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February 11, 2015
Q2 Fiscal Year 2015 Conference Call
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 forward-looking 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 “About Cisco” in the “Investor Relations” section. http://investor.cisco.com/investor-relations/financial-information/quarterly-reports/default.aspx
Business Momentum & Key Trends
Financial Overview
Guidance
Summary and Q&A
• We are executing well and growing at a healthy pace in a tough environment
• Grew revenues this quarter to $11.9B, up 7% y/y
• Generated $2.9B in operating cash flow
• Returned close to $2.2B to shareholders through share repurchases and dividends
• Delivered non-GAAP earnings per share of $0.53, up 13% y/y
• Strong total non-GAAP gross margin of 61.7%
• Changes enabled us to drive…with innovation, speed, agility and efficiencies
• Best balanced growth in 12 quarters…across geographies, products and customer segments
• Continue to deliver value for our shareholders…including another $.02 dividend increase to $0.21 per share
Q2 FY’15 Highlights
Q2 FY’15 Product Orders: Geographic Regions & Customer Segments
Geographic Region Y/Y % Change
Americas 8%
EMEA 7%
APJC (6%)
Total Cisco 5%
Product Book to Bill Greater than 1
Customer Segment Y/Y % Change
Enterprise 10%
Public Sector 7%
Commercial 8%
Service Provider (1%)
Total Cisco 5%
• Geographies (in terms of product orders)
• Americas was up 8% y/y
• US grew 7% y/y…compared with 3% y/y in Q1
• Latin America returned to double digit growth up 12% y/y
• EMEA up 7% y/y
• UK up 17% y/y, Germany up 12% y/y and Southern Europe up 20% y/y
• Emerging countries
• Mexico up 21% y/y
• India grew 11% y/y
• Customer Segments (in terms of product orders)
• U.S. Commercial grew 12% y/y
• Total global Enterprise grew 10% y/y….28 largest enterprise accounts grew above 30% y/y
• U.S. Public Sector grew at 17% y/y…U.S. Federal up 23% y/y and state and local up 8% y/y
Q2 FY’15 Areas of Strength
$M
Y/Y %
Change
Switching $3,616 11%
NGN Routing 1,764 2%
Collaboration 990 10%
Data Center 846 40%
Service Provider Video 776 (19%)
Wireless 611 18%
Security 416 6%
Other Products 59 (8%)
Service 2,858 5%
Total Cisco $11,936 7%
Q2 FY’15 – Revenue Highlights
Certain reclassifications have been made to the amounts for prior years in order to conform to the current year’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.
30%
15%
8% 7%
7%
5%
3%
24% Switching
NGN Routing
Collaboration
Data Center
SP Video
Wireless
Security
Other
Service
Revenue % of Total
Percentages may not add up to 100% due to rounding
• Products (in terms of revenue)
• Switching up 11% y/y…strong performance in both data center switching and campus switching
• Nexus 3K and 9K grew 350% y/y
• Nexus 9K passed 1 million installed ports mark
• Approximately 1,700 Nexus 9K and ACI customers…from 970 in Q1
• Impressive Data Center growth up 40% y/y
• UCS reached over $3B revenue run rate…over 41,000 customers incl. 85% of Fortune 500
• Routing…strong performance in high end routing up 5% y/y
• Wireless grew 18% y/y…Meraki’s cloud networking business up 100% y/y
• Collaboration grew 10% y/y…deferred Collaboration revenue up 26% y/y
• Services (in terms of revenue)
• Grew 5% y/y… portfolio in cloud, security, consulting and analytics all grew in double digits
Q2 FY’15 Areas of Strength
Business Momentum & Key Trends
Financial Overview
Guidance
Summary and Q&A
Q2 FY’15 non-GAAP Income Statement Highlights
$M (except per-share amounts and percentages) Q2 FY’14 Q1 FY’15 Q2 FY’15
Revenue $11,155 $12,245 $11,936
Year/Year Change
Product
Service
(8%)
8,423
2,732
1%
9,435
2,810
7%
9,078
2,858
Gross Margin 61.3% 63.3% 61.7%
Product Gross Margin
Service Gross Margin
58.8%
69.2%
62.5%
66.0%
60.8%
64.8%
Operating Expenses 3,737 4,176 3,974
OPEX (% of Revenue) 33.5% 34.1% 33.3%
Operating Income (% of Revenue) 27.8% 29.2% 28.4%
Net Income $2,521 $2,802 $2,745
Year/Year Change (7%) (2%) 9%
EPS (diluted) $0.47 $0.54 $0.53
Year/Year Change (8%) 2% 13%
Q2 FY’15 GAAP Income Statement Highlights
$M (except per-share amounts and percentages) Q2 FY’14 Q1 FY’15 Q2 FY’15
Revenue $11,155 $12,245 $11,936
Product
Service
8,423
2,732
9,435
2,810
9,078
2,858
Gross Margin 53.3% 59.9% 59.4%
Product Gross Margin
Service Gross Margin
48.7%
67.8%
58.5%
64.7%
58.1%
63.6%
Operating Expenses 4,284 4,991 4,468
OPEX (% of Revenue) 38.4% 40.8% 37.4%
Operating Income (% of Revenue) 14.9% 19.1% 22.0%
Net Income $1,429* $1,828 $2,397
Year/Year Change (55%) (8%) 68%
EPS (diluted) $0.27* $0.35 $0.46
Year/Year Change (54%) (5%) 70%
*Includes a pre-tax charge of $655 million related to the expected cost of remediation of issues with memory components in certain products sold in prior fiscal years.
Revenue Gross Margin Percentage
$M (except percentages)
Q2
FY’14
Q1
FY’15
Q2
FY’15
Q2
FY’14
Q1
FY’15
Q2
FY’15
Americas $6,460 $7,501 $7,101 61.6% 64.1% 62.0%
EMEA 2,896 3,002 3,091 64.6% 63.8% 61.8%
APJC 1,799 1,742 1,744 55.2% 58.8% 60.3%
Geographic Total $11,155 $12,245 $11,936 61.3% 63.3% 61.7%
Q2 FY’15 Geographic Revenue and Gross Margin
Historical product revenue is available on our website at http://investor.cisco.com under “Financial Info” in the “Investor Relations” section.
Capital Allocation
Q2 FY’14 Q3 FY’14 Q4 FY’14 Q1 FY’15 Q2 FY’15
Share Repurchases ($M) $4,020 $2,005 $1,514 $1,013 $1,208
Dividends paid ($M) $896 $974 $974 $973 $974
Total ($M) $4,916 $2,979 $2,488 $1,986 $2,182
Share Repurchase Program*
Amount Purchased
($M)
Number of Shares
(M)
Avg. Price Per
Share
Q2 FY’15 Purchases $1,208 44 $27.63
Q2 FY’14 Q3 FY’14 Q4 FY’14 Q1 FY’15 Q2 FY’15
Dividends per Share $0.17 $0.19 $0.19 $0.19 $0.19
*Approximately $6.3B remaining authorized funds in repurchase program as of the end of Q2 FY’15.
Q2 FY’15 Key Financial Measures
Q2 FY’14 Q1 FY’15 Q2 FY’15
Cash and Cash Equivalents and
Investments ($M) $47,065 $52,107 $53,022
Operating Cash Flow ($M) $2,873 $2,491 $2,883
Accounts Receivables ($M) $4,378 $4,375 $4,541
Days Sales Outstanding 36 33 35
Inventory ($M) $1,548 $1,676 $1,890
Non-GAAP Inventory Turns 11.5 11.0 10.2
Purchase Commitments ($M) $3,946 $4,299 $4,257
Deferred Revenue ($M) $13,244 $13,744 $14,021
Product Deferred Revenue ($M) $4,401 $4,715 $5,001
Service Deferred Revenue ($M) $8,843 $9,029 $9,020
Headcount 74,065 72,247 70,112
Business Momentum & Key Trends
Financial Overview
Guidance
Summary and 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 goal to become the #1 IT company; our leadership position in and ability to continue to grow in key technology transitions of cloud, mobility, big data, security, collaboration, and the Internet of Everything; the ability of our architectures and solutions to drive positive outcomes and enable productivity in our customers' businesses; continued success of our transformation strategy and our focus on growing market share; and our ability to deliver value to shareholders through our capital allocation strategy and our continued investment in long-term growth opportunities) 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 20, 2014 and September 9, 2014, 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 24, 2015 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
Q2 FY’15 GAAP to non-GAAP Reconciliation (Operating Income)
$M (except percentage) Q2 FY’15
GAAP Operating Income $2,622
Share-based compensation expense
Amortization of acquisition-related intangible assets
Acquisition-related costs
Restructuring and other charges
306
305
92
69
Total adjustments to GAAP operating income $772
Non-GAAP Operating Income
% of Revenue
$3,394
28.4%
