SAN JOSE, Calif., May 15, 2024 /PRNewswire/ -- News Summary: $12.7 billion in revenue, down 13% year over year, in line with expectations and reflects our customers' continued implementation of products on-hand Strong profitability with GAAP gross margin of 65.1% and non-GAAP gross margin of 68.3% Transformed business model, further enhanced by the Splunk acquisition: Total subscription revenue of $6.9 billion including Splunk, representing 54% of total revenue Total annualized recurring revenue (ARR) at $29.2 billion including $4.2 billion from Splunk, up 22% year over year, and product ARR at $15.5 billion, up 44% year over year Gary Steele, former Splunk CEO, named president of Go-to-Market, effective immediately Q3 FY 2024 Results: Revenue: $12.7 billion Decrease of 13% year over year Splunk contributed $413 million in revenue Earnings per Share: GAAP: $0.46; Non-GAAP: $0.88 GAAP EPS decreased 41% year over year, which includes a negative $0.09 impact from the Splunk acquisition Non-GAAP EPS decreased 12% year over year, which includes a negative $0.01 impact from the Splunk acquisition Q4 FY 2024 Guidance:   Revenue: $13.4 billion to $13.6 billion Earnings per Share: GAAP: $0.46 to $0.51; Non-GAAP: $0.84 to $0.86 FY 2024 Guidance: Revenue: $53.6 billion to $53.8 billion Earnings per Share: GAAP: $2.46 to $2.51; Non-GAAP: $3.69 to $3.71 Cisco today reported third quarter results for the period ended April 27, 2024. Cisco reported third quarter revenue of $12.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.46 per share, and non-GAAP net income of $3.6 billion or $0.88 per share. "We delivered a solid Q3 performance in what remains a dynamic environment" said Chuck Robbins, chair and CEO of Cisco. "Our unique ability to bring together networking, security, observability, and data enables Cisco to offer our customers unrivaled digital resilience for the AI era." "Revenue, gross margin and non-GAAP EPS in Q3 were at the high end or above our guidance range, both including and excluding Splunk, resulting in continued operating leverage," said Scott Herren, CFO of Cisco. "Customers are consuming the equipment shipped over the last few quarters in line with our expectations and we are seeing stabilization of demand as a result. The addition of Splunk to our product line will be a catalyst for further growth."  Gary Steele Named President of Go-to-Market Cisco has named Gary Steele as President of Go-to-Market, effective immediately. Steele is well known for his operational excellence, and in this new role, he will work closely with Robbins to set and execute against Cisco's strategic plans and goals. He will continue to lead the Splunk team through the integration process to ensure a seamless integration into Cisco.  Cisco also announced that Jeff Sharritts, Cisco's Chief Customer and Partner Officer, will depart Cisco after a successful 24-year career at the company. Sharritts will remain with Cisco until mid-July to ensure a seamless transition. GAAP Results Q3 FY 2024 Q3 FY 2023 Vs. Q3 FY 2023 Revenue $              12.7 billion $              14.6 billion (13) % Net Income $               1.9  billion $               3.2  billion (41) % Diluted Earnings per Share (EPS) $                     0.46 $                     0.78 (41) % The acquisition of Splunk, including financing costs, had a negative impact of $0.09 to GAAP EPS, for the third quarter of fiscal 2024. Non-GAAP Results Q3 FY 2024 Q3 FY 2023 Vs. Q3 FY 2023 Net Income $               3.6   billion $               4.1   billion (14) % EPS $                      0.88 $                      1.00 (12) % The acquisition of Splunk, including financing costs, had a negative impact of $0.01 to Non-GAAP EPS, for the third quarter of fiscal 2024. 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 July 24, 2024, to all stockholders of record as of the close of business on July 5, 2024. Future dividends will be subject to Board approval. Financial Summary All comparative percentages are on a year-over-year basis unless otherwise noted. Q3 FY 2024 Highlights Revenue -- Total revenue was $12.7 billion, down 13%, with product revenue down 19% and service revenue up 6%. Cisco completed the acquisition of Splunk Inc. ("Splunk") in the third quarter of fiscal 2024. Splunk contributed $413 million of total revenue for the third quarter of fiscal 2024. Revenue by geographic segment was: Americas down 15%, EMEA down 9%, and APJC down 12%. Product revenue performance reflected growth in Security up 36% and Observability up 27%. Networking was down 27%. Product revenue in Collaboration was flat. Security and Observability, excluding Splunk, grew 3% and 14%, respectively, in the third quarter of fiscal 2024. Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 65.1%, 63.5%, and 69.2%, respectively, as compared with 63.4%, 62.7%, and 65.4%, respectively, in the third quarter of fiscal 2023. On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 68.3%, 66.9%, and 71.6%, respectively, as compared with 65.2%, 64.5%, and 67.3%, respectively, in the third quarter of fiscal 2023. Total gross margins by geographic segment were: 67.9% for the Americas, 69.6% for EMEA and 67.4% for APJC. Operating Expenses -- On a GAAP basis, operating expenses were $6.1 billion, up 15%, and were 47.9% of revenue. Non-GAAP operating expenses were $4.3 billion, down 5%, and were 34.0% of revenue. Operating Income -- GAAP operating income was $2.2 billion, down 44%, with GAAP operating margin of 17.2%. Non-GAAP operating income was $4.3 billion, down 12%, with non-GAAP operating margin at 34.2%. Provision for Income Taxes -- The GAAP tax provision rate was 15.6%. The non-GAAP tax provision rate was 19.0%. Net Income and EPS -- On a GAAP basis, net income was $1.9 billion and EPS was $0.46, each a decrease of 41%. On a non-GAAP basis, net income was $3.6 billion, a decrease of 14%, and EPS was $0.88, a decrease of 12%. Cash Flow from Operating Activities -- $4.0 billion for the third quarter of fiscal 2024, a decrease of 24%, compared with $5.2 billion for the third quarter of fiscal 2023. Balance Sheet and Other Financial Highlights Cash and Cash Equivalents and Investments -- $18.8 billion at the end of the third quarter of fiscal 2024, compared with $26.1 billion at the end of fiscal 2023. Remaining Performance Obligations (RPO) -- $38.8 billion, up 21% in total, with 52% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 29% and service RPO were up 14%. Deferred Revenue -- $27.5 billion, up 13% in total, with deferred product revenue up 18%. Deferred service revenue was up 9%. Capital Allocation -- In the third quarter of fiscal 2024, we returned $2.9 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 26 million shares of common stock under our stock repurchase program at an average price of $49.22 per share for an aggregate purchase price of $1.3 billion. The remaining authorized amount for stock repurchases under the program is $7.2 billion with no termination date. Acquisitions In the third quarter of fiscal 2024, we closed the following acquisitions: Splunk Inc., a public cybersecurity and observability company Isovalent, Inc., a privately held cloud native solutions company Guidance Cisco estimates the following results for the fourth quarter of fiscal 2024: Q4 FY 2024 Revenue $13.4 billion - $13.6 billion Non-GAAP gross margin rate 66.5% – 67.5% Non-GAAP operating margin rate 31.5% – 32.5% Non-GAAP EPS $0.84 – $0.86 Our Q4 FY 2024 guidance includes $950 million to $1 billion in revenue from Splunk and a negative impact to non-GAAP EPS of approximately ($0.03) as the interest impact from financing the acquisition more than offsets the operating benefit. Cisco estimates that GAAP EPS will be $0.46 to $0.51 for the fourth quarter of fiscal 2024. Cisco estimates the following results for fiscal 2024: FY 2024 Revenue $53.6 billion - $53.8 billion Non-GAAP EPS $3.69 – $3.71 Cisco estimates that GAAP EPS will be $2.46 to $2.51 for fiscal 2024. Our Q4 FY 2024 guidance assumes an effective tax provision rate of approximately 18% for GAAP and non-GAAP results. Our FY 2024 guidance assumes an effective tax provision rate of approximately 17% 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." Editor's Notes: Q3 fiscal year 2024 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, May 15, 2024 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international). Conference call replay will be available from 4:00 p.m. Pacific Time, May 15, 2024 to 4:00 p.m. Pacific Time, May 21, 2024 at 1-800-391-9851 (United States) or 1-203-369-3268 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com. Additional information regarding Cisco's financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 15, 2024. Text of the conference call's prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.   CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per-share amounts) (Unaudited)  Three Months Ended Nine Months Ended April 27, 2024 April 29, 2023 April 27, 2024 April 29, 2023 REVENUE: Product $         9,024 $       11,092 $       29,395 $       31,492 Service 3,678 3,479 10,766 10,303 Total revenue 12,702 14,571 40,161 41,795 COST OF SALES: Product 3,295 4,136 10,695 12,353 Service 1,134 1,203 3,419 3,437 Total cost of sales 4,429 5,339 14,114 15,790 GROSS MARGIN 8,273 9,232 26,047 26,005 OPERATING EXPENSES: Research and development 1,948 1,962 5,804 5,598 Sales and marketing 2,559 2,526 7,523 7,301 General and administrative 736 641 2,050 1,788 Amortization of purchased intangible assets 297 70 430 212 Restructuring and other charges 542 87 677 328 Total operating expenses 6,082 5,286 16,484 15,227 OPERATING INCOME 2,191 3,946 9,563 10,778 Interest income 411 262 1,095 650 Interest expense (357) (109) (588) (316) Other income (loss), net (10) (142) (232) (265) Interest and other income (loss), net 44 11 275 69 INCOME BEFORE PROVISION FOR INCOME TAXES 2,235 3,957 9,838 10,847 Provision for income taxes 349 745 1,680 2,192 NET INCOME $         1,886 $         3,212 $         8,158 $         8,655 Net income per share: Basic $           0.47 $           0.79 $           2.01 $           2.11 Diluted $           0.46 $           0.78 $           2.00 $           2.11 Shares used in per-share calculation: Basic 4,042 4,089 4,051 4,100 Diluted 4,060 4,110 4,071 4,111   CISCO SYSTEMS, INC. REVENUE BY SEGMENT (In millions, except percentages) April 27, 2024 Three Months Ended Nine Months Ended Amount Y/Y % Amount Y/Y % Revenue: Americas $         7,372 (15) % $       23,904 (2) % EMEA 3,458 (9) % 10,606 (5) % APJC 1,873 (12) % 5,652 (9) % Total $       12,702 (13) % $       40,161 (4) % Amounts may not sum and percentages may not recalculate due to rounding.   CISCO SYSTEMS, INC. GROSS MARGIN PERCENTAGE BY SEGMENT (In percentages) April 27, 2024 Three Months Ended Nine Months Ended Gross Margin Percentage: Americas 67.9 % 66.5 % EMEA 69.6 % 69.1 % APJC 67.4 % 67.5 %   CISCO SYSTEMS, INC. REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES (In millions, except percentages) April 27, 2024 Three Months Ended Nine Months Ended Amount Y/Y % Amount Y/Y % Revenue: Networking $         6,522 (27) % $       22,425 (11) % Security 1,304 36 % 3,288 14 % Collaboration 987 — % 3,093 2 % Observability 211 27 % 589 21 % Total Product 9,024 (19) % 29,395 (7) % Services 3,678 6 % 10,766 5 % Total $       12,702 (13) % $       40,161 (4) % Security and Observability, excluding Splunk, grew 3% and 14%, respectively, in the third quarter of fiscal 2024, and 3% and 17%, respectively, for the first nine months of fiscal 2024. Amounts may not sum and percentages may not recalculate due to rounding.   CISCO SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited) April 27, 2024 July 29, 2023 ASSETS Current assets: Cash and cash equivalents $                8,913 $              10,123 Investments 9,857 16,023 Accounts receivable, net of allowance of $81 at April 27, 2024 and $85 at July 29, 2023 5,127 5,854 Inventories 3,118 3,644 Financing receivables, net 3,443 3,352 Other current assets 5,428 4,352 Total current assets 35,886 43,348 Property and equipment, net 2,000 2,085 Financing receivables, net 3,251 3,483 Goodwill 58,633 38,535 Purchased intangible assets, net 11,819 1,818 Deferred tax assets 5,527 6,576 Other assets 5,882 6,007 TOTAL ASSETS $            122,998 $            101,852 LIABILITIES AND EQUITY Current liabilities: Short-term debt $              11,891 $                1,733 Accounts payable