Cisco Systems Inc at RBC Virtual Investor Meeting Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : That's right. Yeah, we're going to be talking about some of those. I guess given your background has been very, very software-focused, why do you think that works at Cisco right now, which as we have talked to a number of folks inside of Cisco, you're really trying to change the perception, I think of Cisco. And it's not just words, it feels like it's action. That Cisco is much more a software company these days, I guess, -- talk about your background, why you think that's an important point in your career, but the kind of the where Cisco is going? Gary Steele - Cisco Systems Inc - President, Go-to-Market I think it's -- If look at the work that has been done over the course of the last five plus years at Cisco to build this broad recurring software revenue base, that's been a big focus of the company. And with my historical experience of having run recurring software revenue businesses Splunk and prior to that Proofpoint, I had seen the maturity of that industry and how that changed. I also bring a unique perspective from a cyber point of view. I've lived in the cyber world for a really long time and so I see and have watched the investments that Cisco has been making and now bringing Splunk into the fold. I think that we have a very unique position and a ton of opportunity out there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 6:00PM, CSCO.OQ - Cisco Systems Inc at RBC Virtual Investor Meeting And so I think all of that just made a ton of sense for me, and I think my skills are unique and are helpful to Cisco.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : It really does this as a sidebar doing quite a bit of channel work. It does certainly feel like Cisco is showing up in the safer conversations more than it has for many, many years. It feels like now, let's say, you guys this summer as part of virtual bus tour, that was a kind of a consistent theme then. So I think your focus on channel feels like it's paying some dividends early on, but we'll get into that in a bit more. When we talk about cyber, I guess maybe before we get into some specific questions. You guys have obviously massive global reach, a very unique perspective on IT. buying trends. Can you -- obviously, that's like one of the number one questions that we get from investors is what's going on with the macro was one-off IT buying perspective? What are you guys seeing from an overall IT demand perspective now as it relates to Cisco? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. If you look back at what we reported in our Q4 earnings call, we talked about the fact that deals are being highly scrutinized. I think there's a lot of oversight today that in the past may have not existed. I think buyers are being very thoughtful about what they're spending dollars on and they're scrutinizing the purchases they're making. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 6:00PM, CSCO.OQ - Cisco Systems Inc at RBC Virtual Investor Meeting We are seeing and we noted this in our earnings call that customers are upgrading their networks for AI. They're thinking about what does the future look like and what work did they need to be doing now to make sure that they could take advantage of that. And so we notice larger deals that were the result of people upgrading their networks to get ready for what is this next-generation of AI infrastructure look like?

Question: Matthew Hedberg - RBC Capital Markets - Analyst : That's great. We're going to double-click on a number of those things. But I think when I step back and look at Cisco from more of a software lens, I think you guys are roughly $50 billion in revenue. And I think about a third of that right now is software. When I listened to Chuck on the 4Q call, talk about bringing together networking, security and collaboration really as one organization from a technical perspective, I think being led by Jeetu Patel, it really does feel like Cisco from a top down perspective is focused on integration and software. So I guess from your perspective, can you talk about, the significance of this unification because I hear customers all the time talk about consolidation and it's one thing to talk about. It's another thing to deliver it. And so from your perspective, whether it's the Splunk lens or your go-to-market lens, what needs to change to deliver on this vision that seemingly feels like it's going down the

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Excellent. But that is -- Yeah. And it feels like you've been, I think you said the word channel a number of times, and it really does feel like it's a joint effort between Cisco, direct, Cisco channel partners and getting that education out there. It feels like that's going to be a key focus for the company over the coming years. I want to talk a little bit. I wanted to -- I was going to ask a follow-up question to this to the software mix shift. But maybe before I get there by the way, I'm getting some questions e-mailed to me. Thank you for those I will there's some specific product related question, so I'll insert them when we talk about the specific product. But if you look back, I guess on Splunk's Q4 performance and kind of call it fiscal '24, performance from a revenue perspective, ARR perspective. Any consideration that we should take into account given kind of the integration efforts into Cisco? Gary Steele - Cisco Systems Inc - President, Go-to-Market What we've seen is our last independent results were the end of Splunk's fiscal '24, and we saw a mid-10s growth with great cash flow generation. All that momentum move right into Cisco and as the numbers have been reported, the numbers are a little bit different because Cisco's closing periods are different. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 6:00PM, CSCO.OQ - Cisco Systems Inc at RBC Virtual Investor Meeting So as an example, at the end of Q4, Cisco's in the quarter closes for days before Splunk's in the quarter. And so the numbers don't totally align over time that all goes away. It will be no big deal, but you can't always draw the exact comparison to prior periods just simply because the periods are a little bit different that will all work out in the wash over time. But the businesses has maintained its momentum. We've seen acceleration. We've seen some very nice deals that were done cooperatively that the Cisco team brought Splunk team into. And so we feel really good about the lift that we're seeing, even though it's really early and we're starting to see lift from the broad reach that Cisco has and the momentum that we can bring broadly to the Cisco team.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Okay. And then maybe as a dovetail I think I mentioned a little bit earlier, I think about 30 of your total consolidated revenue at Cisco is software and obviously, it's a fast-growing piece. I mean, without kind of giving guidance on where that could hit longer-term? How should we think about that mix shift? And maybe how does that mix shift impact kind of total growth and total profitability of the company? Gary Steele - Cisco Systems Inc - President, Go-to-Market I think there's sort of two components here, I think what you'll see is, you'll always see a blend because what we're really delivering is the value of this broad portfolio that includes both networking and security combined. And so you'll see software components that get leveraged as we continue to grow our infrastructure business. The software components that play a important differentiation and an important component of our overall overall stack. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 6:00PM, CSCO.OQ - Cisco Systems Inc at RBC Virtual Investor Meeting Obviously, software contributes in a positive way from a gross margin standpoint. You see that with the contribution of Splunk and you'll continue as the software portfolio grows, you're going to continue to see benefit from that. And holistically, though we are a broad portfolio that includes a world-class infrastructure driven by the broad -- driven by the benefits of the broad software portfolio. So as we think about going forward, for example, the work that we're doing, the AI side, it's really we're selling what is known as hyper fabric. We introduced that at or at Cisco Live. That coupled with hypershield, which is our AI defense solution that helps customers protect their AI environments, but it's all integrated directly into the network fabric. And so you get this nice blend of infrastructure growth plus the software growth that's tied to it.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. That makes a lot of sense. I guess in terms of on that large customer that you noted on the 4Q call, what do you -- what does that typically mean from a customer perspective? Is there a list of competitors that are being displaced in that instance. And the follow-up question is around pricing. There's been a lot of, as -- better than I should carry. There's been a lot of questions on Splunk pricing over the years, I know you've made a lot of changes as a stand-alone entity pre acquisition, but talk about sort of like how pricing plays into that a consolidation effort? And then who are you seeing any sort of themes from a consolidation perspective? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. So I think a couple of things. I think one, on the specific large deal, this was a bigger, broader commitment to Splunk, displacing an existing set of tools that they had. So Splunk was installed, but this is a very big deal that expired and the breadth for which we are being used. And so there was competitors that were displaced as part of that. And I think -- and then within that broad bracket of that large deal. I think there's we're putting in Splunk within the Cisco buying programs, of which that deal was part of the one of the Cisco buying programs. And so that gives the customer more leverage on a more consistent discount structure across all the components of Cisco. So that's a very big positive. And going back to your pricing question about which I think is a really important one. We've been on a journey, and I think we've made tremendous progress on our journey. So just to do a little bit of history for those of you, there aren't totally familiar. If you go back in time, 10 years ago, Splunk had an ingest based pricing model, meaning you paid a toll to Splunk when you brought data into Splunk, fast for roughly prior to me joining, but probably five years now when the bulk of our business move to the cloud. We introduce what's known as workload based pricing, workload based pricing allows you to basically tie the value that you're getting. So what are you doing within Splunk and the outcome you get in. And so people pay for the workload that they have, but there's no penalty for bringing data. And a very good example of that is you think about access logs, SuperCom and in security did Matt log on to Salesforce at this time or not, and you don't need that data all the time to do analytics on You only need that data. If you have some of that, you need to do an investigation around. So you can bring all those access logs in this month at no cost customer, nothing. And only if you're doing data analytics around that, do you pay Splunk a tool. So I think the workload based pricing became something that was very important change in the way we thought about how people had to pay for Splunk has been very important in changing people's perception that Splunk is expensive. At the same time, one of the things that we've been doing a lot of work on is as people digital footprints have grown, data volumes have just continued to increase. And so we've introduced a whole set of capabilities to help customers really think about one, how much data do they want to manage? And then two, where do they want that data to live? And so from a -- how do you -- how much data do you want to manage like we encourage customers to pre process data before it goes to Splunk. So a good example of that is firewall logs. They're super of Illumina's, you don't need all that data to get the right threat telemetry. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 6:00PM, CSCO.OQ - Cisco Systems Inc at RBC Virtual Investor Meeting And so you can shrink down the size of those logs using capabilities that we provide and these are capabilities. We provided no cost. We had previously force customers to go to third parties like accrual or something like that or you don't need to go spend money on licensing for something that you can get from Splunk. And then secondly, we we have built a strategy on Federation, meaning you can decide to store your data outside of Splunk and still get the benefit of Splunk. And what that means is you can, for example, store logs and Amazon security like and still through a single Splunk search bar, get access to that data and not have to necessarily bring it into Splunk and have it live and slots. And so this idea that while data volumes continue to grow, we want to help you shrink the amount of data that you need to retain, and then we want to help you thoughtfully decide where you want that data to live and what's the most cost-effective location for that data and then give you the power of Splunk no matter where their data lives and we call that our federation strategy. The other thing that we do that, I think is really important. And it again, it factors into pricing and how you think about costs as we allow you to use Splunk across a multi-cloud hybrid world and we have so many customers today that have some on-premise footprint. They want some Splunk there. They have it in the cloud. And then with data privacy rules, oftentimes you're forced to have separate environments for separate countries and being able to see across that entire environment with Splunk and not have to backhaul all this data to a central location has been really, really important and instrumental in helping customers again, think about how do you manage all this cost out? That was a long answer to your question.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. That makes sense. And then there's as you probably know more than I do. There's because there's a lot of competitors that are targeting Splunk for competitive displacements post the Cisco acquisition. I guess from your perspective, why won't that happen? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. I think it's really simple, I think for us and as I mentioned earlier in this, our pace of innovation is pretty incredible. And I think the value that we can bring today is more than the value we can bring when we were standalone. And the thing that is people do not fully understand or appreciate about Splunk is the level of innovation that we've delivered over the course of last two years is pretty amazing. And so the Splunk of three years ago was not this month of today. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 6:00PM, CSCO.OQ - Cisco Systems Inc at RBC Virtual Investor Meeting And so I'm confident that we will continue to deliver on this path of innovation, and we will deliver value from the fact that we're part of Cisco in this broader opportunity to bring capabilities that live within Cisco, simple things like threat intel, which you're just going to get for free, it's just going to show up in the product. There's a whole set of values that we will deliver that. I don't think our competitors can come close to. And today, when I look at the industry dynamic from a security lens, I would say, bringing together XDR and SIM is something that no one's figured out. I think we are going to be the first vendor that can really deliver something comprehensive that gives you Rich detections plus this broad investigative environment that works across a multi-cloud hybrid world, which is hard, super hard and that we can solve the customers' issues around. How do you manage all this data and it's amazing the number of customers that will say, oh, we're going to go tries something, then they tried and they can't get the capabilities to work to do what Splunk does. If you look at it from an observability perspective, one of the things that we did right out of the gate was we moved at the into Splunk. So I don't know if this is well known, but we took the app developers that weren't leaving them within Cisco and on day one of announcement of the Splunk acquisition, we brought all those developers into Splunk. And then subsequent to that, we brought all the AppD sellers that that was a separate specialist team. And we now converge them with Splunk. And so we've been on a path of integration of bringing the benefits of APM under AppD bring that and integrating that with the core of Splunk so you can move back and forth between AppD and Splunk and get the benefits of both worlds and then bring the value of Splunk's Observability Cloud into that picture. And so you have a single offering that spans whatever application architecture you have, whether it's traditional or cloud-based app and then all of the richness that you get from Splunk core and so all of that over the course of last four months, we've rationalized all that and we made a whole bunch of progress really, really quickly. And again, with that combined, then with our thousand eyes offering, which largely is the across your network as well as I know networks, we have visibility to no one else has. And so I think there's just tremendous value that our customers get because we're together and it's clear to me that lots of people think it's easy to go take us out, noy this is not. And I think we're moving fast from integration standpoint and delivering real value. And one of the things I would say is, we've been really focused. We've now allowed our team to be distracted at all. And so I think that has also played a really important role.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : You've mentioned hypershield a few times, and I know that's part of sort of Cisco's broader security cloud initiative and something Jeetu talks about quite a bit. Can you talk about, what Cisco can bring to bear when it comes to security consolidation, especially when we're talking about Palo Alto, Zscaler and CrowdStrike, one is not just a battle at the network, but it's increasingly at that cloud layer that feels like a real battleground today. Can you talk about how hypershield positions the company and like if we were to fast forward a couple of years from now, what's going to be the market perception on Cisco because a lot of people thinking Palo and some of the independent vendors are better positioned, but why will Cisco gained share over the next several years? And is hypershield kind of a big part of kind of the broader Cisco cloud strategy? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah, I think hypershield will play a critical role because it's a capability that has been desperately needed in network security it differentiates us from the other sort of traditional network security vendors that are just offering a firewall. I think the combination that we deliver with hypershield plus our firewall, I think, is something that customers are incredibly excited about like the early feedback from preview customers was phenomenally good. They hadn't seen anything in the market like this everyone has been thinking about. Is there some way to get automatic segmentation, which has been a industry hard problem. So I think there's real differentiation there. And I think the opportunity for Cisco broadly is how do you bring world-class networking together with security to detect lateral movement. Because if that's what you can do, that's going to stop the kinds of issues that we've seen in the market. And there's a tremendous opportunity to get all that right. And so from the detection work that we're doing on the XDR level, the work that we're doing at the network level with hypershield and the work broadly we're doing with SASE. I think we're really well positioned underpinning all of that with Splunk. I think it puts us in a really unique position. And so I think you'll see networking -- you'll see security continue to grow as a part of the overall Cisco product line. And it's a big area of focus on top to bottom in the company. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 6:00PM, CSCO.OQ - Cisco Systems Inc at RBC Virtual Investor Meeting

Question: Matthew Hedberg - RBC Capital Markets - Analyst : That's excellent. Yeah. The other topical conversation, several world as it was the CrowdStrike outage. And I'm wondering a lot of us on the analyst side have been asking a variety of software vendors, does it change customers' view of consolidation? It's too much concentration risk. A lot of vendors have been saying. No, they don't think that. And you can imagine probably that's what they'd be saying. But I guess I'm curious, like from your perspective, do you think that drives more consolidation, less consolidation, any sort of like concentration risk that you're hearing from customers? Gary Steele - Cisco Systems Inc - President, Go-to-Market I think, the one thing that I hear is just the -- the concern over resilience, right? Because what the CrowdStrike event pointed out is that all these things are digitally interconnected and when something goes sideways, it affects everybody. And so I think customers are thinking a lot more about digital resilience broadly and what do they need to do and invest to ensure that no matter what happens, they can continue to operate as a business. And so I don't think it changes customers' perceptions on my buying too much from one vendor or not, I think, but I do think that they're stepping back and looking at the importance of resilience, like how do they stay up and running at all times. And I frankly think that pushes more opportunity on the observability side of our business.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. So more consolidation. You sort of led me to the observability pieces discussion. I think ex-Splunk observability grew a little faster than say, but I think you grew about 12%.I guess, from your perspective, and I wanted to double-click on that in a second here, but what drove those results and how do you see observability spending playing out in 2025? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah, I think resilience continues to be a top topic. It's a board room topic now. It's not a low level IT developer, SRE only kind of conversation. It's all the way at the highest levels of the company. And one of the things that we continue to see is larger organizations that have and we call it monitoring sprawl. Every app environment grew up, they bought a different monitoring tool and there's just a sea of it. And there's no sort of consolidated single way to see across the broader digital footprint. And so one of the broad themes that we see is like how do organizations step back and have a strategy for driving resilience and it's not by having 1 million different monitoring tool. That is not the answer. And as I indicated earlier, I think one of the great things for Cisco is that we can support wherever a customer is on their journey relative to cloud, whether they still have on-premise data centers with traditional style apps or whether they've moved to the cloud. They have modern microservices-based apps, whether they want to understand what's going on across their broader digital footprint from a network perspective. No one on the planet has more insight and data than Cisco. And so I feel like we're really well positioned as we work through this journey where customers really are trying to figure out what will ultimately drive resilience for them and how do they bring together a strategy around understanding what's up and running and why is it up and running. And we continue to also see benefiting convergence of being strong in security and observability because these are close cousins or one another. And when something goes bump in the night and everyone's on a bridge, trying to figure out what happened you have to figure out, was it a cyber event that created a problem, but there's some application failure was some network issue. What was the problem? And I think one thing that's exciting for me is that Cisco is really well positioned to help customers answer that question and really drive resilience across their broad digital environment.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : That's great. or there any? -- So when you look at kind of the broader Observability Suite, bringing together Splunk and AppD, are there holes in the portfolio today, maybe it's on cloud monitoring, maybe timing of broader infrastructure just because obviously Splunk was rich in heritage and soon and logging and obviously at the APM capabilities. But are there any holes that you see in talking to customers that Splunk can continue to solve for people? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah, I think I don't feel like we have any big holes in interestingly, and I think it was on last 30 days, Splunk slash, Cisco was named a leader in the APM Magic Quadrant from Gartner. And so I think it shows the investments that we've had have really paid off in terms of recognized market leadership. The thing that I'm now excited about is being able to leverage the broader network insights directly into our product. So Cisco ahead and historically had a product called ThousandEyes, which gave you all that network visibility, we're in the sort of bringing that data into Splunk. So you can not only see across your application environments, but you can also see across the network. And so we think that's super beneficial and that that engineering work is ongoing. But we're very confident that that's a capability that is just a natural extension from where we've been. And again, it's not something that the competitors would traditionally have had

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Interesting. Yeah, it feels like others have been talking about that as well. I start -- we started this call off and it was gloomy here. Another some doubts have been fighting the sun all day (inaudible). So we could tell that we've covered a lot of good ground here. I guess, Gary, it wouldn't be a call without talking about AI and I guess more specifically Gen-AI, what are Cisco's software's plans for AI and maybe just generative AI? And how do you guys think about monetizing because I think it's one thing to talk about. It's another thing to actually get customers to pay for it. But when you think about the broader suite that you're that sort of under your go-to-market perspective, how do you think about Gen-AI? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. So you'll see AI from Cisco at multiple levels. So one is that a very straightforward level. You'll have unified AI assistance across all the products. So Splunk is a small adjustment brought to market. AI systems across both our observability capabilities as well as security, but that -- and that will be unified with the AI assistance of live on the networking side as well as in the collaboration side as well as in security. So you basically have one AI system from Cisco broadly across all the products. At the same time, we're building AI into the way the products work. And so you'll see that Splunk, you'll see that across Cisco. And so monetization of AI is not at the system level, but will come from the product capabilities that represents features that customers will pay for. And then underpinning new product capabilities like hypershield, you've got AI built in that helps us do this automatic segmentation. Those are capabilities that leverage AI, not Gen-AI, but leverage AI to be able to create the value for the end customer. So you're going to see, AI show up in a whole variety of ways, Gen-AI specifically from a system point of view. And you're going to see that in -- we see that across the broad set of product lines that Cisco has. And then at the end of the day, we're obviously building infrastructure to support AI buildout with things like hyper fabric, which basically is a full in AI stack that is fully managed. And so it's infrastructure that customers can leverage to drive both inference and training workloads.