Cisco Systems, Inc.

Welcome to Cisco's third quarter fiscal year 2024 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 Sammy Badri, head of investor relations. Sir, you may begin.

Welcome, everyone, to Cisco's third quarter fiscal year 2024 conference call. This is Sammy Badri, Cisco's head of investor relations, and I am joined by Chuck Robbins, our chair and CEO, and Scott Herron, our CFO. And given our recently closed acquisition of Splunk, we are also joined by Gary Steele, the former CEO of Splunk, which is now a Cisco company. By now, you should have seen our earnings press release. A corresponding webcast with slides, including supplemental information, will be 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 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 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 report informs 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. I will now turn it over to Chuck.

Thanks, Sammy, and thank you all for joining us today. We delivered a solid performance in Q3 with organic revenue coming in at the high end of our guidance range. Strong operating leverage across our business drove gross margins to exceed the high end of our expectations, resulting in better than anticipated earnings per share performance. We once again delivered good growth in annualized recurring revenue, remaining performance obligations, and subscription revenue. We have transformed our business model with revenue from subscriptions now accounting for more than half of our total revenue even before the addition of Splunk. With the success of our transformation, we are well positioned to drive long-term growth powered by innovation across the organization. I want to thank the entire Cisco team, as it is through their dedicated efforts that our research and development engine has never been stronger across networking and silicon, observability, security, collaboration, and AI. The strength of our core business continues to produce strong cash flows, reinforcing our ongoing commitment to delivering consistent capital returns. In Q3, we returned $2.9 billion in value to our shareholders through share repurchases and cash dividends in the quarter, with a total of $8.5 billion in value returned year-to-date. Q3 was significant for us in two important ways. First, I couldn't be more excited about the successful close of our Splunk acquisition, Cisco's largest ever. Our acquisition of Splunk was completed midway through our Q3 on March 18, earlier than initially anticipated. Splunk significantly expands our portfolio of software-based solutions, contributing over $4 billion in annualized recurring revenue, and adds to our position as one of the largest software companies in the world. We are thrilled to welcome the Splunk team to Cisco and are very excited about what we can deliver for our customers as we integrate our complementary security and observability capabilities. Our unified platform will revolutionize how customers connect and protect their organizations, using data in new ways to enhance their entire digital footprint. Second, we introduced Cisco HyperShield, our most significant new security innovation with a groundbreaking AI-powered approach to highly distributed security, a first of its kind. Combining security and networking in a way only Cisco can, HyperShield is built in the very fabric of the network, bringing the power of hyperscaler security and connectivity to the enterprise. I will talk more about these developments and our innovation momentum in a few moments. But now I'd like to turn to our performance in Q3 and what we're seeing in terms of customer demand. The breadth of our portfolio, together with our many touchpoints with partners and customers around the world, provides us with differentiated insight into what's happening in our customer base. Based on activations to the cloud, which we track, as well as conversations with our customers and partners, we believe that the products customers have on hand are being steadily deployed in line with the expectations we laid out last quarter, meaning we currently expect customers to complete the installation of the majority of their inventory by the end of our fiscal year in July. At a time where customers are ruthlessly prioritizing their IT investments, we saw product order growth in two of our largest product portfolios, data center switching and campus switching, as well as product order growth in our security and collaboration product categories. Overall, product orders were up 4%, and excluding Splunk, product orders were flat year on year. In our customer markets, public sector was strong in EMEA and APJC, but continuing resolution discussions in the U.S. temporarily impacted public sector performance in the Americas. We believe this has since cleared with the subsequent signing of the most recent U.S. federal government funding legislation. While our telco and cable customer demand remain muted worldwide, we are encouraged to see early signs of stabilization and improved performance in web scale in terms of pipeline and orders. Overall, our win rates are stable and we saw increased strength as we move through the quarter. This reflects our competitive strength and successful execution and gives us confidence in the long term. We also know that the value of our portfolio is greater than ever, as evidenced by recent sell-side research IT spinning surveys, which show that Cisco is expected to be the only net share gainer within large network budgets over the next 12 months. Now let's look at our performance in Q3 in more detail. We saw revenue growth in security and double-digit growth in observability year-over-year, excluding Splunk, as customers look to enhance their digital resilience with Cisco's technologies. In the past year, we've accelerated our pace of innovation and security, and I'm proud of what our teams have achieved. As I mentioned earlier, last month we introduced Cisco HyperShield, the first truly distributed AI-native cybersecurity solution, which will be built into our networking fabric. This new innovation leverages the recently closed isovalent acquisition to facilitate deployment and software, and the first shipment is scheduled for August this year. This launch furthers our vision for the Cisco Security Cloud, which is expected to deliver the industry's most comprehensive, unified platform with end-to-end solutions, making it easier for our customers to protect against the threats of today and tomorrow. Our newest available security solutions, XDR and Secure Access, continue to ramp quickly with strong customer feedback. Just last week at RSA, we also announced the integration of Cisco XDR with Splunk Enterprise Security, which will give our customers even more value and insights. The closing of the Splunk acquisition in Q3 will also enable us to begin driving revenue synergies in our security and observability markets. Upon closing the deal, we identified 5,000 existing Cisco customers who have the potential to become meaningful Splunk customers, and our sales teams are already making those connections. We also see significant opportunities for revenue synergies by leveraging Cisco's robust partner and customer ecosystem in markets where Splunk had limited or no presence. Earlier this week, Splunk was ranked as the leader in Gartner's Magic Quadrant for security incident and event management, which is a testament to the strength of the offering and the continued business momentum that Splunk has delivered. We are working on rapid integration, investing in both product integration and go-to-market resources, starting with aligning our Cisco and Splunk sales forces and accelerating channel enablement processes for cross-selling and upselling our combined solutions. We also continue to capitalize on the multi-billion dollar AI infrastructure opportunity. In web scale, we continue to see momentum with three of the top four hyperscalers deploying our Ethernet AI fabric, leveraging Cisco validated designs for AI infrastructure. In the past two quarters, Cisco has been granted additional design awards based on our 51.2 terabit G200 silicon-1 ASIC. We expect these awards to yield orders in fiscal year 25, reinforcing our confidence in our line of sight to $1 billion of AI product orders in fiscal 25. Additionally, for those leading edge enterprise customers who seek to be the early adopters of AI, our partnership with NVIDIA will offer easy to deploy cloud-based and on-prem networking solutions for AI inferencing. We believe we are well positioned to be the key beneficiary of AI enterprise application proliferation with the breadth of our portfolio and the vast amounts of data we see. Before I turn it over to Scott, I'd like to share one more update. Earlier today, we announced that Jeff Sherrits, our chief customer and partner officer, is departing Cisco, and that Gary Steele, Splunk's former CEO, has been named Cisco's new president of go-to-market. Gary is well known for his operational excellence, and in this new role, he will work closely with me to set and execute against our strategic plans and goals for the company. He will continue to lead the Splunk team through the integration process to ensure a seamless integration into Cisco. Gary's operational mindset, combined with his intense focus on simplicity and proven ability to drive growth, positioned him well in this role, and I look forward to working closely with him in this new capacity. I'd also like to take a moment to thank Jeff for all that he's helped Cisco achieve, which is quite a long list of accomplishments in his 24 years here. Moving back to Q3, let me briefly summarize. While our core product portfolio is turning toward normalization as we continue to see customer deployments of shipped equipment progress, We are pleased that our security and observability portfolios have continued to grow and are significantly enhanced by the acquisitions of Splunk and Isovalent. As our customers adopt and deploy AI, they need the infrastructure to power it, the data to develop it, and the security to protect it. And we believe only Cisco can deliver and integrate all three. With our unified platform approach, vast global partner ecosystem, and ability to support hybrid and multi-cloud environments, We will deliver innovation at an unprecedented pace and scale to organizations around the globe. I'll now turn it over to Scott to provide more detail on the quarter and our outlook. Thanks, Chuck.