Welcome to Cisco Systems' third quarter fiscal year 2015 financial results conference call. At the request of Cisco Systems, today's call is being recorded. If you have any objections, you may disconnect. Now I would like to introduce Melissa Selcher, Vice President of Corporate Communication and Investor Relations. Ma'am, you may begin.

Thanks, Kim. Good afternoon, everyone, and welcome to our 101th quarterly conference call. This is Melissa Selcher, and I'm joined by John Chambers, our Chairman and Chief Executive Officer; Kelly Kramer, Executive Vice President and Chief Financial Officer; Rob Lloyd, President of Development and Sales; Gary Moore, President and Chief Operating Officer; and our future CEO, Chuck Robbins. I would like to remind you that we have a corresponding webcast with slides, including supplemental information that will be available on our website in the Investor Relations section following the call. Income statements, full GAAP to non-GAAP reconciliation information, balance sheet, cash flow statements, and other financial information can also be found on the Investor Relations website. Click on the Financial Reporting section of the website to access these documents. Throughout this call we'll be referencing both GAAP and non-GAAP financial results. The matters we'll be discussing today include forward-looking statements and as such are subject to risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K and Forms 10-Q and any applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in forward-looking statements. Unauthorized recording of this conference call is not permitted. All comparisons throughout this call will be on a year-over-year basis unless stated otherwise. As we have in the past, we will discuss product results in terms of revenue and geographic and customer segment results in terms of product orders unless specifically stated otherwise. I'll now turn it over to John for his commentary on the quarter. John T. Chambers - Chairman & Chief Executive Officer: Mel, thank you very much. I am pleased resort another very solid quarter for Cisco. We delivered revenues of $12.1…

Thanks, John. Overall, we had a very solid quarter and executed well. From a top line perspective, total revenue was $12.1 billion, increasing 5%. And we expanded our non-GAAP operating margin to 28.6%, with both non-GAAP net income and non-GAAP EPS growing 6% to $2.8 billion and $0.54 respectively. Our GAAP net income was $2.4 billion, and GAAP earnings per share on a fully diluted basis was $0.47. Product revenue increased 6% and service revenue increased 3%, with product book-to-bill greater than one. For Q3, our total non-GAAP gross margin and non-GAAP product gross margin came in at 62.5% and 61.8% respectively. The increase in our non-GAAP product gross margin as compared to Q2 was driven by improved productivity, partially offset by product mix and pricing. Non-GAAP service gross margin was 65.0%. Looking at our geographic segment results in terms of total revenue, our Americas segment was up 8%. EMEA was up 2%, and APJC was down 1%. Total gross margin for the Americas was 62.9%. EMEA was 62.5%, while APJC was 61.2%. Our non-GAAP operating expenses were $4.1 billion, up 3% or 33.9% as a percentage of revenue as compared to 34.6% in Q3 of fiscal year 2014. Our head count increased by approximately 800 to 70,951, reflecting investments in key growth areas such as security, cloud, and software. The non-GAAP tax provision rate of 22% for the quarter was consistent with our expectations. Our GAAP net income and GAAP earnings per share included a benefit $164 million or approximately $0.03 per share related to the charge we recorded in Q2 of 2014 for a supplier component matter. The adjustment is a reduction of a liability reflecting lower than expected costs to remediate the impacted products with our customers. This amount is excluded from our non-GAAP results. From a…

Great, thanks. All right, Kim, we're ready to open for questions. I'd like to remind anyone asking a question, please ask just one question. First question?

Thank you. The first question comes from Simona Jankowski with Goldman Sachs. John T. Chambers - Chairman & Chief Executive Officer: Hey, Simona. Simona K. Jankowski - Goldman Sachs & Co.: Hi, John, and congratulations on all that you have accomplished in the last 20 years. And I also want to wish Chuck all the best of luck going forward. In terms of my question, so, John, you spent quite a lot of time on this call talking about a very positive inflection point, and I just wanted to understand if that is something that you expect us to see externally in terms of accelerating revenue growth. Or do you think that because you're also transitioning to more software in a recurring revenue model, that's going to really mask it because we're going to have the business mix? And then in terms of timing, if it is something that you think will accelerate the business, are you looking at the next couple of quarters or more the next couple of years? I just wanted to get a sense of the timing of the inflection. John T. Chambers - Chairman & Chief Executive Officer: Got you. And it's always fun. Mel, I'm probably going to break a couple of my golden rules of 20 years with some of my comments today. And, Chuck, you can do the same thing after 10 years on the job. But I'm answering them in sequence. First of all, the opportunity is absolutely in revenue growth and profit growth. And as you sell solutions moving to outcomes, and you can do that much faster because of your architectures in the intelligent network, you get margin stability and premiums to go with it. Let me use maybe just a couple quick examples of how I'd illustrate that.…

Great. Thanks, Simona. Operator, next question?

Thank you. And our next question comes from Amitabh Passi with UBS Securities. John T. Chambers - Chairman & Chief Executive Officer: Hey, Amitabh.

Hi. How are you, John? Congratulations again from my end; and, Chuck, congrats to you as well. I guess, John, the one area I wanted to maybe get your thoughts on, you've been talking about Intercloud. It's a key pinnacle to your cloud strategy over the last couple of quarters. Yet I think outside of some of the larger metrics you've shared in terms of the traction with data centers and customers, is there any help you can give us in terms of how we think about the monetization potential with Intercloud and how that's tracking for you? John T. Chambers - Chairman & Chief Executive Officer: Rob has been the sponsor of this and the father, but let me start with a very positive area. Our service provider position is changing all for the positive. They look at us in terms of mobility leadership. They look at us in terms of video leadership. They look at us in terms of data center leadership. They look at us in terms of security leadership. And with our NFV and SDN capabilities, we are leading in software. And the pieces that were missing was how do you go into this new environment where each of these "public clouds in clouds" are separate and you have to be on different vendors or different companies' ability to go into it. And so what we're looking at, it first is an architecture and it cements our relationships in service providers. And then it really comes through to how you monetize it over time. This will just take time to monetize, but the effect we see indirectly is already huge when you talk about a Deutsche Telekom or a Telstra and our relationships with those. So, Rob, a little bit in terms of how you measure…

Great. Thanks, Amitabh. Next question, please?

Thank you. Our next question comes from Brian Modoff with Deutsche Bank. John T. Chambers - Chairman & Chief Executive Officer: Hey, Brian.

Hey, John, and congratulations as well on your new role. It's been nice working with you over the last 20 years. And, Chuck, good luck in your new role as well. Charles H. Robbins - CEO Designate, Senior Vice President, Worldwide Field Operations & Director: Thank you.

So my question, John, is by fiscal 2016 you could see the Web 2.0 CapEx higher than what you're seeing out of the carriers, the AT&Ts and Verizons. So how is Cisco positioned to sell into the web cloud customer base as trend setters in the spending market? And then how is Cisco preparing for the CapEx to OpEx transition you're seeing as cloud services shift from buying boxes to buying services? Can you talk a little bit about how you're seeing that play out and what you think that growth will be for Cisco over the next few years? Thanks. John T. Chambers - Chairman & Chief Executive Officer: Sure. If you look at where we are, and let's call it the massively scalable data centers, the top 10, our role in that is evolving, and candidly we're starting to move much faster. If you watch our ability to bring new products to market, you're going to see us have all 10 of the major players as key customers shortly. And up to recently, as you know, we were missing largely in one of those. Secondly is Pankaj has turned this engineering organization sideways and began to really focus on speed of small agile teams. And I can walk through a number of examples from mobility to security, but let's just talk about now how we'll develop our high-end products. We used to think about developing a high-end product with maybe 3,000 people, at least three to five years to do it. Watch how we develop our next generation of router products for these major players, and we'll do it in less than 12 months with probably 225 people. And so you're talking, and what these players would say, Cisco, you're finally getting it. You're getting your speed of…

Great. Operator, our next question?

Thank you. The next question comes from James Faucette with Morgan Stanley Investments. John T. Chambers - Chairman & Chief Executive Officer: Hey, James. James E. Faucette - Morgan Stanley & Co. LLC: Good afternoon, congratulations to John and Chuck from me as well. I just wanted as quickly on security, and it's an area that obviously saw good growth. But I'm wondering how security and security concerns may be impacting demand in some of your other product segments firstly. And secondly, also related to security, how should we think about your efforts in security in areas where you may see some room for improvement in the product portfolio, et cetera? Thank you. John T. Chambers - Chairman & Chief Executive Officer: Got you. So security is the ideal market for us. It basically is made up of hundreds of fragmented players. We're the largest volume player at only 7.5% of the market. And you know our view, we don't enter markets where we don't have a good chance of getting to 40% market share with sustainable differentiation. We believe it's going to be set up for an architectural play, and it's going to require integration with intelligence throughout the cloud, throughout the data centers, the WAN down to the access, combining mobile with the Internet of Everything and digitization, et cetera. We're on a journey here. We love the momentum, 14% growth with orders growing faster, which I think was 20% growth, and I expect us to do a lot better than that over time. The pull-through on it is very interesting because now this goes back to when we sell, we don't sell a product or just an architecture. When you go in and you talk about digitizing your company, we talk about how all of our product…

Operator, next question, please.

Thank you. Our next question comes from Pierre Ferragu with Sanford Bernstein. Pierre C. Ferragu - Sanford C. Bernstein & Co. LLC: Hi, thank you for taking my question. I'd like to discuss a bit the transition, the CEO transition, Chuck and John. Could you tell us about, John, how you see your role going forward as an Executive Chairman? How are you going to keep yourself busy? Are you going to have a day-to-day role with clients, and maybe if you can make a difference between maybe like a transition period and on a more like run rate basis to the back of that, how you're going to continue to be involved, if any? John T. Chambers - Chairman & Chief Executive Officer: So let me first say it very crisply. Chuck is the CEO, period. He will make the decisions. I will be an advisor to him and I'll be very involved where he wants me to be. The things I love most are vision and strategy. I love time with customers, strategic partnerships, acquisitions, and whatever else Chuck wants me to do. I will be his wing man, period, in terms of how we do this. We were beginning to graph out our time. I think, Chuck, both your and my calendar is full, full time for about four months, and I'm trying to in this job be working about half-time. So, Chuck, the one assignment I give on this transition is to get me to half-time sometime in the fall because the hunting season is coming up. Charles H. Robbins - CEO Designate, Senior Vice President, Worldwide Field Operations & Director: You realize your wife is paying me to keep you busy. John T. Chambers - Chairman & Chief Executive Officer: Yes. My wife got Chuck's…

Operator, next question?

Yes, thank you. Our next question comes from Mark Sue with RBC Capital Markets. John T. Chambers - Chairman & Chief Executive Officer: Hey, Mark.

Thank you, John. Hi, thank you, John, and welcome, Chuck. So Cisco is steadily growing its SaaS business and the recurring revenue. So with this uptick in the pace of software growth as we transition from boxes to solutions, should we start thinking of and planning for a long-term lift to margins? And with more software comes higher cash flow. Should we start to also think about more cash ultimately coming back to shareholders? John T. Chambers - Chairman & Chief Executive Officer: So a series of questions. Let me take part of them, and then Kelly can kick me or not. You are going to see us move more and more into recurring revenue and deferred revenue. The art is to do both at the same time, Chuck, and I believe in 'and'. We want to grow our revenue in the short term and long term and our profits in the short term and long term faster than revenue. But we clearly are moving rapidly through that transition. Probably the best example to give you on what's been successful would be the example in terms of what we're doing in the security space in terms of Meraki where you begin to probably split it two dollars for one dollar. Two dollars for current, one dollar is for later. And as Chuck said, you start with a $100 million pace and you go all the way to a $600 million pace fairly quickly. The second would be collaboration. The numbers were great on collaboration at 7% growth in TelePresence units and 66% year-over-year growth, and the new products being developed in I think was 12 months with the deferred pipe and 18 months to market with only 200 people. But what I loved about this quarter with collaboration is their deferred revenue went up 20% to $1.1 billion on the quarter, so you're beginning to build recurring revenue and deferred revenue pipeline that feels very good. In terms of our capital allocation, you're going to see us remain committed to delivering our capital allocation, as Kelly has outlined, and we'll continue to be aggressive with a minimum of our free cash flow going to our shareholders. And you'll see us – we wouldn't have started the dividend if we didn't anticipate regularly raising it. And you're going to see us be active in the share repurchase as well in terms of the capital allocation. So no major change there, Mark.

Operator, next question?

Thank you. The next question comes from Tal Liani with Bank of America Merrill Lynch. Tal Liani - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Yes. Hi, guys. I'm adding my own congrats to John and Chuck. I wanted to ask about switching. You're into a major cycle of switching, new products that brings you into new markets or develop new markets, et cetera, and creates a replacement cycle. But still, the numbers are not that impressive, at least on a sequential basis. Revenues were down 6% in January and down 1.5% this quarter. I know on a year-over-year it looks good, but that's because last year was so bad. So I'm trying to look at the sequentials to see what the growth is looking like. And the question is why don't we see higher numbers with switching? What prevents the numbers from going up? And maybe you can relate here to units versus prices. I'm trying to see if it's a pricing issue rather than a units issue. Thanks. John T. Chambers - Chairman & Chief Executive Officer: Tal, we've known each other for a long time, but I'm going to be very direct. When you have switching revenues up 11% last quarter, up 6% this quarter, it's off the charts. And if I would have told anybody on this call two years ago that I'd be getting questions about switching revenues only growing 6% in the quarter, you would have said you've got to be kidding me because everybody was modeling zero and they were modeling margins to go down. Kelly, our margins on the switching actually were at the higher end of our range. They've been remarkably consistent for the last eight quarters. So all this garbage about new players coming in and software coming in and…

Thanks, Tal. Next question?

Thank you. Our next question comes from Brent Bracelin with Pacific Crest Securities.

Thank you for taking my questions here. John, you started out breaking a cardinal rule. I have a follow-up on that one. Hopefully, you'll be willing to share more color. As you think about, as you look at digital transformation projects, the 1,200 projects, $3.7 billion pipeline certainly is, and a proven proof point, shows you at least why you're seeing some of the strength in the enterprise and commercial side. My question and the question I get from investors a lot is, how is Cisco doing relative to expanding the footprint beyond the core switching and routing business? It's still 45% your revenue today. So as you look at that pipeline around digital transformation, what's the attach rate on servers, software, services? Can you give us some color that, some leading indicator that will let us understand how you well you're doing relative to expanding the overall footprint as you help enterprises transform their businesses? John T. Chambers - Chairman & Chief Executive Officer: It's interesting, and I want to think about how to answer that or maybe have Chuck answer it on the next conference call in more detail on it. But almost all of these sales are no longer about switching and routing. They are purely outcome-based, and it is GDP growth, it's inclusion of minorities, it's job creation, it's healthcare, it's education, it's the citizens experience, and the businesses it goes across all industries, and what you do is you pull through everything at one time. And so when we think about the total value of digitizing a company or a country, you suddenly see where we do these programs, those accounts grow at 10% – 15% faster than what they did during our prior model in terms of the opportunity on it. And in terms…

Great. Great question, Brent. Operator, next question?

Thank you. The next question comes from Ittai Kidron with Oppenheimer & Company. John T. Chambers - Chairman & Chief Executive Officer: Hey, Ittai. Ittai Kidron - Oppenheimer & Co., Inc. (Broker): Hi, John, and again, congrats to you; and, Chuck, good luck to you in your new role. Charles H. Robbins - CEO Designate, Senior Vice President, Worldwide Field Operations & Director: Thanks, Ittai. Ittai Kidron - Oppenheimer & Co., Inc. (Broker): John, I had a couple of questions. First, going back to the service provider comment, you talked about it being sit down 7% globally. Your routing business was actually up on a year-over-year basis, and yes, your service provider video was down 5%. But can you give us a little bit and make up the difference? What are the other product categories in which you're seeing issues or challenges on the service provider side? And then second, regarding the transformation point, which is very evident in your U.S. results, which are quite impressive, what is it in that pitch that doesn't resonate or takes a long time to resonate everywhere else? Why is that not something that drives Europe up as well 10% – 15%? John T. Chambers - Chairman & Chief Executive Officer: Got you, so several things. First of all, on the service provider video piece, the orders were down about 20% in SP video, so I don't want to mislead anybody with the 5% revenue number. But the exciting part is we're picking up momentum in the cloud segment of this and the software in the cloud, which is clearly where we want the revenue to go. The architectural play wins here. Set-top boxes are tactical, but cloud winning on video like [Khaled] is doing there is strategic to us. Go to the U.S.…

So to close the call, Cisco's next quarterly call, which will reflect our FY 2015 fourth quarter and annual results will be on Wednesday, August 12, 2015, at 1:30 PM Pacific, 4:30 PM Eastern. Again, I'd like to remind you that in light of Regulation FD, Cisco plans to retain its longstanding policy to not comment on its financial guidance during the quarter unless it's been through an explicit public disclosure. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation and continued support. This concludes our call.

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