Cisco's Q4 FY24 Quarterly Summary

Cisco Systems Inc. announced its fourth-quarter and fiscal year 2024 financial results this Wednesday, delivering mixed performance largely driven by different strategic moves, such as the acquisition of Splunk. The financial highlights and challenges the company faced reflect wider trends in the technology sector, especially in the networking, security, and software markets. Below is an in-depth analysis of the performance for Q4 FY24.

Revenue and Earnings Summary

Quarterly Performance Q4 FY24:

• Total revenue came in at $13.6 billion for the quarter ended in Q4 FY24, down 10% YoY. Primarily affected by a drop of 15% in product revenues.
• The organization registered GAAP net income of $2.2 billion for the quarter, a reduction of 45% year over year. There was also a decline in non-GAAP net income, which stood at $3.5 billion, falling 25% from Q4 FY23.
• GAAP earnings per share amounted to $0.54, falling 44% year over year, while non-GAAP EPS declined by 24% to $0.87.

Performance for Fiscal Year 2024 (FY24)

• Cisco's total revenue in FY24 was $53.8 billion, a decrease of 6% from FY23. This Is an indication of the larger malaise that's affecting the networking segment, even as some other businesses have been in a state of growth.
• GAAP net income for the fiscal year was $10.3 billion, down 18% year-over-year, and GAAP EPS was $2.54, down 17%. On a non-GAAP basis, net income was $15.2 billion, down 5%, and EPS was $3.73, down 4%.

Segment Analysis

• Networking: The largest segment, had a marked decline whereby revenues fell by 28% year over year in Q4. This segment decline had the most significant effect on the overall performance. It has shown that there are struggles in Cisco's major networking product.
• Security: This segment contracted this quarter and had a very healthy growth of 81% to $821 million. Why? Due to increasing demand for products associated with cybersecurity. For the entire fiscal year, security had a 32% increase in revenue.
• Collaboration: Revenue was flat in Q4, so the challenges within this space continue as the market for collaboration tools continues to mature.
• Observability: This area saw a staggering 41% growth in Q4, which underscores growing demand for tools to assist organizations in monitoring and managing complex IT environments.

Services Revenue:

In services, a more stable and predictable revenue stream due to Cisco's larger and growing percentage of recurring revenue model, CH margin was boosted by 220 bps in Q4 and 210 bps for the fiscal year, with segment revenues increasing 6% in Q4 and 5% for the year

• Revenue Contribution: Splunk contributed roughly $960 million to Cisco's total revenue in Q4 and $1.4 billion for the fiscal year.
• Earnings Impact: The acquisition, including financing costs, hurt GAAP EPS to the tune of $0.16 in Q4 and $0.25 for FY24. During Q4 and the fiscal year, the impact on a non-GAAP basis is $0.04 for.

Geographic Performance

• Americas: Revenue decreased by 11% in Q4, consistent with the overall trend, driven by weaker performance in networking products.
• EMEA (Europe, Middle East, and Africa): Revenue also declined by 11%, reflecting similar challenges as seen in the Americas.
• APJC (Asia Pacific, Japan, and China): This region experienced the smallest decline, with revenue down 6% in Q4, indicating relatively better performance compared to other regions.

Profitability and Margins

• Gross Margin: Despite the fall in the top-line, Cisco continued to enjoy strong margins. GAAP gross margin for the fourth quarter was 64.4%, slightly higher as compared to 64.1% for the similar period a year ago. The non-GAAP gross margin was even better, 67.9%.
• Operating Margin:Operating margin was 19.2% on a GAAP basis, compared to 28.0% last year — impacted by low revenue along with an increase in operating expenses. The operating margin at 32.5% on a non-GAAP.

Cash Flow and Balance Sheet

• Operating Cash Flow: Operating cash flow for Cisco in Q4 stood at $3.7 billion, compared to what was reflected in Q4 of the preceding fiscal year, a decline of 37%. Across the entire fiscal year, the operating cash flow was $10.9 billion, a 45% reduction in the comparative period.
• Cash and Equivalents: The company ended FY24 with $17.9 billion in cash and cash equivalents, down from $26.1 billion at the end of FY23, largely on account of substantial cash outflows for the Splunk acquisition and shareholder returns.

Q1 FY25 and FY25 Guidance

Q1 FY25:

• Revenues to be in the range $13.65 billion to $13.85 billion.
• Anticipated range for Non-GAAP EPS is $0.86 to $0.88; GAAP EPS is expected in the range of $0.35 to $0.42.

FY25:

• Projected in the range of $55.0 billion to $56.2 billion.
• Anticipated Non-GAAP EPS is in the range $3.52 to $3.58. GAAP EPS is projected to be in the range of $1.93 to $2.05.

Conclusion

Q4 FY24 for Cisco was yet another quarter of continued strong performance in the strategic expansion of their portfolio with software and services, with increased weight in security and observability. However, colossal declines in revenues from networking show that its traditional business in hardware is undergoing difficulty. Splunk is a pivotal acquisition that has started contributing to revenue but has also put pressure on profitability due to costs. Through the rest of FY25, continued commitment to AI, cloud, and cybersecurity, and increased investment in growth areas, will provide a critical lift as Cisco pushes to get out of current market challenges and back on track to meet its financial targets.

Discussing below is an analysis covering the results of Cisco during Q4 FY24, highlighting its business performance, financial status, strategic moves, and future prospects.