10-QPeriod: Q2 FY2016

CISCO SYSTEMS, INC. Quarterly Report for Q2 Ended Jan 23, 2016

Filed February 18, 2016For Securities:CSCO

Summary

Cisco Systems, Inc. (CSCO) reported its fiscal second quarter 2016 results, ending January 23, 2016. The company demonstrated resilience with flat total revenue year-over-year, amounting to $11.93 billion. This stability was achieved despite a 1% decline in product revenue, which was offset by a 3% increase in service revenue. A notable event was the sale of the Service Provider Video CPE Business, which impacted year-over-year comparisons but contributed to a significant improvement in gross margin, up 2.9 percentage points to 62.3%. Net income saw a substantial increase of 31.3% to $3.15 billion, largely influenced by favorable tax benefits stemming from an IRS settlement and the reinstatement of the R&D tax credit, which contributed to a significantly lower effective tax rate of 4.8%. Diluted earnings per share rose 34.8% to $0.62. The company also continued its capital return program, repurchasing $2.47 billion in stock and paying $2.13 billion in dividends during the six-month period, while generating strong free cash flow of $6.11 billion.

Financial Highlights

58 data points
Beta

Revenue

$11.93B

62.3% Gross Margin

Net Income

$3.15B

26.4% Net Margin

EPS (Diluted)

$0.62

Total Assets

$112.64B

Cash & Equivalents

$6.31B

Free Cash Flow

$3.61B

Financial Statements
Beta
Revenue$11.93B
Cost of Revenue$4.50B
Gross Profit$7.43B
R&D Expenses$1.51B
Operating Expenses$4.14B
Operating Income$3.29B
Interest Expense$162.00M
Net Income$3.15B
EPS (Basic)$0.62
EPS (Diluted)$0.62
Shares Outstanding (Basic)5.07B
Shares Outstanding (Diluted)5.10B

Key Highlights

  • 1Total revenue remained flat at $11.93 billion for the quarter, with product revenue down 1% and service revenue up 3%.
  • 2Gross margin significantly improved by 2.9 percentage points to 62.3%, driven by the sale of the lower-margin SP Video CPE Business and productivity improvements.
  • 3Net income increased by 31.3% to $3.15 billion, significantly boosted by tax benefits from an IRS settlement and R&D tax credit reinstatement.
  • 4Diluted earnings per share grew 34.8% to $0.62.
  • 5Operating income as a percentage of revenue increased to 27.6% from 22.0% in the prior year's quarter.
  • 6The company continued substantial capital returns, repurchasing $2.3 billion in stock and paying $2.1 billion in dividends during the first six months of the fiscal year.
  • 7Free cash flow for the six months ended January 23, 2016, was strong at $6.11 billion.

Frequently Asked Questions

Cisco's total revenue was $11.93 billion, flat compared to the same quarter last year. Product revenue decreased by 1%, while service revenue increased by 3%. The sale of the Service Provider Video CPE Business impacted these figures.

The substantial increase in net income and EPS was primarily due to significant tax benefits. These benefits arose from a settlement with the IRS for past tax years and the permanent reinstatement of the U.S. federal R&D tax credit, which reduced the company's effective tax rate considerably.

Cisco continues to prioritize returning capital to shareholders. In the six months ended January 23, 2016, the company repurchased approximately $2.47 billion of its common stock under its repurchase program and paid $2.13 billion in cash dividends.

While the report doesn't provide explicit forward-looking guidance, the stable revenue, improved profitability driven by cost management and tax benefits, and strong cash flow generation suggest a resilient performance. The company is also actively pursuing strategic acquisitions to bolster its offerings in growth areas like security and IoT.