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Cisco CFO on Q3 earnings beat, WebEx outlook

Yahoo Finance’s Brian Sozzi and Alexis Christoforous speak with Cisco CFO Kelly Kramer about the company’s Q3 earnings report.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's stick with earning now and move over to Cisco. It showed some resilience even after being hit hard by the coronavirus pandemic. The networking-equipment maker posting third-quarter earnings last night that beat Wall Street expectations. Revenue of $12 billion was down 8% year over year but slightly better than estimates, and profits at $0.79 a share also beat expectations of $0.71.

Joining us now is Cisco's CFO Kelly Kramer. Kelly, good to see you again. Good to have you on the show. I'll tell you, the thing that really stuck out to me is at a time when a lot of companies just are not giving any guidance at all, Cisco actually did give guidance for the current quarter. What is that guidance, and why did you guys decide to do that?

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KELLY KRAMER: Yeah. Hi, Alexis. Thanks for having me on the show. Great to see you both.

Hey, we like to try to give guidance for what we see and in the current environment. So the guidance that we gave, which was the next quarter's still going to be down between 8 and 1/2% and 11 1/2%-- so say about 10%. To give-- you know, to have people see that, you know, companies are operating through this very, very difficult time-- there's strong demand for pieces of our portfolio, whether it's security or our WebEx portfolio. And, you know, we're a company that knows how to execute through very challenging environments. We know how to deliver the bottom line, and that's what we're executing through.

BRIAN SOZZI: Kelly, what are you seeing in the business in April?

KELLY KRAMER: Yeah, you know, it's interesting. So our fiscal month that we just reported earnings for it was February through April, and actually we were-- we were operating ahead of what we expected through March because I think as companies were going through the pandemic and they quickly realized they had to move to operating from home, there was a-- there was a peak where they were building up their infrastructure, realizing [INAUDIBLE] debt that they had to speed up. And so they built up their infrastructure. They bought a lot of WebEx and security, so we saw a lot of strength.

But then what we saw in April is we did see a slowdown. So the month of April was much slower than the rest of the-- the rest of the quarter. So we are being cautious in our outlook for next quarter, and we're kind of basing it on what we saw with the trends going into April.

But with that being said, there are pockets of strength in some of our verticals. Obviously verticals like travel and tourism or hospitality or autos or airlines are under a lot of pressure-- energy. But we have strength-- we see strength in other verticals like manufacturing and financial services. So I think it will be a mixed bag as companies continue to work through this environment.

ALEXIS CHRISTOFOROUS: One of those strength areas, Kelly, has got to be WebEx, your video-conferencing system. Lots of people working from home now, using your service. I understand they're on a free trial right now, a lot of them are. I would imagine there is the hope that you can transfer these people over to paying subscribers. Any idea how you're going to do that?

KELLY KRAMER: Yeah. No, that's a great question, and we did see huge demand for our WebEx portfolio. First, we have a lot of existing customers of WebEx that really, as their employees went to working from home, their usage went through the roof. So they're expanding their existing licenses for one.

For the free trials, which we had great take up on, we definitely have an assumption of how that will be modified-- monetized, and we expect that to be a tailwind for our WebEx portfolio. As our free trials end here this quarter in Q4, around July time frame, we'll start converting them over, and we'll expect that to be, over the next few quarters, definitely a tailwind behind us.

But I will say it was amazing the usage of our platform on WebEx. Just in the month of April, we had half-- 500 million meeting attendees, and that equated to 25 billion meeting minutes, which was three times what we had saw just two months before. So amazing take up in this environment.

BRIAN SOZZI: Kelly, just staying on that topic, Cisco has been built through acquisitions. You have a lot of cash out there. Just given what you've seen in the WebEx business, do you have any interest in further building out that work-from-home portfolio?

We have a lot of big names out there. The valuations have been hot. We have Zoom, Dropbox, Slack. Any interest on the part of Cisco?

KELLY KRAMER: You know, Brian, you know us well, and I think we are always looking for great acquisitions. We are a very acquisitive company. We've done well over 200 acquisitions in our time. What we like are acquisitions of companies that are, you know, in software, are cloud enabled, are SaaS delivered, and all of those types of companies are areas that we are always looking at.

So, you know, the one thing, no matter what the environment is, we haven't stopped our M&A strategy of looking for ways to continue to grow Cisco and be in those areas that make a difference. So definitely an area that we're looking at.

ALEXIS CHRISTOFOROUS: But, Kelly, are you comfortable calling a bottom for Cisco? Because could perhaps fiscal fourth quarter be the company's bottom during this pandemic?

KELLY KRAMER: Yeah, I'm definitely not comfortable calling a bottom, and let me give you a couple reasons why. I wish I could.

I would say it's very dynamic still, right? I think it comes down to how the economy rebounds, right? If companies start to come back online and there isn't a second wave and we just continue and the economy bounces back, I think that would be great. But I think there's also a high likelihood that there are more-- you know, a second wave coming, and that will cause, I think, a lot of up and down. So I think this could be very dynamic for the next few quarters.

ALEXIS CHRISTOFOROUS: Kelly, I've talked to a lot of executives, and one theme that has emerged to me is they do not want to get caught like this again, really unprepared for a situation like this where they have to shift a lot of people, a lot of their workforce to work from home. Is that a big tailwind for your business looking out longer term?

KELLY KRAMER: Actually for us, I would say it was seamless, and I think part of it is because we always had a work from home-- you know, being able to work remote no matter where you are culture, and we build the technology to enable that. So we went to work from home on a dime, had no productivity hiccups in any way.

And, you know, as we think about what happens as we go forward and how we come back around the world in our offices, one of the exercises we went through was asking all of the functions, you know, what-- you know, who are the people in your organization that have to be back in the offices?

And if I use myself as an example, my finance organization, say I have 2,500 people in the organization. There's really nobody that can't work from home and has to come in the office. And I think it is changing the way we work, and we were blessed with the ability to transition like that.

But I think that's what you're seeing other companies go through. All other companies were at different stages of being able to do that, and that's why I think we are here and Cisco is here to help these companies make sure they have the technology and the infrastructure to connect and be secure and be productive. And I think that will-- you know, we're there to help our customers. We have a bunch of programs to help our customers through that. But for us, it was relatively seamless.

BRIAN SOZZI: All right, good news there. Kelly Kramer, CFO of Cisco, thanks so much for joining us. Best of luck to you.

KELLY KRAMER: Thanks, Alexis. Thanks, Brian. Great talking to you.