Cisco Systems, Inc.

Welcome to Cisco's second quarter 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. 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'll 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 discussion today will include forward-looking statements, including our guidance for the third quarter and fiscal year 2026. These statements are subject to risks and uncertainties detailed on our SEC filings, particularly our most recent 10-K and 10-Q reports, 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, and thank you all for joining us today. Q2 was a very strong quarter with revenue and earnings per share both growing double digits and coming in above the high end of our guidance ranges. We delivered record revenue in Q2, putting Cisco on track to deliver our strongest year yet, as indicated in our guidance for the full year. In Q2, total revenue growth accelerated to 10% year-over-year, with product revenue up 14%, driven by robust demand for 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 11%, which continued to grow faster than revenue. This strong performance allowed us to return $3 billion in capital to shareholders in the quarter bringing the total value returned year to date to $6.6 billion. Today, we also announced an increase to Cisco's dividend, demonstrating our commitment to returning value to shareholders through consistent capital returns. Our innovation engine is firing on all cylinders, and our commitment to customers has never been stronger. Last week, Cisco hosted its AI Summit, gathering AI visionaries and geopolitical experts to explore the economic, societal, and business impacts of AI. While it was clear that expectations for adoption and execution are high, one major challenge still exists. Legacy infrastructure was not designed for the performance, speed, and security needs of AI. Our strong first half of FY26 demonstrates both the power of our portfolio and the fundamental role we play in this once-in-a-generation transition. With our industry-leading networking portfolio powered by Silicon One, AI native security solutions, and operating systems, Cisco is well positioned to provide the critical infrastructure needed for the AI era. I'd also like to address the recent significant increases in memory prices across the market. Leveraging our industry-leading supply chain team, we are proactively implementing three key strategies. First, we have already announced price increases and will continue to monitor market trends and make additional adjustments as necessary. Second, we are revising contractual terms with channel partners and customers to address evolving component prices. Third, Cisco's operating scale and industry-leading position help us negotiate favorable terms and secure supply to fulfill current and future demand. Overall, we feel confident in our ability to manage this industry-wide dynamic better than our peers. Now let me comment on the strong demand we saw in Q2. Overall, total product orders grew 18% year over year, even on top of double-digit growth in Q2 fiscal year 25. Excluding hyperscalers, product orders were up 10% year over year, demonstrating the broad-based demand we see for our technology globally. Enterprise product orders were up 8% year-over-year in Q2, with strength across our entire networking portfolio. Public sector orders were up 11% year-over-year, with double-digit growth across all geographies. Product orders from service provider and cloud customers accelerated in Q2, growing 65%, driven by triple-digit order growth across hyperscalers. We also saw continued growth from telco and cable customers in Q2, with orders up almost 20% on a combined basis. Now some color on demand from a product perspective. Growth in networking product orders continued to accelerate, reaching more than 20% in Q2 and marking the sixth consecutive quarter of double-digit growth driven by service provider routing, data center switching, campus switching, wireless, servers, and industrial IoT products. Within our campus networking portfolio, we are seeing strong demand for our next generation switching, routing, and wireless products, which continue to ramp faster than prior product launches. We are delivering AI native capabilities across these products, including weaving security into the fabric of the network and modernizing the operational stack of campus networks. These new capabilities, combined with an installed base representing tens of billions of dollars across early catalyst generations nearing end of support, underpin the multi-year, multi-billion dollar refresh opportunity for Cisco. We continue to see strong demand for our industrial IoT portfolio, which has now grown double digits for seven consecutive quarters. This demand is 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 total $2.1 billion in Q2, compared to $1.3 billion just last quarter, and equal to the total orders taken in all of fiscal year 25, marking another significant acceleration in growth across our silicon systems and optics. We shipped our 1 millionth silicon-1 chip in Q2 and plan to deploy our silicon-1 architecture across our high-performance networking systems by fiscal year 29. Just this week at Cisco Live Amsterdam, we introduced our 102.4 terabit per second G300 chip positioning Cisco in an exclusive group of silicon providers delivering over 100 terabits per second switching speeds. In addition, we launched four new systems powered by G300. The Cisco 8000 and Nexus 9K 102.4 terabit systems offer flexible air-cooled options for traditional data center architectures, as well as liquid-cooled options designed for the latest ground-up facilities. SiliconOne's programmability puts Cisco's silicon in a class of its own. capable of adapting to a wide range of use cases and network infrastructure designs. We also announced two new pluggable optics, a 1.6 terabit per second OSFP and an 800 gig LPO, both built with Cisco silicon photonics technology, delivering greater efficiency and reliability in high performance AI infrastructure. Acacia reported its strongest quarter to date with triple digit growth in bookings. all major hyperscalers are deploying its market-leading coherent pluggable optics for data center interconnect and scale across use cases we see growth in both 400 gig and 800 gig coherent optics and transponder shipments with 800 gig pluggables ramping significantly given the strong demand for our silicon one systems and optics we now expect to take ai orders in excess of 5 billion and to recognize over $3 billion in AI infrastructure revenue from hyperscalers in FY26. Beyond hyperscalers, we have a separate AI opportunity across NeoCloud, Sovereign, and Enterprise customers. We took $350 million in AI orders from these customers in Q2 and have a growing pipeline in excess of $2.5 billion for our high-performance AI infrastructure portfolio. We continue to develop our strategic partnerships to capture this opportunity. In Q2, we announced plans to form a joint venture with AMD and Humane to deliver up to one gigawatt of AI infrastructure by 2030. This joint venture expects to begin operations this calendar year with a plan to build out 100 megawatts in Saudi Arabia as phase one of the project. We are seeing strong interest from European customers in our sovereign critical infrastructure portfolio designed to operate in air-gapped on-prem environments, giving organizations control over sensitive data and critical infrastructure. As AI adoption accelerates, concerns over privacy, data governance, and regulatory compliance are top of mind for our customers, making sovereign solutions an essential foundation for building digital trust. Now shifting to security. In Q2, we continue to see order growth across our new and refreshed products, which represent roughly one-third of our security portfolio and include Secure Access, XDR, HyperShield, AI Defense, and refreshed firewalls. Excluding the refreshed firewalls, over 1,000 new customers purchased these products in Q2, representing more than 100% growth quarter-over-quarter and bringing the total of net new customers since launch to roughly 4,000. We have also seen three consecutive quarters of double-digit growth in the number of firewalls ordered. For secure access specifically, we booked over 2.5 million users in Q2, and more than 50% of added customers were new logos. As the adoption of AI tools grow and agentic AI increases at the network edge, we expect to see continued momentum in our SASE business, including Secure Access and SD-WAN. As mentioned in prior quarters, growth in our new and refreshed portfolio continues to be offset by a decline in our prior generation portfolio. Turning to Splunk, we saw a similar trend in Q2 as seen in Q1, with continued acceleration to cloud subscriptions and fewer on-premise deals. While this shift is creating a drag on revenue growth, which we expect to continue in the second half of fiscal year 26, cloud subscriptions enable greater adoption, expansion, and faster delivery of innovation to customers. So overall, we are pleased with this transition. Splunk also continued to win new customers in Q2, reaching 500 new logos for the first half of fiscal year 26, and is on track to add 1,000 new logos for the year. We are accelerating our innovation across our offerings both for and with AI. At Cisco Live Amsterdam this week, we unveiled major AI defense and SASE advancements to help secure organizations as AI agents enter the workforce. AI defense can now scan models and repositories for vulnerabilities and provide an AI bill of materials for centralized governance. In Cisco SASE, we launched a new semantic inspection engine that can evaluate the intent of agentic interactions and block sophisticated, context-dependent threats. We are also making agentic ops the operating model for AI-driven IT to enable autonomous troubleshooting, continuous optimization, and trusted validation. We are deploying AI agents to work hand-in-hand with human administrators within our product dashboards, AI assistants, and AI Canvas. We continue to make AI advancements internally with expanded use cases in Q2 across nearly every organization. Today, the majority of our product developers are using AI coding assistance and working alongside agents, which help us innovate faster across our portfolio. Currently over 90% of customer experience support cases are touched by AI and automation, enabling us to resolve a greater proportion of complex cases within one day and contributing to our highest ever customer satisfaction scores. Additional use cases across sales, security and trust, supply chain, and corporate functions are also providing significant cost savings and efficiency gains. To summarize, we see strong demand for our solutions across all customer markets and geographies, solidifying Cisco's role in providing the critical infrastructure needed for this once in a generation transition. The value of our innovation is exemplified by Silicon One, which positions Cisco for the broadest range of AI deployments, even the most technologically challenging. And with over 40 years of customer trust and global scale, Cisco is committed to leading in the AI era to drive breakthrough innovation, manage complexity and risk, and deliver faster business outcomes to customers globally. Now I'll turn it over to Mark for more detail on the quarter and our outlook.