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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 48.51+0.4%Jan 27 4:00 PM EST

 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10PreviousNext  
From: Eric11/16/2022 4:12:15 PM
   of 77388
 


Cisco Systems, Inc. has added a new press release to its website:

CISCO REPORTS FIRST QUARTER EARNINGS

SAN JOSE, Calif., Nov. 16, 2022 /PRNewswire/ --



News Summary:

$13.6 billion in revenue, up 6% year over year; GAAP EPS $0.65, down 7% year over year, and Non-GAAP EPS $0.86, up 5% year over yearContinued progress on business model transformation: Total annualized recurring revenue (ARR) at $23.2 billion, up 7% year over year and product ARR up 12% year over yearTotal software revenue up 5% year over year and software subscription revenue up 11% year over yearRemaining performance obligations (RPO) at $30.9 billion, up 3% year over year and product RPO up 5% year over year Q1 FY 2023 Results: Revenue: $13.6 billionIncrease of 6% year over yearEarnings per Share: GAAP: $0.65; Non-GAAP: $0.86GAAP EPS decreased (7)% year over yearNon-GAAP EPS increased 5% year over yearQ2 FY 2023 Guidance: Revenue: 4.5% to 6.5% growth year over yearEarnings per Share: GAAP: $0.59 to $0.64; Non-GAAP: $0.84 to $0.86 FY 2023 Guidance: Revenue: 4.5% to 6.5% growth year over yearEarnings per Share: GAAP: $2.63 to $2.76; Non-GAAP: $3.51 to $3.58 Cisco today reported first quarter results for the period ended October 29, 2022. Cisco reported first quarter revenue of $13.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.7 billion or $0.65 per share, and non-GAAP net income of $3.5 billion or $0.86 per share.

"Our fiscal 2023 is off to a good start as we delivered the largest quarterly revenue and second highest quarterly non-GAAP earnings per share in our history," said Chuck Robbins, chair and CEO of Cisco. "These results demonstrate the relevance of our strategy, our differentiated innovation, and our unique position to help our customers become more resilient."

"We delivered strong results in Q1 and continued to make progress on our business transformation," said Scott Herren, CFO of Cisco. "Our annualized recurring revenue increased to more than $23 billion, with product ARR growing 12%. This, together with our significant backlog, strong RPO, and easing supply situation, provides us with great visibility and predictability, and supports our increased full year guidance."

GAAP Results




Q1 FY 2023


Q1 FY 2022


Vs. Q1 FY 2022

Revenue


$ 13.6

billion


$ 12.9

billion


6 %

Net Income


$ 2.7

billion


$ 3.0

billion


(10) %

Diluted Earnings per Share (EPS)


$ 0.65



$ 0.70



(7) %



Non-GAAP Results




Q1 FY 2023


Q1 FY 2022


Vs. Q1 FY 2022

Net Income


$ 3.5

billion


$ 3.5

billion


2 %

EPS


$ 0.86



$ 0.82



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."

Financial Summary

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

Q1 FY 2023 Highlights

Revenue -- Total revenue was up 6% at $13.6 billion, with product revenue up 8% and service revenue was flat. Revenue by geographic segment was: Americas up 5%, EMEA up 11%, and APJC was flat. Product revenue performance was led by growth in Secure, Agile Networks up 12%, End-to-End Security up 9%, and Optimized Application Experiences up 7%. Internet for the Future was down 5% and Collaboration was down 2%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 61.2%, 59.2%, and 67.3%, respectively, as compared with 62.4%, 61.5%, and 65.2%, respectively, in the first quarter of fiscal 2022.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 63.0%, 61.0%, and 68.8%, respectively, as compared with 64.5%, 63.8%, and 66.5%, respectively, in the first quarter of fiscal 2022.

Total gross margins by geographic segment were: 63.0% for the Americas, 63.3% for EMEA and 62.3% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.8 billion, up 4%, and were 35.3% of revenue. Non-GAAP operating expenses were $4.2 billion, up 5%, and were 31.1% of revenue.

Operating Income -- GAAP operating income was $3.5 billion, up 3%, with GAAP operating margin of 26.0%. Non-GAAP operating income was $4.3 billion, up 1%, with non-GAAP operating margin at 31.8%.

Provision for Income Taxes -- The GAAP tax provision rate was 23.2%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.7 billion, a decrease of 10%, and EPS was $0.65, a decrease of 7%. On a non-GAAP basis, net income was $3.5 billion, an increase of 2%, and EPS was $0.86, an increase of 5%.

Cash Flow from Operating Activities -- $4.0 billion for the first quarter of fiscal 2023, an increase of 16% compared with $3.4 billion for the first quarter of fiscal 2022.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $19.8 billion at the end of the first quarter of fiscal 2023, compared with $19.3 billion at the end of fiscal 2022.

Remaining Performance Obligations (RPO) -- $30.9 billion, up 3% in total, with 53% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 5% and service RPO were up 1%.

Deferred Revenue -- $23.0 billion, up 4% in total, with deferred product revenue up 7%. Deferred service revenue was up 2%.

Capital Allocation -- In the first quarter of fiscal 2023, we returned $2.1 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.38 per common share, or $1.6 billion, and repurchased approximately 12 million shares of common stock under our stock repurchase program at an average price of $43.76 per share for an aggregate purchase price of $0.5 billion. The remaining authorized amount for stock repurchases under the program is $14.7 billion with no termination date.

Guidance

Cisco expects to achieve the following results for the second quarter of fiscal 2023:

Q2 FY 2023



Revenue


4.5% – 6.5% growth Y/Y

Non-GAAP gross margin rate


63% – 64%

Non-GAAP operating margin rate


31.5% – 32.5%

Non-GAAP EPS


$0.84 – $0.86

Cisco estimates that GAAP EPS will be $0.59 to $0.64 for the second quarter of fiscal 2023.

Cisco expects to achieve the following results for fiscal 2023:

FY 2023



Revenue


4.5% – 6.5% growth Y/Y

Non-GAAP EPS


$3.51 – $3.58

Cisco estimates that GAAP EPS will be $2.63 to $2.76 for fiscal 2023.

Our Q2 FY 2023 guidance assumes an effective tax provision rate of 19% for GAAP and non-GAAP results. Our FY 2023 guidance assumes an effective tax provision rate of 20% for GAAP and 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:

Q1 fiscal year 2023 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, November 16, 2022 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international). Conference call replay will be available from 4:00 p.m. Pacific Time, November 16, 2022 to 4:00 p.m. Pacific Time, November 23, 2022 at 1-800-835-5808 (United States) or 1-203-369-3353 (international). The replay will also be available via webcast on the Cisco Investor Relations website at u27227478.ct.sendgrid.net. Additional information regarding Cisco's financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, November 16, 2022. 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 u27227478.ct.sendgrid.net.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)



Three Months Ended


October 29,
2022


October 30,
2021

REVENUE:




Product

$ 10,245


$ 9,529

Service

3,387


3,371

Total revenue

13,632


12,900

COST OF SALES:




Product

4,179


3,673

Service

1,107


1,174

Total cost of sales

5,286


4,847

GROSS MARGIN

8,346


8,053

OPERATING EXPENSES:




Research and development

1,781


1,714

Sales and marketing

2,391


2,261

General and administrative

565


551

Amortization of purchased intangible assets

71


84

Restructuring and other charges

(2)


5

Total operating expenses

4,806


4,615

OPERATING INCOME

3,540


3,438

Interest income

169


121

Interest expense

(100)


(89)

Other income (loss), net

(134)


187

Interest and other income (loss), net

(65)


219

INCOME BEFORE PROVISION FOR INCOME TAXES

3,475


3,657

Provision for income taxes

805


677

NET INCOME

$ 2,670


$ 2,980





Net income per share:




Basic

$ 0.65


$ 0.71

Diluted

$ 0.65


$ 0.70

Shares used in per-share calculation:




Basic

4,108


4,218

Diluted

4,116


4,243



CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)




Three Months Ended



October 29, 2022



Amount


Y/Y %

Revenue :





Americas


$ 7,914


5 %

EMEA


3,675


11 %

APJC


2,043


— %

Total


$ 13,632


6 %


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



CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)




Three Months Ended



October 29, 2022

Gross Margin Percentage :



Americas


63.0 %

EMEA


63.3 %

APJC


62.3 %



CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)




Three Months Ended



October 29, 2022



Amount


Y/Y %

Revenue :





Secure, Agile Networks


$ 6,684


12 %

Internet for the Future


1,310


(5) %

Collaboration


1,086


(2) %

End-to-End Security


971


9 %

Optimized Application Experiences


193


7 %

Other Products


2


(47) %

Total Product


10,245


8 %

Services


3,387


— %

Total


$ 13,632


6 %


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



CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



October 29, 2022


July 30, 2022

ASSETS




Current assets:




Cash and cash equivalents

$ 7,292


$ 7,079

Investments

12,492


12,188

Accounts receivable, net of allowance of $88 at October 29, 2022 and $83 at July 30,
2022

5,439


6,622

Inventories

2,664


2,568

Financing receivables, net

3,683


3,905

Other current assets

4,571


4,355

Total current assets

36,141


36,717

Property and equipment, net

1,972


1,997

Financing receivables, net

3,618


4,009

Goodwill

38,160


38,304

Purchased intangible assets, net

2,360


2,569

Deferred tax assets

4,891


4,449

Other assets

5,912


5,957

TOTAL ASSETS

$ 93,054


$ 94,002

LIABILITIES AND EQUITY




Current liabilities:




Short-term debt

$ 1,249


$ 1,099

Accounts payable

2,316


2,281

Income taxes payable

890


961

Accrued compensation

2,907


3,316

Deferred revenue

12,578


12,784

Other current liabilities

4,956


5,199

Total current liabilities

24,896


25,640

Long-term debt

7,629


8,416

Income taxes payable

7,835


7,725

Deferred revenue

10,441


10,480

Other long-term liabilities

1,981


1,968

Total liabilities

52,782


54,229

Total equity

40,272


39,773

TOTAL LIABILITIES AND EQUITY

$ 93,054


$ 94,002



CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Three Months Ended


October 29,
2022


October 30,
2021

Cash flows from operating activities:




Net income

$ 2,670


$ 2,980

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




Depreciation, amortization, and other

415


533

Share-based compensation expense

496


453

Provision (benefit) for receivables

7


1

Deferred income taxes

(366)


(98)

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

131


(211)

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




Accounts receivable

1,119


427

Inventories

(108)


(275)

Financing receivables

556


672

Other assets

(316)


(170)

Accounts payable

42


(93)

Income taxes, net

20


17

Accrued compensation

(384)


(585)

Deferred revenue

(78)


(95)

Other liabilities

(242)


(129)

Net cash provided by operating activities

3,962


3,427

Cash flows from investing activities:




Purchases of investments

(1,943)


(2,951)

Proceeds from sales of investments

407


580

Proceeds from maturities of investments

971


1,856

Acquisitions, net of cash and cash equivalents acquired and divestitures




(336)

Purchases of investments in privately held companies

(48)


(101)

Return of investments in privately held companies

10


53

Acquisition of property and equipment

(176)


(122)

Proceeds from sales of property and equipment




1

Other

(20)




Net cash used in investing activities

(799)


(1,020)

Cash flows from financing activities:




Repurchases of common stock - repurchase program

(556)


(273)

Shares repurchased for tax withholdings on vesting of restricted stock units

(108)


(133)

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

(602)




Repayments of debt




(2,000)

Dividends paid

(1,560)


(1,561)

Other

(29)


(3)

Net cash used in financing activities

(2,855)


(3,970)

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents

(95)




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

213


(1,563)

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

8,579


9,942

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

$ 8,792


$ 8,379

Supplemental cash flow information:




Cash paid for interest

$ 114


$ 124

Cash paid for income taxes, net

$ 1,150


$ 758



CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)



October 29, 2022


July 30, 2022


October 30, 2021


Amount


Y/Y%


Amount


Y/Y%


Amount


Y/Y%

Product

$ 14,013


5 %


$ 14,090


6 %


$ 13,384


18 %

Service

16,897


1 %


17,449


(1) %


16,751


4 %

Total

$ 30,910


3 %


$ 31,539


2 %


$ 30,135


10 %


We expect 53% of total RPO at October 29, 2022 will be recognized as revenue over the next 12 months.



CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)



October 29,
2022


July 30,
2022


October 30,
2021

Deferred revenue:






Product

$ 10,404


$ 10,427


$ 9,681

Service

12,615


12,837


12,391

Total

$ 23,019


$ 23,264


$ 22,072

Reported as:






Current

$ 12,578


$ 12,784


$ 12,017

Noncurrent

10,441


10,480


10,055

Total

$ 23,019


$ 23,264


$ 22,072



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 2023













October 29, 2022


$ 0.38


$ 1,560


12


$ 43.76


$ 502


$ 2,062

Fiscal 2022













July 30, 2022


$ 0.38


$ 1,567


54


$ 44.02


$ 2,402


$ 3,969

April 30, 2022


$ 0.38


$ 1,555


5


$ 54.20


$ 252


$ 1,807

January 29, 2022


$ 0.37


$ 1,541


82


$ 58.36


$ 4,824


$ 6,365

October 30, 2021


$ 0.37


$ 1,561


5


$ 56.49


$ 256


$ 1,817



CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


GAAP TO NON-GAAP NET INCOME

(In millions)



Three Months Ended


October 29,
2022


October 30,
2021

GAAP net income

$ 2,670


$ 2,980

Adjustments to cost of sales:




Share-based compensation expense

81


69

Amortization of acquisition-related intangible assets

153


198

Acquisition-related/divestiture costs

2


1

Total adjustments to GAAP cost of sales

236


268

Adjustments to operating expenses:




Share-based compensation expense

415


383

Amortization of acquisition-related intangible assets

71


84

Acquisition-related/divestiture costs

75


112

Russia-Ukraine war costs

3




Significant asset impairments and restructurings

(2)


5

Total adjustments to GAAP operating expenses

562


584

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




(Gains) and losses on equity investments

109


(219)

Total adjustments to GAAP interest and other income (loss), net

109


(219)

Total adjustments to GAAP income before provision for income taxes

907


633

Income tax effect of non-GAAP adjustments

(192)


(138)

Significant tax matters

164




Total adjustments to GAAP provision for income taxes

(28)


(138)

Non-GAAP net income

$ 3,549


$ 3,475



CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


GAAP TO NON-GAAP EPS



Three Months Ended


October 29,
2022


October 30,
2021

GAAP EPS

$ 0.65


$ 0.70

Adjustments to GAAP:




Share-based compensation expense

0.12


0.11

Amortization of acquisition-related intangible assets

0.05


0.07

Acquisition-related/divestiture costs

0.02


0.03

(Gains) and losses on equity investments

0.03


(0.05)

Income tax effect of non-GAAP adjustments

(0.05)


(0.03)

Significant tax matters

0.04




Non-GAAP EPS

$ 0.86


$ 0.82


Amounts may not sum due to rounding.



CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET,
AND NET INCOME


(In millions, except percentages)



Three Months Ended


October 29, 2022


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

$ 6,066


$ 2,280


$ 8,346


$ 4,806


4 %


$ 3,540


3 %


$ (65)


$ 2,670


(10) %

% of revenue

59.2 %


67.3 %


61.2 %


35.3 %




26.0 %




(0.5) %


19.6 %



Adjustments to GAAP amounts:

















Share-based compensation expense

31


50


81


415




496







496



Amortization of acquisition-related intangible assets

153





153


71




224







224



Acquisition/divestiture-related costs

2





2


75




77







77



Significant asset impairments and restructurings










(2)




(2)







(2)



Russia-Ukraine war costs










3




3







3



(Gains) and losses on equity investments




















109


109



Income tax effect/significant tax matters























(28)



Non-GAAP amount

$ 6,252


$ 2,330


$ 8,582


$ 4,244


5 %


$ 4,338


1 %


$ 44


$ 3,549


2 %

% of revenue

61.0 %


68.8 %


63.0 %


31.1 %




31.8 %




0.3 %


26.0 %






Three Months Ended


October 30, 2021


Product Gross Margin


Service Gross Margin


Total Gross Margin


Operating Expenses


Operating

Income


Interest and other income (loss), net


Net

Income

GAAP amount

$ 5,856


$ 2,197


$ 8,053


$ 4,615


$ 3,438


$ 219


$ 2,980

% of revenue

61.5 %


65.2 %


62.4 %


35.8 %


26.7 %


1.7 %


23.1 %

Adjustments to GAAP amounts:














Share-based compensation expense

25


44


69


383


452





452

Amortization of acquisition-related intangible assets

198





198


84


282





282

Acquisition/divestiture-related costs

1





1


112


113





113

Significant asset impairments and restructurings










5


5





5

(Gains) and losses on equity investments
















(219)


(219)

Income tax effect/significant tax matters



















(138)

Non-GAAP amount

$ 6,080


$ 2,241


$ 8,321


$ 4,031


$ 4,290


$ —


$ 3,475

% of revenue

63.8 %


66.5 %


64.5 %


31.2 %


33.3 %


— %


26.9 %


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



CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES


EFFECTIVE TAX RATE

(In percentages)



Three Months Ended


October 29,
2022


October 30,
2021

GAAP effective tax rate

23.2 %


18.5 %

Total adjustments to GAAP provision for income taxes

(4.2) %


0.5 %

Non-GAAP effective tax rate

19.0 %


19.0 %



GAAP TO NON-GAAP GUIDANCE


Q2 FY 2023


Gross Margin Rate


Operating Margin Rate


Earnings per Share (2)

GAAP


61% – 62%


22.5% – 23.5%


$0.59 – $0.64

Estimated adjustments for:







Share-based compensation expense


1.0 %


4.5 %


$0.12 – $0.13

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)





2.5 %


$0.05 – $0.06

Non-GAAP


63% – 64%


31.5% – 32.5%


$0.84 – $0.86



FY 2023


Earnings per Share (2)

GAAP


$2.63 – $2.76

Estimated adjustments for:



Share-based compensation expense


$0.46 – $0.48

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


$0.21 – $0.23

Significant asset impairments and restructurings (1)


$0.09 – $0.11

(Gains) and losses on equity investments


$0.02

Significant tax matters


$0.04

Non-GAAP


$3.51 – $3.58

(1) On November 16, 2022, Cisco announced a restructuring plan in order to rebalance the organization and enable further investment in key priority areas. This rebalancing will include talent movement options and restructuring. Additionally, Cisco will optimize its real estate portfolio, aligned to the broader hybrid work strategy. Cisco will take action under this plan beginning in the second quarter of fiscal 2023. Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results of approximately $600 million consisting of severance and other one-time termination benefits, real estate-related charges, and other costs. These charges are primarily cash-based. Cisco expects to recognize approximately $300 million of these charges in the second quarter of fiscal 2023, approximately $200 million of these charges during the second half of fiscal 2023, and the remaining amount of these charges primarily through the first quarter of fiscal 2024.

(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, Russia-Ukraine war costs, restructurings, (gains) and losses on equity 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 the relevance of our strategy, our differentiated innovation, our ability to help our customers become more resilient, our continued progress on our business model transformation, and the visibility and predictability provided by backlog, RPO, easing of the supply situation and the growth of annualized recurring revenue) and the future financial performance of Cisco (including the guidance for Q2 FY 2023 and full year FY 2023) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: the impact of the COVID-19 pandemic and related public health measures; 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 Secure, Agile Networks and services; the timing of orders and manufacturing and customer lead times; significant 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 malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events (including as a result of global climate change); any other pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent report on Form 10-K filed on September 8, 2022. 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 29, 2022 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 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.

Annualized recurring revenue represents the annualized revenue run-rate of active subscriptions, term licenses, 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.

About Cisco

Cisco (Nasdaq: CSCO) is the worldwide leader in technology that powers the Internet. Cisco inspires new possibilities by reimagining your applications, securing your data, transforming your infrastructure, and empowering your teams for a global and inclusive future. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2022 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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