Cisco Systems Inc at RBC Virtual Investor Meeting Transcript

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. 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. 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 : 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. 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? 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 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 path of a product side but then from a go-to-market, how do you implement the side? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. So it's a great question. I think -- the one thing I'm super enthusiastic about is the organizational change that Chunk announced as part of our earnings call, where, as you described, we basically have now one product leader, Jeetu Patel, who is our Chief Product Officer, all product engineering capabilities work within our Jeetu realm. Splunk hasn't moved over yet, but it will at the right time and we're being thoughtful about that. But being able to have a single leader that can make the product trade-offs and drive the right level of integration across the organization has been is super important. So I think it positions us very, very well to be able to take advantage of markets where there's convergence. So there's so much convergence today between networking and security, there's so much more we can do as a single product lead org. 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 I think we're going to see tremendous progress there and then really driving the points of integration across our broad portfolio that deliver real value to customers. That's what puts us in a position to go after. And as you described, Matt, I think aspirationally customers want less vendors. They want platforms that deliver value across multiple product capabilities and they want less point products and our ability as Cisco that can bring broad platform of capabilities together, I think is super important from a market standpoint or an opportunity standpoint it makes it that

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. 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

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. Okay. That's helpful. Let's dig into a little bit more of Splunk and kind of integration here. I think at the time of the Splunk acquisition, if I recall correctly, correct me if I'm wrong, but I think you guys noted that there were maybe about 5,000 existing Cisco customers with no Splunk presence that you guys thought would be a good fit for Splunk. Is that the right number? And can you talk about how you're driving that conversion? Because candidly, there's a lot of investors out there that also feel that, Cisco Splunk could be a share donor, but talk a little bit about the target rich customers and how are you going to drive conversion? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. So the 5,000 accounts that were noted before were 5,000 accounts we identified there's actually more than that, but that's the -- that was the target list that we set. And again, these were customers that were loyal to Cisco and had a broad set of product capabilities from Cisco, but had spent no money with Splunk. When we announced the closure of the deal. We also announced a focused program and our go-to-market efforts where we're effectively spiffing the Cisco team to support helping Splunk sellers get into those accounts and penetrate those accounts. And as we got to the end of our Q4, even though we're really only 90 days into the deal, we actually have seen some number of those accounts close. And even beyond that, we saw some very big deals happen that we're Splunk was integral part of the deal. So we noted, for example, there was a nine figure deal that included Splunk that happened in the Q4 timeframe right out of the gate. And so this isn't that was not all Splunk, right? That was across the broad Cisco product line, but Splunk was a very important and critical component. So the 5,000 customers is really this focused effort to go drive, drive the broader connection and working as well with a white glove process to bring Cisco partners in two that maybe had not sold Splunk, but were loyal to Cisco. And so engaging those partners to ensure that we then begin to accelerate our opportunity broadly within the Cisco ecosystem. And if you combine the number of sellers that Cisco has with their number with the number of partners that Cisco has. I mean, our reach just grows at a whole different level. And that's the thing that I think we're -- we continue to be very excited about. And we're seeing the early makings of that benefit because we're getting reach to places we just didn't have reached before.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : It's a helpful history lesson because I agree there's still a lot of confusion out there that I still get. I guess, on a go-forward basis. How do you think about leveraging the broader Cisco portfolio can maybe drive even more rapid consolidation? Like are there some additional discounting? Is there even some additional pricing promotions that you think could leverage the broader platform to give customers even more consolidated view? Gary Steele - Cisco Systems Inc - President, Go-to-Market I think at a reasonable level of just being part of all the Cisco buying programs that exist and so we are buying programs for our customers that allow them to buy across our portfolio of common discount rates and discount capabilities that standalone and world we would have had available within Splunk and so at a very simple level, our largest customers will benefit from having Splunk within all of the Cisco buying programs.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : That's great. I want to spend a little bit of time on security, in particular, I believe in Q4 security revenue grew, I think about 6% at Splunk. And on the call, I think the team has won a number of competitive wins, continued kind of growth in chassis and then double digit growth in networking security. Can you talk a little bit more specifically about what drove those results and what are your expectations for security performance in fiscal '25? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. So I'm super enthusiastic about the innovation and progress that we see within the broad Cisco product line. And much of this is because of investment in innovation that was relatively new. And so I referenced earlier the Cisco XDR solution that was introduced roughly a year ago, there's been tremendous momentum there. In the SASE world. There's been tremendous momentum and great customer adoption in the SASE world. And I think the strength of Cisco's networking, but the plus the strength of what the security team has built, I think puts us in a really unique position to continue to take share and do really well in the market. And then you bring all that together with these new capabilities like hyperscale that I referenced hyper shield started shipping at the end of August. Again, that's a whole there's nobody in the market that has anything competitive to this and allows us to really lead from our perspective that's helping detect lateral movement across the network. It gives you AI base network segmentation allows you to do controlled updates. There's a lot of really cool features in that solution. And so there's -- because of the investments that have been made. We feel very good about the opportunity to continue to grow security at a nice pace. And I think as we rationalize Splunk into Cisco, I think we will continue to see other areas of growth, but I feel really good about it. And there's been a lot of progress made.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : One of the -- Thanks for that, Gary. One of the questions we got was from an investor was and I'll read it kind of similar to how it was written, but the Cisco see the increase increased infrastructure modernization as a leading indicator for a firewall cycle. What cycles do you see in the business that could promote a broader refresh cycle later this year or into next year? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah, it's a good question. The one thing we noted in our Q4 earnings results was the fact that customers we had some a reasonable number of very large infrastructure upgrades preparing for AI workloads. And so and that was relate again, broadly from core network to firewall. All of that rethinking what does it need to look like -- what does the environment need to look like to support AI workloads? I think there will continue to be catalysts there where customers rethink the environments they have, where there's AI workloads going to run or they're running in the cloud or on-prem or some combination. And what does the infrastructure needs to look like to support it. So that's the one theme that we do see. And we noted that in our Q4 results and led to some very large deals for Cisco.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Well, that will be a good dovetail into our next set of questions. But I guess from your lens and talking to customers, I think a lot of the feedback on future product initiatives or M&A comes from what customers are asking you. Are there anything in your time in this elevated role that you're hearing like energy, I'd love to have Cisco help me out from a cyber perspective. More in this area that maybe could be some additional investments for you guys? Gary Steele - Cisco Systems Inc - President, Go-to-Market No, I think you've heard this for a long time, and I think customers generally want to have less vendors that they can deal with that they can. And they looked at vendors like Cisco to help them on a consolidation journey. They want -- because the issue, frankly is it's just a lot for organizations to manage and the more and people because they have deep investments at Cisco, they want they would love to see more capability from Cisco. I think.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : That's great. I guess you mentioned at the earlier that it's been integrated into Splunk felt like on day one. I mean, a lot of new AppD years ago. Can you give us a little bit of update on the AppD portfolio and why it makes a lot of sense inside of Splunk. Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah. I think at a very simple level AppD as best in class APM for traditional applications. And the thing that we did as we came into Cisco, is Cisco had built some number of observability capabilities for the cloud. And we basically rationalize all this and converged on Splunk capability. So leveraging the historical APM capabilities of AppD to support traditional applications, but then integrating that with core at the core of Splunk and then bringing forward the observability capabilities that with Splunk's Observability Cloud. And so putting all that together is been the integration work that we've been working on and really natural complements to one or the other now. And so any conflict that we had in the portfolio, we basically rationalized as we came into the company.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Similar question on the cyber side, when there's some of the larger cyber vendors feel like their share shift to be had from their perspective, when you talk to some of the standalone visibility players, they should feel like Splunk flash, Cisco is a is an interesting come competitive replacement opportunity. 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 How are you winning deals against a Datadog or Dynatrace turn elastic when when they claim that they're having some success as well? Gary Steele - Cisco Systems Inc - President, Go-to-Market Well, one, I think the market is being in the market is growing fast and so. We're extremely well positioned as you look at the strength of our securities. So I think that we can go see those and I like the traditional security vendors side, -- the -- I think, relative to the traditional observability vendors. They have very little art to limited presence with CSOs. I think we have a strong position in anchor in the security community and then being able to bridge these two environments, I think has also been incredibly important. And then the broad breadth of capability that we bring to bear like, what I see is that people tried to take specific use cases away like it. They don't win the state, they just they might win some small thing. And at the end of the day, the customer is going to come back and bring it back and bring it back together. So if I look at our at the very simple level, we don't publish our renewal rates, but I can say our renewal rates have stayed steady, not changed at all and which would indicate that competitors are making no progress in terms of taking Splunk out. And the other thing that we've seen is our fair share of competitive displacements evolve and big name competitors because we can deliver capabilities that those folks can't, and we continue to see momentum competitively on the security side where curator sort of a jump ball these days a month of those curator customers are coming to Splunk.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. So maybe to wrap up, this has been super helpful, Gary, appreciate your time. It feels like in some regards as the new Cisco. There's obviously new assets, new leadership thinking, new strategic focus, new go-to-market initiatives. There's also a lot of investors that are naysayers and maybe even some traditional networking investors and maybe some software investors that are a bit more skeptical. What do you say to the folks that are maybe skeptical of Cisco? And if this is a new Cisco, nothing's changed. And Mike, I guess part of that answer is looking forward. We're sitting here in year two or three. What's going to be the most critical aspect to driving share outperformance over the next several years? Gary Steele - Cisco Systems Inc - President, Go-to-Market Yeah, I think this is all about continuing to deliver great outcomes from a software point of view that deliver growth numbers that matter to investors. And I think that the way to monitor the progress is continue to pay attention to the growth numbers that you see coming from Cisco as it relates to software portfolio and how that ultimately benefits the top line. Because we are -- we will be a major player in these AI initiatives as customers upgrade their infrastructure software is going to play a critical role in that. So it will play out in our numbers in our growth numbers.