CISCO REPORTS THIRD QUARTER EARNINGS

Rhea-AI Summary

Cisco reported a Q3 FY 2024 revenue of $12.7 billion, down 13% YoY, aligning with expectations. The GAAP gross margin was 65.1%, while the non-GAAP gross margin was 68.3%. The company’s business model transformation was bolstered by the Splunk acquisition, contributing $413 million to revenue. Subscription revenue, including Splunk, was $6.9 billion, making up 54% of total revenue. Additionally, the annualized recurring revenue (ARR) reached $29.2 billion, a 22% increase YoY. However, GAAP EPS decreased by 41% to $0.46, and non-GAAP EPS fell by 12% to $0.88, reflecting a minor negative impact from the Splunk acquisition.

For Q4 FY 2024, Cisco projects revenue between $13.4 billion and $13.6 billion, with GAAP EPS ranging from $0.46 to $0.51 and non-GAAP EPS between $0.84 and $0.86.

Positive

• Subscription revenue reached $6.9 billion, 54% of total revenue
• Annualized Recurring Revenue (ARR) at $29.2 billion, up 22% YoY
• Non-GAAP gross margin increased to 68.3% from 65.2% YoY
• Security and Observability segments showed strong growth, up 36% and 27% respectively
• Declared a quarterly dividend of $0.40 per common share

Negative

• Total revenue decreased by 13% YoY to $12.7 billion
• Product revenue declined by 19%
• GAAP EPS decreased by 41% to $0.46, impacted by the Splunk acquisition
• Non-GAAP operating income down 12% YoY
• Cash flow from operating activities decreased by 24%, from $5.2 billion to $4.0 billion

Insights

Financial Analyst

Revenue Analysis: Despite a 13% year-over-year revenue decline, Cisco reported $12.7 billion in Q3 2024, which aligns with expectations. The decline was attributed to a decrease in product revenue, partially offset by an increase in service revenue. Notably, the Splunk acquisition contributed $413 million to the total revenue.

Profitability: Cisco’s GAAP gross margin increased to 65.1% from 63.4% in Q3 2023, indicating improved cost efficiencies. However, GAAP EPS dropped by 41% year over year, mainly due to the impact of the Splunk acquisition. Non-GAAP measures showed a 12% decline in EPS, still a significant decrease but less severe.

Subscription Revenue: Subscription revenue now represents 54% of total revenue, highlighting a shift towards a more stable and recurring revenue model. This is a positive long-term indicator for investors as it suggests sustainable revenue streams.

Short-term vs Long-term Outlook: In the short-term, revenue is expected to rebound to between $13.4 billion and $13.6 billion in Q4 2024. Long-term guidance for FY 2024 suggests stable revenue between $53.6 billion and $53.8 billion. The Splunk acquisition is projected to be a growth catalyst, despite short-term financial impacts.

Cash Flow and Shareholder Returns: Cisco’s cash flow from operations was $4.0 billion, down 24% year over year. The company returned $2.9 billion to shareholders through buybacks and dividends, demonstrating continued shareholder commitment.

Balance Sheet Strength: The balance sheet shows $18.8 billion in cash, cash equivalents and investments, down from $26.1 billion at the end of fiscal 2023. However, the increase in goodwill and intangible assets reflects the strategic acquisitions that are expected to drive future growth.

Tech Industry Expert

Business Model Transformation: Cisco’s shift towards a subscription-based revenue model is a strategic move that aligns with industry trends. This transformation is supported by its increased annualized recurring revenue (ARR), which includes $4.2 billion from Splunk.

Product Segmentation: Notable growth in Security and Observability segments suggests a strong positioning in these high-demand areas. Security revenue grew by 36% and Observability by 27%, outperforming the declining Networking segment, which fell by 27%. This diversification is critical in the evolving tech landscape.

Acquisition Synergy: The integration of Splunk into Cisco’s portfolio strengthens its capabilities in cybersecurity and data observability, essential for AI-era resilience. The challenge will be seamlessly integrating these services to maximize operational synergy.

Market Research Analyst

Market Positioning and Competitiveness: Cisco’s focus on digital resilience, networking, security and data observability positions the company well in the competitive tech market. The rise in subscription revenue and ARR highlights a strategic focus on recurring revenue, which is increasingly favored by investors for its predictability.

Geographic Performance: Revenue decline across all geographic segments, including the Americas, EMEA and APJC, indicates macroeconomic pressures and market saturation challenges. However, the clear growth in key product segments, particularly in areas excluding Splunk, shows Cisco’s underlying growth potential.

Future Guidance: The guidance for Q4 and FY 2024 suggests a cautious but optimistic outlook. While revenue and EPS projections show modest growth, the company’s ongoing strategy to enhance its product lineup and leverage acquisitions like Splunk will be important for sustained long-term growth.

SAN JOSE, Calif., May 15, 2024 /PRNewswire/ --

News Summary:

• $12.7 billion in revenue, down 13% year over year, in line with expectations and reflects our customers' continued implementation of products on-hand
  
  
• Strong profitability with GAAP gross margin of 65.1% and non-GAAP gross margin of 68.3%
  
  
• Transformed business model, further enhanced by the Splunk acquisition:
  
  
  • Total subscription revenue of $6.9 billion including Splunk, representing 54% of total revenue
    
    
  • Total annualized recurring revenue (ARR) at $29.2 billion including $4.2 billion from Splunk, up 22% year over year, and product ARR at $15.5 billion, up 44% year over year
    
    
• Gary Steele, former Splunk CEO, named president of Go-to-Market, effective immediately
  
  
• Q3 FY 2024 Results:
  
  
  • Revenue: $12.7 billion
    
    
    • Decrease of 13% year over year
      
      
    • Splunk contributed $413 million in revenue
      
      
  • Earnings per Share: GAAP: $0.46; Non-GAAP: $0.88
    
    
    • GAAP EPS decreased 41% year over year, which includes a negative $0.09 impact from the Splunk acquisition
      
      
    • Non-GAAP EPS decreased 12% year over year, which includes a negative $0.01 impact from the Splunk acquisition
      
      
• Q4 FY 2024 Guidance:
    
  • Revenue: $13.4 billion to $13.6 billion
    
    
  • Earnings per Share: GAAP: $0.46 to $0.51; Non-GAAP: $0.84 to $0.86
    
    
• FY 2024 Guidance:
  
  
  • Revenue: $53.6 billion to $53.8 billion
    
    
  • Earnings per Share: GAAP: $2.46 to $2.51; Non-GAAP: $3.69 to $3.71

Cisco today reported third quarter results for the period ended April 27, 2024. Cisco reported third quarter revenue of $12.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.46 per share, and non-GAAP net income of $3.6 billion or $0.88 per share.

"We delivered a solid Q3 performance in what remains a dynamic environment" said Chuck Robbins, chair and CEO of Cisco. "Our unique ability to bring together networking, security, observability, and data enables Cisco to offer our customers unrivaled digital resilience for the AI era."

"Revenue, gross margin and non-GAAP EPS in Q3 were at the high end or above our guidance range, both including and excluding Splunk, resulting in continued operating leverage," said Scott Herren, CFO of Cisco. "Customers are consuming the equipment shipped over the last few quarters in line with our expectations and we are seeing stabilization of demand as a result. The addition of Splunk to our product line will be a catalyst for further growth." 

Gary Steele Named President of Go-to-Market

Cisco has named Gary Steele as President of Go-to-Market, effective immediately. Steele is well known for his operational excellence, and in this new role, he will work closely with Robbins to set and execute against Cisco's strategic plans and goals. He will continue to lead the Splunk team through the integration process to ensure a seamless integration into Cisco. 

Cisco also announced that Jeff Sharritts, Cisco's Chief Customer and Partner Officer, will depart Cisco after a successful 24-year career at the company. Sharritts will remain with Cisco until mid-July to ensure a seamless transition.

GAAP Results
		Q3 FY 2024		Q3 FY 2023		Vs. Q3 FY 2023
Revenue		$              12.7 billion		$              14.6 billion		(13) %
Net Income		$               1.9  billion		$               3.2  billion		(41) %
Diluted Earnings per Share (EPS)		$                     0.46		$                     0.78		(41) %

The acquisition of Splunk, including financing costs, had a negative impact of $0.09 to GAAP EPS, for the third quarter of fiscal 2024.

Non-GAAP Results
		Q3 FY 2024		Q3 FY 2023		Vs. Q3 FY 2023
Net Income		$               3.6   billion		$               4.1   billion		(14) %
EPS		$                      0.88		$                      1.00		(12) %

The acquisition of Splunk, including financing costs, had a negative impact of $0.01 to Non-GAAP EPS, for the third quarter of fiscal 2024.

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Cisco Declares Quarterly Dividend

Cisco has declared a quarterly dividend of $0.40 per common share to be paid on July 24, 2024, to all stockholders of record as of the close of business on July 5, 2024. Future dividends will be subject to Board approval.

Financial Summary

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

Q3 FY 2024 Highlights

Revenue -- Total revenue was $12.7 billion, down 13%, with product revenue down 19% and service revenue up 6%. Cisco completed the acquisition of Splunk Inc. ("Splunk") in the third quarter of fiscal 2024. Splunk contributed $413 million of total revenue for the third quarter of fiscal 2024.

Revenue by geographic segment was: Americas down 15%, EMEA down 9%, and APJC down 12%. Product revenue performance reflected growth in Security up 36% and Observability up 27%. Networking was down 27%. Product revenue in Collaboration was flat. Security and Observability, excluding Splunk, grew 3% and 14%, respectively, in the third quarter of fiscal 2024.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 65.1%, 63.5%, and 69.2%, respectively, as compared with 63.4%, 62.7%, and 65.4%, respectively, in the third quarter of fiscal 2023.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 68.3%, 66.9%, and 71.6%, respectively, as compared with 65.2%, 64.5%, and 67.3%, respectively, in the third quarter of fiscal 2023.

Total gross margins by geographic segment were: 67.9% for the Americas, 69.6% for EMEA and 67.4% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $6.1 billion, up 15%, and were 47.9% of revenue. Non-GAAP operating expenses were $4.3 billion, down 5%, and were 34.0% of revenue.

Operating Income -- GAAP operating income was $2.2 billion, down 44%, with GAAP operating margin of 17.2%. Non-GAAP operating income was $4.3 billion, down 12%, with non-GAAP operating margin at 34.2%.

Provision for Income Taxes -- The GAAP tax provision rate was 15.6%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $1.9 billion and EPS was $0.46, each a decrease of 41%. On a non-GAAP basis, net income was $3.6 billion, a decrease of 14%, and EPS was $0.88, a decrease of 12%.

Cash Flow from Operating Activities -- $4.0 billion for the third quarter of fiscal 2024, a decrease of 24%, compared with $5.2 billion for the third quarter of fiscal 2023.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $18.8 billion at the end of the third quarter of fiscal 2024, compared with $26.1 billion at the end of fiscal 2023.

Remaining Performance Obligations (RPO) -- $38.8 billion, up 21% in total, with 52% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 29% and service RPO were up 14%.

Deferred Revenue -- $27.5 billion, up 13% in total, with deferred product revenue up 18%. Deferred service revenue was up 9%.

Capital Allocation -- In the third quarter of fiscal 2024, we returned $2.9 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.40 per common share, or $1.6 billion, and repurchased approximately 26 million shares of common stock under our stock repurchase program at an average price of $49.22 per share for an aggregate purchase price of $1.3 billion. The remaining authorized amount for stock repurchases under the program is $7.2 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2024, we closed the following acquisitions:

• Splunk Inc., a public cybersecurity and observability company
  
  
• Isovalent, Inc., a privately held cloud native solutions company

Guidance

Cisco estimates the following results for the fourth quarter of fiscal 2024:

Q4 FY 2024
Revenue		$13.4 billion - $13.6 billion
Non-GAAP gross margin rate		66.5% – 67.5%
Non-GAAP operating margin rate		31.5% – 32.5%
Non-GAAP EPS		$0.84 – $0.86

Our Q4 FY 2024 guidance includes $950 million to $1 billion in revenue from Splunk and a negative impact to non-GAAP EPS of approximately ($0.03) as the interest impact from financing the acquisition more than offsets the operating benefit.

Cisco estimates that GAAP EPS will be $0.46 to $0.51 for the fourth quarter of fiscal 2024.

Cisco estimates the following results for fiscal 2024:

FY 2024
Revenue		$53.6 billion - $53.8 billion
Non-GAAP EPS		$3.69 – $3.71

Cisco estimates that GAAP EPS will be $2.46 to $2.51 for fiscal 2024.

Our Q4 FY 2024 guidance assumes an effective tax provision rate of approximately 18% for GAAP and non-GAAP results. Our FY 2024 guidance assumes an effective tax provision rate of approximately 17% for GAAP and approximately 19% for non-GAAP results.

A reconciliation between the guidance on a GAAP and non-GAAP basis is provided in the tables entitled "GAAP to non-GAAP Guidance" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

• Q3 fiscal year 2024 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, May 15, 2024 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, May 15, 2024 to 4:00 p.m. Pacific Time, May 21, 2024 at 1-800-391-9851 (United States) or 1-203-369-3268 (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, May 15, 2024. 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				Nine Months Ended
	April 27, 2024		April 29, 2023		April 27, 2024		April 29, 2023
REVENUE:
Product	$         9,024		$       11,092		$       29,395		$       31,492
Service	3,678		3,479		10,766		10,303
Total revenue	12,702		14,571		40,161		41,795
COST OF SALES:
Product	3,295		4,136		10,695		12,353
Service	1,134		1,203		3,419		3,437
Total cost of sales	4,429		5,339		14,114		15,790
GROSS MARGIN	8,273		9,232		26,047		26,005
OPERATING EXPENSES:
Research and development	1,948		1,962		5,804		5,598
Sales and marketing	2,559		2,526		7,523		7,301
General and administrative	736		641		2,050		1,788
Amortization of purchased intangible assets	297		70		430		212
Restructuring and other charges	542		87		677		328
Total operating expenses	6,082		5,286		16,484		15,227
OPERATING INCOME	2,191		3,946		9,563		10,778
Interest income	411		262		1,095		650
Interest expense	(357)		(109)		(588)		(316)
Other income (loss), net	(10)		(142)		(232)		(265)
Interest and other income (loss), net	44		11		275		69
INCOME BEFORE PROVISION FOR INCOME TAXES	2,235		3,957		9,838		10,847
Provision for income taxes	349		745		1,680		2,192
NET INCOME	$         1,886		$         3,212		$         8,158		$         8,655
Net income per share:
Basic	$           0.47		$           0.79		$           2.01		$           2.11
Diluted	$           0.46		$           0.78		$           2.00		$           2.11
Shares used in per-share calculation:
Basic	4,042		4,089		4,051		4,100
Diluted	4,060		4,110		4,071		4,111

 

CISCO SYSTEMS, INC. REVENUE BY SEGMENT (In millions, except percentages)
		April 27, 2024
		Three Months Ended				Nine Months Ended
		Amount		Y/Y %		Amount		Y/Y %
Revenue:
Americas		$         7,372		(15) %		$       23,904		(2) %
EMEA		3,458		(9) %		10,606		(5) %
APJC		1,873		(12) %		5,652		(9) %
Total		$       12,702		(13) %		$       40,161		(4) %

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

 

CISCO SYSTEMS, INC. GROSS MARGIN PERCENTAGE BY SEGMENT (In percentages)
		April 27, 2024
		Three Months Ended		Nine Months Ended
Gross Margin Percentage:
Americas		67.9 %		66.5 %
EMEA		69.6 %		69.1 %
APJC		67.4 %		67.5 %

 

CISCO SYSTEMS, INC. REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES (In millions, except percentages)
		April 27, 2024
		Three Months Ended				Nine Months Ended
		Amount		Y/Y %		Amount		Y/Y %
Revenue:
Networking		$         6,522		(27) %		$       22,425		(11) %
Security		1,304		36 %		3,288		14 %
Collaboration		987		— %		3,093		2 %
Observability		211		27 %		589		21 %
Total Product		9,024		(19) %		29,395		(7) %
Services		3,678		6 %		10,766		5 %
Total		$       12,702		(13) %		$       40,161		(4) %

Security and Observability, excluding Splunk, grew 3% and 14%, respectively, in the third quarter of fiscal 2024, and 3% and 17%, respectively, for the first nine months of fiscal 2024.

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

 

CISCO SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited)
	April 27, 2024		July 29, 2023
ASSETS
Current assets:
Cash and cash equivalents	$                8,913		$              10,123
Investments	9,857		16,023
Accounts receivable, net of allowance of $81 at April 27, 2024 and $85 at July 29, 2023	5,127		5,854
Inventories	3,118		3,644
Financing receivables, net	3,443		3,352
Other current assets	5,428		4,352
Total current assets	35,886		43,348
Property and equipment, net	2,000		2,085
Financing receivables, net	3,251		3,483
Goodwill	58,633		38,535
Purchased intangible assets, net	11,819		1,818
Deferred tax assets	5,527		6,576
Other assets	5,882		6,007
TOTAL ASSETS	$            122,998		$            101,852
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$              11,891		$                1,733
Accounts payable	2,054		2,313
Income taxes payable	1,867		4,235
Accrued compensation	3,211		3,984
Deferred revenue	15,751		13,908
Other current liabilities	5,334		5,136
Total current liabilities	40,108		31,309
Long-term debt	20,102		6,658
Income taxes payable	2,869		5,756
Deferred revenue	11,724		11,642
Other long-term liabilities	2,427		2,134
Total liabilities	77,230		57,499
Total equity	45,768		44,353
TOTAL LIABILITIES AND EQUITY	$            122,998		$            101,852

 

CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)
	Nine Months Ended
	April 27, 2024		April 29, 2023
Cash flows from operating activities:
Net income	$              8,158		$              8,655
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other	1,684		1,304
Share-based compensation expense	2,274		1,720
Provision for receivables	19		11
Deferred income taxes	(245)		(1,343)
(Gains) losses on divestitures, investments and other, net	224		243
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable	1,286		1,494
Inventories	530		(894)
Financing receivables	92		1,126
Other assets	(382)		(428)
Accounts payable	(300)		156
Income taxes, net	(5,223)		1,120
Accrued compensation	(1,092)		25
Deferred revenue	211		1,055
Other liabilities	(86)		(324)
Net cash provided by operating activities	7,150		13,920
Cash flows from investing activities:
Purchases of investments	(3,044)		(7,652)
Proceeds from sales of investments	3,874		802
Proceeds from maturities of investments	5,804		3,789
Acquisitions, net of cash and cash equivalents acquired	(25,874)		(96)
Purchases of investments in privately held companies	(82)		(162)
Return of investments in privately held companies	146		72
Acquisition of property and equipment	(472)		(616)
Other	(2)		(24)
Net cash used in investing activities	(19,650)		(3,887)
Cash flows from financing activities:
Issuances of common stock	347		316
Repurchases of common stock - repurchase program	(3,772)		(3,029)
Shares repurchased for tax withholdings on vesting of restricted stock units	(765)		(444)
Short-term borrowings, original maturities of 90 days or less, net	1,547		(602)
Issuances of debt	24,159		—
Repayments of debt	(2,195)		(500)
Repayments of Splunk convertible debt, net	(3,140)		—
Dividends paid	(4,778)		(4,713)
Other	(52)		(4)
Net cash provided by (used in) financing activities	11,351		(8,976)
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents	(39)		(90)
Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents	(1,188)		967
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	11,627		8,579
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$           10,439		$              9,546
Supplemental cash flow information:
Cash paid for interest	$                 350		$                 306
Cash paid for income taxes, net	$              7,150		$              2,414

 

CISCO SYSTEMS, INC. REMAINING PERFORMANCE OBLIGATIONS (In millions, except percentages)
	April 27, 2024				January 27, 2024				April 29, 2023
	Amount		Y/Y%		Amount		Y/Y%		Amount		Y/Y%
Product	$    18,876		29 %		$    16,249		12 %		$    14,681		9 %
Service	19,898		14 %		19,407		12 %		17,401		4 %
Total	$    38,774		21 %		$    35,656		12 %		$    32,082		6 %

We expect 52% of total RPO at April 27, 2024 will be recognized as revenue over the next 12 months.

 

CISCO SYSTEMS, INC. DEFERRED REVENUE (In millions)
	April 27, 2024		January 27, 2024		April 29, 2023
Deferred revenue:
Product	$       12,856		$       11,640		$       10,895
Service	14,619		14,131		13,365
Total	$       27,475		$       25,771		$       24,260
Reported as:
Current	$       15,751		$       14,011		$       13,249
Noncurrent	11,724		11,760		11,011
Total	$       27,475		$       25,771		$       24,260

 

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-Average Price per Share		Amount		Amount
Fiscal 2024
April 27, 2024		$             0.40		$          1,615		26		$          49.22		$          1,256		$          2,871
January 27, 2024		$             0.39		$          1,583		25		$          49.54		$          1,254		$          2,837
October 28, 2023		$             0.39		$          1,580		23		$          54.53		$          1,252		$          2,832
Fiscal 2023
July 29, 2023		$             0.39		$          1,589		25		$          50.49		$          1,254		$          2,843
April 29, 2023		$             0.39		$          1,593		25		$          49.45		$          1,259		$          2,852
January 28, 2023		$             0.38		$          1,560		26		$          47.72		$          1,256		$          2,816
October 29, 2022		$             0.38		$          1,560		12		$          43.76		$             502		$          2,062

 

CISCO SYSTEMS, INC. RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES   GAAP TO NON-GAAP NET INCOME (In millions)
	Three Months Ended				Nine Months Ended
	April 27, 2024		April 29, 2023		April 27, 2024		April 29, 2023
GAAP net income	$         1,886		$         3,212		$         8,158		$         8,655
Adjustments to cost of sales:
Share-based compensation expense	139		106		381		293
Amortization of acquisition-related intangible assets	249		156		605		462
Acquisition-related/divestiture costs	12		1		13		4
Total adjustments to GAAP cost of sales	400		263		999		759
Adjustments to operating expenses:
Share-based compensation expense	665		518		1,877		1,431
Amortization of acquisition-related intangible assets	297		70		430		212
Acquisition-related/divestiture costs	264		55		403		178
Russia-Ukraine war costs	(10)		2		(12)		7
Significant asset impairments and restructurings	542		87		677		328
Total adjustments to GAAP operating expenses	1,758		732		3,375		2,156
Adjustments to interest and other income (loss), net:
(Gains) and losses on investments	(7)		123		132		188
Total adjustments to GAAP interest and other income (loss), net	(7)		123		132		188
Total adjustments to GAAP income before provision for income taxes	2,151		1,118		4,506		3,103
Income tax effect of non-GAAP adjustments	(484)		(219)		(1,045)		(623)
Significant tax matters	—		—		—		164
Total adjustments to GAAP provision for income taxes	(484)		(219)		(1,045)		(459)
Non-GAAP net income	$         3,553		$         4,111		$       11,619		$       11,299

  

CISCO SYSTEMS, INC. RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES   GAAP TO NON-GAAP EPS
	Three Months Ended				Nine Months Ended
	April 27, 2024		April 29, 2023		April 27, 2024		April 29, 2023
GAAP EPS	$           0.46		$           0.78		$           2.00		$           2.11
Adjustments to GAAP:
Share-based compensation expense	0.20		0.15		0.55		0.42
Amortization of acquisition-related intangible assets	0.13		0.06		0.25		0.16
Acquisition-related/divestiture costs	0.07		0.01		0.10		0.04
Significant asset impairments and restructurings	0.13		0.02		0.17		0.08
(Gains) and losses on investments	—		0.03		0.03		0.05
Income tax effect of non-GAAP adjustments	(0.12)		(0.05)		(0.26)		(0.15)
Significant tax matters	—		—		—		0.04
Non-GAAP EPS	$           0.88		$           1.00		$           2.85		$           2.75

Amounts may not sum due to rounding.

 

CISCO SYSTEMS, INC. GAAP TO NON-GAAP EPS IMPACT OF SPLUNK ACQUISITION, INCLUDING FINANCING COSTS
	Three Months Ended
	April 27, 2024
GAAP EPS Impact	$                      (0.09)
Amortization of intangible assets	0.05
Acquisition-related costs	0.05
Income tax effect of non-GAAP adjustments	(0.02)
Non-GAAP EPS Impact	$                      (0.01)

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
	April 27, 2024
	Product Gross Margin		Service Gross Margin		Total Gross Margin		Operating Expenses		Y/Y		Operating Income		Y/Y		Interest and other income (loss), net		Net Income		Y/Y
GAAP amount	$ 5,729		$ 2,544		$ 8,273		$ 6,082		15 %		$ 2,191		(44) %		$    44		$ 1,886		(41) %
% of revenue	63.5 %		69.2 %		65.1 %		47.9 %				17.2 %				0.3 %		14.8 %
Adjustments to GAAP amounts:
Share-based compensation expense	57		82		139		665				804				—		804
Amortization of acquisition-related intangible assets	249		—		249		297				546				—		546
Acquisition/divestiture-related costs	4		8		12		264				276				—		276
Significant asset impairments and restructurings	—		—		—		542				542				—		542
Russia-Ukraine war costs	—		—		—		(10)				(10)				—		(10)
(Gains) and losses on investments	—		—		—		—				—				(7)		(7)
Income tax effect/significant tax matters	—		—		—		—				—				—		(484)
Non-GAAP amount	$ 6,039		$ 2,634		$ 8,673		$ 4,324		(5) %		$ 4,349		(12) %		$    37		$ 3,553		(14) %
% of revenue	66.9 %		71.6 %		68.3 %		34.0 %				34.2 %				0.3 %		28.0 %

               

	Three Months Ended
	April 29, 2023
	Product Gross Margin		Service Gross Margin		Total Gross Margin		Operating Expenses		Operating Income		Interest and other income (loss), net		Net Income
GAAP amount	$   6,956		$   2,276		$   9,232		$   5,286		$   3,946		$        11		$   3,212
% of revenue	62.7 %		65.4 %		63.4 %		36.3 %		27.1 %		0.1 %		22.0 %
Adjustments to GAAP amounts:
Share-based compensation expense	40		66		106		518		624		—		624
Amortization of acquisition-related intangible assets	156		—		156		70		226		—		226
Acquisition/divestiture-related costs	1		—		1		55		56		—		56
Significant asset impairments and restructurings	—		—		—		87		87		—		87
Russia-Ukraine war costs	—		—		—		2		2		—		2
(Gains) and losses on investments	—		—		—		—		—		123		123
Income tax effect/significant tax matters	—		—		—		—		—		—		(219)
Non-GAAP amount	$   7,153		$   2,342		$   9,495		$   4,554		$   4,941		$      134		$   4,111
% of revenue	64.5 %		67.3 %		65.2 %		31.3 %		33.9 %		0.9 %		28.2 %

Amounts may not sum and percentages may not recalculate 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)
	Nine Months Ended
	April 27, 2024
	Product Gross Margin		Service Gross Margin		Total Gross Margin		Operating Expenses		Y/Y		Operating Income		Y/Y		Interest and other income (loss), net		Net Income		Y/Y
GAAP amount	$ 18,700		$ 7,347		$ 26,047		$ 16,484		8 %		$ 9,563		(11) %		$  275		$ 8,158		(6) %
% of revenue	63.6 %		68.2 %		64.9 %		41.0 %				23.8 %				0.7 %		20.3 %
Adjustments to GAAP amounts:
Share-based compensation expense	157		224		381		1,877				2,258				—		2,258
Amortization of acquisition-related intangible assets	605		—		605		430				1,035				—		1,035
Acquisition/divestiture-related costs	5		8		13		403				416				—		416
Significant asset impairments and restructurings	—		—		—		677				677				—		677
Russia-Ukraine war costs	—		—		—		(12)				(12)				—		(12)
(Gains) and losses on investments	—		—		—		—				—				132		132
Income tax effect/significant tax matters	—		—		—		—				—				—		(1,045)
Non-GAAP amount	$ 19,467		$ 7,579		$ 27,046		$ 13,109		— %		$ 13,937		2 %		$  407		$ 11,619		3 %
% of revenue	66.2 %		70.4 %		67.3 %		32.6 %				34.7 %				1.0 %		28.9 %

 

	Nine Months Ended
	April 29, 2023
	Product Gross Margin		Service Gross Margin		Total Gross Margin		Operating Expenses		Operating Income		Interest and other income (loss), net		Net Income
GAAP amount	$ 19,139		$   6,866		$ 26,005		$ 15,227		$ 10,778		$        69		$   8,655
% of revenue	60.8 %		66.6 %		62.2 %		36.4 %		25.8 %		0.2 %		20.7 %
Adjustments to GAAP amounts:
Share-based compensation expense	111		182		293		1,431		1,724		—		1,724
Amortization of acquisition-related intangible assets	462		—		462		212		674		—		674
Acquisition/divestiture-related costs	4		—		4		178		182		—		182
Significant asset impairments and restructurings	—		—		—		328		328		—		328
Russia-Ukraine war costs	—		—		—		7		7		—		7
(Gains) and losses on investments	—		—		—		—		—		188		188
Income tax effect/significant tax matters	—		—		—		—		—		—		(459)
Non-GAAP amount	$ 19,716		$   7,048		$ 26,764		$ 13,071		$ 13,693		$      257		$ 11,299
% of revenue	62.6 %		68.4 %		64.0 %		31.3 %		32.8 %		0.6 %		27.0 %

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				Nine Months Ended
	April 27, 2024		April 29, 2023		April 27, 2024		April 29, 2023
GAAP effective tax rate	15.6 %		18.8 %		17.1 %		20.2 %
Total adjustments to GAAP provision for income taxes	3.4 %		0.2 %		1.9 %		(1.2) %
Non-GAAP effective tax rate	19.0 %		19.0 %		19.0 %		19.0 %

 

GAAP TO NON-GAAP GUIDANCE
Q4 FY 2024		Gross Margin Rate		Operating Margin Rate		Earnings per Share (1)
GAAP		63% – 64%		18.5% – 19.5%		$0.46 – $0.51
Estimated adjustments for:
Share-based compensation expense		1.0 %		6.0 %		$0.15 – $0.16
Amortization of acquisition-related intangible assets and acquisition/divestiture-related costs		2.5 %		6.5 %		$0.19 – $0.20
Significant asset impairments and restructurings		—		0.5 %		$0.01 – $0.02
Non-GAAP		66.5% – 67.5%		31.5% – 32.5%		$0.84 – $0.86

 

FY 2024		Earnings per Share (1)
GAAP		$2.46 – $2.51
Estimated adjustments for:
Share-based compensation expense		$0.58 – $0.59
Amortization of acquisition-related intangible assets and acquisition/divestiture-related costs		$0.46 – $0.47
Significant asset impairments and restructurings		$0.13 – $0.14
(Gains) and losses on investments		$0.03
Non-GAAP		$3.69 – $3.71

⁽¹⁾ 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, Russia-Ukraine war costs, restructurings, (gains) and losses on investments and significant tax matters or other events, which may or may not be significant unless specifically stated.

Forward Looking Statements, Non-GAAP Information and Additional Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our ability to bring together networking, security, observability, and data to enable us to offer digital resilience to our customers, the stabilization of demand for our products, and the addition of Splunk to our product line as a catalyst for future growth) and the future financial performance of Cisco (including the guidance for Q4 FY 2024 and full year FY 2024) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; our development and use of artificial intelligence; 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 Networking and services; the timing of orders and manufacturing and customer lead times; supply constraints; 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, other intellectual property, antitrust, stockholder and other matters, and governmental investigations; our ability to achieve the benefits of restructurings and possible changes in the size and timing of related charges; cyber attacks, data breaches or other incidents; vulnerabilities and critical security defects; our ability to protect personal data; evolving regulatory uncertainty; terrorism; natural catastrophic events (including as a result of global climate change); any 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 February 20, 2024 and September 7, 2023, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco's results of operations for the three and nine months ended April 27, 2024 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, Russia-Ukraine war costs, gains and losses on 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.

Annualized recurring revenue represents the annualized revenue run-rate of active subscriptions, term licenses, operating leases and maintenance contracts at the end of a reporting period, net of rebates to customers and partners as well as certain other revenue adjustments. Includes both revenue recognized ratably as well as upfront on an annualized basis.

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FAQ

What were Cisco’s Q3 FY 2024 earnings?

Cisco reported Q3 FY 2024 revenue of $12.7 billion, GAAP EPS of $0.46, and non-GAAP EPS of $0.88.

How did the Splunk acquisition affect Cisco’s Q3 FY 2024 results?

Splunk contributed $413 million to revenue and had a negative impact of $0.09 on GAAP EPS and $0.01 on non-GAAP EPS.

What is Cisco’s guidance for Q4 FY 2024?

Cisco projects Q4 FY 2024 revenue between $13.4 billion and $13.6 billion, with GAAP EPS of $0.46 to $0.51 and non-GAAP EPS of $0.84 to $0.86.

What is the annualized recurring revenue (ARR) for Cisco in Q3 FY 2024?

The annualized recurring revenue (ARR) was $29.2 billion, up 22% YoY.

How did Cisco’s gross margin perform in Q3 FY 2024?

Cisco’s GAAP gross margin was 65.1%, and the non-GAAP gross margin was 68.3%.