David Vogt: Good morning. Thanks guys for taking my questions. So Chuck, maybe just as a point of clarification, you talked about the sequential decline. It was a little bit worse than seasonal. But you took down backlog by about 10%, looks like quarter-over-quarter. Can you just kind of help square those numbers because that sounds, if I just say that you did about 13.1% last year in the fourth quarter, you’d be a little bit below
Marilyn Mora: David, I think we may have lost you.
Chuck Robbins: Hope it wasn’t. David, you’re there?
David Vogt: Can you guys hear me?
Marilyn Mora: Now we can.
Chuck Robbins: We lost you there. You got cut got off in the middle of your senate.
David Vogt: Yeah. Sorry about that. Just can you help square the backlog versus the sequential commentary?
Scott Herren: Yeah. David. If I look at your quarter-over-quarter backlog commentary, that was slightly below seasonal, but it sounds like you took down backlog by about 10%. So it seems like, there’s about $600 million or $700 million of revenue that we’re going to kind of triangulate on, so you can kind of walk through that, that would be helpful. Thanks.
Scott Herren: Sure. Yes. The backlog came down about 10%, leaving us with an ending backlog at the end of Q1. That was the second highest in our history and higher than what we had seen at the end of Q3. So we took a spike up, a little more than 10% in Q4 and came back down in Q1. What Chuck was talking about on the sequential is really about the overall product bookings that came in versus where we’re standing in backlog. So the flow through of orders come in, drop in the backlog, that backlog then converts into revenue. The way you got to think about it is less about, does the change in backlog convert to revenue growth and more of does the change in backlog convert to build.
Chuck Robbins: And remember, bookings contributed to both backlog and RPO.
David Vogt: Got it. And maybe just 1 final thing on profitability. When software comes out of backlog, I would imagine that would have been a tailwind for gross margins in the quarter. Can you kind of quantify what that might have been in the quarter, given obviously, there’s some supply chain pressure and logistics pressures on margin?
Scott Herren: Yes, you said it right. Longer term, the software component continuing to grow and us being able to ship that out of backlog, will be a tailwind to margins. Right now, what we’re shipping out of backlog is still a lot of aged product. We made great progress, by the way, on our aged backlog during the quarter, but a lot of what we’re shipping out still is orders that were received prior to the price increases. So you see two things happening at once. You see the higher cost and the revenue is tied to pre-price increase sales at the same, which obviously is a headwind to margins. At the same time, we see more software being shipped out which is a tailwind. Then that is it continues to be a pretty significant headwind, 61% product gross margin in the quarter, in line with what we had seen in Q4.
The good news is, we made good progress on shipping out a lot of that aged backlog. There’s still a little bit more to get out in Q2. And so I expect by the end of the year, margins to expand from where they are now, product margins to expand 50 to 75 basis points.
David Vogt: Great. Thanks, Scott.
Marilyn Mora: Next question, please.
Operator: Ittai Kidron from Oppenheimer. Your may go ahead.
Ittai Kidron: Thanks. Nice results. Chuck, I want to go back to your answer to Tal’s question. It’s very clear that with orders down and your ability to fulfill now much more enhanced that the backlog over the next few quarters will just continue to decline. So, help us get our hands around, what would be a level of decline that would make you worry versus a level of decline that you’d think as a normal pace in going back to historical normal levels. What would be the line in the sand would you say, where you would say more than this, we probably have an issue. But if it’s around X, then it’s perfectly normal and reasonable that, that will happen over the next 12, 18 months?
Chuck Robbins: Yes, Ittai. We’ve actually modeled out various bookings scenarios for the year. And it would have to be significantly worse than what I told you for it to be concerning. Scott, do you have any other comments?
