Q2 Fiscal Year 2017 Conference Call February 15, 2017
FORWARD-LOOKING STATEMENTS This presentation contains projections and other forward-looking statements regarding future events or the future financial performance of Cisco, including future operating results. These projections and statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements. Please see Cisco s filings with the SEC, including its most recent filings on Forms 10-K and 10-Q, for a discussion of important risk factors that could cause actual events or results to differ materially from those in the projections or other forwardlooking statements. GAAP RECONCILIATION During this presentation references to financial measures of Cisco will include references to non-gaap financial measures. Cisco provides a reconciliation between GAAP and non-gaap financial information on our website at www.cisco.com under Financial Info in the Investor Relations section. http://investor.cisco.com/investor-relations/financial-information/financial-results/default.aspx
Business Momentum & Key Trends Financial Overview Business Outlook Q&A
Q2 FY 2017 Highlights Delivered a solid quarter with total revenue of $11.6B, down 2% y/y* and non-gaap EPS of $0.57, flat y/y Continuing our shift towards software and recurring revenue...51% y/y growth in our product deferred revenue related to our recurring software and subscriptions Delivered strong innovation in key areas such as Security, Collaboration and Next Generation Data Center as we continue to drive innovation in our Core Continuing to deliver value for our shareholders including a $0.03 dividend increase to $0.29 per share, an increase of 12% Announced intent to acquire AppDynamics a continuation of our strategy to provide customers with deep analytics and insights across the data center, the network and their applications to improve business performance * Year-over-year change normalized to exclude the SP Video CPE Business for Q2 FY 2016, which was divested during Q2 FY 2016 on November 20, 2015.
Business Momentum & Key Trends Financial Overview Business Outlook Q&A
Q2 FY 2017 Revenue Highlights $M Y/Y % Change* Switching $3,305 (5%) NGN Routing 1,817 (10%) Collaboration 1,062 4% Data Center 790 (4%) Wireless 632 3% Security 528 14% Service Provider Video 241 (41%) Other Products 116 53% Service 3,089 5% Total Cisco $11,580 (2%) 1% 2% 5% 27% 5% 7% Revenue % of Total 9% 29% 16% Percentages may not sum to 100% due to rounding Switching NGN Routing Collaboration Data Center Wireless Security SP Video Other Service * Year-over-year change normalized to exclude the SP Video CPE Business for Q2 FY 2016, which was divested during Q2 FY 2016 on November 20, 2015. SP Video CPE Business revenue was $93M for Q2 FY 2016. Certain reclassifications have been made to the amounts for prior periods in order to conform to the current period s presentation. Historical revenue by product category and service is available on our website at http://investor.cisco.com under Financial Info in the Investor Relations section.
Q2 FY 2017 Product Orders: Geographic Regions & Customer Segments Geographic Region Y/Y % Change* Americas 4% EMEA (4%) APJC (5%) Total Cisco 0% Customer Segment Y/Y % Change* Enterprise 1% Public Sector (6%) Commercial 3% Service Provider (1%) Total Cisco 0% Product Book to Bill Greater than 1 * Year-over-year change is normalized to exclude the SP Video CPE Business for Q2 FY 2016, which was divested during Q2 FY 2016 on November 20, 2015.
Q2 FY 2017 Non-GAAP Income Statement Details $M (except per-share amounts and percentages) Q2 FY 2017 Q2 FY 2016 Total Cisco Total Cisco SP Video CPE Business Excluding SP Video CPE Business Y/Y Change Excluding SP Video CPE Business Revenue $11,580 $11,927 $93 $11,834 (2%) Gross Margin 64.1% 63.8% 14.2% 64.2% - 0.1 pts Operating Expenses $3,826 $3,913 $11 $3,902 (2%) OPEX (% of Revenue) 33.0% 32.8% 11.7% 33.0% 0.0 pts Operating Income $3,595 $3,693 $2 $3,691 (3%) Operating Income (% of Revenue) 31.0% 31.0% 2.5% 31.2% - 0.2 pts Net Income $2,859 $2,929 $2 $2,927 (2%) EPS (diluted) $0.57 $0.57 $0.00 $0.57 0% Amounts may not sum due to rounding.
Q2 FY 2017 GAAP Income Statement Highlights $M (except per-share amounts and percentages) Q2 FY 2016 Q1 FY 2017 Q2 FY 2017 Revenue* $11,927 $12,352 $11,580 Product Service $8,983 $2,944 $9,302 $3,050 $8,491 $3,089 Gross Margin 62.3% 63.8% 62.8% Product Gross Margin Service Gross Margin 61.3% 65.5% 63.4% 65.1% 61.1% 67.7% Operating Expenses $4,138 $5,007 $4,383 OPEX (% of Revenue) 34.7% 40.5% 37.8% Operating Income (% of Revenue) 27.6% 23.3% 25.0% Net Income $3,147 $2,322 $2,348 Year/Year Change 31% (4%) (25%) EPS (diluted) $0.62 $0.46 $0.47 Year/Year Change 35% (4%) (24%) *Includes SP Video CPE Business revenue for Q2 FY 2016 of $93M. The SP Video CPE Business was divested during Q2 FY 2016 on November 20, 2015.
Capital Allocation $M Q2 FY 2016 Q3 FY 2016 Q4 FY 2016 Q1 FY 2017 Q2 FY 2017 Share Repurchases $1,262 $649 $800 $1,001 $1,001 Dividends Paid 1,065 1,308 1,309 1,308 1,304 Total $2,327 $1,957 $2,109 $2,309 $2,305 Q2 FY 2016 Q3 FY 2016 Q4 FY 2016 Q1 FY 2017 Q2 FY 2017 Dividends per Share $0.21 $0.26 $0.26 $0.26 $0.26 Share Repurchase Program* Amount Purchased ($M) Number of Shares (M) Avg. Price Per Share Q2 FY 2017 Purchases $1,001 33 $30.33 *Approximately $13.4B remaining authorized funds in repurchase program as of the end of Q2 FY 2017.
Business Momentum & Key Trends Financial Overview Business Outlook Q&A
Business Momentum & Key Trends Financial Overview Business Outlook Q&A
Q&A
FORWARD-LOOKING STATEMENTS These presentation slides and the related conference call 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 our continued customer momentum, our ability to accelerate innovation across our portfolio, our ability to successfully close the acquisition of AppDynamics and to achieve the expected benefits of the acquisition, growth in key business areas of collaboration, security and services, the transformation of our business to software and recurring revenues, and our ability to execute well and return value to our shareholders) and the future financial performance of Cisco 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: 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 routing, switching and services; the timing of orders and manufacturing and customer lead times; 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, intellectual property, antitrust, shareholder and other matters, and governmental investigations; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; man-made problems such as cyber-attacks, data protection breaches, computer viruses or terrorism; natural catastrophic events; a 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 reports on Forms 10-Q and 10-K filed on November 22, 2016 and September 8, 2016, respectively. The financial information contained in these presentation slides and the related conference call should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco s results of operations for the three and six months ended January 28, 2017 are not necessarily indicative of Cisco s operating results for any future periods. Any projections in these presentation slides and the related conference call 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 these presentation slides and the related conference call.
Supplemental Materials
Performance Against Q2 FY 2017 Guidance $M (except percentages) Q2 FY 2017 Guidance Q2 FY 2017 Actual Revenue $11,580 Year/Year Change* (2%) to (4%) decline (2%) decline Non-GAAP Gross Margin 63% - 64% 64.1% Non-GAAP Earnings per Share $0.55 - $0.57 $0.57 * Year over year change normalized to exclude SP Video CPE Business for Q2 FY 2016, which was divested during Q2 FY 2016 on November 20, 2015.
Q2 FY 2017 Non-GAAP Income Statement Highlights $M (except per-share amounts and percentages) Q2 FY 2016 Q1 FY 2017 Q2 FY 2017 Revenue* $11,927 $12,352 $11,580 Year/Year Change Product Service 0% $8,983 $2,944 (3%) $9,302 $3,050 (3%) $8,491 $3,089 Gross Margin 63.8% 65.2% 64.1% Product Gross Margin Service Gross Margin 62.8% 66.7% 64.8% 66.2% 62.4% 68.8% Operating Expenses $3,913 $4,150 $3,826 OPEX (% of Revenue) 32.8% 33.6% 33.0% Operating Income (% of Revenue) 31.0% 31.6% 31.0% Net Income $2,929 $3,101 $2,859 Year/Year Change 7% 3% (2%) EPS (diluted) $0.57 $0.61 $0.57 Year/Year Change 8% 3% 0% *Includes SP Video CPE Business revenue for Q2 FY 2016 of $93M. The SP Video CPE Business was divested during Q2 FY 2016 on November 20, 2015.
Q2 FY 2017 Key Financial Measures $M (except non-gaap inventory turns and headcount) Q2 FY 2016 Q1 FY 2017 Q2 FY 2017 Cash and Cash Equivalents and Investments $60,375 $70,968 $71,845 Operating Cash Flow $3,922 $2,730 $3,772 Accounts Receivable $4,302 $4,805 $4,458 Inventory $1,362 $1,176 $1,264 Non-GAAP Inventory Turns 12.2 14.4 13.6 Purchase Commitments $3,435 $3,920 $4,402 Deferred Revenue $15,185 $16,951 $17,086 Product Deferred Revenue $5,528 $6,527 $6,561 Service Deferred Revenue $9,657 $10,424 $10,525 Headcount 71,657 72,385 71,959
SP Video CPE Business Historical Financial Information* $M (except per-share amounts) Q1 FY 2015 Q2 FY 2015 Q3 FY 2015 Q4 FY 2015 Q1 FY 2016 Q2 FY 2016** Revenue $479 $361 $519 $487 $411 $93 Gross Margin $96 $66 $84 $83 $43 $13 Operating Expenses $38 $35 $37 $37 $32 $11 Operating Income $58 $31 $47 $46 $11 $2 Net Income $45 $24 $36 $37 $8 $2 EPS (diluted) $0.01 $0.01 $0.01 * Stand-alone financial information is unaudited. ** Represents one month of results as the SP Video CPE Business was divested during Q2 FY 2016 on November 20, 2015.
Q2 FY 2017 Geographic Revenue and Total Gross Margin Revenue* Revenue Including SP Video CPE Business Excluding SP Video CPE Business Total Gross Margin Percentage $M (except percentages) Q2 FY 2016 Q1 FY 2017 Q2 FY 2017 Q2 FY 2016 Q1 FY 2017 Q2 FY 2017 Americas $6,911 $7,443 $6,660 63.8% 64.9% 64.4% EMEA 3,093 3,013 3,065 65.0% 66.8% 65.6% APJC 1,923 1,896 1,855 61.6% 63.5% 60.4% Geographic Total $11,927 $12,352 $11,580 63.8% 65.2% 64.1% Total Gross Margin Percentage $M (except percentages) Q2 FY 2016 Q1 FY 2017 Q2 FY 2017 Q2 FY 2016 Q1 FY 2017 Q2 FY 2017 Americas $6,845 $7,443 $6,660 64.3% 64.9% 64.4% EMEA 3,070 3,013 3,065 65.5% 66.8% 65.6% APJC 1,919 1,896 1,855 61.7% 63.5% 60.4% Geographic Total $11,834 $12,352 $11,580 64.2% 65.2% 64.1% *Includes SP Video CPE Business revenue for Q2 FY 2016 of $93M. The SP Video CPE Business was divested during Q2 FY 2016 on November 20, 2015. Certain reclassifications have been made to the amounts for prior periods in order to conform to the current period s presentation. Historical revenue and gross margin by segment is available on our website at http://investor.cisco.com under Financial Info in the Investor Relations section.