Cisco Reports ird Quarter Earnings

SAN JOSE, CA -- May 18, 2016 - Cisco (NASDAQ: CSCO)

Q3 Revenue : $12.0 billion

Growth of 3% year over year -- Q3 guidance was 1% to 4% growth year over year (normalized to exclude the SP Video CPE Business for Q3 2015)

Q3 Earnings per Share: $0.46 GAAP; $0.57 non-GAAP

Q4 Guidance:

Revenue: 0% - 3% growth year over year (normalized to exclude the SP Video CPE Business for Q4 2015)

Earnings per Share: GAAP $0.48 - $0.53; Non-GAAP: $0.59 to $0.61

Cisco today reported third quarter results for the period ended April 30, 2016. Cisco reported third quarter revenue of $12.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.3 billion or $0.46 per share, and non-GAAP net income of $2.9 billion or $0.57 per share.

We delivered a strong Q3, executing well despite the challenging environment, said Chuck Robbins, Cisco chief executive officer. Im pleased with our performance today as well as the progress were making in transitioning our business to a more software and subscription focus, which well continue to apply across our entire portfolio.

GAAP Results

Q3 2016 Q3 2015 Vs. Q3 2015

Revenue (including SP Video CPE Business for all periods) $ 12.0 billion $ 12.1 billion (1 )%

Revenue (excluding SP Video CPE Business for all periods) $ 12.0 billion $ 11.6 billion 3 %

Net Income $ 2.3 billion $ 2.4 billion (4 )%

Diluted Earnings per Share (EPS) $ 0.46 $ 0.47 (2 )%

Non-GAAP Results

Q3 2016 Q3 2015 Vs. Q3 2015

Net Income $ 2.9 billion $ 2.8 billion 3 %

EPS $ 0.57 $ 0.54 6 %

The third quarter of fiscal 2016 had 14 weeks compared with 13 weeks in the third quarter of fiscal 2015.

A reconciliation between net income and EPS on a GAAP and non-GAAP basis is provided in the table following the Consolidated Statements of Operations. Supplementary information related to other GAAP and non-GAAP measures is also provided in the tables following.

Once again we delivered a solid quarter in Q3, with 3% top line growth, and even faster non-GAAP EPS growth and strong margins, said Kelly Kramer, Cisco executive vice president and chief financial officer. We executed well on our financial strategy, allowing us to invest in our business model transition to software and recurring revenues so that our customers are able to consume Cisco technology in the way that is best for their business.

Financial Highlights for Q3 Fiscal 2016

All comparative percentages are on a year-over-year basis unless otherwise noted.

All revenue, non-GAAP, and geographic financial information in this Financial Highlights for Q3 Fiscal 2016 section are presented excluding the SP Video CPE Business for prior periods as it was divested during the second quarter of fiscal 2016 on November 20, 2015.

Revenue -- Revenue was $12.0 billion, up 3% with product revenue up 1% and service revenue up 11%. Revenue by geographic segment was: Americas up 4%, EMEA down 2%, and APJC up 10%. Product revenue growth was led by Security, Collaboration and SP Video which increased by 17%, 10% and 18%, respectively. Wireless and Data Center each increased by 1%, while Switching and NGN Routing decreased by 3% and 5%, respectively.

Gross Margin -- On a GAAP basis, total gross margin and product gross margin were 64.3% and 63.8%, respectively. The increase in the product gross margin compared with 61.6% in the third quarter of fiscal 2015 was primarily due to continued productivity improvements and the divestiture of the SP Video CPE Business, partially offset by pricing and to a lesser extent product mix.

Non-GAAP total gross margin and product gross margin were 65.2% and 64.5%, respectively. The non-GAAP product gross margin was unchanged compared to the third quarter of fiscal 2015 as continued productivity improvements were offset by pricing and to a lesser extent product mix.

GAAP service margin was 65.9% and non-GAAP service gross margin was 67.1%.

Total gross margins by geographic segment were: 66.3% for the Americas, 65.5% for EMEA and 60.4% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.7 billion, up 3%. Non-GAAP operating expenses were $4.2 billion, up 4%, and at 35.2% of revenue. Headcount compared with the end of the second quarter of fiscal 2016 increased by 1,447 to 73,104, driven by additional headcount from acquisitions and investments in key growth areas such as security, cloud and software.

Operating Income -- GAAP operating income was $3.0 billion, up 2%, with GAAP operating margin of 24.9%. Non-GAAP operating income was $3.6 billion, up 5%, with non-GAAP operating margin at 30.0%.

Provision for Income Taxes -- The GAAP tax provision rate was 23.8%. The non-GAAP tax provision rate was 22.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.3 billion and EPS was $0.46. On a non-GAAP basis, net income was $2.9 billion, an increase of 4%, and EPS was $0.57, an increase of 6%.

Cash Flow from Operating Activities -- was $3.1 billion an increase of 1% compared with $3.0 billion for the third quarter of fiscal 2015.

Cash and Cash Equivalents and Investments -- were $63.5 billion at the end of the third quarter of fiscal 2016, compared with $60.4 billion at the end of the second quarter of fiscal 2016, and compared with $60.4 billion at the end of fiscal 2015. The total cash and cash equivalents and investments available in the United States at the end of the third quarter of fiscal 2016 were $6.3 billion.

Deferred Revenue -- was $15.3 billion, up 8% in total, with deferred product revenue up 9%, driven largely by subscription-based and software offerings, and deferred service revenue up 7%. Cisco continued to build a greater mix of recurring revenue as reflected in deferred revenue.

Days Sales Outstanding in Accounts Receivable (DSO)

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