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

Sami Badri here, serving as Cisco's Head of Investor Relations. With me today are Chuck Robbins, our Chair and CEO, along with Scott Herren, who is our CFO. You should have already received our earnings press release by this point. After this call concludes, a webcast with slides — which includes supplemental information — will be posted in the Investor Relations section of our website. You can also locate income statements, complete GAAP to non-GAAP reconciliation details, balance sheets, cash flow statements, and additional financial information within the Financial Information section on our Investor Relations site. During this conference call, we'll be citing both GAAP and non-GAAP financial results, and unless otherwise noted, we'll cover product results by revenue while geographic and customer results will be discussed in terms of product orders. Every comparison we make on this call is year-over-year. Today's discussion will contain forward-looking statements, among them the guidance we're giving for the first quarter and the full year of fiscal 2025. Such statements carry risks and uncertainties that are described at length in the documents we file with the SEC — in particular, the latest report on Forms 10-K and 10-Q — which lay out significant risk factors that may cause actual outcomes to differ materially from what those forward-looking statements indicate. Regarding guidance, we ask that you also review the slides and press release accompanying this call for additional details. Unless Cisco makes an explicit public disclosure, it will not comment on its financial guidance during the quarter. I'll now hand things over to Chuck.

Appreciate it, Sami, and thanks to everyone for being here with us today. Fiscal '24 ended on a strong note, with fourth-quarter revenue of $13.6 billion, which landed above the top end of the range we had guided to, along with $53.8 billion in revenue for the full year, combined with increases in annualized recurring revenue, remaining performance obligations and subscription revenue. We also posted outstanding margins, helped along by Splunk. At 67.5%, our gross margin was Cisco's best in 20 years. Demand held steady, and we finished the year with total product order growth of 14%, or 6% growth if you exclude Splunk, which tells us that the stretch of customers working through their inventory is now mostly in the rearview, just as we had anticipated. We've also kept investing to speed up essential innovation in key areas, with Hypershield and HyperFabric for AI standing out as 2 great illustrations. Now that Splunk belongs to Cisco, we think we hold an unmatched ability to unleash the network's full potential, pairing market-leading security and observability offerings to bring customers even more value. Since merging the Splunk and Cisco teams, we've come out of the gate quickly, pulling together powerful new customer solutions and starting to capture early synergies. We recognize that the strength of our complete portfolio is what sets us apart from competitors more than anything else. That's why earlier today, we shared that we will unite our networking, security and collaboration teams into a single organization, with Jeetu Patel taking on a broader role as Chief Product Officer to head that group, effective immediately. As we finish folding Splunk fully into Cisco, the Splunk product line will likewise move into this new organization at the appropriate moment, uniting our whole product portfolio under one team. Through this new structure, our products will be brought together more cohesively than at any point before, putting us in position to produce remarkably strong results for our customers. Going forward, we stay sharply focused on growth and dependable execution as we put money into winning in AI, cloud and cybersecurity. To concentrate on these priority areas, we announced today a restructuring plan that lets us invest in key growth opportunities while also generating more efficiency in our business. Let me now walk through some specifics of our fourth quarter. Q4 performance was solid, with revenue landing above the top end of the range we had guided to. Once again, strong operating leverage throughout our business pushed non-GAAP margins past the top end of what we had expected, which meant earnings per share likewise finished above the top end of our guidance range. Growth in our recurring revenue streams remains a priority for us. Annualized recurring revenue, remaining performance obligations and subscription revenue each posted solid growth, and subscription revenue accounted for 56% of our revenue in the quarter. We stayed committed as well to giving back capital on a steady basis. During Q4, share buybacks plus cash dividends put $3.6 billion of value back in shareholders' hands, which lifted the cumulative amount returned in fiscal '24 to $12.1 billion, equal to 119% of free cash flow. Turning to customer demand, as noted before, Q4 brought steady demand, producing double-digit growth in product orders across every geography along with strength in every customer market, even with macro uncertainty that persists. Worldwide public sector demand stood out, fueled by U.S. federal spending and momentum in APJC. Enterprise demand came back strong this quarter, with solid results in the Americas and EMEA and even better outcomes in APJC; during the quarter we closed multiple $100 million-plus deals with global enterprises that are tapping the breadth of our technology platforms to modernize and automate their network operations and roll out next-generation machine learning and AI applications. One of the biggest agreements signed this quarter deserves a mention: a leading global logistics company working to build the world's most flexible, efficient and intelligent logistics network. Technology platforms from Cisco spanning switching, routing, security and observability will let this customer automate network operations using cutting-edge innovations such as AI-powered robotics and unmatched supply chain visibility; this quarter we also closed our first cross-portfolio agreement that includes Splunk, signed with a major automotive company. AI is reshaping every piece of our customers' IT environments; they must modernize infrastructure, capture the full power of AI and data and strengthen their cybersecurity posture, all while creating agility and resiliency throughout their whole digital footprint. Customers keep placing their trust in Cisco, and we are positioned very well to serve as their strategic partner for this era. On the service provider side, though demand from our telco and cable customers stayed muted overall amid pressure that continues across the industry, we saw strength in EMEA, driven by service providers investing in AI operations and autonomous networks to help them monetize their B2B offerings. We are encouraged as well by signs of stabilization and better performance in webscale when it comes to pipeline and demand, with double-digit order growth. For some incremental color, let me share data on demand viewed through our products. With Splunk excluded, security product orders rose double digits. Collaboration product orders rose double digits. Within our networking portfolio, data center switching posted double-digit product order growth too; and enterprise routing, campus switching and wireless orders were strong as well, with wireless orders exceeding 1 million, up more than 20% year-over-year, as customers seek to enhance their office environments. Across the breadth of our portfolio and global customer base, our product order results show demand strengthening as customers direct attention to their next top priority, technology investments. Even as clients stay fiercely disciplined about where their money goes, our order figures show they keep turning to Cisco for the technology projects that matter most to them. Let's dig into the product categories a bit further now. Within security, revenue climbed, and observability posted a year-over-year increase in the double digits — that's when you set Splunk aside — since buyers want to strengthen their digital resilience using Cisco technology. The response from clients given early access to Hypershield has been overwhelmingly favorable; it's the first genuinely distributed, AI-native cybersecurity offering woven directly into the network fabric. Hypershield advances what we envision for the Cisco Security Cloud, which should bring the market its most complete, unified platform, offering end-to-end solutions, so protecting our customers from changing threats becomes simpler, and we can't wait to release it this fall. Strong momentum keeps building for our newer security offerings, XDR and Secure Access. More than 230 XDR customers came on board during Q4. Right at the start of the quarter, we revealed that Cisco XDR now integrates with Splunk Enterprise Security. Then, at the Black Hat cybersecurity conference earlier this month, we shared that Talos Incident Response is now available to Splunk customers, giving them the complete set of proactive and emergency services to help them get ready for, deal with, and bounce back from a breach. The multibillion-dollar chance in AI infrastructure is something we keep seizing as well; with webscale customers, we've passed $1 billion in AI orders so far, and 3 of the top 4 hyperscalers are putting our Ethernet AI fabric to work, drawing on Cisco-validated designs for AI infrastructure. Another $1 billion in AI product orders is what we anticipate during fiscal year '25. During our Investor Day in June, I mentioned that this momentum comes from numerous use cases now in production with the hyperscalers, and a number of those involve AI. On top of that, we hold multiple design wins, with about 2/3 of them tied to AI. Beyond the webscale AI chance, we think we're positioned well to benefit most as AI applications spread throughout the enterprise. Built alongside NVIDIA, our HyperFabric for AI cluster solution assists enterprise clients in constructing infrastructure for running generative AI models and inference applications. Once it launches later in this fiscal year, that on-premise offering will walk users from design through validated deployment to monitoring and assurance; we're also boosting our own productivity by applying AI within our services and customer experience organization; a strong AI and automation framework of ours reaches no fewer than 50% of our service requests. We're also embedding AI Assistants in our products, giving customers and partners efficient ways to reach support. Before turning things over to Scott, I'd like to briefly thank our teams for the hard work they put in to finish the year strong and for their unwavering dedication to our customers. To wrap up, although we're happy with how we did amid shifting conditions, we recognize that robust execution is necessary for us to win in the expanding markets we operate in. We think this is going to deliver solid growth and profitability as we move into fiscal 2025. At this point I'll hand things to Scott, who will give further specifics about the quarter along with what we expect ahead.

Thanks, Chuck. I'll begin by walking through how we performed financially this quarter, then I'll move on to the entire fiscal year, and after that I'll discuss guidance. The results we posted for Q4 show we executed well, with healthy margins and robust order activity as customers' purchasing habits start to normalize. During the quarter, total revenue came in at $13.6 billion, which exceeded the top of the range we had guided to, representing a 10% decline compared with a year earlier, when we posted our best quarter ever in Q4 of fiscal '23. Splunk added roughly $960 million of revenue during the quarter, matching what we had anticipated. Non-GAAP net income reached $3.5 billion. Non-GAAP earnings per share came in at $0.87, above the top of our guided range. The interest costs tied to funding the Splunk acquisition outweighed the beneficial operating effect Splunk delivered. On a net basis, that subtracted $0.04 from non-GAAP earnings per share in the quarter. Let me examine our Q4 revenue more closely. Total product revenue reached $9.9 billion, a 15% decline as we worked through the last quarter of customer inventory challenges. Services revenue came to $3.8 billion, rising 6%. Networking, which is our biggest product category, fell 28% relative to Q4 '23 networking revenue, a quarter that gained from shipments of excess backlog that were close to a record. Security rose 81%, which includes the gain from Splunk. If you set Splunk aside, security increased 6%, fueled by competitive wins along with growth in SASE and network security growth in the double digits. Collaboration was unchanged, as growth in our cloud calling and CPaaS products was offset by drops in meetings and devices. Observability climbed 41%, powered by growth in our observability suite, our Splunk observability product and ThousandEyes network services. Setting Splunk aside, observability rose 12% in the quarter. Now let's turn to our recurring metrics. ARR finished the quarter at $29.6 billion, rising 22% thanks to continuing strong performance and the contribution from Splunk. Those same factors pushed our product ARR growth to 43%. Excluding Splunk, ARR stood at $25.3 billion, an increase of 4%, while product ARR rose 9%. Total subscription revenue climbed 17% to $7.7 billion, and that now accounts for 56% of Cisco's overall revenue. Excluding Splunk, total subscription revenue rose 2%, making up 53% of Cisco's overall revenue. Total software revenue increased 15% to $5.3 billion, while software subscription revenue rose 25%. Subscription-based software made up 92% of our total software revenue. Excluding Splunk, software revenue fell 5% because of decreases in perpetual license software as we shift toward more subscription-based software arrangements. Software subscription revenue rose 2%. Total RPO reached $41.0 billion, up 18%, driven by both solid organic performance and the addition of Splunk. Product RPO increased 27%. Total short-term RPO rose 17%. Excluding Splunk, RPO was $37.5 billion, up 8%, with product RPO also growing 8%. As Chuck mentioned, Q4 product orders rose 14% compared with a year earlier. Excluding Splunk, product orders increased 6% year-over-year, a sign that the stretch of inventory digestion among our customers is now mostly done. Let's look at our product orders across our geographic segments on a year-over-year basis. In the Americas, revenue rose 15%. EMEA gained 12%, while APJC climbed 16%. Looking at our customer markets, the public sector grew 20%, enterprise increased 13%, and service provider and cloud rose 5%. Total non-GAAP gross margin reached 67.9%, which is 200 basis points higher than a year ago and above the top end of the range we had guided to. Product gross margin landed at 67.0%, an increase of 150 basis points, mostly fueled by Splunk along with a favorable product mix, though price partly offset that. Services gross margin stood at 70.3%, up 280 basis points. Non-GAAP operating margin hit the upper end of our guidance range, coming in at 32.5%. Moving over to the balance sheet, we closed out Q4 with total cash, cash equivalents and investments amounting to $17.9 billion. Operating cash flow totaled $3.7 billion. In line with how we allocate capital, we gave back $3.6 billion to shareholders, made up of $1.6 billion in quarterly cash dividends and $2.0 billion in share repurchases. We capitalized on market conditions to buy back more shares over the quarter. Now for the full fiscal year, we posted solid margins and improved our operating leverage. Revenue of $53.8 billion meant fiscal '24 stood as Cisco's second best year ever, behind the record $57 billion in fiscal '23, a year that gained from sizable shipments of elevated backlog. Splunk added roughly $1.4 billion in revenue following the acquisition's close in March of this year. Non-GAAP earnings per share came to $3.73, above the top of our guidance range, and 4% lower than a year ago. Splunk proved $0.04 dilutive to full-year earnings, factoring in financing costs. On our recurring metrics, total software revenue for the full year rose 9% to $18.4 billion, with the product portion also climbing 9%. Software subscription revenue increased 15%. Subscription-based software accounted for 89% of total software revenue. Excluding Splunk, total software revenue grew 1%. Total subscription revenue reached $27.4 billion, up 11%. Excluding Splunk, total subscription revenue rose 6%. As Chuck noted, total non-GAAP gross margin was 67.5%, an increase of 300 basis points and the best in 20 years; on the bottom line, non-GAAP net income was $15.2 billion. Operating cash flow was $10.9 billion. Keep in mind, cash flow took a hit from the timing of large tax payments in fiscal '24 versus fiscal '23. During the year, we delivered $12.1 billion in value back to shareholders via cash dividends and share repurchases. That breaks down as $6.4 billion in quarterly cash dividends and $5.8 billion of share repurchases. We raised our dividend for the 13th straight year in fiscal '24, underscoring our confidence in the strength and stability of our ongoing cash flows. To wrap up, we performed well in Q4 and across the fiscal year; we finished the year with order levels on the mend as customers mostly wrapped up implementing record Cisco product shipments. Also, as Chuck noted, we're realigning our expenses to better seize the opportunities that lie ahead. Under the restructuring plan we've already shared, roughly 7% of the company's employees worldwide will be affected, and the pretax charges tied to that are estimated at as much as $1 billion. Now on to the outlook for our finances. Here's what we're guiding for fiscal Q1: revenue should land somewhere between $13.65 billion and $13.85 billion; for non-GAAP gross margin, we're looking at a range of 67% to 68%. We expect non-GAAP operating margin to come in between 32% and 33%. Non-GAAP earnings per share should fall somewhere between $0.86 and $0.88. Also for Q1, our assumption for the non-GAAP effective tax rate is roughly 19%. Moving on to fiscal year '25, here's our guidance: we anticipate revenue between $55 billion and $56.2 billion. Non-GAAP earnings per share should come in somewhere between $3.52 and $3.58, and our assumption for the non-GAAP effective tax rate is roughly 19%. Sami, why don't we open it up for questions now.

Thanks, Scott. <<operator_script>> Operator, could we go ahead and take the first analyst waiting in line?

Chuck, perhaps the best place to begin is with you, regarding how customers are prioritizing their budgets. It's obvious they are exiting a period of digestion, but I'd like a sense of how they're juggling various enterprise efforts or initiatives, especially when it comes to balancing AI projects. Then, maybe a second question for Scott: is the entire risk accounted for within the fiscal '25 guidance? Any clarity would help.

Thanks, Meta. Sure, I'd say that when you look at the portfolio as a whole, and if I travel around the globe a bit regarding demand, geographically speaking, things were quite even. The Americas and Europe were both up 6%, while Asia was up 8%. Every one of those figures leaves out Splunk, which I'll address briefly. Looking at segments, enterprise grew 3%, cloud and SP rose 2%, and public sector jumped 15%. So we observed fairly even strength in that area. However, throughout the technology portfolio, the balance was remarkable. As we mentioned, we achieved double-digit growth in security, and double-digit growth in collaboration. Then, when it comes to networking, it's worth noting that both the enterprise switching and enterprise routing businesses saw high single-digit increases, while the wireless business grew by double digits. Also, as Scott noted in his comments, the count of $1 million deals in wireless by itself climbed 20% year-over-year; thus, demand was extremely well-balanced across the portfolio. One item I'd mention that came up this quarter for the first time, which we hadn't heard previously, is that enterprise customers are now actually upgrading their infrastructure to get ready for AI. In certain instances, they're reallocating some funds they had reserved for AI to instead invest in modernizing their infrastructure so they can be prepared for it. You could see that in a few of the platform sales examples we provided. Take the large logistics firm that purchased the cross-portfolio solution—the entire platform, Cisco platforms—and they aim to support AI-powered robotics, AI-powered supply chain visibility, and so forth; so we believe we're starting to witness customers genuinely getting ready for AI applications. Even if, in many situations, they might not understand the complete scope of what they'll eventually deploy, they do realize they must be prepared; that's essentially what we observed.

And Meta, let me check that I understood your second question correctly. Were you asking about the entire risk that's baked into the fiscal '25 guidance?

Regarding the job cuts that were disclosed, is it correct that the full benefit of that 7% reduction has already been accounted for within the fiscal '25 guidance?

That's right, yes. And this seems like a good moment to clarify a bit further what that move is really intended to accomplish. Saving money isn't the point of it. So yes, the guide does include it; however, the real purpose is achieving greater efficiency throughout the organization, allowing us to shift additional resources—similar to what we did a year ago—toward the areas of the business growing quickest, meaning more emphasis on AI, more emphasis on cloud, and more emphasis on cybersecurity. So it's better understood as a reallocation rather than an effort to reduce costs. That said, yes, the guidance fully incorporates it.

Yeah, Meta, let me just tack something onto that. Truth is, we're moving hundreds of millions of dollars over into AI — into AI networking for cloud, into AI infrastructure, silicon, and cyber. So that's a significant reallocation; even so, our sense is that the market is shifting at such a pace that we've got no choice but to make that move.

The previous question took some of the wind out of my sails, but I still want to pose this one. On one side, business cycles and restructuring always go hand in hand; and in this case, you have a company getting better in every way with orders rising, yet you're still declaring a significant 7% restructuring. Does something in the environment make you more careful? Is there something that pushes the timing of this restructuring earlier than what should be a strong year? So I'm curious what your perspective on the environment tells us, given when this restructuring is happening?

Let me — I apologize. You go ahead.

I'll combine this with my second question. This one won't take long. Regarding security, the results were excellent and are at last getting better. Did the situation involving CrowdStrike have any effect? Given what took place with CrowdStrike, have you noticed any shift in how customers buy, or any altered dynamics among them?

Thanks, Tal. I'll say something about the restructuring first, then Scott can weigh in a bit, and after that I'll come back to the security question; so about the restructuring, no is the response to that, nothing additional exists. Demand was tremendous throughout the portfolio; it was extremely broad-based and extremely consistent. The point really concerns making sure that, in the fast-changing markets we serve, we can move resources toward the areas that matter most; so that's the whole of it. Scott, anything to add?

Tal, what you're seeing here is simply a continuation of our existing approach. During Investor Day, we mentioned that we had already shifted our R&D focus somewhat, directing over 50% of that spending toward 3 specific areas: AI, cloud, and cybersecurity. Naturally, networking remains hugely significant for us, and we will keep backing that segment too. However, we are pursuing efficiencies throughout the entire organization in every possible manner, allowing us to redirect those funds toward the sectors experiencing the quickest expansion. I'd frame this as merely the same financial rigor you have consistently observed from us. Take a look at the year we recently finished. Clearly, revenue faced top-line challenges, but we still delivered the company's highest operating margin ever. Thus, this represents just additional evidence of the financial discipline you associate with us.

Now, regarding the security matter, Tal, yes — if you look back roughly 12 months, my comment was that I expected us to begin noticing gains during the back half of fiscal '24. Q3 had us at high single digits, Q4 reached double digits, and I stated that genuine momentum ought to take hold in '25. That, I believe, is exactly what we are starting to experience now. When it comes to CrowdStrike specifically, that's difficult for me to assess. What I can share is that an additional 230 XDR customers came on board; we are approaching 600 customers on that platform, and that represents a fairly major choice whenever a customer commits to it, so that is a positive sign. And honestly, the Secure Access offering — our cloud edge security solution — is in fact gaining traction at a pace quicker than XDR managed. Consequently, the teams deserve credit for their work on this innovation. At present, 2,200 customers are utilizing our AI Assistant within security, which is likewise quite heartening. So we hold a genuinely positive outlook regarding what the teams have accomplished in this area.

Before I pose my question, I want to congratulate Jeetu on taking on a bigger role. Perhaps we can begin with the AI orders, Chuck — I believe you said the cumulative figure has already passed $1 billion, and you're on pace to reach $1 billion next year. Could you give us a sense of the run rate you're currently achieving compared with that $1 billion goal for next year? And as you gain more visibility into some of these deployments, how are you viewing the orders and the timing of when those orders convert into revenue? I also have a follow-up.

Do you want to ask the follow-up now?

Samik, could you ask the follow-up now, please?

All right. For my second question, I really wanted to dig into what the guidance assumes regarding Splunk's expansion compared with the rest of the business. If my math is correct, Splunk grew roughly 5% this quarter, which seems softer than the double-digit pace I believe most people anticipated. So any commentary on why it came in somewhat weaker, assuming I've calculated properly, and how should we think about what the guide bakes in for fiscal '25?

Sure. Regarding AI orders, we mentioned that we've now passed $1 billion cumulatively in the webscale segment, which is a strong result. At Investor Day, we discussed how many design wins we've secured — these are situations where customers have given us the green light to proceed, provided we perform and ship the design according to their expectations. We're merely 2.5 weeks into the year, so predicting how these will unfold across the remaining months is difficult right now. That said, I can share that one of the very biggest companies in this area informed us just last week that they're issuing orders tied to one of those design wins, meaning one of them will begin producing orders soon. So I'd say developments are progressing the way we anticipated. And honestly, it's simply on us to perform and deliver what they've requested.

Absolutely. Regarding Samik's question on Splunk, as we mentioned during our opening remarks, things are moving forward exactly as we anticipated. The main goal behind that deal was really centered on generating more revenue. Naturally, it takes a while to close these kinds of sales; as Chuck noted, we've already witnessed a double-digit count of agreements finalized by our 2 teams selling side by side. So the energy out in the field is positive. For Splunk — the more meaningful measure, we discussed revenue since that clearly appears on the P&L. For them, ARR is the key indicator. Their ARR keeps expanding at a double-digit pace, which matches precisely where it stood when they last reported as a public company. So we're still observing solid momentum and starting to notice the first signs of the sales organizations truly collaborating. We've also completed quite a few product integrations; I believe Chuck brought up a number of them during his portion of the script. Consequently, as time passes, it will become increasingly difficult to determine what is — given these combined product offerings, what counts as Splunk revenue versus what counts as Cisco revenue. Let me be clear, we've factored in the complete effect of where we anticipate the merged business to land. However, I believe that over the longer horizon, figuring out how much of that gets attributed to legacy Splunk versus how much gets attributed to legacy Cisco will become progressively more challenging. So here's what I'd say: it's incorporated — it's delivering strong results. We're already witnessing encouraging indicators of the sales teams working together, and all of that is reflected in our guidance.

Absolutely, Scott — I believe this point matters quite a bit. As we mentioned, Splunk usually runs on a sales cycle of 6 to 9 months. And I think we closed more than 10 of those cross-sell deals last quarter, worked jointly by the Cisco sales force and the Splunk sales force, which was encouraging. Also — as I noted in my remarks — we completed the first cross-portfolio agreement that traditionally would have been a Cisco offer to one of our biggest customers in the U.S., and we actually closed it with Splunk included. So what we're seeing now is roughly what we'd have anticipated at this stage, perhaps even slightly ahead of where I'd have expected us to be.

I'd like to ask about how you're structuring the company around networking, security, and collaboration. Could you explain what's behind that move to bring them together? My guess is you'll mention that products need to work together, particularly when we're taking advantage of AI and large data sets. But could you take us through the specific reasons behind it?

Sure, George, thanks. You've got it exactly right. You could give that answer instead of me. If you consider what sets us apart most from competitors in the market, it's really when we achieve deep cross integration throughout the portfolio and deliver a platform strategy to our customers. And given how quickly the AI revolution is progressing and what our enterprise customers require from us, and honestly, with security and networking growing ever more closely linked, I simply believed we needed one leader in charge. And if you look at what Jeetu has achieved in the 4 years he's been here, when he first took over the collaboration business, I think everyone recalls how that portfolio looked back then compared with how it's performing today, with double-digit growth this quarter; and clearly, with the security portfolio, he's delivered precisely what we anticipated; and I think our networking team is excellent. And I believe his emphasis on execution, innovation, and urgency will be very welcome there. So we're eager to see what the team achieves and the innovation they'll bring in the future.

I suppose to kick things off, Chuck, what you said about demand patterns from customers returning to a more typical state, plus orders posting positive growth, all of that sounds quite encouraging. Could you maybe set that against your outlook, where total revenue rises 3% with Splunk included, and help us put it in context? Clearly there's a worry out there that Cisco is shedding share. So perhaps you could explain how we should think about your revenue growth, and which headwinds from backlog normalization ought to be baked into that 3%, 3.5% revenue guide. That would help a lot in getting a clearer picture; and then maybe as a second question, Scott. Could you put numbers on the cost savings you anticipate from this reduction program? I understand that none of it will reach the bottom line. From what you're saying, you intend to put it back into the business. Still, just to give us a sense, what level of savings on a growth basis might you expect from these cost reduction efforts?

Yes. Amit, regarding the first point, we've discussed this before. The headwind facing us in fiscal '25, which we brought up on the Q3 call and once more at our Investor Day, is that we still face a difficult compare in Q1, as you're aware. In Q1 of fiscal '24, the year that just closed, we had a sizable volume of product shipments coming out of excess backlog. To give you a rough figure, $4 billion of shipment was baked into those Q1 numbers. And clearly, that backlog can only be shipped one time. So we won't be able to ship it again in Q1 of this year. That doesn't just cause a distortion in the growth rates for Q1, it also has an effect across the full year; so one point we raised on the prior call was that if you took our core business growth rate and stripped out backlog and stripped out Splunk, you could do the simple arithmetic and determine what that growth rate is. And it falls within that same range we provided for the long-term growth rate. So that's essentially what sits beneath the good news we're seeing about demand going back to normal patterns, alongside the headwind that this generates for revenue growth during the year and in the guide. As for the cost reductions from the steps we're taking, it's really a situation very similar to last year, where we locate those efficiencies throughout the company and truly reallocate; so picture it as far more a reallocation exercise than a cost savings exercise. This reflects the same financial discipline we've shown you over the past couple of years; and as I mentioned when answering the earlier question, the defining feature of that is, when you look at the year, this was a difficult year when it came to revenue production. Even with the strict discipline we maintain, we managed to post an operating margin that stands as the best this company has ever achieved across its entire history. That's the right way to look at it. More of our resources need to be redirected toward the parts of our business growing most quickly, and we're accomplishing that by locating efficiencies and then shifting those expenses over.