Q3 Fiscal Year 2016 Conference Call. May 18, 2016

Transcription

1 Q3 Fiscal Year 2016 Conference Call May 18, 2016

2 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 under Financial Info in the Investor Relations section. 2

3 Business Momentum & Key Trends Financial Overview Guidance Q&A 3

4 Q3 FY 16 Highlights Delivered strong Q3 results in an uncertain macro environment Executed well revenue growth of 3%*y/y and non-gaap EPS growth of 6%* y/y Generated strong operating cash flow of >$3B, returned nearly $2B to shareholders Momentum in 4 key areas: Security.revenue up 17% y/y, deferred revenue up 31% y/y Collaboration revenue up 10% y/y, deferred revenue up 16% y/y Leadership position extended in Next Generation Data Center Transitioning more of our revenue to recurring software and subscription revenue grew in double digits Have begun to scale enterprise networking into a subscription model * Year over year growth normalized to exclude the SP Video CPE Business for Q3 FY 15, which was divested during Q2 FY 16 on November 20,

5 Business Momentum & Key Trends Financial Overview Guidance Q&A 5

6 Q3 FY 16 Revenue Highlights $M Y/Y % Change* Switching $3,447 (3%) NGN Routing 1,894 (5%) Collaboration 1,069 10% Data Center 811 1% Wireless 615 1% Security % Service Provider Video % Other Products 89 62% Service 3,125 11% Total Cisco $12,000 3% Revenue % of Total 26% Switching 29% NGN Routing Collaboration Data Center 1% Wireless 4% SP Video 4% Security 5% 16% Other Service 7% 9% Percentages may not sum to 100% due to rounding * Year over year growth normalized to exclude the SP Video CPE Business for Q3 FY 15, which was divested during Q2 FY 16 on November 20, SP Video CPE Business revenue was $519M for Q3 FY 15. 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 under Financial Info in the Investor Relations section. 6

7 Q3 FY 16 Product Orders: Geographic Regions & Customer Segments Geographic Region Y/Y % Change* Americas 4% EMEA 2% APJC 1% Total Cisco 3% Customer Segment Y/Y % Change* Enterprise (2%) Public Sector 6% Commercial 8% Service Provider 0% Total Cisco 3% Product Book to Bill Comfortably above 1 * Year over year growth is normalized to exclude the SP Video CPE Business for Q3 FY 15, which was divested during Q2 FY 16 on November 20,

8 Q3 FY 16 Non-GAAP Income Statement Details $M (except per-share amounts and percentages) Q3 FY 16 Q3 FY 15 Y/Y Change Total Cisco Total Cisco SP Video CPE Business Excluding SP Video CPE Business Excluding SP Video CPE Business Revenue $12,000 $12,137 $519 $11,618 3% Gross Margin 65.2% 62.5% 16.1% 64.6% 0.6 pts Operating Expenses $4,226 $4,116 $37 $4,079 4% OPEX (% of Revenue) 35.2% 33.9% 7.1% 35.1% 0.1 pts Operating Income $3,594 $3,473 $47 $3,426 5% Operating Income (% of Revenue) 30.0% 28.6% 9.0% 29.5% 0.5 pts Net Income $2,880 $2,795 $36 $2,759 4% EPS (diluted)* $0.57 $0.54 $0.01 $0.54 6% * Amounts may not sum due to rounding. 8

9 Q3 FY 16 GAAP Income Statement Highlights $M (except per-share amounts and percentages) Q3 FY 15 Q2 FY 16 Q3 FY 16 Revenue* $12,137 $11,927 $12,000 Product Service $9,326 $2,811 $8,983 $2,944 $8,875 $3,125 Gross Margin 62.0% 62.3% 64.3% Product Gross Margin Service Gross Margin 61.6% 63.4% 61.3% 65.5% 63.8% 65.9% Operating Expenses $4,600 $4,138 $4,737 OPEX (% of Revenue) 37.9% 34.7% 39.5% Operating Income (% of Revenue) 24.1% 27.6% 24.9% Net Income $2,437 $3,147 $2,349 Year/Year Change 12% 31% (4%) EPS (diluted) $0.47 $0.62 $0.46 Year/Year Change 12% 35% (2%) *Includes SP Video CPE Business revenue for Q3 FY 15 and Q2 FY 16 of $519M and $93M (one month of operations), respectively. The SP Video CPE Business was divested during Q2 FY 16 on November 20,

10 Capital Allocation $M Q3 FY 15 Q4 FY 15 Q1 FY 16 Q2 FY 16 Q3 FY 16 Share Repurchases $1,008 $1,005 $1,207 $1,262 $649 Dividends Paid 1,070 1,069 1,068 1,065 1,308 Total $2,078 $2,074 $2,275 $2,327 $1,957 Q3 FY 15 Q4 FY 15 Q1 FY 16 Q2 FY 16 Q3 FY 16 Dividends per Share $0.21 $0.21 $0.21 $0.21 $0.26 Share Repurchase Program* Amount Purchased ($M) Number of Shares (M) Avg. Price Per Share Q3 FY 16 Purchases $ $24.08 *Approximately $16.2B remaining authorized funds in repurchase program as of the end of Q3 FY

11 Business Momentum & Key Trends Financial Overview Guidance Q&A 11

12 Q&A 12

13 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 These forward-looking statements include, among other things, statements regarding future (such as the impact of the challenging macro environment, our ability to transition our business model to software and recurring revenues across our entire portfolio, our ability to deliver profitable growth and maintain strong margins, and our financial guidance) 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; 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 February 18, 2016 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 nine months ended April 30, 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. 13

14 Supplemental Materials 14

15 Q3 FY 16 Non-GAAP Income Statement Highlights $M (except per-share amounts and percentages) Q3 FY 15 Q2 FY 16 Q3 FY 16 Revenue* $12,137 $11,927 $12,000 Year/Year Change Product Service 5% $9,326 $2,811 0% $8,983 $2,944 (1%) $8,875 $3,125 Gross Margin 62.5% 63.8% 65.2% Product Gross Margin Service Gross Margin 61.8% 65.0% 62.8% 66.7% 64.5% 67.1% Operating Expenses $4,116 $3,913 $4,226 OPEX (% of Revenue) 33.9% 32.8% 35.2% Operating Income (% of Revenue) 28.6% 31.0% 30.0% Net Income $2,795 $2,929 $2,880 Year/Year Change 6% 7% 3% EPS (diluted) $0.54 $0.57 $0.57 Year/Year Change 6% 8% 6% *Includes SP Video CPE Business revenue for Q3 FY 15 and Q2 FY 16 of $519M and $93M (one month of operations), respectively. The SP Video CPE Business was divested during Q2 FY 16 on November 20,

16 Q3 FY 16 Key Financial Measures $M (except DSO, non-gaap inventory turns and headcount) Q3 FY 15 Q2 FY 16 Q3 FY 16 Cash and Cash Equivalents and Investments $54,419 $60,375 $63,512 Operating Cash Flow $3,040 $3,922 $3,064 Accounts Receivable $4,889 $4,302 $4,047 Days Sales Outstanding Inventory $1,760 $1,362 $1,343 Non-GAAP Inventory Turns Purchase Commitments $4,495 $3,435 $3,794 Deferred Revenue $14,181 $15,185 $15,272 Product Deferred Revenue $4,945 $5,528 $5,406 Service Deferred Revenue $9,236 $9,657 $9,866 Headcount 70,951 71,657 73,104 16

17 SP Video CPE Business Historical Financial Information* $M (except per-share amounts) Q1 FY 15 Q2 FY 15 Q3 FY 15 Q4 FY 15 Q1 FY 16 Q2 FY 16** 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 Q2FY 16 on November 20,

18 Q3 FY 16 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) Q3 FY 15 Q2 FY 16 Q3 FY 16 Q3 FY 15 Q2 FY 16 Q3 FY 16 Americas $7,252 $6,912 $7, % 63.8% 66.3% EMEA 3,119 3,088 3, % 64.9% 65.5% APJC 1,766 1,927 1, % 61.7% 60.4% Geographic Total $12,137 $11,927 $12, % 63.8% 65.2% Total Gross Margin Percentage $M (except percentages) Q3 FY 15 Q2 FY 16 Q3 FY 16 Q3 FY 15 Q2 FY 16 Q3 FY 16 Americas $6,814 $6,846 $7, % 64.3% 66.3% EMEA 3,050 3,065 3, % 65.4% 65.5% APJC 1,754 1,923 1, % 61.8% 60.4% Geographic Total $11,618 $11,834 $12, % 64.2% 65.2% *Includes SP Video CPE Business revenue for Q3 FY 15 and Q2 FY 16 of $519M and $93M (one month of operations), respectively. The SP Video CPE Business was divested during Q2 FY 16 on November 20,