ThousandEyes, Inc. (CSCO) Earnings Call Transcript & Summary

Good afternoon, good evening or good morning, wherever you happen to be. Welcome, and thank you so much for joining us today. My name is Derek Idemoto, and I'm the Senior Vice President of Corporate Development for Cisco. I'm very pleased to welcome Todd Nightingale, Senior Vice President and GM of Cisco's Enterprise Networking and Cloud business; and Mohit Lad, CEO of ThousandEyes. Today, we announced the acquisition of ThousandEyes, a privately held company in San Francisco, that visualizes the user experience for customers and employees across networks and applications. The ThousandEyes platform will be integrated across Cisco's Enterprise Cloud and AppDynamics portfolio to provide real-time visibility across enterprise and cloud networks. Acquisitions, such as this one, and investments are a consistent and core part of Cisco's innovation strategy. And thus, today's announcement underscores Cisco's drive to continually enhance and bolster our technology portfolio for the benefit of our customers and partners. Before I turn it over to Todd and Mohit, I'd like to point out that this is the first acquisition in Cisco's decades-long history of acquisitions that we have done 100% virtually. From negotiation and due diligence all the way to announce today, every step was performed in a completely virtual environment, something that would have been unfathomable just 2 months ago. I believe this also demonstrates our innovation from a best practices standpoint as a company and our willingness to always be on the field no matter what type of environment we're in. Let me now turn it over to Todd, who will talk more about our vision, technology integration and alignment with ThousandEyes. Todd?

Thanks. Appreciate that. And look, it was 100% virtual, truly, soup to nuts. And it was great to see that the team can operate that way. It was amazing to see how the ThousandEyes leadership and the ThousandEyes technology teams were able to kind of adapt to that. It put -- got us, in some ways, getting to know each other as we went through the pain of doing it virtually even more, even better. But I hope to never do it again, right? I want back in the office. But anyway, I'm super excited to be announcing our intent to acquire ThousandEyes. I just think it's an incredibly well-built company with some of the most important technology in the world, especially right now. As every experience we have, every interaction, every transaction's being done digitally, the Internet truly is our corporate network. I mean a lot of -- for many of us, it's the most valuable asset that we have, that this -- the way we are doing business, the way we are teaching our kids, the way we are running our governments is being done over the Internet, is being done on these applications. ThousandEyes has a really unique value in that it provides true Internet intelligence and application experience intelligence and gives both of these things in such an amazing package. It ties Cisco's networking portfolio and our AppDynamics portfolio together, and it's going to help drive Network-as-a-Services offerings from Cisco for years to come. So I'm incredibly excited about it. I'm super impressed with the team. I can't wait to work with Mohit more. And yes, I'm looking forward to the questions today. So thank you, Derek.

That's awesome, Todd. And Mohit, I mean, I can't wait to welcome you as a colleague. I know we got to wait until the transaction closes for that, but, for now, I wanted to give you the floor and address folks and let them know what you think about this transaction.

Mohit, you're on mute again, man.

All right. Yes, first off, I'm super excited. I can't find words to describe how I feel, and it literally happened like I could not find words because I was on mute. So I'm super excited. And the emotions going through all of us and just visualizing the impact that we can create with Cisco, with the combination with Cisco is amazing. So for folks that don't know ThousandEyes, the whole vision around ThousandEyes was built around this notion that the Internet becomes the central nervous system of user experience. And it's a big black box. It's something that you don't control. So we used all our background from research to build this company and build the product around essentially giving people like a Google Maps view of the Internet and helping them understand exactly how it's impacting their user experience. And we're fortunate enough to build this to a point with 400 employees and close to 100 Fortune 500 customers along with other several Global 2000s. And the consistent theme that I saw, especially over the last 2 years or so, was folks challenging us to combine our Internet intelligence with the application intelligence that they were getting from an AppDynamics. And at the same time, they were also telling us to combine our Internet intelligence with the networking portfolios of Cisco. So that push, that pull from the market for us to make our data more actionable was what got us talking to Cisco. And it was amazing because we were speaking with so many different groups within this, and there was a common theme, and the Internet was connecting all these businesses together. And so when we thought about this next phase and the impact we could make, we could not find another option, which could give us the ability to apply both to the application side with AppDynamics and the networking side with all the powerhouse products that Cisco has. So look, we're super excited. We can't wait to begin this journey together and just really look forward to doing amazing things for our customers and amazing things for our employees.

No, it's awesome, Mohit. And this one, as you mentioned, is really a slam dunk on paper, I think. I think we all think that. But let me ask Todd. Just from a commercial standpoint, Todd, how long have you been working with Mohit and team?

That's a good question. Mohit and I had our first conversation about something like this almost 2 years ago. So maybe you can say that. But really, in terms of the way we work with ThousandEyes, and we've had partnerships over the years, we meet in the channel all the time because our customers are ThousandEyes customers and vice versa. But as far as the transaction goes, we've been pursuing this for, I guess, 2 or 3 months, and it's been awesome experience. The diligence process, in particular, was just amazing. I mean the Cisco teams were really blown away by the quality of the technology, but also the depth of the team and the talent at ThousandEyes. So I think it's -- that's incredibly important for Cisco's acquisition success, is that the team and the talent work well together, and that there's like a real culture at ThousandEyes that's going to be an amazing addition to Cisco's culture as well.

No, that's great, Todd. And I know that from our standpoint, I mean, the best acquisitions work when you've known the team for years. And Mohit, I know that we've -- our team has met you as early, I think, as 2014 is what I recall at one of the events.

Yes.

And also, we've been a customer of yours for many, many years. So any follow-ons you'd like to add to what Todd said?

Yes. So we've enjoyed interacting with the Cisco team, but I'll hit on a couple of points, right? So we meet in the channel quite a lot. We're meeting these partners where they are taking a bigger technology stack together. And when they do that, that's telling us the importance of doing more work with Cisco. So when a partner of yours and a partner of ours bring these 2 together for a customer, then why not do it directly together as well, right? That's one. And obviously, working a lot with Cisco within customer environments, so we've had customers where there were Cisco products and ThousandEyes products, and our teams locally within the customer accounts work together to make things happen and make the customer more successful. And that was really awesome as well. So it's been quite a sort of a period of getting to know each other and getting to really understand the impact we can make the last few years.

That's great, Mohit. Let me go to Todd on this next one here. So Todd, given that -- well, absolutely, we mentioned AppD earlier. And in what way will you and your team be able to bring together ThousandEyes with AppD and create differentiation versus other performance -- application performance monitoring vendors?

I think ThousandEyes is going to bring us together more in large part. The reality is that users of AppDynamics tend to be the cloud operations teams, the teams that are deploying applications around the world. And how those applications are performing in their virtual machines and containers and servers around the world, that matters a ton, that -- their user experience is 100% dependent on that, but it's also dependent on the delivery of that application through the Internet across private networks. And that other side of the equation, that's what ThousandEyes provides. And that visibility is possible with ThousandEyes agents running on Cisco networking equipment, but also instrumented throughout the Internet to give really best-in-class visibility, unprecedented, unlike anything we've ever seen really. And it's these 2 sides of the coin that give real user experience. And that's what matters. Cloud ops teams, app deployment teams, they care about the user experience, what's happening on the applications, on the servers and what's happening in the delivery of those applications. ThousandEyes is the other half of that coin. And it's going to pull together our AppDynamics and our networking portfolio in amazing ways. It's going to give our customers exactly what they really need.

And Todd, just a follow-on there we're getting here from folks outside. Just to clarify, the business is going with your networking and enterprise networking and cloud group. But I think it's just really important that across Cisco, we're operating seamlessly no matter what business unit or organizational contract we have.

And I think what's important also is that Mohit and Ricardo are going to come in as the General Manager and CTO of the ThousandEyes business unit. And they're going to continue to drive the ThousandEyes road map, the ThousandEyes vision to provide really that best-in-class customer experience.

Well, thank you, Todd. Mohit, coming to you on this one. So we talked just now about AppDynamics and the differentiation there that Todd mentioned. Given that ThousandEyes has had, for many, many years, global knowledge of the Internet on an unparalleled basis, does this have implications for Cisco's SD-WAN and Secure Access Services Edge as well, where I can see things that other SD-WAN solutions may not be able to see?

Yes, absolutely. So I think the Internet is important for both the cloud operations and online experience that Todd was referring to. It's also becoming the underlying thing that makes SD-WAN possible to a large extent. So it's the whole black box that needs to be decoded. So yes, like we see -- I'll give you 2 examples, right? So the aha moments to me where once when I walked to -- inside a large financial in London, and we were working with this customer. And I always liked to tour NOCs and like operation centers. So I asked them to take me through their tour, and they had 2 big screens. One of them was AppDynamics. One of them was ThousandEyes. That's all they had. 2 big screens. And they told me how they -- that's all they need like to really put the things together. And so that to me was an aha moment for AppDynamics. Similarly, we've been working with large customers, and some of them have even spoken at events. And there's 2 areas where this matters really, right? So we've been deployed with the SD-WAN solutions to give that extended view of the Internet, but also to help understand user experience for SaaS applications. And that's really important, and then, again, in this environment, especially like there's a lot of secure access and so on that's going on, where we are relevant because everything is Internet facing.

That's great, Mohit. And I can't help but think now that we're talking about AppDynamics and we're talking about SD-WAN, and these are 2 areas of ours, of Cisco's, right, that we've had some of the biggest acquisitions we've made, 2, with AppDynamics, and we've acquired Viptela in the past. Well, obviously, now I'm going to go to a third one, Todd, where you came from, which is Meraki, and ask you, how about the integrations there on the Meraki and ThousandEyes side?

Yes. I think there's a huge opportunity. In fact, when Mohit and I first started talking, I was looking after the Meraki business. So I've seen the value in that potential for years. Turns out it was October 2017, Mohit, so it was more than 2 years. The -- I believe that there's opportunity, and we are actively going to pursue undoubtedly integration into our entire enterprise networking portfolio, including the Meraki side, because this type of intelligence is exactly what we need to deliver to all our users around the world. On the Meraki side, in particular, Meraki Insight is already providing quite a bit of value in terms of network assurance, but, to take that to the next level, really application experience. We have a real opportunity here, and we're going to be looking at the Meraki Insight to ThousandEyes integration really as soon as possible.

That's fantastic, Todd. Let me ask both of you this one, but, Mohit, I'll start with you, which is the world of multi-cloud, hybrid cloud. ThousandEyes was built on that premise. You guys saw it 10, 12 years ago. Can you talk a little bit about how ThousandEyes will help enhance the combined company's overall multi-cloud strategy?

Yes. So I think the cloud journey was something that really made the Internet even more important than ever before, right, because you lose control of the data center and you rely on the Internet. And multi-cloud has become quite a bit of reality now with more than one providers being used. But to me, it's also encompassing the broader theme of the SaaS user experience. And so when you think about whether it's cloud or SaaS, effectively, it's having elements outside your 4 walls that you rely on for delivering a user experience. And so it's -- even though you don't control it, it's still your problem, and you have to fix it. So in terms of how we operate in the multi-cloud environment, we have the unique ability to not just see the Internet, but to also see what's going on in these different cloud providers. And we do annual research reports on the different performance metrics across these cloud providers and whatnot. So for Cisco's customers to quickly use that information and tie it to all the intelligence they have on their -- within their 4 walls through the Cisco product, I think that provides a really powerful environment.

That's great, Mohit. Appreciate that. And Todd, anything you'd like to add to that one?

No. Mohit did a good view on the Cisco marketing team. Multi-cloud is core to everyone's strategy right now. ThousandEyes gives us the insight, the visibility, intelligence to ensure that we can provide the best possible experience in the world of today. And that's multi-cloud.

Yes. Well, we can't wait for this one to close in that case, for sure. Let me switch gears just for a moment. And I've often said, and, Todd, you and I have talked about this a lot, which is the acquisitions that Cisco makes, particularly the significant ones, are -- it's all about the strategy and the vision, the shared vision there. Of course, the team and the talent we value above all, but it's also the culture of the company. And Mohit, I know that you and your cofounders there have built a strong culture from day 1 at ThousandEyes. I was wondering if you could just talk a little bit about that. Because that, throughout this process, at least from my standpoint, from Todd's standpoint, from the entire team that has been working to your standpoint, that's a really, really special piece here.

Yes, absolutely. So at the end of the day, when we think about our culture, it's focused around 3 pillars. The first is the concept of empowering customers. And we use the nuance, empowering, because we believe in building things that really give them a superpower of sorts, give our customers the feeling of superpowers. So that's really important to us as one core component of our culture. And when you think about how the product looks and how the technology looks, it's fundamentally different from everything else in the market. It's not incremental. It's not a copy of something else. It's fundamentally different. It empowers people like they've never been empowered because that's really important as a culture. And that comes from the fact that we think similarly about employees. We think about empowering employees. And we have this whole concept of every employee that comes in has a superhero alter ego. So if you walk through our offices, you'll see a whole superhero-themed office. It doesn't look like an enterprise company, but we are an enterprise company. And it's the notion of we believe in hiring people and building talent that mirrors the capabilities of the company. The final component I would add is any journey, especially start-ups, but even any journey where you're trying to build things that are difficult and build new markets is hard. And one core value of our culture is to really have humor and laugh at ourselves and have fun. And that's really one element that helps us keep teams together and just have a lot of fun while we're working on hard problems. So those 3 elements constitute our culture. And I'm really proud of the team we have that always does the right thing no matter how hard it is.

That's helpful, Mohit. I think that we can regard this one, ThousandEyes, as certainly one of the key infinity stones that -- in, I guess, the superhero-verse here. I'm getting a question here from folks that -- how much is Cisco paying to acquire ThousandEyes? And there's been some reports -- let me just say that we are not disclosing purchase price here. It is something that we're choosing not to do. I think you'll note that others, they also do this practice as well. The last time that we announced the purchase price in a deal was a year ago, when we were -- announced the intent to acquire a company in the public domain. So I appreciate that question. Let's see. Todd, I've got one for you here. This may be early, right, and maybe a bit looking down the road from an integration standpoint, but are you considering these separate products integrating them to create one central dashboard? Or how are you thinking about that over time?

Yes. That's a great question. And we're not closed yet, but I can certainly tell you our intention on the Cisco side. We are going to be embedding ThousandEyes technology into our offerings on the AppDynamics side, on the enterprise networking side, on the Meraki side, taking that intelligence, that sort of core Internet intelligence, application experience intelligence and embedding it into our products. And I hope to find opportunity to embed it into products across all of Cisco's portfolio. I can imagine Webex giving you ThousandEyes insights about how clean your Internet connection is and whether you're having a problem. So I think there's real broad opportunity. But certainly, we'll be looking to embed ThousandEyes technology into those 3 areas as soon as possible.

That's great, Todd. Mohit, here's one for you on -- the question is really about the Internet. There's the Internet. There's cloud networks. There's private networks. They're all multi-vendor. What is the message for ThousandEyes customers that need to see their entire work -- network, not just maybe Cisco's portion of that?

Yes. So the ThousandEyes story is to show you visibility without assuming that we control the environment, right? So we can still show you visibility across private environments, but you still get a lot more when you have the native products in there. So for us, it doesn't really matter where an application sits, where users sit. The technology is built to be agnostic to underlying implementations and what you own and control. The area that has always been a black box is the public Internet and the cloud because people could not instrument it. They could not have the appliances that are looking at traffic and all of that. So that's really where the value add when you think about what Cisco has done, which has been an excellent job of helping people understand their environments and build the infrastructure that builds their environment. We then marry that with our ability to transplant to the public Internet and create a true end-to-end view. So that's really the exciting part. And the technology works regardless of -- whether needing to implement into your routers and whatnot, we just figure things out. That's the beauty of this.

That's great. I've got a question for -- along the same lines as -- for you, Todd. When -- I think you're very well known here at Cisco and across the universe of networking here that you've always had an obsession with the simplification of network operations. Can you -- stems, obviously, from your days at Meraki from before. Can you provide some color as to how this data might help you with intent-based networking, automation, et cetera?

Yes. Look, I do believe that all of our systems could be simpler and that we can just dramatically empower far more people by democratizing technology by making it simpler to consume. I think ThousandEyes gives us a huge opportunity to do that. ThousandEyes doesn't provide data or even analytics or logging. It provides true insights. And that is simple because it really can tell you what's really happening, not starts you off on a wild-goose chase of running down like RADIUS logs and bits of data. And that kind of true insight, it is simple. And we have an opportunity to make it even simpler. By embedding ThousandEyes agents in millions and millions of Cisco products already deployed, customers will be able to turn this on with a single flip of a switch, with a single license. We can make all of our networking products and AppDynamics products simpler by embedding this intelligence within the components people already use, making them smarter or more adaptive and, to be honest, eventually fully automated, making adjustments based on ThousandEyes' insights automatically. And so there's just a real opportunity here for us to use this Internet intelligence to close the loop and provide really the simplest, most automated application experience.

Yes. I'd like to add to that, Todd. One thing that I'll share is -- the whole objective of ThousandEyes is to help you navigate a network which has tens of thousands of different organizations connecting to each other and how it's impacting you. So it is a really complex problem. But when you think about how our users interact with the product, the words they use are, "This is intuitive. This is simple. This is easy to understand." And the counterargument here is we almost want to build a product to the extent that people don't understand how hard it is to get that. That's success. When they think it's so easy to understand it, that's success for us, even though the underlying complexity is so complex that it's all masked out, right? That's really important.

And Mohit -- and Todd, I mean this -- I think you're reading into the minds of our viewers here. They're wanting to know also -- and it's along the same line that we talk about, a lot of what you can do, Mohit, is detect, and that data's very valuable, but what about the actions you can take on that? What about the -- knowing which hop in the Internet is failing, if there's outages in certain places, how can we turn that into something actionable?

Yes. I'll give a quick example. So our focus has been providing a ton of intelligence, right? And we didn't provide the infrastructure or so on to make it actionable, but we always provided good insights and intelligence. And when I've been in customer meetings, I always ask them how they use ThousandEyes data. And this was a large global financial that showed me how they used the ThousandEyes data essentially in like a form of planning process before they make network changes. So it's almost like a test build run. And they were using the data. They were making automated changes on the network side and do failovers. And all of this intelligence was being fed by ThousandEyes. Now they have developers feeding the data to the instrumentation and the CLIs and to make all this work, but the intelligence is there. And if you marry that with the ability to make changes, it makes it super powerful. And our customers are doing that themselves right now by evaluating things together.

Yes. Can I add to that? I think that, that is absolutely true today. And it can be hard if there's an outage on the Internet somewhere that you don't have control over. In today's world, it can be hard to take action. But that's why the power of ThousandEyes as part of Cisco is so important. Technology from Viptela and technology from Meraki's SD-WAN offerings, they can take action. They can route around issues on the Internet. We do have that opportunity. And we can do that proactively, thanks to ThousandEyes. Like that -- when we talk about closing a loop, that's what we're talking about. We're talking about intelligence from ThousandEyes to make the Internet stronger by routing around temporary outages and even performance hiccups that ThousandEyes can see that no one else can.

That's great, Mohit and Todd. I'd be remiss if I didn't ask this question. This one is coming from the viewers here. And obviously, it's in tune with the environment that we're in right now, which is the massive growth of remote and homebound workers, right? The percentage is going from -- in some areas, in some geos from 15% to 20% to 95%. How can ThousandEyes, and also down the road after the transaction closes, Cisco and ThousandEyes, leverage this trend?

I guess I could start. Look, there's a like huge shift in the way the Internet is being used because there's a huge shift in how we work, how we interact with friends. I met my nephew for the first time 4 weeks ago over Webex. I don't think I would have used quite so many gigabits of video if I was meeting him in person. Like we are depending on the Internet in a -- in ways we never thought. We did this entire deal over Webex and shared drives on the Internet. It's just more mission-critical than ever. It's why the acquisition is so timely for us. That's why we need to be providing this intelligence to our customers. If the pandemic response around the world has taught us anything, it's the timeliness of bringing ThousandEyes and Cisco technology together and providing you then the simplest possible way to our users right now.

Yes, I'll add to that. So I think something that really resonated with me was a conversation with a large global financial, where they said, "On an average basis, we have about 50,000 users that are remote. And now all of a sudden, we have 200,000 users that are remote." And the challenge to IT teams is the extra 150,000 remote users creates a lot of stress. And there are 2 things that need to happen. One is you need to stand up infrastructure that can support these extra remote users. So if you look at what has happened in the industry, people are standing up easy-to-configure infrastructure that can help this remote population. And then the second layer is to help understand what is the user experience for a population that's not in your office anymore, the entire employee population. So the first part is where I hear Cisco come up, and the second part is where we have a massive pull from the industry where they want to understand every remote user experience. So again, the pandemic just showed us not just the importance of the Internet but the importance of the experience as well.

Sounds great. That's great, guys. We were talking about the remote work and a question's coming up. It's something I mentioned in my opening comments about doing this deal entirely from basically our homes. And I wanted to just -- I know what it was like for me on the corp dev side. It was -- well, I would say that all of us were equally accessible almost all the time, which I think is the balance that was maybe not struck here, but it was necessary to be efficient and get this done. I was wondering if you, Mohit, from your side because, obviously, Todd and I were working together, had thoughts on how this whole...

Yes. So I think -- so look, we had a great experience. We used capabilities that helped us simulate being in person, right? We used the breakroom sessions and all that and created that experience. But like the way we look at it is, it was actually more fun in some sense because when you're meeting people in the office, you're meeting them with the same background that you always meet them with. When you have people at home, you have something interesting in the back. You have kids running around. So in some sense, it creates a little bit of entertainment and some change from a routine. So every time I got on the -- on a call with somebody on the Cisco side, they were in their own room, right? So it was a different background. It was something interesting, and it just made a really interesting experience.

And Mohit sends you special pandemic-themed T-shirts.

Mohit, we're actually -- we actually got that question, to be honest. I don't know if you have one handy that you could hold up to show the viewers.

Todd has one actually.

Todd has one. There you go. Can you show that, Todd?

Can you see it?

That's outstanding.

You have to be...

Yes. That was a pandemic T-shirt. And look, it's a serious situation out there, and people are going through a lot of stress personally, emotionally, all that. So we wanted to make sure we can get the geeks to express themselves and how they're operating. So that was our T-shirt for that.

No, that's great, guys. And I'm glad you had one, Todd. And Mohit, I think you may have said to somebody today or your team that those -- that was the first deal point that you negotiated, right, is to keep those T-shirts.

Yes. Todd told me that I need to make about 50,000 more of those. And that was sort of what we had.

That's awesome. Well, guys, I think -- and Mohit, really appreciate your comments there at the end. I think that's a good place to wrap here. What I just want to say to everybody is we really appreciate all of your time and questions. And let me just say a few words in closing. We all believe, here at Cisco and ThousandEyes, that the addition of ThousandEyes to Cisco's enterprise, cloud, and AppDynamics portfolios is a huge advantage for our customers and partners. With a greater visibility comes a much richer user experience. And we're excited to be able to offer this capability for enterprise companies to offer to their customers and employees upon the completion of this transaction. So if you have any further questions, I'd invite you to follow up with Cisco's PR team. And I want to, on behalf of Todd and Mohit, thank you for your time today and wish everyone a great and safe day.

Thank you.