CISCO SYSTEMS, INC. Q3 FY2025 earnings call

• Q3 was a strong quarter with revenue, margins, and EPS above guidance ranges. - AI infrastructure orders from web-scale customers exceeded $600 million in Q3, year-to-date total over $1 billion, surpassing fiscal year '25 AI order target early. - Core business cash flows support capital returns, with $3.1 billion returned to shareholders in Q3. - Enterprise product orders up 22%, public sector up 8%, service provider/cloud up 32%. - Security orders grew in high double digits, with new security products adding over 370 new customers. - Accelerating innovation in AI, security, and customer experience, including new quantum networking chip and AI-driven customer support. - Organizational announcements: Scott Herren to retire, Mark Patterson to be CFO, Jeetu Patel promoted to President and Chief Product Officer.

Total revenue for Q3 was $14.1 billion, up 11% year-over-year. Total product revenue was $10.4 billion, up 15%, and services revenue was $3.8 billion, up 3%. Networking revenue was up 8%, with growth across most of the portfolio led by double-digit growth in switching and enterprise routing. Security revenue was up 54%, primarily driven by growth in offerings from Splunk and SASE. Collaboration revenue was up 4%, driven by growth in Devices, Webex Suite and CPaaS offerings. Observability revenue was up 24%. Recurring metrics: Total ARR ended the quarter at $30.6 billion, an increase of 5% with product ARR growth of 8%. Total subscription revenue increased 15% to $7.9 billion, representing 56% of Cisco's total revenue. Total RPO was $41.7 billion, up 7%. Product RPO grew 10% and total short-term RPO was $21.1 billion, up 5%.

• Fiscal Q4 guidance: Revenue expected $14.5 billion to $14.7 billion; non-GAAP gross margin 67.5% to 68.5%; non-GAAP operating margin 33.5% to 34.5%; non-GAAP EPS $0.96 to $0.98. - Full year fiscal 2025 guidance: Revenue expected $56.5 billion to $56.7 billion; non-GAAP EPS $3.77 to $3.79. Guidance assumes current tariffs and exemptions remain in place, with risks related to tariff uncertainties.

Uncertainties in tariffs could affect gross margin. Actual results may differ from forward-looking statements due to various risk factors detailed in Cisco's SEC filings, including risks from macroeconomic conditions, supply chain issues, and competition.

Q: How should we think about the growth rates of AI orders or AI revenues?

A: Chuck Robbins said AI orders are nonlinear, with big customers and potential to continue ramping if capacity is increased. Scott Herren mentioned the guide reflects tariff assumptions including post-July 9 reciprocal tariffs with exemptions.

Q: What's the impact of tariffs on Q4 gross margin?

A: Scott Herren said the guide for Q4 reflects the impact of tariffs including post-July 9 reciprocal tariffs with exemptions, built into the forecast to protect downside.