Le Lézard
Classified in: Science and technology, Business
Subjects: ERN, CCA, ERP

Cisco Reports First Quarter Earnings


1 Normalized to exclude the divested SPVSS business

SAN JOSE, Calif., Nov. 13, 2019 /PRNewswire/ -- Cisco today reported first quarter results for the period ended October 26, 2019. Cisco reported first quarter revenue of $13.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.9 billion or $0.68 per share, and non-GAAP net income of $3.6 billion or $0.84 per share.

Cisco Logo (PRNewsfoto/Cisco)

As previously disclosed, Cisco completed the divestiture of the Service Provider Video Software Solutions (SPVSS) business in the second quarter of fiscal 2019 on October 28, 2018. Revenue and non-GAAP financial information have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

"We delivered a solid quarter against a challenging macro environment," said Chuck Robbins, chairman and CEO of Cisco. "We're focused on continuing to drive innovation, transform our business and exceed our customers' expectations."

GAAP Results




Q1 FY 2020


Q1 FY 2019


Vs. Q1 FY 2019

Revenue (including SPVSS business for all periods)


$

13.2 billion


$

13.1 billion


1%

Revenue (excluding SPVSS business for all periods)


$

13.2 billion


$

12.9 billion


2%

Net Income


$

2.9 billion


$

3.5 billion


(18)%

Diluted Earnings per Share (EPS)


$

0.68



$

0.77



(12)%


Non-GAAP Results




Q1 FY 2020


Q1 FY 2019


Vs. Q1 FY 2019

Net Income (excluding SPVSS business for all periods)


$

3.6 billion


$

3.5 billion


5%

EPS (excluding SPVSS business for all periods)


$

0.84



$

0.75



12%

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

"We performed well in Q1, growing revenue and delivering strong margins and EPS," said Kelly Kramer, CFO of Cisco. "With software subscriptions now at 71% of our software revenue, we are making good progress in transforming our business model.  We continue to invest in our innovation pipeline to generate long-term profitable growth and deliver value for shareholders."

Financial Summary

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

All revenue, non-GAAP, and geographic financial information in the "Q1 FY 2020 Highlights" section are presented excluding the SPVSS business for all periods as it was divested during the second quarter of fiscal 2019 on October 28, 2018.

Q1 FY 2020 Highlights

Revenue -- Total revenue was $13.2 billion, up 2%, with product revenue up 1% and service revenue up 4%. Revenue by geographic segment was: Americas up 4%, EMEA up 4%, and APJC down 8%. Product revenue was led by growth in Security, up 22% and Applications, up 6%. Infrastructure Platforms was down 1%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were each 64.3%, as compared with 62.3%, 61.6%, and 64.6%, respectively, in the first quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.9%, 66.1%, and 65.4%, respectively, as compared with 64.2%, 63.6%, and 65.8%, respectively, in the first quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.6% for the Americas, 66.0% for EMEA and 62.9% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.9 billion, up 13%. Non-GAAP operating expenses were $4.3 billion, up 4%, and were 32.4% of revenue.

Operating Income -- GAAP operating income was $3.6 billion, down 6%, with GAAP operating margin of 27.2%. Non-GAAP operating income was $4.4 billion, up 6%, with non-GAAP operating margin at 33.6%.

Provision for Income Taxes -- The GAAP tax provision rate was 20.6%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.9 billion and EPS was $0.68. On a non-GAAP basis, net income was $3.6 billion, an increase of 5%, and EPS was $0.84, an increase of 12%.

Cash Flow from Operating Activities -- $3.6 billion for the first quarter of fiscal 2020, a decrease of 5% compared with $3.8 billion for the first quarter of fiscal 2019. Operating cash flow for the first quarter of fiscal 2019 included the receipt of $0.4 billion in relation to the litigation settlement with Arista Networks. Operating cash flow increased 7%, normalized for this receipt.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $28.0 billion at the end of the first quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.6 billion, up 11% in total, with deferred product revenue up 24%. Deferred service revenue was up 4%.

Remaining Performance Obligations -- $24.9 billion at the end of the first quarter of fiscal 2020, up 11%.

Capital Allocation -- In the first quarter of fiscal 2020, we returned $2.3 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.35 per common share, or $1.5 billion, and repurchased approximately 16 million shares of common stock under our stock repurchase program at an average price of $48.91 per share for an aggregate purchase price of $768 million. The remaining authorized amount for stock repurchases under the program is $12.7 billion with no termination date.

Acquisitions

We completed several acquisitions in the first quarter of fiscal 2020. In addition, in the fourth quarter of fiscal 2019, we announced our intent to acquire Acacia Communications, Inc., a publicly-traded fabless semiconductor company that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. The acquisition is expected to close during the second half of fiscal 2020, subject to customary closing conditions and regulatory approvals.

Guidance for Q2 FY 2020

Cisco expects to achieve the following results for the second quarter of fiscal 2020:

Q2 FY 2020



Revenue


(3)% - (5)% decline Y/Y

Non-GAAP gross margin rate


64.5% - 65.5%

Non-GAAP operating margin rate


32.5% - 33.5%

Non-GAAP tax provision rate


20%

Non-GAAP EPS


$0.75 - $0.77

Cisco estimates that GAAP EPS will be $0.61 to $0.67 in the second quarter of fiscal 2020.

A reconciliation between the Guidance for Q2 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q2 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)



Three Months Ended


October 26,
2019


October 27,
2018

REVENUE:




Product

$

9,878



$

9,890


Service

3,281



3,182


Total revenue

13,159



13,072


COST OF SALES:




Product

3,524



3,799


Service

1,171



1,127


Total cost of sales

4,695



4,926


GROSS MARGIN

8,464



8,146


OPERATING EXPENSES:




Research and development

1,666



1,608


Sales and marketing

2,480



2,410


General and administrative

519



211


Amortization of purchased intangible assets

36



34


Restructuring and other charges

184



78


Total operating expenses

4,885



4,341


OPERATING INCOME

3,579



3,805


Interest income

273



344


Interest expense

(178)



(221)


Other income (loss), net

12



(19)


Interest and other income (loss), net

107



104


INCOME BEFORE PROVISION FOR INCOME TAXES

3,686



3,909


Provision for income taxes

760



360


NET INCOME

$

2,926



$

3,549






Net income per share:




   Basic

$

0.69



$

0.78


   Diluted

$

0.68



$

0.77


Shares used in per-share calculation:




   Basic

4,246



4,565


   Diluted

4,273



4,614


The Consolidated Statements of Operations include the results of the SPVSS business prior to its divestiture during the second quarter of fiscal 2019 on October 28, 2018. Accordingly, the three months ended October 27, 2018 includes three months of financial results for this business.

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)




Three Months Ended



October 26, 2019



Amount


Y/Y %

Revenue:





Including SPVSS business for all periods:





Americas


$

7,977



3%

EMEA


3,283



2%

APJC


1,899



(9)%

Total


$

13,159



1%

Excluding SPVSS business for all periods:





Americas


$

7,977



4%

EMEA


3,283



4%

APJC


1,899



(8)%

Total


$

13,159



2%

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

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended October 27, 2018 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)




Three Months Ended



October 26, 2019

Gross Margin Percentage:



Americas


66.6%

EMEA


66.0%

APJC


62.9%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)




Three Months Ended



October 26, 2019



Amount


Y/Y %

Revenue:





Including SPVSS business for all periods:





Infrastructure Platforms


$

7,538



(1)%

Applications


1,499



6%

Security


815



22%

Other Products


26



(85)%

Total Product


9,878



?%

Services


3,281



3%

Total


$

13,159



1%

Excluding SPVSS business for all periods:





Infrastructure Platforms


$

7,538



(1)%

Applications


1,499



6%

Security


815



22%

Other Products


26



(20)%

Total Product


9,878



1%

Services


3,281



4%

Total


$

13,159



2%

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

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended October 27, 2018 was $168 million.

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



October 26, 2019


July 27, 2019

ASSETS




Current assets:




Cash and cash equivalents

$

8,587



$

11,750


Investments

19,448



21,663


Accounts receivable, net of allowance for doubtful accounts of $136 as of each October 26, 2019 and July 27, 2019

4,878



5,491


Inventories

1,344



1,383


Financing receivables, net

5,026



5,095


Other current assets

2,433



2,373


Total current assets

41,716



47,755


Property and equipment, net

2,669



2,789


Financing receivables, net

4,831



4,958


Goodwill

33,578



33,529


Purchased intangible assets, net

2,107



2,201


Deferred tax assets

3,963



4,065


Other assets

3,628



2,496


TOTAL ASSETS

$

92,492



$

97,793


LIABILITIES AND EQUITY




Current liabilities:




Short-term debt

$

4,000



$

10,191


Accounts payable

2,016



2,059


Income taxes payable

794



1,149


Accrued compensation

2,735



3,221


Deferred revenue

10,646



10,668


Other current liabilities

4,406



4,424


Total current liabilities

24,597



31,712


Long-term debt

14,497



14,475


Income taxes payable

8,919



8,927


Deferred revenue

7,956



7,799


Other long-term liabilities

2,100



1,309


Total liabilities

58,069



64,222


Total equity

34,423



33,571


TOTAL LIABILITIES AND EQUITY

$

92,492



$

97,793


 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Three Months Ended


October 26,

 2019


October 27,

 2018

Cash flows from operating activities:




Net income

$

2,926



$

3,549


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




Depreciation, amortization, and other

461



465


Share-based compensation expense

395



403


Provision (benefit) for receivables

50



8


Deferred income taxes

81



(72)


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

(8)



7


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




Accounts receivable

515



892


Inventories

34



(34)


Financing receivables

146



273


Other assets

59



(295)


Accounts payable

(45)



(153)


Income taxes, net

(330)



(437)


Accrued compensation

(473)



(348)


Deferred revenue

158



(309)


Other liabilities

(382)



(186)


Net cash provided by operating activities

3,587



3,763


Cash flows from investing activities:




Purchases of investments

(2,028)



(484)


Proceeds from sales of investments

2,342



2,805


Proceeds from maturities of investments

1,966



2,541


Acquisitions and divestitures

(163)



(1,964)


Purchases of investments in privately held companies

(54)



(29)


Return of investments in privately held companies

57



16


Acquisition of property and equipment

(202)



(212)


Proceeds from sales of property and equipment

4



2


Net cash provided by investing activities

1,922



2,675


Cash flows from financing activities:




Issuances of common stock

2



8


Repurchases of common stock - repurchase program

(784)



(5,076)


Shares repurchased for tax withholdings on vesting of restricted stock units

(194)



(318)


Short-term borrowings, original maturities of 90 days or less, net

(3,470)



?


Repayments of debt

(2,720)



?


Dividends paid

(1,486)



(1,500)


Other

(16)



(59)


Net cash used in financing activities

(8,668)



(6,945)


Net increase (decrease) in cash, cash equivalents, and restricted cash

(3,159)



(507)


Cash, cash equivalents, and restricted cash, beginning of period

11,772



8,993


Cash, cash equivalents, and restricted cash, end of period

$

8,613



$

8,486


Supplemental cash flow information:




Cash paid for interest

$

204



$

271


Cash paid for income taxes, net

$

1,009



$

869


 

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)



October 26,
2019


July 27,
2019


October 27,
2018

Deferred revenue:






Service

$

11,497



$

11,709



$

11,062


Product

7,105



6,758



5,752


     Total

$

18,602



$

18,467



$

16,814


Reported as:






Current

$

10,646



$

10,668



$

9,637


Noncurrent

7,956



7,799



7,177


     Total

$

18,602



$

18,467



$

16,814


 

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 2020













October 26, 2019


$

0.35



$

1,486



16


$

48.91



$

768



$

2,254


Fiscal 2019













July 27, 2019


$

0.35



$

1,490



82


$

54.99



$

4,515



$

6,005


April 27, 2019


$

0.35



$

1,519



116


$

52.14



$

6,020



$

7,539


January 26, 2019


$

0.33



$

1,470



111


$

45.09



$

5,016



$

6,486


October 27, 2018


$

0.33



$

1,500



109


$

46.01



$

5,026



$

6,526


 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)



Three Months Ended


October 26,

 2019


October 27,

 2018

GAAP net income

$

2,926



$

3,549


Adjustments to cost of sales:




Share-based compensation expense

57



56


Amortization of acquisition-related intangible assets

150



136


Supplier component remediation charge (adjustment), net

?



(1)


Acquisition-related/divestiture costs

1



4


Legal and indemnification settlements

4



?


Total adjustments to GAAP cost of sales

212



195


Adjustments to operating expenses:




Share-based compensation expense

333



329


Amortization of acquisition-related intangible assets

36



34


Acquisition-related/divestiture costs

72



121


Legal and indemnification settlements

?



(395)


Significant asset impairments and restructurings

184



78


Total adjustments to GAAP operating expenses

625



167


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




(Gains) and losses on equity investments

(13)



(9)


Total adjustments to GAAP income before provision for income taxes

824



353


Income tax effect of non-GAAP adjustments

(209)



(185)


Significant tax matters

67



(265)


Total adjustments to GAAP provision for income taxes

(142)



(450)


Non-GAAP net income

$

3,608



$

3,452


Diluted net income per share:




GAAP

$

0.68



$

0.77


Non-GAAP

$

0.84



$

0.75


 

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 26, 2019


Product

Gross

Margin


Service

Gross
Margin


Total

Gross

Margin


Operating

Expenses


Y/Y


Operating

Income


Y/Y


Interest

and other

income

(loss),

net


Y/Y


Net

Income


Y/Y

GAAP amount

$

6,354


$

2,110


$

8,464


$

4,885


13%


$

3,579


(6)%


$

107


3%


$

2,926


(18)%

% 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

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%


$

4,416


6%


$

94


(1)%


$

3,608


5%

% 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.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for the first quarter of fiscal 2019.


Three Months Ended


October 27, 2018


Product

Gross

Margin


Service

Gross

Margin


Total

Gross

Margin


Operating

Expenses


Operating

Income


Interest

and other

income

(loss), net


Net

Income

GAAP amount

$

6,091


$

2,055


$

8,146


$

4,341


$

3,805


$

104


$

3,549

% of revenue

61.6%


64.6%


62.3%


33.2%


29.1%


0.8%


27.1%

Adjustments to GAAP amounts:














Share-based compensation expense

23


33


56


329


385


?


385

Amortization of acquisition-related intangible assets

136


?


136


34


170


?


170

Supplier component remediation charge (adjustment), net

(1)


?


(1)


?


(1)


?


(1)

Legal and indemnification settlements

?


?


?


(395)


(395)


?


(395)

Acquisition/divestiture-related costs

2


2


4


121


125


?


125

Significant asset impairments and restructurings

?


?


?


78


78


?


78

(Gains) and losses on equity investments

?


?


?


?


?


(9)


(9)

Income tax effect/significant tax matters

?


?


?


?


?


?


(450)

Non-GAAP amount

$

6,251


$

2,090


$

8,341


$

4,174


$

4,167


$

95


$

3,452

Less: SPVSS business (1)

(51)


(9)


(61)


(59)


(1)


?


(1)

Non-GAAP amount (excluding SPVSS business)

$

6,200


$

2,081


$

8,281


$

4,115


$

4,166


$

95


$

3,451

% of revenue

63.6%


65.8%


64.2%


31.9%


32.3%


0.7%


26.7%

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

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

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

EFFECTIVE TAX RATE

(In percentages)



Three Months Ended


October 26,

2019


October 27,

2018

GAAP effective tax rate

20.6%


9.2%

Total adjustments to GAAP provision for income taxes

(0.6)%


9.8%

Non-GAAP effective tax rate

20.0%


19.0%

 

GAAP TO NON-GAAP GUIDANCE FOR Q2 FY 2020


Q2 FY 2020


Gross Margin

Rate


Operating Margin

Rate


Tax Provision

Rate


Earnings per

Share (1)

GAAP


63% - 64%


27%- 28%


19%


$0.61 - $0.67

Estimated adjustments for:









Share-based compensation expense


0.5%


3.0%


?


$0.06 - $0.07

Amortization of acquisition-related intangible assets and acquisition/divestiture-related costs


1.0%


2.0%


?


$0.04 - $0.06

Significant asset impairments and restructurings


?


 

0.5%


?


$0.00 - $0.01

Income tax effect of non-GAAP adjustments






1%



Non-GAAP


64.5% - 65.5%


32.5% - 33.5%


20%


$0.75 - $0.77

(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, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

Forward Looking Statements, Non-GAAP Information and Additional Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our ability to drive innovation, transform our business and exceed our customers' expectations, our continued progress in transforming our business model with software subscriptions, and our investment in our innovation pipeline to generate long-term profitable growth and deliver value for shareholders) and the future financial performance of Cisco (including the guidance for Q2 FY 2020) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent report on Form 10-K filed on September 5, 2019. 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 26, 2019 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

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

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

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

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

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

About Cisco

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

Copyright © 2019 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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SOURCE Cisco


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