Cisco Systems, Inc.

Welcome to Cisco's third quarter fiscal year 2021 financial results conference call. At the request of Cisco, 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. Ma'am, you may begin.

Welcome, everyone, to Cisco's third quarter fiscal 2021 quarterly earnings conference call. This is Marilyn Mora, head of investor relations, and I'm joined by Chuck Robbins, our chairman and CEO, and Scott Herron, 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 GAAP to non-GAAP reconciliation information, balance sheets, cash flow statements, and other financial information 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 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 fourth 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 the 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. CISCO will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. I will now turn it over to Chuck.

Thanks, Marilyn. Good afternoon, and thanks for joining today. I hope everyone is staying healthy and safe as we start to see the benefits of vaccine deployments and the continuing improvement in economic activity. I want to start by acknowledging our employees, customers, and partners in India who are experiencing a devastating surge of COVID cases. Cisco is providing critical resources during this challenging time, and our thoughts remain with all of you. While many of us are seeing great progress in our recovery efforts, we must remain vigilant and adaptable as we manage the ongoing pandemic around the world. Turning to the quarter, we had impressive momentum in Q3, which gives me a great sense of optimism going forward. We returned to growth with revenue up 7%, driven by an improving macro environment, the strongest product portfolio in our history, and great execution by our teams. We saw broad-based demand across the business, led by our biggest growth opportunities, hybrid work, digital transformation, cloud, and continued strong uptake of our subscription-based offerings. We're also seeing early momentum in the ramping of key technology cycles that are long-term growth drivers for our business, such as 5G, 400 gig, and edge. The next phase of the recovery and the future of work will be heavily reliant on our technology. Cisco's end-to-end portfolio will serve as the foundation for next-generation infrastructure solutions, as well as cloud-enabled delivery models and innovation, allowing our customers to move with even greater speed and agility. This will require a significant investment cycle, and reinforces the strength of our strategy while driving greater opportunity to create a world that is more connected, inclusive, and secure. We remain focused on accelerating innovation while simplifying the adoption of our offerings with network-wide automation, analytics, and flexible as a service consumption models, all aimed at improving our customers' network performance capabilities and security, which we believe will drive tremendous long-term opportunities for us. Our Q3 performance only reinforces my confidence about the future. These results reflect a return to a strong spending environment and an economic recovery that has gained momentum driven by vaccine rollouts and the easing of restrictions. As the economy has improved, customers have increased their investment across our portfolio to prepare for the upturn and return to office. In Q3, we saw 10% growth in product orders, the highest growth rate since Q1 of fiscal 2012. reflecting robust improvement across all of our customer segments and geographies. From a product revenue perspective, we saw 6% growth, led by strength across our portfolio including campus switching, routing, wireless, security, collaboration, and web scale, as well as from our acquisition of Acacia, which closed during Q3. We continue to aggressively shift our business to more recurring revenue streams, which we expect to grow over time as we expand our offerings. In Q3, we achieved $3.8 billion in software revenue, with 81% of our software revenue sold as a subscription, up from 76% last quarter. We also saw another quarter of double-digit growth in our deferred revenue and remaining performance obligations. Over the past six years, we have made significant progress and now have one of the largest software businesses in the industry, with an annual run rate well over $14 billion. Let me now touch on infrastructure platforms. We saw strong demand across the majority of our portfolio led by our next generation enterprise networking and service provider solutions as companies accelerate the modernization of their infrastructure. This modern infrastructure delivers higher performance and faster access to data while offering the best user experience in an increasingly distributed environment. Customers are turning to us to help them create the trusted workplace of the future. With Wi-Fi access points, video endpoints, cameras, and IoT sensors feeding data into DNA center and DNA spaces, we are enabling operations teams to remotely monitor workplace conditions for a safe return to office. We are also working to provide visibility beyond corporate networks, which is increasingly critical as our customers accelerate their adoption of SaaS and cloud solutions for hybrid work. At Cisco Live, we launched the industry's first enterprise-wide full-stack observability offering by integrating ThousandEyes cloud intelligence with our Catalyst switching portfolio and AppDynamics. This provides IT with visibility and actionable insights across both external and internal networks to provide a seamless digital experience for users. And with users more distributed than ever, it is vital that they have the most efficient and secure connection to the cloud. Our deep partnerships with Google, Amazon, and Microsoft allow native connectivity from our SD-WAN fabric to each of these cloud offerings. With our technology, customers can reduce deployment times and connect branch offices to cloud workloads in minutes. In our web-scale business, we delivered our sixth consecutive quarter of strong order growth, which increased over 25% in the quarter and over 50% on a trailing 12-month basis. Our web-scale customers are starting their 400-gig upgrade cycles and aggressively pursuing long-haul build-outs, while our carrier customers are exploring new architectures to realize the full potential of 5G. We are building the Internet for the future by creating breakthrough innovation with our routing, optical, and automation technologies to deliver significant economic benefits. Recently, we launched a new routed optical networking solution, integrating our scalable high-performance routers and Acacia's pluggable optics, which offer significant cost savings. Last week, we announced our intent to acquire Sedona Systems to extend our cross-work automation platform to build on these capabilities. We also expanded our Silicon One platform from a routing-focused solution to one which addresses the web-scale switching market. offering 10 networking chips ranging from 3.2 to 25.6 terabits per second, making it the highest performance programmable routing and switching silicon on the market. We know our customers increasingly want to consume Cisco's technology in new, more flexible ways. At Cisco Live, we launched our new as-a-service portfolio, Cisco Plus, and our first offer, Cisco Plus Hybrid Cloud, combining our data center compute, networking, and storage portfolio. Cisco Plus includes our plans to deliver networking as a service, which will unify networking, security, and observability across access, WAN, and cloud domains to deliver an unparalleled experience for our customers. Turning to security, we had a record quarter, surpassing $875 million in revenue, up 13% as we expanded our reach with customers around the world. Our security strategy is focused on delivering a simple and secure experience. We have an unrivaled ability to provide end-to-end security capabilities across users, devices, applications, and data on any network or any cloud. This is the key reason why our customers trust us to help them proactively protect against and remediate threats. In fact, leading customers in every industry, including 100% of the Fortune 100, are using Cisco Security Solutions. These customers are increasingly deploying our Zero Trust and Secure Access Service Edge, or SASE, architectures, along with automation, authentication, and analytics capabilities. With today's distributed workforce, companies must quickly deploy highly secure, trusted access to critical applications everywhere without compromising performance. Customers like Ford are using our cloud-delivered security platform, Umbrella, as they secure over 100,000 of their remote team members. And this quarter, Lyft turned to Cisco to strengthen their security protection for all of their users accessing their applications. By deploying our Duo portfolio, Lyft was able to provide strong access controls as they protect their users' sensitive personal and financial information, while reducing their total cost of ownership by more than 50%. With nearly $6 billion in annual R&D, the investment that Cisco is making in both security and the network continues to lead to momentum across our portfolio, with 23 consecutive quarters of double-digit umbrella cloud security growth, nearly 7,000 customers using our cloud-native SecureX platform, and strong platform growth with security enterprise agreements. We continue to expand our leadership with new innovations including passwordless authentication, data loss prevention, observability, cloud-based malware detection, and enhancements to SecureX. We are also complementing our organic innovation with assets that enable greater security efficacy. Our intent to acquire Kenna Security will bring together their risk-based vulnerability management platform with SecureX's threat management capabilities to prioritize and more effectively manage overall risk. Lastly, let me touch on applications. Our collaboration business continues to perform well. We had a record quarter in Webex as we execute against our strategy to power the future of hybrid work. Over the last six months, we've added more than 400 new features and devices to our WebEx portfolio. We are enabling seamless experiences through our desk camera and desk hub solutions while extending the WebEx suite of devices, including digital signage, touchless calls, room capacity alerts, and environmental sensors to help enable a safe return to the office. Well-being is top of mind for so many right now as we face a new way of working. This is why we launched People Insights to help people monitor and manage their well-being. These new features, devices, and capabilities, combined with Cloud Calling and Cloud Contact Center, provide our customers with the most comprehensive and inclusive hybrid work platform. Last week, we announced our intent to acquire Sociolabs. By integrating Slido and Sociolabs into our WebEx platform, we will also be able to provide the most comprehensive internal and external event management solution on the market. In summary, we had a very good quarter. I'm so proud of the continued success of the business transformation our teams are driving. As I mentioned earlier, we are experiencing the strongest demand in nearly a decade. We are also seeing similar component shortage supply issues as our peers. The good news, and this is reflected in our guidance, is that we are confident we will work through this as we have already put in place revised arrangements with several of our key suppliers. We believe these actions will enable us to optimize our access to critical components, including semiconductors, and take care of our customers by fulfilling their demand as quickly as possible. Our strategy and commitment to leading with trust, innovation and choice, along with our continued focus and discipline, are positioning us well for growth and profitability. As we accelerate the pace of innovation for our customers and partners, it's critical that we continue to support our people, our communities and our planet. I'm very proud that Cisco was recently named the number one best place to work in the United States by fortune and great place to work. This is a tremendous honor for us as it recognizes the incredible work of our people and the power of the culture we have created. And lastly, in terms of actions we are taking to protect the planet, last month the Cisco Foundation announced $100 million over 10 years to fund nonprofit grants and impact investing in climate solutions. We have already achieved 100% renewable energy in the U.S. and in many countries across Europe, and this is another strong step forward. Whether it's our deep focus on delivering the best results for our customers, partners, and employees, or our commitment to making a difference in communities across the world, Cisco remains committed to our purpose to power an inclusive future for all. I'm quite optimistic about what's ahead and confident in our team's ability to deliver. I'll now turn it over to Scott.