Q2 Fiscal Year 2016 Conference Call February 10, 2016
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
Guidance
Q&A
Q2 FY’16 Highlights •
Delivered a strong Q2 in a challenging macro environment
•
Revenue growth of 2%* y/y, non-GAAP EPS growth of 8%* y/y, strong margins and operating cash flow up 36% y/y
•
Our portfolio is more strategic than ever to companies and countries that are digitizing everything….our conversations are no longer just in IT
•
Accelerating our innovation engine and portfolio transformation … momentum in 4 key areas: •
Defining the next-generation of networking, beginning with the data center with our ACI platform • Focused on driving growth in our Security business • Moving more of our portfolio to be delivered in both on-premise and cloud-based SaaS models • Using M&A to augment our internal innovation in key growth areas * Excludes the SP Video CPE Business for all periods.
Business Momentum & Key Trends
Financial Overview
Guidance
Q&A
Q2 FY’16 – Revenue Highlights Y/Y % Change
$M Switching
$3,483
(4%)
NGN Routing
1,845
5%
Collaboration
1,019
3%
Revenue % of Total (excluding SP Video CPE Business) 25%
Data Center
822
(3%)
Wireless
613
0%
1%
Service Provider Video*
569
37%
4%
Security
462
11%
77
31%
2,944
3%
11,834
2%
Other Products Service Total* SP Video CPE Business** Total Cisco
5% 16%
5% 7%
Switching NGN Routing Collaboration Data Center Wireless SP Video Security Other Service
9%
Percentages may not add up to 100% due to rounding
93 $11,927
29%
0%
* Excluding revenue from the SP Video CPE Business for all periods. ** Represents one month of revenue from the SP Video CPE Business which was divested during Q2 FY’16 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 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’16 Product Orders: Geographic Regions & Customer Segments (excludes SP Video CPE Business for all periods) Geographic Region Americas
Y/Y % Change 0%
Customer Segment Enterprise
Y/Y % Change (2%)
EMEA
(1%)
Public Sector
0%
APJC
17%
Commercial
4%
Total Cisco
2%
Service Provider
5%
Total Cisco
2%
Product Book to Bill
Approximately 1
Q2 FY’16 Non-GAAP Income Statement Details Q2 FY’16 Total Cisco $M (except per-share amounts and percentages)
Revenue
SP Video* CPE Business
Q2 FY’15 Excluding SP Video CPE Business
Total Cisco
SP Video CPE Business
Excluding SP Video CPE Business
Y/Y Change Excluding SP Video CPE Business
$11,927
$93
$11,834
$11,936
$361
$11,575
2%
63.8%
14.2%
64.2%
61.7%
18.2%
63.1%
1.1 pts
$3,913
$11
$3,902
$3,974
$35
$3,939
(1%)
32.8%
11.7%
33.0%
33.3%
9.7%
34.0%
-1.0 pts
Operating Income
$3,693
$2
$3,691
$3,394
$31
$3,363
10%
Operating Income (% of Revenue)
31.0%
2.5%
31.2%
28.4%
8.5%
29.1%
2.1 pts
$2,929
$2
$2,927
$2,745
$24
$2,721
8%
$0.57
—
$0.57
$0.53
—
$0.53
8%
Gross Margin Operating Expenses OPEX (% of Revenue)
Net Income EPS (diluted)
* SP Video CPE Business for Q2 FY’16 includes one month of operations as it was divested during the quarter on November 20, 2015.
Q2 FY’16 GAAP Income Statement Highlights $M (except per-share amounts and percentages)
Q2 FY’15
Q1 FY’16
Q2 FY’16
Revenue*
$11,936
$12,682
$11,927
Product Service
$9,078 $2,858
$9,844 $2,838
$8,983 $2,944
59.4%
61.8%
62.3%
58.1% 63.6%
60.9% 64.9%
61.3% 65.5%
Operating Expenses
$4,468
$4,753
$4,138
OPEX (% of Revenue)
37.4%
37.5%
34.7%
Operating Income (% of Revenue)
22.0%
24.3%
27.6%
$2,397
$2,430
$3,147
68%
33%
31%
$0.46
$0.48
$0.62
70%
37%
35%
Gross Margin Product Gross Margin Service Gross Margin
Net Income Year/Year Change EPS (diluted) Year/Year Change
*Includes SP Video CPE Business revenue for Q2 FY’15, Q1 FY’16 and Q2 FY’16 of $361M, $411M and $93M (one month of operations), respectively.
Capital Allocation Q2 FY’15
$M
Share Repurchases Dividends paid Total
Q3 FY’15
Share Repurchase Program
Q2 FY’16 Purchases
Q1 FY’16
Q2 FY’16
$1,208
$1,008
$1,005
$1,207
$1,262
974
1,070
1,069
1,068
1,065
$2,182
$2,078
$2,074
$2,275
$2,327
Q2 FY’15
Dividends per Share
Q4 FY’15
Q3 FY’15
$0.19
$0.21
Amount Purchased ($M)
$1,262
Q4 FY’15
Q1 FY’16
$0.21
$0.21
Number of Shares (M)
48
Q2 FY’16
$0.21
Avg. Price Per Share
$26.12
Declared a quarterly dividend of $0.26 per common share, a 24% or $0.05 increase over previous quarter’s dividend.
Announced a $15B increase to the authorization of the share repurchase program bringing the total remaining authorization under the program to approximately $16.9B.
Business Momentum & Key Trends
Financial Overview
Guidance
Q&A
Business Momentum & Key Trends
Financial Overview
Guidance
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 (such as the impact of the macro environment, our innovation strategy and execution, our ability to shift our business model to more software and recurring revenue, our ability to deliver profitable growth and strong cash generation, our business strength, financial guidance, and our capital allocation strategy) 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, including our foundational priorities, and in certain geographical locations; 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; 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; 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 19, 2015 and September 8, 2015, 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 23, 2016 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’16 guidance (excludes SP Video CPE Business for all periods)
$M (except percentages)
Q2 FY’16 Guidance
Revenue Year/Year Change Non-GAAP Gross Margin
Non-GAAP Earnings per Share*
Q2 FY’16 Actual
$11,834 0% - 2% growth
2%
62% - 63%
64.2%
$0.53 - $0.55
$0.57
* Does not change by either including or excluding the SP Video CPE Business which was divested during Q2 FY’16 on November 20, 2015.
Q2 FY’16 Non-GAAP Income Statement Highlights $M (except per-share amounts and percentages)
Revenue*
Q2 FY’15
Q1 FY’16
Q2 FY’16
$11,936
$12,682
$11,927
7%
4%
0%
$9,078 $2,858
$9,844 $2,838
$8,983 $2,944
61.7%
63.2%
63.8%
60.8% 64.8%
62.3% 66.2%
62.8% 66.7%
Operating Expenses
$3,974
$4,141
$3,913
OPEX (% of Revenue)
33.3%
32.7%
32.8%
Operating Income (% of Revenue)
28.4%
30.5%
31.0%
$2,745
$3,024
$2,929
9%
8%
7%
$0.53
$0.59
$0.57
13%
9%
8%
Year/Year Change Product Service Gross Margin
Product Gross Margin Service Gross Margin
Net Income Year/Year Change EPS (diluted) Year/Year Change
*Includes SP Video CPE Business revenue for Q2 FY’15, Q1 FY’16 and Q2 FY’16 of $361M, $411M and $93M (one month of operations), respectively.
Q2 FY’16 Key Financial Measures $M (except DSO, non-GAAP inventory turns and headcount)
Cash and Cash Equivalents and Investments
Q2 FY’15
Q1 FY’16
Q2 FY’16
$53,022
$59,107
$60,375
Operating Cash Flow
$2,883
$2,766
$3,922
Accounts Receivables
$4,541
$4,712
$4,302
35
34
33
$1,890
$1,482
$1,362
10.2
12.0
12.2
$4,257
$4,028
$3,435
$14,021
$15,162
$15,185
Product Deferred Revenue
$5,001
$5,473
$5,528
Service Deferred Revenue
$9,020
$9,689
$9,657
70,112
72,063
71,657
Days Sales Outstanding Inventory Non-GAAP Inventory Turns Purchase Commitments Deferred Revenue
Headcount
SP Video CPE Business Historical Financial Information*
$M (except per-share amounts)
Revenue
Q1 FY’15
Q2 FY’15
Q3 FY’15
Q4 FY’15
Q1 FY’16
Q2 FY’16**
$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
$0.01
—
$0.01
$0.01
—
—
EPS (diluted) * Stand-alone financial information is unaudited.
** Represents one month of results as the SP Video CPE Business was divested during Q2FY’16 on November 20, 2015.
Q2 FY’16 Geographic Revenue and Total Gross Margin Including SP Video CPE Business Revenue* $M (except percentages)
Americas
Q2 FY’15
Q1 FY’16
Total Gross Margin Percentage Q2 FY’16
Q2 FY’15
Q1 FY’16
Q2 FY’16
$7,101
$7,799
$6,912
62.0%
63.5%
63.8%
EMEA
3,091
3,087
3,088
61.8%
64.2%
64.9%
APJC
1,744
1,796
1,927
60.3%
60.0%
61.7%
$11,936
$12,682
$11,927
61.7%
63.2%
63.8%
Geographic Total
Excluding SP Video CPE Business Revenue $M (except percentages)
Americas
Q2 FY’15
Q1 FY’16
Total Gross Margin Percentage Q2 FY’16
Q2 FY’15
Q1 FY’16
Q2 FY’16
$6,808
$7,487
$6,846
63.7%
65.7%
64.3%
EMEA
3,040
3,002
3,065
63.0%
65.5%
65.4%
APJC
1,727
1,782
1,923
60.7%
60.5%
61.8%
$11,575
$12,271
$11,834
63.1%
64.9%
64.2%
Geographic Total
*Includes SP Video CPE Business revenue for Q2 FY’15, Q1 FY’16 and Q2 FY’16 of $361M, $411M and $93M (one month of operations), respectively.
