Cisco CSCO 0.69% Systems completed its $28 billion all-cash acquisition of Splunk, the provider of observability software, well ahead of schedule. Management originally said the transaction would close by the end of September.
Splunk’s results weren’t included in Cisco’s previous financial forecasts. Cisco said Monday the acquisition will be cash-flow positive (excluding certain acquisition-related costs and other expenses) and will boost non-GAAP gross margin in Cisco’s fiscal year ending July 2025. It will benefit non-GAAP earnings per share in fiscal 2026. The transaction also will accelerate Cisco’s revenue growth and the expansion of its non-GAAP gross margins.
On its most recent earnings call, Cisco had said that Splunk would add about $4 billion in annual recurring revenue. Cisco’s previous financial forecasts for the April quarter had called for revenue ranging from $12.1 billion to $12.3 billion, down about 16% from a year ago at the middle of the range, with adjusted profits of 84 to 86 cents a share.
In an interview CFO Scott Herren said actual results for the April quarter will include about six weeks of results from Splunk that weren’t anticipated in the original guidance.
Cisco’s previous forecasts for the July fiscal year had called for revenue of between $51.5 billion to $52.5 billion, down 9% at the middle of the range, with adjusted profits of between $3.68 and $3.74 a share. Herren says the company will update the full-year outlook when it reports financial results in mid-May, but what is clear is that the original forecast didn’t include any Splunk contribution at all.
Asked about cost savings from the deal, Herren said the transaction was driven mostly by revenue synergies, For instance, he sees an opportunity to expand Splunk’s reach outside of its core North American market using Cisco’s sales channels. Herren says there will be some cost synergies over time from the deal, but not immediately.
Cisco funded the acquisition with a combination of balance-sheet cash, short-term debt, and a series of long-term debt offerings completed in recent weeks. That includes a combined issuance of a little over $13 billion in debt, with maturities of three, five, seven, 10, 30, and 40 years. Herren said the blended interest rate on the debt is about 5% annually. Including the foregone interest on cash used in the deal, he said, the annual interest expense related to the deal should run about 5% of the transaction price, which implies about $1.4 billion. Cisco shares were 1.4% higher at $49.63 on Monday morning.
