Q2 fy18 earnings slides
- 1. © 2017 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Q2 Fiscal Year 2018 Conference Call February 14, 2018
- 2. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 2 Forward-Looking Statements This presentation contains projections and other forward-looking statements regarding future events or the future financial performance of Cisco, including future operating results. These projections and statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements. Please see Cisco’s filings with the SEC, including its most recent filings on Forms 10-K and 10-Q, for a discussion of important risk factors that could cause actual events or results to differ materially from those in the projections or other forward-looking statements. GAAP Reconciliation During this presentation references to financial measures of Cisco will include references to non-GAAP financial measures. Cisco provides a reconciliation between GAAP and non-GAAP financial information on our website at www.cisco.com under “Financial Info” in the “Investor Relations” section. https://investor.cisco.com/investor-relations/financial-information/Financial-Results/default.aspx
- 3. © 2017 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Business Momentum & Key Trends
- 4. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 4 Q2 FY2018 Highlights • Focus on delivering differentiated innovation in core resulted in return to revenue growth • Momentum in intent-based networking…announced powerful assurance capabilities and more than doubled our customer base for Catalyst 9000 switching platform Q/Q to over 3,100 • Further extension of cloud-focused software offers and expansion of endpoint protection capabilities in Security portfolio • Continued progress in shifting more of our business towards software and subscriptions • Strong margins, solid cash flow and double-digit non-GAAP EPS growth • Increased quarterly dividend 4 cents, up 14%, representing a yield of 3.1% • $25B increase to the share repurchase program authorization to $31B
- 5. © 2017 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Financial Overview
- 6. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 6 Product Category $M Y/Y % Change Infrastructure Platforms $6,694 2% Applications 1,184 6% Security 558 6% Other Products 273 (10%) Services 3,178 3% Total Cisco $11,887 3% Q2 FY 2018 Revenue Highlights
- 7. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 7 33% + 2 pts y/y Recurring Revenue as a % of Total Revenue Deferred Product Revenue from Recurring Software & Subscriptions Subscriptions as a % of Software Revenue 52%$5.5B +36% y/y Q2 FY 2018 Business Transition Highlights
- 8. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 8 Geographic Region Y/Y % Change Americas 6% EMEA 6% APJC 0% Customer Segment Y/Y % Change Enterprise 3% Public Sector 8% Commercial 14% Service Provider (5%) Total Cisco: 5% Y/Y Q2 FY 2018 Product Orders
- 9. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 9 Q2 FY 2018 Revenue and Total Gross Margin Revenue Total Gross Margin % $M (except percentages) Q2 FY’17 Q1 FY’18 Q2 FY’18 Q2 FY’17 Q1 FY’18 Q2 FY’18 Americas $6,660 $7,350 $7,004 64.4% 64.2% 65.9% EMEA 3,065 2,909 3,062 65.6% 63.2% 64.6% APJC 1,855 1,877 1,821 60.4% 62.1% 60.1% Geographic Total $11,580 $12,136 $11,887 64.1% 63.7% 64.7% Certain reclassifications have been made to the amounts for prior periods in order to conform to the current period’s presentation. Historical revenue and gross margin by segment is available on our website at https://investor.cisco.com under “Financial Info” in the “Investor Relations” section.
- 10. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 10 Q2 FY 2018 Non-GAAP Income Statement Highlights $M (except per-share amounts and percentages) Q2 FY 2017 Q1 FY 2018 Q2 FY 2018 Revenue $11,580 $12,136 $11,887 Year/Year Change Product Service (3%) $8,491 $3,089 (2%) $9,054 $3,082 3% $8,709 $3,178 Gross Margin 64.1% 63.7% 64.7% Product Gross Margin Service Gross Margin 62.4% 68.8% 63.0% 65.6% 63.3% 68.5% Operating Expenses $3,826 $4,040 $3,911 OPEX (% of Revenue) Operating Income (% of Revenue) 33.0% 31.0% 33.3% 30.4% 32.9% 31.7% Net Income $2,859 $3,036 $3,146 Year/Year Change (2%) (2%) 10% Earnings per Share (diluted) $0.57 $0.61 $0.63 Year/Year Change 0% 0% 11%
- 11. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 11 Q2 FY 2018 GAAP Income Statement Highlights $M (except per-share amounts and percentages) Q2 FY 2017 Q1 FY 2018 Q2 FY 2018 Revenue $11,580 $12,136 $11,887 Year/Year Change Product Service (3%) $8,491 $3,089 (2%) $9,054 $3,082 3% $8,709 $3,178 Gross Margin 62.8% 61.2% 63.1% Product Gross Margin Service Gross Margin 61.1% 67.7% 60.1% 64.5% 61.5% 67.4% Operating Expenses $4,383 $4,671 $4,425 OPEX (% of Revenue) Operating Income (% of Revenue) 37.8% 25.0% 38.5% 22.7% 37.2% 25.9% Net Income (Loss)1 $2,348 $2,394 ($8,778) Year/Year Change (25%) 3% (474%) Earnings (Loss) per Share1 $0.47 $0.48 ($1.78) Year/Year Change (24%) 4% (479%) 1GAAP results for Q2 FY2018 include an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.
- 12. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 12 (1) Amounts are provisional estimates based on the guidance provided in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118. Earnings(1) • $11.1B charge: • $9.0B U.S. transition tax • $1.2B foreign withholding tax • $0.9B re-measurement of net deferred tax assets Effective Tax Rate • Q2 Non-GAAP: 20% • Estimated FY 2018 Non-GAAP: ~21% • Estimated FY 2019 Non-GAAP: ~20% Q2 Impact of the Tax Cuts and Jobs Act
- 13. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 13 Q2 FY 2018 Key Financial Measures $M Q2 FY 2017 Q1 FY 2018 Q2 FY 2018 Cash, Cash Equivalents and Investments $71,845 $71,588 $73,683 Operating Cash Flow $3,772 $3,080 $4,070 Accounts Receivable $4,458 $4,206 $3,963 Inventory $1,264 $1,693 $1,896 Deferred Revenue: $17,086 $18,565 $18,788 Service Deferred Revenue $10,525 $10,991 $10,963 Product Deferred Revenue: Deferred revenue related to recurring software and subscription offers $3,997 $5,213 $5,451 Other product deferred revenue $2,564 $2,361 $2,374 Total Product Deferred Revenue $6,561 $7,574 $7,825
- 14. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 14 Capital Allocation $M Q2 FY 2018 Share Repurchases $4,011 Dividends Paid 1,425 Total $5,436 Q2 FY 2018 Dividends Per Share $0.29 Share Repurchases Q2 FY 2018 Amount Purchased ($M) $4,011 Number of Shares (M) 103 Avg. Price Per Share $39.07 • Increased quarterly dividend 4 cents, up 14% • Represents dividend yield of 3.1% • $25B increase to the share repurchase program authorization to $31B • Expect to utilize authorization over the next 18 to 24 months • Plan on repatriating $67B of off-shore funds to the U.S. in Q3 FY18
- 15. © 2017 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Q&A
- 16. © 2018 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 16 FORWARD-LOOKING STATEMENTS These presentation slides and the related conference call contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as continued execution on our strategy, our ability to continue to innovate and grow our business, the continued criticality of the network to the business success of our customers, the momentum of our intent-based networking portfolio, continued progress in shifting our business toward more software and recurring revenue, and our ability to continue to execute well, deliver profitable growth and return capital to our shareholders) and the future financial performance of Cisco 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; man-made problems such as cyber- attacks, data protection breaches, computer viruses or terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets, currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Forms 10-Q and 10-K filed on November 21, 2017 and September 7, 2017 respectively. The financial information contained in these presentation slides and the related conference call should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco’s results of operations for the three and six months ended January 27, 2018 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in these presentation slides and the related conference call 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 these presentation slides and the related conference call.
- 17. © 2017 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Supplemental Materials