Cisco Systems, Inc.

Welcome to Cisco's Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call. At the request of Cisco Systems, today's conference is being recorded. If you have any objections, you may disconnect. Now I would like to introduce Marilyn Mora, Head of Investor Relations. Thank you. You may begin.

Thanks, Sue. Welcome everyone to Cisco's Fourth Quarter Fiscal 20 Quarterly Earnings Conference Call. This is Marilyn Mora, head of investor relations, and I'm joined by Chuck Robbins, our chairman and CEO, and Kelly Kramer, our CFO. By now, you should have seen our earnings press release. A corresponding webcast with slides, including supplemental information, will be made available on our website in the investor relations section following the call. Income statements, full gap to non-gap reconciliation information, balance sheets, cash flow statements, and other financial information are can also be found in the financial information section of our investor relations website. Throughout this conference call, we will be referencing both GAAP and non-GAAP financial results, and we'll discuss product results in terms of revenue, and geographic and customer results in terms of product orders, unless stated otherwise. All comparisons made throughout this call will be made on a year-over-year basis. The matters we will be discussing today include forward-looking statements, including the guidance we will be providing for the first quarter of fiscal 2021. They are subject to the risks and uncertainties, including COVID-19, that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. With respect to guidance, please also see the slides and press release that accompany this call for further details. Fiscal will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. In Q2 fiscal 2019, we completed the sale of our SPVSS business. As such, all of the financial information we will be discussing is normalized to exclude the SPVSS business from our historical results. I will now turn it over to Chuck.

Thank you, Marilyn. We hope all of you and your families are staying safe and healthy. Our thoughts remain with everyone who has been affected by the pandemic, and we are grateful to those who remain on the front lines working to help those impacted during these challenging times. As we've been preparing for this call, it's offered me some time to reflect on what we've achieved since I stepped into this role five years ago. Through the hard work of everyone at Cisco, we have undergone a significant transformation in the midst of some of the most complex times in our history. I am so proud of what our teams have accomplished. They have demonstrated resiliency, determination, and compassion as we delivered on our financial commitments, brought market-leading innovation to our customers, transitioned our business model, and driven a culture that has truly shined over the past six months. The Cisco of today is more agile, innovative, and focused. Through both organic and inorganic innovation, we delivered incredible new technology with new, more flexible consumption offers for our customers with more software and subscriptions. At our financial analyst conference in 2017, we laid out key metrics for our transformation. We set a goal of 30% of our revenue to come from software, and while we achieved 29% in fiscal year 20, we did achieve 31% in Q4. We also delivered 51% of our revenue from software and services in FY20, exceeding our target of 50%. Lastly, we now have 78% of our software revenue sold as subscription, beating our target of 66%. With our customers as our guide, we have successfully executed against our strategy to help them transform and modernize their organizations. We launched our intent-based networking architecture using automation and machine learning to help our customers drive simplicity and cost-effective management of their networks. As customers move more workloads to the cloud, we're offering fast, highly secure access to applications hosted anywhere in the private data center, public cloud, or a SaaS platform with our cloud security integrated with our SD-WAN solution. We introduce new capabilities across software, silicon, and optics to help bring to life the Internet for the future. The innovation we've driven in our security portfolio has helped us become the top enterprise security company in the world. With WebEx, we have the most trusted secure platform for remote collaboration for the enterprise. And we're also delivering real-time insights for customers in their multi-cloud environments to optimize user experience with our insights and observability assets like AppDynamics. Over the past few years, this transition has resulted in improvements in our financial performance, including expanding margins and demonstrating continued financial discipline. Once again, I want to thank our teams for what we've achieved. If the past year has taught us anything, it's the need to always be nimble. I believe that the changes we've made to our business now put us in a position of strength as we focus on our future. We're a company that embraces change and we've shown our ability to thrive in any environment. The past six months have unquestionably reshaped our world. Industries, governments, and work have changed dramatically, and many of these changes will become permanent. At Cisco, we are committed to helping our customers truly digitize their organizations for the future, regardless of the challenges or fundamental shifts that we may face. Like many other organizations, we've also had the opportunity to reexamine our business and our portfolio for this new world. As I said last quarter, we were going to take time to better understand the short and long-term implications of COVID-19, and we now believe we have a better view. Based on the many conversations we've had with our customers around the world, we believe we have perspective into how they will adapt their technology strategies for the future to ensure greater resiliency, agility, and innovation. We know how to adapt our business and strategy to align with where our customers are headed. The changes we are making to our business reflect how we are leveraging our existing strengths, investing for growth, and unlocking new opportunities. We will also be very disciplined on our cost structure, as we always have been. Over the next few quarters, we will be taking out over $1 billion on an annualized basis to reduce our cost structure. At the same time, we're going to rebalance our R&D investments to focus on key areas that will position us well for the future. More specifically, we will accelerate the transition of the majority of our portfolio to be delivered as a service. We will also accelerate our investments in the following areas, cloud security, cloud collaboration, key enhancements for education, healthcare, and other industries, increased automation in the enterprise, the future of work, and application insights and analytics. At the same time, we will continue our focus in the following areas, many of which have been accelerated by the pandemic. multi-cloud investment, 5G and Wi-Fi 6, 400 gig, optical networking, next generation silicon, AI, and more. These investments will help define the next phase of our transformation and allow us to bring the best, most relevant innovation to our customers in simpler, more easily consumable ways. I am confident that, once again, we have the right strategy that will deliver what our customers need from us, and we will emerge from this challenging time as a stronger company than before. Now let me discuss our performance in the quarter. While our results reflect the ongoing challenges in the current environment, we executed well. As you would expect, the pandemic has had the most impact on our enterprise and commercial orders driven by an overall slowdown in spending. We are seeing customers continue to delay their purchasing decisions in certain areas while increasing spend in others until they have greater visibility and clarity on the timing and shape of the global economic recovery. Despite this challenging economic environment, The pandemic has also triggered a massive and rapid shift to remote operations and automation to maximize personal safety. With this, many customers are increasingly reliant on our broad portfolio of technologies, resulting in another quarter of strong demand for our Catalyst 9000, Security, WebEx, and other SaaS-based solutions. Throughout fiscal year 2020, we demonstrated operational resilience based on our strong customer relationships, a solid financial foundation, differentiated innovation, and a compelling strategic transformation built on the strength of our key technology platforms. Now I'll cover a few highlights from the quarter. In June, we introduced an expanded business resiliency portfolio offering healthcare and education solutions with simpler consumption models and services to accelerate adoption. We will continue to expand this portfolio to cover areas such as social distancing in the workplace, effective virtual employee engagement at scale, and pop-up connected clinics. Within our infrastructure platforms business, we continue to see a strong ramp of our Catalyst 9K portfolio as many customers take advantage of their employees working from home to refresh their aging infrastructure, enabling them to simplify, secure, and automate the management of their networks. Our acquisition of ThousandEyes will complement these capabilities by adding deeper and broader visibility and analytics across networks and applications, enabling us to deliver the best possible experiences for our customers. By integrating their SaaS-based offering with our AppDynamics application intelligence portfolio and SD-WAN technology, we can provide unparalleled intelligence and insights at cloud scale, driving improved customer experience as well as reliability of their applications. Security continues to be a top priority for our customers, particularly in this distributed digital world. Our ability to connect and protect our customers working from anywhere, on any device, is accelerating the adoption of our comprehensive security portfolio resulting in double-digit revenue growth this quarter. As more data goes to the cloud and users become more distributed, we had good momentum in our cloud security solutions protecting workloads, applications, and data. We also continue to expand our capabilities to enable simplification and automation of our customer security infrastructure. A good example of this is our SecureX platform. which is designed to unify visibility, enable automation, and deliver a consistent experience. Since our launch six weeks ago, we have over 2,100 active daily customers, two-thirds of which have two or more products active. We're also delivering secure remote worker solutions that span our endpoint security portfolio combined with the power of our zero-trust architecture with Duo, AnyConnect, Umbrella, and AMP for Endpoints. Applications have become a lifeline for so many organizations, and this has only increased over the past few months. As organizations define what their future looks like, our collaboration technology will play a key role in evolving how they work, transact, and connect. WebEx had strong performance this quarter with double-digit growth as businesses, governments, educators, and frontline workers everywhere have embraced remote work. We expect this momentum to continue as we have begun to see the conversion of free trials into paid subscriptions. AppDynamics also achieved another solid quarter. These monitoring tools offer our customers great value by providing real-time insights from a single pane of glass to optimize user experience in their multi-cloud environments. As we think about all that we've achieved over the past five years, I want to take a moment to acknowledge Kelly Kramer, our Chief Financial Officer, who has been an incredible partner to me. She has played a key role in reshaping Cisco into the company we are today. I want to let you all know that Kelly has made the decision to retire from Cisco. Over her eight-plus years here, Kelly has led the effort to improve our financial performance, focused on investor confidence, and helped position Cisco for success. Kelly and I have been focused on simple, clear communication, absolute transparency, delivering on our commitments, and always aligning Cisco for future growth. Kelly has graciously agreed to stay on as CFO until we have her successor on board and and will advise us with a succession process. I can assure you that with Kelly staying on during the search and with our world-class finance team, we will have a seamless transition. Kelly, thank you so much for your partnership and your friendship. You will truly be missed. Now, before I turn it over to Kelly, I want to reiterate my confidence for what the future holds. Over the past five years, we have not shied away from making bold moves to position us for long-term growth, and now is no different. We are committed to running a strong business as well as leveraging technology for good to solve the world's biggest challenges and create new opportunities for the future. As we've demonstrated, we have helped our customers build resiliency in difficult environments, through industry disruptions, and in times of rapid growth. We will also continue to use our position to make our communities and world a better place. Whether it's tackling the global health pandemic or social injustice and intolerance, we are committed to our purpose of powering an inclusive future for all. As we start a new fiscal year, I believe we have incredible opportunities in front of us. We will navigate the pandemic in the most effective way possible while not damaging the long-term prospects for Cisco. We remain strongly aligned to our customers' priorities and deeply committed to delivering long-term growth. Now I'll turn it over to Kelly.