CSCO
$41.42
Cisco Systems
($.32)
(.77%)
Earnings Details
2nd Quarter January 2020
Wednesday, February 12, 2020 4:05:00 PM
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Summary

Cisco Systems Beats

Cisco Systems (CSCO) reported 2nd Quarter January 2020 earnings of $0.79 per share on revenue of $12.0 billion. The consensus earnings estimate was $0.76 per share on revenue of $12.0 billion. The Earnings Whisper number was $0.78 per share. Revenue fell 3.5% compared to the same quarter a year ago.

The company said it expects third quarter non-GAAP earnings of $0.79 to $0.81 per share on revenue of $12.50 billion to $12.76 billion. The current consensus earnings estimate is $0.80 per share on revenue of $12.70 billion for the quarter ending April 30, 2020.

Cisco Systems Inc is engaged in designing, manufacturing and selling of Internet Protocol (IP) based networking products and services related to the communications and information technology (IT) industry.

Results
Reported Earnings
$0.79
Earnings Whisper
$0.78
Consensus Estimate
$0.76
Reported Revenue
$12.01 Bil
Revenue Estimate
$11.99 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cisco Reports Second Quarter Earnings

Dividend Increased 3 Percent

  • Q2 Results:
    • Revenue: $12.0 billion
      • Decrease of (4)% year over year
    • Earnings per Share: GAAP: $0.68; Non-GAAP: $0.77
      • Non-GAAP EPS increased 5% year over year
  • Q3 Guidance:
    • Revenue: (1.5)% to (3.5)% decline year over year
    • Earnings per Share: GAAP: $0.62 to $0.67; Non-GAAP: $0.79 to $0.81

SAN JOSE, Calif., Feb. 12, 2020 /PRNewswire/ -- Cisco today reported second quarter results for the period ended January 25, 2020. Cisco reported second quarter revenue of $12.0 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 $3.3 billion or $0.77 per share.

Cisco Logo (PRNewsfoto/Cisco)

"I am incredibly proud of the innovation our teams continue to drive," said Chuck Robbins, chairman and CEO of Cisco. "I am confident in our long-term growth opportunities as we help our customers build out the networks for the future."

GAAP Results




Q2 FY 2020


Q2 FY 2019


Vs. Q2 FY 2019

Revenue


$

12.0 billion


$

12.4 billion


(4)%

Net Income


$

2.9 billion


$

2.8 billion


2%

Diluted Earnings per Share (EPS)


$

0.68



$

0.63



8%


Non-GAAP Results




Q2 FY 2020


Q2 FY 2019


Vs. Q2 FY 2019

Net Income


$

3.3 billion


$

3.3 billion


—%

EPS


$

0.77



$

0.73



5%

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 Increases Quarterly Cash Dividend

Cisco has declared a quarterly dividend of $0.36 per common share, a $0.01 increase or up 3% over the previous quarter's dividend, to be paid on April 22, 2020 to all shareholders of record as of the close of business on April 3, 2020. Future dividends will be subject to Board approval.

"We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions," said Kelly Kramer, CFO of Cisco. "Our increased dividend shows confidence in the strength of our ongoing cash flows and demonstrates our commitment to shareholder return."

Financial Summary

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

Q2 FY 2020 Highlights

Revenue -- Total revenue was $12.0 billion, down 4%, with product revenue down 6% and service revenue up 5%. Revenue by geographic segment was: Americas down 5%, EMEA down 3%, and APJC down 1%. Product revenue was led by growth in Security, up 9%.  Infrastructure Platforms and Applications were each down 8%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.7%, 63.9%, and 66.6%, respectively, as compared with 62.5%, 61.0%, and 66.6%, respectively, in the second quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.4%, 65.9%, and 67.7%, respectively, as compared with 64.1%, 62.8%, and 67.7%, respectively, in the second quarter of fiscal 2019.

Total gross margins by geographic segment were: 66.9% for the Americas, 65.8% for EMEA and 65.6% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.4 billion, down 4%. Non-GAAP operating expenses were $3.9 billion, down 1%, and were 32.7% of revenue.

Operating Income -- GAAP operating income was $3.4 billion, up 5%, with GAAP operating margin of 28.2%. Non-GAAP operating income was $4.0 billion, up 1%, with non-GAAP operating margin at 33.7%.

Provision for Income Taxes -- The GAAP tax provision rate was 18.6%. 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 flat at $3.3 billion, and EPS was $0.77, an increase of 5%.

Cash Flow from Operating Activities -- $3.8 billion for the second quarter of fiscal 2020, flat compared with $3.8 billion for the second quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $27.1 billion at the end of the second quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue -- $18.7 billion, up 8% in total, with deferred product revenue up 19%. Deferred service revenue was up 2%.

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

Capital Allocation -- In the second quarter of fiscal 2020, we returned $2.4 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 18 million shares of common stock under our stock repurchase program at an average price of $46.71 per share for an aggregate purchase price of $870 million. The remaining authorized amount for stock repurchases under the program is $11.8 billion with no termination date.

Guidance for Q3 FY 2020

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

Q3 FY 2020



Revenue


(1.5)% - (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


$0.79 - $0.81

Cisco estimates that GAAP EPS will be $0.62 to $0.67 in the third quarter of fiscal 2020.

A reconciliation between the Guidance for Q3 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q3 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q2 fiscal year 2020 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, February 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, February 12, 2020 to 4:00 p.m. Pacific Time, February 19, 2020 at 1-800-839-1160 (United States) or 1-402-998-0925 (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, February 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


Six Months Ended


January 25,
2020


January 26,
2019


January 25,
2020


January 26,
2019

REVENUE:








Product

$

8,671



$

9,273



$

18,549



$

19,163


Service

3,334



3,173



6,615



6,355


Total revenue

12,005



12,446



25,164



25,518


COST OF SALES:








Product

3,126



3,614



6,650



7,413


Service

1,115



1,059



2,286



2,186


Total cost of sales

4,241



4,673



8,936



9,599


GROSS MARGIN

7,764



7,773



16,228



15,919


OPERATING EXPENSES:








Research and development

1,570



1,557



3,236



3,165


Sales and marketing

2,279



2,271



4,759



4,681


General and administrative

455



509



974



720


Amortization of purchased intangible assets

38



39



74



73


Restructuring and other charges

42



186



226



264


Total operating expenses

4,384



4,562



9,269



8,903


OPERATING INCOME

3,380



3,211



6,959



7,016


Interest income

242



328



515



672


Interest expense

(158)



(223)



(336)



(444)


Other income (loss), net

70



27



82



8


Interest and other income (loss), net

154



132



261



236


INCOME BEFORE PROVISION FOR INCOME TAXES

3,534



3,343



7,220



7,252


Provision for income taxes

656



521



1,416



881


NET INCOME

$

2,878



$

2,822



$

5,804



$

6,371










Net income per share:








Basic

$

0.68



$

0.63



$

1.37



$

1.41


Diluted

$

0.68



$

0.63



$

1.36



$

1.40


Shares used in per-share calculation:








Basic

4,242



4,470



4,244



4,517


Diluted

4,260



4,505



4,265



4,557


The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the six months ended January 26, 2019.

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)




January 25, 2020



Three Months Ended


Six Months Ended









Excluding
SPVSS
business


Including
SPVSS
business



Amount


Y/Y %


Amount


Y/Y%


Y/Y %

Revenue:











Americas


$

7,013



(5)%


$

14,990



—%


(1)%

EMEA


3,134



(3)%


6,417



1%


—%

APJC


1,859



(1)%


3,758



(5)%


(5)%

Total


$

12,005



(4)%


$

25,164



(1)%


(1)%

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 six months ended January 26, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)




January 25, 2020



Three Months Ended


Six Months Ended

Gross Margin Percentage:





Americas


66.9%


66.8%

EMEA


65.8%


65.9%

APJC


65.6%


64.2%

 

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)




January 25, 2020



Three Months Ended


Six Months Ended









Excluding
SPVSS
business


Including
SPVSS
business



Amount


Y/Y %


Amount


Y/Y%


Y/Y %

Revenue:











Infrastructure Platforms


$

6,528



(8)%


$

14,067



(4)%


(4)%

Applications


1,349



(8)%


2,847



(1)%


(1)%

Security


748



9%


1,563



15%


15%

Other Products


46



110%


72



33%


(64)%

Total Product


8,671



(6)%


18,549



(2)%


(3)%

Services


3,334



5%


6,615



4%


4%

Total


$

12,005



(4)%


$

25,164



(1)%


(1)%

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 six months ended January 26, 2019 was $168 million.

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



January 25, 2020


July 27, 2019

ASSETS




Current assets:




Cash and cash equivalents

$

8,475



$

11,750


Investments

18,587



21,663


Accounts receivable, net of allowance for doubtful accounts of $112 at January 25, 2020 and $136 at July 27, 2019

4,330



5,491


Inventories

1,353



1,383


Financing receivables, net

4,827



5,095


Other current assets

2,481



2,373


Total current assets

40,053



47,755


Property and equipment, net

2,621



2,789


Financing receivables, net

4,757



4,958


Goodwill

33,612



33,529


Purchased intangible assets, net

1,906



2,201


Deferred tax assets

3,896



4,065


Other assets

3,581



2,496


TOTAL ASSETS

$

90,426



$

97,793


LIABILITIES AND EQUITY




Current liabilities:




Short-term debt

$

1,499



$

10,191


Accounts payable

1,935



2,059


Income taxes payable

819



1,149


Accrued compensation

2,690



3,221


Deferred revenue

10,638



10,668


Other current liabilities

4,507



4,424


Total current liabilities

22,088



31,712


Long-term debt

14,494



14,475


Income taxes payable

8,227



8,927


Deferred revenue

8,048



7,799


Other long-term liabilities

2,036



1,309


Total liabilities

54,893



64,222


Total equity

35,533



33,571


TOTAL LIABILITIES AND EQUITY

$

90,426



$

97,793


 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Six Months Ended


January 25,

 2020


January 26,

 2019

Cash flows from operating activities:




Net income

$

5,804



$

6,371


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




Depreciation, amortization, and other

918



952


Share-based compensation expense

779



792


Provision (benefit) for receivables

46



30


Deferred income taxes

128



(257)


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

(162)



(77)


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




Accounts receivable

1,084



1,613


Inventories

25



(203)


Financing receivables

408



161


Other assets

130



(652)


Accounts payable

(126)



(296)


Income taxes, net

(1,007)



(830)


Accrued compensation

(521)



(339)


Deferred revenue

236



207


Other liabilities

(355)



88


Net cash provided by operating activities

7,387



7,560


Cash flows from investing activities:




Purchases of investments

(4,250)



(677)


Proceeds from sales of investments

3,410



3,055


Proceeds from maturities of investments

4,044



6,263


Acquisitions and divestitures

(163)



(1,599)


Purchases of investments in privately held companies

(97)



(68)


Return of investments in privately held companies

91



43


Acquisition of property and equipment

(391)



(473)


Proceeds from sales of property and equipment

131



10


Other

(10)



(12)


Net cash provided by investing activities

2,765



6,542


Cash flows from financing activities:




Issuances of common stock

334



312


Repurchases of common stock - repurchase program

(1,648)



(10,062)


Shares repurchased for tax withholdings on vesting of restricted stock units

(437)



(514)


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

(3,470)




Repayments of debt

(5,220)




Dividends paid

(2,972)



(2,970)


Other

(12)



18


Net cash used in financing activities

(13,425)



(13,216)


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

(3,273)



886


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

11,772



8,993


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

$

8,499



$

9,879


Supplemental cash flow information:




Cash paid for interest

$

349



$

425


Cash paid for income taxes, net

$

2,295



$

1,968


 

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)



January 25,
2020


October 26,
2019


January 26,
2019

Deferred revenue:






Service

$

11,526



$

11,497



$

11,246


Product

7,160



7,105



6,015


       Total

$

18,686



$

18,602



$

17,261


Reported as:






Current

$

10,638



$

10,646



$

9,976


Noncurrent

8,048



7,956



7,285


       Total

$

18,686



$

18,602



$

17,261


 

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













January 25, 2020


$

0.35



$

1,486



18



$

46.71



$

870



$

2,356


October 26, 2019


$

0.35



$

1,486



16



$

48.91



$

768



$

2,254


Fiscal 2019













July 27, 2019


$

0.35



$

1,490



82



$

54.99



$

4,515



$

6,005


April 27, 2019


$

0.35



$

1,519



116



$

52.14



$

6,020



$

7,539


January 26, 2019


$

0.33



$

1,470



111



$

45.09



$

5,016



$

6,486


October 27, 2018


$

0.33



$

1,500



109



$

46.01



$

5,026



$

6,526


 

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


Six Months Ended


January 25,

 2020


January 26,

 2019


January 25,

 2020


January 26,

 2019

GAAP net income

$

2,878



$

2,822



$

5,804



$

6,371


Adjustments to cost of sales:








Share-based compensation expense

59



53



116



109


Amortization of acquisition-related intangible assets

150



141



300



277


Supplier component remediation charge (adjustment), net







(1)


Acquisition-related/divestiture costs

1



3



2



7


Legal and indemnification settlements



5



4



5


Total adjustments to GAAP cost of sales

210



202



422



397


Adjustments to operating expenses:








Share-based compensation expense

320



323



653



652


Amortization of acquisition-related intangible assets

38



39



74



73


Acquisition-related/divestiture costs

53



39



125



160


Legal and indemnification settlements







(395)


Significant asset impairments and restructurings

42



186



226



264


Total adjustments to GAAP operating expenses

453



587



1,078



754


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








(Gains) and losses on equity investments

(87)



(64)



(100)



(73)


Total adjustments to GAAP income before provision for income taxes

576



725



1,400



1,078


Income tax effect of non-GAAP adjustments

(166)



(209)



(375)



(394)


Significant tax matters



(43)



67



(308)


Total adjustments to GAAP provision for income taxes

(166)



(252)



(308)



(702)


Non-GAAP net income

$

3,288



$

3,295



$

6,896



$

6,747


Diluted net income per share:








GAAP

$

0.68



$

0.63



$

1.36



$

1.40


Non-GAAP

$

0.77



$

0.73



$

1.62



$

1.48


 

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


January 25, 2020


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

$

5,545


$

2,219


$

7,764


$

4,384


(4)%


$

3,380


5%


$

154


17%


$

2,878


2%

% of revenue

63.9%


66.6%


64.7%


36.5%




28.2%




1.3%




24.0%



Adjustments to GAAP amounts:
























Share-based compensation expense

23


36


59


320




379







379



Amortization of acquisition-related intangible assets

150



150


38




188







188



Acquisition/divestiture-related costs


1


1


53




54







54



Significant asset impairments and restructurings




42




42







42



(Gains) and losses on equity investments










(87)




(87)



Income tax effect/significant tax matters













(166)



Non-GAAP amount

$

5,718


$

2,256


$

7,974


$

3,931


(1)%


$

4,043


1%


$

67


(1)%


$

3,288


—%

% of revenue

65.9%


67.7%


66.4%


32.7%




33.7%




0.6%




27.4%




 


Three Months Ended


January 26, 2019


Product
Gross
Margin


Service
Gross
Margin


Total
Gross
Margin


Operating
Expenses


Operating

Income


Interest
and other
income
(loss), net


Net

Income

GAAP amount

$

5,659


$

2,114


$

7,773


$

4,562


$

3,211


$

132


$

2,822

% of revenue

61.0%


66.6%


62.5%


36.7%


25.8%


1.1%


22.7%

Adjustments to GAAP amounts:














Share-based compensation expense

22


31


53


323


376



376

Amortization of acquisition-related intangible assets

141



141


39


180



180

Legal and indemnification settlements

5



5



5



5

Acquisition/divestiture-related costs

1


2


3


39


42



42

Significant asset impairments and restructurings




186


186



186

(Gains) and losses on equity investments






(64)


(64)

Income tax effect/significant tax matters







(252)

Non-GAAP amount

$

5,828


$

2,147


$

7,975


$

3,975


$

4,000


$

68


$

3,295

% of revenue

62.8%


67.7%


64.1%


31.9%


32.1%


0.5%


26.5%


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


Six Months Ended


January 25,
2020


January 26,
2019


January 25,
2020


January 26,
2019

GAAP effective tax rate

18.6%


15.6%


19.6%


12.1%

Total adjustments to GAAP provision for income taxes

1.4%


3.4%


0.4%


6.9%

Non-GAAP effective tax rate

20.0%


19.0%


20.0%


19.0%


 

GAAP TO NON-GAAP GUIDANCE FOR Q3 FY 2020


Q3 FY 2020


Gross Margin
Rate


Operating Margin
Rate


Tax Provision
Rate


Earnings per
Share (2)

GAAP


63% - 64%


26% - 27%


19%


$0.62 - $0.67

Estimated adjustments for:









Share-based compensation expense


0.5%


3.0%



$0.07 - $0.08

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


1.0%


2.0%



$0.05 - $0.06

Significant asset impairments and restructurings (1)



1.5%



$0.02 - $0.03

Income tax effect of non-GAAP adjustments






1%



Non-GAAP


64.5% - 65.5%


32.5% - 33.5%


20%


$0.79 - $0.81

(1) In the third quarter of fiscal 2020, we initiated a restructuring plan in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $300 million consisting of severance and other one-time termination benefits, and other costs. We expect to recognize approximately $150 million of these charges in the third quarter of fiscal 2020.

(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 our ability to continue to drive innovation, our long-term growth opportunities as we help our customers build out the networks for the future, the continued strength of our ongoing cash flows and our ability to continue to return value to our shareholders) and the future financial performance of Cisco (including the guidance for Q3 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 reports on Forms 10-Q and 10-K filed on November 19, 2019 and September 5, 2019, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco's results of operations for the three and six months ended January 25, 2020 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

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

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

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

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

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

About Cisco

Cisco (Nasdaq: CSCO) is the worldwide 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 © 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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