Cisco’s CEO Chuck Robbins reported that organic revenue came in at the high end of the company’s guidance range during the company’s fiscal third-quarter earnings call.
“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,” he said. “We once again delivered good growth in annualized recurring revenue, remaining performance obligations, and subscription revenue.”
More than half of the company’s total revenue for the quarter came from subscriptions revenue.
Robbins also touched on the acquisition of the cybersecurity subsidiary Splunk, which was completed on March 18, midway through Q3.
“Splunk significantly expands our portfolio of software-based solutions,” said Robbins, “contributing over $4 billion in annualized recurring revenue and adds to our position as one of the largest software companies in the world.”
He reported that the Splunk acquisition will allow Cisco to drive revenue in the security and observability markets.
“Upon closing the deal,” he said, “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.”
Signs of stabilization
Cisco’s two largest product portfolios—data center switching and campus switching—saw order growth in the quarter, as did the security and collaboration product categories. Overall, product orders were up 4% year over year.
“While our telco and cable customer demand remained muted worldwide, we are encouraged to see early signs of stabilization and improved performance in web scale in terms of pipeline and orders,” he said.
Robbins briefly touched on the departure of Jeff Sharritts, chief customer and partner officer, which was announced on the same day of the earnings call. Sharritts is set to depart Cisco in mid-July. Gary Steele, Splunk’s former CEO, was named Cisco’s new president of go-to-market.
Troubles in networking, wins with subscriptions
Scott Herren, Cisco’s CFO, gave more details on the company’s financial results.
Total revenue for the quarter was $12.7 billion, down 13% year-over-year. Splunk contributed $413 million in revenue. Non-GAAP net income was $3.6 billion, down 14%.
“Looking at our Q3 revenue in more detail, total product revenue was $9 billion, down 19%, and service revenue was $3.7 billion, up 6%,” said Herren. “Networking, our largest product category, was down 27%. We saw declines across all geographic segments due to the continued implementation of inventory by our customers; bear in mind that our Q3 2023 networking revenues benefited from significant shipments of excess backlog.”
Excluding Splunk, ARR was $25 billion, up 5%, and product ARR was up 9%. With Splunk, ARR ended the quarter at $29.2 billion. Subscription revenue was $6.9 billion, a 12% increase.
“To summarize,” said Herren, “we successfully completed the acquisition of Splunk, drove strong non-GAAP margins, and increased our operating leverage in the quarter.”
Regarding guidance for the next quarter, Cisco expects revenue to be between $13.4 billion and $13.6 billion. It anticipates revenue for the full ’24 fiscal year to fall between $53.6 billion and $53.8 billion.
Tapping in to experience
Cisco hopes the addition of Steele to the executive team will better position the company to achieve growth in the coming year. Prior to the transition to his new position, Steele served as Splunk’s president and CEO for about two years. Before Splunk, he served as CEO of Proofpoint, a security-as-a-service provider, for over 19 years.
“In his two years as Splunk’s CEO, Gary grew revenues by nearly 60%, including ARR growth of 35%, while driving a dramatic and successful company transformation and accelerated innovation across their portfolio,” said Robbins in a blog post. “As the founding CEO of Proofpoint, Gary grew the company from an early-stage start-up to a leading, publicly traded company. His operational mindset, combined with his intense focus on simplicity and proven ability to drive growth, position him well as the new leader of this organization.”
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