01—Abstract
Summary
Summary of the 8-K filed May 15, 2024. Cited figures are marked; the original filing is the authoritative source.
Cisco reported fiscal third quarter 2024 results (quarter ended April 27, 2024) showing revenue of $12.7 billiona, down 13% year over year, in line with management expectations as customers work through products already on hand.
GAAP net income fell 41% to $1.9 billionb ($0.46 per diluted share), while non-GAAP net income declined 14% to $3.6 billion ($0.88 per share, down 12%). Management highlighted continued operating leverage, with Q3 revenue, gross margin, and non-GAAP EPS at or above the high end of guidance, both including and excluding Splunk. Splunk, acquired in March 2024, contributed $413 million of revenue and reduced GAAP EPS by $0.09, largely due to financing costs and amortization, and roughly $0.01 on a non-GAAP basis.
The quarter shows a mixed mix shift. Product revenue fell 19%, with Networking down 27%, while Security (up 36%, or 3% excluding Splunk) and Observability (up 27%, or 14% excluding Splunk) grew. Subscription revenue reached $6.9 billionc (54% of total), and product ARR rose 44% to $15.5 billion.
Total RPO grew 21% to $38.8 billiond. Cash and investments fell to $18.8 billion from $26.1 billion, reflecting Splunk-related debt and cash outlays, with total debt rising sharply to roughly $32 billion in short- and long-term borrowings. For guidance, Cisco expects Q4 FY2024 revenue of $13.4 to $13.6 billion and non-GAAP EPS of $0.84 to $0.86, and full-year FY2024 revenue of $53.6 to $53.8 billion with non-GAAP EPS of $3.69 to $3.71.
The company also declared a $0.40 quarterly dividend and repurchased about $1.3 billion of stock during the quarter. Separately, Gary Steele, former Splunk CEO, was named President of Go-to-Market, and Jeff Sharritts, Chief Customer and Partner Officer, will depart in mid-July 2024.
02—Key points
Key Highlights
- Revenue of $12.7 billion declined 13% year over year, with product revenue down 19% and services up 6%; Networking fell 27% while Security (+36%) and Observability (+27%) grew.
- GAAP EPS of $0.46 fell 41% and non-GAAP EPS of $0.88 fell 12%; Splunk weighed on GAAP EPS by $0.09 and non-GAAP EPS by $0.01 this quarter.
- Subscription revenue reached $6.9 billion (54% of total), product ARR rose 44% to $15.5 billion, and total ARR reached $29.2 billion including $4.2 billion from Splunk.
- Total RPO grew 21% to $38.8 billion, with 52% expected to convert to revenue over the next 12 months; deferred revenue rose 13% to $27.5 billion.
- Non-GAAP gross margin was 68.3% and non-GAAP operating margin was 34.2%, with management citing continued operating leverage.
- Q4 FY2024 guidance calls for revenue of $13.4 to $13.6 billion and non-GAAP EPS of $0.84 to $0.86; FY2024 non-GAAP EPS guidance is $3.69 to $3.71.
- Cash and investments declined to $18.8 billion from $26.1 billion, while total debt rose sharply to about $32 billion following the Splunk acquisition; Cisco declared a $0.40 quarterly dividend and repurchased about $1.3 billion of stock.
03—Questions
Frequently Asked Questions
How did Cisco's core business perform in the quarter, and is demand stabilizing?
Revenue fell 13% to $12.7 billion as customers continued deploying equipment they had already bought. Management said demand is stabilizing, and Security and Observability growth (including Splunk) offset weakness in Networking, which fell 27%.
What was Splunk's impact on Cisco's results?
Splunk contributed $413 million of revenue this quarter. It reduced GAAP EPS by $0.09, mainly due to financing costs and amortization of acquired intangibles, and reduced non-GAAP EPS by $0.01. Excluding Splunk, Security grew 3% and Observability grew 14%.
Why did GAAP earnings fall more than non-GAAP earnings?
GAAP results include share-based compensation, amortization of acquisition intangibles, acquisition costs, and restructuring charges, which Cisco excludes from non-GAAP results. Restructuring and other charges were $542 million this quarter, and amortization of purchased intangibles rose to $297 million from $70 million a year earlier, driven by the Splunk deal.
What does Cisco expect for the rest of fiscal 2024?
Cisco guides Q4 FY2024 revenue to $13.4 to $13.6 billion and non-GAAP EPS to $0.84 to $0.86, and expects full-year revenue of $53.6 to $53.8 billion and non-GAAP EPS of $3.69 to $3.71. Guidance includes $950 million to $1 billion of Splunk revenue, with a roughly $0.03 negative EPS impact from acquisition financing interest.
What executive changes were announced and what do they mean for investors?
Gary Steele, former Splunk CEO, was named President of Go-to-Market, taking responsibility for global sales, partner, and marketing operations. Jeff Sharritts, Chief Customer and Partner Officer, will leave in mid-July 2024. Investors may view the change as a push to integrate Splunk and reshape the sales organization, though the filing does not state the expected financial impact.
04—Continue