Cisco Systems, Inc. (CSCO) Earnings Call Transcript & Summary

Hello, everyone, and thanks for joining us for Cisco's quarterly earnings conference call covering the fourth quarter of fiscal 2023. I'm Marilyn Mora, and I lead Investor Relations. With me today are Chuck Robbins, who serves as our Chair and CEO, and Scott Herren, our CFO. You should have received our earnings press release by this point. After this call wraps up, a webcast with slides—supplemental information included—will be posted on our website under the Investor Relations section. You can also locate income statements, complete GAAP to non-GAAP reconciliation details, balance sheets, cash flow statements, and additional financial information in the Financial Information section of our Investor Relations site. During this call, we'll be citing financial results on both a GAAP and non-GAAP basis, and unless we say otherwise, product results will be discussed in terms of revenue while geographic and customer results will be discussed in terms of product orders. Every comparison we make today is on a year-over-year basis. Today's discussion includes forward-looking statements, among them the guidance we're giving for Q1 and the full year of fiscal 2024. Such statements carry risks and uncertainties that are described in detail in the documents we file with the SEC, in particular our most recent reports on Forms 10-K and 10-Q, which lay out important risk factors that could lead actual results to differ materially from what those forward-looking statements contain; regarding guidance, please also consult the slides and press release accompanying this call for more information. Unless Cisco makes an explicit public disclosure, it will not comment on its financial guidance during the quarter. With that said, I'll hand things over to Chuck.

Marilyn, thank you. Everyone, good afternoon. For Cisco, fiscal 2023 stood out as a milestone year. Our operational and financial objectives were met as we sped up our transformation. Both in Q4 and across the entire year, we set records for revenue and earnings per share. Strong margins, record operating cash flow, and solid shareholder value also came through, with $10.6 billion returned through share repurchases plus higher cash dividends. During FY 2023, revenue came in at nearly $57 billion, an 11% rise year-over-year, marking the strongest revenue growth rate in more than a decade. Customer demand likewise held up well overall; during Q4, total sequential product order growth exceeded 30%, the second highest figure in 20 years, and every customer market posted double-digit gains. As we aim to extend this strong performance moving forward, our focus stays on the following: first, expanding market share across every key area of our business. Second, fueling innovation and broadening our leadership through investment in major new growth opportunities in AI, cloud, and security. Third, producing long-term, sustainable value creation for stakeholders. Fourth, reshaping our business model through growth in recurring revenue. In line with what we told you last quarter, we anticipate building on our record results, with modest revenue growth delivered in fiscal year 2024, and with the bottom line rising faster than the top line, which shows operating leverage. Good visibility and predictability underpin our outlook, supported by healthy backlog, ARR, and RPO. Building shareholder value and boosting returns to investors remains a deep commitment for us. A long-term commitment to greater operating leverage will get us there, alongside rising annual share repurchases and a growing dividend. Let me now provide more detail on the quarter and the key growth opportunities that lie ahead for Cisco. First, our pace of innovation ranks among our greatest competitive advantages. During this quarter, we introduced new offerings spanning Generative AI, hybrid work, security, Full-Stack Observability, and sustainability. On top of that, we remain focused on delivering a more seamless, unified experience for our customers. I've mentioned this previously: we recognized that once our backlog diminished, the resulting market share gains would materialize. In our three biggest networking markets—Campus switching, wireless LAN, and SP routing—we gained over 3 percentage points of share year-over-year when calendar Q1 results came out. We expect further share gains in those areas once calendar Q2 market share numbers are released. And second, the acceleration of AI is going to fundamentally transform our world and create new growth drivers for us. AI has played a central role in what we offer for a number of years now, but during this quarter we announced market-leading AI technologies across both our collaboration and security portfolios, designed to drive productivity gains, improve how policies are managed, and make tasks easier. In addition, we rolled out new innovations in AI scale infrastructure, which allow our customers to handle AI workloads with greater efficiency. With our ASIC design and a scalable fabric purpose-built for AI, we're well positioned to build the infrastructure that hyperscalers and others need to stand up AI/ML clusters. That's a massive opportunity for Cisco, and we're sharply focused on leading and winning in this space. Thanks to what we've innovated in this space, we anticipate Ethernet taking the lead for linking AI workloads during the coming 5 years. To speed up that shift, Cisco signed on as a founding member of the Ultra Ethernet Consortium, a cross-industry push aimed at advancing open, large-scale, Ethernet-based fabrics for high-performance networking. During June, we rolled out our next generation Silicon One switching ASICs to serve large-scale GPU clusters for AI and ML workloads. Early wins are showing up in hyperscale Ethernet AI fabric deployments. So far, we've booked orders exceeding $500 million for AI Ethernet fabrics. We're additionally running pilots for 800 gig capabilities for AI training fabrics. At a high level, Cisco is focused on helping its customers move through this transformation in a way that's trustworthy and responsible, so they can capture everything this technology has to offer — and we're in a strong position to come out ahead. Now, on to security, which remains a leading priority. The AI-powered Security Cloud platform from Cisco provides wide-ranging capabilities across the network, endpoint, and cloud, which makes managing security less complicated while improving its effectiveness. Newer offerings like Cisco XDR, Cisco Multicloud Defense, and Cisco Secure Access, which is a Secure Service Edge solution, are seeing rapid adoption in these early days. Take Goldman Sachs, for example — they were one of the first to pick up our Cisco Multicloud Defense offering. On top of that, we've got a partnership going with Apple that puts Cisco's Secure Access into both iOS and macOS. Between these new developments and the companies we've bought recently, you can see how we're expanding what our security portfolio covers, adding deep telemetry along with AI and identity threat capabilities. Since we already have 300,000 Cisco security customers installed, we believe there's an opportunity over the next several quarters to accelerate both revenue growth and security. All in all, it was an outstanding year for us. The results from our fiscal year 2023 and Q4 demonstrate how strong the business is right now and give us a firm base to build future growth on. Let me also make it unmistakable that we remain dedicated to boosting what shareholders get back, doing so via returning capital, bringing new ideas to market, and executing at a high level. During the prior quarter, we made a pledge about operating leverage for Q4 as well as fiscal year 2024, and the guidance we are giving you now takes that into account. What I'd like to affirm here is that this approach will continue to guide us well past fiscal year 2024 as our long-term plan. In addition, we intend to bring a great deal of steadiness to how we buy back our stock, keeping each quarter's amounts within the same band we've used across the last several quarters. To wrap up, I'd like to express appreciation for our teams. Every one of them was instrumental in achieving these historic results for the full year, and they show real dedication to helping our customers and partners succeed. Because we keep prioritizing innovation and hold ourselves to high operational standards, I feel very confident about our capacity to seize the numerous chances that lie in front of us. At this point, Scott, I'll turn it over to you.

Thank you, Chuck. I'll begin by walking through our quarterly financials, then move on to the entire fiscal year, and after that I'll discuss guidance. As Chuck mentioned, we posted yet another record quarter, powered by disciplined execution, ongoing business transformation, and the steps we took throughout the year to ease supply constraints. In Q4 we recorded our highest-ever revenue, non-GAAP operating margin, earnings per share, and operating cash flow. Revenue came in at $15.2 billion, a 16% increase compared with a year earlier, landing at the top end of the range we had guided. Non-GAAP net income reached $4.7 billion, rising 36%. Non-GAAP EPS came to $1.14, climbing 37%, above the upper end of our guidance range. Turning to Q4 revenue in greater depth, product revenue overall totaled $11.7 billion, gaining 20%. Service revenue amounted to $3.6 billion, rising 4%. Inside product revenue, Secure, Agile Networks — our biggest product category — performed very well, rising 33%. Switching posted double-digit growth, with momentum in campus switching as well as data center switching, fueled by our Catalyst 9000, Nexus 9000, and Meraki products. Enterprise routing fell, mainly because of access, partly offset by momentum in our Catalyst 8000 series SD-WAN and IoT routing. Wireless grew by double digits, propelled by our Wi-Fi 6 products and Meraki wireless offerings. Internet for the Future rose 3%, fueled by expansion in our core routing products, among them robust growth in our Cisco 8000 offering; we additionally recorded double-digit growth in Web scale. Collaboration dropped 12%, owing to decreases in collaboration devices and meetings, partly offset by expansion in Webex Calling and Webex Contact Center. End-to-End Security was flat, as growth in our Zero Trust offerings was offset by a decrease in our network security offerings. Optimized Application Experiences rose 15%, fueled by expansion throughout the portfolio, among it double-digit growth in ThousandEyes and AppDynamics. We keep making headway in transforming our business toward offerings based more on recurring revenue, fueled by greater amounts of software and subscriptions; we achieved solid results in our ARR of $24.3 billion, which rose 5%, with product ARR growth of 10%. Total software revenue accelerated to $4.6 billion, an increase of 17%, while software subscription revenue rose 20%. Subscription-based software accounted for 85% of our software revenue. Total subscription revenue reached $6.6 billion, an increase of 13%, and RPO was $34.9 billion, up double digits at 11%. Product RPO and service RPO both grew strongly, with product RPO rising 12% and service RPO rising 9%. Total short-term RPO climbed to $17.9 billion. Total product orders declined 14% versus a year earlier, yet rose sequentially by over 30%. That comparison came against a strong year-ago quarter, in which we booked the second-highest orders in absolute dollars in company history. The aging of our backlog has kept improving as supply conditions normalize, and, as anticipated, greater customer deliveries brought our year-end backlog down to approximately twice historical levels as we head into fiscal 2024. When it comes to order cancellations, the rate is still under where it stood before the pandemic, and that shows how genuine the demand is and how essential our technologies are for our customers. On a non-GAAP basis, total gross margin reached 65.9%, which is above the top end of the range we had guided to and represents a gain of 260 basis points. Product gross margin landed at 65.5%, an increase of 420 basis points. Positive pricing along with product mix were the main drivers behind that gain, since we captured the advantages of the steps we took during the previous fiscal year. On top of that, we achieved productivity gains through reduced freight and logistics expenses as well as lower component and other costs. Services gross margin stood at 67.5%, which is a decline of 150 basis points compared with the same period a year earlier. Non-GAAP operating margin reached 35.4%, above the upper end of our guidance range and an improvement of 300 basis points. T This stronger leverage came from both our solid non-GAAP gross margin and our continued cost management. Moving over to the balance sheet, we closed out Q4 with $26.1 billion in total cash, cash equivalents and investments. Operating cash flow for the quarter hit a record $6 billion, which is a 62% increase, mainly fueled by robust top line performance and the postponement of our Q4 federal tax payment. As we mentioned in earlier commentary, the IRS tax relief tied to the California floods pushed our current year federal income tax payment into Q1 of our fiscal 2024. As a result, during Q1 of fiscal 2024, our cash outflows related to federal income tax will include an additional $2.8 billion in payments covering those prior quarters. During this quarter, we gave back $2.8 billion to shareholders, which consisted of $1.6 billion in quarterly cash dividends and $1.3 billion in share repurchases. In line with the capital allocation strategy we laid out last quarter, we remain dedicated to boosting shareholder returns by generating greater operating leverage while also raising our annual share repurchases and increasing our dividend. Now looking at the full fiscal year, we posted record figures for revenue, net income, earnings per share, and operating cash flow. For the year, revenue came to $57 billion, which is up 11%, while non-GAAP earnings per share totaled $3.89, up 16%, once again highlighting the operating leverage we have been generating; regarding our software metrics, total software revenue for the entire year rose 12% to $17 billion, with the product portion climbing 14%. Subscription-based software accounted for 84% of software revenue, an increase of 2 percentage points. Total subscription revenue reached $24.6 billion, which is a 10% increase. Total non-GAAP gross margin was 64.5%, a decrease of 10 basis points. At the bottom line, non-GAAP net income came to $16 billion, up 13%. We achieved record operating cash flow of $19.9 billion, a 50% rise versus fiscal 2022, mainly driven by strong results, linearity, collections, and the federal tax deferral mentioned earlier; we returned $10.6 billion in value to our shareholders through cash dividends and stock repurchases. That figure breaks down into $6.3 billion in quarterly cash dividends and $4.3 billion in share repurchases. We raised our dividend for the 12th consecutive year in fiscal 2023, which underscores our confidence in the strength and stability of our ongoing cash flows. During Q4, we kept putting money to work both organically and inorganically into our innovation pipeline, and we completed the purchases of Lightspin, Smartlook, and Armorblox. Such moves align with the approach we follow of pairing our in-house innovation and R&D efforts with focused, strategic M&A. In short, it was a very strong quarter and fiscal year for us, with record results; we executed well and delivered double-digit top-line growth, profitability, and cash flow. Progress continues on shifting our business model toward more recurring revenue, even as we make strategic investments in innovation to seize our significant growth opportunities. Now, on to guidance. For fiscal Q1, here is what we're guiding: revenue should land in the range of $14.5 billion-$14.7 billion; non-GAAP gross margin should come in between 65%-66%. Non-GAAP operating margin should fall within 34%-35%, and non-GAAP earnings per share should be somewhere from $1.02-$1.04. For fiscal year 2024, our guidance is as follows: we expect revenue in the range of $57 billion-$58.2 billion. Non-GAAP earnings per share should come in from $4.01-$4.08. For both our Q1 and full year guidance, we are assuming a non-GAAP effective tax rate of 19%. I'll hand it back to Marilyn now so we can move into the Q&A.

Thanks, Scott. Michelle, let's go ahead and queue up for questions. Tim?

Thanks. So, Chuck, perhaps we can begin with how the order backlog has been doing. It sounds much stronger than what we'd typically expect for Q4. Could you share what you think is driving that? And then, when we look ahead to next year, it seems you aren't factoring much of that into Q1 or the entire year. What's the general expectation for how those orders will convert into the revenues you'll see in fiscal 2024? Thanks.

Thank you. Tim, I'll give some detail, and Scott, perhaps you can address how the orders will convert.

Mm-hmm, that's right.

So, first off, there's no question that conditions around us carry plenty of moving parts at the moment, yet the way our people have performed has been truly outstanding. I've mentioned this on earlier calls: inside our sales force, whenever customer purchasing patterns shift, if things are deteriorating, what tends to happen is the teams set a forecast for the quarter, and once that quarter wraps up, they've come in below it or failed to hit it. Once the picture starts settling down and improving, more often than not they end up beating that forecast. That's the pattern we witnessed during Q4,

Their initial projection—they hit month 1 exactly, hit month 2 exactly, and for month 3 they came in above it by several hundred million dollars. That made it one of those quarters where they genuinely did better than what they'd expected when the period started, and that's a good indicator, though once more, it's 1 quarter. From an orders standpoint, we likewise recorded the biggest quarter for Enterprise Agreements in our company's history. Many large customers made substantial commitments, which was encouraging. Considering what was happening globally, I'd describe service provider as still weak. Enterprise got better, commercial got better. US enterprise was essentially flat, and that was certainly an improvement over what we'd been seeing, so that's a favorable signal. Public sector stayed consistent. Among verticals, financial services, transportation, and energy showed strength, and we saw solid strength in nations such as India and Saudi around the world. It's one quarter, yet set against the previous few quarters—when teams had opening forecasts they typically fell short of by quarter's end—this one, I'd say, was far more steady as the quarter progressed. Scott, would you like to discuss order conversion?

When we look ahead to fiscal 2024, our visibility is quite solid, and that comes from the change in business model we've already discussed. There are a few figures here, Tim, that I believe you already possess. First, current RPO stands at $17.9 billion, while total RPO is nearing $35 billion — and the current portion, that $17.9 billion, converts to revenue over the coming 12 months. We closed out the year, just as anticipated, carrying about twice the backlog we normally do. During the first half of fiscal 2024, that extra backlog will be reduced, and most of it gets cleared away in Q1, incidentally. We hold $24.3 billion in ARR that we have the opportunity to renew. Naturally, a portion of that is already reflected in RPO, yet there's also potential not yet reflected there. We begin this year with roughly 40% of that top line essentially secured across those three buckets. I'm encouraged by how we see this year taking shape.

Sure, Tim, let me add just 1, 1 additional remark. Regarding the sequentials — as we mentioned, since the year-over-year comparisons are simply kind of tough, they don't actually give a clear picture of what's happening. We've discussed sequentials quite a bit, and in my opening comments I did note that sequentials from Q3 to Q4 came in above 30%. For context, that figure is normally 18 to 20. Looking at it by customer segment, enterprise was significantly higher than that, public sector was significantly higher than it, commercial came fairly near to it, and service provider was, was the, was the lowest one. Even so, on a sequential basis it remained above historical trends. Just trying to provide you with as much color as we can.

Thanks for that — that was really useful.

Michelle, why don't we proceed and take the following question now.

Much appreciated for the question, and congratulations on the strong results. So, I suppose there are probably a couple of items I'd really like to hear your thoughts on. Chuck, regarding what you mentioned about steadiness when it comes to allocating capital, could you elaborate a little further on what that actually means? Will you be viewing it as a percentage of free cash flow? Will you be pursuing share repurchases, or is there another measure? Could you simply explain what that means, and what your plan is for deploying the capital allocation? That would be useful. Maybe somewhat connected to that, whenever we look at the fiscal 2024 revenue guidance you're giving, 7% growth in Q1, I believe 1% for the full year, that would kind of suggest the back half is going to decline. What are you assuming in the back half that creates that sort of concern? That would be useful. Thank you.

I'll just say a few things, then pass it over to Scott, who can probably address both of these. On the capital allocation and leverage points, I'd tell you that over the past several months, we've devoted a great deal of time to conversations with our shareholders. It's plainly important to them that we make a commitment to operating leverage in our P&L and then deliver on it. We've been delivering, but we hadn't made a long-term commitment. That's essentially what we're doing now — stating that going forward, we will keep committing to deliver operating leverage in the P&L. Then regarding the buybacks, we had also raised... There were 2 things we were after: raising the amount and also creating greater consistency and predictability for our shareholders. The pace, as I mentioned, that we've been at, such as during the last 3 quarters, is roughly the target we'd be at on a quarterly basis going forward. Scott, would you like to add to that and then discuss the revenue guide?

Sure, I can take that. Amit, my sense is that you were among the people raising the point about keeping capital allocation steady...

I believe I recall that.

operating from an elevated baseline while staying steady as well. During the past three quarters, what you've witnessed is repurchases holding steady at $1.25 billion — roughly $1.25 billion each quarter. Our expectation is that this carries on going forward. Annually, that amounts to $5 billion in buybacks. As for the dividend, at present it's approximately $6.5 billion. When you combine the two, you arrive at $11.5 billion returned to shareholders as capital. That doesn't seem like a poor position to be in, yet answering the call to make buybacks both larger and steadier is the message you're getting. You've already watched us act on it. The distinction, I suppose, is that now we're putting it into words ahead of time. Regarding your question about the revenue guide, it's simple to become somewhat puzzled by year-over-year growth figures given the supply limitations we've faced across recent years. The truth is, a portion of the revenue we ultimately reported in fiscal 2023 came from orders we booked and customers wanted delivered back in fiscal 2022 — we simply couldn't, simply couldn't ship it; delivery wasn't possible due to supply limitations. A, a, a superior approach to frame this is: what has the compound annual growth rate been since we began accumulating that backlog and the supply limitations took hold?

... that marked the conclusion of our fiscal 2021, and I'll simply take the middle point from our guidance for fiscal 2024. When you calculate the compound annual growth rate for revenue across that span, it comes out to roughly 5%, which, as you're aware, aligns with what we view as our longer-term opportunity. I, I believe it, it's somewhat, it's somewhat difficult to monitor what's going on if you depend only on year-over-year comparisons, since those year-over-year figures have been so distorted by the supply chain. If you take a broader view and examine endpoint to endpoint, that growth rate seems quite solid.

No, that clear figure is really helpful. Thank you.

Mm-hmm.

Great. Thanks, Amit. Next question?

Great, thanks. So, you know, those are really fantastic data points about the momentum you're seeing with the hyperscalers. Regarding the $500 million in orders you mentioned, or even the 800 gig trials, is that tied to scheduled fabric? Does Silicon One play a part there? I'm just trying to understand which part of the portfolio that involves. And then on the security side, obviously you're launching many new products and shifting some of the ways you sell. When do you expect we might see that business turn a corner? Thanks.

Yeah, Meta, thank you. On Ethernet, beneath the AI GPU networks, Silicon One is definitely involved. You know, for roughly the next 12 months, I think trials are what we'll be doing. There will be some opportunities, and InfiniBand will still be heavily present — that's the reason we came in as a founding member of the Ultra Ethernet Consortium, so we can help steer the standards and truly deliver scheduled fabric, as you put it, in a highly effective manner. Our view is that into FY 2025 and beyond, a shift toward an Ethernet-based infrastructure will begin. Regarding security, yes, we've seen some early traction. I brought up Goldman and Multicloud Defense, which is a strong signal of confidence in that solution. Looking at our XDR platform — frankly, we only reached GA with it at the very end of the quarter — a seven-figure order has already come in from a retailer in Europe, which was encouraging. One of the biggest security orders we've ever booked was taken by us. An eight-figure security order came from a Fortune 10 company during Q4. There are early green shoots, and the teams are executing. The initial feedback and early commentary from analysts, customers, and so on is positive, but we have to actually deliver on it — hopefully in the second half of this year we'll see some real positive impact, and definitely in 25.

Great. Thank you.

Next question, please.

Hello, good afternoon, and I appreciate you taking my question. There are two things I'd like to cover. To start, it was encouraging to learn about the share gains you posted in Campus switching, SP routing and wireless, and also that you anticipate continuing to grow share. I was hoping you might elaborate a little on the sales execution and the product roadmap that give you the most confidence in that ongoing share growth. Next, I was hoping you could talk about what you expect for order trends going forward. From what you're saying, if the backlog gets back to normal levels in the Q1, then it ought to just grow in line with revenue growth. When we look ahead to order growth after the first quarter, I'd really like to hear what you think about it. Thank you.

Thank you, Michael. On the topic of gains in share within enterprise networking, which is the subject of your question, our expectation is that Q2 will equal or possibly land a bit above the incremental improvements that show up once those figures get published, according to certain internal projections we've put together. Beyond simply having excellent products, I'd point to a couple of moves on our part. First, we've started providing monitoring, and after that management, for our Catalyst — the established Catalyst lineup — through the Meraki dashboard. Customers gain a genuine edge from this, since they're able to operate a blend of both portfolio sets and, you know, see everything through a single dashboard covering each group of portfolios. The response has been very positive, and it's played a major part in driving a substantial lift in our software renewal rates. Since we're on the subject, I wanted to pass along one milestone. For several years people have asked me when we'd consider software renewals within enterprise networking to be meaningful. My answer is that FY 2024 marks the first year I expect that to be the case. To put that in context, we're looking at renewing roughly one billion dollars in enterprise networking software this year. After all the years we've spent moving through this transition, the hope is that it finally starts delivering real, solid returns for us down the road — that's the situation within that portfolio. Scott, do you want to walk us through how orders have been trending? Sure. Thanks for raising that, Michael. What I'd point out is that, as you'll recall from what we shared on the previous call, we described three distinct dynamics at play within product orders. The first factor involved delivery schedules returning to their usual state after being quite extended. When a wait time shifts from 30 weeks down to 10 weeks, that obviously means you can hold off on submitting a new order for another 20 weeks. For the most part, those products have already settled into that normal pattern, and they will definitely finish working through it over the first half of fiscal 2024, so the effect of this will diminish.

The next item is backlog. We were still holding more backlog than usual — and that remains true today — yet it's clear we've been steadily reducing it while getting product out to customers. Once those backlog orders reach their hands, they're able to finish that project and subsequently submit an order for their following project. That has likewise acted as something of a drag on bookings, and then whatever is taking place in the macro environment would be factor number three; we believe the first two should settle into normal patterns during the first half of fiscal 2024. Lead times are going to be back to normal, definitely before we reach the conclusion of that first half, and a large portion of the backlog — the excess portion — is going to ship out across Q1 of fiscal 2024. My sense is we'll gain a clearer picture, and I anticipate seeing ordering patterns that look more typical. Naturally, we don't provide guidance on orders, but I anticipate seeing ordering patterns that look more typical during the second half of the year.

That's all very helpful. Thank you, Chuck. Thank you, Scott.

Thanks.

Excellent, thanks. Let's move on and take the following question.

Thanks, everyone. I really like the strong energy here. Chuck, could you maybe talk about RPO? That was a really impressive result, especially if you look at where that same figure stood a year earlier. Perhaps you can break it down a bit using a few metrics — specifically, how long customers are now willing to commit to contracts, and how large the deals are that they're now prepared to sign. I'm simply trying to understand a little more about what's driving such a big jump in RPO. I appreciate it.

Yes, thanks, Ittai. I'll offer a bit of detail, and then I'll let Scott weigh in once more as well. A significant portion of this involves a shift we've completed, where nearly all of our enterprise networking offerings are now sold through subscriptions. That plays a role, and Scott can discuss the contribution we've observed compared to last year. We're sitting at $35 billion in RPO. This matters, I believe, because regarding market share and the worries some people have raised, it's worth keeping in mind that a fair chunk of every order within our core networking portfolio on the enterprise side gets placed into RPO rather than being recognized as revenue; it's ratable, and it acts as a drag on market share. Another point worth making: we hit an all-time high in revenue, reaching $50 billion — nearly $57 billion — while simultaneously growing RPO to $35 billion, and given the backlog we're carrying. Customer demand has been quite strong. In Q4 specifically, we definitely experienced considerable activity in enterprise networking. When those products shipped, the software moved out of backlog, as we've discussed before, and shifted into RPO. We also saw many of the Enterprise Agreements we signed with customers, and enterprise played a part in that too; those were fairly sizable deals. Scott, if there's anything else you'd like to add, go ahead. So, Ittai, you asked specifically about duration — overall, it hasn't shifted much, so that isn't the reason. In Q4, we usually close a larger number of big multi-year deals. We discuss Enterprise Agreements as well as whole portfolio agreements. Because of those, you'll generally notice a modest uptick in Q4, followed by a slight decline in Q1 as those deals get worked through — that's the typical pattern for RPO. One more point worth keeping in mind: our net RPO grew by $3.3 billion this year, and product accounted for $1.7 billion of that net increase. When the year began, current RPO was about $16.8 billion, meaning all of it came out of RPO.

Near term.

Beyond that, though, we had the near term. On top of it, we brought in, you know, $1.7 billion. We added a substantial amount of current-year sales into that RPO figure. To return to what Chuck said, that's revenue which a lot of our rivals book right away when they ship it; in our case, we benefit from booking it across time, and that makes us more predictable while giving us better visibility regarding where things are going.

Appreciate the color. Thank you.

Mm-hmm.

Thanks, Itai. Let's move to the next question.

Hi there. Thanks for the question. It's got two parts, if I may. First, when we look ahead to fiscal 2024, you're projecting 1% growth on the top line and roughly 4% growth in non-GAAP EPS, along with a pretty solid gross margin exit rate. Would it be reasonable to think that the benefit from gross margins could be partly offset by some reinvestment in OpEx? I'm just trying to figure out the pluses and minuses here. And then, more generally, at the analyst day a couple of years back, I believe, Scott, you set out a 5%-7% goal for both the top and bottom line. I'm just curious whether that has changed at all given the increased focus on operating leverage that you're discussing today. Thanks.

Alright Matthew, on your first question: I'd say gross margin is leveling out. Our Q1 guidance puts gross margins between 65% and 66%, and my sense is that's where it lands for the entire year. Using the top-line projections we've provided, you can work out the rest. That flows through to roughly mid-single-digit growth in OpEx; consistent with expectations, especially in a merit-increase environment; it doesn't leave much room for added investment, though I think that matches how we've operated historically. As for the long-term model, that one was driven by opportunity. When you review our past performance, the pattern has been that our profit growth has outpaced our revenue growth. The one shift you're noticing from us at this point, as I mentioned, is that we're stating this ahead of time rather than after the fact; that's genuinely how you should interpret it.

Great. Thank you.

Mm-hmm.

All right. Thanks, Matthew. Michelle, let's take the next question.

Hey, everyone. Appreciate you taking the questions. Perhaps I'll start with the go-to-market area. We keep hearing that you're planning to shift a greater number of the specialist sales teams away and lean more toward a cross-selling, broader portfolio type of approach. Is a bigger sales reorganization underway at the moment? Is there anything you can do to package solutions better across these various segments, particularly in the growth segments that are, as Meta mentioned earlier, struggling somewhat, even with security? And finally, regarding capital return, I realize you get this question constantly, but you brought up potentially being strategic and so forth. How do you view the push versus pull between more acquisitions in either of the key growth segments you laid out, Chuck, versus perhaps even spinning off some of those segments, the way some of the bigger companies are beginning to do? Thanks, everyone.

Thank you, James. That was quite a bit. Let me give you some background on how the specialist model came about. I'll explain what we're doing with the product portfolio, since that lets us tidy up the specialist model somewhat and make those people a bit more focused. In the past — take security as an illustration — we had all these separate products, and each one was sold on its own. As a result, you had to go up against the competitors for each product, which meant you needed subspecialists, and you needed specialists covering every small slice of security. What we've been doing throughout the portfolio is shifting toward a platform-based approach. It becomes simpler to sell, and in certain parts of our portfolio, such as collaboration and security, we've adopted a suite strategy. We're now bundling the security portfolio into various suites, and that lets us essentially optimize the security specialist, or really align them more effectively, which is probably the best way to put it. That's the effort that's been underway. I believe that as we keep executing this platform strategy, it definitely streamlines the selling cycle for a number of these technologies. On reaching the suites, we've already watched it succeed in Collab. During the past quarter, our order growth in collaboration was very strong. We also saw positive order growth in security. So when Collab shows positive order growth, that's really an outcome of the suites and of leading with calling as the entry point of the suite, plus a major emphasis on Webex Contact Center, whose orders grew triple digits in the last quarter. Those are the things we're attempting to do. We're attempting to assemble the portfolio in a manner that makes it simpler and needs fewer subspecialists in the field going forward. Scott?

Regarding your question about capital return, Jim, let me simply restate my earlier point. Buybacks have been steady, currently at approximately $1.25 billion each quarter, which equals $5 billion yearly, while dividends take up an additional $6.5 billion. That adds up to $11.5 billion in capital return to which we are dedicated. Looking forward, I anticipate we will keep doing what you've watched us do over the past 12 years, which is raising our dividend payment. That's one way to view it. On the M&A and spinoff side, we assess that continually; we are always reviewing what opportunities exist in the market. As you observed, we completed 3 acquisitions in the quarter, small tech tuck-ins albeit, but still 3. Our team remains quite busy. We continuously examine that area, and we also assess our own portfolio. There is nothing fresh to share on that front, but these are ongoing matters we monitor.

Yes. Helpful color, guys. Thanks.