01—Abstract
Summary
Summary of the 10-Q filed May 21, 2024. Cited figures are marked; the original filing is the authoritative source.
Cisco Systems, Inc. (CSCO) reported a significant decline in revenue for the third quarter of fiscal year 2024, with total revenue down 13% year-over-year to $12.7 billiona.
This decrease was primarily driven by a 19% drop in product revenue, although service revenue saw a modest 6% increase. The company attributed the product revenue decline to customers scrutinizing spend and taking longer to implement previously received product shipments. The acquisition of Splunk, completed in March 2024, contributed $413 millionb in revenue and was a key driver for growth in the Security (up 36%) and Observability (up 27%) product categories, partially offsetting a significant 27% decline in Networking revenue.
Despite the revenue drop, Cisco demonstrated improved profitability at the gross margin level, with a 1.7 percentage point increase to 65.1%, driven by favorable product mix, productivity improvements, and the impact of Splunk. However, operating income as a percentage of revenue decreased by 9.9 percentage points to 17.2%, largely due to substantial restructuring and other charges totaling $542 millionc and increased amortization of purchased intangible assets. Diluted earnings per share fell significantly by 41% to $0.46.
Financially, the company's cash and cash equivalents and investments decreased by $7.4 billion to $18.8 billiond, primarily due to the Splunk acquisition, dividend payments, and share repurchases. Cisco maintained a strong balance sheet, with remaining authorized share repurchases of $7.2 billion, and continued to return capital to shareholders through dividends.
02—Key points
Key Highlights
- Total revenue declined 13% year-over-year to $12.7 billion, impacted by customer spending scrutiny and implementation delays.
- Product revenue dropped 19%, largely due to a 27% decrease in Networking, though Security and Observability segments grew significantly due to the Splunk acquisition.
- Gross margin improved by 1.7 percentage points to 65.1%, driven by favorable product mix and productivity gains.
- Operating income margin contracted by 9.9 percentage points to 17.2% due to significant restructuring charges and higher amortization expenses.
- Diluted EPS decreased 41% to $0.46, reflecting the impact of lower revenue and higher expenses.
- Cash, cash equivalents, and investments decreased by $7.4 billion to $18.8 billion, mainly due to the Splunk acquisition and capital returns to shareholders.
- Remaining performance obligations increased 11% to $38.8 billion, indicating a strong future revenue pipeline, bolstered by the Splunk acquisition.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, Cisco Systems, Inc. kept $0.15.
- Revenue$12.70B100.0%
- Cost of revenue−$4.43B34.9%
- Gross profit$8.27B65.1%
- Operating costs−$6.08B47.9%
- Operating income$2.19B17.2%
- Interest, other & tax−$305.0M2.4%
- Net income$1.89B14.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed May 21, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $12.70B$14.57B | −12.8% |
| Cost of Revenue | $4.43B$5.34B | −17.0% |
| Gross Profit | $8.27B$9.23B | −10.4% |
| R&D Expenses | $1.95B$1.96B | −0.7% |
| Operating Expenses | $6.08B$5.29B | +15.1% |
| Operating Income | $2.19B$3.95B | −44.5% |
| Interest Expense | $357.00M$109.00M | +227.5% |
| Net Income | $1.89B$3.21B | −41.3% |
| EPS (Basic) | $0.47$0.79 | −40.5% |
| EPS (Diluted) | $0.46$0.78 | −41.0% |
| Shares Outstanding (Basic) | 4.04B4.09B | −1.1% |
| Shares Outstanding (Diluted) | 4.06B4.11B | −1.2% |
05—Questions
Frequently Asked Questions
What was the main driver behind the significant revenue decline in the third quarter?
The primary driver for the revenue decline was a 19% decrease in product revenue, which the company attributed to customers scrutinizing their spending and taking longer to implement previously received product shipments. This situation led to a slowdown in product demand, particularly impacting the Networking segment.
How has the acquisition of Splunk impacted Cisco's financial results?
The acquisition of Splunk, completed in March 2024, contributed $413 million in revenue during the quarter and was a significant factor in the growth of the Security and Observability segments. However, it also contributed to an increase in amortization of purchased intangible assets and acquisition-related costs, which impacted operating income.
Despite the revenue decrease, how did Cisco's profitability hold up?
Cisco's gross margin improved by 1.7 percentage points to 65.1%, indicating better cost management and a favorable product mix. However, operating income as a percentage of revenue declined significantly due to substantial restructuring charges ($542 million) and increased amortization of acquired intangible assets, which outweighed the gross margin improvement.
What is the outlook for Cisco's cash position and capital allocation?
Cisco's cash, cash equivalents, and investments decreased by $7.4 billion to $18.8 billion, primarily due to the cash outflow for the Splunk acquisition, dividend payments, and share repurchases. The company continues to generate strong free cash flow ($6.7 billion for the nine months ended April 27, 2024) and remains committed to returning at least 50% of free cash flow to shareholders through dividends and share repurchases, with approximately $7.2 billion remaining under its authorized stock repurchase program.
06—Continue