Cisco Systems, Inc.

Welcome to Cisco's first quarter in fiscal year 2026 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.

Good afternoon, everyone. This is Sammy Badri, Cisco's head of investor relations, and I'm joined by Chuck Robbins, our chair and CEO, and Mark Patterson, our CFO. Cisco's earnings press release and supplemental information, including GAAP to non-GAAP reconciliations, are available on our investor relations website. Following this call, we will also make the recorded webcast and slides available on the website. Throughout today's call, we'll be referencing both GAAP and non-GAAP financial results. We will discuss product results in terms of revenue and geographic and customer results in terms of product orders, unless stated otherwise. All comparisons will be made on a year-over-year basis. Please note that our discussions today will include forward-looking statements, including our guidance for the second quarter and fiscal year 2026. These statements are subject to risks and uncertainty details in our SEC filings, particularly our most recent 10-K report, which identify important risk factors that could cause actual results to differ materially from those contained in our 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. Now, I'll turn it over to Chuck.

Thanks, Sammy. Thank you all for joining us today. We had a strong start to fiscal 26 with Q1 revenue and earnings per share both coming in above the high end of our guidance ranges. We delivered record Q1 revenue, putting Cisco on track to deliver our strongest year yet as indicated in our guidance for the full year. In Q1, total revenue increased 8% year-over-year with product revenue up 10% driven by robust demand for our AI infrastructure and campus networking solutions. Our strong top-line performance combined with operating efficiencies and solid execution by our teams contributed to non-GAAP EPS growth of 10% as we continue to grow earnings faster than revenue. We delivered solid margins and cash flows allowing us to return $3.6 billion in capital to our shareholders through dividends and share repurchases, representing 125% of free cash flow in Q1. Additionally, we generated solid growth in annualized recurring revenue and remaining performance obligations, both of which continue to provide a strong foundation for our future performance in FY26 and beyond. Cisco's strong start to Fiscal 26 is a testament to the critical role of secure networking and the strength of our portfolio as organizations look to deploy AI across their businesses. That said, we know many customers still have a lot of work to do to ensure they have the modern, scalable, secure networking infrastructure to support their AI goals. According to our 2025 Global AI Readiness Index, only one-third of organizations feel their IT infrastructure can accommodate the needs of their planned AI projects, which creates a massive opportunity for Cisco. With our industry-leading networking portfolio, powered by Silicon One, AI native security solutions, and operating systems, we are well positioned today to provide the critical infrastructure for the AI era. Now let me comment on the strong demand we saw in Q1. Overall, total product orders grew 13% year-over-year, with growth across all geographies and customer markets. Enterprise product orders were up 4% year-over-year in Q1, on top of mid-teens growth excluding Splunk a year ago, with strength in our campus switching and wireless solutions. Public sector orders were up 12% year-over-year, with growth across all geographies and cohorts, including U.S. Federal. Product orders from service provider and cloud customers continue to be very strong, up 45% year-over-year, driven by high double-digit order growth in hyperscalers, even on a tough triple digit growth comparison from Q1 of FY25. Demand from telco customers was also strong in Q1, with orders growing more than 25% year over year. Now some color on demand from a product perspective. Networking product orders accelerated to high teens growth in Q1, marking the fifth consecutive quarter of double digit growth, driven by hyperscale infrastructure, enterprise routing, campus switching, wireless, industrial IoT, and servers. Within our campus networking portfolio, we are seeing very strong demand for switching, routing, and wireless products, indicating that enterprise customers are investing in the connectivity needed for AI deployments. As early catalyst switching generations like the 4K and 6K near end of support, we see growing demand for our CAT 9K series. Additionally, all of our next generation solutions, including smart switches, secure routers, and Wi-Fi 7 wireless products, are ramping faster than in prior product launches. This marks the beginning of a multi-year, multi-billion dollar refresh opportunity. We're also seeing consistent progress across our industrial IoT portfolio, including new ruggedized equipment with orders growing more than 25% year-over-year in Q1. We expect this demand to increase, driven by onshoring of manufacturing to the United States, the increase of AI workloads at the network edge, and the emergence of physical AI. AI infrastructure orders taken from hyperscalers in Q1 total $1.3 billion, balanced between silicon-1 systems and optics, marking a significant acceleration in growth and demonstrating our strength for advanced AI use cases. We expect to recognize roughly $3 billion in AI infrastructure revenue from hyperscalers in fiscal year 26. As these hyperscale customers look to extend AI clusters across their infrastructure, we see robust demand for Acacia's market-leading, coherent, pluggable optics, offering significant cost and power savings. All hyperscalers are now customers of these products. In Q1, we also announced our latest Cisco 8223 router powered by our Silicon 1 P200 chip. This first to market 51.2 terabits per second fixed Ethernet routing system is designed for the intense AI workload traffic between data centers. With Silicon 1's unmatched scalability, power efficiency, and programmability, we can provide the performance and speed across data centers that would have previously only been possible within a data center with a switching infrastructure. Demand for silicon-1 continues to grow, and we expect to ship our one millionth chip in Q2 of fiscal year 26. Product orders for AI use cases beyond hyperscaler training are also gaining traction, with orders for data center systems including switching and compute growing double digits in Q1 as customers prepare their networks for inferencing and agentic workflows. we see a growing pipeline in excess of $2 billion for our high-performance networking products across Sovereign, NeoCloud, and enterprise customers. To capture this opportunity, we continue to make progress both within our own portfolio and across our strategic partnerships. We recently announced an expansion of our partnership with G42 in the UAE to power, connect, and secure G42's large-scale AI clusters featuring AMD GPUs. Other strategic partnerships in the region, including Humane and Stargate UAE, are progressing as planned. We also lost our sovereign critical infrastructure portfolio for European customers to operate in their own air-gapped on-prem physical environments. This includes our networking and collaboration products enhanced by security and observability. In addition, Cisco announced an expansion of our NVIDIA partnership and our new N9100 switch based on Spectrum X silicon. We are now the first NVIDIA partner to offer networking compliant with their cloud reference architecture. The N9100, available in the second half of fiscal year 26, will provide the operational consistency and flexibility needed for sovereign and neocloud providers to build and manage AI at scale. We are also delivering new capabilities and features for Cisco Secure AI Factory with NVIDIA, announced in Q3 of fiscal year 25. These advancements strengthen our commitment to high performance, secure and trusted AI infrastructure globally. We expect Cisco's AI opportunity across sovereign NeoCloud and enterprise customers to ramp in the second half of fiscal year 26. Now shifting to security. We continue to see order growth for our new and refreshed products, which comprise around one-third of our security portfolio and includes Secure Access, XDR, HyperShield, AI Defense, and our refreshed firewalls. Nearly 3,000 customers have purchased the new product since launch, and we saw mid-teens growth in demand for our next-generation firewalls in Q1. This growth was partially offset by a decline in our prior-generation platforms. We continue to see strong performance from Splunk, closing one of our largest Splunk deals to date in Q1, enabled by joint Cisco and Splunk sales engagement. Splunk's ARR and product RPO grew double digits as we saw a notable change in how customers consumed Splunk offerings in Q1, with a shift to more cloud subscriptions and fewer on-premise deals. Revenue for cloud subscriptions is recognized ratably, whereas product revenue for on-prem deals is recognized on delivery. While this shift negatively impacted security revenue growth in Q1, it is purely a timing issue. We are actually pleased to see more cloud subscriptions for Splunk as they enable greater adoption and expansion and allow us to deliver innovation faster to enable customers to unlock value from AI. Now let me comment on some of our recent innovations. As we look at the AI opportunity, we see customer use cases growing across training, inferencing, and connectivity. with secure networking increasingly critical as workloads move from the data center to end users, devices, and agents at the edge. As mentioned last quarter, agents are transforming network traffic from predictable bursts to persistent high-intensity loads with agentic AI queries generating up to 25 times more network traffic than chatbots. Instead of pulling data to and from the data center, AI workloads require models and infrastructure to be closer to where data is created and decisions are made, particularly in industries such as retail, healthcare, and manufacturing. This is why we introduced Cisco Unified Edge last week, an industry-first converged platform for the network edge, integrating compute, networking, and storage into a single system. Unified Edge enables real-time inferencing for agentic and physical AI workloads, so enterprises can confidently deploy and manage AI at scale. We also announced Cisco Data Fabric in September, a Splunk powered architecture to unify and manage machine data across various sources, allowing enterprises to build AI models with their previously unused proprietary data. As always, these innovations are designed to further Cisco's platform advantage, where every new technology investment compounds the value of a customer's existing investment. To summarize, We are seeing strong demand across all customer markets and geographies as well as expanded opportunities as our customers power their AI use cases from the data center to the edge. We continue to innovate at unprecedented scale to build AI-ready data centers, power future-proof workplaces, and create a foundation of digital resilience. And our strong performance is fueling our capital allocation model, returning significant value to our shareholders while positioning our business for Cisco's strongest year yet in fiscal 26, as indicated in our guidance. Now I'll turn it over to Mark for more detail on the quarter and our outlook.