gains) and losses on equity investments            -                                                                                                                                                                                                                                (48)         (48)


      Income tax effect/significant tax
       matters                                            -                                                                                                                                                                                                                                            (246)




     Non-GAAP amount                                       $
     5,611                            $
     2,242                                           $
              7,853                                                         $
              3,952                        (7)%          $
            3,901         (12)%   $
      63 $
     3,211 (11)%




     
                % of revenue                        65.3                       67.1                              65.8                                         33.1                                                                                         32.7                               0.5          26.9
                                                  
           %                     
       %                       
            %                                  
            %                                                                                  
            %                         
          %      
         %


                                                                                                
           Three Months Ended


                                                                                                 
           October 26, 2019



                                                 Product            Service      Total Gross                         Operating   Operating           Interest and 
       Net

                                               
      Gross           
      Gross          Margin                           Expenses      Income                other      Income

                                                 Margin             Margin                                                                              income

                                                                                                                                                     (loss), net




     GAAP amount                                        $
     6,354                            $
        2,110                                   $
     8,464                            $
     4,885          $
     3,579             $
      107 $
     2,926



     
                % of revenue                     64.3                    64.3                                            64.3                37.1                      27.2               0.8                 22.2

                                                       %                      %                                              %                  %                        %                 %                  %



     Adjustments to GAAP amounts:


      Share-based compensation expense                23                      34                                              57                 333                       390                                   390


      Amortization of acquisition-related
       intangible assets                             150                                                                    150                  36                       186                                   186


      Legal and indemnification settlements/
       charges                                         4                                                                      4                                            4                                     4


      Acquisition/divestiture-related costs                                   1                                               1                  72                        73                                    73


      Significant asset impairments and
       restructurings                                                                                                                         184                       184                                   184


      (Gains) and losses on equity investments                                                                                                                                          (13)               (13)


      Income tax effect/significant tax
       matters                                                                                                                                                                                            (142)




     Non-GAAP amount                                    $
     6,531                            $
        2,145                                   $
     8,676                            $
     4,260          $
     4,416              $
      94 $
     3,608




     
                % of revenue                     66.1                    65.4                                            65.9                32.4                      33.6               0.7                 27.4

                                                       %                      %                                              %                  %                        %                 %                  %



               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



                                                                                                              October 24,                    October 26,

                                                                                                                     2020                            2019

                                                                                                                                                     ---


     GAAP effective tax rate                                                                                        18.9                                  20.6
                                                                                                                        %                                    %



     Total adjustments to GAAP provision for income taxes                                                            0.1                                 (0.6)
                                                                                                                        %
                                                                                                                                                             %

                                                                                                                                                                ---


     Non-GAAP effective tax rate                                                                                    19.0                                  20.0
                                                                                                                        %                                    %

                                                                                                                                                                ===


                                                                    
       
     GAAP TO NON-GAAP GUIDANCE FOR Q2 FY 2021





       
                Q2 FY 2021                   
       Gross Margin           
              Operating Margin           
       Tax Provision    
         Earnings per

                                                    
         Rate                     
              Rate                   
          Rate          
         Share (2)

    ---                                                                                                                                                     ---


       GAAP                                                  62% - 63%                           24.5%- 25.5%                      19%   
         $0.55 - $0.60



       Estimated adjustments for:


        Share-based compensation expense                           0.5%                                    3.5%                             
         $0.08 - $0.09


        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)                                           -                                    2.0%                             
         $0.04 - $0.05



       Income tax effect of non-GAAP adjustments




       Non-GAAP                                              64% - 65%                              32% - 33%                      19%   
         $0.74 - $0.76

                                                                                                                                                            ===



                  (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 total estimated pretax charges of
                   approximately $900 million consisting of severance and
                   other one-time termination benefits, and other costs.
                   We recognized $602 million of these charges during the
                   first quarter of fiscal 2021. We expect to recognize
                   approximately $200 million of these charges in the
                   second 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 improvement in our business as we continue to navigate the pandemic and other macro uncertainties, our ability to execute on our strategy to focus on winning with a differentiated innovative portfolio, long-term growth and being a trusted technology partner offering choice and flexibility to our customers, our future opportunities as every company in every industry is accelerating its digital-first strategy, our ability to continue to transform our business through more software offerings and subscriptions, and our ability to continue to deliver strong growth in operating cash flow and return value to our shareholders) and the future financial performance of Cisco (including the guidance for Q2 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 report on Form 10-K filed on September 3, 2020. 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 report on Form 10-K as it may be amended from time to time. Cisco's results of operations for the three months ended October 24, 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.

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


        1 (408) 930-8548                                                    
              1 (408) 527-7452


                                    rojenkin@cisco.com                               marilmor@cisco.com

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