10-QPeriod: Q2 FY2018

CISCO SYSTEMS, INC. Quarterly Report for Q2 Ended Jan 27, 2018

Filed February 20, 2018For Securities:CSCO

Summary

Cisco Systems, Inc.'s filing for the quarter ending January 27, 2018, reveals a mixed financial performance, impacted significantly by a substantial provisional tax expense related to the U.S. Tax Act. Total revenue saw a modest 3% increase year-over-year for the quarter, reaching $11.9 billion, primarily driven by growth in the Americas segment and the Security and Applications product categories. However, the company reported a net loss of $8.8 billion, largely due to an $11.1 billion provisional tax expense, which included a $9 billion U.S. transition tax on accumulated foreign earnings. For the first six months of fiscal 2018, total revenue remained flat at $24.0 billion, with a net loss of $6.4 billion, also heavily influenced by the tax-related charges. Despite the bottom-line impact from the tax reform, Cisco demonstrated solid gross margins, with product gross margin increasing slightly to 61.5% in the quarter, supported by productivity improvements and a favorable product mix. The company also generated strong operating cash flow of $7.2 billion for the first six months, underscoring operational resilience. Cisco continued its capital return strategy, repurchasing $5.6 billion of stock and paying $2.9 billion in dividends during the first half of the fiscal year, while also announcing a significant $25 billion increase to its stock repurchase authorization.

Financial Highlights

57 data points
Beta

Revenue

$11.89B

63.1% Gross Margin

Net Income

-$8.78B

-73.8% Net Margin

EPS (Diluted)

$-1.78

Total Assets

$131.51B

Cash & Equivalents

$17.68B

Free Cash Flow

$3.86B

Financial Statements
Beta
Revenue$11.89B
Cost of Revenue$4.39B
Gross Profit$7.50B
R&D Expenses$1.55B
Operating Expenses$4.42B
Operating Income$3.07B
Interest Expense$247.00M
Net Income-$8.78B
EPS (Basic)$-1.78
EPS (Diluted)$-1.78
Shares Outstanding (Basic)4.92B
Shares Outstanding (Diluted)4.92B

Key Highlights

  • 1Total revenue for the quarter increased 3% to $11.9 billion, with growth in the Americas segment and Security/Applications product categories.
  • 2A significant provisional tax expense of $11.1 billion related to the Tax Act resulted in a net loss of $8.8 billion for the quarter.
  • 3Product gross margin improved slightly to 61.5% for the quarter, driven by productivity and favorable product mix, though offset by pricing pressures.
  • 4Operating cash flow remained strong at $7.2 billion for the first six months of fiscal 2018.
  • 5Cisco repurchased $5.6 billion in common stock and paid $2.9 billion in dividends during the first half of the fiscal year.
  • 6The company announced a $25 billion increase to its stock repurchase program, indicating continued commitment to shareholder returns.
  • 7The service provider market continues to show weakness, impacting routing product sales.

Frequently Asked Questions

The primary driver of Cisco's net loss of $8.8 billion was a substantial provisional tax expense of $11.1 billion related to the U.S. Tax Act, which included a U.S. transition tax on accumulated foreign earnings and foreign withholding taxes.

For the three months ended January 27, 2018, Cisco's total revenue increased by 3% to $11.9 billion compared to the same period in the prior year. For the six months ended January 27, 2018, total revenue was flat at $24.0 billion.

Cisco intends to return a minimum of 50% of its free cash flow annually to shareholders through cash dividends and stock repurchases. The company's Board of Directors recently authorized a $25 billion increase to its stock repurchase program, demonstrating a strong commitment to capital return.

Yes, Cisco noted continued weakness in the service provider market, which negatively impacted certain offerings, particularly in the routing product category. This weakness also affected sales in the APJC and EMEA segments.