Cisco: Reports First Quarter Earnings

News Summary:
  • Broad-based acceleration in product orders reflecting normalizing demand
    • Product orders are up 20% year over year; up 9% year over year excluding Splunk
  • Revenue of $13.8 billion in Q1, at the high end of our guidance range
  • Strong profitability:
    • GAAP gross margin of 65.9% and non-GAAP gross margin of 69.3%, above our guidance range
    • GAAP EPS of $0.68 and non-GAAP EPS of $0.91, above our guidance range
  • Q1 FY 2025 Results:
    • Revenue: $13.8 billion
      • Decrease of 6% year over year
    • Earnings per Share: GAAP: $0.68; Non-GAAP: $0.91
      • GAAP EPS decreased 24% year over year
      • Non-GAAP EPS decreased 18% year over year
  • Q2 FY 2025 Guidance:   
    • Revenue: $13.75 billion to $13.95 billion
    • Earnings per Share: GAAP: $0.51 to $0.56; Non-GAAP: $0.89 to $0.91
  • FY 2025 Guidance:
    • Revenue: $55.3 billion to $56.3 billion
    • Earnings per Share: GAAP: $2.26 to $2.38; Non-GAAP: $3.60 to $3.66
Cisco today reported first quarter results for the period ended October 26, 2024. Cisco reported first-quarter revenue of $13.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.7 billion or $0.68 per share, and non-GAAP net income of $3.7 billion or $0.91 per share.
"Cisco is off to a strong start to fiscal 2025," said Chuck Robbins, chair and CEO of Cisco. "Our customers are investing in critical infrastructure to prepare for AI, and with the breadth of our portfolio, we are uniquely positioned to capitalize on this opportunity."
"Revenue, gross margin and EPS in Q1 were at the high end or above our guidance range, generating strong operating leverage," said Scott Herren, CFO of Cisco. "We are focused on solid execution and operating discipline while making strategic investments to drive innovation and growth."
GAAP Results
    Q1 FY 2025   Q1 FY 2024   Vs. Q1 FY 2024
Revenue   $              13.8 billion   $              14.7 billion   (6) %
Net Income   $               2.7  billion   $               3.6  billion   (25) %
Diluted Earnings per Share (EPS)   $                     0.68   $                     0.89   (24) %
Q1 FY 2025 GAAP results include a tax benefit of $720 million due to a recent U.S. Tax Court decision regarding the U.S. taxation of deemed foreign dividends in the transition year of the Tax Cuts and Jobs Act.
Non-GAAP Results
    Q1 FY 2025   Q1 FY 2024   Vs. Q1 FY 2024
Net Income   $               3.7   billion   $               4.5   billion   (19) %
EPS   $                      0.91   $                      1.11  
Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."
Cisco Declares Quarterly Dividend
Cisco has declared a quarterly dividend of $0.40 per common share to be paid on January 22, 2025, to all stockholders of record as of the close of business on January 3, 2025. Future dividends will be subject to Board approval.
Financial Summary
All comparative percentages are on a year-over-year basis unless otherwise noted.
Q1 FY 2025 Highlights
Revenue -- Total revenue was $13.8 billion, down 6%, with product revenue down 9% and services revenue up 6%. Excluding the contribution from Splunk, total revenue was down 14%.
Revenue by geographic segment was: Americas down 9%, EMEA down 2%, and APJC up 1%. Product revenue performance reflected growth in Security up 100% and Observability up 36%. Networking was down 23% and Collaboration was down 3%. Excluding Splunk, Security and Observability grew 2% and 1%, respectively, in the first quarter of fiscal 2025.
Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and services gross margin were 65.9%, 65.1%, and 68.0%, respectively, as compared with 65.2%, 64.5%, and 67.3%, in the first quarter of fiscal 2024.
On a non-GAAP basis, total gross margin, product gross margin, and services gross margin were 69.3%, 68.9%, and 70.3%, respectively, as compared with 67.1%, 66.5%, and 69.0%, in the first quarter of fiscal 2024.
Total gross margins by geographic segment were: 69.6% for the Americas, 70.3% for EMEA and 66.4% for APJC.
Operating Expenses --  On a GAAP basis, operating expenses were $6.8 billion, up 28%, and were 48.9% of revenue. Non-GAAP operating expenses were $4.9 billion, up 9%, and were 35.2% of revenue.
Operating Income -- GAAP operating income was $2.4 billion, down 45%, with a GAAP operating margin of 17.0%. Non-GAAP operating income was $4.7 billion, down 12%, with a non-GAAP operating margin of 34.1%.
Provision for (benefit from) Income Taxes -- The GAAP tax provision rate was a benefit of 19.6%, which includes the $720 million benefit on deemed foreign dividends as discussed above. The non-GAAP tax provision rate was 19.0%.
Net Income and EPS -- On a GAAP basis, net income was $2.7 billion, a decrease of 25%, and EPS was $0.68, a decrease of 24%. On a non-GAAP basis, net income was $3.7 billion, a decrease of 19%, and EPS was $0.91, a decrease of 18%.
Cash Flow from Operating Activities -- $3.7 billion for the first quarter of fiscal 2025, an increase of 54%, compared with $2.4 billion for the first quarter of fiscal 2024.
Balance Sheet and Other Financial Highlights
Cash and Cash Equivalents and Investments -- $18.7 billion at the end of the first quarter of fiscal 2025, compared with $17.9 billion at the end of fiscal 2024.
Remaining Performance Obligations (RPO) -- $40.0 billion, up 15% in total, with 51% of this amount to be recognized as revenue over the next 12 months. Product RPO was up 24% and services RPO were up 7%.
Deferred Revenue -- $27.5 billion, up 7% in total, with deferred product revenue up 11%. Deferred services revenue was up 4%.
Capital Allocation -- In the first quarter of fiscal 2025, we returned $3.6 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.40 per common share, or $1.6 billion, and repurchased approximately 40 million shares of common stock under our stock repurchase program at an average price of $49.56 per share for an aggregate purchase price of $2.0 billion. The remaining authorized amount for stock repurchases under the program is $3.2 billion with no termination date.
Acquisitions
In the first quarter of fiscal 2025, we closed the following acquisitions:
  • DeepFactor, Inc., a privately held cloud-native application security company
  • Robust Intelligence, Inc., a privately held AI security solutions company
Guidance
Cisco estimates the following results for the second quarter of fiscal 2025:
Q2 FY 2025    
Revenue   $13.75 billion - $13.95 billion
Non-GAAP gross margin   68% – 69%
Non-GAAP operating margin   33.5% – 34.5%
Non-GAAP EPS   $0.89 – $0.91
Cisco estimates that GAAP EPS will be $0.51 to $0.56 for the second quarter of fiscal 2025.
Cisco estimates the following results for fiscal 2025:
FY 2025    
Revenue   $55.3 billion - $56.3 billion
Non-GAAP EPS   $3.60 – $3.66
Cisco estimates that GAAP EPS will be $2.26 to $2.38 for fiscal 2025.
Our Q2 FY 2025 guidance assumes an effective tax provision rate of approximately 17% for GAAP and approximately 19% for non-GAAP results. Our FY 2025 guidance assumes an effective tax provision rate of approximately 9% for GAAP and approximately 19% for non-GAAP results.
A reconciliation between the guidance on a GAAP and non-GAAP basis is provided in the tables entitled "GAAP to non-GAAP Guidance" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."
For the full document click the link below:
Cisco Systems
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