Cisco Systems, Inc.

Welcome to Cisco's fourth quarter and fiscal year 2023 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 turn the call over to Marilyn Mora, head of investor relations. Ma'am, you may begin.

Welcome, everyone, to Cisco's fourth quarter fiscal 23 quarterly earnings conference call. This is Marilyn Mora, head of investor relations, and I'm joined by Chuck Robbins, our chair 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 done 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 and full year of fiscal 2024. They are subject to the risks and uncertainties 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. Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. With that, I'll now turn it over to Chuck.

Thanks, Marilyn, and good afternoon, everyone. Fiscal 23 was a milestone year for Cisco. We delivered on our operational and financial goals while accelerating our transformation. We achieved record revenue and earnings per share in both the fourth quarter and the full year. We also generated strong margins, record operating cash flow, and strong shareholder value, returning $10.6 billion via share repurchases and increasing cash dividends. In FY23, we delivered nearly $57 billion in revenue, up 11% year over year, the highest revenue growth rate in over a decade. Overall customer demand also remained solid. In Q4, we achieved over 30% total sequential product order growth, the second highest in 20 years with double-digit increases across all customer markets. As we look to build on this strong performance going forward, we remain focused on the following. First, growing market share in all key areas of our business. Second, driving innovation and extending our leadership by investing in significant new opportunities for growth in AI, cloud, and security. Third, delivering long-term sustainable value creation for our stakeholders. And fourth, transforming our business model by growing recurring revenue. Consistent with what we said last quarter, we expect to build on our record results delivering modest revenue growth in fiscal year 24, with the bottom line growing faster than the top line, demonstrating operating leverage. Our outlook reflects good visibility and predictability driven by healthy backlog, ARR, and RPO. We remain deeply committed to building shareholder value and increasing returns to our investors. We will do this through a long-term commitment to greater operating leverage while increasing our annual share repurchases and growing our dividend. Now let me share additional detail on the quarter and key growth opportunities ahead for Cisco. First, one of our greatest competitive advantages is our pace of innovation. This quarter, we announced new solutions spanning generative AI, hybrid work, security, full-stack observability, and sustainability. In addition, we remain focused on delivering a more unified and simpler experience for our customers. As I've stated in the past, we knew that as our backlog cleared, we would see corresponding market share gains. With the release of the calendar Q1 results, we gained over three percentage points of market share year over year in our three largest networking markets, campus switching, wireless LAN, and SP routing. We expect further share gains in these areas as market share numbers are released for calendar Q2. Second, the acceleration of AI will fundamentally change our world and create new growth drivers for us. While AI has been an important element in our products for several years, this quarter we announced new market-leading AI technologies across our collaboration and security portfolios designed to boost productivity, enhance policy management, and simplify tasks. We also launched new AI scale infrastructure innovation to allow our customers to process AI workloads more efficiently. Cisco's ASIC design and scalable fabric for AI position us very well to build out the infrastructure that hyperscalers and others need to build AI ML clusters. This is a huge opportunity for Cisco, and we are laser focused on leading and winning in this space. As a result of our innovation in this area, we expect Ethernet will lead in connecting AI workloads over the next five years. To accelerate this transition, Cisco became a founding member of the Ultra Ethernet Consortium, an industry-wide effort to drive open, large-scale Ethernet-based fabrics for high-performance networking. In June, we launched our next-generation silicon-1 switching ASICs to support large-scale GPU clusters for AI and ML workloads. We are seeing early success in hyperscale Ethernet AI fabric deployments. To date, we have taken orders for over half a billion dollars for AI Ethernet fabrics. We are also piloting 800 gig capabilities for AI training fabrics. Overall, Cisco is committed to helping our customers navigate this transition in a trusted and responsible way to deliver on the full promise of this technology, and we are well positioned to win. Next, security remains a top priority. Our AI-driven security cloud platform has comprehensive capabilities across the network, endpoint, and the cloud, helping to simplify security management while increasing efficacy. Our new technologies like XDR, multi-cloud defense, and cloud secure access, a secure service edge solution, are seeing rapid early adoption. For example, Goldman Sachs has been one of our early adopters of our multi-cloud defense solution. In addition, We are working with Apple to incorporate Cisco's secure access solution into iOS and macOS. These innovations, combined with our recent acquisitions, show how we are extending our security portfolio with deep telemetry, AI, and identity threat capabilities. Given our install base of 300,000 Cisco security customers, we believe we have the opportunity to accelerate revenue growth and security over the next few quarters. To summarize, we had a phenomenal year. Our fiscal year 23 and Q4 results demonstrate the strength of our business today and are a solid foundation for future growth. I also want to be very clear on our commitment to increasing shareholder returns through capital return, innovation, and strong execution. Last quarter, we committed to operating leverage in Q4 and fiscal year 24, and our guidance today reflects this. Today, I want to confirm that this will be our long-term strategy beyond fiscal year 24. We will also drive a high degree of consistency into our stock repurchase program and will maintain the quarterly levels in the range that we have over the past few quarters. Finally, I want to take a moment to thank our teams who all played an important role in delivering these record four-year results and their deep commitment to the success of our customers and partners. With our focus on innovation and our commitment to operational excellence, I have tremendous confidence in our ability to capitalize on the many opportunities ahead. I'll now turn it over to Scott. Thanks, Chuck.