forward-looking statements · actual events or results may differ materially from those in the...

This presentation contains projections and other forward-looking statements regarding future events or the future financial performance of Cisco, including future operating results and Cisco's long-term financial model. These projections and statementsare only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements. In addition, Cisco's long-term financial model does not represent projections or guidance for a particular period, but rather a long-term model management utilizes in managing the business and actual results for a particular period may differ materially. Please see Cisco’s filings with the SEC, including its most recent filings on Form 10-K and Form 10-Q, for a discussion of important risk factors that could cause actual events or results to differ materially from those in the projections or other forward-looking statements.

During this presentation references to historical financial measures of Cisco will include references to non-GAAP financial measures. Cisco provides a reconciliation between GAAP and non-GAAP financial information on our website at www.cisco.com under “Financial Info” in the “Investor Relations” section.http://investor.cisco.com/investor-relations/financial-information/Financial-Results/default.aspxNon-GAAP measures for future periods would not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements, the income tax effects of the foregoing, significant tax matters, and other items that Cisco may exclude from time to time in the future, such as significant gains or losses from contingencies.

Forward-looking Statements

GAAP Reconciliation

Cisco and/or its affiliates. All rights reserved. 2

• A Recap of our Performance• A Deeper look at our Software

& Recurring Revenue • Capital Allocation • Our return to growth … long

term model

Agenda

© 2017 Cisco and/or its affiliates. All rights reserved. Cisco Public

Executive Summary

ü We have leadership in technology franchises with differentiated innovation

ü We are executing well on monetizing our software offers differently by shifting them from perpetual to subscription driving continuous customer value

ü We expect to continue to deliver EPS growth as we transition

ü We will be good stewards of your long term capital and continue to return >50% of free cash flow back to shareholders

ü We are driving this business for the long term


Financial Strategy

Profitable Growth Strategic Investments Capital Return

© 2017 Cisco and/or its affiliates. All rights reserved. Cisco Public 6

Performance Against Our Financial StrategyRevenue $B

CAGR = 2%

• Delivering EPS Growth with Expanding Margins

• Executing portfolio trade-offs to fund growth areas

• Software focus paying off

• Expanding into new growth areas like analytics

Non-GAAP EPS $

CAGR = 6%

$45

$47

$49 $48

29%30%

31% 31%

FY14 FY15 FY16 FY17E

Revenue Non-GAAP Operating Margin

$2.02

$2.18

$2.36 $2.39

FY'14 FY'15 FY'16 FY'17E

Non-GAAP results normalized to exclude the SP Video CPE Business, which was divested in Q2FY16FY17E assumes mid point of Q417 Guidance


Rigorous Margin Discipline

64% 64% 65% 64%


35%

35%

34%33%


29%30%

31% 31%


Gross Margin Rate Opex % of Revenue Op Inc % of Revenue

Team knows how to drive EPS growth with rigorous margin discipline

Non-GAAP results normalized to exclude the SP Video CPE Business, which was divested in Q2FY16

FY17E assumes mid point of Q417 Guidance


Questions you’re asking

• Can we get more insights into your software offers?

• Can you help us understand recurring revenue model?

• What are the implications on total growth?


Focusing how we talk about the business Product / Service Classification Groupings

• Switching• NGN Routing• Wireless• Data Center

InfrastructurePlatforms

• Security Security

• Collaboration• IoT Software (in Other)• AppDynamics (in Other)

Applications

• Services Services

• SP Video• Other (excluding IoT Software

and AppD)Other

• Infrastructure Platforms focused on differentiated innovation and share gains

• Will continue to build out Security leadership position

• Applications driving TAM expansion

• Driving all businesses with higher value added software and services


Revenue Mix Diversifying

• Monetizing more value of software

• Software mix improving

FY14 FY17E FY20E

S/W % of Revenue

S/W & Services % Revenue

FY14 19% 40%

FY17E 22% 43%

FY20E ~30% ~50%

Target to Deliver >50% of Revenue from Software and Services

~50%

Hardware

Software

Services

Non-GAAP results normalized to exclude the SP Video CPE Business, which was divested in Q2FY16FY17E assumes mid point of Q417 Guidance


Growing Software Revenue

FY14 FY17E FY20E

~$11$8

$ in Billions

CAGR+12-15% • Customers looking to purchase,

consume, deploy and adopt Cisco technology and software differently

• Simplicity and Automation

• Launched Catalyst 9K with DNA

• Expect to grow software revenue by double digits



Definitions of our Software OffersType Definition Example of Offers Monetization type

System Software

Software licenses bundled with the hardware or features that can be purchased separately to extend features of hardware. Software 100% tied to the device.

• Switching IP Services• Routing Advances Services• ISR voice and data licenses

100% Perpetual

On-PremiseSoftware

Software typically operated at the application layer or software that can be independent from the device.

• Unified communications, Call Manager• Cisco ONE with SWSS• Identity Security Engine (Security)• DNA Center

30% Subscription, 70% Perpetual

Hybrid Software

Software that delivers ongoing content for operation from the cloud for an appliance.

• Meraki software: Cloud Management of Appliances

• Software associated with Security Appliances

100% Subscription, 100% Cloud delivered

SaaS Software service hosted and delivered through the cloud

• Spark/Webex• Umbrella Security (OpenDNS)• IoT Software (Jasper)• AppD Analytics

100% Subscription, 100% Cloud delivered


Software Revenue Mix Shifting

FY14 FY17E FY20E FY14 FY17E FY20E

Monetization S/W Type

Sys S/W

On Prem

HybridSaaS

Perpetual

Subscription

Shifting the Mix of Offers to Subscription…More Cloud Delivered

100% 100% 100% 100% 100% 100%



S/W % ofFY17E

RevSystem On-

Prem Hybrid SaaS

Infra Platforms 14%

Security 47%

Applications 58%

Services 16%

Other 79%

Total 22% 36% 42% 7% 15%

Software By Business – FY17E

Shifting the Portfolio to the right



Recurring RevenueCAGR

~10+%

$12$14

Services

Product

$ in Billions

% Recurring 26% 30%

• 10% of product revenue is recurring in FY17àDriving to ~20% in 3 years

• Product recurring FY17-FY20 CAGR ~30%

~37+%FY14 FY17E FY20E


Target to Deliver >37% of Revenue to be Recurring

~40%


Total Deferred Revenue$ in Billions

CAGR~+5-10%

$14$18

Services

Other Product

Product s/w & subscriptions

• Improving predictability of future revenue

• Services continues to build

• Software and Subscriptions driving key growth

FY14 FY17E FY20E



FY14 FY17E FY20E

Product Deferred Revenue from Software and Subscriptions

Applications

SecurityInfra Platforms

$5

$2

$ in Billions

• Growth in Infra Platforms driven by Cisco ONE, EAs, and DNA-Center

• Security driving increased SaaS and subscription offers

• Continued growth in Applications

CAGR~20+%



Driving Offers that were Consumed Perpetually to Subscription

Ending DeferredRev Balance FY14 FY15 FY16 FY17E

Cisco ONE 0.0 0.0 0.1 0.6

Cross EnterpriseAgreements 0.1 0.2 0.3 0.5

Other ELA 0.2 0.4 0.5 0.7Security Offers(ISE, Stealthwatch, ATD, AnyConnect)

0.0 0.1 0.3 0.5

Total $0.3 $0.7 $1.3 $2.3

$ in Billions

• Actively moving existing offers to subscriptions

• >$2B of revenue would have been recognized under old model

• $2B over total FY15-17 = ~1.5% of total revenue, ~2% product revenue

• Will continue to build new offers à DNA Center

• Accelerating impact FY17-FY20 to 2-3% pts on total revenue



Many Levers to Manage Margins

Technology Innovation Sustainable Differentiation Cost Savings

• Value Engineering

• Commodity Price Management

• Optimizing Costs through Automation

• Portfolio shift to s/w allow GTM efficiencies

• Differentiated Architectures

• Silicon Leadership• Accretive Software

Acquisitions

• Scale Across Portfolio

• Software Value Creation

• Continuous Innovation & Portfolio Management

• Pricing Excellence


FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E

Strong Cash Flow Generation

20

Acquisitions

$10

~$13

Cisco and/or its affiliates. All rights reserved.

Capital Expenditures

ShareRepurchase

Dividend

Primary Uses of CashFY07-FY17EOperating Cash Flow

$ in Billions


Delivering Value through M&A

*

* Announced the intent to acquire

• Focus on strategic M&A that augments and accelerates core innovation

• Access to new markets

• Rigorous deal process with committed return on capital

• >160 dedicated integration staff focused on• Integrating and scaling through the channel• Delivering defined synergies • 80% retention of acquired talent

• Long history of delivering growth and returns• Meraki, Sourcefire – double digit returns• ~80% of last 4 years are software focused


FY02 FY05 FY08 FY11 FY14 FY17E

Share Repurchase # Shares Outstanding

$0.24 $0.32

$0.68 $0.76

$0.84

$1.04 $1.16

FY11 FY12 FY13 FY14 FY15 FY16 FY17E

Driving Strong Shareholder Returns

22

CAGR = 30%

% FCF Returned ($B)7.4B

Diluted Shares Outstanding YTD

5.0B

32% reduction; 2.4B shares

FY14 $13 120%

FY15 $8 73%

FY16 $9 70%

FY17E ~$9 ~70%

Dividends per share is Q4 annualized

Annualized Dividend

Long Term Model

Journey to Long Term Growth: Next 3-5 Years

Technology Revenue GrowthInfrastructure

Platforms Flat +/-

Security Low to Mid Teens

Applications High Single Digitsto Low Teens

Services Mid Single Digits

Other Down Mid Single Digits

Total Cisco 1-3%

• Revenue 1-3%• Margins Stable / +• EPS Growth Mid Single Digits• >50% FCF returned to shareholders

Additional Metrics:• Recurring Revenue % of Total Revenue• Subscription vs. Perpetual Revenue %• Visibility into what is being deferred

Thislong-termfinancialmodeldoesnotrepresentprojectionsorguidanceforaparticularperiod,butrather along-term modelmanagementutilizesinmanagingthebusiness. ActualresultsforaparticularperiodmaydiffermateriallyduetoavarietyoffactorslistedinCisco’sSECfilings,includingbusinessandeconomicconditions.


Executive Summary

ü We have leadership in technology franchises with differentiated innovation

ü We are executing well on monetizing our software offers differently by shifting them from perpetual to subscription driving continuous customer value

ü We expect to continue to deliver EPS growth as we transition

ü We will be good stewards of your long term capital and continue to return >50% of free cash flow back to shareholders

ü We are driving this business for the long term


*Underthemodifiedretrospectiveapproach,wewillapplythenewstandardtoallnewcontractsinitiatedonorafterJuly29,2018.Wewillrecordacumulativeeffectadjustmenttotheopeningbalanceofretainedearningstorecognizetheeffectofapplyingthestandard.Prioryearswillnotberestated.

Current Standard New StandardPerpetual software licenses Upfront UpfrontTerm software licenses Ratable UpfrontSecurity software licenses Ratable RatableEnterprise License Agreements / Cisco ONE Ratable Upfront

Software support services - SWSS Ratable RatableSoftware-as-a-Service Ratable RatableTwo-tier distribution Sell-through Sell-in

Commissions expense Not deferred Deferred for contracts >1 year and recognizedover contract term

New Revenue Recognition Standard (ASC 606)We will adopt the new standard using the modified retrospective approach at the beginning of Q1 FY19

Thank you!

Q&A


GAAP to Non-GAAP Business Outlook for Q4 FY 2017

Q4 FY 2017Gross Margin

RateOperating

Margin RateTax Provision

RateEarnings Per

Share (2)

GAAP 61.5% - 62.5% 22.5% - 23.5% 21% $0.46 - $0.51

Estimated adjustments for:

Share-based compensation expense 0.5% 3.5% — $0.05 - $0.06

Amortization of purchased intangible assets and other acquisition-related/divestiture costs 1.0% 2.0% — $0.03 - $0.04

Restructuring and other charges (1) — 1.5% — $0.03 - $0.04

Income tax effect of non-GAAP adjustments — — 1%

Non-GAAP 63% - 64% 29.5% - 30.5% 22% $0.60 - $0.62

(1) In August 2016, we announced a restructuring plan in order to reinvest in our key priority areas in which up to 5,500 employees would be impacted, with estimated pretax charges of approximately $700 million. In May 2017, we extended the restructuring plan to include an additional 1,100 employees with $150 million of estimated additional pretax charges. During the first nine months of fiscal 2017, we have recognized pretax charges of $614 million to our GAAP financial results in relation to this restructuring plan. We expect to recognize approximately $150 million to $200 million of pretax charges under this plan in the fourth quarter of fiscal 2017. We expect this plan to be substantially completed by the end of the first quarter of fiscal 2018.

Except as noted above, this business outlook does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

(2) Estimated adjustments to GAAP earnings per share are shown after income tax effects.

These presentation slides and related webcast may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as statements regarding our growth and strategy) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, including key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; man-made problems such as cyber-attacks, data protection breaches, computer viruses or terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Form 10-K and Form 10-Q. The financial information contained in these presentation slides and related webcast should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent reports on Form 10-K and Form 10-Q, as each may be amended from time to time. Cisco’s results of operations for prior periods are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in these presentation slides and related webcast are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of these presentation slides and related webcast.

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